How I Built This with Guy Raz - Live Episode! Starbucks: Howard Schultz

Episode Date: September 28, 2017

During his first visit to Seattle in 1981, Howard Schultz walked into a little coffee bean shop called Starbucks and fell in love with it. A few years later, he bought the six-store chain for almost 4 million dollars, and began to transform it into a ubiquitous landmark, a "third place" between home and work. Today Starbucks is the third largest restaurant chain in the world, serving about 100 million people a week. Recorded live in Seattle. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

This podcast is brought to you by Squarespace. I talk to entrepreneurs all the time who are looking for a way to upgrade their digital footprint. Well, whether you're just starting out or you're scaling your business, Squarespace is the easiest way to build a great website that stands out. It's an all-in-one website platform that gives you everything you need to claim your domain, showcase your products, and get paid. Anyone can use Squarespace's cutting-edge design tools to build an online presence that truly reflects what makes your business special.

There are templates, intuitive drag-and-drop editing, and even an AI-enhanced website builder. Then, Squarespace's built-in analytics tools help you make smarter business decisions. Review website traffic, learn where to focus engagement, and track revenue all in one place. Looking to grow your business, Squarespace even offers fast, easy business financing

through Squarespace capital. Go to Squarespace.com slash built for a free trial. And when you're ready to launch, use offer code built to save 10% off your first purchase of a website or domain. Loans issued by Celtic Bank and serviced by Stripe, all loans subject to credit approval. This show is in partnership with Airbnb. This past summer, I took my family to Vienna, and it was incredible. We spent our days wandering the old streets, stopping for coffee and pastries, visiting museums, and just soaking up the history of one of the most beautiful cities in the world. And one of the things that made the trip so special was the home we booked on Airbnb. It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna,

walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. When I returned as CEO, which I never had planned to come back, I would say that there were people both on the board at the time and many people at Starbucks and certainly hundreds of people at Wall Street that said, you're bringing him back? I mean, he's the problem. From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists,

and the stories behind the movements they built. I'm Guy Raz, and on the show today how a poor kid from the projects in Brooklyn turned a small coffee company in Seattle into the third largest restaurant chain in the world. There was a time in America when a typical coffee experience involved a styrofoam cup at like a PTA meeting or a church social, and it was usually served

out of a giant aluminum urn, warming up that coffee for hours and hours, and sometimes there'd be a pink cardboard box of half-eaten glazed donuts next to it, and if you have no idea what I'm talking about, consider yourself lucky, because you may not know how hard it was to find good coffee in America before Starbucks. Now, I know, I know some of you are haters. Some of you wouldn't be caught dead in a Starbucks. Too ubiquitous, too corporate. And that's okay. That's totally fine. But just consider for a moment how much coffee culture in America owes to Starbucks and to Howard Schultz. Because if he hadn't stumbled into a little coffee bean and spice shop in Seattle called Starbucks in 1981, it may never have become what it is today.

Now, at the time, Starbucks was just a local chain in Seattle, and it didn't sell brewed coffee, just the beans. But Howard was so blown away by the quality of the coffee he tasted from those beans, that he quit his job and begged the owners of Starbucks to hire him. Then six years later, when those same owners decided to sell, Howard raised the money to buy the company. And just a few years after that, he took Starbucks National. Now, today, there are 27,000 Starbucks locations in roughly 70 countries around the world, which isn't bad for a kid who grew up poor in Brooklyn. A couple of weeks ago, in Seattle, I sat down with Howard in front

of a live audience to hear about how he took that Seattle coffee bean shop and turned it into the Starbucks we know today. Thank you very much. They didn't think you would be here. That's why they cheered so loud. They could not believe you walked out. They were just amazed. By the way, how many cups of coffee do you drink every day? Probably four or five a day. Four or five a day.

Yeah, and no caffeine after 5 p.m. Fair enough. And what is your preferred coffee drink? French press of Age Sumatra would be my number one choice. All right, okay, okay, good. Must be a lot of Starbucks people here. A lot of people, know that you were raised in a housing project, Bayview in Brooklyn.

