Episode 34: The Starbucks IPO with Dan Levitan
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So I guess sirens going by my windows here.

David in europe who get.

true. get. Easy, you busy, you with you see me down, say.

Welcome back to east ode thirty four of acquired the show about technology acquisitions and ipos .

and gilbert David rob.

we are your hosts today. We will be talking about one of the great legends of a historical non tech company in a technology city, starbucks. And i'm here with dan levittown in seattle, and we are both sipping our starbucks. So i've got all milk later here. Dan, would he drinking?

I'm drinking a told d caf. america. The White father drink.

Seriously, what is the point listeners were before diving into the show, a couple of things I want to cover if you're new to the show. We've got a great slash communities. So we've got over five hundred people discussing merger, acquisitions, ipos, tech news, really anything that people want to create. Rooms force. So you can learn more about that at acquired dot FM and join hit us up on twitter at acquired F M.

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Yep, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service now document slash A I dash agents. David, can you introduce us to our guest today?

Yes, so has been mentioned. We are covering the landmark starbuck's IPO today, and we are lucky to be joined by dan levin, who is the managing partner and co founder along with the soon to be former and original C E. O of starbucks.

Howard shouts of the consumer only venture capital firm mavering and dan and Howard is started maron in one thousand nine and ninety eight. Since then, dan has invested and served on the boards of many successful companies, including the janie pot belly and drug store at com. Dana american are great early stage VC investors and investors both in p. Sl, where pen works and co investors with many of the companies I work with, a bajra and really delayed folks to work with.

But today we're actually gonna talking about dance days before mavering, when he was an investment banker in new york and a firm called wartime shroudings company, and he met a crazy entrepreneur from seattle who handled a coffee company that was named after a character in mobile, dick, and then would go on to serve as that coffee companies lead investment banker on their IPO. And that's the story we're here to tell the day. So thank you, dan, for joining us.

Thank you for having me guys .

for a quiet listeners out there. We've had founders. We've had emini professionals. We've had journalists. We didn't had some executives that companies recently acquired on the show, but we've never had a chance to analyze an IPO before from the perspective of the investment banker that actually took the public into the deal. So um super excited to have a first here on acquired today. And actually it's also worth noting the date works out pretty well because right now happens to be the twenty twenty fifth anniversary of starbucks going public.

Actually, june twenty six is the twenty fifty anniversary is the .

year of the 4 anniversary。 But IT is also Howard shelters last month on the job before he retires.

True, he is on to his next play.

So with that, let's time and i'm going to quickly relate the origins of starbucks because I think it's actually something probably definitely many of our listeners, but most people don't know and they'll gona dive into the IPO with.

And but the original starbucks company, not the starbucks coffee company, but the original starbucks was founded in seattle in thousand nine hundred and seventy one by three friends, Jerry goldwin as a seagull and gordon balker, who had met in the Frances co. As students, said the university of safran, cisco, and they had become acquittance of the legendary berkeley, california coffee rising entrepreneurs. Fred pete box, my no peace coffee and a three friends had become sort of disciples of Alfred.

And after college they moved up to seattle, and they wanted to get into coffee resting themselves. So they started the company decided to name IT after starbuck from movie dick. And they set up shop in seattle, but they were just a roaster.

They roasted beans and they sold beans. They did not brew coffee when IT becomes a nice small local business in seattle. And then we fast forward ten years to the early nineteen eighties.

And David is important. No, they didn't brew coffee. And that's not just because they were drawing some hard line in the sand like you could see today of we're not gonna like that. Every other street corner that you see that has a coffee shop on IT where people are Brown coffee in sandman, in drinking, many of our listeners are familiar with the idea, but that didn't exist. That was a thing that starbuck would later .

kind of create, yeah, that they didn't brew coffee because nobody brewed coffee. That was what you did at home with your soldiers or your beans that you bought from starbucks or somewhere similar.

So we fast forward ten years to the early one thousand nine hundred eighties, when a Young Howard sult, who had been in a earlier life, a sales executive for the zero ax corporation, he was working as the general manager of a swedish company named hammer place that made coffee machines. And he heard about these guys out in starbucks, heard they roasted good coffee, and he went out to see them. He was actually really impressed.

And he was so impressed that he spokeswoman sort of begged, joining the company, and he got a job. And so he became the director of marketing for starbucks. And this was in one thousand nine hundred eighty two.

So how are is director marketing working for these three founders? And he goes on a buying trip to melanin, italy, and he notices something different about malan versus the streets of seattle ler, any other american city. And that said, there these coffee bars everywhere throughout the city, and they serve coffee, and people go and they meet there and they hang out there.

They're not just places to buy beans or buy coffee to take away. He is actually a place where you sit new talk to people. And so he's really taken by this idea.

He comes back to seattle and he tries to persuade the original starbuck founders that this is something that they should start doing in seattle, start doing themselves, open up cafe in the city. But the founders, they actually something else going on at the time. And that's that their original mentor, Alfred pete, is retiring down the same for cisco.

And he wants to sell his business to the three founders, his disciples. So they say, you know how? That's nice. If you want to do that. When did you go to do that yourself? We're actually in the midst of buying pets and and we're going to move back to Francesco and we're going to do that.

Yeah it's all areas to think about like today given where both companies are like, yeah you know we've got starbucks but now we're not going to do the whole coffee shop then we're going to go yeah.

faith is and truth is stranger than fiction sometimes so how would actually leaves the original starbucks in one hundred eighty five and he starts a new company pursuing his dream of vote, saw in italy of cafe shops that serve coffee in service, meeting places in cities. And he starts a new company, calls IT l. Jon and models IT after his italian experience.

So we Operate this company for a couple years, grows IT in seattle, has a fair man of success. And then in one nine hundred eighty seven, two years later, he approaches the starbuck founders again. At this point, they are focused on pets and still in rosing, down in different, different cesc.

And he offers to buy the seattle retail locations that are still called starbucks from them. And he does. And they agreed to sell IT to him for three point million dollars. Shells, buys the seattle retail outlets, merges them with your ally and recurrence the company, the starbucks coffee company.

So David, did he have the three point million liquid to be able to make that purchase a dance over here?

Shake and his head? yes. So this is where I wanted to bring down into the story. How did this transaction the first one long before the IPO come together?

