Cautionary Tale: How Starbucks Lost Its Edge

Last Updated Mar 20, 2008 6:16 PM EDT

Howard Shultz is seeking to revitalize Starbucks now that he has come back in as chief executive officer. He says the reason he's coming back in is not because of competition from McDonald's or Dunkin Donuts. It relates to internal challenges. Here's some of what he said:

"This is the first time the U.S. business is under pressure. It's a character test. But it's not about the economy. And it's not about the competition. Don't believe the media hype. There's no coffee war going on. This is about us.

"We somehow evolved from a culture of entrepreneurship, creativity and innovation to a culture of, in a way, mediocrity and bureaucracy.'

This speaks volume, and raises two critical questions:

--How did Starbucks allow this to happen?

--What are the lessons for every other enterpreneurial company out there? How do you avoid going stale after the founder (in this case, Shultz was virtually the founder) leaves or seeks to step back from day-to-day involvement?

What are your answers?