Episode 34: The Starbucks IPO with Dan Levitan

[0] Sorry, guys, there.

[1] Sirens going by my windows here.

[2] Guess David's in Europe.

[3] Who got the truth?

[4] Is it you?

[5] Is it you?

[6] Is it you?

[7] Who got the truth now?

[8] Is it you?

[9] Is it you?

[10] Sit me down.

[11] Say it straight.

[12] Another story.

[13] Welcome back to episode 34 of Acquired, the show about technology acquisitions and IPOs.

[14] I'm Ben Gilbert.

[15] I'm David Rosenthal.

[16] and we are your hosts.

[17] Today we'll be talking about one of the great legends of a historically non -tech company in a technology city, Starbucks.

[18] And I'm here with Dan Levittan in Seattle, and we are both sipping our Starbucks.

[19] So I've got almond milk latte here.

[20] Dan, what are you drinking?

[21] I'm drinking a tall decaf Americano, the why -bothered drink.

[22] Seriously, what is the point?

[23] Listeners, before we dive into the show, a couple of things I want to cover.

[24] if you're new to the show, we've got a great Slack community.

[25] So we've got over 500 people discussing mergers, acquisitions, IPOs, tech news, really anything that people want to create rooms for.

[26] So you can learn more about that at Acquired .fm and join.

[27] Hit us up on Twitter at Acquired FM.

[28] Okay, listeners now is a great time to thank one of our big partners here at Acquired, ServiceNow.

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[43] And when you get in touch, just tell them Ben and David sent you.

[44] Thanks, Service Now.

[45] David, can you introduce us to our guest today?

[46] Yeah.

[47] So as Ben mentioned, we are covering the landmark Starbucks IPO today and we are lucky to be joined by Dan Levitan, who is the managing partner and co -founder along with the soon -to -be former and original CEO of Starbucks Howard Shultz of the consumer -only venture capital firm Maveron.

[48] And Dan and Howard started Maveron in 1998.

[49] Since then, Dan has invested and served on the boards of many successful companies, including Zooli, troupanion, potbelly, and drugstore .com.

[50] Dan and Maveron are great early stage VC investors and investors both in PSL, where Ben works and co -investors with many of the companies I work with at Madrona and really delightful folks to work with.

[51] But today, we're actually going to be talking about Dan's days before Mavron when he was an investment banker in New York at a firm called Wartime Schroedering Company.

[52] And he met a crazy entrepreneur from Seattle who had a little coffee company that was named after a character in Moby Dick.

[53] And Dan would go on to serve as that coffee company's lead investment banker on their IPO.

[54] And that's the story we're here to tell today.

[55] So thank you, Dan, for joining us.

[56] Thank you for having me, guys.

[57] For acquired listeners out there, we've had founders, we've had M &A professionals, we've had journalists.

[58] We even had some executives at 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 them public and did the deal.

[59] So I'm super excited to have a first here on Acquired today.

[60] And actually, it's also worth noting the date works out pretty well because right now happens to be the 25th anniversary of Starbucks going public.

[61] Actually, June 26th is the 25th anniversary.

[62] It is the year of the 25th anniversary, but it is also Howard Schultz's last month on the job before he retires.

[63] True.

[64] He's on to his next play.

[65] So with that, let's dive in.

[66] 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.

[67] And then we're going to dive into the IPO with Dan.

[68] But the original Starbucks company, not the Starbucks coffee company, but the original Starbucks was founded in Seattle in 1971 by three friends, Jerry Baldwin, Zev Siegel, and Gordon Boucher, who had met in San Francisco as students at the University of San Francisco.

[69] And they had become acquaintances of the legendary Berkeley, California coffee roasting entrepreneur Alfred Pete.

[70] Folks might know Pete's coffee.

[71] And the three friends had become sort of disciples of Alfred's.

[72] And after college, they moved up to Seattle, and they wanted to get into coffee roasting themselves.

[73] So they started a company, decided to name it after Starbucks from Moby Dick.

[74] And they set up shop in Seattle.

[75] But they were just a roaster.

[76] They roasted beans and they sold beans.

[77] They did not brew coffee.

[78] But it becomes a nice small local business in Seattle.

[79] And then we fast forward 10 years to the early 1980s.

[80] And David, it's important to know they didn't brew coffee.

[81] And that's not just because they were drawing some hard line in the sand like you could see today of we're not going to be like that every other street corner that you see that has a coffee shop on it where people are brewing coffee and sitting there and drinking.

[82] Many of our listeners are familiar with the idea, but that didn't exist.

[83] That was a thing that Starbucks would later kind of create.

[84] Yeah, that's right.

[85] They didn't brew coffee because nobody brewed coffee.

[86] That was what you did at home with your Folgers or your beans that you bought from Starbucks or somewhere similar.

[87] So we fast forward 10 years to the early 1980s when a young Howard Schultz, who had been in a earlier life a sales executive for Xerox Corporation, he was working as the general manager of a Swedish company named Hammerplast that made coffee machines.

[88] And he heard about these guys out in Starbucks, heard they roasted good coffee, and he went out to see them.

[89] And he was actually really impressed.

[90] And he was so impressed that he spoke to them and sort of begged joining the company and he got a job.

[91] And so he became the director of marketing for Starbucks.

[92] And this was in 1982.

[93] So Howard is director of marketing working for these three founders.

[94] And he goes on a buying trip to Milan, Italy.

[95] And he notices something different about Milan versus the streets of Seattle or any other American city.

[96] And that's that there are these coffee bars.

[97] And everywhere throughout the city and they serve coffee and people go and they meet there and they hang out there.

[98] And they're not just places to buy beans or buy coffee to take away.

[99] It's actually a place where you sit and you talk to people.

[100] And so he's really taken by this idea.

[101] He comes back to Seattle and he tries to persuade the original Starbucks founders that this is something that they should start doing in Seattle, start doing themselves, open up cafes in the city.

[102] But the founders, they actually have something else going on at the time.

[103] And that's that their original mentor Alfred Pete is retiring down in San Francisco and he wants to sell his business to the three founders, his disciples.

[104] So they say, you know, Howard, that's nice.

[105] If you want to do that, why don't you go do that yourself?

[106] We're actually in the midst of buying Pete's and we're going to move back to San Francisco and we're going to do that.

[107] Yeah, it's hilarious 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 thing.

[108] We're going to go do Pete's.

[109] Yeah.

[110] Fate is and true.

[111] is stranger than fiction sometimes.

[112] So Howard actually leaves the original Starbucks in 1985 and he starts a new company pursuing his dream of what he saw in Italy of cafe shops that serve coffee and serve as meeting places in cities.

[113] And he starts a new company, calls it Il Giornale and models it after his Italian experience.

[114] So he operates this company for a couple of years, grows it in Seattle, has a fair amount of success.

[115] And then in 1987, Two years later, he approaches the Starbucks founders again.

[116] At this point, they're focused on Peets and still in roasting down in San Francisco.

[117] And he offers to buy the Seattle retail locations that are still called Starbucks from them.

[118] And he does, and they agree to sell it to him for $3 .8 million.

