Starbucks doing things that don't scale

In the bustling Pike Place Market of Seattle in 1971, three friends opened a small store that would eventually transform into one of the most recognizable brands on the planet. But when Jerry Baldwin, Zev Siegl, and Gordon Bowker first opened the doors of Starbucks, they weren’t selling lattes or frappuccinos. In fact, they weren’t selling brewed coffee at all. Instead, they were selling someone else’s coffee beans, repackaged under their own brand name—a humble beginning that exemplifies the concept of “doing things that don’t scale.”

The Mentor and His Beans

The story of Starbucks cannot be told without first understanding the profound influence of Alfred Peet, a Dutch immigrant who had revolutionized American coffee culture when he opened Peet’s Coffee & Tea in Berkeley, California, in 1966. Peet, who had grown up in the coffee trade in the Netherlands, was appalled by the poor quality of coffee Americans were drinking in the 1960s. His shop in Berkeley’s North Side neighborhood introduced Americans to darker-roasted arabica beans and a European approach to coffee that emphasized quality and craftsmanship.

Among the many coffee enthusiasts who fell under Peet’s spell were three friends from Seattle: Jerry Baldwin, an English teacher; Zev Siegl, a history teacher; and Gordon Bowker, a writer. Baldwin had discovered Peet’s while attending school in San Francisco and became enamored with the rich, dark arabica beans that Peet was roasting. The three friends would make regular pilgrimages to Berkeley, returning to Seattle with bags of Peet’s coffee to share with friends and family.

As their passion for quality coffee grew, so did their entrepreneurial ambitions. They began to envision opening a similar shop in Seattle, a city that at the time had no specialty coffee retailers. But they faced a significant challenge: none of them knew how to roast coffee beans.

Learning from the Master

Rather than letting their lack of expertise stop them, the trio approached Alfred Peet directly. They were honest about their ambitions and their limitations, and Peet—perhaps seeing in them the same passion for quality coffee that had driven him—agreed to become their mentor. He invited them to Berkeley, where he taught them about coffee sourcing, roasting techniques, and the business of specialty coffee retail.

But learning to roast coffee beans is not a skill acquired overnight. It requires practice, experience, and a refined palate—all of which take time to develop. The friends were eager to open their business, but they weren’t yet ready to produce their own product.

The solution they devised was both pragmatic and humble: they would open their store selling Peet’s coffee beans, repackaged under the Starbucks name.

The First Starbucks: A Store Without a Roaster

In March 1971, the first Starbucks opened at 2000 Western Avenue in Seattle’s Pike Place Market. The small storefront, with its modest wooden fixtures and bins of coffee beans, bore little resemblance to the Starbucks stores of today. There were no espresso machines, no comfortable seating, and no green-aproned baristas crafting customized beverages. Instead, there was just Zev Siegl (the only paid employee at the start) scooping coffee beans—Peet’s coffee beans—into bags for customers to take home and brew themselves.

For the first two years of its existence, Starbucks operated this way. The beans arrived from Berkeley, roasted by Alfred Peet, and were sold in Starbucks packaging. The arrangement was not a secret; the founders were open about their connection to Peet and their aspiration to eventually roast their own beans. But for those initial critical years, they were essentially operating as a retail outlet for another company’s product.

This approach allowed them to focus on other aspects of their business: building relationships with customers, educating Seattle coffee drinkers about the merits of whole bean arabica coffee, and developing their brand identity (including the now-famous siren logo, inspired by a 16th-century Norse woodcut). They were, in essence, building the foundation for their business while borrowing someone else’s expertise for the product itself.

The Transition to Self-Reliance

By 1973, after two years of selling Peet’s beans, the Starbucks founders were ready to take the next step. With Alfred Peet’s encouragement, they purchased their own roaster and began producing their own coffee beans. Peet had served his purpose as both mentor and supplier, helping them bridge the gap between their coffee passion and their coffee expertise.

The transition wasn’t without challenges. Roasting coffee is both an art and a science, requiring careful attention to temperature, timing, and the characteristics of different bean varieties. The founders had to develop their own roasting style, one that would differentiate them from Peet’s while maintaining the high quality they had promised their customers.

They also had to establish direct relationships with coffee growers and importers, a complex task in an era before global supply chains were digitized and streamlined. Baldwin took the lead on this front, traveling to coffee-growing regions to source beans directly and develop the relationships that would ensure a steady supply of quality product.

Despite these challenges, the transition was successful. Starbucks began to develop its own identity as a coffee roaster, distinct from but still influenced by Peet’s. They maintained their focus on whole bean sales rather than brewed coffee, a model they would continue for more than a decade.

The Ironic Acquisition

In a twist of fate that illustrates the intertwined histories of these two pioneering coffee companies, Jerry Baldwin and Gordon Bowker (Siegl had left the company by this point) purchased Peet’s Coffee & Tea in 1984 for $3.8 million. Thirteen years after starting Starbucks by selling Peet’s beans, they had come full circle to own the very company that had inspired and enabled their start.

The acquisition was motivated by both sentiment and strategy. Baldwin and Bowker had a deep respect for Alfred Peet and his legacy, and they wanted to ensure that Peet’s maintained its commitment to quality after Peet himself had sold the company in 1979. But they also recognized the business opportunity: Peet’s had a strong presence in the Bay Area, complementing Starbucks’ foothold in the Pacific Northwest.

For a time, Baldwin and Bowker owned both companies, operating them as separate entities with distinct identities. But this arrangement would not last long, as a new chapter in the Starbucks story was about to begin.

