Episode 34: The Starbucks IPO with Dan Levitan

Apr 3, 2017 77m

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Episode Description

Ben & David "pour over" the 1992 IPO of the legendary Seattle coffee company with the help of Dan Levitan, who served as lead investment banker on the IPO and who would later co-found the venture capital firm Maveron with Starbucks’ CEO Howard Schultz.

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Topics covered include:

The original Starbucks’ founding as a coffee bean roaster, started by three disciples of the legendary coffee roaster Alfred Peet
Howard Schultz’s introduction to Starbucks, his joining the team as director of marketing, and inspiration behind his “third place” coffee shop vision
Howard’s departure from the original Starbucks, founding of Il Giornale, and subsequent of acquisition the Seattle Starbucks stores
Starbucks’ incredible growth following the acquisition and expansion beyond Seattle
The state of raising private capital in the 1980’s/90’s, and the decision to go public (link to the S-1)
Howard’s ambitious goals for the roadshow and investor participation, and subsequent stock performance after the IPO
The narrative and evolution of Starbucks as a technology company, or a consumer company that leverages technology very effectively

The Carve Out:

Ben: Dan Primack’s new daily newsletter, Pro Rata
David: The Wizard and the Bruiser podcast
Dan: The Man in the Glass

AI-Generated Summary

The Origins of Starbucks

The discussion begins with the founding of Starbucks as a coffee bean roaster in Seattle back in 1971 by Jerry Baldwin, Zev Siegel, and Gordon Bakker. The founders were influenced by the legendary coffee roaster Alfred Peet. The podcast also highlights how Starbucks initially did not brew coffee but focused on selling roasted beans. It wasn't until 1982, with Howard Schultz's entry, that they considered the idea of serving brewed coffee, inspired by coffee culture in Italy.

Howard Schultz's Vision and Growth of Starbucks

Howard Schultz joined Starbucks as the Director of Marketing in 1982 and proposed to create a coffee culture that served people beyond just selling coffee. After leaving Starbucks to create his own business, Il Giornale, he acquired Starbucks in 1987 and transformed it into the Starbucks Coffee Company. The merger led to remarkable growth, with the company seeing nearly ten times its revenue growth in the first year after the merger and consistent growth thereafter.

Investment Strategies and IPO Preparation

The conversation then shifts to the investment landscape of the 1980s and 1990s. Dan Levitan shares insights from his experiences as Howard Schultz's lead investment banker on their IPO in 1992. They discuss the challenges and strategies behind preparing for the public market, including the beauty contest of investment banks and the importance of understanding customer relationships. Dan explains how Starbucks had to quickly adapt to the competitive landscape as it prepared for the IPO.

Starbucks' IPO Highlights

The Starbucks IPO was marked by high investor interest with the initial share price set at $17 after a fierce debate with investment bankers. Dan recalls how the company was oversubscribed and the significance of this successful IPO in cementing Starbucks' growth trajectory. They touched on how the stock performed post-IPO and the impact of this public fight on Starbucks' visibility and market positioning.

Technology Integration into Business Strategy

The podcast discusses how Starbucks evolved into a technology-savvy company. Initially, Howard Schultz viewed technology through the lens of operational efficiency. However, as social media and mobile technology grew, Starbucks utilized these platforms to amplify their presence and connect with customers better. The hosts discuss how investing in technology for a seamless customer experience is vital for retail companies today.

Customer Loyalty and Company Culture

Central to Starbucks’ success has been its commitment to customer loyalty and culture. Dan explains that Starbucks focused on creating a culture where employees are invested to surpass customer expectations. Howard Schultz’s belief that exceeding customer expectations fosters loyalty and growth is reflected in Starbucks' strategy. The conversation concludes with reflections on how this approach has set Starbucks apart in a competitive market.