PourYourHeartIntoIt

Dedication

Thisbooksisdedicatedwithlovetomywife,Sheri,tomymother,tothememoryofmyfatherandtoallmypartnersatStarbucks,especiallyMaryCiatrinMahoney,AaronDavidGoodrich,andEmoryAllenEvans.Youliveoninourhearts.

Contents

Dedication

Prologue

PARTONE REDISCOVERING COFFEE THE YEARS UP TO1987

CHAPTER1-Imagination,Dreams,andHumbleOrigins

CHAPTER2 -AStrongLegacyMakesYouSustainable for theFuture

CHAPTER3-ToItalians,EspressoIsLikeanAria

CHAPTER4-“LuckIstheResidueofDesign”

CHAPTER5-NaysayersNeverBuiltaGreatEnterprise

CHAPTER6-TheImprintingoftheCompany’sValues

PARTTWO REINVENTINGTHECOFFEEEXPERIENCETHEPRIVATEYEARS,1987–1992

CHAPTER7-ActYourDreamswithOpenEyes

CHAPTER8-IfItCapturesYourImagination,ItWillCaptivateOthers

CHAPTER9-PeopleAreNotaLineItem

StarbucksMissionStatement

CHAPTER10-AHundred-StoryBuildingFirstNeedsaStrongFoundation

CHAPTER 11 - Don’t Be Threatened by People Smarter ThanYou

CHAPTER12-TheValueofDogmatismandFlexibility

PARTTHREE RENEWINGTHEENTREPRENEURIALSPIRITTHEPUBLICYEARS,1992–1997

CHAPTER13-WallStreetMeasuresaCompany’sPrice,NotItsValue

CHAPTER 14 - As Long As You’re Reinventing, How AboutReinventingYourself?

CHAPTER15-Don’tLettheEntrepreneurGetIntheWayoftheEnterprisingSpirit

CHAPTER 16 - Seek to Renew Yourself Even When You’reHittingHomeRuns

CHAPTER17-CrisisofPrices,CrisisofValues

CHAPTER18-TheBestWaytoBuildaBrandIsOnePersonataTime

CHAPTER 19 - Twenty Million New Customers Are WorthTakingaRiskFor

CHAPTER20-YouCanGrowBigandStaySmall

CHAPTER21-HowSociallyResponsibleCanaCompanyBe?

CHAPTER22-HowNottoBeaCookie-CutterChain

CHAPTER23-WhenTheyTellYoutoFocus,Don’tGetMyopic

CHAPTER24-LeadwithYourHeart

Index

Acknowledgments

AbouttheAuthors

Copyright

OnacoldJanuarydayin1961,myfatherbrokehisankleatwork.Iwassevenyearsoldatthetimeandinthemidstofasnowballfightintheicy

playground behind my school when my mother leaned out our seventh-floorapartmentwindowandwavedwildlyinmydirection.Iracedhome.“Dadhadanaccident,”shetoldme.“Ihavetogotothehospital.”Myfather,FredSchultz,wasstuckathomewithhisfootupformorethana

month.I’dneverseenacastbefore,soitfascinatedmeatfirst.Butthenoveltyquicklywore off. Like somany others of his station in life,whenDad didn’twork,hedidn’tgetpaid.His latest jobhadbeenas a truckdriver, pickingupanddeliveringdiapers.

Formonths,hehadcomplainedbitterlyabout theodorand themess, saying itwastheworstjobintheworld.Butnowthathehadlostit,heseemedtowantitback.Mymomwas sevenmonthspregnant, so shecouldn’twork.Our familyhadnoincome,nohealth insurance,noworker’scompensation,nothing tofallbackon.At the dinner table,my sister and I ate silently asmyparents argued about

howmuchmoney theywouldhave toborrow,and fromwhom.Sometimes, intheevening,thephonewouldring,andmymotherwouldinsistIanswerit.Ifitwasabillcollector,sheinstructedmetosaymyparentsweren’tathome.Mybrother,Michael,wasborninMarch;theyhadtoborrowagaintopaythe

hospitalexpenses.Yearslater,thatimageofmyfather—slumpedonthefamilycouch,hislegin

acast,unable toworkorearnmoney,andgrounddownby theworld—is stillburnedintomymind.Lookingbacknow,Ihavealotofrespectformydad.Henever finished high school, but he was an honest man who worked hard. Hesometimeshadtotakeontwoorthreejobsjusttoputfoodonthetable.Hecareda lot about his threekids, andplayedballwithusonweekends.He loved theYankees.Buthewasabeatenman.Inaseriesofblue-collarjobs—truckdriver,factory

worker, cab driver—he never made as much as $20,000 a year, never couldafford to own his own home. I spent my childhood in the Projects, federallysubsidized housing, in Canarsie, Brooklyn. By the time I was a teenager, Irealizedwhatastigmathatcarried.As I got older, I often clashed with my dad. I became bitter about his

underachievement, his lack of responsibility. I thought he could haveaccomplishedsomuchmore,ifhehadonlytried.Afterhedied,IrealizedIhadjudgedhimunfairly.Hehadtriedtofitintothe

system, but the system had crushed him.With low self-esteem, he had never

beenabletoclimboutoftheholeandimprovehislife.Thedayhedied,oflungcancer,inJanuary1988,wasthesaddestofmylife.

He had no savings, no pension. More important, he had never attainedfulfillmentanddignityfromworkhefoundmeaningful.Asakid, Ineverhadany idea that Iwouldonedayheadacompany.But I

knew in my heart that if I was ever in a position where I could make adifference,Iwouldn’tleavepeoplebehind.

Myparents couldnotunderstandwhat itwas that attractedme toStarbucks. Ileftawell-paying,prestigiousjobin1982tojoinwhatwasthenasmallSeattleretailerwithfivestores.Formypart,IsawStarbucksnotforwhatitwas,butforwhat it could be. It had immediately captivated me with its combination ofpassion and authenticity. If it could expand nationwide, romancing the Italianartistry of espresso-making as well as offering fresh-roasted coffee beans, Igradually realized, it could reinvent an age-old commodity and appeal tomillionsofpeopleasstronglyasitappealedtome.IbecameCEOofStarbucks in1987becauseIwentout,asanentrepreneur,

andconvincedinvestorstobelieveinmyvisionforthecompany.Overthenexttenyears,with a teamof smart andexperiencedmanagers,webuiltStarbucksfromalocalbusinesswith6storesandlessthan100employeesintoanationalonewithmorethan1,300storesand25,000employees.Todayweareincitiesall over North America, as well as in Tokyo and Singapore. Starbucks hasbecomeabrandthat’srecognizednationally,aprominencethangivesuslicensetoexperimentwithinnovativenewproducts.Bothsalesandprofitshavegrownbymorethan50percentayearforsixconsecutiveyears.ButthestoryofStarbucksisnotjustarecordofgrowthandsuccess.It’salso

about how a company can be built in a different way. It’s about a companycompletely unlike the ones my father worked for. It’s living proof that acompany can leadwith its heart and nurture its soul and stillmakemoney. Itshows that a company can provide long-term value for shareholders withoutsacrificingitscorebeliefintreatingitsemployeeswithrespectanddignity,bothbecausewehaveateamofleaderswhobelieveit’srightandbecauseit’sthebestwaytodobusiness.Starbucksstrikesanemotionalchordwithpeople.Somedriveoutoftheirway

to get their morning coffee from our stores. We’ve become such a resonantsymbolofcontemporaryAmericanlifethatourfamiliargreensirenlogoshowsupfrequentlyonTVshowsandinmovies.We’veintroducednewwordsintotheAmericanvocabularyandnewsocialritualsforthe1990s.Insomecommunities,

StarbucksstoreshavebecomeaThirdPlace—acomfortable,sociablegatheringspotawayfromhomeandwork,likeanextensionofthefrontporch.PeopleconnectwithStarbucksbecause theyrelate towhatwestandfor. It’s

morethangreatcoffee.It’stheromanceofthecoffeeexperience,thefeelingofwarmthandcommunitypeopleget inStarbucksstores.That tone is setbyourbaristas, who custom-make each espresso drink and explain the origins ofdifferentcoffees.SomeofthemcometoStarbuckswithnomoreskillsthanmyfatherhad,yetthey’retheoneswhocreatethemagic.If there’s one accomplishment I’m proudest of at Starbucks, it’s the

relationshipoftrustandconfidencewe’vebuiltwiththepeoplewhoworkatthecompany.That’snotjustanemptyphrase,asitisatsomanycompanies.We’vebuilt it into such ground-breaking programs as a comprehensive health-careprogram, even for part-timers, and stock options that provide ownership foreveryone. We treat warehouse workers and entry-level retail people with thekindofrespectmostcompaniesshowforonlyhighexecutives.Thesepoliciesandattitudesruncountertoconventionalbusinesswisdom.A

company that is managed only for the benefit of shareholders treats itsemployees as a line item, a cost to be contained. Executives who cut jobsaggressivelyareoftenrewardedwithatemporaryrun-upintheirstockprice.Butin the long run, they are not only undermining morale but sacrificing theinnovation, theentrepreneurialspirit,and theheartfeltcommitmentof theverypeoplewhocouldelevatethecompanytogreaterheights.Whatmanyinbusinessdon’trealizeisthatit’snotazero-sumgame.Treating

employees benevolently shouldn’t be viewed as an added cost that cuts intoprofits,butasapowerfulenergizerthatcangrowtheenterpriseintosomethingfargreater thanone leadercouldenvision.Withpride in theirwork,Starbuckspeople are less likely to leave.Our turnover rate is less thanhalf the industryaverage,whichnotonlysavesmoneybutstrengthensourbondwithcustomers.But thebenefits runevendeeper. Ifpeople relate to thecompany theywork

for, if they formanemotional tie to it andbuy into itsdreams, theywillpourtheir heart into making it better.When employees have self-esteem and self-respect theycancontributesomuchmore: totheircompany,totheirfamily, totheworld.AlthoughIdidn’tconsciouslyplanitthatway,Starbuckshasbecomealiving

legacyofmydad.Becausenoteveryonecantakechargeofhisorherdestiny,thosewhodorise

topositionsofauthorityhavearesponsibility to thosewhosedailyworkkeepstheenterpriserunning,notonlytosteer thecorrectcoursebut tomakesureno

oneisleftbehind.

I never planned towrite a book, at least not this early inmy career. I firmlybelievethatthegreatestpartofStarbucks’achievementliesinthefuture,notthepast.IfStarbucksisatwenty-chapterbook,we’reonlyinChapterThree.But for several reasons, I decided that now was a good time to tell the

Starbucksstory.First, Iwant to inspirepeople topursue theirdreams. Icomefromcommon

roots,withnosilverspoon,nopedigree,noearlymentors.Idaredtodreambigdreams,andthenIwilledthemtohappen.I’mconvincedthatmostpeoplecanachievetheirdreamsandbeyondiftheyhavethedeterminationtokeeptrying.Second,andmoreprofoundly,Ihopeto inspire leadersofenterprises toaim

high.Successisemptyifyouarriveatthefinishlinealone.Thebestrewardistoget there surroundedbywinners.Themorewinnersyoucanbringwithyou—whether they’re employees, customers, shareholders, or readers—the moregratifyingthevictory.I’mnotwritingthisbooktomakemoney.Allmyearningsfromitwillgoto

the newly formed Starbucks Foundation, which will allocate the proceeds tophilanthropicworkonbehalfofStarbucksanditspartners.Thisis thestoryofStarbucks,but it isnotaconventionalbusinessbook.Its

purpose isnot tosharemylife’sstory,or toofferadviceonhowtofixbrokencompanies, or to document a corporate history. It contains no executivesummaries, no bulleted lists of action points, no theoretical framework foranalyzingwhysomeenterprisessucceedandothersfail.Instead, it’s the story of a team of peoplewho built a successful enterprise

based on values and guiding principles seldom encountered in corporateAmerica.It tellshow,alongtheway,welearnedsomeimportant lessonsaboutbusinessandaboutlife.Theseinsights,Ihope,willhelpotherswhoarebuildingabusinessorpursuingalife’sdream.Myultimateaim inwritingPourYourHeart into It is to reassure people to

havethecouragetopersevere, tokeepfollowingtheirheartsevenwhenothersscoff.Don’t be beaten down by naysayers.Don’t let the odds scare you fromeventrying.Whatweretheoddsagainstme,akidfromtheProjects?Acompanycangrowbigwithoutlosingthepassionandpersonalitythatbuilt

it,butonlyifit’sdrivennotbyprofitsbutbyvaluesandbypeople.The key is heart. I pour my heart into every cup of coffee, and so do my

partnersatStarbucks.Whencustomerssensethat,theyrespondinkind.Ifyoupouryourheartintoyourwork,orintoanyworthyenterprise,youcan

achievedreamsothersmaythinkimpossible.That’swhatmakesliferewarding.

There’saJewishtraditioncalledtheyahrzeit.Ontheeveoftheanniversaryofalovedone’sdeath,closerelativeslightacandleandkeepitburningfortwenty-fourhours.Ilightthatcandleeveryyear,formyfather.Ijustdon’twantthatlighttogoout.

CHAPTER1Imagination,Dreams,andHumbleOrigins

Itisonlywiththeheartthatonecanseerightly.Whatisessentialisinvisibletotheeye.

—ANTOINEDESAINT-EXUPÉRY,THELITTLEPRINCE

Starbucks,asitistoday,isactuallythechildoftwoparents.One is the original Starbucks, founded in 1971, a company passionately

committed toworld-class coffee anddedicated to educating its customers, oneonone,aboutwhatgreatcoffeecanbe.TheotheristhevisionandvaluesIbroughttothecompany:thecombination

of competitive drive and a profound desire to make sure everyone in theorganizationcouldwintogether.Iwantedtoblendcoffeewithromance,todareto achievewhat others saidwas impossible, to defy the oddswith innovativeideas,andtodoallthiswitheleganceandstyle.Intruth,Starbucksneededtheinfluenceofbothparentstobecomewhatitis

today.StarbucksprosperedfortenyearsbeforeIdiscoveredit.Ilearnedofitsearly

historyfromitsfounders,andI’llretellthatstoryinChapterTwo.Inthisbook,IwillrelatethestorythewayIexperiencedit,startingwithmyearlylife,becausemanyofthevaluesthatshapedthegrowthoftheenterprisetracetheirrootsbacktoacrowdedapartmentinBrooklyn,NewYork.

HUMBLEORIGINSCANINSTILLBOTHDRIVEANDCOMPASSION

One thing I’ve noticed about romantics: They try to create a new and betterworldfarfromthedrabnessofeverydaylife.ThatisStarbucks’aim,too.Wetrytocreate,inourstores,anoasis,alittleneighborhoodspotwhereyoucantakeabreak, listen tosomejazz,andponderuniversalorpersonalorevenwhimsicalquestionsoveracupofcoffee.Whatkindofpersondreamsupsuchaplace?Frommypersonalexperience,I’dsaythatthemoreuninspiringyourorigins,

the more likely you are to use your imagination and invent worlds whereeverythingseemspossible.That’scertainlytrueofme.Iwasthreewhenmyfamilymovedoutofmygrandmother’sapartmentinto

theBayviewProjects in1956.Theywere in theheartofCanarsie,onJamaicaBay,fifteenminutesfromtheairport, fifteenminutesfromConeyIsland.Backthen, the Projects were not a frightening place but a friendly, large, leafycompound with a dozen eight-story brick buildings, all brand-new. Theelementaryschool,P.S.272,wasrightonthegroundsoftheProjects,completewith playground, basketball courts, and paved school yard. Still, no one wasproud of living in the Projects; our parents were all what we now call “theworkingpoor.”Still, I hadmany happymoments duringmy childhood.Growing up in the

Projectsmadeforawell-balancedvaluesystem,asitforcedmetogetalongwithmanydifferentkindsofpeople.Ourbuildingalonehousedabout150families,andwe all shared one tiny elevator. Each apartment was very small, and ourfamilystartedoffinacrampedtwo-bedroomunit.Bothmyparentscamefromworking-classfamilies,residentsoftheEastNew

York section ofBrooklyn for two generations.Mygrandfather died young, somydadhadtoquitschoolandstartworkingasateenager.DuringWorldWarII,hewasamedicintheArmyintheSouthPacific,inNewCaledoniaandSaipan,wherehecontractedyellowfeverandmalaria.Asaresult,hislungswerealwaysweak,andheoftengotcolds.After thewar,hegotaseriesofblue-collar jobsbutneverfoundhimself,neverhadaplanforhislife.Mymotherwasastrong-willedandpowerfulwoman.HernameisElaine,but

shegoesbythenicknameBobbie.Later,sheworkedasareceptionist,butwhenweweregrowingup,shetookcareofusthreekidsfulltime.

My sister, Ronnie, close to me in age, shared many of the same hardchildhood experiences. But, to an extent, I was able to insulate my brother,Michael, from theeconomichardship I feltandgivehim thekindofguidancemyparentscouldn’toffer.HetaggedalongwithmewhereverIwent.Iusedtocall him “The Shadow.” Despite the eight-year age gap, I developed anextremely close relationshipwithMichael, acting like a father to himwhen Icould.Iwatchedwithprideashebecameagoodathlete,astrongstudent,andultimatelyasuccessinhisownbusinesscareer.Iplayedsportswith theneighborhoodkids fromdawn toduskeverydayof

my childhood. My dad joined us whenever he could, after work and onweekends.EachSaturdayandSundaymorning,startingat8A.M.,hundredsofuskidswouldgatherintheschool-yard.Youhadtobegoodthere,becauseifyoudidn’twin,you’dbeoutofthegame,forcedtowatchforhoursbeforeyoucouldgetbackin.SoIplayedtowin.Luckilyforme,Iwasanaturalathlete.Whetheritwasbaseball,basketball,or

football,IjumpedrightinandplayedhardtillIgotgoodatit.Iusedtoorganizepickup games of baseball and basketball with whatever kids lived in theneighborhood—Jewishkids,Italiankids,blackkids.Nobodyeverhadtolectureusaboutdiversity;welivedit.It’s always been a part of my personality to develop an unbridled passion

aboutthingsthatinterestme.Myfirstpassionwasforbaseball.AtthattimeintheboroughsofNewYork,everyconversationstartedandendedwithbaseball.Connections andbarrierswithother peopleweremadenot by raceor religionbutbytheteamyourootedfor.TheDodgershadjustleftforLosAngeles(theybrokemyfather’sheart,andheneverforgavethem),butwestillhadmanyofthebaseball greats. I remember walking home and hearing play-by-play radioreportsblaringoutofopenwindowsoneverysideofthecourtyard.I was a die-hard Yankees fan, and my dad took my brother and me to

countlessgames.Weneverhadgoodseats,butthatdidn’tmatter.Itwasthethrillof just being there.MickeyMantlewasmy idol. I had his number, 7, onmyshirts, sneakers, everything I owned. When I played baseball, I mimickedMickeyMantle’sstanceandgestures.WhenTheMickretired,thefinalityofitwashardtobelieve.Howcouldhe

stop playing? My father took me to both Mickey Mantle Days at YankeeStadium, September 18, 1968, and June 8, 1969.As Iwatched the tributes tohim,andlistenedtotheotherplayerssaygood-bye,andheardhimspeak,Ifeltdeeplysad.Baseballwasneverthesameformeafterthat.TheMickwassuchanintensepresenceinourlivesthatyearslater,whenhedied,Igotphonecallsof

consolationfromchildhoodfriendsIhadn’theardfromindecades.Coffeewasnotabigpartofmychildhood.Mymotherdrankinstantcoffee.

Whencompanycameover,she’dbuysomecannedcoffeeandtakeoutheroldpercolator.Irememberlisteningtoitgrumbleandwatchingthatlittleglasscapuntilfinallythecoffeepoppedupintoitlikeajumpingbean.It was only as I grew older that I began to realize how tight the family

finances were. On rare occasions we’d go to a Chinese restaurant, and myparentswoulddiscusswhatdishestoorder,basedsolelyonhowmuchcashmydadhadinhiswalletthatday.IfeltangryandashamedwhenIrealizedthatthesleepaway camp I attended in the summer was a subsidized program forunderprivilegedkids.Afterthat,Irefusedtogoback.By the time I got to high school, I understood the stigma of living in the

Projects.CanarsieHighSchoolwaslessthanamileaway,buttogetthereIhadtowalk down streets linedwith small single-family homes and duplexes. Thepeoplewholivedthere,Iknew,lookeddownonus.OnceIaskedoutagirlfromadifferentpartofNewYork.Irememberhowher

father’sfacedroppedinstagesasheasked:“Wheredoyoulive?”“WeliveinBrooklyn,”Ianswered.“Where?”“Canarsie.”“Where?”“BayviewProjects.”“Oh.”Therewasanunspokenjudgmentaboutmeinhisreaction,anditirkedmeto

seeit.As the oldest of three children, I had to grow up quickly. I started earning

moneyatanearlyage.Attwelve,Ihadapaperroute;laterIworkedbehindthecounter at the local luncheonette. At sixteen, I got an after-school job in thegarment district of Manhattan, at a furrier, stretching animal skins. It washorrendouswork,andleftthickcallousesonmythumbs.Ispentonehotsummerina sweat-shop, steamingyarnat aknitting factory. I alwaysgavepartofmyearningstomymother—notbecausesheinsistedbutbecauseIfeltbadfor thepositionmyparentswerein.Still,inthe1950sandearly1960s,theAmericandreamwasvibrant,andwe

allfeltentitledtoapieceofit.Mymotherdrummedthatintous.Sheherselfhadneverfinishedhighschool,andherbiggestdreamwasacollegeeducationforallthreeofherkids.Wiseandpragmaticinherblunt,opinionatedway,shegaveme

tremendousconfidence.Overandover,shewouldputpowerfulmodelsinfrontof me, pointing out individuals who had made something of their lives andinsisting that I, too,couldachieveanything I setmyhearton.Sheencouragedmetochallengemyself, toplacemyself insituations thatweren’tcomfortable,sothatIcouldlearntoovercomeadversity.Idon’tknowhowshecametothatknowledge,becauseshedidn’tlivebythoserules.Butshewilledustosucceed.Yearslater,duringoneofhervisits toSeattle,Ishowedmymotherournew

offices at Starbucks Center. As we walked around, passing departments andworkstations, seeing people talking on the phone and typing on computers, Icould tell her head was just spinning at the size and scope of the operation.Finally,sheedgedclosertomeandwhisperedintomyear:“Whopaysallthesepeople?”Itwasbeyondherimagination.During my childhood, I never dreamed of working in business. The only

entrepreneurIknewwasmyuncle,BillFarber.HehadasmallpaperfactoryintheBronx,wherehelaterhiredmyfatherasaforeman.Ididn’tknowwhatworkIwouldeventuallydo,butIknewIhadtoescapethestrugglemyparentslivedwith every day. I had to get out of theProjects, out ofBrooklyn. I rememberlyinginbedatnightandthinking:WhatifIhadacrystalballandcouldseethefuture? But I quickly shut out the thought, for I realized I would be toofrightenedtolookintoit.Iwasawareofonlyoneescaperoute:sports.LikethekidsinthemovieHoop

Dreams,my friends and I thought theywere the ticket to a great life. In highschool, I applied myself to schoolwork only when I had to, because what Ilearned in the classroom seemed irrelevant. Instead I spent hours and daysplayingfootball.I’llneverforgetthedayImadetheteam.Asasymbolofthathonor,Igotmy

letter, the big blueC that identified me as an accomplished athlete. But mymothercouldn’tafford topay$29for the letter jacket,andaskedme towaitaweekorsotillDadgothispaycheck.Iwasdevastated.Everybodyatschoolhadbeenplanningtowearthosejacketsononeagreed-uponday.Icouldn’tshowupwithoutajacket,butIalsodidn’twanttomakemymotherfeelanyworse.SoIborrowedmoney froma friend tobuy the jacket andwore iton theappointedday,butIhiditfrommyparentsuntiltheywereabletoaffordit.Mybiggest triumph in high schoolwas becoming quarterback,whichmade

me a BigMan on Campus among the 5,700 students of Canarsie High. Theschoolwassopoorthatwedidn’tevenhaveafootballfield,andallourgameswereawaygames.Ourteamwasprettybad,butIwasoneofthebetterplayersonit.

Oneday,arecruitercametoscoutanopposingplayeratoneofourgames.Ididn’tknowhewasthere.Afewdayslater,though,Ireceivedaletterfromwhat,in my frame of reference, sounded like another planet, Northern MichiganUniversity. They were recruiting for the football team. Was I interested? Iwhoopedandhollered.ItfeltasgoodasaninvitationtotheNFLdraft.NorthernMichiganeventuallyofferedmeafootballscholarship,theonlyoffer

Igot.Withoutit,Idon’tknowhowIcouldhaverealizedmymother’sdreamofgoingtocollege.Duringspringbreakofmylastyear inhighschool,myparentsdrovemeto

seethisunimaginableplace.WedrovenearlyathousandmilestoMarquette,intheUpperPeninsulaofMichigan.WehadneverbeenoutsideNewYork,andmyparents were caught up in the adventure of it. We drove across woodedmountains,throughvaststretchesofflatfields,pasthugelakesthatlookedlikeoceans.Whenwefinallyarrived,thecampuslookedlikeanAmericaIhadseenonlyinthemovies,withbuddingtrees,laughingstudents,flyingfrisbees.IwasoutofBrooklynatlast.Bycoincidence,StarbuckswasfoundedthatsameyearinSeattle,acityeven

fartherbeyondmyimaginationatthattime.Ilovedthefreedomandtheopenspaceofcollege,althoughIfeltlonelyand

outofplaceatfirst.Imadesomeclosefriendsmyfreshmanyearandendeduprooming with them for four years, on and off campus. Twice I sent for mybrotherandheflewouttovisit.Oneyear,forMother’sDay,IhitchhikedbacktoNewYork,surprisingher.ItturnedoutIwasn’tasgoodafootballplayerasIthought,andIendedupnot

playing after all.To stay in school I tookout loans andworkedpart-time andsummerjobstopayformyexpenses.Ihadanightjobasabartender,andIevensoldmybloodsometimes.Still, thoseweremostlyfunyears,a timewith littleresponsibility.Withadraftnumberof332,Ididn’thavetoworryaboutgoingtoVietnam.I majored in communications and took courses in public speaking and

interpersonal communications. During senior year, I also picked up a fewbusiness classes, because Iwas starting toworry aboutwhat Iwould do aftergraduation.ImaintainedaBaverage,applyingmyselfonlywhenIhadtotakeatestormakeapresentation.After four years, I became the first college graduate in my family. To my

parents,Ihadattainedthebigprize:adiploma.ButIhadnodirection.Nooneeverhelpedmesee thevaluein theknowledgeIwasgaining.I’veoftenjokedsince then: If someone had providedmewith direction and guidance, I really

couldhavebeensomebody.

IttookyearsbeforeIfoundmypassioninlife.Eachstepafterthatdiscoverywasa quantum leap into something unknown, eachmove riskier than the last.Butgetting out ofBrooklyn and earning a college degree gaveme the courage tokeepondreaming.ForyearsIhidthefactthatIgrewupintheProjects.Ididn’tlieaboutit,butI

justdidn’tbring itup, for itwasn’tmuchofacredential.ButhowevermuchItried to deny them, those memories of my early experiences were imprintedindeliblyinmymind.Icouldneverforgetwhatit’sliketobeontheotherside,afraidtolookintothecrystalball.In December 1994, a New York Times article about Starbucks’ success

mentionedthatIhadgrownupintheProjectsofCanarsie.After itappeared,Ireceived letters from Bayview and other blighted neighborhoods. Most camefrommothers,tryingtoguidetheirkids,whosaidthatmystorygavethemhope.The odds onmy coming out of the environment inwhich Iwas raised and

gettingtowhereIamtodayareimpossibletogauge.Howdidithappen?Thesunshoneonme,it’strue,asmybrother,Michael,alwaystellsme.But

mystoryisasmuchoneofperseveranceanddriveasitisoftalentandluck.Iwilled it to happen. I tookmy life inmyhands, learned fromanyone I could,grabbedwhatopportunityIcould,andmoldedmysuccessstepbystep.Fearoffailuredrovemeatfirst,butasI tackledeachchallenge,myanxiety

was replacedby agrowing senseof optimism.Onceyouovercome seeminglyinsurmountableobstacles,otherhurdlesbecomelessdaunting.Mostpeoplecanachieve beyond their dreams if they insist upon it. I’d encourage everyone todreambig,layyourfoundationswell,absorbinformationlikeasponge,andnotbeafraidtodefyconventionalwisdom.Justbecauseithasn’tbeendonebeforedoesn’tmeanyoushouldn’ttry.Ican’tgiveyouanysecretrecipeforsuccess,anyfoolproofplanformakingit

intheworldofbusiness.Butmyownexperiencesuggeststhat it ispossible tostartfromnothingandachieveevenbeyondyourdreams.OnarecenttriptoNewYorkIwentbacktoCanarsie,tolookaroundBayview

forthefirsttimeinnearlytwentyyears.It’snotbad,really,exceptforthebullethole in the entry door and the burnmarks on the buzzer sheet.When I livedthere,wedidn’t have irongates on thewindows, but thenwedidn’t have air-conditioners either. I sawagroupofkidsplayingbasketball, just as Iused to,andwatchedayoungmotherpushingastroller.Atinyboylookedupatme,andIwondered:Whichofthesekidswillbreakoutandachievetheirdreams?

IstoppedbyCanarsieHighSchool,wherethefootballteamwaspracticing.Inthe warm autumn air, the blue uniforms and play calls brought the oldexhilaration flooding back over me. I asked where the coach was. From themidstoftheheftybacksandshoulderpadsasmallred-hoodedfigureemerged.Tomysurprise, I foundmyself face to facewithMikeCamardese,aguywhohadplayedontheteamwithme.Hebroughtmeuptodateontheteam,tellingmehowtheschoolfinallygotitsownfootballfield.Bycoincidence,theywereplanningaceremonythatSaturdaytonamethefieldinhonorofmyoldcoach,FrankMorogiello.Fortheoccasion,Idecidedtomakeafive-yearcommitmenttohelpsupporttheteam.WithoutthesupportofCoachMorogiello,wherewouldIbetoday?MaybemygiftwillallowsomeCanarsieathlete,drivenasIwas,toriseabovehisrootsandachievesomethingnoonecouldeverimagine.I’veheardthatsomecoachesfaceacuriousdilemma.Theworld-classathletes

on their teams—the players with the best skills and experience—sometimesfalterwhenitcomestocrunchtime.Occasionally,though,there’saplayerontheteam,ablue-collarguywhoseskillsandtrainingarenotquiteworld-class.Yetatcrunchtime,he’stheonethecoachsendsouttothefield.He’ssodrivenandsohungrytowinthathecanoutperformthetopathleteswhenitreallymatters.I can identify with that blue-collar athlete. I’ve always been driven and

hungry, so at crunch time I get a spurt of adrenaline. Long after others havestopped to rest and recover, I’m still running, chasing after somethingnobodyelsecouldeversee.

ENOUGHISNOTENOUGH

Everyexperiencepreparesyouforthenextone.Youjustdon’teverknowwhatthenextoneisgoingtobe.Aftergraduatingfromcollegein1975,likealotofkids,Ididn’tknowwhatto

do next. I wasn’t ready to go back to New York, so I stayed in Michigan,workingatanearbyskilodge.Ihadnomentor,norolemodel,nospecialteacherto help me sort out my options. So I took some time to think, but still noinspirationcame.Afterayear,IwentbacktoNewYorkandgotajobwithXerox,inthesales

trainingprogram.Itwasaluckybreak,sinceIwasabletoattendthebestsalesschool in the country, Xerox’s $100 million center in Leesburg, Virginia. Ilearnedmoretherethanincollegeabouttheworldsofworkandbusiness.Theytrainedmeinsales,marketing,andpresentationskills,andIwalkedoutwithahealthysenseofself-esteem.Xeroxwasablue-chippedigreecompany,andIgot

alotofrespectwhenItoldotherswhomyemployerwas.Aftercompletingthecourse,Ispentsixmonthsmakingfiftycoldcallsaday.I

knockedondoorsofofficesinmidtownManhattan,inaterritorythatranfrom42ndStreetto48thStreet,fromtheEastRivertoFifthAvenue.Itwasafantasticarea,butIwasn’tallowedtoclosesales,justdrumupgoodprospects.Cold-callingwasgreattrainingforbusiness.Ittaughtmetothinkonmyfeet.

SomanydoorsslammedonmethatIhadtodevelopathickskinandaconcisesalespitchforathen-newfangledmachinecalledawordprocessor.Buttheworkfascinatedme, and I keptmy sense of humor and adventure. I thrived on thecompetition,tryingtobethebest,tobenoticed,toprovidethemostleadstomysalesmen.Iwantedtowin.Finally,Isucceeded:Ibecameafullsalesmaninthesameterritory.Igottobe

prettygoodatit,wearingasuit,closingsales,andearninggoodcommissionsforthreeyears.Isoldalotofmachinesandoutperformedmanyofmypeers.AsIprovedmyself,myconfidencegrew.Selling, Idiscovered,hasa lot todowithself-esteem.ButIcan’tsayIeverdevelopedapassionforwordprocessors.IpaidoffmycollegeloansandrentedanapartmentinGreenwichVillagewith

anotherguy.Wewererolling,andhavingagreattime.Duringonesummer,eightofus rentedacottage in theHamptons forweekends, and itwas there,on thebeach,JulyFourthweekend,1978,thatImetSheriKersch.Withherflashoflongwavyblondehairandunflaggingenergy,Sheriattracted

mewith her impeccable style and class. Shewas in graduate school studyinginteriordesignandalsospentsummerweekendswithagroupoffriendsat thebeach. She was not only beautiful but well-grounded, with solid midwesternvalues, from a close and loving family. We were both starting our careers,withoutacareintheworld.Webegandating,andthemoreIgottoknowher,themoreIrealizedwhatafinehumanbeingshewas.By 1979, though, I was restless in my job. I wanted something more

challenging.AfriendtoldmethataSwedishcompany,Perstorp,wasplanningtosetupaU.S.divisionforitsHammarplasthousewaressubsidiary.Itseemedlikean exciting opportunity to get in on the ground floor of a growing company.PerstorphiredmeandsentmetoSwedenforthreemonthsoftraining.Istayedin thecharming littlecobblestone townofPerstorp,nearMalmö,andexploredCopenhagen and Stockholm on weekends. Europe overwhelmed me, with itssenseofhistoryandjoyoflife.Thecompanyinitiallyplacedmeinadifferentdivision,onesellingbuilding

supplies. Theymovedme to North Carolina and hadme sell components forkitchensandfurniture.Ihatedtheproduct.Whocouldrelatetoplasticextruded

parts?Aftertenmonthsofmisery,Icouldn’ttakeitanymore.Iwasreadytogiveupandgotoactingschool,anythingtogetbacktoNewYorkandbewithSheri.WhenIthreatenedtoquit,PerstorpnotonlytransferredmebacktoNewYork

butalsopromotedmetovicepresidentandgeneralmanagerofHammarplast.IwasinchargeoftheU.S.operations,managingabouttwentyindependentsalesreps. They gaveme not only a salary of $75,000 but also a company car, anexpense account, and unlimited travel, which included trips to Sweden fourtimes a year. Finally Iwas selling products I liked: a line of stylish Swedish-designedkitchenequipmentandhousewares.Asasalesmanmyself,Iknewhowtomotivatemy teamof salespeople. Iquicklyplaced theproducts inhigh-endretailstoresandbuiltupsalesvolume.I did that for three years and loved it. By age twenty-eight, I had itmade.

Sheri and I moved to Manhattan’s Upper East Side, where we bought ourapartment.Sheriwason the rise inhercareer,working foran Italian furnituremakerasadesignerandmarketer.Shepaintedourwallslightsalmonandbegantouseherprofessionalskillstocreateahomeinourloft-stylespace.Wehadagreat life, going to the theater, dining at restaurants, inviting friends to dinnerparties.WeevenrentedasummerhouseintheHamptons.Myparentscouldn’tbelieveIhadcomesofarsofast.Inonlysixyearsoutof

collegeIhadachievedasuccessfulcareer,ahighsalary,anapartmentIowned.ThelifeIwasleadingwasbeyondmyparents’bestdreamsforme.Mostpeoplewouldbesatisfiedwithit.Sonoone—especiallymyparents—couldunderstandwhyIwasgettingantsy.

But Isensed thatsomethingwasmissing. Iwanted tobe inchargeofmyowndestiny. Itmaybeaweakness inme: I’malwayswonderingwhat I’lldonext.Enoughisneverenough.Itwasn’tuntilIdiscoveredStarbucksthatIrealizedwhatitmeanswhenyour

worktrulycapturesyourheartandyourimagination.

CHAPTER2AStrongLegacyMakesYouSustainableforthe

Future

AhundredtimeseverydayIremindmyselfthatmyinnerandouterlifedependonthelaborsofothermen,livinganddead,andthatImustexertmyselfinordertogiveinthesame

measureasIhavereceived.

—ALBERTEINSTEIN

JustasIdidn’tcreateStarbucks,Starbucksdidn’t introduceespressoanddark-roastedcoffeetoAmerica.Instead,webecametherespectfulinheritorsofagreattradition.Coffee and coffeehouses have been ameaningful part of communitylife forcenturies, inEuropeaswellas inAmerica.Theyhavebeenassociatedwith political upheaval,writers’movements, and intellectual debate inVenice,Vienna,Paris,andBerlin.Starbucks resonates with people because it embraces this legacy. It draws

strength from itsownhistoryand its ties to themoredistantpast.That’swhatmakesitmorethanahotgrowthcompanyora1990sfad.That’swhatmakesitsustainable.

IFITCAPTURESYOURIMAGINATION,ITWILLCAPTIVATEOTHERS

In 1981,whileworking forHammarplast, I noticed a strange phenomenon:Alittle retailer inSeattlewasplacingunusually largeorders foracertain typeofdripcoffeemaker.Itwasasimpledevice,aplasticconesetonathermos.I investigated. Starbucks Coffee, Tea, and Spice had only four small stores

then,yetitwasbuyingthisproductinquantitieslargerthanMacy’s.WhyshouldSeattle be so taken with this coffeemaker when the rest of the country wasmakingitsdailycoffeeinelectricpercolatorsordripcoffeemachines?SoonedayIsaidtoSheri,“I’mgoingtogoseethiscompany.Iwanttoknow

what’sgoingonoutthere.”In those days I traveled a lot, all over the country, but I had never been to

Seattle.WhowenttoSeattlebackthen?I arrived on a clear, pristine spring day, the air so clean it almost hurt my

lungs.Thecherryandcrabappletreeswerejustbeginningtoblossom.FromthedowntownstreetsIcouldseesnow-cappedmountainrangestotheeastandwestandsouthofthecity,etchedcleanlyagainstthebluesky.Starbucks’ retail merchandising manager, Linda Grossman, met me at my

hotel and walked me to Starbucks’ flagship store in the historic Pike PlaceMarket district. Once there, we walked past the fresh salmon stalls wherehawkers were shouting orders and tossing fish across customers’ heads, pastrowsoffreshlypolishedapplesandneatlyarrangedcabbages,pastabakerywithwonderfulfreshbreadsmellswaftingout.Itwasashowplacefortheartistryoflocalgrowers and small independentvendors. I loved theMarket at once, andstilldo.It’ssohandcrafted,soauthentic,soOldWorld.The original Starbucks store was a modest place, but full of character, a

narrowstorefrontwithasoloviolinistplayingMozartatitsentrance,hisviolincaseopenfordonations.Theminutethedooropened,aheadyaromaofcoffeereachedoutanddrewmein.Isteppedinsideandsawwhatlookedlikeatemplefortheworshipofcoffee.Behindawornwoodencounterstoodbinscontainingcoffees from all over the world: Sumatra, Kenya, Ethiopia, Costa Rica.Remember—thiswasatimewhenmostpeoplethoughtcoffeecamefromacan,not a bean.Herewas a shop that soldonlywhole-bean coffee.Along anotherwallwasanentireshelffullofcoffee-relatedmerchandise,includingadisplayofHammarplastcoffeemakers,inred,yellow,andblack.Afterintroducingmetotheguybehindthecounter,Lindabegantotalkabout

why customers liked the thermos-and-cone sets. “Part of the enjoyment is theritual,”sheexplained.Starbucksrecommendedmanualcoffeebrewingbecausewithanelectriccoffeemaker,thecoffeesitsaroundandgetsburned.Aswespoke,thecountermanscoopedoutsomeSumatracoffeebeans,ground

them,put thegrounds ina filter in thecone, andpouredhotwaterover them.Although the task took only a few minutes, he approached the work almostreverently,likeanartisan.Whenhehandedmeaporcelainmugfilledwiththefreshlybrewedcoffee,the

steamandthearomaseemedtoenvelopmyentireface.Therewasnoquestionofaddingmilkorsugar.Itookasmall,tentativesip.Whoa.Ithrewmyheadback,andmyeyesshotwideopen.Evenfromasingle

sip,IcouldtellitwasstrongerthananycoffeeIhadevertasted.Seeingmyreaction,theStarbuckspeoplelaughed.“Isittoomuchforyou?”Igrinnedandshookmyhead.ThenItookanothersip.ThistimeIcouldtaste

moreofthefullflavorsastheyslippedovermytongue.Bythethirdsip,Iwashooked.I felt as though I had discovered awhole new continent. By comparison, I

realized,thecoffeeIhadbeendrinkingwasswill.Iwashungrytolearn.Istartedaskingquestionsaboutthecompany,aboutcoffeesfromdifferentregionsoftheworld, about different ways of roasting coffee. Before we left the store, theygroundmoreSumatrabeansandhandedmeabagasagift.Linda then drove me to Starbucks’ roasting plant to introduce me to the

ownersofthecompany,GeraldBaldwinandGordonBowker.Theyworkedoutofanarrowoldindustrialbuildingwithametalloadingdoorinfront,nexttoameat-packingplantonAirportWay.Theminute I walked in, I smelled thewonderful aroma of roasting coffee,

whichseemedtofilltheplaceuptothehighceiling.Atthecenteroftheroomstoodapieceofequipmentofthicksilverymetalwithalargeflattrayinfront.This,Lindatoldme,wastheroastingmachine,andIwassurprisedthatsosmalla machine could supply four stores. A roaster wearing a red bandana wavedcheerily at us. He pulled a metal scoop, called a “trier,” out of the machine,examinedthebeansinit,sniffedthem,andinserteditbackin.Heexplainedthathewascheckingthecolorandlisteningtillthecoffeebeanshadpoppedtwice,tomake sure they were roasted dark. Suddenly, with a whoosh and a dramaticcrackling sound, he opened the machine’s door and released a batch of hot,glisteningbeansintothetrayforcooling.Ametalarmbegancirclingtocoolthebeans,andawholenewaromawashedoverus—thisoneliketheblackest,bestcoffeeyouevertasted.Itwassointenseitmademyheadspin.Wewalkedupstairsandwentpastafewdesksuntilwereachedtheofficesin

back, each with a high window of thick glass. Though Jerry Baldwin, thepresident,waswearingatieunderhissweater,theatmospherewasinformal.Agood-lookingdark-hairedman, Jerry smiled and tookmyhand. I liked him at

once, finding him self-effacing and genuine, with a keen sense of humor.Clearly,coffeewashispassion.Hewasonamissiontoeducateconsumersaboutthejoysofworld-classcoffee,roastedandbrewedthewayitshouldbe.“Here are some new beans that just came in from Java,” he said. “We just

roastedupabatch.Let’stryit.”Hebrewedthecoffeehimself,usingaglasspothe called a French press. As he gently pressed the plunger down over thegrounds and carefully poured the first cup, I noticed someone standing at thedoor,aslender,beardedmanwithashockofdarkhairfallingoverhisforeheadandintensebrowneyes.JerryintroducedhimasGordonBowker,hispartneratStarbucks,andaskedhimtojoinus.Iwascuriousabouthowthesetwomenhadcometodevotetheirlivestothe

cause of coffee. Starbucks had been founded ten years earlier, and they nowappeared to be in their late thirties. They had an easy camaraderie that datedbacktotheirdaysascollegeroommatesattheUniversityofSanFranciscointheearly 1960s. But they seemed very different. Jerry was reserved and formal,whileGordonwasoffbeatandartsy,unlikeanyoneI’devermetbefore.Astheytalked, I could tell they were both highly intelligent, well-traveled, andabsolutelypassionateaboutqualitycoffee.Jerry was running Starbucks, while Gordon was dividing his time between

Starbucks,hisadvertisinganddesignfirm,aweeklynewspaperhehadfounded,andamicrobreweryhewasplanningtostart,calledTheRedhookAleBrewery.Ihadtoaskwhatamicrobrewerywas.ItwasclearthatGordonwasfaraheadoftherestofus,fullofeccentricinsightsandbrilliantideas.Iwasenamored.Herewasawholenewculturebeforeme,withknowledgeto

acquireandplacestoexplore.ThatafternoonIcalledSherifrommyhotel.“I’minGod’scountry!”Isaid.“I

knowwhere I want to live: Seattle,Washington. This summer I want you tocomeouthereandseethisplace.”ItwasmyMecca.Ihadarrived.

HOWAPASSIONFORCOFFEEBECAMEABUSINESS

JerryinvitedmetodinnerthatnightatalittleItalianbistroonasloping,stone-paved alley near Pike Place Market. As we ate, he told me the story ofStarbucks’earliestdays,andthelegacyitdrewupon.The founders of Starbucks were far from typical businessmen. A literature

major, JerryhadbeenanEnglish teacher,Gordonwasawriter, and their thirdpartner,ZevSiegl, taught history.Zev,who sold out of the company in 1980,

wasthesonoftheconcertmasterfortheSeattleSymphony.Theysharedinterestsin producing films, writing, broadcasting, classical music, gourmet cooking,goodwine,andgreatcoffee.Noneofthemaspiredtobuildabusinessempire.TheyfoundedStarbucksfor

onereason:TheylovedcoffeeandteaandwantedSeattletohaveaccesstothebest.GordonwasfromSeattle,andJerryhadmovedthereaftergraduation,looking

foradventure.JerrywasoriginallyfromtheBayArea,anditwasthere,atPeet’sCoffeeandTeainBerkeleyin1966,thathediscoveredtheromanceofcoffee.Itbecamealifelongloveaffair.The spiritual grandfather of Starbucks is Alfred Peet, a Dutchman who

introducedAmericatodark-roastedcoffees.Nowinhisseventies,AlfredPeetisgray-haired,stubborn,independent,andcandid.Hehasnopatienceforhypeorpretense, but will spend hours with anyone who has a genuine interest inlearningabouttheworld’sgreatcoffeesandteas.The sonof anAmsterdamcoffee trader,AlfredPeetgrewup steeped in the

exoticism of coffees from Indonesia and East Africa and the Caribbean. Heremembershowhisfatherusedtocomehomewithbagsofcoffeestuffedinthepockets of his overcoat. His mother would make three pots at a time, usingdifferentblends,andpronounceheropinion.Asateenager,Alfredworkedasatraineeatoneofthecity’sbigcoffeeimporters.Later,asateatrader,hetraveledthe far seas to estates in Java and Sumatra, refining his palate until he coulddetectsubtledifferencesincoffeesfromdifferentcountriesandregions.WhenPeetmovedtotheUnitedStatesin1955,hewasshocked.Herewasthe

world’srichestcountry,theundisputedleaderoftheWesternworld,yetitscoffeewasdreadful.MostofthecoffeeAmericansdrankwasrobusta,theinferiortypethatthecoffeetradersofLondonandAmsterdamtreatedasacheapcommodity.Verylittleofthefinearabicacoffeesevergot toNorthAmerica;mostwenttoEurope,wheretastesweremorediscriminating.Starting inSanFrancisco in the1950s,AlfredPeetbegan importingarabica

coffeeintotheStates.Buttherewasnotmuchdemand,forfewAmericanshadeverheardofit.Soin1966,heopenedasmallstore,Peet’sCoffeeandTea,onVine Street in Berkeley, which he ran until 1979. He even imported his ownroaster,becausehethoughtAmericancompaniesdidn’tknowhowtoroastsmallbatchesoffinearabicacoffee.WhatmadeAlfredPeetuniquewasthatheroastedcoffeedark,theEuropean

way,whichhebelievedwasnecessarytobringoutthefullflavorsofthebeanshe imported.Healwaysanalyzedeachbagofbeansand recommendeda roast

suitedtothatlot’sparticularcharacteristics.AtfirstonlyEuropeansorsophisticatedAmericansvisitedhislittleshop.But

gradually,onebyone,AlfredPeetbeganeducatingafewdiscerningAmericansabout the finedistinctions incoffee.Hesoldwhole-beancoffeeand taughthiscustomers how to grind and brew it at home. He treated coffee like wine,appraisingit in termsoforiginsandestatesandyearsandharvests.Hecreatedhisownblends,themarkofatrueconnoisseur.JustaseachoftheNapaValleywinemakersbelieveshistechniqueisbest,Peetremainedafirmproponentofthedark-roastedflavor—whichinwinetermsislikeabigburgundy,withastrong,fullbodythatfillsyourmouth.Jerry and Gordon were early converts. They ordered Peet’s coffee by mail

from Berkeley, but they never seemed to have enough. Gordon discoveredanotherstore,inVancouver,Canada,calledMurchie’s,whichalsocarriedgoodcoffee, andhewould regularlymake the three-hourdrivenorth toget bagsofMurchie’sbeans.One clear day inAugust 1970, on theway home from one of those coffee

runs,Gordonhadhisownepiphany.LaterhetoldtheSeattleWeeklythathewas“blinded, literally, like Saul of Tarsus, by the sun reflecting off Lake Samish.Right then ithitme:Openacoffeestore inSeattle!”Jerry liked the idea rightaway. So did Zev, Gordon’s next-door neighbor and a tea drinker. They eachinvested$1,350andborrowedanadditional$5,000fromabank.ItwashardlyapromisingtimetoopenaretailstoreinSeattle.FromDayOne,

Starbuckswasbuckingtheodds.In1971thecitywasinthemidstofawrenchingrecessioncalledtheBoeing

Bust. Starting in 1969, Boeing, Seattle’s largest employer, had such a drasticdownturn in orders that it had to cut its workforce from 100,000 to less than38,000 in three years.Homes in beautiful neighborhoods likeCapitolHill satemptyandabandoned.Somanypeoplelostjobsandmovedoutoftownthatonebillboardnear theairport joked,“Will the lastpersonleavingSeattle—turnoutthelights?”ThatfamousmessageappearedinApril1971,thesamemonththatStarbucks

openeditsfirststore.Atthattime,also,anurbanrenewalprojectwasthreateningto tear down thePikePlaceMarket.A group of developerswanted to build acommercialcenterwithahotel,conventionhall,andparkinglotinitsplace.Inareferendum,Seattle’scitizensvotedtopreservePikePlaceasitwas.Seattle in those days was just beginning to shed its image as an exotic,

isolated corner of America. Only the adventurous moved here, thousands ofmilesfromfamilyintheEastorMidwestorCalifornia,sometimesontheirway

to themines andmountains and fishing grounds of Alaska. The city had notacquiredtheveneerandpolishoftheEastCoast.Manyoftheleadingfamiliesstill had ties to the logging and lumber industries. Heavily influenced by theNorwegian and Swedish immigrants who came early in this century, Seattlepeopletendedtobepoliteandunpretentious.In the early 1970s, a few Americans, especially on the West Coast, were

startingtoturnawayfromprepackaged,flavor-addedfoodsthatweretoooftenstale and tasteless. Instead, they chose to cookwith fresh vegetables and fish,buy fresh-baked bread, and grind their own coffee beans. They rejected theartificial for the authentic, the processed for the natural, themediocre for thehighquality—allsentimentsthatresonatedwithStarbucks’founders.Amarketstudywouldhaveindicateditwasabadtimetogointothecoffee

business.Afterreachingapeakof3.1cupsadayin1961,coffeeconsumptioninAmericahadbegunagradualdecline,whichlastedtillthelate1980s.But the founders of Starbuckswere not studyingmarket trends. Theywere

filling a need—their own need—for quality coffee. In the 1960s, the largeAmerican coffee brands began competing on price. To cut costs, they addedcheaperbeanstotheirblends,sacrificingflavor.Theyalsoletcoffeecansstayonsupermarket shelves until the coffee got stale. Year after year, the quality ofcanned coffee got worse, even as advertising campaigns made claims for itsgreattaste.TheyfooledtheAmericanpublic,buttheydidn’tfoolJerryandGordonand

Zev.Thethreefriendsweredeterminedtogoaheadandopentheircoffeestore,evenifitappealedonlytoatinynicheofgourmetcoffeelovers.OnlyahandfulofAmericancitieshadsuchstoresuntilwellintothe1980s.Gordonconsultedwithhiscreativepartner,artistTerryHeckler,aboutaname

forthenewstore.GordonhadpressedtocallitPequod,thenameoftheshipinMelville’sMoby Dick. But Terry recalls protesting, “You’re crazy! No one’sgoingtodrinkacupofPee-quod!”The partners agreed that they wanted something distinctive and tied to the

Northwest.Terryresearchednamesofturn-of-the-centuryminingcampsonMt.Rainier and came upwithStarbo. In a brainstorming session, that turned intoStarbucks. Ever the literature lover, Jerry made the connection back toMobyDick:The firstmateon thePequodwas,as ithappened,namedStarbuck.Thenameevokedtheromanceofthehighseasandtheseafaringtraditionoftheearlycoffeetraders.Terryalsoporedoveroldmarinebooksuntilhecameupwithalogobasedon

an old sixteenth-century Norse woodcut: a two-tailed mermaid, or siren,

encircledby the store’s original name,StarbucksCoffee,Tea, andSpice.Thatearlysiren,bare-breastedandRubenesque,wassupposed tobeasseductiveascoffeeitself.Starbucks opened its doorswith little fanfare inApril 1971. The storewas

designed to look classically nautical, as though it had been there for decades.The fixtureswere all built by hand.One longwallwas coveredwithwoodenshelving,while the otherwas devoted towhole-bean coffee,with up to thirtydifferentvarietiesavailable.Starbucksdidnotthenbrewandsellcoffeebythecup,buttheydidsometimesoffertastingsamples,whichwerealwaysservedinporcelaincups,because thecoffee tastedbetter thatway.Thecupsalso forcedcustomerstostayalittlelongertohearaboutthecoffee.Initially, Zev was the only paid employee. He wore a grocer’s apron and

scoopedoutbeansforcustomers.Theothertwokepttheirdayjobsbutcamebyduringtheirlunchhoursorafterworktohelpout.Zevbecametheretailexpert,whileJerry,whohadtakenonecollegecourseinaccounting,keptthebooksanddevelopedanever-growingknowledgeofcoffee.Gordon,inhiswords,was“themagic,mystery,andromanceman.”ItmusthavebeenobvioustohimfromthestartthatavisittoStarbuckscouldevokeabriefescapetoadistantworld.Fromtheopeningday,salesexceededexpectations.Afavorablecolumninthe

SeattleTimes brought in an overwhelmingnumber of customers the followingSaturday.Thestore’sreputationgrewmostlybywordofmouth.Inthoseearlymonths,eachofthefounderstraveledtoBerkeleytolearnabout

coffeeroastingat thefeetof themaster,AlfredPeet.Theyworked inhisstoreand observed his interaction with customers. He never stopped stressing theimportanceofdeepeningtheirknowledgeaboutcoffeeandtea.Inthebeginning,StarbucksordereditscoffeefromPeet’s.Butwithinayear,

thepartnersboughtausedroasterfromHollandandinstalleditinaramshacklebuildingnearFisherman’sTerminal,assemblingitbyhandwithonlyamanualinGerman to guide them. In late 1972, they opened a second store, near theUniversity ofWashington campus.Gradually, they created a loyal clientele bysharing with their customers what they had learned about fine coffee. SeattlebegantotakeonthecoffeesophisticationoftheBayArea.To Starbucks’ founders, quality was the whole point. Jerry, especially,

imprintedhisstrongopinionsanduncompromisingpursuitofexcellenceontheyoung company. He and Gordon obviously understood their market, becauseStarbuckswasprofitableeveryyear,despitetheeconomy’supsanddowns.Theywere coffee purists, and they never expected to appeal to more than a smallgroupofcustomerswithdiscriminatingtastes.

