A Lesson on Innovation – Starbucks Case Study

A Lesson on InnovationNo Instant Coffee Here: What Starbucks Teaches Us about the Importance of Timing and Innovation (Part 1 of 2)

Timing. It can be the impetuous for the greatest, most serendipitous of love stories—the perfect Craigslist Missed Connection “How We Met” story later memorialized in the New York Time’s “Vows” section. Or, the most tragic, ill-timed ones—like all that tragic poison-drinking and dagger-stabbing by star-crossed (and horrifically-timed) lovers in Shakespeare’s “Romeo and Juliet.” It’s not just in the battlefield of love that timing plays a heavy hand in destiny. The same goes for the effect of timing on business innovation. The right timing can catapult your business to great heights; but by the same token, a mistimed venture can turn into nothing but a money-sucking, time-wasting failure.

Without further ado and without a further aside into my other favorite Shakespearean play “Much Ado About Nothing,” here’s your daily business innovation brew: the slow-roasting story of Starbucks’ success and what it teaches us about the importance of timing and innovation. So you can best digest this ripe-with-content subject matter, we’ve separated this topic into two blogs.

The instant Part 1 of the two-part blog series on the Starbucks story covers the time period from Starbucks’ humble beginnings in 1971 as just a single storefront to Howard Shultz raising the necessary capital to buy Starbucks and make it a private company in 1987. Along this caffeinated journey, we’ll be pointing out the important timing and innovation takeaways from Starbucks’ success story. Part 2 of this two-part blog series will cover the timing and innovation lessons we can glean from Starbucks’ operations during its Private Company Era (1987-1982), its 1982 IPO, and Present Day happenings.

All we’ve got is the beans! The Humble Beginnings Era (1971-1987)

Long before there was seemingly a Starbucks on every corner and the phrase “Iced Venti Decay Skinny Cinnamon Dolce Latte with two extra shots (please!)” was a part of everyday vernacular, a coffee was something brewed at home or ordered with breakfast at the diner or café. No fuss. No infinite options. Just black, with milk, or with cream. And for typically less than a buck. The commercialized-caffeine juggernaut that we think of today when we think of Starbucks didn’t start out that way.

The Starbucks story began in 1971.[1] Three friends, inspired by a mutual love of fine coffee and another gourmet coffee entrepreneur, Alfred Peet, opened a tiny storefront in the Pike Place Market in Seattle, WA. The first Starbucks store didn’t even sell coffee by the cup, but rather sold only whole-roasted coffee beans. Even though the timing was all wrong—coffee consumption had been on a downward consumption trend since the early 1960s and Seattle was floundering during the Boeing Bust (the tough economic times that ensued after Boeing, Seattle’s largest employer, cut 60,000 jobs and other industries were in similar slumps). Who would have thought nearly 45 years later, Starbucks would boast 23,043 retail store locations in 68 countries[2] and have a whopping enterprise value of $79.99 billion[3] (as of February 10, 2016). Answer: it would take a true visionary to see this future.


(Enter Howard Schultz to the scene; [the] stage [is] right!)

Howard Schultz, current chairman and CEO of Starbucks, had a hunch. Back in 1981, when Shultz was working for a company that made plastic products, he astutely noticed that a small Seattle coffee store was purchasing more of a particular drip coffeemaker than mega-department store Macy’s was. He decided to investigate this anomaly further, even flying to Seattle to meet with Starbucks’ three founders and learning about their passion for coffee. In Schultz’s book, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time, he describes what he felt flying back to New York after his first visit to Starbucks in Seattle:

“I believe in destiny. In Yiddish, they call it bashert. At that moment, flying 35,000 feet above the earth, I could feel the tug of Starbucks. There was something magic about it, a passion and authenticity I had never experienced in business. Maybe, just maybe, I could be part of that magic.”[4]

Timing Lesson No. 1: Sure, timing is a little part luck a lot part preparation, but at the root of every innovation success story, whether it’s a slowly-brewed success or an instant hit, is an intrepid spirit. You’ve got to believe in the magic of your idea!

A year later, after travelling abroad and falling in love with Italy’s idea of the coffee-bar, with all its ambiance and sense of community, Shultz came back to the states and started working for Starbucks. However, the original Starbucks founders were not similarly captivated by the idea of moving Starbucks from the coffee bean business into the coffee bar business. Accordingly (and in order to stay true to his innovative vision of “what Starbucks could be’), he left the company and opened his own Il Giornale coffee shops. As he immersed himself in the coffee bar business, he became increasingly convinced that he wanted to purchase the original Starbucks company and give the Starbucks name to his growing arsenal of Il Giornale coffee shops. In 1987, he managed to secure enough financing ($3.8 million) to buy Starbucks.[5]

Timing Lesson No. 2: The naysayers and narrow-minded might harp on the point that “timing is everything”; “the current climate isn’t the time to start anything new”; or “this is a been-there-done-that idea; there’s no room in the market for innovation or anything new.” But not Shultz. He knew there were local coffee bars all over the states, but none that offered the coffee-bar experience he’d seen abroad: a special type of gathering place that was neither quite your home or quite your office—the idea of the “third place.” Whereas others would have turned their back on the idea, citing too much commodization or competition in the coffee shop business category, Shultz dared to disrupt (and by disrupt, I mean emphatically shake up) the status quo.

Timing Lesson No. 3: The right timing won’t just magically “bing” as an appointment on your personal and business calendar. Sometimes you have to create your own “right timing”; see opportunity where others don’t; be a disrupter and make your own time; ignore the cynics; and ultimately create your own business’s destiny. When it comes to innovation in business, this is known as disruptive innovation: “a term of art coined by Clayton Christensen, [which] describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”[6] This disruptive innovation concept is discussed in both of Robert Brands’s business entrepreneurship books: Robert’s Rules of Innovation: A 10-Step Program for Corporate Survival and the newly published, on December 8, 2015, Robert’s Rules of Innovation II: The Art of Implementation.           

Check back on this blog soon for the second and final part of this two-part blog series, which will discuss the interplay between timing and innovation during Starbucks’ Private Company Era (1987-1982), the 1992 Starbucks IPO and Public Company Era (June 1992-Present), and Present Day Events.

To learn more about timing and innovation and the art of implementing innovation, grab your cup of coffee and check out the innovation books Robert’s Rules of Innovation: A 10-Step Program for Corporate Survival and Robert’s Rules of Innovation II: The Art of Implementation (available since December 8, 2015).


[1] K. Klyver and M. Rostgaard Evald; Entrepreneurship in Theory and Practice: Paradoxes in Play

[2] https://news.starbucks.com/uploads/documents/AboutUs-Company_Profile-Q42015.pdf

[3] https://finance.yahoo.com/q/ks?s=SBUX

[4]Schultz, Howard. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time

[5] http://www.mhhe.com/business/management/thompson/11e/case/starbucks.html

[6] http://www.claytonchristensen.com/key-concepts/#sthash.Pj9tflCh.dpuf