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Key Take-Aways from Howard Schultz: Turning Starbucks Around

I listened to the “How I Built This” podcast with Guy Raz interviewing Starbucks two-time (and now former) CEO Howard Schultz (from September 28).

They discussed how Schultz really took the brand which was a local coffee bean shop into a massive, global brand that we all now know. Then, he talked about his return to Starbucks as CEO when the company started heading into its lowest point – in 2008. This part of the podcast really intrigued me.

Below are some notes I took from his interview starting at 37:40.

  • Schultz refers to Starbucks difficult years (2008, mainly, like most other companies during that time) as the “years of hubris”. He mentioned how “growth and success began to cover up a lot of mistakes.”
  • Two chief mistakes Schultz realizes that contributed to Starbucks nadir: 1) “too many stores cannibalizing other stores”; and 2) “financial controls and discipline that were in place were not being leveraged – Wall Street and the stock price became an albatross on the company’s neck.”
  • “Growth became the strategy of the company… growth is not a strategy."
  • In regards to growth, “too many stores too fast in areas that should not have had a Starbucks […] the experience which had defined the essence of the company was being compromised by efficiency.”
  • “The management team at the time started measuring yield, sales per hour, and doing things that were so dilutive to the essence of the foundation of the company. It really started upsetting me. I began to go into stores and not recognize what we had built.”
  • “Company needed to go through a major transformation in 2008 […] What it means to love something and the responsibility that goes with it.”
  • Schultz returned as CEO. One of his first moves was to shutter 900 stores and refocus on the brand and experience that brought the company to prominence. 90% of them had been open less than a year.
  • Schultz referred to training as essential for transformation. The “most telling” move he made was closing all stores at 12PM at a loss estimated at $24M in lost sales and labor. This move was to perform training at all stores.
  • “Training was so vitally important because Starbucks Coffee Company forgot how to make quality coffee. We had everyone in the company re-trained.”
  • Schultz recalled how during a time when budgets were tightening everywhere and travel was heavily scrutinized in 2008, he realized the importance to “communicate with every single store manager in-person.” This would bring together 10,000 people and cost the company $30M. This was known as the $30M speech.
  • For the speech, Schultz wanted to “tell them the truth – the real truth. If I was going to ask them to do the things we had to do – take every customer interaction so personally…”
  • As the company recovered, the “real question was – ‘what did we learn?’ We were so hungry and so driven when we started the company. When we were that successful, people got sloppy. They got lazy. This is so vitally important – success in any business, no matter what it is, is not an entitlement. It has to be earned. We stopped earning it. That’s why we got in trouble.”
  • “Building a company is a lonely place sometimes. You’re imprinted, especially as a man, of not demonstrating vulnerability. I think one of the – perhaps most undervalued characteristics of leadership – is vulnerability and asking for help. I’ve done that a number of times. I think it’s important. When you’re vulnerable and you ask for help, people come towards you. I’ve tried to do that every step of the way and be honest and truthful what I know, what I don’t. And most importantly, what I believe.”
Great vulnerability and story shared by Howard Schultz in setting aside hubris for the greater good.


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