Seduced by a Green Mermaid.

Warren Buffet said, “If you don’t find a way to make money while you sleep, you will work until you die.”

Fred Schultz broke his ankle. He could no longer work. When he didn’t work, he didn’t get paid. He lost his job as a diaper delivery driver. For months before, he complained about the odor and the mess. He seemed to hate his job. Now he wanted it back.

Last week on Methods of Prosperity.

In 1977, British radio and television banned the Sex Pistols’ single, God Save The Queen. It sold 100,000 copies. Virgin Records released Never Mind the Bollocks, Here’s the Sex Pistols that November. It was the Sex Pistols’ only studio album. By 1981, Virgin had grown into a major label. Bands including The Human League drove Virgin’s success. Artists like Phil Collins and Culture Club boosted Virgin’s profits in the early 80s. In 1984, Richard Branson’s girlfriend was waiting for him on Necker Island, which he owns. A canceled flight led him to charter a plane and sell seats. That inspired him to start an airline. He needed to reinvest profits from Virgin Records. A proposal for an airline landed on his desk. Branson had no airline experience. He pursued it anyway. Branson leased a 747 from Boeing and launched Virgin Atlantic. By 1992, competition from British Airways was intense. Branson sold Virgin Records for $1 billion to support the airline. Today, Virgin Group has expanded into many sectors. This includes mobile, media, trains, and spaceflight. Branson prefers to be a recognized as Virgin Group’s co-founder. Being labeled as a billionaire isn’t his preference.

Part 57. Charles Schultz.

You can read this week’s TL;DR here.

Key Lessons:

• Hard work is no substitute for who you work with and what you work on.

• You’re not going to get rich renting out your time.

• You must own equity, a piece of the business.

• Riches are in the niches.

• Manage expectations.

• Learn how to sell.

Now there’s a collectible version of this newsletter! Methods of Prosperity newsletter number 20is available to collectas of July 11, 2024.If you’re so inclined you can permanently own it!

Howard Schultz was born on July 19, 1953. He grew up in the Bayview Projects, located in the Carnasie neighborhood of Brooklyn, New York.

His father had worked hard. He sometimes worked two or three jobs to put food on the table. He was a truck driver, factory worker, and cab driver. He never made as much as $20,000 a year. He never could afford to own his own home. When his father died in 1988, he had no savings and no pension. He never attained fulfillment and dignity from meaningful work.

It doesn’t matter how hard you work. Howard’s father never found a way to make money in his sleep. He only collected a paycheck. He never owned equity in a business. The truth is, a job is risky. It’s steady, but there’s limited upside. You can only work so many hours, which prevents you from getting paid more than the hours you work. If you can’t work, or lose your job, your income is gone. The real problem is, expenses keep piling up, while buying power keeps going down. That’s why you can never get ahead, no matter how hard you work at your hourly job.

Unlike his father, Howard Schultz decided to take control of his destiny. He built not only an international business, but a recognized brand. He didn’t follow trends. He didn’t rely on statistics. He didn’t let the odds against a poor kid from the projects give him an excuse not to pursue his dream.

Howard started earning money as a child in Brooklyn. At 12, he had a paper route. Later, he worked behind the counter of the local luncheonette. At 16, he worked after school stretching animal skin for a fur trader in the garment district. He spent one hot summer in a sweatshop steaming yarn at a knitting factory. He contributed his earnings to help support his family.

After high school, Northern Michigan University offered him a football scholarship. That provided the chance for him to be the first member of his family to finish college. To stay in school he took out loans and worked odd jobs. He worked as a bartender at night and sometimes sold his blood. He majored in communications and took courses in public speaking. Starting to worry about what he would do after graduation, he took a few business classes.

Howard Schultz jokes about his college years, “If someone would have provided me with direction and guidance, I really could have been somebody.”

In 1971, three friends founded the original Starbucks. Jerry Baldwin, Gordon Bowker, and Zev Siegl attended the University of San Francisco. At the time, Baldwin was a former English teacher, Bowker was a writer, and Siegl was a history teacher. They shared a passion for fine coffee. Alfred Peet was a coffee roasting entrepreneur. He inspired them to sell high-quality coffee beans. They invested $1,350 each and borrowed $5,000 from a bank.

