Howard Schultz is the classic rags-to-riches tale - from growing up in the New York housing projects to CEO of the biggest coffee shop chain in the world.
Schultz was born in 1953 in Brooklyn, New York. His parents worked various blue-collar jobs and the family often struggled to make ends meet. Despite this, Schultz was successful at school and sports, and earned an athletics scholarship to Northern Michigan University. He was the first person in his family to go to college, and graduated with a degree in Communications in 1975.
In 1979 Schultz went to work as a general manager for Hammarplast, a Swedish drip coffee machine company. In 1981 he visited a client in Seattle, a coffee-bean shop called Starbucks Coffee Company. Immediately impressed by their coffee knowledge, he kept in touch with the company and went to work for them as director of marketing a year later.
On a buying trip to Italy, Schultz had what he called an epiphany. He saw that coffee bars in Milan were on every street, and served not only as places to buy coffee, but also as meeting-places and mini town squares. He wanted to bring that to the US – to make coffee-shops a major part of society.
On his return to the States, Schultz tried to convince Starbucks to start offering espresso as well as whole-bean coffee. Although they were initially interested, they decided against the idea as they didn’t want to “go into the restaurant business.” Schultz decided in 1985 to leave Starbucks in order to pursue his coffee-shop idea. With the assistance of Starbucks owners Jerry Baldwin and Gordon Bowker, as well as other investors, Schultz opened the café ‘Il Giornale’ in 1986, which was immediately popular. Two years later, Starbucks wanted to close the retail arm of their business, which Schultz bought for US$3.8 million. He merged the stores with his own, and rebranded them all as “Starbucks”.
Schultz set out to overhaul Starbucks to his vision of serving more than just basic filter coffee – introducing espressos, lattes, and mochas into the range. He also sought to create an enjoyable café atmosphere where people would want to spend their time.
A major focus was the service provided by the staff at Starbucks. Schultz realised that if he wanted to create a place where people would linger and return to, the service needed to be excellent. He thought that his staff would perform better if they felt proud of their jobs, which were often seen as menial. He implemented extensive training programmes and offered decent wages, health care, and stock options to all staff. He gave staff a vested interest in the company, which resulted in greatly reduced turnover and better service for his customers.
Schultz also didn’t believe in franchising, maintaining ownership of all branches, even as they grew from 425 stores in 1994, to over 2,200 in 1998.
Starbucks had its initial public offering in 1992, with shares rising from $14 to $33 in the first day of the IPO.
Although Schultz was a coffee purist, he was also a pragmatist. Frappuccinos, Starbucks’s signature iced drink, was brought into stores in 1995, as an attempt to keep patronage up during the summer months when consumption of hot drinks dropped. They became so popular that by the next year Pepsi bought the rights to sell a bottled version of the drink.
In 1996, Starbucks expanded outside the US – first in Japan, then across the globe. This move forced Starbucks into selling food – something Schultz resisted as it took the focus away from coffee. But eventually he had to concede, as expansion into China and Taiwan was proving unsuccessful, because patrons were used to places where hot drinks were served as an extra to food.
In 2000, Schultz stepped away from the helm of Starbucks, to become the owner of the Seattle Supersonics NBA team. His tenure as owner didn’t go particularly well – he was criticised for running the franchise as a business rather than as a sports team. He ended up selling the team to buyers from Oklahoma in 2006 – which made him unpopular in Seattle, as the new owners moved the team out of Washington to Oklahoma in 2008, where it became the Oklahoma City Thunder.
By 2008, Starbucks was struggling financially. The global financial crisis meant that people had less money to spend on coffee and Starbucks itself was now seen as a corporate, mass-market place. Schultz came back on board after his run with the Supersonics, and went to work reinvigorating the coffee chain and trying to bring something of the original atmosphere back. He refocused on coffee-making, even temporarily closing over 7,000 US stores to retrain staff on how to make the perfect espresso. Over the next two years under Schultz’s guidance, the chain had a resurgence in the marketplace.
In 2015 there were more than 21,000 Starbucks stores in 65 countries and the company was valued at US$77 billion.
12 business tips from Howard Schultz:
- Have a vision, and stick to it.
- Ask your customers questions – know what they are looking for, so you can provide it.
- Know your customers and your employees – both have value in driving your business.
- Be innovative – do something new to impress your customers.
- Go against the grain – do what your competitors aren’t doing.
- Everything matters – even the small stuff.
- Choose the right partners.
- Be consistent.
- Fit in with the region – don’t expect the same things to work everywhere.
- Have the right leaders – they need to be able to rally staff and lead from the front.