Starbucks CEO Howard Schultz: Reinvented and Just the Same
After five years of covering Starbucks (SBUX) for AOL finance sites, and at least a decade of interest in the company before that, my impression of CEO Howard Schultz had percolated into a glossy black-and-white image. I saw him as an impatient and rash leader, imitative and reactionary, prone to impulse, and certain that his own tastes would reflect of those of his customers.
Having watched his reaction to the leak of the famous "Commoditization of the Starbucks Experience" memo, and listened to the many, many times he avoided questions, with rage (so I imagined) bubbling barely under his clipped non-answers, I saw him as sensitive to criticism, easily injured by perceived disloyalty from his employees, and distrustful of the media.
Before I bought Onward: How Starbucks Fought for Its Life without Losing Its Soul, released in late March, these impressions were drawn from a hundred news clips and public statements, indistinct and full of guesswork. After reading the book, I realized how close to the mark my hunches were. In attempting to paint a victorious picture of his takeover of the company and his underlying philosophy of passion and integrity, he has instead revealed his flaws: his hyperactive and scattered management style; his penchant for distrusting his own employees and bringing in outsiders to make important decisions; his combination of self-doubt and hubris; and a sensitivity to criticism that keeps him from ever finding the soul he insists he and his company have already reclaimed.
Where Is the Love?
The ideal Howard Schultz -- the one he wants us to glean from these pages -- may see Starbucks in much the same light as the barista who sold me pastries, coffee, and his new autobiography. It's all about love.
"I cried" over the first 50 pages, she confided in me, mourning the loss of her copy of his previous book, Pour Your Heart Into It. That book was written in 1999, shortly before he stepped down from his original stint as CEO, and evidently Schultz felt the story needed to be told again. This time, he is clearly steering the boat through waters thick with danger toward an obviously rosy sunset.
Indeed, Schultz titles the first section of his book "Love," and begins with the tough-love decisions he has made. First, his choice to close all 7,100 U.S. Starbucks stores simultaneously for four hours in February 2008 to retrain baristas in the arts of pulling good espresso shots and steaming milk. This decision was roundly criticized as a publicity stunt then, and continues to be now. Reading the book reveals just how expensive it was: As none of the stores had computers with Internet access, 7,100 DVD players had to be shipped with the DVDs to teach all those baristas how to pour milk and wipe steamer wands.
After a trip through Schultz's origins with Starbucks, and subsequent eye-opening trip to Milan where he discovered that people like the experience of a good latte, we learn what Schultz does when the people around him don't agree with his latest sure thing: He takes his ball and stomps out. Err, "respectfully."
(Partway through reading this book, I decided that "respect" is Howard-speak for "distaste for someone who was stupid and disagreed with me." For example: "My bosses, for whom I had tremendous respect, did not share my dream of re-creating the coffee bar experience in Seattle... [a few years later], I left Starbucks...")
The Infamous 'We Messed Up' Memo
Schultz started a coffee company he named Il Giornale in 1986, using the sign-off "Onward" in his first company memo. Far from seeing it as a snobby "I'm outta here," he thought of it as a "call to arms," "Forward leaning. Nimble. Scrappy." (Either Schultz or his co-writer, Joanne Gordon, is enamored with the use of the impactful sentence fragment, but has forgotten the rule that fragments lose their impact. When overused.) Thus was born the one-word tag line that would one day lend a title to his book.
To hear the next tough love story, we must jump forward in time to Schultz's disappointment with Jim Donald, someone he both "respected" and found to be "tremendously well-liked." Donald was the second CEO to serve after Schultz stepped back to his roll as chairman, but he was the only one brought into the position from outside the company. The growth plans that Schultz had not just embraced, but sold as his own to analysts and partners -- the famous incredulity-straining 40,000 stores -- had, he suddenly realized in the chill pre-dawn of a February day in 2007, "led to the watering down of the Starbucks Experience, and what some might call the commoditization of our brand."
