Earlier this year, Starbucks co-founder Zev Siegl sat down with The Drum to discuss how the brand has evolved from a single coffee bar in Seattle – and why it was the perfect place to start one of the world’s biggest brands.
If it wasn’t for a particularly bad cup of coffee in 1970, the founders of Starbucks might not have added it to their list of entrepreneurial ideas as they brainstormed new careers. Since then, Starbucks has grown to 25,000 locations worldwide thanks in part to the so-called Third Place theory, which argued consumers need a welcoming place to spend their time outside work and home. But in a recent conversation with The Drum, Zev Siegl, keynote presenter, mentor and Starbucks co-founder, said Starbucks may actually be more of a brand management company than a coffee company.
Take us back to the beginning – how did you become one of the co-founders of one of the biggest, most recognizable coffee brands in the world?
In 1970, the co-founders were friends who were not completely happy with the work they had in their lives and the three of us started talking on a regular basis. We’d have lunch and talk about the possibility of starting a company. We did exactly what most entrepreneurs in their late 20s did – we made lists of things. And one day, we were talking over lunch and had a particularly bad cup of coffee and we took a sip of the coffee and it was awful and we started talking about coffee [and how it] just doesn’t have to be this bad. And during that conversation, it came out – and it shocked us – that two of us had purchased gourmet coffee from companies in other parts of the country just to see what good coffee tasted like. So we said, “Oh yeah, let’s put coffee on our list of good ideas.” And my personal policy about business ideas is any idea you can think of is the perfect idea until you find out why it’s not, so that’s how we operated. It started just like all of our great ideas – we started researching and never found out why coffee wouldn’t work.
I serve as a mentor to lots of young people in their 20s and 30s thinking about starting businesses and the same philosophy works for them, too – they start researching and do an in-depth job, including financial forecasting to find out if the idea was profitable and try to fill in all the necessary blanks with the best information you can get and then make a decision about whether a business [is viable].
Coffee still has a magnetic attraction for lots of people. If you go to any coffee roaster that operates coffee bars, you’ll always find really interesting people working there. Whether it’s in Kuwait, Johannesburg, it never fails – coffee attracts interesting, bright people.
I read the Starbucks name comes from Moby Dick, but what’s the story behind the logo? It’s something to do with the waterfront?
The same name appears in Moby Dick, but the name was arrived at largely phonically. We liked the sound of it… It occurred to us, we liked the sound very much and the way it looked in print, but of course we were influenced by Moby Dick and Fair Wind to Java – the name of the ship is Starbuck – and other allusions to the whaling industry in Nantucket in the 17th century. But no one in the naming group ever said, “We’re doing because it’s in Moby Dick.”
The logo was developed by a wonderful guy named Terry Heckler, who still has an agency in Seattle called Heckler Associates and he and his team came up with the twin-tailed siren from ancient times and it was reputed to have enormous powers of attraction – more than a single-tailed siren – and it made wonderful image. Very symmetrical.
Were you and your co-founders from Seattle or was there another reason you started in Seattle?
All three of us are from there.
It seems like I write about another Seattle-based company, Amazon, at least once a week. Why do you think Seattle is a good breeding ground for entrepreneurial success?
It’s an interesting thing you bring up Amazon, but there’s also Microsoft and Boeing. Seattle is also a center for the gaming industry. There are 100 different gaming companies of different sizes. Seattle is famous as the home for big, dynamic companies like Starbucks and Nordstrom, but…today, Seattle is a great place to try to get a company going, whether it’s based in Seattle or serving a global market. There are so many support systems, government programs that provide counseling and angel groups, that are industry investors who gather to take presentations – and the VC community also, which is for bigger fish for people who need more than $5m. There’s just a cauldron of interest in startups. I think even socially in the Seattle area, if you’re at a party with some people you don’t know – what do you do? You say, 'Well, I’m starting a tech company that will do XYZ,' and everyone is fascinated to find out about it. You do that in DC and they think you’re crazy.
Seattle is also a place people move to. It’s West coast, it’s dynamic and there’s an influx of very bright people in their late 20s coming to work for Amazon, which is hiring lots of people. At one point, it was 500 a week. I don’t think they’ve sustained that, but it’s a very high rate. They’re paid well, and they’re coming from all over the world and I think one of the attractions is the opportunity to work for a dynamic company, but to also live in Seattle. It’s a lovely city and it is full of every form of the arts and every possible iteration. People enjoy it. I think that has contributed to it being a center for economic development of new companies.
Starbucks is a lot more than coffee. Can you talk about how and why you expanded beyond coffee without diluting the brand’s original purpose, which was presumably great coffee?
First, in the late 80s and early 90s, Starbucks embraced the Third Place theory [from the 1989 book The Great Good Place by Ray Oldenburg]. The theory is simple: everybody has a home and a work and needs a third place and it might be church or a community group, but it is possible for it to be a coffee bar. And about that time, Starbucks started putting in several kinds of furniture so no matter what your mood was, you had a place to be. The industry outside also went in that direction and it very successful, so the company could suddenly cater to the grab-and-go people, but also the chill-out [crowd] or, since about 1995, [give them] a place to work.
There is an infinite variety of iterations of the Third Place idea. You see it in coffee bars all over the world. That’s another thing about Starbucks – it has a very strong brand. I think it’s possible to argue it’s more of a brand management company than a coffee company. It is very, very good at managing its brand, so it manifests itself in a lot of ways. Starbucks, at least in the US, has a significant presence inside supermarkets. If you went to the supermarket in Kansas City, you’d find beverages in the drink cooler and coffee on the shelf and in the miscellaneous drinks category with the lemonade crystals, you’d see Starbucks Refreshers…I could go on and on and on.