Can you describe the apartment that you grew up in? Sure. I grew up in Canarsie, which is at the last stop of the L-Train in Brooklyn, in a housing project that had 34 buildings, two-bedroom apartment for my mother and father, sister and brother. I think the rent in 1956 was $96 a month. Wow. Who are the people who lived there?

who lived there were people who were construction workers, cab drivers, plumbers. And it was a childhood that was based on a real sense of community because there were people with like-minded values, and it was a very diverse group of people. And I think in an early age, I learned how to get along with a lot of different people because we were in one building with one elevator, and you had to get along. Yeah.

Your dad, World War II vet. Yes. He was a driver. Mom receptionist. I guess at a certain point when you were a kid, your dad got injured on the job. So my dad had a series of what I would Lucy describe as really bad blue-collar jobs. And he went from one job to another. In the winter month of March of 1960, he was a delivery.

driver, this is probably one of his worst jobs, picking up and delivering cloth diapers before the invention of pamphers. He fell on a sheet of ice and broke his hip and his leg. And I came home from school and he was kind of laid out on the couch. I witnessed what I would loosely describe as the fracturing of the American dream and despair, hopelessness. And what happened in 1960, if you were a blue-collar, you know, uneducated worker, despite the fact that you had served your country in World War II, there was no workman's compensation, there was no health care, and you were dismissed. But what I witnessed scarred me, and that's what we kind of went through. Were you a good student as a kid? I was not a good student. I don't think I applied myself very well.

But an athlete, you were an athlete. I was an athlete. I was an athlete. I was a pretty good athlete. Yeah, I was an athlete because in the projects, the entire day was spent in the school yard. on concrete school yard playing any sport that you could invent or organize. You would dive on concrete to win. And so my competitiveness, I think, was born out of being that kid in that school yard. You know, I became a very good high school football player. Which is so weird to think about because you're a pretty trim guy, right? I mean, you're not like a big, huge, you know, hulking burly guy.

right but football was your sport and you were you were like very good I mean you were recruited by a division to school but I was a fast white guy got it okay so you so so you are recruited by Northern Michigan University to go play football there and and did you think that I mean did you think that there was any possibility you might go to the no no no no I never I never thought I was gonna be good enough and in fact when I got to Northern Michigan and I saw the side of these guys. And, you know, real Midwestern grit.

The toughness and the competitiveness of what I experienced in the schoolyard started drifting. Did you get any playing time? No, I got hurt right away. I know it sounds funny, but at the time, you know, I... And here's the thing. A very famous guy was ahead of me in my position. And that was Steve Mariucci. He was a great player, became the coach of the San Francisco 49ers, and he was much better.

So football was not in the card. You were not going to play professional. So you had to go out and get a job after you graduate. What do you do? I was very fortunate that when I finished school, I somehow convinced people at Xerox to hire me. What do you mean to convince them? Well, I really had no training. I did not have a business degree.

I had a communications degree from Northern Michigan. but I got a sales job at Xerox. This was 1976. And at Xerox, first I sent you to a sales training school in Leesburg, Virginia. And after that, for six months, all you do is make 50 cold calls a day. But I'm not talking out on a phone. You have to go make a physical cold call into an office. This is in New York?

It's in New York City. My territory was 42nd to 48th from 50th. Avenue to the river. You just have to go door to door, office to office, knock on the door, and most of them were just saying no solicitors, please, you know, not interesting. Yeah, and if you got a lead, you were not yet allowed to sell the product. You had to give it, you were an intern, basically. You had to give it to the salesperson. And my salary in 1976, I tell my kids this, and they go, that's not true, was $1,000 a month, and I gave half of it to my mother

because I was living at home. Yeah. Wow. So were you good at, I mean, were you good at cold calling? I was really good. You know, I was really... You liked getting rejected constantly? I didn't like cold calling, but once I became a salesperson at Xerox,

it was clear to the people at Xerox that I had some talent, and I stayed there a number of years. But I, all along, I knew that the... The discipline, the regimentation, the lack of kind of personal creativity, I was very restless, and I was looking for a way out. So it wasn't joyful. I wasn't happy. It's interesting because a lot of people we've had on the show, like Sarah Blakely,

who started Spanx, started out, you know, selling things door to door. Yeah. Do you think that was an important... I do, because I think the rejection of cold calling, the humility that comes, with the disappointment of not someone saying yes to you. I went through a steep learning curve, and I started having a higher level of self-esteem. Xerox and IBM at that point in the mid-70s

were two kind of pedigree companies that if you told somebody you're working for Xerox, people felt kind of good about you. Until I told my mother I was leaving Xerox, and she started crying. But I knew in my heart early on that I had an entrepreneurial zest for something different. and was looking for a different kind of opportunity.

