Onward: How Starbucks Fought for Its Life Without Losing Its Soul

by Howard Schultz

  I always say that Starbucks is at its best when we are creating enduring relationships and personal connections. It's the essence of our brand, but not simple to achieve. Many layers go into eliciting such an emotional response. Starbucks is intensely personal. Aside from brushing their teeth, what else do so many people do habitually every day? They drink coffee. Same time. Same store. Same beverage. There's a special relationship millions have developed with our brand, our people, our stores, and our coffee. Preserving that relationship is an honorable but enormous responsibility.

  In 2006, as I visited hundreds of Starbucks stores in cities around the world, the entrepreneurial merchant in me sensed something intrinsic to Starbucks’ brand was missing. An aura. A spirit. At first I couldn't put my finger on it. No one thing was sapping the stores of a certain soul. Rather, the unintended consequences resulting from the absence of several things that had distinguished our brand were, I feared, silently deflating it.

  In the memo, I spelled out my concerns.

  New espresso machines that we had installed in stores, while effectively increasing efficiency, were too tall. This unforeseen barrier prevented customers on one side of the coffee bar from watching baristas on the other side create their beverages. The height also kept baristas from engaging with customers in the same manner that had enchanted me back in Milan. I expressed this concern in the memo:

  When we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theater that was in play. . . .

  Also in stores, the full-bodied, suggestive, rich aroma of freshly ground coffee had become weak to nonexistent, due in large part to how we shipped and stored coffee grounds. Without it, Starbucks lost a way to tell a story that transported customers out of their day to far-flung places like Costa Rica and Africa. Ever since I had been with the company, we had banned smoking and asked partners not to wear perfume or cologne to preserve the coffee aroma. It is perhaps the most sensory aspect of our brand, and it reinforces the core of who we are: purveyors of the world's highest-quality coffees. Again, I articulated this in the memo:

  We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma—perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage.

  Finally, the stores’ design, so critical to atmosphere, seemed to lack the warm, cozy feeling of a neighborhood gathering place. Some people called our interior spaces cookie-cutter or sterile:

  Clearly we have had to streamline store design to gain efficiencies of scale . . . [but] one of the results has been stores that no longer have the soul of the past. . . .

  Without these sensory triggers, something about visiting a Starbucks vanished. The unique sights, smells, and charms that Starbucks introduced into the marketplace define our brand. If coffee and people are our core, the overall experience is our soul.

  “We desperately need to . . . get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks Experience,” I wrote, adding that competitors of all kinds were breathing down our necks.

  I could not allow us, or myself, to drift into a sea of mediocrity after so many years of hard work. I just could not do it. The time had come to speak up, from the heart:

  I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. . . . Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We have an enormous responsibility to both the people who have come before us. . . . our partners and their families who are relying on our stewardship.

  I titled the e-mail “The Commoditization of the Starbucks Experience.”

  On Valentine's Day 2007, my longtime assistant, Nancy Kent, typed up my handwritten thoughts and, after I made a few changes, e-mailed it to Jim and his team. I hoped my impassioned plea would unleash an honest, provocative conversation, prompting us to look in the mirror and get back to our core.

  Instead, the memo unleashed a public furor.

  Chapter 4

  Nothing Is Confidential

  I was sitting at my desk on Friday, February 23, when a colleague stepped into my office and looked at me incredulously. “Someone leaked the memo.” My jaw dropped. My forehead crinkled in confusion.

  “What?” I was not sure I had heard correctly.

  “It's on the Internet.”

  I swirled my chair around to face the three computer screens that streamed world news, market data, and e-mails to my desk throughout the day. A quick Google search and there it was: “The Commoditization of the Starbucks Experience” on a gossip website, for anyone to see. Investors. Competitors. Journalists. Starbucks’ partners. Staring at the screen, I was speechless. Not because my criticisms were now public. What upset me, what felt like a blow to my gut, was the leak. I could not imagine who would do such a thing.

  It was nothing less than a betrayal.

  In my life I place enormous value on loyalty and trust. It is intrinsic to my personal relationships and to the integrity of our company's culture, essential to how we conduct business with one another and with our customers. And while Starbucks is not perfect, nor am I, and people may disagree with some of our choices, we make it our business to uphold that trust, and we make amends if we fail.

  Unlike other brands, Starbucks was not built through marketing and traditional advertising. We succeed by creating an experience that comes to life, in large part, because of how we treat our people, how we treat our farmers, our customers, and how we give back to communities. Inside the company, there had always been an unspoken level of trust that, for more than two decades, had allowed us to empower partners and to communicate openly, always assuming that the information would be used to benefit the company.

