Added On: Sunday, November 11, 2007

Conversations From the Corner Office - Howard Schultz


Starbucks Corp. CEO Howard Schultz talks with Kai Ryssdal KAI RYSSDAL: Howard Schultz welcome to the program.

HOWARD SCHULTZ: Thank you very much.

RYSSDAL: We probably ought to say right off the bat; you are not the guy who founded Starbucks.

SCHULTZ: That's correct. I joined Starbucks in the fall of 1982 when the company was getting ready to open up their fourth store and I was in a unique position in August of '87 to potentially buy the company, which we successfully were able to do, and we bought Starbucks when they had six retail stores and at the end of 1987 we had 11 stores and 100 people working for the company.

And I should say I didn't have a dime to my name in August of '87, had to really go out and try and find investors who believed or shared with me the dream that I had to try and build a different kind of company and a national brand.

RYSSDAL: Let's talk about how you got to that dream for a second. You're a kid from Brooklyn.

SCHULTZ: Right.

RYSSDAL: Grew up in the projects.

SCHULTZ: Uh-huh.

RYSSDAL: How'd you wind up out here running a big coffee company?

SCHULTZ: Wasn't a big company when I came out here.

Well, you're right; I grew up in Brooklyn, New York. I guess it's been well documented, many times, in federally subsidized housing known as the projects. My dad never made more than $20,000 a year and I saw first-hand what it was like to kind of live on the other side of the tracks, literally. And I think my story is, I think, emblematic of the American dream in so many ways.

RYSSDAL: How does it effect what you do day-to-day in this company now?

SCHULTZ: Well, I think the company is deeply-rooted in a sensibility and trying to build the company with a conscience primarily, I think, defined by the fact that we did something in 1989 and 1990 that had never been done before, which was creating a program in which we had comprehensive health insurance for all employees including part-timers and created a mechanism for equity in the form of stock options, also for every employee, and both those benefits had never been designed for part-time people before and I think those benefits in many ways transformed the company, created the kind of culture and values and guiding principles in which we wanted to build a company in which people would not be left behind. In many ways I wanted to build a company that in a sense was the kind of company that my father never got a chance to work for.

RYSSDAL: Let's continue with that health care thought that you mentioned a moment ago because it's a big issue in corporate America today and companies far bigger than this one are dealing with it. I mean Rick Wagoner at GM talks about it constantly. Is it sustainable for you to keep providing health care to even part timers when the cost is rising, when your company is growing and it's . . . you're spending more I read some place on health care than on coffee beans?

SCHULTZ: That's true. It's tragic but true. Well, it's sustainable because we as an organization have made a commitment that we will never, and I'll repeat that never, turn our back on that benefit for our people because we know how important it's been and how important it continues to be. So but I think what we're talking about now is a U.S. crisis in which the country is on a collision course with time with regard to the health care issue and what we're facing. Beginning with the fact that between 46 and 50 million Americans do not have health insurance and that in and of itself probably for me personally is in a sense the fracturing of the humanity of America when you think about it. And so this is a, as you mentioned an American problem, it's a business problem, and it's a problem that will not be solved until you get the three constituencies at a minimum, which is government, business, and citizens to come together in a way in which we take the political issues aside and create a bipartisan cooperation in which we solve this once and for all. Perhaps now with the change in the Congress we might see some action and maybe finally get this on the Congressional agenda.

RYSSDAL: Yeah, but the government has already tried; I mean Hillary Clinton and the Clinton White House had their whack at it back in the early '90s. Is it now business' turn because it's effecting how you guys do business?

SCHULTZ: Well, to put it in perspective, for three consecutive years now, we have faced double-digit increases from the year before. And when I talked to my peers or other people running significant businesses in America if it's not the top two or top three issue it's in the top five of the most significant challenges on a go forward basis. So I think you're seeing an outcry of businesses across the country, large and small, not to mention the up to 50 million people who don't have health insurance, and we have to solve this problem. And this is not something that's going to go away, it's something that's only going to get worse, and it's also making America a . . . putting us in a deeply competitive subordinate position globally because we're dealing with countries whose citizens do have health insurance.

RYSSDAL: But you're a for-profit institution here.

SCHULTZ: Yes.

RYSSDAL: You're a publicly-traded company whose investors buy your shares because they want to make more money, so what do you do when your CFO and your head of HR come to you and they say Howard, look at this, this is insane. We can't keep spending this for our employees?

SCHULTZ: Well, I think — yeah. I think that argument, although the words are loud, that argument has been proven wrong over the last ten years. For the simple reason that we have created a relationship with our people who we call partners that's based on trust and confidence and providing them with the benefits that we think a responsible company needs to provide. And in doing so, we've lowered attrition significantly versus the retail industry in America. We've created more productive people and created an environment where Starbucks in many places domestically and around the world is the employer of choice and we are able to attract and retain fantastic people because of the culture of the company, which is defined by these benefits. So my argument is simple, it's which investment do you want to make? An investment in your people or do you want to make an investment in the hidden costs of turnover and retraining your people?

RYSSDAL: You know you're in a position in your life now where money is not really an issue and this business pretty much runs itself or has very capable people running it. You could step out and actually do something about this. You gonna?

