The University of Pittsburgh’s Innovation Institute and the Career Development and Placement Assistance office hosted Zev Siegl, co-founder of Starbucks and renowned entrepreneur. Zev narrated the humble beginnings of what is now one of largest and most recognizable brands in America. It was an incredible learning experience for the almost 200 students in the room. So you too can learn from Zev’s wisdom, here are the key takeaways that I learned from the event:
1) Be observant
The idea for Starbucks was conceived when a history teacher, English teacher, and a writer ordered coffee while at lunch. Zev Siegl, Jerry Baldwin, and Gordon Bowker were discussing how difficult was to get a good cup of coffee in Seattle. When the coffee, which was advertised by the restaurant as “gourmet”, was served it was well-below expectations. At that moment, the three men decided to bring actual gourmet coffee to Seattle.
Starbucks was not conceived by existing service industry veterans or seasoned entrepreneurs. Three men, with minimal business experience, were responsible for what is now a billion dollar company. How? They were keenly observant. So, always keep your entrepreneurial eye open for market opportunities. You do not need to be an experienced entrepreneur to recognize large market opportunities.
2) Do your homework
Once you have your business concept, learn everything you can about it. Understand what industry you are entering and who your direct and indirect competitors are. Before Zev and his friends opened Starbucks, they went to a variety of other coffee shops in the area. They identified the qualities they wanted to duplicate in Starbucks and the ones they wanted to change. Furthermore, they became experts on everything relating to coffee, from the coffee fields to the customer’s cup. They also took the time to thoroughly understand the government regulations that they would encounter.
3) Identify key success factors for your business
For Zev and Starbucks it was as simple as C8H10N4O2, or caffeine. Zev discovered that while many people drink coffee for its taste, the majority of the coffee drinkers use it for the burst of energy caffeine gives them. Caffeine was the key success factor. However, delivering a product that was superior in taste to other existing coffees was their sustainable competitive advantage.
4) Do not be afraid to get your hands dirty
Starting a business is expensive. Zev firmly believes in being reasonable with projected startup costs. On one hand, low-balling your projections can be a fatal mistake. If your business’s bank account is empty and it cannot begin operations that is a huge problem. On the other hand, having an exceedingly high projection makes it much more difficult to attract investors. Therefore, you must not be afraid to get your hands dirty to minimize startup costs. For Starbucks that meant painting the first store themselves, doing all of the renovations, painting their friend’s car with the Starbucks logo, and personally delivering beans to local restaurants.
5) Walk the walk (bookkeeping), and talk the talk (financial terminology)
In order to be a successful business, it is necessary that you keep your accounting records as up-to-date as possible. Be diligent in recording every dollar that goes in and out of your company. Zev, Jerry, and Gordon learned this lesson the hard way. As Starbucks continued to grow, adding more and more stores, the management team lost track of their bookkeeping. Before they knew it, Starbucks was investing more money back into the company than they had. They started defaulting on their loan payments and were on the verge of a total collapse. Luckily Zev was able to turn to another investor, his close friend, to keep Starbucks afloat.
Another essential skill an entrepreneur must possess is the ability to speak and understand financial jargon. When shareholders ask about ratios- current, return on equity, price-to-earnings, quick-ratio, you must understand what is being asked. Zev also preached the importance of conquering the four financial statements: balance sheet, income statement, statement of retained earnings, and statement of cash flows.
6) Do not let personal egos get in the way of your forecasts
When Zev, Jerry, and Gordon predicted sales forecasts, they initially believed that tea sales would account for 5% of total sales. After the first year of operation, tea sales only accounted for 2% of total sales. Rather than adjust their inventory to match consumer demand, Zev and his comrades insisted that they could meet their projections and tried to boost tea sales to meet their predictions. Despite their best efforts, tea sales remained at 2% for the next year.
Listen to the numbers! Do not let personal egos guide your purchases. You will only be left with excess inventory. If the customers say that tea is 2% of total sales, then order tea accordingly.
7) Do not hesitate to seek outside help
From the very beginning, Starbucks recognized that in order to be the best they needed to consult the best. They turned to world-renowned coffee expert Alfred Peet, founder of Peet’s Coffee & Tea. He is universally considered the man who brought custom coffee to the United States. Alfred was the one who taught Zev, Jerry, and Gordon the technique of roasting beans. Without Alfred’s help, Starbucks would not be where it is today.
Do not be afraid to turn to an expert for help! More importantly, do not let success get to your head! Too often entrepreneurs allow hubris to blind them from real company problems. No matter how successful your business is there are always ways that you can improve it.
8) Constantly seek new ways to provide value to your customer
When you walk into a Starbucks and look at the drink menu it is not hard to feel overwhelmed by the vast product selection. But, each and every drink and food item that Starbucks offers is carefully selected to provide value to the customer: gourmet coffee and espresso for devout coffee drinkers, tea for the tea drinkers, breakfast sandwiches and pastries for the one-stop-shoppers, frappuccinos for the mid-day refreshment seekers, and so on. Starbucks continually engages with their customers to figure out innovative ways to bring value to them. While testing new products for your business always keep the customer in mind. However, do not offer so many products that you end up subtracting from existing ones!