Starbucks CEO: Can You 'Get Big And Stay Small'?

Starbucks coffee cups and beans
Paul J, Richards/AFP/Getty Images

In the world of business, where most CEOs come and go, a few go and then come back. Howard Schultz, the president and CEO of Starbucks, is one of them. When the giant coffee shop chain was faltering in 2008, Schultz returned to the helm to help save the company. Three years later, after an extensive transformation of the company, he has written a new book that details the journey to recovery, called Onward: How Starbucks Fought For Its Life Without Losing Its Soul.

"We needed to go back to the core principles of our company," Schultz tells NPR's Linda Wertheimer. Starbucks' mission was to "source and roast the highest quality coffee in the world and deliver it perfectly to our customers."

Onward
Rodale Books
Onward: How Starbucks Fought For Its Life Without Losing Its Soul
By Howard Schultz
Hardcover, 384 pages
Rodale
List price: $25.99
Read An Excerpt

When Schultz returned as CEO in 2008, he took drastic measures to renew the company's commitment to its mission. In February of that year, he temporarily closed about 7,000 stores for several hours to retrain Starbucks employees.

"The unprecedented decision to literally close stores — which cost us millions of dollars — was done to ensure the fact that I demonstrated how serious and committed I was to making sure we go back to the core," he says.

The company needed to change the way it functioned, right down to the way they steamed their milk.

"You don't want to re-steam milk when you're making a perfect shot of espresso," Schultz says. "We were doing things like that, that produced a higher yield, a higher profitability, but I just felt it wasn't consistent with the commitment we've always had about making the perfect shot of espresso."

This small change might have gone unnoticed by many customers, but to Schultz, it reaffirmed Starbucks' commitment to excellence. And he didn't stop there. Since 2008, the company has re-evaluated many of its products — even "reconfiguring" its breakfast sandwiches.

"The breakfast sandwiches were selling extremely well, but at the time, there was an aroma in the stores that I felt was diluting the integrity of the coffee romance, and the aroma of coffee," Schultz says.

When Howard Schultz returned to Starbucks as its CEO in 2008, he took drastic measures — like temporarily closing stores for retraining, and reinventing the menu — to bring the company back to its core principles. i i

When Howard Schultz returned to Starbucks as its CEO in 2008, he took drastic measures — like temporarily closing stores for retraining, and reinventing the menu — to bring the company back to its core principles. Mary Altaffer/AP Images hide caption

itoggle caption Mary Altaffer/AP Images
When Howard Schultz returned to Starbucks as its CEO in 2008, he took drastic measures — like temporarily closing stores for retraining, and reinventing the menu — to bring the company back to its core principles.

When Howard Schultz returned to Starbucks as its CEO in 2008, he took drastic measures — like temporarily closing stores for retraining, and reinventing the menu — to bring the company back to its core principles.

Mary Altaffer/AP Images

The culprit? Sandwiches cooking in the oven were causing the stores to smell like burnt cheese. So Schultz took the sandwiches off the menu, and introduced a new and improved product less than a year later.

"They've been more successful now than ever before," he says.

One of Starbucks' greatest challenges may be confronting its own success — and its ambitious expansion overseas.

"The question you have to ask yourself is: Can something get big and stay small?" says Schultz. Despite its ubiquity, Schultz says the coffee giant has sought to "create intimacy" among its employees and among its customers.

Unlike McDonald's, or other franchise systems, Starbucks owns and operates its own stores — and Schultz does not consider the company a fast-food business.

"[We] have created a relationship with our customers based on a very unique emotional relationship that goes beyond just being in the transaction business like a fast food company," he explains.

Although the company does use similar operational tools and resources, Schultz explains that Starbucks locations are distinguished by their connection to neighborhoods and communities.

"Not unlike the English pub in the U.K.," he says, Starbucks serves as a "third space between home and work, an extension between people's lives, at a time when people have no place to go."

Starbucks also stands by its commitment to provide health care to all of its employees, including those who are part-time.

"Last year, we spent over $250 million on insuring our people, because of health care costs. We've been doing that for almost 20 years and have faced double-digit increases almost every year," Schultz says.