SCHULTZ: Well, I . . . you know, we've been to Washington about a half-dozen times over the last 18 months meeting with people on both sides of the aisle and trying to create a dialogue in Washington that people understand that this issue has to be addressed, so what Starbucks is trying to do is act as a model to demonstrate that you can build a company that both has a conscience and has a level of benevolence and at the same time make a profit and at some point we have to ask ourselves what else can we do. What I said earlier is I think we will see a renewed sense of interest and energy and commitment I think in the coming year because I think not solely because it's been a change in Congress but I think this issue is really starting to hit the boiling point.

RYSSDAL: In a lot of ways Starbucks' reputation precedes you, if you will. I mean, you guys are well known for offering health care benefits and being environmentally responsible and trying to work within free trade/fair trade examples of doing business. Do you think somehow that maybe you're held to a higher standard because you've been working so hard at it all these years?

SCHULTZ: That's a very interesting and complex question. I think that when you . . . when a company has the courage to speak out on issues or demonstrate a level of leadership in certain areas of its business that is not just for profit, you do create expectations in the marketplace, but I think with that comes the responsibility to do the right thing. I think it's interesting sometimes where Starbucks is attacked or accused of doing something or not doing something when so many other companies within our industry never get the same kind of challenge, and one reason for that, which I've been told directly from an NGO is because we know . . . they say, quote, we know you care. So we're not going to bother with the others because they're just going to turn away and it's kind of perverse in a way but having said that I think we want to continue to do the right thing and lead with our heart.

RYSSDAL: You, obviously, when you joined this company, and later when you bought it, you had a vision of what you wanted it to be. Did you get there?

SCHULTZ: Yes. The vision that we had for the company was first and foremost to build a different kind of company that would, in effect, create the balance between profitability and the integration of a social conscience. And in doing so, build a national brand around coffee and create a retail store that in a sense would become the third place between home and work. To be honest with you, I don't think any of us ever imagined that the company would grow to the size and the scale that it has around the world. If someone told us ten years ago when we opened our first store in Tokyo, which was our first store outside North America, that one day we'd have 4,000 stores in 37 countries in addition to the almost 8,000 we have in North America, we would have said I don't think so. So we . . . one of the mistakes we made is we underestimated the size of the market for Starbucks both domestically and internationally and we've kind of recast that so that we now believe the market is larger than we originally thought and we can have stores pretty much anywhere.

RYSSDAL: You know, I had a very similar conversation with Charles Schwab on this angle . . .

SCHULTZ: Okay.

RYSSDAL: Charles Schwab, the guy who created the brokerage . . .

SCHULTZ: Yeah, yeah. Built a great company.

RYSSDAL: As you have, basically created a market and then sold into it.

SCHULTZ: Uh-huh.

RYSSDAL: Were you thinking about that?

SCHULTZ: Uh, you know these questions sound very relevant and appropriate today, but when you're in the mix, I mean really in the mix, of fighting for survival, you're thinking about making payroll and there were weeks and months in the early days of Starbucks where that was the critical issue, so we were just trying to survive. And we didn't start really dreaming the big dream maybe five, seven years ago when we realized that the runway of opportunity was much, much bigger than we ever thought and the power of the brand and the experience we created would be as relevant in places that we never dreamed we would have stores like Greece and Spain and Indonesia and Singapore and now China. Who could have ever imagined that and I think it would have been arrogant to think about that in the early stages.

RYSSDAL: The power of a brand as we all know is extraordinary. And a good brand can do great things for you but in order to grow a company and grow that brand you sort of have to surrender a little bit of control. I'm thinking now of a anecdote from your book where you talked about getting Starbucks coffee onto United Airlines and you have to train flight attendants to make coffee the way you serious coffee people around here make coffee.

SCHULTZ: Yeah.

RYSSDAL: A bit of a risk, no?

SCHULTZ: That was a big challenge and a big question at the time whether or not to serve coffee on an airline; we had an opportunity to create huge awareness and ultimately try out the Starbucks in a new trial distribution but also a channel distribution filled with quality issues and peril if it didn't go right. We were able to convince United at the time to invest in new equipment and we created a training program for thousands of people that probably had never been done before and it turned out to be a great success and I think if you're going to really try and do something that had not, has not, been done before, you have to have the courage to take the road less traveled, and the entrepreneurial spirit of the company then and today has really defined our ability to sustain and build the company in a way that continues not to embrace the status quo but continues to embrace innovation, the need for self-renewal and at all times I think great companies do not allow hubris and arrogance to in any way become part of the fabric of what you do despite success and we've had great success, but we're not a company that celebrates a lot because we're . . . we try and focus on the customer and our people.

RYSSDAL: How do you differentiate arrogance from pride?

SCHULTZ: Well, pride, I think, is a level of gratification that you've achieved something. Arrogance is when you feel like you've done it in a way that's better than someone else or better than another company. And we've never felt better than anyone else. In fact, we . . . if you come into our Monday morning meeting and you sit through it and you didn't know who the company was or what the level of success is you'd say God; this company is in deep trouble.

[Laughter]

Because we spend a fair amount of time critiquing the things that need refinement, improvement and we're very self-critical. Because we want to be better.

RYSSDAL: Why coffee? I mean, I probably should have started with this question.

SCHULTZ: Well, but . . .

RYSSDAL: I mean a cup of coffee is a cup of coffee is a cup of coffee.

