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Howard Schultz

Starbucks' First Mate
October 10, 2008
URL: http://www.entrepreneur.com/article/197692

Howard Schultz
Chairman & CEO of Starbucks Corp.
Founded: 1971

"I always wanted to do something to make a difference."-Howard Schultz



Everyone knows Starbucks, the ubiquitous retail chain that, in the 1990s, turned coffee drinking into a national pastime. But few know Howard Schultz, the self-effacing chairman, CEO and mastermind behind Starbucks' astonishing growth. By bringing Italy's "coffeehouse culture" to the United States and packaging it for mass consumption, this maverick marketer transformed a little-known four-store chain in the leading retailer of specialty coffee in North America.

Born in 1953, Schultz was raised in the rough and tumble Bay View housing project in Brooklyn, New York. His mother worked as a receptionist and his father held a variety of jobs, none of which paid much or offered such basic benefits as medical coverage for him and his family. When Schultz was 7, his father lost his job as a diaper-service delivery driver after breaking his ankle. At the time, sick pay or even legally mandated disability assistance were luxuries to those in low-paying jobs, and in the ensuing months, the family was literally too poor to put food on the table. It was a memory that Schultz would carry with him into adulthood.

Determined to build a better life for himself, Schultz channeled his energy into high school sports and earned an athletic scholarship to Northern Michigan University. After graduating with a bachelor's degree in business in 1975, Schultz immediately began working in the sales and marketing division of Xerox Corp. Schultz excelled at Xerox, so much so that he attracted the attention of the Swedish housewares company Perstorp AB, which recruited him at the age of 26 to be vice president and general manager of their American subsidiary, Hammerplast USA.

While at Hammerplast, Schultz noticed that a small Seattle company named Starbucks (after the first mate in Hermann Melville's classic Moby Dick) was buying an unusually high number of Hammerplast's espresso machines. Intrigued, he flew to Seattle to investigate and found four Starbucks outlets. Originally founded in 1971 as a single store near Seattle's famed Pike Street Market, Starbucks sold freshly roasted gourmet coffee beans as well as teas, spices and various coffee-making accessories.

Impressed by Schultz's energy and marketing skills, Starbucks owners Gerald Baldwin and Gordon Bowker-who possessed very little business knowledge-asked Schultz to become part of their operation. Enticed by their offer, which included part ownership, Schultz joined Starbucks as head of its marketing and retail operations in 1982.

A year later, during a vacation in Italy, Schultz had what he has described as an "epiphany." While sitting at one of Milan's many espresso bars, he realized that the coffee shop played an integral role in the social life of most Italians. It was a focal point for the neighborhood, where friends met, mingled and lingered at all hours of the day. "Seeing this, I thought to myself, 'Why not open a coffee bar in Seattle?' " Schultz recalls in an interview in The New York Times.

Returning to Seattle, Schultz shared his epiphany with his fellow Starbucks owners. Although coffee was brewed in the shops, it was done so only at the request of customers and dispensed as free samples, and Baldwin and Bowker were unwilling to move beyond the stores' core product offerings.

Convinced he had hit upon something big, Schultz left Starbucks in 1986 to open his own espresso bar called Il Giornale (The Daily). The venture was a hit. Schultz wanted to open more shops, but didn't have the funding he needed to expand. In a quirky twist of fate, a year later he learned that Baldwin and Bowker wished to sell their outlets, so after rounding up investors from the Seattle area, Schultz purchased the original Starbucks chain for $3.8 million and merged the stores with his own.

Once in charge, Schultz set out to completely overhaul Starbucks according to his vision. In addition to the $1-per-cup "basic" brew, he expanded Starbucks' offerings to include more exotic coffee beverages such as espresso, cappuccino, café latte, iced coffee and café mocha. He also sought to create a more appealing atmosphere for his customers-the proverbial "clean, well-lighted place" where they could relax and enjoy their coffee in comfort.

But the most radical change Schultz made was to improve the way his company dealt with its employees. Convinced that friendly, efficient service would boost sales, he instituted a training program designed to groom knowledgeable employees who would enjoy working behind a counter, an occupation considered by many to be menial labor. "Service is a lost art in America.it's not viewed as a professional job to work behind a counter," Schultz says. "We don't believe that. We want to provide our people with dignity and self-esteem, so we offer tangible benefits." Among the benefits Schultz offers is complete health-care coverage to both full- and part-time employees, as well as stock options, practices that are virtually unheard of in corporate America. As a result of Schultz's vision, Starbucks experienced unprecedented growth throughout the 1990s, blossoming from 425 stores in 1994 to more than 2,200 stores in 1998. And the company is on target to break the $2 billion in the year 2000.

With annual sales topping $1.7 billion in 1999, Starbucks Corp. reigned as the nation's No. 1 specialty coffee retailer. Quite an impressive achievement for a blue-collar kid from the projects. But despite Starbucks' phenomenal success, what Howard Schultz seems most proud of is not how much he has earned, but the kind of company he has created. "My dad was a blue-collar worker," Schultz explains in an Inc. magazine interview. "He didn't have health insurance or benefits, and I saw firsthand the debilitating effect that had on him and on our family. I decided if I was ever in the position to make a contribution to others in that way, I would. My greatest success has been that I got to build the kind of company my father never got to work for."



The Benefit Of Benefits
Howard Schultz credits Starbucks Corp.'s benefits policy as one of the keys to his company's dramatic growth. By extending health benefits to all employees, Schultz has created a more dedicated work force and promoted an extremely high level of customer service. He has also achieved a turnover rate that is less than half the average of other fast-food businesses, saving the company countless thousands in training costs and enhancing its ability to attract and retain good employees.

Another benefit that makes Starbucks stand out from its competitors is its stock-option plan. Dubbed "bean stock," unlike most plans, which are only available to top executives, Starbucks gives stock options to everyone in the company. "My aim was to give our employees a vested interest in the company," Schultz says. "And that, I think, has made all the difference."


Cartoons And Coffee
One of the true "good guys" of the business world, Howard Schultz's philanthropic endeavors have extended beyond just helping his employees have better lives. One of his major philanthropic concerns has been helping to improve literacy in America. To this end, in 1998, Starbucks formed an unprecedented partnership with Pulitzer Prize-winning cartoonist Garry Trudeau to create products to benefit local literacy programs across America. The collection marked the first time that a series of licensed Doonesbury products had been sold in retail stores. The series featured such Doonesbury characters as Duke, Mike, Kim and Zonker on T-shirts, tumblers, ceramic mugs, coffee gift cards and limited-edition lithographs.