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THE STORY OF STARBUCKS GROWTH

Howard Schultz rescued Starbucks from the brink of disaster during the 2007-2008 financial crisis. As Starbucks endured unprecedented upheaval, he was able to maintain the company’s core values while introducing some changes that would lead to ultimate triumph. Finding and eliminating inefficiencies in the supply chain was the most straightforward improvement that allowed for Starbucks’ turnaround. Management listened to internal feedback, as well as initiating a way for customers to suggest ideas directly to Starbucks. Introducing new machines and upgrading technology were other improvements that helped Starbucks return to prior levels of success. Values were always preserved through all the changes.

LEARN FROM THE STARBUCKS FOUNDER

• Staying true to your company’s value and culture can pay rich dividends
• Wading through unprecedented times can result in success, if one believes in oneself as well as the company
• Intangibles like partner happiness are just as important as tangibles like supply chain management to the bottom line
• Eliminating supply chain inefficiencies is crucial to success at all times, but especially during times of economic crisis
• It is important to listen to both internal and external suggestions for improvement
• Only introduce a new product if it meets the customers’ needs and aligns with their values

Onward Book Summary

The book Onward, published in 2011, delivers insights into how an entrepreneur saved a company from continued decline. Prior to the financial crisis Starbucks had been enjoying exponential growth but at the cost of increasing inefficiency, separation from the company’s core values and poor real estate choices. When Schultz retired, he thought he was leaving a company with what the book Good to Great calls great DNA for long-term success. Through a storm of critical media coverage and doubts from stockholders, Schultz was able to reinvigorate this iconic company. This book is his story of the difficult decisions he had to make in order to save the company’s brand reputation and economic viability.

Some of the most important decisions Schultz made were the ones that left values unchanged. While Schultz was unrelenting in demanding employee engagement -- he describes requiring a member of his management team to work while the team member’s wife was in labor -- he also worked hard to give back to his employees, even during the financial crisis. An example in Onward, eliminating part-time health benefits was one cost-saving measure that was unconscionable to Shultz during the financial crisis. As business experts constantly explain, like in the book The Workplace Engagement Solution, achieving high employee engagement is critical to business success. Making employee engagement a top priority upon his return to Starbucks was good decision-making.

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Onward chronicles Schultz’s journey as he discovers what to change, what to keep the same and how to change his leadership style to adapt to strange circumstances to keep Starbucks afloat. This was a triumphant return. Schultz was Chairman and CEO of Starbucks from 1986-2000 and returned in 2008 as the company’s leader once again as the company floundered. It is a common occurrence and the premise of the book Built to Sell. Entrepreneurs successfully lead a company, leave or retire and the business declines at some stage. So the entrepreneur returns to save the company. Not every returning CEO can successfully refocus a company, but Schultz was able to remain true to the values that he had instilled the first time he ran the company, as well as working tirelessly to improve the company that he built.

Schultz begins Onward as he makes the decision to return as CEO after serving as Chairman of the Board. The company was not thriving in a world of chaos and was becoming fragile instead of what is described in the book Antifragile - able to withstand unmanageable external stressors. Focusing on the steps he took to rejuvenate the declining business, Schultz describes what he learned along the way. Shortly before the financial crisis, exclusive focus on exponential growth had caused Starbucks to lose its direction and stray from its core values. Some new ideas were triumphant successes while others led to abject failures.

The obvious improvements are the tangible changes like equipment upgrades, adopting a lean supply chain, introducing new products and making menu changes. Some of these worked, some did not. Both the espresso machine and drip coffee brewer were machines that Schultz discussed upgrading. Some advantages to these upgrades were that decreased machine size meant increased eye contact and interaction between baristas and customers. Another advantage was better tasting coffee beverages that were easier to make. Schultz felt these benefits outweighed the cost of moving to smaller machines and employee training requirements. Like the importance of systemic discipline for what is absolutely essential explained in the book Essentialism, Schultz was addressing what he considered essential for success. They were large and small changes, but each was designed to help every employee and Starbucks partners do better. Each Starbucks location also received updated technology to replace outdated machines that no longer received software support.

Although Schultz admits to having doubts about lean supply chain management at first, its adoption reduced ingredient outages. In combination with the closing of poorly located stores, this meant that customers were able to purchase the products they wanted without having to worry about their favorite items being out of stock. Since Starbucks’ focus had shifted from growth to survival, fixing the supply chain inefficiencies was one of the most important internal improvements Schultz made.

Schultz explains that not all the new products introduced during this time were successful. An iced summer beverage, Pike Place Roast and instant coffee were developed and released under Schultz’ direction. The iced summer beverage was a failure due to higher than expected input costs and lower than expected demand. According to Schultz, this happens when new products are developed that do not resonate with the market’s needs. In this case, the beverage had too much sugar to be considered a healthful option. Other additions like Pike Place Roast and Via instant coffee were resounding successes because they met customers’ needs. Schultz displayed focused persistence, like described in the book GRIT, as he worked his way through what worked and what did not work.

Cutting items that were too far from Starbucks’ mission was another reason for the company’s turnaround. Breakfast sandwiches were removed from the menu, as they released an unpleasant smell that dominated the fresh-ground coffee scent. Because the smell of fresh-ground coffee is important to Starbucks’ core mission, this change represents many other small changes made at the time. The equipment upgrades also meant that coffee beans were ground before each cup was made, which contributed to the permeating fresh-ground coffee aroma. You can think of the coffee aroma as one of his leadership strategies demonstrating the details and insistence on quality in every way to achieve success on par with that discussed in the book Creating Magic.

