In this success story we are going to share Howard Schultz biography, an American entrepreneur and the chairman, president and CEO of Starbucks Coffee Company, which is well-known as one of the largest coffee store chains of the world. The story of his “American dream” coming true is widespread, but Howard’s breakthrough is not an easy one to overachieve: he did not only earn a fortune, but also reached the hearts of an entire generation of coffee fans.
Childhood, Education and Career
Howard D. Schultz was born on July 19, 1953 in Brooklyn, New York, in a family of a former US Army trooper and later truck driver Fred Schultz, and his wife Elaine. The family had three kids and was poor, even though the parents worked hard to give a decent future to their children. Then they could not even imagine that their son would become one of the wealthiest businesspersons of the United States.
The childhood of the future billionaire was spent in the neighborhood of the houses for low-income families, where there was nothing but the basketball court. Most of the people over there were extremely poor and it is obvious, that the children from this area were considered quite ordinary. That is why Howard always knew how difficult it would be for him to break out of this poverty. However, his dream of becoming successful was stronger than any obstacle.
Being a little boy, Howard often watched his father trying to find a job, which would meet his expectations. When Howard was seven years old, his father broke a leg while being at work. As he had no medical insurance, the subsequent family financial difficulties left an indelible mark in the boy’s memory.
“I saw my father losing his sense of dignity and self-respect. I am sure that this was caused mostly by the fact that he has been treated as an ordinary working man.” – Howard Schultz recalls.
At the age of 12, Howard got his first job. First, he was selling newspapers, and then working in a local cafe. The boy faced rather hard experience when he turned 16. He was working at the fur store, where he had to deal with stretching the leather. This exhausting job only made Howard stronger and firmed his wish to succeed in future. Being physically strong, Schultz excelled at sports and was awarded an athletic scholarship to Northern Michigan University where he received his Bachelor’s degree in Communications in 1975.
After his graduation, Howard Schultz spent three years as a sales manager at Xerox, and then he started working at a Swedish company Hamamaplast, where he was selling home appliances, including coffee grinders to the businesses like Starbucks. Once Schultz discovered, that this little company orders way more of his coffee machines then some popular stores. Howard decided to meet the owners of Starbucks and went to Seattle.
Starbucks Corporation is an American global coffee company and coffeehouse chain based in Seattle, Washington. Three partners who met at college founded it: English teacher Jerry Baldwin, history teacher Zev Siegl, and writer Gordon Bowker. These guys adored coffee and decided to share their passion by opening a small coffee shop.
The store opened in a quiet inconvenient time: at the end of the 60s, the Americans completely gave up on instant coffee. Moreover, the majority of them did not even know that there is some different type of coffee, which is other than instant. Thus, there was not too much of the visitors.
The name “Starbucks” comes from the name of one of the characters of Herman Melville’s novel “Moby-Dick”. A twin-tailed mermaid or a Siren as she is known in Greek mythology, became the image of the company. She symbolizes that Starbucks’ coffee is delivered from the different areas of the world. You can still find the original Starbucks logo at the first store in Seattle.
After tasting Starbucks coffee, Howard immediately fell in love with it, as it was something much better than everything he had tried before. Later, Schultz recalled, “I went outside whispering to myself: Oh my Gosh, what a wonderful business, what a wonderful city! I want to be a part of this.” It was a love at first sight.
The company had a credo, which made its stores popular in Seattle – they actually taught the customers the art of making coffee. This approach and the enthusiasm impressed 29-year-old Schultz, and he was literally begging for a job at Starbucks and bothering its director, Jerry Baldwin, with the phone calls. Schultz was trying to persuade him that the company is capable of opening more stores but Baldwin feared that a rapid expansion might kill the spirit of Starbucks. Once, Schultz finished his attempt with the words, “Well, let’s do it all gradually, in your usual pace, but let’s also create something truly significant.” Next day he was asked to become the marketing director at Starbucks with a salary less than half of what he was getting at Hamamaplast. Howard saw a great potential of the business and realized that he wanted to connect his life with Starbucks. Thus, he agreed to work there even under such inconvenient conditions. In 1982, he moved to Seattle.
