Starbucks (with Howard Schultz)

Starbucks's journey from a small local chain selling coffee beans to the global coffee house icon it is today is a remarkable tale of vision, timing, and business acumen. The company's early history laid the groundwork for what would become a new industry in the American and global marketplace.

The original Starbucks founders created a small, local chain focused on selling coffee beans, not the coffee house experience Schultz later developed.

Starbucks was founded in 1971 in Seattle's Pike Place Market by Jerry Baldwin, Zev Siegel, and Gordon Belker, drawing inspiration from Peet's Coffee Company in Northern California. Initially, they did not roast their own beans but sold coffee sourced from Peet's. However, Starbucks had a mission to educate consumers about what good coffee tasted like, leading to the sale of beans and coffee-making equipment.

Starbucks at the time had a small chain of three stores when Howard Schultz entered the scene in 1982. The focus of these stores was solely on retail, without servings of ready-to-drink coffee, emphasizing the quality and freshness of their product. Early growth strategies even included a mail order business due to the influx of tourists visiting the Pike Place Market.

By 1987, Schultz bought the six original Starbucks stores and included two that were under construction from his earlier venture, Il Giornale coffee bars. By the end of that year, the combined company had 11 stores, setting the stage for subsequent nationwide and then global expansion.

The original founders would later move to California, with a historical note that Peet's would eventually be considered the original Starbucks, and Starbucks itself was, in essence, an extension of Il Giornale before rebranding under Schultz. After the acquisition, Schultz was adamant about operating without debt, a stark contrast to the original company's financial state after purchasing Peet's, which had a six-to-one debt-to-equity ratio.

Schultz's experience working at Xerox taught him valuable sales and customer service skills that he would later apply at Starbucks.

Before his time at Starbucks, Howard Schultz honed his salesmanship at Xerox, where he became a skilled salesman. Schultz’s modest upbringing, marked by financial struggles and experiences of his family dealing with debt and bill collectors, deeply influenced his business ...

Howard Schultz's introduction of an immersive coffee house experience to the United States reshaped the way people consumed coffee, transforming it from a commodity into a premium, experiential brand. Schultz's vision was inspired by the Italian coffee bar culture and eventually became the defining ethos of Starbucks.

Schultz's pivotal trip to Italy in 1983 opened his eyes to the potential of creating a premium, experiential coffee brand, unlike the commodity coffee market that existed in the U.S.

Schultz described his transformative experience upon visiting a trade show called Maciej in Italy. He compares the revelation of the Italian coffee bar environment to stepping from a black and white film into a vibrant color movie. Impressed by the community-driven nature of Italian coffee bars, Schultz saw an opportunity in not just focusing on the romance of espresso but also the idea of community itself. He observed a lack of this communal coffee experience in the U.S. market.

Schultz admits that despite the cultural importance of espresso in Italy, he believed for a long time that Starbucks should not expand there, due to the respect for Italian coffee culture and the anticipated scrutiny. It was not until Starbucks could present itself in the most respectable way that Schultz entered the Italian market, despite his observation that the quality of coffee in Italy was not as it once was—with some exceptions.

Schultz's insistence on elevating the coffee experience, rather than treating it as a commodity, became a core tenet of the Starbucks brand and business model.

Upon returning from Italy, Schultz's passion convinced the original Starbucks founders, Jerry Baldwin and Gordon Bowker, to let him open a coffee bar within the sixth Starbucks store in Seattle. Here, Schultz personally introduced customers to lattes and cappuccinos while working behind the counter. The customer count soared from 200-300 to an additional 500 ...

Starbucks, under the leadership of Howard Schultz, pursued an aggressive growth strategy that took the company from a regional brand to a global powerhouse in a relatively short amount of time.

Starbucks pursued an aggressive growth strategy, rapidly expanding its store count in the U.S. and then strategically entering new international markets.

Schultz's focus on real estate selection and brand-building through partnerships (e.g. Costco, United Airlines) allowed Starbucks to scale quickly while maintaining consistent brand identity.

Schultz had a vision to expand Starbucks rapidly, growing from six stores over 17 years to a plan of 26 in one year, and over 100 in five years. The aggressive domestic growth, influenced by the competitive pressure of regional competitors like Gloria Jean's and their franchising model, led Schultz to prioritize expansion into LA, despite potential unpreparedness. Success in LA, characterized by favorable weather, media presence, and celebrities, helped establish Starbucks as an iconic brand that was accessible to all, from CEOs to blue-collar workers.

Howard Schultz describes Starbucks's brand equity as being much larger than the size of the company itself, even when they had around 800 stores. He notes the challenges of keeping up with rapid expansion, stressing the importance of anticipating or catching up with the company's need for infrastructure, people, and systems to support growth.

Howard Behar joined Starbucks in 1989 and Orrin Smith in 1990 to focus on operating systems, store design, staff training, and customer flow—all factors crucial for successful expansion domestically.

