Schultz outlines Starbucks turnaround

Starbucks CEO Howard Schultz visited the Cable Center as part of the Daniels College of Business’ Voices of Experience lecture series. Photo: Wayne Armstrong

Wednesday night at the Cable Center, James O’Toole — Daniels Chair of Business Ethics — introduced the evening’s speaker, Starbucks CEO Howard Schultz, as “the man who invented coffee.”

“Remember back to those terrible days when if we wanted a cup of joe, we had to go to our local greasy spoon,” O’Toole said. “What we got there was this vile liquid — a little bit like battery acid.”

After O’Toole explained how Starbucks provided an experience only available at the time to tourists in Europe and East Village beatniks, he introduced a video that played on a two-story screen.

As the audience watched the video — a quick, bouncy primer on Schultz — a man emerged and stood waiting, just off stage left not 10 feet from the audience. He cut an impressive figure — well-dressed, tan and fit. He exuded an air of confidence, but also friendliness. He was the man the audience came to see.

After the final introduction and rousing applause, Schultz took the mic.

“It’s a term not often used in business: love. I came back to the company in January 2008 because of my love and affection for the organization and the 200,000 people who wear its uniform,” Schultz began. “There isn’t anything I wouldn’t do to defend this company.”

Schultz’s appearance was part of the Daniels College of Business’ Voices of Experience lecture series. The series has brought many of the world’s top business leaders to DU. Schultz — on his seventh stop in eight days — also was promoting his new book, released last week, Onward: How Starbucks Fought For Its Life Without Losing Its Soul.

Schultz’s presentation ran down the salient events of his book: After serving as Starbucks CEO since the early 1980s, Schultz stepped down in 2000. Flash forward several years, and the company was hurting in a way previously thought impossible in many circles. Wall Street and market analysts were somewhat giddy: the invincible Starbucks was in a tailspin and seemed poised to lose its clientele to fast food. (McDonald’s mounted a particularly aggressive campaign pouring on $1.5 billion in capital to lure Starbucks’ customer base.) Amid this nadir, which included brutal headlines, sinking stocks and a dire memo from Schultz to Starbucks brass that was leaked, he re-took the reins in 2008.

“Some people were cheering it, and a lot of people said they should shoot me for it,” he told the audience. “People said, ‘They need a professional CEO to manage this company.’”

Schultz’s makeover of the company became one of the most dramatic corporate turnarounds in memory. During his talk he attributed the success to myriad lessons and rules he applied:

–Don’t lose sight of your original mission. Schultz always valued Starbucks for having a social conscience, something he felt the company lost since he left. When Schultz announced a meeting of thousands of store managers, several Seattle locations vied for hosting privileges. Schultz instead held the meeting in New Orleans, where he required attendees to perform one day of volunteer work to post-Katrina reconstruction.

–Don’t relax: “You cannot take success for granted … human behavior is that when you come out of a desperate situation, there’s a tendency to relax. There’s no victory lap at Starbucks, and there’s no one celebrating (the turnaround).”

–Tell the truth. “People are hungry for truth and authenticity. The leader of an organization must tell the truth, not just some of the time, but all of the time.”

–Admit hiring mistakes. “We have made hiring mistakes in the past. As leaders we don’t want to admit a mistake. We try as best we can to change a person, modify behavior. I can count on one hand how many times I’ve seen a person change in my 30 years at Starbucks. I think when you’ve made a hiring mistake you have to have the courage to say ‘It’s time for this person to go.’ You wait, and you just waste six months, then a year, and the person has had a poisonous effect on the organization.”

Starbucks’ low point was partly attributed to an ailing economy. Schultz said the situation is largely unchanged and said companies have to learn to operate independently from larger economic issues.

“I don’t think the economy is going to improve that much in the next year, if at all,” he said. “Every company in America has to create a values proposition, decide what they stand for.”

Schultz didn’t mince words in making his case. Recently returned from a trip to California, he mentioned the stark realities of state budgets.

“There’s a lot of bad stuff coming,” he said. “Half the states in America are facing insolvency. Two-thirds of the states in America have budget deficits.”

Schultz said the situation will lead to acute cuts by states to their social services “in ways we’ve never seen before.” He said the situation will increase the responsibilities of corporations to their employees and communities.

“States, at a federal and local level, just won’t be able to do the things they’ve done in the past,” he said. “Corporations are going to have to do more for the communities they serve.”

During a post-lecture interview with O’Toole, Schultz touched upon his well-known “impatient” management style. Schultz didn’t exactly jump to dispute the perception.

“When I sat down with the team trying to create instant coffee for Starbucks, I asked them a very simple question: ‘How long will it take?’ They told me two-and-a-half years, and I said, ‘Bulls–t! The iPod was invented in a year-and-a-half, from scratch.’ I said, ‘I want this in the market in less than a year and a half’… In less than a year and a half, we were in the market.”

The crowd seemed pleased with Schultz’s candor. Oleysa Lowery graduated from DU in June with an MBA. She came to see Schultz because she liked his social message.

“I wanted to gain an understanding of how someone without any formal business education can make a company that has such a focus on the human part of it,” she said. “He shows that you can be successful focusing on the human element.”

The appearance also attracted those outside the DU community. Stephanie Weaver, who works for Great West Retirement, is a regular attendee of the Voices of Experience lecture series.

“I thought he was very honest and very transparent,” Weaver said. “Now I need to go buy the book.”

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