CHAPTER 14
As Long As You’re Reinventing, How About Reinventing Yourself?

The difference between great and
average or lousy in any job is, mostly, having
the imagination and zeal to re-create yourself daily.

—TOM PETERS, THE PURSUIT OF WOW!

WHY ARE WE GROWING SO FAST?

After Starbucks went public in 1992, I basked in the glow of our success. Our expansion plan sprinted ahead of schedule, with more than 50 new store openings in fiscal 1992 and 100 in fiscal 1993. Each year we exceeded our internal targets for both sales and earnings, and Wall Street analysts cheered as our same-store sales growth remained in double digits. In 1992 we expanded to San Diego, San Francisco, and Denver. Everywhere we went, the enthusiastic response bowled us over.

In April 1993, we made our initial jump to the East Coast, deciding to open first in Washington, D.C., which had the highest concentration of mail-order customers in the East. Washington also had the benefit of being home to a large number of both Europeans and transplanted West Coasters. We sent invitations to all our area catalogue customers for the opening of our first D.C. store, in Friendship Heights on Wisconsin Avenue, and attracted a sizable crowd. We later had an even bigger turnout when Kenny G played at the Grand Opening of our highly visible Dupont Circle store, which quickly became one of our highest volume outlets.

We began to rely more and more on information from our mail-order group to decide which markets to enter. Catalogue customers tend to be the most loyal, since they go out of their way to ensure that they will have a steady supply of Starbucks coffee. The average Starbucks mail-order customer, we’ve found, is a connoisseur, highly educated, relatively affluent, well-traveled, and technologically savvy, with a significant interest in the arts and other cultural events. These were just the right kind of ambassadors we wanted to get the word out about Starbucks.

In July, the month of my fortieth birthday, my picture appeared on the cover of Fortune magazine, illustrating a story on America’s fastest-growing companies. “Howard Schultz’s Starbucks grinds coffee into gold,” it said. Fortune by forty! I was proud but, frankly, a little embarrassed at all the attention. It’s always been hard for me to celebrate success, because I’m always thinking: What next?

On the surface, everything was going flawlessly. But in my own mind, I found myself growing apprehensive. Much of the company’s zeal was motivated by swimming against the tide, by scaling impossible mountains. We had proved our idea would work—far better than even we had imagined. Could we maintain our edge?

Now that specialty coffee was catching on all over the country, national expansion looked like an easy goal to attain. It wasn’t that simple, of course, for the competition was heating up. In cities across North America, coffee stores were adapting the Starbucks model, serving lattes and cappuccinos, stocking shelves with mugs and coffee grinders, sometimes selling whole-bean coffee, too. The Specialty Coffee Association of America predicted that the number of coffee cafés, including espresso bars and carts, would rise from 500 in 1992 to 10,000 by 1999. The espresso business was attracting thousands of small entrepreneurs, some with little overhead. Many middle managers in downsizing companies dreamed of opening a little coffee place, and some actually did. It seemed there was no barrier to entry, since anybody could buy an espresso machine and steam milk for a latte.

Starbucks has never felt threatened by the mom-and-pop coffee stores. In Seattle there’s one on just about every street corner, and we’ve all benefited from the growing market. But other coffee companies, seeing our success, started to undertake ambitious expansion plans. One of our competitors, SBC in Seattle, announced that it would franchise 500 stores in five years; another, Brother’s Gourmet Coffee, bought out mall-based Gloria Jean’s and declared plans to open at least 80 more Starbucks-type stores.

Because of the growing competition, some observers predicted we had already “missed the train” to the East Coast. So we accelerated our plans: Instead of opening 125 stores in fiscal 1994, we quietly upped the goal to 150. After our success in Washington, D.C., we decided to enter New York and Boston in 1994. New York held special symbolism for me, since it’s my hometown as well as the nation’s biggest city. But with its high rents and tough labor market, it also concerned us. Arthur Rubinfeld and Yves Mizrahi devised a real estate strategy of first opening stores in nearby Fairfield and Westchester counties, home to many opinion-makers who work in Manhattan. By the time we made our first foray into the city, at 87th Street and Broadway in March 1994, we were already rated the best coffee in New York.

