Profile: Starbucks
T
Heart
& soul
here’s a “No U-Turn” sign on the
windowsill of Howard Schultz’s
office. A little battered, it stands out
among the coffee memorabilia and
family pictures. It arrived at Starbucks’ Seattle headquarters,
Schultz explains, when he returned as CEO in January 2008
— a gift from his friend Richard Tait, creator of the board
game Cranium. When asked what it means, Schultz smiles
and says: “There’s no going back.”
Schultz’s return after an eight-year hiatus was a bold move
prompted, he asserts, by an emotional attachment to the
company he had built from a small chain of Seattle coffee
retailers into a global empire of 16,000 stores. In 2008,
national economies stood on the brink of collapse and
there were huge internal problems within the company.
As he explains in his recent book, Onward: How Starbucks
Fought for Its Life without Losing Its Soul, “I could not be
a bystander as Starbucks slipped toward mediocrity.”
The company had been expanding at great speed and
attention to detail was slipping. “We were,” he admits,
With Starbucks, Howard Schultz convinced
millions of consumers that they needed coffee
and a place to hang out. In 2008, he returned to
the helm of the struggling company to remind
us why we fell in love with the brand
words Roshan McArthur_ photography John Keatley/Redux
Exceptional July–December 2011
5
Profile: Starbucks
Starbucks has gone
from one store in
Seattle to 17,000 in
more than 50 countries
“There isn’t anything I would
not do to enhance and preserve
this company”
“measuring and rewarding the wrong thing for a number
of years, which was speed of service transactions and not
quality.” As a result, sales fell fast, along with the stock price.
“The world did not know how bad it was,” he now says.
The process of saving Starbucks required Schultz to
use one of his greatest assets: his tendency to speak
from the heart. “As men,” he suggests, “we are somehow
imprinted or conditioned to be strong, aggressive, macho
and not emotional. And I think that, in a crisis, whether the
cataclysmic financial crisis or a crisis of our own making,
the most important thing to be is authentic.” So, against
the advice of many colleagues, he spoke frankly to his
employees. In an emotional speech to almost 10,000 store
managers and company leaders in New Orleans at the height
of the economic crisis in October 2008, he talked about love.
“It’s not a word you would expect, either from a man or in
the context of a business environment,” he explains. “I said,
I’ve been asked why I came back as CEO. I came back because
of love, how much I love the company, how deeply I feel about
the responsibility we have to the 200,000 people and their
families who are relying on us as leaders. There isn’t anything
I would not do to enhance and preserve this company. Other
than my family, there is nothing I love more than Starbucks.
“I think it is incumbent upon leaders,” he continues, “to
understand that the responsibility and burden of proof is on
themselves to create trust, sensibility, a sense of purpose
and a shared commitment. I don’t think that 20 years ago I
would have had the self-awareness, or the sense of myself,
to be able to unveil that because I was too insecure.”
This was a situation that called for discipline and process —
as well as perspective. “Growth and success have a tendency
to cover up mistakes,” he explains, “and most entrepreneurs
are always looking forward and never in the rearview mirror.
You never go back and look at what you did wrong, because
there’s so much opportunity and the wind is at your back.
That’s a great time in a company, but it’s not sustainable.”
decisions, such as closing every store in the
US for retraining one evening in February
2008. But it also meant sitting in long
meetings, going through the operational
side of the business with a fine-toothed
comb and asking painful questions. It
meant making tough decisions, closing
stores and losing employees, including replacing the majority
of his top executives. “The key issue,” he says, “was finding
people with like-minded values.”
Ultimately, he believes the main reason for the turnaround
in Starbucks’ fortunes was the resiliency of values in the
Back in charge
It is also unusual for someone who
grew a business from its earliest days
to go on to manage his or her company
through all phases of its evolution,
especially in a turnaround situation.
Creating a brand demands one skill set,
but returning to right a wayward ship
is something founders are not known
for. Yet, there have been exceptions,
such as Steve Jobs of Apple and
businessman Charles Schwab.