Well, I didn't actually know how IT until nineteen and ninety one, and that's a story that I should tell. But the way the transaction came together is Howard at the time was a thirty, something very determined Young man. And he went to, I think the number was about two hundred and fifty people before they said yes, and that was for real journal.

And then IT was easier to raise the money for starbucks. But no, he was a poor kid from karzi brooklin. So he went around seattle and met the Angel community, which was obviously very much more focused on traditional businesses and tech businesses at the time. And he scraped together the three point eight.

In fact, one of the stories that is largely not told was that there was a group of businessmen en seattle that had seen starbucks emerge, I think, by that time, in at seven stores, and they weren't sure that this Young thirty something year old kid was the right guide to buy starbucks. So there was a movement on the side to see if they could put in quote and experience ed person, and they were going to have an alternative bid for starbucks. But as has happened many times in the last forty five years, how prevailed and was able to line everybody up and buy the company. And I think starbucks coffee company started with eleven stores in nineteen .

nineteen eighty seven. Wow, which is so funny. Speaking as a quote, Young thirty something myself these days, I feel like now that's old. If you're in your thirties, you have great hair in the tech world, it's the twenty some things that are the Young entrepreneurs right now.

But you know they were looking for an experience retail Operator, but obviously improve them wrong.

Obviously, he did so. He merged the companies and the growth was pretty incredible. So IT was nineteen eighty seven when the merger happened. These starbuck's coffee company was born. They did one point two million in revenue that year, the very next year, one thousand nine and eight eight, they did ten point two million in revenue, so almost ten x in one year.

but that was of the combination .

ah that was because of the combination. Okay, still even then for the next basically five plus years, they practically double revenue every year, which in a bricks and border retail business is hard.

yeah. And IT looks like eighty nine, they had almost twenty million. Ninety, they had thirty five. One thousand nine hundred ninety one, they up to fifty seven point six. Dan, how did they do that? What was the driver of the expansion, al, revenue growth for them?

Well, Howard was from the very beginning aware that starbucks really was in two businesses. One business was Operating these retail stores and the other was developing a pipeline of these retail stores. So from very early on, he focused on hiring ahead of the curve and developing a infrastructure to visit and then ultimately build a whole fleet of stores. You know, when I first thought, I was really struck by the culturing of consumer passion that people had around starbuck, and he kind of knew that. And so his whole mindset was i'm going to build a company that's gonna be the development call of IT was IT sort .

of like a bazoo tight mindset of every dollar that comes in. We're gna aggressively reinvest in new store growth or head. Did they so quickly open so many new stores?

Well, he raised a lot of equity, and that was the problem then of retail businesses like that. Then they required a lot of equity.

And what's funny now by current standards, he did raise a lot of equity rec in those days. He is over thirty million dollars in equity before going public, which was a lot. But now looking at the tech of ties, the moron in major na like fund that maybe your series a in your series b.

the scale has changed dramatically. I think starbucks raised about two hundred and fifty or three hundred million in equity in total, but I kind of flipped around in the cash. Low generation of the existing store base was greater than the incremental amount of cash required to build new stores.

Um and that including the IPO .

that's including the IPO.

Oh.

but no, how I would say is very, very different than basis at the start. One of how words key constituencies was his employees, and that came from Howards background with his dad and the fact that his dad didn't have health insure. And so as a result of that, Howard was fortunate gh to have a business model where he invested in his people, and his people nurtured relationships with customers. And so yes, there is a tony money invested in the new stores. But things like health care for they called IT being stock back that yeah.

then this was amazing in every employee, the company from party briston up not only get health insurance, but also got stock options, get equity in the county.

And one free pound of per week still happens today. IT is really incredible .

that they've managed to preserve that at scale when they announce things I think is two, maybe three years ago. But announcing the program for all partner, the starbuck doesn't refer to breast, is but every employee partner for all partners to be able to attend an online university. A, S, U. And opening that up to say, you know what, for all of our partners were here for your continued growth and education, and we're going to continue to reinvest in you. That's one thing that's really nice to say in very possible, not at scale, and it's just incredible at the scale that they're doing IT to keep IT up.

particularly when companies go through traumatic periods where everyone questions what are the values of the company.

which starbucks had, right? I I I don't jump. I had too much. So starbuck hasn't always been the absolute behemoth that we know IT today.

hundred percent. I think that is the story of resiliency, tenacity. With or not its apple or starbucks. These are not straight lines .

or amazon from our so with time talking about amazon and after the IPO and doing the post internet bubble crash, I mean, you could about amazon for the equivalent of five books a share. incredible. yeah.

Didn't I wanted to bring you in here? So the companies growing incredibly for us leading up to the IPO for any company, tech or otherwise. So you met Howard in one thousand, nine ninety one.

How did you in new york here about what was going on? How hear in seattle? And how did you mean Howard, this relationship start that would lead to so many things over the years?

Well, as IT turned out, I was working in our los Angeles office at the time, and a partner of mine from new york called up and said, there is a coffee company. We have to go visit IT in seattle. And I said, coffee, you know, what are you talking about? How could that be a fast growth business? Because in those days, soldiers and maxwell house and those brand in cans of coffee, terrible was a declining business.

And this guy and bob israel said to me, and trust me, let's go to seattle. And I kept struggling to try and understand how this could be a growth business. When I first heard him talk about IT, the only frame of reference I had for coffee retailers was those greek coffee shops on the corner in manhattan that serve those blue and White cups of coffee.

And anyhow, I came up to seattle, and I will never forget the time. There was an August day in nineteen ninety one, and I took a cabin from sea tech. And by the way, everyone in the audience might be puzzled. Debt, know, how could you not check out a company?

There was no internet that you had to literally going to .

seattle exactly. And unless you know people in seattle, IT was super hard to experience the visual or the what starbucks was. So you literally really had to come to seattle at the time.

I think they are in seattle port land in vancouver. But anyhow, I remember getting in the taxi vividly from sea tech and taking a ride to the hotel. And me asking the guy here, there's a lot of coffee in this town. Which coffee shop do you go to when he said all there is a ton of coffee in this town and probably versus today, there's one twenty eighth of the number of coffee stores.