In 1983, Howard went to Milan and returned with the recipes of latte and cappuccino, which tripled Starbucks’ sales over the next year. However, the concept of Italian café amazed Schultz the most – it was not just a store but a place for social meetings and leisure. In the United States the socializing role was mostly hold by the various fast-food restaurants. Schultz spent long time thinking of this totally new concept, when in 1985 he proposed Baldwin to make a focus on creating a network of coffee houses. But the CEO of Starbucks answered with categorical refusal. The founders believed that such approach would cause their shop to lose its individuality. They were the men of traditional views, which supposed real coffee to be made at home. But the idea of drinking coffee out literally elated Schultz, and he, being confident in his venture, resigned from the company to open his own business.
Howard Schultz remarks, “Only those who go by unexplored roads, creating new industries and new products, can build a strong, long-lasting company and inspire others to achieve great results.”
Birth of the Modern Starbucks
Howard needed $1.7 million for opening his own business. The owners of Starbucks partly borrowed the money and the rest of the money he lent in a bank. In April 1986, Schultz opened a coffee shop in Seattle. He gave it an Italian name of ‘Il Giornale’, (Italian pronunciation: [eel johr-nah-leh]). This place was a great success and 300 people visited it during its first working day.
A year later, Howard found out that the owners of Starbucks were going to sell their stores, the roasting factory, and brand itself, as they could not manage functioning of the large company. They announced a price of $4 million, and Schulz immediately went to his creditors, persuading them to give him a new loan. It is interesting to know that one of the early investors of Starbucks was Bill Gates, the founder of Microsoft. Like McDonald brothers, three coffee fans from Seattle stepped out of their own business for the worthy reward, and Howard Schultz became the only owner and manager at Starbucks.
There was a bar counter in every single store where professional baristas (experts in coffee preparation) were grounding coffee beans, brewing and serving fresh coffee. Barista was supposed to know all the regular customers by their names, and, also, to remember their preferences. When Schultz first visited Italy, he was fascinated by local coffee shops (as we have already mentioned), and, especially, as he called it later, ‘a magnificent theatrical presentation’ given by barista, who was pouring espresso with one hand, whipping cream by another, while chatting with the customers at the same time. Two years later, Howard went to Italy for the second time. He brought home not only photos and menus, but also videotapes documenting the baristas in action. Later, they became a teaching material for practical training of the staff. This is the one of many key points that explains the success story of Starbucks.
Unlike hamburgers, coffee is an elegant product. Thus, in order to get the ordinary Americans “addicted” to it, you have to try really hard. It seemed unreal to lure any people to a place where they weren’t allowed to smoke, and there was nothing but the smell of freshly brewed coffee. Therefore, Schulz can be called an adventurer at some point, which was certain in his own ultimate success.
Howard Schultz promised to his creditors that in the five years he would open about 125 stores in the United States. In fact, by 1992 he was able to open much more items than it was planned. He began in New England – with Boston and Chicago – and gradually got to California. Schultz took franchising system of McDonald’s as an example, and managed to create his own corporation.
He carefully thought on the strategy and to tell the truth, it was quite insane. To turn over the minds of Americans, Schultz decided to make accents on the quantity, quality, and publicity. Marketing team of Starbuck were constantly telling Americans that drinking true coffee at Starbucks is romantic. Advertising slogans were easy to memorize, causing a smile and the thought of a cup of this flavored drink. The head of the company made sure that this advertising is not different from reality.
Howard Schultz offered a democratic coffee house, which worked on the principle of self-service. Here, the customer had a freedom of choice: the type of a drink (not just coffee, but latte, cappuccino, espresso, mocha, macchiato and other alternatives), the size of a cup, and the type of milk (regular or fat-free) completely depended on a choice of the visitor. This approach has given their customers an opportunity to order a quite individual drink. At some point, it also caused the emergence of a new slang: the order may sound very floridly, like ‘double tall skinny decaf latte’.
