CHAPTER 20
You Can Grow Big And Stay Small

The fundamental task is to achieve
smallness within large organization.

—E. F. SCHUMACHER ,

SMALL IS BEAUTIFUL:

ECONOMICS AS IF PEOPLE MATTERED , 1973

HOW TO BE EVERYWHERE WITHOUT BEING FACELESS

Actress Janeane Garofalo recently joked about us on the HBO Comedy Hour: “They just opened a Starbucks—in my living room.”

We liked that line so much that we adapted it for an ad that pictured a bottle of Frappuccino and a woman standing in an empty field, with the caption: “A great place to open a Starbucks.”

Funny as those lines are, they do strike perilously close to the heart of Starbucks’ greatest vulnerability. We’re opening so many stores that people are starting to feel we’re approaching ubiquity. The danger is that the bigger the company gets, the less personal it feels, to both partners and customers. If our competitive advantage has always been the relationship of trust we have with our partners, how can we maintain that as we grow from a company of 25,000 people to one of 50,000?

There is no doubt in my mind that Starbucks can realize its financial goals. A more fragile issue is whether our values and guiding principles will remain intact as we continue to expand. I for one would consider it a failure if we reached the $2 billion–plus level at the expense of our unique connection with our people.

How do we grow big but maintain intimacy with our people? This is the toughest dilemma I face as the leader of Starbucks.

Achieving that ideal may ultimately be impossible, a contradiction in terms. But we’ve got to try. If we don’t, Starbucks will become just another soulless big chain. I’m determined never to allow that to happen.

CAN A BUSINESS GROW BIG

WITHOUT BECOMING “BIG BUSINESS”?

In America, small businesses are generally admired, yet Big Business is hated and feared. Perhaps the reason lies in our strong leaning toward individualism. Yet the more small business succeeds, the bigger it becomes. Does that make it suddenly worthy of scorn?

If you asked people in a focus group, “Tell me what Big Business means,” you’d almost certainly get a series of negative statements. At one extreme they might mention the Exxon Valdez oil tanker crashing and ruining Alaska’s waters. You’d get “asbestos.” You’d get “Love Canal.” You’d get “people who lie.” You’d get Danny DeVito’s movie Other People’s Money. Big Business, the common thread would run, is capitalistic and therefore threatening.

And what’s small business? Ask the same focus group, and they may well give you a set of completely opposite reactions. Small business means hard-working people struggling to earn a living. Small-business owners are often well-intentioned and care about their customers. Some have left jobs in big corporations and want to live life a different way.

Finally, if you ask: “How many big businesses act like small ones?” most people would answer: “Not very many.” When we tell people that we’re trying to build a big business on a foundation of small-business values, many don’t believe it. Either they assume we’re incurable optimists or they begin looking for hidden agendas that would explain our real intentions.

One of Starbucks’ greatest challenges is to try to break the mind-set that big can’t be good. If we don’t, we’ll lose the very values that attracted people to us in the first place.

VALUES DON’T WITHER AS SALES GROW

Ever since Starbucks started on its trajectory of fast growth, we’ve faced skeptics who criticized that strategy. Most of us were so pumped about achieving our vision, however, that we just discounted them. Our customers were telling us, with their frequent return visits and enthusiastic comments, that they approved of us. Today, that approval is stronger than ever. More than five million customers a week visit our stores, and theirs are the votes that count.

But increasingly, we’ve also been hearing other voices. As Starbucks grows faster every year, opening hundreds of stores and entering locales ever more distant from Seattle, the chance for misunderstanding looms ever larger. One site location, mishandled, can damage a reputation we took years to build.

In a handful of places, we’ve gotten pushback from activists who don’t want Starbucks in their town. A few times a local business owner, fearful that he can’t compete, has gotten his customers to protest and keep us out. In a few cases, critics have made unfair charges that are hard for us to respond to without appearing defensive. How can we convince people who have no experience of our stores and our coffee that we’re not “predatory” or “ruthless”?