But he says there's a lot of options, but I always go to starbucks and it's the best and then I check into the hotel, and before I go upstairs to my room, I asked the woman behind the counter, I got ta get a cup of coffee tomorrow. Where do you recommend? And he said, oh, there's lots of places, but I always go to start up and here's despite.

So I woke up the next morning and I always had a principle that I would never not visit the company stores that I was calling her. So they sent me to the key in city center that still there over on fifteen, there was key because there was no store near the hotel. Uh, there are so underpaid trated versus now.

And so I SAT there for about forty five minutes, and people were lining up for this coffee. And I was like, you know, why is his coffee so great? And I wasn't a coffee drinker at the time, and IT was kind of one of the first time I ever like coffee was that day.

And so we headed over the starbucks. And for an other half, how are just talk nonstop? And he was talking about the business model, he was talking about his people, he was talking about his customers and this kind of passion that was completely intoxicating and contagious.

But I was an investment banker, and investment bankers have to sell. And if I couldn't talk, I couldn't sell. And I was kind of frustrated because at the end of an hour, half literally, he looked at his watch, and basically he made IT clear to me that I was over.

He closed up a snowball and started walk me to the door. basic. And I had just been overwhelmed by this incredible experience about that was about passion.

But most importantly for me, that was about a guy who understood that his business was more than his shareholders. He talked about his customers and he talked about his people in an incredibly compelling way. And I was just really struck by that and hadn't really heard that prioritization of people first, customers second, shareholders third from anyone.

And so there is a long hallway in the old star back headquarters, which is down near airport way south. And he walked me out. And in the middle of the hallway, he stopped a bruti turned around N T. Do you know what the problem with investment bankers?

You haven't. A where do we begin?

I could not have a word and and I said, excuse me. And he said, do you know what the problem with that some bankers are. And I had no idea where he was going this.

And he said, there are no matches in a best banking. I love IT. And in one hundred and ninety one, mench was not a word in the urban dictionary.

just in the itis dictionary.

There was only .

in the yd dictionary that was not widely circulated in one. And so I was like, who is this guy saying this? IT was really incredible. But to his credit, he gave me the investment banker. The keys to getting their business will wait.

So is he imply that you were one, or was he in ying, like from there you had to form some relationships so you get some data.

Had deco well, so he was implying that he hadn't met one as an investment banker and that I had the opportunity.

He wasn't convinced the yet, but he was going to give you a shot.

He wasn't convinced that all. And I wasn't convinced that I was gona get a shot. But I remember taking a plane back from seattle, back to l.

And in those days, earphone IT was called, was super expensive. And I spent the whole trip on the earphone talking all my colleague, saying, I had just discovered this incredible company. But what happened fast forward is occasionally kept L.

A. And over time we just started spending more time together. And in those days I was harder to get references. And he spent a bunch of time with a bunch of different firms and kind of narrated IT down the whole selection of the investment banker is a whole another story, but it's not really related to tech, is related to human psychology. But I was particularly fortunate that in our firm, as David said, was part of the IPO, which was an incredibly interesting experience. Basically, the beauty contest went on in the end of march, beginning of April of ninety two, and the markets were particularly slow back then.

When you say the beauty contest, would you mean that.

Over a two day period, the company invited six investment bank cine, to quote pitch why they should be part of the IPO. And IT was always going to be a small IPO. So IT was pretty clear that they're going to be two investment banks, maybe three max, and there is a bunch of different Victors off of which they would make their choice.

The chemistry with the people, what the industry specialization was of the people, what the track records of the rest bank were, the trading history. They sent us this seven or eight page checklist that we had to submit the answers in advance. When we got there, they would take you through a tour of the roast facilities.

And we didn't know IT, but we were being judged as to who was really interested in the role facility versus who was really just there to pitch the IPO. So how is assisting? At the time, a woman named Laura moy a took us around the roast plant, and he was making notes that he then backfit to Howard about these.

These people are jerks, and these people are really interested in what we're doing because they were trying to pass through who had the heart and the passion and the connectivity with the company. And a few months after this hour told me that they think us because we showed up in a liming, because we had five or six people, and there were, there were no suburbans back then. So we showed up in a limo, and that was a negative.

Everything was being scripted in this beauty contest, which was really interesting. And IT was in our f presentation, and there was a committee of, however, the CFO at the time or in Smith and two directors and IT was those four that we're going to make the choices to who to pick between the six possible ones and the two they eventually picked. And the company was quite thoughtful and diverting. A company like goldman sax was interested in pitching, but goldman kinder said, hey, we'd like you to come to new york and meet all of our senior people, but they can come to seattle. So boom, they got died because they couldn't bring their senior people.

Not no way love service there.

Exactly you.

It's hard to imagine today, but you know, we talked about inserted the intro, the history in facts. Starbuck, today is a verbs. Now it's on every corner in every city in the entire world. The bank, then, this was small freak as far as goldman was concerned, right? I mean, even the IPO, which were get into an a sec Prices.

the IPO Priced on june twenty six, nineteen ninety two at a roughly .

two hundred and twenty five million million market cap, which was more than that IT is today. But these were still very, very early days for the company.

Oh, hundred percent. I mean, there might have been an eighty stores, but the visibility of companies was a lot less. Backman, you have again, you don't have the internet, you don't have dedicated news sources about business.

So IT was harder to discover these companies. You know, something like retail rocha dot com, where you can go and see every perspectives, every video of every IPO that didn't exist. So you know, the on underwriters, on starbucks, the lead on the writers were our firm and alex Brown.

And unless you had accounts there, IT was hard to get a and for the access the information wasn't what IT is today. And part of the reason why the company were were public, Frankly, was the visibility of going to a bigger platform. And in fact, in the months following the IPO, without getting ahead of ourselves, the comp store growth significantly increased because they realized the successful IPO with a quit to curiosity amongst customers.

And of course, one of the reasons to IPO, not always the greatest reason, but for the visibility hit that you get from know, along with raising the capital and getting liquidity for your shareholder, you certainly get that buzz for, you know, a few weeks or a month on the IPO like we're seeing with snap.

Now dan, what do you think the competitive moat around starbucks is? What is the defensively? Why can't any mom and pop shop not come out a business?

I think there are probably two competitor modes that have been around starbucks since the beginning. On the first this hour, I would say job basis is a competitive mode. I would say Steve jobs is a competitive mode. These companies are willed into existence through up and downs because the resilience, the gate, the determination and the ability of these founders, I think that super important.

