Secret Of My Success -- His Coffee Success Was Not Instant

Phil Johnson president, founder Millstone Coffee Inc.

Accomplishment: Building a coffee company from, dare we say, the grounds up. Millstone Coffee Inc. specializes in roasting and selling whole-bean gourmet coffee. Phil Johnson, 48, started Millstone Coffee Inc. in 1981 by buying the U.S. gourmet-coffee interests and distribution rights from Good Host Foods, a Canadian company.

Johnson had built up Good Host Foods' U.S. business as its national manager. When Good Host decided to pull out of this country, he convinced his bosses to sell the U.S. business to him.

Johnson borrowed money from family members, took out a second mortgage on his house and convinced Good Host to help with financing. The Canadian company held a third mortgage on Johnson's house.

The venture was Johnson's second foray into the risky world of self-employment. In the mid-1970s, Johnson started a food-brokerage business. It failed. The experience left Johnson with a heavy debt burden. He initially took the job at Good Host and also worked part time as a longshoreman, because his business was failing, and he was financially strapped.

The second time around, Johnson took the right risks and built Millstone steadily. The first Millstone facility was a 1,900-square-foot space in Lynnwood. A couple of years later, the company jumped to an 8,000-square-foot space in Everett. In 1985, the company moved to a 13,000-square-foot building at its present location in Everett. Millstone now occupies about 50,000-square-feet at the site.

In May, Millstone finished a $2.5 million roasting facility in Henderson, Ky. The Kentucky facility doubles Millstone's capacity and means fresher delivery to East Coast customers. Millstone employs 250 full-time workers and ships coffee to outlets in 44 states. Revenues this year are expected to reach $35 million to $40 million, he says.

For the future, Johnson plans to continue to grow the company privately. "Companies go public either because they need to raise money or to make some people rich, or both. We don't need to do either. . . We have great banking relationships, and I'm already living a lifestyle I never dreamed I would live. I still pinch myself sometimes," he says.

Millstone has been growing at about 40 percent annually. This year, Johnson says, he would be content with a 25 percent growth rate. Past growth came from expansion into new markets. Now Millstone is after better penetration into those markets, he says.

In the Puget Sound area, Millstone enjoys a whopping 35 percent market share for all supermarket distribution, Johnson says.

Over the past four years, regional competitors in the gourmet-coffee industry have cropped up throughout the U.S., and competition has stiffened. Still, Millstone grabs market share. "We use our history as a company and our commitment to the category to compete," Johnson says.

The major coffeemakers also have recently made runs at attracting the gourmet-coffee drinker by offering fancier ground-coffee. Johnson says he is not threatened by the coffee giants' attention to his market. Those companies continue to compete on price, which is what has allowed regional roasters who concentrate on quality to exist, he says. "I don't consider them competitors, other than they occupy shelf space that I may want at some time," he says.

Quote: "I'm convinced I wouldn't be successful today, if I hadn't failed (previously). I learned a lot about what it takes to be successful."

Secret: A variety of things contributed to Millstone's success, Johnson says. Having the right idea at the right time was critical. Being willing to take the risk and continue to take risks is vital. And you can't overlook luck, he says.

Hard work is also key. In the 1970s, while working for Good Host Foods, Johnson remembers saying, "I couldn't work any harder or care any more about this business if I owned it myself. That was the most stupid comment I've ever made in my life." Owners work a lot harder and shoulder a lot more responsibility than employees, he says.

Setback: Millstone went into some markets blind and had to pull out. One time, the company moved too slowly and allowed a local coffee roaster enough time to lock up much of that market. Another time, Johnson says, Millstone made a hiring mistake for a key manager. The problem was compounded by allowing the situation to continue too long. The mistake cost the company that market, Johnson says.

Advice: Be prepared to work a lot harder than you thought, he says. Keep your sense of humor, and enjoy what you do.

Reported by Times Snohomish County bureau reporter Karen Milburn. Send your nominations for Secret of My Success to The Times bureau. We need your name, the name of your nominees, along with their company and phone number and a brief description of how or why they are successful.