The Starbucks Story (6 page)

Schultz:
“Hire me and you can do that. Give me some room and I’ll turn this into something much bigger. It’s a jewel you’ve got here.”

Baldwin:
“Not sure about that, Howard. But I guess the job’s yours anyway.”

That in essence is how it went, except for one last hitch. Invited to Seattle to confirm the deal, Howard had Sheri’s backing, his arguments rehearsed, and enthusiasm bubbling out of him. The dinner went well and they all seemed to get on. Perhaps carried away with the vision coming into focus before his eyes, Howard started talking about national and international expansion. When they shook hands at the end of the evening, he was convinced that everything had been settled.

Next day, back in New York, Howard took a call from Jerry. It was not the answer he had expected. Jerry told him that they had decided not to take the risk. He had scared them.

Howard Schultz is not a man to take no for an answer. He thought about things for 24 hours, then called Jerry again, pleading with him to reconsider.

Jerry said he needed time. He would sleep on it.

So he did. And next day he rang to offer Howard the job: head of marketing in charge of the retail stores. For a big salary cut and a small equity share – a stake in Starbucks’ future – Howard Schultz was now on board.

So Starbucks had a new marketing manager with a marketing man’s instincts. He wanted to expand the business. But Jerry hankered after authenticity, a strengthened link back to his coffee-roasting roots. He could not have been more excited when, in 1984, he got the chance to acquire Peet’s Coffee & Tea, the Californian corner shop that started it all. It was like a dream, a hippie ideal come true. But the dream kept him awake at night when it plunged Starbucks deeply into debt and landed him with the problem of commuting between San Francisco and Seattle.

Howard Schultz had other concerns, and the acquisition of Peet’s multiplied his frustrations. In 1983, he had gone to Italy to see a trade show on international housewares. The trade show made less impact on him than the visit to Italy itself. He was knocked out by Milan, a city of 1,500 espresso bars where people drank coffee outside the home at least once a day. He was entranced above all by the theatrical, perhaps operatic, nature of the barista’s movements. The barista was there behind the counter, ready to serve different kinds of coffee on request. As the barista glided from coaxing out an intense shot of espresso to whipping up a froth of milk to spoon on top, Howard was already imagining the concept transferred to Seattle and beyond. An instant insight grew into a grand vision. This would work.

The Italian coffee-house experience

“The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of espresso, and steaming milk at the same time, all the while conversing merrily with his customers. It was great theater. . . . It was like an epiphany. It was so immediate and physical that I was shaking.”

For Howard Schultz, as for Jerry Baldwin, the coffee was at the heart of things. But for Howard everything else mattered too: the choreography of the baristas, the relationship between the barista and the customer, the warmth, the smell, the sound, the whole experience. Above all, the sense of a community being created, a relaxed and relaxing place for people to gather.

Howard Schultz came back from Milan confessing that he had been overwhelmed by Europe, by its sense of history and its joy for life. He started thinking about how he could bring this coffee-house tradition and experience to the US, but he was keen to Europeanize the American rather than Americanize the European. It never quite works out in equal proportions, but a fusion of cultures was in his mind. This is an unusual starting point for an American-originated brand. In a sense, he acquired it from Jerry Baldwin, who was obsessed with coffee quality and learned everything from the Dutchman Alfred Peet. But Howard’s obsession was broader. It encompassed the whole idea of the coffee-shop experience, with its traditional roots back to communities and debates in the Grand Tour cities, and its umbilical cord to Italian espresso bars.

When Howard remembers the trip to Italy, something of the passion of grand opera pours out of him: “Starbucks had missed the point – completely missed it. This is so powerful! I thought. This is the link.” The opportunity he saw was to unlock the romance of coffee in American coffee bars: to liberate the idea of high-quality coffee from its location in the home, where Starbucks had always seen it. Experiencing Italian espresso bars had shown him coffee’s social power. Starbucks sold produce; it did not sell what Howard believed was the heart and soul of coffee, something that had existed for centuries in Europe. He attached words like “community” and “romance” to his vision of Starbucks’ potential as a great experience, not just a retail store.

The owners, though, were not for convincing. The Peet’s acquisition was romance enough for Jerry and Gordon. It made them feel that they had come of age as a business, like sons taking over from their father. Alfred Peet had sold his business back in 1979, so they would be buying it from people they had no ties with. They saw it almost as a duty to pay respect to the concept and to the man who had originally inspired them.

This was a crucial time for the future of Starbucks. The owners had taken on a large burden of debt to acquire Peet’s. Howard Schultz’s strategy – to experiment with the concept of an Italian coffee bar in Seattle – was cheaper. His clash with Jerry was pivotal to the future development of the brand. Perhaps for the first time, there was a feeling that Starbucks did indeed have a brand. Jerry insisted that espresso bars would take Starbucks too far from its origins: “We’re coffee roasters, we’ll lose our coffee roots.” Howard believed that, on the contrary, espresso bars would reconnect the company to its real coffee roots.

Who was right? Bizarrely, perhaps, both were right. The question takes us to the way that the Starbucks brand would position itself. A positioning like “the experience of real coffee” creates a vagueness of meaning that enables both sides to agree while making different interpretations. Brands need clarity of vision. Divergent paths were opening up. For Jerry, coffee drinking remained an experience you could savor only at home. For Howard, the experience had more resonance outside the home; he had learned from Italy that there is a home from home, a “third place” between home and work, where people can enjoy coffee and everything surrounding it: sociability, above all.