And then in terms of starbuck specifically, I frequently talk about the psychological contract that starbucks has with its employees and how the strength of that psychological contract manifests itself in the psychological contract between the employees and the customers. And so starbucks is an incredibly retail facing, consumer facing business with twenty six thousand points of distribution. wow.

And even if you're doing the mobile order and and pay, you show up and physically see the the I think that certainly, how are thinks the product is much Better. But I think if you talk to one hundred people, some might say yes, some might say no. The real differentiation and how they have withstood the competition is because of the commitment of the people, which then made starbucks become in customers mind, something bigger, then just buying a cup of coffee. And in the annual meeting this week, they talked a little about using their platform and their scale for good. I talked a lot about that actually, and that's just been a theme that Howard has used for a long time in justice c .

will wrap up the history, in fact, with the IPO itself, and then talk a little bit about starbucks evolution after that. But I think this is something that super clear in going back and reading the s one, which also was super fun because came out before the internet. So you have to do some rooting around online to find IT willingly, to IT in the show notes.

But then you mentioned Howard, jeff baza, Steve jobs being motes. You know, I think something that's come and all of them and really comes out reading the s one is how deeply Howard understood and the company understood. Customer loyalty, especially IT, seems obvious for, you know, thinking back to when they started starbucks or when how IT started to you or ni, the idea that you would go and buy your coffee either to take away or drink at a store in a city that was just something nobody ever thought of, that was just you made at at home. But creating this place in this experience where people are going to come back again and again, that's what enables the business to work, enables them to invest money in opening the store, invest money in marketing because when you acquire that customer, they're gonna coming back again and again and again for their lifetime.

yes. And I remember the research at the time at the IPO was that the average engage starbucks customer came eighteen times a month .

to accurate for me. Yeah.

I think that compares favorite ably with haps today with like facebook.

exactly. But I think the other thing I would say as if you know you have eighteen opportunities to exceed your customers expectations or flow bit, everything matters. And so your attention to detail and you earn IT every day attitude becomes present.

I'd like to go back before we leave the IPO. Just one anecdote. So in an IPO and is still remarkably similar today, the management of the company goes around the country.

And depending upon the size of the IPO, perhaps the world and pitches to investors. And they do IT in two formats. One is group breakfast and launches, and the other is one on ones.

And the one on ones are for the biggest investors, fidelity, terro, Price capital research. And so in the starbucks IPO, there were sixty one on one schedules over a two week period. And IT was eight or nine days in the united states in a few days in london, paris and geneva.

That is a lot of meetings in a short period.

sixty one on once. And so how is said to me before, right as we were starting? He said, how many of the sixty you think i'm onna get and I said, what you mean and he said, well, of the sixty meetings that we're onna have, one or one, how many do you think we will convert to orders? And at that time, I have probably done ten ibs. And you know, I said eighty hundred and ninety percent and he said, i'm going to get sixty and I said.

how nine, sixty percent, one hundred percent get .

all sixty exactly? And I said, you know how? There's lots of reasons why people don't invest, including the fact that the appeal is so popular that they might not get enough stock to be meaningful to them. So don't hold yourself accountable to one hundred percent hit ratio. And he said, i'm going to get one hundred percent .

and this only raising twenty five million dollars.

right? No, they raised forty something million. Part of the offering was a secondary, I see not a good sale.

no money.

right? There's just not that many shares go around.

Definitely true, but everything was smaller back then. So forty was not a necessarily small. I, B, O, in one thousand ninety two, I see. But as IT turns out, he got fifty nine of.

So i'm sure he kills him to this day.

Well, know, the story gets Better. There was a guy in Mickey stress, and Mickey stress was at a firm call, White packing career, wonderful man, may rest in peace. And Mickey decided not to buy at a White pecking CER.

Within nine months after the IPO, who is the largest shareholder of starbucks, White pecking grew. And the lesson for your entrepreneurs there is what goes around, can come around. And however, was so frustrated that Mickey stra didn't buy on the IPO, but he then became in the public markets, the bigger spire.

So the lesson for the venture capitalist is, if you really want to invest in the company, you should turn them down the first time, because then the entrepreneurs is onna want to get you the .

second time right that right the around.

Yeah, that's such a great story.

So we go around the world and it's finally time to Price. And the offering was oversubscribed eight or ten times I remember, and we had filed at fourteen to sixteen dollars a share.

There's little, little like ten times more interest in the IPO. Then there was room correct. Wow, what's Normal?

Well, and snap and some of these others, it's a lot more. okay. no.

So I I think we add twenty times interest because what is up happening is if these things get hot, then everyone acts like they really want IT, but maybe they don't really want IT for the long term. They wanted just for the flip. And so it's very hard to gage real demand versus flipper demand.

But what ended up happening at the pricing was the camp went down thirty percent if their work comes between the time we filed and the time that the company Priced. And by the way, that was so different than. You couldn't file confidentially when we filed.

Everyone saw our filing and IT was super bad because if you couldn't complete an IPO, then everyone knew that you had filed and you couldn't get IT done. And that was quite a tint, yeah. But in terms of the pricing, the deals way over subscribe and the capital market guys recommended that we Price the deal at sixteen dollars a year high under the range and heard said, no, we have to Price IT at seventeen.

And the capital market guys from both firms recommend we present at sixteen. And so we had this very awkward phone call where these wise guys who somehow couldn't really tell you why IT was sixteen, but they felt that I was sixteen. They kept saying IT had to be sixteen.

And how kept saying IT had to be seventy. And IT was a difficult spot for me because as the investment banker who is in corporation ance and kind of representing the client, I was kind of pulled toward toward. Yet the colleagues in my firm was saying, sixteen, sixteen, sixteen hour relentlessly prevailed.

And we Price the deal at seventeen. And ultimately, the stack traded to twenty twenty one that day. And kind of the rest is history. It's gone up one hundred and eighty .

three times then. So you pressed seventeen, which was roughly a two hundred and twenty five million dollar market cap. And then today, starbucks has a eighty three billion dollar market cap. So that's about a eighteen thousand percent returns since then. So the selling shareholders in the IPO probably should have held onto the shares.

yeah. But like every other early company, they might have had a fibre atten x at the offering. And so for the apples, the amazons, the starbucks, those turned out to be incredibly bad sales. But you have to have patients and tenacity, and you can be thinking of yourself as a trader.

yeah. And then before we move on from this, what the implications of pricing at sixteen verses seventeen, both for the company, for the people buying those shares, for the investment bank, why is that a contentious issue?