Beyond the tangible changes, intangible changes were also the reason Starbucks was able to rebound. One of these intangible changes included listening to and implementing suggestions from both external and internal sources. The entire book Give Em’ the Pickle is about giving customers what they want, and that is obviously the same principle Schultz was operating on. Listen to your customers and then meet their needs. Another tactic he used was ensuring that a costly manager convocation in New Orleans not only took place, but also recharged every attendee.

Prior to Schultz’s second term as CEO of Starbucks, it was very difficult for ideas generated by customers or employees to gain traction. To hear ideas from customers, a new website was launched that allowed customers and Starbucks to directly interact. This website resulted in the Starbucks loyalty program, which has enjoyed tremendous success in the years since. To regain some entrepreneurial spirit, Schultz allowed store managers to begin making small changes to find best practices. Some of these included a new system of brewing coffee to reduce customer wait times and reorganizing the store room to increase restocking efficiency. In this case, the Law of Singularity, described in the book The 22 Immutable Laws of Marketing, did not apply. It says that only one move will produce substantial results, and Schultz made many moves. Receiving and implementing these suggestions from customers and front-line workers increased satisfaction from both parties as well as reducing waste and inefficiency.

Schultz explains that one of the reasons for Starbucks’ survival and triumph was due to his insistence the company hold fast to certain elements that align with the company’s values. One example was his refusal to compromise insurance coverage for part-time workers, even as Starbucks underwent two rounds of layoffs. Another was to continue paying a fair price to coffee farmers.

Retaining Starbucks’ ethical conscience was one of Schultz’s guiding principles. In the book Wooden on Leadership, the author spends most of the discussion on the importance of ethical leadership and building a team that adheres to its principles and values. Schultz deeply believed his company’s performance in the area of Corporate Social Responsibility was one of the most important intangible reasons that customers continued to choose Starbucks over other inexpensive options. Onward outlines how Starbucks works towards sustainability and ethically sourced products. Starbucks is recognized today as an early proponent of principles, like environmental sustainability and corporate social responsibility, that all companies are now expected to adopt as core values.

Onward covers the process used for weathering media scrutiny is covered in extensive detail, as every action Starbucks took was immediately deemed newsworthy. One lesson learned was that nothing is ever truly private, becoming apparent when a private memo was leaked to the media. Mostly, Schultz stood firm when he knew he was making the right decisions, and he recommends that same stance for other corporate leaders. However, receiving support from both inside and outside the company meant a great deal to him and bolstered his spirits. It takes a lot of courage to make changes others question, especially in the media which impacts brand reputation. Schultz followed the playbook described in the book Return on Courage by relentlessly playing offense, overcoming fears and driving a business transformation.

As the financial crisis worsened and companies began having significant problems, Onward chronicles Schultz ability to steer his iconic company onward. Of great importance is the distinct Starbucks culture that Schultz encouraged. According to Schultz, the most important principles for times of unprecedented financial uncertainty are endless entrepreneurial drive, ruthless culling of anything offered outside the company’s values and constant encouragement of employees. These principles are the very ones companies utilize today to succeed in an intensely competitive and complex business environment that can suddenly change with little warning.

About The Author Howard Schultz

For 22 years, Howard Schultz acted as CEO for one of the most iconic companies of the twentieth century: Starbucks. When he started working as the Starbucks Marketing Director in 1985, Starbucks consisted of only 11 stores. When he stepped down from active leadership in 2018, Starbucks consisted of 28,000 stores in 77 countries. Because of his leadership, Starbucks not only survived the 2007-2008 financial crisis, but achieved higher levels of success than a single coffee company has ever achieved.

Born in 1953 to parents who never completed high school, Schultz grew up in the Brooklyn projects. During his job as a delivery driver, Schultz’s father slipped on ice and broke his hip and ankle. Seven years old at the time, Schultz described the image of his father helpless with no health insurance, no job and no worker’s compensation as burned indelibly in his memory. Earning a Bachelor of Science in communication from Northern Michigan University in 1975, Schultz was the first member of his family to graduate college.

His first job after college was as an appliance salesman. He made up to 50 cold calls every day, and discovered a gift for sales. Half of each paycheck went back to help support his parents. This sales position led to another sales position, where one of the company’s clients was a coffee business named Starbucks. The same year, he met his wife, Sheri. Not long after, Schultz was selected as the director of marketing for Starbucks.

During his time at Starbucks, Schultz visited Italy on a business trip. This is when he discovered a passion for coffee shops and imagined an espresso experience so ubiquitous that every person living in the United States would be able to partake. After returning to the United States, he was able to open one espresso bar, but it ultimately did not align with the Starbucks vision at that time.

Schultz started his own coffee business named Il Giornale, which embodied his dream. In 1987, Il Giornale purchased Starbucks. From 1987 to 2000, Schultz led Starbucks’ explosive growth across both the United States and around the globe. In 2000, Schultz shifted to guiding long-term strategy as Chairman of the Board. He returned to serve as CEO for another 10 years, where he led the charge to adapt to new circumstances.

Schultz has authored several books, including the book Pour Your Heart Into It (1999) and the book From the Ground Up (2019). He co-authored the book It’s Not About Coffee (2009).

Now, as co-founder of the Schultz Family Foundation, he works to provide opportunities to youth and to veterans. For five years, he was the majority owner of the NBA Seattle SuperSonics. After announcing in 2019 that he would run for the presidency in the 2020 election, some medical issues led to his decision to hold off.

There are numerous YouTube videos in which Howard Schultz talks about entrepreneurship and business leadership. For example, he discussed the Starbucks comeback with the London Business Forum. He has Facebook, Instagram, Twitter and LinkedIn accounts.

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