Schultz credits Jeff Brotman of Costco and Jim Sinegal for their mentorship in strategic decisions, like selling Starbucks coffee in Costco, which led to increased volume in the eastern stores of Starbucks due to their proximity to Costco. Partnerships with United Airlines as the official coffee and Barnes & Noble for store locations inside their bookstores played significant roles in customer acquisition and global brand building.

Starbucks's successful entry into the Japanese market in the late 1980s demonstrated the brand's potential for global expansion and the power of local partnerships.

Though initially unsure, Starbucks made a pivotal move into Japan after receiving a heartfelt letter from a Japanese company. Schultz was astonished at the reception on opening day in Tokyo, with customers lining up despite the hot weather. This successful venture in Japan proved the brand's ability to become a truly international company.

Starbucks's ability to adapt its offerings to local tastes and cultures, while maintaining its core identity, enabled it to thrive in diverse ...

Howard Schultz’s vision for Starbucks was deeply rooted in his personal experiences and the aspiration to create a company with an employee-centric culture, which led to initiatives that attracted and retained a committed workforce. This vision has significantly influenced the company's growth and brand identity.

Schultz's personal experiences growing up in a low-income household motivated him to establish an employee-centric culture and generous benefits at Starbucks.

Howard Schultz wanted Starbucks to be a company that not only offered respect and dignity to its employees but also provided exceptional benefits. Inspired by the hardship and disrespect his father, an uneducated blue-collar veteran, faced in the workplace, Schultz was determined to make his employees feel valued. He spearheaded the provision of comprehensive health insurance for part-time employees, motivated by his own childhood in a family without such benefits.

Initiatives like the Beanstalk stock option program and comprehensive health insurance for part-time workers helped Starbucks attract and retain a committed workforce.

In a revolutionary move for the time, Schultz proposed that equity in the form of stock options be given to every single employee. The resulting Beanstalk program, instituted the year before the company's IPO, led to employees, referred to as partners, receiving the equivalent of 14% of their base pay in stock options at the end of the year. The provision of health insurance to part-time workers and the Beanstalk program have made a lasting positive impact on Starbucks's culture and brand.

Starbucks's emphasis on the "human" side of the business, such as customized customer interactions and community involvement, became a key competitive advantage.

Howard Behar is credited for contributing to the company's cultural texture and focus on human values. Under Behar's leadership, Starbucks corrected early mistakes in the Chicago market, illustrating the importance of prioritizing the human element even as the company scaled rapidly. Schultz has always emphasized that being a performance-driven company through the lens of humanity is fundamental to Starbucks, asserting that any time the company has lost its way, it was because people in power failed to understand this essential principle.

Howard Schultz also reflects on Starbucks's company culture in action, noting Belinda Wong’s initiative to provide health insurance for the parents and grandparents of Starbucks's partners in China. This innovative benefit exemplified the company's human-centered approach, as did the support shown to ...

Starbucks's journey of integrating advanced technology like mobile ordering apps has driven significant customer convenience and operational efficiency but has also presented challenges that could erode the in-store experience that the brand is known for. Howard Schultz, who returned as interim CEO in 2022, emphasizes the crucial balance between technological innovation and preserving Starbucks's human touch.

Starbucks's embrace of new technologies, such as the mobile ordering app, initially drove significant growth and customer convenience.

Starbucks has not always been at the forefront of technology; for example, point of sale terminals at Starbucks were DOS-based through 2008. However, the introduction of the mobile ordering app marked a new era for the company. Schultz acknowledges the convenience offered by the app, which Adam Brotman and Steven Gillette initiated. As Schultz mentions, 33% of Starbucks orders are made through mobile order and pay, significantly influencing the company's efficiency and customer experience. The app also provided financial benefits like the advantage of "float" from advance payments by customers.

However, the rapid adoption of mobile ordering also created operational challenges and threatened to erode the in-store "third place" experience that was core to Starbucks's identity.

Despite its advantages, the mobile app gave rise to new issues. Schultz notes the deteriorating community and "third place" experience in stores due to mobile ordering becoming the primary mode for many customers. Delays and congestion in pick-up areas led to dissatisfaction, something Schultz likens to a "mosh pit" experience. Operational challenges emerged, and the company struggled to anticipate the technological refinements needed to solve these issues.

During his absence between 2018 and 2022, Schultz felt Starbucks lost track of its heritage and tradition. With his return, Schultz was surprised by the lack of investment in the company's partners and culture. He redirected funds from stock buybacks into the company to address these issues and work on operationally bringing the company back to a healthier place.

Schultz's return as interim CEO in 2022 highlighted the need for Starbucks to strike a balance between technological innovation and preserving the brand's human touch.

Realizing the impact of technology on Starbucks's culture and customer experience, Schultz speaks to the importance of maintaining the touchpoint between the customer and the barista, despite challenges with scale and ubiquity. He asserts that Starbucks should not become a mere utility prioritizing efficiency over personal interaction, especially when stores become very busy. Schultz points out the complexity of nurturing the company culture among new employees and the importance of not losing sight of the core values despite positive financial metrics.

Despite concerns, Schultz reflects on how the mobile app has added velocity to the customization of orders, empowering customer preference. David Rosenthal and Ben Gi ...