Almost as a sop to Howard, Jerry agreed to allow an experiment. When Starbucks opened its sixth store, in the period leading up to the acquisition of Peet’s, it was agreed that a small espresso bar would be included. The shop was a 1,500 square foot space on the corner of Fourth and Spring in downtown Seattle, due to open in April 1984. The space for the espresso bar was 300 square foot – half what Howard had hoped for. With no room for seating, it was little more than a counter where people could order and stand. There was a gleaming chrome espresso machine and two enthusiastic baristas who had been trained to make espresso, cappuccino and café latte. The coffee language was unfamiliar to American customers, and so were the drinks.

Howard kept reporting the results to Jerry. On its first day the shop had 400 customers, set against an average of 250 a day in the other Starbucks stores. Within weeks this grew to 800, and the growth was in the espresso bar operation. To Howard, the evidence was irrefutable. To Jerry, it was a source of further discomfort, a distraction from the core business of selling coffee beans, a wrong turning towards the restaurant business.

This might make it sound as if there were constant running arguments, but it was not really like that. Howard retained his respect and liking for Jerry, and he became Starbucks through and through in the way he committed himself to his work. Although he came from outside, he joined for a reason: he loved the passion he saw demonstrated by everyone in the business. He learned at first hand every aspect of the business. He served, he roasted, he tasted. One day he even made a citizen’s arrest of a thief, chasing him down the street to recover two stolen coffeemakers. This earned him a round of applause from the customers and did his reputation with the staff no harm.

The more he threw his personal energy into the business, the bigger the gap he saw between where Starbucks was and where it could be. Though he nagged away at Jerry, he was not winning the fundamental argument. Howard saw Starbucks’ potential as a brand that delivered an experience that could connect with people’s lives at an emotional level. Jerry took a more rational, functional approach, although he was just as emotionally committed. He saw Starbucks’ role as to educate.

Coffee can bear a great deal of educational proselytizing about its product attributes, but there are limits to the number of people who wish to be educated in this way. What interests us, what really contributes to our education, is what coffee does for us, how it makes us feel. Whether the drink in your cup tastes more or less bitter, more or less creamy, is not so important in the end. It is what the whole experience does to your spirits and your sense of self that reallycounts. If drinking a cappuccino in a coffee shop makes you feel OK with yourself and at ease with the world, then the chances are you will return to repeat the experience. So the product – the taste, color, aroma of the coffee – matters, but arguably everything else matters a bit more. This was the possibility that Howard saw, and he realized that it was apostasy in Jerry’s eyes.

Plans and visions began forming in Howard’s mind, heavily influenced by his visit to Italy. He was considering everything else as well as the coffee: the list ran from music, temperature, lighting, colors, ambience, furniture, decoration and space through to cleanliness. While writing these lines I am sitting in a Starbucks, 2003 version, in Hampstead, London. One of the baristas has just used a hand-held vacuum cleaner to suck up crumbs from the carpet nearby. “Retail is detail” is a popular saying, but it is hard for shopkeepers to live up to it every minute. Of course there will be times when the detail is not 100% right, and in a contemporary Starbucks, maintaining the brand is about maintaining lots and lots of details. Paradoxically, it would have been easier for Starbucks to get all the details right in its early days when it was focused on the product. Achieving the perfect roasted coffee bean in an obsessive way gives you license to focus less on other details generally covered by the word “service.” If Howard Schultz had a serious criticism of Starbucks in 1984, it was that its service was poor, mainly because its certainty about its own product quality led to arrogance and the unintentional belittling of customers whose appreciation of coffee fell short of the Starbucks mark.

The two men reached an impasse. Jerry Baldwin, now owner of Starbucks and Peet’s, stayed true to his coffee bean roots. Howard Schultz wanted to see where the thought planted in his mind and heart would take him. He had been backed into a corner where he could either stay, miserably confined, or leave to pursue his dream. He chose the latter, leaving Starbucks to set up his own coffee company. Strangely it was this twist in the story, Howard’s decision to leave Starbucks and establish another business, that led to the real development of the Starbucks brand.

He did it by creating a completely new brand. The name for his business was Il Giornale: “the daily” in Italian, the name of a newspaper. Howard’s ambition was to create his own version of Italian espresso bars in the US, reinventing a commodity product in the process. As when Starbucks was founded, most of the evidence argued against the new business. Analysts pointed out that coffee was the second most heavily traded commodity after oil. Moreover, it was a commodity in decline, with 20 years of falling coffee consumption in the US.

The arguments simply spurred Howard on. He believed in his concept. He wanted to take something everyday and familiar – coffee – and turn it into something desirable and sought after by building a sense of romance and community around it. His mission was to create mystique and charm, or rather to rediscover qualities that had been lost since the heyday of the European coffee house.

In the second half of 1985, Howard Schultz announced that he was leaving Starbucks to set up a new coffee-bar business. The parting of the ways seems to have been remarkably amicable. Howard carried on using an office at Starbucks while he developed his plans and drew up presentations to raise money from investors. Indeed, one day Jerry Baldwin took Howard aside and offered to invest $150,000 of Starbucks’ money in Il Giornale. Jerry saw no conflict because he genuinely believed this was a different business altogether; he still thought Howard was going into the restaurant business while he and Starbucks remained in the coffee-roasting business. Gordon Bowker was also supportive. He provided the name and many of the differentiating principles of the business: he insisted that Il Giornale had to meet people’s expectations that it would be better than any other coffee bar.

The search for investors was long and taxing, but need not concern us here. Howard made over 200 presentations, and more than 200 people said no. But enough people said yes to provide the seed money that allowed the first Il Giornale shop to open in Seattle in early 1986. Howard also had a stroke of luck as he started to recruit staff. Dave Olsen, who had run Café Allegro in the university district of Seattle and had become a minor legend in the west coast coffee world, rang Howard up and soon became an important part of his plans. Howard describes him as his coffee conscience. While Howard trudged from meeting to meeting trying to raise money, Dave concentrated on getting all the details of coffee and shop right.