Starbucks turns 40 this month, and the corporate birthday is an opportunity to reflect on the rise of one of the iconic brands of our time-and on one of the oldest stories ever told, the perils of explosive growth and runaway prosperity. Most importantly, though, the company's birthday is a chance to remember that long-term success never comes in a straight line, and that the real challenge for leaders is to brew up a comeback after things go awry.
First things first: Starbucks is back, and in a big way. The company is enjoying big sales, healthy profits, same-store growth, and a share price that is reasonably close to its all-time high (for a market cap of some $27 billion).
This highly caffeinated performance is quite striking, since just a few years ago, many business pundits were writing off the company as yet another example of, in the words of the Jim Collins bestseller, How the Mighty Fall. Almost overnight, Starbucks went from cool to tired, from a collection of young baristas to over-aggressive corporate bully, from a "third way" in American life to just another case study in Big Business excess.
It committed many (if not all) of the sins of size that the Collins book highlighted-a "hubris born of success," the "undisciplined pursuit of more" (as in more stores, more in-store offerings, more people), and "confusing big with great." As a result, after decades of breathtaking prosperity (and universal applause), Starbucks tanked-closing 900 stores, laying off hundreds of people, and watching its share price tumble by 40 percent.
Enter (that is, re-enter) Howard Schultz, who returned as CEO in January 2008 and, despite much skepticism at the time, has restored Starbucks to its former standing as a company as a brand. Starbuck is back-and its strategy offers lessons for leaders in all sorts of industries. I'd highlight three major lessons:
1. Get back to what made you great in the first place. The thing about growth and success is that it has a funny a way of sewing the seeds of its own undoing. Back in February 2007, nearly a year before he took back the CEO job, Schultz wrote a much-discussed memo that described how Starbucks, in its quest for growth, embraced all kinds of "efficiencies" in its stores-each of which made sense at the time, but the sum of which, in his words, "led to a watering down of the Starbucks experience and [created] what some might call the commoditization of our brand." There's nothing wrong with efficiency, but when it comes at the expense of originality and authenticity, it has its limits.
2. Ideas matter, but people matter more. As Starbucks got bigger, it got easier for customers to sense that the stores were less special than they used to be. One problem (see lesson one) was the commoditization of the design. But a bigger problem was the weakening of the culture-as Starbucks went from a few thousand employees to ten of thousands to more than a hundred thousand, people weren't as highly trained or as deeply committed as they once were. Which is why, when Howard Schultz returned, one of his first acts as CEO was to shut down all of the company's stores for 3 and half hours-a big deal business-wise and a powerful symbol as well-to drill everyone in the company's mission and values. Starbucks had "forgotten what we stand for," Schultz said, and he followed up this grassroots teach-in by sending all 10,000 of the company's store managers for a gathering in New Orleans to rediscover their sense of mission and purpose. "If we hadn't had New Orleans," he has said, "we wouldn't have turned things around."
3. Even as you get back to basics, keep innovating. Much of what Schultz has achieved in his second act as CEO involved rediscovering the company's roots and going beyond the cult of efficiency to the power of authenticity. Bu that doesn't mean Starbucks has gotten conservative. Its VIA instant coffee, an innovation that was widely disparaged at the time of launch, has become a big success. It has embraced social media and e-payments with great vigor, to the point that Starbucks now has more than 20 million Facebook fans-more than any other company or brand-and it allows these fans to send each other Starbucks "e-gifts" over the site. It also allows customers to use their iPhone to pay for their cappuccinos and scones, a neat app that is generating enthusiasm among younger coffee drinkers.
All told, at age 40, Starbucks has done what few companies ever manage to do. Even as it has gotten bigger than it ever imagined it could be, it has gotten smarter than it has been in a long time.
Don't you think that is a reason to celebrate?
image courtesy of flickr user, sillygwailo