The memo was, almost immediately, leaked. "A quick Google search and there it was: 'The Commoditization of the Starbucks Experience' on a gossip website, for anyone to see. Investors. Journalists. Starbucks' partners. Staring at the screen, I was speechless... What upset me, what felt like a blow to my gut, was the leak... It was nothing less than a betrayal."
Though he has "tremendous affection for Jim," this is the beginning of Schultz's summer of discontent. Within hours, he is calling in outside counsel (Wanda Herndon, a former Starbucks manager who now leads W Communications), his regular pattern when he cannot trust either his gut or those of the people on payroll. Within weeks, he is working to undermine Donald (and this is the stuff he'll admit in the first section of a bestseller), going around talking to store, district and regional managers, even baristas, about the direction the company is headed, and how it's probably wrong.
"For me, the most acute example of this, the most symbolic representation of how Starbucks was deviating from its heritage and losing its magic, was the breakfast sandwich," he writes. He can't stand its aroma, "...few things had ever piqued my ire as much as that smell." He goes to his favorite among the Starbucks management team, Michelle Gass, "then head of our global products" and orders, "Get the sandwiches out!"
Donald tells her to keep the sandwiches. Not only do customers love them, but they're great sellers. "Whether I was right or wrong about the sandwiches was less telling than my obsession with removing them, which was a manifestation of my mounting frustration," he wrote. "By the fall of 2007... I began to seriously consider if the time had come for me to return as [CEO]."
A Disciplined Campaign to Take Back Starbucks
For the next several chapters, Schultz describes how he orchestrated the board's agreement on removing Donald and retaking the helm of his ship. He sits in meetings, "a fly on the wall," and criticizes the team for indecisiveness and lack of creativity, unexpectedness or magic. For counsel, he looks to another outsider, Jim Fingeroth of crisis management company Kekst and Company, and engages a Kekst team to help him take the company back. He overnights them all his work product. He begins to meet with board members one by one to get them on his side. During his annual "family" vacation in Hawaii, he spends three hours each day riding bikes with Michael Dell, consulting with him about the approach he took in regaining control of his own company.
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Schultz pores over the daily same-store sales numbers, beginning to suffer from the yet-to-be-named recession. "I was on the phone with our people in Seattle asking for comps from every region of the country," he writes. (Later, we'll learn that on Christmas Eve, he insisted that one of his management team meet with the CEO of Salesforce.com to lay the groundwork for MyStarbucksIdea.com. That day.)
"There was a disciplined, almost chesslike approach to the work we did in the days leading up to the public announcement on Monday, January 7, 2008," he writes. And then, incredibly, he says of his communication to Jim Donald -- called to Schultz's home for a beheading on Sunday evening -- "the board has been closely monitoring what has been happening at the company" and "the board feels it is my obligation" to take over again as [CEO]."
For the rest of the book, he will attribute the decision to remove Donald as one made by the board, not something he himself orchestrated with "chesslike" -- even Machiavellian -- precision.
The Ironic Heartbreak of Being the Axe-Man
From this key decision, the book becomes tedious, insufferable and difficult to read. It's hard to follow the timeline of the events: Repeatedly, Schultz will set a scene as he makes an announcement, takes the stage at a conference, or leads an analyst call or partner meeting. Then, again and again, he jumps back and forth in time for the rest of the chapter. In literature, that might make for a rewarding challenge. In a business book, it only serves to reinforce my impression of Schultz's hyperactive, scattered style.
He walks us through many decisions made over the next few years that he feels reflect how he helped Starbucks regain its soul. One was a series of layoffs, first of 12,000 employees as the company closed 600 stores, and then 550 management positions, many at Starbucks' Seattle headquarters. He writes that "we" "held some of the toughest conversations," "gently informing fellow partners and friends that they would no longer be working for Starbucks." He timorously intimates in the next page that having to lay off all these "partners and friends" might have been Jim Donald's fault. After all, under Donald, "significant cuts never fully materialized." Then, as if utterly without an ironic nerve, a few pages later he proudly remarks how he has "antennae about people's characters, a sixth sense that I often follow even if my choices raise others' eyebrows."
