The Next Starbucks?

Shares of Starbucks (Nasdaq: SBUX  ) are up more than 300% over the past five years and have grown more than 800% over the past 10 years. So what will be the next Starbucks? It's tough to say, but there's at least one private company drawing some Starbucks comparisons. Mac Greer talked about that company with Fast Company co-founder Bill Taylor, author of Mavericks at Work: Why the Most Original Minds in Business Win.

Mac Greer: I want to talk about one of the private companies that you write about. You compare it to Starbucks, but a lot of people, Bill, may not be familiar with it. Tell us a little about Potbelly.

Bill Taylor: Well, there are a lot of similarities. Potbelly sells affordable sandwiches in -- now, I think -- about 100-110 outlets. And the similarities with Starbucks are really uncanny. It has got a great kind of creation myth; [it] began in a neighborhood in Chicago at an antiques store, where the husband-and-wife team sold antiques but wanted to keep their customers coming back, so they served sandwiches, which they heated or toasted on a potbelly stove.

Well, the sandwiches became so popular that people began coming just for the sandwiches, and the antiques became sort of beside the point, and ... kind of a legend was born. A guy named Bryant Keel, a passionate customer like so many other people, at some point offered to buy the business from these founders and turn it into a major retail force.

Well, that is exactly what happened with Starbucks, where the founder of Starbucks started this coffee business. Howard Schultz -- now chairman and the man most associated with Starbucks -- was a passionate customer, not the founder. [He] saw that he was on to something really distinctive and intriguing and figured out how to take it to the next level.

Well, Potbelly, like Starbucks, is not really about the sandwich, like it is not really about the coffee. It is about the experience, and so the restaurants themselves are really interesting and funky. Each restaurant has a loft space where they have live musicians come in in the afternoons and play music. There is a lot of personality to them, a la Costco. Each restaurant is a little different. You never know what you are going to find. There are books; you could read a book there. You could borrow the book and bring it back in a week or what have you, and the whole thing is about trying to make the experience about much more than just the sandwich.

What is interesting, by the way, about the Potbelly/Starbucks connection is that to finance its now very rapid expansion, Potbelly is being funded in large part by a venture capital company called Maveron, which we like because its name stands for Maverick Vision, and Howard Schultz, the chairman of Starbucks, is the co-founder of Maveron. And so Schultz himself clearly sees the parallels between the Potbelly experience and the Starbucks experience.

I have no inside knowledge. My guess is this is bound to be an IPO down the road, and I think it is really a company to watch because, again, you walk into a Potbelly or you talk to people from Chicago where it started, and the passion and energy and just flat-out love for this brand is really palpable, so I think they have got something very powerful going on.

Mac Greer: And I love the simplicity of it. You go in there, and the menu is very simple. This may be more of an indictment of my laziness or my inability to do the work, but I get so tired of going into these restaurants where you have 800 choices, and I love that there are just five choices staring me in the face. And yet, you reveal in the book -- and I didn't know this, Bill -- that you can go off the menu at Potbelly. You can actually order stuff not on the menu.

Bill Taylor: Right. It goes back to that treasure hunt or whatever. Just a little bit of surprise. So I think the actual number now -- there are 11 different sandwiches you can [get] if you mix and match. ... Potbelly is prepared to make a lot of other sandwiches that aren't on the menu, and if you are a veteran Potbelly customer, you may hear someone offering a sandwich that is nowhere up there on the blackboard, and they make it very easily and make it very quickly, and eventually, you learn that there is lots of other stuff they can make: They just don't post [them]. And they call it "Potbelly Underground."

Most other companies have some popular sandwich emerge that wasn't on the menu -- they would pop it right on the menu -- but the Potbelly theory is, "We want to be the kind of place that, even as we get big, we stay small." So they love the idea that the frequent customers are kind of insiders and they maybe know things that the new customers don't know.

On the other hand, the more you come back, the more you hear the veterans; you pick it up, too. So again, it comes back to this idea that [you shouldn't] over-standardize everything. Don't make things more formal than they need to be. If you want to be the kind of place that people pay attention to, do certain things that are worth paying attention to in the first place. Part of that is being full of surprise, knowing that if you go in there a few more times, you might pick up something, and so Potbelly Underground is one of many ways Potbelly has to keep the experience of coming to the store interesting, fun, surprising -- that sort of thing.

You'll find both Starbucks and Costco recommended in Motley Fool Stock Advisor. What other stocks are at the top of Tom and David Gardner's list? Be our guest at theStock Advisorwebsite for 30 days and find out.

Mac Greer holds shares of Costco but doesn't own any other stocks mentioned in this article. Maveron is an investor in The Motley Fool. The Fool has a disclosure policy.


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