For Schultz, returning to lead the
company meant using his ingenuity
as an entrepreneur to make maverick
Forty years of Starbucks
Starbucks opens
its first store in
Seattle’s Pike
Place Market
Schultz convinces Starbucks’ founders to
test the coffeehouse concept in downtown
Seattle and the first Starbucks Caffè
Latte is served
Il Giomale acquires Starbucks’
assets and changes its name
to Starbucks Corporation
1971 1982 1984 1985 1987
Howard Schultz joins Starbucks as
director of retail operations and
marketing. Starbucks begins providing
coffee to fine restaurants and espresso bars
Schultz founds Il Giomale, offering
brewed coffee and espresso beverages
made from Starbucks coffee beans
Starbucks is the first privately owned US
company to offer a stock option program
that includes part-time employees
Establishes the Starbucks
Foundation, benefiting local
literacy programs
Acquires Seattle
Coffee Company
1991 1995 1997 1999 2003
Total stores
116
Begins serving Frappuccino
and Starbucks ice cream
Partners with Conservation
International to promote sustainable
coffee-growing practices
Total stores
7,225
Total stores
677
6
Exceptional July–December 2011
7
Profile: Starbucks
“This circle of doing the right
thing for your people and your
customers will ultimately
produce more profit”
Starbucks’ new
logo, which it
has unveiled
for its 40th
anniversary
company and its guiding principles.
“We had always intended to create a
balance between profitability and social
conscience,” he says, “and underneath
that I recognized, especially in the past
couple of years, that success is best when it’s shared.”
These are issues Schultz is passionate about, resulting,
at least in part, from an upbringing in which his parents
taught him “what it means to do the right thing.” Onward
is loaded with references to community, humanity, social
consciousness, responsibility and personal connection, as
well as respect, loyalty, trust and honesty. Community, in
fact, is what he sees as Starbucks’ backbone.
“In terms of our society and the way technology has
evolved, I think there is a growing appetite for human
connection,” he explains.
“I think we’ve been able
to provide the physical
environment and bring
people together.”
Traveling the world over
to visit his stores, Schultz
says: “The Starbucks
experience is as relevant
in Kuwait as it is in Seattle
or Dallas because,
universally, we all have this
desire for human contact.”
This sense of community
Opens first Farmer
Support Center in
San Jose, Costa Rica
also means that he must share his success with his people,
all of whom are called “partners.” In spite of calls from at
least one investor to cut employees’ health care benefits,
he flatly refuses. “The essence and fabric of the company is
linked to those benefits,” he told us. “We would completely
fracture every aspect of the culture we have, which is the
only competitive edge we have.”
More to be done
Financially measured, Schultz has been as successful as a
turnaround CEO as he was as the architect of the Starbucks
phenomenon. But he is quick to say there’s still much to be
done. “We’re as good as we’ve ever been,” he says, “but not
as good as we need to be. There’s no victory lap, there’s no
celebration. If there’s anything we’ve learned from the past
few years, it’s that the hubris and the feeling of invincibility
was a virus at Starbucks. We can’t allow that to ever enter
the building, enter the halls, enter the fabric of the company.
“I’m not good at celebrating anyway,” he adds.
According to Schultz, a seismic change is under way in
the business world, brought about by three factors: the
economic downturn, the development of social and visual
media, and an increased consumer interest in business
ethics. With a massive decline in government spending on
Launches Starbucks VIA Ready Brew Coffee.
Opens East Africa Farmer Support Center
in Kigali, Rwanda
2004 2006 2009 2010
Launches the first paper beverage cup
containing post-consumer recycled fiber,
saving more than 75,000 trees each year
8
Free unlimited Wi-Fi via Starbucks
Digital Network in US stores
Viewpoint
social services, he believes that companies
like Starbucks have to lead the way in terms
of social responsibility, finding unique ways
to provide safety nets in their communities
when governments can no longer afford to.
