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

by Howard Schultz

  Everything had to be done with an eye toward disclosure regulations and legal formalities, as well as authenticity and sensitivity to our partners. I also wanted to personally touch as many people as possible, in person or by phone. It would be a logistical whirlwind that required precise execution. First, following my private meeting with Jim Donald, the board would have to meet and officially ratify the change in Starbucks’ leadership. Before the announcement, Nasdaq, the exchange where Starbucks’ stock trades, had to be alerted. After the announcement went out, a conference call with financial analysts had to be scheduled. For the Securities and Exchange Commission, we needed to prepare and immediately file an 8-K form documenting financial details of Jim's departure.

  Although Starbucks’ annual report was about to go to the printer, we still had time to revise the letter to shareholders so it came from me, as the new ceo, and reflected Starbucks’ new vision.

  I also needed to resign from my board position at DreamWorks to convey to everyone my complete commitment. I had already given up my board seat at eBay.

  How our partners received the news was of utmost importance to me. Without their support, we would not succeed. Many people would be very sad to see Jim Donald leave, that I knew. To temper reactions and allay uncertainty, one-on-one meetings needed to be arranged between our top leaders and myself, and a larger gathering of partners assembled. I valued Wanda's input on our communications strategy, and a few days before January 7, I invited her to my house without explanation. Not until she entered my home and saw several unfamiliar people working around a table covered with laptops and papers did she learn about my plans to return.

  Together, Wanda and I crafted an open letter to post on Starbucks’ website. I wanted it to evoke our heritage, to remind everyone of how the first Starbucks store had ignited my passion 25 years ago and how that same passion fueled me today. I still believed in our original mission, but had to acknowledge our trials and convey the speed with which we had to adopt a new operational mind-set.

  Significant change was about to occur, and our people would want to know what it meant for them and their jobs. So the team drafted a question-and-answer document, doing our best to anticipate and address people's main concerns. We made it clear that no one employed by Starbucks would lose their health-care coverage or stock in the company. For me, that would never be an option. As for the security of their jobs, that was a decision I could not yet predict, a promise I could not make.

  To ensure that my intentions were understood outside the United States, I also insisted on personally reaching out to our Starbucks vice presidents and joint-venture partners, who operated our stores in 46 countries. Calls to offices in different time zones had to be coordinated.

  Our overall objective was to be transparent and restore confidence in the future of Starbucks, to begin to turn around the increasingly negative sentiment while simultaneously acknowledging the real challenges facing the company. Rather than looking back and casting blame, I wanted to lean forward with concrete strategies and tactics. To do so, I would introduce a plan that would become a galvanizing force inside Starbucks: our own version of the Transformation Agenda.

  I was not sleeping much, and in the middle of the night I often contemplated just what I would say to our people the first time I stood in front of them as the new ceo. It had been more than seven years. I had never imagined I would be here again. So much time had passed, and I really couldn't predict partners’ reactions and what the tone in our offices would be that day. I did not prepare a formal speech, trusting that I would find the right words to strike a balance between urgency and optimism.

  Even with all that was on my mind, occasionally my thoughts wandered back to my parents, especially my dad. Just as the sadness of my father's work life had propelled me to pursue my own dreams as a young man, it was also, I have no doubt, partly behind my decision to return as chief executive. So many people's livelihoods and dreams—including Starbucks’ tens of thousands of partners—depended on the company's success. I could not abandon them.

  Finally, our team reviewed what seemed like dozens of documents and finalized the hour-by-hour schedule of events that would soon unfold.

  The first domino would fall Sunday afternoon.

  Despite the hurdles ahead, I felt ready for the job. I believed that Starbucks had an enormous potential to return to greatness, that the company had yet to be as good as it was going to be. I believed in the power of the brand, in our founding mission, and, most of all, in our people.

  I really did believe.

  Part 2:

  Confidence

  Chapter 8

  A Reservoir of Trust

  In the predawn hours of Monday, January 7, 2008, I drove along Seattle's hilly, tree-lined streets to Starbucks’ very first store. Vendors along the narrow alleys of Pike Place Market were just waking up to their day as I took out my personal key and unlocked the door to the dark shop. It was so quiet.

  The espresso machine was still asleep. Bags of coffee beans lined the shelves alongside rows of porcelain mugs and coffee tumblers. I ran my right hand over the original wood counter, feeling more than three decades of history beneath my fingertips. Nostalgia washed over me. In this store I'd learned how to make espresso as a young man. That was so long ago. Long before my kids and Il Giornale. Before I bought Starbucks, before the initial public stock offering, and before Japan and hundreds and then thousands of stores and legions of partners.

  I stood there in the dark and made two commitments to myself.