“Wedon’tmanagethebusinesstomaximizeanythingexceptthequalityofthecoffee,” JerryBaldwin toldme that evening at the restaurant.By thenwehadfinishedourmaincourseandbegundessert.Thewaiterpoureduseachastrongcupofcoffee,andJerryproudlyannouncedthatitwasStarbucks.I had never heard anyone talk about a product the way Jerry talked about

coffee.Hewasn’tcalculatinghowtomaximizesales;hewasprovidingpeoplewithsomethinghebelievedtheyoughttoenjoy.Itwasanapproachtobusiness,andtoselling,thatwasasfreshandnoveltomeastheStarbuckscoffeeweweredrinking.“Tellmeabouttheroast,”Isaid.“Whyisitsoimportanttoroastitdark?”Thatroast,Jerrytoldme,waswhatdifferentiatedStarbucks.AlfredPeethad

poundedintothemastrongbeliefthatthedarkroastbroughtoutthefullflavorsofcoffee.Thebestcoffeesareallarabicas,Jerryexplained,especiallythosegrownhigh

inthemountains.Thecheaprobustacoffeesusedinsupermarketblendscannotbe subjected to the dark roasting process, which will just burn them. But thefinestarabicascanwithstandtheheat,andthedarkerthebeansareroasted,thefullertheflavor.Thepackagedfoodcompaniesprefera lightroastbecauseitallowsahigher

yield. The longer coffee is roasted, themoreweight it loses. The big roastersagonizeoveratenthorahalfofapercentdifferenceinshrinkage.Thelightertheroast, themoremoney they save.But Starbucks caresmore about flavor thanaboutyields.From the beginning, Starbucks stayed exclusivelywith the dark roast. Jerry

and Gordon tweaked Alfred Peet’s roasting style and came up with a verysimilarversion,whichtheycalledtheFullCityRoast(nowcalledtheStarbucksroast).Jerrypickedupabottleofbeer,aGuinness.ComparingtheFullCityRoastof

coffeetoyourstandardcupofcannedsupermarketcoffee,heexplained,islikecomparingGuinnessbeer toBudweiser.MostAmericansdrink lightbeers likeBudweiser.Butonceyoulearnto lovedark,flavorfulbeers likeGuinness,youcannevergobacktoBud.Although Jerry didn’t discuss marketing plans or sales strategies, I was

beginningtorealizehehadabusinessphilosophythelikesofwhichIhadneverencountered.First,everycompanymuststandforsomething.Starbucksstoodnotonlyfor

goodcoffee,butspecificallyforthedark-roastedflavorprofilethatthefounderswerepassionateabout.That’swhatdifferentiateditandmadeitauthentic.

Second,youdon’tjustgivethecustomerswhattheyaskfor.Ifyouofferthemsomething they’renot accustomed to, something so far superior that it takes awhile to develop their palates, you can create a sense of discovery andexcitementandloyaltythatwillbondthemtoyou.Itmaytakelonger,butifyouhave a great product, you can educate your customers to like it rather thankowtowingtomass-marketappeal.Starbucks’ founders understood a fundamental truth about selling: Tomean

somethingtocustomers,youshouldassumeintelligenceandsophisticationandinform thosewho are eager to learn. If youdo,whatmay seem to be a nichemarketcouldverywellappealtofarmorepeoplethanyouimagine.Iwasn’t smart enough to comprehend all of this that first day I discovered

Starbucks.Ittookyearsfortheselessonstosinkin.AlthoughStarbuckshasgrownenormouslysincethosedays,productquality

is still at the topof themissionstatement.Buteverysooften,whenexecutivedecision making gets tough, when corporate bureaucratic thinking starts toprevail,IpayavisittothatfirststoreinPikePlaceMarket.Irunmyhandoverthewornwoodencounters.Igrabafistfulofdark-roastedbeansandletthemsiftthrough my fingers, leaving a thin, fragrant coating of oil. I keep remindingmyselfandothersaroundme thatwehavea responsibility to thosewhocamebefore.Wecaninnovate,wecanreinventalmosteveryaspectofthebusinessexcept

one: Starbucks will always sell the highest quality fresh-roasted whole-beancoffee.That’sourlegacy.

On the five-hour plane trip back to New York the next day, I couldn’t stopthinkingaboutStarbucks.Itwaslikeashiningjewel.Itookonesipofthewateryairlinecoffeeandpusheditaway.Reaching intomybriefcase, Ipulledout thebagofSumatrabeans,openedthetop,andsniffed.Ileanedback,andmymindstartedwandering.I believe indestiny. InYiddish, they call itbashert.At thatmoment, flying

35,000 feet above the earth, I could feel the tug of Starbucks. There wassomethingmagicaboutit,apassionandauthenticityIhadneverexperiencedinbusiness.Maybe,justmaybe,Icouldbepartofthatmagic.MaybeIcouldhelpitgrow.

Howwould it feel tobuild abusiness, as Jerry andGordonweredoing?Howwoulditfeel toownequity,not justcollectapaycheck?WhatcouldIbringtoStarbucksthatcouldmakeitevenbetterthanitwas?TheopportunitiesseemedaswideopenasthelandIwasflyingover.

BythetimeIlandedatKennedyAirport,Iknewinmyheartthatthiswasit.IjumpedintoataxiandwenthometoSheri.ThatwasthewayImetStarbucks,andneitherofushasbeenthesamesince.

CHAPTER3ToItalians,EspressoIsLikeanAria

Somemenseethingsastheyareandsay“Why?”Idreamthingsthatneverwere,andsay“Whynot?”

—GEORGEBERNARDSHAW,OFTENQUOTEDBYROBERTF.KENNEDY

IFYOUSAYYOUNEVERHADACHANCE,PERHAPSYOUNEVERTOOKACHANCE

Icouldn’tstopthinkingaboutStarbucks.Althoughitwasmuchsmallerthanthemultinationals I had been working for in New York, it was so much moreintriguing,likeajazztuneyoucan’tgetoutofyourhead.IcouldseesomanywaysIcouldcontribute.ThenexttimeJerryBaldwinandhiswife,Jane,wereinNewYork,Sheriand

Iinvitedthemouttodinnerandthetheater.Weallhititoff.Onalark,Iaskedhim:“Doyouthinkthere’sanywayIcouldfitintoStarbucks?”Hewasjustbeginningtopondertheneedtohiretrainedprofessionals,sohe

waswilling to think about it.We discussedways I could helpwith sales andmarketingandmerchandising.IttookmeayeartoconvinceJerryBaldwintohireme.Theideaappealedto

him, but others in the companywerenervous about bringing in someone they

regardedasahigh-poweredNewYorker.It’salwaysarisktotakeonamanagerwhohasn’tgrownupwiththevaluesofthecompany.Somedays,Icouldn’tbelieveIwasevenentertainingthenotion.Takingajob

atStarbuckswouldmeangivingupthat$75,000ayearjob,theprestige,thecar,and the co-op, and forwhat?Moving3,000miles across the country to join atiny outfit with 5 coffee stores didn’t make sense to a lot of my friends andfamily.Mymotherwasespeciallyconcerned.“You’redoingwell, youhave a future,” she argued. “Don’t give it up for a

smallcompanynobody’severheardof.”Over the next year, I found reasons to get back to Seattle several times. I

alwaysmadesureIhadtimetospendwithJerry.Wegottobecomfortablewitheachother,sharingthoughtsaboutmerchandiseStarbucksmightcarry,productsthatshouldorshouldn’tbearthebrandname,waystobuildupcustomerloyalty.Oneachvisit, I camepreparedwitha long listof ideas, and listening to JerrycritiquethemhelpedmeunderstandhisvisionforStarbucks.Jerry confided in me about a notion he had that Starbucks could one day

expandoutsideSeattle.HewasconsideringopeningastoreinPortland,Oregon,the nearest bigU.S. city. He knew the company could be bigger, but seemedambivalent about the changes growth might bring. I told him it was a greatopportunity.The more I thought about it, the more promising an expansion seemed.

Starbucks had such tremendous potential. All my friends in New York werewowedbythecoffeeoncetheytastedit.Whywouldn’tpeoplealloverAmericahavethesamereaction?Surely,themarketwasbiggerthanjustafewthousandcoffeeloversintheNorthwest.Jerryhadsuchamissionaryzeal;itmadesensetospreadStarbucks’excitementaboutcoffeebeansbeyondSeattle.Atthattime,Iknewofnootherhigh-endcoffee-beanstoresinNewYorkoranyothercity.AlthoughIwasn’tboldenoughtobecomeanentrepreneurjustyet,partofmy

fascinationwithStarbuckswasthechancetotakeahandinshapingagrowingcompany.IwaswillingtotakeasalarycutifIcouldgetasmallpieceofequityinabusinesswithgreatpromise.Ihadneverownedashareofstockinanything,butIknewthatifJerrywouldgivemeevenasmallshareinStarbucks,IwouldchannelallmypassionandenergyintothisjobasIneverhadbefore.Sheri liked the idea.Wewereready togetmarriedandsettledown,andshe

couldseehowexcitedIwasaboutSeattleandStarbucks.Eventhoughitwouldmean a setback in her career as a designer, she, too,was ready to leaveNewYork.AsthedaughterofanOhioentrepreneur,sheunderstoodinstinctivelythevalueoftakingrisksandfollowingyourdreams.

Asthemonthspassed,IpursuedJerrymorethanhepursuedme.Westartedtalking about a job at Starbucks in which I would be head of marketing andoverseetheretailstores.ItoldhimIwouldwantasmallpieceofequity,andheseemedreceptivetothesuggestion.

In the spring of 1982, Jerry andGordon invitedme to San Francisco tomeettheirsilentpartner,ashareholderandboardmembernamedSteveDonovan,overdinner.Iwasconvincedthatafterallmylobbying,Ihadthejoballbutsewnup.IfiguredIwouldflybacktoNewYorkwithanofferinhand.Thisdinner, forme,was thecapstoneofa jobcourtshipwith Jerry thathad

lastednearlyayear,soIwasdetermineditwouldgowell.Idressedinoneofmybest suitsandwalked frommyhotel to the restaurant,ahigh-end ItalianplacecalledDonatello’s,uphillfromthefinancialdistrict.Ipassedtherestaurantandcircledtheblockonce,topumpupmyconfidence,

despite a light rain. In away, I hadwaitedmywhole career for this dinner. IknewJerryhadtoldthemIhadideasforgrowingthecompany,andthisdinnerwas a chance for Steve andGordon to assessmy capabilities and howwell Imightfitintothecompany.Donatello’swasanoddchoice,more stuffy than Ihadexpected,withwhite

linentableclothsandwaitersinbowties.IwaswaitingatthetablewhenJerry,Gordon,andStevearrived.Stevewasa tall,blond,classicallyhandsomeman.Thethreeofthemwerewearingsportsjackets,lessformalthanIwas,butsincetheywereallatleasttenyearsolder,IwasgladIhaddressedformally.Thedinnerwentwell,exceptionallywell.IlikedSteve,anintellectualwhose

interestsrangedfromexecutiverecruitingtoresearchonmeditation.LikeJerryand Gordon, he had traveled widely, read a great deal, and had a lot ofinterestinginsights.Still,Iwasconfident,asItalked,thatIwasimpressinghim.IkeptglancingatJerry,andIcouldseeapprovalinhiseyes.AfterfouryearsofcollegeintheMidwest,IknewhowtotonedowntheNewYorkinme,chattingeasilyaboutItalyandSwedenandSanFranciscooverappetizersandsoup.WeorderedabottleofBaroloandweresoonconversinglikelongtimefriends.

When the main course came, though, I switched the subject to Starbucks.“You’vegotarealjewel,”Isaid.ItoldthemhowIhadservedStarbuckscoffeetomyfriendsinNewYork,howenthusedtheyhadbeenbyitsdark,richtaste.NewYorkerswouldloveStarbuckscoffee.SowouldpeopleinChicago,Boston,Washington,everywhere.Starbucks could be so much bigger, I argued. It could grow beyond the

Northwest, up and down the West Coast. It could even, perhaps, become a

national company. It could have dozens of stores,maybe even hundreds. TheStarbucks name could become synonymous with great coffee—a brand thatguaranteedworld-classquality.“Thinkofit,”Isaid.“IfStarbucksopenedstoresacrosstheUnitedStatesand

Canada, you could share your knowledge and passion with so many morepeople.Youcouldenrichsomanylives.”By the end of themeal, I could tell I had charmed themwithmy youthful

enthusiasmandenergy.Theysmiledatoneanotherandseemedinspiredbymyvision.Weparted, shaking hands, and I nodded and congratulatedmyself as Iwalkedbacktothehotel.IcalledSheri,wakingherup.“Itwasfantastic,”Itoldher.“Ithinkeverythingisontrack.”Evenwith the three-hour time difference, I had trouble sleeping that night.

Everyaspectofmylifewasabouttochange.IstartedenvisioninghowIwouldgive notice,whereSheri and Iwould getmarried, howwe’dmove toSeattle.Perhapswecouldbuyahousewithayard.AndStarbucks—eventhenamerangwithmagic.Iwasunderitsspellalready.Twenty-fourhours later, Iwasbackatmydesk inNewYork,andwhenmy

secretarytoldmeJerrywasontheline,Ireachedforthephoneeagerly.“I’msorry,Howard.Ihavebadnews.”Icouldn’tbelievethesombertoneof

hisvoice,orthewords.Thethreeofthemhadtalkeditover,anddecidednottohireme.“Butwhy?”“It’stoorisky,toomuchchange.”Hepaused,clearlypainedatthemessagehe

washavingtodeliver.“Yourplanssoundgreat,butthat’sjustnotthevisionwehaveforStarbucks.”Insteadofcharming them,Ihadspooked them.Theyfeared that Iwouldbe

disruptive. I wasn’t going to fit. I felt like a bride, halfway down the aisle,watchinghergroombackoutthesidedoor.Iwastooshell-shockedtothinkclearly.Isawmywholefutureflashinfront

ofmeandthencrashandburn.ThatnightIwenthomeandpouredmydespairouttoSheri.Istillbelievedso

much in the future of Starbucks that I couldn’t accept “no” as a final answer.Thiswas, I thought, a turningpoint inmy life. Ithad tohappen; Ihad to joinStarbucks.IwantedtoconveytoJerrywhatwasinmyheart.Thenextday,IcalledJerryback.“Jerry,you’remakingaterriblemistake,”Isaid.“Afterallthistime,weoweit

toeachothertoisolatetheissues.Whatexactlyisthereason?”Very calmly, we talked it over. The concernwas this: The partners did not

wanttogivemelicensetochangethecompany.Theyworriedthatbyhiringmetheywould be committing themselves to a new direction for Starbucks. Theyalsothoughtmystyleandenergywouldclashwiththeexistingculture.I drew upon all the passion I had about Starbucks, about coffee, about this

opportunity, and spoke frommy deepest convictions. I told him howmuch Icould offer, from my professional sales and marketing skills to the broadperspectiveIhaddevelopedmanaginganationalsalesforceforHammarplast.Iwas used to playing on a larger playing field and could plan and executewhateverexpansionstrategywemutuallyagreedupon.“Jerry,” I protested, “this isn’t about me. It’s about you. The destiny of

Starbucks is at stake.We’ve talked somuchaboutwhatStarbuckscanbe. It’syour company. It’s your vision. You’re the only one who can achieve it.Somebodyhastobecourageoushere,andit’syou.Don’tletthemtalkyououtofsomethingthatyoubelieveinyourheart.”Jerryheardmeout,thenfellsilent.“Letmesleeponit,”hesaid.“I’llcallyou

backtomorrow.”Perhapsheslept;Ididn’t.Thenextmorning,Ipickedupthephoneonthefirstring.“Youwereright,”

hesaid.“I’msorryforthetwenty-four-hourimpasse.We’regoingforward.Youhavethejob,Howard,andyouhavemycommitment.Whencanyoucome?”Awholenewworldhadjustopenedupinfrontofmyeyes,likethescenein

TheWizardofOzwheneverythingchangesfromblackandwhitetocolor.Thisbarelyimaginabledreamwasreallygoingtohappen.AlthoughIwouldhave to takeasteepcut inpay,Jerryagreed togivemea

smallequityshare.IwouldownatinysliceofStarbucks’future.In the fifteen years since then, I’ve often wondered: What would have

happenedhadIjustacceptedhisdecision?Mostpeople,whenturneddownforajob,justgoaway.Similar scenarios have subsequently played out inmy life, in other settings

andwithotherissues.Somanytimes,I’vebeentolditcan’tbedone.Againandagain,I’vehadtouseeveryounceofperseveranceandpersuasionIcansummontomakethingshappen.Lifeisaseriesofnearmisses.Butalotofwhatweascribetoluckisnotluck

atall.It’sseizingthedayandacceptingresponsibilityforyourfuture.It’sseeingwhatotherpeopledon’t see,andpursuing thatvision,nomatterwho tellsyounotto.In daily life, you get so much pressure from friends and family and

colleagues, urging you to take the easyway, to follow the prevailingwisdom,

thatitcanbedifficultnottosimplyacceptthestatusquoanddowhat’sexpectedofyou.Butwhenyoureallybelieve—inyourself,inyourdream—youjusthavetodoeverythingyoupossiblycantotakecontrolandmakeyourvisionareality.Nogreatachievementhappensbyluck.

ABLACKCLOUDAPPEARS

NowthatIfinallyhadtheoffer,Ihadtostartplanningformymove.Mymainconcern,ofcourse,wasSheri.“ThisisanopportunityIcan’tpassup,”Itoldher.“IwantyoutogowithmetoSeattleforavisit.Beforeyousayyesorno,youneedtoseethecityandexperienceitforyourself.”Weflewout foraweekendandonceagain, springwasat itspeak,with the

azaleas in full bloom and explosions of color bursting all over the city. SherilikedSeattle, likedStarbucks,andwas thrilled tosee theBaldwinsagain,whowerewarmandgenerouswiththeirtimeandadvice.Theyknewvolumesaboutfoodandwine,had interestingstories to tellof theirworld travels, andsharedtheir knowledge about a wide range of subjects we were just beginning toexplore.ShericamebackascertainasIwasthatthiswastherightthingtodo.Both of us recognized, though, thatmoving toSeattlewouldmean a career

sacrificeforSheri.NewYorkwasaworldcenterforinteriordesign,andSeattlefarfromit.Butinthebackofhermindshehadalwaysexpectedtomoveoutofthe city some day. Shewanted to have children and raise them in a differentenvironment.Fewwomenwouldhavewillinglygivenupapromisingcareertomove 3,000 miles, to a city where they didn’t know a soul, because theirhusband wanted to join a small coffee company. But she didn’t hesitate. Shesupportedme100percent,as she’salwaysdone.Thatconstantencouragementhasbeenvitalforme.AlthoughIwaseagertostartworkatStarbucks,Idecidedtotakesometime

offfirst.Onashoestringbudget,werentedasmallcottageforthesummerintheHamptons, where we had met. We were married in July and enjoyed theromanticinterlude.OurplanwastopackupourAudianddrive3,000milesacross thecountry,

withourgoldenretrieverinthebackseat.Weweretoleaveinmid-AugustandwouldarriveinSeattlebyLaborDayweekend.Wehadalready started loading the car to leave the followingdaywhenmy

mothercalledwithterriblenews:Myfatherhadlungcancerandwasexpectedtoliveonlyayear.Iwasshakentothecore.Hewasonlysixtyyearsold,andmybrother, Michael, was still in college. It would be a harsh struggle with a

devastatingdisease.Mymotherhadcometorelyonmystrength.HowcouldshegetthroughthisperiodwithmeinSeattle?Itwasoneofthosemomentswhenyoufeellikeyou’rebeingrippedintotwo

jagged pieces. I had already committed to be in Seattle by the beginning ofSeptember.Yet how could I leave now? I discussed itwithmy family, and itseemedIhadnochoice.Ihadtogo.I went to see my dad in the hospital. I had to say good-bye to him, not

knowingwhenorifI’dseehimagain.Mymothersatathisbedside,crying.Shewasfrightened,butshetriedhardnottoshowit.Itmighthavebeenthemomentfor a heart-to-heart with my father, but we had never developed that sort ofrelationship.“GotoSeattle,”mydadsaid.“YouandSherihaveanewlifetostartthere.We

canhandlethingshere.”As I satwith him, two emotionswerewarring inmy heart—overwhelming

sadnessandunresolvedbitterness.Myfatherhadneverbeenagoodproviderforthe family. He had stumbled through a series of mind-numbing jobs, alwayschafing against the system.And now his lifemight be ending, before he hadtakencontrolofit.Isqueezedhishandandsaidanawkwardgood-bye.“Idon’tknowhowI’mgoingtodothis,”Isaidtomymotheraswewaitedfor

theelevator.“Howard,youhavetogo,”sheinsisted.IfeltasifIweresinking,asallthestrengthandenergyandoptimismseeped

outofmybody.When the elevator came,mymother gaveme a hug and said firmly, “You

mustgo.”I stepped inside,andas I turned, I sawmymother’spuffy red face,bravely

tryingtosmile.Assoonasthedoorsclickedshut,Ifellapart.Sheri and I kept toourplanofdriving toSeattle, but a cloudofworry and

dread traveledwithus. I calledhomeat every stop.Graduallywe learned thatmy father’s prognosiswas better thanwe thought. The tension eased, andwecouldthrowourheartsintocreatinganewlifetogetherinthiscitywehadbarelystartedtoexplore.

IMMERSEYOURSELFINTHECULTURE

WegottoSeattleinthemidstofalivelyannualoutdoorartsandmusicfestivalcalledBumbershoot.Themoodwasupbeatandwildandadventurous.

WehadpickedoutahouseintheCapitolHillpartofSeattlewithabigdeck,but because itwasn’t ready,we spent that firstweekwith theBaldwins.Theypampered us, cooking gourmet dinners every night, driving Sheri around thecity.TheyevenputupwithJonas,our100-poundgoldenretriever,whotooktoswimmingintheirpool.AlthoughittookSheriaboutayeartofeelreallyathomeinSeattle,ittookme

abouttwentyminutes.AtStarbucks,Ihitthegroundrunning.WhenIstartsomething,Iimmersemyselftotallyinit.InthoseearlymonthsI

spentallofmywakinghoursinthestores,workingbehindthecounter,meetingthe Starbucks people, tasting different kinds of coffee, and talking withcustomers.Jerrywascommittedtoprovidingmewithverystrongtrainingonthecoffeeside.The last piece ofmy education—and definitely the highlight—was learning

howtoroastcoffee.Theydidn’tletmedothatuntilDecember.Ispentaweekatthe roaster, listening for the second pop, examining the color of the beans,learning to taste the subtle differences amongvarious roasts. Itwas the fittingendofanintensivetraining.IfeltasifIhadbeenknighted.I probably surprised the people at Starbucks with how impassioned I was

about coffee. When I worked in the store behind the counter, they wereconstantlytestingmyknowledgeandhowmuchIbelieved.Ialwayshadagoodpalateatblindtastings.Wordgotout.Not surprisingly, therewas resentment fromsomemembersof thecompany

thatJerryBaldwinhadhiredanoutsider.IcouldsensethatIhadtoprovemyself—prove that Iwasworthyof thegestaltofStarbucks. I triedhard toblend in.Foratall,high-energyNewYorkerinaquiet,understatedcity,thatwasn’teasy.Iwasusedtodressinginexpensivesuits,andatStarbuckstheinformaldresscodetendedtowardturtlenecksandBirkenstocks.Ittookawhiletobuildtrust.Still,Iwas hired to do a job, and I was overflowing with ideas for the company. Iwantedtomakeapositiveimpact.TheatmosphereofStarbucksinthosedayswasfriendlyandlow-key,butwe

workedveryhard.Christmaswasourbusiestseason,andeverybodyintheofficewenttothestorestopitchinandhelp.OnedayIwasworkinginthePikePlacestoreduring thebusyseason.Thestorewaspacked,andIwas inplacebehindthecounter,ringingupsales,fillingbagswithcoffeebeans.Suddenly,someoneshouted,“Hey!Thatguyjustheadedoutwithsomestuff!”

Apparently, a customer had grabbed two expensive coffeemakers, one in eachhand,andheadedoutthedoor.I jumped over the counter and started running.Without stopping towonder

whethertheguyhadagun,Ichasedhimupasteep,cobblestonestreet,yelling“Dropthatstuff!Dropit!”Thethiefwassostartledthathedroppedboththepieceshehadstolenandran

away.Ipickedthemupandwalkedbackintothestoreholdingthecoffeemakersup like trophies. Everybody applauded. That afternoon, I went back to theroastingplant,wheremyofficewas,anddiscoveredthatthestaffhadstrungupahugebannerforme,whichread:“Makemyday.”The more I got to know the company, the more I appreciated the passion

behind it. But I gradually noticed one weakness. While the coffee wasunquestionablythebestitcouldbe,theservicesometimescameacrossasalittlearrogant.ThatattitudegrewoutofthehighdegreeofprideStarbuckshadinthesuperiorityofourcoffee.Customerswhorelishedindiscoveringnewtastesandblends enjoyed discussing their newfound knowledge with our people, but Inoticedthatfirst-timecustomersoccasionallyfeltignorantorslighted.Iwanted to bridge that gap. I identified so closelywith Starbucks that any

flaw in Starbucks felt like my own personal weakness. So I worked withemployeesoncustomer-friendlysalesskillsanddevelopedmaterialsthatwouldmakeiteasyforcustomerstolearnaboutcoffee.Still,Ifiguredtheremustbeabetterwaytomakegreatcoffeeaccessibletomorethanasmalleliteofgourmetcoffeedrinkers.

VISIONISWHATTHEYCALLITWHENOTHERSCAN’TSEEWHATYOUSEE

There’snobetterplacetotrulysavortheromanceoflifethanItaly.That’swhereIfoundtheinspirationandvisionthathavedrivenmyownlife,andthecourseofStarbucks,fromquietSeattletonationalprominence.Idiscoveredthatinspirationinthespringof1983,atimewhenIwasn’teven

particularlylookingforit.IhadbeenatStarbucksforayear,andthecompanyhad sent me to Milan to attend an international housewares show. I traveledaloneandstayedatalow-budgethotelneartheconventioncenter.Theminute I steppedout thedoor and into the sunshineof awarmautumn

day,thespiritofItalywashedoverme.Ididn’tspeakawordofItalian,butIfeltIbelonged.Italianshaveanunparalleledappreciationfor thefinepleasuresofdailylife.

Theyhave figuredouthowto live inperfectbalance.Theyunderstandwhat itmeanstowork,andequallywhatitmeanstorelaxandenjoylife.Theyembraceeverything with passion. Nothing is mediocre. The infrastructure in Italy is

appalling. Nothing works. But the food of Italy is absolutely incredible. Thearchitectureisbreathtaking.Thefashionstilldefineseleganceallovertheworld.IespeciallylovethelightofItaly.Ithasaheadyeffectonme.Itjustbringsme

alive.Andwhatthelightshinesonisequallyamazing.Youcanbewalkingdowna

drabstreetinanunremarkableresidentialneighborhoodwhensuddenly,throughahalf-opendoor,youcatchanunbelievablybright imageofawomanhangingcolorfulclothinginacourtyardringedwithfloweringplants.Oroutofnowhereamerchantwillrollupametaldoorandrevealagorgeousdisplayofproduce:freshlypickedfruitsandvegetables,arrayedinperfectgleamingrows.Italianstreateverydetailofretailandfoodpreparationwithreverenceandan

insistence that nothing less than the bestwill do. In late summer and fall, forexample,freshfigsareavailableatanyordinaryproducestall.Themerchantwillask:“Whiteorblack?”Iftheorderisforhalfandhalf,themerchantwilltakeasimplecardboardtrayandcoveritwiththreeorfourfigleaves,thenpickeachfig individually, squeezing it to ensure the perfect level of ripeness. He willarrangethefruitinfourrows—threewhite,threeblack,threewhite,threeblack—andhewillslidethetraycarefullyintoabagandhandittoyouwiththeprideofanartisan.Themorningafter Iarrived, Idecided towalk to the tradeshow,whichwas

onlyfifteenminutesfrommyhotel.Ilovetowalk,andMilanisaperfectplaceforwalking.Just as I started off, I noticed a little espresso bar. I ducked inside to look

around.Acashierbythedoorsmiledandnodded.Behindthecounter,atall,thinmangreetedmecheerfully,“Buongiorno!”ashepresseddownonametalbarand a huge hiss of steam escaped. He handed a tiny porcelain demitasse ofespresso to one of the three peoplewhowere standing elbow-to-elbow at thecounter. Next came a handcrafted cappuccino, topped with a head of perfectwhite foam.Thebaristamoved sogracefully that it lookedas thoughheweregrindingcoffeebeans,pullingshotsofespresso,andsteamingmilkatthesametime,allthewhileconversingmerrilywithhiscustomers.Itwasgreattheater.“Espresso?”heaskedme,hisdarkeyesflashingasheheldoutacuphehad

justmade.Icouldn’tresist. I reachedfor theespressoandtookasip.Astrong,sensual

flavorcrossedmytongue.After threesipsitwasgone,butIcouldstillfeel itswarmthandenergy.Half ablock later, acrossa side street, I sawanother espressobar.Thisone

wasevenmorecrowded.Inoticedthatthegray-hairedmanbehindthecounter

greetedeachcustomerbyname.Heappearedtobebothownerandoperator.Heandhiscustomerswerelaughingandtalkingandenjoyingthemoment.Icouldtellthatthecustomerswereregularsandtheroutinescomfortableandfamiliar.Inthenextfewblocks,Isawtwomoreespressobars.Iwasfascinated.ItwasonthatdaythatIdiscoveredtheritualandtheromanceofcoffeebarsin

Italy. I saw how popular they were, and how vibrant. Each one had its ownunique character, but therewas one common thread: the camaraderie betweenthecustomers,whokneweachotherwell,andthebarista,whowasperformingwithflair.Atthattime,therewere200,000coffeebarsinItaly,and1,500aloneinthecityofMilan,acitythesizeofPhiladelphia.Itseemedtheywereoneverystreetcorner,andallwerepacked.Mymindstartedchurning.Thatafternoon,afterIfinishedmymeetingsatthetradeshow,Isetoffagain,

walkingthestreetsofMilantoobservemoreespressobars.Isoonfoundmyselfat the center of the city,where the Piazza delDuomo is almost literally linedwiththem.Asyouwalkthroughthepiazza,you’resurroundedbythesmellsofcoffee and roasting chestnuts and the light banter of political debate and thechatterofkidsinschooluniforms.Someofthearea’scoffeebarsareelegantandstylish,whileothersarebigger,workadayplaces.In themorning, all are crowded, andall serve espresso, thepure essenceof

coffeeinacup.Thereareveryfewchairs,ifany.Allthecustomersstandup,astheydoinawesternbar.Allthemen,itseemed,smoke.Theenergypulsesallaroundyou. Italianopera isplaying.Youcanhear the

interplayofpeoplemeetingforthefirsttime,aswellaspeoplegreetingfriendstheyseeeverydayatthebar.Theseplaces,Isaw,offeredcomfort,community,and a sense of extended family. Yet the customers probably don’t know oneanotherverywell,exceptinthecontextofthatcoffeebar.Intheearlyafternoon,thepaceslowsdown.Inoticedmotherswithchildren

andretiredfolkslingeringandchattingwiththebarista.Laterintheafternoon,manyespressoplacesputsmalltablesonthesidewalkandservedaperitifs.Eachwasaneighborhoodgatheringplace,partofanestablisheddailyroutine.To the Italians, the coffee bar is not a diner, as coffee shops came to be in

America in the 1950s and 1960s. It is an extension of the front porch, anextensionofthehome.Eachmorningtheystopattheirfavoritecoffeebar,wherethey’re treated with a cup of espresso that they know is custom-made. InAmerican terms, the person behind the counter is an unskilledworker, but hebecomesanartistwhenhepreparesabeautifulcupofcoffee.ThecoffeebaristasofItalyhavearespectedplaceintheirneighborhoods.

AsIwatched,Ihadarevelation:Starbuckshadmissedthepoint—completelymissedit.Thisissopowerful!Ithought.Thisisthelink.Theconnectiontothepeoplewholovedcoffeedidnothavetotakeplaceonlyintheirhomes,wheretheygroundandbrewedwhole-beancoffee.Whatwehadtodowasunlocktheromanceandmysteryofcoffee,firsthand,incoffeebars.TheItaliansunderstoodthe personal relationship that people could have to coffee, its social aspect. Icouldn’tbelievethatStarbuckswasinthecoffeebusiness,yetwasoverlookingsocentralanelementofit.Itwaslikeanepiphany.ItwassoimmediateandphysicalthatIwasshaking.Itseemedsoobvious.Starbuckssoldgreatcoffeebeans,butwedidn’tserve

coffee by the cup.We treated coffee as produce, something to be bagged andsenthomewith thegroceries.Westayedonebigstepawayfromtheheartandsoulofwhatcoffeehasmeantthroughoutthecenturies.ServingespressodrinkstheItalianwaycouldbethedifferentiatingfactorfor

Starbucks. If we could re-create in America the authentic Italian coffee barculture, it might resonate with other Americans the way it did with me.Starbuckscouldbeagreatexperience,andnotjustagreatretailstore.IstayedinMilanaboutaweek.Icontinuedmywalksthroughthecity,getting

losteveryday.OnemorningI tookatrainridetoVerona.Althoughit’sonlyaforty-minute ride from industrialMilan, it felt as if it had stood still since thethirteenth century. Its coffee bars were much like Milan’s, and in one, Imimickedsomeoneandordereda“caffèlatte,”myfirsttasteofthatdrink.Ihadexpectedittobejustcoffeewithmilk,butIwatchedasthebaristamadeashotofespresso,steamedafrothypitcherofmilk,andpouredthetwointoacup,withadollopoffoamonthetop.Herewas the perfect balance between steamedmilk and coffee, combining

espresso,whichisthenobleessenceofcoffee,andmilkmadesweetbysteamingratherthanbyaddingsugar.Itwastheperfectdrink.OfallthecoffeeexpertsIhadmet,nonehadevermentioned thisdrink.Noone inAmericaknowsaboutthis,Ithought.I’vegottotakeitbackwithme.EverynightIwouldcallSheribackinSeattleandtellherwhatIwasseeing

andthinking.“Thesepeoplearesopassionateaboutcoffee!”Itoldher.“They’veelevatedittoawholenewlevel.”OnthatdayinthepiazzainMilan,Icouldn’tforeseethesuccessStarbucksis

today. But I felt the unexpressed demand for romance and community. TheItalians had turned the drinking of coffee into a symphony, and it felt right.Starbuckswas playing in the same hall, butwewere playingwithout a stringsection.

IbroughtthatfeelingbacktoSeattleandinfuseditinothersaroundme,whore-createditforstillothersalloverthecountry.WithouttheromanceofItalianespresso,Starbuckswouldstillbewhatitwas,abelovedlocalcoffeebeanstoreinSeattle.

CHAPTER4“LuckIstheResidueofDesign”

Wheneveryouseeasuccessfulbusiness,someoneoncemadeacourageousdecision.

—PETERDRUCKER

Branch Rickey, the Brooklyn Dodgers general manager who broke the colorbarrierbysigningonJackieRobinson,oftenremarked:“Luckis theresidueofdesign.”People sometimes say the sun always shines on Starbucks, that our success

wasbuilton luck. It’s true thatwehit the frontwaveofwhatbecameaNorthAmericansocialphenomenon, thewidespreadpopularityofcafésandespressobars.Ican’tsaythatIpredictedthiswave,butIdidperceivetheromanticappealofcoffeebythecup,inItaly,andthenspentthreeyearsbrainstormingandlayingtheplanstotranslateitintoanAmericancontext.Wheneveracompany,oraperson,emergesfromthecrowdandshines,others

arequicktoattributethatprominencetogoodfortune.Theachiever,ofcourse,countersthatit’stheproductoftalentandhardwork.I agreewithBranchRickey.Whilebad luck, it’s true,maycomeoutof the

blue,goodluck,itseems,comestothosewhoplanforit.

GREATIDEA,LET’SDOSOMETHINGELSE

Haveyoueverhadabrilliantidea—onethatblowsyouaway—onlytohavethepeoplewhocanmakeitarealitytellyouit’snotworthpursuing?That’swhathappenedtomeonmyreturntoSeattlefromItaly.IthoughtI’d

comeuponatrulyextraordinaryinsight,onethatcouldserveasthefoundationforawholenew industryandchange thewayAmericansdrankcoffee.Tomybosses,however,Iwasanoverexcitedmarketingdirector.Starbucks was a retailer—not a restaurant or a bar, they argued. Serving

espresso drinkswould put them in the beverage business, amove they fearedwoulddilutetheintegrityofwhattheyenvisionedthemissionofacoffeestoretobe.TheyalsopointedtoStarbucks’success.Thecompanywassmall,closelyheld,private,andprofitableeveryyear.Whyrocktheboat?But, as I was to learn, there was a more immediate reasonmy idea didn’t

appeal:Jerrywasconsideringanopportunitythatexcitedhimfarmore.The story of Starbucks has some unexpected twists and turns, but none so

strangeastheonethathappenednext.In1984,StarbucksboughtPeet’sCoffeeandTea.JusthowthatoccurredisapartofStarbucks’historythatisn’toftentold,since

Peet’sandStarbucksarenowcompetitors in theSanFranciscoBayarea.Mostcustomersdon’tknowtheywereonceintertwined.Itwas like the son buying out the father. Starbucks’ founders had, after all,

drawn inspiration fromPeet’s and learned their roasting skills at the elbowofAlfredPeet.ButAlfredPeethadsoldthebusinessin1979,andby1983thenewownerwasreadytosell.ToJerryBaldwin,itwasthechanceofalifetimeandamuchmorepromising

way of expanding than opening espresso bars. As a purist, he still regardedPeet’s as the ultimate in coffee purveyors. It was the same size as Starbucks,withabout5stores.ButinJerry’smind,Peet’swouldalwaysbetherealthing,theoriginatorofdark-roastedcoffeeinAmerica.TheSeattlemarket,hethought,wasalreadywell-served,whileSanFranciscoandnorthernCalifornia, amuchlargerarea,offeredplentyofroomtogrow.Tofundtheacquisition,Starbuckswentdeeplyintodebt.Thedayweacquired

Peet’s, I recall,we had a debt-to-equity ratio of 6:1.Only in the go-go 1980swouldthebankshavemadesuchadeal.Myheartsankwhenwetookonthatburden.Ittiedourhandsanddeprivedus

of the flexibility to try out new ideas. The company was now so heavilyleveragedthattherewouldbenomoneyavailableforgrowthorinnovation.ThetaskofconsolidatingStarbucksandPeet’sprovedmoredifficultthanwe

hadimagined.Despiteasharedpreferencefordark-roastedcoffee,ourcompanycultures clashed.While Starbucks’ people felt gratitude and respect for Peet’slegacy,Peet’speoplefearedanunknownSeattleupstartcomingtoswallowthemup.What’smore,theacquisitiondistractedmanagement’sattention.Formostof1984, the managers of Starbucks were flying back and forth between SanFrancisco andSeattle. Imyselfwent there every otherweek to overseePeet’smarketingandretailoperations.SomeStarbucksemployeesbegantofeelneglected.Inonequarter,theydidn’t

receivetheirusualbonus.TheywenttoJerrywitharequestformoreequitablepay, for benefits, specifically for part-timers, and for a reinstatement of theirbonuses.Buthisfocuswaselsewhereandhedidn’trespond.Angryemployeesfromtheplanteventuallycirculatedapetitiontoinvitetheunionin.Nobodyinmanagement realized how widespread and deep the discontent was. Retailemployees seemed satisfied, and since they outnumbered plant workers, Jerryfigured theywouldvote tokeep theunionout.Butwhenthedaycamefor theofficialtally,theunionwonbythreevotes.Jerrywasshocked.Thecompanyhehadfounded,thecompanyheloved,no

longertrustedhim.Inthemonthsthatfollowed,hisheartseemedtogooutofit.Hishairgrewgrayer.Thecompanylostitsespritdecorps.The incident taught me an important lesson: There is no more precious

commoditythantherelationshipoftrustandconfidenceacompanyhaswithitsemployees.Ifpeoplebelievemanagementisnotfairlysharingtherewards,theywillfeelalienated.Oncetheystartdistrustingmanagement,thecompany’sfutureiscompromised.AnotherimportantthingIlearnedduringthatdifficulttimewasthattakingon

debt is not the best way to fund a company. Many entrepreneurs preferborrowingmoneyfrombanksbecausedoingsoallowsthemtokeepcontrol intheirownhands.Theyfearthatraisingequitybysellingshareswillmeanalossof personal control over the operation. I believe that the best way for anentrepreneur to maintain control is by performing well and pleasingshareholders, even if his or her stake is below 50 percent. That risk is farpreferabletothedangerofheavydebt,whichcanlimitthepossibilitiesforfuturegrowthandinnovation.InhindsightIcansayitwasfortunatethatIlearnedthoselessonswhenIdid.

Inthosedays,IhadnoideaIwouldeverheadanycompany,letaloneStarbucks.

ButbecauseIsawwhathappenswhentrustbreaksdownbetweenmanagementand employees, I understood how vitally important it is to maintain it. AndbecauseIsawtheharmfuleffectsofdebt,Ilatermadetherightchoicetoraiseequity instead. These two approaches became critical factors in the futuresuccessofStarbucks.

YOU’VEPROVEDITWORKS,NOWLET’SDROPIT

In many companies, mid-level managers and even entry-level employeesbecome impassioned evangelists for risky, bold ideas. It’s important thatmanagerslistentothoseideasandbewillingtotestthemandimplementthem—even if the CEO is skeptical. I learned this truth first as an employee ofStarbucks in 1984 and later as CEO. As boss, if you close your ears to newideas,youmayendupclosingoffgreatopportunitiesforyourcompany.IttookmenearlyayeartoconvinceJerrytotesttheideaofservingespresso.

PreoccupiedwiththePeet’sacquisitionandconcernedaboutchangingthecorenatureofStarbucks,hedidn’tconsideritahighpriority.Myfrustrationgotmoreintensewitheachpassingmonth.Finally,Jerryagreed to testanespressobarwhenStarbucksopeneditssixth

store,atthecornerofFourthandSpringindowntownSeattle,inAprilof1984.ThiswasthefirstStarbuckslocationdesignedtosellcoffeeasabeverageaswellascoffeebeansbythepound.Itwasalsothecompany’sfirstdowntownlocation,in theheartofSeattle’sbusinessdistrict. IwascertainSeattle’sofficeworkerswouldfallinlovewithespressobarsthesamewayIhadinMilanin1983.I asked for half the 1,500-square-foot space to set up a full Italian-style

espresso bar, but I got only 300 square feet. My great experiment had to becrammedintoasmallcorner,behindastand-upbar,withnoroomfortablesorchairsorlines,andonlyatinycounterspacetoholdmilkandsugar.AlthoughIwasforcedtorealizemydreamonafarsmallerscalethanIhadplanned,Iwassurethattheresultswouldbearoutthesoundnessofmyinstincts.Wedidn’tplananypre-openingmarketingblitz,anddidn’tevenputupasign

announcingNowServingEspresso.Wedecidedto justopenourdoorsandseewhathappened.OnthatAprilmorningin1984,unseasonablycool,therewasdrizzleintheair,

but itwasn’t raininghard.Theplanwas toopen thestoreat7A.M., twohoursearlierthanusual.Iarrivedataround6:30andlookedanxiouslyoutthefloor-to-ceiling windows at the streets. Only the most devoted office workers werestridingupthesteepslopesofdowntownSeattlestreetsatthishour.

Ibeganpacingaroundinside thestore,and tokeepmyselfoccupied,helpedwithlast-minutepreparationsandrearranging.Ontheleftstoodourusualwhole-beancounter,stockedwithbinsofcoffee.Behindit,acoffeeexpertinabrownStarbucks grocer’s apron checked hismetal scoop, his scale, and his grindingmachine.He verified that each of the bin drawer labels correctly indicated itscontents and readieda rowof rubber stamps thatwouldbeused tomarkeachbag of coffee sold with its varietal name. He straightened the mugs andcoffeemakersandteacanistersontheirshelvesalongthewall,productsalreadyfamiliartoSeattle’sStarbucksfans.In theright rearcornerof thestore,myexperimentwasabout tobegin.Just

like baristas in Milan, two enthusiastic employees were working a gleamingchromemachine pulling shots of espresso and practicing their newly acquiredskillofsteamingmilktoafoamforcappuccinos.At 7 A.M. sharp, we unlocked the door. One by one, curious people began

walkinginontheirwaytotheiroffices.Manyorderedaregularcupofcoffee.OthersaskedabouttheunfamiliarespressodrinkslistedontheItalianmenu.Thebaristas were jazzed about the new drinks and enjoyed explaining what eachcontained. They recommended the drink I had discovered inVerona, one thatmanycustomershadneverheardof:caffèlatte,espressowithsteamedmilk.AsfarasIknow,Americawasfirstintroducedtocaffèlattethatmorning.Iwatchedseveralpeopletaketheirfirstsip.AsIhad,mostopenedtheireyes

wide, responding first to the unaccustomed burst of intense flavor. Theyhesitated,thensippedagain,savoringthesweetwarmthofthemilk.Isawsmilesasthefullrichnessofthedrinkfilledtheirmouths.The pace quickened during the earlymorning rush, and then tapered off. It

wasawkwardservingpeopleinthecrampedbackcornerofastore.Customersjammedintothatsmallspaceontherightwhiletheretailcounterstoodempty.Ifthatstorehadbeenaship,itwouldhavecapsized.Fromtheminuteweopened,thismuchwascleartome:Starbuckshadentered

adifferentbusiness.Therecouldbenoturningback.Byclosingtime,about400customershadpassedthroughthedoor—amuch

higher tally than the average customer count of 250 at Starbucks’ best-performing bean stores. More important, I could feel the first ripples of thatsamewarm social interaction and engaging artistry that had captivatedme inItaly.IwenthomethatdayashighasI’veeverbeen.Asweekswenton,businessgrew,almostallonthebeverageside.Withintwo

months,thestorewasserving800customersaday.Thebaristascouldn’tmakeespressosfastenough,andlinesbegansnakingout thedoorontothesidewalk.