The company is deeply committed to insuring workers, Schultz says, even in the face of increasing health care costs and despite complications introduced by the new health care bill. Starbucks is back on its feet, but Schultz insists that there is still room for improvement, and he intends to be the one to carry it out.

"Over the last three years, we've completely transformed the company, and the health of Starbucks is quite good. But I don't think this is a time to celebrate or run some victory lap," he says. "We've got a lot of work to do."

Excerpt: 'Onward'

Onward
Rodale Books
Onward: How Starbucks Fought For Its Life Without Losing Its Soul
By Howard Schultz
Hardcover, 384 pages
Rodale
List price: $25.99

One Tuesday afternoon in February 2008, Starbucks closed all of its US stores.

A note posted on 7,100 locked doors explained the reason:

"We're taking time to perfect our espresso.

Great espresso requires practice.

That's why we're dedicating ourselves to honing our craft."

Only weeks earlier, I'd sat in my Seattle office holding back-to-back meetings about how to quickly fix myriad problems that were begin­ning to surface inside the company. One team had to figure out how we could, in short order, retrain 135,000 baristas to pour the perfect shot of espresso.

Pouring espresso is an art, one that requires the barista to care about the quality of the beverage. If the barista only goes through the motions, if he or she does not care and produces an inferior espresso that is too weak or too bitter, then Starbucks has lost the essence of what we set out to do 40 years ago: inspire the human spirit. I realize this is a lofty mission for a cup of coffee, but this is what merchants do. We take the ordinary — a shoe, a knife — and give it new life, believ­ing that what we create has the potential to touch others' lives because it touched ours.

Starbucks has always been about so much more than coffee. But without great coffee, we have no reason to exist.

"We looked at all the options," the team seated around me said. "The only way to retrain everyone by March is to close our stores, all at once."

I sat back in my chair. It would be a powerful statement, but no retailer had ever done such a thing. "That's a big idea," I replied, con­sidering the risks. Starbucks would lose several million dollars in sales and labor costs. That would be unavoidable. Competitors would capi­talize on our absence and try to lure away our customers. Critics would gloat, cynics would smirk, and the always-unpredictable media scrutiny could be humiliating. On Wall Street, our stock could sink even lower. Most dangerous of all, such a massive retraining event would be perceived as our own admission that Starbucks was no lon­ger good enough. But if I was honest with myself, I knew that that was the truth.

I pursed my lips and looked at the team. "Let's do it."

There is a word that comes to my mind when I think about our com­pany and our people. That word is "love." I love Starbucks because everything we've tried to do is steeped in humanity.

Respect and dignity.

Passion and laughter.

Compassion, community, and responsibility.

Authenticity.

These are Starbucks' touchstones, the source of our pride.

Valuing personal connections at a time when so many people sit alone in front of screens; aspiring to build human relationships in an age when so many issues polarize so many; and acting ethically, even if it costs more, when corners are routinely cut — these are honorable pursuits, at the core of what we set out to be.

For more than three decades, coffee has captured my imagination because it is a beverage about individuals as well as community. A Rwandan farmer. Eighty roast masters at six Starbucks plants on two continents. Thousands of baristas in 54 countries. Like a symphony, coffee's power rests in the hands of a few individuals who orchestrate its appeal. So much can go wrong during the journey from soil to cup that when everything goes right, it is nothing short of brilliant! After all, coffee doesn't lie. It can't. Every sip is proof of the artistry — technical as well as human — that went into its creation.

In the beginning of 2008 I deeply wanted people to fall back in love with Starbucks, which is why, even when bombarded by warn­ings against it, I decided to close all of our stores across America. I did not feel fear as much as a sense of the unknown, like I was flipping over a playing card. All I had was my belief that, even more than per­fecting our coffee, we had to restore the passion and the commitment that everyone at Starbucks needed to have for our customers. Doing so meant taking a step back before we could take many steps forward.

When clocks struck 5:30 p.m. in cities across the United States, our customers were gently asked to leave our stores and the doors were locked behind them. Inside, our green-aproned baristas watched a short film our coffee experts had produced in a matter of days back in Seattle and shipped to all 7,100 stores, along with 7,100 DVD players. What our people heard that afternoon was pure and true:

If poured too fast from the spout into a shot glass, like water flowing from a faucet, the espresso's flavor will be weak and the body will be thin. A shot poured too slow means the grind is too fine, and the flavor will be bitter. The perfect shot looks like honey pouring from a spoon. It is dense and tastes caramely sweet.