SCHULTZ: Yeah. Well, I think if you want to succeed in anything in life, whether it's personal or business relationships, you better have a level of unbridled enthusiasm and passion for it. I had a tremendous level of passion for coffee, the coffee experience, the sense of community that a coffee store or a coffee house produces, the fact that coffee brings people together, it's been at the center of conversation for hundreds of years. And in many ways, you know, I've been asked many times well, if it wasn't coffee could you have done it with something else? And I'm not sure I could have. I don't know about that.

RYSSDAL: You strike me as a guy who likes to walk into his local Starbucks and sort of poke around and sort of sniff the beans and do you do the same managerially around here? Around headquarters?

SCHULTZ: Well, I think in order to effectively grow the company from where we were to where we are and then have the pursuit of growth and development that we have in the future, you have to surround yourself with people who are better than you are, more skilled, more experienced, and clearly develop a level of delegation that allows an organization like this to flourish. And in terms of the stores, you know, I think the business has always been in the stores, it's not in this building, it's not in an office, it's where our customers and our people come together and I want to stay as close as I can to where the rubber hits the road.

RYSSDAL: You probably swing by for a cup of coffee on your way in, right?

SCHULTZ: I go to about 25 stores a week.

RYSSDAL: Do you? What do you look for?

SCHULTZ: I look for people doing things right. I look for . . .

RYSSDAL: Now that's an important point. Not looking for people doing things wrong.

SCHULTZ: No. I . . . and if I did see . . . and if I do see things that I think are not appropriate or incorrect rarely will I make a point of it in the store. It would have to be so blatant where a customer was being abused for me to step in. So what I do is I observe and then I'll either call the store or talk to the district manager. You know, "I was in this store and this didn't feel right." But my role as the head of the company, a coach, a mentor, is not to find people doing anything wrong. In fact, I want to celebrate what they're doing right. And when you think we have 40 million customers a week going through over 12,000 stores, we have almost 140,000 who we call partners — a lot of people are doing a lot of things right every single day and our customers are voting and we thank them for continuing to come in.

RYSSDAL: Starbucks is a company that has always, at least in the recent past, Starbucks is a company that gives the customer what they want, whether it's CDs, or biscotti's, or whatever kind of coffee they want. Hasn't always been that way, though. Tell me the story of non-fat milk and how it got into your store.

SCHULTZ: Well, the story of non-fat milk I think is a great example of not allowing yourself to dictate what the customer might want, or not get in the way of progress and in this particular case, me.

RYSSDAL: Yeah, I'm pretty sure it was you.

SCHULTZ: Howard Schultz was wrong and when it comes to coffee, I have a purist point of view that I guess the best example I can say is if the example I would use is Guinness beer. Guinness beer is a product that really stands for something in which it is not for everyone. It's rich, it's full-bodied, it's dark, it has a position in the marketplace where, you know, it's not a Bud Lite. And they could care less about the rest of the world but they recognize, they have a position. Well, for many, many years I kind of used that as the litmus test. Starbucks is a full-bodied cup of coffee, it's roasted to perfection, it's roasted dark, it's rich, some people think it's too strong, but that's who we are.

And when I heard that people wanted non-fat milk, my own preference got in my way and that was that if you drink Starbucks coffee with non-fat milk in a sense, in my view, it dilutes the integrity of the ultimate flavor of Starbucks.

RYSSDAL: Still even, this is interesting. Clearly you still feel this way.

SCHULTZ: Yeah. Well, I feel that way for myself.

RYSSDAL: Yeah.

SCHULTZ: But clearly I was dead wrong and there was such a groundswell of support for non-fat milk in the company by people who were representing our customers and I was completely wrong and when we put non-fat milk in our stores, sales went through the roof and all of a sudden we recognized that we had lost a big part of the market.

Now, I'll give you an example of something we won't do that in a way is like that, and 30-40 percent of the entire growth of the coffee market is in artificially flavored coffees and that's not something we will do. We think it is just not consistent with the heritage and the tradition of Starbucks. And at some point you have to put some guardrails and you can't be all things to all people or else you lose your voice so that's an area where we haven't gone.

RYSSDAL: What's it like to run an enormously successful company as it is now and, you know, it has been for some time on the back of a commodity that's traded on the open market, which is unbelievably volatile and you don't know really from one day to the next what you're going to be paying, if there's a frost in Brazil your supply chain is going to triple in cost.

SCHULTZ: Yeah. Well, today, Starbucks is the largest buyer of high-grade Arabica coffee in the world. We're buying from almost 30 producing countries. In many ways the coffee we buy is steeped in long-term relationships that go back 10-15 in some case 20 years. Because we've set up a mechanism in which we pay more for coffee that's on the spot market, these relationships are really based on trust and loyalty on both sides. And we also have created ways in which we can physically buy coffee in advance and hedge so that we're somewhat insulated from the volatility of the marketplace. Are we insulated 100 percent? No, but we've done a really good job of creating a number of ways that the volatility is minimal on a go-forward basis and that's just — we've been in this business 35 years, you learn a few things.

RYSSDAL: Do you track coffee prices pretty much every day?

SCHULTZ: Every day. We have a significant coffee operation here in Seattle, in Amsterdam and in Switzerland and we are highly, highly mindful of what's happening in the world around coffee. We have to be.

RYSSDAL: Sure. What about — as long as we're talking prices — what about stock prices? You pay attention to Wall Street and . . .

