The woman in the grey sweatshirt stood up in front of roughly 100 others at Borders Books’ Chicago State St. location and tearfully told Howard Schultz, CEO of Starbucks, that she’d closed her store and driven all night from her store in Ohio to see him speak in person. “It’s an honor and a privilege to be in front of you today,” she said, her voice breaking with emotion.
She, like many of us, was at Borders to see a Q&A discussion between Schultz and CBS2’s Bill Kurtis on Schultz’s new leadership memoir, Onward: How Starbucks Fought for Its Life Without Losing Its Soul (and perhaps get a book signed or a photo taken with the man who has changed the way many people think about coffee). After the woman thanked Schultz for all that he’d done for her and her employees, Kurtis asked her why it was that she drove so far to see him – why Schultz? “He’s an inspiration, and he’s honest,” she replied, as if it was the most obvious answer in the world.
It’s hard to argue with the fact that Schultz and the Starbucks brand have a die-hard following – and as I sat listening in awe to the woman who traveled all night from my beloved home state of Ohio to see Schultz and express her gratitude and devotion to Schultz and Starbucks in such a personal way, I realized I was seeing the power of the Starbucks brand in action. Here was a company that, more than most any others, had built up nearly impenetrable company and employment brands, gained a legion of loyal fans, customers and employees, and grown to a massive 16,000-store, “there’s a Starbucks on nearly every corner” giant. But, as Schultz would point out, things weren’t so rosy just a few years earlier.
Flashback to 2007
“I could sense, or small, that something wasn’t quite right,” Schultz said as he addressed the overflowing crowd of fans and curious onlookers before him. He was referring to February 2007, a time when, he said, he became concerned about what was happening at Starbucks – or rather, what wasn’t happening. Little by little, Starbucks had been losing some of the signature traits it had been founded on.
In 2000, Schultz had stepped down as CEO (or, as a Starbucks employee would write it, “ceo”– they have used lowercase job titles since their early days) and became chairman, moving away from day-to-day operations to focus on global strategy and expansion. In the years that followed, store growth accelerated and stock prices soared as sales and profits increased every single quarter – until they suddenly didn’t. By 2007, things were taking a turn for the worse. “Starbucks had begun to fail itself,” Schultz said.
Over time, the company had been expanding the brand beyond its core into various media like music, books, and film. In addition, every quarter, there was more intense pressure to maintain annual revenue and profit increases of at least 20 percent – an ambitious goal that Schultz admits he was complicit in promoting. Amidst battle cries of “More growth!” the team had lost sight of what the Starbucks experience was really all about. Starbucks, he pointed out in his book, has always been about so much more than coffee. “But without great coffee,” he wrote, “we have no reason to exist.”
So, on Valentine’s Day 2007, Schultz sent an email to Jim Donald, the CEO of Starbucks at that time, warning of the commoditization of Starbucks (the email was aptly titled The Commoditization of the Starbucks Experience ), hoping to unleash an honest conversation that would prompt everyone to reexamine the path they were traveling. He stressed a need to get back to Starbucks’ core and make the changes necessary to evoke “ the tradition, heritage and passion they all had for the true Starbucks experience.” Unfortunately, he said, the email leaked, and the next thing he knew it was all over the Internet – and the public was in a furor. Starbucks – and Schultz himself — received a lot of criticism for his opinions, even from Starbucks’ own employees, and as he says, it undermined what he was trying to accomplish.
Online conversations took on a life of their own, and while the company was struggling to figure out how to create balance between growth and a need to preserve what the company was really about, Schultz realized that they could no longer use their stores and website to communicate and control the conversations – the public was really in control of what was being said. Coincidentally, soon before Schultz’s email went out, three big communication changes had occurred: a week earlier, Apple had introduced the iPhone; four months earlier, Google had bought YouTube; and five months earlier, Facebook had opened up to the public.
Times were changing, and Starbucks was forced to either change with them or get left behind.
Back to the grind(s)?
Toward the end of 2007, as the situation reached a breaking point, the board decided Schultz needed to return as CEO. So, in January 2008, he did. It wasn’t his original intention, and it wasn’t an easy decision. In addition to having to tell Donald he was taking over, he was re-immersing himself in a company that was increasingly becoming viewed as one of the poster children of the recession (i.e. “save money, don’t drink at Starbucks”); people were being encouraged to look elsewhere for coffee easier on the pocket.
As he jumped back into his role as CEO, Schultz said, he realized that the issues he’d brought up in that now-infamous email back in 2007 were even larger and deeper than he had then thought. This was through no fault of people working there, he said — it was due to the fact that Starbucks was rewarding the wrong things. Factors like speed of service were praised, rather than keeping focus on the customer and the quality of the product.
On February 23, 2008, “I closed every store to retrain 115,000 people – I said we were going back to the roots of the company.” Of course, the media frenzy that ensued from this decision brought many to believe that the end of Starbucks was near – that they were no longer relevant. Schultz admits it was a bold decision to retrain every single employee. His explanation? “It was honest, it was authentic, and it was necessary.” The company lost $6 million that day. And as he said, Starbucks still had a long, long way to go in solving their mounting problems – but this was a start.
Starting over, he said, involved metaphorically asking the question of employees, What does it mean not to be a bystander? “From this point, we had to create, attract and create new customers.” Gone, he says, was the time that Starbucks could do no wrong — that the company was on a “magic carpet ride” – and that profitability and likeability would happen automatically with every move the company made. Gone was the time that Starbucks was leading the conversation — now, they had to find a way to take part in the larger conversations that were happening.
Later in 2008, one month after Wall Street’s meltdown and a few weeks before Starbucks would announce significantly reduced profits for the fourth quarter, Schultz decided to get all of the store managers together — all 11,000 of them — for a leadership conference. They’d always done the conference in Seattle, and even though nearly every major city wanted to host them, Schultz said they chose a place very much in need of assistance: New Orleans. Despite the odds, Schultz knew it had to be done, to start rebuilding trust between Starbucks and its employees and invest in Starbucks’ continuing transformation — and New Orleans was the right place to do it. Not only did they have a week-long meeting with interactive galleries, roundtables, and panels, but they also did service in the 9th Ward and helped to rebuild some of the city’s most devastated neighborhoods.
“I’ve always loved this company,” Schultz said in Onward. “Love is why I had some back as ceo and why I feel so personally responsible for its failure and success. Yet somewhere along our journey, the love our people had for Starbucks had blurred. New Orleans had brought it back into focus, and once again our values stood in stark relief… because of everything we experienced in New Orleans, it was apparent to all of us what it meant to love something — and the responsibility that goes with it.”