Chatham Views

STARBUCKS CO-FOUNDER ADDRESSES STUDENTS AT BUSINESS MIXER

“Starbucks was not started by a guy in a nice suit with gray hair,” says the man in the nice suit with gray hair. This is Zev Siegl, and, to be fair, it’s been a couple years since he and two friends started Starbucks in 1970. Since then, the success of Starbucks may be best encapsulated in a 1998 headline from the satirical newspaper The Onion: “New Starbucks Opens In Restroom Of Existing Starbucks.” On January 22, Siegl shared some thoughts on entrepreneurship with Chatham students.

A few highlights:

Pick the right type of business
“We had an unfair advantage,” says Siegl. “Caffeine makes for a lot of repeat customers.” Until 1983, Starbucks – which started as a retail shop selling ground coffee, equipment and spices – gave away cups of coffee in the stores. “There were no gourmet coffee stores in Seattle in 1970,” he says. “We wanted to build affection for coffee that’s thoughtfully produced.”

Starbucks gradually expanded into roasting their own beans, then making beverages. The first coffee bar opened in 1983. “Now we were in three businesses,” says Siegl. “Roasting, retailing, and selling beverages.”

Grow slowly.
“The idea is anathema these days, because of the window of opportunity,” Siegl admits. “But we grew slowly. After ten years, we had six stores. Right now, there are 12,000 in the U.S. alone.” Siegl also mentioned that growing slowly allowed them to manage their costs too, citing postponing purchases until the business is profitable as one way to reduce expenses.

Consider alternate sources of funding.
“There’s a tendency for the first-time entrepreneur to get bogged down in the business plan. You need to focus on the Excel spreadsheet – the financial forecast,” says Siegl. “You’ll probably be stunned by how much money you need. But you can take advantage of grants and other government programs, get customers to prepay before opening day, do trades and exchanges of services or equipment, or just do it yourself.”

Find a mentor.
“Find a mentor who really has the keys to the kingdom and say ‘let’s go have dinner,’” says Siegl, who cites Alfred Peet of Peet’s Coffee & Tea as his mentor.

Be strategic about product development.
In the late 80’s, Starbucks introduced Frappucinos to fulfill a marketing need. People who came in for their morning coffee now had a reason to come back in the afternoon.

Add value.
“Get involved with a social good,” Siegel says. “Collect money from customers for organizations doing good in the community. Think of it as an opportunity to give back.”