[119] Schultz buys these Seattle retail outlets, merges them with Il Giornale, and rechristens the company, the Starbucks Coffee Company, So, David, did he have the 3 .8 million liquid to be able to make that purchase?

[120] Dan's over here shaking his head.

[121] Yes, so this is where I wanted to bring Dan into the story.

[122] How did this transaction, the first one long before the IPO, come together?

[123] Well, I didn't actually know Howard until 1991, and that's a story that I should tell.

[124] But the way the transaction came together is Howard at the time was a 30 -something, very determined young man. And he went to, I think the number was about 250 people before they said yes.

[125] And that was for real journaling.

[126] And then it was easier to raise the money for Starbucks.

[127] But no, he was a poor kid from Canarsie, Brooklyn.

[128] So he went around Seattle and met the angel community, which was obviously very much more focused on traditional businesses than tech.

[129] businesses at the time.

[130] And you scraped together the 3 .8.

[131] In fact, one of the stories that is largely not told was that there was a group of businessmen in Seattle that had seen Starbucks emerge.

[132] I think by that time it had seven stores.

[133] And they weren't sure that this young 30 -something year old kid was the right guy to buy Starbucks.

[134] So there was a movement on the side.

[135] to see if they could put in, quote, an experienced person and they were going to have an alternative bid for Starbucks.

[136] But as has happened many times in the last 45 years, Howard prevailed and was able to line everybody up and buy the company.

[137] And I think Starbucks coffee company started with 11 stores in 1987.

[138] Wow.

[139] Which is so funny, speaking as a quote, young 30 -something myself these days.

[140] I feel like now that's old.

[141] If you're in your 30s, you have gray hair in the tech world.

[142] It's the 20 -somethings that are the young entrepreneurs right now.

[143] But, you know, they were looking for an experienced retail operator, but obviously he proved them wrong.

[144] Obviously, he did.

[145] So he merged the companies, and the growth was pretty incredible.

[146] So it was 1987 when the merger happened and the Starbucks coffee company was born, they did 1 .2 million in revenue that year.

[147] The very next year, 1988, they did 10 .2 million in revenue, so almost 10x in one year.

[148] But that was because of the combination.

[149] Ah, that was because of the combination.

[150] Okay.

[151] Still, even then, for the next basically five plus years, they practically double revenue every year, which in a bricks and mortar retail business is hard.

[152] Yeah.

[153] And it looks like 89, they had almost 20 million, 90, they had 35, 1991, they were up to 57 .6.

[154] Dan, how did they do that?

[155] What was the driver of the exponential revenue growth for them?

[156] Well, Howard was from the very beginning aware that Starbucks really was in two businesses.

[157] One business was operating these retail stores and the other was developing a pipeline of these retail stores.

[158] 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.

[159] You know, when I first saw it, I was really struck by the cauldron of consumer passion that people had around Starbucks.

[160] And he kind of knew that.

[161] And so his whole mindset was I'm going to build a company that's going to be the development co of Starbucks.

[162] And was it sort of like a Bezos -type mindset of every dollar that comes in, we're going to aggressively reinvest in new store growth?

[163] Or how did they so quickly open so many new stores?

[164] Well, he raised a lot of equity.

[165] And that was the problem then of retail businesses like that, that they required a lot of equity.

[166] And what's funny now by current standards, he did raise a lot of equity back in those days.

[167] He raised over $30 million in equity before going public, which was a lot.

[168] But now, looking at the tech companies that Mavron and Madrona and the Lake Fund, that's maybe your Series A and your Series B. The scale has changed dramatically.

[169] I think Starbucks raised about $250 or $300 million in equity in total before it kind of flipped around and the cash flow generation of the existing store base was greater than the incremental amount of cash required to build new stores.

[170] Huh.

[171] And that's including the IPO?

[172] That's including the IPO.

[173] But, no, Howard, I would say it was very, very different than Bezos.

[174] At the start, one of Howard's key constituencies was his employees.

[175] And that came from Howard's background with his dad and the fact that his dad didn't have health insurance.

[176] And so as a result of that, Howard was fortunate enough to have a business model where he invested in his people and his people nurtured relationships with customers.

[177] And so, yes, there was a ton of money invested in the new stores, but things like health care for, they called it beanstock back then.

[178] Yeah, and this was amazing.

[179] I mean, every employee in the company from part -time baristas on up, not only got health insurance, but also got stock options, got equity in the company.

[180] And one free pound of coffee per week.

[181] Still happens today.

[182] It is really incredible.

[183] that they've managed to preserve that at scale.

[184] I mean, when they announced things, I think it was two, maybe three years ago, but announcing the program for all partners, Starbucks doesn't refer to them as baristas, but every employee is a partner, for all partners to be able to attend an online university, ASU, and opening that up to say, you know what, for all of our partners, we're here for your continued growth in education, and we're going to continue to reinvest in you.

[185] That's one thing that's really nice to say and very possible, not at scale, and it's just incredible at the scale that they're doing it to keep it up.

[186] particularly when companies go through traumatic periods where everyone questions what are the values of the company which starbucks had right i mean i don't want to jump way ahead too much but so starbucks hasn't always been the absolute behemoth that we know it today 100 percent i think that is the story of resiliency tenacity whether or not it's apple or starbucks these are not straight lines or Amazon from our episode with Tom talking about Amazon and after the IPO and during the post -internet bubble crash, I mean, you could have bought Amazon for the equivalent of five bucks a share.

[187] Incredible.

[188] Yeah.

[189] Dan, I wanted to bring you in here.

[190] So the company's growing incredibly fast leading up to the IPO for any company, tech or otherwise.

[191] So you met Howard in 1991.

[192] How did you in New York hear about what was going on?

[193] out here in Seattle.

[194] And how did you meet Howard and this relationship start that would lead to so many things over the years?

[195] Well, as it turned out, I was working in our Los Angeles office at the time.

[196] And a partner of mine from New York called up and said, there's this coffee company and we have to go visit it in Seattle.

[197] And I said, coffee?

[198] You know, what are you talking about?

[199] How could that be a fast growth business?

[200] Because in those days, fold your and Maxwell House and those branded cans of coffee was a declining business.

[201] And this guy named Bob Israel said to me, Dan, trust me, let's go to Seattle.

[202] And I kept struggling to try and understand how this could be a growth business.

[203] 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 served those blue and white cup.

[204] of coffee.

[205] And anyhow, I came up to Seattle, and I will never forget the time.

[206] It was in August day in 1991, and I took a cab in from CTAC.

[207] And by the way, everyone in the audience might be puzzled that, you know, how could you not check out a company?

[208] There was no internet then.

[209] You had to literally come to Seattle.

[210] Exactly.

[211] And unless you knew people in Seattle, it was super hard to experience the visual or what Starbucks was.

[212] So you literally had to come to Seattle.

[213] At the time, I think they were in Seattle, Portland, and Vancouver.

[214] But anyhow, I remember getting in the taxi vividly from CTAC and taking a ride to the hotel and me asking the guy, I hear there's a lot of coffee in this town, which coffee shop do you go to?

[215] and he said, oh, there's a ton of coffee in this town.

