April 30. 2012 9:00AM

Innovate or die - Starbucks CEO saves his company

Innovation

By Dan Steininger

  
In 2008, we almost lost our opportunity to enjoy Starbucks coffee and the ambience of its stores. The stock had plunged by 65 percent, and same-store sales had dropped dramatically.

Wall Street analysts were predicting its demise because major fast food chains such as McDonald's were introducing premium coffee in thousands of stores. McDonald's concluded that coffee was becoming commoditized, and they sensed blood in the water.

Howard Schultz, the poor kid from Brooklyn who founded Starbucks, decided to come out of retirement to save this iconic American coffee chain that had become known throughout the world. His motivation was written in his own words:

"There are moments in our lives when we summon the courage to make choices that go against reason, against common sense and the wise counsel of people we trust. But we lean forward nonetheless because, despite all risk and rational argument, we believe that the path we are choosing is the right and the best thing to do. We refuse to be bystanders, even if we do not know exactly where our actions will lead. This is the kind of passionate conviction that sparks romances, wins battles and drives people to pursue dreams others wouldn't dare. Belief in ourselves and what is right catapults us over hurdles, and our lives unfold."

But passionate conviction and all the good intentions to survive in the world will not succeed without a game plan.

So here's what we all can learn from the great turnaround of Starbucks, why it is with us today and did not become another Kodak that ended up on the ash heap of history.


Lessons learned:

Start with the brutal facts. What's happening in your industry, with your sales and with your competitors? Everyone on your team needs to know that information and understand what it means to your brand and your company. The tendency to believe that everything will get better is ingrained in all of us. Having the courage to face the facts and accept them is difficult.

Embrace uncertainty. This requires real humility. The book Embracing Uncertainty, co-authored by Bob DeKoch, president of the Boldt Company, said, "Those who are absolutely certain of their places in life are the most resistant to change. Every teacher, coach and manager has encountered students, players and employees like these; they are unteachable, uncoachable and unmanageable. They share a core belief in their infallibility; they know all the answers."

It is critical that real learners, "readily admit their lack of understanding." It took a lot of humility for someone like Howard Schultz to admit not only to his employees, but to his customers worldwide that he didn't know the answers. He refused to make predictions of success to the analysts on Wall Street who grilled him about his game plan. He said he didn't have one, but they would unveil it eventually. The stock dropped even more.

Ask why you are in business. You would think that Starbucks would have figured that out, right? I often ask business leaders to explain to me in simple terms "What does your business do?" What is your competitive advantage? I often get a lot of gobbledygook. Starbucks was determined "to become the undisputed coffee authority in the world." That's not ambiguous. It's clear and measurable. To deliver on that brand promise was going to take a lot of hard work.

Devise an innovation agenda. Schultz called it a game plan and agenda for "transformation." He probably shied away from the word innovation because Starbucks was such a known brand. But the first thing they did was roll out a new brew that has become one of the greatest sellers in Starbucks' history: Pike Place Roast. It was a powerful catalyst and symbol of their transformation. It offered aroma, freshness, and a little theater so that shareholders had proof that Starbucks was reclaiming its coffee authority. That new brew enabled them to fight off the competitive attack and re-establish their position as the "undisputed coffee authority."

Symbols count. On a Tuesday afternoon in February of 2008 all 7,100 Starbucks stores throughout the United States closed their doors, locked out customers and took a financial hit that ran into the millions. Why? Because fast growth had its consequences. Shultz realized that the quality of what made the Starbucks name strong and invincible – the perfect cup of espresso – was not consistently being delivered at each store. Across the nation, green-aproned baristas watched a short film by their coffee experts who taught them the basics of making the perfect cup of Starbucks espresso coffee. Think about it. The world learned that Starbucks was training its own employees how to make a good cup of coffee. Talk about humility! While Wall St. was yelling "sell," employees were learning how to create the Starbucks experience.

Infuse innovation practices into the culture. If you make it through your current crisis, nothing guarantees that you will not be right back where you started in a couple of years. Starbucks began to look for opportunities to extend their brand and expertise to new products that complement coffee. Some ideas included: tea, cold beverages, and horror of horrors, instant coffee. Just last month Starbucks announced it is rolling out a refresher drink to go head-to-head with Red Bull. It's a fully carbonated drink that is high in antioxidants and uses roasted green coffee. They made a commitment to be innovative with the product they introduce in the market to retain their competitive advantage.

Doing the right thing has its consequences … if we had purchased $100,000 of Starbucks stock in early 2008, we would now be sitting on $500,000 of very valuable Starbucks stock. That could buy a lifetime of Starbucks coffee for us!



Dan Steininger is the president of Biz Starts Milwaukee and managing partner of the Wisconsin Early-Stage Fund. Dan always welcomes e-mails: Dan@BizstartsMilwaukee.com.

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