Heart & soul

Heart & soul

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

Profile: Starbucks

T

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,

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Starbucks has gone from one store in Seattle to 17,000 in more than 50 countries

"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

Forty years of Starbucks

Starbucks opens its first store in Seattle's Pike Place Market

1971

Schultz convinces Starbucks' founders to test the coffeehouse concept in downtown

Seattle and the first Starbucks Caff? Latte is served

1982 1984

Il Giomale acquires Starbucks' assets and changes its name to Starbucks Corporation

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

6

Profile: Starbucks

"There isn't anything I would not do to enhance and preserve this company"

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."

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

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

Starbucks is the first privately owned US company to offer a stock option program that includes part-time employees

1991 1995

Establishes the Starbucks Foundation, benefiting local literacy programs

Acquires Seattle Coffee Company

1997 1999 2003

Total stores

116

Begins serving Frappuccino and Starbucks ice cream

Total stores

677

Partners with Conservation International to promote sustainable

coffee-growing practices

Total stores

7,225

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Profile: Starbucks

Starbucks' new logo, which it has unveiled for its 40th anniversary

"This circle of doing the right

thing for your people and your

company and its guiding principles.

customers will ultimately

"We had always intended to create a balance between profitability and social

produce more profit"

conscience," he says, "and underneath

that I recognized, especially in the past

couple of years, that success is best when it's shared."

also means that he must share his success with his people,

These are issues Schultz is passionate about, resulting,

all of whom are called "partners." In spite of calls from at

at least in part, from an upbringing in which his parents

least one investor to cut employees' health care benefits,

taught him "what it means to do the right thing." Onward

he flatly refuses. "The essence and fabric of the company is

is loaded with references to community, humanity, social

linked to those benefits," he told us. "We would completely

consciousness, responsibility and personal connection, as

fracture every aspect of the culture we have, which is the

well as respect, loyalty, trust and honesty. Community, in

only competitive edge we have."

fact, is what he sees as Starbucks' backbone.

"In terms of our society and the way technology has

More to be done

evolved, I think there is a growing appetite for human

Financially measured, Schultz has been as successful as a

connection," he explains.

turnaround CEO as he was as the architect of the Starbucks

"I think we've been able

phenomenon. But he is quick to say there's still much to be

to provide the physical

done. "We're as good as we've ever been," he says, "but not

environment and bring

as good as we need to be. There's no victory lap, there's no

people together."

celebration. If there's anything we've learned from the past

Traveling the world over

few years, it's that the hubris and the feeling of invincibility

to visit his stores, Schultz

was a virus at Starbucks. We can't allow that to ever enter

says: "The Starbucks

the building, enter the halls, enter the fabric of the company.

experience is as relevant

"I'm not good at celebrating anyway," he adds.

in Kuwait as it is in Seattle

According to Schultz, a seismic change is under way in

or Dallas because,

the business world, brought about by three factors: the

universally, we all have this economic downturn, the development of social and visual

desire for human contact." media, and an increased consumer interest in business

This sense of community ethics. With a massive decline in government spending on

Opens first Farmer Support Center in San Jose, Costa Rica

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

Free unlimited Wi-Fi via Starbucks Digital Network in US stores

8

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."

Viewpoint

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.. 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@. To find an EOY program near you, visit eoy

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