The Correlation Between Starbucks and Startups

We spend less time at Dunkin’ Donuts than Starbucks:

The result is about much more than coffee.

Starbucks and Startups

At a “third place,” neighbors gather to talk and to work. However, if that third place is a Starbucks, more could be happening. In a new NBER working paper, three Columbia University researchers looked at what happens when a new Starbucks opens in a neighborhood with no coffee shops.

They reminded us that, from the start, Starbucks had a different idea. Whereas most coffee shops had been places for buying coffee, Starbucks copied the European model. It became the café where we could meet and talk.

The data actually exists that lets them correlate new Starbucks with new local business firms. As a control group, they were able to compare new business numbers in neighborhoods that rejected a Starbucks request to the areas with the new Starbucks. The results demonstrated that a new Starbucks in a neighborhood that had none fueled entrepreneurial activity.

Below the upward sloping curve illustrates the correlation between Starbucks and startups:

According to their data, Starbucks spurred 2.9 to 5.7 extra start-ups annually (compared to areas that rejected the Starbucks) during a seven year period. Furthermore, an increase in local entrepreneurship of 9.1% to 18% annually popped to 29.7% when Magic Johnson was associated with the initiative.

Our Bottom Line: The Coffee Connection

Returning to where we started, with the very same variables but instead a Dunkin’ Donuts shop, there was no surge in entrepreneurial activity. Research suggests that creativity and idea generation accelerate with physical proximity to others. Consequently, if we spend less time at Dunkin’, there is no social connection. Meanwhile, with a model like Starbucks, Caribou Coffee was the one chain that had a similar effect.

Concluding, I can’t resist the temptation to leap to a Steve Jobs quote. Referring to entrepreneurs, he said that, “Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d ask customers what they wanted, they would’ve told me a faster horse.’ People don’t know what they want until you show it to them.”

Starbucks was one place where people figured out what we want.

My sources and more: Again, one of my NBER emails came in handy for alerting me to new research. Their October Entrepreneurship Bulletin described the Starbucks paper. From there, I did check research on social interaction and creativity here and here.