CHAPTER 6
The Imprinting of the Company’s Values

The ultimate measure of a man is not where he stands
in moments of comfort and convenience, but where
he stands at times of challenge and controversy.

—MARTIN LUTHER KING, JR.

A couple with a newborn child doesn’t usually sit down and think: What is our mission as parents? What values do we want to give this child? Most new parents are preoccupied with merely wondering how to get through the night.

Similarly, most entrepreneurs can’t afford to be that farsighted, either. They’re too absorbed with the problems directly in front of their noses to have the luxury of pondering values. I know I certainly was.

But as a parent, or as an entrepreneur, you begin imprinting your beliefs from Day One, whether you realize it or not. Once the children, or the people of the company, have absorbed those values, you can’t suddenly change their world view with a lecture on ethics.

It’s difficult, if not impossible, to reinvent a company’s culture. If you have made the mistake of doing business one way for five years, you can’t suddenly impose a layer of different values upon it. By then, the water’s already in the well, and you have to drink it.

Whatever your culture, your values, your guiding principles, you have to take steps to inculcate them in the organization early in its life so that they can guide every decision, every hire, every strategic objective you set. Whether you are the CEO or a lower level employee, the single most important thing you do at work each day is communicate your values to others, especially new hires. Establishing the right tone at the inception of an enterprise, whatever its size, is vital to its long-term success.

SHARING THE MISSION

I won’t mislead you. When I began planning for Il Giornale, I didn’t draft a mission statement or list the values I wanted the company to embody. I had some pretty good notions, though, based on what I had seen go right and wrong at Starbucks, about what kind of company I wanted to create.

What’s almost inconceivable to me today is how the ideal person came to me, just when I needed him most, to help articulate our common values and grow the company. Perhaps it was destiny.

One day, late in 1985, I was sitting at my desk, absorbed in planning the details of the Il Giornale launch. I had already left Starbucks but was still using my office there, and its floor was littered with drafts of menus, graphics, layouts, and designs.

I answered the phone and was greeted by a man I had met only a few times and knew mainly by reputation: Dave Olsen. People at Starbucks spoke of Dave with respect bordering on awe, so knowledgeable was he about coffee. A tall, broad-shouldered Montanan with longish wavy hair and intense eyes that sparkle from behind small oval glasses, he ran a small, funky establishment in the University District called Café Allegro. Students and professors would hang out there, studying philosophy or debating U.S. foreign policy or simply drinking cappuccinos. In a sense, Café Allegro was a prototype for what Starbucks later became, a neighborhood gathering place, although its style was more bohemian and it did not sell coffee beans and merchandise or cater to an early morning, urban, coffee-to-go clientele. It was more in the European café tradition than the Italian stand-up espresso bars I had seen in Milan.

“I hear you are putting a plan together to open some coffee bars downtown,” Dave said. “I’ve been thinking about looking for a location or two downtown myself. Maybe we could talk.”

“Great, come on down,” I told him, and we made an appointment to meet in a few days.

I hung up and turned to Dawn Pinaud, who had been helping me get Il Giornale started. “Dawn,” I said, “do you have any idea who that was?”

She stopped and looked at me expectantly.

“Dave Olsen! He might want to work with us!” It was such a remarkable stroke of good fortune. Although he jokes about it now, protesting that he was just a guy in jeans, running a little café and having fun, I knew that having Dave on my team would lend Il Giornale an authenticity and coffee expertise far beyond what I had been able to develop in three years. With his humble manner, precise speech, deep thoughts, and strong laugh, I also knew he’d be a lot of fun to work with.

On the day of our meeting, Dave and I sat on my office floor and I started spreading the plans and blueprints out and talking about my idea. Dave got it right away. He had spent ten years in an apron, behind a counter, serving espresso drinks. He had experienced firsthand the excitement people can develop about espresso, both in his café and in Italy. I didn’t have to convince him that this idea had big potential. He just knew it in his bones.