Whenever I stoppedby tocheckon theprogressofmyexperiment,customerscame up to me, eager to share their enthusiasm. The response wasoverwhelming.TheFourthandSpringstorebecameagatheringplace,anditsatmospherewas

electric. I thrived on it. So did the small cohort of Starbucks peoplewho hadsupported the idea, people likeGayNiven, amerchandise buyer at Starbuckssince1979, andDeborahTippHauck,whom Ihadhired in1982 tomanageastore.Here were the test results I was looking for. With the success of the first

espresso bar, I began to imagine many further possibilities. We could opencoffee stores around the city, all dedicated to serving espresso drinks. Thesewould become not only a catalyst but also a vehicle for introducing a new,broaderbaseofcustomerstoStarbuckscoffee.Surely, I thought, the popularity of Fourth andSpringwould overcome any

doubts Jerry Baldwin still had. He would see as vividly as I did the greatopportunitythathadarisentotakeStarbuckstoawholenewlevel.Onceagain,mybubbleburst.ToJerry,theverysuccessofthatstorefeltwrong.AlthoughIcontinuetohave

enormousrespectforhim,JerryandIviewedthecoffeebusiness,andtheworld,differently.Tohim,espressodrinkswereadistractionfromthecorebusinessofsellingexquisitearabicacoffeebeansatretail.Hedidn’twantcustomerstothinkofStarbucksasaplacetogetaquickcupofcoffeetogo.Tome,espressowastheheartandsoulofthecoffeeexperience.Thepointof

acoffeestorewasnotjusttoteachcustomersaboutfinecoffeebuttoshowthemhowtoenjoyit.ImusthaveseemedarealnuisancetoJerryduringthemonthsfollowingthe

FourthandSpringopening.EachdayIwouldrushintohisoffice,showinghimthesalesfiguresandthecustomercounts.Hecouldn’tdenythattheventurewassucceeding,buthestilldidn’twanttogoforwardwithit.Jerry and I never had an argument, throughout the entire course of our

professional relationship. But we both recognized that we had reached animpasse,thatourdisagreementwasnotovermerelyanewtwistonbusiness,butoverwhatcouldpotentiallyrepresentaseachangeforthecompany.Shrewdashewas,heknewtherewasafireburninginsideme,afiretherewasnowaytoputout.Afterweeks of trying to convince him, I strode into Jerry’s office one day,

resolvedtohaveaconclusivediscussionabouttheissue.“Thecustomersare tellingussomething,” I said.“This isabig idea.We’ve

gottokeepmovingonit.”“We’recoffeeroasters.Idon’twanttobeintherestaurantbusiness,”hesaid,

wearily,realizingweweregoingtohaveyetanotherrun-throughofthistopic.“It’snottherestaurantbusiness!”Iinsisted.“We’regivingpeopleachanceto

enjoyourcoffeethewayit’ssupposedtobeprepared.”“Howard,listentome.It’sjustnottherightthingtodo.Ifwefocustoomuch

onservingcoffee,we’llbecomejustanotherrestaurantorcafeteria.Itmayseemreasonable,eachstepoftheway,butintheend,we’llloseourcoffeeroots.”“But we’re reconnecting with our coffee roots!” I argued. “This will bring

morepeopleintoourstores.”Seeingmydetermination,Jerrysatsilentlyathisdeskforafewminutes,his

armsfoldedinfrontofhim,untilhefinallyoffered:“Maybewecanputespressomachinesinthebackofoneortwootherstores.”“Itcouldbesomuchbiggerthanthat,”Irepeated,knowingthatifIaccepted

that concession, it would be the farthest I would ever be able to take thecompany.“Starbucks doesn’t need to be any bigger than it is. If you get too many

customersinandout,youcan’tgettoknowthemthewaywealwayshave.”“InItaly,thebaristasknowtheircustomers,”Ianswered.“Besides,we’retoodeeplyindebttoconsiderpursuingthisidea.Evenifwe

wantedto,wecouldn’taffordto.”Hestoodupandpreparedtoleaveforhome,but seeing my reluctance to end the conversation, added firmly: “I’m sorry,Howard.Wearen’tgoingtodoit.You’llhavetolivewiththat.”Iwas depressed formonths, paralyzed by uncertainty. I felt torn in two by

conflictingfeelings:loyaltytoStarbucksandconfidenceinmyvisionforItalian-styleespressobars.I was busy enough with my everyday work, flying back and forth to San

Franciscoandfindingwaystoconsolidatetheoperationsofthetwocompanies,thatIcouldhavedistractedmyselfandjustdroppedtheidea.ButIrefusedtoletitdie.Theespressobusinessfelttooright,andmyinstinctsaboutitrantoodeeptoletitgo.Oneweekend,aroundthattime,whenIwenttoadowntownathleticclubfor

my usual game of Sunday basketball, I was paired up with a wiry, muscularblondguy,aboutmyage.Hewas two inches taller thanmyownsix feet two,andagoodplayer.When the gamewas over,we started talking, and he introduced himself as

ScottGreenburg.Hetoldmehewasalawyerwithabigfirmintown.Afterhelearned what I did, he said he loved Starbucks coffee. So I began to bring a

poundofcoffeetothegamesforhimeverynowandthen.Wemetoccasionallyfor beers, andover time, I foundmyself sharing someofmy frustrationswithhim.Scott, as it happened, was a corporate lawyer, whose job it was to advise

companies on many matters, including private placements and public stockofferings.When I told him I was thinking of going independent and openingespressobars,hesaidhethoughtinvestorsmightbeinterested.Gradually,intalkingovermyideaswithScottandSheri,IrealizedwhatIhad

todo.Thisismymoment,Ithought.IfIdon’tseizetheopportunity,ifIdon’tstepoutofmycomfortzoneandriskitall,ifIlettoomuchtimetickon,mymomentwill pass. I knew that if I didn’t take advantage of this opportunity, I wouldreplayitinmymindformywholelife,wondering:Whatif?Whydidn’tI?Thiswasmyshot.Evenifitdidn’tworkout,Istillhadtotryit.ImadeupmymindtoleaveStarbucksandstartmyowncompany.Myidea

was to open stores that would serve coffee by the cup and espresso drinks,concentrating on high-traffic downtown locations. I wanted to re-create theromanceandartistryandcommunityIhadseeninItaly.It took several months of planning, but I finallymade themove. Knowing

howfrustratedIhadbecome,JerryandGordonsupportedtheidea.TheyletmestayoninmyjobandatmyofficeuntilIwasreadytomove,inlate1985.Insomerespects,leavingtostartmyowncompanytookalotofcourage.Just

asImadeupmymind,wefoundoutthatSheriwaspregnant.Withoutmysalary,wewouldhavetoliveonherincomeuntilIcouldgetthenewcompanyupandrunning. Shewaswilling to go back towork soon after the babywas born inJanuary,butIhatedthefactthat,becauseofmydecision,shehadnochoice.But at some level, I felt I’d been preparing for this step my entire life.

Ironically,itrancountertothevaluesmyparentshadtaughtme.Frommydad,Ilearned that quitting a job causes instability and disruption in the family.Mymother’sconstantrefrainwas:“Youhaveagoodjob.Whyquit?”ButIsawthemoveasconsistentwithmylife’sdream,myearliestdesiresto

dosomethingformyselfandformyfamily,toachievesomethingunique,tobeincontrolofmyowndestiny.Theinsecurity,thedesireforrespect,theburningneed to rise far above the circumstances of my parents’ struggles all cametogetherinthatdefiningmoment.MyclosefriendKennyGlatertoldmeaboutasimilarexperienceinhislife.

Inthe1980shewasinanestablishedband,withasecurepositionandincome.(Thiswaslongbeforehebecamefamousasajazzsaxophonist.)Butherealizedthat he would have to leave the band if he was ever to find his own sound.

Musically speaking,hewentout anddidexactly that. Ifhehadn’t, todayhe’djustbeasaxophoneplayerinsomelittle-knownband.Whatdistinguishesthetalentedpersonwhomakesitfromthepersonwhohas

even more talent but doesn’t get ahead? Look at the aspiring actors waitingtables inNewYork,asanexample:Manyof themareprobablyno lessgiftedthanstarslikeRobertDeNiroandSusanSarandon.Partofwhatconstitutessuccessistimingandchance.Butmostofushaveto

create our ownopportunities andbeprepared to jumpwhenwe see a bigoneotherscan’tsee.It’sonethingtodream,butwhenthemomentisright,you’vegottobewilling

toleavewhat’sfamiliarandgoouttofindyourownsound.That’swhatIdidin1985.IfIhadn’t,Starbuckswouldn’tbewhatitistoday.

CHAPTER5NaysayersNeverBuiltaGreatEnterprise

Wejudgeourselvesbywhatwefeelcapableofdoing,whileothersjudgeusby

whatwehavealreadydone.

—HENRYWADSWORTHLONGFELLOW,Kavanagh,1849

It’s a classic American tale, every entrepreneur’s dream: to start with a greatidea, attract some investors, and build a business that is profitable andsustainable.Troubleis,youusuallyhavetostartastheunderdog.If you want to know how underdogs feel, try to raise money for a new

enterprise.Peoplewillshutyouout.They’llregardyouwithsuspicion.They’llundermineyourself-confidence.They’llofferyoueveryreasonimaginablewhyyourideasimplywon’twork.Beinganunderdoghas a flip side, though, for facing suchadversity canbe

invigorating. Inmycase,partofmerelished thefact thatsomanypeoplesaidmyplan couldn’t bedone.Nomatter howmany timespeopleputmedown, Ibelieved strongly that I could pull it off. Iwas so confident ofwinning that Ienjoyedbeinginapositionwherepeople’sexpectationsweresolowthatIknew

Icouldbeatthem.Nobody ever accomplished anything by believing the naysayers. And few

havedonesobystickingtoprovenideasinprovenfields.It’sthosewhofollowtheroadlesstraveledwhocreatenewindustries,invent

new products, build long-lasting enterprises, and inspire those around them topushtheirabilitiestothehighestlevelsofachievement.Ifyoustopbeingthescrappyunderdog,fightingagainsttheodds,youriskthe

worstfateofall:mediocrity.

“NO”INITALIANDOESN’TSOUNDASBAD

JerryBaldwinsurprisedme.WhenIwasdrawingupthedocumentstoformmynewcompanyandplanninghowtoapproachinvestorstoraisemoneyforit,hecalledmeintohisofficeandofferedtoinvest$150,000ofStarbucksmoneyintomycoffee-barenterprise.“Thisisn’tabusinesswewanttogointoourselves,”heexplained,“butwe’ll

supportyou.”Withthosewords,ironically,Starbucksbecamemyfirstinvestor,committing

ahugesumofmoneyforacompanysodeeplyindebt.Jerryalsoagreedtoserveasadirector,andGordonpromisedtobeapart-timeconsultantforsixmonths.Thatstampofapprovaleasedmytransitionenormously.PerhapsJerryhopedtopreventmefrombecomingacompetitororperhapshe

wantedtoensurethatIwoulduseStarbuckscoffee,althoughitwouldhavebeenmyfirstchoiceanyway.Itwascleartome,though,thatJerryalsosimplywantedtobesupportive,andIwasgrateful.GordonwasaspumpedupabouttheventureasIwas,andheputhiscreative

mindtowork,helpingrefinemyidea.“Thisisnotabouttheordinary,”Gordontoldme.“Youneedtoelevatetheexpectationofthecustomers.Everythingaboutthenewstore—thename, thesetting, thepresentation, thecare taken tocreatethecoffee—everythingshouldleadthecustomertoexpectsomethingbetter.”ItwasGordonwhoproposedthatIshouldcallthecompanyIlGiornale.While

bestknownasthenameofthelargestnewspaperinItaly,giornalealsohasthemore basicmeaning of daily. You’ve got your daily paper, your daily pastry,your daily cup of coffee. If we served great coffee with Italian elegance andstyle,wehopedpeoplewouldcomebackdaily.With Jerry and Gordon’s support, I thought, naively, I could attract all the

investmentfundsIneededwithinsixmonths.There’s nothing sweeter to a freshly minted entrepreneur than the taste of

success after raising that initial dollar of investment. But when the first “no”comes,it’slikeaslapintheface.Ihadtoexperiencethatin,ofallplaces,Italy.InDecember, justas I leftStarbucks,GordonandIsetoffonanadventure,

flyingtoItalytoresearchcoffeebars.Overthepreviousthreeyears,Ihadgrownfond of him and enjoyed his eclecticism. I expected to come back with $1millionininvestmentfinancing.OurbigprospectwasFaema,aproducerofespressomachinesinMilan.Ihad

pitchedmyideabyphonetothem,andtheyhadsoundedveryinterested.Onourfirst fullday inMilan, Imademy initialpresentation,and Iwasproudof it. Iexplainedtothemhowwewouldre-createtheItalianespressobarexperienceintheUnitedStates,eventuallyexpandingtofiftystores.IspokeaseloquentlyasIcould about the potential scope of the opportunity and stressed the appeal ofItalian-stylecoffee,whichwaslittleknowninAmerica.Foracompanythatsoldcommercialespressomachines,Ifigured, theventurewouldappearanobviouswinner.But after a surprisingly short discussion, they turned us down. Americans,

theyinsisted,couldneverenjoyespressothewayItaliansdo.AlthoughIrealizedIhadprobablybeentoooptimisticabouttheprospectsof

amajor foreign corporation’s taking a financial stake in a small and untestedAmerican company, I couldn’t help feeling deflated. Faema’s rejection meantthat I would have to go door-to-door to individual investors to raise the $1.7millionIneeded.Iknewhowhardthatwouldbe.Butasalways,Italymadeitimpossibletobeunhappyforlong.GordonandI

visitednearly500espressobars inMilanandVerona.We tooknotes, snappedphotographs,andvideotapedbaristasinaction.Weobservedlocalhabits,menus,decor, espresso-making techniques. We drank a lot of coffee, tasted a lot ofItalianwine,andatesomefantasticmeals.WesatatoutdoorcafésinthatintenseItalian light and sketched out different design schemes, figuring out how wecouldreplicateanauthentic,Italian-stylecoffeebar.BythetimewegotbacktoSeattle,wewereashighontheideaaswhenwe

had left,andIwas renewed inmydetermination to raiseasmuchmoneyas ittooktogetIlGiornaleunderway.Ihadnofundsofmyowntoinvest,andIknewnothingofventurecapital.It

didn’tseemrighttoapproachfriendsorfamilyformoney.Iftheideawassound,Ireasoned,experiencedinvestorswouldwantapieceofit.Ifitwasunworkable,theywouldletmeknow.Theyletmeknow,andthensome.Ididn’trealize,untilmuchlater,thelong-termimplicationsofraisingequity.

Unlikeknowledge-basedcompanies likeMicrosoft, retailbusinessesarehighlycapital intensive;when they expand rapidlywith company-owned stores, theyrequire repeated injections of funds for such expenses as build-out costs,inventory, and rents. Each time more money is raised, the founder’s stakediminishes.Icouldneverhaveretained50percentownership,assomesoftwarecompanyexecutivesdid. Iwish, today, that Icouldhavekepta largerstake inthecompany.Butatthetime,itseemedIhadnochoice.AndifIhad,Starbuckscouldnothavegrownlargeasrapidlyandsmoothlyasitdid.AftermyreturnfromItaly,myfriendScottGreenburgandIsatdownatmy

kitchentableanddraftedanewprivateplacementplanforIlGiornale.Wewerebothyoungandfascinatedbythepossibilities,andwecomplementedeachotherwell: I had the vision, and he knew what information and projections wereneededtoattractprivateinvestorsandhowtooutlinetheopportunitiesandrisks.SincewewereintroducingsomethingnewtoSeattle,IfiguredIhadtoopenat

leastonestore,toshowpeoplethepracticaloperationsandartisticappealofanItalian-stylecoffeebar.Todoso,however,Ineededtoraiseaninitial$400,000in seed capital.After that, I calculated, Iwould need another $1.25million tolaunchatleasteightespressobarsandprovetheideawouldworkonanextendedscalebothinandoutsideSeattle.Fromitsinception,IlGiornalewasintendedtobeamajorenterprise,notjustasinglestore.

SOMETIMESSINCERITYSELLSBETTERTHANBUSINESSPLANS

Il Giornale’s first outside investor was Ron Margolis—in some respects, theunlikeliestinvestoryoucouldimagine.Ronwasaphysicianwhohadputsomeof his savings into the stock market and the rest into small, risky start-ups,mostlybusinessesbegunbypeoplehegottoknowandtrust.WhenIapproachedhimformoney,RonandIweretotalstrangers.Sheriknew

hiswife,Carol, through professional contacts.One fall day, the three of themwerewalkingtheirdogsthroughthefallenleavesinaSeattlepark.Carolhadaninfant, Sheri was pregnant, and Ron was an obstetrician, so most of the talkrevolvedaroundbabies.ButwhenSherimentionedthatIwaslookingtostartmyown company,Ron told her: “IfHoward ever starts a business, I’m sure he’llsucceed,soIwanttoknowaboutit.”Notlongafterwards,Sheriarrangedformetomeetwiththem.Carolinvitedusover.At this early stage, I was still too excited about my idea to be nervous. I

brought along the business plan Scott and I had spent hours writing.We had

preparedthestandardfinancialprojections:howmuchmoneyIneededtoraise,how long it would take to open the first store, how long before we’d beprofitable,howinvestorswouldgetareturnontheircapital.Ihadevenhadanarchitect’sblueprintdrawnupformyfirststore.Ronnevergavemeachancetoshowthemoff.WhenwegottotheMargolises’home,wesatdownattheirdiningtable.“Tell

meaboutthisnewbusinessyou’restartingup,”saidRon,aftersomesmalltalk.Ijumpedineagerly.ItoldhimabouttheinspirationIhadhadduringmytrip

toItaly,abouthowaquickstopatanespressobarisadailyroutineforItalians.Idescribed the flair and artistry the barista brought to the preparation of everyespresso drink. I discussed my idea for displaying newspapers on racks forcustomerstoread,inkeepingwiththenameIlGiornale.Iftheespressoculturecould thrive in Italy, I argued, it could inSeattle, too—andanywhereelse, forthatmatter.The more I talked, the more enthusiastic I grew, until suddenly, Ron

interruptedme.“Howmuchdoyouneed?”hesaid.“I’m looking for seed capital now,” I replied, as I started unraveling my

papers.“Letmeshowyouthefinancialprojections.”“Don’tdothat,”hesaid,wavingthedocumentsaway.“Iwouldn’tunderstand

them.Howmuchdoyouneed?Will$100,000beenough?”Ronpulledouthischeckbookandpenandwrotethecheckonthespot.Iwishallmyfund-raisinghadbeensoeasy.Rondoesn’tinvestbasedonfinancialprojectionsbutlooksinsteadforhonesty

andsincerityandpassion.Helooks,inshort,forsomeonehecantrust.Itwasariskymovehemade that day. Itwas fouryearsbefore the company started tomakeanymoney.RonandCarolhadnoassurance they’dget their investmentbackatall,letaloneanyreturnonit.Butoncethecompanywentpublic,andtheprofits and stock price started climbing, theywere rewarded: The shares theyboughtfor$100,000grewtobeworthmorethan$10million.Passionaloneisnoguaranteeofremarkablereturns.Ronhimselfwilltellyou

thatmanyofhisotherinvestments,madebasedonthesameinstincts,didn’tpaybacksohandsomely.Someentrepreneursfailbecausetheirideaultimatelyisn’tsound.Othersremainshortsightedandunwillingtogiveupcontrol.Somerefusetobringinmoremoney.Anynumberofdifferentfactorscanknockacompanyoff its course in the period between its founder’s initial enthusiasm and theeventualreturns.Butpassionis,andwillalwaysbe,anecessaryingredient.Eventheworld’sbestbusinessplanwon’tproduceanyreturnifitisnotbackedwithpassionandintegrity.

TheironyofRon’svoteofconfidenceinIlGiornaleis thatheisnotevenacoffee drinker. He invested in me, not in my idea. He’s a doctor, not abusinessman.Buthisadviceisworthremembering:“It appears to me that people who succeed have an incredible drive to do

something,”observesRon.“Theyspend theenergy to take thegamble. In thisworld,relativelyfewpeoplearewillingtotakealargegamble.”Ifyoufindsomeonewhois,listencarefully;youmayenduphelpingachieve

adreamofamazingproportions.

HOWTHEWORLDLOOKSTOANUNDERDOG

Bythetimemysonwasborn,inJanuary,Ihadraisedtheentireamountofseedmoney,$400,000,at92centsashare.(Becauseoftwostocksplitssince,that’stheequivalentof23centsashare today.)ThebulkwasprovidedbyStarbucksandRonMargolis;therestcamefromArniePrenticeandhisclients.Arnie Prentice, co-chairman of a financial services firm who knew both

StarbucksandItalianespresso,wasoneofthefirsttobelievestronglyinwhatIwastryingtoaccomplish.Heorganizedbreakfastsandlunchesformetopresentmy idea to his clients, putting his reputation on the line to validatemine.HejoinedtheboardofIlGiornaleandstillsitsontheStarbucksboardtoday.The seed capital enabledme to secure a lease and start building the first Il

Giornale store, in a newoffice building that became the highest skyscraper inSeattle,ColumbiaCenter.ItwasatthispointthatDaveOlsenjoinedme(I’lltalkmoreabouthimin thenextchapter).The twoofusbeganworking together togetthestorerunningbyApril1986.But thebulkofmyenergyand timestillwent towardraising thenext$1.25

million.We rented a tiny office on First Avenue, and I started pounding thepavement. I spent everyminuteofmydayasking formoney, racing fromonemeeting to another and trying to keepmy pitch sounding fresh. I was on thephone constantly, before and after the first store opened, approaching everypotentialinvestorIcouldfind.Iwasn’t justanunderdogduring thatyear; Iwasanunder-underdog. Itwas

theroughestperiodofmylife.IfeltasifIwerebeingkickedandbeateneverytimeIscratchedonanotherdoor.Atthetime,Iwasthirty-twoyearsoldandhadbeeninSeattleforonlythree

years. I had experience in sales and marketing, but had never run my owncompany.Ihadn’thadanyexposuretothemoneyedeliteofSeattle.I knew nothing about raising money, and I was so naive I would talk to

anybody.There’s a legal definition for an “accredited investor,” someonewhohasanetworthlargeenoughtoassumetheriskofinvestinginasmallstart-up.WheneverIcouldfindanyonewhofitthisdescription,Iwouldapproachhimorher. I suspect that half the time I was talking to people who couldn’t haveinvestediftheywantedto.Ihadtolowerthepricethreetimes.Iwasoften turnedawaywithagreatdealofarrogance.WhenIwas inhigh

school,IworkedonesummerasawaiterinabungalowcolonyatarestaurantintheCatskillMountains.Irememberhowterriblyrudesomeoftheguestsweretome.Theywouldbebrusqueanddemanding,andI’drunaroundanddomybesttopleasethem,andwhentheydeparted,theywouldleaveonlyameagertip.AsapoorkidfromBrooklyn,Ifiguredthisiswhattherichwerelike.Iremembersayingtomyself:IfI’meverwealthyenoughtovacationinaplacelikethis,I’malwaysgoingtobeabigtipper.I’malwaysgoingtobegenerous.Ihadsomeof thesamefeelingsduringthatyearwhenIwasraisingcapital,

and I swore tomyself that if Iwas ever in a position of being successful andapproachedbyentrepreneursaskingmetoinvest,evenifIthoughttheyhadtheworst concocted concept, I would always be respectful of the entrepreneurialspirit.Manyof the investors I approached toldmebluntly that they thought Iwas

sellingacrazyidea.“IlGiornale?Youcan’tpronouncethename.”“HowcouldyouleaveStarbucks?Whatastupidmove.”“Whyonearthdoyouthinkthisisgoingtowork?Americansarenevergoing

tospendadollarandahalfforcoffee!”“You’reoutofyourmind.Thisisinsane.Youshouldjustgogetajob.”InthecourseoftheyearIspenttryingtoraisemoney,Ispoketo242people,

and217ofthemsaid“no.”Trytoimaginehowdishearteningitcanbetohearthatmanytimeswhyyourideaisnotworthinvestingin.Somewouldlistentomy hour-long presentation and not call me back. I’d phone them but theywouldn’ttakemycall.WhenIfinallygotthrough,theywouldtellmewhytheyweren’tinterested.Itwasaveryhumblingtime.Thehardestpartwasmaintaininganupbeatattitude.Youdon’twanttopaya

visit to a prospective investor andnot display the fullmeasure of passion andenthusiasmaboutwhatyou’reproposingtodo.Youcan’tbedejectedwhenyoumeetwithalandlordtobeginnegotiationsaboutleasingalocation.Butifyou’vehad three or four fruitlessmeetings thatweek, howdoyouwhipyourself up?You really have to be a chameleon. Here you are in front of somebody else.You’redepressedashell,butyouhave to soundas freshandconfidentasyou

wereatyourfirstmeeting.Still,Ineveroncebelieved,notever,thatmyplanwasn’tgoingtowork.Iwas

trulyconvincedthattheessenceoftheItalianespressoexperience—thesenseofcommunityandartistryandthedailyrelationshipwithcustomers—wasthekeytogettingAmericanstolearntoappreciategreatcoffee.There’s a fine line between self-doubt and self-confidence, and it’s even

possible to feel both emotions simultaneously. Back then, and often enoughtoday, Icouldbeoverwhelmedwith insecurities,andat thesametimehaveanabundanceofself-assuranceandfaith.Frankly,when I started, I don’t think Iwas all that good at raisingmoney,

becauseittookmesolongtomeetmygoals.Withpractice,though,Igotbetteratmakingmypresentationandatanticipatingobjectionsandconcerns.Inthemeantime,Iwaseatingupmyseedcapital.InApril,whenweopened

the first IlGiornale store, itwas exciting towatchasSeattlitesdiscovered thepleasures of handcrafted espresso drinks on theirway towork. From the firstday, sales exceeded our expectations, and the atmospherewas just as we hadenvisioned it.But itwouldbea long timebeforewecouldexpectanyprofits,andinthemeantimeIhadtopayrentandhirepeople,spendingfundsIdidn’tyethave.Aseachmonthpassed,weworriedabouthowweweregoingtocontinuein

business because themoneywasn’t coming in as I had planned.At timesweweren’tsurewecouldmeetpayrollorpaytherent.DaveOlsenandIwouldsittogetherandaskeachother:“Whodoyouwanttopaythisweek?”Infact,weneverdidmissapayroll,butwecamefrighteninglyclose.Forsomereason,thepeoplearoundmeneverdoubtedthatIwasgoingtoget

themthroughit,thatIwouldfigureoutsomewaytoworkthingsout.Somehow,their confidence strengthenedmy resolve. The odds against our pulling it offwere so slim. Investors had to have a pretty strong stomach to bet on oursuccess.Icontinued togetcommitments,but Icouldn’tuseanyof themoneyuntil I

reached what’s called an “impound number.” The impound number is theminimum amount of money an entrepreneur must raise to gain access to theoriginalcashcommitments.Inmycase,Icouldn’tuseanyofthemoneyIraiseduntilIhadguaranteedinvestmentstotalling$900,000.Akey turningpoint for IlGiornalecame in June,when, tomy relief, Iwas

finally able tomeetmy impound number. An investor namedHaroldGorlickgaveusmorethan$200,000,thebiggestsinglecheckI’deverreceived.Istaredatitforalongtime,wonderingwhatmagicmixtureoftimingandinclinationit

takes to make any given investor believe. Gorlick was a client of ArniePrentice’s.Hewasanunusualguy,aself-mademanwhohadmadehisfortuneinthe heating and plumbing businesses. He was rough around the edges, but Ibecameveryfondofhim.A few years later, Harold introduced me to his nephew, a rising jazz

saxophonistknownasKennyG.Weweretwoyoungmen,eachaspiringtomakeamarkindifferentfields,andourfriendshipgrewaswefacedsimilarkindsofchallenges.Kennyeventually invested in thebusiness, too,andevenplayedatemployee events and performed benefit concerts at our plant and marketopenings.Hismusicbecameapartofthecultureofthecompany.With the impound number, I was able to collect on earlier commitments,

easingourimmediatefinancialcrisis.Butthegoalof$1.25millionstillseemedfaroff.Therewerenotmanydoorslefttoknockon.

YES,YOUCANREINVENTACOMMODITY

Thetensiongrewasthesummerprogressed.ThebiggestbarrierIcontinuedtofacewastheapparentimprobabilityofmyownideaatatimewheninvestorshadsomanyother,moreattractiveindustriesinwhichtoputtheirmoney.Oneof thegroups I approachedwas calledCapitalResourceCorp., a small

businessinvestmentcorporation,inwhichfifteentotwentypartnerspooledtheirmoney to backpromising start-ups.Bynow, the success of the first storewasvisibleandmypitchhadgrownmoreambitious.IlGiornaleCoffeeCompany,Ifigured,wouldopenandrunasmanyas50Italian-styleespressobars,startinginSeattlebuteventuallyspreadingtoothercities.Thememberwho did due diligence, Jack Rodgers, recommended a sizable

investment, but the group declined. According to their charter, they werecommitted to investing inhigh-technologystart-ups.There’snothinghigh-techaboutcoffee.Conventionalbusinesswisdomtellsyouthatthemostattractivebusinessstart-

upshaveaproprietaryideaortechnology—somethingtoofferthatnooneelsehas. Notable examples are Apple’s computers, Intel’s chips, and Microsoft’soperatingsystem.Ifyouholdapatent toyourproduct,somuchthebetter. It’slessriskyifyoucanerectsomebarriertoentry,topreventadozencompetitorsfrom popping up and grabbing your market away from you before you canestablishyourself.And themostpromising ideas are those in the industriesofthefuture,suchasbiotechnology,software,ortelecommunications.IlGiornaledidn’t fitanyof theseparadigms—nordoesStarbucks today.We

hadnolockontheworld’ssupplyoffinecoffee,nopatentonthedarkroast,noclaimtothewordscaffèlatteapartfromthefactthatwepopularizedthedrinkinAmerica.Youcouldstartupaneighborhoodespressobarandcompeteagainstustomorrow,ifyouhaven’tdonesoalready.Iheardalltheargumentsaboutwhycoffeecouldneverbeagrowthindustry.

It was the second most widely traded commodity in the world, after oil.ConsumptionofcoffeehadbeenfallinginAmericasincethemid-1960s,assoftdrinks surpassed it as the country’s favoritebeverage.Coffee shopshavebeenaroundsincetimeimmemorial.I explained, again and again, the rising interest in specialty coffee. In cities

likeSeattleandSanFrancisco,agrowingnicheofpeoplehadlearnedtodrinkhigh-quality coffee at home and at restaurants. But they had little or noopportunitytoexperiencegoodcoffeeintheworkplace.Andwhileinmoreandmorecities,smallneighborhoodplaceswerestartingtosellqualitywhole-beancoffee, espresso was available mostly in restaurants as an after-dinner drink.Although a few espresso bars did exist, no one offered high-quality, quick-serviceespressotogoinurbanareas.What we proposed to do at Il Giornale, I told them, was to reinvent a

commodity.Wewouldtakesomethingoldandtiredandcommon—coffee—andweaveasenseof romanceandcommunityaround it.Wewould rediscover themystiqueandcharmthathadswirledaroundcoffeethroughoutthecenturies.Wewould enchant customers with an atmosphere of sophistication and style andknowledge.Nike is the only other company I know of that did something comparable.

Sneakers were certainly a commodity—cheap and standard and practical andgenerallynotverygood.Nike’sstrategywasfirsttodesignworld-classrunningshoes and then to create an atmosphere of top-flight athletic performance andwitty irreverence around them.That spirit caughton sowidely that it inspiredmyriadsofnonathletes to laceupNikeshoesaswell.Backin the1970s,goodsneakerscost$20apair.Whowouldhavethoughtanyonewouldpay$140forapairofbasketballshoes?How,then,shouldyouevaluateagoodinvestmentopportunity?Howdoyou

identify a good entrepreneurial idea? What were people missing when theyturneddownthechancetoinvestinIlGiornale?Theanswer’snoteasy,butithasalottodowithinstinct.Thebestideasare

thosethatcreateanewmind-setorsenseaneedbeforeothersdo,andittakesanastuteinvestortorecognizeanideathatnotonlyisaheadofitstimebutalsohaslong-termprospects.Backin1985,althoughCapitalResourceCorp.turnedme

down,JackRodgersandseveralother individualswhowerepartof thatgroupinvested in Il Giornale on their own. They didn’t let conventional businesswisdomstopthem.I’veoftenwonderediftheirhigh-techinvestmentspaidoffaswell.

BREAKTHROUGHSAREN’TCHEAP

ByAugust,IfeltasifIwereinthetwelfthinning.Thestorehadbeenopenfourmonths, and businesswas good. But I still had raised only half asmuch as Ineeded.Ihadalreadysignedaleaseforasecondstore,andIdidn’tknowhowIwouldpayforit.Ihadtoscorethewinningrunsoon.There was one big powerhouse I hadn’t tapped. Three of Seattle’s most

prominentbusinessleadershadnotyetheardmypitch.Thiswasthetriumvirateof Jack Benaroya, Herman Sarkowsky, and Sam Stroum. Locally, they weretitans who had developed some of the tallest buildings, most successfulresidentialcomplexes,andsturdiestbusinesses inSeattle.Active in the Jewishcommunity,andgenerousphilanthropists,thethreewerefriendsandsometimesinvestedtogether.Herman’sson,Steve,isaboutmyage.Onedayhebroughthisfatherintothe

Il Giornale store and introduced me, and Herman agreed to let me make apresentation to the three of them. It was my last chance. If these three biginvestorsturnedmedown,Ididn’tknowwhoelsetogotoinSeattle.Ithadtowork.Bynow,Ihadmademypitchalmostahundredtimes,butIpracticeditagain

andagainbeforethatcrucialmeeting.Ididn’twanttosteponstageuntilIwasabsolutelyprepared.Eveniftheyinvestedonlyalittle,theircommitmentwouldbeaninvaluableendorsement,andIcouldcountonothersinthehigher-echelonbusinesscommunitytofollowtheirlead.ThemeetingwastotakeplaceonthetopfloorofoneofSeattle’stallestoffice

buildings. I had to walk around the block three times to calm myself. Mypresentationwentwell,andtheyappearedreadytoinvestalotofmoney.Butthegroupmade some stiff demands.Theywanted a lowerprice, andoptions, andboardseats.It tooktwoweekstoworkoutthedetails.Thentheydecided,asagroup,toinvest$750,000.Thattookmeoverthetop.Ihadmadeit.I ended up raising $1.65 million from about thirty investors, including the

seed capital. The biggest chunk came from the Big Three. Along with ArniePrentice,HaroldGorlick,andJackRodgers,SteveSarkowskybecameadirectorandstronglysupportedmeduringsometenseanddifficulttimeslater.Ifyouask

anyofthoseinvestorstodaywhytheytooktherisk,almostallofthemwilltellyouthattheyinvestedinme,notinmyidea.TheybelievedbecauseIbelieved,and they prospered because they trusted someone in whom nobody else hadconfidence.Il Giornale has faded into history, remembered by only a few of its old

customers. But those initial investors ended up earning a one hundred-to-onereturnontheirinvestment.Howthathappenedinvolvedsomestrangetwistsoffate.

CHAPTER6TheImprintingoftheCompany’sValues

Theultimatemeasureofamanisnotwherehestandsinmomentsofcomfortandconvenience,butwherehestandsattimesofchallengeandcontroversy.

—MARTINLUTHERKING,JR.

Acouplewithanewbornchilddoesn’tusuallysitdownandthink:Whatisourmission as parents? What values do we want to give this child? Most newparentsarepreoccupiedwithmerelywonderinghowtogetthroughthenight.Similarly,mostentrepreneurscan’taffordtobethatfarsighted,either.They’re

tooabsorbedwiththeproblemsdirectlyinfrontoftheirnosestohavetheluxuryofponderingvalues.IknowIcertainlywas.Butasaparent,orasanentrepreneur,youbeginimprintingyourbeliefsfrom

DayOne,whetheryourealizeitornot.Oncethechildren,orthepeopleofthecompany, have absorbed those values, you can’t suddenly change their worldviewwithalectureonethics.It’sdifficult, ifnot impossible, to reinventacompany’sculture. Ifyouhave

madethemistakeofdoingbusinessonewayforfiveyears,youcan’tsuddenlyimpose a layer of different values upon it.By then, thewater’s already in thewell,andyouhavetodrinkit.Whateveryourculture,yourvalues,yourguidingprinciples,youhavetotake

stepstoinculcatethemintheorganizationearlyinitslifesothattheycanguide

everydecision,everyhire,everystrategicobjectiveyouset.WhetheryouaretheCEOoralowerlevelemployee,thesinglemostimportantthingyoudoatworkeach day is communicate your values to others, especially new hires.Establishingtherighttoneattheinceptionofanenterprise,whateveritssize,isvitaltoitslong-termsuccess.

SHARINGTHEMISSION

I won’t mislead you.When I began planning for Il Giornale, I didn’t draft amissionstatementorlistthevaluesIwantedthecompanytoembody.Ihadsomepretty good notions, though, based onwhat I had seen go right andwrong atStarbucks,aboutwhatkindofcompanyIwantedtocreate.What’salmostinconceivabletometodayishowtheidealpersoncametome,

justwhenIneededhimmost,tohelparticulateourcommonvaluesandgrowthecompany.Perhapsitwasdestiny.One day, late in 1985, I was sitting at my desk, absorbed in planning the

detailsoftheIlGiornalelaunch.IhadalreadyleftStarbucksbutwasstillusingmyofficethere,anditsfloorwaslitteredwithdraftsofmenus,graphics,layouts,anddesigns.IansweredthephoneandwasgreetedbyamanIhadmetonlyafewtimes

andknewmainlybyreputation:DaveOlsen.PeopleatStarbucksspokeofDavewith respect bordering on awe, so knowledgeablewas he about coffee.A tall,broad-shoulderedMontananwithlongishwavyhairandintenseeyesthatsparklefrom behind small oval glasses, he ran a small, funky establishment in theUniversityDistrictcalledCaféAllegro.Studentsandprofessorswouldhangoutthere, studying philosophy or debatingU.S. foreign policy or simply drinkingcappuccinos.Inasense,CaféAllegrowasaprototypeforwhatStarbuckslaterbecame,aneighborhoodgatheringplace,althoughitsstylewasmorebohemianand it didnot sell coffeebeans andmerchandiseor cater to anearlymorning,urban,coffee-to-goclientele.ItwasmoreintheEuropeancafétraditionthantheItalianstand-upespressobarsIhadseeninMilan.“Ihearyouareputtingaplantogethertoopensomecoffeebarsdowntown,”

Dave said. “I’ve been thinking about looking for a location or two downtownmyself.Maybewecouldtalk.”“Great,comeondown,”Itoldhim,andwemadeanappointmenttomeetina

fewdays.I hung up and turned to Dawn Pinaud, who had been helping me get Il

Giornalestarted.“Dawn,”Isaid,“doyouhaveanyideawhothatwas?”

Shestoppedandlookedatmeexpectantly.“DaveOlsen! He might want to work with us!” It was such a remarkable

strokeofgoodfortune.Althoughhe jokesabout itnow,protesting thathewasjustaguyinjeans,runningalittlecaféandhavingfun,IknewthathavingDaveon my team would lend Il Giornale an authenticity and coffee expertise farbeyondwhatIhadbeenabletodevelopinthreeyears.Withhishumblemanner,precisespeech,deepthoughts,andstronglaugh,Ialsoknewhe’dbealotoffuntoworkwith.On thedayof ourmeeting,Dave and I sat onmyoffice floor and I started

spreading the plans and blueprints out and talking aboutmy idea.Dave got itright away. He had spent ten years in an apron, behind a counter, servingespressodrinks.Hehadexperiencedfirsthandtheexcitementpeoplecandevelopaboutespresso,bothinhiscaféandinItaly.Ididn’thavetoconvincehimthatthisideahadbigpotential.Hejustknewitinhisbones.The synergy was too good to be true. My strength was looking outward:

communicatingthevision,inspiringinvestors,raisingmoney,findingrealestate,designing the stores,building thebrand, andplanning for futuregrowth.Daveunderstood the inner workings: the nuts and bolts of operating a retail café,hiringandtrainingbaristas,ensuringthebestqualitycoffee.It never occurred to us to become competitors. Although Dave had been

lookingforwaystomoveforwardandgrow,whenhesawwhatIwasplanning,hethoughtitwouldbemorefuntojoinforces.HeagreedtoworkwithmetogetIlGiornaleofftheground.BecauseIstillhadverylittlecash,Daveagreedtoworktwentyhoursaweek

forapaltrysalaryof$12,000ayear.Infact,hecommittedhimselffulltimeandthensomefromthestart.Helaterwasrewardedgenerouslyashisstockoptionsgained in value. But Dave wasn’t in it for the money. He joined our teambecausehebelieved.HewasintriguedbytheItaliancoffeebarapproach,andhewantedtomakesureweservedthebestcoffeeandespressopossible.Hebecamethecoffeeconscienceofthecompany.Eventoday,asStarbucks’seniorvicepresidentforcoffee,Daveexplainsthat

hedoesn’tviewhimselfaseitheranemployeeoranexecutiveorafounder,butrather as “a willing and eager and very fortunate participant.” “It’s like amountainclimbingexpedition,”saysDave.“Yeah,Igetapaycheckfortunately.Iwouldn’t do everything I do if I didn’t. But I probably would do a lot of itanyway.”Ifeverybusinesshasamemory, thenDaveOlsen is rightat theheartof the

memory of Starbucks,where the core purpose and values come together. Just

seeinghimintheofficecentersme.If you’re building an organization, you realize quickly that you can’t do it

alone.You’ll build amuch stronger company if you can find a colleague youtrustabsolutely,someonewhobringsdifferentstrengthstothemixbutwhostillshares your values.Dave gets exhilarated at the top ofMt.Kilimanjaro. I getenergized by the excitement at a basketball game. He can rhapsodize over aflavorfulcoffeefromSulawesi;Icanfireuparoomfulofpeoplebecauseofmyheartfeltcommitmenttothefutureofthecompany.DaveOlsenandIcamefromdifferentworlds.HegrewupinaquietMontana

town,and inhisLevis,T-shirts, andBirkenstocks,wasalready runninga littlecafé while I was making sales calls in midtown Manhattan skyscrapers forXerox.Dave’sloveaffairwithcoffeestartedin1970,duringavisittoafriendinBerkeley.WhileonawalkhecameuponPeet’s,thenanoffbeatcoffeestoreonVineStreet.HeboughtalittlestovetopespressomakerandhalfapoundofdarkItalian roast from theDutchman himself and started fiddling.The espresso hebrewedthatdaycaptivatedhimsomuchthathebeganregularlyexperimentingwiththetastetogetitjustright.TheArmymovedhimtoSeattle,whereheworkedasacarpenter.Onedayin

1974hequithisjob,loadeduphisbicycle,andpedaledtoSanFrancisco,nearlya thousand miles. There, he discovered the cafés of North Beach, Italianrestaurantswithatmospheres thatwereoperatic,bohemian,noisy,eclectic,andstimulating.Theytreatedespresso-makingasoneofmanyfineItalianarts.Davebegan parking his bike against the windows of a number of restaurants andtalkingtotheirownersaboutfoodandwineandcoffee.Lots of people dream about opening a coffee house. Few actually do. But

that’spreciselywhatDaveOlsendidwhenhegotbacktoSeattle inthefallof1974.HerentedaspaceinSeattle’sUniversityDistrict,inthegarageofaformermortuary,onanalleyjustoppositethebusiestentrancetocampus.CaféAllegrobecameashrinetoespresso,withashinyespressomachinefront

andcenter.FewAmericansknewthetermcaffèlatte in thosedays.Hemadeasimilardrinkandcalleditcaféaulait.DavesearchedSeattleforthebestcoffeebeans andquickly foundStarbucks, then sellingonly coffeeby thepound.Hegot to know the founders and the roasters, and tasted coffee with them. Heworkedwith themtoco-developacustomespressoroast thatsuitedhispalate,justashadedarkerthanmostofStarbucks’othercoffees,butashadelighterthanthedarkestcoffeestheyoffered.That espresso roast, developed for Café Allegro, is still sold in Starbucks

storestoday,andit’susedineveryespressodrinkweserve.That’showclosely

integratedDaveOlsenistothelegacyofStarbucks.Asdifferentasourbackgroundswere,whenDaveandIstartedIlGiornalein

1985,wehadoneundeniableconnection:ourpassionforcoffeeandforwhatwewanted to accomplish in serving it.We took on different roles, but nomatterwhomwetalkedtoorwhatsituationwewereinvolvedin,webroadcastexactlythesamemessage,eachinawaythatreflectedourindividualstyles.Thereweretwovoices,butonepointofview.Thelinkage,thealignment,andthecommonpurposethatDaveandIhavehadisasrareinbusinessasitisinlife.WhenIfirstmethim,Daveownedonlyonesportscoat,andthatwasbecause

his wife worked for an airline that required a coat and tie for employees’relativesflyingonfreeairlinepasses.Today,heisasamazedasanyonethatheisanexecutiveina$1billioncompany,thoughheretainsthespiritofanartistorinventor.StarbuckswouldnotbewhatitistodayifDaveOlsenhadn’tbeenpartofmy

teambackatIlGiornale.Hehelpedshapeitsvalues,bringingastrong,romanticlove for coffee, unshakable integrity, disarming honesty, and an insistence onauthenticity in everyaspectof thebusiness.He sharedavisionwithmeof anorganizationwherepeoplelefttheiregosatthedoorandworkedtogetherasaninspiredteam.Hefreedmeuptobuild thebusiness, forIknewIneverhadtoworryaboutthequalityofthecoffee.Daveisarock,partofthefoundationofthecompany.Whenyou’restartinganewenterprise,youdon’trecognizehowcriticalthose

earlydecisionsarenotonlyintheformulationofthebusinessitselfbutinlayingthe groundwork for its future.As you build, you never knowwhich decisionswillendupbeingthecornerstones.Eachoneaddssomuchvaluelateron,andyou’renotcognizantofitatthetime.Don’tunderestimate the importanceof the early signalsyou sendout in the

courseofbuildingyourenterpriseandimprintingyourvaluesuponit.Whenyoutakeonapartner,andwhenyouselectemployees,besuretochoosepeoplewhoshareyourpassionandcommitmentandgoals. Ifyoushareyourmissionwithlike-mindedsouls,itwillhaveafargreaterimpact.

EVERYTHINGMATTERS

At the time,ourplans seemed impossiblyambitious.Even then,whennobodyhadheardofIlGiornale,IhadadreamofbuildingthelargestcoffeecompanyinNorthAmerica,withstoresineverymajorcity.Ihiredsomeonewhoknewhowto run a spreadsheet on a personal computer to do some projections, and

originally asked him to build a model based on opening 75 stores over fiveyears.ButwhenIlookedatthenumbers,Itoldhimtoscaletheplanbackto50stores,asIfigurednobodywouldbelieve75wasachievable.Infact,fiveyearslater,wedidreachthatgoal.ThetinyofficeIrentedhadspaceforonlythreedesks,jammedclosetogether,

and there was a little conference room in an adjoining loft.Whenwe startedsellingpaninisandwiches,Daveusedtoslicethemeatsintheoffice,abouttenyards away frommydesk. I’d be on the phone, talking to potential investors,withthesmellofthosecuredmeatswaftingupundermynose.Davedeliveredthemeattothestoresinhisbeat-up,oldredtruck.ThedaythefirstIlGiornalestoreopened,April8,1986,Icameinearly,just

as Ihadfor thefirstStarbuckscoffeebar.At6:30A.M., the firstcustomerwaswaitingoutsidethedoor.Shecamerightinandpaidforacupofcoffee.Somebodyactuallyboughtsomething!Ithoughtwithrelief.I stayed the entire day, and because I was too nervous to work behind the

counter,Ijustpacedandwatched.AlotofStarbuckspeoplecamedownthatdaytoseewhatmystorelookedlike.Byclosingtime,wehadnearly300customers,mostly in themorning.Theyaskeda lotofquestions about themenu, andwestartededucatingthemaboutItalian-styleespresso.Itwasagratifyingstart,andIwaspleased.In those first weeks, I checked on the quality, the speed of service, the

cleanliness. I refused to let anything slip.Thiswasmydream, and everythinghadtobeexecutedperfectly.Everythingmattered.Dave worked behind the counter, from opening through the morning rush.

Thenhewouldcometotheoffice.DaveandIwouldalwaysgobacktothestorefor lunch.Wepaid full price,doingeverythingwecould tokeep the salesup,drinkingandeatinglotsoffoodandcoffeetomakesurepotentialinvestorssawstrongsalesnumbers.It’sacustomwecontinue;westillpayfullpriceateveryStarbucksstorewevisit.Wemadealotofmistakes.Inthatfirststore,weweredeterminedtore-create

a true Italian-style coffee bar. Our primary mission was to be authentic. Wedidn’twanttodoanythingtodilutetheintegrityoftheespressoandtheItaliancoffeebar experience inSeattle.Formusic,weplayedonly Italianopera.Thebaristas wore white shirts and bow ties. All service was stand-up, with noseating.Wehungnationalandinternationalnewspapersonrodsonthewall.ThemenuwascoveredwithItalianwords.EventhedecorwasItalian.Bitbybit,werealizedmanyof thosedetailsweren’tappropriateforSeattle.

People started complaining about the incessant opera. The bow ties proved

impractical. Customers who weren’t in a hurry wanted chairs. Some of theItalianfoodsanddrinksneededtobetranslated.Wegraduallyacceptedthefactthatwehadtoadaptthestoretoourcustomers’

needs.Wequicklyfixedalotofthemistakes,addingchairs,varyingthemusic.Butwewerecareful,evenearlyon,nottomakesomanycompromisesthatwewould sacrifice our style and elegance. We even debated whether we shouldhavepapercupsfortheto-gobusiness,whichweknewwouldconstitutealargepartofourrevenues.Althoughespressotastesbetterinceramiccups,wedidn’treallyhaveachoice:Ifwedidn’toffercoffeetogo,businesswouldhavebeenminimal.Still, the core ideaworked.Within sixmonths,webuilt up to servingmore

than 1,000 customers a day. Our tiny 700-square-foot store, near the mainentranceofSeattle’stallestbuilding,becameagatheringplace.Wewerefillingavoidinpeople’slives.Theregularslearnedtopronouncethename,IlGiornale(iljor-nahl’-ee),andeventookprideinthewaytheysaidit,asiftheywerepartofaclub.Thatfirststorewasalittlejewel,definitelyaheadofitstime.Speed, we realized, was a competitive advantage. Our customers, most of

whomworkedinthebusydowntownofficebuildingsnearby,werealwaysinahurry.HapHewitt,aninnovativeengineerwhohadsetuptheconveyorbeltsinStarbucks’factory,alsoinventedaproprietarysystemforservingthreekindsofdripcoffeesimultaneously,modeledafterabeertap.Ourlogoreflectedtheemphasisonspeed.TheIlGiornalenamewasinscribed

in a green circle that surrounded aheadofMercury, the swiftmessengergod.Later,wecreatedaportablebackpacktapsystemandsentemployeesoutwithatrayandcupstosellcoffeeinoffices.WecalledthemtheMercurymen.Still,thekeytosuccess,wefigured,wasinthehandsofthepeoplewehired.

Dave trained them in coffeemaking; I taught them selling and managingtechniques.More important,we infused themwith adesire to achieve theBigDream,thespiritthattogether,wecouldaccomplishgreatthings.Dawn Pinaud was Il Giornale’s first employee. She helped me start the

companyandshemanagedtheColumbiaCenterstore.JenniferAmes-Karremancame on inMarch and worked as a barista fromDay One. She had been anadvertisingaccountexecutiveandhopedtogrowwiththecompany.In their enthusiasm, Dawn and Jennifer created systems that, while far too

sophisticatedforasinglestore,helpedusgetanaccuratepictureofourbusiness.Wekeptcarefulaccountsofourcoffee,ourpastries,ourcash,ourspoilage.Wetrackedalotofproductcategoriestoseewhatwassellingbest.Wealwaysknewwhatweneeded todo tomakeourbudget.Withall this information,wewere

abletosetdefinitegoalsaswebeganourrollout.In November, I hired Christine Day as my assistant. She had just ended a

maternity leaveandhadabusinessdegreeaswell as firsthandexperienceat afinancial company. She wound up doing nearly everything: administration,finance,computers,payroll,humanresources,purchasing,banking,andtyping.At first, she even prepared the profit and loss statements, balance sheets, andinventoryandsalesaudits.Shedidallthebookkeepingbyhand.LikeDaveandme,Christineimmediatelystartedworkingtwelve-hourdays,soquicklywasshecaughtupinourpassionandourconviction.One day,Christinewas negotiatingwith Solo, the huge paper cup supplier,

tryingtogetalowerprice.Aswewerehardlyamajorclient,theysawnoreasonto give us a break. “We’ll be your biggest customer someday,” Christine toldthem.Idoubttheybelievedit,butI’msureshedid.Weallhadsuchfaithintheenterprise that noneof us ever questionedour ability to becomeaworld-classcompany.Wewere, in many respects, like a family. I used to invite everyone to my

houseforpizza,andtheywatchedasmysonlearnedtocrawlandwalk.Onmythirty-thirdbirthday,theyorderedacakeandpresentedittomeasasurpriseinthe store. The customers gathered around and joined the baristas in singing“HappyBirthday,”embarrassingme,butfillingmewithgratitudethatwithallofourhardwork,wewerestillabletocreatesomefunforeachother.Weopenedasecondstorejustsixmonthsafterthefirst,inanotherdowntown

high-rise, theSeattleTrustTower at Second andMadison. For the third store,however, we went international, and picked a site in Vancouver, BritishColumbia, in the SeaBus Terminal, which opened in April 1987. That mighthaveseemedanillogicalchoiceforaventurewithonlytwostores.ButIfiguredthat,givenmydesiretogrowto50storesandgivenmyinvestors’doubtsaboutmy ability to expand outside Seattle, I needed to demonstrate quickly anddecisivelythatmyplanwasfeasible.Icouldn’taffordtowaittillthetenthstoretomakemymove.Ihadtodoitsoon.We had no idea of the complexities of exchange rates and customs and

different labor practices.Wenever considered the intricacies of operating in aforeign country, such as the need for a separate bank account, separatestatements for theCanadian government, and foreign exchange adjustments inouraccounting—allforonesmallcoffeebar.DavewentnorthtoopentheVancouverstoreandtotrainitsstaff.WhenDave

is involved inaproject,youknownotonly that it’sgoing tobedoneproperlybutalsothatit’sgoingtobedonefastidiously.Althoughhehadayoungfamily

inSeattle,he spentnearlyamonth inCanada, living inabudgethotel, just tomake sure our Il Giornale coffee bar there would be a mirror image of theserviceandauthenticityofourColumbiaCenterstoreinSeattle.AllthreeoftheIlGiornalestoresquicklycaughtonwithcustomers.Bymid-

1987,oursaleswerearound$500,000ayearforeachstore.Althoughwewerestilllosingmoney,wewereontracktoreachourambitiousgoals,andasateamwewereelatedaboutwhatwewerecreating.Ourcustomersweredelighted.Myvisionwasbecomingareality.

