Leadership in Crisis: Lessons from Starbucks on how to avert a crisis.
“To inspire and nurture the human spirit — one person, one cup and one neighborhood at a time.”
Did you recognize that as the Starbucks tagline?
In this #KalaariPodcast, I share the takeaways that #startups can learn from the turnaround story of Starbucks. Staying true to your company’s vision and having a commitment from every single person in the organization to the core purpose of the business existence is what drives the long-term success of your business.
Read the full transcript and watch the video below.
Hello everyone. I am Vani Kola, Managing Director, Kalaari Capital, bringing you the Leadership in Crisis series. It’s an initiative to look at crisis faced by other companies and other leaders and, through their lessons, success and difficulties, to take away key lessons in our own journeys.
Today I take an incident and a time period from Starbucks and the lesson I drew from this is how important it is for a leader to look for and, proactively, solve for the problems that haven’t fully manifested. As most of us know, Starbucks started with a single store in Seattle and their plan of establishing 300 coffee shops seemed particularly ambitious.
Today, of course, they have 30,000 stores across the world. Starbucks has always been a company that has led with vision and purpose. In the path to scale, it is sometimes possible that we wear away from the vision and not recognize how that can lead to a crisis.
Howard Schultz, founder of the company, who led the company to great success, retired in 2000 and in 2008, he came back again as the CEO of the company led by his concern of a potential crisis for the company in the long term. What then was this potential crisis? The number of stores had increased to over 12,000, their revenue had grown in this period to 8 billion.
So, if you simply looked at the financial performance of the store, everything seemed fine. But a crisis is not identified only through financial outcomes, though that’s where it eventually gets impacted, evaluate the true value or the true challenges of any business.
The revenue for a company, say a start-up, could be growing significantly and in that process, it’s possible to not pay attention to the underlying indicators of churn and the root cause for that churn. Is it because there is a segment of customers that are unhappy? Is it because there is a product problem that hasn’t fully been identified?
And if these kinds of proactive metrics are not measured and resolved, eventually, it does impact the performance of the business and by then, the compounded problem may be very difficult to have an easy, quick-fix solution. But how do you identify that as a crisis?
Starbucks was never really about having a cup of coffee. To its customers, it was always much more than that and indeed that was their vision- To create a community that cared about coffee and/or providing spaces where one could commune while enjoying your coffee. So, it was more about the experiences of a space and a community.
There is a general perception among startups that once you hit a product market fit and you are scaling, then the problems are over, and you have a smooth ride to continue to grow. They encounter problems that they hadn’t foreseen before, and they need to continue to identify and be entrepreneurial to be able to solve it.
At every stage of the company, there is a need to re-invent and innovate and continue to compete in order to move forward to the next step of the journey. The problems and challenges only get bigger as scale gets bigger. Continued success requires companies and leaders to be vigilant and solve for these challenges well before they manifest deeply.
In this period of growth, Starbucks had many new initiatives. For Example- stores got smaller to create cost efficiency, further introducing Espresso machines in order to serve coffee faster. These initiatives, though created revenue on profit, compromised 2 important principles that made the company successful to begin with, which was serving great coffee and offering great experiences.
The impact on a brand loved by customers, created through hard work, can easily be compromised but it’s possible for a while customers continue to remain loyal and hence the financial growth may not indicate the declining satisfaction that eventually could implode the business.
It’s really Howard’s acumen as a leader and perhaps attribution to his passion as a founder that he was able to grapple this crisis, even as the company was perceived to be very successful as far as the stock market is concerned. He could see the micro blips that was diluting the consumer experience easily unnoticed day-by-day.
To bring attention to this, he did something unusual. He shut all the stores, every single store, in the whole country for one day and he dedicated that day for training. The message he wanted to send was that the company stood for the quality of every cup of coffee and for the experience of every single customer.
He wanted to re-ignite the passion and commitment to serve a great cup of coffee, one customer at a time. The changes Howard made in all 3 areas- process, people, product- even when the company seemed to be successful, the results of that are evident a decade later with an astonishing revenue of $21 Billion and a stock price that has gone up in the last decade by 2,100%, an enviable record for any company especially a retail company.
Every founder would agree that as you scale your business, staying core to your vision and having commitment from every single person in the organization to the core purpose of the business existence is the most important leadership responsibility and with that I think companies can achieve success from scale to scale. Wishing you the best.
Thank You.
