How Did STARBUCKS Get So Big?

[Music] where do you even start when it comes to Starbucks I guess they're big right that's what I'd like to talk about they have almost 30,000 locations what other coffee chain even comes close to that Tim Hortons Dunkin Donuts not even when you combine them on a global scale and in the u.s. Starbucks is just by far number one about half of their locations are in the US and the other half are spread throughout the rest of the world notably almost 5000 in China 1,500 in Canada 1,200 in Japan 1,200 in Korea 1,000 in the UK about half of those our company owned and the other half are licensed obviously they make way more money from the company owned stores there 2018 revenue by the way was almost 25 billion dollars making them a fortune 500 company ranking them right there at 121 I remember and I don't even think this is as much the case anymore but everyone used to joke about that the one I think of was in the second Austin Powers movie they poked fun at it dr. evil several years ago we invested in a small fee a ttle based coffee company it was a big late-night joke the joke being that there was one on every corner I guess the joke today being how they always mess up your name when they write it on the cup or call it out I don't know but for a company that's well-known throughout the world and actually has a subset of jokes about how they're so big I think it's worth it to take a look at how they got so big there's two distinct parts to this concerning different people in different stages of the company for the first part we have Gordon Bowker Jerry Baldwin and Zev Siegel three students that met each other in the early 1960s while attending the University of San Francisco the way they all met is actually really unusual two of them decided to live together after having only known each other for a few minutes and then another two met each other through answering a bulletin about carpooling across the country you can look more into that one because today I'm staying focused on Starbucks well a few years after graduation they were all living in Seattle on separate career paths but looking for a way that they could get together and start working on something Volker was a writer for a magazine that had just gone out of business Baldwin was an English teacher Seagal was a history teacher but they were all passionate about their coffee and I'm gonna say particularly Gordon Bowker I say that because he had been taking trips to Vancouver from Seattle which is a sizable trip for the sole purpose of bringing back some coffee that he felt was much better than anything he combined Seattle and let's face it it probably was that coffee that he would bring back became really popular among his friends they would buy it from him and that's where the whole idea came from the three of them just stopped and said look we all love premium coffee there's an underserved market for it out here and we're in searched for a project I think it became a no-brainer at that point when they decided that they would open a high quality coffee store but they didn't jump right into it they located a coffee store in California that was successfully doing what they were looking to do the man who ran that store Alfred Peet ended up becoming somewhat of a mentor and if you're familiar with Pete's coffee it's the same Pete more on that later so after about three or four months of learning about the business and Pete's methods they each contributed one thousand three hundred and fifty dollars of their own money collectively took out a $5,000 loan and used it to open up the first ever Starbucks they settled on that name because they wanted something that started with that strong s T sound after going through a long list of the s t words they thought of the first mate from the book Moby Dick named Starbuck now there's a name with some strong sounding letters all the way through plus is an added bonus it evoked the romance of the high seas and the seafaring tradition of the early coffee traders though I suspect that may have been more of an afterthought so here we are Starbucks now exists as a single Seattle location but it's important to point out that this store was nothing like the one we know today mostly because the coffee they sold wasn't ready to drink instead they sold all the stuffs you can make it yourself at home meaning they sold the coffee beans teas spices in addition to the coffee makers and other accessories this was more of a retail store than a restaurant but it did well and over the next few years they expanded into a handful of locations around the Seattle area in addition to starting a wholesale business they would provide their special roasted coffee two local restaurants Zev Siegel one of the three founding members left the company in 1980 and that leads us to the second part this one concerning a man named Howard Schultz his initial connection with the company was that he was a Salesman for one of their suppliers something I've noticed about this guy he recognizes something good when he sees it I say this because during his first trip to one of those Starbucks stores in 1982 he was so impressed with everything that he instantly wanted in on it so desperately that he actually convinced them to hire him on as a manager one year later they sent him to a trade show in Italy he was in Milan and again recognized something good this time he was impressed by all the coffee shops and espresso bars that he encountered over there just nice fun relaxing environments when he returned he told poker and Baldwin about them and heavily urged them to move their business in that direction he may have come on a little strong but in his mind coffee shops in espresso or the way of the future far more lucrative than the retail business that they were currently pursuing bokor and Baldwin weren't nearly as convinced to give them credit they did listen and start experimenting a bit with