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Wake up 'n smell the profits
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May 26, 1998: 6:03 p.m. ET
How Starbucks' founder made coffee the craze and price no object
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NEW YORK (CNNfn) - It takes a certain talent to make people pay top dollar for a basic commodity. But a creative entrepreneur from Brooklyn managed to do it.
Howard Schultz glamorized the average cup of coffee and, with his coffee bar Starbucks, kicked off not only a popular retail business but a national coffee craze.
"He took a commodity product and built it into a premium brand," says Lehman Brothers restaurant analyst Mitchell Speiser.
Schultz built that premium brand in just over 10 years -- expanding from 11 stores in 1987 to 1,600 today. Sales last year reached over $1 billion.
"It's a great American story and I think it shows the entrepreneurial spirit, that the entrepreneurial opportunity in America is alive and well," Schultz says.
And like all true American success stories, Schultz struggled to become one.
"We raised money from what is called sophisticated individual investors in the early stage, and basically anyone who would write us a check fit that criteria because so many people turned us down. But I had a hard time. It took me a year to raise the first $1 million for this business," he says.
Once he had access to money, Schultz was on a roll. From 11 stores in Seattle, he expanded at the rate of one shop a day across America, Japan and now -- with the acquisition of the Seattle Coffee Co. -- Britain.
"They did it . . . (by) meticulously building this brand from step one, meaning always focusing on the customer, always focusing on quality," says Speiser.
Another key ingredient to Starbucks' success, analysts say, is the company's focus on employees.
One of those employees, Aileen Mitchell, gives high praise to Starbucks' praise of its workers. "People are always telling you when you're doing things right. . . . Like 'Great, you did a great job on that.'"
Just as importantly, says roaster Deanna Mathews, "they want to make sure they provide opportunities for you to excel within Starbucks."
Developing employees' ideas is another perk of the job. Employees are encouraged to come up with new products, a policy that led to Starbucks Frappucino, its most successful drink in 10 years - and an idea that Schultz thought would never succeed.
"That was created by one of our people in southern California and that has become a multimillion-dollar product for the company. . . . I was wrong, they were right. What a great story," says Schultz.
With products like Frappucino, Starbucks has extended its brand by branching out beyond hot drinks.
But not all ideas have been winners. Schultz refers to Mazagran, a failed carbonated coffee beverage, as the Edsel of Starbucks: "Carbonated coffee was a little hard for people to take, and it was just too early," he says.
As far as rain on a parade goes, such setbacks are dew at worst. Analysts have equated Starbucks with Coke and Microsoft, and Wall Street is betting that people will continue to pay for a cup-a-joe at Starbucks (SBUX) that they could get across the street for a third or even half the price. 
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