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Can Starbucks’ Howard Schultz Reinvent the Company he Founded?

August 19, 2009

Update-April 14, 2011:
Since I wrote this post Howard Schultz has achieved some amazing results. His streamling (code for closing stores and laying off employees) of Starbucks’ operations, placing more emphasis on customers and introducing new features and products contributed to the company stunning financial turnaround. The economic recovery in the U.S. did help as well.

Schultz is an easy guy to like. I’ve watched numerous interviews of him. His earnestness, politeness and passion-accompanied by his trademark toothy smile-underscore this guy’s drive for growth and results.

It’s an open question why he remained as chairman for as long as he did while the company floundered. In listening to him during interviews, there almost seems to have been a detachment from Starbucks during this period of decline. However, Schultz is back firmly in the saddle as CEO, and it’s clear to me that he has a clear vision where the company is going. His plans for East Asia are indeed very impressive. So stay tuned for a fascinating leadership story about a fellow who grew up in a poor family.

I happen to like Starbucks – a lot. But there are many people who don’t, with some even despising it for a variety of reasons: it’s too big, too cookie cutter in format, serves mediocre coffee and bland food products, picks on the little guy, etc. The company’s far from perfect, but I can say that my experiences have always been positive. I’ve been in Starbucks from Canada’s east coast to its west coast, down through the US Midwest as far down as San Francisco and San Diego. Here’s what you get: very good service in a clean modern setting with decent coffee, clean bathrooms, and good music. While there are other local and coffee chain establishments that serve better quality coffee, which I frequent in my home town, they don’t provide the same consistent experience – great coffee but sometimes crappy service or cranky staff, uncomfortable chairs, dirty floors and tables, and washrooms you wouldn’t let your dog use.

Now that Starbucks, after its eyepopping growth during the past decade, has to face the music like most retailers in North America, it’s having to reexamine itself. I have a lot of respect for Howard Schultz, not just for what he accomplished with the company, but his incredible entrepreneurial dirve as a young lad. It’s people like Schultz who symbolize why America is the great innovator, when a young boy from a poor background pulls himself up by the bootstraps, taking risks, creating a vision and enrolling others in it. But if there’s one feature of American business that has been responsible for many rapid corporate ascents and subsequent descents is hubris.

In his new book “How the Mighty Fall,” business author Jim Collins
provides a number of revealing glimpses into why so many American companies have fallen. With the problems Starbucks is facing, shutting hundreds of its stores and laying off thousands of employees, Schultz jumped back in the saddle as CEO a year and a half ago in an attempt to stop the slide. Years of naively optimistic growth projections, accompanied by a healthy dose of hubris, place Starbucks in its current state.

In a recent interview with Business Week Schultz spoke about the numerous changes he has initiated since resuming command, including one particularly interesting project involving a new concept store. Through a leadership lense I find this project compelling, since it involved Schultz giving a small group of his employees a small budget to develop a new type of coffee shop that would compete with Starbucks. Some five months later in June 2009, 15th Ave. Coffee&Tea opened its doors in Seattle. Because it sells wine and beer Schultz wanted a different name created. However, a small sign on the door states “Inspired by Starbucks.”

It’s far too early to claim whether this new concept store will have any legs and expand. Some commentators familiar with Starbucks history are highly skeptical. One media expert based in San Francisco made the argument on CBC radio last week that Starbucks is not being honest with this approach since it is deceiving the public with its illusion of a store that will compete with its traditional stores. Maybe so. But the next day on CBC radio, all of the feedback presented from listeners was contrary to what the SF expert had claimed.

Schultz is an innovator who shuns R&D, preferring to talk to customers and emplyees to gather feedback and to generate new ideas. One big advantage that Starbucks has in contrast to small operators is that if a certain project is not delivering the expected results, it can quickly kill it, as what has happened in the past. With small, independent stores, not getting it right the first time can lead to a quick descent into bankruptcy.

It will be interesting to see how Howard Schultz leads Starbucks into the future. In a recent post, I talked about 10 lessons for Aspiring Leaders. While Schultz is in my view a strong leader, these lessons are highly relevant to his task at hand. Capitalism is about risk-taking, but the current economic conditions and uncertainty about the future will place Starbucks and many other companies on a razor’s edge. But at the core of any large change effort is a company’s people. Howard Schultz appears to understand this.

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