SCHULTZ: Yeah. If you walk through this office you did not see any visual representation or any indication that Starbucks is a public company and we do not want to measure the performance of the company or the success of the company by the stock price. Now I'm sure there's — since stock options are a big part of the way in which we reward our people — I'm sure there's people following it, but we are building a long-term business that hopefully will endure for many, many years and you can't govern the business by the stock price.

At the same time, you have to be mindful of the fact that we are doing business to create a profit for our shareholders and we take that very, very seriously and I think one of the things that we have a lot to be thankful for is since the IPO of the company of June of 1992, when Starbucks went public at approximately a market cap at the end of that day of $250 million, the stock price has grown to the point where the market cap with Starbucks is between $27 and $30 billion. So our shareholders have been significantly rewarded for the way in which we have tried to build our business, which is not focused solely on profit.

RYSSDAL: You can surround yourself here and have over the years I'm sure with people who share your vision. Who have a similar plan and desire for this company.

SCHULTZ: Yes.

RYSSDAL: How do you inculcate those values, though, into a 21-year-old college kid who needs a gig part time, with some health benefits, so he can keep going to school? SCHULTZ: Well I think one of the underlying values of Starbucks for the last 20-25 years has been that everything we do relates to the fact that we're — the only reason we are in business is because of the quality of people that we're able to attract and retain, coupled with the quality of coffee that we can buy and roast. If we don't do those two things well, we are finished. We have no secret sauce, we have no patent, we have no technology, those are the only two pieces of the puzzle that can differentiate Starbucks.

Now, let's go to the people side. We are in the people business. You know I've been quoted many times by saying that we're not in the business of serving — we're not in the coffee business, serving people, we're in the people business serving coffee and if you believe that then you have to imprint a level of understanding and behavior about how we do things and it begins with attracting people who have like-minded values. People who want to serve the customers. People who want to be part of an environment in which this is a different kind of company and it needs to be nurtured and embraced and everything we do is based on trust and if we don't trust one another and we don't exceed the expectations of the customer we're not going to survive and so we hire over 300 new people every day and we open six new stores a day and so we've been doing this a long time and I think when I — and I speak at business schools all the time — and when people ask me what's the secret to Starbucks success, well, there's no secret. But I will say one thing and that is in building a new business or trying to sustain your own business is that the HR function, the human resources function for me personally above IT, manufacturing, coffee procurement, above it all, is the HR function, it has to have a seat at the table, it has to be part of the strategy and without that I think you find yourself in a situation where people become the last thing you invest in and before you know if you've lost the soul of the business.

RYSSDAL: You're a salesman from way back.

SCHULTZ: Uh-huh.

RYSSDAL: I don't want to put too fine a point on it, I guess but when you started at Starbucks, when you bought it, what did you know about running a company?

SCHULTZ: What did I know about running a company? You might ask that today. You know, I think running a company is, especially in the world we live in today, on the public side, is very different than it was when I started, but I didn't know specific — the specifics of how to run or build a company because I had not done it before. What I knew, was what was in my heart about the sensitivity I had around people, about the battle cry which we were able to imprint in the company which was we want to exceed the expectations of our customers. Well, you can't do that unless you exceed the expectations of your people first.

We knew what quality was and what it wasn't and I think we all knew we were trying to build something that had not been done before and I was so fortunate to be able to attract people who were smarter than I was. And I think one of the challenges for an entrepreneur which has been well documented by hundreds of case studies is most entrepreneurs are not able to delegate. There's a level of insecurity and you want to keep everything for yourself and that wasn't my — I didn't have that problem.

RYSSDAL: So it wasn't tough for you a number of years ago to step down from that CEO role and just be the chairman and the chief strategy guy?

SCHULTZ: No. It wasn't at all because I think you have to know what you're really good at. You also have to be able to look in the mirror and ask yourself if you're contributing at the level that you need to and want to and are you having fun doing what you're doing and I recognized that my skill level and my enjoyment and the contribution I could make would be at a greater level if I was involved in the long-term strategy of the company and specifically the international development as opposed to running it day-to-day.

RYSSDAL: Yeah. Now it seems clearly to have paid off but you took a not inconsiderable risk when you were younger in joining Starbucks and then more importantly leaving and then finally coming back. Do you describe yourself as a big risk taker?

SCHULTZ: I'd say yes. Although in those early days I — the risk was if it didn't work I had nothing.

RYSSDAL: You didn't know what the risk was.

SCHULTZ: No. Well, my fondest story about that time was in 1986 with my wife pregnant with our first child, her father asked to come over and see me and he went for a walk and this is in the early stages of the kernel of the idea and I was not drawing a salary and we were really struggling, and we were trying to raise money and having a hard time. And we were going for a walk and he said let's sit down. We sat down on a park bench and he said to me with my daughter seven-eight months pregnant and she working and you not bringing in a salary I want to ask you to do something and that is to give up this dream and hobby and get a job. And I remember I started to cry because I was so embarrassed. But I couldn't do it.

And that was a moment where I remember walking back where I just had this conversation with myself saying what am I going to do, and I felt so certainly personally responsible for everything he said and I couldn't disagree with anything but I could not give up this dream. And walking back I said to him you know I heard everything you said and I'm highly respectful of it but you're just going to have to trust me that everything is going to work out; I can't give this up.

