Pour Your Heart Into It (11 page)

Many of the investors I approached told me bluntly that they thought I was selling a crazy idea.

“Il Giornale? You can’t pronounce the name.”

“How could you leave Starbucks? What a stupid move.”

“Why on earth do you think this is going to work? Americans are never going to spend a dollar and a half for coffee!”

“You’re out of your mind. This is insane. You should just go get a job.”

In the course of the year I spent trying to raise money, I spoke to 242 people, and 217 of them said “no.” Try to imagine how disheartening it can be to hear that many times why your idea is not worth investing in. Some would listen to my hour-long presentation and not call me back. I’d phone them but they wouldn’t take my call. When I finally got through, they would tell me why they weren’t interested. It was a very humbling time.

The hardest part was maintaining an upbeat attitude. You don’t want to pay a visit to a prospective investor and not display the full measure of passion and enthusiasm about what you’re proposing to do. You can’t be dejected when you meet with a landlord to begin negotiations about leasing a location. But if you’ve had three or four fruitless meetings that week, how do you whip yourself up? You really have to be a chameleon. Here you are in front of somebody else. You’re depressed as hell, but you have to sound as fresh and confident as you were at your first meeting.

Still, I never once believed,
not ever
, that my plan wasn’t going to work. I was truly convinced that the essence of the Italian espresso experience—the sense of community and artistry and the daily relationship with customers—was the key to getting Americans to learn to appreciate great coffee.

There’s a fine line between self-doubt and self-confidence, and it’s even possible to feel both emotions simultaneously. Back then, and often enough today, I could be overwhelmed with insecurities, and at the same time have an abundance of self-assurance and faith.

Frankly, when I started, I don’t think I was all that good at raising money, because it took me so long to meet my goals. With practice, though, I got better at making my presentation and at anticipating objections and concerns.

In the meantime, I was eating up my seed capital. In April, when we opened the first Il Giornale store, it was exciting to watch as Seattlites discovered the pleasures of handcrafted espresso drinks on their way to work. From the first day, sales exceeded our expectations, and the atmosphere was just as we had envisioned it. But it would be a long time before we could expect any profits, and in the meantime I had to pay rent and hire people, spending funds I didn’t yet have.

As each month passed, we worried about how we were going to continue in business because the money wasn’t coming in as I had planned. At times we weren’t sure we could meet payroll or pay the rent. Dave Olsen and I would sit together and ask each other: “Who do you want to pay this week?” In fact, we never did miss a payroll, but we came frighteningly close.

For some reason, the people around me never doubted that I was going to get them through it, that I would figure out some way to work things out. Somehow, their confidence strengthened my resolve. The odds against our pulling it off were so slim. Investors had to have a pretty strong stomach to bet on our success.

I continued to get commitments, but I couldn’t use any of the money until I reached what’s called an “impound number.” The impound number is the minimum amount of money an entrepreneur must raise to gain access to the original cash commitments. In my case, I couldn’t use any of the money I raised until I had guaranteed investments totalling $900,000.

A key turning point for Il Giornale came in June, when, to my relief, I was finally able to meet my impound number. An investor named Harold Gorlick gave us more than $200,000, the biggest single check I’d ever received. I stared at it for a long time, wondering what magic mixture of timing and inclination it takes to make any given investor believe. Gorlick was a client of Arnie Prentice’s. He was an unusual guy, a self-made man who had made his fortune in the heating and plumbing businesses. He was rough around the edges, but I became very fond of him.

A few years later, Harold introduced me to his nephew, a rising jazz saxophonist known as Kenny G. We were two young men, each aspiring to make a mark in different fields, and our friendship grew as we faced similar kinds of challenges. Kenny eventually invested in the business, too, and even played at employee events and performed benefit concerts at our plant and market openings. His music became a part of the culture of the company.

With the impound number, I was able to collect on earlier commitments, easing our immediate financial crisis. But the goal of $1.25 million still seemed far off. There were not many doors left to knock on.

Y
ES,
Y
OU
C
AN
R
EINVENT
A
C
OMMODITY

The tension grew as the summer progressed. The biggest barrier I continued to face was the apparent improbability of my own idea at a time when investors had so many other, more attractive industries in which to put their money.

One of the groups I approached was called Capital Resource Corp., a small business investment corporation, in which fifteen to twenty partners pooled their money to back promising start-ups. By now, the success of the first store was visible and my pitch had grown more ambitious. Il Giornale Coffee Company, I figured, would open and run as many as 50 Italian-style espresso bars, starting in Seattle but eventually spreading to other cities.

The member who did due diligence, Jack Rodgers, recommended a sizable investment, but the group declined. According to their charter, they were committed to investing in high-technology start-ups. There’s nothing high-tech about coffee.

Conventional business wisdom tells you that the most attractive business start-ups have a proprietary idea or technology—something to offer that no one else has. Notable examples are Apple’s computers, Intel’s chips, and Microsoft’s operating system. If you hold a patent to your product, so much the better. It’s less risky if you can erect some barrier to entry, to prevent a dozen competitors from popping up and grabbing your market away from you before you can establish yourself. And the most promising ideas are those in the industries of the future, such as biotechnology, software, or telecommunications.