It is painful to hear such words. Starbucks is not some faceless corporate entity. It’s me, and Dave Olsen, and Howard Behar, and other individuals who have defied conventional wisdom and built a company based on passion and values. We set out to win, no doubt about that, but our goal is to win with integrity, as a talented and highly principled player in the free enterprise system. We channel our competitive energy against rivals far larger than ourselves, like the big packaged foods companies, not against local mom-and-pop coffeehouses. Our mission is to expand the number of people who appreciate great coffee, to make it ever more widely available and enjoyed.

The criticisms leveled against us, I think, crystallize a deeper issue: the growing fear about the homogenization of neighborhoods and towns. Most of the opposition we’ve encountered has been in close-knit urban areas or small towns, where people are highly protective of their distinctive character. They worry that national chains will displace locally owned stores and that fast-food restaurants will elbow out the corner diner. A few groups have even prevented us from opening a store, by passing some ordinance or claiming insufficient parking.

Some communities don’t know what to make of Starbucks. We don’t fit neatly into existing categories of retail, restaurant, or fast-food. Starbucks is not a restaurant but a high-end specialty retailer that serves coffee beverages. But because most retail stores don’t serve food or drinks, we occasionally have to apply for a “change of use” permit because we provide seating, as restaurants do. Then there are people who expect a coffeehouse to be bohemian, with wood floors and fabric wall coverings and worn tables and mismatched chairs. When they see that Starbucks is clean and efficient with a complete line of coffee-related merchandise, they are baffled.

Clearly, there’s room for many different styles of coffee stores and coffeehouses in a given neighborhood. We’ve noticed that whenever several coffee businesses locate near one another, customers flock there. When people know that an area has neighborhood gathering places, they make plans to go there, and then decide which coffeehouse to visit. They may vary their choice of establishments, depending on their need or mood. In the end, all of us benefit.

The way I see it, we’ve enhanced the coffee category. Coffee consumption in America has improved since Starbucks arrived, both in quantity and in quality, in large part because of the awareness and choices that the specialty coffee industry has provided. Some of our competitors have openly admitted that they wait for Starbucks to enter a market and educate customers before they go in. One of our Seattle rivals announced a deliberate strategy of opening a store across the street from every Starbucks. Does that make me happy? No. But we concentrate on our customers, not the competition.

Landlords occasionally exacerbate the problems we face in new markets. Good sites are hard to find, especially in small towns where the retail corridor is only two or three blocks long. Our real estate people have to act quickly when a site becomes available. Property owners sometimes use Starbucks as a bargaining chip, informing another coffee company or another prospective tenant that we are interested in the space and then jacking up the rent. Then Starbucks gets blamed for the rent increase when we were never even involved in the negotiation.

In a few cases, we have been deliberately misled. A landlord might call Starbucks up and ask: “Are you interested in leasing our space?” They don’t mention that it’s already occupied by another café, perhaps a tenant with whom they have not had a good relationship, one they want to get rid of. We express interest, but before we have a chance to investigate, an outraged story in the local paper announces, “Starbucks is coming to town and is willing to pay higher rents because they want to kick somebody out of the market.” We don’t find out about the existing tenant until he starts a grassroots campaign against us. Once we’ve been painted as a heartless national chain, no one wants to hear our side of the story.

In two cases, when activists protested, we examined the situation closely and decided not to open a store in their community. We want people to feel delighted and excited that we’re in their neighborhood, not put upon. Our goal is to find communities that eagerly welcome us.

An article in Newsweek particularly angered me by comparing Starbucks to Wal-Mart. The charge is unfair and inaccurate. First, we don’t change the economics of a town. We don’t undercut prices charged by other stores; in most cases, our prices are higher, not lower. We don’t draw traffic out of town to warehouse locations; instead, we enhance downtown commercial districts and existing retail centers, increasing traffic for neighboring shops. In fact, Starbucks recently received the 1997 Stafford Award, an honor that Scenic America presents, in recognition of our “sensitive reuse of older spaces within cities” and our excellent design standards. Scenic America is the only national organization dedicated to preserving and enhancing the scenic character of America’s countryside and communities. Many complementary retailers, such as bakeries and bagel shops, locate their stores near ours as a matter of strategy.