In Boston, we made a move we had never tried before—or since. After opening a handful of our own stores, we bought out the leading local competitor. Founded in 1975 by George Howell, The Coffee Connection was different from competitors we faced elsewhere. Like the founders of Starbucks, George had discovered fine coffee at Peet’s in Berkeley, where he was a graduate student. When he returned to Boston and opened his own stores, however, he quickly realized that New Englanders preferred a lighter roast. After much trial and error, he switched loyalties and began to strongly advocate light-roasted gourmet coffees.

By 1992, The Coffee Connection had 10 stores, including prime sites in Harvard Square and Faneuil Hall, and an intensely loyal customer base, built largely by word of mouth. Realizing Starbucks would soon be coming to town, George hired a former hotel executive, Curt Bean, to help him tap into venture capital funding to speed up growth. They added 15 more stores by mid-1994 and started to expand outside Boston, with plans to open another 60 stores by 1997.

Rather than starting a local coffee war, we offered to buy The Coffee Connection, and George Howell agreed. In June 1994, in a stock swap worth $23 million, Starbucks completed the acquisition, moving overnight into a leading position in Boston, a hub for the Northeast. George Howell became a consultant, and Curt Bean stayed on to oversee the transition. The move gave Starbucks a jump start on our brand-building and retail strategy, as well as immediate access to a core of well-informed coffee drinkers.

By the end of calendar 1994, we had also entered Minneapolis and Atlanta, as well as Dallas, Fort Worth, and Houston. The lightning-fast, multi-pronged move into Texas was partly based on the availability of great sites, with rents priced at the bottom of the cycle. In 1995, we opened stores in Philadelphia, Las Vegas, Austin, San Antonio, Baltimore, Cincinnati, and Pittsburgh. The pace was dizzying. Opening up in so many regions at once was risky, but we were building the kind of sophisticated, mature management team we needed in each region to oversee the process.

To an outside observer, our growth may have seemed effortless, and in fact, there weren’t many hitches along the way. Once we had set up a smooth-running engine for growth, opening stores became as routine as pulling shots of espresso.

What really made it work so well was the people we were able to employ. In only a few years, the Starbucks name had acquired a mystique that attracted skilled managers, many of whom had left far larger operations to join us at the regional level. Howard Behar and Deidra Wager recruited zone vice presidents to direct the development of each region, and gave them the responsibility of duplicating the Starbucks culture throughout North America. In Canada, Roly Morris came to us with extensive operations and marketing experience in the retail industry. Stuart Fields, heading the Midwest zone, had been vice president for operations of the Custom Shirt retail chain. Bruce Craig had overseen the growth of 1,600 Burger Kings before building up Starbucks’ Southwest region. Marcia Adams, now head of our Gulf Atlantic zone, had executive experience with 7-Eleven in operations, merchandising, and new concept development. Each of them took ownership of their region and outperformed even our expectations.

To accommodate fast growth, we developed a system to recruit and train baristas, ensuring high-energy, knowledgeable people, helping them develop their palate for coffee, and replicating our standards and values in city after city. Under Deidra Wager, our retail operations had not only to install systems that could handle large numbers of stores but simultaneously to oversee the opening of hundreds of stores in new markets every year.

At our Seattle offices, our real estate, design, store planning, and construction people developed a sophisticated store-development process based on a six-month opening schedule, so well-oiled that eventually we were able to open a store every business day. There got to be so many that I couldn’t visit them all.

In 1992 and 1993, we refined our real estate strategy, creating a three-year expansion plan based on a matrix of regional demographic profiles and an analysis of how best to leverage our operations infrastructure. For each region, we targeted a large city to serve as a “hub,” where we located teams of professionals to support new stores. We entered large markets quickly, with the goal of rapidly opening 20 or more stores in the first two years. Then from that core we branched out, entering nearby “spoke” markets, including smaller cities and suburban locations with demographics similar to our typical customer mix.

