Michael Dorf opened a small club in New York City called the Knitting Factory in 1987. It featured avant-garde jazz and rock. Dorf, now 52, stumbled and lost his company in 2002. But he wasn't through. In 2008, he combined his love of live music, wine, and food to create City Winery. These days, his clubs in New York City, Napa, and Chicago (next: Nashville) sell out most nights by offering affluent baby boomers shows by performers such as Elvis Costello in an intimate, 300-seat venue.

I've always had a passion for music. As a kid, I took guitar lessons and tried to play "Stairway to Heaven" over and over, but I sucked. After dropping out of law school, I got an apartment in the East Village and convinced myself to open a music café in 1987. I wanted to create a cool, Jack Kerouac experience, jazz meets rock. I started a tape series called Live From the Knitting Factory, expanded my record label, and began booking branded music festivals in Europe and Asia. During the dot-com boom, we did three rounds of venture capital. My model: a show with 100 people in the audience that would be plugged into the Internet and heard by a million people. Then the bubble burst, 9/11 hit, and I lost the company to those New York vulture capitalists.

I started really getting into wine around 2004. By then, I was married with kids and realized there is an aging demographic of wine lovers who also love music and want to go out in an environment that's a little classier. My idea was a music venue built around a custom winery. For $10,000 to $12,000, you get to create your own barrel of wine and put your own label on it. We had a great response. We signed up 75 people.

Then financial Armageddon hit and our whole wine model went away. But we still did well as a music club when we opened on New Year's Eve of 2008--I know how to bring 300 customers to a good show. By March, when the first wine started to show, we figured out how to move the wine from the barrel into a stainless-steel keg--and tap it. Just like beer. Suddenly, I realized our margins on selling by the glass directly to the customer were much higher than wine by the barrel.

In New York, our concerts are sold out almost every night. We're in that sweet spot--big enough to get big-name entertainers but small enough that it still feels intimate. Our capacity of 300 is the perfect number. You can give the ticket margin to the talent and make your numbers on the food and beverage. And I've learned that taking on just a few big investors who ultimately want control is not the way to go. So for my first City Winery, I took on 43 limited partners and raised $5 million. They're investing in me, no question. And we're making a real profit. Thank God the business world is back to what's real, like multiples of EBITDA--though I'm kind of embarrassed that acronym comes out of my mouth so fluently.

I love the fact that the musicians, when they walk in, give me a bear hug. They know they're making a lot of money, and it's such a positive vibe. We're making a really nice return for our investors, too. I can't believe that I'm a senior guy in the live music club world now. That's mind-boggling to me. I'm a punk. I just got here.

As told to Inc. contributing writer, Paul Keegan.