Many cafés are small, local businesses, and some of them accuse Starbucks of having abandoned its principles simply because it has grown large. They complain that we deliberately open up across the street from them to lure away their customers. In fact, though, if they weren’t competing with Starbucks for locations, they would be competing with someone else. As tenants, we cannot control rental rates; rents are market-driven and set by landlords.

As an entrepreneur myself, I have great respect for anyone who goes out and creates a business, whether it’s a coffeehouse or some other enterprise. A growing category like specialty coffee has proven large enough for many of us to succeed. Pleasing customers and thinking ahead of the curve are much more relevant to a company’s success than who opens a store across the street.

From the beginning, we’ve executed our expansion plans according to our own real estate strategy—locating in sites we consider desirable—and not as a response to the competition. We carefully analyze the demographics of a given area, our human and financial resources, the level of coffee knowledge, and each market’s ability to accommodate a cluster of stores.

Almost everywhere we open a store, we add value to the community. Our stores become an instant gathering spot, a Third Place that draws people together. That’s what community should be all about, yet a few activists persist in arguing that we’re damaging the character of their communities. I think it’s more about misunderstanding than reality. Nevertheless, it’s troubling.

What I’ve learned in the process of responding to these critics is that Starbucks has to increase its sensitivity to local issues and loyalties. In communities that are troubled about our entry, we have met with local leaders to understand local concerns. We also need to speak up more forcefully about our values and the contributions we have made. Starbucks managers have the power to allocate donations to local causes like ballet and opera companies, AIDS organizations, food banks, schools, and PTAs. In every city, all eight-day-old coffee beans are donated to food banks. Store managers also provide coffee for fund-raisers. One store in Seattle gives half its profits to the Zion Preparatory Academy, an African-American-run school for inner-city children. In fiscal 1996, we gave away more than $1.5 million in cash and kind, equaling about 4 percent of our net earnings. Since we don’t exploit these actions for public relations, a lot of our customers don’t even know about them.

Community giving is a policy to which we’ve been committed since we began in business. We do it because it’s right and because it makes Starbucks partners proud to work here. At Starbucks, we’re human, so we don’t always hit the bull’s-eye. But we strive to live our values. Our hope is that the public will judge us by our intentions and our actions, not by hearsay.

HOW DO YOU GROW BIG AND STAY SMALL?

Ultimately, the answer to this conundrum lies in the hands of our baristas. Once a store opens, it’s the person behind the counter, making the espresso drinks and selling the coffee, who is the face of Starbucks. The customer won’t care about ubiquity if the store manager is her neighbor or the barista is her son’s friend or she gets to know the staff as cordial and welcoming.

But how can we make new baristas feel a sense of identity with Starbucks? We’re hiring more than 500 people a month. It’s a dilemma all retailers face if they expand to city after city. As Starbucks grows, how can each barista feel the same passion for the coffee, the same drive, the same heartfelt commitment to the company that our early baristas did?

If you ask people who were with Starbucks in its earlier years what motivated them, it was an intimacy and a sense of common purpose. In 1987, we had fewer than 100 employees, and the offices and roasting plant were in the same building. When a store manager needed something, he or she could call the plant and have it within a few hours. I had an open-door policy, and those who had a gripe felt free to come to my office and tell me about it. We celebrated the births of our children, mourned the deaths of our parents, and laughed at pie-throwing contests each Halloween. (I never caught one in the face, but Orin and Howard Behar did.) Dave Seymour, who has worked in distribution in the plant since 1982, became our unofficial photographer, and he has boxes of albums and home videos of those gatherings.

I used to think that marketing was the most important department at Starbucks. Today, I’d say, unequivocally, it’s human resources. Our success depends entirely on the people we hire, retain, and promote. However outstanding our performance in marketing, design, real estate, manufacturing, store operations, new products, or R & D, it is ultimately interpreted and given life and meaning by the people of the company. How well each function is carried out depends entirely on how they feel about one another and how much they care about Starbucks.

But how can 25,000 people feel intimate with a corporation? I ponder this question all the time.

Giving stock options to all our employees was probably the best step we took toward keeping the company personal and caring. As a partner and part-owner, even the most remote barista senses a connection to the company.