To supply so many new stores, we also had to build a new roasting plant. Just after Christmas 1992, we realized we couldn’t get through another holiday season with our existing plant, although it had been planned to last ten years. In February 1993, we asked Howard Wollner, our vice president for administration, to do the impossible: find a new site, assemble a team to build a far larger roasting plant, and start operations in only seven months. In September of 1993, roasting began in a new 305,000-square-foot plant in Kent, Washington, just south of Seattle.

The old plant eventually became dedicated to roasting for our mail-order group, headed by Buck Hendrix since mid-1993. Buck grew that business from $6 million to more than $20 million by 1997, which, though representing a small percentage of our overall sales, served as a visible showcase for our products and an important link to customers all over the United States.

In October 1993, we outgrew our old offices as well. Howard Wollner found us space in a building a few blocks away, still in the light industrial area south of Seattle, an area called SODO because it is SOuth of the KingDOme, the stadium where the Mariners and Seahawks play. We rented several floors in a building that once served as the Northwest warehouse for Sears’ catalogue division. It’s nothing like the high-rise buildings or sprawling corporate campuses other companies inhabit. Each one of its nine floors has the equivalent square footage of six stories in a typical office high-rise. The old warehouse used to be so large that people moved around it on bicycles and roller skates to fulfill orders. We created a space centered around a “commons area” with food service, espresso kitchens, and rest rooms, to encourage people to interact. Industrial lighting and exposed pipes and ducts create a mood that’s far from the stylish image some might expect of us.

I hated the idea of moving away from the roasting plant, so I insisted on elements that would remind us of our roots. Just inside the main door is a mock store, showcasing our latest products. Posters on the walls throughout the office display our newest marketing materials. Coffee plants grow in pots. And once we expanded into the top floor, we installed a small antique coffee roaster, retrofitted with modern technology, to use for demonstrations and sample batches and, most importantly, to tie us all the more closely to coffee.

From the window of my office, a modest one by CEO standards, I look out over the cranes of Seattle’s port, where our coffee beans arrive, and the towers of the city where the company was born. Yet I still miss the days when my office overlooked the roasting plant.

By 1994, we could see that our aim of becoming the leading retailer and brand of specialty coffee in North America was within reach. So we framed a bigger goal: to become the most recognized and respected brand of coffee in the world. There were still many American and Canadian cities we hadn’t entered, but since the Starbucks model and logo were already being copied—sometimes blatantly—around the world, we knew we needed to act quickly to lay plans to go global.

But it wasn’t enough simply to speed up and spread ever farther afield. Just as I had changed the paradigm for Starbucks once, selling coffee beverages as well as coffee beans, I wanted to shift it again. I wanted to jump to a new level, with a move that would be truly innovative and daring. The Starbucks brand was gaining favor so quickly that I figured we could leverage it for new coffee products that could be sold far beyond our stores. I began to imagine a Starbucks that was more than coffee and larger than the four walls of our stores.

In 1994, Starbucks exploded into a whirlwind of activity. We invented Frappuccino. We signed a far-reaching joint venture with Pepsi. Orin Smith became president of the company. We formed Starbucks International, and Howard Behar became president of that. We moved to our new offices. We upgraded our mail-order computer system. We chose a site in York, Pennsylvania, for a huge $11 million roasting facility that could ultimately grow to 1 million square feet, to supply our East Coast stores. And we faced our first major crisis: a 300 percent rise in coffee prices.

They were all major moves, many taking place simultaneously, and I’ve devoted entire chapters of this book to some of them. And the pace of change hasn’t slowed more recently: 1995 and 1996 found us facing challenges of growth and ubiquity, conflicts over ethics and style, and fantastic new opportunities with risky downsides that made the debates of the late 1980s seem minor by comparison.

