Starbucks: a Great Company, a Great CEO, an Overzealous Mission Statement

Starbucks is an amazing success. And CEO Howard Schultz no doubt deserves much of the credit. As Travis Bradberry wrote in Entrepreneur Daily, “While many factors contribute to Starbucks’ immunity to economic trends, most are driven by Schultz.”

David A. Kaplan, writing for Inc., told the story succinctly:

“Schultz joined Starbucks in 1982 as marketing director,” Kaplan wrote. “It was only a small Seattle chain selling coffee equipment. Over the course of nearly two decades, he gained control and transformed the company into a business selling fresh-brewed cappuccino by the cup, but more so about offering ‘an experience’ – a ‘third place’ between home and work that was not simply transactional. Starbucks coffeehouses proliferated, the company went public, and all was well.”

That was chapter one. In 2000, with everything running smoothly, Schultz reassigned as CEO. He turned day-to-day operations over to others but stayed on the board.

For a while, the business grew strongly. By 2007, Starbucks had 15,000 stores. Fifteen thousand!

And it was profitable. Very profitable.

But Shultz was not happy. He felt that it had lost its “soul.” That it had become a company run by bean counters “obsessed over gross margins rather than store atmosphere and company values.” (I talk about this in my book Ready, Fire, Aim. It is the principle danger for Stage Four entrepreneurial companies.)

On Valentine’s Day, Shultz sent a memo to senior leadership in which he mourned the “commoditization” of the brand. This was somehow leaked to a gossip website. And before long, the stock price was falling.

By January 2008, it had taken a 15-month dive.

“The financial vultures circled,” Kaplan continued. “Obituaries were drafted. But instead of presiding over a funeral, Schultz took a series of risks to restore the company’s luster.”

He returned to work and shut down 800 stores. He laid off 4,000 employees. (Including most of the top executives.) He closed all U.S. stores for half a day so baristas could relearn how to make espresso. And he brought 10,000 store managers to New Orleans to bring to life the company’s old “soul.” At a cost of $30 million.

For a while, the market was skeptical. The share price hovered and dipped. But gradually, said Kaplan, the combination of “a reinvigorated staff, modernized technology, shrewder operations, the introduction of Via premium instant coffee… brought prices up again.”

Starbucks’ rebirth was every bit as impressive as Apple’s.

By 2014, six years after his return, Starbucks’ market cap had multiplied nine times from its nadir. By 2016, it had surpassed $60 billion.

Every week, Starbucks serves more than 70 million customers in 20,200 stores in 64 countries. And Shultz has made it clear that he intends to continue the company’s amazing expansion. He has great hopes, in particular, for China.

But it’s not just growth that Shultz is focused on. According to Travis Badberry, Shultz’s vision for Starbucks is “about much more than making money selling coffee; Schultz is committed to selling an experience and a lifestyle, both of which are inspired by a trip to Italy as a child, where he was drawn to the cafe scene.”

He quotes Schultz as saying: “Unfortunately, we live in a sea of mediocrity in all walks of life.”

I am suspicious. This is a general grouse, not a specific and thus believable assertion. Many if not most successful new companies are committed to excellence more than companies have ever been.

The Shultz quote continues: “We live amid a fracturing of civility. Everywhere we go as consumers, we’re getting people who don’t want to reach into our hearts or know who we are; they want to reach into our wallets and get some money.”

Reach into our wallets? Sure. That is the nature of commerce. But “reach into our hearts”? Is that something I want?

Look, I’m 100% in favor of having and communicating (especially to employees) corporate values that are beneficial to customers. But I also think that when you are articulating a corporate mission statement you should keep it real.

Yes, Shultz has created one of the great businesses in our time by turning a coffee shop into some sort of comfortable, public living room. Starbucks’ customers – whether they are Wall Street brokers or recovering addicts – feel welcomed to spend long stretches sipping coffee while reading or working or surfing the Internet. And they’ve grown addicted to the idea that Starbucks’ coffee is better.

A mission statement that is more about that and less about reaching into hearts would work better with me.

But maybe you disagree. If so, let me know.