The synergy was too good to be true. My strength was looking outward: communicating the vision, inspiring investors, raising money, finding real estate, designing the stores, building the brand, and planning for future growth. Dave understood the inner workings: the nuts and bolts of operating a retail café, hiring and training baristas, ensuring the best quality coffee.

It never occurred to us to become competitors. Although Dave had been looking for ways to move forward and grow, when he saw what I was planning, he thought it would be more fun to join forces. He agreed to work with me to get Il Giornale off the ground.

Because I still had very little cash, Dave agreed to work twenty hours a week for a paltry salary of $12,000 a year. In fact, he committed himself full time and then some from the start. He later was rewarded generously as his stock options gained in value. But Dave wasn’t in it for the money. He joined our team because he believed. He was intrigued by the Italian coffee bar approach, and he wanted to make sure we served the best coffee and espresso possible. He became the coffee conscience of the company.

Even today, as Starbucks’ senior vice president for coffee, Dave explains that he doesn’t view himself as either an employee or an executive or a founder, but rather as “a willing and eager and very fortunate participant.” “It’s like a mountain climbing expedition,” says Dave. “Yeah, I get a paycheck fortunately. I wouldn’t do everything I do if I didn’t. But I probably would do a lot of it anyway.”

If every business has a memory, then Dave Olsen is right at the heart of the memory of Starbucks, where the core purpose and values come together. Just seeing him in the office centers me.

If you’re building an organization, you realize quickly that you can’t do it alone. You’ll build a much stronger company if you can find a colleague you trust absolutely, someone who brings different strengths to the mix but who still shares your values. Dave gets exhilarated at the top of Mt. Kilimanjaro. I get energized by the excitement at a basketball game. He can rhapsodize over a flavorful coffee from Sulawesi; I can fire up a roomful of people because of my heartfelt commitment to the future of the company.

Dave Olsen and I came from different worlds. He grew up in a quiet Montana town, and in his Levis, T-shirts, and Birkenstocks, was already running a little café while I was making sales calls in midtown Manhattan skyscrapers for Xerox. Dave’s love affair with coffee started in 1970, during a visit to a friend in Berkeley. While on a walk he came upon Peet’s, then an offbeat coffee store on Vine Street. He bought a little stovetop espresso maker and half a pound of dark Italian roast from the Dutchman himself and started fiddling. The espresso he brewed that day captivated him so much that he began regularly experimenting with the taste to get it just right.

The Army moved him to Seattle, where he worked as a carpenter. One day in 1974 he quit his job, loaded up his bicycle, and pedaled to San Francisco, nearly a thousand miles. There, he discovered the cafés of North Beach, Italian restaurants with atmospheres that were operatic, bohemian, noisy, eclectic, and stimulating. They treated espresso-making as one of many fine Italian arts. Dave began parking his bike against the windows of a number of restaurants and talking to their owners about food and wine and coffee.

Lots of people dream about opening a coffee house. Few actually do. But that’s precisely what Dave Olsen did when he got back to Seattle in the fall of 1974. He rented a space in Seattle’s University District, in the garage of a former mortuary, on an alley just opposite the busiest entrance to campus.

Café Allegro became a shrine to espresso, with a shiny espresso machine front and center. Few Americans knew the term caffè latte in those days. He made a similar drink and called it café au lait. Dave searched Seattle for the best coffee beans and quickly found Starbucks, then selling only coffee by the pound. He got to know the founders and the roasters, and tasted coffee with them. He worked with them to co-develop a custom espresso roast that suited his palate, just a shade darker than most of Starbucks’ other coffees, but a shade lighter than the darkest coffees they offered.

That espresso roast, developed for Café Allegro, is still sold in Starbucks stores today, and it’s used in every espresso drink we serve. That’s how closely integrated Dave Olsen is to the legacy of Starbucks.

As different as our backgrounds were, when Dave and I started Il Giornale in 1985, we had one undeniable connection: our passion for coffee and for what we wanted to accomplish in serving it. We took on different roles, but no matter whom we talked to or what situation we were involved in, we broadcast exactly the same message, each in a way that reflected our individual styles. There were two voices, but one point of view. The linkage, the alignment, and the common purpose that Dave and I have had is as rare in business as it is in life.