RYSSDAL: You must have had conversations since then?

SCHULTZ: Well, he has unfortunately passed away but we did have many conversations before he did, before he passed away about all of this and we laughed a lot about it but that was a — that could have gone a different way.

RYSSDAL: But now here you are opening half a dozen new stores every day, 300 new employees, do you ever worry that you're growing too fast? I mean we put it out on the air to our listeners that you and I were going to be talking and a couple of them wrote in and said how do you know when to grow and when to —

SCHULTZ: Well, yeah. The interesting thing about that question is we have been a growth company for so many years that for the outside world when you hear six stores a day and 300 new — we're going to open up 2400 stores in the next 12 months. It sounds like an extraordinary amount of growth and new development but proportionately it actually is less than we've grown in the past. Especially in terms of the resources we have.

So the company has been built for growth; I think the other side of the coin is that growth is very intoxicating and it covers up a lot of mistakes and the issue in growing a company is to ensure the fact that you invest ahead of the growth curve and what the outside world doesn't see is that for the past 10-15 years, we have invested millions, millions of dollars in infrastructure, systems, people, training, all the things that have created the foundation for our ability to grow and metaphorically it's if you're going to build a 100-story skyscraper you can't start layering on the stories until you have the foundation built. The building starts crumbling when the foundation isn't strong enough. And we have done a fantastic job over the last decade in building and strengthening that foundation and continuing to have the insight and the courage to make these investments ahead of the growth curve when others would say no or it's going to have an effect on the stock price but over the long-term that's why we've won.

RYSSDAL: And so now I think the latest number is 40,000 stores I saw -

SCHULTZ: Yeah, we — I've said recently that we now believe that we have the potential to have at least 20,000 stores outside of North America and the same amount in America and that's not a number we put out there for hype. We believe it and it might be light.

RYSSDAL: Might be light, might not be enough?

SCHULTZ: Yeah. And I think the other part of it is we're doing something with the brand that no other retailer has ever done which is we've created new channels of distribution outside of our stores through bottled frappuccino and ice cream and whole bean and ground coffee and we're doing that now in Japan and in Taiwan and we're pretty excited about these things.

RYSSDAL: In fact the Starbucks brand goes farther than that. You guys are in music now and you've got a movie production credit on "Akeelah and the Bee" and you are, for want of a better word, really a cultural force here. Is that what you wanted and where do you want it to go?

SCHULTZ: I don't like the word "force," but I think we've become culturally relevant in America and I think we have an opportunity because I think our customers have given us the trust or the license to perhaps allow them to discover new things at a Starbucks store that's not only about coffee and certainly the success of music and now the film "Akeelah and the Bee" and we were involved in the Mitch Albom's new book, For One More Day which was a "New York Times" number one bestseller and we have other plans like this, but I think the most important thing about those elements of our business is the core aspect of everything we do today in the future is the fact that we are a coffee company and we're never going to lose sight of that but we have opportunities to create complimentary products and services that add texture and excitement and innovation to our store.

The challenge I think for a great retailer is to preserve the core business while enhancing the experience.

RYSSDAL: So, let me try to draw a parallel here I mean are you thinking along Disney lines and that kind of impact or I mean what — what do we have to look forward to?

SCHULTZ: We're not — we don't want to become an entertainment company but I think we have a role to play and who knows? I can't answer that question with great specificity but I do know we're going to have many, many more coffee stores.

RYSSDAL: What do you do all day?

SCHULTZ: My daughter asked me that.

(Laughter)

RYSSDAL: Well, here you go. Bring her in; we'll talk later.

SCHULTZ: Well, I'm involved in many discussions throughout the day with key people in the company who run and operate different business units whether it's the marketing function or the operations function or international. I travel significantly domestically and internationally; I'm involved deeply in the relationships with our joint venture partners around the world. Obviously involved in the ongoing issues of connecting our culture with existing and new people and doing things that hopefully can promote the equity of the brand outside of our stores where I can promote Starbucks and tell our story. But I — and also I visit many, many stores throughout the week to stay close to our customers and stay close to our people and I taste coffee almost every day —

RYSSDAL: You mean in a clinical sense you taste coffee?

SCHULTZ: Yes, yes. Yes.

RYSSDAL: How does that work? You walk in and —

SCHULTZ: Well, we have — you walked by the coffee room and you know we still do the same things we did when we had five stores and that is we want to stay very close to the coffee and very close to the people and I want to do those things so I am informed and I can stay current in what we're doing.

RYSSDAL: I'll be honest with you; it's a lovely suite of offices but I sort of expected the aroma to be here somehow.

(Laughter) SCHULTZ: Okay, well, we'll take you inside the inner sanctum. But I — you know I — people think it's romantic thing. I mean I do what I've always done it's the blocking and tackling of the business and trying to do all that I can to create the ongoing passion we have for the business.

RYSSDAL: How did you learn this business, though? I mean you worked for —

SCHULTZ: In the doing.

RYSSDAL: Yeah, right, so I mean you worked for Xerox, you worked for a Swedish household appliances company, right? You didn't know coffee from beans, I guess one could say.

SCHULTZ: No, when I started in 1982 I worked in the stores, I learned how to roast coffee. I traveled to producing countries and learned more about how coffee was grown and you know I've grown up in this business; this is my 25th year with Starbucks.

