Schultz had spent so much energy on growth that he failed to oversee and maintain many of the core elements that made Starbucks successful in the first place. To save money, Starbucks started shipping ground coffee instead of whole beans, jeopardizing freshness. To save time, baristas started steaming milk in large batches and re-steaming it if it got cold between orders rather than preparing it one cup at a time. New espresso machines made coffee faster but they were too tall, prohibiting baristas from interacting with customers. Breakfast sandwiches provided a good profit margin but made the stores smell like burnt cheese instead of coffee.
Starbucks CEO commited $30 Million to Youth Jobs Effort.
The chief executive of Starbucks is spearheading an effort by major corporations to hire 100,000 young workers from minority and low-income communities over the next three years,
The program will help unemployed nonstudent 16- to 24-year-olds find full-time jobs, apprenticeships, and internships. Microsoft, Walmart, Target, and CVS Health are among more than a dozen companies that have signed on.
Funds from Mr. Schultz’s foundation will support local job fairs and mentoring programs and follows his pledge of $30 million for programs to help returning U.S. military veterans enter the labor force.
Returning to Seattle, Schultz shared his epiphany with his fellow Starbucks owners. Baldwin and Bowker were unwilling to move beyond the stores’ core product offerings.
Convinced he had hit upon something big, Schultz left Starbucks in 1986 to open his own espresso bar called Il Giornale (The Daily). The venture was a hit. Schultz wanted to open more shops, but didn’t have the funding he needed to expand.
There is a growing appreciation among business leaders that by integrating a clear purpose focusing on the needs of society into their strategy, their business models and their products and services. Companies can drive innovation, growth and profitability, making the world a better place.
In order to get Il Giornale off the ground, Schultz had to raise more than $1.6 million. “In the course of the year I spent trying to raise money, I spoke to 242 people, and 217 of them said no,” he wrote. “Try to imagine how disheartening it can be to hear that many times why your idea is not worth investing in. … It was a very humbling time.”
In a quirky twist of fate, a year later he learned that Baldwin and Bowker wished to sell their outlets, so after rounding up investors from the Seattle area, Schultz purchased the original Starbucks chain for $3.8 million and merged the stores with his own.
Once in charge, Schultz set out to completely overhaul Starbucks according to his vision. He expanded Starbucks’ offerings to include more exotic coffee beverages such as espresso, cappuccino, café latte, iced coffee and café mocha. He also sought to create a more appealing atmosphere for his customers-the proverbial “clean, well-lighted place” where they could relax and enjoy their coffee in comfort.
The original owners of Starbucks, had no plans to hire Howard Schultz. No one else seemed to be in favor of this plan either. His mother didn’t agree. “My mother was especially concerned. ‘You’re doing well, you have a future,’ she argued. ‘Don’t give it up for a small company nobody’s ever heard of.’” The market didn’t agree either. “A market study would have indicated it was a bad time to go into the coffee business.”
No matter. Schultz was a believer. Schultz began meeting with Starbucks team regularly to see how he could get a job there.
Undeterred, Schultz continued conversations with the founders. He had been in talks with one of the founders, Jerry Baldwin, for several months. After sufficiently selling Jerry on the idea to hire him, Jerry decided to set up a dinner with the investors. Schulz knew, this was his chance. He had done his homework. He figured this was the final obstacle to overcome and get the job. He was ready.
The next day he got a call from Jerry. “‘I’m sorry, Howard. I have bad news.’” They decided not to offer Schultz the job. He was crushed. Yet somehow, upon hearing this, Schultz scraped together the courage to ask why. Jerry told him Schultz represented too much change, something the budding company wasn’t ready for.
Schultz didn’t miss a beat. He told Jerry it was a mistake not to hire him; how dedicated Schultz was to the company and how much he could offer. Jerry decided to give it some thought and call Schultz the next day. The next morning, he called back and changed his mind. He said Schultz was right. He finally convinced Jerry Baldwin, fourteen years his senior, to hire him.
It took Schultz a year to get that job.
Of the experience, Schultz remembers: “In the 15 years since then, I’ve often wondered: What would have happened had I just accepted his decision? Most people, when turned down for a job, just go away.”
Did you know that Starbucks spends more on health care for its employees than it does on coffee beans? Schultz admitted his shareholders aren’t happy about that. Those shareholders may want to rethink their objections. Schultz is part of a growing group of entrepreneurs who are looking beyond profits in running their enterprises.
Schultz started with fixing the coffee problems. He closed 7,100 stores for one day to retrain baristas in how to pour a perfect espresso. The company lost $6 million that day and the press had a field day, seeing the closures as foreboding of worse to come. But Schultz knew how important it was that the coffee was prepared perfectly.
Where managers previously focused on sales growth, Schultz realigned them to focus on the customer experience. Rarely in a company the size of Starbucks would a CEO have the gumption to tell managers to ignore sales and profitability. But, Schultz knew what mattered most.
Schultz was born in Brooklyn, New York, in 1953. On a cold January day in 1961, Fred Schultz, a diaper delivery serviceman, fell on a sheet of ice and broke his hip and his ankle. Fred’s son, Howard, was seven years old and vividly remembers the accident. “That image of my father, slumped on the family couch, his leg in a cast unable to work or earn money, and ground down by the world is still burned into my mind,” the Starbucks CEO said. “I saw the fracturing of the American Dream and I saw my parents go through hopelessness and despair … And those scars, that shame, that is with me even today.”
At the time of the accident, the Schultz family was living in a Brooklyn housing project. They had no health insurance, no worker’s comp, no severance, and no way to make ends meet. Young Howard vowed that if he was ever in a position to take care of people, he would strive to make a difference in their lives.
“Health care. Our health care costs over the past 12 months were approximately $300 million. [Starbucks offers health care benefits to any eligible employee who works at least 20 hours a week.] The thought that we would cut that benefit—I couldn’t do it. Within this past year I got a call from one of our institutional shareholders. He said, “You’ve never had more cover to cut health care than you do now. No one will criticize you.” And I just said, “I could cut $300 million out of a lot of things, but do you want to kill the company, and kill the trust in what this company stands for? There is no way I will do it, and if that is what you want us to do, you should sell your stock. What I stand for is not just to make money; it’s to preserve the integrity of what we have built for 39 years—to look in the mirror and feel like I’ve done something that has meaning and relevancy and is something people are going to respect. You have to be willing to fight for what you believe in.” Entrepreneurs have to decide which values go into their business, and it can’t simply be to make money.
One of Starbucks’ signature offerings is an extraordinarily generous and inclusive health care program, with benefits even for part-time workers, tuition assistance, veteran hiring, and an employee stock purchase program. Starbucks aims to hire 10,000 military veterans and their spouses.
Schultz and Starbucks were partnering with Arizona State University to offer to their employees a four-year college degree at a reduced cost.
“Our responsibility as a company is to recognize that if we could provide a free college education to our employees,” he says, “it would help our company and it would help them professionally and personally.”
Another benefit that makes Starbucks stand out from its competitors is its stock-option plan. Dubbed “bean stock,” unlike most plans, which are only available to top executives, Starbucks gives stock options to everyone in the company.