Elevating the Bottom Line: Howard Schultz of Starbucks

UPDATED: October 26, 2010
PUBLISHED: October 26, 2010

Howard Schultz wasn’t an expert on coffeehouses when in 1980 he first became enamored with a small coffee bean retailer in Seattle’s Pike Market. During a buying trip to Italy a year after he joined Starbucks as its director of retail operations and marketing in 1982, Schultz was struck by the “romance of the coffee and a sense of community that existed in all the coffee and espresso bars” in Italy. He began devising plans to bring a “front-porch” atmosphere to the American coffeehouse market. (Schultz would become Starbucks’ chairman and chief executive in 1987.) “I wanted to blend coffee with romance, to dare to achieve what others said was impossible, to defy the odds with innovative ideas, and to do it all with elegance and style,” Schultz wrote in his 1997 book, Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time (Hyperion Books). Schultz developed and expanded a caffeinated version of the Cheers model, a place where everybody knows your name, with the twin tenets of serving “a great cup of coffee” while building “a company with soul.” The company chose to buy and roast all of its own coffee. It also made a couple of unprecedented workplace decisions for retail—providing all employees working at least 20 hours a week with comprehensive health coverage, including coverage for unmarried spouses, and introducing an employee stock-option plan. These moves boosted loyalty, and led to low worker turnover. As a result, the company became a regular on “Best Places to Work” and “Most Admired” lists. “If I want to gauge the greatness of a company, particularly in relationship to its impact on its community, I start with how it treats the people closest to them—first of all its employees and then customers,” says author Calloway, who wrote Becoming a Category of One: How Extraordinary Companies Transcend Commodity and Defy Comparison (2nd Edition, Wiley & Sons, 2009). “There’s a lack of congruence if a company does all sorts of grand things in the world but doesn’t treat its employees well. I think that disqualifies them from being a great company.” Amid their growing success, Starbucks and Schultz proved enthusiastic philanthropic citizens. Among his many acknowledgements, Schultz received the National Leadership Award for philanthropic and educational efforts to battle AIDS in 1999.

The Second Act

When Schultz resigned as CEO in 2000, the company was in robust shape as one after another Starbucks shop popped up on busy corners in American communities. Although he remained chairman, the company’s fortunes changed without Schultz at the rudder. An unforgiving economy that changed consumer behavior and some strategic missteps took their toll on the company. When Schultz re-emerged as CEO again in 2008, the retailer was in crisis. “The past two years have been transformational for the company and, candidly, for me personally,” the 57-year-old Brooklyn native says in the July 2010 Harvard Business Review. “The decisions we had to make were very difficult, but first there had to be a time when we stood up in front of the entire company as leaders and made almost a confession, that the leadership had failed the 180,000 Starbucks people and their families. We had to admit to ourselves and to the people of this company that we owned the mistakes that were made. Once we did, it was a powerful turning point. It’s like when you have a secret and get it out: The burden is off your shoulders.” In what Schultz considers a watershed moment for the company, he took 10,000 store managers to post-Katrina New Orleans for a character-and-values boot camp. According to the company, its employees logged more than 54,000 volunteer hours, and it invested more than $1 million in repair projects in the ravaged city. “If we hadn’t had New Orleans, we wouldn’t have turned things around,” Schultz told the HBR. “It was real, it was truthful, and it was about leadership…. We reinvested in our people, we reinvested in innovation, and we reinvested in the values of the company.” Schultz is writing a new book, scheduled for March 2011 publication by Rodale Books, because “the world has changed in ways I couldn’t have imagined, testing Starbucks as a company and challenging my own understanding of the responsibilities required of a leader,” he said in an April press release. “My motivation is to chronicle Starbucks’ transformation and how we confronted these challenges by reaffirming our core values and reinventing our company from the bottom up.” The revival has had its rocky moments, but the most recent company financials are trending upward again. The brand, which is operating more than 17,000 stores in 50 countries, is seeking to help meet the need for human connection and a sense of community, whether the venue is in Seattle or Hong Kong. “I think we’ve demonstrated that the strategy is right and the balance between profitability and having a social conscience and being a benevolent company will lead to significant long-term value for shareholders,” Schultz told the HBR. Whether the product is books, burritos or coffee—or computers or tractors—a successful business formula must extend beyond the front doors of an organization, into the lives of employees and customers. “My big starting point is the vision of a company, a ‘who are we and what’s important here?’ measurement,” says author Calloway. “That thinking should make sense not only for how you make money but in a larger sense for who you really are.”