Here's a good article on one of Seattle's top companies...
THE TASTEMAKERS
The New Yorker
THE FINANCIAL PAGE
Issue of 2003-01-13
newyorker.com
For much of the twentieth century, coffee was America's drink. A 1939 survey found that ninety-eight per cent of the country's households drank coffee. After the Second World War, consumption rose steadily until the early sixties, when the average American was downing almost fifty gallons a year. Then coffee went cold. Younger consumers came to regard it, like Scotch, as a palliative for parents and squares. The arid blends peddled by Maxwell House and Folgers lost ground to Coke and Pepsi. Coffee consumption plummeted.
Along came Starbucks. Starbucks proved that you could sell "gourmet" coffee to the masses, and in the process turned itself into a seemingly recession-proof enterprise. A few weeks ago, the company announced that, despite the weak economy, its profits were up nineteen per cent for the year. (It might be that rising unemployment suits Starbucks fine, delivering an exodus of time killers and résumé polishers to its comfy chairs.) The real measure of Starbucks' success, however, is that it has helped turn America into a nation of java junkies again. During the nineties, the number of coffee drinkers rose by almost forty million. More than seven thousand new coffeehouses have opened since 1996.
Broadly speaking, there are two ways to build a successful business. You can give people what they want but give it to them more efficiently, as Wal-Mart and Dell have done. Or you can persuade them to want something that they didn't previously want, as Starbucks has done. One might call this the tastemaker approach. Instead of competing for a share of an existing market, Starbucks invented its own, heeding the advice of the economist Joseph Schumpeter, who wrote, in 1939, "It was not enough to produce satisfactory soap, it was also necessary to induce people to wash."
This is harder than it sounds; it's one thing to foist a fad on people, and another to have a deep and enduring impact on their everyday customs and habits. In the late eighteen-eighties, when George Eastman invented the Kodak—the first point-and-shoot camera—photography was the private domain of enthusiasts and professionals. Though the Kodak was relatively cheap and easy to use, most Americans didn't see the need for a camera; they had no sense that there was any value in visually documenting their lives. So, instead of simply marketing a camera, Eastman sold photography. His advertisements told people what to take pictures of: vacations, holidays, "the Christmas house party." Kodak introduced the concept of the photo album, and made explicit the connection between photographs and memories. Before long, it was more or less considered a patriotic duty to commemorate the notable—and not so notable—moments in your life on a roll of Kodak film.
Around the same time, Will Kellogg introduced Corn Flakes and popularized the idea of the healthy, light breakfast, and Colgate insisted that brushing your teeth every day—with Colgate toothpaste, naturally—was as necessary as sleep. Gillette persuaded men not only that shaving every morning was the proper thing to do but that they didn't need to go to a barber to get it done right. (Gillette ran ads instructing men in techniques like "the angle stroke.") Later, McDonald's convinced suburban mothers that it was O.K. not to put a home-cooked meal on the table every night. Similarly, Starbucks changed not just what people drank but how they drank it. Instead of gulping down gas-station swill on the fly, people learned to desire the experience of leisurely sipping a grande latte, while eavesdropping on job interviews, at one of Starbucks' six thousand convenient locations worldwide.
All these companies relied on clever marketing (though in different ways; Starbucks, for example, has spent very little on advertising—its stores and cups serve as ads). But marketing on its own isn't enough. Successful tastemakers tend to have history's wind at their backs. Kodak and Gillette benefitted from a broader democratization and privatization of technology. McDonald's capitalized on the rise of suburbia, the automobile, and the working mother. And Starbucks took advantage of several trends, including the dramatic improvement in the range and quality of foods available to the average American, the rise of telecommuting and freelancing, and a move toward what the Harvard historian Nancy Koehn calls "affordable luxuries," which allowed Americans to cultivate the aura of affluence at a relatively low price. Just as important, these companies came of age during economic booms. "It's usually during moments of great prosperity that entrepreneurs can change the habits of millions of consumers and make a new product into something that seems essential," Koehn says.
How sinister you find this process depends on whether you consider consumers to be gullible dupes or discerning savants. Either way, tastemakers can be powerful engines of economic growth, because entire industries spring up around them (think of fast food after McDonald's or the breakfast business after Kellogg's). Business is often a zero-sum game—Wal-Mart thrives by crushing less efficient competitors—but when tastemakers succeed they create competitors. The economist William Baumol estimates that innovators and their investors keep less than twenty per cent of the economic benefits that their innovations create. The rest spills over. This is why there are thousands more independent coffeehouses today than when Starbucks started, and why Dunkin' Donuts, Maxwell House, and Folgers now sell premium coffee. It is also why pretty much everyone you know has clean teeth and shoeboxes full of snapshots.
— James Surowiecki |
