Howard Schultz & Starbucks: Portrait of a CEO

Howard Schultz, starting life as any other ordinary child, would become CEO of the hugely famous coffeehouse chain everyone knows today: Starbucks. Read on to discover his life history and how he took his business to the ‘next level’.

Childhood and Education

Howard was born in Brooklyn New York in 1953 and was the first of three children born to Fred and Elaine Schultz, a Jewish couple. When Howard was 3, the family moved out of his Grandmother’s and into their own apartment in the Bayview projects in Canarsie, southeast Brooklyn. With Howard’s dad frequently changing jobs, the family struggled to make ends meet. A playground and Basketball court were the neighborhood kids’ primary entertainment and Howard developed into quite the young athlete, both on and off the basketball court. When Howard was 7, his father Fred broke his ankle working as a delivery driver for a local diaper service. The incident was financially devastating and in the months that followed, the family could barely afford to survive. This left an indelible impression on Howard, as he was forced to witness his father’s grief and loss of dignity. Young Howard recognized this as being due to the indignant treatment by his father’s employer. This lingering childhood memory would cause Howard to evolve into a uniquely considerate leader. This experience, among others associated with growing up in the projects, provided Howard with the motivation to strive for a better life. Howard remembers playing sports as a kid “from dusk till dawn”, determined to leverage sports as his way out of the projects. In high school, Howard joined the football team and gained recognition as one of the best players when he was promoted to team quarterback. Howard’s athleticism earned him a scholarship at Northern Michigan University where, despite being unable to maintain his position on the NMU team, he nonetheless graduated in 1975 with a Bachelor’s Degree in Communications.

Early Career

After University, Howard remained in Michigan and took a job working at a local ski lodge. After a year, he returned to New York and landed a job at Xerox, where they enlisted him in their in-house sales training program. After he completed his training, Howard’s first position was as a lead generator, ‘cold-calling in-person’, door-to-door in midtown Manhattan. Howard soon became a full-fledged sales representative and was earning a $75k annual salary.

By 1979, Howard had become restless in his sales job. Seeking more of a challenge, he successfully applied at Perstorp, a subsidiary of Hammarplast, the Swedish housewares company. After traveling to Sweden for 3 months of training, he returned to the US and was immediately transferred to their Building Supplies division in North Carolina.

Howard spent ten miserable months in North Carolina selling extruded plastic parts before threatening to quit. Rather than lose him, the company transferred him to New York, making him General Sales Manager of the Hammarplast Housewares division and VP of US Operations. There, Howard managed twenty sales representatives engaged in the sales and Marketing of stylish Swedish Kitchen equipment such as coffee makers and the like.

A couple of years into this position, Howard had noticed that one of their clients, Starbucks (a small fledgling coffee bean retail shop in Seattle, WA) was buying more coffee makers than Macy’s, and more plastic cone filters than any other customer. This sparked Howard’s curiosity, leading him to travel to Seattle to meet with the owner of Starbucks.

He recounts, “When I walked in this store for the first time - I know this sounds really hokey - I knew I was home,” adding, “I had never had a good cup of coffee. I met the founders of the company, and really heard for the first time the story of great coffee ... I just said, ‘God, this is something I’ve been looking for my whole professional life.’” Their knowledge of coffee was impressive and although they only had a few stores, Howard expressed interest in working with them. One year later he became Director of Marketing.

The Official Start of Modern Starbucks

When Howard started working for Starbucks in 1982, they only sold coffee beans and coffee makers, not cups of fresh-brewed coffee. It wasn’t until Howard Schultz was visiting Milan Italy in 1983 that he was taken aback by the vast number of espresso bars. He couldn’t help but notice how the Italians seemed to enjoy a romance with espresso. Howard was drawn by the passionate connection Italians had to the beverage but more importantly, the warm, social atmosphere exuded by these cozy coffee bars. Italians were drawn to these cafés by the sense of community - similar to the way Brits are drawn to local pubs - connecting socially. He couldn’t wait to get back to Seattle to discuss his vision for the future of Starbucks and to present the idea of expanding the ‘bean shops’ into ‘coffee bars’! To Howard’s dismay, the owners didn’t share his enthusiasm for expanding “the bean business” into what they termed “the restaurant business.”