Il Giornale didn’t fit any of these paradigms—nor does Starbucks today. We had no lock on the world’s supply of fine coffee, no patent on the dark roast, no claim to the words
caffè latte
apart from the fact that we popularized the drink in America. You could start up a neighborhood espresso bar and compete against us tomorrow, if you haven’t done so already.

I heard all the arguments about why coffee could never be a growth industry. It was the second most widely traded commodity in the world, after oil. Consumption of coffee had been falling in America since the mid-1960s, as soft drinks surpassed it as the country’s favorite beverage. Coffee shops have been around since time immemorial.

I explained, again and again, the rising interest in specialty coffee. In cities like Seattle and San Francisco, a growing niche of people had learned to drink high-quality coffee at home and at restaurants. But they had little or no opportunity to experience good coffee in the workplace. And while in more and more cities, small neighborhood places were starting to sell quality whole-bean coffee, espresso was available mostly in restaurants as an after-dinner drink. Although a few espresso bars did exist, no one offered high-quality, quick-service espresso to go in urban areas.

What we proposed to do at Il Giornale, I told them, was to reinvent a commodity. We would take something old and tired and common—coffee—and weave a sense of romance and community around it. We would rediscover the mystique and charm that had swirled around coffee throughout the centuries. We would enchant customers with an atmosphere of sophistication and style and knowledge.

Nike is the only other company I know of that did something comparable. Sneakers were certainly a commodity—cheap and standard and practical and generally not very good. Nike’s strategy was first to design world-class running shoes and then to create an atmosphere of top-flight athletic performance and witty irreverence around them. That spirit caught on so widely that it inspired myriads of nonathletes to lace up Nike shoes as well. Back in the 1970s, good sneakers cost $20 a pair. Who would have thought anyone would pay $140 for a pair of basketball shoes?

How, then, should you evaluate a good investment opportunity? How do you identify a good entrepreneurial idea? What were people missing when they turned down the chance to invest in Il Giornale?

The answer’s not easy, but it has a lot to do with instinct. The best ideas are those that create a new mind-set or sense a need before others do, and it takes an astute investor to recognize an idea that not only is ahead of its time but also has long-term prospects. Back in 1985, although Capital Resource Corp. turned me down, Jack Rodgers and several other individuals who were part of that group invested in Il Giornale on their own. They didn’t let conventional business wisdom stop them. I’ve often wondered if their high-tech investments paid off as well.

B
REAKTHROUGHS
A
REN’T
C
HEAP

By August, I felt as if I were in the twelfth inning. The store had been open four months, and business was good. But I still had raised only half as much as I needed. I had already signed a lease for a second store, and I didn’t know how I would pay for it. I had to score the winning run soon.

There was one big powerhouse I hadn’t tapped. Three of Seattle’s most prominent business leaders had not yet heard my pitch. This was the triumvirate of Jack Benaroya, Herman Sarkowsky, and Sam Stroum. Locally, they were titans who had developed some of the tallest buildings, most successful residential complexes, and sturdiest businesses in Seattle. Active in the Jewish community, and generous philanthropists, the three were friends and sometimes invested together.

Herman’s son, Steve, is about my age. One day he brought his father into the Il Giornale store and introduced me, and Herman agreed to let me make a presentation to the three of them. It was my last chance. If these three big investors turned me down, I didn’t know who else to go to in Seattle. It had to work.

By now, I had made my pitch almost a hundred times, but I practiced it again and again before that crucial meeting. I didn’t want to step on stage until I was absolutely prepared. Even if they invested only a little, their commitment would be an invaluable endorsement, and I could count on others in the higher-echelon business community to follow their lead.

The meeting was to take place on the top floor of one of Seattle’s tallest office buildings. I had to walk around the block three times to calm myself. My presentation went well, and they appeared ready to invest a lot of money. But the group made some stiff demands. They wanted a lower price, and options, and board seats. It took two weeks to work out the details. Then they decided, as a group, to invest $750,000. That took me over the top. I had made it.

I ended up raising $1.65 million from about thirty investors, including the seed capital. The biggest chunk came from the Big Three. Along with Arnie Prentice, Harold Gorlick, and Jack Rodgers, Steve Sarkowsky became a director and strongly supported me during some tense and difficult times later. If you ask any of those investors today why they took the risk, almost all of them will tell you that they invested in me, not in my idea. They believed because I believed, and they prospered because they trusted someone in whom nobody else had confidence.

Il Giornale has faded into history, remembered by only a few of its old customers. But those initial investors ended up earning a one hundred-to-one return on their investment. How that happened involved some strange twists of fate.

CHAPTER 6
The Imprinting of the Company’s Values

The ultimate measure of a man is not where he stands
in moments of comfort and convenience, but where
he stands at times of challenge and controversy.

—M
ARTIN
L
UTHER
K
ING,
J
R.

A couple with a newborn child doesn’t usually sit down and think:
What is our mission as parents? What values do we want to give this child?
Most new parents are preoccupied with merely wondering how to get through the night.

Similarly, most entrepreneurs can’t afford to be that farsighted, either. They’re too absorbed with the problems directly in front of their noses to have the luxury of pondering values. I know I certainly was.