  Disloyalty was not part of our moral fabric. So for me to sit in my own office and discover that someone close to me, someone inside Starbucks, had acted with such blatant, premeditated disregard for me, Jim, and the rest of the leadership team was a tremendous disappointment. It took me a while to digest it.

  But I had no choice. The deed was done.

  News of the memo had already spread, and phones on our media hotline were lighting up with calls from reporters. Was the memo real? Yes. Can we interview Howard? No. I could not do a single interview. It would have been too emotional. Instead, I helped Valerie O'Neil, then our director of corporate and issues management, craft a statement that accurately expressed my thoughts:

  The memo is legitimate. It is a reflection of the passion and commitment Starbucks has to maintaining the authenticity of the Starbucks Experience while we continue to grow. We believe that success is not an entitlement and that it has to be earned every day. We do not embrace the status quo and constantly push for reinvention. This is a consistent, long-standing business philosophy to ensure we provide our customers the uplifting experience they have come to expect.

  We released the statement.

  At one point amid the chaos, a welcome face unexpectedly appeared at my office door. Wanda Herndon is a straight-talking, fun-loving, wise woman who headed Starbucks’ global communications from 1995 until 2006, when she left us to launch her own consulting firm, W Communications. As many ex-partners do, Wanda often returned to visit. She and I had our own rich history of honest conversations, and when she popped in to say hello I was relieved to see her. I asked her to close the door. “Did you hear about the memo?” I said, still emanating disbelief. Wanda said yes, she knew about it, and as she sat down in front of my desk, I shook my head and spoke about how hurt I was about the breach of trust.

  “Howard,” she said in the matter-of-fact tone I'd come to expect, and appreciate. “Nothing is confide
ntial. This is the new reality.”

  It was not the first time Wanda had spoken these words to me. In the past she had even suggested I refrain from putting certain thoughts in writing. Yet Wanda also understood two things about me. First, that it is my nature to speak from the heart, usually unedited. Second, that I conduct my life with an expectation that people will do the right thing. Yet even with all my experience, I am still surprised when they do not.

  “This too shall pass,” Wanda told me. “Just hang in there.”

  She was a calming influence that day and helped me put the situation in perspective. With time, my hunger to find the person who leaked the memo—and fire him or her—faded as the source of the breach paled in comparison to its consequences, inside and outside Starbucks. Moving forward became more important than laying blame.

  Every organization has a memory, a history of achievements, mistakes, even unintended consequences that contribute to an ongoing dialogue as people mold an event's meaning for themselves. The tapestry of interpretations informs, and often directs, the organization's future. That February, my memo became part of Starbucks’ collective memory.

  Some partners strongly disagreed with my opinions. After all, the company was soaring. In 1992, when Starbucks went public, our market capitalization had been $250 million. Now it was approximately $24 billion. People who invested with us in 1992 had experienced an almost 5,000 percent increase in the value of that investment. Every week, Starbucks’ stores had 45 million visitors. We were the most frequented retailer in the world! Why complain? some murmured behind closed doors.

  Other partners, even those who shared my concerns, could not help but feel confused or insulted because they had worked so hard to make the company better and meet our growth goals—the very growth goals that I had championed. Weren't we just doing our jobs? They wanted to know. Then there were partners who saw the memo as nothing new, just another one of Howard's impassioned commentaries.

  But there was also a great deal of talk among partners that I was “right,” that a dirty family secret had finally been aired. A secret that could no longer be ignored. Topics that had been taboo, such as our myopic push for efficient, rapid growth at the expense of the Starbucks Experience, were suddenly open for discussion. It was as if a collective sigh of relief rippled through the corridors.

  As people at our Seattle support center—our name for Starbucks’ headquarters—and in our stores interpreted my words, I had to reconcile my own emotions. I worried that Jim may have felt personally attacked, as if I had publicly reviewed his job performance. Assigning fault was never my intent, publicly or privately. I was as culpable as anyone for the direction we were headed in.

  Plus, I had tremendous affection for Jim. Despite our differences, I wanted him to win and succeed, and after the leak I apologized to him for any embarrassment the memo may have caused him. Unfortunately, maybe inevitably, the leaked memo further complicated our relationship, widening the rift between us. In the months that followed, more partners e-mailed me and approached me in confidence to share their own concerns about the company. Others purposely avoided me, discounting me as little more than a cranky former chief executive who had lost touch with the business.

  Neither of these situations was good for Starbucks.

  Outside the company, the memo continued to take on a life of its own.