Howard, not one to give up, was finally allowed to incorporate a coffee bar into the build-out of a new location the company had planned. It was an instant ‘home-run’. With hundreds of fresh roast aficionados visiting daily, Starbucks’ customers had already coined the phrase “coffeehouse” in reference to the new location. Though instead of joining in Howard’s enthusiasm, Starbucks’ owners shied away from the successful experiment saying, “Oh no, that’s not for us“.

Disappointed and not sharing their apprehension of ‘getting too big’, Howard left Starbucks in 1985 with plans to open the first coffee bar of his own. However, Howard knew he needed $400k to establish his first location and without access to that kind of money, would need to seek investors. One investment came from an unlikely source, Jerry Baldwin and Gordon Bowker, two of the Starbucks owners. With a few other investors, including a Doctor who invested $100k, Howard had raised the necessary capital to open his first coffeehouse, ‘Il Giornale’, in 1986.

One year later, in 1987, Starbucks owners had decided to focus on ‘Pete’s Coffee and Tea’, which they had recently purchased, and decided to sell the Starbucks retail chain to Howard Schultz for $3.8M. Another round of financing, and the new deal was consummated. Howard then re-branded his ‘Il Giornale’ stores under the Starbucks logo and opened the first two Starbucks stores outside of the Seattle metropolitan area. With one store in Chicago, IL and another in Vancouver, BC, Canada, Starbucks had 17 retail ‘coffeehouses’ in total.

By 1991, they opened their first airport location at Seattle’s International Airport, and Howard had 116 stores in total. In 1992, when Howard took his company public, he already owned 165 corporate locations and would double that number within the next 2 years. By 1996 they had over 1,000 stores and opened their first locations outside North America with a store in Japan and another one in Singapore.

The Starbucks Set of Rules

Before even beginning the incorporation process, Howard Schultz made a clear set of rules for the company to follow, a process which is highly recommended by any marketing consultant. Eventually, these proven turnaround strategies became the corporate code. The code focused on the importance and benefits of organization, as well as the need to constantly improve the coffee recipe and/or the company’s products. Howard Schultz also strongly believed, and still believes, that the profits made today, secure a company’s future tomorrow. As a matter of fact, Howard Schultz is always looking for new ways to continually improve his company. As an example, he began selling soft and cold drinks in 1994 when he noticed a dip in sales during summer months. Overall, Howard has taught us that taking a business to the next level requires constant “tweaking”, whether ‘fine-tuning’ the menu or slightly improving each of the products, one at a time. Howard has demonstrated that being better than everyone else, requires a relentless and unwavering commitment to improvement day-in and day-out, every step of the way.

The Spirit of Starbucks

Despite all the competition Starbucks faced, Howard Schultz has maintained his, and his company’s, integrity by retaining the same morals and prices. Regardless of the competition, he continued to steadily increase sales. Interestingly, he has always had confidence in the company logo, saying that - all things being equal - customers will choose Starbucks over other stores if only because of the enticing Starbucks logo.

However, Howard has never been one to rest on his laurels. He has always adhered to the principal that a company not constantly pressing forward, is inadvertently falling behind. In fact, he realized that all of the Italian-style coffeehouses that were rushing to the marketplace to compete with Starbucks were too small and therefore didn’t encourage, and couldn’t sustain, socialization. As a result, Howard decided to play off of his competitors’ lack of insight into his original epiphany.

By increasing the size of new Starbucks stores with more lounge chairs and coffee tables, Howard drew consumers’ attention to the disparity between Starbucks and the other coffee bars by building a greater sense of community at local Starbucks locations. As you might guess, this strengthened customer loyalty and increased sales even more. Howard has created a strong company spirit within the Starbucks organization. Leading by example, Howard also rewards and encourages employees to take a “pride-of-ownership” approach toward identifying and implementing strategies that work.

