Too good to fail? Starbucks' recipe for a turnaround

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Onward

By Howard Schultz with Joanne Gordon

Rodale, 250 pages, $29.99

In 1986, having quit Starbucks, then a small coffee company, to start rival Il Giornale, Howard Schultz sat down to write his first memo to staff. His entrepreneurial enthusiasm and ambition came through with his promise that "Il Giornale will strive to be the best coffee bar company on earth" and a pledge that "we will not compromise our ethics or integrity in the name of profit."

At the end, above his signature, he avoided traditional phrases such as "sincerely" or "thank you" and instead wrote "onward." It became a signature theme on the many employee notes that were to follow, as he indeed took the company onward, swallowing up his former employer but putting its name on the combined enterprise and building arguably the best coffee bar company on earth and certainly the most celebrated.

But a few years ago, after having retired to the part-time post of chairman, he became dissatisfied with the company's progress. In the attempt to move onward, at breakneck speed, Starbucks was diluting the fundamentals of the business and losing the faith of customers. It was small things that irritated him, from inadequately trained baristas to the loss of the fresh coffee aroma in the stores and, worse, its replacement by the smell of burned cheese from breakfast sandwiches.

It was time to go backward - or, more accurately, time to move onward by reaching into the past to revive what had fuelled the company's initial success. Mr. Schultz's memoir, Onward, written with journalist Joanne Gordon, recounts his active return to the helm of the company as chief executive officer. It lacks the careful prescriptive lessons of most business books these days, but stands as an intriguing and substantial look at what is required to turn around a fading company.

Mr. Schultz puts forth this psychological premise for the company's stall: "Unlike the phalanx of global financial institutions that considered themselves too big to fail, Starbucks had never been an irresponsible spender. But perhaps because we viewed our company as too good to fail, we did not work or operate the business as wisely as we should have."

The company was consumed with growth. It was adding more and more stores, with more and more employees. It was adding more and more products and side ventures, such as an entertainment division, trying to leverage its brand. The focus on coffee, the focus on the customer who wanted premium coffee, was being lost; and when a recession started to bite, and adherents stopped coming in for their second coffee of the day, the bottom line was no longer growing.

"Like a doctor who measures a patient's height and weight every year without checking blood pressure or heart rate, Starbucks was not diagnosing itself at a level of detail that would help ensure its long-term health. We predicated future success on how many stores we opened during a quarter instead of taking the time to determine whether each of those stores would, in fact, be profitable. We thought in terms of millions of customers and thousands of stores instead of one customer, one partner, and one cup of coffee at a time," Mr. Schultz writes.

An early step was to boldly close all the U.S. stores at the same time one Tuesday afternoon in February, 2008 to retrain 135,000 baristas to pour the perfect cup of espresso. Measures were taken to bring the aroma of coffee back to the outlets. The breakfast sandwiches were junked (although later brought back, when solutions to make them more effectively were found). Outlets were permanently closed. Staff was trimmed throughout the enterprise. Alliances with groups promoting fair trade with coffee farmers were strengthened. The entertainment division promoting recording artists and books that Mr. Schultz considered an example of the company's hubris was eliminated. A new premium instant coffee, long in the works, was successfully brought to market.

Starbucks didn't turn around instantaneously. There were many agonizing meetings with analysts and shareholders, as despite Mr. Schultz's efforts things still spiralled downward. He even had to rebuff a push from a major shareholder to eliminate the medical benefits he proudly offered staff. But eventually, through the combination of a reviving economy and a refocused company, Starbucks returned to strong health.

The memoir is the turnaround CEO's story, and so is limited by that bias. But it's enriched by the insider, generally frank, look he offers and the humanity he expresses. Mr. Schultz reminds us of the important of focus in these situations, of understanding that there are no silver bullets, and of listening and reaching out and caring for others. Because even if this is one man's story, the turnaround was the result of many people's effort.

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POSTSCRIPT

Some recently published books on innovation:

Chinnovation (John Wiley, 298 pages, $35.95) by Yinglan Tan, who serves on the boards of venture capital funds and innovative growth companies in Asia, shows how Chinese innovators are changing the world.

Breaking Away (McGraw-Hill, 234 pages, $34.95) by Jane Edison Stevenson, vice-chairman, board and CEO, services at Korn/Ferry International; and Bilal Kaafarani, an officer at Coca-Cola Co., explains how great leaders create innovation that drives sustainable growth and why other executives fail.

Consultant and speaker Andy Stefanovich offers an approach to innovation, growth and change based on the "five Ms" - mood, mindset, mechanisms, measurement, and momentum - in Look At More (Jossey-Bass, 200 pages, $30.95).

Disciplined Dreaming (Jossey-Bass, 235 pages, $31.95) by entrepreneur and jazz musician Josh Linkner helps you to develop your team's creativity.

Special to The Globe and Mail