When I first met him, Dave owned only one sports coat, and that was because his wife worked for an airline that required a coat and tie for employees’ relatives flying on free airline passes. Today, he is as amazed as anyone that he is an executive in a $1 billion company, though he retains the spirit of an artist or inventor.

Starbucks would not be what it is today if Dave Olsen hadn’t been part of my team back at Il Giornale. He helped shape its values, bringing a strong, romantic love for coffee, unshakable integrity, disarming honesty, and an insistence on authenticity in every aspect of the business. He shared a vision with me of an organization where people left their egos at the door and worked together as an inspired team. He freed me up to build the business, for I knew I never had to worry about the quality of the coffee. Dave is a rock, part of the foundation of the company.

When you’re starting a new enterprise, you don’t recognize how critical those early decisions are not only in the formulation of the business itself but in laying the groundwork for its future. As you build, you never know which decisions will end up being the cornerstones. Each one adds so much value later on, and you’re not cognizant of it at the time.

Don’t underestimate the importance of the early signals you send out in the course of building your enterprise and imprinting your values upon it. When you take on a partner, and when you select employees, be sure to choose people who share your passion and commitment and goals. If you share your mission with like-minded souls, it will have a far greater impact.

EVERYTHING MATTERS

At the time, our plans seemed impossibly ambitious. Even then, when nobody had heard of Il Giornale, I had a dream of building the largest coffee company in North America, with stores in every major city. I hired someone who knew how to run a spreadsheet on a personal computer to do some projections, and originally asked him to build a model based on opening 75 stores over five years. But when I looked at the numbers, I told him to scale the plan back to 50 stores, as I figured nobody would believe 75 was achievable. In fact, five years later, we did reach that goal.

The tiny office I rented had space for only three desks, jammed close together, and there was a little conference room in an adjoining loft. When we started selling panini sandwiches, Dave used to slice the meats in the office, about ten yards away from my desk. I’d be on the phone, talking to potential investors, with the smell of those cured meats wafting up under my nose. Dave delivered the meat to the stores in his beat-up, old red truck.

The day the first Il Giornale store opened, April 8, 1986, I came in early, just as I had for the first Starbucks coffee bar. At 6:30 A.M., the first customer was waiting outside the door. She came right in and paid for a cup of coffee.

Somebody actually bought something! I thought with relief.

I stayed the entire day, and because I was too nervous to work behind the counter, I just paced and watched. A lot of Starbucks people came down that day to see what my store looked like. By closing time, we had nearly 300 customers, mostly in the morning. They asked a lot of questions about the menu, and we started educating them about Italian-style espresso. It was a gratifying start, and I was pleased.

In those first weeks, I checked on the quality, the speed of service, the cleanliness. I refused to let anything slip. This was my dream, and everything had to be executed perfectly. Everything mattered.

Dave worked behind the counter, from opening through the morning rush. Then he would come to the office. Dave and I would always go back to the store for lunch. We paid full price, doing everything we could to keep the sales up, drinking and eating lots of food and coffee to make sure potential investors saw strong sales numbers. It’s a custom we continue; we still pay full price at every Starbucks store we visit.

We made a lot of mistakes. In that first store, we were determined to re-create a true Italian-style coffee bar. Our primary mission was to be authentic. We didn’t want to do anything to dilute the integrity of the espresso and the Italian coffee bar experience in Seattle. For music, we played only Italian opera. The baristas wore white shirts and bow ties. All service was stand-up, with no seating. We hung national and international newspapers on rods on the wall. The menu was covered with Italian words. Even the decor was Italian.

Bit by bit, we realized many of those details weren’t appropriate for Seattle. People started complaining about the incessant opera. The bow ties proved impractical. Customers who weren’t in a hurry wanted chairs. Some of the Italian foods and drinks needed to be translated.

