Are You a Philosopher or an Economist?

When I started my personal blog, my fourth post (dated May 1, 2007) was called "Philosophy & Economics." Sounds riveting, doesn't it? Apparently I had been on an audiobook bender, and I had filled my head with, among other things, a history of the great Greek philosophers, and "Freakonomics" by economist Stephen Leavitt. As esoteric as the topic may sound, I still hold to the fundamental idea: Philosophy is about how the world should be; economics is about how the world is.

The question is, are you a philosopher or an economist?

Most people, including entrepreneurs and marketing professionals, vacillate between the two, and this was never more clearly expressed than in a book I recently finished: "Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time," by Starbucks CEO Howard Schultz. Starbucks started with a philosopher's mindset; it was out to introduce good coffee to the United States--specifically dark-roasted Arabica beans. It's easy to forget now, but before Starbucks, America lived on Brim. (Without Starbucks starting the movement, I wouldn't have the luxury of drinking coffee at superior local haunts like Kopplins.) Starbucks established the coffee bean and roast it thought superior, then, like any evangelist, set out to educate and convert the masses. And it worked. The product was radical at the time. It aroused curiosity and spread by word of mouth, one person at a time. And remember, Starbucks originally only sold beans and coffee-makers. It didn't serve actual brewed coffee or espresso.

Then Schultz went to Italy and experienced the espresso bar. He decided that serving espresso was the logical next step for Starbucks. He faced massive resistance from the company's founders. It was anything but a smooth transition. In fact, Schultz had to resign from Starbucks, start his own company, and then buy Starbucks back. But it happened. Still thinking like philosophers, Starbucks sought to educate the public. It maintained strict parameters on how it served espresso. And it worked, as people flocked to the then-new drink in droves.

But then things got interesting. Competitors started popping up and were more willing to think like economists. They might not have had the same quality of bean, but they were open to doing some things its customers wanted that Starbucks was not willing to do. For example, they served lattes with skim milk vs. whole. Starbucks refused to do so because skim milk affects the quality and taste of the drink. Starbucks customers started to complain. And more important, walk across the street to competitors. Starbucks was caught in the middle between philosophy and economics. It had build a customer base (but not achieved profitability) based on strict quality, but its business plan required massive growth to be profitable. At what point did it need to stop preaching and starting listening? And at what point would that mean selling its soul?

Schultz decided to think like an economist, and Starbucks began allowing skim milk to be used in its espresso drinks. Some people would say this was the beginning of the end for Starbucks; many others would argue that it was the beginning of the beginning.

Much as it's fun to rip Starbucks for all kinds of things (the greatest Onion headline of all time was "Starbucks Opens in Rest Room of Existing Starbucks"), Schultz has by and large managed to navigate the philosopher/economist tempest pretty damn well. He's never compromised on the bean or the brewing, so by being a philosopher, he's managed to beat lower-quality competitors like Gloria Jeans. But by also being an economist, he's profitably introduced frappucinos, Starbucks ice cream and even music into the mix (all the result of customer suggestions or employees' ideas). He sums it up by pointing out that Starbucks will add hazelnut syrup to a drink if a customer requests it, but it will never sell a bag of hazelnut-flavored beans. Believe it or not, that actually makes sense when you read the book.

I do think Starbucks officially lost its way with the introduction of VIA instant coffee ... a case I made in a previous visual post. And of course they've had to scale back in recent years. The company is certainly not perfect. Its reputation has always been more corporate than it views itself, but it has also been a rather exemplary corporate citizen when it comes to employee ownership and health benefits.

It's easy to be a rigid philosopher, but philosophers end up frustrated and bitter because few people think exactly like them. It's also easy to be a free-wheeling economist, but pure economic thinkers ultimately stand for nothing other than making money. What's terribly, terribly difficult is to walk that tightrope and make good decisions that lean one way or the other ... to listen to your audience without compromising your integrity. It's not a terribly sexy idea, and there's no public award for it. But in my book, it's actually the key to real success.