They chose the name Starbucks after considering various options. Starbuck is a character from Herman Melville's novel Moby-Dick. That inspired the name of their store. The first Starbucks store opened near Pike Place Market in Seattle. Starbucks only sold coffee beans and equipment at the time. They weren’t in the restaurant business of serving coffee.

Howard graduated from college in 1975 with no idea what to do next. He stayed in Michigan, working at a ski lodge. The following year he went back to New York and got a job with Xerox in their sales training program. Xerox sent him to their training center in Leesburg, Virginia. He says it was a lucky break, being the best sales school in the country. Xerox trained Howard in sales, marketing, and presentation skills. After completing the course, he spent six months making 50 cold calls every day. He knocked on doors of offices in midtown Manhattan from 42nd Street to 48th Street, from the East River to 5th Ave.

He was selling a new machine called a word processor. He sold a lot of them and earned good commissions. He outperformed many of his piers. This gave him funds to pay off his college loans and rent an apartment in Greenwich Village. He met Sheri Kersch in July 1978. She would become his wife. In 1979, he started working for a Swedish company named . They moved him to North Carolina. They owned Hammarplast, which sold housewares, including coffee makers. After 10 months Perstorp promoted him. They hired Howard Schultz as general manager of Hammarplast for their US operations. He moved back to New York for this position. They set him up with a salary of $75,000 and a company car. Perks included an expense account and unlimited travel to Sweden. He placed the product in high end stores and increased sales volume.

By age 28, Howard Schultz made it. Sheri was an interior designer. The couple moved to a co-op apartment on Manhattan’s upper east side. They rented a summer house in the Hamptons. Life was good. His rapid success amazed his parents. After only six years out of college, Howard enjoyed rapid success. Still, he wasn’t satisfied. Something was missing.

In 1981, while working at Hammarplast, he noticed a strange phenomenon. A small Seattle retailer was placing unusual orders for a certain drip coffee maker. Starbucks Coffee Tea & Spice only had four small stores, yet they were buying large orders. One day, Howard decided to take a trip to Seattle to discover what Starbucks was doing.

In the 1980s, coffee wasn’t a thing in the USA. It came out of a can. There was no demand for exotic roasted coffee beans. Starbucks was an anomaly. The original store was modest place. A solo violinist played Mozart in the entryway, his violin case open for donations. Aroma of coffee wafted out and drew Howard in. Bins contained coffees from all over the world. Sumatra, Kenya, Ethiopia, Costa Rica. There was a display of Hammarplast coffee makers.

During that trip, Howard’s life changed. Starbuck’s retail merchandizing manager was Linda Grossman. She met him at his hotel and introduced him to a new world. She taught him about the ritual of manual coffee brewing. Someone served him fresh brewed coffee in a porcelain mug. It was stronger than any coffee he had ever tasted. The third sip hooked him forever. Before he left the store, they handed him a bag of ground Sumatra beans as a gift.

Linda introduced Howard to Jerry and Gordon at their roasting plant, two of the founders. They were in their late 30s, both passionate about coffee. Jerry was running Starbucks while Gordon ran other businesses alongside Starbucks. Zev, the third founder sold out of the company in 1980.

Howard imagined what it would be like to be a part of Starbucks. What if he owned equity? It took Howard a year to convince Jerry to bring in a New York sales executive. It was a crazy idea. Howard would have to give up his high paying job for an unknown coffee company. Had Howard lost his mind?

Over the next year, Howard visited Jerry in Seattle often. They discussed merchandise, products, and the potential of Starbucks as a brand. Jerry considered expanding. There was no competition. In the spring of 1982, Jerry and Gordon invited Howard to San Francisco. They introduced him over dinner to Steve Donovan, their silent parter and shareholder. Howard expected to return to New York with an offer, confident that he impressed Steve.

“You’ve got a real jewel,” Howard advised Steve. “New Yorkers would love Starbucks coffee! So would people in Chicago, Boston, Washington, everywhere! Starbucks could be so much bigger,” he argued, “It could even perhaps become a national company. It could have dozens of stores, maybe even hundreds. The Starbucks name could be synonymous with great coffee. A brand that guaranteed world-class quality.”

24 hours later, Howard was back at his desk in New York. Jerry called. “I’m sorry Howard, I have bad news.” Jerry’s voice had a somber tone. The three of them talked it over and decided not to hire him. It was too risky. Too much change. Jerry continued, “Your plans sound great, but that’s not the vision we have for Starbucks.”

To be continued…

I like you,

– Sean Allen Fenn