Who would have believed that one day millions of people would line up to pay $4 for a cup of coffee that one could get across the street for $1? Ten years ago, everybody on earth would have thought that this idea as ridiculous, but Starbucks has been doing this since as long as I can remember. And it continues to be the biggest brand of coffee around the world.
Last year when I was in Taiwan, I would sit in the coffee store and write in my blog. At times, I would look up, and just see these lines of people piling up, going outside the entrance and into the sidewalk. Starbucks was always busy, and currently, there are about 400 Starbucks in China, including one in the Forbidden City. If this continues, soon China will be Starbucks’ biggest customer. How can Starbucks command such a high price for coffee with many people still acceptingly buying? The upbringing of Starbucks comes from Howard Schultz who is now the chairman and CEO of this billion dollar corporation.
Growing up in the projects of Brooklyn, New York, Schultz started out really poor. He remembers his father, a hard working man who often struggled with his blue-collar job, which didn’t pay much. His dad worked as a diaper-service delivery driver. One time, he broke his hip and ankle and that was it. With no health insurance and no workers’ compensation, you were out of work and no pay. His father was left helpless with a cast from his hip down to his ankle, sitting on the couch, and with no job, it was difficult to bring food to the table.
“My dad never made more than $20,000 a year.”
To keep his thoughts out of the idea of being poor, Schultz would play sports in high school that kept him active including baseball, football, and basketball. After he graduated high school, he was awarded an athletic scholarship to Northern Michigan University, and became the first person in his family to go to college.
After college, he worked a variety of jobs, including being a salesperson for Xerox. Four years after he graduated, he became the general manager for a Swedish drip coffee manufacturer, Hammarplast. He and his company were responsible for selling coffeemakers to coffee shops, who would use these coffeemakers to make coffee and sell to their customers. As he was working, he noticed that this obscure store kept buying an unusual number of coffeemakers from him, more than Macy’s was at the time. This was happening for about two years.
He realized that he wanted to know why. So from New York, he flew to Seattle to see this coffee store that was called Starbucks. When he entered, he was amazed by the presence of the coffee store. Schultz had never smelled fresh coffee like that before or seen dark roasted coffee like that either. He knew he was home.
“I walked away… saying, ‘God, what a great company. What a great city. I’d love to be a part of that.’”
It would take one year for him to try everything he could to join the Starbucks company. After a year, he convinced Starbucks to hire him. He would soon become the director of marketing for the company. During the early 1980’s though, American coffee stores were just a place where you can go in, get a cup of coffee, and walk out. He wanted to take a different route.
One day, he was on a trip to Italy, he walked around and notices that coffee bars existed on practically every street. Not only did the Italy coffee bars serve excellent espressos, but they also served as meeting places or public squares for people to come together and have a casual conversation or even just share a laugh. He was motivated by this idea.
On his return to America, he tried to persuade the owners to offer traditional espressos in addition to whole-bean coffee. He also wanted to get the coffee stores to be more restaurant-like, where people can gather together, drink coffee, and have an enjoyable conversation. However, the owners refused to roll it out company-wide, saying they didn’t want to get into the restaurant business.
They wanted to stay small, and Schultz realized that in order to change the culture of coffee in America, he would need to share his idea and get it out to as many people as he could. The problem was that it would require him to start the company himself.
In order to not give up his dream, he decided that he would open up his own coffee store named Il Giornale in 1985. Two years later, the original Starbucks coffee management decided that they would focus on their other coffee shop – Peet’s Coffee & Tea. They eventually sold Starbucks to Schultz for $3.8 million.
The owners had made a lot of money off of Schultz, and Schultz, who had just spent millions of dollars on this company, didn’t have much left. He had no salary and was trying to support a family. Furthermore, his wife was seven months pregnant. All he had left was a dream.
“My wife was pregnant with our first child. She was working. We were trying to raise money at Starbucks. I had no salary. And her father asked to take a walk with me. She was seven months pregnant. And he sat me down and he said, ‘Howard. It’s really time for you to give up this dream. It’s a hobby. It’s not a job. You have to get a real job.”
Schultz was crushed. How could he say this to him? But he wouldn’t give up. He tried to do everything he could to get the Starbucks’ brand across the United States. What he wanted to do was to create an experience for the people, but not just any experience, an experience that people would be able to trust.
He wanted to make the best quality coffee that people could buy. He also wanted to make Starbucks as a place between home and work – a place where people could stop by before, have a cup of coffee, have a conversation, and then go to work for the next eight hours or so. But the most important thing was building a place where people could trust. Obviously a clean environment was a must, some light jazz music wouldn’t hurt, and treating customers with respect and warm reception was the most important thing to remember.
“If you think about you know the decade of the 90’s, and the evolution of technology and how fast things have moved, so many people were spending so much time in front of a screen, in front of a computer, and we were spending less time with one another. Starbucks brought people together. And there was a sense of gathering, a sense of human attachment, and this human interaction really built the brand.”
It wasn’t just the customers that he wanted to treat well, but the employees. He remembers back when his father did not have health insurance or workers’ compensation. He wanted to guarantee that the workers got the benefits that his father’s generation did not have, including health coverage for everybody working at least 20 hours a week. Twenty hours a week is basically a part-time job. This would increase employee morale which would be better for the service of the customers. In the early 1990’s, it paid off. The company started to expand really quickly.
For over a decade, Schultz would work as hard as he could to build a brand that people could trust without using advertising like one would see in McDonald’s commercials. He would have to make sure that customers were served with respect, that the environment contained a warmth atmosphere with a little bit of entertainment, and the coffee was bought from the highest quality coffee in the world and roasted until perfection. The rest then be would word-of-mouth.
The green-and-white brand with the mermaid on it would soon become iconic for quality coffee and a social gathering. Today, Starbucks is a multibillion dollar corporation with more than twenty-thousand Starbucks stores across the world and giving jobs to over a hundred thousand employees. Howard Schultz eventually became the CEO and chairman of Starbucks, which was quite an accomplishment for somebody starting out living in the projects of Brooklyn to somebody who is now worth around $1.1 billion.
As Schultz looks back at the growth and success of the Starbucks business, the main reason why they have succeeded wasn’t because of the real estate that was invested or the high quality coffee, but it was because of a characteristic that is often overlooked in consumer brands, companies, and enterprises, and that fragile characteristic is trust. He understands now that the web today is in many ways the death of distance; however it is the birth of truth and transparency and with the right kind of values, it makes any type of enterprise or business an enduring success.
Finally, one of the key messages that Schultz wants to send off to people is that sometimes in life, the difference between winning and losing is a very, fine gray line. It takes tenacity, it takes passion, it takes commitment, and at times, it takes a little bit of luck too. But there are always going to be people out there that are going to tell you to go do something else and take the safer route.
He urges people to not let anybody including friends, parents, and spouses, tell you that your dreams cannot come true. He was also once a young man, trying to raise money against all odds and made it in the very end. And besides trust, if there’s one inspirational message that I want to share with you guys from him, it’s to keep dreaming every single day, and when you keep dreaming, and you have some moments, dream bigger.
“How could Starbucks travel half way around the world in 1996? A young college student – Japanese – is at the front of the line. We cut the ribbon. He runs to the front of the line; he cannot speak a word of English – not a word – and he says, ‘Double Tall Latte’”.