Pour Your Heart Into It (21 page)

Jeff also understood what a fast-growing retail company just emerging on the national scene would need to do to raise capital. By late 1989, it was clear that Starbucks had to reach outside Seattle for institutional investors, which meant approaching the venture capital community. As the chairman of a company that had recently gone public, Jeff had the connections and the credibility to make contacts for us.

At first, I was wary of taking this step, for I had heard that some venture capitalists intrude on entrepreneurial ventures and ultimately ruin them with short-term thinking. At best, venture capital can energize a company with both dollars and expertise and help it grow and mature. But the wrong partners can pursue their short-term self-interest at the expense of the long-term future of the company.

Once we decided to go ahead, though, we had more difficulty than we expected. In the early 1980s, retail start-ups had become highly popular with institutional investors. Then, the market collapsed, and several venture-backed retailers collapsed. The funds that had invested in them performed so poorly that some were unable to continue to raise money. Many venture funds refused to invest in retail after that, sticking to companies in technology and health care. Many turned us down.

Craig Foley, who then headed Citibank’s Chancellor Capital Management Inc., was one investor who decided to take a chance on us. Unlike other fund managers, who quickly dismissed us as a coffee-shop chain, Craig was a coffee lover who missed the quality of coffee he had tasted in Europe. He did have a long-term commitment to retail investments and had heard of Starbucks through a colleague. But after visiting a poor-performing store in Chicago, he had decided not to invest. He had, though, supported Costco, so when Jeff Brotman asked him to take another look at Starbucks, he did.

Craig’s biggest concern was that our idea was not “portable,” that it wouldn’t appeal to customers outside the cool, rainy Northwest. I rose to the challenge and went to great lengths to convince him he was wrong. He closely examined all our Chicago stores and decided that not only was gourmet coffee potentially a big growth opportunity but it could also be a “lifestyle phenomenon.” To compensate for the weakness he saw in Chicago, he negotiated a somewhat lower valuation in the company, $3.75 a share, only slightly above the $3 share price of the previous round, in 1988. Still, because of Chancellor’s high profile, his decision to invest $4.5 million, a rather risky leap of faith in Starbucks, attracted several other institutional investors. In all, we were able to raise $13.5 million in March 1990, by far our biggest financing at that time.

Our Chicago stores proved critical, too, in attracting another investor in that round, Jamie Shennan, a general partner of Trinity Ventures. He first saw Starbucks by happenstance, while walking down a street, and he later heard from a colleague that we were looking for venture capital. An experienced marketer, he was attracted by the power of the Starbucks brand and the buzz he heard from our customers. So was Ken Purcell, of T. Rowe Price.

My initial fears about venture capitalists proved unfounded; what I found, in fact, was the opposite. Instead of interference, I gained another set of trusted advisers with long-term horizons. We were fortunate that our venture capital partners genuinely understood and appreciated the culture of Starbucks.

Craig Foley and Jamie Shennan joined the Starbucks board when their funds invested, in March 1990. They pushed me to conduct market research and to begin strategic planning, and also gave invaluable guidance on how to make the transition from an entrepreneurial, private company to a professionally managed public one. Jamie, who spent many years as a brand manager at Procter & Gamble and later as a consumer marketing consultant, provided astute insights into the building of the brand, establishing joint ventures, improving the catalogue, and introducing new products.

Craig contributed financial know-how, guided us in our strategic planning, and helped evaluate new business opportunities. It speaks volumes about their contributions and their commitment to Starbucks that Jamie and Craig both remained on the board long after their funds sold their Starbucks stock, as planned. (Venture capital funds, by nature, usually distribute profits to their investors after a company goes public.)

Craig and Jamie’s joining the board meant that several of my earliest, staunchest supporters had to step down. Of the original Il Giornale board and investor group, only Arnie Prentice remains a director. Just as every business has a memory, every board should have one, too, and it’s been critical for me to have the presence of someone who understands me and where Starbucks came from, to have someone from the past who is linked to the future.

My relationship with the board took an unusual turn when I came to view them more as trusted advisers rather than as supervisors. Unlike many CEOs, I was direct with them, confiding in them my problems in running the business. They always challenged me to defend my ideas, and we had open and frank discussions at board meetings. They continually pushed me to sharpen my focus and set clear priorities, fearing that my entrepreneurial zeal would send the company in too many directions. The board also strongly encouraged me to strengthen my management team ahead of the curve, hiring people with bigger company experience. Debates were at times intense and sometimes difficult but also healthy and constructive. We never needed to take a vote. When one person disagreed strongly, we took the time to work it out and come up with an acceptable solution.

With time, the board’s culture and values evolved into a mirror image of those of Starbucks. The outside directors gradually developed more trust in me than they had in the early period, when they thought perhaps I was just another raw young entrepreneur who would have to be replaced, at some point, by a professional manager and CEO. They, too, have poured their hearts into the company.

Starbucks’ board remained stable for six years, adding only two inside directors. Then, in 1996, as we faced the reality of becoming a $1 billion company, we once again looked for someone who had the expertise that comes with experience. That person was Barbara Bass, who had risen at Macy’s and Bloomingdale’s before becoming CEO of I. Magnin and later of Carter Hawley Hales’ Emporium Weinstock, which had annual sales of nearly $1 billion. Barbara brought not only a rich store of knowledge and insights about national retailing but also a fresh perspective to what had too long been an all-male board.

