MAY 2011 ENTREPRENEUR OF THE MONTH
How did Starbucks fight for its life without losing its soul? Howard Schultz shows us the way.
By Hope Katz Gibbs
Undoubtedly, Starbucks is one of the great 21st century American success stories.
The specialty coffee retailer has grown from a single store in Seattle in 1971 to 17,009 stores in 54 countries, as of January 2011.
Last month, it officially became the third-largest U.S. restaurant chain, according to industry tracker Technomic Inc., with more sales than Burger King Holdings Inc., but less than Subway, thanks to a 20 percent increase in second-quarter profits.
More than 60 million customers, called “guests” by Starbucks, sipped its coffee last year. They were served by 200,000 employees, aka: “partners,” who are referred to by their first names. Schultz, in fact, is known internally as Howard, and like all execs in the firm, his title is not capitalized. He is, modestly, the ceo.
That simple, but powerful, wordplay is part of Howard Schultz’s approach to building a coffee empire that exploded by serving up a great cup of joe, and sticking to its core philosophy.
Given that, it’s not surprising that Schultz’s 2011 book, “Onward: How Starbucks Fought for Its Life Without Losing Its Soul,” is such a forthright account. It not only details the experiences of his youth that laid the foundation for the company he has built, it provides case studies and details of meetings and conversations, making it a primer for how to do business with heart and conscience.
While some critics may say that Schultz’s 331-page tome is just another brilliant marketing strategy from the firm known for its advertising and PR finesse, it is also a revealing look at the philosophy behind the man, and his brand.
Spilling the Beans
As part of a nationwide book tour, Schultz stopped in DC on March 31 to address a packed ballroom at the Capital Hilton that was filled with members and guests of the Greater Washington Board of Trade. [Click here to view Schultz’s interview with Jim Dinegar, president of that group, on C-SPAN.]
In their 90-minute conversation, Schultz discussed management changes, customer feedback, Wall Street’s influence on how the company reports its financials and the impact of that system and why the new logo change is a precursor to Starbucks’ expanding market presence. Schultz also talked about the not-so-distant past, when Starbucks’ once-golden brand was showing signs of distress.
Consider these headlines:
January 31, 2008, USA Today Starbucks takes action as sales cool. “After decades of eye-popping growth, Starbucks suddenly finds itself contemplating something once viewed as unthinkable: cutbacks,” wrote reporter Bruce Horovitz. “As rattled off by recently returned CEO Howard Schultz in a conference call with analysts late Wednesday, the cuts will be many.”
July 4, 2008, New York Times Poor real estate decisions, not bad coffee, hurt Starbucks. “Starbucks wants to get back to its roots to help turn around its ailing fortunes,” said reporter Brad Stone. “It brought back the pioneering chief executive Howard Schultz to run the coffee chain day to day, and it has introduced a new blend, Pike Place Roast, that harks back to the location of its first Seattle store. Yet for all the new marketing efforts, Starbucks’s biggest mistakes and greatest challenges boil down to three words: location, location, and location.”
January 28, 2009, The Guardian Starbucks shuts 300 more stores. “Thousands of baristas are to lose their jobs as Starbucks shuts stores to cope with dwindling sales of lattes, cappuccinos, and frappuccinos as cash-strapped consumers lose their thirst for coffee,” explained New York correspondent Andrew Clark. “The Seattle-based chain tonight revealed a 70% slump in quarterly profits to $64.3m and announced that it intends to shed 6,700 employees this year. It is closing 300 stores, two thirds of which will be in the US, on top of 660 shutdowns last year.”
January 29, 2009, NPR More Bad News Brewing At Starbucks. “Coffee giant Starbucks says it is closing 200 more U.S. stores and 100 abroad,” wrote reporter Wendy Kaufman. “Nearly 7,000 employees may lose their jobs in a new round of store closures and cost cutting. With quarterly profits down sharply and the economy getting weaker, Starbucks hopes to slash its costs by $500 million.”
