Thinking Outside The Cup

And here's who MacKinnon has in mind: a woman with a head of unruly gray hair who has been tapping intently on a screen at the music bar for nearly two hours now. It's Mother's Day, and Kerry Smallwood, 47, just received a gift certificate to the store. A friend brought her here when the Hear Music Coffeehouse first opened. Today is her sixth visit. "I pretty much just listen to the CDs I make here now," Smallwood says. Her playlist so far has songs by Norah Jones, Rufus Wainwright, Sting, and Oscar Petersen.

Has she ever burned a CD for herself on a computer at home? Smallwood's expression is completely blank. "No, no, I've never done that. I don't know how." She's exactly why Starbucks thinks it can go up against Apple's more technology-oriented iTunes service. Smallwood will never know that there is a mini server farm hidden behind the service door at the back of the store. She just knows that for $6.99 for her first five tracks and $1 for each additional song, plus about a five-minute wait, she gets another beautifully packaged, personalized CD.

It's all very smooth, it's all very seamless, and it all seems to make so much sense. But does it? Can Schultz and his team carry off a transformation like this? Is it really a smart move for a coffee company to reimagine itself as a lifestyle-entertainment enterprise and to start by serving up music? After all, the mere fact that a certain sort of music and a certain sort of coffee appeal to the same sort of customer doesn't necessarily mean that they should be sold at the same store. By such logic, what would stop Starbucks from selling, say, hiking shoes, or take-'em-home versions of the new-agey furniture in its stores, or earth-friendly kids' toys? That's why Mohr, Davidow Ventures' Moore cautions Schultz to tread carefully. "It's a very interesting experiment, but if I was on their board of directors, I'd be more concerned that they not corrupt the brand," he says. "If Starbucks is just trying to find more ways to monetize the traffic that comes through, this is a bad idea. At some point the customers will start to feel abused."

Though he acknowledges the risk, Schultz sees his company poised at a turning point -- and he's confident the music service is the next step along Starbucks' path toward becoming, yes, the world's biggest brand. "The hardest thing is to stay small while you get big, to figure out how to stay intimate with your customers and your people, even as your reach gets bigger. We want to be a respectful merchant so that we're not trying to sell anything that would in any way dilute the experience," he says. The music business won't do that, he vows; rather, it will enhance that experience. "Great retailers recognize that they're in the business of constantly surprising and delighting their customers," he says. This big, bold push into music, he expects, will do both.

Fast Take: Redefining your Business

To Howard Schultz, Starbucks isn't in the coffee business. It's in the people business. Once you start looking at things that way, the horizons get a lot wider. Here's Schultz's guide to contemplating life beyond the cup.

Think like an athlete.

Whenever you reach a plateau, it's time to rethink. If you're number one or number two in your category, maybe it's time to reconsider the category in which you compete: Create a broader definition of the industry, and develop a new plan to conquer it.

Team up with like-minded partners.

Hear Music and Don MacKinnon approach their business the same way Starbucks does: Customer interaction is vital, intimacy is important, and the shopping experience is everything. That's what made launching a music service together smart, not crazy.

Dream big.

A corollary to finding a new industry definition: Make its boundaries as wide as possible. "We have the potential to become the most recognizable and respected brand in the world," Schultz says. Not the biggest coffee company but the biggest brand, period. "When you're building a business, you have to dream as big as you can possibly imagine -- otherwise, what's the point?"

Stay small.

Everyone loves the convenience of a widely available product or service; no one likes to feel anonymous. Even as Starbucks goes global, adding new products and new businesses, Schultz and his team strive to maintain the intimacy and personalized feel of every single Starbucks encounter. "Our biggest challenge is to get big but stay small," he says.