Well, the pricing of an IPO is a very complicated thing because you have multiple constituencies for the company. Clearly, they did get more money at seventeen. And in theory, for the flippers, they would get less money to hire you Price. And so I think from the very beginning, the investment bankers are trying to find what a nice bump is, but not an incredibly overwhelming bump, because IT feels like you've left too much money on the table yet. If IT breaks the IPO Price, IT becomes a negative story.

right? It's damage .

goods exactly. And one of the things that I always used to councel public company ceos, don't let yourself for your people be judged by whether or not the stock today goes up or down. It's your building a company, and in the long term, they will correct, but in the short term, they can frequently widely diverge.

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Get into maybe a one off section if you guys are willing to experiment here. We introduced on the snap IPO a new section narratives, but one I think that doesn't make total sense and would be really hard to do the research given how long ago the starbucks IPO happened. The narrative section that we're gonna going forward is what the company's narrative is.

They're trying to tell during the IPO process and what the narrative is in the press and the market around IT. But what I think is really interesting, especially for listeners of bisho, is that there has been a narrative that's emerged over the last ten to fifteen years around starbucks. And that's it's a coffee company, is a retail company, it's a realistic company, but it's also a technology company. And I think that you especially for you to and being a technology venture capitalists and a consumer only technology venture capitalists and founding mon with Howard, how has Howard thinking? And the company's thinking evolved from those days when I was there was no internet, you could only find out about starbucks if you saw them on the street corner, to the days today when you know you can request your usual mobile order, you know, on your phone or from alexa, and then pick IT up in the building of your baby, have IT delivered to you.

Yeah, it's changed a lot in one thousand nine hundred and ninety eight when we started over on the whole thought was, holy cow, technology is integrating into consumers lives in unprecedented ways. So how will I change the business models of these companies? And I think in one nine hundred and ninety eight, a company like starbucks are even in two thousand and eight, most companies in the retail business thought of themselves as using I, T, as a way to manage their business, but not really as a way to attract customers.

And I would say in last ten years, with the address of the web and the power of social media, you saw the eye opening opportunity that social media can drive traffic into stores. And that was the first aho that a lot of companies had. And starbucks maybe was a little more advanced because with marvan and how IT was on the board of ebay.

So I think he came from that regular retail world, but he was exposed to consciously exposed to technology perhaps before other traditional retail companies. And I think now I find that kind of somewhat humorous that people refer to starbuck as a technology company. I would say it's a incredibly powerful consumer company that utilizing technology to integrate into customers lives.

What I think it's interesting though, you read IT is a consumer company, but you know you mention J C. penny. You mentioned sears. These were its peers for a long time that haven't evolved, obviously confining mavering with you being on the ebay board. Howard was for while on the square board. I guess the question is, what along the way do you think or some of those key moments when starbucks built that capability and that part of that transformation into being a technology company went, some of its peers didn't.

Well, there was a guy of Chris brazil who was the first social media person at starbuck, and he's now in marketing at E A. But anyhow, pris was kind of before this time at starbucks and just kept pounding on the opportunity that social media had to be an awareness vehicle and a traffic driver. He didn't have much budget, but he kind of relentlessly kept on IT.

And I think Howard started seeing that through social media. They could literally send people into the stores. And if you think about retail, one of the key metrics that every investor looks at the same store cells.

And in fact, I was privileged enough to know a guy named Jerry gallagher, maybe in peace. Ho was the inventor of state to sales. And I asked him to join the popular airport with me, which he did.

But any of the concept of same to cells became evaluation driver for these retail companies. So at the beginning, the first aha was if technology and social media could drive traffic, an incremental traffic into the stores. And that was worth investing in. But as recently as five years ago, many traditional food and other retailers really had a hard time investing in technology because they couldn't really see the return. They felt there was cool to be on social media, but they didn't want to spend the money.

Yeah, I think is a good tech tron to extract. Here is the shift from technology as a cost center in the I T. Spend to a revenue driver and uh core part of the product organization and the driver of part of the innovation of the company.

And I think we look at some of the things that have happened with starbucks. They've had a lot of experiments with other technology company partnerships and bring things in that weren't huge. I mean, there was like that twenty twelve square deal.

They had that early partnership in the mid two thousands with apple and itunes and go advertising there. And then they still have, I think, the song of the week and the APP of the week with the free download card in the stores. And the thing that ended up really like working in my mind is they have incredible loyalty due to their APP were manifested in their APP.

They were one of the first to pine or putting those gift cards in the APP. And now I don't think i've actually use cash or a credit card at a starbucks to buy anything other than reloading my cards so I can get my stars. They've always been pioneering and loyal and then using technology as a lever to strengthen the loyalty program in my my delete. That's the thing that theyve really exemplify the the best in music technology of any retailer on earth.

Yeah, it's funny that you say that because twelve years ago, madrone and us invested in a company that had order ahead and IT went flopped.

What couple is that?

I've forgotten the name of IT, but we literally lost ten million dollars investing in a business that had water off your cell phone. And at the time, we had a test going with five or six starbucks and they didn't think I was relevant.

But the complication of understanding this stuff is they didn't think was relevant, partly because the smartphone proliferation wasn't as why as IT is now, obviously, and the feature set wasn't as compelling as IT was. So I think the stored value component, coupled with the order ahead, became kind of a compelling feature set. And now I would argue that the sweet of products that starbucks has in mobile order and pay is being climbed for by all sorts of other restaurants and retail companies.

May we can mark the official transition and detect themes of the show at this point or sorted in IT. But something that we talked about a lot on the show, and i'm just such a huge believer in in technology is IT has to be in service of a superior customer experience. And just doing tech or just doing mobile ordering for the technology aspects isn't gna work.