FAST GROWTH TAKES ITS TOLL

What kept us balanced during this storm of activity was our values and our commitment to each other. Yet as we ran ever faster, those values came under more and more strain. Within the company, people who had helped me grow Starbucks in the early years became fearful and threatened, as professional managers came in over their heads. I no longer knew everyone’s name, even though we worked in the same building. The same pace and passion that made us great also at times burned people out. And while we were winning thousands of new customers a week, I heard reports of some who defected.

Nowhere were these conflicts more intense than inside my own head. Whenever someone came to my office upset about some new change, I felt personally responsible. I had thought my job would get easier as the company expanded, but it grew more difficult instead.

The issues became far more complex. Can a company double and even triple in size but stay true to its values? How far can you extend a brand before you dilute it? How do you innovate without compromising your legacy? How do you create widespread trial and awareness without losing control? How do you stay entrepreneurial even as you develop professional management? How do you keep pushing through on long-term initiatives when short-term problems demand immediate attention? How do you continue to provide customers with a sense of discovery when you’re growing at the speed of light? How do you maintain your company’s soul when you also need systems and processes?

Most of these questions, I discovered, do not have answers you can find in books. The best guidance comes from observing how other admired enterprises act. Only a few, unfortunately, have openly grappled with the difficulties of sustaining high standards and values during rapid growth.

With no easy answers, I explored every avenue I could. I’ve always been a voracious reader, but now I began to read even more widely. I consulted experts. I got to know other CEOs and entrepreneurs. I hired managers who had done it before. I picked the brains of everyone I met: reporters, analysts, investors, store managers, baristas, customers.

With growth, the daily pace of my life intensified as well. On any given day, I might have up to a dozen meetings, dealing with an extremely wide range of subjects. Sometimes, I’d have very little time to mentally prepare and would have to quickly shift gears between discussion of the company’s strategic vision, the following month’s sales promotion, a new blend of coffee, profit margins, an employee’s personal worries, a major investment opportunity, a policy change, and a board member’s objection. Sometimes my brain would almost literally ache.

In the middle of that, I’d sometimes get a call from Sheri or one of my kids. I always try to make time for family and friends; I couldn’t stand the pressure if I didn’t. But keeping up those personal relationships is stressful, too. Sheri has been able to gauge the pressures on me as the business matured, and during times I was distracted she somehow managed to keep the family on an even keel. I can’t imagine that I could have built Starbucks, that I could have managed the tensions and conflicts involved and still feel as good about it as I do, without having a strong, secure wife like Sheri.

Still, it’s always a struggle for me to pursue my dreams at the office without impinging on family time. I try never to travel on weekends. We always make an effort to have dinner at home together, whenever I’m not on the road. For us, that time is sacrosanct, and though we may eat a little later than most families, my kids look forward to it. I coached my son’s Little League team for two years, planning my travel schedule around his games. I take the kids to see the Sonics and Mariners, and they always attend the Starbucks annual picnic.

The balancing act has never been an easy one. I’ve struggled to harmonize the needs of the family, the needs of the business, the needs of my marriage, and my individual needs, too. I sometimes wonder: When is there time for me? What do I get out of this? It’s a relief to get out on the basketball court every Sunday morning and play a fast, running, sweaty game. For two and a half hours, I concentrate on that ball, and all of the work world melts away.

THE ENTREPRENEUR’S BIGGEST CHALLENGE:

REINVENTING YOURSELF

Nobody has a greater need to reinvent himself than the successful entrepreneur. Think of it: How many entrepreneurs have founded a company and then managed to grow successfully along with it, even as it reaches and surpasses $1 billion in sales?

Bill Gates of Microsoft has done so, as has Phil Knight of Nike. But far more entrepreneurs can’t adjust to the transition into professional management. Most are better at creating start-ups than at guiding mature businesses. As the companies beneath them balloon ever larger, the odds diminish that their skills will grow fast enough to maintain control.

