Fully caffeinated

3/1/2007 - Whatever Michael Coles is drinking, other entrepreneurs might want to get some. And in fact, Coles would be only too happy to serve it up at one of his 464 coffeehouses where, he says, customer service is as important as the gourmet java.

“We’re selling a product you don’t really need and there are lots of other places to get it, so we must focus on the customer experience,” said Coles, CEO of Minneapolis-based Caribou Coffee.

He spoke Feb. 28 at the Kellogg School as part of the ongoing Distinguished Entrepreneur Speaker Series presented by the Levy Center for Entrepreneurial Practice and Loop Capital Markets.

During the visit, which included a chance for several dozen high school students to interact with Coles, he recounted his journey from poverty to business success, today serving as chairman and president, as well as chief executive, of Caribou, the second-largest specialty coffee company in the United States trailing only Starbucks.

Getting to his current situation as “head ‘bou” wasn’t easy, and Coles’ narrative emphasized how mental and physical toughness played a critical part in his career.

“My life has been a series of proving nonbelievers wrong,” he told an audience of Kellogg students, faculty and staff, as well as the high schoolers whose visit was supported by the National Foundation for Teaching Entrepreneurship (NFTE).

In comparing his traits as a child with his personality today, Coles quipped, “I was considered an ‘out-of-control’ kid; now I’m ‘free spirited.’” Back in 1977, that energy and a meager $8,000 investment helped Coles and a partner launch the Great American Cookie Co., a venture that eventually grew to more than 350 stores, despite the founders having no experience in the food industry and facing competition from three other major rivals.

But the cookie nearly crumbled before anyone had the chance to savor it.

Coles recalled the very first day the business opened in Atlanta’s Perimeter Mall. He planned a promotion to give away several hundred cookies, news of which traveled fast and resulted in a crowd gathering inside the mall even before the new store opened for business. Customers waited and watched through the window as Coles and his team prepared the first batch of cookies—some 300 of them, turning golden brown in a giant oven. To celebrate the momentous occasion, Coles, his partner and their employees all decided to open the oven together, ceremoniously, before dishing out the treats to the waiting customers. As they pulled the metal handle down they discovered a small problem: They had nothing — no potholders, not even a rag — with which to pull the hot trays from the oven.

The flustered crew struggled to find a solution. All the while, the cookies kept traveling through the stove, their color soon darkening before turning black. Then, they caught fire.

“People ran out of the adjacent businesses,” said Coles, as the smoke billowed throughout the store and into the mall. The fire department arrived to bring the blaze under control, and Coles & Co. spent the next day cleaning up an unexpected mess.

“Because we believed so strongly in our business, we didn’t walk away; we just opened a day later,” said Coles, who sold the company in 1998 for $100 million.

But the fire was not the only challenge Coles faced. Six weeks after founding the Great American Cookie Co., he was involved in a near-fatal motorcycle accident and never again expected to walk without the aid of canes. Coles began a self-styled rehabilitation program that not only let him regain the use of his legs, but also allowed him to eventually set two world bicycling records: In 1984, he rode from Georgia to California in about 11 days; in 1989 he and a four-man team won the Race Across America by biking from Los Angeles to New York in five days.

Thinking he would leave business to pursue a political career, Coles challenged House Speaker Newt Gingrich in 1996, running to represent Georgia’s Sixth Congressional District. He also ran for U.S. Senate in 1998. Both campaigns came up short, despite polling figures in 1998 predicting a Coles victory, and so the entrepreneur returned to the business world.

He became CEO of Caribou Coffee, a 14-year-old company, in January 2003.

While only Starbucks exceeds Caribou in size in the specialty coffee market, it does so by a factor of 30, said Coles, a fact that helps frame the smaller company’s strategy.

“We don’t worry about being the biggest, but the best,” said Coles, adding that customer centricity is the key to everything his company does. The true battlefield for competition, he said, has little to do with size or financials, since customers do not particularly care about those details. Rather, success is linked to superior service, he said.

“The decisions customers make are based on the last experience they had with us; it’s not based on the size of the company or its price-to-earnings,” Coles said. “The customer needs to be at the center of everything we do. Every customer, every store, every time.”

By creating a superior product connected to a comfortable environment and excellent service, Caribou tries to give customers a reason to come back again and again. To do so, he said, requires constant improvement and review.

“If [you think] it ain’t broke, you haven’t looked hard enough.”