And this is what I think starbucks has executed so well on in the last few years, is doing order ahead in the APP with my stored value that makes the experience Better because I get my coffee faster, but I still interact with the people there and my name is still written on the coffee and it's wonderful. It's just I don't have to win line. And so it's Better as opposed to forcing you to jump through technology hobs just for the sake of jumping .

through technology hobs. Yeah and where i've had the most luck working with technology companies is companies that have a great compelling product but can put themselves in the shoes of the retailer or the consumer company and try to understand what that customer experience is as opposed to just kind of selling IT based upon .

feed and speeds. Yeah.

exactly where we've had no luck is where tech companies think that, well, you know these retailers just don't get IT. They don't understand the big idea, and it's that alchemy of building cutting edge technology that they can be adopted, relevant and embraced by these companies who are responsible for nurturing the relationships with their customers.

Great point. Well, before we go hoog in detect team here is worth stopping for a moment and are what would have happened otherwise. Section, and we've talked about in at least before the secondary in that initial IPO, they raised twenty five million dollars.

Did starbucks ever consider doing that on the private Marks like we see a lot of today? I mean, obviously, they needed a capital infusion to continue opening the stores at the rate that they were doing that. But I guess the two possibilities are, what if they grew more slowly? Would starbuck be the way IT is today? And then two, could they have raise that money in a different way?

What if they grow more slowly? They probably wouldn't have the domination that they have, unlike a amazon starbucks kind of one market by market. And so IT was super important for them in their mind to get to markets quickly and eventually build the resources where they could go into a market and kind of owit.

And they did that in a number of different ways. I remember when I was privileged enough to work with starbuck and buying a company called the coffee connection in boston, and I was a venture funded company by a guy name, George hell. I was funded by, uh, a bunch of vcs.

And we basically told them, you know, we're coming a boston where you going to either steam roll you down or you could sell to us and they did. And same thing in london where Scott fanson from pizza sold what he called the seattle coffee company to starbucks, which served as the footprint for starbucks in those stores. So it's in how it's D N, A that gross gross growth.

And I think part of that is to give back to the partners and create opportunities. So I don't think in the early days there is much of a chance that he was gonna slow down. But you had asked IT as a two part question. I'm sorry.

I lost this. Yes, part being raised the private market.

I don't think many of your listeners can comprehend the vast ess of what's happened and the changes in the capital markets over the past twenty five years.

Yeah, there were no not even late coin quote, but there were especially no the prior warning, very many hedged funds period, but they're certainly warned any of them that we're investing in private companies.

right? There are a few crossed over funds, but the amount of capital doing that was small. And and so starbuck did a twenty million dollar rays in december of ninety one, and that was a big race.

And they use D, L, J, S, an agent fort. So the fact that you have one hundred and eighty multi billion dollar private companies today, that's probably one hundred seventy eight more than they were in nineteen ninety two. So they didn't have access to the capital the private companies have today.

period. Full stop. Here you go. Well, that's a great .

leader to go hard. And text themes here, it's shocking to think of the lack of information and the significantly fewer options available to anyone, to companies, to investment bankers, to venture capitalists in those days. And we see very different companies and very different market dynamics falling out because of what the internet yes.

you know, I think it's so cool that in the coffee industry, there's this concept of way. Everybody talks about third way of coffee. And for listeners that aren't steep to and coin coffee culture, the first way of coffee was the soldiers in the maxim house that we talked about in the beginning of the show, the making your coffee at home.

You know, I perhaps unlike many of our listeners and older, perhaps dating myself a little bit, I have remember growing up, my parents having the T. V on in the morning and hearing the jingles, like the best part of waking up as holders in your cap. And good to the last drop.

Maxwell house. IT was never true. IT was never true. But then starbucks, that was the second wave. And there was the first time that this sort of orthogonal business model had emerged in coffee, which was this idea of coffee as an experience, not just as a beverage.

And starbucks obviously wrote that huge way of into becoming orders magnetic, bigger than folders and maxwell house ever were. And then today you have the third wave coffee, which is the sort of this aggregated, you know, the artisan grew, small batch, rusting and brewing local coffee shops. But I think there's this great analogy between all of that to the tech industry in the internet.

First way of being a well, right? Everybody remembers the jingle IT wasn't nearly as good as IT was supposed to be in the second wave, being the truly compelling version of A O L. Facebook and social. We talk about social media earlier, and I think of starbuck being the social place, facebook being the social place. The insight being that once you bring human interaction into a market, you can completely transform IT. And then you have the third wave today of the further disagreement of everything happening on facebook, that, of course, facebook is a big part of, with the messengers and WhatsApp and snapp chat and instagram taking the photos, but basically creating through tech, through data, but also through humans, you know, matching the best of each individual element for you personalizing IT to what you're doing.

So would you, someone? ize? That is, first way being one size fits all, but bad.

Second way being one size fits all, but good with your friends, with your friends. yeah. And then the third way of being not one size fits all. Truly, this broken up, small group, small batch, highly targeted, highly personalized experiences .

that would be a summary of my coffee drug induce fever dream.

Well, I guess where I would go is we've been spending a lot of time at marvan thinking about voice and how voice facilitate impulse. And I think if you step back, version one was in ninety five and ninety six where you had to intentionally go and IT was hard. And in many ways, the digital orating experience has gone Better.

It's become more mobile. But mobile is only one step toward impulse. And we were fortunate gh to be involved in the very beginning as uly, which was another kind of impulse experience, somewhat of an intersection between Q, V, C and traditionally commerce and the internet.

I think voice is the next front tier. Part of that is are obviously artificial intelligence. But at the starbuck on your meeting this week, they previewed you get into your ford car and you order your later from there and you pick IT up on the way to work.

awesome. And so I think you're going to see voice on rams adopted within e commerce situation that are onna change the way and how we buy and seems like such an exciting time to do that. But you have to do IT in a way that reinforces kind of the brand and the buying experience.

Dan, I think that's super initial. I think that's totally right. And I think that no, I have the starbucks APP my phone I pulled out when I get to the register. I often don't think it's worth IT to pull my phone out when my hands are cold in the seattle weather. And but if there were, and I know this is a problem on apple side, not starbuck side, but I can pull out syria and say, three minutes on milk, starbuck third medicine and IT was just there. I think that when you break out of that on Kenny valley and IT actually slott right in your life in a convenient way.

yeah, everything has to be in service of creating a superior customer experience. And part of a superior guest experience is not taking your phone out and your hand and pushing the button .

when they go out are right on to grading the IPO.