We’ve always tried to keep hourly wages higher than the industry average and to offer benefits second to none. In addition, we have crafted a wide array of programs to ensure that we continue to recognize our partners as individuals. In addition to responding to our partners’ Mission Review comments, we communicate directly through quarterly Open Forums.

Every fall we bring field management from all over the United States and Canada to Seattle for a leadership conference. We show them around the support center and talk with them in large-and small-group settings. We honor managers of the quarter in each region and invite them to an annual dinner in Seattle where we celebrate the achievements of our Managers of the Year.

Every store has E-mail, called Dateline Starbucks, and we try to keep retail partners up-to-date with voice-mail messages. I send out recorded messages to all partners whenever the company has important news. But disembodied voices can’t do what real people can.

In mid-1994, when our total workforce reached 2,800, we recruited a senior human resources executive, Sharon Elliott, to help us deal with the “people issues” of growing big and staying personal. From her years at Macy’s, Squibb, and Allied Signal, she understood the hazards faced by large companies. But she had never encountered a culture as fast-moving and caring as the one she found at Starbucks. “This isn’t a mystique. This is the way Starbucks is,” she said shortly after joining. “I feel like I’m home.”

We handed Sharon two major assignments: to recruit a senior management team that would take us through the year 2000 and to maintain the caring, small-company atmosphere that had for so long nurtured our values.

Within a year, the first task was complete. We had seven new senior managers, all with experience at companies far larger than Starbucks:

Michael Casey, our chief financial officer, had worked at Grace and Family Restaurants.

Vincent Eades, specialty sales and marketing, came from Hallmark.

Ted Garcia, head of distribution and manufacturing, had worked at Grand Met.

Shelley Lanza had been general counsel at Honda of America.

Scott Bedbury had headed advertising at Nike.

Wanda Herndon, communications and public affairs, brought experience from Du Pont and Dow Chemical.

Some people in the company felt threatened by the heavy dose of new talent, all arriving at the same time. But I was exhilarated by it, for it showed that Starbucks had grown to the point where executives would leave large, successful companies and move to Seattle to join our team.

In recruiting senior managers, we looked for people who shared our values and brought the skills and experience we needed. But we also deliberately aimed for diversity in our executive team. As a high-powered African-American herself, Sharon was especially conscientious about making sure we met this goal. Before she arrived in 1994, our senior management team consisted of eight white men and two white women. By 1996, it consisted of nine white men, three white women, two African-American women, and one African-American man—a group far more representative of the face of America in the 1990s.

But as a human-resources professional, Sharon had a far broader view of diversity than one considering only race and gender. She encouraged a broadening of the workforce in terms of age, handicaps, personality, and learning style. We had already decided to give benefits to same-sex domestic partners, not as a political stance but as a recognition of the needs of the wide variety of individuals who already worked at Starbucks. We also began to locate stores in a wider variety of neighborhoods, recognizing that people of different racial, ethnic, and age groups also want convenient access to high-quality coffee. And we began to offer diversity training for all partners, stressing tolerance as not only the right thing to do but also as a key to winning and going global.

In 1996, Sharon proposed adding a line about diversity to our Mission Statement, the first change made to it since its adoption in 1990. To us, it felt as momentous as changing the Constitution, but it was unanimously approved.

Sharon also encouraged greater directness and accountability in our relations with one another. After she arrived, she encountered too often what she calls “the Dark Side of the Force”: an unspoken belief that being direct and open with co-workers is the equivalent of treating them with insufficient respect and dignity. Supervisors were reluctant to tell people honestly when they were underperforming, to the point that employees occasionally weren’t even aware their supervisors were dissatisfied and were shocked when they were subsequently fired. It was the downside of niceness, and I was as guilty as anyone. Sharon relentlessly reminds us that it’s more professional to be forthright with people about their shortcomings so they know how they can improve.

Another of Sharon’s strategic moves was to hire Wanda Herndon, who plays a key role in our efforts to explain our values to an increasingly skeptical world. Wanda develops the strategies to shape our public image and communicate not only with our partners but also with communities, customers, and the media. She also plans shareholder meetings to make investors feel they are valued members of the Starbucks community. Wanda tends to disarm critics: As a smartly dressed African-American woman with close-cropped hair and an infectious laugh, she is far from most people’s preconceived image of a stiff corporate executive. She raises eyebrows with her direct and frank style.