  One, I would not return to the role of ceo dwelling on our storied history. Instinctively I understood that we had to return to our roots, but if that heritage was not linked to a willingness to reinvent and innovate, then we would fail.

  Second, I would not cast blame for the mistakes of the past. Not only would it be unproductive, but also, given the accelerating slide of the company's sales and its stock, there was simply no time to point fingers. As chairman I shared responsibility for the crisis that Starbucks faced at the onset of 2008, and I had lessons to learn from our errors. But the number-one priority in the next weeks and months was to instill confidence in our future. Without confidence, people could not perform.

  The collective doubt that had emerged within and around Starbucks was palpable. I saw it on partners’ nervous faces and in their body language. I heard it in customer feedback. And it was embedded in our sinking stock price. Letting that doubt linger inside the company would chip away at the resolve required for the hard work ahead, stifling creativity and sapping the courage to make bold moves.

  Strategies and tactics were not enough to get us out of this mess, particularly in the early days of my return. Passion, that intangible concept many businesspeople belittle, was also essential, and as I locked up the Pike Place store I considered what needed to be done, starting that day: muster a collective faith in the original Starbucks Experience—our purpose and reason for being—and then refocus the company on customers instead of breakneck growth. But that faith was not something I could demand. I had to ask for it and, ultimately, earn it, day after day.

  Fortunately, both Starbucks and I had history on our side, and something I referred to as our reservoir of trust. Unlike other organizations or, say, a start-up with no past, Starbucks had a long past in which values and winning were part of the culture. The memory of how we historically tried to behave as a company and as individuals—going the extra mile for a customer or a colleague, for example—was not so far gone that it could not be tapped. Over the years, Starbucks and I had made deposits into the reservoir in the form of exceptional employee benefits and the respect with which we treated people. We'd made enough deposits that I could draw from it. But not forever.

  Resetting a beaten, dubious mind-set to an impassioned, confident one required, in my estimation, communication that was authentic, decisive, and concrete and came from all of Starbucks’ leaders. Not just me.

  I took a deep breath an
d exhaled before I got back in my car and drove to work.

  Later that day, at 12:45 p.m., behind the closed doors of our corporate boardroom, I stood at the head of a long conference table and addressed Starbucks’ chief financial officer, chief operating officer, and the senior leaders responsible for US and international store operations, our consumer packaged goods business, marketing, partner resources, supply chain, and legal affairs.

  “I am absolutely confident that we will turn the company around. It is going to be hard, and I am going to ask more of you than has ever been asked before. And you must ask yourself whether you believe in Starbucks’ mission, whether you believe we can do this. Whether you are up for it.”

  My tone was serious and stern. I wasn't returning to the chief executive post intent upon being liked. In fact, I anticipated that many of my decisions would be unpopular with various constituents. “I don't need a vote of approval from you. I just need one thing from you, and that is to fix the house because the house is on fire! And let me be absolutely clear,” I said. “This performance will not stand.” I went on to say that I had no tolerance for anyone in that room who did not believe in the company and our core mission. “If you do not, then let's have a private, respectful conversation, and you can leave the company with no hard feelings.” This was not one of my more aspirational moments, but it was still an honest one.

  The day before, early Sunday evening, Nancy had called members of the leadership team at home and asked them to be at my house at precisely 9 p.m. for an extremely important, confidential meeting.

  “Please do not tell anyone,” Nancy had requested, but that was all she had let on.

  Most on the team were settling in for a final weekend evening with their families when the phone rang. I disliked disrupting that time, especially without explanation. But to maintain confidentiality, Nancy could not explain the urgency or say that the rest of the team was also being asked to attend. To my surprise, one individual refused to come until after being called three times.

  One by one, Starbucks’ senior leaders pulled up to the front of my house, their car tires crunching on the driveway's stones as they parked. As they descended the few steps into the living room, they were taken aback to see their fellow team members. By five after nine, everyone was seated, wondering.

  I got straight to the point.

  “I have something important to tell you. I am going to come back as ceo, effective tomorrow.” It was as if a pile of bricks had hit the floor. “And Jim Donald has left the company.”

  The room was silent and serious. I think everyone was in shock. There was no hearty congratulating or obvious anger. Perhaps my tone made it clear that this decision was not up for discussion. It was done. Locked and loaded. The only option was to forge ahead in unison, and I handed each member of the team the press release, the next day's schedule, and an outline of his or her individual responsibilities over the next 48 hours.

  They had one night to prepare what they would say to their own teams before the news went public, as well as to reflect on what Starbucks’ new course meant for them. Several leaders had been hired or promoted by Jim and almost everyone liked him, so feelings about my return were definitely mixed.

