Howard Schultz on How to Lead a Turnaround

By Bobbie Gossage |  @bobbiegossage

In his new book, Onward, the Starbucks founder describes how he overcame slumping sales and quality control issues that threatened to destroy the company he had built.

Howard Schultz took a small Seattle coffee store and turned it into a global business with more than $10 billion in annual sales. Yet one of his greatest accomplishments, says the Starbucks CEO, was making it through the past few years. In his new book, Onward: How Starbucks Fought for Its Life Without Losing Its Soul, Schultz chronicles his return to the helm of Starbucks during one of the most tumultuous times in the company's 40-year history.


After stepping down as CEO of Starbucks in 2000, Schultz, who remained chairman of the company, found it increasingly difficult to sit on the sidelines. "In letting go of the CEO post, I had essentially agreed to trust in the decisions of others, even when my heart suggested those decisions were not wise," he writes. "Like a parent standing back and watching his children make their own choices, the entrepreneur-as-chairman role had its unique emotional challenges."

In 2007, Schultz dashed off a now-famous memo to the management team criticizing the state of the company's stores. A year later, Schultz was back in charge and working to restore quality control, going so far as to close all 7,100 U.S. stores for one evening to retrain employees. But as the slumping economy drove consumers to cut back on $4 lattes, he was forced to lay off thousands of employees and shutter some 600 stores. Schultz, 57, spoke with Inc. senior editor Bobbie Gossage about what it is like running Starbucks the second time around and how he got the company back on track.

You write that taking on the challenges of a troubled company was completely new territory for you. How was that experience different from running the company the first time?
There's an energy and excitement when you're building a company. You have so much tail wind. You're planting new seeds. But it's also scary, because there's no safety net. I really enjoyed that experience. At an early age, my mother gave me this feeling that anything is possible, and I believe that. If you look at where I came from and where we are today, my story is like a Hollywood movie. I was able to achieve the American dream. It's not that it was easier or harder the first time I ran the company, but I would say that the feeling that goes with building something—especially when you get some success—it's a wonderful carpet ride.

It's different when you're trying to turn something around, especially something that you built, at a time when so many constituents—the media, Wall Street, competitors, ex-employees—are all saying that Starbucks's best days are behind it, and that Schultz is never going to be able to bring it back. It's not that they underestimated me, but they underestimated the power of our culture and values and the resiliency of the brand and our people.

In many ways, it's much more rewarding to be here today, having made it through the past few years, than it was building the company. It was difficult, because during the financial crisis, there were no navigational tools. No one had experienced anything like this. You couldn't really talk to anyone or read something. You had to make big decisions based on things you believed in your heart were the right things to do.

What did you learn about this new environment? 
There's been a real sea change in consumer behavior. And those companies that are consumer based must appeal to the consumer in a different way today than they did two or three years ago. And it's not all based on value. Cutting prices or putting things on sale is not sustainable business strategy. The other side of it is that you can't cut enough costs to save your way to prosperity.

I think the question is, What is your relevancy to the new life of this consumer, who is more discriminating about what they're going to spend money on? The customer today is very well informed. In addition to price and convenience, there's something else they are influenced by, and that's what the company stands for: how it treats its employees and its customers. We've found that consumers are willing to walk another block and potentially spend a little bit more for companies whose values they truly trust.

How do you maintain quality as a company grows and grows?
Read the rest of the Inc. article to find out the answer and more.