How Magic Johnson's Starbucks created new neighborhood businesses
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To start a business, you need money, you need skills, you need to know suppliers and verified customers. And what can also be very helpful is a third space.

Yeah, a third space is a place that isn't the home and it's not the worksite. It's somewhere where the main activity is conversation. So that could be a bar, a park or a coffee shop.

There's been a lot of research showing how these spaces have brought communities together or even catalyze revolutions. New research is showing that coffee shops could be key to Sparking new businesses, too. This is an indicator from planet money. I'm willing wrong.

and i'm very woods today, the show fuelling entrepreneur ship one coffee at a time. We're going to go back a few decades for the story of how magic Johnson part to build starbucks scares in black and lino neighbor ods and how new research has shed light on how magics plan changed entrepreneurship in those communities.

In one thousand nine hundred and ninety one basketball staff, magic Johnson announced his retirement from the L. A. lakes.

He had tested positive for HIV months later, los Angeles was involved in riots in amateur geographer had captured the brutal beating by police of african american man rodney king. IT was one of the first videos of this kind to go viral. And when police officers involved were acquitted in a much publicity to trial, s erupted.

We torn down our own community that tenos african americans, they turned out, and burned down our own businesses.

This is from an interview magic Johnson gave to M. P. R. In twenty twenty two. In today's dollars, the riots cost these communities more than two billion dollars.

So now we had a problem because now all these storefronts were were gone, but also all these jobs were gone. And so I said, I got, do some about that.

And he did. Starting in the one thousand nine ninety, magic Johnson built a line of movie theatres around the country in black and latino neighborhoods. The idea is that not only with these movie theatres be viBrant places to visit, but that the construction and Operations of the businesses would help bring jobs .

to the communities during the period, magical on the east coast to york and eat. So the long line of people going somewhere, starbucks had been on this tair, expanding across the country. And this was magics s first introduction to the seattle coffee shop company.

I said, may I got to try to stop books by waiting in line?

Magic got a security guard to grab him some peach tea.

May I taste the T. S. IT?

Oh, that's IT.

I say, this is the next thing i've taken to the hood.

There must have been some tea, must have he didn't even try the coffee. So magic thought he needed to go to the seattle headquarters. He called starbuck CEO Howard shells and met with him there. Magic made his pitch just as he'd been doing with his movie theatres. He could help open starbucks and urban neighborhoods.

to use his parLance, look, magic, have french I S I here to become one. You put up after the money. I put up the money. Let's build these star up. And i'd tell you is going to be a homa.

How would shotz wasn't fully convinced the company had mostly viewed minority neighborhoods, says risky financial bets. But magic persisted. He invited how to one of his movie theatres and sitting there, how is started to realize that magic Johnson really knew these majority black and the tino communities well. So starbucks and magic Johnson company partner, fifty, fifty on a new series of starbucks.

And now the hard part comes, which is me proven to everybody that this thing could work in urban america.

In nineteen ninety eight, the first magic Johnson starbucks was open in the heights in L.

A. The line was the IT was incredible and sure of how IT looked at me and said, you called IT. You said that was gone. Be successful.

Hello in new york was the second cafe. Eventually, magic Johnson would invest in one hundred and twenty five star backs across the country.

Okay, so he managed to get starbucks to lidar heights in harlem. But would a few caves really have a lasting effect on the local economies? Could they help grow businesses, or even entrepreneur ship in the neighbor ods?

All goes man is a business professor at columbia university. He and two other academics wanted to answer this question.

For your entrepreneurship to work, you need the connections. We realized there's a lot less understanding how to form those connections.

To answer this question, he investigated how many new businesses were formed after the introduction of the starbucks to enigma hood that previously didn't have any coffee shops.

Interpretation goes up the average about six percent increase.

So here's one way to think about that six percent increase. Neighborhood might Normally see thirty five new companies a year. The introduction of that new starbucks IT added two extra new businesses each year.

Now you might argue that starbucks are just picking neighbor ods that seem to be on the rise anyway. But hot hat gets around this. He compares the neighborhoods that welcomed the new starbucks with communities that blocked them from .

the starting side. They must have been equally appealing if they are interested in ending both. And that's one kind of much more precise comparison, if you see what I mean.

Another check zooming in on just the starbucks that magic Johnson brought in. Remember, those were neighborhood that starbuck initially didn't even want to enter.

This magic Johnson cafe have a much larger effect. Uh, we actually see a twenty nine percent increase in in total entrepreneurship.

He says that almost thirty percent is a lot of growth. But given low numbers of businesses formed in these neighborhoods, to begin with, it's not so huge that it's outside the realm. applicability.

Now, a big elephant in the room is gentrification. Starbucks, to some people, is the poster child of a gentrifying neighborhood. When Richard, often White residents come into a low income neighbor.

Od, and its change forever. Could starbucks be signaling? Judge, fires come here. How are you thinking .

about this issue in two ways? First, if neighbor od was becoming a hot new destination, he would expect growth to be especially hot in retail or real estate companies. He doesn't see this when starbuck enters. We're talking anything from caro tracks to hair salons to pluming businesses, all kinds.

And as for whether these new businesses are formed by existing residents or by newcomers who are attracted by the starbucks, that's something how he doesn't know.

It's a limitation of our study because but we don't know if the people that are starting the businesses there were the ones that have been resin there before. We think they are there's bunch of reasons to believe that that's the case, but that's kind of type work we are also hoping to in the future.

Well, I wanted to find out whether I could see third place synergy happening in the highland cafe. You know, the second ever magic Johnson staver. And to my surprise, the seats have been taken away.

The tables have been taken away. Now it's just a place to pick up coffee. And I chat with one of the bristles, ron dickson, as he was making coffee.

We had a redesign a couple years ago. Know of keep IT a little more urban for the busy area. I were, you know.

lot of time a redesigned a couple of years ago like a lot of starbucks, corporate strategy in recent years has emphasized to pick up only its convenience. But if for his research suggest anything that could be at the expensive of the neighbourhood entrepreneurship.

the summer starbucks C E O luxury nassim on was ousted following disappointing earnings. The new CEO brian nickle router letter to staff in IT, he committed to reestablishing starbucks, says the community coffee house and to ensure the cafe will be inviting places to Linda.

Oh, do you think you read her, his paper?

I hope so, especially if they want to fuel entrepreneurship for the nights hood.

Do you think he read IT standing up while picking up his coffee at to go only starbuck, and was like, we need a place to sit out.

You know what? Some people were chatting over the rubber bins, building the best of what? Like.

good third place of our dreams.

a chance yeah, the third place. Look, if IT is convenient for when you finish your coffee. But it's is not quite the same.

We will preserve our red spaces in the face of adversity. We will fight them in the trash cans. We will fight them in the other.

This episode was produced by Angel cottas with engineering wave voluntary o rodrigues anchel IT was fact checked by sea hottest caking can edit the show and the indicators of production of npr.