WHENYOUSEETHEOPPORTUNITYOFALIFETIME,MOVEQUICKLY

InMarchof1987,somethinghappenedthatchangedthecourseofmylife,andthatofStarbucks:JerryBaldwinandGordonBowkerdecidedtoselltheSeattlestores,theroastingplant,andthenameStarbucks,keepingonlythePeet’sassets.Gordonwantedtocashouttotakeabreakfromthecoffeebusinesstofocusonother enterprises,while Jerry,whowas dividing his time between Seattle andBerkeley,wantedtoconcentrateonPeet’s.Theyhadkepttheirideaquiet,butitwasnotcompletelyunexpectedtothose

whoknewthem.Iwasawareofsomeoftheirtroublesandthetensionbetweenthetwopartsofthecompany.AssoonasIheard,IknewIhadtobuyStarbucks.Itseemedlikemydestiny.Again,bashert.At that time, Starbuckswasmuch bigger thanwewere,with 6 stores to Il

Giornale’s 3.My company hadn’t yet completed a full year of operations, soStarbuckshadannualsalesmanytimesthesizeofours.Itwouldbelikeacaseofsalmonswallowingthewhale—or,asDaveput it,“thechild isfather to theman.”Buttome,thefitseemednaturalandlogical:NotonlywouldIlGiornalesoon need its own roasting plant, but Starbucks’ whole-bean business and IlGiornale’s beverage business complemented each other perfectly. Moreimportant,IunderstoodandvaluedwhatStarbucksstoodfor.Ihadonlyrecentlyexhaustednearlyeveryresourceinraising$1.25million.

NowIneeded to findnearly$4million tobuy theStarbucks’assets.Howeverdauntingthattaskappeared,IwasconfidentIcoulddoit.MyoriginalsupporterswereimpressedwiththeprogressIlGiornalehadmadeinashorttime,andIwassuresomeofthemwouldagreetoincreasetheirstake.Andotherinvestors,whohad said no the first time, were sure to jump in for this round, now that itinvolved buying Starbucks. If we managed it well, all the investors wouldbenefit.Quickly,wepulledtogetherthenumbers.IhadjusthiredRonLawrence,who

had years of experience in the restaurant business, to handle finance andaccountingandtodesignapoint-of-salesystemforthecompany.“Ron,” I said, “we need a pro forma and a complete private-placement

package to go out to our investors. We need to get all the financials onStarbucks.Canyoudoitinaweekortwo?”Hewas game, andwe set towork figuring how to raise enough to buy the

company and have some expansion capital as well. After arranging a line ofcreditwithlocalbanks,wepreparedanofferingcirculartodistributetoalltheIlGiornaleinvestorsandafewothersIhadcometoknow.Iwenttomyboardandrantheplanpastthem.Itseemedlikeasurewin.

WHATTODOWHENTHEYTRYTOGRABITFROMYOU

Then,oneday,itnearlyfellapart.IalmostlostStarbucksbeforeIeverhadit.While we were structuring the deal, I heard that one of my investors was

preparingaseparateplan tobuyStarbucks.Hisarrangementwouldnotevenlydistribute the ownership among Il Giornale shareholders, but would ensure adisproportionateshareforhimselfandsomeofhisfirends.Iwascertainthatthisman intended to reduce me from a founder and major shareholder to anemployeewithamuchsmaller,dilutedposition,runningStarbucksatthewillofanewboardhecontrolled. I also thoughthisplanwouldhaveunfairly treatedsomeofmyotherearlyinvestors,peoplewhohadtrustedmewiththeirmoneyforIlGiornale.Thepressureonmewasalmostunbearable.Thismanwasabusinessleaderin

Seattle, and I thought he had already lined up support from the city’s otherleading lights. I feared all my influential backers would defect to this newarrangement, leavingmewith no options. I went to Scott Greenburg, andweapproachedoneofhisseniorpartners,BillGates,fatherofMicrosoft’sfounder,whoatsixfeet,seveninches,wasatoweringfigureintown.Wepreparedanewstrategyandarrangedtomeetwiththeinvestor.BillGatesagreedtogowithme.Thedayofourmeetingwasoneofthetoughest,mostpainfulofmylife.Ihad

noideahowitwouldturnout,andmylife’sworkwasatstake.AsIwalkedin,Ifelt like theCowardlyLion,shakingonmywaytoanaudiencewith theGreatOz.Myopponent satat theheadofaconference table, larger than life, in fullcommandoftheroom.Withoutevenwaitingtohearmeout,hebeganblastingme.“We’vegivenyou thechanceofa lifetime,” I rememberhimshouting.“We

investedinyouwhenyouwerenothing.You’restillnothing.NowyouhaveanopportunitytobuyStarbucks.Butit’sourmoney.It’souridea.It’sourbusiness.This is how we’re going to do it, with or without you.” He sat back beforedeliveringtheultimatum:“Ifyoudon’ttakethisdeal,you’llneverworkagaininthistown.You’llneverraiseanotherdollar.You’llbedogmeat.”Iwasappalled,butIwasalsoangry.WasIjustsupposedtorolloverandtake

this?“Listen,”Isaid,myvoiceshaking.“Thisisthechanceofalifetime.It’smyidea!Ibroughtittoyou,andyou’renottakingitaway.Wewillraisethemoney,withorwithoutyou.”“Wehavenothingtodiscusswithyou,”hesaid.Othersintheroomsatquietly

orsupportedhim.When themeeting ended, Iwalkedout and started to cry, right there in the

lobby.BillGatestriedtoreassuremethateverythingwouldturnoutallright,buthewasaghastabout theoutburstat themeeting.I’mcertainhehadneverseenanythingquitelikeitbefore.Thatnight,whenIgothome,Ifeltasthoughmylifehadended.“There’sno

hope,” I told Sheri. “I don’t know how I’m going to raise themoney. I don’tknowwhatwe’regoingtodo.”Thiswasaturningpointinmylife.IfIhadagreedtothetermsthatinvestor

demanded,hewouldhavetakenmydreamfromme.Hecouldhavefiredmeatwhim and dictated the atmosphere and values of Starbucks. The passion, thecommitment,andthededicationthatmadeitthrivewouldhavealldisappeared.Twodayslater,withthesupportofSteveSarkowsky,Imetwithsomeofmy

otherinvestorsandpresentedmyproposal:EveryinvestorinIlGiornalewouldhaveachancetoinvestinthepurchaseofStarbucks.Theplanwouldbefairtoall of them, and itwouldbe fair tome.They saw that, and they toldme theyadmiredmyintegrityforrefusingtoagreetoaplanthatbenefitedbiginvestorsat the expense of smaller ones. They backed me, as did almost all my otherinvestors.Withinweeks,wemanagedtoraisethe$3.8millionweneededtobuyStarbucks,andlifehasnotbeenthesamesince.Manyofusfacecriticalmomentslikethatinourlives,whenourdreamsseem

ready to shatter.You can never prepare for such events, but howyou react tothem is crucial. It is important to rememberyour values:Bebold, but be fair.Don’tgivein.Ifothersaroundyouhaveintegrity,too,youcanprevail.It’s during such vulnerable times, when the unexpected curve balls hit you

hardon thehead, thatanopportunitycanbe lost. It’salso the timewhenyourstrengthistestedmosttellingly.Ican’tsaythatI’vemadetherightchoiceineverybusinessinteractionofmy

life.Butnomatterhowmuch Iachieve,nomatterhowmanypeople report tome, I cannot even imagine treating anyone as Iwas treated that day. Skepticssmirkwhentheyhearmetalkabout“treatingpeoplewithrespectanddignity,”aline we later used in the StarbucksMission Statement. They think it’s emptytalk,oratruismthatisself-evident.Butsomepeopledon’tlivebythatrule.IfIsensethatapersonlacksintegrityorprinciples,Icutoffanydealingswithhim.Inthelongrun,it’snotworthit.Those original investors, who put their faith in me, were well rewarded.

They’ve stood byme through tough times and trusted inmy integrity. I havetriedtoneverviolatethattrust.

ByAugustof1987,Starbuckswasmine.Itwaselectrifyingbutalsofrightening.Iwoke up early onemorning thatmonth and took a long run.By now, the

enormity of the task, and the responsibility, was starting to sink in. I had achancetoaccomplishmydreams,butIalsohadthehopesandfearsofnearlyahundred people resting on my shoulders. As I jogged through the lusharboretum,Isawalong,windingroadstretchingoutaheadofme,disappearingjustoverthecrestofthenexthill,intotheheavymist.TheStarbucksCorporationoftodayisactuallyIlGiornale.Foundedin1985,

it acquired theassetsofStarbucks in1987andchanged itsname toStarbucksCorporation. The company Jerry and Gordon founded was called StarbucksCoffeeCompany,andtheysoldustherightstothatname.TheircompanyisnowknownasPeet’s.Atthirty-four,Iwasatthebeginningofagreatadventure.Whatwouldkeep

me on trackwas not the size ofmy holdings butmy heartfelt values andmycommitmenttobuildinglong-termvalueforourshareholders.Everystepoftheway,Imadeitapointtounderpromiseandoverdeliver.Inthelongrun,that’stheonlywaytoensuresecurityinanyjob.

CHAPTER7ActYourDreamswithOpenEyes

Thosewhodreambynightinthedustyrecessesoftheirminds

Awaketofindthatallwasvanity;Butthedreamersofdayaredangerousmen,

Thattheymayacttheirdreamswithopeneyestomakeitpossible.

—T.E.LAWRENCE(OFARABIA)

ItwasasunnyFridayafternooninAugustthatgreetedmewhenIwalkedoutofthe lawyers’ offices after closing the deal to acquire Starbucks. People wererushingaroundthestreetsas if itwereanordinaryday,but I felt light-headed.JerryandGordonhadsigned,Ihadsigned,paperafterpaper.Acheckhadbeenpassed across the table. I had shaken handswith everyone and accepted theircongratulations.NowStarbuckswasmine.Automatically, Scott Greenburg and I strode across the street to Columbia

Center,tothatfirstIlGiornalestore.At2P.M.onasummerafternoon,therewasonlyoneother customer, awoman standing at thewindow, deep in thought. Igreetedthebaristas,whohadnoideaofthetransactionwehadjustcompleted.Theymademeadoppiomacchiato—twoshotsofespresso,markedwithadashof milk foam in a demitasse cup—and a cappuccino for Scott. We sat onbarstoolsnearthewindow.Herewewere,twoguysinourearlythirties,whoafewyearsearlierhadmet

eachotheronabasketballcourtandhadjustnowconcludeda$4milliondeal.Itwas a highly visible, career-making move for Scott as an attorney, and itpropelledmetothepresidencyofacompanyIhadjoinedasanemployee.Scott placed on the table between us the business plan, a hundred-page

confidentialdocumentwehadusedfortheprivateplacement.Onitscoverwerethe two logosof IlGiornaleandStarbucks.Wehadwritten itwithmeticulouscare, spelling out clearly everything I intended to do with Starbucks once IlGiornaleboughtit.Theplanhadbeenourbibleformonths,andnowithadcometo life. It was a thrilling moment, the kind you can’t believe you’re livingthrough.Scottliftedhiscoffeecupinatoast,hiseyessparkling.“Wedidit,”wesaidatthesametime.

COMINGHOMETOSTARBUCKS

The followingMondaymorning,August 18, 1987, themodern Starbuckswasborn.I stepped through the frontdoorof theold roastingplant again, as Ihad so

manytimesbefore,butnowasthenewownerandCEO.Iheadedstraighttotheroastingmachines.Theroastergreetedmewithasmileandathumponthebackand then turned to attend to the cooling tray,whichwas swirlingwith freshlyroastedbeans.Idippedmyhandsintothewarm,fragrantbeansandliftedoutahandful,rubbingthemslowlybetweenmyfingers.TouchingthebeansgroundedmetowhatStarbuckswasallabout,anditbecameadailytradition.AsIwalkedthroughtheplant,peoplegrinnedandhuggedmeandwelcomed

me.Itwaslikecominghome;thearomas,thesounds,thefaceswereallfamiliar.GayNivenwas there,withherbright redhair, andDeborahTippHauck,whonowoversawfivestores.IwashappytoseeDaveSeymourandTomWalters,aroaster. But despite their good wishes, I knew, some Starbucks people feltnervous. Their lives had just been changed, and they had had no say in thedecision.TheyknewStarbuckswouldchange,buttheydidn’tknowhow.WouldI lower the quality of the coffee? Would I ease some people out, or fail torecognizehowothershadgrownintheirjobs?Weremyfast-growthplansreallyfeasible?At10A.M.,Icalledeveryonetogetherforabigmeetingontheroastingplant

floor.Itwasthefirstofmany.Iwasmoreexcitedthannervous.Ihadwrittenjustafewpointsdownona5-

by-7notecard,torememberasIaddressedthegroup.Theywere:

1.Speakfrommyheart.2.Putmyselfintheirshoes.3.SharetheBigDreamwiththem.

OnceIstartedtalking,though,IfoundIdidn’tneedtolookatmynotes.“Itfeelssogoodtobeback,”Ibegan.Thetensionintheroomstartedtoease.

“Five years ago, I changed my life for this company. I did it because Irecognizedinityourpassion.AllmylifeIhavewantedtobepartofacompanyandagroupofpeoplewhoshareacommonvision.Isawthathereinyou,andIadmiredit.“I’m here today because I love this company. I love what it represents.”

Workingtogether,Itoldthem,wecouldtakeeverythingthatStarbucksmeanstothe people of Seattle andmultiply it on a national scale.We could share ourcoffeemissionsomuchmorewidely.“Iknowyou’rescared.Iknowyou’reconcerned,”Isaid.“Someofyoumay

evenbeangry.Butifyouwouldjustmeetmehalfway,IpromiseyouIwillnotletyoudown.IpromiseyouIwillnotleaveanyonebehind.“IwanttoassureyouthatI’mnotheretodoanythingtodilutetheintegrityof

thecompany.”ItwaseasyformetobeabletotalklikethatbecauseIhadbeenoneofthem.My goal, I announced, was to build a national companywhose values and

guidingprinciplesweallcouldbeproudof.IdiscussedmyvisionofthegrowthofthecompanyandpromisedtobringitaboutinawaythatwouldaddvaluetoStarbucks, not diminish it. I explained how Iwanted to include people in thedecision-makingprocess,tobeopenandhonestwiththem.“Infiveyears,”I toldthem,“Iwantyouto lookbackat thisdayandsay,‘I

wastherewhenitstarted.Ihelpedbuildthiscompanyintosomethinggreat.’”Most important, I assured them that nomatter which investors owned how

manyshares,Starbuckswastheircompanyandwouldremainso.Spirituallyandpsychically, itbelongedto them.Starbucks’bestdays, I told them,wereyet tocome.IwatchedtheirfacesasIspoke.Someofthemseemedtowanttobelievewhat

Iwassaying,butwereguarded.Othershadthatsmuglookofdoubterswhohadalreadydecidednottobuyintothisdream—atleastnotyet.Coming back to a company I knew inside and out gave me an incredible

advantage.Iknewtheorganization,bothitsweaknessesanditsstrengths.Withthatinsight,Icouldpredictwhatwouldbepossible,whatwouldn’tbepossible,andhowfastwecouldgo.

Butinthefewdaysafterthat,Ilearnedthattherewasoneseriousgapinmyknowledge:MoraleatStarbuckswasterrible.InthetwentymonthssinceIhadleft, divisions had grownwithin the company. People were cynical andwary,beatendownandunappreciated.Theyfeltabandonedbypreviousmanagementandanxiousaboutme.ThefabricoftrustandcommonvisionthatStarbuckshadhadwhenIfirstjoinedhadfrayedbadly.As the weeks went on, I learned the full extent of the damage. It quickly

becameobvioustomethatmynumber-oneprioritywouldhavetobetobuildanewrelationshipofmutualrespectbetweenemployeesandmanagement.Allmygoals,allmydreamswouldamounttonothingunlessIcouldachievethat.Thisrealizationwasagreat lessontome.Abusinessplanisonlyapieceof

paper,andeventhegreatestbusinessplanofallwillproveworthlessunlessthepeopleofacompanybuyintoit.Itcannotbesustainable,orevenimplementedproperly,unlessthepeoplearecommittedtoitwiththesameheartfelturgencyastheir leader. And they will not accept it unless they both trust the leader’sjudgmentandunderstandthattheireffortswillberecognizedandvalued.I had seen, with the small Il Giornale team, how much a few people can

accomplishiftheybelieveinwhatthey’redoing,withfervor.Starbuckscouldbesomuchmore,Iknew,ifitspeopleweremotivatedwiththesamezeal.TheonlywaytowintheconfidenceofStarbucks’employeeswastobehonest

with them, to share my plans and excitement with them, and then to followthroughandkeepmyword,deliveringexactlywhatIpromised—ifnotmore.NoonewouldfollowmeuntilIshowedthemwithmyownactionsthatmypromiseswerenotempty.Itwouldtaketime.

EMBARKINGONTHEFASTTRACK

“Lackofexperiencedmanagement”wasoneoftheriskfactorsIhadnotedinmyacquisition document. Thatwas an understatement. I had served for less thantwo years as president of a company of any size.DaveOlsen had run only asingle café for eleven years. Ron Lawrence, our controller, hadworked as anaccountantandcontrollerforseveralorganizations.ChristineDaywasadeptathandlingeverythingwethrewather,butshehadneverworkedasamanager.ThefourofusnowhadtofigureoutnotonlyhowtomergeIlGiornaleand

Starbucksbutalsohowtoopen125newstoresinfiveyears,aswehadpromisedinvestors.Wefiguredthatasourexpertiseincreased,weshouldbeabletoopen15thefirstyear,20thesecond,25thethird,30thefourth,and35thefifth.No

problem.Saleswouldgrowto$60million,andprofitswouldgrowin tandem.Theplanlookedgreatonpaper.Ihadneverattemptedanythingremotelysimilar,andinordertodoso,Iknew

Ineededtolearnquickly,hireexperiencedmanagers,andtakestepsimmediatelytowinoverthesupportandenthusiasmofStarbucks’people.Butrealizingwhatwasnecessaryhardlypreparedmefortheenormityofthe

undertaking.Withindays,IfeltasifIwereinawindtunnel,goinginthewrongdirection.UrgentissuesandproblemsofacomplexityIhadneverfacedbeforecamerushingatme.Anyoneofthemmightknockmyheadoff.ThatfirstMondaymorning,IwasinformedthatakeyStarbuckscoffeeroaster

and buyer had decided to resign. His departure left us with not a singleexperienced buyer and only a handful of junior roasters. Literally overnight,DaveOlsenhadtomastertheincrediblycomplexskillsofbuyingandroastingcoffee.Luckily,hejumpedinwithgusto.ThatopportunityturnedouttobeagodsendforDave.Itgavehim,inhisfield,

thesamechanceIwasgetting:thechancetogrowintoanewjob.Hebegantotravelaroundtheworldtotheleadingcoffee-producingcountries,togettoknowproducers, and to learnabout the agriculture andeconomicsof coffee.Hehadalwaysbeenourmost-valued “nose” for coffee,with thediscriminationof thefinestwinemaker.Now,asheexploreddifferentsourcesandblends,therangeofcoffeesStarbucksofferedgotevenbetter.We all got used to doing the impossible. In the first two months, Ron

Lawrencehadtoclosetheoffering,mergethefinancialrecordsofStarbucksandIlGiornale,putanewcomputersysteminplace,switchaccountingsystems,andconductafiscalyear-endaudit.“Okay,”hesaid,aftertakingstockofhistasks,“whatelse?”Myownurgent listkeptgettinglongeraswell.IknewIneededsomeoneto

helpmerunStarbucks,someonewhohadexperienceasacorporateexecutive.Iturned toaman Ihadmet throughmutual friends,LawrenceMaltz.Lawrencewas fifteen years older than I and had twenty years experience in business,includingeightyearsaspresidentofaprofitablepublicbeveragecompany.Lawrence invested in Starbucks and joined the company as executive vice

president in November 1987. I put him in charge of operations, finance, andhuman resources, while I handled expansion, real estate, design, marketing,merchandising,andinvestorrelations.Ourlittlemanagementteamdidn’texamineourmotivesforwantingtogrow

fast.Wesetout tobechampions, and speedwaspartof theequation.When Ilookedintothefuture,Isawabold,vividlypaintedlandscape—notastilllifein

subtlemutedcolors.NowthatwehadmergedwithStarbucks,ourIlGiornalegoalofopening50

stores in five years no longer seemed so farfetched. That’s why I promisedinvestorsin1987thatStarbuckswouldopen125storesinfiveyears.Wewouldgo public, someday. Customers would respect our brand so much that theywould talk of “a cup of Starbucks.” Long lines would form out the doors ofnewlyopenedstoresincitiesfarfromSeattle.PerhapswecouldchangethewayAmericansdrankcoffee.Itwasastretch,andplentyofpeopletoldmeitwasimpossible.Butthatwas

part of the appeal, for me and for many other people at Starbucks. Defyingconventionalwisdom, achieving against the odds, offers a thrill that’s hard totop.But my view of a successful business wasn’t just measured in number of

stores. Iwanted to create a brand name respected for the best in coffee and awell-run company admired for its corporate responsibility. Iwanted to elevatetheenterprise toahigherstandard, tomakeourpeopleproudofworkingforacompanythatcaredforthemandgavebacktotheircommunity.Inthoseearlydays,asIworkedtobuildtrust,Ibegantoenvisionthekindof

companyIultimatelywantedtocreate.Fosteringanatmosphereinwhichpeopleweretreatedwithrespectwasn’tsomethingIconsideredanintriguingoption;itwasessentialtothemissionofStarbucks.Wecouldneveraccomplishouraimsunlesswesharedacommonvision.Toattain that ideal,weneeded tocreateabusiness thatvalueditspeople, that inspiredthem,thatshareditsrewardswiththosewhoworkedwithustocreatelong-termvalue.I wanted to build a company that would thrive for years because its

competitiveadvantagewasbasedonitsvaluesandguidingprinciples.Iwantedtoattractandhireindividualswhoworkedtogetherwithasinglepurpose,whoavoided political infighting and loved reaching for goals others thoughtimpossible. I wanted to create a culture in which the endgame was not onlypersonalgratificationbutarespectedandadmiredenterprise.Insteadofasmalldream,Idreamedbig.Ifyouwanttobuildagreatenterprise,youhavetohavethecouragetodream

great dreams. If you dream small dreams, you may succeed in buildingsomethingsmall.Formanypeople, that is enough.But ifyouwant toachievewidespreadimpactandlastingvalue,bebold.Whowantsadreamthat’snear-fetched?

CHOOSINGANIDENTITY

Aftertheacquisition,Ihadtomakeacriticaldecisionaboutouridentity:Shouldwe keep the Il Giornale name, or should we consolidate under the nameStarbucks?Formost entrepreneurswhohave founded their first company,givingup its

name is like throwing away their baby. I certainly felt attached to IlGiornale,whichIhadcreatedoutofnothing.ButtheStarbucksnamewassomuchbetterknown,andIknewinmyheartthatitwastherightchoice.Still,IowedittotheoriginalIlGiornaleteamtocarefullyweightheprosandcons.Toconfirmmyinstincts,IwentbacktoTerryHeckler,whohadhelpedname

Starbucksyearsbefore.HehassincenamedseveralothersuccessfulproductsinSeattle,includingCinnabon,Encarta,andVisiosoftware.Idecidedtoholdtwomeetings—onewithmajorinvestorsandanotherwithemployees—todebatetheissue.IaskedTerrytopresenthisrecommendationsatbothmeetings.Hisopinionwasunequivocal.ThenameIlGiornale,hesaid,ishardtowrite,

spell, and pronounce. People find it obscure. After less than two years ofoperation,itwastoonewtohavewidespreadrecognition.Italianswerereallytheonlyoneswithalegitimateclaimtoespresso,andnoneofuswasItalian.The name Starbucks, in contrast, has magic. It piques curiosity. Around

Seattle, it already had an undeniable aura andmagnetism, and, thanks tomailorder,itwasbeginningtobeknownacrossAmerica,too.Starbucksconnotedaproductthatwasuniqueandmystical,yetpurelyAmerican.The hardest part was convincing the original Il Giornale employees, who

lovedtheItaliannamebecauseitcapturedtheromanceoftheauthenticespressoexperience.ThesmallIlGiornaleteamhadgrownastight-knitasafamilyandwas afraidof losingwhat theyhadworked sohard tobuild, swallowedupbywhattheyperceivedtobeagiantwithafifteen-yeartradition.After much soul-searching, we finally opted to take the Il Giornale name

down from the espresso bars and replace it with Starbucks. Throughout theprocess,IknewIhadtoleavemyegoatthedoor.Iwantedeveryoneinvolvedtomakethebestchoiceforthelong-termvalueofthebusinessandselectthenamethatwouldbestdifferentiateusfromthecompetition.Havinganamethatpeoplecould recognize and remember, a name people could relate to,would provideenormousequity.Thatname,clearly,wasStarbucks,notIlGiornale.Tosymbolizethemeldingofthetwocompaniesandtwocultures,Terrycame

upwithadesignthatmergedthetwologos.WekepttheStarbuckssirenwithherstarred crown, but made her more contemporary. We dropped the tradition-bound brown, and changed the logo’s color to Il Giornale’s more affirminggreen.

One by one, we also transformed the look of the original Starbucks stores,from brown to green, from Old World traditional to Italian elegance. In theprocess,wealsoremodeledandremerchandisedthemsothatallwereequippedtosellbothwhole-beancoffeeandespressodrinks.Thatcombinationcreatedanewtypeofstore,more thanretailbutnot restaurant, thathasbeenStarbucks’signaturepatterneversince.It’samarriagethathaslasted.

AVITALSHOWOFCONFIDENCE

ByDecember1987,asnewstorespreparedtoopeninChicagoandVancouverandthequalityofthecoffeeremainedhigh,initialdoubtssomeemployeeshadaboutmyintentionsbegantofade.Trustbegantobuild.I wanted people to feel proud of working at Starbucks, to believe in their

hearts that management trusted them and treated them with respect. I wasconvinced that under my leadership, employees would come to realize that Iwould listen to their concerns. If they had faith in me and mymotives, theywouldn’tneedaunion.Fortunately, one employee in a retail store also questioned the need for the

union.Asacollegestudent,DarylMoorehadstartedatStarbucksin1981asapart-time clerk in our Bellevue store. He later worked for six months in thewarehouseandvotedagainstunionization in1985.Althoughhecomes fromablue-collar family,Daryl didn’t see the need for a union as long as Starbucksmanagerswereresponsivetoemployeeconcerns.HehadleftStarbuckstotryhishandatstartingabusinessbutreturnedinlate1987toworkasabaristainourPike Place store. When he saw the changes I was making, he beganphilosophical debates with his colleagues and with the union representative,whom he knew. He did some research on his own and began an effort todecertifytheunion.Hewrotealetterandcarriedittomanystoresinpersontogetsignaturesofpeoplewhono longerwished toberepresentedby theunion.Whenhehadamajority,hepresentedthelettertotheNationalLaborRelationsBoardinJanuary.AsaresultofDaryl’sefforts,theunionnolongerrepresentedour store employees, although it did continue to represent ourwarehouse androastingplantworkersuntil1992.When somanyof our people supported decertification, itwas a sign tome

that they were beginning to believe I would do what I had promised. Theirdistrustwasbeginningtodissipateandtheirmoralewasrising.OnceIhadtheirfullsupport, IknewIcouldcounton themtoworkasa teamand imbue them

withtheenthusiasmtheywouldneedtospreadthewordaboutStarbuckscoffeearoundthecountry.

CHAPTER8IfItCapturesYourImagination,ItWillCaptivate

Others

Whateveryoucando,ordreamyoucan,...beginit.

Boldnesshasgenius,powerandmagicinit.

—GOETHE

Forfiveyears,from1987to1992,Starbucksremainedaprivatelyheldcompany.Iwasabletolearnmyjobandgrowintoitoutsidetheglaringspotlightthat iscast on publicly traded companies. With the support and approval of myinvestors, and ultimately the confidence of employees, we pushed ahead onmany fronts at once: national expansion, employee benefits, investing in thefuture,andmanagementdevelopment.The following chapters describe what we accomplished on each of these

frontsandrecounttheimportantlessonswelearnedduringStarbucks’formativeyears,when our culturewas being shaped. Itwas a time ofmany debates, ofhoning our core values, of standing firm on some issues and learning tocompromiseonothers.

SPECIALTYCOFFEEINAMEAT-AND-POTATOESTOWN

Perhapsthegutsiest,andpossiblytheriskiest,movewemadeduringthisperiodwasourentryintotheChicagomarket.Inhindsight,it’shardtobelievewetookonsuchachallengesoearlyinthedevelopmentofStarbucks.The idea had actually originated at IlGiornale, even before themarriage to

Starbucks.EventhoughatthatpointwehadonlytwocoffeebarsinSeattleandoneinVancouver,BritishColumbia,Iwaseagertoprovetheideacouldworkincities acrossNorthAmerica.A crucial testwould be to see if people in othercitieswouldbe receptive to the tasteofStarbucks coffee,whichwas stronger,richer,andmorerobustthantheywereusedto.Wouldourretailstoresbecomedaily gathering places like those I had seen in Italy? If this combination wasgoing tocatchonnationwide,weweregoing tohave to test the idea far fromhome,andthesoonerthebetter.Itprobablywouldhavebeenmoreprudent todelay theexpansionwhen the

Starbucks acquisition opportunity came up.But evenwhen Iwas absorbed inraisingmoneyforthatdeal,IrefusedtodroptheChicagoplan.OnceStarbucksandIlGiornalemerged, itwouldbeevenmorecritical toestablishthatgrowthwouldbefeasibleoutsideSeattle.Myobjectivewasanationalcompany,andIneededtoknowwhatthebarriersweretoattainingit.Anumberofbusinessexpertsmadevariousargumentsagainstopeningstores

in Chicago. Tiny Il Giornale didn’t have the infrastructure to support such amajor move. As Chicago was 2,000 miles away, it was logistically hard tosupplywith a perishable product like fresh-roasted coffee.Andhowcouldweguarantee the appeal of top-quality coffee in the heartland of Folger’s andMaxwellHouse?Chicagoans,Iwastold,wouldneverdrinkdark-roastedcoffee.For take-out, they preferred the coffee they got at theWhite Hen Pantry, thelocalconveniencestorechain.If I had listened to the prevailing wisdom, I would have waited till the

acquisition was complete, built up a strong home base in Seattle, and thengraduallyexpandedtonearbycities,specificallyPortlandandVancouver,wheretherewasademonstratedappetiteforspecialtycoffee.But Iwanted togo toChicago. It’s a citywith a cold climate, great forhot

coffee. The downtown area is much bigger than Seattle’s. It’s a city ofneighborhoods, which usually welcome local gathering places. Before 1971Seattlitesdidn’tknowanythingaboutdark-roastedcoffee,either.Whycouldn’tChicagoanslearntoloveitevenmorequickly?Asithappened,anenthusiasticrealestatebrokerinChicagohadthreeorfour

locationstoshowus,andJackRodgersandIwenttocheckthemout.Anearlyinvestor in Il Giornale, Jack was a veteran in the franchising and restaurant

business, and also a native Chicagoan. With his fatherly affection andsentimentalheart,hehadbecomeafriendandadviser,aconsultantwecouldpayonly inwhat seemed tobeworthless stock.Hewasanearlymemberof the IlGiornaleboardofdirectorsandbecameanexecutiveofthecompanywhenwepurchased Starbucks. He remained a valued member of our executivemanagementteamfortenyears.BecauseIlGiornalehadlittlemoney,JackandIsharedahotelroom.Wehad

notyetcompletedtheStarbucksacquisition.Thenextday,aswemadeourwaythroughChicago’scrowdedstreetsonourwaytolookatsites,Isaid,“Jack,fiveyearsfromnow,everyoneofthesepeopleisgoingtobewalkingaroundholdingaStarbuckscup.”Helookedatmeandsaid,laughing,“You’recrazy.”ButIcouldjustseeit.Weeventuallysignedaleaseforaprimedowntownlocation,nearthecorner

ofWestJacksonandVanBuren,oneblockfromSearsTower.IaskedChristineDay to take care of the logistics. She opened the Yellow Pages and startedlookingupfreightcompanies.Wedidn’tknowitcouldn’tbedone,sowejustdidit.Weopenedthatfirststore,asStarbucks,inOctoberof1987—theverydaythe

stockmarketcrashed.Butitwasadisasterforotherreasons.Ididn’trealizethattobesuccessfulinChicago’sLoopweneededtoopenintoalobby.Becausethewinters are so cold andwindy, no onewants towalk outside to get a cup ofcoffee.Ourstorefacedthestreet.Afewyears later,wecloseditdown,oneofthe few timeswe’vemade an error in site selection.Yet in hindsight, I thinkshuttingitdownprobablywastherealmistake.Ifwehadhadthepatience,todaythatsitewouldhaveprovenawinner.We jumped feet first into Chicago, so in love with our product that we

couldn’t imagine that everybody else wouldn’t love it, too. Over the next sixmonths,weopenedthreemorestoresinthearea.Butbythetimethelongwinterwasover,werealizedthatChicagoanswerenotexactlybreakingdownourdoorstobuyourcoffee.Andtherewereotherproblems.Costsofgoodswerehigherthere.Manyoftheearlyemployeesweren’tbuyingintoeitherourcoffeeorourdream.Andmanycustomersjustdidn’tgetit.Over the next two years, we lost tens of thousands of dollars in Chicago.

Starbucks’ directors began asking some tough questions, and at first I didn’treally have good answers. I knew the storeswould eventuallywork, but howcouldIconvincethem?When we tried to attract venture capitalists in late 1989, some potential

investors sawus floundering inChicago and challenged thewhole premise ofmy growth plan. Theywondered if Starbuckswas at the front of a long-termtrendor if itwasafad;untilwesucceededinChicago,wecouldn’tprovethatour ideawas transportable throughoutNorthAmerica.Wedidmanage to raisethemoneyweneeded,butatafarlowerpricepersharethanwehadhopedfor.Itwasn’tuntil1990,afterwehiredHowardBehartorunourretailoperations,

thatChicagobegantoturnthecorner.Thesolutionincludedhiringexperiencedmanagers and raising the prices we charged to reflect higher rents and laborcosts.What really solved the problem, though, was simply time. In Chicago,loyal customers were saying the same thing as in Seattle; there just weren’tenoughofthem.By1990,though,acriticalmassofcustomershadcaughtontoourtasteprofile.Manyswitchedfromourdripcoffee,whichwasstrongerthantheywereused to, to cappuccinos and caffè lattes,which tend to appealmoreoftenonfirsttaste.Astheygottoknowus,manyChicagoansgraduallylearnedtolovedark-roastedcoffee.Today,Starbuckshasbecomesomuchapartofthelandscapeandcultureof

Chicagothatalotofresidentsthinkit’salocalcompany.

DISPROVINGTHEDOUBTERS

As time went on and we reached each goal, our self-confidence grew. Weacceleratedthepaceofstoreopenings,aimingtooutdoourselveseachyear.Onabase of 11 stores,we opened 15 new stores in fiscal 1988. For the followingyear,wefiguredwecouldopen20more.Whenwerealizedourtargetsweren’tashardtohitastheylooked,wechallengedourselvestoharderones.Westartedopeningmorestoresannuallythanintheoriginalplan:30infiscal1990,32in1991,53in1992—allcompany-owned.Eachtimeweachievedabigdream,wewerealreadyplanningforabiggerone.Yetthisself-assurancewasalwayscounterbalancedbyameasureoffear.With

our greater visibility, I became increasingly afraid of waking up the sleepinggiants, the big packaged food companies. If they had begun to sell specialtycoffee earlyon, theycouldhavewipedusout.Butwith everypassingmonth,quarter,andyear,witheverynewmarketweentered,Igainedconfidencethatitwas going to get harder and harder for them to displace us.With a businessbased on the next price discount and no retail store experience, they weren’tequippedtoestablishthesamesortofcloserelationshipwiththecustomerthatwehad.I also worried about competition from other specialty coffee companies.

While many were poor operators or franchisers, others roasted good coffee,ownedtheirownstores,andenjoyedastrongreputationintheirlocalregions.Ifoneofthemhaddevelopedahungertogonationalandobtainedthecapitaltodoso,itcouldhavepresentedaseriouschallengetous.Butbythetimeanyofthemdecidedtogrow,itwastoolate.Ourcompetitivestrategywastowincustomersbyofferingthebestcoffeeand

customerserviceandaninvitingatmosphere.Wetriedtobefirstineachmarketif we could, but then to succeed by playing fair, with integrity and highprinciples.Until1991,weconfinedourexpansiontoChicagoandthePacificNorthwest,

fromPortlandthroughSeattletoVancouver.Ourstrategywastogainafootholdineachmarketandcreateastrongpresence therebeforewemoved toanothercity.But evenwith this regional concentration,we found ourselves beginning to

gain a national following through the medium of mail order. Starbucks hadstarted serving customers bymail in themid-1970s,mostly travelerswhohadvisitedoneofthestoresorpeoplewhohadrecentlymovedawayfromSeattle.Atfirst,wejustmailedoutasimplebrochurelistingourproducts.In1988,wedeveloped our first catalogue and began expanding our mail-order base totargeted demographic groups. In 1990, we invested in a small phone andcomputersystemtosetupour800number.Thatallowedustoextendourone-on-one discussions to some of ourmost knowledgeable customers.Beforewehad national retail distribution,mail orderwas awonderful vehicle to nurtureloyalcustomersandtobuildawarenessofStarbucksacrossAmerica.Sincetheyhadtomakeaspecialeffort toobtainourcoffee,mail-orderbuyerswereoftenthe most loyal customers, and it made sense to open stores in cities andneighborhoodswheretheywereclustered.By1991,wewerereadyforthenextbigmarketentry,which,weagreed,had

to beCalifornia.With its host of neighborhood centers and openness to high-quality, innovative food, itwas an attractive opportunity.Although it’s a hugestate with diverse regions, we viewed it as one market. Given the size of itspopulation,wecould achieve economiesof scale ifweopenedmany stores atonce. Inaddition, itwasclose toSeattleand therefore relativelyeasyforus toreachandsupply.Still,wedebatedthebestwaytomakeourentryintoCalifornia.Somewanted

tostartwithSanDiego;IvotedforLosAngeles.ButL.A.istoosprawlingandcomplex,Iwaswarned.Peopledon’twalk,theydrive.Thatwillhurtus.Othersquestioned whether Starbucks could even succeed in a warm climate. Would

peopletherereallychoosetodrinkhotcoffee?Despitethereasonableargumentsmadeagainstthemove,Ifinallyputastake

inthegroundandsaid:“We’regoingtoL.A.”In the building of a retail brand, you have to create awareness and attract

people’s favorable attention.Youhave to become in vogue.You need opinionleaderswhonaturallyendorseyourproduct.Withitsstatusasatrendsetteranditsculturaltiestotherestofthecountry,LosAngeleswastheperfectplaceforStarbucks. If we could become the coffee brand of choice in Hollywood, itwouldnotonlyhelpourexpansionintotherestofCaliforniabutalsoserveasajumping-offpointtoothermarketsaroundthecountry.Thanks tocarefulplanningandabitof luck, that isexactlywhathappened.

L.A. embraced us immediately. Before we opened our first store, the LosAngelesTimes namedus the best coffee inAmerica.Unlike our experience inChicago, we never had to struggle with a learning curve. Almost overnight,Starbucks became chic.Word ofmouth, we discovered, is far more powerfulthanadvertising.SanFranciscowasahardermarkettoenter.Underthetermsofouracquisition

of Starbucks in August 1987, we had agreed not to open stores in northernCaliforniaforfouryears,toavoidcompetingwithPeet’s.IwroteanimpassionedlettertoJerryBaldwin,whostillownedPeet’s,askingifwecouldn’texploreawaytojoinforcesandcooperateratherthancompete.Buthesaidno.By early 1992, we were ready to enter San Francisco but faced another

problem:Thatcityhadamoratoriumonconvertingstores to restaurant-relateduses incertainprimeurbanneighborhoods.Wecould sell coffeebeveragesandpastries forourcustomers toconsumeat stand-upcountersbutcouldnotofferseatinginlocationsthathadformerlybeenusedbygeneralretailers.Wetookarisk,optingtoopenstoresinvisiblelocationsonprimeshoppingstreets.ArthurRubinfeld, then an outside real estate broker, along with other café owners,convinced the City Council to add a new classification to the zoning code toallow “beverage houses”with tables and chairs. Once the codewas changed,many cafés opened, reenergizing the neighborhood street life in severalcommunitiesinthecityofSanFrancisco.Asourgrowthbecamemorevisible,ourbiggestdoubterswereothers in the

specialty coffee business. Many of them assured us that our plans wereunworkable.EvenAlfredPeet,a longtimeadmirerofStarbucks,predicted thattheexcellenceofourcoffeewouldsufferifweattemptedtosellitnationwide.Onereasontheydoubteduswastheconventionalwisdomthatthewhole-bean

coffee business would always have to remain local, with stores close to the

roasting plant. If you shipped fresh-roasted coffee beans to stores half acontinentaway,mostpeoplebelieved,theywouldlosetheirfreshnessandflavor.In1989,wefiguredoutananswertowhatseemedanimpossibleconundrum.

WebeganusingFlavorLockbags,akindofvacuumpackagingwithaone-wayvalvetoallowcarbondioxidegasestoescapewithoutallowingharmfulairandmoisture in. This device, used by Starbucks in the early 1980s for wholesalecustomersonly,enabledustopreservefreshnessbyputtingcoffeeinfive-poundsilverbagsrightafterroastingandsealingintheflavorbeforeshipping.Oncethebag is opened, the fresh flavor begins to decline, so the coffee must be soldwithinsevendaysorwedonateittocharity.In retrospect, the reintroductionofFlavorLockbagswasakeydecision that

madeourexpansionstrategyfeasible.Itallowedustosellandservecoffeewiththe highest freshness standards even in stores thousands of miles from ourroastingplant.Itmeantwedidnotneedtobuildaroastingplantineverycityweentered.EvenourSeattlestores,whichareonlyminutesfromtheroastingplant,receivefresher-tastingcoffeebecauseofthesebags.Everytimeweopeninanewcity,someonepredictswe’llfail.Sofar,they’ve

beenmistaken.Forme,thethrillofbusinessisintheclimb.Everythingwetrytoachieveis

likeclimbingasteepslope,onethatveryfewpeoplehavemanagedtoscale.Themoredifficulttheclimb,themoregratifyingtheeffortputintotheascentandthegreater the satisfaction upon reaching the summit. But, like all dedicatedmountainclimbers,we’realwaysseekingahigherpeak.

THETHIRDPLACE

I like to think of myself as a visionary, but I have to admit that the wholespecialtycoffeephenomenongrewa lotbiggeranda lot faster thanIhadeverimagined.Nobody believed that espresso would jump out of its narrow niche and

becomesopopularandwidelyacceptedadrink.Nobody foresaw that coffee bars and espresso cartswould appear on street

corners and in office lobbies all across America, with more opening everymonth.Nobody imagined that even fast-food places and gas-station convenience

storeswouldhangbig“espresso”signsintheirwindowstolureincustomers.Whenaninnovativeideaforaretailstoremakeshistorybycreatingawhole

newparadigm,it’srewardingforanyonewho’shadtheforesighttorecognizeits

meritsearlyon.Whenitcreatesanewsocialphenomenon,whenitgivesrisetoa new vocabulary that finds its way onto TV talk shows and sitcoms, andultimately becomes part of theAmerican lexicon,when it becomes a definingelementofthecultureandadecade,it’sgonefarbeyondbeingsimplythetimelybrainstormofasingleentrepreneurorasmallteam.Starbucks’successinsomanydifferenttypesofcitieseventuallyforcedmeto

ponder:Whatisitthatpeoplearerespondingto?WhydidStarbucks,andsimilarcafés, strike a chord in so many disparate places? What need are we reallyfulfilling?WhydosomanycustomerswillinglywaitinlonglinesatStarbucksstores?Whydosomanylingerafterward,evenwithato-gocupintheirhands?Atfirst,wefigureditwassimplybecauseofthecoffee.Butastimewenton,werealizedthatourstoreshadadeeperresonanceand

wereofferingbenefitsasseductiveasthecoffeeitself:Atasteofromance.AtStarbucksstores,peoplegetafive-orten-minutebreak

thattakesthemfarfromtheroutineoftheirdailylives.WhereelsecanyougotogetawhiffofSumatraorKenyaorCostaRica?WhereelsecanyougetatasteofVeronaorMilan?Justhavingthechancetoorderadrinkasexoticasanespressomacchiatoaddsasparkofromancetoanotherwiseunremarkableday.An affordable luxury. In our stores you may see a policeman or a utility

workerstandinginlineinfrontofawealthysurgeon.Theblue-collarmanmaynotbeabletoaffordtheMercedesthesurgeonjustdroveupin,buthecanorderthe same $2.00 cappuccino. They’re both giving themselves a reward andenjoyingsomethingworldclass.Anoasis.Inanincreasinglyfracturedsociety,ourstoresofferaquietmoment

togatheryourthoughtsandcenteryourself.Starbuckspeoplesmileatyou,serveyouquickly,don’tharassyou.AvisittoStarbuckscanbeasmallescapeduringadaywhensomanyotherthingsarebeatingyoudown.We’vebecomeabreathoffreshair.Casualsocialinteraction.Oneoftheadvertisingagenciesthatpitchedforour

businessinterviewedLosAngeles–areacustomersinfocusgroups.Thecommonthread among their comments was this: “Starbucks is so social. We go toStarbucksstoresbecauseofasocialfeeling.”Yet,strangely,theagencydiscoveredthatfewerthan10percentofthepeople

theyobserved inour stores at anygiven timeactually ever talked to anybody.Mostcustomerswaitedsilentlyinlineandspokeonlytothecashier toorderadrink.Butsomehow, justbeing inaStarbucksstore, theyfelt theywereout intheworld,inasafeplaceyetawayfromthefamiliarfacestheysaweveryday.InAmerica,we are indangerof losing thekindof casual social interaction

that is part of thedaily routine formanyEuropeans. In the1990s, coffeebarsbecameacentralcomponentoftheAmericansocialsceneinpartbecausetheyfulfilledtheneedforanonthreateninggatheringspot,a“thirdplace”outsideofwork and home. Ray Oldenburg, a Florida sociology professor, wrote mosteloquentlyofthisneedinhisbook,TheGreatGoodPlace(1989).Oldenburg’sthesisisthatpeopleneedinformalpublicplaceswheretheycan

gather,putasidetheconcernsofworkandhome,relax,andtalk.Germany’sbeergardens,England’s pubs, andFrench andViennese cafés created this outlet inpeople’slives,providinganeutralgroundwhereallareequalandconversationisthemainactivity.Americaoncehadsuchspots,initstaverns,barbershops,andbeauty parlors. But with suburbanization, they are vanishing, replaced by theself-containmentofsuburbanhomes.AsOldenburgobserves:

Withoutsuchplaces, theurbanareafails tonourishthekindsofrelationships and the diversity of human contact that are theessence of the city. Deprived of these settings, people remainlonelywithintheircrowds.

However well they seem to have stepped into the role, though, Starbucksstores are not yet the ideal Third Place.We don’t have a lot of seating, andcustomersdon’toftengettoknowpeopletheymeetthere.Mostjustgrabtheircoffeeanddepart.Still,Americansaresohungryforacommunitythatsomeofourcustomersbegangatheringinourstores,makingappointmentswithfriends,holding meetings, striking up conversations with other regulars. Once weunderstood the powerful need for a Third Place, wewere able to respond bybuildinglargerstores,withmoreseating.Insomestores,wehireajazzbandtoplayonweekendnights.While my original idea was to provide a quick, stand-up, to-go service in

downtownofficelocations,Starbucks’fastestgrowingstorestodayareinurbanor suburban residential neighborhoods. People don’t just drop by to pick up ahalf-pound of decaf on their way to the supermarket, as we first anticipated.Theycomefortheatmosphereandthecamaraderie.The generation of people in their twenties figured this out before the

sociologists.As teenagers, theyhadnosafeplace tohangoutexceptshoppingmalls.Nowthattheyareolder,somefindthatbarsaretoonoisyandraucousandthreatening forcompanionship.So theyhangout incafésandcoffeebars.Themusicisquietenoughtoallowconversation.Theplacesarewell-lit.Nooneiscarded,andnooneisdrunk.SometimesagroupwillgatherataStarbucksbefore

headingofftoamovieorotherentertainment;sometimestheyjustmeettotalk.Theatmosphereobviouslyworksforromance,aswell.We’vereceiveddozens

oflettersfromcoupleswhometatStarbucks,whetherduringthemorningrushor in the lazy evening hours. One couple even wanted to get married at aStarbucksstore.Other trendsof the1990s alsonourish thegrowthof suchgatheringplaces.

Moreandmorepeopleareworkingfromhomeoffices,telecommutingbyphoneandfaxandmodemwithdistantoffices.Theygotocoffeestoresforthehumaninteraction they need on a regular basis.As the Internet becomes increasinglywidelyused,peoplespendmoretimesittinginfrontoftheircomputers.There’snointeractiverelationshipwithanythingbutthatbox.IsitmerecoincidencethatcoffeebarsbecamepopularatthesametimeastheInternetwasgrowing?Manycities,likeSeattle,havecybercafés,gatheringplacesforpeoplewholovecoffee,computers,andsocializing.Backin1987,noneofuscouldforeseethesesocialtrends,andhowourstores

would accommodate them. What we did, though, was to appeal to thesophistication and wisdom and better nature of our potential customers,providingthemthekindofmusicandatmospherethatwelikedforourselves.Peopledidn’tknowtheyneededasafe,comfortable,neighborhoodgathering

place.Theydidn’tknow theywould like Italianespressodrinks.Butwhenwegaveittothem,thefervoroftheirresponseoverwhelmedus.That’swhyourexpansion—gutsyas itwas—succeededevenbetter thanwe

imagined.Bigopportunitieslieinthecreationofsomethingnew.Butthatinnovationhas

toberelevantandinspiring,oritwillburstintocolorandfadeawayasquicklyasfireworks.

CHAPTER9PeopleAreNotaLineItem

Wealthisthemeansandpeoplearetheends.Allourmaterialricheswillavailuslittleifwedonotusethemtoexpandtheopportunitiesofourpeople.

—JOHNF.KENNEDY,STATEOFTHEUNION,JANUARY1962

ALESSONOFLOSS

Throughout1987myfather’slungcancergrewworse.IkeptinfrequenttouchbyphoneandflewbacktoNewYorkwheneverIcould.Mymotherwasbynowspending every day with him in the hospital, having given up her job as areceptionist,andreliedonthesupportofmybrother,sister,andme.Then one day, in early January 1988, I received an urgent call from my

mother.Ihadbeenexpectingitforfiveyears,butyoucanneverbepreparedforthetensenessofheartthatclampsyouatamomentlikethat.ItookthefirstplanetoNewYorkand, fortunately,arrived in time toseemydad thedaybeforehedied.Isatnexttohishospitalbed,myhandonhis,andtriedtothinkofthewaywewere twenty years earlier,when he taughtme to hit a baseball or throw afootball.

SomanyemotionswerebattlinginmyheadatthattimethatIcouldn’tthinkstraight.The regrets Ihadalwayshadaboutmydad’s life struggleswerenowmixedwithgriefandloss;thefantasiesI’dhadofhowhemighthavelivedhislife clashedwith the dreamsofmyown thatwere coming true; the anguishedlookinhiseyeshelpedmecomprehendthesignificanceofalltheyearshehadworked for us and all the lives that now depended on me. On that last day,nothinginmylifematteredincomparisontothepainhewassuffering.Oneoftheterribletragedies,forme,wasthefactthatmyfatherpassedaway

beforehecouldwitnesswhatIachieved.OnhislastvisittoSeattle,IhadtakenhimtothefirstIlGiornalestore,whenitwasstillunderconstruction.ButnowIcouldnevershowhimthegrowing,thrivingenterprisethatwasStarbucks.Ifhecouldhavewatchedthecompanygrow,hewouldn’thavebelievedit.Soonafterhisdeath,Ispentsometimewithagoodfriendwhohasknownme

sincechildhood.HewasthenworkinginGermany,whereIhadgoneforatradeshow.We talked for hours onenight over beers, and I discussedmy confusedfeelingsaboutmyfather.“Ifyourdadhadbeensuccessful,”hesaid,“maybeyouwouldn’thavehadas

muchdriveasyouhave.”My friendwasprobably right.Partofwhathas alwaysdrivenme is fearof

failure,forIknowtoowellthefaceofself-defeat.Ifinallycametotermswithmybitternessandlearnedtorespectthememory

ofwhatmydadwas, insteadofregrettingwhathewasnot.Hedidthebesthecould.HepassedawaybeforeIwasabletotellhimIunderstoodthat.That’soneof thegreat lossesofmy life. Itwaswrongofme toblamehim for failing toovercome circumstances beyond his control. But it was also wrong that inAmerica, land of dreams, a hard-workingman like him couldn’t find a nichewherehewouldbetreatedwithdignity.Itwasastrangebutfittingcoincidencethatduringmydad’sfinalmonths,my

majorpreoccupationatworkwasbuildingtrustwiththeemployeesofStarbucks.Isawonsomeoftheirfacesthesamedoubtsabouttheintentionsofmanagementthat my father had expressed so often to me. People felt undervalued anduncertainabout theirfuture,andat timestheydirectedtheirangeratme,ashehad.ButIwasnolongerahelplesskid.Iwasinapositiontodosomethingabout

the insecurity and lack of respect that seemed to be becoming far toocommonplaceinmuchofAmericanbusiness.Withinayear,Idid.