He writes of his decisions to launch the Sorbetto and Vivanno drinks, neither of which was the brilliant success that was hoped for. Vivanno was plagued by banana distribution problems (seriously) that highlighted bigger supply-chain issues, and Sorbetto turned out to be an enormous flop. Schultz had been sure it was a "silver bullet," but instead the costs were crippling -- the base ingredient had to be shipped air-freight from Italy -- the inventory was too perishable and the operational concerns mind-numbing. (The machines, for example, took two hours to clean each night).
The Birth of Via
If you want a silver bullet, you should see Via. Schultz describes in detail the events leading up to the perfection and launch of the company's instant coffee product, which he refused to call instant coffee at its launch. But here, in the book, he admits it's exactly that. Via had its genesis in the tinkerings of a mad scientist, of sorts. Don Valencia was a cell biologist who went for a hike in 1989 and didn't like the instant coffee he brought with him. As he was already working on special freeze-drying technology for cells, he applied his thinking to coffee. One day, he brought his ideas into the Pike Place Starbucks (the vaunted first store) and, eventually, was hired by the company.
But the instant coffee was put on the back-burner. Valencia and his team of pharmaceutical whizzes came up with the frappuccino base that would change the company's fortunes in the late 1990s. By January 2007, Valencia was dying of squamous cell carcinoma, and Schultz was impatient. How long would it take to get Via ready to launch? he asked. "32 months," was the answer.
"If Apple could develop the iPod in less than a year, we can do this!" was Schultz' response. Despite his impatience, it would take about as long as had been predicted, and although he would wow dinner party guests and employees with how hard it was to tell which was regular-brewed Starbucks and which was instant, in the end, he "was extremely disappointed."
Schultz's Fairy Tale Ending: It's a Fairy Tale
And why was Howard Schultz so disappointed? Although his "creative" and hard-working internal marketing team had come up with a brand name for the product evocative of both Italian streets and Valencia's name, the logo design it had supplied was "generic" and "rainbow-colored." So he went outside, again, bringing in an outside creative firm to redesign the packaging in about two weeks. In his usual style, he invited first the outside firm, and then the internal creative team, to his house on a Sunday afternoon. "News that I'd brought in an outside firm under the radar met with some inevitable frustration," he writes. And this is the part that I think is the most "raw" of the whole book: He admits he's kind of an ass.
"It was never my intent to undermine anyone," he writes of this, one of an innumerable string of underminings, "but there were moments throughout the transformation -- and for that matter throughout Starbucks' history -- when I had to make tough choices, at times deciding that the best interests of the organization were contrary to the interests of an individual or group. Sacrificing people's feelings, and more than once even a personal relationship, for the good of thousands of partners is one of the most painful elements of my job as Starbucks' chief executive."
This book, then, is an apologia. As such, is it grandiose and full of needless details and explanations. It is perhaps beyond dramatic to write, of his opening remarks before an impromptu and secretive global summit in March 2008, "A tiny microphone clipped to my white shirt amplified my voice throughout the hushed ballroom." This is a business book, not a thriller. If it is a book about love -- as Schultz said again and again in interviews given around the date of its release -- it is the sort of numb, passionate, senseless love a teenager has for a much older lover: blind to both his own faults and those of the one he longs for, even as he recounts them in moonstruck detail. Careless of the feelings that must be hurt as he pursues the object of his affection. Analyzing every detail of what other people think of his lover, but only as it applies to him; sure that he is the only one that could make her truly shine; as changeable and predictable as the moon.
The resolution of the book, if I may be so bold as to give a spoiler, is that Howard Schultz insists he has saved the soul of his company and brought it firmly into a future of unswerving growth and positive margins. I am hesitant to accept the fixity of the concrete around this fairy tale ending. Could the handsome prince fall out of love as easily as he fell in?
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