  But in the boardroom the following day, the prevailing sentiment seemed to be united resolve. “We're in,” was a repeated refrain. Nonetheless, I considered the fact that climbing a mountain is not for everyone. Some people would not have the fortitude for the kind of journey I needed them to embark on, or the skill to make tough, quick decisions. Others simply would not have the faith in the brand or in me.

  Forty-five minutes later, at 1:30 p.m., I stood in front of more than 1,000 Starbucks partners who had crowded into the large communal space that spans our eighth and ninth floors, an area connected by an open staircase and brightened by skylights. The space is typically filled with pods of partners discussing business; now it was wall-to-wall with people gathered for an all-hands meeting—at Starbucks we call them open forums—that had been announced that morning, sparking curiosity throughout the building. The forum would be broadcast to our offices and roasting plants around the world.

  I had no prepared speech, just an intuitive sense of what to say.

  “Good afternoon,” I began. “I'm sorry to have you all abruptly gather here in the middle of the day and interrupt your schedules, but I have an important announcement to make.” The room was quiet except for shifting feet and the shuffling of latecomers arriving. “Yesterday, Starbucks’ board of directors had a meeting in executive session, and in that meeting it was concluded that I would be coming back as chief executive officer.” I paused and the abrupt sound of clapping filled the space, filling me with relief. “Thank you,” I said, and broke into a wide grin. “You always wonder when you make an announcement like that what the reaction could have been.” There were trickles of laughter as both the crowd and I relaxed.

  My goal during the next 30 minutes was, in large part, to ensure that people understood that Starbucks’ very survival was at stake, while at the same time helping them feel safe. I had to demonstrate my own confidence in the resiliency of our brand as well as my belief in our collective ability to rise above our own missteps. But beyond rhetorical cheerleading, I also discussed the plan I'd formulated.

  First, of course, I acknowledged Jim.

  The previous day at my home, Jim Donald found out that I would be coming back as ceo. Weekend meetings at my house were quite common, but asking colleagues to come there at the last minute was not something I did regularly. Still, despite the short notice, Jim readily agreed to come by without knowing why. When the bell rang, I opened the front door and we exchanged hellos and, while walking through the front hall, inquired about each other's family vacations. He followed me down the two steps into the living room, where we sat across from each other.

  This scenario had repeatedly played out in my mind.

  I knew what needed to be said: The board has been closely monitoring what has been happening at the company and feels that under the circumstances, we must act to restore shareholder value. The board feels it is my obligation, as chairman and founder, to take direct responsibility for doing so, and returning as ceo is the most direct way for me to have the authority to make the needed changes and see them through. More difficult to articulate given my inevitable discomfort with the situation would be my feelings. I wanted Jim to know how much I regretted that this conversation had to happen, that I think he is an exceptional professional and a wonderful man, and that I hoped he knew how deeply appreciated and liked he was throughout Starbucks. In the end, our conversation happened so quickly that I cannot recall the exact words I spoke to Jim before he looked at me with what I perceived as disappointment and surprise, accepted several legal documents that had been prepared for him, and left my house.

  Saying good-bye to people when they leave Starbucks never gets easier, even when I think it is the right choice for the company, and especially when I truly respect the individual. If I share a friendship with the person beyond work, this kind of career-altering event pretty much severs our personal bond, a cost I have reluctantly come to accept but never fully reconciled. Of course, as difficult as this process is for me, it is undoubtedly worse for those who leave.

  I went to the kitchen and made a fresh cup of coffee. Soon the Starbucks leadership team would arrive to hear the news.

  “Let me first acknowledge and pay special tribute to Jim Donald, who will be leaving the company,” I spoke into the microphone at the open forum. “It is very difficult and emotional when you have a business partner and a close friend who you work next to for five years, especially someone so well liked and admired, and for whom you have so much respect. Unfortunately, the business and responsibility we have is bigger than any one person—whether it's Jim or myself or anyone in this room. We have a greater responsibility to the 200,000 partners and their families and shareholders. And the board felt, and I agreed, that a change was really neede
d.”

  I'd conducted open forums throughout the world for two decades, and whether I spoke to hundreds of partners in Seattle or the staff of a single store in London, I usually had no script, just a general idea of what I wanted to say on that given day. Before I spoke, Wanda had asked me if I had talking points. I told her I didn't. I just wanted to speak honestly and share my own emotions and show that I truly understood what people were feeling. Everyone had to leave the forum believing that Starbucks would be okay, that I could lead us out of the quagmire. As I spoke, I strove to subordinate the company's problems to our collective ability to overcome them. Much more than just an announcement of new leadership, this open forum was my rallying cry:

  If you're really honest with yourself, as I have tried to be with myself, along the way in building the company, there has been something we have lost. And it's no one's fault and there's no punishment or blame. We are what we are—but the question is, What are we going to do about it and how are we going to fix it?