Welcome to The Business Buying Academy with Sieva Kozinsky.

🔑 A former employee buys the business, and turns $3.8 million into $100 billion

Starbucks is by far the most famous coffee shop ever.

But you probably don't know the unusual story of how it started and scaled to 40,000 locations.

I'll admit that for a while, I thought Howard Schultz was the founder of the business.

But he's not.

The origins of Starbucks are a lot more complicated than the typical tale of a visionary founder starting a company.

Howard Schultz made Starbucks into a global empire, but the business was actually started on March 30, 1971 in Seattle by three friends: Jerry Baldwin (an English teacher), Zev Siegl (a history teacher), and Gordon Bowker (a writer).

They had almost no business experience.

And little capital to invest.

But despite that, they opened a single location selling high-quality roasted coffee beans, tea, and spices, inspired by Alfred Peet of Peet’s Coffee in California.

At the time, most Americans drank bland, canned coffee; the idea behind Starbucks was educating customers about premium, freshly roasted beans for home brewing.

They had no espresso drinks at first.

And they didn't even have seats.

The name “Starbucks” came from the first mate in Herman Melville’s Moby-Dick, and was a nod to the seafaring coffee trade.

Over the first few years, Starbucks grew slowly to a handful of stores and built a loyal following through mail-order bean orders and word-of-mouth.

Fast-forward to 1982: A young New Yorker named Howard Schultz walked into the original Pike Place store while selling coffee makers.

He was immediately hooked by the Starbucks concept.

Schultz joined Starbucks as director of retail operations and marketing.

In 1983, during a business trip to Milan, Italy, he was struck by the vibrant espresso bar culture:

Italy has thousands of neighborhood cafes serving as community gathering spots. Customers didn't sit at tables by themselves; they stood at the bar while sipping their espresso and chatting with whoever else happened to come in the shop.

Howard was convinced that Starbucks should evolve from a bean retailer into Italian-style coffeehouses serving espresso-based drinks in a welcoming “third place” between home and work.

The founders, however, were passionate about coffee roasting and sales, not operating a coffee shop.

Howard had to lobby hard.

In 1984 they allowed a test espresso bar in one downtown Seattle store, which did well.

But they still rejected Schultz’s expansion vision.

Frustrated, Schultz left in 1985 to found his own company, Il Giornale (named after an Italian newspaper), with investor backing.

Il Giornale opened its first café in 1986, serving drinks made from Starbucks beans, and quickly grew to three locations.

The Unusual 1987 Acquisition

This is one of the coolest acquisition stories I've ever heard.

You've probably seen businesses get bought out by existing employees (these deals often work out fairly well. Who knows the business better than someone who's worked in it?)

But in this case, a former employee turned a local chain into a multi-billion dollar empire.

In early 1987, Baldwin and Bowker decided to sell the Starbucks retail business (Siegl sold his stake years earlier).

They had recently acquired Peet’s Coffee & Tea, their original inspiration.

Now the business partners wanted to focus on Peet's instead of managing the growing Starbucks cafe business.

They approached Schultz.

He had the vision and drive to grow the cafe business.

They offered him the chance to buy Starbucks’ six stores, name, and roasting plant for $3.8 million.

Schultz, still running Il Giornale, saw the perfect opportunity to combine his espresso-bar model with Starbucks’ roasting expertise and local brand recognition.

He raised the full amount from local investors in just weeks, despite having no personal capital to invest.

He also fought through 200+ rejections while pitching the deal.

But the acquisition closed in August 1987.

Il Giornale acquired Starbucks’ assets outright and immediately adopted the Starbucks name, merging the two companies and giving Schultz 11 total stores.

But there was drama that almost killed the deal.

One of Schultz’s own Il Giornale investors heard about the deal and approached the sellers directly with a $4 million all-cash offer, attempting to bypass Schultz.

Heartbroken and nearly losing the company to the higher offer, Schultz turned to an unlikely ally: Bill Gates Sr. (father of Microsoft’s Bill Gates), a well-known Seattle lawyer Howard met through some mutual connections.

Gates Sr. confronted the rival investor, vouched for Schultz’s integrity to the sellers, and helped shut down the competing bid in minutes.

Post-Acquisition Transformation and Global Domination

Under Schultz’s leadership as CEO (1987–2000, with later returns in 2008–2017 and in 2022), Starbucks exploded.

The company went public in 1992 and doubled its store count almost every year in the early 1990s.

It introduced innovations like:

• The Frappuccino
• seasonal drinks (e.g., Pumpkin Spice Latte)
• Strong emphasis on employee benefits (including health insurance for part-timers), which few other restaurants/coffee shops offered.
• The “third place” philosophy: A comfortable space for connection and productivity.

By the end of the 1990s, Starbucks had thousands of locations across multiple countries

Today, Starbucks operates nearly 40,000 stores in 80+ countries, employs hundreds of thousands, and generated $37 billion in revenue last year,

Lesson

I think this story perfectly illustrates how two different people can have competing visions for a business, with the "correct" vision depending on who's actually operating the business.

The original Starbucks founders preferred the retail sales model and built it into a $1 billion business with Peet's.

They thought the cafe concept couldn't scale past 100 locations- but they were proven wrong by Schultz.

Both were right about the business in different ways.

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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