Howard Schultz wasn't the first person to be carried away by the aroma of a well-roasted coffee bean. But the Starbucks Coffee Co. leader was undoubtedly the first to turn that reverie into a billion dollar retail operation.
Schultz's adventure started in 1981 when he traveled from New York to Seattle to check out a popular coffee bean store called Starbucks that had been buying many of the Hammarplast Swedish drip coffeemakers he was selling.
There was that great smell, sure, but what caused him to fall in love with the business was the care the Starbucks owners put into choosing and roasting the beans. He also was impressed with the owners' dedication to educating the public about the wonders of coffee connoisseurship.
"I walked away ... saying, 'God, what a great company, what a great city. I'd love to be a part of that,' " Schultz told myprimetime.
Schultz was born in 1952 and raised in a Brooklyn, N.Y., housing project. A football scholarship to Northern Michigan University was his ticket out, and after graduating he worked a variety of jobs until becoming manager of U.S. operations for Hammarplast.
It took Schultz a year to convince the Starbucks owners to hire him. When they finally made him director of marketing and operations in 1982, he had another epiphany. This one occurred in Italy, when Schultz took note of the coffee bars that existed on practically every block. He learned that they not only served excellent espresso, they also served as meeting places or public squares; they were a big part of Italy's societal glue, and there were 200,000 of them in the country.
But back in Seattle, the Starbucks owners resisted Schultz's plans to serve coffee in the stores, saying they didn't want to get into the restaurant business. Frustrated, Schultz quit and started his own coffee-bar business, called Il Giornale. It was successful, and a year later Schultz bought Starbucks for $3.8 million.
As the company began to expand rapidly in the '90s, Schultz always said that the main goal was "to serve a great cup of coffee." But attached to this goal was a principle: Schultz said he wanted "to build a company with soul."
This led to a series of practices that were unprecedented in retail. Schultz insisted that all employees working at least 20 hours a week get comprehensive health coverage -- including coverage for unmarried spouses. Then he introduced an employee stock-option plan. These moves boosted loyalty and led to extremely low worker turnover, even though employee salaries were fairly low.
Why was Schultz so generous? He remembers his father, who struggled mightily at low-paying jobs with little to show for it when he died.
"He was beaten down, he wasn't respected," Schultz said. "He had no health insurance, and he had no workers' compensation when he got hurt on the job." So with Starbucks, Schultz "wanted to build the kind of company that my father never got a chance to work for, in which people were respected."
Schultz has said that his model for expanding Starbucks is McDonald's, with a few key differences. One is that Starbucks owns most of its stores, while McDonald's franchises. Schultz doesn't believe it's possible to build a strong brand around franchises -- although McDonald's is an obvious exception. Another difference is that Starbucks managed to blossom without national advertising. Finally, Starbucks sells premium products to a fairly upscale, urban clientele.
Starbucks experienced astronomical expansion during the go-go '90s, going public in 1992. The company has almost 4,000 stores in 25 countries, serving 15 million people a week, and new outlets are opening so fast it has Wall Street's head spinning. The company seems to be immune to market vagaries as well, gaining 25 percent in stock value last year while the Dow Jones Industrial Index lost 10 percent and the Nasdaq 60 percent.
Schultz indulged his love of basketball by buying the Seattle Supersonics for $250 million. He also handed over CEO chores to Orin Smith so that Schultz can focus on global strategy. He believes that Starbucks is just getting started.
"Despite the success that Starbucks has enjoyed in the U.S., we have a less than 6 percent market share of coffee consumption," Schultz said. "We are in the infant stages of the growth of the business even in America. And now seeing what we've done internationally ... we are going to shock people in terms of what Starbucks is going to be."
Asked the secret of his success, Schultz recounts four principles: "Don't be threatened by people smarter than you. Compromise anything but your core values. Seek to renew yourself even when you are hitting home runs. And everything matters."
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