 Hi, my name's Michael Kossler. Welcome to this edition of The Leader's Room, brought to you by the E. Cliff Leadership and Governance Center. With me today is Mr. Zev Siegel, co-founder of Starbucks Coffee. The history of Starbucks starts back in 1971 when the first store opened in Seattle, Washington. Zev, along with Jerry Baldwin, Gory Balker, got the idea from Alfred Pete of Pete's Coffee fame. 16 years later, they sold Starbucks to Howard Schultz. Zev has always been a serial entrepreneur who, with focus and energy, successfully established four startup companies. In addition to Starbucks, he has founded quarter-main coffee roasters in Washington, D.C., Peerless Pie in Seattle, and more recently, Buckle Up, which is now renamed socialbeaststrategy.com. He is also committed and passionate about enabling young entrepreneurs around the world to make good decisions regarding starting, acquiring, and growing small and medium-sized companies. From 2004 until mid-2012, he served as the lead advisor of the Small Business Development Center for Southwest King County in Seattle. During those eight years, he advised more than 500 entrepreneurs and owners of small business enterprises. Hey, Zev, welcome to the leadership. Thank you. Thank you, sir. Let me jump right into it. First question I gotta ask you, why an entrepreneur of all of the careers that you could have pursued had you not become an entrepreneur? Good question. In the early days of my career, I was just a teacher, and then I made a change with friends to become an entrepreneur, and that experience, which was Starbucks Coffee Company, completely changed my life. I discovered that I really enjoyed creating something where there had been nothing before, and it was kind of a magical time for me. And after Starbucks, I went on and established other companies. And today, I'm still doing the same thing, except I helped by serving as a mentor to young entrepreneurs who are starting companies and hopefully enabling them to make good decisions. Okay. At E-Flip, this is the second question, we frequently talk about personal leadership energy and the fact that values and purpose are the two most important sources for sustainable energy. What are your most important values and what would you say your purpose in life is? Wow. Well, my purpose in life today is to help young people who are interested in business avoid some of the problems that they will encounter otherwise. Being involved in early stage businesses is difficult enough without having to repeat mistakes that have been made by the previous generation. And that's one of the strong purposes I have. In terms of values, I've always felt that the people that I encountered are capable people until they reveal what the weaknesses are. And when they do that, I don't think ill of them. I try to help them see that they have a weakness and deal with it before it affects their business. So you said your current purpose is to help other young people. What are your priorities? What was it before that? And the reason why I ask that when we teach values and purposes in some of our workshops, that's a question that comes up. Gee, if I have one purpose, is it something that I live my entire life or can it change? You know, the purpose of, let's take Starbucks Coffee Company as an example. Starbucks' purpose has evolved in three phases. In the 70s, it's the period on the most familiar. The purpose of the company was to share a real passion for absolutely high quality coffee as opposed to the type of coffee that most people were drinking at that time, which was not very good. We were successful in doing that. Then in the 1980s, the company's statement of purpose changed and it became less about the coffee, although the coffee remained very high quality, and more about the experience, the transformational experience between the customer and the company. The Starbucks at that time during the 1980s had a very strong customer orientation. Right. Then when it began its global expansion in the 1990s, by the end of the 1990s, the purpose had changed to the current purpose. Starbucks' present purpose, which is widely posted in social media and online, is to inspire. As a matter of fact, its statement of purpose doesn't mention the word coffee. The company is trying to inspire people and it's doing it in everywhere possible, including through community investment. All right, the next question I wanted to ask you is, you're known as an individual who's committed to a passion at the bottom, enabling young entrepreneurs around the world to help them make good decisions regarding starting, acquiring, and growing small to medium size enterprises. Tell us a little more about that passion. What does that actually involve? I really derive an enormous amount of pleasure from working with young entrepreneurs. They are an interesting group. I identify with them and I recognize in them certain flaws. The classic flaw of a young entrepreneur is a passion for the product that is practically out of control. And you can usually tell when you're talking to a person of that persuasion, because as you're talking to them, they turn into Italians and start waving their hands. And they just are exploding with passion and good ideas about their great invention or their services they're gonna provide. The part that they are weakest at is financial literacy. They don't understand the cost of reaching the marketplace that they're interested in. Many young people in business don't really understand the cost of providing services or whether or not they're going to need outside investors. And if they need outside investors, their financial ignorance makes it impossible for them to decide how much of the company the investors are going to acquire for their money. These are areas that are strictly the arguments that can be overcome with a little education. The issue that I see is that, and the common way of expressing this is that the entrepreneur will say, you know, I'm just not a numbers guy. And when I hear that, I think, oh, you need to be an un-numbers guy, because otherwise you're going to be working for someone else soon. Okay, so when that thought goes through your mind, what's the coaching you then give to that young entrepreneur? Well, fortunately, unless, let's assume that we're talking about an entrepreneur who actually has the capability of learning basic math. There are people who are not capable of that, but they're a very small percentage. If they are capable of learning, it doesn't take many hours of investment of time to understand the consequences of business actions in dollars and cents. It really doesn't take an enormous education if you're willing to commit a little time to it. And the people who are unable to do math because their brains are not wired that way, even those people can be helped. If you can get them to understand their weakness and get them to work with, which usually means pay for, outside help from people who can't help them. For instance, taking in a partner who's very good at those issues, but doesn't have