Who Holds the Presumption of Integrity?

Posted on September 3, 2010

Who has greater moral authority, the classy start-up or the established brand?  Small companies are presumed to possess integrity and higher quality. But is this conclusion always valid?

Where would you suggest that I have an interview with Jean-Michel Valette, the Chairman of Peet’s Coffee and Tea? At a Peet’s of course! We arranged the meeting by e-mail and squeezed it in just before he headed off to France. Given his name and destination, I anticipated a strong French accent. But he sounded as Californian as me, and only our outside seating under an umbrella reminded me of Paris.

From Jean-Michel’s days as a VC with Hambricht & Quist, he’s developed a true love for distribution channels. In fact he made it sound as important as the product! He asserted that many firms can have great offerings, but if there’s not a differentiated path to the consumer, the likelihood of success is much lower. Now this opinion came forth as we talked about startups and small companies that can’t buy their way into the market. The logic seems solid: If a new product needs consumer pull to get it on grocery shelf, then that product has to find some other way to connect to consumers to create that pull.

Given his experience as a VC and his leadership in both the wine and beer sectors, several examples leapt from his tongue. Yet he spent the most time talking about how Peet’s committed to ultra-fresh direct distribution and heavily trained its DSD team to take coffee where it had never gone before: Racked in the grocery store bakery department. What is your path to the consumer, and is it innovative in and of itself?

We each took a few sips from our beverages, and I noticed the sun had found its way around the umbrella and was beating directly onto my forehead. As Jean-Michel illustrated his points with real-life examples, I looked for a deeper message. Out it rolled.

Small companies have the presumption of integrity and higher quality. The consumer, who sees a product made with passion and love by small company led by its founder, assumes that it must be better. The consumer assumes that the big companies decrease quality to save money, and thus don’t trust big-company products the way they trust a specialist, a zealot-founder. This insight made sense to me, and in fact I was told about big-company quality sacrifices for cost in several of my other interviews. Does this insight make sense for you? Are you a small firm that promotes your founder, and his or her influence and values? Or do you try and look big, using the royal we, and hiding your small-firm roots?

This led us to talk about Starbucks, and how with massive growth, Starbucks had become what it had once assailed: Starbucks as specialty coffee play has now become so successful that it is everywhere. It is mainstream, and specialty coffee purveyors (not the least of which is Peet’s) now differentiate against Starbucks.

Feeling sorry for Starbucks (I own shares) and all the other big guys, I asked what competitive countermeasure can be used to offset the consumer’s mistrust of bigness. Jean-Michel replied that it was through flawless execution, through unique products with very special attributes, through using buying power to reduce cost while maintaining quality, and by maintaining marketplace momentum. If only that were easy!

Size certainly is relative. Peet’s is large compared to some, small compared to others. Innovating differently as a company moves along a continuum of growth is certainly worthy of deeper thought. Grab a dark roast from Peet’s and ponder innovation while sitting under an umbrella. Power your PDA off, and keep the sun off your forehead.