[216] And probably versus today, there's one 20th of the number of coffee stores.

[217] But he says, there's a lot of options, but I always go to Starbucks, and it's the best.

[218] And then I check into the hotel.

[219] And before I go upstairs to my room, I asked the woman behind the counter, I got to get a cup of coffee tomorrow.

[220] Where do you recommend?

[221] And she said, oh, there's lots of places, but I always go to Starbucks.

[222] And here's the spy.

[223] So I woke up the next morning and I always had a principle that I would never not visit the company's stores that I was calling on.

[224] So they sent me to the kiosk in city center that's still there over on Fifth Avenue.

[225] Just a kiosk, not the full store experience.

[226] It was a kiosk because there was no store near the hotel.

[227] They were so under penetrated versus now.

[228] And so I sat there for about 45 minutes, and people were lining up for this coffee.

[229] And I was like, you know, why is this coffee so great?

[230] And I wasn't a coffee drinker at the time.

[231] And it was kind of one of the first times I ever had coffee was that day.

[232] And so we headed over to Starbucks.

[233] And for an hour and a half, Howard just talked nonstop.

[234] And he was talking about the business model.

[235] He was talking about his people, he was talking about his customers, and this kind of passion that was completely intoxicating and contagious.

[236] But I was an investment banker, and investment bankers have to sell.

[237] And if I couldn't talk, I couldn't sell.

[238] And I was kind of frustrated because at the end of an hour and a half, literally, he looked at his watch and basically, he made it clear to me that it was over.

[239] He closed up his notebook and started walking me to the door, basically.

[240] And I had just been overwhelmed by this incredible experience about, that was about passion.

[241] But most importantly, for me, it was about a guy who understood that his business was more than his shareholders.

[242] He talked about his customers and he talked about his people in an incredibly compelling way.

[243] And I was just really struck by that and hadn't really heard that.

[244] that prioritization of people first, customer, second, shareholders, third from anyone.

[245] And so there was a long hallway in the old Starbucks headquarters, which is down near airport way south.

[246] And he walked me out.

[247] And in the middle of the hallway, he stopped abruptly, turned around.

[248] And he said, do you know what the problem with investment bankers are?

[249] Meanwhile, you haven't got no word in, right?

[250] Where do we begin?

[251] I could not have gotten a word in.

[252] And I said, excuse me?

[253] And he said, do you know what the problem with investment bankers are?

[254] And I had no idea where he was going with this.

[255] And he said, there are no MENCHs in investment banking.

[256] I love it.

[257] And in 1991, Mench was not a word in the urban dictionary.

[258] Just in the Yiddish Dictionary?

[259] It was only in the Yiddish Dictionary.

[260] And that was not widely circulated in 1991.

[261] And so I was like, who is this guy saying this?

[262] It was really incredible.

[263] But to his credit, he gave me the investment banker the keys to getting their business.

[264] Well, wait.

[265] So was he implying that you were one or was he implying like from there you had to form some relationships or you get some data on you?

[266] Like, how did that go?

[267] Well, so he was implying that he hadn't met one as an investment banker and that I had the opportunity.

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

[269] He wasn't convinced at all, and I wasn't convinced that I was going to get a shot.

[270] But I remember taking a plane back from Seattle back to L .A. And in those days, Airphone, it was called, was super expensive.

[271] And I spent the whole trip on the air phone talking to all my colleagues saying I had just discovered this incredible company.

[272] But what happened, fast forward, is occasionally he came to L .A., And over time, we just started spending more time together.

[273] And in those days, it was harder to get references.

[274] And he spent a bunch of time with a bunch of different firms and kind of narrowed it down.

[275] The whole selection of the investment banker is a whole other story.

[276] But it's not really related to tech.

[277] It's related to human psychology.

[278] But I was particularly fortunate that our firm, as David said, was part of the IPO, which was an incredibly interesting experience.

[279] Basically, the beauty contest went on in the end of March, beginning of April of 92.

[280] And the markets were particularly slow back then.

[281] And when you say the beauty contest, what do you mean by that?

[282] Over a two -day period, the company invited six investment banks in to quote pitch why they should be part of the IPO.

[283] And And it was always going to be a small IPO, so it was pretty clear that there were going to be two investment banks, maybe three max.

[284] And there was a bunch of different vectors off of which they would make their choice.

[285] The chemistry with the people, what the industry specialization was of the people, what the track records of the investment bank were, the trading history.

[286] They sent us this seven or eight page checklist that we had to submit.

[287] the answers in advance.

[288] When we got there, they would take you through a tour of the roasting facilities.

[289] And we didn't know it, but we were being judged as to who was really interested in the roasting facility versus who was really just there to pitch the IPO.

[290] So Howard's assistant at the time, a woman named Laura Moy, Laura took us around the roasting plant, and she was making notes that she then backfed to Howard about these people are jerks.

[291] And these people are really interested in what we're doing because they were trying to parse through who had the heart and the passion and the connectivity with the company.

[292] And a few months after this, Howard told me that they dinged us because we showed up in a limousine because we had five or six people.

[293] And there were no suburbsans back then.

[294] So we showed up in a limo and that was a negative.

[295] Everything was being scripted in this beauty contest, which was really interesting.

[296] And it was an hour and a half presentation.

[297] And it was a committee of Howard, the CFO at the time, Orrin Smith, and two directors.

[298] And it was those four that were going to make the choices to who to pick between the six possible ones and the two they eventually picked.

[299] And the company was quite thoughtful and discerning.

[300] A company like Goldman Sachs was interested in pitching, but Goldman kind of said, hey, we'd like you to come to New York and meet all of our senior people, but they can't come to Seattle.

[301] So boom, they got dinged because they couldn't bring their senior people.

[302] Not no white glove service there.

[303] Exactly.

[304] Yeah.

[305] It's hard to imagine today, but as we talked about it and sort of the intro to the history and facts, Starbucks today is a verb, it's a noun.

[306] It's on every corner in every city in the entire world.

[307] But back then, this was small fry, as far as Goldman was concerned, right?

[308] I mean, even the IPO, which we'll get into in a sec, prices.

[309] The IPO priced on June 26th, 1992.

[310] At a roughly $225 million market cap, which was more than than it is today.

[311] But these were still very, very early days for the company.

[312] Oh, 100%.

[313] I mean, there might have been 80 stores.

[314] But the visibility of companies was a lot less back then.

[315] Again, you don't have the internet.

[316] You don't have dedicated news sources about business.

[317] So it was harder to discover these companies.

[318] You know, something like Retailroadshow .com where you can go and see every perspectives, every video of every IPO.

[319] That didn't exist.

[320] So, you know, the underwriters on Starbucks, the lead underwriters were our firm and Alex Brown.

[321] And unless you had accounts there, it was hard.

[322] to get a prospectus.

[323] And so the access to information wasn't what it is today.

[324] And part of the reason why the company went public, frankly, was the visibility of going to a bigger platform.

[325] And in fact, in the months following the IPO without getting ahead of ourselves, the comp store growth significantly increased because they realized a successful IPO would equate to curiosity amongst customers.