RYSSDAL: And you're still only 53, right?

SCHULTZ: Yeah. Feel older today.

RYSSDAL: Well, you look good though. What — but what are you going to do next? I mean are you going to be around here for a while?

SCHULTZ: There's no next. I mean I have no intention whatsoever of doing anything else. I still love what I do and love coming here every day and so proud of what we've accomplished and so excited about the future.

RYSSDAL: That's funny — I don't want to keep throwing your own words at you, but in your book you say more than one time you'll always have to ask what's next.

SCHULTZ: Yeah, well, I think it's the right question but for me what's next is the continuing the challenge the status quo of our company and make sure that we don't take our success for granted. I also very specifically want to make sure that the conscience of Starbucks, the social responsibility that our company has to our people and to the outside world is very strong and we continue to look for ways to give back.

RYSSDAL: It almost seems and this isn't going to —

SCHULTZ: That's okay, take a shot. RYSSDAL: Sure. Obviously it works because it's a multi-billion dollar company but I mean is this all for real? Are you serious about this?

SCHULTZ: We've never been more serious in our life and I think there's no smoke and mirrors here, this is a real business with real customers and we're only as good as the next day in our stores and I think we're serious about it because we love it; we're serious about it because we want to create a great company for our people, we want our people to go home at night and be proud of who they work for and with and tell their friends and family that they work for a company they believe in.

RYSSDAL: There's going to come a limit eventually to how many stores this country can support no matter how much coffee we drink and so you guys are going to have to turn as you have in the past decade or so overseas. Where do you really want to be that you're not yet?

SCHULTZ: Well, we've had great success in very diverse markets from Europe to Asia to Latin America — it's — the markets that we're not in that we're heading into is we're going to open up India, Brazil and Russia this fiscal year. We've had very strong reception and success in China and we believe ultimately that's going to be a market that will be very, very large in scope for the company and we're in the embryonic stages of what ultimately will be the second largest market in the world for Starbucks. We're not in Italy.

RYSSDAL: Yeah, how come?

SCHULTZ: Well, I mean —

RYSSDAL: It's funny, I mean you went over there and sort of brought the concept of espresso bars back here.

SCHULTZ: We want to go to Italy; we're just — we haven't looked at it as seriously as we had other markets but at some point we will go.

RYSSDAL: You afraid a little bit?

SCHULTZ: I don't think we're afraid, I just don't think we're — it has not been as high on the radar because other markets are bigger in scope and offer more potential, but we will go to Italy.

RYSSDAL: When you look back in 20 years, when you finally step down from your role at this company, what's it going to look like?

SCHULTZ: I suspect it'll look very much like it is today, obviously with more stores and more people working for our company but I hope that the foundation that we've built and what we created endures and the equity of the brand, which has been defined by the experience is something that the world will come to trust and understand and that will create more opportunities for us.

I think the — I say that because the rules of engagement in building a consumer brand today are very different than they were say 10-20 years ago and traditional marketing and advertising is just not going to get it done. What is going to get it done is building an emotional enduring connection with customers. We've done that. And to your question I think that will serve as a great platform for us to continue to grow the company and innovate because people are emotionally connected to both the place, the coffee and our people.

RYSSDAL: Obviously you and your team see a huge amount of potential in this company and in the market that you guys have created. What's the downside risk, though?

SCHULTZ: Well, this is really hard to do. Not only because we're opening six stores a day, but if you look at what we've done and the way we've done it, company-owned stores versus franchising, vertically integrating in terms of sourcing and manufacturing everything we — all the coffee itself. The fact that we're buying coffee from all over the world. The benefits we provide, the expectations we've created. And the relationship we have with 40 million customers a week and now that we're in 37 countries it's very complex business and the downside is just the ability to execute and at the same time have an appetite for more. So you can't take anything for granted and if we ever do I think we'll fail.

RYSSDAL: Most of your stores are company owned, you don't believe a lot in franchising, why not?

SCHULTZ: We do not franchise because we just felt that franchising although a good mechanism for others was not what we felt was right for the kind of culture and values we wanted to build and so we do have licensed stores in real estate that we can't get access to like supermarkets and airports and train stations and things like that, but we operate over 90 percent of all our stores ourselves. With our own people.

RYSSDAL: Let's circle back to the beginning here and talk about healthcare again for a second.

SCHULTZ: Yeah.

RYSSDAL: You've tried in Washington and I'm sure you've talked to your fellow CEOs and human resources professionals. What's the answer? Is there a solution to the dilemma we find ourselves in?

SCHULTZ: There is no silver bullet to solving the problem. But we will not solve the problem until we address the uninsured. I know that for a fact and because 46 million people or so do not have a powerful voice they are the unheard voices of America, disenfranchised people, people who for whatever reason just can't get access to not only healthcare but political representation we have to solve that problem. Without getting into the technical areas of the uninsured I'll just say one thing and that is if you look at the rising costs of healthcare in America, one of the underlying driving forces of the increase is the cost shift of the uninsured so anywhere from 3-5, 3-6 percent year-over-year increases is the cost of the uninsured. We have to solve that problem both from a monetary standpoint but also because it's just — is this the kind of America we want? I don't think so.

RYSSDAL: Who do you talk to about this? I mean clearly this is something you've studied.