So the way that we do this and then smile and guess can participate or not, but would love to get your commentary is as we started with acquisitions, we would grade based on, was that a good idea for the acquire to acquire the inquiry? Was that a gigantic money pit for them? Or did they actually managed to turn that into a one place, one equals three? And then as we shifted over the ipod, way that we think about IT is what did that event enable that company to do on all three of the pillars that I mentioned earlier of no diety and brand for the company giving liquidity, those early investors and primarily, what do they do with that capital infusion? And before diving into IT, it's worth recapping a little bit though.

You know, didn't you make a great point that the DNA of the company and of Howard is growth and they needed to open war stores, they needed to go into more markets. And the question that's been came in the back of my head is, were they in a highly competitive landscape, predicted they need to rushing in the markets and beat out competitors because there were other. Copycats coming in and starting these coffee chains that were getting brand loyal? Or could they have afforded to buy their time a little bit more and just reinvest their profits?

The starbuck IPO, even back then, when you had a successful IPO in a particular sector, he drew a lot of copycats. So they went public in june of ninety two. By the fall of ninety two, there was a couple of companies that were rolling up different existing coffee chains, Gloria jeans, and I forget the other ones, but many of them, i've gone, by the way, side, but they were trying to put mass together.

And what they didn't realize is that they really weren't focused on execution. They were focused on creating something that was IP able, but not exceeding customers expectations every day. 嗯， but I would think that part of the recent starbucks is where IT is today.

Is that how IT was impatient and always wanted to grow. And as a result of that, he got to markets quicker than he might otherwise. And you talked about pets. I haven't seen the numbers for starbucks and from cisco, but I would say that whether or not a blue bottle or peace or fills or fills the fact that they didn't have the dominant position the way they have IT in seattle or L A, enable these smaller competitors to pop up.

You know, I remember making my first investment in starbuck within that december nineteen ninety one round, and you saw this culturing of consumer passion in a market by market basis. And you really ask yourself, is the east coast any different? Is the planet any different? yep.

And if you came to the conclusion, no, then it's okay. So go, go, go get there. Do you mentioned .

when in the company would I P O back in those days you will attract coffee cats? And IT reminded me of something braddon said on our epo de about the uber and d merger that their folks in china especially, but all over the world, they're just reading tech lunch. And as companies raise their first round of venture funding, they got facing themselves.

So funny how the acceleration has happened. You know, I think one of the dominant teams of the IPO and lessons from IT and from starbucks and Howard is that focus, silky just set down on exceeding your customers expectations at every opportunity. I just look at companies today that are doing that well versus ones who aren't.

And again, thinking back to they will be di episode. And even since that episode, all the chAllenges that have come out about their company not to pile on uber has done many, many amazing things, but meant IT is really come out in the culture that, like the culture there is not about deleting your customer and see their expectations. And I just think about the competitive bloodbath that we saw in that episode in china and that is playing out all over the world and how starbuck was able to avoid that even as the copycats popped up by a growing fast, but also be just keeping that core mission of always exceeding the customer's expectations.

Yeah, well, I think what starts by just a fundamental belief that at this twenty six thousand points of distribution, everything matters, and you gotta provide training, and you got to invest in your people such that they feel good about themselves, and therefore they feel good about the brain. I mean, there are the brand ambassadors, and in many ways, I would argue that starbucks is one of the most difficult daily execution. And know they have ninety million customers coming through their stores every week.

every week well.

And they're so visible that every opportunity to screw IT up is an opportunity for social media to amplify that message. And I frequently talk to our majorite companies about, relatively speaking, how easy their task is to exceed custom expectations. Because if you have your own distribution, then you just really need to custom service infrastructure that gets what you're trying to do and what the brand sets and speaks for.

It's just much easier. And I think that's one of the mastery of starbucks. But I look at apple as an example, and I look at the apple stores, and I don't know how you guys feel, but I know I knew fifty years ago that apple was onto something when my seventy year old mother and a lot at the time tell me how she's making reservations at the apple store and SHE just loves me and she's learning.

So I think it's not a surprise to see amazon first with the bookstore and then eventually go because this again, let's take a full circle. Technology for itself is not the issue. Technology for serving customer needs to me become incredibly powerful and sticky and and dirt.

Well said.

completely agreed. I will stop dancing around IT and say that, yes, very much. Well said, obviously bias. I'm sending the room here with then, but we've gone over this full analysis and i'm going to give this a you know I think for the branding event reason, i'd enable them to go into markets and that worked.

When they spread of these new markets, they were suddenly national news, and people understood this wasn't this little coffee chain. And seattle, on the west coast, to was A I P. O.

That people knew about and they had a pedestal. And they can move to these new markets with that. And then i'm split what they did with the capital into idea execution. The idea of what to do with IT to continue this frenzy of opening new stores the right way in new markets and moving in was both the right thing to do with that capital and really well executed.

I mean, when you look at your story's the end of fifty nine at a sixty seven years, pricing IT at seventeen, not sixteen, and still getting that little pop, not a ridiculous one, but a good one. And you know, just putting up the history of the stock praise, i'm just looking at the first few years because I think that's relevant part. There was no like o crap moment. The bottom didn't seem to do a fAllen out. I was like IT went to the public markets with a true to the company value and continued to grow from there as the company's value grow master.

fully executed by the investment bankers.

I agree one hundred percent on the IPO analysis, but when you say there is no crap moment, there is plenty of times in the history of all these businesses where there are okra moment. And you know, I think that's another thing that we try to help entrepreneurs with, which is there's plenty of dark days in every business.

And I ve spent too much time with out where people saying, you know, how did you know when you were successful? Any kind of is taking a back a little and is, what are you talking about? I have to earn IT every day.

We have to earn IT every day. Know life, the process, right? It's not a destination.

It's a journey. And I think these businesses are tested in different ways. I can give you a bunch of examples where starbucks was truly tested. It's sitting on the top of the hill now and everyone kind of thinks, ah you know it's .

been we've .

made IT yeah but in terms of the IPO, I agree with your assessment a two .

here and not just because we're talking to them like the facebook IP. I was a very chAllenging one and we gave that what we gave up two grades, one of which was a one of which I think I see .

we take a lot liberties anyway.