And what lessons have you learned about brand-building as a result?
Even when Starbucks was a local company in Seattle, one partner, Gordon Bowker, was the genius behind the management of the brand. I remember from the first day, Gordon, along with outside consultant Terry Heckler, made sure we managed the brand very carefully. We had a use guide for the logo. Our stores were built in a way that projected the brand to consumers both inside and outside. We were very careful about packaging – and this at the time was a little company in Seattle with six stores and 400 (CK) wholesale customers and beautiful roasting plant, but we were running it like it was GM. Then when the team led by Howard Schultz acquired Starbucks, it amped up further because, from the beginning of the acquisition, he had expansion in mind and knew he had to manage it carefully. They modified the logo several times to make it more accessible internationally. Most of the time now, the logo doesn’t have words – it works in every language. And they’ve applied it in a number of different situations. Not only that, they’ve mastered the art of sub-brands. Under the uber brand of Starbucks, there is now Starbucks Reserve, which is a line of more expensive coffees, finer coffees and there’s a look also that goes with it. Starbucks has acquired Teavana and is managing their brand and it acquired Seattle’s Best and is managing that brand. So these are consummate professionals, but it started from the beginning. If we had been an average group of partners back in 1971 and hadn’t paid attention to the brand, I’m not sure we would see a global coffee company like Starbucks today.
Do you think it’s easier to scale a business in the digital era? Why or why not?
I think among entrepreneurs from the day they have an insight that leads to an innovative idea, they are thinking, 'How big can this go?' Scalability pops up all the time and that can be a good thing because if you want to scale, you have to do a professional job from the beginning. It can also be a problem because, in some cases, it leads to not doing the most effective job on the things that need to be done in the first year. One expression that comes to mind is: 'You take your eye off the ball and dream of the future when you should dream about the present.' I see it both ways – if you think about scale, it can make you do a better job, but it can also cause you not to pay attention to details in the short -term. Another aspect to scale is it is very attractive to investors. When talking to investors, if you say you want to build software that can be used by six companies in the New York area, they will yawn because it isn’t significant to them. Especially if they’re looking for venture capital…they need to demonstrate a huge return either nationally or globally.
This may be after your time, but…it’s almost September, which means pumpkin spice season is upon us...and feel like Starbucks could arguably be the brand that started this phenomenon – or at least made it go mainstream. How did you do it?
I believe there’s no such thing as a new idea – it’s just adaptive reuse. Starbucks, which operates a really wonderful testing facility for any new beverage or food, I suspect somebody came in with an idea after trying something with pumpkin spice. Who knows – maybe they had a piece of pumpkin pie at Thanksgiving and said, “Let’s see what we can do with this particular flavor,” and the result was the latte. I think it’s perfectly plausible the idea was also sprouting up somewhere else and what turned it into a groundswell is remember when Starbucks adopts something, it adopts it in all stores at the same time. That’s hard to believe because there are 25,000 stores on planet Earth, but they do it. I’ve had the experience of it showing up in Seattle near me and then I walk into a Starbucks in Kuwait and it’s also there, so when the Pumpkin Spice Latte appears, it’s in a lot of places, which makes it so powerful.
I feel like Starbucks is often on the forefront of technological advances like order-ahead functionality and mobile payments. I think mattress brand Casper said it thinks of itself not as a mattress company, but a technology company. So I wanted to get your take: Is Starbucks a tech company? Could it become one?
Starbucks is different than Amazon, for example. It provides actual services to business. A significant part of its income is backend services. I don’t think Starbucks is interested in providing backend services to the world. But, as an observer, [they have] the ordering system, the [mobile payments] and then they have all this push capability – once you download the app, they can push all kinds of wonderful things to you like free coffee on your birthday. Lots of other companies are doing all those things. At one time, I think almost ten years ago, Starbucks was a heavyweight in the music business. It distributed CDs and then downloads through their stores and website. They were a big player in music, but they’re out of that business now. They do what works for them and serve their niche, which is 25,000 stores, and I’m sure it will be 30,000 before long. Starbucks has 2600 stores in China and I think four stores in the Sultanate of Brunei, which is a tiny oil-rich country. One of them is a drive-thru.
I was at university in Siberia [once] – it was a huge university and somebody asked me when I thought Starbucks would open in their city – this [place] took me a three-hour plane ride from Moscow – because that would be a validation of the goodness of their lives. It’s the strength of a brand. Starbucks is a publicly traded company with a retail food service and a lot of locations and I can say without fear of being contradicted, real estate developers like to be able to tell other companies, 'Yes, Starbucks is going into this corner location in our new center,' because it’s validation that everything was done right. Isn’t that amazing? It’s the same reason people are so excited about walking around with Starbucks coffee. This is just a coffee. A good one. But why do they like to walk around with them?
What’s your favorite Starbucks location? Why?
I live in Seattle. In Capital Hill. It’s a very urban, densely populated area. Starbucks just happens to have chosen that part of the world to do the first Starbucks Reserve Roastery. If you cross a coffee bar with $10m, this is what it would look like. Actually, it cost more than $10m. And soon there will be one in New York and London and there’s one coming in Asia…it’s my favorite Starbucks at the moment. I go there.
What’s your standard coffee order?
I am an old school coffee drinker – not a third wave coffee drinker. When I walk up to the bar, I order two shots of espresso, which is a Doppio at Starbucks, every time.
The Drum was speaking to Siegl as it compiled its Creative Cities entry focusing on the creativity and entrepreurism of the city of Seattle, which included a printed supplement released in October and a 20-minute film which will be released at the start of December talking to business professionals about the prosperity of the creative scene in the city.