Picking up the pieces

Onward by Howard Schultz

THIS book is an account of the remarkably successful Starbucks chain of coffee shops that changed the general population’s relationship to coffee in most Western countries.

From three coffee shops in 1982, Starbucks grew to 16 000 shops in 54 countries, employing more than 200 000 and serving nearly 60 million people each week.

However, this is not another airbrushed account of a company’s spectacular success. This is an account of a company’s fall, and how it rose again. This is a detailed account of the glory, but also of  the failures and misdirected initiatives.

For years Starbucks had been delivering exciting returns to shareholders, and their employees (called partners,) shared in this success.

It was the first US company to offer part-time employees the unusual benefit of medical aid and a share in the company in the form of stock options. It was considered “a great place to work”.

The founder, Howard Schultz had been running the company as CEO until 2000 and then assumed the role of chairperson. The company’s share price rose, it grew in size and profitability each quarter - until it didn’t.

In the pursuit of growth, the company had lost its way, not suddenly, but slowly and steadily.

At the heart of the problem was focus. The task of partners, the Starbucks name for employees, had always been to “deliver on the unexpected” for customers. The atmosphere of the stores was to be warm and friendly, the coffee customised, the service fast and friendly.

Shultz had created what he called the “third place”; there is your home, there is your office, and there is your coffee shop. At the third place, one paused to read, or meet, or think, or simply to grab a cup on your way to or from work or during work. 

The company was opening as many as six stores each day. Every quarter, Wall Street and Starbucks executives expected shops to exceed past performance by showing increased revenue.

For the past 16 years they had achieved 5% quarterly growth. This unsustainable achievement has two requirements: to achieve it you have to give it your full attention, and other matters cannot get your attention.

As Schultz visited Starbucks stores, he recalls noticing that they were no longer “celebrating coffee” and focusing on the customer experience. They were focused on serving Wall Street, and as he puts it: “Our customers deserved better.”

The act of returning as CEO requires many changes at many levels, and the book describes these pain-filled implications in detail. Decent, hard-working executives have to go. The company’s staff have to continue to trust the company with their livelihoods, at the same time as they are facing some hard and painful truths.

Those who have invested their money in the company have to trust it with their wealth, which they can so easily withdraw.

Shultz had spent the two years before returning to run Starbucks observing and talking about what was wrong with Starbucks. The dominating idea at the centre of his thinking was to reignite Starbucks’ connection with its customers and their love for coffee.

The manner in which he returned to head the deeply troubled, widespread, huge company would be critical to the success. Unlike the descriptions of this type of planning in other accounts of turnarounds, this has a human, authentic feel, not a clinical and “professional” one.

It is told from the perspective of a man who is passionate about his company, the icon he had built, and the revolution in coffee drinking he was so proud of.

To make matters worse, his return was after the company’s worst three-month performance in its history as a public company and during a national economic meltdown.

The book does not describe his solution; he didn’t have one. It describes only his road map and commitment to create long-term value.

“I felt as if the team and I were racing to fix a sinking ship while at the same time charting its course and setting sail. And it didn’t help that the economic waters were getting rougher.”

The roadmap was founded on his aspiration: to become an enduring, great company with one of the most recognised and respected brands in the world, known for inspiring and nurturing the human spirit.

The turnabout had seven goals, many of which would mutate as more of the company’s woes revealed themselves.

The first goal was to get back to the origins of the company’s journey by focusing on the product and becoming the “undisputed coffee authority”.

It was Schultz’s love of coffee and coffee shops that started the journey, not a quest for wealth, or spotting an opportunity.

He was able to assert with pride that through their history only 3% of the world’s highest-quality Arabica beans were ever good enough to make it into their stores.

The second goal was to engage and inspire the staff, so often overlooked as a company lurches from one failure to the next. Starbucks had always believed that they were a people business that sold coffee and needed to reinforce this.

The third goal was to focus on the emotional attachment their customers have with the shops. This subtle, way off balance sheet issue, is always at the heart of a retailer’s success.

The depth of this emotional attachment surfaced when the decision had to be taken to close 600 shops in the US that were underperforming and could never perform. Of these, 70% had been opened in the previous two years when the company lost its way as it focused on Wall Street.

Customers of those shops wrote, called and petitioned Starbucks not to close “their Starbucks” - such is the connection people have to Starbucks.

The book is not a textbook on how to fix a deeply troubled business. No two failing business are ever the same. It is definitely the best book on the subject I have found, and one that will inspire those charged with a turnaround with its thought-provoking approaches.

Readability:   Light --+-- Serious

Insights:       High -+---- Low

Practical:       High ---+- Low 

- Fin24

*Ian Mann of Gateways consults internationally on leadership and strategy. Views expressed are his own.