We need to do a bad idea one of these days, soon, any less hard to argue with an eighteen thousand percent appreciation since the starbuck IPO. But for me, the two things taking away from this conversation, and dan, you know, your stories in your insights, I thought about a lot, but it's the combination of the two. I think he is so powerful and express so beautifully within starbucks and within Howard, it's the starbuck.

And how IT had these two equal drives within them? And that one was for growth when the other one was for exceeding customer's expectation and see, know every single time. And I think it's that the marriage of those two things that make for the most powerful consumer companies out there.

And when I think about know the ones that I work with, then we work with, together with your colleague, David and booster, the early stage company that major, major our investors in together. And that's what Frank and diagonal Tyler in the team, john and everybody there, you know, that's what they do everyday. They are hyper focused on growth and they are hyper focused on exceeding customer expectations every day. And if you can nail that and sustain that, that's how magical companies are created.

and that's in the DNA of the C. E. O. Or isn't. And I remember the early days of my relationships with starbucks and as a scrappy and based banker, one of the many things that I tried to do was always give store experiences.

And I was hated within starbucks because my phone calls at the beginning, and then my emails were rooted through the ops. department. And in westport, connect ted at nine P. M. Or nine A, M, there is a problem.

And people would go crazy because I would tell how, and then how I would tell the head of ops, and then the head of up tells the regional person and the district person and the storm manager would eventually get IT. And people would, uh, your dad, you know, we've had about you, we've heard about your feedback. They would say, thank you.

But and then I contrast IT to what happened on sunday morning. And here's the company. And SHE said, eighty billion dollar plus.

I was waiting on sunday morning for my coffee at the starbucks medicine park, and I was stuck behind two large mobile orders physically. And so I was waiting for a super long time. And I shot Kevin a note.

Kevin is the incoming C. E. O of serb x.

Kevin Johnson. And I kind of frame the problem up and the frustration, and I thought that was the end of bit. I go to the starbuck annual meeting and the head of U.

S. stores. The head of adam broke in the digital person. And one other person all said to me, we saw your email. Thanks for the insight.

And it's that one customer, one cup at a time, and that's in the starbucks vision state or their mission statement. I wish I had a memorize, but they're going to see customers expectations, one cup, one store, one neighborhood at the time. And so there is an incredible baLance between detailed execution and yet having a big vision that their employees first and then their customers can embrace. Yeah.

and after the show, one assume.

i'm sure, how this is to appreciate that too. What a great story to rap on. Do we move on a car out?

Yeah, let's do IT. So mine is a lot of the time will go wax philosophically about some cool burning man video that we saw or some completely unrelated books that we read. Mind is something that I think every single acquired listener won't joy.

And that is an email news letter called prata by then prime act from the new company, aioc. So then wrote the term sheet for a long time at fortune and moved on to help start this company, para da, which is this third wave of email newsletters. And there is also a website. But I mean that the newsletters are where it's at.

Proba, in particular is great because you get some really good insight by dan, who's a true journalist, not to not too hard on a lot of like tech blogger, but he has the journalistic integrity you would expect out of, you know, a polls surprise winning someone chase in the story for fifty years ago. Really a pleasure to read that. And then the cool thing is you get a list of all the companies that i've gotten funded today in V, C and P, E companies have gone public. And IT really helps me if someone that works to create really stage companies, no identify trends. So it's pretty interesting to see what's gone on in the world of new poverty creation.

Yeah, really good dancer isn't has been excEllent for a long time. My covert probably also will appeal to, I was going to say, all acquired listeners, but perhaps not quite all, at least those of certain generation is a super fund podcast and also fun thinking back to the time of the starbuck IPO that I discovered recently called the wizzart and the bruiser, which is a nosti c take. Definitely not safe for work, by the way.

So not like this podcast looking at geek culture from the eighties. And IT just takes me back to my childhood like a the legend of za onic the head hug know all the cartoon T V shows, super, super fund stuff. And these guys are how arias so highly recommend.

This is my first grab out, and I was trying to decide whether and I should be self and grandison ing for one of the mavrone companies, said, I love or not. And i've decided to stay away from the mavrone companies.

They are all great, but we can be self granites ing, or we can be aggrandizing for you. So many of the companies they funded deliver the same kind of growth and superior customer experiences that we've talked about on this show.

Well, thank you, David. I hope they deliver the same kind of growth.

That's your job is a board member?

Um exactly. Well, it's a management job. But any help i'm going to do something that I wish. When I was in my twenties and thirty, someone had said to me, because when you're in your eighties and thirties, the table is not set yet. You're still trying to figure out what your table is and how to set IT. And there is actually a poem that was written in one thousand nine thirty two by a man and Peter wibra. And the name of the poem is called the man in the glass.

And I will quickly read the poem because in my mind, IT says at all, when you get what you want in your struggle for self and the world makes you king for a day, just go to the mirror and look at yourself and see what that man has to say for IT isn't your father or mother or wife whose judgment upon you must pass the fellow whose verdict counts most in your life is the one staring back from this glass. He's the felt a please never mind all the rest, for he's with you clear to the end. And you've passed your most difficult, dangerous test. If the man in the glass is your friend, you may fool the whole world down the pathway of years and get pets on the back as you pass, but your final reward will be headache and tears if you've cheated the man in the glass of great sexist man. You know, it's ninety years ago, so it's really relevant for people, not males yeah and .

I can say for a listeners, one of the first time I met them, we are having a little email exchange afterwards and he sent me that same poems so I know it's near due to your heart and great message.

Thank you for me guys. Thanks for coming. It's exciting your format and what you're trying to do and help educate people on. And thank you. Driving be a part of that.

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Yeah, fanta is the perfect example of the quote that we talk about all the time here and acquired jeff basis, this idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually gonna move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. IT plays a major role in enabling revenue because customers and partners demand IT, but yet IT add zero flavor to your actual product that IT takes .

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if you like to show, we're Frankly, if you didn't, actually, if you didn't, we d love some private feedback, acquire a less outcome, if you did, my god, do we love five star reviews? They help us grow the show. They help us keep more listeners.

They help us have more son. And quite honestly, what IT helps us do is bring on sponsors and then like any good growth engine cit, back into the show and figured out how to improve the quality and make a Better product. So help us do that. Please review us on itunes, share with your friends, and we will see you next time.

See next time.

Easy, you, easy, you, easy you who got the.