[326] Yeah, and of course, one of the reasons to IPO, not always the greatest reason, but for the visibility hit that you get from it, you know, along with raising the capital and getting liquidity for your shareholders, you certainly get that buzz for, you know, a few weeks or a month around the IPO like we're seeing with Snap now.

[327] Dan, what do you think the competitive moat around Starbucks is?

[328] What is the defensibility?

[329] Why can't any mom and pop shop knock him out of business?

[330] I think there are probably two competitive moats that have been around Starbucks since the beginning.

[331] The first is, Howard.

[332] I would say Jeff Bezos is a competitive moat.

[333] I would say Steve Jobs is a competitive moat.

[334] These companies are willed into existence through ups and downs because of the resilience, the grit, the determination, and the ability of these founders.

[335] I think that's super important.

[336] And then in terms of Starbucks 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.

[337] And so Starbucks is an incredibly retail -facing, consumer -facing business with 26 ,000 points of distribution.

[338] Wow.

[339] And even if you're doing the mobile order and pay, you show up and physically see the barista.

[340] I think that certainly Howard thinks the product is much better, but I think if you talk to 100 people, some might say yes, some might say no. The real differentiation in how they have withstood the competition is because of the commitment of the people which then made Starbucks become, in customer's mind, something bigger than just buying a cup of coffee.

[341] And in the annual meeting this week, they talked a little about using their platform and their scale for good.

[342] I talked a lot about that, actually.

[343] And that's just been a theme that Howard has used for a long time.

[344] In just a second, we'll wrap up the history and facts with the IPO itself and then talk a little bit about Starbucks evolution after that.

[345] But I think this is something that's super clear in going back and reading the S1, which also was super fun because it came out.

[346] out before the internet.

[347] So you have to do some rooting around online to find it.

[348] We'll link to it in the show notes.

[349] But Dan, you mentioned Howard, Jeff Bezos, Steve Jobs, being moats.

[350] I think something that's common to all of them and really comes out reading the S -1 is how deeply Howard understood and the company understood customer loyalty, you know, especially, it seems obvious, but for, you know, thinking back to when they started Starbucks or when Howard started you don't know, 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 had ever thought of.

[351] It was just you made it at home.

[352] But creating this place and 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.

[353] Because when you acquire that customer, they're going to be coming back again and again and again for their lifetime.

[354] Yeah, and I remember the research at the time of the IPO was that the average engaged Starbucks customer came 18 times a month.

[355] It's accurate for me. Yeah.

[356] I mean, that compares favorably with apps today with like Facebook.

[357] Exactly.

[358] But I think the other thing I would say is if you know you have 18 opportunities to exceed your customer's expectations or flub it, everything.

[359] matters.

[360] And so your attention to detail and your earn -it -every -day attitude becomes present.

[361] I'd like to go back before we leave the IPO, just one anecdote.

[362] So in an IPO, and it's 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.

[363] And they do it in two formats.

[364] One is group breakfasts and lunches, and the other is one -on -ones.

[365] And the one -on -ones are for the biggest investors, Fidelity, Tiro Price, Capital Research.

[366] And so in the Starbucks IPO, there were 60 one -on -one schedules over a two -week period.

[367] And it was eight or nine days in the United States in a few days in London, Paris, and Geneva.

[368] That is a lot of meetings in a short period of time.

[369] 60 101's.

[370] And so Howard said to me before, right as we were starting, he said, how many of the 60 do you think I'm going to get?

[371] And I said, what do you mean?

[372] And he said, well, of the 60 meetings that we're going to have 101, how many do you think we'll convert to orders?

[373] And at that time, I had probably done 10 IPOs.

[374] And, you know, I said 80 or 90%.

[375] And he said, I'm going to get 60.

[376] And I said, Howard, not 60%.

[377] A hundred percent, get all.

[378] 60.

[379] Exactly.

[380] And I said, you know, Howard, there's lots of reasons why people don't invest, including the fact that the IPO is so popular that they might not get enough stock to be meaningful to them.

[381] So don't hold yourself accountable to 100 % hit ratio.

[382] And he said, I'm going to get 100%.

[383] And this is only raising $25 million, right?

[384] No, they raised 40 -something million.

[385] Part of the offering was a secondary.

[386] I see.

[387] Not a good sale.

[388] No. Not a huge amount of money, right?

[389] There's just not that many shares go around.

[390] Definitely true, but everything was smaller back then.

[391] So 40 was not a necessarily small IPO in 1992.

[392] I see.

[393] But as it turns out, he got 59 of the 60.

[394] I'm sure it kills him to this day.

[395] Well, no, the story gets better.

[396] There was a guy named Mickey Strauss.

[397] And Mickey Strauss was at a firm called Weiss Peck and Greer.

[398] Wonderful man may rest of peace.

[399] And Mickey decided not to buy it at Weiss Peck and Career.

[400] Within nine months after the IPO, who was the largest shareholder of Starbucks, Weiss Peck and Greer?

[401] And the lesson for your entrepreneurs out there is what goes around can come around.

[402] And Howard was so frustrated that Mickey Strauss didn't buy on the IPO.

[403] but he then became, in the public markets, the biggest buyer.

[404] So the lesson for the venture capitalists is, if you really want to invest in a company, you should turn them down the first time because then the entrepreneur is going to want to get you the second time.

[405] That's right.

[406] Earn that right in the A round.

[407] Yeah, that's such a great story.

[408] So we go around the world, and it's finally time to price.

[409] And the offering was oversubscribed eight or ten times, as I remember.

[410] and we had filed at $14 to $16 a share.

[411] There's literally like 10 times more interest in the IPO than there was room?

[412] Correct.

[413] Wow.

[414] What's normal?

[415] Well, in Snap and some of these others, it's a lot more.

[416] Okay.

[417] You know, at Zululi, I think we had 20 times interest.

[418] Because what ends 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.

[419] They want it just for the flip.

[420] And so it's very hard to gauge real demand versus flipper demand.

[421] But what ended up happening at the pricing was the comps went down 30 % if there were comps between the time we filed and the time that the company priced.

[422] And by the way, that was so different than you couldn't file confidentially.

[423] When we filed, everyone saw our filing.

[424] 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.

[425] And that was quite a taint.

[426] Yeah.

[427] But in terms of the pricing, the deal's way over subscribed.

[428] And the capital markets guys recommended that we price the deal at $16 a share, high end of the range.

[429] And Howard said, no, we have to price it at 17.

[430] And the capital markets guys from both firms recommend we price it at 16.

[431] And so we had this very awkward phone call where these wise guys who somehow couldn't really tell you why it was 16, but they felt that it was 16, they kept saying it had to be 16, and Howard kept saying it had to be 70.

[432] And it was a difficult spot for me because as the investment banker who's in corporate finance and kind of representing the client, I was kind of pulled toward house.

[433] Howard, yet the colleagues in my firm were saying 16, 16, 16.

[434] Howard relentlessly prevailed, and we priced the deal at 17.

[435] And ultimately, the stock traded to 2021 that day.

[436] And kind of the rest is history.

[437] It's gone up 183 times.

[438] So you priced it at 17, which was roughly a $225 million market cap.

