Some people (2) have asked me about this blog and why do I do it. I have told them things like, “just because I’m cool”, but the real reason is this: I do it for myself, I like writing and learning, and when I explain what I learn and blog about it I never forget it. This post is a great example of that type of situation. I had listened to this audiobook about a year ago but had postponed writing about it until now. For postponing it this long I had forgot most of the ideas I got from this book, but luckily I let a bunch of bookmarks to remind myself the important parts of it. After re-listening to it, I wrote this blog and now I won’t forget it.
Howard Schultz narrates a lot of things in this book. From the history of the coffee shop that changed American culture and set a new marketing standard, to the secret to a perfect espresso (with a honey like texture shot and re-steaming milk). But the main focus is the decline and the resurgence of the company he started. The story started in Italy, as a Business trip of the company he worked for, Starbucks. The Seattle based company, which at the beginning only sold coffee beans and species went to Milan for business reasons and that’s were Howard started envisioning what Starbucks is today.
Bongiorno!! A barista enthusiastically welcomed Howard, offered an espresso and proceeded to carefully and lovingly, almost like a ritual, started serving the coffee to him.
“This is not his job, this is his passion.”
People seemed more like friends than strangers in every coffeeshop he went to. There was a sense of community that could not seen anywhere else, you could relate to anyone sat on the bar by the simple fact that everyone there loved coffee, including the baristas. That vision of “The 3rd place” stuck into Howard Schultz and later became the main vision of Il Giornale, the company he founded that kind of copied all of this Italian coffee shop scent.
He got a concession for selling coffee in the lobby of an offices building in Seattle, by pure miracle because he had no assets at that time, and his coffee buyer and finance officer worked as well pouring espresso shots behind the counter. Since the beginning, Howard showed passion and vision and wrote a Memo for the 4 employees at the time. It was called: I believe. And it marked up the future of the company and the values with which they were going to achieve it. More stores started opening and suddenly Il Giornale was bigger than Starbucks itself, so Howard and the initial team decided to buy the old company and keep the name and brand of Starbucks. (Interesting fact, Il Giornale was named after the main newspaper in Milan, Italy. And Starbucks was named after the Pequod crew chief member that appears in the classic Moby Dick.)
A Business model depends mostly on the solution that is provided by a business. And Starbucks envisioned a setting as a solution. Howard calls it the 3rd place. (1st is home, 2nd is school or work) In the 1980’s dining rooms and libraries were the only place people went for a read, but as the internet and the rise of computers went by people needed a 3rd place where they could hang out, continue working, get creative and connect with others and themselves.
We are all hungry of community. And the great service, customization and unique experience provided by baristas and the Starbucks’ setting successfully formed a community. Even though Starbucks lost money at the beginning years, it was acquiring a huge base of customers that were adopting Starbucks in their daily life. More importantly, the human capital was as inspired as the leadership. Half-time workers were offered healthcare benefits and stock options, making everyone feel engaged with the company’s performance.
“As a business leader, I wanted to build a kind of company that my dad never had a chance to work for. Creating an Engaging, respectful and trusting culture is complex. It needs intention, process and heart.”
Thanks to this passion and great culture, the Starbucks empire grew to more than 2000 stores worldwide and sales of up to 2 billion USD by the time he stepped down as CEO. He mentions that he left the CEO role because he didn’t felt his job was challenging anymore. But the story changed when he personally started noticing that Starbucks was not growing into what he had envisioned at the beginning. On a confidential email to top executives he let everybody know about his opinion. His memo got leaked and you can actually find it here.
Internally the company had mixed opinions on the future of the company after that memo and every important newspaper as well. “Starbucks had expanded too far from its coffee roots”. Wall Street saw it as a signal that the company would decrease its sales, and every other person started noting that actually Starbucks was no longer what it stood for. One thing let to another and the transformation agenda started, where Howard, back as CEO, would end every email with the word ONWARD.
Icons don’t confuse history with herritage. Icons disrupt themselves before others disrupt them. Icons are willing to sacrifice near-term popularity for long term relevance. And for Starbucks that would mean making changes that could be a bit unpopular. No silver-bullet would change the fact that the Starbucks experience was in decline, that’s why long term planning was accompanied with tactics that helped as well in the short term. Starbucks announced that some stores would be closed, innovation and expansion on other countries would be the main focus but at the same time the store experience would be dramatically improved.
The transformation agenda continued with elevating the core of Starbucks, better coffee and better baristas. In order to keep the world leaders in coffee tag, Starbucks acquired Clover and then introduced the Mastrena and clover machines to its stores. I personally can’t understand the technic difference in the way coffee is brewed, but apparently coffee was as good as it was and it could be placed on the front bar letting customers see how their beverage was prepared. And as for Baristas, better work conditions were added to the pipeline as well as immediately introducing a training for excellent espressos. There was an annual shareholders meeting next and this is what can be recalled from Howard’s speech.
“We have defaulted that when cup sales were doing good, logistics and sourcing were good as well. Like going to the doctor and checking the weight and height and ignoring blood pressure or heart rate. We thought in terms of millions of customers and thousands of stores, instead of one customer, one partner, and one cup of coffee at a time. We ignored mistakes in one store, or one coffee, because millions of cups were being served worldwide, but we forgot that ONE’s add-up.”
Starbucks held a meeting where a new mission statement was developed. Top executives read it aloud and everybody was convinced about the transformation agenda this time. A party was held just after where more than a hundred Starbucks cups where aesthetically arranged, each cup had a message of a moment shared over an Starbucks cup in order to motivate and let leaders know the importance of the soul of Starbucks.
“I felt like someone understood me.”
“I wrote a love letter.”
“I had a great laugh with my best friend”
This is what Starbucks was all about, making the world a better place ONE Cup at a time.
All of this inspiration didn’t quite help to the negative momentum that SBUX already had, a year passed and earnings decreased nearly 28%. Promising revival while the reports were showing slow death was painful and stressful. And you have to consider that the 2008 crisis was just ahead, people was not willing to keep spending on Starbucks even though the experience in the store was better. The entertainment division was refocused into a digital strategy, but that proved to be a correct decision until much later.
I don’t want to make the story so long, but the crisis hit Starbucks really hard but it kind of helped them to shift things a bit more drastically. There were initially plans to close some stores and after the crisis the closure of those stores was a certain thing. The store economics ratio was for the first time missed in 2008 in hundreds of stores. (If the investment in a store is 400,000 USD we expect revenues in the following 12 months to be at least 800,000 USD. The average revenue in the US was 1 million upon the first year of operations.)
The company had learned that growth is not a strategy, it is a tactic. And if it is not smart or sustainable, it might fire-back. The transformation agenda got results until 2009, there was no silver bullet as mentioned before but rather a change from the inside, investing in culture and a better experience for the customer. Bob, internally known as the customer that knows the barista’s name as well as the complete menu, and not-Bob, the customer that does not know the difference from a grande and alto cup, would be treated equally in the new vision that SB had. Each store would feel unique and “local” and the rewards card was a long-term way to keep customers near.
I loved how passionate Howard is about his business and the culture that he was creating internally with his people and with every customer. As said before in Driven to Delight: Culture eats strategy for breakfast. While reading the book it was really cool to check Starbucks’s stock value at the time every event was happening and how the market ended up giving Starbucks a second chance. On his first term as CEO the stock went up 1500% and on his second term it was 1200% up as well. You can see that the 2008 crisis really hit SBUX and the stock has done pretty well on the last 2 years.
Angel Escamilla Rdz