So would you find? So I left Xerox because a friend of mine shared with me that there was a Swedish company opening an office in New York and looking for a general manager. And I had no idea what the product really was, met the person who was in charge of moving from Sweden to New York, and he and I made a... immediate connection, and he became a lifelong friend and mentor to me and hired me.

And his name was Kai Eliasson. And what were you selling? At first, we were selling, they were opening up a division for furniture, and I had a move to North Carolina for a year while Sherry and I were dating in New York. You had met Sherry around this time. Sherry is now your wife. Yeah, Sherry and I met in 1978 on July 4th. And this was 1980 or so.

North Carolina was not for me. And so I went to Kai and I said, I want to come back to New York or I'm going to leave the company. And he said, let me kind of think about all of this, let me figure out what to do. And he gave me the general manager job of the consumer division in New York. And unbeknownst to me on a trip to San Francisco to see our largest customer, which was Macy's at the time,

On the way back from California, I stopped in Seattle because it was a small coffee company called Starbucks selling this product. And it was a non-electric kind of thermos coffee maker. And I walked into the Pike Place store and I just said, holy shit. I literally had the kind of epiphany that just spoke to me that this is such an extraordinary thing about what they were doing. and the coffee, the romance, the passion that people had. And I met the founders. And over a course of a year, I persuaded them to hire me. Here's what I don't get.

What was it? I mean, they were selling coffee beans, which is really cool. Yeah. But, I mean, you had this really great job in an apartment in New York. And what made you think, I have got to drop everything and sell coffee? coffee beans. Well, there's two things going on. I think Sherry and I, we had an understanding that we did not want to raise our kids in

New York City. We wanted to get out. And I was in Seattle on this spectacular majestic day like today. So the combination of all of that and the experience I had as a customer and watching what

was going on in that first store, I just immediately was kind of swept away with, this is the kind of environment, product, and young company I'd like to be part of, and I, over a course of a year, just kept

banging the door to say to the founders, if you expand the company, I think I can help you. And their dream, and nothing against them, their dream at the time was to expand to Portland, Oregon. That was their big idea. And was that, I mean, part of your vision for the company at a time?

Do you think we can expand and continue to sell coffee beans? Yeah. You know, I think I had to learn the business, so I didn't know anything different at that time until I went to Italy a year later in 1983. By the way, were you a coffee drinker? I mean, did you know anything about coffee at that point?

I was a coffee drinker, but I did not know much about coffee. It's like Maxwell House and whatever. Well, it was a little bit better than that. All right. Sorry. Come on. So you knew something about coffee. I knew enough that I had a great appreciation

for the coffee I tasted for. for the first time at the original Pike Place store, and I was just blown away. We had four stores at the time. And then the founder sent me to Milan, Italy, first trip for me to Italy, to a trade show representing Starbucks. And that's when I was walking the streets of Milan.

And every 20, 30 yards, you are intercepted, literally, with an Italian coffee bar. And I walked into all of these places and kept seeing the... The theater, the romance, and the nectar of the gods, which is espresso. There's like big sort of copper espresso. All the elegance, the style. But what really struck me was the sense of community.

And I started going to these stores almost the same time every day. And I would start seeing the same people. I started realizing that this is a third place between home and work. but the beverage was the draw. And so I realized while I was in Italy that Starbucks was in the coffee business, but perhaps the wrong part of the business. And I raced back with such enthusiasm and such passion that I overwhelmed them when I got back. You said, we've got to do this.

We've got to sell brood coffee because we're not selling brood coffee. No, there was no service of any cup of coffee at any start. It was just pounds of coffee for home use. And you come back into Seattle and you say, guys, we have got to do this. It's going to be huge. And they say? No. They viewed the beverage business in their parlance as being in the restaurant business.