The fact that the coffee shop is ruled by the principle of self-service did not scare the customers. At Starbucks, an order is taken by one person, and another staff member prepares the drink. It makes the system quiet fast, especially if to compare it with some fast-food restaurants. Since a large portion of orders in the U.S. (and in some other countries) is still takeaway coffee (in the U.S. it makes about 75% of all orders), even a large number of customers do not lead to overcrowding of the coffee stores.
In 1992, Schultz decided to make Starbucks a public company. In June of the same year, he put its shares on the New York Stock Exchange at a price of $14 per share. In just one day, the cost rose to $33.
Enthusiasm and Professionalism of Starbucks’ Employees
Two years before starting the incorporation process, Howard Schultz came up with a set of rules of Starbucks, which later evolved into the corporate code. It was pointing on the benefits given by a well-organized teamwork, and the need of continuous improvement of coffee quality. Its final statement was, “Remember, that making a profit now, we are laying the foundation for our future prosperity.”
From Howard Schultz biography we have found out that while developing Starbucks at the national level, Howard Schultz paid an excessive attention to the human factor. But Howard himself calls it the most intelligent and far-sighted model of acting. He stated that if people are associated with the employing business, they are forming an emotional relationship; they dream with it and put their hearts in its prosperity.
Schultz truly cared about the team spirit of Starbucks. All employees who have worked at least for 20 hours a week were provided with a general medical insurance. Then, he introduced a system of stock options and it went up to the awarding the best employees with the shares. However, initially, because of the introduction of subsidies, Howard Schultz was not in a favor among Starbucks shareholders as they were afraid to see the decrease in shares’ value.
In 1994, the company’s employees in California noticed that in summer there were rather less customers, as Starbucks did not offer any refreshing drinks. Schulz did not really want to deviate from his “pure coffee” concept but he still decided to give it a try. In April 1995, in all 550 Starbucks stores Frappucino was first offered. The drink became popular, and in the same year, it brought a tenth of the total profit of Starbucks. In 1996, PepsiCo offered to Starbucks a long-term licensing agreement for the production of bottled Frappucino.
Unique Spirit of Starbucks
The popularity of Starbucks inspired not only the consumers but also the competing companies. There were similar coffee stores rising all over the place; they also offered a better price. Even fast food restaurants and gas stations got those “Espresso” ads in order to lure the customers. Despite of these conditions, the company maintained its main principles of romance, accessible luxury, peace, and informality.
Pretty soon it became all clear that in order to follow these principles, Starbucks has to change an entire ideology of its network development. Italian coffee shops, which served as a model for restaurants of Starbucks, did not fit an American lifestyle. Italian coffee stores were housed in tiny halls where there was quite a few sits, as the most of the visitors preferred to spend their time at the bar. In America, such an approach didn’t work. As Starbucks wanted to be a socializing place, it had to change the format of its coffee houses, turning them into the best place for having a conversation. The areas of the stores have been increased tenfold; tall bar stools at the counter have been switched for cozy tables and chairs. Having an opportunity to sit separately from the other visitors, Americans started to arrange meetings at Starbucks.
The popularity of coffee houses quickly spread, but it also had a backside. Having such a high rate of sales, it was difficult to combine a variety of items from the menu while maintaining a high product quality.
At Starbucks, the coffee was brewed out of freshly roasted and ground coffee beans. The grain was delivered in a special packaging: two-kilogram bags (4.4 lbs.), equipped with a special valve for releasing carbon dioxide out, but blocking an access to moisture and oxygen. While this package was enclosed, coffee inside remained fresh and could be transported thousands of miles away. When the package is finally open, barista has only seven days to use it all, so the product doesn’t lose its quality. Sometimes it was about a rare and very expensive variety, and such an approach could be called an apparent wastefulness. Seeing all the losses, Howard Schultz decided on another compromise. The company has got the right to use a new method of preparing soluble coffee extract, which allows to get a much higher quality of an instant coffee. Eventually, the experts were able to make Starbucks instant coffee taste naturally, as close as it was possible at that time. Finally, a new product began to bring a significant percent of the sales.