To ensure two-way communication with our store partners, we have undertaken frequent surveys and cultural audits. The results of one coordinated by ARC Consulting in October 1996 gave us a sobering wake-up call. ARC conducted fifteen focus groups in seven cities and surveyed 900 partners by telephone. Their overall findings confirmed my belief that we have managed to maintain an extraordinary culture that truly values people:

88 percent were satisfied with their jobs,

85 percent thought Starbucks showed concern for its employees,

89 percent were proud to work at Starbucks, and

100 percent thought “working for a company that you respect” was an important factor in job satisfaction.

The professionals at ARC, who survey many companies, told us that these marks were extraordinarily high.

The poll also revealed that a high percentage of our baristas were in their late teens or early twenties, and many saw working at Starbucks as an acceptable “way station” on the road to a meaningful career. Baristas took pride in the coffee skills they had learned and judged a Starbucks job as much higher in status than working at a fast-food outlet. That was the good news.

The worrisome findings were that their level of satisfaction seemed to be slipping. When store managers felt overworked or baristas worried about short-staffing, they tended to blame these problems on the company’s rapid growth. They expressed concern that Starbucks would become just another huge, impersonal chain, losing its respect for the individual. Although still in the minority, other partners feared that Starbucks was beginning to care more about growth and profits than about its employees.

Fortunately, we have been able to provide an environment that makes people want to work for us. Even more than their stock options, baristas told us they cared about the emotional benefits they got from their jobs: the camaraderie among co-workers, interaction with customers, pride in a new skill and knowledge, respect from managers, and the fundamental satisfaction that came from working for a company that treated them well.

Clearly, we needed to find better ways to ensure that the quality of the Starbucks experience continued, both for partners and for customers.

When I heard these results, I knew that the company stood at a crossroads. The tension that accompanied our rapid expansion was a symptom of an underlying ailment that could have long-term consequences. If we were to put the brakes to our growth, even for just a year, we would disappoint shareholders, who expect continuous rapid earnings growth. It would also erode the momentum and pride our people take in working for a vibrant, successful company. The solution, it seemed to me, is to be continually diligent in our efforts to provide a great work environment for our partners and to offer them a range of opportunities to develop their skills. And we need to communicate our mission better, to help Starbucks people understand that our goal is not growth for growth’s sake (or worse, for Wall Street’s sake) but rather to bring our great coffee to the widest possible audience. We needed to reinvigorate their emotional connection to the company.

AS YOU GROW, YOU NEED

TO GROW YOUR PEOPLE, TOO

Any company that has expanded as dramatically as Starbucks inevitably realizes that fast growth can be painful for the individuals involved. At Starbucks, we try to promote from within, but sometimes the sheer speed of growth outpaces the abilities of our early contributors. We also find that people who throw their hearts and energy into their work to the degree that we do are at an especially high risk for burnout. A company whose growth never stops accelerating seldom manages enough time to reward its employees for achievements other companies would celebrate.

For me, the most painful downside of growth has been those few occasions when we’ve had to let go caring, committed people who were not up to the next level needed. I’ll never forget the day when one loyal, long-term partner came to my office in tears because his manager told him he didn’t have the expertise to stay in his job. “This is my company, dammit!” he shouted. I was filled with sympathy, but not sure how much more we could do for him. Fortunately, he was able to find another position at Starbucks, but others have had to be let go. For me, this kind of experience is gut-wrenching. It forces me to consider the question: How far should we go to provide for an individual if he or she is not contributing as much as we need?

Almost as difficult have been those times when passionate, devoted partners come to my office to tell me they can’t take the stress anymore. It’s happened too often. I’m aware that the demands of the work and the level of intensity at Starbucks are too high for many people. It’s harder for some than for others to sustain passion about work day after day, year after year. But when you’ve shared a dream and a goal with someone, it’s hard to see him or her go.