And they didn't like it. I thought it was messy. And that's not what they wanted to do. So I literally pounded on the table for a year. And I think they just said, OK. get this kid out of our face, and we're opening a new store on the corner of 4th and Spring in 1985. It was 1,500 square feet, and they said, we'll give you 500 feet of the 1,500 to open up an Italian coffee bar in the store. And that was it.

I mean, so we opened the 4th and Spring Starbucks store with the first coffee bar. Overnight, we had hundreds of customers every day, and we introduced, cafe latte to city of Seattle, basically. Now here's the rub. It was so successful that it completely dwarfed the other side of the business. And the two founders at the time

did not like the disproportionate level of sales and how the store was functioning. And they respectfully said to me we don't want to repeat this. and I was crushed. I was thinking, how could you possibly, this is, look what's going on here. Not to mention, we're making more money.

Yeah. I was devastated. I almost didn't believe it at first. You really, are you serious? And so, I think Sherry knew I was depressed, and I came home one night and said, I don't think I can work for anyone anymore. I'm leaving Starbucks.

I'm going to start my own. So I told the two founders what I was doing, and then they surprised me and said, well, if you do that, we'd like to invest in you. Which is pretty cool. But here's the rub. But of course you're going to use Starbucks coffee. Right. But they invested and kind of gave me legitimacy to open up an Italian coffee bar in the Columbia Center Tower when the building opened.

I signed that lease with a developer in Seattle, a very famous guy here locally called Martin Selling. It was 700 square feet, and he asked me for a personal guarantee. I said, sure, I have no problem with that. And by the way, you're like 32 years old. And we had nothing. Yeah. So he wanted a personal guarantee. I guaranteed it, but knew there was nothing behind it.

And we opened the store called Ildronale. I went back to Italy. I did a lot more research. I spent a lot more time there. And I named the company after the Italian newspaper in Milan. And we opened two stores in Seattle. And then it was a great location in Vancouver, BC. And we said, sure, let's open in Vancouver.

So we opened three stores. We were raising money to do that, by the way. How did you do that? I mean, were people sort of saying, yeah, of course I wanted Howard Schultz. Oh my gosh, you know, future genius CEO, please take my money. Was it really easy to get that money? No. The truth of the matter is that I spoke to 242 people to try and raise $1,700,000 to form Ildronale.

And Starbucks was a seed investor, but did not give me enough money to open up a store. And Starbucks put a little contract in there, which was, you have to raise $600,000 to use our $200. So I went out and tried to raise money and was having a very hard time. It reminded me of coal calling, a lot of rejection. Because I remember people said, let me try and understand this.

The name of the company is a name no one can pronounce. You're going to sell coffee for $2 to $3 a cup of a cup with Italian names that no one's ever heard of. and you want to give health care to your employees. And so it was a tough sell. Now, our first investor is in this audience. Her name is Carol Bobo. Wow.

I don't know where she is. Wow. Carol, that was a good move. And Carol was Sherry's dearest friend. And we went over to their house. I had all this, I had the business plan. I had the pitch and everything. And Carol and her husband said,

we don't need any pitch. we're just going to trust you. And they wrote a check that night and gave me $100,000. And things started happening after that. What was your ambition for ill journal? I mean, did you think

this is going to be a national chain of coffee coffee bars? Well, here's an interesting story. So the original business plan was 100 stores. And we weren't raising any money because people didn't believe we could open 100 stores. And I didn't even have

enough funds, resources to kind of professionally reprint the document. So I figured out a way to kind of white out the hundred. And I wrote 75. So we opened our first store in 86. And then a year after Jerry and the founder of Starbucks had acquired Pete's coffee company. Many people don't realize that Pete's and Starbucks were one company. Two years, probably. prior to that. And Jerry came to me and said, Jerry Baldwin, came to me and said, we've run into some financial trouble and we're going to have to split the two companies. And I've decided I'm going to move to California and I want to keep Pete's. The person who should buy Starbucks is you. And so the price is one-time sales, six stores, $3.8 million, which was, you know,

It was fantastic news. Yeah. And I'll give you a 90-day exclusive to try and come back to me with $3.8 million. So I was extraordinarily excited. But I didn't know where I was going to get the money. Right. Yeah. And so now we had to go back out and raise money.