SCHULTZ: We've had conversations as I said earlier with members of Congress, senators, people on both sides of the aisle, and obviously other CEOs. Starbucks was involved in sponsoring with CNBC a year ago a CEO summit. CNBC gave us an air of uninterrupted commercial-free TV time to talk about this and you just need to keep pushing and keep pressing and I'm more optimistic today than I was say a year ago because I do think that there are people who do get it and do realize that we've got to get after this.

RYSSDAL: How did you know, or did you know, I guess, that you were going to make it back in '86 or '87? I mean what — how come you believed? SCHULTZ: I think I had such a fear of failure that I had to believe.

RYSSDAL: That's as good a motivator as any.

SCHULTZ: We just had this level of optimism that I think we felt what we were doing and how we wanted to do it and treating people well and we just felt that the place, I want to go back to that, that America lacked a place, and if you'll look at what Starbucks is created, we really have created perhaps not since the English pub this place of meeting, of gathering and at a time in the world not only in America where there's such a fracturing of humanity and human connection and we live in such a fragile environment that human connection is important and Starbucks has brought people together.

RYSSDAL: You have created that to some degree but the overwhelming majority of your customers walk in and get their big cup of coffee and take it back to the office or go for a walk, right?

SCHULTZ: That's very true, but if you talk to people they do — whether they take it to go or they stay, they find the experience to be very social. And important.

RYSSDAL: It is in a way a little bit like walking into a factory. I mean you've got a little assembly line there right on display. It's a tricky piece of theatre and business and operations management all at the same time.

SCHULTZ: I wouldn't call it a factory, but —

RYSSDAL: Well, I don't know you've got a foreman there yelling out the order and somebody taking the money and somebody doing the means of production right there.

SCHULTZ: Yeah. Well, I think what we've created is a maybe a language which we didn't create, our customers created this language of customizing their beverage where I'm told there's 30-40 maybe 50,000 different variations in how you can order your coffee at Starbucks. We didn't create that, our customers did. So the theatre, the romance, it's kind of a co-authored strategy between ourselves, our people and our customers. And it all comes to life in this very unique experience.

RYSSDAL: As long as we're on that topic, what's with the co-optation of the Italian phrases, the venti and the grande and all that? Why not just I want a big cup of coffee to go please? SCHULTZ: Yeah. Well, I don't know. We came back from Italy and we just decided that the way in which we were going to imprint the language of Starbucks was going to be Italian. And maybe because the Italian coffee bars, the quality of the coffee, the romance and — just felt — that's what we wanted to replicate. We literally introduced the beverage and the name café latte to America.

RYSSDAL: It's kind of crazy when you think about it that you're the guy that did that.

SCHULTZ: Well, you know —

RYSSDAL: I mean, do you ever sit around and just go, man —

(Laughter)

SCHULTZ: Not really. I really don't.

RYSSDAL: Oh, come on.

SCHULTZ: I don't. I mean I just — I mean I don't get caught up in that stuff. I don't.

RYSSDAL: When you travel, first of all what are you looking for when you travel on behalf of this company? What do you do? Do you do trade missions or do you do representational things?

SCHULTZ: Depends on the country, but the one consistent thing we do is we have a company-wide meeting in every major market we go to where we can more than anything else have a open forum of discussion with an open mic and we've been doing this for almost 20 years where people — we say a few things and then we open it up for comments, criticism, concerns, compliments if there are any and just an open dialogue of how we're doing and I think over the years because people know there's no retribution to anything they might say that has served as a fantastic platform for us to learn about the market, their concerns, their level of issues and we respond.

I am visiting with other business leaders in those markets, government leaders if it's appropriate, I give a speech or two at a university and go on my way.

RYSSDAL: When you go to visit coffee growers what sorts of things to do you look for there? These are the people with your raw commodity. SCHULTZ: Yeah. Again, these relationships go back many, many years and they're based on Starbucks pursuit of a very unique quality coffee bean. I can honestly say there's no coffee company in the world buying the quality of coffee we're buying across the board and so we're talking to the farmers about ways in which we can elevate quality, we're talking about creating new methods of growing, we're aging coffee. For example, Christmas Blend, which is something we only serve once a year for six weeks from Thanksgiving to the first of the year, has aged Sumatra in it. That's coffee that's been aged for three to five years that produces an earthy flavor, almost like a Bordeaux wine. Very hard to accomplish and execute yet we do it year in and year out.

And then we're traveling to places where we haven't found coffee yet; the quality of coffee that we want, to try and find people who can potentially grow it for us or find sources of coffee that we don't know about but we have people traveling the world for coffee almost 365 days of the year.

RYSSDAL: You have out in the waiting room out front an annual report of your environmental and social responsibilities, audited and very formal and all that — is that a mechanism, sort of, to address a lot of the criticism that you guys have gotten over your fair trade practices and how you treat your growers?

SCHULTZ: Well, the interesting thing that we're getting mainly from our people is they are concerned that Starbucks is not doing a good job in telling the story of all the good things that we do. And it is very hard to kind of beat your chest and tell the world this is what we're doing and give us credit. That social responsibility report is something that we created a few years ago to begin a process of trying to document all the things we do, both for our people, our shareholders, and the market at large to try and get people to understand that we're doing as much as we can and in many cases more than most.

RYSSDAL: Do you feel sometimes you're on the defensive?

