Mr Start-up spills the beans on Starbucks’ success — and defends tax avoidance row

By Sandy Rashty, February 21, 2014
Starbucks co-founder Zev Siegl, now a small business adviser, shares untold Starbucks stories

Starbucks co-founder Zev Siegl, now a small business adviser, shares untold Starbucks stories

He co-founded one of the biggest names in retail, but American Zev Siegl has the manner of an enthusiastic schoolteacher.

That’s because he initially taught history at a school in Seattle before launching Starbucks with Gerald Baldwin and Gordon Bowker in 1971. It is now the largest global coffeehouse company with over 20,000 outlets.

Speaking at JW3 last week, in a fundraising bid for One Family UK, which supports Israeli victims of terrorism, Siegl shared the untold story behind the multi-billion pound business.

“We were just three young guys,” he says. “We were not businessmen. I was a schoolteacher, Jerry had a minor position at the Boeing Company and Gordon was a journalist.

“We wanted a little more excitement in our lives, more authority. We wanted to express ourselves. Making a ton of money wasn’t on the table.

“But we were in a position that many young entrepreneurs are. We had nothing to lose. That can make you want to take a risk.”

Siegl, 58, says the trio, who have remained close friends since meeting at San Francisco University, once came together for a cheap lunch to brainstorm business plans and “lament our situation. That lunch ended like most lunches ended in 1970 — with a terrible cup of coffee.

“It really tasted like something you would put in your car,” he laughs, recalling the light-bulb moment that propelled them into business.

“We thought, ‘maybe there’s a demand for coffee in Seattle’. That’s the seed from which Starbucks grew.

“We really had only one thing going for us, and that was that we were alert to possible demand.

“People didn’t walk around carrying coffee with logos like they do now. This was before the birth of the modern coffee business. There wasn’t much going in terms of gourmet coffee in the US.

“We were determined to make our company great. In the six-month start-up period we didn’t sleep much.

“[But] it’s safe to say that it was a good idea to get into business.”

Siegl, now a small business adviser, pauses his PowerPoint presentation and turns to the audience. There’s a message to be learnt, he tells entrepreneurs scribbling down notes. That is the value of “research and marketing.

“Fortunately, we chose not to plunge in. We did research at the public library and spoke to business people.

“You have to think beyond your family and friends, who love you dearly and went to your bar or batmitzvah. They’re not going to say ‘what’s he thinking?’ — They’ll keep encouraging you to plunge ahead.

“Only the silly entrepreneur takes that kind of praise from family or friends.”

Co-founders Gordon Bowker, Zev Siegl and Gerald Baldwin in the early day

Co-founders Gordon Bowker, Zev Siegl and Gerald Baldwin in the early day

It was the advice and mentorship of Netherlands-born Alfred Peet, who founded Peet’s Coffee & Tea, which proved to be most valuable.

“Peet and I hit it off,” he says, recalling a visit to the Holocaust survivor’s coffee shop in Berkeley, California. “He agreed to mentor us and was like an uncle. His philosophy, which became ours, was ‘no compromise about

“I’m pretty sure that there wouldn’t be a single Starbucks store if it wasn’t for him.”

Siegl urges ambitious entrepreneurs to “get a mentor — they’re free”.

Starbucks went from a retail shop to a global coffeehouse chain because its founders grew slowly, he says.

“Have money in the bank before you start,” adds Siegl, who says the founders cut costs by building shelves in his parents’ basement and launched Starbucks with the equivalent of $100,000 today — or $20,000 in 1970.

“We raised a lot from our own coffers and our families loaned us some money. None of us were wealthy — but [our families] wanted to help us.”

Siegl says his mother Eleanor and father Henry, respectively descended from Polish-Russian Jews and Hungarian Jews, influenced him in very different ways.

“My father was a violinist and poor manager of money,” says Siegl.

“He didn’t influence me in [business] but certainly enriched my life.

“My mother founded The Little School in Seattle. All board meetings for the school were held at our dining table, so I would hear management issues and what was going on. That was a big influence for me.”

But after 10 years as vice-president of Starbucks, Siegl made the decision to leave the company. In 1987, it was sold to Howard Schultz, the current chairman and chief executive of the company.

“Not only did I exit — I sold my stock,” he says. “Every entrepreneur has a comfort level. My comfort level is the start-up level.

“I love making companies where there wasn’t a company or changing something radically that wasn’t there. That’s what I enjoy.”

Perhaps that’s why Siegl has been widely dubbed “Mr Start-Up”.

“I was comfortable selling — I’m an early stage guy.

“When things get complicated, I have to exit,” he adds.

“My idea of complication is hundreds of employees and middle management — I’m not very effective there.”

Siegl went on to defend Starbucks’ position in the controversial UK tax avoidance row.

“It’s a publicly traded company. Sometimes their drive for profit to satisfy millions of stockholders might get in the way of their right decisions,” he says, whilst also highlighting Starbucks’ corporate social responsibility initiatives.

“Maybe they don’t get it all right all the time — but they keep trying.”

Last updated: 12:56pm, April 30 2014