Smell the Coffee
Tuesday 10 May 2011
Smell the Coffee: Starbucks' CEO talks business
Odeon Leicester Square, London
Before a 500 strong audience at the ODEON Leicester Square – the place of premieres – Starbucks ceo Howard Schultz spoke to the London Business Forum in a rare UK appearance.
In a revealing interview with London Business Forum (LBF) founder Brendan Barns, it quickly became clear that Starbucks remains a very personal project for Schultz. This is why in 2008, eight years after he had stepped down as ceo to become chairman, Schultz took to the helm once more to ensure that his original vision endures.
Schultz was concerned that the company he had built from 11 stores to thousands had lost the traits that made it great at its inception. Starbucks was inspired by a business trip to Milan where Schultz was enraptured by the Italian caffe culture, “[by the] romance of the beverage but most importantly the sense of community” that it created.
In 2000, it seemed that Schultz’s dream had been realised. When he stepped down as ceo, Schultz told Barns, he took the decision because “everything we touched […] just seemed to turn to gold.” He realised later that Starbucks’ rapid expansion was covering up mistakes, “we were never that good […] I began to sense that we were measuring and rewarding the wrong things.”
When the financial crisis hit, those things that Schultz was concerned about began to surface and threaten the company’s very survival. When they were making mistakes, said Schultz, the company was being managed “from a very lofty place.” Defining the company by its size and stock price meant that they had lost sight of what was important and were failing to create that vital “enduring emotional connection” with their customers. Every customer, Schultz explained, only sees a small part of the whole: “one store, one Starbucks partner and hopefully one extraordinary cup of coffee.”
It was for this reason that on 26th February 2008, 7,100 Starbucks stores in the US were closed in order to retrain every barista in the art of making the perfect espresso. It was an unprecedented act and a very public admission that all was not well in the coffee chain. It was however, “the beginning of transforming the company,” Schultz told the LBF.
The way in which every partner behaves, explained Schultz, defines the customer experience. Consequently, it is essential that partners share their ceo’s love of coffee and the company. “When I meet people who are working for Starbucks who tell me that they love the company but that they don’t drink coffee, I just want to kill myself – how did this person get hired?”
Schultz strongly believes that attracting the right people to work for Starbucks is central to their success. He wants the partners to have the same level of commitment as he does to the company and, he believes, the company has to be built on a greater purpose than profit generation: “ You can’t attract and retain great people if that’s all your in business to do.” Businesses “that do the right thing in the right way will make a profit by doing the right thing,” he told the LBF.
The values, social conscience and principles that guide Starbucks are, in part, driven by Schultz’s desire to build the type of company that his father never had the opportunity to work for. Growing up in the poor projects of Brooklyn, Schultz saw “as a young child the fracturing of the American Dream.” His parents, he revealed, did not have the education and resources to take advantage of everything that America offered.
Starbucks was the first company in the U.S. to give their employees equity in the form of stock options and comprehensive health insurance. This, Schultz explained, has given Starbucks partners the chance to “be able to do things that they’ve never been able to do before.” This sharing of success all contributes to the enhancement of the customer experience: “You can’t exceed the expectations of your customers, unless you exceed the expectations of your people first.”
Starbucks have also successfully used social media to engage their customers with mystarbucksidea.com, where customers can give ideas and feedback. Many of Starbucks’ senior management, Schultz revealed, were deeply concerned that any negative feedback online would create a threat. However, Schultz believed that a greater online presence would show that the company were “open to change” and were making a fresh start guided by their customers. Social media, Schultz warned, is not designed as an opportunity to sell. Companies, he argued, should “use social media as an opportunity to create a reservoir of trust with your constituencies and, as a result of that, every now and then […] you can go to the well and try and promote or sell something.”
Social media is just one way in which Starbucks is innovating and “recapturing its entrepreneurial DNA”, which Schultz sees as vital in ensuring the company’s longevity. Organisations that are enjoying success can become complacent but, he stressed, “success is not an entitlement, it has to be earned and earned every day.”
Evidently, the burden of responsibility weighs heavy on Schultz’s shoulders. His relationship with Starbucks really is a “love story”. “There is nothing I would not do to defend the company, to preserve it and to try and enhance it,” he told the LBF.
His dream to create “a third place between work and home” has proven universally popular. Today, Starbucks enjoys annual revenues well in excess of $10 billion, serving nearly 60 million people a week in 16,000 stores across 54 countries. Despite this remarkable return to sustainable and profitable growth, it seems that Schultz is determined that past mistakes are not repeated: “I’m still that kid from Brooklyn. I still have aspirations and dreams about the company […] this is no time for celebration […] we still have a lot of work to do.”