Entrepreneurial Lessons From Howard Schultz and Starbucks: How To Tide Over Recession With Reinvigoration
Schultz epitomizes how entrepreneurs lead from the front, take difficult decisions, and transform an icon without losing its soul
Howard Schultz—the long-time CEO of Starbucks and the entrepreneur who turned around the company amidst the 2008 economic crisis—is a role model on how to invigorate growth. Remember, Starbucks is selling a commodity after all. The quintessential entrepreneur worked as a manager at Starbucks Coffee Company in the early 1980s and a visit to Italy introduced him to the ‘romance’ of coffee houses, which he brought back to his company ‘II Giognale’. In a turn of events, Schultz would buy his previous employer, Starbucks, and retain the brand name to turn it into one of the most recognizable ‘third place’ in the world. With revenues of over $24 billion and 28,000 stores, it is hard to imagine that the company once had a near-death experience during the last know recession. Perhaps, there is a lesson for us all on how to navigate this one.
Howard Schultz, who was the CEO of Starbucks between 1986 and 2000, and then again between 2008 and 2017, epitomizes how entrepreneurs lead from the front, take difficult decisions, and transform an icon without losing its soul. In this article, I identify three entrepreneurial lessons from Schultz and the Starbucks saga which are even more pertinent during the present times. These are amicable for first-time entrepreneurs, business leaders, and seasoned entrepreneurs, especially those concerned with building enduring institutions.
Customer centricity comes from employee centricity
While the notion of customer centricity, or as Jeff Bezos likes to put it ‘customer obsession’, is certainly valuable, but it cannot and should not come at the cost of your employees and partners. Right from the company’s inception, Schultz maintained the pecking order: partners, customers, and shareholders. Starbucks was one of the world’s first companies to offer both comprehensive healthcare coverage as well as equity in the form of stock options to part-time workers. Even under severe pressure of cost cutting, the leadership did not give up on such benefits extended to its partners.
One of the most remarkable episodes of employee centricity was when on February 26, 2008, Starbucks closed down its 7100 stores across the US to train its baristas and store managers on how to prepare a perfect espresso. Hanging outside those outlets were the boards stating, “We’re taking time to perfect our espresso. Great espresso requires practice. That’s why we’re dedicating ourselves to honing our craft.” During those three hours of shutdown, the company lost over $6 million, but to Schultz it was a signal to the customers, partners, competitors, and media that the company would not settle for anything but the best, and change starts right at home. How many companies do you know of would take such a radical step for employee training?
Do not be obsessed with growth
One of the key reasons for the downfall of Starbucks was its pursuit of relentless growth. During the decade 2000, all that mattered was adding more stores, across the US and around the world. The company even expanded into businesses such as entertainment and started selling unrelated merchandise at its stores. Certainly, this came at the price of customer satisfaction, partner engagement, and an ensuing dilution of the brand. Growth for the sake of numbers can be a dangerous pursuit, as shockingly experienced by Toyota when in the late 2000s the company recalled millions of faulty cars across the world. Issuing a public apology, Akio Toyoda, president of Toyota Motor Corporation, admitted, “We pursued growth over the speed at which we were able to develop our people and our organization.”
In the midst of the 2008 economic crisis, Schultz took the painful decision of closing down hundreds of stores and laying off thousands of employees to save the company for an imminent collapse. On the fallacy of being driven by numbers, Schultz shares, “Success is not sustainable if it’s defined by how big you become. Large numbers that once captivated me—40,000 stores!—are not what matters. The only number that matters is ‘one’. One cup. One customer. One partner. One experience at a time. We had to get back to what mattered most.”
While showing growth may up the valuation and the promise of further funding, be careful of fracturing your very foundation, your employee morale, and customer orientation.
Stick to the core values
When Schultz narrated his experience of the turnaround at Starbucks, he aptly titled his memoir as Onward, but, more importantly, the by-line read: “How Starbucks fought for its life without losing its soul.” It is relatively easy to reboot a company, but much more difficult is to retain the core and innovate around it. Starbucks always prided itself on its practices around ethical sourcing of premium coffee, fair trade, partner engagement, community support, diversity, and environmental stewardship. For instance, the company never used a single pound of robusta coffee and always went with the finest arabica beans. Only 3 per cent of the world’s highest quality arabica beans would make it to a Starbucks coffee. Further, to preserve the coffee aroma, the company does not allow smoking at its stores and asks its partners to not wear perfumes or cologne. As Schultz likes to put it, “Starbucks is not a coffee company that serves people. It is a ‘people’ company that serves ‘coffee’.”
During difficult times, the leadership was under immense pressure to compromise on several of those dimensions, but Schultz and his lieutenant stood the ground and remained true to the company’s foundations. The company did innovate. It launched an idea submission platform: MyStarbucksIdeas.com; designed an instant coffee: VIA; introduced a custom-designed espresso machine: Mastrena; created it's a signature approachable blend: Pike Place Roast; reinvigorated the Loyalty Program; leveraged Digital Ventures, and adopted Lean across its stores. But all this was done while keeping the core intact. Innovation is best done “around” the core, and that is the Yin-Yang of change.
The following statement from Schultz beautifully captures the essence of entrepreneurship, especially in tough times.
“Grow with discipline. Balance intuition with rigor. Innovate around the core. Don’t embrace the status quo. Find new ways to see. Never expect a silver bullet. Get your hands dirty. Listen with empathy and overcommunicate with transparency. Tell your story, refuse to let others define you. Use authentic experiences to inspire. Stick to your values, they are your foundation. Hold people accountable but give them the tools to succeed. Make the tough choices; it’s how you execute that counts. Be decisive in times of crisis. Be nimble. Find the truth in trials and lessons in mistakes. Be responsible for what you see, hear, and do. Believe.”
Starbuck's story offers useful insights on entrepreneurship, change, and culture.
Dr. Pavan Soni is an Innovation Evangelist by profession and a teacher by passion. He is the founder of Inflexion Point, a strategy and innovation consulting. Apart from being an Adjunct Faculty at IIM Bangalore, Pavan has consulted with leading organizations on innovation and creativity, including 3M, Amazon, BCG, Deloitte, Flipkart, Honeywell, and Samsung, amongst others. Pavan was the only Indian to be shortlisted for the prestigious 'FT & McKinsey Bracken Bower Award for the Best Business Book of the Year 2016'.
He is a Gold Medalist from MBM Engineering College Jodhpur, and did his PGDIE from NITIE Mumbai. Pavan finished his Doctoral Studies from IIM Bangalore in the domain of innovation management.