And it was very difficult. So how did you do that? We went back to the original investors of Villanali. Some of them were interested, but a lot of them weren't. Because Ilginale had three stores. We didn't prove anything. So, you know, Jerry kept checking in with me to see how are you doing on the fundraising. And about 60 days in, I said, we're about halfway there.

And I'm confident that we'll get the $3.8 million. And he said, I have to sit down and tell you something. We have a competitive buyer. And I said, Jerry, you told me we had an exclusive. What do you mean? and he said one of your investors from Illjournali has shown up and offered me $4 million cash with no due diligence and I was like

I can remember that moment as if my the world had just ended because I knew who it was he told me and the person at the time there were three business titans in Seattle and he was one of them and they had invested invested in Il-Gernali as a group. I didn't know what to do, and Jerry said, I will hold for 90 days, but you have to know, on the 90th day, I have to sell. Two or three days later, I'm playing basketball, and a friend of mine who was my young attorney at the time,

Scott Greenberg, I tell him the story that night after the game. And him trying to help me as a friend and as a lawyer says, you need to come to the office tomorrow morning and meet our senior partner and tell them the story. I didn't know who the senior partner was. I didn't know anything. So I go to the office following morning at 8 a.m. And he takes me into the office to meet Bill Gates, Sr. I walked in the office with Scott and Bill Gates, Sr. said,

tell me the entire story. And I'm taking it to him chapter and verse like I am with you with more detail. And he's writing down, writing down. And I finish and he said, Howard, we don't know each other. I'm just going to ask you this question one time. Is everything you told me true? And I said, it's 100% truthful. And he says to me, we're going to take a walk.

And I said, where are we going? And he says, we're going to see the man. My heart was racing with such anxiety, trepidation. He's taking you to see this guy. I'm not saying the name. but he's taking me to see the competitive buyer. So 10 minutes later, we walk across the street, go up the office building, and we walk into this man's office.

Now, Bill Gates is 6'7, and in the mid-80s, he was in his prime, and he was a force. And we walked in that office, and all I remember him saying is, you should be ashamed of yourself, that you're going to steal this kid's dream. It's not going to happen. You and I both know this is not going to happen.

And within 10 minutes, he told him to stand down, we're walking out of this office, and this kid's buying this company. In just a moment, Howard Schultz explains how Starbucks spread from Seattle to the East Coast and then all around the world. Stay with us. I'm Guy Raz, and you're listening to How I Built This, recorded live in Seattle. Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 1987 and Howard Schultz has just bought Starbucks, which had about six stores at the time. And he had this grand vision of expanding all across the country fast. But gourmet coffee shops weren't all over cities like they are today. And the idea of hanging out in one for hours or working in one or catching up with friends just passing the time,

that was kind of weird. And so when Howard started sharing his vision of rolling out these coffee stores from coast to coast, lots of people were like, Howard, that's a crazy idea. A lot of people said that. But we believed early on that what we had seen in Italy was replicable in America through an American lens. It was thinking, let's create a store

that not only is a store for coffee, but produces this sense of community between home and work. And I think early on, we realized that the brand we were about to build was going to be experiential. I mean, how did Starbucks do in the first few years after you bought it? Because you weren't profitable right away, right? No, we weren't profitable, but in order to grow the company and to raise the money, we said kind of metaphorically, we want to build a hundred stories skyscraper.

Well, we're going to have to invest to build a foundation. So we started investing heavily, like any other startup, in people and processes, in IT, and infrastructure. And so the company lost money almost from the day I bought it. Yeah. And investors, I think, understood early on that we were going to lose money in order to build a much bigger company. What, I mean, as you begin to expand and grow beyond the Pacific Northwest, and I think your first location was in Chicago. What was the secret? I mean, was it was was, was it building a narrative around Starbucks around the beans, around the farmers, around the, you know, around the story of coffee? Is that how

you were able to bring people into the, into the stores? Well, first of up, we did go to Chicago as our first city outside of Northwest, and it did not work right away. So why not? I got fooled very easily because I selected that location in the summer. And then when the winter came, it did not have an interior entrance into the building that it was in. So the customers had to walk out of the building in the cold winter of Chicago to get to Starbucks. And you know what? They didn't do it. Wow.

