Jerry Baldwin, Starbucks co-founder, talks about the company's early struggles: cash flow problems, a supplier who couldn't keep up with demand, and learning to operate a roaster imported from Holland. He describes hiring early staff like Jim Reynolds and how his role shifted as the company grew.
Chapters
In that first year of opening the store, obviously with every business is tough. Do you remember any challenges that you guys had that first year growing the company? Were you working your day jobs as well?
Well, I can't tell you how little we knew. I— it took me a while of talking to the banker and And then beginning to take classes in financial management at UW Business School, that I didn't really understand what cash flow was. I couldn't understand why we could be profitable and not have any money. And it was because the inventory was building. So, you know, so then I learned about cash flow. And we built, we built slowly.
Just learning as on the job. Any standout stories of something really particularly challenging that come to mind at all?
No, fortunately, well, I suppose the big challenge was the first banker cutting us off, but then the second banker—
Cutting you off as in not lending more money?
Yeah, said, you know, we're done with you, you know, this is it.
But luckily you had gone out to lunch with the other guy.
So we had another banker, but he was much more They were forthcoming and introduced the idea of instead of term loan, which we started with, was receivables and inventory lending, which has a shorter term, but something we could borrow against, especially as they were growing.
I remember reading a story about your supplier Pete's one time, the truck getting caught in a snowstorm or something. And so you guys had to take preorders, and then once it finally arrived, actually hopped in your cars and drove around to deliver it.
Well, yeah, actually it was a little— Alpha Pete was Dutch for everything that means to anyone who knows Dutch people. They're kind of, you know, this is how you do it. What are your questions? And I normally sent a check every week. But we were— we just sent the check. And so, I don't know, I got distracted. I didn't send it that week.
Ah.
And the coffee didn't arrive. Alfred, where's the coffee? Well, I didn't get my check. But he didn't say— he didn't call us and say, I didn't get my check. I'm not sending your coffee. He let us figure it out on our own. And so when it got to Saturday, we had very little coffee. If someone ordered something we didn't have or didn't want to take what we had, then we took the order, took their money, took their name, and on Monday after we got the coffee and packaged it, we delivered to their homes.
That's real hard work.
It was early in the game.
Still though, I mean, just like you built the store yourself, you're also delivering the coffee to the customers yourself.
Well, Zev's wife was a graphic designer, so she did the sign that we Sorry, we don't have any coffee. Gordon's wife is an artist and she did— she drew the first store, which you may have turned an image up.
I think I saw it, but it's not— I don't have it today. So the first year, were you guys profitable?
Well, we were. We did a very crude— how many people are going to walk past the door? How many are going to come in? How many are going to buy?
Okay, you kept track of all this on paper?
Well, that was the projection. We didn't get into that sort of hour-by-hour analysis until later. I turned into a data hound. But we exceeded those projections in the first 9 months of our first fiscal year. We did $49,000 and we were profitable.
And then did that trigger the second store?
The second store came toward the end of 1972. And Zev takes credit for finding that location and getting the rent. But it was an even better location than this one. And that— well, and I guess that's— there's another lesson there is save your big mistakes for later. Because the third store was a dog. But the first 2 were great.
What happened at the 3rd store that—
It was just in a bad location, but we didn't understand the retail dynamics then. And so it lasted, it limped along for a while.
And at this point, is Pete able to meet up, meet the demand for you guys?
No, after the— actually, even before the 2nd store, or as the 2nd store was happening, He said, you guys are growing too fast, you're getting too big, you need your own roaster. And so—
'83?
Yeah, I can't remember if that's— well, it's not when we sold. I don't remember what the occasion was. Since all 3 of us were there, it would have been prior to 1980 when Zev sold.
Right.
Not sure.
So now that you have— Pete tells you you need to learn how to roast it yourselves. So now you guys have that mission.
Yeah, so we have to go find a warehouse facility, need a roaster, which he helped us He found it in Holland, and it arrived in Seattle in a half container in pieces with a photocopied manual, if you want to call it that, several pages in German.
And then how do you put that together?
Which I didn't read.
Did you find someone who read German to help you put it together, or did you guys just—
No, it wasn't that difficult, but So I put it together and had to have a few parts machined and a few pulleys changed because of the electrical differences.
And you had learned how to roast the beans from Alfred?
Yeah, Alfred generously— he said he'd charge me for it, but—
Never did?
Never sent the bill.
Never sent the bill. And at this point, you're growing to a place where you guys need to make some hires. So there was 2 people that were hired, at least from my research. Gene Mock and Jim Casey?
Jim Reynolds.
Jim Reynolds, yeah.
Casey comes much later.
Yes.
Well, so I began to roast and how did we do? Well, we had hired store managers and Zev went part-time and I went full-time. And so Gordon had elected the officers when nobody else was in town. Zev and I were in California and the lawyer says, you need officers for this corporation. Said, okay, Jerry's the president, Zev's the vice president, and I'll be the secretary. So there we were. And so I put the roaster together, then I was roasting, doing the other stuff. Zev continued to supervise the retail store, but we couldn't afford to pay him full-time. No, at this point, you know, our bookkeeper made nearly twice as much as I did, so—
Oh, you finally got a bookkeeper that—
As things developed.
So then what is your— kind of what has your role evolved into then at this point?
Well, at this point, sort of a little bit of everything. Buying coffee, being sure it's roasted, supervision of wholesale customers.
Electrical work.
Everything except retail. And Jim Reynolds came He answered an ad to be a store manager, but as we talked about it, he became really interested in the coffee roasting position. So I roasted coffee by myself for about 6 months and then taught Jim everything I knew, which took, I don't know, 15 or 20 minutes.
Is that also the time when you guys developed a certain flavor for your brand?
No, we really got that from Pete, and then we tried to do it on our own, and it took a while. Roasting coffee is like cooking. You're not— just because you, I don't know, flip burgers or heated your dinner doesn't make you a chef. And turning coffee brown doesn't make you a coffee roaster. It really takes time.
