Onward: How Starbucks Fought For Its Life Without Losing Its Soul
Now here’s a cool way to brainstorm.
You walk into a ballroom. You’re given a black sharpie, a white iPod and a pack of index cards.
You hit play on the iPod and start listening to Come Together. You walk over to a large table covered with enlargements of album covers and photos from The Beatles.
You flip over one of the index cards and you’re asked to answer the question what does it take to reinvent an icon?
That’s the exercise Howard Schultz did a week into his second tour of duty as CEO of Starbucks in 2008. Schultz had stepped aside almost eight years earlier from the company he had built from 11 stores into a ubiquitous global brand. He was back to reinvent an icon.
“It had never been my intention to return as CEO,” says Shultz. “But I have always said that people are responsible for what they see and hear. I could not be a bystander as Starbucks slipped toward mediocrity, especially since I had played a role in and bore some responsibility for our troubles.
Schultz started to worry that something was wrong with Starbucks back in 2006. “The merchant’s success depends on his or her ability to tell a story. What people see and hear or smell or do when they enter a space guides their feelings, enticing them to celebrate whatever the seller has to offer. So when I walked into more and more Starbucks stores and sensed that we were no longer celebrating coffee, my heart sank. Our customers deserve better.”
Many little things were dangerously slipping by unnoticed or unacknowledged. “How could one imperfect cup of coffee, one unqualified manager, or one poorly located store matter when millions of cups of coffee were being served in tens of thousands of stores? We forgot that ‘ones’ add up.”
Schultz returned to the helm just as Starbucks posted its worst three-month performance since the company had gone public in 1992. For 16 years, same-store sales had grown five per cent or better. Sales were now at an anaemic one per cent. “Sales were in free fall. Every day, around the country, fewer and fewer people were coming into our stores. And those who did were spending less money than in the past.”
Schultz wasted no time getting back to basics or, as he called it, getting in the mud. He hung a poster in the boardroom that showed a pair of dirt-smugged hands palm up framed with the words “the world belongs to the few people who are not afraid to get their hands dirty.”
His first order of business? Discontinuing warm breakfast sandwiches. The stink of burnt cheese overpowered the aroma of coffee and that drove Schultz to distraction. “Despite the sandwiches’ loyal following, and disagreement among Starbucks’ top managers, I was convinced this was right for business.”
In February of 2008, Starbucks closed all of its 7,100 for three hours to retrain every barista on how to make espresso.
Shultz drafted and rolled out a transformation agenda with seven big moves for Starbucks. Be the undisputed coffee authority. Engage and inspire our partners. Ignite the emotional attachment with our customers. Expand our global presence while making each store the heart of the local neighbourhood. Be a leader in ethical sourcing and environmental impact. Create innovative growth platforms worthy of our coffee. And deliver a sustainable economic model.
Starbucks launched a loyalty card, a new brew, instant coffee and MyStarbucksIdea.com, a website where customers and employees could submit big and small innovative ideas. More than 100,000 ideas have been submitted so far by 250,000 registered members. “Starbucks is at its best when we lead, not follow, when we reinvent categories, create new rituals and transform an industry.”
Some hard decisions also got made. Six hundred stores closed and there were deep job cuts at head office. “One particular statistic raised my ire,” says Shultz. “Seventy per cent of all stores slated for closure had been opened in the past three years during the aggressive growth period when we opened 2,300 locations. We were closing almost 20 per cent of our newest stores. A lesson resonated. Success is not sustainable if it’s defined by how big you become. The number that matters is one. One cup. One customer. One partner. One experience at a time.”
By the third quarter of 2009, Starbucks had its first earnings growth since the first quarter of 2009. The company earned $152 million, compared to $7 million a year earlier. The company had cut $580 million from its cost structure and improvements to supply management management saved another $400 million.
The transformation was gaining traction and an icon was reborn.
“Starbucks has regained a healthy balance with a culture that celebrates creativity and discipline, entrepreneurship and process, as well as rigorous innovation,” says Shultz. “But perhaps the most vital thing that came out of the past two years has been the confidence we gained knowing that we could preserve our values despite the hardships we faced. Holding fast to those values steadied us throughout the tumultuous journey.”
This is a must-read for every entrepreneur, aspiring entrepreneur and anyone who’s trying to rescue, reinvent and renew an organization. If you’ve got the passion and the vision, the rewards will be far greater than all of the tough calls, heavy lifting and muddy hands.