[439] And then today, Starbucks has a $83 billion market cap.

[440] So that's about an 18 ,000 percent returns since then.

[441] So the selling shareholders in the IPO probably should have held on to those shares.

[442] Yeah, but like every other early company, they might have had a fiber at 10x at the offering.

[443] And so for the apples, the Amazon's, the Starbucks, those turn out to be incredibly bad sales, but you have to have patience and tenacity and you can't be thinking of yourself as a trader.

[444] Yeah, and Dan, before we move on from this, what are the implications of pricing at 16 versus 17, both for the company, for the people buying those shares, for the investment bank?

[445] Why was that a contentious issue?

[446] Well, the pricing of an IPO is a very complicated thing because you have multiple constituencies.

[447] For the company, clearly, they did get more money at 17.

[448] And in theory, for the flippers, they would get less money the higher you price.

[449] 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.

[450] Yet, if it breaks the IPO price, then it becomes a negative story.

[451] Right.

[452] It's damaged goods.

[453] Exactly.

[454] And one of the things that I always used to counsel public company CEOs is don't let yourself or your people be judged by whether or not the stock today goes up or down.

[455] It's you're building a company.

[456] And in the long term, they will correlate.

[457] But in the short term, they can frequently, widely diverge.

[458] Yeah.

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[478] I want to get into maybe a one -off section.

[479] 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.

[480] The narrative section that we're going to do going forward is what the company's narrative is that they're trying to tell during the IPO process and what the narrative is in the press and the market around it.

[481] But what I think is really interesting, especially for listeners of this show, is that there has been a narrative that's emerged over the last 10 to 15 years around Starbucks.

[482] And that's, it's a coffee company.

[483] It's a retail company.

[484] It's a real estate company, but it's also a technology company.

[485] And I think that's, you know, especially for you, Dan, being a technology venture capitalists and a consumer -only technology venture capitalists and founding mavron with Howard, how has Howard's thinking and the company's thinking evolved from those days when it was, there was no internet?

[486] 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.

[487] in the building of your lobby or have it delivered to you?

[488] Yeah, it's changed a lot.

[489] In 1998, when we started Maveron, the whole thought was, holy cow, technology is integrating into consumers' lives in unprecedented ways.

[490] So how will it change the business models of these companies?

[491] And I think in 1998, a company like Starbucks, or even in 2008, most companies in the retail business thought of themselves as using an eye.

[492] IT as a way to manage their business, but not really as a way to attract customers.

[493] And I would say in the last 10 years, with the advent of the web and the power of social media, you saw the eye -opening opportunity that social media can drive traffic into stores.

[494] And that was the first aha that a lot of companies had.

[495] And Starbucks maybe was a little more advanced because with Maveron and Howard was on the board of eBay.

[496] 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.

[497] And I think now I find it kind of somewhat humorous that people refer to Starbucks as a technology company.

[498] I would say it's a incredibly powerful consumer company that's utilizing technology to integrate into customers' lives.

[499] Well, I think it's interesting, though.

[500] You're right.

[501] It is a consumer company.

[502] But you mentioned J .C. Penny.

[503] You mentioned Sears.

[504] These were its peers for a long time that haven't involved.

[505] Obviously, co -founding Maveron with you, being on the eBay board.

[506] Howard was for a while on the square board.

[507] I guess the question is, what along the way do you think were some of those key moments when Starbucks built that capability and that part of that transformation into being a technology company when some of its peers didn't?

[508] Well, there was a guy named Chris Brzo who was the first social media person at Starbucks.

[509] And he's now in marketing at EA.

[510] But anyhow, Chris was kind of before his time at Starbucks and just kept pounding on the opportunity.

[511] that social media had to be an awareness vehicle and a traffic driver.

[512] He didn't have much budget, but he kind of relentlessly kept on it.

[513] And I think Howard started seeing that through social media, they could literally send people into the stores.

[514] And if you think about retail, one of the key metrics that every investor looks at is same store sales.

[515] And in fact, I was privileged enough to know a guy named Jerry Gallagher, may rest in peace, who was the inventor of Stam Store Sales.

[516] And I asked him to join the Pop Belly board with me, which he did.

[517] But anyhow, the concept of same store sales became a valuation driver for these retail companies.

[518] So at the beginning, the first aha was if technology and social media could drive traffic and incremental traffic into the stores, then that was worth investing it.

[519] 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.

[520] They felt it was cool to be on social media, but they didn't want to spend the money.

[521] Yeah, I think that's a good tech trend to extrapolate here is the shift from technology.

[522] as a cost center in the IT spend to a revenue driver and core part of the product organization and the driver of part of the innovation of the company.

[523] And I mean, we look at some of the things that have happened with Starbucks.

[524] They've had a lot of experiments with other technology company partnerships and bringing things in that weren't huge.

[525] I mean, there was like that 2012 square deal.

[526] They had that early partnership in the mid -2000s with Apple and iTunes and co -advertising there.

[527] and then they still have, I think, the song of the week and the app of the week with the free download card and the stores.

[528] And the thing that ended up really like working in my mind is they have incredible loyalty due to their app or manifested in their app.

[529] They were one of the first to pioneer putting those gift cards in the app.

[530] And now I don't think I've actually used cash or a credit card at a Starbucks to buy anything other than reloading my cards so I can get my stars.

[531] They've always been pioneers in loyalty, and then using technology as a lever to strengthen the loyalty program.

[532] In my mind, at least that's the thing that they've really exemplified the best in using technology to have any retailer on earth.

[533] Yeah, it's funny that you say that because 12 years ago, Madron and us invested in a company that had order ahead, and it went flopped.

[534] What company was that?

[535] I've forgotten the name of it.

[536] But we literally lost $10 million investing in a business that had order off your cell phone.

[537] And at the time, we had a test going with five or six Starbucks, and they didn't think it was relevant.

[538] But the complication of understanding this stuff is they didn't think it was relevant, partly because the smartphone proliferation wasn't as wide as it is now, obviously.

[539] and the feature set wasn't as compelling as it was.

[540] So I think the stored value component, coupled with the order ahead, became kind of a compelling feature set.

[541] And now I would argue that the suite of products that Starbucks has in mobile order and pay is being clamored for by all sorts of other restaurant and retail companies.

[542] Maybe we can mark the official transition.

[543] and the tech themes on the show at this point.

[544] We're sort of in it.

[545] But something that we talked about a lot on the show, and I'm just such a huge believer in technology, is it has to be in service of a superior customer experience.

[546] And just doing tech or just doing mobile ordering for the technology aspects isn't going to work.

[547] 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.

[548] It makes the experience better because I get my coffee faster, but I still interact with the people there.

[549] And my name is still written on the coffee, and it's wonderful.

[550] It's just I don't have to wait in line.

[551] And so it's better, as opposed to forcing you to jump through technology hoops just for the sake of jumping through technology hoops.

[552] Yeah.

[553] 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.

[554] or the consumer company and try to understand what that customer experience is as opposed to just kind of selling it based upon feeds and speeds.

[555] Yeah, exactly.

[556] Where we've had no luck is where tech companies think that, well, these retailers just don't get it.

