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.

On any given day, there’s about a 60% chance you’ll find me at Starbucks working.  It’s a great, free working space complete with vibrant energy, wake-up aromas, and, especially this time of year, snowman sugar cookies.  Ah, and there’s usually a fascinating collection of people hanging out/ working.  This past Friday night, I was writing some Holiday/ Thank You cards to our customer-partners and other prospects when I was complimented on our cards by a fellow Starbucker (yes, handwriting them – crazy in this day of keyboard and touchscreen typing, I know). 
My new friend is an MBA student at Georgia State, and was a previous Psychology major in undergrad.  She was worried a bit about having a non-business background and post-graduate opportunities.  This was a great conversation for me because I’ve long appreciated how psychology intertwines with business.  It’s not readily apparent, but it really is.  Talk to any good salesperson, and he’ll know exactly how to talk to you and potentially what makes you tick and tock. 
Some quick thoughts on how psychology is engrained in entrepreneurship and business overall…
  • Know Your Strengths and Weaknesses.  Assessments like the Myers-Briggs, DISC Profile, Berkman, etc. can be simple ways of finding out more about yourself.  These assessments may help you realize more about yourself to capitalize on your strengths and limit your weaknesses while building your career around your personal interests.  I’d recommend, however, that as much as you limit your weaknesses, to also work on those weakness or what stresses you — this can help you be a stronger performer – “be comfortable being uncomfortable”.
  • Building a Balanced Team.  As a continuation of the Strengths and Weaknesses above, building a team for a startup or small business with balanced strengths and weaknesses allow for a stronger company in addition to its product/ service offering.  For Body Boss, we do actually have differing personalities, and it challenges each of us to think more about why one another feels the way we do when we consider marketing campaigns, licensing and selling opportunities, or even just philosophies that shape our startup’s culture.

  • Put Yourself in Your Customers’ Shoes.  Marketing has psychology all over it.  You have your target audience in mind.  Do you know what language they speak?  What style of communication they perceive?  How about what really resonates with them so that you can grab their attention right away?  Marketing is all about diving into the psyche of your customers and compelling them to engage with you.
  • Sales is All About Your Customer.  Many people will tell you that an effective sales strategy is to have the customer speak.  I think this can be somewhat true in terms of getting engagement.  However, why I like this rule of thumb is so that it gives me a break and a chance to listen to the customer and analyze him/ her.  Customers are all different, and chances are, your product/ service has many value propositions.  By sitting back and listening to your prospects, you can hone in on what matters to them and cater your value message accordingly.
  • Threshold of Pain.  My new friend asked me what signs a successful entrepreneur exhibits/ has.  I have many thoughts to this, not necessarily from my own perspective, but witnessing others.  One of the standout factors?  Mental and emotional fortitude.  Beyond the physical demands of being an entrepreneur (like lack of sleep), it’s the mental and emotional toll of going through the roller coaster ride that is entrepreneurship including feeling INCREDIBLE when new customers finding out about you to incredibly FRUSTRATED due to low user engagement, then back to a HIGH after a great exhibition at a conference, then dipping back down LOW from unsuccessful trial conversions.  Because much of entrepreneurship is about passions and the creation of your own product, it takes a toll both mentally and emotionally.  I recommend you watch Angela Lee Duckworth’s TED talk about this in “The Key to Success?  Grit”.

A company, a product… in the end, behind the curtains are people.  Perhaps this is also why psychology actually plays a significant role in business.  For my fellow Starbucker, I think having a background in psychology will give her a different perspective, and with an MBA to help round out her business abilities, she’ll have a strong platform to build on.

What are your thoughts on how psychology plays a role in business and entrepreneurship?  Where else do you feel psychology plays a critical role in business?