“There are certain constituents who don’t
like to hear that,” explains Schultz, “because
it could mean less profit for them. But this
circle of doing the right thing for your people
and your customers will ultimately produce
more profit. But you have to believe it and
you have to sustain it.
“We’re not a perfect company,” he adds.
“We can’t do all the things we want to do.
We’re going to make some mistakes. But
the lens through which we’re trying to make
decisions and manage the company is the
lens of humanity, and trying to do the right
thing. We’re willing to take the shots if that’s
the price of admission.”
Tribal knowledge
Being the leader of a public company
has lonely moments, says Howard
Schultz. “You are constantly creating
a road map, a vision, an aspirational
path for people, and there are moments
when you also need to talk to someone
yourself, but there are not a lot of
people you can talk to.”
When he does need to talk, he
calls on organizational consultant
Warren Bennis, a friend and mentor
for 30 years, as well as a small group
of entrepreneurs, including computer
magnate Michael Dell, fellow Seattleite
Jim Sinegal of Costco and Les Wexner
of Limited Brands.
“We’re all in the same position, as
entrepreneurs who built companies
from the ground up,” he says. “We each
have a much different level of personal
commitment and emotional connection
to the enterprise than a hired CEO. It’s
tribal knowledge of what it takes to go
down the road less traveled.”
The making of
an entrepreneur
Bryan Pearce, Americas Director, Entrepreneur Of The Year,
Ernst & Young Boston
Entrepreneurs come in many forms.
There’s the accidental entrepreneur
who stumbles upon a great idea, the
intrapreneur who creates his or her
own company from within a larger
one, and the classic founder, an
innovator who finds a whole new way
of doing business.
But what makes a great
entrepreneur? Perhaps the most
significant quality is the ability
to radically transform a business
model or an industry. Successful
entrepreneurs have great vision and
a passion for creation, a focus that
extends well beyond making money.
They also recognize that plans often
change from their original concept.
They know that the world isn’t static
and they adapt as customer needs and
the competitive environment change.
Innovation is
synonymous with
staying power
Entrepreneurs with “staying
power” have the humility to recognize
that, no matter how impressive their
own skill sets, they need people who
can complement those skills. Smart
entrepreneurs are not afraid to hire
people who are more skilled in certain
areas in order to strengthen the
overall company.
A good understanding of finance is
vital. Successful entrepreneurs know
that finding the right sources and
capital structure for each stage of
the business is critical, as is having a
realistic view of how long it will take
to hit a milestone. Often, a technically
savvy or sales-driven entrepreneur
will benefit from a professional CFO
who can help assess what could go
wrong and ensure that the capital
requirements of the company are
well planned.
Just as every person does not
have all the expertise that a company
needs, few companies have the
complete range of skills they need
to be successful. As a result, forging
partnerships, or even acquiring other
businesses, may be necessary to
realize the entrepreneur’s vision
and strategy.
While every decade brings a new
set of challenges to entrepreneurs,
two stand out today. One is the power
of globalization and the associated
demographic changes, such as the
growth of Asia Pacific or the global
middle class. The second is the way in
which social media is affecting “social
commerce.” Good and bad customer
experiences are now shared instantly.
Successful entrepreneurs know how
to leverage these phenomena to help
build enviable customer relationships.
Most importantly, leading
entrepreneurs know there is no
“finish line,” even when they’ve
reached what appears to be the
pinnacle of their markets. Innovation
and reinvention, fueled by customer
insight, are synonymous with
staying power.
More information
For more on our research into the DNA of an entrepreneur, see page 18. For
a copy of this new report, email victoria.howell-richardson@uk.ey.com. To learn
more about any of the Entrepreneur Of The Year programs in the Americas,
please contact Bryan Pearce, Americas Director, Entrepreneur Of The Year, at
bryan.pearce@ey.com. To find an EOY program near you, visit ey.com/eoy
Exceptional July–December 2011
9