Pour Your Heart Into It (8 page)

In the early afternoon, the pace slows down. I noticed mothers with children and retired folks lingering and chatting with the barista. Later in the afternoon, many espresso places put small tables on the sidewalk and served aperitifs. Each was a neighborhood gathering place, part of an established daily routine.

To the Italians, the coffee bar is not a diner, as coffee shops came to be in America in the 1950s and 1960s. It is an extension of the front porch, an extension of the home. Each morning they stop at their favorite coffee bar, where they’re treated with a cup of espresso that they know is custom-made. In American terms, the person behind the counter is an unskilled worker, but he becomes an artist when he prepares a beautiful cup of coffee. The coffee baristas of Italy have a respected place in their neighborhoods.

As I watched, I had a revelation: Starbucks had missed the point—completely missed it.
This is so powerful!
I thought.
This is the link.
The connection to the people who loved coffee did not have to take place only in their homes, where they ground and brewed whole-bean coffee. What we had to do was unlock the romance and mystery of coffee, firsthand, in coffee bars. The Italians understood the personal relationship that people could have to coffee, its social aspect. I couldn’t believe that Starbucks was in the coffee business, yet was overlooking so central an element of it.

It was like an epiphany. It was so immediate and physical that I was shaking.

It seemed so obvious. Starbucks sold great coffee beans, but we didn’t serve coffee by the cup. We treated coffee as produce, something to be bagged and sent home with the groceries. We stayed one big step away from the heart and soul of what coffee has meant throughout the centuries.

Serving espresso drinks the Italian way could be the differentiating factor for Starbucks. If we could re-create in America the authentic Italian coffee bar culture, it might resonate with other Americans the way it did with me. Starbucks could be a great
experience
, and not just a great retail store.

I stayed in Milan about a week. I continued my walks through the city, getting lost every day. One morning I took a train ride to Verona. Although it’s only a forty-minute ride from industrial Milan, it felt as if it had stood still since the thirteenth century. Its coffee bars were much like Milan’s, and in one, I mimicked someone and ordered a “caffè latte,” my first taste of that drink. I had expected it to be just coffee with milk, but I watched as 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.

Here was the perfect balance between steamed milk and coffee, combining espresso, which is the noble essence of coffee, and milk made sweet by steaming rather than by adding sugar. It was the perfect drink. Of all the coffee experts I had met, none had ever mentioned this drink.
No one in America knows about this,
I thought.
I’ve got to take it back with me.

Every night I would call Sheri back in Seattle and tell her what I was seeing and thinking. “These people are so passionate about coffee!” I told her. “They’ve elevated it to a whole new level.”

On that day in the piazza in Milan, I couldn’t foresee the success Starbucks is today. But I felt the unexpressed demand for romance and community. The Italians had turned the drinking of coffee into a symphony, and it felt right. Starbucks was playing in the same hall, but we were playing without a string section.

I brought that feeling back to Seattle and infused it in others around me, who re-created it for still others all over the country. Without the romance of Italian espresso, Starbucks would still be what it was, a beloved local coffee bean store in Seattle.

CHAPTER 4
“Luck Is the Residue of Design”

Whenever you see a
successful business,
someone once made a
courageous decision.

—P
ETER
D
RUCKER

Branch Rickey, the Brooklyn Dodgers general manager who broke the color barrier by signing on Jackie Robinson, often remarked: “Luck is the residue of design.”

People sometimes say the sun always shines on Starbucks, that our success was built on luck. It’s true that we hit the front wave of what became a North American social phenomenon, the widespread popularity of cafés and espresso bars. I can’t say that I predicted this wave, but I did perceive the romantic appeal of coffee by the cup, in Italy, and then spent three years brainstorming and laying the plans to translate it into an American context.

Whenever a company, or a person, emerges from the crowd and shines, others are quick to attribute that prominence to good fortune.

The achiever, of course, counters that it’s the product of talent and hard work.

I agree with Branch Rickey. While bad luck, it’s true, may come out of the blue, good luck, it seems, comes to those who plan for it.

G
REAT
I
DEA,
L
ET’S
D
O
S
OMETHING
E
LSE

Have you ever had a brilliant idea—one that blows you away—only to have the people who can make it a reality tell you it’s not worth pursuing?

That’s what happened to me on my return to Seattle from Italy. I thought I’d come upon a truly extraordinary insight, one that could serve as the foundation for a whole new industry and change the way Americans drank coffee. To my bosses, however, I was an overexcited marketing director.

Starbucks was a retailer—not a restaurant or a bar, they argued. Serving espresso drinks would put them in the beverage business, a move they feared would dilute the integrity of what they envisioned the mission of a coffee store to be. They also pointed to Starbucks’ success. The company was small, closely held, private, and profitable every year. Why rock the boat?

But, as I was to learn, there was a more immediate reason my idea didn’t appeal: Jerry was considering an opportunity that excited him far more.

The story of Starbucks has some unexpected twists and turns, but none so strange as the one that happened next. In 1984, Starbucks bought Peet’s Coffee and Tea.

Just how that occurred is a part of Starbucks’ history that isn’t often told, since Peet’s and Starbucks are now competitors in the San Francisco Bay area. Most customers don’t know they were once intertwined.