We gradually accepted the fact that we had to adapt the store to our customers’ needs. We quickly fixed a lot of the mistakes, adding chairs, varying the music. But we were careful, even early on, not to make so many compromises that we would sacrifice our style and elegance. We even debated whether we should have paper cups for the to-go business, which we knew would constitute a large part of our revenues. Although espresso tastes better in ceramic cups, we didn’t really have a choice: If we didn’t offer coffee to go, business would have been minimal.

Still, the core idea worked. Within six months, we built up to serving more than 1,000 customers a day. Our tiny 700-square-foot store, near the main entrance of Seattle’s tallest building, became a gathering place. We were filling a void in people’s lives. The regulars learned to pronounce the name, Il Giornale (il jor-nahl’-ee), and even took pride in the way they said it, as if they were part of a club. That first store was a little jewel, definitely ahead of its time.

Speed, we realized, was a competitive advantage. Our customers, most of whom worked in the busy downtown office buildings nearby, were always in a hurry. Hap Hewitt, an innovative engineer who had set up the conveyor belts in Starbucks’ factory, also invented a proprietary system for serving three kinds of drip coffee simultaneously, modeled after a beer tap.

Our logo reflected the emphasis on speed. The Il Giornale name was inscribed in a green circle that surrounded a head of Mercury, the swift messenger god. Later, we created a portable backpack tap system and sent employees out with a tray and cups to sell coffee in offices. We called them the Mercury men.

Still, the key to success, we figured, was in the hands of the people we hired. Dave trained them in coffeemaking; I taught them selling and managing techniques. More important, we infused them with a desire to achieve the Big Dream, the spirit that together, we could accomplish great things.

Dawn Pinaud was Il Giornale’s first employee. She helped me start the company and she managed the Columbia Center store. Jennifer Ames-Karreman came on in March and worked as a barista from Day One. She had been an advertising account executive and hoped to grow with the company.

In their enthusiasm, Dawn and Jennifer created systems that, while far too sophisticated for a single store, helped us get an accurate picture of our business. We kept careful accounts of our coffee, our pastries, our cash, our spoilage. We tracked a lot of product categories to see what was selling best. We always knew what we needed to do to make our budget. With all this information, we were able to set definite goals as we began our rollout.

In November, I hired Christine Day as my assistant. She had just ended a maternity leave and had a business degree as well as firsthand experience at a financial company. She wound up doing nearly everything: administration, finance, computers, payroll, human resources, purchasing, banking, and typing. At first, she even prepared the profit and loss statements, balance sheets, and inventory and sales audits. She did all the bookkeeping by hand. Like Dave and me, Christine immediately started working twelve-hour days, so quickly was she caught up in our passion and our conviction.

One day, Christine was negotiating with Solo, the huge paper cup supplier, trying to get a lower price. As we were hardly a major client, they saw no reason to give us a break. “We’ll be your biggest customer someday,” Christine told them. I doubt they believed it, but I’m sure she did. We all had such faith in the enterprise that none of us ever questioned our ability to become a world-class company.

We were, in many respects, like a family. I used to invite everyone to my house for pizza, and they watched as my son learned to crawl and walk. On my thirty-third birthday, they ordered a cake and presented it to me as a surprise in the store. The customers gathered around and joined the baristas in singing “Happy Birthday,” embarrassing me, but filling me with gratitude that with all of our hard work, we were still able to create some fun for each other.

We opened a second store just six months after the first, in another downtown high-rise, the Seattle Trust Tower at Second and Madison. For the third store, however, we went international, and picked a site in Vancouver, British Columbia, in the SeaBus Terminal, which opened in April 1987. That might have seemed an illogical choice for a venture with only two stores. But I figured that, given my desire to grow to 50 stores and given my investors’ doubts about my ability to expand outside Seattle, I needed to demonstrate quickly and decisively that my plan was feasible. I couldn’t afford to wait till the tenth store to make my move. I had to do it soon.

We had no idea of the complexities of exchange rates and customs and different labor practices. We never considered the intricacies of operating in a foreign country, such as the need for a separate bank account, separate statements for the Canadian government, and foreign exchange adjustments in our accounting —all for one small coffee bar.

