How an Outsider Built a $100B Success Company
To grow a business, you need to put your team efforts under a clear leadership vision + FREE access to my video course
The young man recognized the caller ID as the phone rang and picked up. “Hey, here is Jerry. You got the job. When could you come here?”
Pleased with this news, he leaned back in his chair and thought to himself: “No great achievement happens by luck.”
It took him a year to convince the company’s owners to hire him. Jerry’s partners were nervous about bringing in a high-powered New Yorker some days. But the man had a fierce determination and unwavering persistence that allowed him to bypass many obstacles in his life.
He was born and grew up in poverty. To pay his education expenses, he had to take student loans, work part-time jobs, and even sell his blood when things went tough.
It was the early 1980s, and the country’s coffee consumption had been on the decline for more than a decade when Jerry and his two friends, Gordon and Zev, opened their first store in Seattle’s Pike Place Market in 1971 to sell the finest whole-bean and brewing equipment.
They have seen remarkable success and opened more stores on the West Coast.
But all that was about to change the day, the young man walked into their store.
At the time, he was a vice president and general manager at Hammerplast, a Swedish company that sells kitchen equipment and housewares. After noticing that a small retail was buying unusually large orders of coffee makers, he decided to visit that client and see what was going on.
The three friends greeted their visitor with a tasty sample of French press Sumatra. He tried it and was hooked.
Then, he offered to work for them, which was accepted in 1982, one year later.
The Bustling Caffee Culture
In 1983, he traveled to Italy and witnessed the bustling coffee culture. In one coffee bar in Verona, he watched how the barista made a shot of espresso, steamed a frothy pitcher of milk, and poured the two into a cup with a dollop of foam on the top to serve him a “caffè latte.”
“Of all the coffee experts I had met, none had ever mentioned this drink. I’ve got to take it back with me.” He thought to himself, trying “caffè latte” for the first time.
When he returned to Seattle, he told his bosses about his experience. He tried to convince them about the opportunity of exposing a wider range of people to the brand. But they rejected his idea and argued that their company was a retailer, not a restaurant or a bar.
In late 1985, he resigned and launched his own coffee brand named “Il Giornale” which serves coffee prepared with high-quality beans delivered from his previous bosses.
The Bankruptcy
One fateful day, the young man was surprised by his previous employer approaching him with an unexpected offer after their company went bankrupt:
“I can’t think of Starbucks in better hands and it was in your hands. I realize you don’t have the money. I’ll give you x amount of time to find it.”
In August 1987, with the help of a few investors, Howard Schuld bought Starbucks — which had 6 stores at the time — for $3.8M. Then he started developing the business with his passion.
Unlike the conservative business plan of early owners that hindered the company from reaching other potential coffee lovers, he planned to expand the scope and enable the entire community to enjoy freshly brewed coffee by the cup in every store, just like in Italy.
“You can’t walk through any major city or town in Italy without running into a coffee bar and seeing the sense of community and romance and theater around espresso.” — Howard Schultz
From a Retailer to a Coffeehouse Model
After the acquisition, Howard rebranded his company, Il Giornale, with the Starbucks name and entered a period of reshaping of the brand identity, and expansion across the United States.
Here are key decisions and actions he made to reinvent Starbucks’ image to appeal to a broad range of customers:
He recognized that keeping the old name is pivotal to the brand’s success. The name Starbucks was more familiar and memorable than Il Giornale. It was inspired by a deckhand in the classic American novel Moby Dick. That’s why the logo includes an image of a mermaid done in a woodcutting style.
He updated the logo and changed it to green to appear more contemporary.
He redesigned the original stores to echo the Italian romance and elegance with the casual American warmth. Rich brown and vibrant green colors were reflected in the wooden fixtures and the details of the coffeehouses’ design.
He enhanced quality control and set Starbucks apart from its coffee retail competitors, who were rising in Seattle and in other large American cities.