Sometimes I feel like one of those cartoon characters who somehow winds up straddling two jet planes. I’ve got one foot on one jet and one foot on the other, and both are racing faster and faster ahead. I have to decide: How long can I hang on? Should I jump off? Am I going to break my legs?

I figure I’ve had to reinvent myself at least three times, each time at top speed.

I started off as a dreamer. That was the thirty-two-year-old who knocked on every investor’s door in Seattle looking for money to realize his business plan.

Then I moved to entrepreneur, first founding Il Giornale and then taking over Starbucks and re-creating it as a fast-growth company. Then I had to become a professional manager, as the company grew larger and I needed to delegate more and more decisions. Today, my role is to be Starbucks’ leader, its visionary, cheerleader, and keeper of the flame.

For me, dreamer is the most natural role, and one I still enjoy. Growing up in the 1950s and 1960s has a lot to do with that. It was the era of the Kennedys and the Peace Corps, when capitalism meant opportunity, not oppression. The prevailing mood was optimism, and I absorbed it deep in my bones.

But being a dreamer isn’t enough. If you want to achieve something in life, you need a different set of skills to set those dreams in motion.

Once you cross the divide where your dream begins to take shape, you graduate from being a dreamer to being an entrepreneur. The entrepreneurial stage of a young business is probably the most exciting one.

I didn’t realize it at the time, but I’m now convinced that one of the greatest responsibilities of an entrepreneur is to imprint his or her values on the organization. It’s like raising children. You start with love and empathy, and if you’ve imprinted the right values on them, you can trust them to make reasonable decisions when they become teenagers and young adults. Sometimes they will disappoint you, and sometimes they will make mistakes. But if they have absorbed good values, they will have a center line to return to.

In building a business, you’ll often come to forks in the road. Intel CEO Andy Grove calls them “inflection points.” You may not even be aware of it at the time, but the decisions you make at these junctures have repercussions for years to come. You may realize, for example, that you’ve discovered an opportunity to create a much larger, more meaningful business. But in order to take advantage of that chance, you will have to make a dramatic change in the way the business is managed.

It is precisely at points like this when a lot of entrepreneurs cut and run. Some are intimidated by the new opportunity and reject it. Others who do accept the challenge often can’t develop the skills to handle it.

At a certain stage in a company’s development, an entrepreneur has to develop into a professional manager. That often goes against the grain. Early on, I realized that I had to hire people smarter and more qualified than I was in a number of different fields, and I had to let go of a lot of decision-making. I can’t tell you how hard that is. But if you’ve imprinted your values on the people around you, you can dare to trust them to make the right moves. You have to build a foundation strong enough to support the pressures, the anxieties, and the fears of growing to the next level.

If you’re a creative person, an entrepreneur at heart, introducing systems and bureaucracies can be painful, for they seem like the antithesis of what attracted you to business in the first place. But if you don’t institute the right processes, if you don’t coordinate and plan, if you don’t hire people with MBA skills, the whole edifice could crumble. So many companies do.

In the early 1990s, we worked hard to make the transition from an entrepreneurial to a professionally managed company. But even as we did so, we tried to retain as much as we could of our entrepreneurial spirit, our esprit de corps, our ability to innovate and renew ourselves. We invited Eric Flamholtz, business professor at UCLA, to advise us on making that passage. He had written a book called Growing Pains, and recognized the symptoms all too well when he arrived at Starbucks. Fast-growing companies, he believes, go through predictable stages; no one is immune to them. He has developed management strategies to help company founders at each stage deal with the personal and professional challenges they confront as their enterprises mature into professionally managed firms. At Starbucks, Eric Flamholtz worked with us to develop strategic planning and management systems. Slowly, painfully, we’re learning how to set priorities and better manage rapid growth.

