The Process of Learning

After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

In 1987, Schultz bought out the Starbucks' retail operations and adopted the Starbucks name.  The new firm combined the old Starbucks business of selling dark-roasted arabica coffee beans with the new one of operating espresso bars. 

By 2001, Starbucks had become an American icon, with 4,700 worldwide outlets and $2.6 billion in revenue.   The bulk of its revenues came from selling coffee drinks--the company called them handcrafted beverages.  The rest came from the sale of coffee beans, some other food items in its coffee bars, and licensing agreements with food-service firms.  Only a few years before "coffee" had been seventy-five cents and came in a plastic foam cup.  Now the urban landscape is peppered with Starbucks outlets, and the sight of young professionals sipping pin-sized three-dollar takeout lattes has become commonplace.

Howard Schultz envisioned an Italian espresso bar in Seattle.  he tested this hypothesis and found it wanting.  But the test produced additional information, so he modified his hypothesis and retested.  After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

ACTION POINT: This process of learning--hypothesis, data, anomaly, new hypothesis, data, and so on--is called scientific induction and is a critical element of every successful business.