But we didn't have any extra resources for traditional advertising or marketing. We did none of that. And even today, Starbucks is not a traditional marketing company. I mean, it sounds really old-fashioned. but we built the company one customer at a time, one cup at a time. And I think we got a lot of positive PR about the equity of the brand, the experience. And people started anticipating that we would come to their city. And probably the best example of that is what happened when we opened.

Now I'm going to fast forward in 1996, and we opened in Tokyo in Japan for the first time. What happened there? So no one at Starbucks had any international experience. No one. And we told our board we're going to open up. We think in Japan. So first, the board said we should probably hire an outside resource of consultant,

a word that really gives me highs. If we have to hire a consultant, it means that we don't really know our business. And they went away and they produced this big report. And before they presented to the board, they gave me the bad news and said, Japan will be a disaster. You can't go there. So Starbucks, no smoking policy will not work. And no one, no person in the entire country will ever eat or drink in the street because you will lose face.

And the unit economics of real estate, you can't sell enough coffee in Japan to pay for the rent. And I convinced a board that I believed that Japan would work. Just based on what, on instinct, on a guess? I just, I just knew. I mean, I just, and I just felt we had. had to have the courage of our convictions. If we're going to be a national and a global company, we have to go somewhere and Japan had a direct flight from Seattle. Perfect. Okay, so we make the mistake of opening up our first store in the middle of August in Tokyo. So if those of you

have been in Japan in August, the humidity is 100%. It's 95 degrees. You're in the street for five minutes and you need a shower. And we didn't have any cold coffee or frappuccino at that time, nothing like that. Yeah. It was hot coffee. Yeah. So the night before, there's kind of a celebratory dinner with our Japanese partner, and there's an interpreter, and I'm thinking, tomorrow's just not going to go well. I can just feel it. It's, it's going to be a problem. So I tell the partner, through the interpreter, that I think you should expect, since it's so warm, it's not going to be a big opening. So just anticipate the fact that we're going to have to build this business and wait for the cold weather. And the interpreter was afraid to tell him what I said. Wow. And I find out 10 minutes

later that the interpreter said, Mr. Schultz said it's going to be the biggest Starbucks opening up. I'm just, I think, did you really do that? So I get to my hotel room and I get a call from someone Seattle who's ecstatic saying we got CNN to cover the opening lives. Oh wow. And I'm dying. You know, I mean, this is it. At 6 a.m. in the morning, we're driving up to the store. And there's a lineup of hundreds of Japanese people on the street.

And I turned to the same interpreter and I say, did you hire a Did you hire extras? And, of course, no. And we cut the ribbon and a young Japanese college student who slept overnight runs to the front of the line and we follow him.

And he says, double tall latte. What's so crazy to me is that as you're expanding in the early 90s, none of these huge players in coffee like Nestle or, you know, the other companies got into that game. I mean, they could have crushed you if they wanted to do what you did.

Why didn't they see that opportunity? You know, I've been asked that many times. I think the large companies just never believed that you could build a national company and brand around selling coffee in the cup. I just think they were naive, maybe arrogant, and they gave us a lot of runway. You guys started to do all kinds of branding partnerships in the 90s with ice cream makers, with supermarkets, bottled frappuccino, candy companies, record companies. Were you ever worried that you were diluting the brand?

We were very disciplined. We did a lot of things, but we turned down hundreds of things that people wanted to do with us. And I think we were trying to say was, will our customers give us license to sell coffee? I remember this was a huge decision back then. as to whether Starbucks should be in Costco and discount the coffee. It was a great debate inside the company because how could you sell it at Costco

to discount to your stores? And what happened was we introduced hundreds of thousands of people at Starbucks who had never been in a store. Bottle for A Pacino and a JV with Pepsi became a multi-billion dollar business and we started believing that we could build a brand in our store

and then extend it into another form factor in the grocery store. And we also learned that many people got introduced to Starbucks through a bottle for Appuccino. I guess around age 47, 48, you stepped down for the first time as CEO. The company at that point is doing $2 billion in revenue. You're pushing more stores outside the U.S. Why did you step down? I felt like I was repeating myself.