  It had first appeared on what was, in early 2007, a little-known blog called Starbucks Gossip. One of many third-party websites that focused on Starbucks, it posted news releases, articles, and mostly anonymous opinion pieces about the company.

  The day after the memo was posted, the mainstream media picked it up like a whirlwind. The Wall Street Journal. The New York Times. The Associated Press. Bloomberg, Reuters, the Financial Times. Online financial news sites and independent blogs. Articles quoted the memo and parsed my words, usually under dour headlines that implied, or stated outright, that trouble was brewing at Starbucks. Online, readers posted comments one after the other. Many of them stung.

  Stunned as I was that the memo had been leaked, I was also astonished by the depth of conversation it unleashed, as well as the speed. It seemed that everyone—customers, partners, analysts, reporters, industry insiders, and business “experts”—had an opinion about the memo, its motive, what it meant for the future of the company as well as what it said about me as a leader.

  Reactions swung to extremes. Some praised the memo as an entrepreneur's bold move to try to save his company. Others used my criticisms to support their own critiques. Yes, they agreed, Starbucks had expanded too far outside its coffee roots and was diluting the experience. Financial analysts acknowledged that our rapid expansion was necessary for growth, or they interpreted the memo as a strategic signal to Wall Street that we intended to slow our growth, which was not true at the time. Anonymous posts chastised me for not realizing that my words would get out; others insisted the leaked memo was a public relations stunt.

  Amid the circus of speculation, we captured the company's quandary in an interview with The New York Times: “The question is always, How do you keep things in balance?”

  That sentiment was, after all, the memo's point. Balance had always been Starbucks’ challenge. Fiscal responsibility and benevolence. Shareholder value and social conscience. Profit and humanity. Local flavor on a global scale. Now our challenge was to restore proper balance between our desire for growth and the need to preserve our heritage.

  Although the rush of news coverage, opinions, and false rumors was very frustrating, in retrospect it served two very important, and unexpected, purposes.

  First, the avalanche of press and punditry pushed me to accept another reality: Nothing that Starbucks or I do can be presumed confidential. The Internet simply exacerbates that fact. Going forward, the company and I would have to be much more cognizant of what we said and where. While I would continue to strive to speak transparently, I would do it through a much tighter lens.

  I also became more attuned to the true power of the virtual world.

  The heated online conversations about the memo were beyond Starbucks’ influence, more so than any other controversy we had experienced in the past. We were not perfect, but the good things about us, our values and the acts that distinguished us, these were getting lost in the public conversation. Our collaborative approach to working with farmers. The millions of dollars we invested in local communities. The health-care coverage and stock we extended to part-timers, at a considerable cost to the company. While we never put forth press releases about many of these initiatives—believing they were just the right things to do—we also were not getting credit for them.

  It was clear: Starbucks did not have the tools to participate in the online debates on a scale that would make much difference.

  Our website, with its beautifully designed pages that described our coffee and provided news and financial data, was primarily a one-way dialogue, inadequate in the digital age. Starbucks had no interactive presence online. No way to speak up quickly on our own behalf, to talk directly to customers, investors, as well as partners, or let them talk directly to us. To remind people of what we stood for. In short, we were losing control of our story, in the stores as well as in the world. I also began to reflect on new behaviors I was witnessing in our stores as well as in my own home, with my two teenage kids: the increasing number of young people on laptops and cell phones talking, texting, exchanging photos, downloading music, and watching videos, TV shows, and movies.

  Personally, I was no technophobe. Just tactile. I prefer to visit stores in person rather than read spreadsheets. I like the feel of a pen between my fingers rather than a keyboard beneath my hands. And I always try to meet people face-to-face, to see their eyes instead of just hearing their voices. But other than using e-mail and reading the news, I was not as tied to a computer or a BlackBerry as so many others were. But I could not ignore what was happening around me.

  The leaked memo helped me comprehend t
he enormous sea change occurring in how information was flowing as well as what was being communicated. Technology was redefining the nature of relationships and how people spend their time. This fundamental societal shift was affecting the psyche of our own people and our customers. But not until the memo leaked did it affect me, and none too soon.

  Only a week before I had handwritten the memo, Apple introduced its first iPhone.

  Four months earlier, in November 2006, Google bought YouTube for a reported $1.2 billion in stock.

  And five months earlier, a website called Facebook officially invited anyone over age 13—not just select groups—to join its social network.

  The times were changing, with or without Starbucks. I knew we could no longer tell our story only in our stores.

  I sensed a second challenge on the horizon. In addition to tackling mounting problems inside our company, we also had to innovate in the digital domain, to discover new ways to reach out and be relevant to consumers. I was not sure exactly where to begin, but we had to do something.