Dave went north to open the Vancouver store and to train its staff. When Dave is involved in a project, you know not only that it’s going to be done properly but also that it’s going to be done fastidiously. Although he had a young family in Seattle, he spent nearly a month in Canada, living in a budget hotel, just to make sure our Il Giornale coffee bar there would be a mirror image of the service and authenticity of our Columbia Center store in Seattle.

All three of the Il Giornale stores quickly caught on with customers. By mid-1987, our sales were around $500,000 a year for each store. Although we were still losing money, we were on track to reach our ambitious goals, and as a team we were elated about what we were creating. Our customers were delighted. My vision was becoming a reality.

WHEN YOU SEE THE OPPORTUNITY OF A LIFETIME, MOVE QUICKLY

In March of 1987, something happened that changed the course of my life, and that of Starbucks: Jerry Baldwin and Gordon Bowker decided to sell the Seattle stores, the roasting plant, and the name Starbucks, keeping only the Peet’s assets. Gordon wanted to cash out to take a break from the coffee business to focus on other enterprises, while Jerry, who was dividing his time between Seattle and Berkeley, wanted to concentrate on Peet’s.

They had kept their idea quiet, but it was not completely unexpected to those who knew them. I was aware of some of their troubles and the tension between the two parts of the company. As soon as I heard, I knew I had to buy Starbucks. It seemed like my destiny. Again, bashert.

At that time, Starbucks was much bigger than we were, with 6 stores to Il Giornale’s 3. My company hadn’t yet completed a full year of operations, so Starbucks had annual sales many times the size of ours. It would be like a case of salmon swallowing the whale—or, as Dave put it, “the child is father to the man.” But to me, the fit seemed natural and logical: Not only would Il Giornale soon need its own roasting plant, but Starbucks’ whole-bean business and Il Giornale’s beverage business complemented each other perfectly. More important, I understood and valued what Starbucks stood for.

I had only recently exhausted nearly every resource in raising $1.25 million. Now I needed to find nearly $4 million to buy the Starbucks’ assets. However daunting that task appeared, I was confident I could do it. My original supporters were impressed with the progress Il Giornale had made in a short time, and I was sure some of them would agree to increase their stake. And other investors, who had said no the first time, were sure to jump in for this round, now that it involved buying Starbucks. If we managed it well, all the investors would benefit.

Quickly, we pulled together the numbers. I had just hired Ron Lawrence, who had years of experience in the restaurant business, to handle finance and accounting and to design a point-of-sale system for the company.

“Ron,” I said, “we need a pro forma and a complete private-placement package to go out to our investors. We need to get all the financials on Starbucks. Can you do it in a week or two?”

He was game, and we set to work figuring how to raise enough to buy the company and have some expansion capital as well. After arranging a line of credit with local banks, we prepared an offering circular to distribute to all the Il Giornale investors and a few others I had come to know.

I went to my board and ran the plan past them. It seemed like a sure win.

WHAT TO DO WHEN THEY

TRY TO GRAB IT FROM YOU

Then, one day, it nearly fell apart. I almost lost Starbucks before I ever had it.

While we were structuring the deal, I heard that one of my investors was preparing a separate plan to buy Starbucks. His arrangement would not evenly distribute the ownership among Il Giornale shareholders, but would ensure a disproportionate share for himself and some of his firends. I was certain that this man intended to reduce me from a founder and major shareholder to an employee with a much smaller, diluted position, running Starbucks at the will of a new board he controlled. I also thought his plan would have unfairly treated some of my other early investors, people who had trusted me with their money for Il Giornale.

The pressure on me was almost unbearable. This man was a business leader in Seattle, and I thought he had already lined up support from the city’s other leading lights. I feared all my influential backers would defect to this new arrangement, leaving me with no options. I went to Scott Greenburg, and we approached one of his senior partners, Bill Gates, father of Microsoft’s founder, who at six feet, seven inches, was a towering figure in town. We prepared a new strategy and arranged to meet with the investor. Bill Gates agreed to go with me.

