Tully’s Get’s a Lifeline, Death Sentence

Tully’s Coffee, a regional (Western USA) chain of coffeeshops based in Seattle, is a failure. Its CEO, Tom O’Keefe, has always pursued growth when he should’ve been pursuing profitability. Tullys’ has been unprofitable (operationally) every year since it was founded in 1992. Its retail expansion has been fueled by debt, which has often been provided by business partners — partnerships that eventually failed.

Recently, O’Keefe has pushed a deal to sell Tully’s only profitable operation, its wholesale coffee arm, for some $40 million in order to pay off their old business partner in Tully’s Asia, Mr. Ueshima, and give Tully’s extra cash to revitalize its retail business. If the deal doesn’t go through, O’Keefe says, Tully’s will go out of business, and investors will be left with nothing. Shareholders have voted, and, unsurprisingly, have gone along with Mr. O’Keefe’s plan to sell the wholesale business. They’ve robbed Peter (or rather, themselves) to pay Paul.

Though the deal benefits Tully’s cash position, it does nothing about the company’s real problem: its leader.

Tom O’Keefe has done anything in his power to maintain control over Tully’s. His leadership ensures that Tully’s will continue to throw away money toward growth in the future, and fail to pursue profitability today.

Tully’s is inevitably going to fail.

The only possibility the business had of continuing as a going concern was to reorganize in bankruptcy court. Bondholders would’ve come out the other side of reorganization as equity holders, leaving Mr. O’Keefe high and dry. Those bondholders could hire a new management team that would institutionalize profitability via cost-savings. A local employer would stay in business. Instead, power been consolidated by the dreamer, the man who couldn’t find sustainability if it was tattooed to his forehead.

Tully’s Coffee shareholders approve sale of wholesale business – Seattle Times