by Howard Schultz
Reading this book was like taking a trip back through b-school. Virtually everything Howard Schultz mentions is standard fare now at the DU curriculum, from the founding ideals of a company, to how companies raise money, to the strategies for growth, and how to keep those core values as the company turns from underdog into 800-pound gorilla. The story is fascinating, and even if you don’t care much for Starbucks’s coffee (I prefer a lighter blend, myself), it’s worth the read for any American whose business is business.
Schultz moved west in 1987 to help manage a small coffee company, dedicated to missionizing Great Coffee to the American public. For most Americans at that time, coffee shops were sandwich bars at best, and the coffee was mostly office-brewed, lighter, and not very good. While Schultz was happy at first with just selling coffee, a trip to Milan, and the social life of its espresso bars, lit him up. He left Starbucks to go found his own chain of coffee shops dedicated to imitating those espresso bars, and the Starbucks we know now was born when he bought it out and merged the two.
So Schultz had a vision of what Starbucks could be, sold most of his employees on that vision, and sought out new managers and executives who could share in it. As the company grew, Schultz faced two primary challenges: how to make the transition from entrepreneur to professional manager, and how to grow the company without sacrificing its ideals. Control is a big thing with Starbucks. Their stores at the time were all company-owned, alliance and joint-venture partners have been carefully chosen and trained. The company has jealously guarded its brand-equity, even as it’s gone into ice cream and beer.
While the former was one transition point, the latter has been an ongoing pre-occupation. In picking new markets, Schultz felt he needed to expand to Chicago before Portland, to prove that the concept would work someplace where it snows rather than rains. And while we may make fun of the “venti non-fat frappucino with a shot of hazelnut,” every noun in that phrase was the object of intense internal debate. Remember, the mission was to introduce Americans to Great Coffee. Non-fat milk, blended ice drinks, and added flavorings are all bastardizations of the espresso experience, but Starbucks found a way to include them all. You can judge for yourself whether these are extensions of the ideal or dilutions of it, but the customer has been forgiving.
For the finance department, Schultz gives a little lesson in both corporate and investment-track finance. People often assume that just because a company’s growing, it’s profitable. In fact, small, growing companies often starve for lack of cash. Each individual store may be making a profit, but not enough to fund an ambitious growth plan. And as a company grows, the need for cash grows with it. Since Starbucks funds almost all of its growth through equity rather than debt, its plans live and die by its stock price.
Even after Schultz stepped down as CEO (although he remains Chairman), the company has continued grow quickly even during the recent recession. The recent vertical climb in its stock price is evidence of that. But much of the initial senior management team remains, so we still don’t know if the company has developed a culture than can outlast them.
Schultz only hits one really false note. Starbucks was one of the first companies to offer benefits to same-sex partners, “not as a political statement,” of course. One could be pardoned for Schultz claiming that there’s no political attitude at Starbucks, except that it’s not true. He credits his idealism growing up in the 1960s, the time of Kennedy, when “capitalism stood for opportunity, not oppression.” Mr. Schultz seems to have missed that for most of us, it has always stood for that. No points for guessing the one and only Republican that Mr. Schultz, or any senior Starbucks executive, has given to.
Aside from that, though, budding executives looking for the overarching lessons in building a behemoth can learn a lot from this book. While the main lesson is vision, values, and people, Schultz is able to reiterate without repeating. The values come from hard experience – seeing his father getsick, and and employer who plainly couldn’t care less. And it’s certainly a lesson that some corporate executives could stand to hear.