What Starbucks Teaches Us: How Expanding Your Profit Center Can Expand Your Business

Expanding Profit CentersOnce upon a time, in a land far, far away, Starbucks did not even sell brewed coffee in its stores, let alone blended espresso drinks. No, back then, back in the day, when the now-ubiquitous coffee giant opened the doors to its first store, in Seattle in 1971, it only sold coffee beans and related home-brewing equipment.

A decade later, a man named Howard Schultz was hired to be the Starbucks Director of Retail Operations and Marketing. Not long thereafter, Schultz took what has become, in company lore, a legendary trip to Milan, Italy where he saw cappuccinos and lattes being brewed and served. He came home, emphatic that Starbucks must do the same.

But the then-owners of Starbucks disagreed: they rejected Schultz’s plan. Schultz quit and started his own gourmet coffee brewing company.

By 1987, things had changed enough that the owners of Starbucks had decided to sell the small chain of stores and Schultz jumped at the chance to buy his former employer. He did, and the rest, as they say, is history. Schultz instituted an ambitious plan for growth. By 1992, the year of its IPO, Starbucks had an impressive 165 outlets. Almost 20 years later, there are almost 6,500.

How did Schultz do it?

Of course a lot of things must go right for a company to grow so big, so fast: You need the right idea, well executed, with sufficient capital, an open market, and more. One other of those “more” things is that Schultz & Co. understood and adopted the idea of creating “multiple profit centers.”

Think about it: Coffee sales are surely higher in the winter than in the summer. So what would you do in that situation? What Howard Schultz decided to do was to add a product that would also sell in the summer – icy Frappucinos. This became a second profit center for Starbucks. He now had coffee drinks to sell year-round.

Not long after that, Starbucks began selling music. And then food. That’s four different profit centers.

The point of having multiple profit centers is that they even out the dreaded business cycle. When coffee sales are down, Frappucino sales may be up. When Frappucino sales are down, music sales might be up. Having multiple profit centers means that you have that many more chances to make money and be successful.

The moral of the story is that any smart business, big or small, will not just rely on one or two profit centers. It’s too risky. So get creative, be inventive, and think about some additional profit centers you can add to your business.

Doing so will warm your till and go down smooth.

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