Episode 5: Buy The Bourbon That Beat Pappy Van Winkle

In June 2012, a friend of mine and I started a business called Caskers. The two of us had been close friends in law school and as attorneys in New York City, and had quit our jobs as lawyers several months earlier to start a Social Mobile Local app. After two months of building the app, we realized it was a huge mistake and pivoted to what would become Caskers - a flash sales site for liquor. 

Even with the benefit of hindsight, I can’t tell if Caskers was a great business or a terrible business. By December 2012, we were generating about $400,000 in revenue per month. We had an email list of nearly a hundred thousand people. We were profitable, although only moderately so. We had 0 employees save for the two of us, and hadn’t raised a dollar or spent one on marketing. 

The category was highly seasonal though. We were selling hard alcohol after all, and people like to drink during the holidays. January 2013 was down to ~$200,000 in revenue. We were glorified dropshippers - taking orders from customers and sending them to liquor stores to fulfill. This meant that our gross margins were awful - between 5% and 15% on any given item. I spent most of my time interacting with retailers, finding out what they had in stock and what they could get in stock. I also spent hours each week writing clever descriptions for the liquors that we were going to sell. Most of the descriptions have been erased from the site, but I definitely wrote this one (I thought calling this an arranged marriage was so clever). 

At some point in 2013, the best customer we had on our site reached out to us about investing (I prefer not to name him, as he is quite private, but let’s just call him Hal). He was an heir to a family that had made a fortune. As I recall, he told us that his grandfather had started a business selling local newspapers to the men building the transcontinental railroad in the United States. His father had expanded that business into publishing and trading cards, and his brothers and he inherited that fortune. It included publishing some book about stamps (the kelly blue book of stamps, they would say), and Books-A-Million, once a major book retailer in the United States. 

The conversations with Hal moved from investing in our business to purchasing our business, and in October 2013, he bought the business for $7 million. I wrote this article about ten years ago regarding what I learned from the business, and it is worth a read if you have five minutes. 

Looking back at my life, Hal has been the most important person in my career, and one of the most important people in my life.

It was an amazing feeling to sell Caskers. I had become a millionaire before I reached the age of 30, and had the confidence of a young tech bro that just graduated from Harvard Business School without any job or life experience (so I was an average HBS grad). Most importantly, Caskers had gone from an asset in 2012 to a liability in 2013, and Hal bailed me out of that situation. 

In 2012, Caskers was full of promise. We were growing rapidly, and learning so much. The reason that so many people prefer to invest in second time founders (me included) is that you don’t have to learn the dumb stuff again. How do you buy a domain name? How do you send out an email from a domain name? What email service do you use? What site should you steal your Terms of Service from? We learned all of it for the first time running Caskers. 

And we also learned about marketing. We were a flash sales site after all. What products would sell the best? Bourbon, not vodka. What subject lines would increase our open rates and sales? I learned that the best subject line in any email ever written is: “Buy the bourbon that beat Pappy” - a reference to the famed and impossible-to-find Pappy Van Winkle. How would we afford to charge a premium compared to your local liquor store? Buy exclusive barrels of whiskey and sell bottles from those barrels.  

By mid-2013, things had changed. While we were still growing, the structural problems had become apparent. First, the whole business was purportedly illegal. While you were allowed to ship wine across state lines, you couldn’t ship liquor across state lines, according to the laws of most states. We were lawyers and knew that those state laws were likely unconstitutional, but we didn’t want to build a business around the hopes that the US Supreme Court would strike down those laws (they ended up doing just that in 2019). By 2013, we started getting large enough that states would notice, which was pretty scary. Second, we had tried to fundraise but failed. If you have ever felt strung along in a relationship, it’s nothing compared to what the “NY Angels” did to us. Third, it was so hard to source new products. We had to manually deal with liquor stores, inventory, and product descriptions. That took me 60 hours a week. If we had a team of 20, it would have been easy but for just two people, the work was a lot. Fourth, the margins on the business were awful. We bootstrapped the whole business with a minimal personal investment, but after running the business for a year, we only had $100,000 in cash. We had given up salaries paying double that (each) in order to create the business. Finally, my cofounder and I started to butt heads. It wasn’t a personal thing - we just had two different visions for the business and were burnt out. We had spent 12 hours a day next to each other everyday for 18 months - of course there were going to be some issues. 

Caskers was doing too well to shut down but not well enough that I wanted to continue investing my time in it. It simply wasn’t going to be a big business, and I knew that in my heart even in 2013. 

Hal bailed us out by buying the business. Hal made it so that I was able to notch a W instead of an L, and walk away feeling confident, successful, and rich. 

But I was incredibly lucky. I’m not sure what would have happened if Hal hadn’t stepped in. Would we still be running the business 10 years later? What about two years later? How much of my life was I going to spend on a business that I knew wasn’t the one I wanted to be running, or one that could live up to my potential? Would I have missed the opportunity to start Native? 

The reason I’m writing this is because I’ve spoken to many ecommerce businesses that are actually liabilities rather than assets. If you have a business that you’ve been operating for 3 years that is making $1,100,000 in revenue a year, you might have a liability rather than an asset. The business may be too large and successful for you to stop - how you can shut down a business generating $200,000 a year in net income - but it might be keeping you from starting something much more successful. 

The math to figure out if a business is an asset or liability is a personal one. If Caskers didn’t require so much time and I wanted work/life balance, it might have been an asset and not a liability. If I didn’t believe I could achieve much more, the same would be true. But in my case, it was a liability. The work was all consuming, and the output was lousy. 

I was in Los Angeles last week and met two people who I thought were in this boat. One has already realized it and has started taking steps to move out of that situation. The other is pondering whether he has an asset or liability, and is giving himself 3 more months to figure it out. Both are very aware of their situations, and will make the right choice for themselves. 

But many aren’t aware of the situation they are in. So if you’re years into running a business and struggling and frustrated, I want you to think about whether your business is an asset or liability to you, and act accordingly. If you’re running a small business and happy because you spend very little time at work - you are doing the right thing and have an asset. If you think your business needs 2 more years to turn the corner and you’ve got the energy and desire to give it that - keep it up. You’ve got a potential asset. 

But if you know in your heart you have a business that isn’t living up to your potential and won’t even with hard work, you’ve got a liability. It’s like having a job where you can’t get promoted no matter how hard you work. Put your business up for sale or hire someone to run it or give it to a relative and start what you’ve always wanted to do or something that you think can live up to your standards. 

Because life is too short to be encumbered by a liability. 

If you liked this, please share a link to it on twitter and tag me @moizali.