It was like the son buying out the father. Starbucks’ founders had, after all, drawn inspiration from Peet’s and learned their roasting skills at the elbow of Alfred Peet. But Alfred Peet had sold the business in 1979, and by 1983 the new owner was ready to sell.

To Jerry Baldwin, it was the chance of a lifetime and a much more promising way of expanding than opening espresso bars. As a purist, he still regarded Peet’s as the ultimate in coffee purveyors. It was the same size as Starbucks, with about 5 stores. But in Jerry’s mind, Peet’s would always be the real thing, the originator of dark-roasted coffee in America. The Seattle market, he thought, was already well-served, while San Francisco and northern California, a much larger area, offered plenty of room to grow.

To fund the acquisition, Starbucks went deeply into debt. The day we acquired Peet’s, I recall, we had a debt-to-equity ratio of 6:1. Only in the go-go 1980s would the banks have made such a deal.

My heart sank when we took on that burden. It tied our hands and deprived us of the flexibility to try out new ideas. The company was now so heavily leveraged that there would be no money available for growth or innovation.

The task of consolidating Starbucks and Peet’s proved more difficult than we had imagined. Despite a shared preference for dark-roasted coffee, our company cultures clashed. While Starbucks’ people felt gratitude and respect for Peet’s legacy, Peet’s people feared an unknown Seattle upstart coming to swallow them up. What’s more, the acquisition distracted management’s attention. For most of 1984, the managers of Starbucks were flying back and forth between San Francisco and Seattle. I myself went there every other week to oversee Peet’s marketing and retail operations.

Some Starbucks employees began to feel neglected. In one quarter, they didn’t receive their usual bonus. They went to Jerry with a request for more equitable pay, for benefits, specifically for part-timers, and for a reinstatement of their bonuses. But his focus was elsewhere and he didn’t respond. Angry employees from the plant eventually circulated a petition to invite the union in. Nobody in management realized how widespread and deep the discontent was. Retail employees seemed satisfied, and since they outnumbered plant workers, Jerry figured they would vote to keep the union out. But when the day came for the official tally, the union won by three votes.

Jerry was shocked. The company he had founded, the company he loved, no longer trusted him. In the months that followed, his heart seemed to go out of it. His hair grew grayer. The company lost its esprit de corps.

The incident taught me an important lesson: There is no more precious commodity than the relationship of trust and confidence a company has with its employees. If people believe management is not fairly sharing the rewards, they will feel alienated. Once they start distrusting management, the company’s future is compromised.

Another important thing I learned during that difficult time was that taking on debt is not the best way to fund a company. Many entrepreneurs prefer borrowing money from banks because doing so allows them to keep control in their own hands. They fear that raising equity by selling shares will mean a loss of personal control over the operation. I believe that the best way for an entrepreneur to maintain control is by performing well and pleasing shareholders, even if his or her stake is below 50 percent. That risk is far preferable to the danger of heavy debt, which can limit the possibilities for future growth and innovation.

In hindsight I can say it was fortunate that I learned those lessons when I did. In those days, I had no idea I would ever head any company, let alone Starbucks. But because I saw what happens when trust breaks down between management and employees, I understood how vitally important it is to maintain it. And because I saw the harmful effects of debt, I later made the right choice to raise equity instead. These two approaches became critical factors in the future success of Starbucks.

Y
OU’VE
P
ROVED
I
T
W
ORKS,
N
OW
L
ET’S
D
ROP
I
T

In many companies, mid-level managers and even entry-level employees become impassioned evangelists for risky, bold ideas. It’s important that managers listen to those ideas and be willing to test them and implement them—even if the CEO is skeptical. I learned this truth first as an employee of Starbucks in 1984 and later as CEO. As boss, if you close your ears to new ideas, you may end up closing off great opportunities for your company.

It took me nearly a year to convince Jerry to test the idea of serving espresso. Preoccupied with the Peet’s acquisition and concerned about changing the core nature of Starbucks, he didn’t consider it a high priority. My frustration got more intense with each passing month.

Finally, Jerry agreed to test an espresso bar when Starbucks opened its sixth store, at the corner of Fourth and Spring in downtown Seattle, in April of 1984. This was the first Starbucks location designed to sell coffee as a beverage as well as coffee beans by the pound. It was also the company’s first downtown location, in the heart of Seattle’s business district. I was certain Seattle’s office workers would fall in love with espresso bars the same way I had in Milan in 1983.

I asked for half the 1,500-square-foot space to set up a full Italian-style espresso bar, but I got only 300 square feet. My great experiment had to be crammed into a small corner, behind a stand-up bar, with no room for tables or chairs or lines, and only a tiny counter space to hold milk and sugar. Although I was forced to realize my dream on a far smaller scale than I had planned, I was sure that the results would bear out the soundness of my instincts.

We didn’t plan any pre-opening marketing blitz, and didn’t even put up a sign announcing Now Serving Espresso. We decided to just open our doors and see what happened.

On that April morning in 1984, unseasonably cool, there was drizzle in the air, but it wasn’t raining hard. The plan was to open the store at 7
A.M.
, two hours earlier than usual. I arrived at around 6:30 and looked anxiously out the floor-to-ceiling windows at the streets. Only the most devoted office workers were striding up the steep slopes of downtown Seattle streets at this hour.