Starbucks (with Howard Schultz)

The episode begins by reframing an earlier, IPO-only discussion of Starbucks. Seven years later, the company is a roughly $90 billion institution, and the hosts bring in Howard Schultz, who joined the three-store chain in 1982, later bought it, and became the defining leader of the modern Starbucks. Ben openly discloses that he is a longtime Starbucks fan, which makes the timing notable: same-store sales have fallen, the stock has dropped, and the company has faced pandemic disruption, union activity, and leadership changes. The hosts want to explain not just how Starbucks expanded, but why its model worked at global scale and what its current difficulties mean. They cite more than 80 countries, 39,000 stores, a major presence in China, and $1.7 billion in unspent gift-card balances to show that Starbucks is both a consumer brand and a large financial operation.

The origin story starts before Schultz. In 1971, Jerry Baldwin, Zev Siegl, and Gordon Bowker opened Starbucks at Pike Place Market. Schultz says he was not there, so his account of the founders' inspiration is secondhand: Baldwin and Siegl admired Alfred Peet's specialty coffee in Northern California and wanted to bring a similar idea to Seattle. Schultz adds a lesser-known detail from company lore: Starbucks initially served Peet's coffee under its own name because the founders were not yet roasting beans themselves. The original business sold pounds of coffee, not prepared drinks. That distinction matters to the story: the global café chain did not begin as a café concept but as a specialty-bean retailer whose founders were focused on coffee quality.

Schultz arrived through a supplier relationship rather than a planned career in coffee. In 1979–1980, while working for Swedish housewares company Hammarplast, he traveled to Seattle to visit a small customer buying its coffee makers. He was struck by the Pike Place store's atmosphere and by its attention to coffee education. After meeting CEO Jerry Baldwin and working with Starbucks as a vendor for roughly a year, Schultz left New York and joined as head of marketing in 1982, when Starbucks was preparing to open its fourth store. He recalls that the company was considering expansion only to Portland, while he already saw an opportunity beyond the Pacific Northwest. His earlier Xerox sales work—50 cold calls a day, frequent rejection, and low starting pay—shaped his sales discipline and personal account of ambition, humility, and wanting a different life. These are Schultz's recollections, not a neutral reconstruction of every early company decision.

The Seattle Schultz encountered had little specialty-coffee culture. He describes the market as dominated by instant, stale, often lower-grade Robusta coffee, while Starbucks and Peet's focused on higher-grade Arabica. Pike Place Market's tourist traffic gave the small store reach beyond its few local customers: visitors could order beans by mail after returning home. This was not a large business, since coffee stayed fresh for only about a week to ten days and the company lacked vacuum packaging, so shipments were small. Yet Schultz says the brand's equity already exceeded the scale of the business. That early separation between brand potential and current revenue becomes a recurring theme: Starbucks could be small in store count while attracting attention well beyond Seattle.

Schultz describes his move into coffee as a break from a conventional path. At Xerox, he made 50 cold calls a day and learned to absorb rejection; a middling performance rating helped persuade him he would be locked into the company if he stayed. He connects that decision to earlier experiences of poverty and insecurity, while crediting his partner Sheri for helping him pursue a different life. This is a personal account of motivation, not a claim that one performance review alone explains Starbucks's later growth. It does, however, show how Schultz interpreted his early career as training in sales, humility, and risk-taking.

A 1983 trip to Milan changed Schultz's understanding of what Starbucks could sell. He arrived at a housewares trade show but encountered Italian coffee bars, where espresso was served as a social experience. He describes the contrast as moving from a black-and-white world into color and returned to Seattle convinced that coffee bars were the business Starbucks should enter. The founders had seen Italy too but did not share his plan. After two years of pressing them, Schultz opened a small coffee bar inside Starbucks's sixth store, with only about 100 square feet set aside for it. He says Starbucks had been serving 200–300 customers a day selling beans, while the new bar drew 500 customers in a week after introducing espresso, cappuccino, and lattes. The early test was promising, but the founders did not want to turn Starbucks into a restaurant business.

That disagreement led Schultz to start Il Giornale rather than wait for Starbucks to change course. Starbucks invested, but Schultz still needed roughly $1.6–$1.7 million and says Italian coffee companies Faema and Lavazza rejected the idea that Americans would buy espresso. Three Seattle investors—Jack Benaroya, Herman Sarkowsky, and Sam Strum—helped him raise the money. The small stores were relatively inexpensive to open, but required substantial labor; Schultz worked behind the counter without a salary for nearly two years while Sheri worked and was pregnant with their first child. He recalls her father's warning that the business looked like a hobby, and Sheri's determination that they would continue. These details make the risk concrete: the concept had early customer response, but its founder had little financial cushion and faced doubts from both investors and family.