“Starbucks store is carefully designed to enhance the quality of everything the customers see, touch, hear, smell or taste.” — Howard Schultz
With this transformation, Starbucks stores became a comfortable, inviting spot that bridges the workplace and the home.
Investment Ahead of the Growth Curve
After creating a new brand look, Howard continued the investment in the infrastructure and process efficiency:
In 1989, Starbucks invested in high-speed coffee roasters and packaging material that would cover the needs of the growing business for at least 10 years.
Later, the company built an advanced information system to keep track of sales across the hundreds of stores that would open within the first decade of expansion.
Between 1990 and 1991 alone, Starbucks raised $18.5M in venture capital to fund this expensive internal development.
To solve the problem of protecting the freshness and flavor of the coffee during shipments to thousands of miles distant Starbucks locations, and save the significant costs of building new local roasting plants, the company invested in the development of a vacuum packaging system — FlavorLock bags — that prevents harmful air and moisture from seeping into the roasted beans.
A unified, skilled team at all levels of the organization is a key component in business growth and its revenue generation.
Investment in the Team
When Howard was 7-years-old, he had a defining moment in his life. He came home from school one day and saw his father lying on a couch with a cast from his hip to his ankle. The man was a truck driver delivering and picking up cloth diapers before the invention of pampers and he fell on a sheet of ice in March 1960.
At that time, if a blue-collar uneducated worker had an accident, they were dismissed with no compensation and no health insurance.
As a personal protest against this situation, Howard wanted to build the kind of company his father never got a chance to work for. A company that honors and respects the dignity of work and the dignity of all the men and women working for it.
Below is a translation of this vision and the high importance put on Starbucks’s team:
Starbucks became the first company in the U.S. to provide comprehensive health insurance.
To ensure a unified team, the company developed a mission statement by listening to the views of the diverse group of employees and incorporating their beliefs into company policies.
The company adopted several policies to recruit and keep a powerful team of “partners” — Starbucks’s term for employees.
Bean Stock program: The company offered ownership in the form of stock options for all of its employees, including part-time people. It awarded every partner between 12% and 14% of his or her annual base pay in Starbucks stock options so that they can benefit as the business grows and performs well. This provided an incentive to work as a unified team toward achieving common objectives.
Assemble a dynamic management team from successful and innovative corporations such as Nike, Deloitte & Touche, and Macy’s. These experienced professionals came with fresh creative perspectives.
Consensus on company values: a continued commitment to investing in both employees and customers.
“It is my firm belief that success in business and in life is best when it’s shared.” — Howard Schultz
Worldwide Expansion
After a foothold in the Pacific Northwest as well as farther away, markets like Chicago, Los Angeles, San Francisco, New York, and Washington, Starbucks launched Japan’s first store in Tokyo in 1996. This success led to 25 other stores in Japan by 1998.
“Starbucks Coffee Company went public in 1992 and from 1992 to 2006 we were on a magical carpet ride in which everything we did turned to gold.” — Howard Schultz
In Shenzhen, China, in 2019, Starbucks opened its 30,000th store. It’s the largest coffeehouse company in the world and its dizzying rate of expansion is one of the most ambitious expansions in retail in history.
Today, Starbucks has a market value of over $100B.
Final Thoughts
As a young boy, Howard Schultz had never imagined that he would one day build a company of his own, let alone a company that would have over 30,000 stores in more than 80 countries and employ over 350,000 people.
In his plan to expand globally, he has faced many tough challenges, like changing the eastern coffee culture in countries like Japan and China. However, his keen entrepreneurial skills and vision to lead allowed him to bypass all the obstacles he experienced during his career.
With this success, Starbucks became an entrepreneurship symbol for many others. Below are a few lessons that we can learn from it:
Putting your team efforts under a clear and concise leadership vision is key to reaching your business goals.
Offering a pleasant experience builds loyal customers.
Maintaining the fragile balance between profit and humanity is a business value that should be considered.
That was the story of the man who took his life in his hands, grabbed what opportunity he could, and molded his success step by step.
What your story is going to be?
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Rakia
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