Starbucks Becomes the World’s No. 1 Coffee Business

In 1996, Howard Schultz made the decision to expand the company outside of the United States, turning Starbucks into an international company. The first foreign storefronts were Japan and Singapore, moving into Korea, Taiwan, the United Kingdom, Netherlands, Sweden, and Israel. Soon Starbucks was operating 2,400 stores in the United States, with another 350 locations across Europe, Asia, the Middle East, and Canada, Nonetheless, Howard set a goal to open 1,200 new international stores by April of 2000.

In 2000, Howard decided to take a bit of a break from being the company’s acting President and CEO. Although taking a much needed hiatus, Howard Schultz was no doubt the impetus pressing the Starbucks brand forward from behind the scenes. By 2005, Starbucks was operating over 10,000 coffeehouses world-wide. Although he was light years ahead of his competitors, Howard normally never let his guard down. Unfortunately, taking a break from the “front lines” was to prove comparable to resting on his laurels.

Howard Steps Back into the Driver’s Seat

In early 2007, seeing the early signs of a pending sales slump, Howard started to re-evaluated the past 7 years to identify any long-term, underlying causes. Three serious issues presented themselves to Howard, who from a backseat or behind the scenes position - although still Chairman of the Board - identified some major problems that required immediate resolutions.

Issue No. 1.) In recent years, Starbucks was converting from manual espresso machines to fully automated machines in an effort to increase speed, consistency, and efficacy. However, these new automated machines were much taller and had inadvertently blocked the “line-of-sight” between the customer and the Barista. So, customers could no longer see their specialty coffee being prepared.

Issue No. 2.) During that same time, the company had made a decision to start using “flavor-locked” packaging in order to preserve “fresh roasted” flavor. Howard explains, “We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma - perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage?” Once again, Howard demonstrates his business acumen with his uncanny ability to identify what his customers want. These two issues, each significant on their own, combined could have sabotaged years of work by undermining the very essence of Howard’s initial Starbucks “coffeehouse” heritage. He was ‘spot on’, his customers could no longer see the Barista creating their personalized masterpiece, but that, combined with the absence of the familiar aroma of fresh beans being ground prior to each manual espresso, meant the Starbucks stores had lost that coffee bar appear.

In 2008, Howard made the decision to take back the reins and assume the company’s leadership role once more as President and CEO. In an effort to restore what he called “the distinctive Starbucks experience”. During the company’s continued rapid expansion, Howard started implementing significant turn-around strategies. The recession in 2008 made things even tougher. In fact, Howard had to make the decision to close a total of 900 stores to ensure the overall company’s survival long-term. Despite this, Starbucks has continued to grow into what it is today, proving Howard to be an effective marketing consultant and turn-around man.

As of 2015, Starbucks reportedly had amassed over 23,000 stores world-wide. This year, Howard is finally prepared to take on Milan, Italy - this location will be Starbucks true test.

Family Life

Aside from his business accomplishments, Howard Schultz married Sheri Kersch (Schultz) and they have lived since 1982 in Seattle with their two children, their son Jordan and their daughter Addison. Howard has also written two books, describing his life and success in great detail.

Overview of our ‘Portrait of a CEO’

As of now, Howard Schultz’s net worth is estimated at 2.9 billion dollars. When it comes to taking a business to the next level, Howard Schultz is a prime example of a man from whom we all can learn. He represents the CEO that most business owners and founders alike would be most likely to want to emulate. A Jewish kid from the projects, Howard is probably more self-aware of the magnitude of his accomplishments than any of us observers might be. So, he certainly needs no kudos from us.

Howard would probably be the first to admit, that there comes a time in each and every business owner’s life, where re-evaluating our origin, history, successes, failures, goals, products, services, partners, employees, attitude, company spirit, and lastly - but most importantly - our customers, is sometimes necessary in order to regain a renewed sense of what is truly vital to ensure our continued success.

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