The Vision Thing

If you read my blog, you might notice that I sometimes bash big corporations. It’s not that I enjoy bashing them so much; it’s really more that corporations make such easy targets. I didn’t feel so strongly decades ago, when America and the world seemed to be on a better path. But over the past few decades, our country, led by the largest corporations, has lost its way. The focus has shifted from developing great products, delivering great services, and building long term sustainable value, toward raking in short term profits no matter what the cost to our environment, our country, and our labor force.

The evidence is overwhelming. American businesses used to invest in America. Now more and more companies shift production overseas to skirt modest environmental and labor laws in the United States; banks lend far less (as a percent of total lending dollars) to small businesses; venture capitalists invest in fewer and fewer startups; our tax system is structured to favor big business over small business; and stock market trading occurs in nanosecond time scales, leaving little room for long term fundamentals.

Yet, despite the negative trends, lousy management, and greedy short term thinking, a few large companies stand far above the crowd. Starbucks, the coffee giant, is one such standout. I don’t particularly favor their huge scale and market power, but I have to admit Howard Schultz does a lot of things right. He joined Starbucks in Seattle in 1982, when the company only had four stores. According to the Starbucks website, “A year later, in 1983, Howard traveled to Italy and became captivated with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition to America. He wanted to create a place for human connection, conversation and one that fostered a sense of community – a third place between work and home.” Today, Starbucks has over 21,000 stores in 66 countries around the world, and Schultz is worth an estimated $2.5 Billion.

The thing I respect about Howard Schultz is that he really has stuck to his vision. While the company has grown at an almost unbelievable clip, speed was not his primary focus. He focused on quality, consistency, and treating employees, partners, vendors and customers with respect. Starbucks was one of the first major retailers to offer comprehensive health benefits to qualified full-time employees and even many part-time employees. Starbucks also offers “bean stock” (equity shares) to employees, and pays above average wages within the retail/food industry. By and large, most employees actually like working at Starbucks and take pride in their work. And customers are extremely loyal — they love the coffee and they love the Starbucks experience. Starbucks’ huge success is even more apparent when you look at how the competition (McDonalds, Dunkin Donuts, Caribou, etc.) has responded. Most competitors served mediocre coffee at low prices before Starbucks came along. Starbucks forced them to raise their game.

Unlike many other highly paid CEOs, Howard Schultz actually has talent. Between early 2007 and late 2008 the company stumbled and customer satisfaction deteriorated. The stock price dropped from about 20 in May 2006 to below 4 in November 2008. Schultz, who had left active management of Starbucks several years before, came back and turned the company around in dramatic fashion. Today the stock price is over 54. His success was — once again — based on fundamentals, not short term gimmicks. One of the key elements of his turnaround plan has been a renewed focus on innovation. Examples include Greek yogurt smoothies, cold brew coffee, iced coffee, better pastries, Boulange, wine, and more. Many of these experiments fail, but Schultz understands that it often takes a few failures to find something that really works.

Schultz likes to say that Starbucks is really not a coffee company. He says Starbucks’ mission is “to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.” Coffee happens to be an essential ingredient in his formula for success. Starbucks is such a huge business success mainly because of Howard Schultz’s long term commitment to a bold vision. No matter how you feel about Starbucks, every business owner can learn something positive from Howard Schultz.