Working With Soul
By 2010, with Schultz back at the helm, Starbucks began to turn around. As he explains in “Onward,” it is because the company returned to its core values: respect, dignity, passion, laughter, compassion, community, and authenticity. “These are Starbucks touchstones, the source of our pride,” he insists.
The key to the first Starbucks store in Pike Place Market is also a touchstone for Schultz. Literally. He began working there on Sept. 7, 1982, and still keeps the store’s key on his keychain.
“As a business leader, my quest has never been just about winning or making money; it has also been about building a great, enduring company, which has always meant trying to strike a balance between profit and social conscience,” he insists. “No business can do well for its shareholders without first doing well by all the people its business touches. For us, that means doing our best to treat everyone with respect and dignity, from coffee farmers and baristas to customers and neighbors.
“I understand that striving to achieve profitability without sacrificing humanity sounds lofty. But I have always refused to abandon that purpose—even when Starbucks and I lost our way.”
The Man Behind the Brand
Schultz grew up in the projects of Brooklyn. His father didn’t have health insurance, and after slipping on the ice and breaking his hip, lost his job as a bus driver. Schultz was 7 at the time and explains that this was one of the many experiences that inspired him to build a company with compassion for its employees. After paying his way through college, he and his wife Sheri moved to Seattle, where Schultz had taken a job as the marketing chief of the then-small coffee company, Starbucks.
“I spent my first weeks working at the Pike Place store, learning all about coffee, scooping fresh beans for customers, and sealing them in small bags,” he writes, noting that it was on a business trip to Italy that he discovered his true passion. “As I visited small espresso bars throughout Milan and Verona, I was taken by the power that savoring a simple cup of coffee can have to connect people and create community among them, and from that moment on I was determined to bring world-class coffee and the romance of Italian espresso bars to the U.S. It was an experience I fervently believed could enrich people’s lives.”
So he left Starbucks to create his own company, Il Giornale, which started with a shop in Seattle and another over the border in Vancouver, B.C. In 1987, with the help of investors, he had the opportunity to buy Starbucks’ six stores and roasting plant. By 1988, The Starbucks Company had 11 stores, 100 employees, and Schultz was on his way to creating a national brand.
With the Sweet Comes the Bitter
By 2000, he not only had established the brand, he had defined the company’s values by offering part-time workers comprehensive healthcare coverage and equity in the form of stock options. Having accomplished his goals, he stepped down as CEO and became chairman to focus on global strategy and expansion.
“In the years that followed, we accelerated our store growth, and our stock prices soared as our sales and profits increased quarter after quarter,” he says. “Until the quarter it didn’t.”
Schultz never points a finger at the successors or any single bad decision. Rather, he says the problems were incremental, “like a single loose thread that unravels a sweater inch by inch.” And on top of the internal issues, there were other factors: the worldwide financial crisis, a shift in consumer behavior, and an onslaught of competitors.
“As chairman, I held myself responsible for the problems we ourselves had created,” he shares. “And although I did not know exactly how to address the variety of external pressures bearing down on us, I knew that, without daily control of the business, I was essentially powerless to stop Starbucks from sinking.”
A Shot of Inspiration
In “Onward,” Shultz shares the details of what happened upon his return. In chapter 1, he shares insights from the Tuesday afternoon in February 2008 when he closed all 7,100 U.S. Starbucks stores for three hours. The goal was to retrain 135,000 baristas to pour the perfect shot of espresso.
“Pouring espresso is an art, one that requires the barista to care about the quality of the beverage,” he explains in chapter 1 of his book. “If the barista only goes through the motions, if he or she does not care and produces an inferior espresso that is too weak or too bitter, then Starbucks has lost the essence of what we set out to do 40 years ago: inspire the human spirit.
“I realize this is a lofty mission for a cup of coffee, but this is what merchants do. We take the ordinary—a shoe, a knife—and give it new life, believing that what we create has the potential to touch others’ lives because it touched ours.” Click here to read more.