Effectuation Stories

Case studies, lessons and stories about Effectuation!

Coffee Found or Coffee Made

Caffeinated Insight
The heroic story of Howard Schultz' founding of Starbucks starts with Schultz observing baby boomers rejecting pre-packaged foods in favor of more natural products and Americans more interested in a higher level of service than was generally available at retail. Apply those insights to the morning cup, and the imminent need for Starbucks is obvious.

Why Didn't I Think of It?
But if the market demand for Starbucks was so strong, why were there not dozens of Schultzes in the early 1980s? A detailed look at the information available to Schultz and the actual process of creating Starbucks suggests a more complicated history than a visionary entrepreneur who recognizes a great opportunity and exploits it with ruthless efficiency. Complex Brew From a market perspective, per capita coffee consumption in the United States had declined from 3.1 cups in the 1960s to 2 cups when Schultz was assembling the ingredients for Starbucks. Stir into that the fact that the original Starbucks, founded in 1971 by Gordon Bowker, Jerry Baldwin, and Zev Siegl, consisted of a Seattle shop that sold roasted quality beans along with tea, spices, and supplies. It did not sell coffee by the cup. So neither market analysis nor a successful prototype could be credited with helping Schultz discover the opportunity in Starbucks.

The Daily Grind
In 1982, Schultz was hired into Starbucks as head of marketing. Unable to talk the founders into offering prepared coffee drinks, Schultz built his own coffee bar Il Giornale (merged with the original Starbucks in 1987). Even then, the success of Il Giornale lay less in vision, and more action. Schultz listened carefully to patrons and employees in the months after Il Giornale opened. Consumers did not like nonstop opera music. Those interested in lingering in the store desired chairs. Some asked for flavored coffee. A menu printed primarily in Italian was not accessible. The baristas' bow ties were uncomfortable and difficult to keep looking neat after hours working the espresso machine. Schultz adjusted in response to customer and employee feedback. Il Giornale began providing chairs and playing more varied music. The baristas stopped wearing ties. "We fixed a lot of mistakes,"รน Schultz said. But he decided not to honor some requests. For example, although the market for artificially flavored beans was growing rapidly, the company refused to sell coffee brewed from them.

Thirst for the Truth
So the story of Starbucks, like the story of many enterprises, is full of feedback from the so-called 'market' that retrospectively, may or may not have proved useful or accurate. This extends to information from other stakeholders including investors, employees and strategic partners. For example, while the founders of the original Starbucks would not agree to convert their enterprise into an Italian style coffee bar business, they did offer Schultz seed money and advice to found Il Giornale. Similarly, of the 242 men and women Schultz approached for funding, 217 decided not to fund the venture, but quite a few did purchase equity. So though market signals tell conflicting stories, it is the actions of the entrepreneur that create the truth.

Making Your Own Cup
Aside from offering a location to brainstorm a new venture idea, how does the story of Starbucks help you? Two things. First, it explains why you didn't think of it. Based on the information in the market at the time, Starbucks was not an opportunity waiting to be found. Had not Schultz taken the series of actions he did to create the firm and shape the idea, there could well not be a mainstream market for premium coffee cafes today. Second, it informs what you do. If opportunities are created, not found, then taking action has a higher premium than does search. So, if you share Schultz's desire to stop drawing a paycheck and own a piece of the action yourself, stop looking and start doing.

 * Based on and excerpts from "Designing Organizations that Design Environments: Lessons from Entrepreneurial Expertise"รน (2008) Saras D Sarasvathy, Nicholas Dew, Stuart Read, Robert Wiltbank. Organization Studies Vol. 29, Iss. 3; p. 331. Stuart Read is professor of marketing, IMD, Lausanne, Switzerland. Robert Wiltbank is assistant professor of strategic management, Willamette University, Oregon.

Publication: British Airways Business Life
Stuart Read

PDF 50X50-1BABL Starbucks

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