Enter Howard Schultz

In 1981, a New York-based sales representative for a Swedish kitchenware company named Hammarplast noticed that a small retailer in Seattle was ordering an unusual number of plastic drip brewing cones. Curious, Howard Schultz visited Starbucks and was immediately captivated by the company’s passion for coffee and its potential for growth.

Schultz joined Starbucks as director of marketing in 1982, but he had a vision for the company that differed significantly from that of the founders. After a trip to Italy in 1983, where he was inspired by the vibrant espresso bar culture, Schultz became convinced that Starbucks should sell brewed coffee and espresso drinks, not just beans. The founders were initially resistant, preferring to maintain their focus on whole bean sales.

This fundamental disagreement about the company’s direction led to Schultz leaving Starbucks in 1985 to start his own coffee bar chain, Il Giornale. But the story wasn’t over. In 1987, when Baldwin and Bowker decided to focus their energies on Peet’s, they sold Starbucks to Schultz for $3.8 million—the exact same amount they had paid for Peet’s three years earlier.

Schultz merged Il Giornale with Starbucks and began transforming the company into the coffee shop chain we know today. Under his leadership, Starbucks expanded rapidly, opening hundreds and then thousands of stores across the United States and eventually around the world.

Lessons from the Borrowed Beans Strategy

The early Starbucks strategy of selling Peet’s beans under their own label offers several valuable lessons for entrepreneurs:

1. Start with what you have: The founders didn’t let their lack of roasting expertise prevent them from opening their business. They found a workaround that allowed them to enter the market while they developed the necessary skills.
2. Leverage mentorship: By forming a relationship with Alfred Peet, the Starbucks founders gained not just a supplier but a mentor who shared his knowledge and helped them develop their own expertise.
3. Focus on building other aspects of your business: While relying on Peet’s for their product, the founders concentrated on developing their brand, building customer relationships, and educating their market—all crucial elements for their long-term success.
4. Be transparent: The founders didn’t hide their connection to Peet’s or pretend to be something they weren’t. This honesty likely contributed to the trust they built with both Peet and their customers.
5. Plan for self-sufficiency: From the beginning, the founders intended to eventually roast their own beans. Their arrangement with Peet was a stepping stone, not a permanent solution.

The Legacy of Humble Beginnings

Today, Starbucks is a global behemoth with over 35,000 stores in more than 80 countries. It has transformed how people around the world consume coffee and has become one of the most recognized brands on the planet. The company that began by selling someone else’s coffee beans now operates its own global supply chain, sources beans directly from farmers across the coffee-growing world, and roasts millions of pounds of coffee annually in its own facilities.

Meanwhile, Peet’s Coffee has remained a smaller but respected player in the specialty coffee industry. After changing hands several times, it is now owned by JAB Holding Company, which also owns other coffee brands like Keurig Dr Pepper and Krispy Kreme. While not as globally ubiquitous as Starbucks, Peet’s maintains a loyal following, particularly in California, and is credited with inspiring not just Starbucks but the entire specialty coffee movement in America.

The humble beginnings of Starbucks—selling borrowed beans in a small storefront—might seem incongruous with the company’s current global status. But this early strategy exemplifies a principle that many successful startups have followed: doing things that don’t scale in order to get started and learn.

The Unscalable Path to Scale

The irony of Starbucks’ early approach is that by doing something inherently unscalable—relying on another company’s product—they laid the groundwork for what would become one of the most successfully scaled businesses in history.

This pattern of starting with unscalable processes is common among successful startups. Airbnb’s founders photographed listings themselves. The DoorDash founders personally delivered food orders. And Starbucks sold another company’s coffee beans. These approaches aren’t sustainable in the long term, but they allow companies to start, to learn, and to build the foundation for future growth.

For Starbucks, the decision to initially sell Peet’s beans was a pragmatic solution to a specific problem: they wanted to open a coffee business but didn’t yet know how to roast coffee. Rather than letting this gap in their expertise delay their entry into the market, they found a workaround that allowed them to start building their brand and customer base immediately.

This approach gave them time to learn the coffee business from the ground up, to understand their customers’ preferences, and to develop the skills they would need to eventually produce their own product. It was a humble beginning that allowed them to start small but think big.

From Borrowed Beans to Global Brand

The transformation of Starbucks from a small retailer selling another company’s beans to a global coffee giant is a testament to the power of starting with what’s possible now while building toward a bigger vision.

The founders’ willingness to begin with an imperfect, unscalable solution—selling Peet’s beans under their own label—didn’t limit their ambitions. Instead, it gave them a foothold in the market, a chance to learn and grow, and the foundation upon which Howard Schultz would eventually build a global empire.

In this way, the early Starbucks strategy embodies a paradox of entrepreneurship: sometimes, the path to massive scale begins with doing things that don’t scale at all. By borrowing beans and expertise from Alfred Peet, Jerry Baldwin, Zev Siegl, and Gordon Bowker took the first steps on a journey that would transform not just their small company but the entire global coffee industry.

The next time you visit a Starbucks, take a moment to consider that this global behemoth began with three friends selling someone else’s coffee beans in a small storefront in Seattle. It’s a reminder that even the most successful companies often have humble, unscalable beginnings—and that sometimes, the best way to start is simply to start, even if the solution isn’t perfect or permanent.

In the case of Starbucks, those borrowed beans were the seeds from which a global empire would grow.