This morning at a Starbucks in downtown Seattle, I tried a new kind of coffee–one that sparked an insight about business.
The coffee was made with a Clover–a new machine for brewing coffee that allows for greater customization of each cup. It operates kind of like a French Press, but it works much faster (90 seconds per cup, as opposed to 6 minutes).
I started to quiz the barista about the Clover and learned a little inside scoop about how the unit made it into the Starbucks stores.
It turns out, according to my informant, that the Clover unit was designed by a couple of coffee-loving inventors. The Clover machine was originally designed to be sold to small, independent coffeehouses that were being beaten up by Starbucks’ dominance and needed an innovative new product to woo customers.
The Clover units caught on among coffee aficionados, and Starbucks began to lose customers to some of their independent competitors. Sensing a threat, Starbucks ordered a couple of the $11,000 Clover machines to run a pilot program in a few stores.
The trial was a huge success with Starbucks customers, who liked the freshness and customization delivered by the Clover brewer. Baristas liked the ease of brewing a Clover cup when compared to the slow and cumbersome process of making a French Press brew.
Based on the results of the pilot, Starbucks decided it wanted to install a Clover unit in each of its 5,000 small store format locations. At the time, Clover was an 11-person company. A $55 million dollar purchase order would have been a multiple of their annual sales many times over. Instead of placing the order, Starbucks simply decided to buy the company outright.
Is it possible that the best offer to buy your company will come from your customer’s toughest competitor?
Editor’s Note: This article was previously published at OPENForum.com under the title: “Can You Turn a Purchase Order Into an Offer to Buy Your Company?” It is republished here with permission.
Big companies buy up competitive threats all the time.
Great story, John. I know Robert’s right, but still a good story. People don’t beat a path to your door for an $11,000 coffee maker, so how were their sales overall before acquisition? I’m in Seattle and a coffee snob and haven’t seen one of these machines, so I’m curious to learn more pre-acquisition.
Thanks for the post.
They had 11 employees so if we take $200,000 per employee as a very rough guest, they were probably in the range of $2M – $3M in annual revenue when they were acquired. Just a guess on my part.
As a former barista in training and a tea drinker, I think this story is very fascinating. Good to hear that Starbucks listened to their customers.
Great story indeed John! It is good to hear about an entrepreneur/inventor capturing the attention of a giant like Starbucks.
I would love to learn what the purchase price for the stock of the Clover Machine Company was and if the owners or shareholders truly understood the value of the competitive threat their Intellectual Property posed to Starbucks. If they did not fully understand this, they likely left a good deal of money on the table.
Holly Magister, CPA, CFP