the same passion that the entrepreneur does. So I'm gonna ask you a question about learning extra at two levels. Personal level and what you might tell an entrepreneur. I'll do my best. And that is, you've started up, in addition to Starbucks, three other companies. At least three other companies. At least three other companies. In one of those companies you must have had some type of a major setback. How did you personally feel with the emotion of that setback? Where did you find the energy and the passion that believed to keep going? In the second year of Starbucks, we expanded beyond our capital base. That's an indirect way of saying Starbucks ran out of money in its second year. We should have known it was coming. We had many clues that it was coming, but we wouldn't face up to it because as they say in gambling, we were on a roll. We were really doing well. The running out of money is a serious matter in our small business. And it was gut wrenching for us. We owed money to all of our vendors. Our bank was angry with us. As a matter of fact, the crisis reached its highest point when our lender, a respectable banker, called us one day to have a meeting. We sat down with him and he said that the bank would like to invite us to find another bank. And this is a true story. We then got together and recognized that we really had to start paying more attention to our capital base, to the amount of money we had and our future needs. We were rescued, fortunately, or there wouldn't be a Starbucks today, by a friend who invested in the company. His investment allowed us to retire the debts that we owed to our vendors. And when we went to another bank, the bank said, oh, I see that you have a nice capital base now, so we'll loan you money. That was a really tough time and that was the late summer of 1972. My partners and I all remember it very well. We never did that again. But how did you, you're there in the bankers' office, the banker has just extended that invitation to you to find another bank. You're having that, oh, you know, what moment? How did you keep yourself going? I mean, a lot of entrepreneurs would have said, and may hold it that way. Well, I think that there are many successful entrepreneurs who have this wonderful quality that I call compartmentalization. Okay. They can hear bad news like that and say, oh, in this one area, we have some bad news. But of course over here, our company's very successful. You know, we were profitable in our stores and customers loved us and there were more customers every day. But the only problem is here, now it happens to be a critical problem. We've run out of money. But I think many entrepreneurs have that quality of being able to keep that problem in a box and deal with it without taking their eye off of the other aspects of the company. You may have already answered the second part of the question, but let me check it out. You've just described your own personal moment of truth. If a young entrepreneur comes to you and is describing her setback, what coaching would you give that woman? I had a, I'm gonna think of a specific client. It's a woman who was in the pet industry and had a startup company manufacturing a product that dog owners would like. As a matter of fact, they do like it. It's been successful. But at the time, she was having a major disconnect with people she was talking to who were potential investors. They were attracted to her, but they wouldn't invest. And many entrepreneurs go through that moment. It's very difficult to get these appointments with investors, to get them to the point where they'll sit down with you even. And she had had this happen, I believe, three times. All three failed to invest. And we sat down and role played the situations. I videotaped her, I asked the questions and then she would answer them. And we discovered that her present, when the subject of financial performance of the company in the future came up, something that would be very interesting to the investors. She wasn't very strong. She was much stronger when she was talking about the product of the market. And so in her case, it was easy for me to see but she couldn't see it until I showed her the videotape. She was like two different people. And as a result of that, she was able to get some training both in financial literacy and in presenting financial information. And it had a magical outcome. She did get funded. So it sounds like what you did for that, yeah, entrepreneurs, you held the mirror up for her to take a look at herself. And that was what helped her get through that situation. That's correct. I am a great believer in role playing and in videotaping. It is amazing how well we human beings can fool ourselves into thinking that our performance on a one-to-one basis is perfectly adequate. The videotaping and role playing situations and simulated live experience can reveal to the entrepreneur or any individual what it is that's missing. The film doesn't lie. And the results are really impactful. I'll give you an example. You may have noticed that throughout this interview I have never put my right hand to my chin. And the reason is 15 years ago I did a videotape of an interview like this. And the thing that showed up is I kept putting my right hand on my chin to indicate I was thinking. And the result was disastrous. It just looked terrible. It was rude to do that. And I had no idea that I was doing it. Oh, wow. I can't wait to see this video because I know I've adjusted my glasses a couple of times. I think I've done my left hand a lot to find out. I have one final question for you. And this comes from the blog posting we made last month in a second. Uh-oh. Yeah, I know who's watching. And you wrote the following. Whether you call it purpose or your mission, it's the unifying driver from all of the action of your company. Can you expand upon that statement and why it is so important? Yes. A purpose allows people to understand what it is that's driving the company. For my partners with me, with Starbucks in the 1970s, it also brought us together. We knew what we were about. We knew what was primary and what was secondary. When we started hiring other people and developed a team, the team grew to be about, during the 70s, 200 people, this purpose enabled us to have a cohesive organization It was a passion we shared through the purpose of the company. I believe it also enabled people outside the company to understand what we were about. Even our vendors, potential customers, nonprofits, government agencies in the area we were operating in, it was quite clear to everyone what we were doing. And because we weren't bashful, we were shy about expressing our purpose. And I find a statement of purpose very useful for even the smallest organization, one or two person company, let alone for a company like Starbucks, which has 22,000 stores around the world. Okay, Seth, I'd like to thank you for joining us today. It's an honor. This is Michael Coster, signing off from the leaders room brought to you by the Eclipse Leadership and Governance Center.