THEPAYOFFOFACOSTLYHEALTHPLAN

It’s an ironic fact that, while retail and restaurant businesses live or die oncustomerservice,theiremployeeshaveamongthelowestpayandworstbenefitsofanyindustry.Thesepeoplearenotonlytheheartandsoulbutalsothepublicfaceofthecompany.Everydollarearnedpassesthroughtheirhands.Inastoreorrestaurant,thecustomer’sexperienceisvital:Onebadencounter,

andyou’velostacustomerforlife.Ifthefateofyourbusinessisinthehandsofatwenty-year-oldpart-timeworkerwhogoestocollegeorpursuesactingontheside,canyouaffordtotreathimorherasexpendable?From the beginning ofmymanagement of Starbucks, Iwanted it to be the

employer of choice, the company everybody wanted to work for. By payingmore than the going wage in restaurants and retail stores, and by offeringbenefits thatweren’t available elsewhere, I hoped thatStarbuckswould attractpeople who were well-educated and eager to communicate our passion forcoffee. To my thinking, a generous benefits package was a key competitiveadvantage. So many service-oriented companies have the opposite view,regarding benefits for entry-level people as a cost to be minimized, not anopportunitytoattractandrewardgoodpeople.Iwantedtowintherace.ButIalsowantedtomakesurethatwhenwegotto

thefinishline,noonewasleftbehind.Ifasmallgroupofwhite-collarmanagersandshareholderswonattheexpenseofemployees,thatwouldn’tbeavictoryatall.Wehadtobeinapositionwhereweallreachedthetapetogether.Aftermydaddied,Iwantedtomakeagesture toStarbucks’employees that

wouldcementthetrustwewerebuilding.Ideally,Iwouldhavelikedtobeabletomakethemallownersofthecompany,butIknewthat,intheshortterm,wewouldbelosingmoneywhileweinvestedinthefuture.Forafewyears,atleast,therewouldbenoprofitstoshare.SoIneededtocomeupwithanotherwaytorewardthem.Oneoftherequests

employees hadmade to the original owners had been health benefits for part-timeworkers.Theywereturneddown.Thesymbolismwasn’tlostonme.Idecidedtorecommendtotheboardofdirectorsthatweexpandourhealth-

care coverage to include part-timers who worked as little as twenty hours aweek.In the late 1980s, employer generosity was hopelessly out of fashion.

Corporate raiders and soaring health-care costs had forced many Americanexecutives to reduce benefits. Under the prevailing mantra of “maximizingshareholdervalue,”CEOswereapplaudedbyWallStreet if theycutcostsand

laidoffthousands.Companiesthatdidvaluetheiremployeesaboveshareholderswere mocked as paternalistic and uncompetitive. They were encouraged tobecomemorehard-nosed,tocutbloatedpayrolls,andtobecomeleanandmean.White-collarworkers,too,werelearningthehardwaythatloyaltydidn’tpay.Atthesametime,health-carebillsweresoaringtounmanageableheights.The

cost ofmedical care rose far faster than the consumer price index, especiallyduringthelate1980s.Fewcompaniescoveredpart-timeworkersatall,andthosewhodid restrictedbenefits to thoseworkingat least thirtyhoursaweek.Mostexecutives were actively looking for ways to contain their medical insuranceexpenses.Starbuckswenttheotherdirection:Insteadofcuttinghealth-carebenefits,we

foundawaytoincreaseours.Isawmyplannotasagenerousoptionalbenefitbutasacorestrategy:Treat

peoplelikefamily,andtheywillbeloyalandgivetheirall.Standbypeople,andtheywill stand by you. It’s the oldest formula in business, one that is secondnaturetomanyfamily-runfirms.Yetbythelate1980s,itseemedtobeforgotten.When I first presented this plan, Starbucks’ directors were skeptical. I was

proposing to raise expenses at a time when Starbucks was struggling to stayafloat.Howcouldweafford toexpandhealth-carecoveragewhenwecouldn’tevenmakeaprofit?At that time, our boardmembers were all big individual investors, or their

representatives,andfewofthemhadexperiencemanagingandmotivatinglargenumbersofpeople. “Howcanyoube so extravagant towardemployees—withourmoney?”theyasked.“Howcanyoupossiblyjustifythecost?”But Iarguedpassionately that itwas the right thing todo.On thesurface, I

acknowledged,itwillseemmoreexpensive.Butifitreducesturnover,Ipointedout, itwill cut our costs of recruiting and training.Starbucksprovides at leasttwenty-fourhoursoftrainingforeveryretailemployee,soeachpersonwehirerepresentsasignificantinvestment.Atthattime,itcost$1,500ayeartoprovideanemployeewithfullbenefits,comparedwith$3,000totrainanewhire.Manyretailers encourage turnover, either consciously or unconsciously, in the beliefthat itkeepsdownwagesandbenefits.Buthighturnoveralsoaffectscustomerloyalty.Someofourcustomersaresuchregularsthattheminutetheywalkintothestore,abaristarecalls theirfavoritedrink.If thatbarista leaves, thatstrongconnectionisbroken.Part-timers, I argued, are vital to Starbucks. In fact, they represented two-

thirdsofourworkforce.Ourstoreshavetoopenearly—sometimesat5:30or6A.M.—andoftendon’tcloseuntil9

P.M. or later.We depend on peoplewilling towork short shifts on a steadybasis. Inmany cases, part-timers are students or individualswho are jugglingother obligations. They want health-care benefits as much as the full-timeemployee does, and I argued strongly that we should honor and value theircontributiontothecompany.The board approved, andwe began offering full health benefits to all part-

timersinlate1988.Tomyknowledge,webecametheonlyprivatecompany—andlatertheonlypubliccompany—todoso.Itturnedouttobeoneofthebestdecisionswehaveevermade.It’strue,our

health insurance program is costly. Over the years, we’ve added coverage farmore generous than most companies our size, with coverage for preventativecare,crisiscounseling,mentalhealth,chemicaldependency,vision,anddental.Starbucks subsidizes 75 percent of coverage; each employee pays only 25percent. We also offer coverage for unmarried partners in a committedrelationship.Sinceouremployees tend tobeyoungandhealthy,our rates staywithin reason, allowing us to afford broader coveragewhile keepingmonthlypaymentsrelativelylow.ButStarbucksgetsbackplentyforitsinvestment.Themostobviouseffectis

lowerattrition.Nationwide,mostretailersandfast-foodchainshaveaturnoverrate ranging from150 percent to as high as 400 percent a year.At Starbucks,turnover at the barista level averages 60 percent to 65 percent. For storemanagers, our turnover is only about 25 percent, while at other retailers, it’sabout50percent.Betterbenefitsattractgoodpeopleandkeepthemlonger.Moresignificantly,Ifoundthatthehealthplanmadeahugedifferenceinthe

attitudes of our people. When a company shows generosity toward them,employeesshowamorepositiveoutlookineverythingtheydo.The true value of our health-care program struckmemost deeply in 1991,

whenwe lost one of our earliest andmost devoted partners, JimKerrigan, toAIDS.JimstartedasabaristabehindthecounterofoursecondIlGiornalestore,in1986,andhequicklyrosetothepositionofstoremanager.JimwasafantasticadvocateofIlGiornaleandlaterofStarbucks.Helovedit.Then one day, Jim came intomy office and toldme he hadAIDS. It took

incredible courage. Ihadknownhewasgaybuthadno ideahewas sick.Hisdiseasehadenteredanewphase,heexplained,andhewouldn’tbeabletoworkanylonger.Wesattogetherandcried,forIcouldnotfindmeaningfulwordstoconsolehim.Icouldn’tcomposemyself.Ihuggedhim.Atthatpoint,StarbuckshadnoprovisionforemployeeswithAIDS.Wehad

to make a policy decision. Because of Jim, we decided to offer health-care

coveragetoallemployeeswhohaveterminalillnesses,payingmedicalcostsinfull from the time they are not able to work until they are covered bygovernmentprograms,usuallytwenty-ninemonths.Afterhisvisit tome, I spokewith Jimoftenandvisitedhimat thehospice.

Withinayear,hewasgone.Ireceivedaletterfromhisfamilyafterward,tellingmehowmuchtheyappreciatedourbenefitplan.Withoutit,Jimwouldn’thavehadmoneytotakecareofhimself,andhewasgratefulfor thatonelessworryduringhislastfewmonths.Eventoday,therearescarcelyanycompaniesofoursizethatofferfullhealth-

care benefits to all employees, including part-timers. That fact was broughthome tomememorably in April 1994, when President Clinton invitedme toWashington,D.C.,foraone-on-onemeetingintheOvalOffice,totellhimaboutStarbucks’health-careprogram.Others have been to theWhite House many times, but to me, born in the

ProjectsofBrooklynandworking inSeattle, the thoughtofachat in theOvalOfficewasoverwhelming.WhenIarrivedat1600Pennsylvaniathatday,Itriedtoactnonchalant,butI

couldfeelmyheartthumpinginmychest.Someonemetmeatthebackdoorandtook me in through a basement corridor, past pictures of great presidents,Washington, Jefferson, Wilson. These are the same halls, I thought, whereLincolnwalked, andRoosevelt, andKennedy.Andwhat gotme herewas notsomeextraordinaryfeat,notwalkingonthemoonorfindingthecureforcancer.AllIhaddonewasprovidehealthcaretothepeopleofmycompany,allofthem,somethinganyemployercoulddo.IwastakenupstairsandshowntoachairoutsidetheOvalOffice.“The president will be with you in three minutes,” a woman said. I

straightenedmy tie and took in every detail aroundme. Phoneswere ringing,thickdocumentswerestackedonthedesk,andsomberfacesfromhistorylookeddownfromportraitsonthewalls.“Thepresidentwillbewithyouinoneminute,”thewomansaid.Ituggedon

mycuffsandstraightenedmytieagain.Iwatchedthesecondhandgoaroundtheclock, and thedoordidn’topen. I fidgeted inmychair.Finally, thedoorburstopen,andthepresident’shandwasinmyface.Heusheredmein.IhadseentheOvalOfficesomanytimesinmoviesthatnowitseemedsurreal.Onhisdesk,Inoticed immediately, was a green-and-white Starbucks cup, filled with hotcoffee.Idon’tknowwhyIsaidit,butthefirstwordsoutofmymouthwere:“Don’t

youevergetintimidated,walkingaroundhere?”

Helaughedandsaid“Allthetime.”Heputmeateaseandwetalkedforaboutfifteenminutes.Whenthemeetingwasover,heledmeacrossthehalltotheRooseveltRoom

for a small press conference. After speaking to the reporters, we attended aprivateluncheonwithotherCEOs.Itwasaheadyexperience.Atonepoint,withafewminutesbetweenevents,Iaskedtouseaphone.How

many guys like me do this kind of thing? I called my mother in Brooklyn,saying,“Mom,Ijustwantyoutoknow,I’mcallin’youfromtheWhiteHouse.”“Howard,”shesaid,“itdoesn’tgetanybetterthanthis!”Iwishmydadcouldhavebeenthere.Inasense,hewas.

MEANINGFULMISSIONSTATEMENTSHAVETEETH

From the beginning, I wanted employees to identify with the mission of thecompanyandtohavethesenseofaccomplishmentthatgoeswithbeingpartofasuccessfulteam.Thatmeantdefiningastrongsenseofpurposeandlisteningtoinputfrompeopleatalllevelsoftheenterprise.Early in1990,weasa seniorexecutive teamcarefullyexaminedourvalues

andbeliefsandthendraftedaMissionStatementatanoff-siteretreat.Ouraimwastoarticulateapowerfulmessageofpurposeandtranslatethatintoasetofguidelinestohelpusgaugetheappropriatenessofeachdecisionwemake,atalllevels of the company.We submitted adraft to everyone else atStarbucks forreviewandmadechangesbasedonthesecomments.TheMissionStatementthatemergedfromthatprocessputspeoplefirstandprofitslast.It’snotatrophytodecorateourofficewalls,butanorganicbodyofbeliefs,notalistofaspirationsbut a foundation of guiding principles we hold in common. (For MissionStatement.)DraftingtheMissionStatementwasjust thefirststepinastrategicplanning

process that lasted threemonths and involvedmore than fifty employees.Wewanted to make sure we in management were hearing the views of our co-workers—and to ensure we had a long-term plan that our people had helpedshape.Attheurgingoftheboardofdirectors,weinvitedinaPortlandconsultingfirmcalledtheMt.HoodGroupandassembledseveralteams,eachcomposedofnonexecutivemembers from the stores, offices, andplantTheymet frequentlythatsummerof1990,awayfromtheworkplace,todiscussproblemsandmakesuggestions to management about decision-making, market expansion, and“peoplegrowth.”Weimplementedalmostalltheirrecommendations.

The “people growth” team had some of the most far-reaching ideas. TheyrecommendedthatStarbucksimplementalong-termstockoptionplan,adreamIhad harbored almost since the beginning. And they insisted that writing andposting aMissionStatementwasn’t enough. Starbucks needed away tomakesurewewerelivinguptoit.Sotheysuggesteda“MissionReview”team.Everyemployee in each store and other location would be given a postcard-sizedcommentcardandencouragedtoreporttotheMissionReviewteamiftheysawadecisionthatdidnotsupportourMissionStatement.Mostexecutiveswouldfeelthreatenedbysuchasetup.Isuredid.Thedayof

theirpresentationtomanagementinSeptember1990,the“peoplegrowth”teammembersweretense.Theyhadpracticedseveraltimes,andtheywonderedifitmightbeconfrontational.AsIlistened,Ithought:DoIwantateamofemployeesmonitoringmanagement like this, holding us to our own high standards? If Iturneditdown,whatwouldthatsayaboutthesincerityofmanagementtowardthe Mission Statement? We listened respectfully and asked a few questions.Afterafewdaysofconsideration,weapprovedtheidea.Withinafewmonths,theMissionReviewsystemwassetup.It’sstillinplace

today.Anyemployee,anywhere,canmakeasuggestionorreportanactionthatseemscontradictorytoourpurpose,andwepromisethatarelevantmanagerwillrespondwithintwoweeks,eitherbyphoneorbyletter.Printedcommentcardsaregiven toeachnewemployeeuponhireandarealsokept incommonareasalongwithothercompanyforms.Hundredsaresubmittedeachyear.Peoplealsohavetheoptionofnotincludingtheirname.Theydon’tgetaresponse,buttheircommentappearswithothersinareportIreviewcarefullyeverymonth.As the companyhasgrown,MissionReviewhasbecomeavital link to the

concernsofour largeandscatteredworkforce.Everyquarter,a teamofpeoplefromdifferent parts of the companymeets to go over top employee concerns,seeksolutions,andprovideareportatourquarterlyOpenForums.Notonlydoesthis process help keep the Mission Statement alive, it provides an importantavenueforopencommunicationswithourpeople.Manygreatsuggestionshavebeenimplemented.

WHYHAVEEMPLOYEESIFEVERYONECANBEAPARTNER?

By October 1990, I could report to the board that we had achieved our firstprofitableyear.Comfortablyintheblack,Icouldnowundertakeaventurethathadaprofound,long-termeffectonthesuccessofStarbucks.

If I hangmy hat on one thing thatmakes Starbucks stand out above othercompaniesitwouldbetheintroductionofBeanStock.That’sthenamewegaveto our stock option plan.With its introduction, we turned every employee ofStarbucksintoapartner.Iwanted to findaway toshareboth theownershipof thecompanyand the

rewardsoffinancialsuccesswiththepeopleofStarbucks.ButIwasn’tsurehowbesttodothat.InJanuaryof1991,awomaninourhumanresourcesdepartment,BradleyHoneycutt,researchedvariousalternativesfor introducingsuchaplan.Inconversationswithconsultantsandsurveysofothercompanies,shefoundalotofdifferentmodelsbutnonethatdidwhatwewantedtodo.Mostplanswereavailable only for public companies, such as outright stock grants and stockpurchaseprograms,or for topexecutives,suchasstockoptions.Privatelyheldcompanies,likeours,didn’tgrantstockoroptionsbecausetherewasnomarketforthem;theironlyalternativewastosetupanEmployeeStockOwnershipPlan(ESOP).Butthatplanwasmainlyawayofraisingcapital.Wehadadifferentaim.Mygoalwastolinkshareholdervaluewithlong-term

rewards for our employees. I wanted them to have a chance to share in thebenefitsofgrowth,andtomakecleartheconnectionbetweentheircontributionsandthegrowingvalueofthecompany.Finally,we decided to do something novel.Even thoughwewere a private

company,wewouldgrantstockoptionstoeveryemployee,company-wide,fromthetopmanagerstothebaristas, inproportiontothelevelofbasepay.If they,throughtheirefforts,couldhelpmakeStarbucksmoresuccessfuleveryyear,andif Starbucks someday went public, their options could eventually be worth agoodsumofmoney.Wehad,ineffect,giventhemachancetocreatetheirownvalue.Several of us had been tossing around names for the plan, trying to be

creative.BradleycameupwiththenameBeanStockoneSunday,whenshewasout jogging with her husband. It’s not only a playful reference to the coffeebeanswe sell, but it also evokes Jack’s beanstalk,which grew to the sky. So,eventually,didours.InMay 1991,we formally presented the idea to the board of directors.All

spring, Ihadbeenbusycrusadingwithboardmembers, ingroupsandone-on-one, explaining why I was convinced this proposal would work. Their mainworrywas that itwoulddilute the shareholdingsof investorswhohad takenariskwithhardcash.Ihadanticipatedjustthatobjection,andcountereditbyarguingthatgranting

stock options would give the company a strong backbone that would help it

achieveitsobjectives,intermsofbothsalesandprofits.Investorsmightownaslightlysmallerpercentageofthecompany,butthevalueoftheirholdingswouldgrow faster and more surely. If we linked everyone in Starbucks to theperformance of the company as a whole, I told them, every employee wouldbringthesameattitudetoworkastheCEOwhoishimselfashareholder.Intheend,thestockplanwouldaddvalueinseveralrespects—totheperformanceofthebusinessasawhole, to thebottomline,and to themoraleandspiritof theworkplace.When Bean Stock came up for a vote in May, the board approved it

unanimously.TheywereasexcitedaboutthepossibilitiesasIwas.As far as I know, no other company has attempted a stock option plan as

widespreadandambitiousasBeanStock.Wegrantedstockoptionstoover700employees when we were still private. To do so, we had to obtain a specialexemptionfromtheSecuritiesandExchangeCommission.(TheSECconsidersacompany public if it hasmore than 500 registered shareholders.) Even today,you’dbehard-pressedtofindanothercompany,especiallyaretailer, thatgivesstock options to all its employees. Software and other high-tech companiesroutinely offer stockoptions, but normally just to developers andother highlyskilledtechnicalemployees.Inretail,it’sunheardof.In August 1991, we introduced the plan to the employees, and in early

September,weheldabigmeetingtorollitout.Ispokeabouthowthisprogramfulfilledalong-helddream,andOrinSmith,thenchieffinancialofficer,gaveaslidepresentation toexplain thewaystockoptionsworked—acomplexmatterevenpublic companyemployeesmighthaveahard timeunderstanding.Everyemployee was presented a packet tied with a blue ribbon, and inside was abrochureexplainingBeanStock.Wecelebratedwithcookiesandsparklingciderandtoastedtobeing“Partners...inGrowth,”thelineweusedtodescribeBeanStock.Fromthatdayon,westoppedusingtheword“employee.”Wenowcallallour

people“partners,”becauseeveryoneiseligibleforstockoptionsassoonasheorshehasbeenwithStarbucksforsixmonths.Evenpart-timerswhoworkaslittleastwentyhoursaweekqualify.ThefirstgrantwasmadeonOctober1,1991, justafter theendof thefiscal

year. Each partner was awarded stock options worth 12 percent of his or herannualbasepay.Apartnerearning$20,000,forexample,wouldbegiven$2,400worthofstockoptions.Heorshecouldcashinone-fifthoftheamounteachyearafter that, simultaneouslybuyingat thefirstyear’s lowpriceandsellingat thecurrent price, keeping the difference. Every October since then, good profits

haveallowedus to raise thegrant to14percentofbasepay.Soeachyear thepartnerremainswithStarbucks,heorshereceivesanother14percentofhisorher salary, awarded at the stock price prevailing at the start of the new fiscalyear.Asthestockpricegoesupeveryyear,theoptionsbecomemorevaluable.Wegranted those firstBeanStockoptionsat$6pershare.By the time they

werefullyvested,onSeptember30,1996,oursharepricewas$33;butsinceourstockhadsplit twice,eachof thoseoriginaloptionsbecamefourshares,worth$132.Toillustratethevalue,anemployeemaking$20,000ayearin1991wouldhave been able to cash in his 1991 options alone formore than $50,000 fiveyearslater.Evenwithnoguaranteethattheoptionswouldeverbeworthanything,Bean

Stockbegantoaffectpeople’sattitudesandperformanceimmediately.Istartedhearingcommentslike“I’mBean-Stockingit”whensomeonefiguredoutawaytosavethecompanymoney—say,bytravelingwithaSaturdaynightstay-overtoreduceairfare.Peoplestartedcomingupwithinnovativeideasabouthowtocutcosts, to increasesales, tocreatevalue.Theycouldspeaktoourcustomersfromtheheart,aspartnersinthebusiness.Byeducatingourpeopleon the importanceofcreatingvalueandprofits for

ourcompany,welinkedthemtoshareholdervalue.Everyquarter,tothisday,weexplain our results to them inOpen Forums, allowing time for questions andanswers.Sometimes theyresent thefact that,asapubliccompany,wehave tofocussomuchonnumbers.Butattheendoftheday,theyappreciatetheneedtobalancetheirindividualconcernswiththecompany’soverallperformance.How do you measure the benefits of listening to your people and sharing

ownershipwiththem?Youcan’t.Butthebenefitscanrundeeperthanyouthink.One member of the “people growth” team was Martin Shaughnessy, a tall,talkative, pony-tailed man who worked in receiving, unloading heavy burlapbagsofgreencoffeeattheplant.Hewasamazedandthrilledtobeinvitedtooff-sitemeetingswithofficeworkers,askedforhisinput,andgiventheopportunitytopresent ideas tomanagement.Months laterhecame intomyofficeand toldmeweneededaprofessionaldistributionmanager—ineffect,askingustohirehimaboss. Iaskedhim towriteupaproposalandmakeapresentation to theexecutiveboard.Hedid,andwithinsixmonths,weactedonhissuggestion.One day in early 1992,Martin came into the human resources department,

bearing a letter, signed by an overwhelming majority of the warehouse androastingplantemployees,indicatingtheynolongerwishedtoberepresentedbytheunion.“Youincludedusintherunningofthisbusiness,”hesaid.“Wheneverwecomplained,youfixedtheproblem.Youtrustedus,andnowwetrustyou.”

Forme,workingatStarbuckshasprovidednogreaterrewardthantheprideIfeelwheneverIreceivealetterfromapartneraboutBeanStock,thankingme.IwasespeciallymovedbyonefromJaniDaubenspeck,whojoinedStarbucksin1989asanassistanttoDaveOlsenandrosetobecomeaproductionscheduleratour Seattle roasting plant. In 1994, she bought her first home, a one-storybungalowinSeattle’sSewardParkneighborhoodwitha“greatgarden.”Shehadbeenlivingwithhersisterandwasfinallyabletoaffordherownplace,thankstocashinginsomeofherearlyStarbucksstockoptionstomakethedownpaymentof$10,000.Igetlettersandmessageslikethatallthetime.MartinShaughnessyboughta

brand-new Harley-Davidson motorcycle when he sold his Bean Stock shares.Another partner purchased a vacation home. Another got an antique car. Yetanothercashedinheroptionsandtookthefamilytovisitherhusband’srelatives,whom she had never met. Several have cashed in options to pay for collegetuition.Storieslikethiscrystallizeformethetrueimportanceoftheworkwedoand

thetruththatStarbucksstandsforsomethingspecialbeyondbuyingandroastingcoffeeandsatisfyingcustomers.

Ifyoutreatyouremployeesasinterchangeablecogsinawheel, theywillviewyouwiththesameaffection.But they’re not cogs.Every one of them is an individualwhoneeds both a

senseofself-worthand thefinancialmeans toprovideforpersonalandfamilyneeds.ItriedtomakeStarbucksthekindofcompanyIwishmydadhadworkedfor.

Without even a high school diploma, he probably could never have been anexecutive.Butifhehadlandedajobinoneofourstoresorroastingplants,hewouldn’t have quit in frustration because the company didn’t value him. Hewouldhavehadgoodhealthbenefits,stockoptions,andanatmosphereinwhichhissuggestionsorcomplaintswouldreceiveaprompt,respectfulresponse.The bigger Starbucks grows, the more chance that some employee,

somewhere,isn’tgettingtherespectheorshedeserves.Ifwecan’tattendtothatproblem,weare facing a failureworse than any shortcomingsWallStreet candetect.Ultimately, Starbucks can’t flourish and win customers’ hearts without the

passionate devotion of our employees. In business, that passion comes fromownership, trust, and loyalty. If you undermine any of those, employees willviewtheirworkasjustanotherjob.

SometimeswelosesightofthatatStarbucks,especiallyaswegetlargerandadistance develops betweenme and the newest hire in the newest store. But Iknow, inmyheart, ifwe treatpeopleasa line itemunderexpenses,we’renotlivinguptoourgoalsandourvalues.Theirpassionanddevotionisournumber-onecompetitiveadvantage.Loseit,

andwe’velostthegame.

CHAPTER10AHundred-StoryBuildingFirstNeedsaStrong

Foundation

Thebuildersofvisionarycompanies...concentrateprimarilyonbuildinganorganization—buildingatickingclock—ratherthanonhittingamarketjustrightwithavisionaryproductidea.

—JAMESC.COLLINSANDJERRYI.PORRAS,BUILTTOLAST

Sometimeslosingmoneyishealthy.Nowthere’sanovelthought.Losingmoney is scary—that Iknowfromexperience. It’s adanger sign for

most businesses, especially mature, established ones. But for a youngentrepreneurialcompany,fullofpromise,losingmoneycouldbeahealthysignthatit’sinvestingaheadofthegrowthcurve.Ifyouaspiretofastgrowth,youneedtocreateaninfrastructureforthelarger

enterpriseyouareplanningtocreate.

You can’t build a hundred-story skyscraper on a foundation designed for atwo-storyhouse.

THEIMPORTANCEOFINVESTORSWITHSTRONGSTOMACHS

Starbuckswasprofitableuntil I tookover. Itdidn’t take longforme to realizethatwecouldn’tbothsustainthatlevelofearningsandbuildthefoundationweneededforfastgrowth.Ipredictedthatwewouldlosemoneyforthreeyears.Infact,that’spreciselywhatwedid.In1987,welost$330,000.Thenextyear

lossesmore thandoubled, to$764,000.The thirdyearwe lost$1.2million. Itwasn’tuntil1990thatwefinallyturnedaprofit.That was a nerve-wracking period for all of us, filled with many white-

knuckle days. Although we knew we were investing in the future and hadacceptedthefactthatwewouldn’tbeprofitable,Iwasoftenfilledwithdoubts.Onenightin1988,RonLawrence,thenStarbucks’controller,knockedatthe

doorofmyhouseat11P.M.Sheriandoursonwerealreadyasleepupstairs,andwhen I led Ron into the kitchen, I saw that his face was ashen. He had justcalculatedourmonthlynumbers,andwehadlostfourtimesmorethanwehadbudgetedfor.Aboardmeetingwasscheduledforthefollowingweek,andaswesatatthetablewiththefiguresspreadbeforeus,Iwasappalled.“I can’t go to the boardwith these numbers,” I said. “This is unbelievable.

Howdidthishappen?”Ron explained that itwas an unusual circumstance, inwhich everything hit

theP&Latonce.Itwasunlikelytohappenagain.Still, Ididn’tsleepwell thatnight,tryingtoplanhowIwouldexplainthehugeshortfalltothedirectors.TheboardmeetingwasastenseasIhadexpecteditwouldbe.“Thingsaren’t

working,” one of the directors said after hearingmy report. “Wewill have tochange strategy.”Wehadonlyabout20 stores at the time, and somedirectorsthought my plans were far too ambitious. I began to imagine conversationsamong board members, before and after those meetings, in which directorscomplained:We’vegot toget this guyoutof here.Howarddoesn’t knowwhathe’sdoing.Howmuchofourmoneyarewegoingtolethimlosebeforewepulltheplug?Thepressurewason,andIhadtojustifythoselosses.Ihadtoprovethatthey

werenecessaryformyinvestmentstrategyandnotjustmoneypoureddownthedrain. Although I was quaking inside, I had to summon every ounce of myconvictiontoconvincethem.“Look,”Itoldtheboard,keepingmyvoiceassteadyaspossible,“we’regoing

to keep losing money until we can do three things. We have to attract amanagementteamwellbeyondourexpansionneeds.Wehavetobuildaworld-classroastingfacility.Andweneedacomputerinformationsystemsophisticatedenoughtokeeptrackofsalesinhundredsandhundredsofstores.”Althoughittookvariousformsintheyearstocome,thatmessagebecamelike

amantra,repeatedeveryquarter:“Wehavetoinvestaheadofthegrowthcurve.”Fortunately, the board and investor group showed remarkable patience in

supportingmeandmyplans. IfStarbuckshadn’t turnedaprofit in1990, theywouldhavehadgoodreasontokickmeout.Looking back now, I realize how sound our strategy proved to be. In those

early years, 1987–1989, we laid a solid base for rapid national expansion byhiringkeymanagersandbyinvestingearlyinfacilitieswewouldsoonneed—far sooner thanwe realized. Itwas expensive, butwithout it,wewould neverhave been able to accelerate our growth, year after year, without stopping tocatchourbreath.Whenyou’restartingabusiness,whateverthesize,it’scriticallyimportantto

recognize that things are going to take longer and costmoremoney than youexpect. If your plan is ambitious, you have to count on temporarily investingmore than you earn, even if sales are increasing rapidly. If you recruitexperienced executives, buildmanufacturing facilities far beyond your currentneeds,andformulateaclearstrategyformanagingthroughtheleanyears,you’llbereadyasthecompanyshiftsintoeverhighergears.Whatwedidwastrytofigureouthowbigwewantedtobeintwoyearsand

hire experienced executiveswhohad alreadybuilt andmanaged companies ofthatsize.Theirbackgroundenabledthemtoanticipatethepitfallsofgrowthandplanandreactaccordingly.Hiringaheadofthegrowthcurvemayseemcostlyatthe time, but it’s a lotwiser to bring in experts before you need them than tostumbleaheadwithgreen,untestedpeoplewhoareprone tomakingavoidablemistakes.Ofcourse,buildinganinfrastructuretakesmoney.Ideally,capitalshouldbein

place even before you need it, not only to fund the expansion itself but torespond quickly to problems and opportunities as they arise. Convincingshareholders to increase their investment is probably the hardest part of anentrepreneur’swork.It’sahumblingexperiencetostandbeforethesefinanciallysavvyindividuals,whoarealreadyfullofdoubts,andtell them,“We’re losingmoney.Canyouinvestmore?”Inourcase,justayearafterweraised$3.8milliontoacquireStarbucks,we

hadtoraiseanadditional$3.9milliontofinanceourgrowthplans.By1990,we

neededevenmoremoney,andwebroughtin$13.5millionfromventurecapitalfunds.Thefollowingyear,wecompletedasecondroundofventurecapital,for$15 million. That added up to four rounds of private placements beforeStarbuckswentpublic in1992. IfStarbuckshad failed toperform, if investorshad lost faith in us, obtaining those levels of fundingwould never have beenpossible.Luckily,Starbucks’revenueswererisingatmorethan80percentayear,and

wewerenearlydoublingthenumberofstoresannually.Wepushedintomarketsoutsideourhomebase,includingChicago,toprovetheideacouldworkinothercities. We were able to show attractive “unit economics” at each store, andinvestors could see that the overall specialty coffee business, both insupermarketsandinstand-alonestores,wascatchingonalloverthecountry.To supply our accelerating number of stores, we needed a much larger

roastingfacilitythanwehadacquiredwiththepurchaseofStarbucks.WiththehelpofJackBenaroya,webuiltanewofficeandplantinSeattlein1989,largeenough, we thought, to last ten years. We installed a high-speed roaster andpackagingequipmentandmovedacrossAirportWaytoabuildingthatseemedhugeatthetime.Nowithousesonlyourmail-orderbusiness.Securinggoodsitesfornewstoresalsobecameincreasinglyexpensiveaswe

expanded.Forthefirstfiveyearsafter1987,Iapprovedeverysitepersonally—formorethanahundredstores.Weaimedforhighlyvisiblelocations,eitherindowntown office buildings or in densely populated urban or suburbanneighborhoods, near supermarkets. We worked with outside brokers in eachregion,andin1989,wehiredoneofourbestbrokers,YvesMizrahi, tobeourvicepresidentforrealestate.Workingcloselywithme,hepre-screenedeachsiteand closed each deal. Our process of site selection was enormously time-consuming, but we couldn’t afford a single mistake. One real-estate error injudgmentwouldmeana$350,000write-downforleaseholdimprovements,plusthecostofgettingoutofthelease.Thatrepresentedaminimumofahalfmilliondollarsatstake,notcountingtheopportunitycostofmoneywecouldhavebeenusingelsewhere.EventuallyIcametotheconclusionthatstoredevelopmentwastoobigatask

torunoutoftheCEO’soffice,soIdidsomethingcontroversial:Ihiredanoldfriend from New York to be senior vice president for real estate. ArthurRubinfeld, whom I had gotten to know during my single days in GreenwichVillage, was a practicing architect and developer who had moved to SanFrancisco around the same time Imoved toSeattle.Arthur started a firm thatspecializedinretailrealestatebrokerageinnorthernCalifornia,andweturnedto

himtorepresentusinourentrystrategyintotheSanFranciscomarket.IrealizedI needed not only his expertise and professional judgment but also someone Icouldtrust.Choosingtherightsitesissuchacriticalpartofsuccessforaretailerthatitshouldbedonebysomeonewithapassionatecommitmenttothefutureofthecompany.But Arthur didn’t want to do just site selection. He convinced me that we

neededrealestate,design,andconstruction tospeakwithonevoice,under thedirection of one person, to avoid the conflicts that sometimes arise betweenthose disciplines. He coordinated the departments and built a complete store-developmentorganizationthatultimatelyenabledStarbuckstoplanforandopenonestoreeverybusinessday.Of thefirst1,000storesweopened,weopted tocloseonlytwolocationsbecauseofsitemisjudgments.Fewotherretailerscouldboastsucharecord.Althoughwe leased rather than owned our sites,we bore the entire cost of

design and construction.Why?Because every storewas company-owned.Werefusedtofranchise.Althoughitwouldhavebeentemptingtosharecostswithfranchisees, Ididn’twant to risk losingcontrolof theall-important link to thecustomer.Behindthescenes,wealsokeptinvestinginnewsystemsandprocessesfora

farlargeroperationthanwehadatthetime.Inlate1991,whenwehadjustover100stores,wehiredCarolEastin,acomputerexpertfromMcDonald’s,gaveherablankslate,andaskedhertodesignapoint-of-salesystemthatwouldlinkallouroutletsandwouldbeabletoaccommodatethe300storesweplannedtohavewithinthreeyears.Whencompanies fail, or fail togrow, it’s almost alwaysbecause theydon’t

invest in the people, the systems, and the processes they need. Most peopleunderestimate how much money it will take to do that. They also tend tounderestimate how they are going to feel about reporting large losses.Unfortunately,that’sagivenintheearlystagesofretaildevelopment,unlessyouraisemoneybyfranchising.Huge investmentsupfrontmeannotonlypotentialannuallossesbutalsoadilutionofthefounder’sshareholding.If you want to know what Starbucks did right, you have to look at our

competitionandfindoutwhat theydidwrong.Clearly,Starbucksisn’tperfect.Butamongourcompetitorsinthespecialtycoffeebusiness,you’llseeexamplesofallthemistakeswedidn’tmake:companiesthatdidn’traiseenoughmoneytofinancegrowth;companiesthatfranchisedtooearlyandtoowidely;companiesthat lost control of quality; companies that didn’t invest in systems andprocesses; companies that hired inexperienced people, or the wrong people;

companies that were so eager to grow that they picked the wrong real estatelocations;companiesthatdidn’thavethedisciplinetowalkawayfromasiteiftheycouldn’tmaketheeconomicswork.Allofthemlostmoney,too;somearestill doing so. But they didn’t use their years of losses to build a strongfoundationforgrowth.Youcan’tcreateaworld-classenterprisewithout investingin it. Inagrowth

company,youcan’tplaycatch-up.Butyoualsocan’t justexcuse losses in theearlystageofthebusinesswithoutexaminingeachexpenditure.Growthcoversupa lotofmistakes, andyouhave tobehonest aboutwhat’s right andwhat’swrongaboutyouroperations.Fortunately,werealizedthisintheearlyyears.Andourinvestorshadstrong

stomachs.

IFNOMENTORFINDSYOU,SEEKONEOUT

Sometimes, in life as in business, you know exactly what you need toaccomplishyourgoalsandyouhavetogoouttolookforit.Duringthosetenseyearswhenwewerelosingmoney,IrealizedIwasbadly

inneedofamentor.Ihadafaithfulboardofwealthyinvestorswhobelievedinme and trusted me (for the most part!) to make the right decisions. Theyquestionedmediligently,butbecausemostofthemhadnoexperiencebuildingaretailcompanyintoanationalbrand,theycouldofferonlylimitedguidanceforfutureplanning.Ihadalsoneveranticipatedhowisolatingrunningacompanywouldbe.You

canneverletyourguarddownandadmitwhatyoudon’tknow.Fewpeoplecanshareyourfrustrationsandanxietieswhenyou’relosingmoney,whenyouhaveto deal with investors who have high expectations, when you suddenly findyourself responsible forhundredsofemployees,whenyou facedifficulthiringdecisions. Trying to balance the intricacies of rallying people and forgingcomplex strategies can feel like running a political campaign—with the samesenseofaccountabilitytomanydifferentconstituencies.Althoughtheycanhireexecutiveswithmanytalentsandskills,manyCEOs

discoverthatwhattheylackmostisareliablesoundingboard.Theydon’twantto show vulnerability to those who report to them. If they feel uncertain orfearful,oriftheyjustwanttothinkoutloud,theyneedtohavefriendstheycancallupandcomplain:“Oh,shit!Youwouldn’tbelievewhathappenedtoday!”IntheIlGiornaleyears, theonlypersonwithwhomIcouldtalkopenlywas

Sheri. I’dcomehomeso tired, sobeatendown, sooutof sorts that I’msure I

wasn’t easy to live with. But she listened, and she gave me much-neededsupport.SheanticipatedwhatIwasgoingtoneedandmadesuresheoff-loadedthepressureIwouldhaveonotherthingssoIcouldconcentrateonmywork.SomuchofthatperiodisatestimonialtoSheri’sforbearanceandwisdom,butstillIfeltacutelythelackofaprofessionalconfidant.NotlongaftertakingoverStarbucks,Istrengthenedafriendshipwithoneof

my investors,SteveRitt, a relaxedandgenialguywho runsa leather-cleaningcompanyinSeattle.Foralmost twoyears,untilmydaughterwasborn,werantogether, threemorningsaweek,startingat5:30A.M.During these runs, IwasabletogetSteve’sreadingonanynumberofproblemsIwasfacing.Itwasgreattherapyforme.Steveprovedavaluedadviserbecausehehadnovestedinterestother than to be supportive of me. I could share my doubts with him ascomfortablyasIcouldmytriumphs.Hehadgreatconfidenceinmeandbecameaclosefriend.Butevenhedidn’thaveexperienceinbuildingaretailcompany.I knew that what I needed was advice from a person who had been there

before, someone who understood what I was trying to accomplish. I wantedsomeone who had built a fast-growing company, who lived and breathed theretail business, who could guide me and direct me whenever I reached anunfamiliarforkintheroad.I did a mental audit of the Seattle business community, thinking about the

many individualswho had built successful retail companies.One in particularhadboththeexperienceIlackedandawillingnesstohelp:JeffBrotman.Jeffisaseasonedveteranofretailing,elevenyearsolderthanI.Asthesonof

a retailer, he understands the operations instinctively. He ran a family-ownedchainoftwentyclothingstoresandfoundedseveralothercompanies.In1983,hemadehisbiggest,boldestmovewhenhefoundedCostcoWholesale,acompanyofmembership-onlywholesaleclubstores.Intenyears,heandJimSinegalbuiltCostcointoanationaloperatorofmorethanahundredoutletswithannualsalesof$6.5billion.In1993,theymergedwithPriceClub,andnowJeffischairmanofthecombinedcompany,whichhas$19billioninrevenuesandmorethan250warehousestores.Starbucksisadwarfbycomparison.I firstmet Jeff Brotmanwhen I was trying to raisemoney for Il Giornale.

Later,afterIboughtStarbucks,Icalledonhimseveraltimes,askinghisadvice.Heofferedhistimeandcounselunselfishly,wellbeforehehadanyconnectiontoStarbucks.Hehadasixthsenseforgoodopportunitiesandanunderstandingfor the range of issues entrepreneurs face. I confided in him, and I realized Icouldtrusthim.Listeningtohiscounsel,Iappreciatedhowtalentedhewas.Hebecame,defacto,mymentor.

After severalmeetings, I askedhim to joinStarbucks’ boardof directors. Ittookawhiletocourthim.Jeffiscarefulabouthisinvestments,ofbothtimeandmoney,butoncehemakesacommitment,hetakesitseriously.Jeffeventually joined theboard in1989,a rough time inStarbucks’history.

Wewerelosingmoneyforthethirdyearinarow,anditwasbynomeansclearwewouldmakeitinChicago.AlthoughIhadassuredtheboardthatwewouldturn profitable in fiscal 1990, it took Jeff Brotman to give my argumentscredibility in the face of escalating losses.Hiswas the voice of authority andexperience,andmucheasiertobelievethanmypromisesbasedonsheerfaith.Jeffalsounderstoodwhatafast-growingretailcompanyjustemergingonthe

nationalscenewouldneedtodotoraisecapital.Bylate1989,itwasclearthatStarbucks had to reach outside Seattle for institutional investors,whichmeantapproachingtheventurecapitalcommunity.Asthechairmanofacompanythathad recently gonepublic, Jeff had the connections and the credibility tomakecontactsforus.At first, I was wary of taking this step, for I had heard that some venture

capitalists intrude on entrepreneurial ventures and ultimately ruin them withshort-termthinking.Atbest,venturecapitalcanenergizeacompanywithbothdollarsandexpertiseandhelp itgrowandmature.But thewrongpartnerscanpursuetheirshort-termself-interestattheexpenseofthelong-termfutureofthecompany.Once we decided to go ahead, though, we had more difficulty than we

expected. In the early 1980s, retail start-ups had become highly popular withinstitutional investors. Then, themarket collapsed, and several venture-backedretailerscollapsed.Thefundsthathadinvestedinthemperformedsopoorlythatsomewere unable to continue to raisemoney.Many venture funds refused toinvest in retail after that, sticking to companies in technologyandhealth care.Manyturnedusdown.Craig Foley, who then headed Citibank’s Chancellor Capital Management

Inc.,wasone investorwhodecided to take a chanceonus.Unlikeother fundmanagers,whoquicklydismissedusasacoffee-shopchain,Craigwasacoffeeloverwhomissed thequalityofcoffeehehad tasted inEurope.Hedidhavealong-termcommitmenttoretailinvestmentsandhadheardofStarbucksthrougha colleague. But after visiting a poor-performing store in Chicago, he haddecidednottoinvest.Hehad,though,supportedCostco,sowhenJeffBrotmanaskedhimtotakeanotherlookatStarbucks,hedid.Craig’sbiggestconcernwasthatourideawasnot“portable,”thatitwouldn’t

appeal to customers outside the cool, rainyNorthwest. I rose to the challenge

andwenttogreatlengthstoconvincehimhewaswrong.HecloselyexaminedallourChicagostoresanddecidedthatnotonlywasgourmetcoffeepotentiallyabig growth opportunity but it could also be a “lifestyle phenomenon.” Tocompensate for the weakness he saw in Chicago, he negotiated a somewhatlowervaluationinthecompany,$3.75ashare,onlyslightlyabovethe$3sharepriceofthepreviousround,in1988.Still,becauseofChancellor’shighprofile,his decision to invest $4.5 million, a rather risky leap of faith in Starbucks,attractedseveralotherinstitutionalinvestors.Inall,wewereabletoraise$13.5millioninMarch1990,byfarourbiggestfinancingatthattime.OurChicagostoresprovedcritical, too, inattractinganother investor in that

round, Jamie Shennan, a general partner of Trinity Ventures. He first sawStarbucksbyhappenstance,whilewalkingdownastreet,andhelaterheardfromacolleaguethatwewerelookingforventurecapital.Anexperiencedmarketer,hewasattractedbythepoweroftheStarbucksbrandandthebuzzheheardfromourcustomers.SowasKenPurcell,ofT.RowePrice.Myinitialfearsaboutventurecapitalistsprovedunfounded;whatIfound,in

fact, was the opposite. Instead of interference, I gained another set of trustedadvisers with long-term horizons. We were fortunate that our venture capitalpartnersgenuinelyunderstoodandappreciatedthecultureofStarbucks.CraigFoleyandJamieShennanjoinedtheStarbucksboardwhentheirfunds

invested, inMarch 1990. They pushedme to conductmarket research and tobeginstrategicplanning,andalsogaveinvaluableguidanceonhowtomakethetransitionfromanentrepreneurial,privatecompanytoaprofessionallymanagedpublic one. Jamie, who spent many years as a brand manager at Procter &Gambleand laterasaconsumermarketingconsultant,providedastute insightsinto the building of the brand, establishing joint ventures, improving thecatalogue,andintroducingnewproducts.Craig contributed financial know-how, guided us in our strategic planning,

andhelped evaluate newbusiness opportunities. It speaksvolumes about theircontributions and their commitment to Starbucks that Jamie and Craig bothremained on the board long after their funds sold their Starbucks stock, asplanned. (Venture capital funds, by nature, usually distribute profits to theirinvestorsafteracompanygoespublic.)Craig and Jamie’s joining the board meant that several of my earliest,

staunchest supporters had to step down.Of the original IlGiornale board andinvestorgroup,onlyArniePrenticeremainsadirector.Justaseverybusinesshasamemory,everyboardshouldhaveone,too,andit’sbeencriticalformetohavethepresenceofsomeonewhounderstandsmeandwhereStarbuckscamefrom,

tohavesomeonefromthepastwhoislinkedtothefuture.My relationshipwith the board took an unusual turnwhen I came to view

themmoreastrustedadvisersratherthanassupervisors.UnlikemanyCEOs,Iwasdirectwith them,confiding in themmyproblems in running thebusiness.They always challengedme to defendmy ideas, and we had open and frankdiscussionsatboardmeetings.Theycontinuallypushedmetosharpenmyfocusand set clear priorities, fearing that my entrepreneurial zeal would send thecompany in too many directions. The board also strongly encouraged me tostrengthenmymanagement teamaheadof thecurve,hiringpeoplewithbiggercompanyexperience.Debateswereattimesintenseandsometimesdifficultbutalsohealthyandconstructive.Weneverneededtotakeavote.Whenonepersondisagreed strongly, we took the time to work it out and come up with anacceptablesolution.Withtime,theboard’scultureandvaluesevolvedintoamirrorimageofthose

ofStarbucks.Theoutsidedirectors graduallydevelopedmore trust inme thantheyhadintheearlyperiod,whentheythoughtperhapsIwasjustanotherrawyoung entrepreneur who would have to be replaced, at some point, by aprofessional manager and CEO. They, too, have poured their hearts into thecompany.Starbucks’ board remained stable for six years, adding only two inside

directors. Then, in 1996, as we faced the reality of becoming a $1 billioncompany,weonceagainlookedforsomeonewhohadtheexpertisethatcomeswith experience.That personwasBarbaraBass,whohad risen atMacy’s andBloomingdale’sbeforebecomingCEOofI.MagninandlaterofCarterHawleyHales’ Emporium Weinstock, which had annual sales of nearly $1 billion.Barbarabroughtnotonlyarichstoreofknowledgeandinsightsaboutnationalretailing but also a fresh perspective to what had too long been an all-maleboard.Toanyentrepreneur,Iwouldofferthisadvice:Onceyou’vefiguredoutwhat

youwant to do, find someonewho has done it before. Find not just talentedexecutives but even more experienced entrepreneurs and businesspeople whocanguideyou.Theyknowwheretolookfortheminesintheminefield.Iftheyhavethoughtandactedboldlyintheirowncareers,andprovensuccessful,theycanhelpyoudothesame.Iftheyshareyourvaluesandaspirations,andiftheyfreelysharetheircounsel,theycanhelpyouthroughroughpatchesandcelebrateyourvictoriesastheirown.That’s the kind ofmentor I never had as a kid or as a young adult. If one

doesn’t findyou,beat thebushes till you findonewhowill takeyouon.And

withtherightmentor,don’tbeafraidtoexposeyourvulnerabilities.Admityoudon’tknowwhatyoudon’tknow.Whenyouacknowledgeyourweaknessesandaskforadvice,you’llbesurprisedhowmuchotherswillhelp.

CHAPTER11Don’tBeThreatenedbyPeopleSmarterThanYou

Thebestexecutiveistheonewhohassenseenoughtopickgoodmen[andwomen]todowhathewantsdone,andself-restraintenoughtokeepfrommeddling

withthemwhiletheydoit.