An important part of this system was the creation of an identity of Starbucks. Schultz made his team following the uniform standards. According to his plan, not only every place had to have an equal design, but even the taste of coffee should be identical. Schulz dreamed to enable a person to feel like he’s at home even in a foreign town. To enhance the effect, music has to play constantly. Besides this, a composition, playing in the New York coffee shop, at the same plays in, say, Seattle.
One day, the managers of Starbucks stores from different cities reported to the headquarters of Starbucks that the visitors often asked where they could buy a CD. Starbucks immediately signed a contract with Capital Records, and in March 1995 released its own collection of jazz and blues. At the very first day, they sold more than 75.000 copies. Later, Starbucks has created a subsidiary Hear Music, which began to release the collections of Blue Note and Blending the Blues annually.
One of the company’s specialties is that they pay property owners exactly one dollar per year in many Starbucks stores. No one threatens them; Starbucks just knows that the visitors will come. Everybody knew that the atmosphere, the coffee, the name written on the glass would make even the most godforsaken place a popular place. Starbucks had often been invited to open coffee shops in such neglected urban areas and Starbucks always agreed. Obviously, they could not fight a crime but they could easy create a flow of people. The cost of this improvement was just $1 per year.
Sure thing, not every Starbucks decision was made in the sake of humanity. Marketers and brand managers know their job and come up with many interesting tricks to promote their brand. For example, a cover made of paper, which allows avoiding burning hands. Buying coffee, you can choose if you want to get a free corrugated cardboard ring or to pay a little extra and get a nice-looking polyurethane one with the logo of Starbucks. No matter if the next cup of coffee will be bought at Starbucks or not, the logo will still be on the holder. This innovation let Starbucks to take care of the environment and get promoted at the same time. Thermo cup, which are quite popular the coffee stores, is one of those great solutions. People use the tumblers labeled Starbucks not only for coffee from Starbucks and it brings an additional promotion.
Howard Schultz Makes Starbucks the World’s Leading Coffee Business
In 1996, Howard Schultz, as the Chairman of the Member Board, CEO and co-owner of Starbucks, decided that it’s a high time for the company to go outside the United States. His first foreign coffee store was opened in Japan. Then, the stores started to appear in Singapore, Korea, Taiwan, United Kingdom, Netherlands, Sweden, and Israel.
By April, 2000, there have been more than 2,400 Starbucks stores in the United States and 350 stores in Europe, Asia, the Middle East and Canada opened. In the same month, 46-year-old Howard Schultz decided to transfer his duties to the Executive Director of Starbucks CEO Orin C. Smith. Schultz himself decided to focus on international expansion. He even set a goal to himself: he had to open 1200 new stores by the beginning of 2001. The financial position of Starbucks was just superb – over an entire decade, the sales, net profit and share price were continuously growing.
“Many entrepreneurs make the same mistake. When they are tired of delegating, they surround themselves with loyal assistants. They are afraid to put in leadership positions really smart, successful people.” – Howard Schultz stated.
At the end of 2005, Howard Schultz announced that Starbucks was going to expand its size up to ten thousand coffee shops. Howard stated that they had to expend very quickly, otherwise their competitors would just throw them away from the market. However, it was rather the statement of the ambitious businessman, as at that time Starbucks competitors trailed far behind.
Popularity of the company has reached such a high level that The Economist magazine created the Starbucks Index – an indicator of the economic situation in the country, which is defined as the price for a standard cup of coffee in the restaurant of the company.
