Americans drink a lot of coffee. It’s a safe claim to make, even without the statistical proof to back it up. Many of those caffeine-addicted Americans, get their fix at one of the most recognizable coffee retailers in the entire world: Starbucks.
When Starbucks was in its heyday, you couldn’t walk down a block in New York City without encountering one. Even today, the colossal coffee corporation has 220 stores in Manhattan alone. Today, they have over 13,000 locations across the U.S. but they almost never got off the ground…
Starbucks, as it is today, would probably never have survived it’s initial foray into the world of consumer coffee if it weren’t for the intervention of a few well-informed capitalists, including Bill Gates. Now, some readers may be wondering, why they should care about the fate of a monetary monolith like Starbucks?
The answer is fairly straightforward and is most apparent to the coffee addicts out there who simply can’t get enough of their caramel macchiatos, mocha frappuccinos, and pumpkin spice lattes. Starbucks has become an American institution. They provide a service that just about everyone can partake in and they are located across the country’s roadways, in its airports, and on the streets of nearly every major city.
The first Starbucks opened in Seattle, Washington, in 1971. It was the brainchild of college friends and future business partners, Jerry Baldwin, Zev Siegl, and Gordon Bowker. They were an English teacher, a history teacher, and a writer, respectively. All three were inspired to open up their own business involving a shared love: coffee.
What’s in a Name
The three friends spoke to fellow coffee roasting entrepreneur Alfred Peet and learned his unique style of bean roasting. They brought that expertise to their new business. Turns out people liked their coffee enough that they figured they could open up a business. They named it Starbucks, after the chief mate in Herman Melville’s famous novel Moby Dick.
Business is Booming
The business boomed and by 1987, the three original owners had done what they set out to do. So they sold the entire chain of stores to former manager, Howard Schultz. He quoted a number, $3.8 million, a song, in retrospect. Baldwin offered Schultz 90 days to raise the money. Schultz, who was in his early 30’s and owned his own coffee business, was ecstatic.
Schultz’s own coffee houses, Il Giornale, were inspired both by his trip to Milan and his experience as a former manager of a Starbucks in Washington. He had loved seeing the way Italian coffee houses ran and the way they felt central to the communities themselves. He wanted to bring that the United States.
Sense of Community
“What really caught my attention was the sense of community that existed inside of these coffee bars, and what I began to realize and label as the ‘third place’ between home and work,” said Schultz.
Schultz knew his expertise as a coffee salesman wasn’t the only reason the founders considered him a potential buyer. They respected him sure, but they were also experiencing some financial troubles from the business as well. They not only wanted to sell Starbucks, but they also needed to. Schultz was thrilled of course, but had his own problems, too.
Being thrilled was not enough though, he also had to be flush with cash to afford the already booming business. Within two months, Schultz had raised about half the funds, an impressive feat all on its own. Unfortunately, it was not nearly impressive enough, not when the founders were so eager to sell.
Baldwin called Schultz to come in for a meeting, he had some disappointing news. He informed him that they had a competitive buyer. Schultz already owned a number of coffee outlets – his Il Giornale chain – and apparently one of his investors had moved to undercut him by offering the founders $4 million in cash with no due diligence.
Schultz knew immediately who the competition was. This person was one of the three business titans in Seattle at the time, and he would have the means to buy the founders out without a second thought. Schultz’s dreams were shattered. Luckily, his friend and attorney Scott Greenberg had some good news for him.
Here to Help
Greenberg told Schultz to stop by his office the next day to meet his firm’s senior partner, whom he said might have some interest in the budding coffee business as well. He didn’t know who this fellow was, but if he had the means to bid on Starbucks, he was surely a man worthy of hearing out.
The Whole Story
“I didn’t know who the senior partner was,” Schultz explained to Guy Raz in a recent NPR broadcast. The senior partner turned out to be none other than Bill Gates Senior, father of Microsoft founder Bill Gates. Gates Sr. shook Schultz’s hand and asked for the entire story, which the desperate entrepreneur revealed. When he was finished, Gates invited him on a walk.
Open the Gates
The walk he invited Schultz on was to go see the competitive buyer and see if they could work out an amicable agreement. Bill Gates Sr. is not a small man, nor is he a weakling when it comes to the world of business. At six feet and seven inches tall, and at the prime of his career, he was a force to be reckoned with. So Schultz was glad to have him on his side, but still nervous to meet a titan of industry that was his bidding competitor.
As they walked into the competitor’s office, Gates Sr. went into full wolf mode. He told the man, “You should be ashamed of yourself that you’re going to steal this kid’s dream. It’s not going to happen. You and I both know this is not going to happen.” Minutes later and the two of them walked out of the office, content in the knowledge that the man was going to retract his bid.
There was still one problem, however, Schultz was still about a couple million short of what the founders were looking for. He explained this to Gates Sr., feeling somewhat abashed. The tall man looked down at him and told him in no uncertain terms, “‘We’re going to find the money and my son, and I are going to invest.”
Quite a Sum
True to his word, the competitor dropped the bid and in August of 1987. Howard Schultz bought Starbucks for the agreed-upon $3.8 million. Schultz rebranded his Il Giornale coffee shops as Starbucks and expanded the business from there. He soon moved Starbucks beyond Washington and into the history books.
An Eye to The Future
A few years later and Starbucks had 46 stores all across the Northwest and Midwestern United States. They were roasting over 2,000,000 pounds of coffee a year. It was a fraction of what they roast today, but it was more than enough for Schultz, who saw the business as so much more than it was.
Today, Starbucks roasts many more beans and employs about 300,000 people. Schultz became a billionaire three times over and the name Starbucks became a household name – and all of it would never have been possible if it weren’t for the kindness and somewhat aggressive intervention of Bill Gates Sr.
Back In The Seat
Schultz served as CEO from 1987 to 2000 and only stepped down briefly. He returned to take the helm in 2008 and has been there ever since. Starbucks has gone through ups and downs in recent years, but they continue to do that one thing that made them stand out among their competitors, that is, make a great cup of coffee.