—THEODOREROOSEVELT

There’sacommonmistakealotofentrepreneursmake.Theyowntheidea,andtheyhavethepassiontopursueit.Buttheycan’tpossiblypossessalltheskillsneeded tomake the idea actuallyhappen.Reluctant todelegate, they surroundthemselveswithfaithfulaides.They’reafraidtobringintrulysmart,successfulindividualsashigh-levelmanagers.But an intelligent executive team is vital for a company to prosper. Strong,

creativepeoplearealotmorestimulatingtobearoundthanyes-men.Whatcanyoulearnfromthosewhoknowlessthanyou?Theymaymassageyouregoforawhileandtakeorderseasily,buttheywon’thelpyougrow.Fromthebeginning,IknewIhadtogooutandhireexecutiveswithgreater

experiencethanIhad,peoplewhowouldnotbeafraidtodebatewithme,whowere strong-willed, self-reliant, and confident, and make them part of themanagementteamandthedecision-makingprocess.WhenIbeganIlGiornale,astart-upwithnostoresatfirst,Iwasfortunateto

workwithDaveOlsen,whonotonlyhadapassionforcoffeebutalsohadrunasuccessful café for years. InNovember 1987, I brought in LawrenceMaltz, aseasonedexecutivewhohadmanagedabeveragecompany.Forasmallenterprise,thatteamwasappropriate.ButasStarbucksexpanded

intomoremarkets,weneededsomeonefamiliarwiththeprocessofopeningandrunningmanyretailstoresatonce.In1989,wehiredHowardBeharforthatjob,amanwhohadtwenty-fiveyearsofretailbackgroundinthefurniturebusinessandatThousandTrails,anoutdoorresortdeveloper.IfoundoutaboutHowardthroughJeffBrotmanandJackRodgers.In1990,aswepreparedformoresophisticatedfinancing,webeganscouting

for a chief financial officer with broad experience. We hired a sophisticatedheadhunter todo the search forusbutwere frustratedbecausehekept talkingonly about professional qualifications and didn’t get our point about characterandculture.WefoundOrinSmithinsteadthroughapersonalrecommendationofone of our partners who had worked for him before. With an MBA fromHarvard, Orin had managed far larger and more complex organizations thanStarbucks was then. He had worked as budget director for the State ofWashington for fiveyears andbefore that forDeloitte andTouche for thirteenyears, including threeyears as partner-in-chargeof their consultingpractice inSeattle.HowardandOrinwerebotholder thanIwas,byabout tenyears.Bothtook

paycuts to come toStarbucksbut joinedbecause theyunderstood thepassionand the potential and they believed their stock options would one day bevaluable. To a lot of entrepreneurs, hiring more seasoned executives can bethreatening,andactuallydelegatingpowertothemisevenmoreso.Inmyowncase,Ihavetoadmit,itwasn’teasy.MyidentityhadquicklybecomesocloselytiedupwiththatofStarbucksthatanysuggestionforchangemademefeelasifIhadfailedinsomeaspectofmyjob.Insidemyhead,itwasaconstantbattle,andIhadtokeepremindingmyself:ThesepeoplebringsomethingIdon’thave.TheywillmakeStarbucksfarbetterthanIcouldalone.Both Howard and Orin brought not only skills and experience but also

attitudesandvaluesthatweredifferentfrommine.WhatIfound,asweworkedtogetheryearafteryear,wasthatStarbuckswasenrichedandbroadenedbytheirleadership.IfIhadletmyegoormyfearspreventthemfromdoingtheirjobs,we couldneverhavematured into a sustainable companywith strong, people-orientedvalues.Thenasnow,Iwasconsciousofhavingtoshowthepeoplearoundmethatmy

self-esteem and confidence were strong enough to absorb the arrival of new

talent,managerswhoweremorequalified thanI tohandlecertainsegmentsofthe business.At the same time, I also had tomake sure that I clearly handedthemtheauthoritytodowhattheyneededtodo,fortheirdepartmentswouldbereportingtothem,nottome.ItriedtomakethemessageIsenttothem—andbyextension, to the entire company—as unequivocal as possible: “I hired youbecauseyou’resmarterthanIam.Nowgoandproveit.”Ican’tpretendInevermadeanyhiringmistakes.AfewmanagementchoicesI

later regretted, and, valuing loyalty as I do, I also let somemanagers stay onlongerthanIshouldhave.Somepeoplecouldnotkeepupwiththecompany’sfastpaceofgrowth;thoughtheygavealotintheearlydays,theydidnotstaytofacethechallengesofthesteeplearningcurvethatcamewithgrowth.Overall,Starbucks has had remarkably little turnover at the top, especially consideringthestressesweweresubjectedtoasaresultofsuchrapidexpansion.By1990,Ihadassembledamanagementteamthatworkedtogethersotightly

andsynergisticallythatpeoplecalledus“H2O,”forHoward,Howard,andOrin.Westoodforthevision,thesoul,andthefiscalresponsibility.Inmanyrespects,HowardandOrinarepolaropposites,buteachofushasprovidedanessentialingredienttoStarbucks’success.

DON’TBETHREATENEDBYCANDOR

InAugust1989HowardBeharhitStarbuckslikeatornado.A compactmanwith round glasses and a neatly cut salt-and-pepper beard,

HowardBehararrivedatStarbucksatapointwhenwesorelyneededhim.Wethen had about 28 stores and were planning to nearly double that numberannually.Withhis retailexpertise,hewasable toput inplace thesystemsandprocessesweneeded to runourcurrentoperationat thesame timeaswewereopeningnewstores.Buthehadanevendeeper impacton thecorporateculture. Inmeetings,he

wouldoftenraisehisvoice.Oneminutehiseyeswouldsparklewithexcitement;thenext,he’dbepoundingthetableinanger.Sometimestearswouldwellinhiseyes.Hethinksdeeply,notonlyaboutbusinessbutaboutpoetry,philosophy,andmeditation. Self-effacing and humorous, he cares passionately and worriesincessantly.Hewears his vulnerabilities on his sleeve and embarrasses peoplewithhiscandor.Youneverhavetowonderwhatisonhismind.Byhis very nature, hewasmany things thatStarbuckswas not.Likemany

Seattlites, Starbucks people tended to be reserved and polite, equating respectwithadisinclinationtoopenlydisagree.Thedownsideofthischaracteristicwas

thatwewouldsometimesbeataroundthebushtoavoidoffendingoneanother.Wecouldn’ttalkstraighttounderperformingemployees.HowardBeharmade us question that attitude. From his first day, he began

openlydisagreeingwithme,andwithanyoneelse,inmeetings,ontheroastingplantfloor,inthehallways,whereverhehappenedtobe.“WhydoyouhavetogotopagethreeoftheStarbuckshandbookbeforeyou

findtheword‘people’?”heasked.“Shouldn’t‘people’befirst,withrespect tobothcustomersandemployees?”“Whydon’twegivecustomerswhatevertheyaskfor?”“Whyarestoremanagerstimidaboutspeakingup?”Whatever the subject, if Howard had an opinion, he’d voice it. His

confrontationalapproachwastoughonme,atfirst.Wehadstartedwithsuchasmall, close-knit teamandworkedhard to build trust and confidence.While Ilike passion and enthusiasm and initiative, by nature I tend to avoidconfrontation.Gradually,IcametolearnthatwhenHowarddisagreedwithme,itwasn’tout

oflackofrespect.HesimplydisagreedwiththepointofviewIwasexpressingonaparticularsubject.Hisanger,hisbeliefs,hisemotionsareallhonestandallimmediate, but once they were aired, he was open to listening to others’viewpoints.Oneof the first,andmostvaluable,critiquesHowardmadewashisopinion

that Starbucks was too product-oriented. It’s people whomake the coffee, hekept insisting. People directly affect the quality of products and services ourcustomers receive. People will determine the ultimate success of Starbucks.Products are inert.You have to hire great people, he urged us, celebrate theirpassions and their skills, and give them the freedom to do their jobs right.“We’renotfillingbellies,”helikestosay.“We’refillingsouls.”That advice resonatedwithme. It reflectedmyownvalues,but Ihadnever

articulatedthemsoclearly.Howardtaughtushowtobemorestronglycustomeroriented.Inthecourseof

buildingthebusiness,wehadbeensofocusedonthequalityof thecoffeethatwehadsometimesoverlookedcustomerpreferences.Toaddressthisproblem,heinitiateda“snapshot”program,whichinvolvedunannouncedvisitstoeachstoretomonitor customer service.He trainedour employees togoout of theirwayand to takeheroicmeasures, ifnecessary, tomeetcustomerdemand. Inanerawhen Nancy Reagan popularized “Just say no” to drugs, he encouraged ourpeople to “Just say yes” to customer requests.He urged us tomake ourselvesmore accessible to a wide range of consumers. Even if someone brought in

coffeebeansfromanotherstore,weshouldbewillingtogrindthemforhim.Webegantogivea“Starbuck,”orfree-drinkcertificate,toeachcustomerwhowasdissatisfied.Wegavestickerstokids.“Aslongasitismoral,legal,andethical,”Howardlikestosay,“weshoulddowhateverittakestopleasethecustomer.”Howard’s priorities went against the grain of longstanding Starbucks

traditions, for it had always been our goal to educate customers to appreciatecoffee thewaywe liked it.The two setsofvalues clashedoftenand loudly—sometimesevenwithinmyownhead.Butwhatwelearned,ultimately,isthatit’sequallyimportanttovalueourcoffee,ourpartners,andourcustomers.Neglectanyone,andwewouldhaveaweaklink.Howardalso taughtStarbuckspeople tospeaktheirminds.Hebelievedasa

matterofprinciplethatanyoneshouldbeabletosayanythingatanytimewithoutworrying about how others would react. One day he met with all our storemanagers and told them his number-one expectation was that they should bestraight with him. “If someone has something to say, say it,” he declared.“What’sonyourmind?What’sgoingright?What’snotgoingright?”Helookedaroundtheroomexpectantly,butnobodyutteredaword.As the group began to disperse, though, one of the store managers came

hesitantly up to him. “If I’d have known that you reallymeant that,” she toldhim, “I would have had a lot to say.” Howard asked her to write a list ofeverything she didn’t like about Starbucks, including all her suggestions forchange.Afewdayslater,theyarrived,andheimmediatelybeganrespondingtothem,onebyone.Toencouragepeopletospeaktheirminds,Howardcameupwiththeideaof

holdingOpenForumseachquarter.At thesegatherings, seniormanagersmeetwith all interested employees to update them on the company’s performance,answerquestions,andallowthemtoairgrievances.Theyarenowheldquarterlyineveryregionwherewedobusiness.Sometimesthecommentsarepainful,butonce we are aware of widespread concerns, we can fix them. Whenever webegintomoveawayfromourcenter line,ourpartnersare thefirst towarnus.Andthemajorityofthemfeelproudofthecompanytheyworkfor.AttimesHowardwouldcreateconflictinanOpenForum,justtoforceusto

think outside the box. He once recommended that, as a way of exceedingexpectations, every store should open tenminutes earlier than the posted timeand stay open ten minutes later. The store managers, predictably, went nuts,floodinghimwithcomplaints.ForHoward,thepointwasnotwhetherhisproposalwasgoodorbad,butthat

our partners felt comfortable enough in an Open Forum to challenge him. If

people in a company are upset about some issue but are not talking about itopenly,themostproductiveapproachformanagementistobringupthesubjectdirectly.Gettingthemtotalkopenly,howeverawkwardanduncomfortable,willultimatelyhelpdissipatetheangerandsolvetheproblem.“Walls talk” is a favoriteHoward Behar expression, and anyonewho steps

intohisofficeimmediatelyseeswhy.Hiswallstalkmorethanmost,fortheyarecoveredwithmorethantwentysayings,poems,andquotationsthatexpresshisphilosophyoflife:

Thoushaltnotstandidlyby.

Whenyou’reinahole,quitdigging!

Thinklikeapersonofaction;actlikeapersonofthought.

ThebestminuteIspendistheoneIinvestinpeople.

Another traditionHoward establishedwas to send hand-signed birthday cardsand starting-date anniversary cards to every Starbucks partner. At first, hehimself signed all of them,butnow that the companyhasgrown so large, theduties are shared. Some have dismissed those little touches as hokey and notsincere, but Howard is undaunted. “Gestures like that add up and makeStarbucks feel human,” he says. Even when there are 25,000 employees,managers have to recognize that each is an individual. Howard also startedseveralrecognitionprograms,encouragingpartnerstonominatetheircolleaguesastrendsettersorstoremanagersofthequarter.After several years of spearheading our retail operations and expansion,

Howard did somethingmany executives talk about but few do: He hired andtrainedhissuccessor.HefoundDeidraWageratTacoBellinsouthernCaliforniaand eventually trained her to take over his job.Deidra proved to be a skilledmanager who knew what information and systems we needed and couldsystematizeourretailoperations.IfDaveOlsen personifies our impossibly passionate attitude toward coffee,

HowardBeharembodiesourimpossiblypassionateattitudetowardourpartners.IfIhadletmyselffeelthreatenedbyhim,ifIhadreinedhiminorpushedhim

out,Starbuckswouldneverhavedevelopedthestrongvaluesithastoday.Candor can hurt. It can feel intimidating. But, as I learned from Howard

Behar, it’s thekindofenvironmentStarbucksneeds ifwe’regoing tocontinuerelyingontheenthusiasmandcommitmentofourpeople.

DON’TBETHREATENEDBYPROCESS

“It’shardtoexecuteentrepreneurially.”OrinSmithhastokeepremindingmeofthat.Withoutromanceandvision,abusinesshasnosoul,nospirittomotivateits

peopletoachievesomethinggreat.Butasuccessfulcompanycan’tsustainitselfon exhilarating ideas alone. Many business visionaries have failed as leadersbecausetheycouldnotexecute.Processesandsystems,disciplineandefficiencyareneededtocreateafoundationbeforecreativeideascanbeimplementedandentrepreneurialvisioncanberealized.That’sbeenahardlessonforanentrepreneurofmytemperamenttoswallow.

I’m always afraid that, as we grow larger, Starbucks will become toobureaucratic,tooprocess-oriented,toonarrowlyfocusedonspecificfunctionsattheexpenseofthepassionandtheneedtoachievebigdreams.It’sanongoingtensionwithinthecompany.Tobesuccessful,everybusinessneedstoachieveabalancebetweenthetwo

forces.Andthatrequiresleaderswhobothunderstandthevisionandknowhowtoputinplacetheinfrastructureneededtorealizeit.BuildingprocessesisnotaskillIhave.It’sbeyondmyinterestsandabilities.

WhatIdidtocompensate,whateveryvisionaryentrepreneurneedstodo,isfindan executive who can build the infrastructure the company needs withoutsacrificing the need for innovation. But it has to be someone who alsounderstandsthevalueofunconventionalthinking.AtStarbucks,thatexecutiveisOrinSmith.Orin’s approach couldn’t be more different than mine. Orin is quiet and

reservedandalmostalwaysinhisshell,likeatortoise,andheworkssteadilyandfaithfully at problems until they get solved. He always carries a pen andnotebookinhispocket,andwhenhewearshisbig-framedglasses,helooksaswiseasheis.Whenadilemmaarises,Itendtomakeasnapjudgmentandwanttotakeactionimmediately,whileOrinlistenscalmly,gathersalltheinformationhe needs, and ponders carefully until he comes up with a logical, reasonedresponse.WhenOrincametousin1990,Starbuckswasnotaprofessionallymanaged

business.Weweretotallyentrepreneurial,withanapproachEricFlamholtz,oneofourconsultants,characterizesas“Ready,Fire,Aim.”Tohiscredit,Orindidn’tmakeabigshowofturningStarbucksintoaprofessionallymanagedcompany.Ifhe had, it probably would have spooked me and many others inside thecompany. Instead, he led by example. Thanks to his equanimity and hisleadership skills, the organization began to gravitate naturally toward a morebalancedapproach—justaswegotbigenoughtoneedit.Verysubtly,hecreatedanenvironmentinwhichtherewasforthefirsttimea

strong appreciation of the disciplines necessary to run a large and profitablebusiness. He built an organization by recruiting seasoned professionals in thekeyareasthathadtobestrengthenedinthecompany:managementinformationsystems, finance, accounting, planning, legal affairs, and supply-chainoperations.However warily, I began to recognize that in building discipline into a

company, it’s possible to not only honor the creative process but alsomake itstrongerandmoredynamic.Bystrengtheningthefoundationandstructureofthecompany, we can stop wasting time reacting to small problems and insteaddevoteourattentionandresourcestonewproductsandnewideas.Withaclearerstrategic direction, we can focus our creativity on issues that matter forStarbucksinthelongterm.WhenStarbuckswentpublic,OrinandIwenttogethertodothe“roadshow,”

apresentationinwhichweexplainedtheStarbucksstorytopotentialinvestors.WhatWallStreetsawinuswasanenergetic,passionateyoungguy,thirty-eightyearsold, inspiredandvisionary,butperhapsa little too inexperienced,a littletoo idealistic.But sitting next to himwas a fifty-year-old, gray-haired, stable,conservative, prudent executive, explaining all the projections and numbers incalm,measured tones.Wewere awell-matched team: entrepreneurial zest andmanagerial control, which together inspired confidence that Starbucks couldachieveitshighgoalsbutalsoremainfiscallyresponsible.Manyyoungcompaniescan’tmake the leap tomaturitybecause theyeither

don’tsupportthecreativespiritwithstructureandprocess,ortheygotoofarandstifle that spirit with an overdeveloped bureaucracy. The most successfulexampleshavebeen ledbybothavisionary, likeWaltDisney,andabusiness-like implementer, like Roy Disney. That kind of joint leadership works evenbetter if the twopartnershave thestrongbondof trustandconfidence like theoneOrinandIdeveloped.Orin took care of the back room, while I was able to focus on what the

customer saw. I realize now, with hindsight, that the back room is really the

arenawhere points are scored. In football, it’s often said that “Offense scorespoints;defensewinsgames.”Inbusiness,thefrontroomiswhattheworldsees:in our case, the coffee, the stores, the style, the brand. But the back room iswherewewin.Theefficiencyofthebackroomisreallywhat’smadeStarbucksafinancialsuccess.That’sbeenOrin’scrucialcontributiontothecompany.He’smademelookmuchbetterthanIam.

CHAPTER12TheValueofDogmatismandFlexibility

Theonlysacredcowinanorganizationshouldbeitsbasicphilosophyofdoingbusiness.

—THOMASJ.WATSON,JR.,“ABUSINESSANDITSBELIEFS”ASQUOTEDINBUILTTOLAST,BYJAMESC.COLLINSANDJERRYI.PORRAS

Ifyouwantahalfpoundofhazelnut-flavoredcoffeebeans,youcan’tbuyitatStarbucks. But if youwould like hazelnut syrup to flavor your caffè latte, noproblem.Thatdistinctionmayseemlikesplittinghairstosomepeople.Whybesopuristaboutrefusingtosellartificiallyflavoredcoffeebeanswhenwe’lladdflavoringstoespressodrinks?Deciding when tomake compromises to please its customers is one of the

trickiestquestionsanybusinessfaces.AtStarbucks,wehavetwoarticlesoffaiththatonthesurfacemayseemcontradictory:Webelievethateverybusinessmuststandforsomething.Atitscoremustbe

anauthenticproduct,onethat’sbetterthanmostcustomersrealizedtheywanted.Wealsobelieveweshould“justsayyes”tocustomerrequests.Goodretailers

gooutoftheirwaytopleasetheircustomers.InourearlyyearsatStarbucks,wefoundourselvesalwaysdebatinghowfar

weoughttogotowardreconcilingtheseprinciples.Onsomeissues,Irefusedtobudge. One was franchising: We would not trust our quality to franchisees.Anotherwasartificiallyflavoredcoffeebeans:Wewouldnotpolluteourhigh-quality beans with chemicals. Another was supermarket sales:We would notpourourbeansintoclearplasticbins,wheretheycouldgetstale.Andfinally,wewouldnever, never stoppursuing theperfect cupof coffeebybuying thebestbeansandroastingthemtoperfection.Thosewerekeydecisions,oneswhereourvaluesanddesiretocreateaclear

brandimagesometimesleftusatacompetitivedisadvantage.Bythelate1980s,thespecialtycoffeebusinesshadbegungrowingquickly,andthemajorityofitwas in the form of whole-bean coffee sold in supermarkets. Brands likeMillstoneandSarkstookoff,andtheirvolumefarsurpassedthatofStarbucks.Wecouldhavedoubledortripledvolumeeasilybysellinginsupermarkets.ButitwasimportanttousthatStarbucksmaintainacleardistinctionfromgrocery-storecoffee.Sowechoseatthetimenottosellourbeansinsupermarkets.Inthatsameperiod,about40percentoftheincreaseinspecialtycoffeesales

wastheresultofthenewfashionforcoffeebeanswithsuchflavorsasvanilla,Irishcream,andmintmocha.Wesawlittlepointinbuyingthebestbeansintheworldonlytomasktheirflavor.Initially,wealsorefusedtoaddflavoredsyrupstolattes,forthesamereason.Athirdchoicefaceduswhenseveralcompetitorsbeganusingfranchisingto

expandnationwide, threateningto leaveStarbucksasanalso-ran. In1991,oneevensurpassedus innumberof stores, thoughnot for long.Still, I insistedoncompany-ownedstores,sowecouldkeepourfateinourownhands.Although I started out with a long list of these and other things Starbucks

would“never”do, Igradually learned theneed forcompromise.What Iwon’tdo,though,iscompromiseourcorevalues.Eachtimeadifficultdecisioncameup,wedebated longandhard, andweadoptednewwaysonlywhenwewereconfidentthatwewerenotdilutingtheintegrityofwhatwestandfor.

WHENIT’SOKAYTOGIVETHECUSTOMERSWHATTHEYWANT

ItwasHowardBeharwhoforcedustoshedsomeofourmostdogmaticviews.Untilhearrived,mostofushadanalmost reverentattitude toward thecoffee.But he came fromadifferent tradition, fromcompanieswhere, if youweren’tcustomer-driven,youwentoutofbusiness.When Howard joined Starbucks in 1989, he was already familiar with

Starbucksasaconsumer,buthe immediatelybeganfrequentingourstoresandtalking to baristas and customers. By listening carefully, he heard things towhichwehadclosedourears,andheforcedustoexamineourvaluesinlightofourcustomerpreferences.Onemessage he heard loud and clear:Many customers wanted us to offer

nonfat(orskim)milk.HowardhadbeenatStarbuckslessthanamonthwhenhecametomeoneday

andasked:“Haveyoubeenreadingthecustomercommentcards?”“Sure,”Isaid,“Ireadthem.Ireadthemall.”“Well,”hereplied,“howcomeyou’renotresponding?”“Respondingtowhat?”“Lookatallthepeoplewhowantnonfatmilk.”“Well,” I explained, “I did a formal tasting a number of times this year of

lattesandcappuccinosmadewithnonfatmilkandtheyjustdidn’ttastegood.”“Towhom?”Howardwasclearlygrowingimpatientwithmyanswers.“Tome,toDave.”“Well, read the customer comment cards.Our customerswant nonfatmilk!

Weshouldgiveittothem.”Ianswered—andHowardneverletsmeforgetit—”Wewillneveroffernonfat

milk.It’snotwhoweare.”At that point in Starbucks’ history, even mentioning nonfat milk was

tantamount to treason. Our goal, then as always, was to bring the authenticItalian espresso bar experience to the United States. But in fact, lattes andcappuccinos—espressowith steamedmilkand foam—hadquicklybecomeourmostpopulardrinks.Somecoffeepuristsscoffedatthem,sayingthatinofferingwarmmilky drinks wewere catering to people whoweren’t hard-core coffeelovers.But thesebeveragesenabledus to introducegreatcoffeetopeoplewhonormallydidn’tevendrinkcoffee.By 1989 several of our smaller competitors, especially in Seattle, were

offeringlatteswithnonfator2percentmilk.Forreasonsofhealthandweight,moreandmoreAmericanswereavoidingwholemilk.Butwestillthoughtskimmilktastedthinandsharp,andalteredthetasteofStarbuckscoffee.Still,Howardhadfoundacrusade,andhestartedfiguringoutwayswecould

give our customers what theywanted—however unpopular the idea was withcoffeepurists.OnedayoneofourmostdogmaticcoffeedefendersconfrontedHowardinthenarrowhallwayoutsidehisoffice.Standingnose-to-nose,hetoldhim,“That’snotinkeepingwiththequalityofourcoffee.Thatisbastardizingit.It’sgettingtothepointthatwe’lldoanythingthecustomerswantusto.”

“Areyounuts?”HowardBehar remembers responding.“Ofcoursewe’lldowhattheywantusto!”Believeitornot,theissueofnonfatmilkledtooneofthebiggestdebatesin

Starbucks’history. I fought it.DaveOlsen fought it.The storemanagerswerescandalized.Whatkindofperson is thisHowardBehar, theywanted toknow,anddoeshereallywantustointroducenonfatmilk?SomestoremanagerswenttoHowardandargued:“Wewillneverbeabledo

itoperationally.It’simpossibletohandlemorethanonekindofmilk.Ifweoffertwokindsofmilk,itwillruinthebusiness.”ButHowardwasadamant,andheinsistedthatweatleasttesttheidea.The controversy forced me to do some soul-searching. It might seem

inconsequential,but itstruckat theveryheartofourfundamentalcommitmenttoquality.Ifwestucktoourconvictionthat“everythingmatters,”howcouldweserveespressodrinksthatdidn’ttasterighttous?One morning I woke up early, still wrestling with the idea after a restless

night. I got dressed and drove to one of our Starbucks stores in a residentialneighborhoodofSeattle.Ipaidforadoubleespressoandtookaseatatatable.Even though it was early, there was already a long line. I was reading thenewspaper but also keeping my ears alert to hear what people ordered. Theatmosphere felt good, with a smooth, steady coordination between the twobaristas,one takingorders, theothermakingdrinks. Inoticedonecustomer, ayoungwoman in her late twenties, dressed in sweats and sneakers and slowlynodding her head to the music on herWalkman. It looked as if she had justfinishedhermorningrun.Whenshegottothecounter,IcouldhearhersaythewordsI’dbeenwaitingfor:“I’llhaveadoubletalllatte,withnonfatmilk.”“Sorry,wedon’thavenonfat,”thebaristarepliedpolitelybutfirmly.“Weonly

havewholemilk.”Icouldhearhersighinfrustrationandthenask,“Whynot?Ialwaysgetitat

theplacedownthestreet.”Thebaristaapologized,butshestrodeoutofthestore,apparentlyheadedfora

competitor.Alostcustomeristhemostpowerfulargumentyoucanmaketoaretailer.IwentintotheofficethatmorningandtoldHowardBehartogoaheadwith

histest,andtomakesuretoincludethatstore.We had only about thirty stores then, and Howard convinced half a dozen

store managers to volunteer to try nonfat milk. Despite all the concernbeforehand, they managed to work out the operational issues pretty quickly.

Theyevenfiguredawaytooffer2percentmilkbyblendingwholeandnonfat.Seeing how pleased their customers were with the option, those first storemanagers became advocates and eventually won over the others. Within sixmonths,allourstoresofferedit.Today,almosthalfofthelattesandcappuccinoswesellaremadewithnonfatmilk.Inhindsight,thatdecisionlookslikeano-brainer.Butatthetime,weweren’t

surewhatimpactitwouldhaveonourbrandandouridentity.Whenacaffèlatteis made with nonfat milk, is it still an authentic Italian drink? Most Italianswouldn’trecognizeit.ButanItaliancanstillcometoaStarbucksstoreandorderacappuccinothatistrulyauthentic,justasanothercustomercanrequestanonfatvanillamocha.Howdidwedealwithourconsciences?Wehadtorecognizethatthecustomer

wasright.Itwasourresponsibilitytogivepeopleachoice.HowardBeharhadmadetherightcall.Thewayweresolvedthenonfatmilk

controversy also is a great example of the autonomy of decision-making weencouragewithinStarbucks.Althoughhehadbeenwiththecompanyonlyafewmonths,hisretailacumenandexperiencegavehimthecredibilityandauthoritytopersuadeustodotherightthing.In subsequent years, we have moved farther and farther from our initial

dogmatic stance. In addition to nonfat milk, customers can have vanilla orraspberrysyrupmixedintotheirespressodrinkiftheyrequestit.Wehaveusedour coffee to flavor ice cream and beer and icy blended drinks. But wedeliberatedlonghoursbeforetakingeachofthesesteps.Andwhenwedidmoveforward,wedidsoverytactically,clearaboutwhatwehopedtoaccomplish.Doesthatmeanwe’vesoldout?Does“never”everreallymean“never”?Here’showIseeit:Ourcustomershavetherighttoenjoytheircupofcoffeehowevertheyprefer

it.Milkandsugararealwaysavailableatourcondimentscounters,andbaristaswillmixincertainflavoredsyrupsifcustomersaskforit.Whatwewon’tdo,however,ismesswiththerealstuffinawaythatviolates

itsintegrity.Therealstuffisthecoffee,roasteddark,freshandfull-flavored.Itisourtouchstone,partofourlifeblood,ourlegacy.OurcustomershavetobeabletocountonStarbuckstoprovideit.Whateverelsewedo,wewon’tbuycheapercoffees.Wewon’t stop roasting dark.Wewon’t pollute our coffee beanswithartificialflavorsandchemicals.WewantStarbuckspeopletogooutoftheirwaytopleasecustomers,butwe

won’tallowthemtopassflavoredbeansthroughourgrinders.Someportionofthe chemicals used to treat themwould remain behind and alter the flavor of

beansgroundinthatmachineafterward.Artificiallyflavoredbeansalsohaveachemicalsmellthatwouldpollutetheairofourstoreandbeabsorbedbyothercoffeebeans.Dave Olsen and his coffee-department colleagues represent the purists at

Starbucks,ourcollectiveconscience.Davehasagreatanalogy:

Thinkof coffeeasamusicCD.Youcan listen to it ina speciallisteningroomthatyoudesignedespeciallyforthepurposeinthebasement of your home, where there are no distractions, whereyou can put the headphones on and really listen for the stringsection or the oboes or try to hear every little click of everyfingernail on Eric Clapton’s guitar. Or you could put it in thestereoofacar,rollallthewindowsdown,andscreamandshout.Themusicisthesame;theapplicationisdifferent.

Aslongasweremainrespectfulofourcoreproduct,aslongasourcustomerscancomeintoanyStarbucksandbuythegreatestcoffeeintheworld,aslongaswe bring the same pursuit of quality to our new products, then we can feelcomfortableoffering customersdifferentwaysof enjoyingour coffee.Optionslike thesehelp introducea farwider rangeofpeople toStarbuckscoffee.Andthat,afterall,isourabidingmission.

WHENIT’SOKAYTOBEFANATICALABOUTCONTROL

ImagineifacompanylikeNikenotonlydesignedandmarketedshoesbutalsoownedallitsfactoriesandalltheretailstoresthatsolditsshoes.Ortry topictureanationalbookpublishingcompanythatemployeditsown

authors,manufactureditsownpaper,operateditsownprintingpresses,andsoldonlythroughitsownbookstores.WhatifyouhadtogointoaPepsishopeverytimeyouwantedacanofPepsi?

OraKellogg’sshopwheneveryouwantedCornFlakes?Starbucks has an unusual approach to business, one that is perhaps unique

among brand-name consumer-products companies. We’re so fanatical aboutqualitycontrolthatwekeepthecoffeeinourhandseverystepofthewayfromtherawgreenbeanstothesteamingcup.Webuyandroastallourowncoffee,and we sell it in company-owned stores. That’s vertical integration to the

extreme.Why? The answer can be found in the last cup of lousy coffee you drank.

Unlikeshoes,orbooks,orsoftdrinks,coffeecanberuinedatanypointfromitsproduction to its consumption. To begin with, the beans themselves could bepoor. They can be roasted wrong. If the beans aren’t fresh, if they’re groundwrong,ifthey’rebrewedwithtoomuchortoolittlewater,ifthewatertastesbadtobeginwith,thecoffeecantastewrong.Theworst,mostcommonsinincoffeepreparationisleavingthepotontheburnerfortoolong,whichresultsinafoul,burnedtaste.Coffeeisaproductsoperishablethatbuildingabusinessonitisfraughtwith

peril. Theminute we hand our coffee over to someone else, we’re extremelyvulnerabletoitsqualitybeingcompromised.Many people assume Starbucks is a franchise operation because we are

growingsoquicklyandarepresentinsomanymarkets.WereceivehundredsofcallsamonthfrompeoplewhowanttoopenaStarbucksfranchise.WhataboutAlaska?they’veasked.WhataboutSunValley,orJacksonHole,oranynumberofsmallermarketsthecompanywon’tgettoforyears?Weturnthemalldown.Ourapproachistorelyinsteadoncompany-ownedstores.In the early days, JackRodgers, our senior vice president for new business

development,wasaparticularlystrongadvocateoffranchising.JackwasoneoftheearlyMcDonald’s franchisees,starting inSt.Charles, Illinois, in1959,andknew Ray Kroc as a close family friend. Over time, he became a multi-franchisee,owningseveralMcDonald’s,RedRobin,Benihana,andCasaLupitarestaurants,aswellastheAthlete’sFootstores.Franchising is the logical route to national expansion, Jack argued. It’s a

quick,reliablewaytoraisecapital.Itallowsyoutopreemptthecompetitionandenternewmarketsinahurry,togetaheadofthepack.Andfranchiseownersarecommittedtothefinancialsuccessoftheirstore.But I refused to franchise. In the 1980s,we didn’t need an extra source of

capital,forinvestorswerewillingtofundallofStarbucks’growth.Intheearlydays, too, we had little competition, and the competitors who did grow byfranchisingneverdevelopedastrongbrand.Andbyofferingstockoptions,wewereabletogeneratein-houseevenmoreofenthusiasmandsenseofownershipthatfranchiseownersbringtotheirbusinesses.In fact, “franchising” is almost a forbidden word at Starbucks. To me,

franchiseesaremiddlemenwhowouldstandbetweenusandourcustomers.Weprefertotrainallourownpeopleandoperateallourownstores,sothateachcupofcoffeeyoubuyfromStarbucksistherealthing.

If we had franchised, Starbucks would have lost the common culture thatmadeusstrong.Weteachbaristasnotonlyhowtohandlethecoffeeproperlybutalsohowtoimparttocustomersourpassionforourproducts.Theyunderstandthe vision and value system of the company, which is seldom the case whensomeoneelse’semployeesareservingStarbuckscoffee.At first, we were immovable in our position: Our customers could buy

StarbuckscoffeeonlyinaStarbucksstore.IwasjustasopposedtowholesalingasIwastofranchising,andIwouldn’tletourcoffeebesoldatanyothertypeofstore.Butgradually,webegan togiveup that control.Theopportunities toattract

new customers were too appealing to pass up, and thewindowwould not beopenindefinitely.Eachnewventure,though,ispartofanongoingstruggle.Wekeepaskingourselves:Atwhatpointdowegiveupsomuch thatwe loseoursoul?Thefirstbigconcessionwasairports.Weknewtheywouldbeagreatlocation

forus.AtairportslikeO’HareinChicago,travelersfromallovertheworldcanencounter Starbucks coffee for the first time. These sites give us a chance toraiseawarenessamongnewcustomers.But because airport stores everywhere are runby concession-aires, in 1991,

wedecided tomakeanexception:Wesigneda licensingagreementwithHostMarriott for airport locations.We started inSeattle andgradually expanded toairportsacrosstheUnitedStates.As it happened, we went through some rocky times in that relationship.

Starbucks had no experience managing a licensing arrangement, and HostMarriotthadprobablyneverdealtwithacompanyashands-onasStarbucks.Wehadtolearntomaintainourstandardsbyinfluenceratherthandirectcontrol.Weknewnexttonothingaboutairports,whicharetoughenvironmentsinwhichtooperate.Customersareoftenstressedout,inahurry,andsuspiciousthatthey’llbe faced with higher prices. They’re not willing or able to spend time to beeducatedaboutdifferentcoffeesorespressodrinks.I travel a lot, and in the early period of our partnership with Host, I

occasionallywasdissatisfiedwithwhat I sawat airport stores.Lineswere toolong,theemployeeslackedknowledgeofourcoffee,andservicewasslowandsometimesunfriendly.Host Marriott responded positively to our concerns, and Starbucks people

workedwiththemtocomeupwithsolutions.WeimprovedthetrainingofHostMarriottemployees,givingthemthefulltwenty-fourhoursweprovidefornewhiresatStarbucks.Hostaddedcash registers tobusystores,beefedupstaffing

during hours of heaviest traffic, and increased itsmanagement support for theventure.AsHostMarriott’s employees became better versed about coffee andgrew more comfortable in Starbucks stores, they were better able to providefriendlyservice.Today,bothsidesaresatisfiedthatthepartnershipissuccessful.As the relationship with Host Marriott improved, so did my opinion of

licensing.It’slikeamarriage:Whetheritworksisamatterofwhomyouchooseasapartner,theamountofduediligenceyoudobeforehand,andhowthingsgoduring the courtship. If you jump in with little preparation, you risk settingyourselfupforfailure.Today, less than10percentofStarbucksstoresare licensed—only75outof

ourfirst1,000.Butthenumberofairportlocationsisgrowingrapidly;inO’Harealonewehave12outlets.Andweareconsideringotherlicensearrangementsinlocations where we cannot operate company-owned stores. We’ve recentlylicensedAramarktoopenStarbucksstoresonafewcollegecampuses.Keepingtruetoouridealswhileexpandingthebrandrequiresgreatdiscipline

andadelicatesenseofbalance.Wewanteverybodytoexperienceourcoffee,yetlettingsomeoneelseserveitmeansgivingupthereins.Overtheyears,wehavedonethatverycarefully,turningdownhundredsofcompaniesthatwouldn’taddvalue.Werejectmorebusinessproposalsthanweacceptandhavewalkedawayfromdealsthatwouldhaveearnedusmillionsofdollars.Ifweweren’tsoobsessedwithcontrol,ourbusinesswouldbealoteasier.But

thecoffeewouldn’tbeasgood.

As you’re growing a business, you never know the long-term implications ofdecisionsyoumake.Intheearlyyearsafter1987,weseldomthoughtintermsofbrand-building,yeteverythingwedidtoprotectthequalityofthecoffeeandtheatmosphere of our stores was strengthening and expanding the reputationStarbuckshadcreated inSeattle.Theexecutiveswehired, theplantswebuilt,thedecisionswemadeonhow to raisemoneyall laid a foundation thatmadepossible a smooth and rapid national rollout of the vision I had had back inMilan. I was learning on the fly, creating the kind of work environment thatappealedtome.WhatIonlyhalfrealizedisthatIwasalsocreatingadifferentkind of company, one that works because its people care deeply about whatthey’redoing.Today,whenIlookbackontheyearsbeforewewentpublic,1987to1992,I

call them“theimprintingyears.”Likeparentsstrugglingtoraiseachild,DaveandI,HowardBehar,andOrinSmithbroughtourvaluestotheworkplaceandtried to figure out how to apply them even as the companywasmoving and

changingbytheday.WhatItriedtodowashonortheindividualsaroundme,letthempaintcolorsandmakemistakeswithouttellingthemtheywerewrong.Westruggled during that early part of the journey, aswe do today, andwemademistakes.Butwealsoforgedateamandamissionandbuilttheconfidencethatwe could, indeed, reinvent the coffee experience in America and build aworldwidebrand.

CHAPTER13WallStreetMeasuresaCompany’sPrice,NotIts

Value

Thereareonlytwoguidelines.One,what’sinthelong-termbestinterestsofthe

enterpriseanditsstakeholders,supplementedbythedominantconcernofdoingwhat’sright.

—ROBERTD.HAAS,PRESIDENT,LEVISTRAUSS&CO.,

ASQUOTEDINTHECORPORATECONSCIENCE

Morethanmostmanagers,Irelyheavilyonmyinstinctsaboutpeople.WhetherI’mhiringakeyexecutive,selectinganinvestmentbanker,orassessingapartnerinajointventure,Ilookforthesamekindofqualitiesmostlookforinchoosingaspouse:integrityandpassion.Tome,that’sjustasimportantasexperienceandabilities. Iwant toworkwithpeoplewhodon’t leave theirvaluesathomebutbringthemtowork,peoplewhoseprinciplesmatchmyown.IfIseeamismatch,oravacuumwherevaluesshouldbe,Iprefertokeeplooking.

THEVALUEOFVALUES

When Starbucks finally decided to go public, we could have hired anyinvestmentbankinthecountry.Manyofthebiggestnationalinvestmentbanks,as well as a number of smaller, local ones, sought us out in our roastingplant/officesonAirportWaySouthinSeattle.At the time, in 1991, we were still a relatively modest-sized, regional

company.Weendedfiscal1991with justoverahundredstores,allof themintheNorthwestandChicago,and$57millioninsales.Butthemajorinvestmentbankswere lookingfor just thesortofpromising,high-growthprofilewehad.They liked our financial projections and our plans for aggressive nationalexpansion.Whentheyexaminedourbooks, theywere impressedwithouruniteconomics—salesperstore,averagecost,returnoninvestment.Itwas flattering tobe theobjectof somuchattention, and Imetwithmore

than twenty suitors over the course of sixmonths or so. But tomy dismay, Ifound that most of the investment bankers I talked to viewed Starbucks assimply one of many options on a long list of potential IPOs—companiesplanningtheirfirststockmarketlisting,orInitialPublicOffering.Ibegantogetthe feeling theywereplaying theodds:doing theirduediligence tomakesuretherewerenoobviouserrorsofjudgmentandthenbackingacertainnumberofcandidates,fullyawarethatsomewouldfailandsomewouldsucceed.Almost all of them seemed to tune out when I started discussing our

company’s Mission Statement. If they were taking notes, their pens stoppedmovingwhenIbroughtupvalues,asifIwereindulginginrhetoricunrelatedtoStarbucks’financialperformance.Experiencehastaughtmethatit’seasytotalkabout values, hard to implement them, and even harder for an outsider todeterminewhichvaluesareheartfeltandwhicharewindow-dressing.WallStreetcannotplaceavalueonvalues.Ibegantogetdiscouraged.IknewStarbuckscouldcarryoffasuccessfulIPO,

but I wanted to work with investment bankers who got it, professionals whounderstood that Starbucks was more than another retail/restaurant play, morethan a chainof cafés,more than just the latest transaction.Thesepeoplewerefromadifferentworld,whereeverythingwasweightedbyitsfinancialvalue;ifyoucouldn’tputanumberonit,itdidn’tshowupintheequation.Theywantedto know what we could deliver to shareholders, not how we treated ouremployees.One day in August of 1991, another investment banker showed up for an

appointment. Dan Levitan was from Wertheim Schroder, a firm moreexperienced working with large, well-established companies than with smalloneslikeours.HehadflownfromLosAngelestoSeattleandjoinedupwitha

colleaguefromNewYork.Theywereprobablyaboutthetenthsetofinvestmentbankers to approach us. Neither had ever been in a Starbucks store, so theystoppedbyonethatmorningbeforecomingtomyoffice.At that time, my office had a huge glass window, covering an entire wall,

throughwhichIcouldsee theplantandtheroasters. Ipointedout to themourthree big Probat roasting machines, with a combined capacity of 7 millionpoundsperyearper shift.Aswe tookourplacesata smallconference table Ionceagaintriedtoexplain.Starbucksisfast-growingandprofitable,Itoldthem.Overall, theU.S. gourmet coffeemarket had risen by 18 percent a year, from$270millionin1984to$750millionin1991,anditwasexpectedtoreach$1billionby1994.But, I told them, Starbucks was attempting to accomplish something more

ambitious than justgrowaprofitable enterprise.Wehadamission, to educateconsumers everywhere about fine coffee. We had a vision, to create anatmosphereinourstoresthatdrewpeopleinandgavethemasenseofwonderandromanceinthemidstoftheirharriedlives.Wehadanidealisticdream,thatourcompanycouldbefarmorethantheparadigmdefinedbycorporateAmericain the past. I told them about Bean Stock, our revolutionary new program ofgrantingstockoptionstoallemployees.Ourfirstprioritywastotakecareofourpeople,becausetheyweretheonesresponsibleforcommunicatingourpassionto our customers. If we did that well, we’d accomplish our second priority,takingcareofourcustomers.Andonlyifweachievedbothofthosegoalswouldwebeabletoprovidelong-termvalueforourshareholders.Iwaitedfortheireyestoglazeover.Butthistime,theydidn’t.Theseguysseemedtogetit—atleastmoresothan

manyoftheothers—andtheyimmediatelystartedaskingsomegoodquestions.Afterthemeetingended,Iwalkedthemout.Asweheadeddownalonghall

towardthefrontstairs,IsaidsomethingtoDanLevitanthattookhimaback.“Doyouknowwhattheproblemwithyourbusinessis?”Iasked.Danbracedhimselfforamajorindictmentoftheinvestmentbankingindustry.

“No,what?”hesaidwarily.“Therearenotenoughmensches.”I assumedDanwould know thewordmensch, aYiddishwayof describing

someonewhoisbasicallydecent,honest,andfullofintegrity.Danjerkedhisheadupandlookedmedirectlyintheeye.Icouldseethathe

tookmypoint,instantly.Myguesshadbeenright:Danwasamensch.Helatertoldmethathegotontheplanethatday,completelyhyperactive,and

usedthein-flighttelephonetocallhiscolleaguesinNewYork,tellingthemhe

hadjustdiscoveredanamazingcompany.Hefound it tobeahardsell.Starbucksdidn’thaveanystores inNewYork

then,andmostNewYorkersthoughtofcoffeeshopsasbland,purelyfunctionalplaces,notasfast-growingenterprises.Inanerawhenbiotechnologyandfiberopticswere thehottest investments,coffeedidn’tstrikeDan’scolleaguesasanobviousmoneymaker. Evenwhen they came to understand and appreciate thebusiness,theyfiguredthatStarbuckscouldn’tmaintainsuchrapidgrowth,thatitwould spin out of control, or self-destruct, or quickly saturate the market.Ironically, Dan got to experience firsthand what I had been going through inSeattle,learninghowtoughitwastocommunicateintangibleslikepassionandvaluestohard-bittenskeptics.HegotalotofgrieffromhiscolleaguesbeforeheconvincedthemStarbuckswasworththerisk.Dankeptintouchwithmebyphone,andwehaddinnertogetherthenexttime

IwenttoLosAngeles.In early April of 1992, we had our “Beauty Contest”—a parade of seven

investmentbanks, the finalistswe invited to formallypitch for thebusinessofhandling our IPO. The contenders included some of the biggest names in thebusiness, and the process took two intense days. We were rigorous anddemanding, askingeachgroup to fillout and submit a five-pagequestionnairebefore its two-hoursession.Wewantedtoseewhocaredenoughtodevote themostcareandthoughttothepresentation.LauraMoix,whohadadvancedfrombeingmy trustedassistant to amarketingposition,gave themall a tourof theroastingplantandreportedbacktoushowmuchinteresteachofthemshowed.Professionalandpersonable,atruebelieverinthecompanyanditsdream,Laurawastheperfectpersontotakethepulseofthoseinvestmentbankers.Oneofourkeygoalswastofindoutwhowasgenuinelypassionateaboutboth

our product and our company. Some of the bankers all too clearly had theattitudethatweattinyStarbuckswereluckysuchahuge,successfulinvestmentfirmhadtakenthetroubletopitchforourbusiness.Onesuchcrewshowedupinabiglimousinebuthadneverbotheredtovisitourstores.DanLevitanpouredhisheartintohispresentation,andtheeffortshowed.He

broughtalonghischairman,JimHarmon,andtheylingeredlongerthananyonein our roasting plant, showing a sincere interest in the coffee. Laura reportedbackthattheyunderstoodourpassion.Thatputthemapointahead.Afterthebankersleft,OrinSmithandIhadlongdiscussionswithCraigFoley

and Jamie Shennan of the board, who had guided our IPO process from thebeginning.Ourplanwastopicktwooftheseven.Wealreadyhadclosetieswithseveralof the investmentbanks, includingsometop-ratedones,so itwouldbe

hard to break ranks with them. But I had a gut instinct about Dan and hiscompany,andtheothersagreed.We selected two firms: Alex. Brown & Sons, which had many years of

experience in taking companies like ours public, and Dan’s firm, WertheimSchroder&Co.(nowSchroderWertheim).DancalledmethatSundayfromMinnesota,wherehewaswatchinghisalma

materDukeplay in theFinalFourbasketballgames. Icouldn’t tellhimofourdecisionyet,becauseIhadn’tyetinformedtheunsuccessfulcandidates.Itriedtoreassurehimtobepatient.Finally, I phoned him on Monday morning. “Congratulations. You got the

business.”Hewasoverjoyed.OurchoiceofAlex.Brownasleadunderwriterwasnotasurprise,sincethey

specializedinworkingwithsmallercompanieslikeours.Alex.Brownhadthreegreatpeople,who,notunlikeDan,understoodourmissionandviewedourIPOas farmore than just another transaction:Mayo Shattuck, the president, PeterBreckandDavidDiPeitro,incapitalmarkets.Butsomepeopledidn’texpectustopickWertheimSchrodersinceitwasnotontheAlistofpedigreefirmsforourtypeofbusiness.Timehasproven thatwemade the right choice, andwe stillwork closely with both firms. As time went on, I developed close workingrelationshipswithallofthem,aswellaswithRobertFisher,anothermanagingdirectoratSchroderWertheim.In my experience, relationships and loyalty have become undervalued

commoditiesatmanyAmericancompanies.Somanyofushavelostsightofthevital importance of dealing with people we can trust. Adversarial or distantrelationships are not inevitable—nor are they the bestway of doing business.There is much to be gained by enlisting partners and colleagues who arecommittedtothesamegoals.Any of the seven finalist investment banks could have done the job we

needed.Theywereallfirstrate.Formepersonally,whatmadethedifferenceinthewinnerswas theirobviouscommitmentandpassion.TheybothbroughtanintangiblesomethingextrathatIknewwouldtakeusoverthetop.

DON’TGETDIZZYONWALLSTREET’SEMOTIONALROLLERCOASTER

IfIhadtopickthehappiestdayofmybusinesscareer,itwouldhavetobeJune26,1992.Thatwasthedatewewentpublic,whenStarbucksstockwaslistedonNASDAQ.

Ourtargetrangewas$14to$16pershare,afigureconsideredhighatmorethansixty times thepreviousyear’searnings.Someworriedaboutwhetherwecouldsustainthathighaprice,sincethemarketforIPOs,hotinMarch,suddenlywentsoft,andmostnewissuesstartedsellingatpricesbelowprojections.Ouradvisers recommended the low end of that range. Local newspaper articleswarnedsmallinvestorstobewaryofbuyingourstocksincepricesofmostnewissues drop after the initial offering. Once again, we defied conventionalwisdom.WepricedStarbucksstockat$17ashare,justabovetheinitialrange.On the big day, several of us in the senior management team went to a

brokerageofficeindowntownSeattleandhuddledaroundaterminal,watchingasthenameSBUXcameuponthescreen,openfortrading.Attheopeningbell,thestockpriceimmediatelyjumpedto$21.Wecheered.StarbuckswasthesecondmostactivestocktradedonNASDAQthatday.The

IPOraised$29millionforthecompany,$5millionmorethanwehadexpected.Bytheclosingbell,Starbucks’marketcapitalizationstoodat$273million—justfiveyearsafterIboughtitforslightlyunder$4million.The IPOwas one of the most successful of the year—one that madeWall

Street brokers search eagerly for “the next Starbucks.” Our share pricemaintaineditsstrengthfarlongerthanWallStreetpunditshadpredicted.Itneverfellsignificantlybelowtheopeningprice,andwithinthreemonths,itreachedashighas$33ashare,makingStarbucksworthnearly$420million.BeingapubliccompanyhaslentStarbucksacertainpatina,takingittothebig

leagues.Ourstockmarket listingprovided the liquidity thathasallowedmanypeopleatStarbucks, includingme, tocash in stockoptionsandbuy thingsweneedorhavelongwishedfor.Ithaslikewiseservedasagreatincentivetoattracttalented people,who join us not only because of the excitement of building afast-growingcompanybutalsobecauseofthevaluewearecreating.OursuccessonWallStreetalsoaddeddimensiontothebrand.Itallowedusto

goback to themarket almost everyyearandask investors formoremoney tounderwriteourgrowth.We’ve raisedclose to$500millionsincegoingpublic,by issuingnewstockor sellingbonds that convert into stock if thepricegoesaboveacertainlevel.Ipersonallyenjoytheintellectualstimulationofinteractingwith the bright people I’ve met on Wall Street, people who have done theirhomeworkandunderstandthecompany.IalsolikethechallengeofformulatingastrategyforStarbuckstofinanceitsgrowth.But becoming a public company has its downside, too. It exposes your

businesstoahighdegreeofscrutinyandyourpersonallifetoasuddenlackofprivacy. Most importantly, it increases the weight of responsibility to

shareholdersandimposesaburdenofmeetingWallStreet’sexpectations.Around the timewewentpublic, onenewspaper report appeared that really

irkedme.AWallStreetpunditwhooftenforecastsdisasterandsellsstockshortpredicted thatStarbuckswould stumble.Hebelievedwewerewayovervaluedand said the stock would fall to $8 by the end of the year. The piece cast ashadowoverthegloryofthemoment.Icutitoutandstuckitinadrawerinmyoffice.Everymorningforthenextsixmonths,Ipulledoutthatclippingandre-read its gloomy prediction. Fortunately, the pundit was wrong: We didn’tstumble,andourstockpricecontinuedtorise,albeitwithsomedramaticupsanddownsalongtheway.Hisforecastremindedme,everyday,ofthecostofevenaminortrip-up.Alongside the exhilaration of being a public company is the humbling

realization,everyquarter,everymonth,andeveryday, thatyou’reaservant tothestockmarket.Thatperceptionchangesthewayyoulive,andyoucannevergobacktobeingasimplebusinessagain.Webegantoreportoursalesmonthly,includingcomps—“comparable”growthofsalesatstoresthathavebeenopenatleastayear,alsocalledsame-store salesgrowth.When thereare surprises, thestock reacts instantly. I think comps are not the best measure to analyze andjudge the success of Starbucks. For example, when lines get too long at onestore,we’lloccasionallyopenasecondstorenearby.Ourcustomersappreciatethe convenience and the shorter lines. But if, as often happens, the new storecannibalizes sales from theolder store, it showsup as lower comps, andWallStreetpunishesusforit.Over the past few years, we’ve faced many a skeptic in the financial

community.Starbucks’ stockhas always traded at a highmultiple to earnings,whichhasmadeitafavoriteforshort-sellers,whobetagainstitbecausetheyareconvincedthatourcompanyisovervalued.Since1992,we’vehadthedubioushonorofconsistentlybeingoneofthetopnamesontheshort-sellers’list.Butsofar,mostofour steadfast believershavebeen rewarded, and the skepticshavebeenprovenwrong.InvestorsineverynewStarbucksstockissuehaveseenthepricegoup.Butwhenyourstockistradinghigh,youbecomefamiliarwiththebusinessversionofvertigo:It’salongwaydown.While Wall Street has taught me a lot, its most enduring lesson is an

understandingofjusthowartificialastockpriceis.It’salltooeasytoregarditasthetruevalueofyourcompany,andeventhevalueofyourself.In earlyDecember 1995, Starbucks’ stock price reached a record high—the

sortofnewsthatnormallyliftsmoodsaroundtheoffice.Butinfact,wehadjustlearned that our Christmas merchandise was not selling as well as we had

predicted,andtensionranhighaswewaitedfor thefinalresultsof thecriticalholidaysellingseason.InearlyJanuary,whenweannouncedDecembercompsofonly1percent,the

stockfelldramatically,from$21to$16.Injustafewdays,welost$300millioninmarketvalue, even thoughwehadannouncedonlya$5million shortfall insales. Concerned investors called me up, asking: “Why is the companyperformingsopoorly?”TheWallStreetJournaldeclaredthatwewerea“shininglight” that “may now be fading.” Analysts seemed sure that our growth dayswereover,thatthebloomwasofftherose.In fact, Starbucks hadn’t changed in that month. Although our sales were

lowerthanexpected,ouroverallannualsalesgrowthwasnearly50percent.Wewere still buying and roasting coffee. We were opening a store a day. Wecontinuedwithourplanstoenternewcitiesandintroducenewproducts.Three months later, the stock rose to another all-time high. Comps were

healthyagainforthefirstthreemonthsoftheyear.GoldmanSachs,oneofthepedigree bankers on theStreet,with novested interest inStarbucks, predictedevenhigherprofitmarginsandahigherstockprice.Investors were now phoning to congratulate me—some of them the same

peoplewhohadcalledwithseriousconcernsduringtheChristmasseason.What had changed? Again, nothing substantial. Starbucks was the same

company in April that it was in January. The difference was thatWall Streetsuddenlydecidedthecompanywasworthalotmore.Running a public company is an emotional roller coaster. In the beginning,

you accept the congratulations as if you really deserve them. Then,when thestockpricefalls,youfeelyouhavefailed.Whenitbouncesback,itleavesyoudizzy.At some point, you have to divorce yourself from the stock price and just

focus on running the business. You need to maintain a controlled calmthroughoutboththeheadyhighsandthesickeninglows.Thatsortofcomposurecomes hard for me, because normally I respond very emotionally. But I’vediscoveredhowcritical it is toexert strong,consistent leadership throughbothgoodandbadtimes,tobeabletotemperthemoraleswingsofthosearoundyou.Most importantly, I’ve tried to make decisions based on what’s right for thecompany,notwhat’srightforthestockprice.That’soneoftheachievementsI’mproudestofatStarbucks.Everyentrepreneurdreamsofbuildingapubliccompany.Buthowmanyofus

really knowwhatwe’re getting into?Not every company leads as charmed apubliclifeasStarbuckshas.Ifit’sbeenawildrideforus,whatmustitbelike

forthosewhosecompaniesdostumble?Anotheroldsayingringstruehere:Becarefulwhatyouwishfor.Youmight

getit.