[557] They don't understand the big idea.

[558] And it's that alchemy of building cutting edge technology that thing can be adopted, relevant and embraced by these companies who are responsible for nurturing the relationships with their customers.

[559] Great point.

[560] Well, before we go whole hog into tech themes here, it's worth stopping for a moment in our what would have happened otherwise section.

[561] And we've talked about at least before the secondary in that initial IPO, they raised $25 million.

[562] Did Starbucks ever consider doing that on the private markets like we see a lot of today?

[563] I mean, obviously they needed a capital infusion to continue opening the stores at the rate that they were doing that.

[564] But I guess the two possibilities are, what if they grew more slowly?

[565] Would Starbucks be the way it is today?

[566] And then two, could they have raised that money in a different way?

[567] What if they had grown more slowly?

[568] They probably wouldn't have the domination that they have.

[569] Unlike a Amazon, Starbucks kind of won market by market.

[570] 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 own it.

[571] And they did that in a number of different ways.

[572] I remember when I was privileged enough to work with Starbucks and buying a company called the Coffee Connection in Boston.

[573] And it was a venture funded company by a guy named George Howell.

[574] I was funded by a bunch of ECs.

[575] And we basically told them, you know, we're coming to Boston.

[576] We're going to either steamroll you down or you could sell to us, and they did.

[577] And same thing in London, where Scott Svensson from Mod Pizza sold what he called the Seattle Coffee Company to Starbucks, which served as the footprint for Starbucks in those stores.

[578] So it's in Howard's DNA that growth, growth, growth.

[579] And I think part of that is to give back to the partners and create opportunities.

[580] So I don't think in the early days there was much of a chance that he was going to slow down.

[581] But you had asked it as a two -part question.

[582] I'm sorry, I lost this.

[583] Yeah, the other part being raised in the private markets.

[584] I don't think many of your listeners can comprehend the vastness of what's happened and the changes in the capital markets over the past 25 years.

[585] Yeah, there were no, not even late stage, quote unquote, but there were especially no, well, there probably weren't even very many hedge funds, period, but there certainly weren't any of them that were investing in private companies.

[586] Right.

[587] There were a few crossover funds, but the amount of capital doing that was small.

[588] And so Starbucks did a $20 million raise in December of 91, and that was a big race, and they used DLJ as an agent for it.

[589] So the fact that you have $180 multi -billion or more private companies today.

[590] That's probably 178 more than there were in 1992.

[591] So they didn't have access to the capital that private companies have today, period, full stop.

[592] There you go.

[593] Well, that's a great lead into going hard into tech themes here.

[594] 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.

[595] And we see very different.

[596] companies and very different market dynamics falling out because of, well, the internet.

[597] Yeah.

[598] You know, I think it's so cool that in the coffee industry, there's this concept of waves, right?

[599] Everybody talks about third wave coffee.

[600] And for listeners that aren't steeped, quote unquote, in coffee culture, the first wave of coffee was the Folgers and the Maxwell house that we talked about in the beginning of the show, the making your coffee at home, I, perhaps unlike many of our listeners, and old enough perhaps dating myself a little bit.

[601] And I remember growing up, my parents having the TV on in the morning and hearing the jingles, like the best part of waking up as folders in your cup and the good to the last drop, Maxwell House.

[602] It was never true.

[603] It was never true.

[604] But then Starbucks, that was the second wave.

[605] And there was the first time that this sort of orthogonal business model had emerged in coffee, which was the same.

[606] idea of coffee as an experience, not just as a beverage.

[607] And Starbucks obviously rode that huge wave into becoming orders of magnitude bigger than folders in Maxwell House ever were.

[608] And then today you have the third wave coffee, which is the sort of disaggregated, you know, the artisanal brew, small batch, roasting and brewing local coffee shops.

[609] But I think there's this great analogy between all of that to the tech industry and the internet.

[610] The first wave being AOL, right?

[611] Everybody remembers the jingle.

[612] It wasn't nearly as good as it was supposed to be.

[613] And the second wave being the truly compelling version of AOL, Facebook and social.

[614] And we talked about social media earlier.

[615] And I think of Starbucks 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.

[616] And then you have the third wave today of the further disaggregation of everything happening on Facebook that of course Facebook is a big part of with the messengers and WhatsApp and Snapchat 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 summarize that as first way of being one size fits all but bad yep second way as being one size fits all but good With your friends.

[617] With your friends, yeah.

[618] And then the third wave being not one size fits all, truly this broken up, small group, small batch, highly targeted, highly personalized experiences.

[619] That would be a summary of my coffee drug -induced fever dream.

[620] Well, I guess where I would go is we've been spending a lot of time at Maveron thinking about voice and how voice facilitates impulse.

[621] and I think if you step back, version one was Amazon in 95, 96, where you had to intentionally go and it was hard.

[622] And in many ways, the digital ordering experience has gotten better.

[623] It's become more mobile, but mobile is only one step toward impulse.

[624] And we were fortunate enough to be involved from the very beginning at Zululi, which was another kind of impulse experience, somewhat of an intersection between QVC and traditional e -commerce.

[625] And the internet, yeah.

[626] I think voice is the next frontier.

[627] Part of that is obviously artificial intelligence.

[628] But at the Starbucks annual meeting this week, they previewed you get into your fort car and you order your latte from there and you pick it up on the way to work.

[629] Oh, awesome.

[630] And so I think you're going to see voice on ramps adopted within e -commerce situations that are going to change the way and how we buy.

[631] And it 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.

[632] Dan, I think that's super insightful.

[633] I think that's totally right.

[634] And I think that, you know, I have the Starbucks app in my phone.

[635] I pull it out when I get to the register.

[636] I often don't think it's worth it to pull my phone out when my hands are cold in the Seattle weather and punch in the order.

[637] but if there were, and I know this is a problem on Apple's side, not Starbucks side, but if I could pull out Siri and say three minutes almond milk latte, Starbucks, third in Madison, and it was just there, I think that's when you break out of that uncanny valley and it actually slots right into your life in a convenient way.

[638] Yeah.

[639] Everything has to be in service of creating a superior customer experience.

[640] And part of a superior customer experience is not taking your phone out and your hand and pushing the button when it's cold out.

[641] Right.

[642] On to grading the IPO.

[643] So the way that we do this, and Dan smiling, guests 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 acquirer to acquire the acquiree?

[644] Was that a gigantic money pit for them, or did they actually manage to turn that into a one plus one equals three?

[645] And then as we shifted over to IPOs, the way that we think about it is, well, what did that event enable that company to do on all three of the pillars that I mentioned earlier of notoriety and brand for the company giving liquidity to those early investors and primarily what did they do with that capital infusion and before diving into it it's worth recapping a little bit that you know dan you made that great point that the DNA of the company and of howard was growth and they needed to open more stores they needed to go into more markets and the question that's been hanging in the back of my head is Were they in a highly competitive landscape?

[646] Did they need to rush into markets and beat out competitors because there were other copycats coming in and starting these coffee chains that were getting brand loyal?

[647] Or could they have afforded to buy their time a little bit more and just reinvest their profits?

