Acquired
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Starbucks (with Howard Schultz)

June 4, 2024

AI Summary

5 min read

Starbucks: The Third Place That Changed the World

Howard Schultz in conversation with Acquired

In 1982, Howard Schultz walked into a small Seattle coffee-bean store called Starbucks for the first time. He was a New York salesman working for a Swedish housewares company, and he was blown away. "I was just like, I'm in a black and white movie, and all of a sudden everything was color." That moment set in motion a chain of events that would create one of the most remarkable business stories of the last half century: a company that today operates 39,000 stores across 86 countries, holds $1.7 billion in customer gift card deposits at any given time, and has employed over 5 million people.

But the Starbucks we know almost didn't exist.

The Origin Story

When Schultz joined Starbucks in 1982 as head of marketing, the company had three stores selling only coffee beans. The founders had no interest in serving beverages. Then Schultz went to Milan for a trade show in 1983. Walking into Italian espresso bars, he had what he describes as a black-and-white movie suddenly turning to color. He returned to Seattle convinced that Starbucks needed to serve espresso drinks. The founders disagreed.

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What you'll learn

  • 1 (00:00) **Episode Introduction** - Ben and David set up the episode with Howard Schultz, explaining why they are revisiting Starbucks and the context of the company's current challenges.
  • 2 (04:31) **Starbucks Pre-History & Howard's Arrival** - Howard describes the original three founders, the Pike Place store, and his first visit to Seattle in 1979-80 while working for Hammerplast.
  • 3 (12:03) **The Italy Epiphany & Founding Il Giornale** - Howard's 1983 trip to Milan reveals the espresso bar concept, which the original founders reject, leading him to leave and start his own coffee bar company.
  • 4 (29:11) **The Pivotal Acquisition of Starbucks** - The original Starbucks founders, in financial trouble, offer to sell the company to Howard, but a rival investor nearly steals the deal.
  • 5 (40:23) **The Business Model & Early Economics** - Howard details the incredible unit economics of the coffee bar business, including 80% gross margins and a 2:1 sales-to-investment ratio.
  • 6 (48:57) **The H2O Era & The People-First Culture** - The leadership trio of Howard Schultz, Howard Behar, and Orin Smith is formed, creating the company's operating system and people-first philosophy.
  • 7 (56:55) **Expansion, IPO & The Frappuccino Era** - Starbucks goes public in 1992, expands to LA, and begins building brand awareness through non-traditional channels like United Airlines and Costco.

+ Full timestamped outline available in the app

Show Notes

Starbucks. You’d be hard pressed to name any brand that’s more ubiquitous in the world today. With nearly half a billion global customer purchases per week across its stores and 3rd party retail channels, a significant portion of the human population gets their daily fix in the green and white paper cup. (Including our own Ben Gilbert who famously enjoys his daily spinach feta wrap. :)

But it wasn’t always this way. Long before the frappuccinos and the PSLs and the cake pops, Starbucks was just a small-time Seattle roaster that only sold beans — and was started not by Howard Schultz but rather the guys who later ran Peet’s (!). Starting from six tiny stores when Howard took over in 1987, this quirky coffee company named after a character from Moby Dick has scaled to nearly 40,000 locations worldwide.

Today, in a first for Acquired, the protagonist himself joins us as a third cohost to tell the whole story of Starbucks. And Howard is in the perfect moment to do this — after three separate stints as CEO he’s now retired, off the board of directors, and in his own words “not coming back.” So place a mobile order (or not! as you’ll hear Howard speak about), sit back with your own favorite Starbucks items, and enjoy.

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