CHAPTER14AsLongAsYou’reReinventing,HowAbout

ReinventingYourself?

Thedifferencebetweengreatandaverageorlousyinanyjobis,mostly,having

theimaginationandzealtore-createyourselfdaily.

—TOMPETERS,THEPURSUITOFWOW!

WHYAREWEGROWINGSOFAST?

AfterStarbuckswentpublic in1992, Ibasked in theglowofoursuccess.Ourexpansion plan sprinted ahead of schedule, with more than 50 new storeopenings in fiscal 1992 and 100 in fiscal 1993. Each year we exceeded ourinternaltargetsforbothsalesandearnings,andWallStreetanalystscheeredasoursame-storesalesgrowthremainedindoubledigits.In1992weexpandedtoSanDiego, San Francisco, andDenver. Everywherewewent, the enthusiasticresponsebowledusover.InApril1993,wemadeour initial jumpto theEastCoast,deciding toopen

first in Washington, D.C., which had the highest concentration of mail-ordercustomersintheEast.WashingtonalsohadthebenefitofbeinghometoalargenumberofbothEuropeansandtransplantedWestCoasters.Wesent invitationsto all our area catalogue customers for the opening of our firstD.C. store, in

Friendship Heights on Wisconsin Avenue, and attracted a sizable crowd. WelaterhadanevenbiggerturnoutwhenKennyGplayedattheGrandOpeningofourhighlyvisibleDupontCirclestore,whichquicklybecameoneofourhighestvolumeoutlets.Webegantorelymoreandmoreoninformationfromourmail-ordergroupto

decidewhichmarkets toenter.Cataloguecustomers tend tobe themost loyal,since theygooutof theirwaytoensure that theywillhaveasteadysupplyofStarbuckscoffee.TheaverageStarbucksmail-ordercustomer,we’vefound,isaconnoisseur, highly educated, relatively affluent, well-traveled, andtechnologically savvy,with a significant interest in the arts and other culturalevents.ThesewerejusttherightkindofambassadorswewantedtogetthewordoutaboutStarbucks.InJuly,themonthofmyfortiethbirthday,mypictureappearedonthecoverof

Fortunemagazine,illustratingastoryonAmerica’sfastest-growingcompanies.“HowardSchultz’sStarbucksgrindscoffeeintogold,”itsaid.Fortunebyforty!Iwasproudbut,frankly,alittleembarrassedatalltheattention.It’salwaysbeenhardformetocelebratesuccess,becauseI’malwaysthinking:Whatnext?Onthesurface,everythingwasgoingflawlessly.Butinmyownmind,Ifound

myself growing apprehensive.Much of the company’s zealwasmotivated byswimmingagainstthetide,byscalingimpossiblemountains.Wehadprovedourideawouldwork—farbetterthanevenwehadimagined.Couldwemaintainouredge?Now that specialty coffee was catching on all over the country, national

expansionlookedlikeaneasygoaltoattain.Itwasn’tthatsimple,ofcourse,forthe competitionwas heating up. In cities acrossNorthAmerica, coffee storeswere adapting the Starbucks model, serving lattes and cappuccinos, stockingshelves with mugs and coffee grinders, sometimes selling whole-bean coffee,too.TheSpecialtyCoffeeAssociationofAmericapredictedthatthenumberofcoffeecafés,includingespressobarsandcarts,wouldrisefrom500in1992to10,000 by 1999. The espresso business was attracting thousands of smallentrepreneurs,somewithlittleoverhead.Manymiddlemanagersindownsizingcompanies dreamed of opening a little coffee place, and some actually did. Itseemed there was no barrier to entry, since anybody could buy an espressomachineandsteammilkforalatte.Starbucks has never felt threatened by the mom-and-pop coffee stores. In

Seattlethere’soneonjustabouteverystreetcorner,andwe’veallbenefitedfromthegrowingmarket.Butothercoffeecompanies,seeingoursuccess,started toundertake ambitious expansionplans.Oneof our competitors,SBC inSeattle,

announced that it would franchise 500 stores in five years; another, Brother’sGourmetCoffee,boughtoutmall-basedGloriaJean’sanddeclaredplanstoopenatleast80moreStarbucks-typestores.Becauseofthegrowingcompetition,someobserverspredictedwehadalready

“missed the train” to the East Coast. So we accelerated our plans: Instead ofopening125stores in fiscal1994,wequietlyupped thegoal to150.AfteroursuccessinWashington,D.C.,wedecidedtoenterNewYorkandBostonin1994.NewYorkheldspecialsymbolismforme,sinceit’smyhometownaswellasthenation’s biggest city. But with its high rents and tough labor market, it alsoconcernedus.ArthurRubinfeldandYvesMizrahidevisedarealestatestrategyof first opening stores in nearby Fairfield andWestchester counties, home tomanyopinion-makerswhowork inManhattan.By the timewemadeour firstforayintothecity,at87thStreetandBroadwayinMarch1994,wewerealreadyratedthebestcoffeeinNewYork.In Boston, we made a move we had never tried before—or since. After

openingahandfulofourownstores,weboughtouttheleadinglocalcompetitor.Foundedin1975byGeorgeHowell,TheCoffeeConnectionwasdifferentfromcompetitors we faced elsewhere. Like the founders of Starbucks, George haddiscovered fine coffee atPeet’s inBerkeley,wherehewas agraduate student.When he returned to Boston and opened his own stores, however, he quicklyrealizedthatNewEnglanderspreferredalighterroast.Aftermuchtrialanderror,he switched loyalties and began to strongly advocate light-roasted gourmetcoffees.By 1992, The Coffee Connection had 10 stores, including prime sites in

Harvard Square and Faneuil Hall, and an intensely loyal customer base, builtlargelybywordofmouth.RealizingStarbuckswouldsoonbecomingtotown,Georgehiredaformerhotelexecutive,CurtBean,tohelphimtapintoventurecapitalfundingtospeedupgrowth.Theyadded15morestoresbymid-1994andstartedtoexpandoutsideBoston,withplanstoopenanother60storesby1997.Rather than starting a local coffee war, we offered to buy The Coffee

Connection,andGeorgeHowellagreed.InJune1994,inastockswapworth$23million, Starbucks completed the acquisition,moving overnight into a leadingpositioninBoston,ahubfortheNortheast.GeorgeHowellbecameaconsultant,andCurtBeanstayedon tooversee the transition.ThemovegaveStarbucksajumpstartonourbrand-buildingandretailstrategy,aswellasimmediateaccesstoacoreofwell-informedcoffeedrinkers.Bytheendofcalendar1994,wehadalsoenteredMinneapolisandAtlanta,as

wellasDallas,FortWorth,andHouston.Thelightning-fast,multi-prongedmove

intoTexaswaspartlybasedontheavailabilityofgreatsites,withrentspricedatthebottomof thecycle.In1995,weopenedstores inPhiladelphia,LasVegas,Austin, San Antonio, Baltimore, Cincinnati, and Pittsburgh. The pace wasdizzying. Opening up in so many regions at once was risky, but we werebuildingthekindofsophisticated,maturemanagementteamweneededineachregiontooverseetheprocess.Toanoutsideobserver,ourgrowthmayhaveseemedeffortless,and in fact,

thereweren’tmanyhitchesalongtheway.Oncewehadsetupasmooth-runningengineforgrowth,openingstoresbecameasroutineaspullingshotsofespresso.Whatreallymadeitworksowellwasthepeoplewewereabletoemploy.In

only a few years, the Starbucks name had acquired a mystique that attractedskilledmanagers,manyofwhomhadleftfarlargeroperationstojoinusattheregional level.HowardBeharandDeidraWager recruitedzonevicepresidentsto direct the development of each region, and gave them the responsibility ofduplicating the Starbucks culture throughoutNorthAmerica. In Canada, RolyMorris came to uswith extensive operations andmarketing experience in theretailindustry.StuartFields,headingtheMidwestzone,hadbeenvicepresidentfor operations of theCustomShirt retail chain. BruceCraig had overseen thegrowthof1,600BurgerKingsbeforebuildingupStarbucks’Southwestregion.MarciaAdams,nowheadofourGulfAtlanticzone,hadexecutiveexperiencewith 7-Eleven in operations, merchandising, and new concept development.Each of them took ownership of their region and outperformed even ourexpectations.To accommodate fast growth, we developed a system to recruit and train

baristas, ensuring high-energy, knowledgeable people, helping them developtheirpalateforcoffee,andreplicatingourstandardsandvaluesincityaftercity.UnderDeidraWager, our retail operations had not only to install systems thatcouldhandlelargenumbersofstoresbutsimultaneouslytooverseetheopeningofhundredsofstoresinnewmarketseveryyear.AtourSeattleoffices,ourrealestate,design,storeplanning,andconstruction

people developed a sophisticated store-development process based on a six-monthopening schedule, sowell-oiled that eventuallywewereable toopenastoreeverybusinessday.TheregottobesomanythatIcouldn’tvisitthemall.In 1992 and 1993,we refined our real estate strategy, creating a three-year

expansion plan based on a matrix of regional demographic profiles and ananalysisofhowbest to leverageouroperationsinfrastructure.Foreachregion,we targeted a large city to serve as a “hub,” where we located teams ofprofessionalstosupportnewstores.Weenteredlargemarketsquickly,withthe

goalofrapidlyopening20ormorestoresinthefirsttwoyears.Thenfromthatcorewebranchedout,enteringnearby“spoke”markets,includingsmallercitiesandsuburbanlocationswithdemographicssimilartoourtypicalcustomermix.Tosupplysomanynewstores,wealsohadtobuildanewroastingplant.Just

after Christmas 1992, we realized we couldn’t get through another holidayseasonwithourexistingplant,althoughithadbeenplannedtolasttenyears.InFebruary1993,weaskedHowardWollner,ourvicepresidentforadministration,to do the impossible: find a new site, assemble a team to build a far largerroastingplant,andstartoperationsinonlysevenmonths.InSeptemberof1993,roasting began in a new 305,000-square-foot plant in Kent, Washington, justsouthofSeattle.The old plant eventually became dedicated to roasting for our mail-order

group,headedbyBuckHendrixsincemid-1993.Buckgrewthatbusinessfrom$6milliontomorethan$20millionby1997,which,thoughrepresentingasmallpercentageofouroverallsales,servedasavisibleshowcaseforourproductsandanimportantlinktocustomersallovertheUnitedStates.InOctober1993,weoutgrewouroldofficesaswell.HowardWollnerfound

usspaceinabuildingafewblocksaway,stillinthelightindustrialareasouthofSeattle,anareacalledSODObecauseitisSOuthoftheKingDOme,thestadiumwhere theMarinersandSeahawksplay.We rented several floors inabuildingthatonceservedas theNorthwestwarehouseforSears’cataloguedivision. It’snothing like the high-rise buildings or sprawling corporate campuses othercompaniesinhabit.Eachoneofitsninefloorshastheequivalentsquarefootageofsixstoriesinatypicalofficehigh-rise.Theoldwarehouseusedtobesolargethat peoplemoved around it onbicycles and roller skates to fulfill orders.Wecreatedaspacecenteredarounda“commonsarea”withfoodservice,espressokitchens,andrestrooms,toencouragepeopletointeract.Industriallightingandexposedpipes andducts create amood that’s far from the stylish image somemightexpectofus.I hated the idea of moving away from the roasting plant, so I insisted on

elementsthatwouldremindusofourroots.Justinsidethemaindoorisamockstore,showcasingourlatestproducts.Postersonthewallsthroughouttheofficedisplayournewestmarketingmaterials.Coffeeplantsgrow inpots.Andoncewe expanded into the top floor, we installed a small antique coffee roaster,retrofitted with modern technology, to use for demonstrations and samplebatchesand,mostimportantly,totieusallthemorecloselytocoffee.From thewindowofmyoffice,amodestonebyCEOstandards, I lookout

overthecranesofSeattle’sport,whereourcoffeebeansarrive,andthetowersof

thecitywherethecompanywasborn.YetIstillmissthedayswhenmyofficeoverlookedtheroastingplant.By1994,wecouldseethatouraimofbecomingtheleadingretailerandbrand

ofspecialtycoffee inNorthAmericawaswithinreach.Soweframedabiggergoal:tobecomethemostrecognizedandrespectedbrandofcoffeeintheworld.TherewerestillmanyAmericanandCanadiancitieswehadn’tentered,butsincetheStarbucksmodelandlogowerealreadybeingcopied—sometimesblatantly—aroundtheworld,weknewweneededtoactquicklytolayplanstogoglobal.Butitwasn’tenoughsimplytospeedupandspreadeverfartherafield.Justas

IhadchangedtheparadigmforStarbucksonce,sellingcoffeebeveragesaswellascoffeebeans,Iwantedtoshiftitagain.Iwantedtojumptoanewlevel,withamove that would be truly innovative and daring. The Starbucks brand wasgaining favor so quickly that I figured we could leverage it for new coffeeproductsthatcouldbesoldfarbeyondourstores.IbegantoimagineaStarbucksthatwasmorethancoffeeandlargerthanthefourwallsofourstores.In 1994, Starbucks exploded into a whirlwind of activity. We invented

Frappuccino. We signed a far-reaching joint venture with Pepsi. Orin Smithbecame president of the company. We formed Starbucks International, andHoward Behar became president of that. We moved to our new offices. Weupgraded our mail-order computer system. We chose a site in York,Pennsylvania,forahuge$11millionroastingfacilitythatcouldultimatelygrowto1millionsquarefeet,tosupplyourEastCoaststores.Andwefacedourfirstmajorcrisis:a300percentriseincoffeeprices.They were all major moves, many taking place simultaneously, and I’ve

devotedentirechaptersof thisbook tosomeof them.And thepaceofchangehasn’t slowed more recently: 1995 and 1996 found us facing challenges ofgrowth and ubiquity, conflicts over ethics and style, and fantastic newopportunitieswithriskydownsidesthatmadethedebatesofthelate1980sseemminorbycomparison.

FASTGROWTHTAKESITSTOLL

What kept us balanced during this storm of activity was our values and ourcommitment to eachother.Yet aswe ranever faster, thosevaluescameundermore andmore strain.Within the company, people who had helpedme growStarbucks in the early years became fearful and threatened, as professionalmanagers came in over their heads. I no longer knew everyone’s name, eventhoughweworkedinthesamebuilding.Thesamepaceandpassionthatmade

usgreatalsoattimesburnedpeopleout.Andwhilewewerewinningthousandsofnewcustomersaweek,Iheardreportsofsomewhodefected.Nowhere were these conflicts more intense than inside my own head.

Whenever someone came to my office upset about some new change, I feltpersonally responsible. Ihad thoughtmy jobwouldget easier as thecompanyexpanded,butitgrewmoredifficultinstead.Theissuesbecamefarmorecomplex.Canacompanydoubleandeventriple

insizebutstay true to itsvalues?Howfarcanyouextendabrandbeforeyoudiluteit?Howdoyouinnovatewithoutcompromisingyourlegacy?Howdoyoucreatewidespreadtrialandawarenesswithoutlosingcontrol?Howdoyoustayentrepreneurial even as you develop professional management? How do youkeep pushing through on long-term initiatives when short-term problemsdemandimmediateattention?Howdoyoucontinuetoprovidecustomerswithasense of discovery when you’re growing at the speed of light? How do youmaintainyourcompany’ssoulwhenyoualsoneedsystemsandprocesses?Most of these questions, I discovered, do not have answers you can find in

books.Thebestguidancecomesfromobservinghowotheradmiredenterprisesact. Only a few, unfortunately, have openly grappled with the difficulties ofsustaininghighstandardsandvaluesduringrapidgrowth.Withno easy answers, I explored every avenue I could. I’ve alwaysbeen a

voraciousreader,butnowIbegantoreadevenmorewidely.Iconsultedexperts.IgottoknowotherCEOsandentrepreneurs.Ihiredmanagerswhohaddoneitbefore.IpickedthebrainsofeveryoneImet:reporters,analysts,investors,storemanagers,baristas,customers.Withgrowth,thedailypaceofmylifeintensifiedaswell.Onanygivenday,I

might have up to a dozenmeetings, dealingwith an extremelywide range ofsubjects. Sometimes, I’d have very little time to mentally prepare and wouldhavetoquicklyshiftgearsbetweendiscussionofthecompany’sstrategicvision,thefollowingmonth’ssalespromotion,anewblendofcoffee,profitmargins,anemployee’spersonalworries, amajor investmentopportunity, apolicychange,and a board member’s objection. Sometimes my brain would almost literallyache.Inthemiddleofthat,I’dsometimesgetacallfromSherioroneofmykids.I

alwaystrytomaketimeforfamilyandfriends;Icouldn’tstandthepressureifIdidn’t. But keeping up those personal relationships is stressful, too. Sheri hasbeen able to gauge the pressures on me as the business matured, and duringtimesIwasdistractedshesomehowmanagedtokeepthefamilyonanevenkeel.Ican’timaginethatIcouldhavebuiltStarbucks,thatIcouldhavemanagedthe

tensions and conflicts involved and still feel as good about it as I do,withouthavingastrong,securewifelikeSheri.Still,it’salwaysastruggleformetopursuemydreamsattheofficewithout

impingingonfamilytime.Itrynevertotravelonweekends.Wealwaysmakeanefforttohavedinnerathometogether,wheneverI’mnotontheroad.Forus,thattime issacrosanct,and thoughwemayeata little later thanmost families,mykids look forward to it. I coachedmy son’sLittleLeague team for twoyears,planningmytravelschedulearoundhisgames.ItakethekidstoseetheSonicsandMariners,andtheyalwaysattendtheStarbucksannualpicnic.Thebalancingacthasneverbeenaneasyone.I’vestruggledtoharmonizethe

needsofthefamily,theneedsofthebusiness,theneedsofmymarriage,andmyindividualneeds,too.Isometimeswonder:Whenistheretimeforme?WhatdoIget out of this? It’s a relief to get out on the basketball court every Sundaymorning and play a fast, running, sweaty game. For two and a half hours, Iconcentrateonthatball,andalloftheworkworldmeltsaway.

THEENTREPRENEUR’SBIGGESTCHALLENGE:REINVENTINGYOURSELF

Nobodyhasagreaterneedtoreinventhimselfthanthesuccessfulentrepreneur.Think of it: How many entrepreneurs have founded a company and thenmanagedtogrowsuccessfullyalongwithit,evenasitreachesandsurpasses$1billioninsales?BillGatesofMicrosofthasdoneso,ashasPhilKnightofNike.Butfarmore

entrepreneurscan’tadjust tothetransitionintoprofessionalmanagement.Mostare better at creating start-ups than at guiding mature businesses. As thecompaniesbeneath themballoonever larger, theoddsdiminish that theirskillswillgrowfastenoughtomaintaincontrol.SometimesIfeellikeoneofthosecartooncharacterswhosomehowwindsup

straddlingtwojetplanes.I’vegotonefootononejetandonefootontheother,and both are racing faster and faster ahead. I have to decide:How long can Ihangon?ShouldIjumpoff?AmIgoingtobreakmylegs?IfigureI’vehadtoreinventmyselfatleastthreetimes,eachtimeattopspeed.I startedoffasadreamer.Thatwas the thirty-two-year-oldwhoknockedon

everyinvestor’sdoorinSeattlelookingformoneytorealizehisbusinessplan.ThenImovedtoentrepreneur,firstfoundingIlGiornaleandthentakingover

Starbucksandre-creatingitasafast-growthcompany.ThenIhadtobecomeaprofessionalmanager,asthecompanygrewlargerandIneededtodelegatemore

and more decisions. Today, my role is to be Starbucks’ leader, its visionary,cheerleader,andkeeperoftheflame.Forme,dreameristhemostnaturalrole,andoneIstillenjoy.Growingupin

the1950sand1960shasalottodowiththat.ItwastheeraoftheKennedysandthe Peace Corps, when capitalism meant opportunity, not oppression. Theprevailingmoodwasoptimism,andIabsorbeditdeepinmybones.Butbeingadreamer isn’t enough. Ifyouwant toachieve something in life,

youneedadifferentsetofskillstosetthosedreamsinmotion.Once you cross the divide where your dream begins to take shape, you

graduate from being a dreamer to being an entrepreneur. The entrepreneurialstageofayoungbusinessisprobablythemostexcitingone.Ididn’trealizeitatthetime,butI’mnowconvincedthatoneofthegreatest

responsibilities of an entrepreneur is to imprint his or her values on theorganization. It’s like raisingchildren.Youstartwith loveandempathy,and ifyou’ve imprinted the right values on them, you can trust them to makereasonabledecisionswhentheybecometeenagersandyoungadults.Sometimestheywill disappoint you, and sometimes theywillmakemistakes.But if theyhaveabsorbedgoodvalues,theywillhaveacenterlinetoreturnto.Inbuildingabusiness,you’lloftencometoforksintheroad.IntelCEOAndy

Grove calls them “inflection points.”Youmay not even be aware of it at thetime,butthedecisionsyoumakeatthesejunctureshaverepercussionsforyearstocome.Youmayrealize,forexample,thatyou’vediscoveredanopportunitytocreateamuchlarger,moremeaningfulbusiness.Butinordertotakeadvantageofthatchance,youwillhavetomakeadramaticchangeinthewaythebusinessismanaged.Itispreciselyatpointslikethiswhenalotofentrepreneurscutandrun.Some

are intimidatedby thenewopportunityandreject it.Otherswhodoaccept thechallengeoftencan’tdeveloptheskillstohandleit.Atacertainstageinacompany’sdevelopment,anentrepreneurhastodevelop

into a professional manager. That often goes against the grain. Early on, Irealized that I had to hire people smarter andmore qualified than I was in anumberofdifferentfields,andIhadtoletgoofalotofdecision-making.Ican’ttell you how hard that is. But if you’ve imprinted your values on the peoplearoundyou, you candare to trust them tomake the rightmoves.Youhave tobuildafoundationstrongenoughtosupportthepressures,theanxieties,andthefearsofgrowingtothenextlevel.Ifyou’reacreativeperson,anentrepreneuratheart,introducingsystemsand

bureaucraciescanbepainful,fortheyseemliketheantithesisofwhatattracted

youtobusinessinthefirstplace.Butifyoudon’tinstitutetherightprocesses,ifyou don’t coordinate and plan, if you don’t hire peoplewithMBA skills, thewholeedificecouldcrumble.Somanycompaniesdo.In the early 1990s, we worked hard to make the transition from an

entrepreneurialtoaprofessionallymanagedcompany.Butevenaswedidso,wetried to retain asmuch aswe could of our entrepreneurial spirit, our esprit decorps,ourability to innovateand renewourselves.We invitedEricFlamholtz,business professor at UCLA, to advise us on making that passage. He hadwrittenabookcalledGrowingPains,andrecognizedthesymptomsalltoowellwhenhearrivedatStarbucks.Fast-growingcompanies,hebelieves,gothroughpredictable stages; no one is immune to them.He has developedmanagementstrategies to help company founders at each stage deal with the personal andprofessional challenges they confront as their enterprises mature intoprofessionallymanagedfirms.AtStarbucks,EricFlamholtzworkedwithus todevelop strategic planning andmanagement systems. Slowly, painfully, we’relearninghowtosetprioritiesandbettermanagerapidgrowth.Atfirst,Ibattledagainstthesechanges.I’mnotprocess-oriented.Ihatedthe

very notion of strategic planning and systems, which always struck me aslimiting.I’musedtotossingthegauntletonthetable,saying,“Ichallengeyoutodo this,” and it’s done. Eric Flamholtz calls that the “JohnWayne school ofmanagement: a shoot-from-the-hip mentality.” Gradually, though, I gainedrespectforprocessesandplansasIcametorealizethatthebetterStarbuckscanhandleroutinebusinessandgrowth,themorewell-equippeditistomoveboldlyintonewarenas.ButIknewIwouldultimatelyhavetogrowbeyondeventheroleofmanager

tobecomea leader. Iwas lucky in that respect tobecomeacquaintedwith themanwhowrotethebookonleaders,USCprofessorWarrenBennis.Afterhedidsome consulting at Starbucks, our friendship developed to the point where Icould call him up late at night or early in themorning,whenever I reached aturningpointandwasatalossforwhattodo.Hetookapersonalinterestinthecompany and in me, and helped me over some hurdles in my evolution toleadership.

RECOGNIZINGYOURLIMITATIONS

Inmid-1994,Irealizedthatmyroleneededtochangeagain.Managingtheday-to-dayoperationsofabigcompanywasnotwhatIwishedtodo.Itwasbeyondthe scope of my skills and also fell outside my interests. I wanted, rather, to

continuetocreatethevision,toanticipatethefuture,toexperimentwithcreativeideas.That’sthevalueIcanadd,andit’stheworkIlove.SoinJune1994,theboardandIpromotedOrinSmithtotakeoversomeof

my day-to-day responsibilities. He took on the titles of president and chiefoperatingofficer,whileIremainedchairmanandCEO.Overtheyears,Orinhadgrown into a world-class executive with a thorough understanding of thelogistics of managing administrative systems, someone who was much morequalified tomanageourdailyoperations thanIwas.Themovefreedmeup tospendtimeonsuchprojectsasthePepsijointventure,brand-building,thedesignoftheStoreoftheFuture,andnewproductdevelopment.Ifyou’veraisedacompanyasifitwereyourchild,it’sdifficulttoletgoofthe

instincttocareabouteverydetail.Foryears,Iusedtomonitorsalesandprofitsnumbersdaily,foreverystore,watchingthemcomeofftheprinter.I’dcomparetheiractualperformanceagainstbudget, looking fornumbers thatwereoff thecharts, whether good or bad. If a store had a phenomenal day, I’d call up itsmanagerandcongratulatehimorher.IfInoticedaweakperformance,I’dcall,too,tofindoutwhatcouldbedonetohelpimprovesales.Bythetimethecompanyhad400or500hundredstores,IrealizedIcouldno

longer keep watch over it so closely. I had to trust Orin and the rest of ouroperationspeopletodoso.Still,itwasfrustratingnottobeincludedinmeetingsaboutnewproducts,newmerchandise,newmarketingcampaigns.To thisday,I’ll often pass a roomwhere an interesting discussion is in progress, and I’msorelytemptedtodropin.ButIknowmypresencewillchangeitstenor,andit’snolongerappropriate.Forme,pickingOrinwasanobviousmove.Ihadsomuchconfidenceinhim

thatIcouldn’thaveentertainedtheideaofbringinginsomeonefromtheoutside.AlthoughOrinandHowardBeharhadlongbeenequals,eachoverseeingabouthalf the functions in the company, by mid-1994 Howard Behar wanted adifferent sort of challenge. We were just ready to begin planning overseasexpansion,andhewantedtobuildupthatsideofthebusinessfromscratch.SowecreatedStarbucksInternational,appointedHowardasitspresident,andgavehim the leeway to develop an enterprise that had the long-term potential ofdoublingthesizeofthecompany.WhenOrinbecamepresident,Imovedintoanewrole,whichIcallleader.As

chairman Iplay the roleofpathfinder, trying to look far into the future to seewhat’s coming at us. I try to anticipate competition and envision the strategicchangesourcompanymayneedtomaketofaceit.Whenaregionalmanagerorplant manager needs someone to come and speak to his or her people, to

reinforcethevaluesofthecompany,tofirethemuparoundthecause,Itakeonthecharge. I spenda lotof timevisiting stores, touringnewmarkets,buildingexcitement.Here’s the irony: I’ve remade myself into a professional manager and a

corporateleader.Butinmysoul,I’mstilladreamerandanentrepreneur.IhavetoretainthatoutlookevenasIdevelopnewskills.SodoesStarbucks.We’vegottodevelopsystemsandprocesses,butnotatthe

cost of stifling our creative people. If we bog down innovative ideas inbureaucratic nonsense, we will have made the same mistake hundreds ofAmericancorporationshavemadebeforeus.Tostayvigorous,acompanyneeds toprovideastimulatingandchallenging

environment forall these types: thedreamer, theentrepreneur, theprofessionalmanager, and the leader. If it doesn’t, it risks becoming yet anothermediocrecorporation.I’mdeterminedthatwon’thappenatStarbucks.

CHAPTER15Don’tLetTheEntrepreneurGetIntheWayOfThe

EnterprisingSpirit

Noorganizationalregeneration,nonationalindustrialrenaissancecantakeplacewithoutindividualactsofcourage.

—HARVEYA.HORNSTEIN,MANAGERIALCOURAGE

FRAPPUCCINO:THEBESTMISTAKEIDIDN’TMAKE

It’snotdifficultformetoretainmyentrepreneurialspirit;it’spartofmynature.ButencouragingothersatStarbuckstofeelandactlikeentrepreneurswithinthecompany takes effort. Sometimes what’s hardest—for me and strong-mindedleaders like me—is restraining myself, allowing other people’s ideas togerminateandblossombeforepassingjudgment.Manyentrepreneursfallintoatrap:Theyaresocaptivatedbytheirownvision

thatwhenanemployeecomesupwithanidea,especiallyonethatdoesn’tseemtofittheoriginalvision,theyaretemptedtoquashit.IalmostdidthesameforoneofStarbucks’mostsuccessfulproducts,theicyblendofdark-roastedcoffeeandmilkthatwecallFrappuccino.Here’showithappened.

DinaCampionmanagedadistrictofabouttenStarbucksstoresinandaroundSanta Monica, California. She and her store managers were becomingincreasingly frustrated because nearby coffee bars were doing great businesswith theirgranitas—sugary,blended,coldcoffeedrinks thatwereverypopularduringhotweather,especiallyintheafternoonandevenings.Starbucksdidoffericedlattesandicedmochas,bothofwhichwereservedwithicecubes,butmoreandmore customers came in asking for a blended drink.When informed thatStarbucksdidn’tsellany,theywenttoalocalcompetitorinstead.PeopleworkinginoursouthernCaliforniastoreshadaskedusmanytimesto

createsuchablendedbeverage,butbecausewedidn’tregarditasatruecoffeedrink, we declined. I, especially, resisted the idea. It seemed to dilute theintegrity of what we stood for and soundedmore like a fast-food shake thansomethingatruecoffeeloverwouldenjoy.In September of 1993, Dina saw an opportunity to make her case more

strongly.DanMoore,aformerLosAngeles–areastoremanager,hadmovedtoSeattle to work in retail operations. He understood the needs of the southernCaliforniamarket,andhecouldchampionthecauseinSeattle.AfterDinaapproachedhimwithheridea,Danarrangedtopurchaseablender

for her.As her test case,Dina picked a store in the drySanFernandoValley,whererequestsforblendeddrinksranashighasthesummertemperatures.Thepartners installed the blender and began experimenting. They didn’t ask forpermission;theyjustwentahead,wonderingifthey’dgetintrouble.Theirfirstattemptwas far fromperfect; itwasn’t sweet enough and the consistencywasuneven.Dina andDan presented their initial results to our food and beveragedepartment,whichthenagreedtodevelopaproprietaryblendeddrinkforfurthertesting.Earlyin1994,aprototypeofthenewbeveragewasbroughttomyofficefor

me to taste. That version used a powder base and had a chalky, pasty taste. Ithoughtitwasawful,whichonlyconfirmedmyoppositiontothenotion.Still,rememberingthenonfatmilkexperience,Iagreedtoletthemtestitwith

customers, beginning in May 1994. Dina handed the project over to AnneEwing, who at the time managed our Third Street Promenade store in SantaMonica, in an outdoor mall where tourists and a wide variety of shopperscongregateintheafternoonandevening.Inawarmclimate,hotcoffeedoesn’tappealmuchatthosehours.Anneandherassistantmanager,GregRogers,quicklydiscoveredthatneither

of them liked the drink. Instead of complaining about it, they took ownershipandimproveduponit.

Greg, who is a comedian on the side, had worked with Anne at anentrepreneurial California company that invented variations of fruit shakes,smoothies,andyogurtdrinks,sotheyknewhowtoinnovate.Theydumpedthepowder and used freshly brewed coffee for the base instead. They varied theingredients.Theylengthenedtheblendingtimefromtentotwenty-fiveseconds.Theychangedtheratiooficetoliquid.Theytastedallthecompetingproducts.Theygotfeedbackfromcustomers.Thatsummer,HowardBeharvisitedLosAngeles.DinatookhimtotheThird

StreetPromenadestoreandpresentedhimwith twoversionsof thedrink—thefood and beverage version and Anne and Greg’s revision. Hands down, hepreferredAnne andGreg’s drink, and he brought it back to Seattle forme totaste.“We’vegottopursuethis,”heinsisted.“Customersareaskingforit.”Our beverage director took the recipe to a team of food consultants, who

applied their professional knowledge of food chemistry and productdevelopment to refine it. They came upwith a great-tasting product that usedlow-fat milk, so its texture wasmore icy than creamy. In October, we begantestingthebeverageat12southernCaliforniastores,halfusingblendersandhalfusingsoft-servemachines.Wethenconductedformalresearchinthreecitiestogetbroadconsumerperspective.The results revealed that the blended productwas fantastically popular and

hadwiderappealthanthesoft-servevariation.WhenItastedit,Icouldseewhy.Itwasdelicious.We wanted to use a distinctive name for the drink, one that would be

proprietary to Starbucks. In June 1994, when we had acquired The CoffeeConnectioninBoston,weinheritedoneoftheirproductscalledaFrappuccino,acold,slushydrinkmadefromasoft-servemachine.Wedidn’tlikethedrinkbutthenamewasperfect,evocativeofboththecoldofafrappeandthecoffeeinacappuccino.SowedecidedtoextendthenameFrappuccinotothenewblendedbeverage.I still had reservations. We were already working with Pepsi to develop a

lightly carbonated cold coffee drink in a bottle, which I thought had muchgreaterpromise.AlthoughIagreedthatFrappuccinowasanappealingname,Istillthoughtitwasamistaketosellitinourstores.Itseemedmorelikeamilkproductthanacoffeeproduct.Andblenderswhirringawaynexttoourespressomachines?Howcouldwe?In theend, though,Igave in.Onceagain,ourcustomershadvoted,andour

partners,whoareclosest to them,hadunderstood theirneedsbest.Weput the

blenderinametalshroudtodampenthenoise,andnobodyseemedtomind.By the end of 1994,we decided to roll Frappuccino out, nationwide, to all

Starbucksstores.OurgoalwastoformallyintroducethedrinkonApril1,beforetheweathergothot.Thatmaysoundeasy,buttoourretailoperationspeople,itseemed nearly impossible.Wehad less than fivemonths to retrofitmore than550 individual stores, to install blenders, and to train our baristas tomake thenewdrinks.WeaskedDanMooretocoordinatetheeffort.Wemadeit,andFrappuccinowasaninstanthit—arunawayhomerun.Word

of mouth about the new product spread quickly, and our regular customersintroducedittotheirfriends.Alotofwomen,inparticular,appreciatedthefactthat it is low-fat, and stopped in for a Frappuccino after a run or a workout.Frappuccinoaccountedfor11percentofoursummersales thatyear. Itpushedupourprofitnumbers,andourstockhitarecordhigh.Infiscal1996,thefirstfullyearonthenationalmarket,wesold$52million

worthofFrappuccinos,whichrepresented7percentofourtotalannualrevenues.That’s $52 million we would not have registered had we not listened to ourpartnersinCalifornia.Iwaswrong,andIwasdelightedaboutit.TurningdownFrappuccinowasthe

bestmistakeInevermade.Inlate1996,BusinessWeeknameditoneofthebestproductsoftheyear.Anddid it dilute the integrityofStarbucks?Acoffeepuristmight think so,

but,most importantly, our customers didn’t. Frappuccinos not only gave us awelcome alternative for warm-weather months but also provided a way tointroduce non–coffee drinkers to Starbucks coffee. Besides, the more I drankFrappuccinos,themoreIlikedthem.Perhaps themost remarkable thingabout this story is thatwedidn’t do any

heavy-dutyfinancialanalysisonFrappuccinobeforehand.Wedidn’thireablue-chip Establishment consultant who could provide 10,000 pages of supportmaterial. We didn’t even conduct what major companies would consider athoroughtest.NocorporatebureaucracystoodinthewayofFrappuccino.Itwasa totallyentrepreneurialproject,and it flourishedwithaStarbucks thatwasnolongerasmallcompany.EvenwhenIdoubtedit,itwentahead.Ifwehadbeen a typical leaden corporation,Frappuccinowouldnever have

emerged as it did. Its story epitomizes the enterprising spirit we still have atStarbucks, an innovative edge that keeps our customers coming back and ourcompetitorsgrousing.It’sexperimental.It’sadventurous.Itfirespeopleupandengagestheirimagination.In October 1995, Dina, Anne, and Greg received the Starbucks President’s

Award. Dan was named nonretail Manager of the Year. They would laugh ifsomeoneaskedifStarbucksiscorporateandbureaucratic.

HOWDOESACOFFEECOMPANYGETINTOTHEMUSICBUSINESS?

During 1994, another idea percolated up from the store level. It pushedStarbucks into a new direction that I never could have imagined: the musicbusiness.The ideabeganbrewing inUniversityVillage,oneof theoriginalStarbucks

locations, an urban shopping center with an eclectic clientele that includedcollege students, professors, and wealthy homeowners. Timothy Jones, thestore’smanager,hadworked for twentyyears in the record industryand lovedmusicasmuchashelovedcoffee.At that time, we had long been working with AEIMusic Network, which

provideda“tapeofthemonth”forus,primarilyjazzandclassicalinstrumentals.Starting in1988,Timothyasked ifhecouldbe theone toselect the tape fromAEI’s monthly programs.We were happy to oblige. He began reviewing themonthly selections and experimentingwith various types ofmusic in his ownstore,gaugingcustomers’reactionsduringdifferenttimesofday.Gradually,headded jazz vocals, such as Ella Fitzgerald and Billie Holiday, and varied theclassical offerings. Because of his personal interest and initiative, TimothybecameStarbucks’musicconscience.Againandagain,customerscomplimentedhimonthemusicthatwasplaying,

and asked where they could buy it. He had to tell them it was a specialcompilationforStarbucks,notforsale.Inlate1994Timothyapproacheduswithanunusualidea.“Whynotcompile

ourownCDortape?”heasked.“Customerswouldsnapitup.”Ataboutthattime,AEIhadmadeafewtapesforuscalled“BlueNoteYears,”

using jazz cuts from the 1950s and 1960s, most of them recorded by theacclaimedBlueNote label. They included such great instrumentalists as JohnColtrane,ArtBlakey,BudPowell,andTheloniusMonk.Customerslovedthem.Oneday,bycoincidence,JenniferTisdel,ourdirectorofretailmarketing,was

havingSundaybrunchwithafriendvisitingfromLosAngeles,DaveGoldberg.Dave worked in new business development for Capitol Records, which ownsBlueNote,andhetoldheraboutanideahehadformarketingCapitol’smusicthrougharetailcompany.“Well, how about Starbucks?” she suggested. “We play a lot of jazz in our

stores.”The idea clicked.Davehadheard theBlueNote tunesplayed inour stores,

andtheysawmanypossibilitiesforsynergy.BothBlueNoteandStarbuckshada “coolness factor” in their image andwe could benefit fromassociationwitheach other.Capitol had been looking forways to get awider audience for itsmusic, especially jazz, and would benefit from having it played in our storesmoreregularly.JenniferputhimintouchwithTimothyJonesatUniversityVillage.Together,

theyexploredan idea:What ifStarbuckscompiledgreat recordings fromBlueNoteinaCDandsolditexclusivelyinourstores?TheyrevisedtheideaandbroughtittoHowardBehar.Hefounditintriguing

enough to turn it over to Harry Roberts, one of the most creative executiveswe’vehadatStarbucks.Asvicepresidentformerchandising,Harrywasalwayslooking for fresh and imaginative newproducts to sell.The idea setHarry onfire,too,andhebecametheexecutivewhochampionedourentryintothemusicbusiness.Wehadtodosomeresearchfirst.Timothylookedthroughtwoyears’worthof

customercommentcards,fromall theStarbuckslocations,andfoundhundredsthataskedustosellthemusicweplayedinourstores.Itwasanoverwhelmingdemand we had neither anticipated nor noticed. Many of our customers aremiddle-agedwithyoungkidsanddon’thave time tohangout in record shopsandflipthroughalbumsorlistentonewtunes.ButiftheyhearsomethinggoodplayingatStarbucks,theywanttobuyitonthespot.InDecemberof1994,wehadatrialrun.KennyGhadrecordedanalbumof

holidaymusic,Miracles, whichwe decidedwould be a good test case in ourstores.Wouldpeoplebuymusicwiththeircoffee?Infact,assoonastheywenton sale,Kenny’sCDs flew off the counters. Jazz and java, it seemed,were anaturalfit.Anyonewho’severbeentoHollywoodwouldprobablyrecognizetheCapitol

Records building, a tall white cylinder shaped like a stack of records, with aspireontop.IrememberseeingityearsagoandwishingIcouldgoinside.OnJanuary31,1995,Ifoundmyselfwalkingintothatlandmarkbuildingwith

HarryandTimothytomeetwithGaryGersh,thepresidentandCEOofCapitolRecords.Photosoffamoussingersandmusicianslinedthecorridors.Wepassedstudios where Frank Sinatra, Nat King Cole, and numerous other greats hadrecordedtheirfamoushits.We took an elevator to the top floor and were greeted by Gary, Bruce

Lundvall,presidentofBlueNote,andadozenotherexecutives.

BlueNoteRecordslovedtheideaofallowingStarbuckstocompileaselectionof its jazz greats and offer them on an exclusive compact disk. For them aStarbucksCDwasawayofrevivinginterestinsomeoldBlueNotetitles.Theentire record industry was looking for alternative venues to showcase music,sincetheoldsalesformula,radiostationsandrecordstores,wasfailingtoreachalotoflisteners.Weagreedthatitwasinourmutualinteresttoworktogether.Wedecidedto

produceasmanyasfiveCDsinthecomingyear,usingnotjustBlueNotetitlesbutalsoothermusicfromtheCapitolcatalogue.Timothylefthisstoreandbeganworkingonmusicfulltime.Hegottospend

hours inBlueNote’sarchivesand listen to its incomparable recordingsof jazzgreats.Hediscoveredaseldomheardpiano-onlyversionof“IGetaKickOutofYou,”playedbyNatKingCole.Thealbumwasreadyinjustafewweeks.Wekeptthewholeprojectassecretaspossiblesowecouldtaketheworldby

surprise.A $1million promotionwas designed to highlight the release of thealbum,calledBlueNoteBlend.Ourcoffeespecialists,MaryWilliams,TimKern,andScottMcMartin,evendevelopedaBlueNoteblendofcoffee,“smoothandspirited,” our first new coffee blend in four years, to complement the soulfulsounds.Ourcreativepeopledesigned jazzybluepackaging for it. JenniferandTimothyarrangedforlocalschooljazzbandstoplayinourstoresinthirty-eightdifferent cities that month. We also developed in-store campaign materialsdrawing from thecoffeeandCDpackaging,wrapping the store inblue.Somestore managers, caught up in the enthusiasm, even hung blue notes made ofpaperfromtheceiling.TheintroductionofBlueNoteBlend,onMarch30,1995,coincidedwiththe

grand opening of our largest store yet, at Astor Place in New York City’sGreenwichVillage.Itisahuge4,000-square-footsiteinaprimelocation,withhigh ceilings and windows on three sides. Thelonius Monk, Jr., came to thecelebration, and we had a special performance by Blue Note recording artistBennyGreen.DaveOlsenandIweretheretosoakupthemood,aswereGaryGershandBruceLundvall.Wewereall—dareIsayit?—jazzed.Despite our enthusiasm, we still didn’t know how customers would react.

Retailstoreslikeoursnormallydidn’tsellCDs,anditwascertainlyconceivablethatwemightsellonly10,000copies.Asithappened,BlueNoteBlendsold75,000copiesbeforegoingoutofprint,

andwestillgetcallsforit,fromSanDiegotoAtlanta.RalphSimon,thenvicepresident of Capitol Records, told us, just a few weeks after the disc wasreleased, that itwouldhavehit theTopTenon theBillboard jazz charts if its

saleshadbeentrackedlikethoseofatraditionalalbum.Later that year,weproduced three additionalCDcompilations, followedby

sixothersin1996,branchingoutfromjazztoclassicalandblues.InApril1996,when we introduced the Blue Note II album, we created an event in Seattlecalled “Hot Java/Cool Jazz,” inviting high school jazz bands to performdowntown,with apanelofprominent localmusicians to judge them. Inmanyinstances,wewereable to raise funds for these schools’musicprograms, as away of giving back to the community. Our second biggest hit came in thesummer of 1996,withBlending the Blues, a historical look at Chicago blues,includingvocalsbyHowlin’Wolf,EttaJames,andMuddyWaters.Did this foray into the music business make sense for a company like

Starbucks?Iwouldansweranunqualifiedyes.Ontheonehand,itgaveaboosttosales,especiallyinApril1995,themonthoftheBlueNoteintroduction.Butmore important, it sent amessage toour customers thatwewouldcontinue tosurpriseanddelightwithuniqueproductstheyneverexpectedtofindinacoffeestore.SellingmusicCDswasn’t justamarketingploy imposedfromonhigh.The

ideawasgeneratedrightthereinourretailstores.Itwasaperfectdemonstrationof the character of Starbucks, one that was maturing in harmony with itscustomers. It added to the warmth and atmosphere that people were seekingwhen they came toour stores.And it showedourpeople, again, thatwewerewillingtotakeachanceonaground-breakingideaifitappealedtooursenseofesthetics.I realize it’s easy for one person among our 25,000 partners to feel like a

singledigit inarapidlygrowingcompany.ButDinaandDan,AnneandGreg,Timothy and Jennifer, at all different levels of Starbucks, proved that we’resincerewhenwesaywebelieveinencouraginginitiative.Ratherthanstifletheentrepreneurial spirit in our people and then try to resurrect it, as so manycompanies are trying to do, I’m convinced we should nurture it from thebeginning in eachnewhire. It’s demoralizing, I know fromexperience, to getfiredupaboutagreatnewideaonlytohaveitdismissedbyhigher-ups.Quite possibly, the most promising inspiration for Starbucks’ future is

unfolding now in themind of someone who joined the company as a baristayesterday.Ihopeso.

CHAPTER16SeekToRenewYourselfEvenWhenYou’reHitting

HomeRuns

Tostayahead,alwayshaveyournextideawaitinginthewings.

—ROSABETHMOSSKANTER

Whenyou’refailing,it’seasytounderstandtheneedforself-renewal.Thestatusquoisnotworking,andonlyradicalchangecanfixit.But we’re seldom motivated to seek self-renewal when we’re successful.

Whenthingsaregoingwell,whenthefansarecheering,whychangeawinningformula?The simple answer is this: Because the world is changing. Every year,

customers’ needs and tastes change. The competition heats up. Employeeschange. Managers change. Shareholders change. Nothing can stay the sameforever, inbusinessor in life, andcountingon the statusquocanonly lead togrief.At Starbucks, we had always aimed to build a company healthy enough to

sustain itself for many years to come. We discovered along the way thatsustainability is directly linked to self-renewal. Evenwhen life seems perfect,you have to take risks and jump to the next level, or you’ll start spiraling

downhillintocomplacencywithoutevenrealizingit.In1994,Starbucksundertookthesecondparadigmshiftinitshistory.Thefirst

was adding the beverage to the bean sales, beginning in 1984. After that weweren’tsellingjustcoffeebutalsothecoffeeexperience.Thesecondshiftcamewhenwemovedoutsidethefourwallsofourstoresandinventednewwaystoenjoytheflavorofcoffee,inbottledbeverages,icecream,andotherinnovativeproducts.Thiswasn’tanaturalorobviousmove,anditwasn’tonethatwasforcedupon

us.Itwasadeliberateattempttospringaheadofthecurve,tocreateafuturenoonewouldhaveimagined,whileretainingourcorevalues.

