• The next generation will place their original stamp on the business when the founder ceases to be active in the day-to-day operation of the business.
• SiloCaf is a startup owned by a sixty year-old Italian company.
• SiloCaf of New Orleans had a customer before it opened the doors for business.
• Start your business with a major vendor. SiloCaf's number one customer is Folgers.
• The application of technology to an ancient business is the secret to the success of SiloCaf.

Industry. Food processing

Startup Funding Source. Earned profits from Italian-based company and a firm commitment from Folgers for SiloCaf to be one of its primary suppliers.

The Lightbulb. An investment in technology will return huge profits. Every process at SiloCaf is driven by technology. It would be impossible for SiloCaf to process the amount of coffee and provide the customized blends without computers. The information systems person does other jobs because the business can't afford to have a full-time employee assigned to only the systems piece of the puzzle. Federico says, "This country is business friendly and we find it much easier to make profits here than in Italy. In Italy there are so many laws, some dating back to the Romans, nobody knows how to follow them."

Key Idea #2: The sons and daughters of a business founder will place their original stamp on the business when the founder ceases to be active in the day-to-day operation of the business

In this case, Federico and his brother started working for their father in 1961 after the business had been going for nearly 30 years. The sons have expanded the business from freight forwarding to dealing with commodities. The founder started by buying a truck to haul goods for others. Today we see an entirely different type of business.

Topic for discussion: Why does the second generation seem compelled to change the business dramatically?

Possible answers: First, sons and daughters of a business owner have to struggle to individuate from their parents. The founder of a successful business has employees, is often a community leader, a major contributor to charities, and has developed many important relationships in his industry. The children come along and are simply seen as "the children." When it is time for the second generation to take leadership roles, often the dynamics are so impossible, the company fails. In fact, the average life of a business in the US is 27 years. This means the odds are against the second generation'success.

In this case, the father/founder was willing to step back and let his sons lead. Even though the senior Mr. Pacorini continued to come into the office until the day he died, the sons were making key decisions long before their father passed away. Second, the times change so a business must adapt.

In the case of Medallion Funding Andy's grandfather could not have become a Special Small Business Investment Company qualifying for matching Federal funds to help minority businesses get started because this is a new program. Third, the founder has established a platform upon which the second generation can stand to see the "lay of the land."

Federico watched his father move goods from one point to another and realized there was an opportunity to keep the goods longer and perform some service for the owner. Had he not been in the trucking business first, Federico may have never seen his opportunity for SiloCaf. Fourth, the cash reserve from the originial business can fund the ideas of the second generation.

The founder may not have had the luxury, the vision or the energy to take the business in new directions. Having cash, or at least a banking relationship to borrow for a new venture, puts the second generation in a position of strength. On the other hand, the founder may be perfectly happy with the business and be to tired to lead the company in new directions.

And fifth, every person has their own strengths and their own interests. It is only natural for the second generation to be drawn to different ideas than was the founder of the business.

Key Idea #2

SiloCaf is a startup owned by a sixty year-old Italian company. The Pacorinis do not see SiloCaf as a division or additional location; they see it as a separate business from the others they own. They began in Italy in 1935 and today they have companies in England, Slovinia, Singapore and New Orleans.

Key Idea #3

SiloCaf of New Orleans had a customer before it opened the doors for business.

Topic for discussion: Do you think Federico Pacorini would have spent $20 million dollars to renovate the old grain silo, install the cleaning, sorting and blending machines, and purchase the technology needed to process millions of pounds of coffee in a week if he did not have a customer commited to hire his services?

Possible answers: No. His father might have done it, but, not Federico. Federico is a cool, calculating, think-ahead type of person. The risk of doing this without the customer would be too great in his mind. On the other hand, there is a successful SiloCaf of Trieste and that track record alone should be enough for a business person to want to duplicate that success in another location. Twenty-eight percent of the coffee coming into the US comes through the Port of New Orleans, so, this is a natural location. Keep in mind also that the Port of New Orleans was very helpful in expediting the SiloCaf plan. The old grain silo was going to be torn down. The port authorities were delighted to see a new business take over what had become an eyesore.

Key Idea #4

Start your business with a major vendor. SiloCaf's number one customer is Folgers.

Topic for discussion: Why would a billion dollar company need to hire SiloCaf to clean, sort and blend green coffee when they could surely do it themselves?

Possible answers: This is part of the growing trend called "outsourcing." Small businesses are more efficient than big business. Today the biggest companies are looking for ways to achieve their goals without the burden of every aspect of a business.

SiloCaf of Trieste developed the system we see in New Orleans today, so Folgers was able to evaluate the operation, then agree they wanted to do business with the Pacorini family in New Orleans. As Federico says, "Professionalism and creativity is in the head of one person, not necessarily in an army." Just because Folgers is much bigger than SiloCaf, doesn't mean they can do this particular part of the coffee business better than SiloCaf. By focusing on the cleaning, sorting, blending and sacking, SiloCaf has developed extraordinary efficiency. When the coffee beans arrive at Folgers they are simply roasted and sacked for the final shipping to stores.

Key Idea #5

The application of technology to an ancient business is the secret to the success of SiloCaf. People have been drinking coffee for hundreds of years. It is not a new idea like rollerblading. They don't have to wonder if coffee will "take off" as a consumer product because it is already established as a "must have" beverage in the minds of millions around the world.

Topic for discussion: If the Pacorinis don't have to think about convincing people to drink coffee, what is their primary marketing challenge?

Possible answers: Since coffee is ordinary and part of so many people's lives, it is considered a commodity. This means the business will be price driven. When a new product hits the marketplace, the inventors have a slight edge and can charge what they want to charge. As others manufacture the product, the prices go down.

You have seen this with calculators, computers, portable phones, fax machines, and video equipment. By applying the newest technology to every aspect of the cleaning, sorting, blending and bagging of coffee, SiloCaf can be price driven. It has developed a superior processing system which makes them a fierce competitor when it comes to price, quality and dependability.

Topic for discussion: What was the percentage of gross revenue used for technology investments in the startup of SiloCaf of New Orleans?

Answer: Just 2%. $20M is much more than the cost of a lease for 15 PCs on an AS/400 LAN. They are a leader in the development of what is called a SmartBuilding. Every aspect of their processing is computer regulated, measured, and accounted. 10 million pounds per week go into 230 bins, over 100,000 pounds per hour per line. Blends have as many as 24 ingredients. $60M in inventory is turned over every week.

Can this Smart-building technology be applied to other kinds of businesses? How?

Federico says, "This country is business friendly and we find it much easier to make profits here than in Italy. In Italy there are so many laws, some dating back to the Romans, nobody knows how to follow them."

Jim Schell answers the question: What is different about starting a business today from when you started in business 30 years ago?

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