the idea but it was just one location and it wasn't their focus - Schultz it wasn't nearly enough and he wasn't about to pass up this opportunities so in 1986 he resigned from Starbucks so he could start his own chain of coffee shops that were actually closely tied to Starbucks there were early investors and actually supplied his coffee now I need to backtrack a little bit because we're talking about too many coffee businesses at one time let's take it slow remember their mentor Alfred Peet and his original coffee business in California that they modeled the first Starbucks after well Pete had since sold it to someone else and in 1984 Starbucks jumped at the opportunity to buy it given their history with it in the respect for it so now they owned it then in 1987 Gordon Bowker left the company and Jerry Baldwin decided he'd be happier running Pete's rather than sticking with Starbucks so here's what happened Pete's and Starbucks were separated Jerry Baldwin stuck with Pete's and sold Starbucks to Howard Schultz he combined it with the smaller company that he had started I know there's a lot here but end result was Jerry Baldwin was now in charge of Pete's and Howard Schultz was now in charge of Starbucks now I need to point out that compared to today this is all very small stuff Starbucks had six locations at the time of the deal and was sold for just under four million dollars I wouldn't say the initial founders did too much in the way of growing Starbucks to use an obvious metaphor it they did plant the seed and also established some principles that would be continued well past their involvement but I think anyone would tell you that Howard Schultz is the reason Starbucks is so big we all know how much he believed in the concept and it was that confidence that motivated him to take some big risks and expanding it he spared no expense and hiring top-tier managers went into dead-even posted losses for a while but the important thing is even through these uncertain times he never compromised his vision here's what they had going for them for one quality at times you can call this a disadvantage but from the beginning one of their principles was never to sacrifice quality and good employees Starbucks offered good pay and benefits which resulted in a lower turnover and meant they were more knowledgeable and happier than their competitors they would receive greater training when they were first hired and just be more experienced since they worked there longer their reputation this sentence sounds ridiculous today what Starbucks was sort of a cool mysterious place that a lot of people had heard of but few had actually been to their reputation preceded them so whenever they would enter a new city everyone would just hurry down to check them out so in answering how did they get so big I'd simply summarize that they had a good idea a good reputation good employees good management high standards and most important a leader who believed in what they were doing from the time that he took over 1987 to 1992 the chain had grown from six locations into over 100 which is incredible right there but then they had their public offering and things started exploding again what can you really say about this I think it's just fun to look through how many locations they've opened over the years this graph is crazy you can't even see the lines until they started getting into the 1990s that's when all those late-night jokes started and I should point out that when the second Austin Powers movie was poking fun at how big they were that in 1999 and we can see how much they've grown since then here's the same information but presented in a different way the last graph showed how many total locations I had each year and then this graph shows how many they added each year it shows that they added more stores each year than the year before from 1987 to 2001 and have added new stores every single year with the one exception of 2009 you know it's the economic recession and all that not great for a high-quality coffee provider but obviously they brought it right back just a few other things worth mentioning that have contributed to their growth and brand awareness in 1994 they entered into a joint venture with Pepsi to produce those frappuccinos then in 1998 they formed a licensing agreement with Kraft to make those bags of their coffee that you see in the grocery store in 2003 they paid 72 million dollars to buy the Seattle coffee company which included the brand Seattle's best there's a lot more that could be said but that's enough for today moving on to Howard Schultz he has remained the CEO of Starbucks for the better part of the last thirty plus years and the short times he wasn't he was always involved in other big roles in the company today he's worth four point six billion dollars and Forbes ranks him as the 617 richest man in the world which I know 617 isn't that high on the list but it's still pretty rich let me know in the comments what do you think of all this it's a great story of following your passion and starting a business around it but the biggest thing I take from it is you have to respect Howard Schultz he saw a promising small business and not only squeezed his way into it he eventually took it over and scaled it to an unheard-of proportion it doesn't even seem possible but here we are he made some smart moves took some big risks and it all paid off so maybe we can pull some motivation from it if you come across a small business with big potential maybe try to get involved I wouldn't expect these results but we now know it's possible it's just a great story of growing a business easily one of the most notable so any thoughts you have about it leave them in the comments I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 422,834

Rating: 4.939579 out of 5

Keywords: Starbucks, Coffee, Business, Company

Id: LiEz_8lX3NQ

Length: 11min 13sec (673 seconds)

Published: Wed Sep 04 2019