To any entrepreneur, I would offer this advice: Once you’ve figured out what you want to do, find someone who has done it before. Find not just talented executives but even more experienced entrepreneurs and businesspeople who can guide you. They know where to look for the mines in the minefield. If they have thought and acted boldly in their own careers, and proven successful, they can help you do the same. If they share your values and aspirations, and if they freely share their counsel, they can help you through rough patches and celebrate your victories as their own.

That’s the kind of mentor I never had as a kid or as a young adult. If one doesn’t find you, beat the bushes till you find one who will take you on. And with the right mentor, don’t be afraid to expose your vulnerabilities. Admit you don’t know what you don’t know. When you acknowledge your weaknesses and ask for advice, you’ll be surprised how much others will help.

CHAPTER 11
Don’t Be Threatened by People Smarter Than You

The best executive is the one who
has sense enough to pick good men [and
women] to do what he wants done, and self
-restraint enough to keep from meddling
with them while they do it.

—T
HEODORE
R
OOSEVELT

There’s a common mistake a lot of entrepreneurs make. They own the idea, and they have the passion to pursue it. But they can’t possibly possess all the skills needed to make the idea actually happen. Reluctant to delegate, they surround themselves with faithful aides. They’re afraid to bring in truly smart, successful individuals as high-level managers.

But an intelligent executive team is vital for a company to prosper. Strong, creative people are a lot more stimulating to be around than yes-men. What can you learn from those who know less than you? They may massage your ego for a while and take orders easily, but they won’t help you grow.

From the beginning, I knew I had to go out and hire executives with greater experience than I had, people who would not be afraid to debate with me, who were strong-willed, self-reliant, and confident, and make them part of the management team and the decision-making process.

When I began Il Giornale, a start-up with no stores at first, I was fortunate to work with Dave Olsen, who not only had a passion for coffee but also had run a successful café for years. In November 1987, I brought in Lawrence Maltz, a seasoned executive who had managed a beverage company.

For a small enterprise, that team was appropriate. But as Starbucks expanded into more markets, we needed someone familiar with the process of opening and running many retail stores at once. In 1989, we hired Howard Behar for that job, a man who had twenty-five years of retail background in the furniture business and at Thousand Trails, an outdoor resort developer. I found out about Howard through Jeff Brotman and Jack Rodgers.

In 1990, as we prepared for more sophisticated financing, we began scouting for a chief financial officer with broad experience. We hired a sophisticated headhunter to do the search for us but were frustrated because he kept talking only about professional qualifications and didn’t get our point about character and culture. We found Orin Smith instead through a personal recommendation of one of our partners who had worked for him before. With an MBA from Harvard, Orin had managed far larger and more complex organizations than Starbucks was then. He had worked as budget director for the State of Washington for five years and before that for Deloitte and Touche for thirteen years, including three years as partner-in-charge of their consulting practice in Seattle.

Howard and Orin were both older than I was, by about ten years. Both took pay cuts to come to Starbucks but joined because they understood the passion and the potential and they believed their stock options would one day be valuable. To a lot of entrepreneurs, hiring more seasoned executives can be threatening, and actually delegating power to them is even more so. In my own case, I have to admit, it wasn’t easy. My identity had quickly become so closely tied up with that of Starbucks that any suggestion for change made me feel as if I had failed in some aspect of my job. Inside my head, it was a constant battle, and I had to keep reminding myself:
These people bring something I don’t have. They will make Starbucks far better than I could alone.

Both Howard and Orin brought not only skills and experience but also attitudes and values that were different from mine. What I found, as we worked together year after year, was that Starbucks was enriched and broadened by their leadership. If I had let my ego or my fears prevent them from doing their jobs, we could never have matured into a sustainable company with strong, people-oriented values.

Then as now, I was conscious of having to show the people around me that my self-esteem and confidence were strong enough to absorb the arrival of new talent, managers who were more qualified than I to handle certain segments of the business. At the same time, I also had to make sure that I clearly handed them the authority to do what they needed to do, for their departments would be reporting to them, not to me. I tried to make the message I sent to them—and by extension, to the entire company—as unequivocal as possible: “I hired you because you’re smarter than I am. Now go and prove it.”

I can’t pretend I never made any hiring mistakes. A few management choices I later regretted, and, valuing loyalty as I do, I also let some managers stay on longer than I should have. Some people could not keep up with the company’s fast pace of growth; though they gave a lot in the early days, they did not stay to face the challenges of the steep learning curve that came with growth. Overall, Starbucks has had remarkably little turnover at the top, especially considering the stresses we were subjected to as a result of such rapid expansion.

By 1990, I had assembled a management team that worked together so tightly and synergistically that people called us “H2O,” for Howard, Howard, and Orin. We stood for the vision, the soul, and the fiscal responsibility. In many respects, Howard and Orin are polar opposites, but each of us has provided an essential ingredient to Starbucks’ success.

D
ON’T
B
E
T
HREATENED
BY
C
ANDOR