At first, I battled against these changes. I’m not process-oriented. I hated the very notion of strategic planning and systems, which always struck me as limiting. I’m used to tossing the gauntlet on the table, saying, “I challenge you to do this,” and it’s done. Eric Flamholtz calls that the “John Wayne school of management: a shoot-from-the-hip mentality.” Gradually, though, I gained respect for processes and plans as I came to realize that the better Starbucks can handle routine business and growth, the more well-equipped it is to move boldly into new arenas.

But I knew I would ultimately have to grow beyond even the role of manager to become a leader. I was lucky in that respect to become acquainted with the man who wrote the book on leaders, USC professor Warren Bennis. After he did some consulting at Starbucks, our friendship developed to the point where I could call him up late at night or early in the morning, whenever I reached a turning point and was at a loss for what to do. He took a personal interest in the company and in me, and helped me over some hurdles in my evolution to leadership.

RECOGNIZING YOUR LIMITATIONS

In mid-1994, I realized that my role needed to change again. Managing the day-to-day operations of a big company was not what I wished to do. It was beyond the scope of my skills and also fell outside my interests. I wanted, rather, to continue to create the vision, to anticipate the future, to experiment with creative ideas. That’s the value I can add, and it’s the work I love.

So in June 1994, the board and I promoted Orin Smith to take over some of my day-to-day responsibilities. He took on the titles of president and chief operating officer, while I remained chairman and CEO. Over the years, Orin had grown into a world-class executive with a thorough understanding of the logistics of managing administrative systems, someone who was much more qualified to manage our daily operations than I was. The move freed me up to spend time on such projects as the Pepsi joint venture, brand-building, the design of the Store of the Future, and new product development.

If you’ve raised a company as if it were your child, it’s difficult to let go of the instinct to care about every detail. For years, I used to monitor sales and profits numbers daily, for every store, watching them come off the printer. I’d compare their actual performance against budget, looking for numbers that were off the charts, whether good or bad. If a store had a phenomenal day, I’d call up its manager and congratulate him or her. If I noticed a weak performance, I’d call, too, to find out what could be done to help improve sales.

By the time the company had 400 or 500 hundred stores, I realized I could no longer keep watch over it so closely. I had to trust Orin and the rest of our operations people to do so. Still, it was frustrating not to be included in meetings about new products, new merchandise, new marketing campaigns. To this day, I’ll often pass a room where an interesting discussion is in progress, and I’m sorely tempted to drop in. But I know my presence will change its tenor, and it’s no longer appropriate.

For me, picking Orin was an obvious move. I had so much confidence in him that I couldn’t have entertained the idea of bringing in someone from the outside. Although Orin and Howard Behar had long been equals, each overseeing about half the functions in the company, by mid-1994 Howard Behar wanted a different sort of challenge. We were just ready to begin planning overseas expansion, and he wanted to build up that side of the business from scratch. So we created Starbucks International, appointed Howard as its president, and gave him the leeway to develop an enterprise that had the long-term potential of doubling the size of the company.

When Orin became president, I moved into a new role, which I call leader. As chairman I play the role of pathfinder, trying to look far into the future to see what’s coming at us. I try to anticipate competition and envision the strategic changes our company may need to make to face it. When a regional manager or plant manager needs someone to come and speak to his or her people, to reinforce the values of the company, to fire them up around the cause, I take on the charge. I spend a lot of time visiting stores, touring new markets, building excitement.

Here’s the irony: I’ve remade myself into a professional manager and a corporate leader. But in my soul, I’m still a dreamer and an entrepreneur. I have to retain that outlook even as I develop new skills.

So does Starbucks. We’ve got to develop systems and processes, but not at the cost of stifling our creative people. If we bog down innovative ideas in bureaucratic nonsense, we will have made the same mistake hundreds of American corporations have made before us.

To stay vigorous, a company needs to provide a stimulating and challenging environment for all these types: the dreamer, the entrepreneur, the professional manager, and the leader. If it doesn’t, it risks becoming yet another mediocre corporation.

I’m determined that won’t happen at Starbucks.