Making Starbucks Great Again

Starbucks (Nasdaq: SBUX  ) CEO Howard Schultz tells a very moving story about his father in his new book, Onward. When Schultz was just 7 years old, he came home one day to find his dad sprawled on the couch with a cast on his leg that went from his hip to his ankle. The elder Schultz had fallen on a sheet of ice, breaking his ankle and his hip. He had no health-care insurance and would receive no worker's compensation benefits. Instead, he was sent home and dismissed from his job.

That episode had a huge effect on Schultz, who wanted to "build the kind of company that my dad never got a chance to work for." And when Schultz decided to return to Starbucks as CEO in 2008, it was the memory of his dad's work life that was partly behind his decision to return. Schultz felt an obligation on behalf of all his employees (whom he calls "partners") to right the sinking ship.

The story about his dad perhaps explains Schultz's obsession with every single aspect of the Starbucks experience. Prior to taking over again as CEO, he was outraged by the breakfast sandwich, and began his own personal jihad against the aroma of burnt cheese. A couple of years later, prior to the launch of VIA, he vowed to delay going forward, if the company couldn't come up with a better design for the packaging. Schultz has famously said that "everything matters," and Onward really brings that point home.

This book is about Schultz's return as CEO and his efforts to turn around a situation that had led to what he refers to as the "watering down of the Starbucks Experience" and "the commoditization of our brand." Schultz believes that the company grew too fast and moved too far away from its core. Onward is essentially the story of a founder/CEO who returns in order to "make the changes necessary to evoke the heritage, the tradition, and the passion" of the true Starbucks experience.

Schultz is very conscious of the mixed record of returning CEOs. He cites Steve Jobs of Apple (Nasdaq: AAPL  ) and Charles Schwab of Charles Schwab (NYSE: SCHW  ) as ones who succeeded, but he also mentions Ted Waitt of Gateway and Paul Allaire of Xerox (NYSE: XRX  ) as examples of those who failed. He wondered which kind he would be.

Schultz made sure that he left nothing to chance -- no detail was too small for him to worry about, and no initiative was too big to tackle. Central to the turnaround was "The Transformation Agenda" that resulted from a bike ride with Michael Dell, who had also just returned as CEO of his own creation, Dell (Nasdaq: DELL  ) .

Among the seven pillars of the transformation agenda were "be the undisputed coffee authority" and "engage and inspire our partners." Schultz tells the story of how his team methodically addressed each of the seven pillars, a job that became increasingly challenging as America's economy deteriorated throughout 2008 and 2009. At one point, Schultz's obsession with detail became too much for his colleagues, and they actually asked him to leave a prep session for an analyst meeting the next day.

Fans of Howard Schultz, like me, will enjoy and appreciate this book. He talks often about his love for coffee, his family, and his partners, and it feels very genuine and heartfelt. It's also clear that this is a man who cares about making the world a better place -- his commitment, for example, to maintaining health care for his employees, despite the financial pressures facing his company back in 2008-2009, tells you a lot about the type of person he is.

The book isn't perfect, however. At times, it reads a bit like an annual report, and Schultz occasionally slips into management-ese. At one point, he reveals some leadership lessons he has learned. Slogans such as "grow with discipline" and "balance intuition with rigor" can feel hollow at times, though no doubt, Schultz really does talk and think that way.

But that's a minor, maybe even petty, criticism of a great leader who has built a remarkable company. One of my favorite parts of the book is an example of classic Howard Schultz.

He tells the story of a company event that was held in New Orleans during the depths of the financial crisis in 2008. He chose New Orleans because he identified with the loss and destruction that had happened there as a result of Hurricane Katrina. Almost 10,000 managers attended the event, and they all performed community service in addition to attending a variety of business activities.

The New Orleans event was big and brash and very risky, given the company's financial situation. But it was also idealistic and inspirational. I think it's a perfect example of what makes Howard Schultz a great leader. At one point in the book he says that a founder's perspective is unique. Onward makes a compelling case that only the founder's perspective could have made Starbucks truly great again.

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John Reeves owns shares of Apple. Apple, Starbucks, and Charles Schwab are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a bull call spread position on Apple. The Fool has written puts on Apple and owns shares of Apple and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 05, 2011, at 7:40 PM, swagv wrote:

    "Be the undisputed coffee authority"? Impossible. Smaller independents are running circles around them. Howard would be wise to recognize that they changed the game and their competition to the fast food chain set and stick to where they are, not where they were in 1993.

  • Report this Comment On April 06, 2011, at 1:16 PM, BfloTapps wrote:

    I don't see Starbucks even coming back to dominate. SWAGY is right, there are better options in the independent market. Starbucks coffee is bitter and nasty. The did pioneer the $10 fu-fu coffee but those days are gone.

    I'm personally am investing in a smaller upscale coffeehouse. SPOT coffee (SCFFF) out of Buffalo, NY. It is far superior in every way. To tiny for most fools to deal with now (just opening cafe #7) but a watch list candidate for any coffee lover. In 10 years they will supplant Starbucks, in my opinion.

  • Report this Comment On April 06, 2011, at 1:48 PM, TMFBane wrote:

    There's another component to being the undisputed coffee authority. Schultz and team are aiming to grow their Consumer Packaged Goods business (CPG) to ultimately be the same size as the retail business (which would require a ten-fold increase in revenues for CPG). Can Starbucks dominate the grocery store some day?

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