Interview w/ Tom O’Keefe, CEO of Tully’s Coffee

And Head Barista.

You are very welcome.

Well the prior business I was in, and arguably still am, Real Estate investing and developing. I had developed a number of shopping centers, and Starbucks had approached me. That dreaded big company, had approached me about leasing space in one of my buildings, and a person who worked for me at the time said ?gee, why don?t we do this, this would be a fun business?. I said ?Hey great, you think it would be such a fun business, why don?t you spend some time investigating it, within about 10 days she came to me with about 5 inches worth of work. Before I knew it, we had written a business plan and hired my first employee to put the procedures and policies in place to build the business. An advertising agency came along and named the company Tully’s and we were off.

My middle name is Tully, correct. Thomas Tully O?Keefe, and I have an Uncle Tully as well. However the ad agency didn?t know anything about that when we gave them Tully’s as a sample name.

Well they were probably the same challenges we face to today in continuing to build Tully’s. The challenges don?t change, in some ways they just get bigger. Making sure you hire great people to work with and be part of the organization. People that have the same goal, the same objectives in running a business and taking care of people, and offering a quality product in a sophisticated location that is warm and fuzzy. We had four points of differences when we started the business. I had to have people buy into these: one, is the product (most people think Starbucks has a bitter or burnt taste to it) a dark roast but not bitter, two, we wanted our people to become part of the communities where they are located, whether that be a neighborhood store, or in an office building; they are both communities. Three our stores are typically larger than Starbucks with fireplaces and softer seating, we wanted to be a place where you wouldn?t mind spending some time reading a newspaper and drinking a great cup of Tully’s coffee. Lastly, and most important to the soul of the company is being involved heavily in children?s organizations, fundraising, health education and welfare organizations. We really believe that kids are the future and that is where we spend the majority of our marketing dollars.

That is correct, it is vital to become a part of the community for long term success.

Well, I think the strategy that we have set up with respect to the four points of difference, that differentiate ourselves from the real main player; Starbucks. We really don?t worry about the smaller regional players. We just view the one national and international player as the case may be, and that is of course Starbucks. The reality is that the specialty coffee business is one of the rare businesses that doesn?t have a clear and distinct number two? Most consumer, certainly in this county and as we are finding in other countries as well around the world not only like pulling for a number two, but hope one emerges. Frankly, we believe that we are that number two.

Continue to grow the business, do the things that we do day in and day out. Open the doors at 5:00am in the morning and serve everyone a great cup of coffee with a smile and be a good community member. Methodically, just open stores. Right now we are at 125 stores and Starbucks is at 3,000. It is just a question of everyday getting out of bed and putting one foot in front of another and keep going. A lot of people ask me how I plan on combating that kind of commanding lead. Well first of all, the lead doesn?t really mean anything. If our goal was just to have the most stores then of course it would mean something, but our goal is to build the business with the culture that we have today and to maintain our culture as we grow! The software business is a prime example of how someone can have a commanding lead and lose it within a few years. A good example is Lotus 123, there wasn?t anyone who didn?t use Lotus 123 as a spreadsheet, they sneered and snickered at Microsoft when they came out with Excel. Today, who uses Lotus 123, similarly Word Perfect was the product of choice and now everyone use Word. You can call it anything you like, whether Marketing prowess or monopolistic practices. Which I don?t agree with, they put together (Bill Gates and Steve Ballmer) a suite of programs that went right to the consumer needs. They simply did what the customer wanted. Similarly that is what we are going to do, giving the customer what they want, opening new stores and brewing a great cup of coffee.

Well it is on a declining scale. When you are a small company growth is extremely high, and as you grow it becomes much harder to maintain that percent growth rate. What we have as a goal of the company is a doubling of the company near term every year or so. Starbucks is growing their number of stores at about 30% per year. If we can continue to show in excess of 100% growth on an annual basis we will be tickled. But this will decline as our sheer size increases.

We are concerned about both. And I suppose, if I had to argue purely from a long term standpoint I would say same store sales growth. We have been blessed with a high near mid-teens sales store sales growth. As our base continues to build, and our brand builds we will start opening stores at higher levels of revenue because of an increased brand equity. Which is what you see with Starbucks today. We see in store sales growth as the biggest harbinger of where the market is going. We have brought a new person on board to get a hold David Kubena, whose goal is to get his hands around the retail operation. Making is as efficient as possible.

Specifically targeting in store profitability as a result of having a keener look at store level economics. We directly impacted in store growth by having a better understanding of what was happening and what we could do to change and adapt our efforts. There are very few coffee companies that can show any in store sales growth at all.

Really very little right now. As we continue to grow the business, diversification of our product line will increase in importance. So far 95% of our in store sales growth is pure solely to increased brand awareness. We have simply increase the number of transactions by building the Tully’s brand.

Well they are successful in relative terms. While I could be accused of being an Internet junky, I still have to get an arms length from in from a business perspective. There are still a very small percentage of people who use the Internet, and an even smaller percent who purchase using the internet. Our model is such that someone will walk into our stores to buy an experience on an instant gratification level. As it relates to someone ordering beans for their home or office or in general supporting their habit, these sales are increasing, but candidly we aren?t targeting the Internet per se. We are using it to contribute to our brand awareness.

It probably is?

Probably not near term. It is not as a result of the inherent failings of the Internet, it is simply because of the product that people purchase from us. Can you imagine buying a fresh baked loaf of bread and not being able to smell it? I suppose if we had that ability over the Internet some day?

And they say it is coming, then that may change things.

The corporate culture is very simple. It is like a big family. The most important thing that people need to understand, is there a goal here and to have a good time. We know we have the model in place for the stores, the people, the community and the product, drives the business of selling coffee and beans. The next step is to maintain that or achieve the goals associates with that model. We have to have the right people. Candidly, you have to have a good time working during the day or you will not show up, you will not perform at your best. My attitude is that you can have your cake and eat it to. You can have fun at work and accomplish your goals at the same time.

Absolutely not, in fact they are very self-inclusive.

People with a great passion for the business and for our product, the most important part about any business is the people. You have to have people who are committed to fulfilling all the needs and goals of the business. It is the product, the people, the stores and the community that matter. They must also be able to achieve their individual goals within the context of the company goals! Those are the people that you want. And more to the point, people who are better than me.

Exactly!

The first thing I would do is go to work for a company for a couple years to get a good understanding of what you don?t want to do for a living. By that time, you also get a better understanding of the business world. During that time, you will also accomplish a number of other things. You will have a better understanding of what resources are available to you when you do decide to start your own business. Basically you understand the game plan a little better. Also to work on a few basic skills; public speaking, listening, team building, how and when to get up in the morning. Sleeping in till 11:00am during Spring quarter no longer cuts it.

It allows you to build up a better understanding of the business world. Second, now that you have decided to start a business ? GO AND DO IT. Talk to as many people as possible and get as much advice as possible. Hit the ground running!

It is phenomenal, great facility and excellent for branding!

Nope, we opened our first Tully’s in that location!