SCHULTZ: Well, what I feel is you can't do something like this and not be so personally engaged in the outcome or the perception and not to take it personally is hard when people criticize you because we — we've given so much to this company and we wanted to in a sense be respected and value the way we do so I wouldn't say defensive but we take it personally and we want to defend what we do and unfortunately we can't be all things to all people and going back to your earlier question I think when you decide that you're going to be visible and be active it does create expectations that sometimes you can't meet.

RYSSDAL: When you walk into a Starbucks, not around here, not the one down the street and certainly not the one downstairs, do they know who you are?

SCHULTZ: More often than not, yes.

RYSSDAL: Really?

SCHULTZ: Yeah, yeah.

RYSSDAL: Is there a little picture in the back room of Howard Schultz?

SCHULTZ: I don't think so; I hope not.

RYSSDAL: If this guy walks in -

SCHULTZ: I hope not.

RYSSDAL: No? You mentioned —

SCHULTZ: And everybody pays, by the way, including myself.

RYSSDAL: All right. You mentioned before that you look for examples of people doing things right. What might that be?

SCHULTZ: Well, exceeding the expectations of the customers on any level. Making the perfect beverage. Educating a customer the difference between Guatemalan and Sumatra. Coming around the counter to engage in a discussion with a customer or a young child. Having the stores clean. Doing the things that matter. And taking pride in the work.

RYSSDAL: Do you monitor speed at all?

SCHULTZ: As a company we monitor speed. We know that we have to be efficient at what we do in terms of our drive throughs and in the stores. We know that if the stores get too busy like they did this summer, people will leave the line. And in some cases we've been such a victim of our own success where we just didn't imagine that there would be peaks of the day where we'd have lines out the door.

RYSSDAL: Remind us what happened this summer; it's a fascinating story. SCHULTZ: Some people don't believe this story but the truth is the truth is that we — what happened this summer is that the weather, as you know, this was a particularly hot summer, and Starbucks never talks about weather as both an excuse or an opportunity, but in this particular case, the weather was so hot nationally and as a result of that, blended frappuccino beverages, the iced blended beverages, which normally started being popular in the mid-point of the lunch hour and throughout the afternoon all of a sudden at 8-9-10 in the morning we had thousands of customers around the country who wanted ice cold blended frappuccino at hours of the day that we had never been asked certainly in the demand curve — we never saw it before. And this effected everything. Not only speed of service, but the espresso customers who wanted a cappuccino or latte were getting infuriated because it was taking so long because the blended beverage takes longer, and we had a real significant level of execution problem that we did not handle very well.

RYSSDAL: How do you fix something like that, though?

SCHULTZ: Well, you can fix it in a number of ways but you can't fix it in the middle of the storm. So it will be fixed this late spring and summer. I hope it's the hottest summer of all time because we are ready.

(Laughter)

You re-engineer the stores, you put more cold beverage stations in the stores, you have more labor deployment and you staff appropriately. But we just — we couldn't respond.

RYSSDAL: Now this seems like a CEO sort of problem but you're not the CEO any more. What does the guy who has that job do if you're taking care of this?

SCHULTZ: It's everyone — no, I think — there's — when there's an issue at Starbucks it's not a title that's going to say you go solve that. We're around the table sitting as a team. We are a team. And the team gets credit and the team gets the opportunity and the team has to solve problems. And it wasn't one person's issue or nobody was pointing fingers saying why didn't you solve that because it's — that wasn't going to do anything.

RYSSDAL: How has your job changed or has it changed I guess since you stepped down from being CEO a couple of years ago?

SCHULTZ: Well, I don't run the company operationally day-to-day but I'm involved, I'm heavily engaged in everything we do and but Jim Donald is the CEO and he runs the company and I respect that.

RYSSDAL: What do you do in your time off?

SCHULTZ: I'm pretty busy, you know? We have a family foundation that we're heavily involved in in terms of social causes, mostly regionally here in the northwest. We've got children and time just goes by, you know?

RYSSDAL: What do you want your legacy to be with your kids?

SCHULTZ: I don't really think so much about that but I would hope that they would be proud of what their father was a part of and recognize that we built the kind of company that they can be — that they and others can look at and say that's the right way to do it. I think it's too early to talk about legacy, though.

RYSSDAL: Howard Schultz is not the founder of Starbucks, he was the chairman and CEO for a long time and now he's the chairman and the chief global strategist.

SCHULTZ: Thank you very much; thanks for having me on.

RYSSDAL: We had a listener write in, lots of them actually, and wanted to know where the name Starbucks came from?

SCHULTZ: Yes. The name Starbucks came from Herman Melville's book Moby Dick and in the book there's a coffee-loving first mate name Starbuck. There it is.

RYSSDAL: There's more to that story though?

SCHULTZ: Uh, well it could have been named something else but I mean it was —

RYSSDAL: Well, go ahead.

SCHULTZ: It was almost named Pequot Coffee. RYSSDAL: But —

SCHULTZ: But we didn't go that way.

RYSSDAL: Because?

SCHULTZ: It didn't sound good.

(Laughter)

RYSSDAL: Nobody's going to go out for a cup of Pequot?

SCHULTZ: So — there you have it.


[NOTE: The text above is an extended excerpt of the interview and may have been edited. It should not be taken as a verbatim record.]

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