Espresso Turnaround. How Howard Schultz Saved Starbucks

20/09/2011

"When I had to announce that we were going to close stores and lay people off, it was the toughest day of my life. I cried," Howard Schultz, CEO of Starbucks told an audience of some 1,000 people at a Continuous Education session on IESE's Madrid campus last night.

The session, moderated by IESE Prof. Julián Villanueva, focused on Schultz's book, The Starbucks Challenge. How to Fight for Your Life Without Losing Your Soul, in which he describes how he brought the company back from the brink of collapse, closing hundreds of stores and laying off thousands of staff in the process.Schultz stepped down as CEO in 2005 and then returned to the company in 2008.

"In 2007 Starbucks began to measure and reward the wrong things," he said. "Growth became a strategy as opposed to an outcome." The company had opened too many stores and had 10-year leases on stores that were never going to turn a profit. "We began to suffer from the disease of hubris and entitlement. We got too comfortable. I had an intuitive sense that we were never as good as the stock price and the revenue suggested."

The key was to conserve and enhance the Starbucks culture. "We sell coffee but we sell much more. We sell a feeling and a sense of community," Schultz said, adding that in general the consumer experience is "a sea of mediocrity."

When the cutbacks came, people doubted the integrity of their leaders. "That meant that as leaders we had to exceed the expectations of our people. We had to prove that we would reinvest in the company once it was healthy again."

Schultz said that social media has "changed traditional marketing and the classic way of building a brand forever." The consumer, he said, is going through a seismic change. Companies that use social media merely as a means of selling will not last long in that world, he believes. Social media has to be used to establish a relationship with consumers and to build trust. He also believes that within three years as much as 30-40 percent of business will be done via smart phones.

Schultz said that entrepreneurs should not be afraid of taking on people who may be smarter than them. "The success of most entrepreneurs comes from hiring people with complementary skills and allowing them to share the stage. Rewarding innovation involves risk taking. You should try to innovate but if you fail, fail fast," he said.

Asked to define Starbucks in a single word, he replied "humanity," adding, "we believe you can't build a company unless success is shared. Business is going to have to do more to support the communities in which we do business and provide social welfare. The gap between the haves and have-nots is going to have consequences. Our responsibility today is greater today than it was. Those companies that do the right thing are going to succeed."