I felt I was no longer engaged in the fund, creative part of the business, where I get the most joy. What were you doing? What were you focused on? You know, between the lawyers, the HR issues. You just, it was less joyful? I was not having fun. I just decided that I needed a break from the madness of it.

And were you able to really step away? Yeah, I did step away. I was the chairman of the company. And as chairman, I should have been paying kind of more attention to the company, but I started doing other things. One of which was the Seattle Supersonics, which we can talk about or not. I don't, I think we're going to leave that one.

Yeah, I'm not proud of that. You wrote a famous memo to the board in, I guess, 2007, where you expressed regret over the commoditization of the brand. What was going on? It was two things going on at that point. First of up, the country was heading into, a cataclysmic financial crisis. But I think, you know, as I look back on those years, I would describe it as the years of eubris. That Starbucks was growing at a pace in which growth and success

began to cover up a lot of mistakes. And... Like what kind of mistakes? Too many stores, cannibalizing other stores, did not, the financial controls and discipline that were in place, were not being leveraged. And I think the big mistake, though, was Wall Street and the stock price became an albatross on the company's neck. And so growth became the strategy of the company, and growth is not a strategy. And growth meant what, that customer service wasn't as good, that the product wasn't as good, that the experience of going to a Starbucks wasn't as good? No, two things.

Growth meant too many stores too fast in areas that should not have had a Starbucks, and secondarily the experience, which is, had defined the essence of the company was being compromised by efficiency. And the company and the management team at that time started measuring yield, sales per hour, and doing things that were so dilutive to the essence of the foundation of the company. And it really started, I think, upsetting me. And I began to go into the stores and not recognize what we had built. What did you see? Probably the signature thing that I saw was a new breakfast sandwich that contaminated the odor of coffee. This was the grilled cheese sandwich?

And not that it was a wrong thing to do, but it was executed so poorly. Like the Starbucks smelled like cheese? Yeah, yeah. Like burnt cheese. Around 2008, Starbucks share price hits a record low. Some analysts were saying its days were numbered. Were they really? At the time, I didn't think so, but I knew we were in a downward spiral and the company needed to go through a major transformation.

And when I returned as CEO, which I never had planned to come back, I would say that there were people both on the board at the time and many people at Starbucks and certainly hundreds of people at Wall Street that said, you're bringing him back? I mean, he's the problem. Really? And the analysts in the media were not very kind. But when I came back, I came back for two reasons. And that is what it means to love something and the responsibility that goes with it. When you told your wife, Sherry, that you were going to do this, what was her response? I mean, 100% supportive.

I mean, she went through the same pain I was going through and watching what we had built. Yeah. And knew I had to go back. You were gone from running it for almost eight years. did you think you were just going to go in, quickly stabilize it, and then go back out? I don't think I knew how long I would stay at that point. But I think, as we discussed earlier, the problems were so severe. And every rock that I turned over was worse than I had imagined to the point where I made some very drastic decisions.

You had to shut 600 stores? We closed 900 stores, and 90% of them had been open, less than a year. Wow. The thing that I did that was probably most telling was when we decided to close the stores for training. At 12 o'clock, every store in America was closed for retraining. How much did that cost Starbucks? I think we estimated about $24 million that day in terms of lost sales and labor. So your board just loved this. Your shareholders loved this. Well, there were two things that I did that people said, he's really lost it. But the training was so vitally important because Starbucks coffee company forgot how to make quality coffee.

And we had everybody in the company retrained. Now, the thing that galvanized the entire company was something else. And that was we were in a room one day and I said, I feel like I need to communicate with every single store manager in person. And this was in 2008. This is during the crisis where no company was traveling And they said, well, you can't get 10,000 people in a room What are you going to do?

And I said, no, I want to go somewhere Where we can get 10,000 store managers in a like an arena What are you talking about? By the way, this event costs about $30 million At a time where we didn't have the money You know, fly everybody there, the food, everything. And so I had to give a third. $30 million speech.

