Howard Schultz Bought Starbucks for $3.8 Million

Howard Schultz joined Starbucks in 1982, when it was a small Seattle company that sold coffee beans. He had a bigger idea: Starbucks should serve espresso drinks in Italian-style coffee bars, places people came back to every day.

The idea came from a business trip. In the spring of 1983 Starbucks sent him to a housewares show in Milan. On the walk to the convention center he kept passing espresso bars: there were about 1,500 of them in the city, and they were full. What struck him, he said later, was the sense of community inside, a “third place” between home and work.

Back in Seattle he pushed for a year. In April 1984 the owners let him test the idea in a small space inside their new store at Fourth and Spring, downtown. The espresso bar drew a crowd. It did not change their minds.

The owners didn’t want to run coffee bars. They sold beans, and they wanted to keep selling beans. Schultz, in his own words, was turned down cold.

So he left and decided to build the coffee bar himself. That meant raising money, and that was where the story very nearly ended.

217 noes

Schultz approached 242 potential investors for his new espresso bar. By his own count, 217 of them said no.

Some of the money came from unexpected places. Starbucks itself, despite not wanting to run coffee bars, put $150,000 into his venture, and one of its founders, Jerry Baldwin, took a seat on the board. A local doctor, Ron Margolis, put in $100,000. On April 8, 1986, Schultz opened his first store, in the lobby of a downtown Seattle office tower. He named it Il Giornale, after a Milan newspaper. It served espresso, played opera in the background, and it worked.

The offer

The next year the original Starbucks owners decided to change direction. They wanted to focus on Peet’s Coffee & Tea, a business they also owned, and to sell the Starbucks retail unit: six stores and a roasting operation, and the Starbucks name.

Baldwin thought of Schultz first. As CNBC tells the story, he offered Schultz an exclusive window to raise the money, and named the price: $3.8 million.

“That was the good news,” Schultz said years later. “The bad news is I didn’t have any money.”

The rival

About halfway through his deadline, with part of the money raised, Schultz got a call from the founder. Another buyer had made an all-cash offer with a quick closing. The rival, Schultz discovered, was one of his own investors in Il Giornale.

He told his wife they were going to lose everything. Then a young lawyer friend suggested he meet the senior partner at his firm, a prominent Seattle attorney. The partner’s name was Bill Gates Sr. Schultz had never heard of him. “Bill Gates at the time was not Bill Gates,” he recalled.

Gates Sr. heard him out at 8 o’clock one morning and asked two questions: was everything true, and had he left anything out? Then, according to the accounts Schultz has given, the six-foot-seven lawyer walked him across the street to the rival investor’s office and told the man to stand down. The rival did.

There was still the matter of the money. “I’m $2 million short,” Schultz told Gates Sr. The reply, as Schultz remembers it: “We’re going to find the money, and my son and I are going to invest.”

In August 1987 Schultz’s group of local investors bought Starbucks for $3.8 million.

From six stores to forty thousand

Schultz merged Il Giornale into the business he had bought and put everything under the Starbucks name. This time the stores would sell espresso drinks, as he had wanted from the start.

On June 26, 1992, Starbucks went public on the Nasdaq at $17 a share. It had about 165 stores. It sold roughly 12% of the company, raising about $25 million, and the shares closed their first day at $21.50. With the money it doubled its number of stores in two years, then went abroad, starting with Japan in 1996.

Growth nearly undid it. By the mid-2000s the stores had started to feel generic, and the share price fell sharply from 2006 to 2009. Schultz, who had stepped back from running the company, returned as chief executive in 2008, closed hundreds of stores and set about bringing back the atmosphere he had copied from Milan. At the end of its 2025 fiscal year it had 40,990 stores, and its consolidated net revenue for the year was $37.2 billion, according to its annual report.

The company Schultz bought with borrowed money and other people’s confidence turned out to be one of the great bargains of American business. The $3.8 million price was less than what Starbucks now takes in revenue in about an hour.

What the record shows

• Rejection is a numbers game. Schultz needed 25 investors willing to say yes. He had to ask 242 people to find them.
• Prove it small first. Il Giornale showed the espresso bar model worked in Seattle before Schultz tried to buy a bigger business.
• An option is valuable even without the money. A head start on the deal gave Schultz time to raise the cash; nobody could buy it out from under him without a fight.
• Reputation can stand in for capital. At the critical moment, a respected lawyer’s backing mattered more than anything Schultz had in the bank.

The pattern of an outsider buying a business its founders had outgrown appears elsewhere in this archive. Ray Kroc bought out the McDonald brothers for $2.7 million. Joe Coulombe reinvented a chain of convenience stores. In each case, the buyer saw a different business inside the one being sold.