Home Featured Story Howard Schultz, CEO of Starbucks: Compromise Anything But Your Core Values

Howard Schultz, CEO of Starbucks: Compromise Anything But Your Core Values


Howard Schultz was to Starbucks what Ray Kroc was to McDonald's, a supporting salesman who saw a great product and a great opportunity.

In high school, Schultz excelled at sports and was awarded an athletic scholarship to Northern Michigan University. After receiving his bachelor’s degree in Communications in 1975, he worked as a salesperson for Xerox Corporation.
In 1979 he became manager of U.S. operations for Swedish drip coffee maker manufacturer Hammarplast. Two years later, Schultz visited a Hammarplast client, a fledgling coffee-bean shop called Starbucks Coffee Company in Seattle. Seeing the potential, Schultz joined Starbucks as Director of Marketing a year later. On a buying trip to Milan, Italy for Starbucks, he had an epiphany. Schultz noted that coffee bars existed on practically every street in the city. He learned that they not only served excellent espresso, but also served as meeting places or “public squares”; they were a big part of Italy’s social paradigm, and there were 200,000 of them in the country.

On his return, he tried to persuade the owners to offer traditional espresso beverages in addition to the whole bean coffee, leaf teas and spices they had long offered. Even after a successful pilot of the cafe concept, the owners refused to roll it out company-wide, saying they didn’t want to get into the restaurant business. Frustrated, Schultz started his own coffee shop in 1985 named Il Giornale (after a newspaper in Milan). Two years later, the original Starbucks management decided to focus on Peet’s Coffee & Tea and sold its Starbucks retail unit to Schultz and Il Giornale for $3.8 million.
Schultz renamed Il Giornale with the Starbucks name and aggressively expanded Starbucks’ reach across the United States. Schultz’s keen insight in real estate and his hard-line focus on growth drove him to expand the company rapidly. Schultz didn’t believe in franchising, so he made a point of having Starbucks own every domestic outlet with one exception ¬¬— Schultz went 50-50 with Magic Johnson on stores in minority communities.
As the company began to expand rapidly in the '90s, Schultz always said that the main goal was "to serve a great cup of coffee." But attached to this goal was a principle: Schultz said he wanted "to build a company with soul."

This led to a series of practices that were unprecedented in retail. Schultz insisted that all employees working at least 20 hours a week get comprehensive health coverage — including coverage for unmarried spouses. Then he introduced an employee stock-option plan. These moves boosted loyalty and led to extremely low worker turnover, even though employee salaries were fairly low.

Schultz has said that his model for expanding Starbucks is McDonald's, with a few key differences. One is that Starbucks owns most of its stores, while McDonald's franchises. Another difference is that Starbucks has managed to blossom without national advertising. Finally, Starbucks sells premium products to a fairly upscale, urban clientele.

Starbucks experienced astronomical expansion during the '90s, going public in 1992 and growing at a rate of 25 percent to 30 percent a year...

In 2001 Schultz indulged his love of basketball by buying the Seattle Supersonics for $250 million. On July 17, 2006, it was announced that Schultz sold the team to a group of businessmen from Oklahoma City for $350 million.

The same year, Schultz handed over CEO chores to Orin Smith so he could focus on global strategy.

"Despite the success that Starbucks has enjoyed in the U.S., we have a less than 6 percent market share of coffee consumption," Schultz said. "We are in the infant stages of the growth of the business even in America. And now seeing what we've done internationally ... we are going to shock people in terms of what Starbucks is going to be."

On January 8, 2008 Schultz regained his status as CEO of Starbucks after a hiatus of 8 years.
On July 1, 2008, the company announced it was closing 600 underperforming company-owned stores and cutting U.S. expansion plans amid growing economic uncertainty. On July 29, 2008, Starbucks also cut almost 1,000 non-retail jobs as part of its bid to reenergize the brand and boost its profits. Of the new cuts, 550 of the positions were layoffs and the rest were unfilled jobs. These closings and layoffs effectively ended the company’s period of growth and expansion that began in the mid-1990s.

Starbucks also announced in July 2008 that it would close 61 of its 84 stores in Australia by August 3, 2008. Nick Wailes, an expert in strategic management of the University of Sydney, commented that "Starbucks failed to truly understand Australia’s cafe culture."
On January 28, 2009, Starbucks announced the closure of an additional 300 stores and the elimination of 7,000 positions. Schultz also announced that he had received board approval to reduce his salary. Altogether, from February 2008 to January 2009, Starbucks terminated an estimated 18,400 U.S. jobs and began closing 977 stores worldwide.

In June 2009, the company announced that it was overhauling its menu and selling salads and baked goods without high-fructose corn syrup or artificial ingredients. Starbucks introduced a new line of technologically advanced instant coffee packets called VIA "Ready Brew", in March 2009. In July 2010, Starbucks began offering free Wi-Fi in all of its US stores via AT&T.
Today, with more than 15,000 stores in 50 countries, Starbucks is the premier roaster and retailer of specialty coffee in the world.
Asked the secret of his success, Schultz answers with four principles: "Don't be threatened by people smarter than you. Compromise anything but your core values. Seek to renew yourself even when you are hitting home runs. And everything matters."

Editor Phil Robertson is an award-wining journalist and graphic designer. With a degree from the University of Florida’s School of Journalism, his career in journalism and publishing spans over 30 years, and includes positions as editor and publisher for several newspapers and magazines. During his career he has received a first-place award for investigative journalism from the Society of Newspaper Editors, and five ADDY awards for advertising design.