If the espresso was not good enough, I told everyone at the end of the video, they had my permission to pour it out and begin again.

And then there was the milk.

For our espresso beverages, steaming milk to create a creamy, sweet consistency is crucial. Unfortunately, in the name of efficiency, our company had created some bad habits among our baristas. Not only had we not trained many of them to steam milk correctly — the pro­cess requires aerating and heating the milk in just the right fashion — but some had also been steaming large pitchers of milk prior to customers' orders, letting the pitcher sit, and then resteaming the milk as needed. But once steamed, milk begins to break down and lose some of its sweetness. We had to correct these behaviors and return to higher standards.

Speaking to our people via the video, I had no script, just a heart­felt plea. "It is not about the company or about the brand," I said. "It is not about anyone but you. You decide whether or not it is good enough, and you have my complete support and, most importantly, my faith and belief in you. Let's measure our actions by that perfect shot of espresso."

Meanwhile, in city after city, news crews pointed their cameras at our closed stores as reporters interviewed baffled customers. "A World without Starbucks?" asked a headline in The Baltimore Sun. In New York City: "Starbucks Shutdown a Grande Pain for NYers." Online, opinions pro and con streamed in throughout the day, and on televi­sion, CNN, ABC, NBC, CBS, Fox News, and others covered the closings with an odd sense of wonder, as if it had snowed in summer. Late-night comedians also roasted us. At my home in Seattle, I watched Stephen Colbert's mock news report about his three tortuous hours without a caffeinated drink, which climaxed as he doused him­self in the shower with coffee, foam, and cinnamon. I went to sleep laughing for the first time in months.

Not everything went well that day. As predicted, Starbucks lost money. Approximately $6 million. One competitor tried to poach our customers by promoting 99-cent cups of espresso-based bever­ages. Some critics were brutal, insisting that by admitting we were broken we had forever dented the Starbucks brand. But I was confi­dent that we had done the right thing. How could it be wrong to invest in our people?

In the weeks following the closures, our coffee quality scores went up and stayed there as stories made their way to me, like this one from a barista in Philadelphia:

A gentleman came into my store this morning and told me he would like to try espresso but was afraid it would be too bitter. So I told him that I would pull some perfect shots for him and also make him an Americano. Together we talked about espresso, its origins, and how to enjoy the perfect shot. He enjoyed it immensely and said he would be back for more. . . . I think I now have a customer for life.

That was proof enough for me that we had done the right thing.

There are moments in our lives when we summon the courage to make choices that go against reason, against common sense and the wise counsel of people we trust. But we lean forward nonetheless because, despite all risks and rational argument, we believe that the path we are choosing is the right and best thing to do. We refuse to be bystanders, even if we do not know exactly where our actions will lead.

This is the kind of passionate conviction that sparks romances, wins battles, and drives people to pursue dreams others wouldn't dare. Belief in ourselves and in what is right catapults us over hurdles, and our lives unfold.

"Life is a sum of all your choices," wrote Albert Camus. Large or small, our actions forge our futures, hopefully inspiring others along the way.

Ultimately, closing our stores was most powerful in its symbolism. It was a galvanizing event for Starbucks' partners — the term we use for our employees — a stake in the ground that helped reestablish some of the emotional attachment and trust we had squandered during our years of focusing on hypergrowth. A bold move that I stand by today, it sent a message that decisiveness was back at Starbucks. No doubt, after that Tuesday, thousands of Starbucks espresso shots were poured like honey. But a symbolic act and three hours of education would not solve our mounting problems. We had a long, long way to go — further than I had imagined when I returned as CEO. In the winter of 2008, the fight began for our survival. What we faced was nothing less than a crucible, and I had spent the past year preparing for it.

Reprinted from Onward: How Starbucks Fought For Its Life Without Losing Its Soul by Howard Schultz. Copyright (c) 2011 by Howard Schultz. By permission of Rodale, Inc., Emmaus, PA 18098.

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