In contrast, one of the most rewarding experiences for me has been to witness the development of gifted people who do grow with the company, however painful that maturing may sometimes be. At one board meeting not long ago, I watched with pride and respect as one of our executives made a highly professional and persuasive presentation. She was Christine Day, now Starbucks’ vice president of operations services, responsible for strategic planning for our biggest division. She is the same Christine who joined Il Giornale as my office assistant when we had one store.

Christine’s success is a good illustration of the opportunities to grow a career within a quickly expanding company. But her progress hasn’t been without its moments of angst. When we bought Starbucks, the transition was hard for her. She had to let go of many of the things she had managed and carve out a new role with a narrower set of responsibilities. Her job eventually evolved into one of managing purchasing, traffic, and inventory, and coordinating new store construction until 1990. She had to transform herself from a generalist in an entrepreneurial company to a specialist in a professionally managed one.

In 1990, Christine became vice president for store planning, during a period when our store opening schedule was accelerating every year. In April 1995, she moved to retail operations. Gradually, she became more comfortable and more capable as she acquired the knowledge and experience she needed at each level. She had to learn to live with constant change and pressure, while some of her colleagues chose not to make the transition to working for a large company.

Christine adopted the Starbucks vision as her own, as have most of the other managers at the company. “We all believe,” she says. “We believe because there’s value and quality in the product and in the people we work with and in the work environment. That’s what makes it special and why it works.”

Although Christine is the only one who advanced from assistant to vice president, Starbucks is filled with individuals who, like her, chose to stay and grow with the company, despite the hurdles. Our longest-tenured partner, Gay Niven, started in 1979 answering phones for the merchandising manager, when the old Starbucks had only three stores. She later headed retail merchandise buying as we grew to the 50-store level. Since then, she has developed retail training programs and worked in several depart ments, becoming our chief storyteller and helping to pass on the legacy and culture to new people.

Deborah Tipp Hauck, whom I hired as a store manager in 1982, is today vice president for markets and products. Jennifer Ames-Karreman, who in 1986 was the first Il Giornale barista, later headed retail operations for the Northwest, and then became retail director for coffee. Countless others, still keeping alive the passion that brought them here, have found ways to develop fulfilling careers by gaining experience in a variety of departments. Many of those who helped refine our Mission Statement in 1990 have remained, whether in our roasting plants, in our warehouse, or in our retail stores.

It’s hard, from the CEO’s office, to assess how well our passion is taking root in newer markets. In December 1996, I racked up a lot of frequent-flyer miles by attending pre-Christmas sales meetings in California, New England, Wisconsin, and Canada. I was the keynote speaker at each. As I sat and listened to the opening speeches, I took note of the connections people had to one another, and to the coffee, and finally to the company itself.

One of these gatherings took place in Newport, Rhode Island, for partners from New York, New Jersey, Philadelphia, and New England. It was the one meeting I was most concerned about, because I was sensitive to the fact that the East Coast is a more difficult operating environment. Some have told me it’s harder to find people there who are not cynical about employers and work. I was afraid that, at these meetings far from Seattle, I’d see a fracturing of the Starbucks culture.

But to my surprise, I found myself overwhelmed with the energy and passion I saw in every region, especially in New England. Going from city to city, I heard managers stress the same themes and I saw the same reactions from the audience. I saw laughter and enthusiasm at the same inflection points. Partners I had never met came up to me to say they had never worked for a company that cared so much.

That trip taught me that there are people in every city who want to believe that work can be more engaging and rewarding than punching a time clock. I can’t know everyone’s name anymore, and we can’t be as familiar as we were in 1987, but Starbucks can still be an employer of choice by providing a work environment with more camaraderie and concern and emotional rewards than most.

Our partners know what’s genuine and what’s phony. When I speak to them from the heart, they relate to the Starbucks vision and the Starbucks experience. When management listens to their concerns and responds honestly, they realize that Starbucks is neither faceless nor impersonal. We are going to make mistakes. But if our people recognize that what we’re trying to do, in our hearts, is build value for us all, they’re more likely to forgive the mistakes. Many are already coming to understand the advantages our size brings, and are helping to ensure that we can grow big and still be the same kind of company. They are Starbucks, and its success reflects their achievements.