Updated: Sep 8, 2021
Imagine that you’ve travelled back 50 years in time to Saturday, March 30, 1971 and you’re visiting the central market in Seattle. You notice there’s a new store that has just opened. Here is the sign on the storefront -
Starbucks original logo, 1971
You enter this new store, and this is what you see -
Starbucks original store, 1971
Time travel has landed you inside the original Starbucks store on the day it opened! Yes, Starbucks was a startup. It did not begin with 30,000 coffee bars! It began with this 1 coffee store. This original store morphed into a coffee bar in the late 1980s. It’s an international tourist destination now.
A good question we should ask is, “How were three 26-year-old guys with zero business experience able to create Starbucks, a new paradigm for the coffee business?”
Even though I’m an insider, one of the three founding partners, it has taken me decades to find the answer to that question. But, I have gradually discovered why we survived through my service as a mentor to more than 100 first-time entrepreneurs all over the world. They educated me. Through them, I was able see about what actually worked for us. This is an ongoing process. Today.
The three founding partners of Starbucks were already friends: Gordon Bowker, Jerry Baldwin, and me, Zev Siegl. We create a company in Seattle that later became the foundation for the global coffee colossus that is now everywhere. Here is a photo of us 50 years ago, when the concept of a new type of gourmet coffee roasting company occurred to us.
Starbucks Founding Partners, 1968
We were 26 years old. Do we look like start-up entrepreneurs? Yes. (I’m in the center.)
Let’s now end our time-travel visit to 1971, return to the present, and analyze the start-up of Starbucks. There are big and small reasons why Starbucks survived its first decade; here is my personal Top Four List -
1. The Team. The founding partners were a three-person team. Six months later the two senior managers who had specific expertise were added. With a leadership team of five people, the startup had the C-level capabilities it needed for the next 10 years. The right team really matters for start-ups. Entrepreneurs are more effective as a part of a team.
2. Financial Management. One of the founding partners, Jerry Baldwin, became Starbucks’ first financial executive. Without him, the company would not have attracted its first angel investors or sustained steady profitability. Jerry and mentoring 100 other startups have shown me that without financial expertise on the team, a startup is doomed to failure.
3. Profit. We chose an industry that can produce profit. It’s possible to be profitable as only coffee roaster, or a coffee wholesaler, or a coffee retailer, or a coffee bar. Starbucks was and still is all four.
4. Funding. Starbucks’ startup years were funded five ways: sweat equity, investment from the three founding partners, a small bank loan, profit from operations and a one-time investment from three angel investors during year two. That’s it! That is how non-tech start-ups were funded fifty years ago. [A 21st Century tech start-up utilizes crowd sourcing to pay for the MVP, a Series A round to pay for programmers to build out the platform, and a Series B round to expand the company’s market reach.]
What about passion? Why isn’t that in my Top Four List? Passion is vital, but it is nothing without a team, funding, financial management and profit. Nike utilized a memorable slogan for many years that is rooted in passion; “Just do it!” Nice slogan for sports, but not for first-time entrepreneurs. For a start-up business, a good team, financial management, profit, and funding are more important.
Has What has improved the start-up ecosystem upgraded since the 1970s? Fortunately, it has. Substantially!
The start-up of Starbucks was not able to use government grants/loans, crowdsourcing websites, angel forums, business accelerators, or Internet crowdfunding. These five resources didn’t exist in the 1970s. If they had been available, the founding partners would have used all of them. They’re wonderful, but they weren’t available until long after the year 2000. Let’s look at each one.
a. Government Grants and Low-Interest Loans. National governments want their economies to grow and, from time to time, they get excited about entrepreneurs and develop national programs to enable more of them to succeed. Right now, in Luxembourg, The Kingdom of Saudi Arabia and Poland there are programs that encourage new business development; low-interest loans, grants, training, and coaching.
b. Crowdsourcing Websites. ImpactGuru, based in India, is an example of crowdsourcing. Individuals donate to both for-profits and non-profits that want to develop operations with a social or a green purpose. IndieGoGo, GoFund Me and Kickstarter are a few of the other sites. Companies that utilize crowdsourcing do not offer the participants equity. Instead, the companies offer an incentive such as a gift, or perhaps a discount on their product or service.
c. Angel investor forums are one of the most effective means for funding the growth of young companies today. They act as both vetting systems and a connectors.
d. Business accelerators are popping up all over the world. They provide resources to promising new companies and, if the entrepreneurs succeed within the accelerator, many accelerators provide funding and connections to angel investors.
e. Internet crowdfunding is a more recent phenomenon. This is something like an angel investor network on steroids. Early-stage companies sell equity shares to investors via the Internet.
For start-up entrepreneurs, there have always been 1:1 personal services like training, professional coaching and mentoring -
Business incubators continue to be a presence in countries around the world. Seminars and classes are offered by government agencies and universities. They provide 1:1 training, peer-to-peer support, mentoring and connections. Most of them do not provide funding.
There are countries in which skilled coaching is offered to aspiring entrepreneurs. In the United States, the federal government funds two important networks of skilled coaches. One is the SBDC, the Small Business Development Center; the other is SCORE, Service Corps of rRtired Executives. Combined, these two networks have offices in every major city in the US.
There are experienced businesspeople [like me] who serve as mentors to first-time entrepreneurs all over the world, either in person or via Zoom. It is extremely rewarding to mentor 25-year-old entrepreneurs. I encourage everyone with experience to try it.
Because young entrepreneurs rarely have extra money, to mentor them I choose not to burden them with fees or demand equity shares. I have served as a mentor to more than 100 start-up entrepreneurs in 15 countries, most recently digital companies in Spain, Mexico, Lebanon, and Kuwait. The three founding partners of Starbucks were mentored by Mr. Alfred Peet, the founder of Peet’s Coffee. Without his support, Starbucks would have been a very different company.
I’m active in the global entrepreneurship ecosystem. This isn’t something new for me; I’ve been part of it for 50 years. From 1971 until 2005 I benefited tremendously from entrepreneurship. Now, I give energy back to the global ecosystem every week by mentoring, presenting, giving interviews and contributing these 1,100 words to Bespoke Diaries!
Zev Siegl, at home in Seattle, 2021.