With the international recognition of the company, the team of Starbucks created new ideas and requests. Howard Schultz decided to master the fast-food niche and then Starbucks team began an experiment of inclusion sandwiches into the menu. It is interesting to know that such a decision was pushed by a relative failure when he was trying to expand to the markets of China and Taiwan, where consumers are used to treating hot drinks only as a supplement to the food in these countries. Gradually, all the international coffee stores came to this market and have started offering pastries, snacks, sandwiches, and other food. Starbucks fought to the last, but it was forced to a compromise. Finally, they started to sell food in their coffee stores.
When Schultz found that the company has reached prosperity and stability, he decided to plunge into the sports business. He bought the NBA’s Seattle SuperSonics, the famous basketball team and temporary left the direct management of the company.
Howards is Back in Game
In 2007, the situation began to disturb Howard Schultz: the visitors of Starbucks complained about the loss of the spirit of romance. Schultz knew that it was happening, and often drawn the attention of top managers on these issues:
- New coffee brewing machines were taller than the previous ones, and it didn’t allow customers to monitor the process of preparing a beverage;
- New packs preserved the grain just fine, but deprived that delicate smell, which was so attractive for the coffee connoisseurs.
In addition, the economic crisis of 2008 made some adjustments. In early 2008, Howard returned to the Starbucks leadership in order to restore the company’s image.
Starbucks never really competed with anyone. Being quite relaxed, the company has overlooked what is happening around. Different companies started to notice that the coffee business is very profitable. On the one hand, there were giant McDonald’s and Dunkin’ Donuts. They were always willing to do anything to entice visitors: free coffee, coupons, etc. On the other hand, there were independent players who learned from Starbucks’ experience. They were promoting themselves under the slogan: “Support local businesses!” Starbucks was trapped in the middle.
In order to save Starbucks, Schultz had to make a number of strict measures. To optimize the costs, the company closed 600 stores in 2008 and another 300 – in 2009. Today, all the efforts of the company aimed at overcoming the crisis and improving services.
In March, 2008, Starbucks launched a rather interesting project in the Internet. Any person, whether he is an employee of a company or a customer can share his idea of improving the coffee stores. Each idea will be discussed, and some may even be implemented. In fact, before the ideas reach the company, they are actively discussed by the visitors of the website, and, obviously, Starbucks considers only the most popular.
Family Life of Howard Schultz
It goes without saying that Howard Schultz is proud of his achievements. However, he was always trying to talk more about the company than about himself. As his parents dreamt, Howard became a good family man, a father of two children, who often talked about his life in Brooklyn. A couple of times, he even took his kids on a tour, although he didn’t feel secure on his native streets. A fresh bullet hole, which he saw on the wall of some house, was a wonderful confirmation that he made a right thing by choosing this pathway.
Today, Howard Schultz has the state of about US$2 billion. He travels a lot with his children; also, he wrote two books where told the story of his own life. Not forgetting his roots, he often visits Israel, and in 1998, he even won “the Israel 50th Anniversary Tribute Award” from the Jerusalem Fund of Aish Ha-Torah for using his influence to establish the ties between Israel and the United States.
His caring attitude toward his subordinates, even the low-level ones, amazes many people. If Schultz is in the business – he is an aggressor, if he is with employees – he is a fair and tender leader. An increase in profit could not bring him peace of mind, if the employees of the company didn’t feel right.
Howard Schultz currently lives in Seattle, Washington, with his wife, Sheri (Kersch) Schultz. They have two children Jordan and Addison.
Once Schultz said, “I cannot offer you any specific secret recipe for success, the perfect plan, how to reach the pinnacle of success in the business. But my own experience suggests that starting from scratch and achieving much more than what I dream about is quite possible”.
In 2012, the company’s revenue was US$ 13.29 billion, net income – US$ 1.38 billion. The total headcount network comprised over 149 thousand people. According to the data for 2013, there were 20891 Starbucks stores opened in 62 countries.
We hope you have enjoyed reading Howard Schultz biography and amazing success story of Starbucks and it has inspired you to new inventions and discoveries.