[648] The Starbucks IPO, even back then, when you had a successful IPO in a particular sector, it drew a lot of copycatters.

[649] So they went public in June of 92.

[650] By the fall of 92, there was a couple of companies that were rolling up different existing coffee chains, Gloria, jeans, and I forget the other ones.

[651] But many of them have gone by the wayside, but they were trying to put masks together.

[652] And what they didn't realize is that they really weren't focused on execution.

[653] They were focused on creating something that was IPOable, but not exceeding customers' expectations.

[654] every day.

[655] But I would think that part of the reason Starbucks is where it is today is that Howard was impatient and always wanted to grow.

[656] And as a result of that, he got to markets quicker than he might otherwise.

[657] And you talked about Pete's.

[658] I haven't seen the numbers for Starbucks San Francisco.

[659] But I would say that whether or not it's Blue Bottle or Pete's 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.

[660] You know, I remember making my first investment in Starbucks was in that December 1991 round.

[661] And you saw this cauldron of consumer passion in a market by market basis.

[662] And you really asked yourself, is the East Coast any different?

[663] Is Atlanta any different?

[664] Yep.

[665] And if you came to the conclusion, no, then it's okay.

[666] So how quickly can you get there?

[667] You mentioned when a company would IPO back in those days, it would attract coffee cats.

[668] And it reminded me of something Brad Stone said on our episode about the Uber and Dedeem merger, that there are folks in China especially, but all over the world that are just reading tech crunch.

[669] And as companies raise their first round of venture funding, they're copying themselves.

[670] So funny how the acceleration has happened.

[671] You know, I think one of the dominant themes of the IPO and lessons from it and from Starbucks and Howard, is that focus, like you just said, Dan, on exceeding your customer's expectations at every opportunity, you know, and I just look at companies today that are doing that well versus ones who aren't.

[672] And again, thinking back to the Uber Diti episode, and even since that episode, all the challenges that have come out about that company.

[673] And not to pile on, Uber has done many, many amazing things, but man, it just has really come out in the culture that, like, the culture there is not about delighting your customer and exceeding their expectations.

[674] 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 Starbucks was able to avoid that, even as the copycats popped up by A, growing fast, but also B, just keeping that core mission of always exceeding the customer's expectations.

[675] Yeah.

[676] Well, I think it starts by just a fundamental belief that at these 26 ,000 points of distribution, everything matters.

[677] And, And you've got to provide training and you've got to invest in your people such that they feel good about themselves and therefore they feel good about the brand.

[678] I mean, they're the brand ambassadors.

[679] And in many ways, I would argue that Starbucks is one of the most difficult daily execution.

[680] You know, they have 90 million customers coming through their stores every week.

[681] Every week.

[682] Wow.

[683] And they're so visible that every opportunity to screw it up is an opportunity for social media to amplify that message.

[684] And I frequently talk to our maveron companies about, relatively speaking, how easy their task is to exceed customer expectations.

[685] Because if you have your own distribution, then you just really need a customer service infrastructure that gets what you're trying to do and what the brand says and speaks for.

[686] It's just much easier.

[687] And I think that's one of the masteries of Starbucks.

[688] But I look at Apple as an example, and I look at the Apple stores.

[689] And I don't know how you guys feel, but, you know, I knew 15 years ago that Apple was onto something when my 70 -year -old mother -in -law at the time told me how she's making reservations at the Apple store and she just loves it and she's learning.

[690] So I think it's not a surprise to see Amazon first with the bookstore and then eventually go because, again, let's take it full circle.

[691] technology for itself is not the issue.

[692] Technology for serving customer needs, to me, becomes incredibly powerful and sticky and enduring.

[693] Yeah, well said.

[694] Completely agreed.

[695] I will stop dancing around it and say that, yes, very much well said.

[696] Obviously, I'm biased.

[697] I'm sitting in the room here with Dan, but we've gone over this full analysis, and I'm going to give this an A. I think for the branding event reason, it enabled them to go into markets.

[698] and that worked.

[699] When they spread to these new markets, they were suddenly national news.

[700] And people understood this wasn't this little coffee chain in Seattle and on the West Coast.

[701] It was an IPO that people knew about and they had a pedigree and they could move to these new markets with that.

[702] And then I'm splitting what they did with the capital into idea and execution.

[703] 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.

[704] I mean, you look at your stories, Dan, of 59 out of 60 said yes, and pricing it at 17, not 16, and still getting that little pop, not a ridiculous one, but a good one.

[705] And, you know, I was just pulling up the history of the stock price.

[706] I'm just looking at these first few years because I think that's the relevant part.

[707] There was no, like, oh, crap moment.

[708] The bottom didn't seem to have fallen out on it.

[709] It 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 grew.

[710] masterfully executed by the investment bankers.

[711] I agree 100 % on the IPO analysis.

[712] But when you say there was no oh crap moment, there's plenty of times in the history of all these businesses where there are oh crap moments.

[713] And I think that's another thing that we try to help entrepreneurs with, which is there's plenty of dark days in every business.

[714] And I've spent too much time with Howard where people say, you know, how did you know when you were successful?

[715] And he kind of is taken aback a little, and he says, what are you talking about?

[716] I have to earn it every day.

[717] We have to earn it every day.

[718] Yeah.

[719] You know, life's a process, right?

[720] It's not a destination.

[721] It's a journey.

[722] And I think these businesses are tested in different ways.

[723] I can give you a bunch of examples where Starbucks was truly tested.

[724] It's sitting on the top of the hill now and everyone kind of thinks, you know, it's been they've made it.

[725] Yeah.

[726] But in terms of the IPO, I agree with your assessment.

[727] A. I'm an A, too, here, and not just because we're talking to Dan, like the Facebook IPO was a very challenging one, and we gave that a, well, we gave it two grades, one of which was an A, one of which was, I think, a C, where were we both?

[728] We take a lot of liberties.

[729] Anyway, we need to do a bad IPO one of these days soon.

[730] Plenty of those.

[731] It's hard to argue with an 18 ,000 percent appreciation since the Starbucks IPO.

[732] But for me, the two things, taking away from this conversation and Dan, you know, your stories and your insights, I thought about a lot, but it's the combination of the two, I think, are so powerful and expressed so beautifully within Starbucks and within Howard.

[733] It's that Starbucks and Howard had these two equal drives within them and that one was for growth, and the other one was for exceeding.

[734] customers' expectations, you know, every single time.

[735] And I think it's the marriage of those two things that make for the most powerful consumer companies out there.

[736] I mean, I think about, you know, and ones that I work with, you know, Dan, we work with together with your colleague David in Booster, you know, early stage company that Madron and Maveron are investors in together.

[737] And that's what Frank and Diego and Tyler and the team and John and everybody there, you know, that's what they do every day.

[738] They are hyper -focused on growth.

[739] And they are hyper -focused on exceeding customer expectations every day.

[740] And if you can nail that and sustain that, that's how magical companies are created.

[741] And that's in the DNA of the CEO, or it isn't.

[742] And I remember the early days of my relationships with Starbucks.

[743] And as a scrappy investment banker, one of the many things that I tried to do was always give store experiences.