Yeah. This was, you know, to 10,000 store managers. And I'm writing some notes, and a couple hours before some of my colleagues say, well, what are you going to tell them? Yeah. I said, I'm going to tell them the truth. The real truth. Because at this point, I knew we were really in trouble. I knew that we had about seven months left if we continued on this track where we would be insolable.

Wow. And I felt so strongly that I knew. needed to trust our people with the same information I had. And if I was going to ask them to do the things that they needed to do, which meant take every single customer interaction so personally as if this is your store and make it so personal to understand if we don't correct this situation, we are not going to be able to feed your families. And you said that on stage? Yeah. How long, How long did it take to recover? Overnight we began to change the trajectory.

And within six months, we were starting to climb back. And within a year, it was a memory. However, the real question was, what did we learn? We were so hungry and so driven when we started the company. But when we were that successful, people got sloppy, they got lazy, And this is so vitally important. Success in any business, no matter what it is, is not an entitlement. It has to be earned.

And we stopped earning it. And that's why we got in trouble. You know, building a company is a lonely place sometimes because you're imprinted, especially as a man, of not demonstrating vulnerability. And I think one of the perhaps most undervalued characteristics of leadership is vulnerability and asking for help. And I've done that a number of times. So, and I think it's important.

I think when you're vulnerable and you ask for help, people come towards you. And I think I've tried to do that every step of the way and be honest and truthful about what I know, what I don't. And most importantly, what I believe. Howard, I want to ask you about your approach to your employees. You call them partners. They're eligible for health care education benefits. You can now earn a degree through Arizona State University. Yeah.

If you work at Starbucks, at least 20 hours a week. Free college tuition. All of this is very expensive, but it does buy you a lot of goodwill from the public and from your employees. Is that why Starbucks does this? You know the answer to that. No. The health insurance, equity in the form of stock options, trying to prove something to myself, to my family. And many of us who were in the company were not born with a silver spoon. Many of us had come from similar backgrounds. And I think customers began to realize we're paying

these kids giving them ownership. They have health insurance. And the intimacy that was built between the barista and our customers because of the frequency began to build. Because you had less turnover? We had much less turnover then and today than anyone in our industry. Howard, my dad is in the audience tonight here. He flew up from L.A. to be here.

Yeah. What do you... Thank you with my dad. What do you think your dad would have made of your success? I mean, if he was sitting in this audience tonight and he was hearing your story, what do you think he would have thought about his son

who became one of the most successful entrepreneurs in modern American history? My dad passed away in 87 at the age of 65, so he didn't see any of the success that we have enjoyed. I think he would be so shell-shocked and so proud. And I think he would go back to what he experienced, And I think what he would be most proud of is how we have treated everyone in the company

because he was that blue-collar worker who was not respected for a lack of education and not being sophisticated and unfortunately never really got the chance to be himself or be valued in a company. He would marvel at that. In many, many ways, and I've said this before, the values, the culture and guiding principles of Starbucks, really are defined by me wanting to build the kind of company that my father never got a chance to work for. Howard, thank you so much for being here. Thank you. Thank you. Really incredible.

Howard Schultz, he stepped down as CEO of Starbucks earlier this year. He's now the executive chairman, and you've probably heard the rumors that he stepped down in part to explore a possible presidential run. And I know, I know you were probably dying for me to ask. him all about this. And I did, but just backstage before the show, and his answer was pretty coy. He mostly says he's not really interested, but when pressed on it, he says, never say never. Hey, thanks so much for listening to the show this week. This episode was recorded in front of a live audience at Benaroya Hall in Seattle. It was co-produced by Claire Breen and Rumptine Arablewe, who also composed the music,

thanks to Jeff Rogers, Sanaz Meshkenpore, Neva Grant, and Lawrence Wu. Thanks also to Ali Prescott, Jessica Goldstein, and Andy Huther. Our intern is Diana Mustak. I'm Guy Raz, and you've been listening to a special live episode of How I Built This from NPR. There are millions of books out there, just waiting for you. But how to keep up? Introducing NPR's Book of the Day.

Every weekday, we feature some of our favorite, conversations with authors and writers about their latest books. You can check it out in about the time it takes to walk the dog. Happy reading.