The day of our meeting was one of the toughest, most painful of my life. I had no idea how it would turn out, and my life’s work was at stake. As I walked in, I felt like the Cowardly Lion, shaking on my way to an audience with the Great Oz. My opponent sat at the head of a conference table, larger than life, in full command of the room. Without even waiting to hear me out, he began blasting me.

“We’ve given you the chance of a lifetime,” I remember him shouting. “We invested in you when you were nothing. You’re still nothing. Now you have an opportunity to buy Starbucks. But it’s our money. It’s our idea. It’s our business. This is how we’re going to do it, with or without you.” He sat back before delivering the ultimatum: “If you don’t take this deal, you’ll never work again in this town. You’ll never raise another dollar. You’ll be dog meat.”

I was appalled, but I was also angry. Was I just supposed to roll over and take this? “Listen,” I said, my voice shaking. “This is the chance of a lifetime. It’s my idea! I brought it to you, and you’re not taking it away. We will raise the money, with or without you.”

“We have nothing to discuss with you,” he said. Others in the room sat quietly or supported him.

When the meeting ended, I walked out and started to cry, right there in the lobby. Bill Gates tried to reassure me that everything would turn out all right, but he was aghast about the outburst at the meeting. I’m certain he had never seen anything quite like it before.

That night, when I got home, I felt as though my life had ended. “There’s no hope,” I told Sheri. “I don’t know how I’m going to raise the money. I don’t know what we’re going to do.”

This was a turning point in my life. If I had agreed to the terms that investor demanded, he would have taken my dream from me. He could have fired me at whim and dictated the atmosphere and values of Starbucks. The passion, the commitment, and the dedication that made it thrive would have all disappeared.

Two days later, with the support of Steve Sarkowsky, I met with some of my other investors and presented my proposal: Every investor in Il Giornale would have a chance to invest in the purchase of Starbucks. The plan would be fair to all of them, and it would be fair to me. They saw that, and they told me they admired my integrity for refusing to agree to a plan that benefited big investors at the expense of smaller ones. They backed me, as did almost all my other investors. Within weeks, we managed to raise the $3.8 million we needed to buy Starbucks, and life has not been the same since.

Many of us face critical moments like that in our lives, when our dreams seem ready to shatter. You can never prepare for such events, but how you react to them is crucial. It is important to remember your values: Be bold, but be fair. Don’t give in. If others around you have integrity, too, you can prevail.

It’s during such vulnerable times, when the unexpected curve balls hit you hard on the head, that an opportunity can be lost. It’s also the time when your strength is tested most tellingly.

I can’t say that I’ve made the right choice in every business interaction of my life. But no matter how much I achieve, no matter how many people report to me, I cannot even imagine treating anyone as I was treated that day. Skeptics smirk when they hear me talk about “treating people with respect and dignity,” a line we later used in the Starbucks Mission Statement. They think it’s empty talk, or a truism that is self-evident. But some people don’t live by that rule. If I sense that a person lacks integrity or principles, I cut off any dealings with him. In the long run, it’s not worth it.

Those original investors, who put their faith in me, were well rewarded. They’ve stood by me through tough times and trusted in my integrity. I have tried to never violate that trust.

By August of 1987, Starbucks was mine. It was electrifying but also frightening.

I woke up early one morning that month and took a long run. By now, the enormity of the task, and the responsibility, was starting to sink in. I had a chance to accomplish my dreams, but I also had the hopes and fears of nearly a hundred people resting on my shoulders. As I jogged through the lush arboretum, I saw a long, winding road stretching out ahead of me, disappearing just over the crest of the next hill, into the heavy mist.

The Starbucks Corporation of today is actually Il Giornale. Founded in 1985, it acquired the assets of Starbucks in 1987 and changed its name to Starbucks Corporation. The company Jerry and Gordon founded was called Starbucks Coffee Company, and they sold us the rights to that name. Their company is now known as Peet’s.

At thirty-four, I was at the beginning of a great adventure. What would keep me on track was not the size of my holdings but my heartfelt values and my commitment to building long-term value for our shareholders. Every step of the way, I made it a point to underpromise and overdeliver. In the long run, that’s the only way to ensure security in any job.