[744] And I was hated within Starbucks because my phone calls at the beginning and then my emails were rooted through the ops department.

[745] And in Westport, Connecticut at 9 p .m. or 9 a .m. there was a problem and people would go crazy because I would tell Howard and then Howard would tell the head of ops and then the head of ops, and then the regional person and the district person and the store manager would eventually get it.

[746] And people would, oh, you're Dan, you know.

[747] We've heard about you.

[748] We've heard about your feedback.

[749] And they would say thank you.

[750] And then I contrasted to what happened on Sunday morning.

[751] And here's the company, as you said, $80 billion plus.

[752] I was waiting on Sunday morning for my coffee at the Starbucks Madison Park.

[753] And I was stuck behind two large mobile orders physically.

[754] And so I was waiting for a super long time.

[755] And I shot Kevin a note.

[756] Kevin is the incoming CEO of Starbucks.

[757] Yeah, Kevin Johnson.

[758] And I kind of framed the problem off and the frustration.

[759] And I thought that was the end of it.

[760] I go to the Starbucks annual meeting and the head of U .S. stores, the head of Adam Broughtman, the digital person, and one other person all said to me, we saw your email.

[761] Thanks for the insight.

[762] And it's that one customer, one cup at a time.

[763] And that's in the Starbucks vision statement or their mission statement.

[764] I wish I had it memorized, but they're going to feed customers.

[765] expectations, one cup, one store, one neighborhood at a time.

[766] And so there's this incredible balance between detailed execution and yet having a big vision that their employees first and then their customers can embrace.

[767] Yep.

[768] And after the show, why don't you just shoot me Kevin's email and then I'll be able to let it go to.

[769] I'm sure our listeners would appreciate that too.

[770] What a great story to wrap on.

[771] Should we move on to Carvouts?

[772] Yeah, let's do it.

[773] So, Mine is a lot of the time we'll go wax philosophically about some cool Burning Man video that we saw or some completely unrelated book that we read.

[774] Mine is something that I think every single acquired listener will enjoy.

[775] And that is an email newsletter called ProRata by Dan Primac from the new company Axios.

[776] So Dan wrote the term sheet for a long time at Fortune and moved on to help start this company Pro Rata, which is this third wave of email newsletters.

[777] And there's also a website, but I mean the newsletters are aware.

[778] it's at pro rata in particular is great because you get some really good insight by dan who's a true journalist not to knock too hard on a lot of like tech bloggers but he has the journalistic integrity you would expect out of you know a Pulitzer prize winning you know someone chasing the story from 50 years ago really a pleasure to read that and then the cool thing is you get a list of all the companies that have gotten funded today in VC and PE companies have gone public and it really helps me, someone that works to create early stage companies, you know, identify trends.

[779] So it's pretty interesting to see what's going on in the world of new company creation.

[780] Yeah, really good dance work is and has been excellent for a long time.

[781] My carve out probably also will appeal to, I was going to say, all acquired listeners, but perhaps not quite all.

[782] At least those of a certain generation is a super fun podcast and also fun thinking back to the time of the Starbucks IPO that I discovered recently called The Wizard and the Bruiser, which is a nostalgic take.

[783] Definitely not safe for work, by the way.

[784] So not like this podcast, looking at geek culture from the 80s.

[785] And it just takes me back to my childhood, like, you know, the legend of Zelda, Sonic the Hedgehog, you know, all the cartoon TV shows.

[786] Super, super fun stuff.

[787] And these guys are hilarious.

[788] So highly recommend.

[789] This is my first carve out.

[790] And I was trying to decide whether or not I should be self -engrandizing for one of the maveron companies that I love were not.

[791] And I've decided to stay away from the maveron companies.

[792] They are all great, but we can be self -aggrandizing or we can be aggrandizing for you.

[793] So many of the companies they've funded deliver the same kind of growth and superior customer experiences that we've talked about on this show.

[794] Well, thank you, David.

[795] I hope they deliver the same kind of growth.

[796] That's your job as a board member.

[797] Exactly.

[798] Well, it's the management's job.

[799] But anyhow, I'm going to do something that I wish when I was in my 20s and 30s, someone had said to me. Because when you're in your 20s and 30s, the table is not set yet.

[800] You're still trying to figure out what your table is and how to set it.

[801] And there's actually a poem that was written in 1932 by a man named Peter Wimbril.

[802] And the name of the poem is called The Man in the Glass.

[803] And I will quickly read the poem because, in my mind, it says it all.

[804] 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.

[805] For it isn't your father or mother or wife whose judgment upon you must pass.

[806] The fellow whose verdict counts most in your life is the one staring back from this glass.

[807] He's the fellow to 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.

[808] 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 heartache and tears.

[809] if you've cheated the man in the glass.

[810] That's great.

[811] Sexist man, you know, it's 90 years ago.

[812] So it's really relevant for people, not males.

[813] Yeah, and I can say for listeners, one of the first times I met Dan, we were heading a little email exchange afterwards, and he sent me that same poem.

[814] So I know it's near and dear to your heart, and great message.

[815] Thank you for having me, guys.

[816] Thanks for coming.

[817] It's exciting your format and what you're trying to do and help educate people.

[818] And thank you for having me be a part.

[819] of it.

[820] Of course.

[821] Our sponsor for this episode is a brand new one for us.

[822] Statsig.

[823] So many of you reached out to them after hearing their CEO, Vij, on ACQ2, that we are partnering with them as a sponsor of Acquired.

[824] Yeah.

[825] For those of you who haven't listened, Vijay's story is amazing.

[826] Before founding Statsig, Vijay spent 10 years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business.

[827] He also had a front row seat to all of the incredible product engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world.

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[832] So what does that actually mean?

[833] It lets you tie a new feature that you just shipped to a core metric in your business and then instantly know if it made a difference or not in how your customers use your product.

[834] It's super cool.

[835] Statsig lets you make actual data -driven decisions about product changes, test them with different users, of groups around the world and get statistically accurate reporting on the impact.

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[837] There are, like, so many more that we could name.

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[840] Also, Statsig is a great platform for rolling out and testing AI product features.

[841] So for anyone who's used Notion's awesome generative AI features and watched how fast that product has evolved, all of that was managed with Statsig.

[842] Yep.

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[846] You don't even have to migrate from any current solution.

[847] you might have.

[848] We're pumped to be working with them.

[849] You can click the link in the show notes or go on over to stat sig .com to get started.

[850] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[851] Listeners, if you like the show, more frankly, if you didn't, actually, if you didn't, we'd love some private feedback.

[852] Acquired FM at Gmail .com.

[853] If you did, my God, do we love five -star reviews.

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[855] They help us get more listeners.

[856] They help us have more guests on.

[857] And quite honestly, what it helps us do is bring on sponsors.

[858] And then, like any good growth engine, pour it back into the show and figure out how to improve the quality and make a better product.

[859] So help us do that.

[860] Please review us on iTunes, share with your friends, and we will see you next time.

[861] See you next time.

[862] Who got the truth?

[863] Is it you?

[864] Is it you?

[865] Is it you?

[866] Who got the truth now?