ITTAKESAFRESHOUTLOOKTOREINVENTANAGE-OLDPRODUCT

Coffeehasbeenaroundfora thousandyears.Could itpossiblybe reinvented?Thiswasn’t aquestionweatStarbucks spentmuch time thinkingabout in theearlyyears.Wefiguredwealreadyhadthebestcoffeearound.Yetanyproduct-orientedcompanyhastokeepreinventingitscoreproductif

itexpectstoprosper,letalonesurvive.AskAndyGroveofIntel,whoobsoletesa whole generation of personal computers every eighteen months when hedevelopsanewmicroprocessorchip.Wehaddevotedalotoftimetothinkingabouthowtorefreshandinvigorate

various elements of the Starbucks experience, whether store design,merchandise, espresso drinks, coffee blends, even new products like our jazzCDs.That’saconventionalretailingapproach,howevercreativeatwistweputonit.We consciously reinvented the coffee experience in America, but it never

occurredtoustoreinventcoffeeitself.Ittookanimmunologisttoconvinceustotryit.In 1988, Don Valencia began experimenting with coffee. Why he picked

coffee,I’llneverknow.Butwe’reluckyhedid.TrainedincellbiologyatUniversityofCaliforniaatDavis,Donhadfounded

and run a biomedical business in Sacramento called Immuno Concepts, todevelop tests to diagnose autoimmune diseases, such as lupus and rheumatoidarthritis. In his biomedical research, Don had explored the delicate task ofisolatingmoleculeswithinhumancellswithoutdestroyingthem.Oneday,onawhim,literallyathiskitchentable,heappliedsomeofthesame

techniques to coffee.He discovered that hewas able to capture its flavor and

aromainaconcentratedextract.AlthoughDonhimselfwasn’tevenacoffeedrinker,hisneighborswere.Every

morningat7:30,hewouldwakethemupandputtwowineglassesofcoffeeontheirfence.Onecontainedfreshlybrewedcoffee; theotherwasmadefromhisscientificallypreparedcoffeeextract.“Whichisthecontrol?”Donwouldaskthem.Hekeptrefiningthetechnique

untiltheycouldn’tdistinguishthetwo.When Christmas came, Don’s wife suggested he bring along some of his

coffee extract as a gift for her parents,who live in Seattle.During their visit,Don’swifetookhimtotheStarbucksstoreinPikePlaceMarket.ItwashisfirstexposuretoStarbucks.Half-embarrassed, Don pulled out a sample of the extract and asked the

barista to mix it with hot water and have a taste. The baristas were prettyskeptical,buttheyagreedtotryit.Theymadehiscoffee,smelledit,andtookacarefulsip.“It’sokay,”theysaid.“Butit’snothinglikeStarbucks.”Don remembers walking out to the street, feeling foolish and deflated. His

wifewantedtoknowwhathadhappenedtoherlatte,whichhehadforgottentoorder.Whenhereturnedtothestore,severalofthebaristaswerestillexamininghiscupofcoffee.“Yousaiditwasn’tverygood,”Donsaid.“Well,”theyadmitted,“it’sactuallyprettygood,consideringwhatitis.What

kindofcoffeedidyoumakeitfrom?”Don had been using beans from a different company. So they sold him a

poundofoneofourbest-sellingcoffees,Sumatra.Hepromisedtotrytoprepareanextractfromitandsenditbacktothem.Excited, he returned to Sacramento and worked on the Starbucks Sumatra.

When he got it right, he sent a sample to the Pike Place store by overnightexpress.Two days later,Don got a call from one of our coffee specialists. “I tasted

this,”he said, “and it’s revolutionary. Idon’tknow ifyou realizewhatyou’vegothere.”The next day, he got a call fromDave Olsen. “This is surprisingly good,”

Davetoldhim.“Ifyou’reeverinSeattle,I’dlovetositdownandtalktoyou.”Thenextdayhegotacallfromme.ItoldhimIhadtomeethimassoonas

possible.Thedaybefore,Davehadcome intomyofficewithacupofcoffee thathe

toldmewasSumatra.WhenheinsistedItryit,Ifiguredhehaddiscoveredsome

newestate.“Howdoyoulikeit?”Daveasked“It’sgreat,”Isaid.“Isitanewarrival?”“Nope,” he said. “It’s from the same lotwe’re selling in the stores, but it’s

madefromanextract!”Hehadfooledme.Thecoffeeinmycuptasted100percentasgoodasfresh-

brewedSumatra.He ledme into his tasting roomand showedmehow itwasmade.Afewdayslater,IflewtoSacramentotomeetDonValencia.Hehasintense

browneyesandaninfectiousboyishexcitement.Wefedoffeachother’senergy,like twokidsgetting ready tobuild theworld’sbiggest fort.This scientisthadthekeytoStarbucks’future,rightthereinhiskitchen.IproposedthatheformajointventurewithStarbucks.Gettinghimtojoinforceswithuswasn’teasy,forhehadmadeacareerinthe

medical field and didn’t want to leave it. Also, the timing was wrong forStarbucks. In 1990, we were just beginning to make money.We were in themidstofpreparingforanotherroundofprivatefinancingandstill trying tofixproblems inChicago.TheStarbucksboardwantedme to concentrateon retailexpansion,whichwascriticaltothesuccessofthecompany.Theboardhasn’toftenturneddownmyproposals,buttheyrejectedtheidea

of a joint venturewithDonValencia. I was terribly disappointed, for I couldenvisionaraftoffutureproductsthistechnologywouldmakepossible.Buttheythought his idea would drain a lot of time and money from Starbucks’ toppriority,whichwastoexpandrapidlybeforeothercompaniesstartedcopyingus.Don was more philosophical when he heard the news; his company was

growing and taking all of his time.But in the years that followed,wekept intouchwith each other.We sent him lots of coffee and a commercial espressomachine from one of our stores, and Don came to visit us in Seattle everyChristmas.DaveandIgottoknowhimwell.Theninspringof1993,wemadeaformaloverture.Bythen,Starbuckshad

grown to nearly $150 million in sales, with 250 stores in 10 regions. Thecompanyhadgonepublicandwasonmuchsounderfinancialfooting.Wecouldfinallyaffordtosetupourownin-houseresearchanddevelopmentfacility.Eventhen,Donwasn’tashoo-in.Ifyou’regoingtohireanR&Dguy,people

advisedme,hireaworld-classR&Dexpert.Butanimmunologist?Itwashardto justify how someone from the field of immunology could add value in acoffeecompany’spursuitofnewproducts.ButIknewinstinctivelythatDon’slackofexperienceincoffeewasoneofthe

factorsthatmadehimsuchanidealcandidate.Wedidn’tneedsomeonewhosegazewasturnedtowardthepast.Nontraditionalresultsaremorelikelytoarisefrom someonewho can think out of the box.You’re not likely to find such apersonbylookinginsidethebox.Don had recently turned forty and was, in fact, contemplating a change of

career.Buthedidnotwant to joinus toworkon justoneproduct.Hesaidhewould accept Starbucks’ offer only if he could develop a long-term strategicvision for technology and support it with a lab and researchers within a newdepartment. After a lot of discussion, Don finally arrived in 1993 as vicepresidentforresearchanddevelopment.The extract that Don first developed in his Sacramento kitchen has opened

new worlds for Starbucks. It enabled us to capture the unmistakable taste offresh-brewed coffee as the key ingredient in a wide range of new products,including coffee-flavored beer, coffee ice cream, and ready-to-drink bottledbeverages.In1996we invested severalmilliondollars tobuildaTechnologyResource

ApplicationCenterforDon.Inalocked-offsectionontheseventhfloorofourbuilding,he’sequippedsevenlabsandhiredthirtyscientistsandtechnicianswhoworkwithsuchsophisticatedtechnologiesasgaschromatography,high-pressureliquid chromatography, and capillary electrophoresis. Ask Don what all thatmeans!Someoftheequipmentisfoundonlyrarelyinthetoplabsintheworld.At thesame time,wedevotedmore than$4million toastate-ofthe-artpilot

plant, set up in our parking garage, to produce the extract and test other newtechnology. At first we planned it only for small test batches, but as newproductscaughtonquickly,wehadtorampuptocommercialproductionlevels.Itwaswild:acoffeecompany,hiringscientistsandinvestingmillionsinR&

D.It’salongwayfromespresso.It’salongwayfromimmunology.Whatitwasn’tfarfromwasthemarket.

WHATITTAKESTOSHIFTTOANEWPARADIGM

For all his scientific brilliance, DonValencia did not have the background todevelop a commercial product on his own. That step required another majormovebythecompany—apartnershipthatfewcouldfathomatfirst.In 1992, I attended a top-secret meeting in Purchase, New York, in the

imposing, mahogany-paneled boardroom of PepsiCo. Accompanying me wasGeorgeReynolds,thenStarbucks’seniorvicepresidentformarketing,whohadworkedforFritoLayandTacoBellforthirteenyearsandknewPepsiwell.I approached Pepsi the sameway I’ve approached every one of Starbucks’

partnerships:looking,firstandforemost,fortherightpeople.Wehadarrangedtomeetthethen-presidentofPepsi-ColaNorthAmerica,CraigWeatherup.Ihadhalf-expectedatopexecutiveofa$33billioncompanytobeformal,detached,impersonal,andbureaucratic,soIwaspleasantlysurprisedwhenCraigprovedto be the very opposite: a hands-on, warm, personable man who genuinelyvalued the entrepreneurial spirit.Craig and I quickly developed amutual trustandrespect,whichlaterprovedvitalincementingtherelationshipbetweenourcompanies.Initially, neither of us had a clue how Pepsi and Starbucks might work

together. But I figured there had to be a way to leverage Pepsi’s tremendousdistribution power to help move Starbucks out of our retail stores and into amore visible position in the mainstream market. Craig suggested we have adiscussionwithPepsi’snewbeveragegroup,whichhaddevelopedandmarketedsuccessfulbottledbeveragesforLiptonandOceanSpray.Ihaddiscovered,duringatriptoTokyoin1991,howpopularcold,ready-to-

drink, coffee-based beverages were in Japan, in both bottles and cans. TheJapanese consume $8 billion worth of these drinks a year, about one-third oftheircoffeeconsumption.Bycontrast,thismarketisonly$50millionayearinthe United States—so far. Coke had found a ready market in Japan for itsGeorgiaCoffee,andIwascertainthatifStarbuckscouldcreateabetterproduct,itcouldbeahugesuccessinNorthAmericaandultimatelytheworld.Iknewwewouldneedapartnerwithstrongnationaldistributiontohelpusbreakintothiscategory;whobetterthanPepsi?In July 1993, on Don Valencia’s first day at Starbucks, we held our first

meetingwithPepsi’snew-beveragegroup.Dondidn’t evenhave a labyet, letalone support staff. But when the possibility of a bottled coffee product wasproposed, he and our coffee specialist Tim Kern began experimentingimmediately.Afewmonthslater,workingwiththePepsiR&Dgroup,theyhaddeveloped

awonderfulcoffeedrink,madefromDon’sextract.Itstastewasfarsuperiortothat of Georgia Coffee or any other cold coffee beverage on the market.Wehoped itwouldbe the firstofmanyproductswith thepotential to redefine theexperienceofcoffeedrinkinginAmerica.Pepsiwasexcited,andsowerewe.Wesetupataskforce,studiedthemarket,

and discussed the alternatives. Tiny Starbucks, with annual sales barely over$200million,satdownwithPepsiandnegotiatedafifty-fiftyjointventurewithacompanymorethanahundredtimesitssize.Pepsihadhugemarketingmuscleandonemillionpointsofdistribution,yettheyagreedtocedeusahighdegreeofownershipandcontroloverourbrandequityandproductformulas.InAugust1994,PepsiandStarbuckspubliclyannouncedtheformationofthe

NorthAmericanCoffeePartnership,withthegoalofcreatingnewcoffee-relatedproductsformassdistribution,includingcoldcoffeedrinksinabottleorcan.From the outside, the venturemay have seemed an odd sideline,with little

relevance to Starbucks’ core business, or to Pepsi’s, an unusual experimentunlikelytosubstantiallyaffectthebottomlineofeithercompany.ButIvieweditas an earth-jolting paradigm shift, a sign that our business might evolve inunimaginable directions.Our core businesswas now about to expand to a farwider concentric circle: coffee-based products. That meant leaving thecomfortableconfinesofourstores,wherewefirmlycontrolled thequalityandtheenvironment,andenteringintimidatingnewchannelsofdistribution,wherewewereabitplayer.ItmeantcreatingproductsthatwouldcarrytheStarbucksbrandnamebutwouldnotbesoldbyStarbucksdirectly.Itmeantworkingwithjoint-venturepartnerswhohadadifferentagenda.Italsomeantreachingouttofarmorepotentialcustomersthanthosewhocameintoourstores.While we all perceived the risks involved, almost no one appreciated the

ambiguitiesandcomplexitiessucharelationshipwouldforceustograpplewith.Forexample,therewasconsiderabledebateabouttheappealofcoldcoffee.In

Japan,peopleareaccustomedtoit,andtheyevenbuyitfromvendingmachines.But in America, cold coffee was always regarded as something brackish thatdeservedtobetosseddownthedrain.OthersviewedPepsiandStarbucksasstrangebedfellows.Starbucksappeals

tosophisticatedcustomerswithdiscriminatingtastes,whilePepsiaimstoappealtothebroadestconsumerbasepossible.Puristsinthecoffeebusinessaccusedusofsellingoursoul.In fact, it was straight uphill in the early stages of our relationship, with a

clash of cultures that shook people in both companies. The tensions betweenPepsiandStarbuckswerepredictable,ifonlybecausewecametotheventureforsuch different reasons. Starbuckswas looking to leverage Pepsi’s distribution,whilePepsiwantedtoleveragethequalityandintegrityofStarbucks’trademark.Because of their company’s huge size, Pepsi people tend to be process-drivenandfocusedononeprojectata time,whereStarbuckspeople tend toworkonmultiple projects simultaneously. Pepsi is so big that one division can be

involvedinaprojectthatanotherknowsnothingabout,aswediscoveredwhenPepsiInternationalannouncedajointventureinChinawithMaxwellHouse.Butdifferencescanbecomplementary,as longaseachsidevalueswhat the

othercanbringtothetable.Ratherthanslugitoutuntilonepartyortheotherwon,weresolvedourdisagreementsthehardway,assumingpositiveintentandaimingforwinwinsolutions.Welearnedtocelebrateourdifferencesratherthangettingfrustratedbythem,andwithtimebegantogetalongsurprisinglywell.Igive great credit to CraigWeatherup, now chairman of Pepsi-Cola Companyworldwide,BrendaBarnes,presidentofPepsi-Cola,MarkMangelsdorf,generalmanagerofthejointventure,andBrianSweete,headofmarketing,formakingthepartnershipwork,because they recognized the long-termvalueof the jointventureandtheStarbucksbrand.Asithappens,thejointventure’sfirstattemptwasafailure.Mazagranwasa

cold, lightly carbonated coffee drink with a name borrowed from the FrenchForeign Legion posted in Algeria in the nineteenth century. When we test-marketed it in southernCalifornia in1994, it polarizedpeople.Some loved it;othershatedit.AlotofcustomerswerewillingtotryitbecauseoftheStarbucksbrandname,butMazagrandidn’tgettherepeatbusinesswehadhopedfor.Wefinally realized,withdisappointment, thatwehadcreatedanicheproduct,onethatwouldcatchon,ifatall,onlyafteraslowbuild.Pepsiwasremarkablypatient.IfCraigWeatherupandIhadnotestablishedso

forthrightarelationshipfromthestart,thatepisodemighthaveendedit.Butwebothbelievedineachotherand,obviously,inthecapabilitiesofthepartnership.Sowekeptpushinguntil, in1995,wefoundabetterapproach.Frappuccino

hadbeenasurprisehitthatsummer,drawingintensofthousandsofcustomerswhowerenotnormallycoffeedrinkers,fillingourstoresinafternoonsandinhotmonthswhen the coffee business is usually slow.One day, in themidst of anagonizingdiscussionaboutthefutureofMazagran,Isaid:“Whynotdevelopabottled version of Frappuccino?” The Pepsi executives were immediatelyenthusiastic.Butcomingupwiththeideawastheeasypart.ActuallygettingFrappuccino

intoabottleinthesupermarketwasachallenge.Inourstores,Frappuccinosaremadeinablender,withcrushedice.Theyalsocontainmilk,whichhasalimitedshelflife.Thefirstfeweffortsatabottledversiontastedwrong.IttookmonthsofexperimentationbeforeourjointventureR&Dteamscameupwithashelf-stable Frappuccino that tasted as delicious as the blended ones in our stores.Whentheydid,Iknewitwouldbeawinner.Weweresoconfidentofourproductthatwedidn’teventest-marketit.Pepsi

rampedupproductionasquicklyaspossible,buteventhenwecouldsupplyonlyWestCoastsupermarketsforthesummerof1996.The response overwhelmed us. Within the first few weeks of introducing

bottledFrappuccino,weweresellingtentimesthequantitieswehadprojected.We couldn’t make it fast enough. Supermarkets kept running out of it, andcustomersgrewfrustrated.Wehadtocancelallmarketingsupport.Pepsi, too,wasblownaway.Frappuccinowasgettingtwicethelevelof trial

theyhadpredicted—andmorethan70percentrepeatbusiness,wellabovethatof other NewAge beverages. Sales of bottled Frappuccino were matching orexceedingearlyreturnsonLiptonandOceanSpray.Finally,wehadtowithdrawitfromtheshelvesuntilwecouldincreaseourmanufacturingcapacity.BottledFrappuccinowastherunawayhitwehadbeenhopingfor.Itushered

ourwayintothesupermarketandintotheready-to-drinkbeveragebusiness.Throughoutthesummer,wemetfrequentlywiththePepsipeopletoassessthe

unexpected surge of demand and the shortage of supply. In September, wejointlydecidedtoinvestmillionsofdollarstosimultaneouslybuildthreebottlingfacilitiesforFrappuccino.ItwasthelargestsingleinvestmentStarbuckshasevermade.With supermarkets continuing to clamor for the product, we planned asummer 1997 date for a nationwide launch.Once again,we set our sights onwhatseemedlikeastretchgoal.Butwewereconfidentwecouldmakeit.

HOWCANYOUBEAUTHENTICYETALSOINNOVATIVE?

TheequityoftheStarbucksbrandisapricelessasset.Everydecisionwemakehastocontributetoitssustainabilityanddifferentiation.Yeteachtimewecreatea new Starbucks product, we’re weighing a risk against a potentially greatreward.Ifwecapturethepublicimaginationwithinnovativeproducts,Starbuckscould become larger than life. But we have tomake sure that nothingwe dodilutestheintegrityoftheStarbucksbrand.Creatingnewproductsthroughjointventureshasnowbecomeacentralpart

of how we do business. In 1995, we worked with Seattle’s Redhook AleBrewery to create Double Black Stout, a stout beer with a shot of Starbuckscoffeeextractinit.ItamazedanddelightedmanyofRedhook’scustomers.Wethenmoved into another line Starbucks’ founders could never have imagined:coffeeicecream.InOctoberof1995,Starbucksicecreamwasn’teveninourbusinessplan.By

July of 1996, it was in supermarkets around the country, number one in its

category.Although Howard Behar had been pushing for ice cream for years, it had

never seemed tome to be a serious business proposition. ButDonValencia’sextractopenedmyeyestothepossibilitythatwecouldbringauthenticStarbucksflavortoavarietyofproductswehadlongdismissedasunlikely.SowhenHarryRoberts, our vice president formerchandising, came tomewith an ice creamproposal in August 1995, I agreed to let him invite a few manufacturers todiscussitwithus.Afterafewintriguingmeetings,wepickedDreyer’sGrandIceCream as a partner because they had nationwide distribution and experiencemaking super-premium ice cream. Dreyer’s was also willing to produce anddistributeStarbucksicecreamwithoutco-branding,orputtingtheirnameontheicecreamalongwithours.DonValenciatookhiscoffeeextracttoDreyer’s,andtheiricecreamexperts

beganworkingwithourcoffeeexpertstocomeupwithsomeflavorprofiles.In September, Dreyer’s president Rick Cronk brought a high-level team to

Seattle tomeetwithusandtasteseveralsamples.Likeus, theDreyer’speopleweredressedinplaidorstripedshirts,andweregenialandinformal,openandexcited.Iaskedthem,“Howdoyouguysstaysothin?”Theylaughedandresponded,“Howdoyouguysstaycalm?”In a slide presentation they outlined the size of the market opportunity

(potentially a $100 million market) and proposed five to six coffee-relatedflavorsofpremiumicecreaminquarts,aswellastwoorthreenoveltyitems,onastick.Thentheybrokeouttheicecream:threeprototypestheyhadprepared.Itwaswonderful,richandcreamy,withthedistincttasteofStarbucksdark-roastedcoffee.IflashedalookacrossthetableatBeharandsaid,“You’regoingtogetyour

wishafterall.”Itseemedlikeabigopportunity,goodtiming,andtherightpartners.Iknew

thatthisproductwouldenhanceourbrandequityandburnishourimage.SoIsetagoal.“July Fourth, 1996, nationwide, that’s the target,” I announced. “Super-

premiumicecream,betterthanBenandJerry’s,betterthanHäagen-Dazs.Bestofclass.Goforit.”Developinganewproduct at suchhigh speedwithanewpartner is fraught

with potential difficulties, but our legal department helped uswork them out.Thefinalproductswereofaqualitythatmadebothsidesproud.WhenithitthesupermarketsinApril,Starbucksicecreamsalesblewoffthe

charts.We introduced five gourmet flavors: Italian Roast Coffee, Dark Roast

Espresso Swirl, Javachip, Caffè Almond Fudge, and Vanilla Mocha Swirl,addingLowFatLatte thefollowingyear.During themonthofJuly,beforeweevencompletedournationalrolloutto10,000grocerystores,wepassedHäagenDazsasthenumber-onepremiumcoffeeicecreambrandintheUnitedStates—withverylittlepromotionalexpense.ThecustomersvotedyesonbothicecreamandbottledFrappuccino.People

whohadneverenteredaStarbucksstoreweretryingourproducts.Wewereleveragingtheequityofthebrand,butinawaythatwasveryrisky,

one thatcouldeitherrewardushandsomelyordogreatharm.Thecompressedtimetableaddedtothepotentialdangers.Othercompaniesmighthavedeclinedthatgamble.Didwemaketherightdecisions?Conventionalmarketingwisdomsays that everybrandhas its limitations. If

youslapitonjustanything,itwillbecheapenedbeyondrecognition.WeputtheStarbucks brand only on best-of-class products that take advantage of ourrecognizedexpertiseincoffee.IcecreamandFrappuccinoarealmostcertain tobecomeprofitableandfast-

growingbusinessesforStarbucks,but that’sonlypartof thepoint.Wewanttoattract new customers to Starbucks, and we want it to be known that thiscompany isnot sittingon itshaunches.Newproducts show thatStarbucks thecompanyisdedicatedtoinnovationandself-renewal.Theseopportunitieswereopen tousonlybecausewehad alreadyvalidated

the brand at retail, through word-of-mouth reputation with consistently high-qualitycoffee.Oncepeoplecametotrust theStarbucksbrand,wewerefreetoexperiment,withinacarefullydrawnsetofparameters. In fact,we’verecentlybegun testingwhole-bean coffee in supermarkets, an outletwe avoided in theearlyyearsbecausegrocery-storecoffeewasgenerally, andcorrectly, regardedas inferior. If we had done this before the Starbucks brand was firmlyestablished,itcouldhavehurtus.Butnow,wearebringingpremiumwhole-beancoffeetomarketstooscatteredorsmalltomeritadedicatedstore.Althoughnobaristaispresenttoexplainthedifferentblends,manygroceryshoppersalreadyknowthatStarbucksstandsforthehighestqualityofcoffee.All the goodwill and trust we’ve built up over twenty-five years could

evaporate if customers thought these supermarket products were shoddy ormediocre.It’sadelicatebalance.Wehavetobringourconsciencestothetableeveryday.Ifwesucceed,newproductswillrefreshthebrand,notdiluteit.Themarketwillalwaysletusknowhowwe’redoing.Living in the samecityasMicrosoft, I’monly tooaware that, even in low-

technologybusinesseslikecoffee,theNextBigThingcouldknockthedominantplayerintosecondplacetomorrow.IkeeppushingtomakesurethatStarbucksthinksoftheNextBigThingbeforeithasevencrossedanybodyelse’smind.Infact,DonValenciaisworkingonitevenasI’mwritingthisbook.

CHAPTER17CrisisofPrices,CrisisofValues

Itisbypresenceofmindinuntriedemergenciesthatthenativemetalofamanistested.

—JAMESRUSSELLLOWELL,“ABRAHAMLINCOLN,”PRINTEDINNORTHAMERICANREVIEW,JANUARY1864

THEDAYTHEFROSTHIT

InJune1994,IawokeonemorningtofacetheworstcrisisinStarbucks’history.Itcamewithoutwarning.Itwasnoone’sfault,nothingwecouldhavepredicted,nothingweknewhowtohandle.I had just set off onwhat I had intended to bemy longest vacation in ten

years.SherihadsufferedthroughaseriesofdelayedorcanceledvacationsasIhadbecomemoreandmorepreoccupiedwithgrowing thebusiness.But IwasfinallyconvincedthatStarbuckswasingoodhandsandIcouldaffordtotakeoffafulltwoweeks.Afterfouryearsaschieffinancialofficer,OrinSmithhadjustassumed the responsibilities of president. Neither of us realized that he wasabouttobetestedbyfire.IhadrentedacottageonthebeachintheHamptons,notfarfromwhereSheri

and I hadmet, not far fromwhere weweremarried. The kids would have achance to spend some time with my mother, my sister Ronnie, my brother

Michaelandhisfamily,andmyotherrelativesinNewYork.Ourcottagewouldbe likea little island,a refuge inaplacewherenooneknewus,wherefamilyandfriendscouldcometovisitwithoutthedailydemandsofworkandschool.Sheriandthekidsplannedtostayforamonth.Iwouldspendthefirsttwoweekswith them, return toSeattle for twoweeks, and then flyback toNewYork topickthemup.Thecottagewaseverythingwehadhopedfor:amodestwhiteshinglehouse

with a big deck, only a hundred yards from the beach. The sun was shiningbrightlywhenwearrived,andthekidsjumpedintotheirswimsuitsimmediately.Sheriwassmilingandhummingasshegotussettledin,thehappiestI’dseenherin years.We passed the first two days setting the house up and exploring thetownandthebeachwiththekids.Onourthirdmorningthere,Monday,June27,Icalledtheofficetocheckin—

adailyhabitthat,unfortunately,I’venotyetbeenabletobreak.Ihadwaitedtill11A.M.sothatIcouldreachSeattleatthestartoftheWestCoastbusinessday.IwasstandinginthekitchenwhenIpunchedinthenumber,wearingshortsandalooseshirt,lookingoutoverasmallbackyardwherethekidslikedtoplay.Ihadjustcomeinfromshootingbasketswithmysonandstillheardthesoundofhisdribblingoutside.I heard the note of alarm the instant that Georgette Essad, my assistant,

recognizedmyvoice.“YouneedtotalktoOrinandDaveimmediately.”“What’swrong?”Iasked.“Youjustneedto”wasallshewouldtellme.Mystomachclenchedasafastmontageofuglypossibilitiesracedthroughmy

imagination.Icouldtellsomethingserioushadhappened.Myphone callwaspatched into a conference room,whereDaveOlsen and

OrinSmithwerewaitingforme.“Howard,”Orinsaid,hisnormallycalmvoicepinched,“there’sbeenasevere

frostinBrazil.Coffeepricesaregoingcrazy.”Brazil? Starbucks didn’t even buy any coffee from Brazil. Most Brazilian

coffeeendsupincans.But I understood the significance of that frost immediately.Brazil produces

more than a quarter of theworld’s coffee, and a serious shortfall therewouldsenduppricesforcoffeeeverywhere.BecauseStarbucksbuysonlytop-qualitycoffee,wenormallypayapremiumabovethecommoditypriceofcoffeeontheCoffee,Sugar&CocoaExchange inNewYork.ThestandardbellwetherpriceforgreencoffeeisthewidelyquotedCcontractonthatexchange,acomposite

priceforgreencoffee,andwhenitgoesup,ourpricesdo,too.Thatmorning,Orin toldme, theCcontractwas shooting straightup; ithad

just surged from$1.26 to$1.80apound, thehighestpricesince1986,and farabovethe80-centpricewehadcountedonforthefirstfourmonthsoftheyear.Ineffect,oneofourbasiccostsofbusinesshaddoubled,andgreencoffeepriceswerestillrising.Starbucks’stockpricebegantodrop.ThelasttimeBrazilhadhadaseriousfrost,in1975,coffeepriceshadsoared

ashighas$3.40apoundandstayedhighforyears.Thatlegendary“blackfrost”had decimated much of Brazil’s crop. Back then, Starbucks had only threestores. Now,with 350 stores to supply, we had a huge exposure.What if thepricedoubledagain?Within fiveminutes Iknewmyvacationwasover. Iwouldhave to take the

nextavailableflighttoSeattle.Thoughtheydidn’taskmetoreturn,weallknewwehadtobetogethertodealwiththeproblem.Itwasn’trightthatOrin,inthefirstmonthofhisnewjob,shouldhavetoresolvethisonhisown.With thatcall,mywhole lifechanged—notonly for thesummerbut for the

year that followed. In fact, it took two full years to finally work through theproblemsthathitusthatday.I hung up the phone and stood still for a second as the magnitude of the

emergencyhitme.IcalledforSheri,whowasinthenextroom,andshecouldheartheedgetomyvoice.WhenshecameintothekitchenIcouldsee,withapang,thatshewasbothfilledwithconcernandbracingfordisappointment.“You’re not going to believe this,” I said to her. “I’ve got to go back to

Seattle.”

SHOULDWERAISEOURPRICES?

Igotaflightearlythenextmorningandwasinmyofficeat12:30P.M.Orinhadset up ameeting, so when I walked in I was immediately surrounded by theworried faces of Starbucks’ leadership. Our task was to respond to the worstcrisisthathadconfrontedusasateam.Thefearanduncertaintyofeveryoneintheroomwerealmosttangible.Iwantedtoreassurethemthatwecouldhandlethisproblem,butIwasfilledwithdoubtsmyself.Seatedaroundtheconferencetablewerethemanagerswhorepresentedevery

major area of responsibility: coffee buying, inventories, roasting, finance,planning, retail operations, mail order, and wholesale. First we needed tounderstandthebreadthoftheissueswewerefacingandtherisksinvolved.ThesizeandscaleofStarbucksdemandedunusualdisciplineandsensitivitytothings

thatwerenotinourcontrol.Each person gave a status report—a term that in this case was really an

oxymoron,sincethesituationwasliterallychanging,fromminutetominute,ascoffeepricesjumped.DaveOlsenputthefrostinahistoricalcontextforus.Ironically,forthepast

two years, he had been worrying that coffee prices were too low. In the late1980s,coffee-producingcountries in the InternationalCoffeeOrganizationhadtried to prop up prices using an export quota system. But in July 1989, thatagreementfellapart,andcoffeepricesdroppedtohistoriclows.Theworldwasawashincoffeeasglobalproductionreachedanall-timehigh,risingwellabovethelevelofconsumption.By1992,theCcontracthaddrifteddowntoaround50centsapound,farbelowthecostofproduction.You’dthinkthatDaveandothercoffeebuyerswouldhavebeenpleasedwith

such low prices, but in fact, he was concerned about their negativeconsequences.Coffeegrowersaroundtheworldcouldn’taffordtobuyfertilizerand didn’t bother to prune, so inmany regions coffee cropswereweakening.Some farmers uprooted their coffee bushes and planted other crops, such assugarcane.Althoughthatcutworldproductionbacksharply,towellbelowthelevel of global consumption, the oversupply from earlier years kept pricesrelatively low for a time. By early 1994, the C contract had risen to only 80cents,stilllowbyhistoricalstandards.Davewasactuallyrelievedwhenpricesbegantorise inApril1994.Hehad

traveledwidelyandworkedforyearstoforgerelationshipswithcoffeegrowersandexporters,sohehadseenfirsthandthepunishingeffectlowpriceshadhadon them. More normal prices, he knew, were needed to ensure a continuoussupplyofqualitycoffee.InMay,themarketrecovered,toalevelaboveadollarapound.Duringthetimepriceswerelow,Davehad,fortunately,lockedinaboutaten

months’ supply of green coffee, through long-term contracts at fixed prices—more for someorigin countries, less for others.Buying aheadwasour normalstrategyofprotectingourselves, the theorybeing that itwasbothnecessary toensureourinventoriesandagoodinvestmentforStarbucks’capital.Long-termcontracts also allowed us to lock in the more limited supplies of top-qualitycoffee. Overall, we were in a better position than many specialty coffeecompaniesbecauseweareverticallyintegrated:Webuyandroastallthecoffeewesell,ratherthanpurchasingpre-roastedbeansfromindependentroasters.Afterthefrosthit,Iwasrelievedtohearwehadsomuchinventoryonhand.

Butwhat if green coffee prices kept rising? Shouldwe buymore coffee now

beforetheyroseevenfurther?Thoseweren’tdecisionswecouldmakethatfirstday.Overthenextfewdays,thephoneslitupasbigshareholders,stockanalysts,

traders,andreporterscalledtofindouthowwewerereacting.Wehadtomakesomedecisions.Wouldwe raise prices? If so, byhowmuch andwhen?Whatimpactmightthathaveonsales?Thebig three roasters,Nestlé,KraftGeneralFoods, andProcter&Gamble,

increasedpricesimmediatelyontheircannedcoffee.Betweenthem,theycontrolabout70percentoftheU.S.coffeemarket.Withfewermonths’supplyonhandand thinnerprofitmargins, theyhad littlechoice.ThepriceofFolgers jumpedtwicethatweekalone.We decided not to raise retail prices right away. It wasn’t fair to our

customers. We remembered how outraged everyone had felt when gasolinecompanies jacked up prices the minute oil prices rose, to reflect replacementcosts, even though theyhadmonthsof inventoryonhand.Wedecided towaitandseewhathappenedtogreencoffeeprices.Exactlytwoweeksafterthefirstshock,wegotasecond.OnJuly11,another

Monday,Iwokeupandheardtheworst.Brazilhadsufferedanotherfrost, thisone even more bitter. Early estimates had suggested that the first frost haddamaged 30 percent of Brazil’s crop; this one appeared to have destroyedanother10percent,at least.Starbucksstockrespondedbydroppingtoa three-monthlowthatday.Withindays,thegreencoffeepricejumpedto$2.74apound—morethan330

percent of the level just three months earlier. To me, it felt like it happenedovernight.Itwasabodyblow.Wehelddailyconferences,hushedandhurried.Idon’tthinkmostStarbucks

people reallyunderstood thegravityof the situationandhowfearfulwewere.Earningshadbeengrowingmorethan50percentayearforfouryears,andWallStreetinvestorswerecountingonacontinuingstreamofprofitsincomingyears.Ifwe failed tomeet their expectations, our stock pricemight drop so lowwewould have trouble raising funds for future expansion. Traders were nowpredictingcoffeepricesmight reach$4.All the informationwehadathand—about the 1975 frost, about depleted world coffee supplies, about lowerproductioneverywhere—ledustobelievethoseestimatescouldwellbetrue.Thebigthreeonceagainquicklyraisedtheirprices.Inside the company,we debated intensely aboutwhether andwhen to raise

retailprices.Someboardmembersurgedcaution,sayingpricehikestendedtobeeasy, short-term fixes that discouraged the hard work of lowering costs and

improving efficiency. They thought it would put us at a competitivedisadvantage. But with our main raw-material cost skyrocketing, we had torespond.On July 13 we announced that we would increase prices by just under 10

percentonJuly22.Althoughcoffeedrinkswentuponly5centsor10centsacup,ourwhole-beancoffeepricesrosebyaround$1.25apound,onanaveragepriceofabout$8.50.Howwouldourcustomersreact?Ourpriceswerealreadyhigher than supermarket coffees. Would our whole-bean coffee sales volumedrop?We consciously chose a different path than the oil companies and the big

packaged goods companies. We did not raise our prices to cover currentreplacement costs, passing raw material price rises immediately on to theconsumer. Ifwehad,ourpriceswouldhavegoneup farmoredramatically,asthecanned supermarket coffeesdid. Instead,we tried tooffsetonlyour actualcostincreasesforfiscalyear1995.Duringthosedays,myrolewastoprovidethecompanywiththeleadershipto

instillconfidencethatweweregoingtogetthroughthiscrisisintact.Ialsotooktheleadincommunicatingwiththeoutsideworldabouttheproblem.Wehadalotofconstituenciestodealwith,nottheleastofwhichwasWallStreet,whereinvestorsworriedabouttheextenttowhichStarbuckswasexposed.Theyweremaking bets on the short and long side. With Dave Olsen, I explained thesituation to our partners, and thenOrin and I discussed it with investors.Wemadefrequentconferencecallsandleftvoice-mailupdatesnationwide,aswellaspostingsignsinourstores,tryingtokeeppeopleabreastofthesituation.Whatwetriedtodowithourcustomerswastohonestlyanddirectlyexplain

thatourcostshadrisenandwehadnochoicebuttopassonacertainamounttothem in order to continue to do business. We were fortunate in that therelationship we had built with our customers and most importantly with ourpartners gave us license to dowhatwe needed to do. For themost part, theyrespondedbybeingwillingtopayhigherpricesforcoffeetheyknewwasbestofclass.

THELONG-TERMCOSTOFSHORT-TERMDECISIONS

Behindthescenes,wehadothertoughdecisionstomake.Shouldwebuymorecoffeeatcurrentprices,lesttheysurgeevenhigher?Orwould$2.74bethepeak,andwoulditbebettertowaitandbuyatlowerlevels?Whenthemarketwasat80cents,wehaddreamedof70centsandworriedabout$1.Nowthatthemarketwasaround$2.50,wedreamedof$2andworriedabout$4.

The issue came to aheadonone tenseday in July,whenwehad todecidewhether to commit to buying a substantial quantity—thousands of bags—ofColombian coffee. At these high levels, it was amultimillion-dollar decision,threetimestheamountofmoneywewouldhavepaidforthesamecoffeeafewmonthsearlier.Thepurchasecouldbeeitherawisehedgeagainstevenhigherpricesoradisastrousobligationincurredatthetopofthemarket.Whileweallagonized,Orin’scalmmannerandtraininginfinancialmarkets

helpedmaintainour equilibrium. “It’s futile to try tooutguess themarket,”headvised.“Let’slookatitthisway.Assumetherearetwoequallylikelyrisks:Ontheonehand,thecoffeepricemightgohigher;ontheother,itmightgolower.Whichisamoreacceptablerisk?”Wedebatedandfinallyagreedthatitwouldbebettertogolong,buyingextrainventoryatcurrentprices.Ifthepriceweretofall, Orin reasoned, we’d be stuck with high-priced contracts, but we couldmanagethroughit.Ifitweretoriseto$4,wewoulddefinitelyfailtomeetourfinancial expectations. Sowe insured ourselves against a further increase.Wealsoexaminedtheoptionofhedgingourlongpositionagainstapricedecrease,butthecostwasprohibitive.Asithappened,wepurchasedthatbatchofColombiancoffeeatwhatturned

outtobenearlythepeak.Thatsummerwealsohadtobuyothertypesofcoffee,in smaller quantities, to fill in specific inventories that were low. It took twoyearstoworkthroughallthehigh-pricedcoffeeinourwarehouse.AfterJuly,greencoffeepricescamedown.Whatwehadn’tunderstoodatthe

timewasthedegreetowhichspeculativetradinghaddrivenupprices.Whenthespeculatorsdroppedoutofthemarket,thepriceretractedquicklyrelativetohowit had behaved in earlier years. Within a few months, we saw a price morereflectiveofsupplyanddemand,closeto$1.10byyear’send.Because we bought coffee in July 1995, we were left with a high-priced

inventory that lasted so long that we had to raise prices slightly again thefollowingyear.Thatdecisionwashardtoexplaintoourcustomers,whodidn’trealizewe had protected them against the full impact of the increase after thefrosts.Butgivenwhatweknew,wemadeourdecisiontherightway.Despite theburdenwehad takenon, therewasneverany finger-pointingor

attemptstoplacetheblamefortheill-timedpurchase.Giventhetremendousfearandconfusionandconcernsthatwereaffectingusall,itwasimportantthatwekeepourbalancethroughabsoluteharmonyandtrustinoneanother.Tome,what’sevenmoreremarkableaboutourdecisionsduring those tense

months of June and July is that we never once wavered in our dedication toproviding the highest quality coffee. The easiest thing for us to have done,

withoutquestion,wouldhavebeen to tellDaveOlsenandMaryWilliams,ourcoffee buyers, “Okay, the timehas come.Wewant you to start buying lower-quality coffee. We have to keep costs under control and protect our profitmargins.”Thatconversationnever tookplace;nooneevenconsidered itasanalternative.We could also have tried the tactic other companies seemed to beusing: blending high-grade coffee with cheaper beans and raising the priceanyway.Manycustomerswouldnothavenoticedthedifference.Wewouldhavesaveda tonofmoney,butwewouldhavehadadifferentkindofcrisisonourhands.

...ANDLONG-TERMBENEFITS

Oncepricesstartedtofall,theimmediatecrisiswasover.Butamessyaftermathnowawaitedus.Wedidnotchargethecustomerforthefullfinancialburden,sohowcouldwemeetourearningstargets?Orin came upwith a game plan, insistingwe could find the answer in our

backroom.Wecouldmakeupfor the increasedgreen-coffeecostbybecomingmore efficient and taking advantage of economies of scale. He called it the“profitimprovementplan.”Iwasskepticalatfirst.Starbuckshadneverbeforeturnedtothebackroomfor

cost savings and efficiencies.When you’re growing at 50 percent a year, youcan’t cut back on the support side. You need the flexibility of those systems.Many of our hardest-working, most committed partners were working in lessvisible jobs in accounting, legal, finance and planning, production, andmanagementinformationsystems.Theywerealreadyfeelingthestrainsofrapidgrowth; it seemed unfair to ask them to do more with less. But we had noalternative.Putting his plan into action is where Orin really began to demonstrate his

leadershipskills.Hehiredanexperttodirecttheeffort,formedcommittees,andbeganholdingregularmeetingswitheverydepartment.Hetransformedthecrisisinto an opportunity to begin to manage the company in a more systematic,professionalway.Wediscovered that therewerea lotof synergiesweweren’ttaking advantage of, chances to renegotiate contracts, to lower other costs, toplan better, to work smarter, to use our resources more wisely. We probablywouldhavegottenaroundtomakingtheseimprovementssoonerorlater,butthisemergency forced us to recognize, earlier thanwemight have, the need for atightership.Weknewthatmanyofthesavingswouldhavetocomefromourwarehouses

and roasting plants. Ted Garcia, who joined us from Pillsbury to take oversupply-chainoperationsinApril1995,hadalreadybeguntoraiseourroasting,packaging,anddistributionoperationstoaworld-classlevel.Heledanefforttoinstallstate-ofthe-art,computer-integratedmanufacturingsystemsthatimprovedour efficiency and lowered cost-per-poundby8 to 10percent a year for threeyears.Atthesametime,ourmanufacturingwasbecomingmorecomplex,aswebegantoneedmanynewpackagesizesaswellasmoregroundcoffeeforUnitedAirlinesandotherlargecustomers.Ted’sgroupalsocuttransportationcostsandpaper-cupcostssignificantlybyrenegotiatingcontracts.Hesetafive-yeargoaltocontinueloweringcoststhroughtheyear2000,withoutcompromisingquality.Although not anywhere near as visible or dramatic as jumping into the ice

creamormusic business,whatOrin and his team accomplished that yearwasfirmlyinStarbucks’traditionofdefyingtheodds.Thehigh-pricedcoffee inventoriesdidn’tstarthitting thebottomlineuntila

yearlater,inthefallof1995.Quarterafterquarter,WallStreetanalystsdoubtedthatwe’dmakeournumbers.Somequartersitwastouchandgo.Butbytheendoffiscal1996,wehadsoldalmostallofthehigh-pricedcoffee,andearningsforfiscal1996hitthemark.Wesignedonsomelarge-volumecustomersduringtheyear,but themain reasonwas the slow,methodicalprocessof trimmingcosts,rootingoutinefficiencies,andimprovingprocesses.I’vealwaysbeenstruckby the irony thatabusiness ismore likely toattract

attentionwhenitlosesmoney,orlayspeopleoff,orfailsspectacularly.Punditscan wisely analyze what went wrong and what should have been done. Butpunditsarenotasproficientatanalyzingsuccess.Whatdoesit taketoachieve50percentannualgrowthinbothsalesandprofitsforsixyearsinarow?Whatenabled Starbucks to do that was a combination of discipline and innovation,processandcreativity,cautionandboldnessthatfewcompanieshavemastered.WhenStarbucksmadeitsnumbersaftertwoyearsofworkingthroughacrisis

of suchmagnitude, Iwas elated. SowasOrin.But no one asked us:How onearthdidyouaccomplishthat?Itmaysoundtrite,butIbelievethatmanagingthroughthecoffee-pricecrisis

madeStarbucksabettercompany.Itmadeusawareofourvulnerabilitiesanditforcedustodevelopskillswehadn’tpossessed.Starbucksreachedmaturitythatsummer.Before1994,everythingwetouched

turned togold.Every timewe triedsomethingdaring, it succeeded.When thiscrisis hit us, without warning, it forged our managers, a group that includedmanynewseniorexecutivesrecruitedfromothercompanies,intoawell-bondedteam. It demonstratedOrin’s courageunder fire and forcedme to learn a new

dimensionofmanagement.Greatcompaniesneedbothavisionaryleaderandaskilledexecutive:onefor

thetopline,theotherforthebottomline.AsFortune’sRonaldHenkoffwroteinNovember1996,“Thebusinessesthatthriveoverthelonghaularelikelytobethose that understand that cost cutting and revenue growing aren’t mutuallyexclusive.Eternalvigilancetoboththetopandbottomlinesisthenewtickettoprosperity.”It humbledme to realizehowvulnerablewe couldbe tooutside forces that

couldinstantlyanddramaticallychangethecourseofthecompany.Ittaughtmethat we had to be in a constant state of preparation and vigilance. You can’tmanage just for the known; you have to manage for the unknown as well.Starbucks today is more prepared for the unknown crisis around the cornerbecauseitfacedthisonedown.Whencoffeepricesagaindoubledinearly1997,wehadaclearerideaofwhat

ittakestoweathersuchastorm.Thattimeweknewhowtocalculatethecosts,andweunderstoodtheneedtotakeactionwhilethenewseventswerestillfreshinthemindsofourcustomers.Again,ourincreasecoveredonlytheincrementalcosts,notthereplacementcosts,ofthehigher-pricedcoffee.Themoreprofound lessonof the1994 crisis hitmemonths after the event.

Whatifwehadoptedfortheeasysolutionandcutcornersonourcoffee?We could save millions of dollars every year if we bought even slightly

cheapercoffee.Starbucksspendsmoremoneyperpoundofcoffeethanalmostanycompanyin theworld,eventhoughprobablyfewer than10percentofourcustomerscantellthedifference.Ifyoucanraiseprofitsbyshavingcostsonyourmainproductand90percent

ofyourcustomerswouldn’tevennotice,whynotjustdoit?Becausewe can tell the difference. Inside Starbucks, we know what great

coffeetastes like.Authenticityiswhatwestandfor.It’spartofwhoweare.Ifwecompromisewhowearetoachievehigherprofits,whathaveweachieved?Eventuallyallourcustomerswouldfigureoutthatwehadsacrificedourquality,andtheywouldnolongerhaveareasontowalkthatextrablockforStarbucks.Butlongbeforethathappened,allofusinsideStarbuckswouldhaverealized

it,too.What,then,wouldkeepuscomingintoworkeveryday?Higherprofits,at thecostofpoorerquality?Thebestpeoplewould leave.Moralewould fall.Themistakewouldeventuallycatchupwithus.Andthechasewouldbeover.Every business has amemory. Thememory of sacrificing quality for profit

wouldhavebeenfixedinthemindsofStarbuckspeopleforever.Itwouldhavebeenanimpossiblepricetopay.

CHAPTER18TheBestWaytoBuildaBrandIsOnePersonAta

Time

Whatcomesfromtheheart,goestotheheart.

—SAMUELTAYLORCOLERIDGE,TABLETALK

Inearly1988,duringStarbucks’firstwinterinChicago,Irememberstandinginan elevator and seeing customers carryingour cups, the distinctive green logohiddenbehindtheirfingers.ThebrandnameStarbucksmeantnothingtothem.Sixyears later,whenweopenedour first store inManhattan, a line formed

immediatelyforespressodrinks;by8:30A.M.,itsnakedoutthedoor.WhydidsomanyNewYorkerschoosetocometoStarbucksthatday?AcrossNorthAmerica,asweenteredcityaftercity,weattractednear-capacity

crowds.InAtlanta,inHouston,inToronto—eachtimeweenteredanewregion,nomatterhowmanymilesfromthenearestStarbuckslocation,peoplelineduponDayOne.Itwouldn’thavemadesensetoadvertiseinournewmarkets;wecouldn’thavehandledanymoretrafficthanwegot.Our brand had achieved visibility and favor across the United States and

Canada,butwoulditappealinJapan?InAugust1996,Iflewhalfwayaroundtheworld to find out. Starbucks International was about to open its first store in

Tokyo, on a visible corner location in the high-fashion Ginza District. Onceagain, we spent no money on advertising. What could the name StarbuckspossiblymeantotheJapanese?Tokyohasacoffeeshoponalmosteverycorner,nottomentionacompetitorwithmorethan500stores.Theoddsagainstsuccesswereformidable.On opening day, I was wilting in the 95-degree weather and almost 100

percenthumidity.IhadnoideaTokyocouldbesohot.Yetfromtheminutethestoreopeneduntil itclosed,customers linedupforty tofiftypeopledeepforatasteofStarbuckscoffee.Men indarkbusinesssuits,womenwithelegantsilkscarves, students with backpacks, all stood patiently in the unforgiving heat.SomeofthemorderedablendedFrappuccino,justayearafterweinventedthedrink.Wehad beenwarned that, culturally, the Japanese refuse to carry to-gofoodorbeveragesonthestreet.YetmanycustomerswerewalkingoutthedoorproudlycarryingtheirStarbuckscups—withthelogoshowing.I stood there watching with Howard Behar, architect of our international

expansion.Heturnedtomewithtearsinhiseyes.TheStarbucksbrandhadthesamepowerinTokyothatithadinNewYorkandSeattle.Ithadtakenonalifeofitsown.

STRONGBRANDSCREATEAPOWERFULPERSONALCONNECTION

Weneversetouttobuildabrand.Ourgoalwastobuildagreatcompany,onethatstoodforsomething,onethatvaluedtheauthenticityofitsproductandthepassionofitspeople.Intheearlydays,weweresobusysellingcoffee,onecupatatime,openingstoresandeducatingpeopleaboutdark-roastedcoffeethatweneverthoughtmuchabout“brandstrategy.”ThenonedayIstartedgettingcalls.“Canyoucomeandtellushowyoubuilt

anationalbrandinonlyfiveyears?”Itwasunusual,peopletoldme,forabrandto burst onto the national consciousness as quickly asStarbucks had. In somecities, it seemed tocatchonovernight.WhenI lookedback, I realizedwehadfashioned a brand in a way no business-school textbook could ever haveprescribed.Webuilt theStarbucksbrandfirstwithourpeople,notwithconsumers—the

oppositeapproachfromthatof thecrackers-and-cerealcompanies.Becausewebelievedthebestwaytomeetandexceedtheexpectationsofcustomerswastohireand traingreatpeople,we invested inemployeeswhowerezealousaboutgood coffee. Their passion and commitmentmade our retail partners our best

ambassadors for the coffee and for the brand. Their knowledge and fervorcreated a buzz among customers and inspired them to come back. That’s thesecretofthepoweroftheStarbucksbrand:thepersonalattachmentourpartnersfeelandtheconnectiontheymakewithourcustomers.I’velearnedalotaboutgreatbrandsfromJamieShennan,theStarbucksboard

memberwhohasdevisedmarketingstrategiesforProcter&Gamble,Anheuser-Busch,Pepsi,andGeneralFoods.Heinvestedinthecompanyin1990becausehebelievedStarbuckswasalreadybecomingapowerfulbrand.Greatbrands,hesays,haveadistinctive,memorableidentity,aproductthatmakespeoplelookorfeelbetter,andastrongbutcomfortabledeliverychannel,which inStarbucks’casewasthestore.Tosucceed,youneedtobeinacategorylargeenoughtoberobustandvibrantandtohaveaclearandoriginalvision.Allofthesefactorsareessential,hesays,buttheyfuseonlyifthemanagementteamcanexecutewell.JamiethinksStarbuckscaneventuallybecomeaswidelyknownasCokearoundtheworld.Most national brands in America are marketing-driven. Although my

backgroundisinmarketing,thathasn’tbeentheenginethatdrivesStarbucks—atleastnotinthetraditionalsense.Inthetenyearsafter1987,wespentlessthan$10milliononadvertising,notbecausewedidn’tbelieve in itbutbecausewecouldn’t afford it. Instead, we’ve been product-driven, people-driven, values-driven.Ifyoulookforwisdomonbrandmarketing,mostofwhatyou’llfindisbased

ontheProcter&Gamblemodel.Thatis,yougoaftermassmarketswithmassdistributionandmassadvertising,andthenfocusongrabbingmarketsharefromyourcompetitors.That’sthebasicwayoflifeformatureproductsinestablishedmarkets.IfPepsigainsapointortwo,Cokeloses.Thesameistrueofcarsandcigarette brands. The big packaged-goods companies spend many millions ofdollars and design highly innovative ad campaignswith the goal of gaining afewpercentagepointsofmarketshare.AtStarbucks,we have a different approach.We’re creating something new.

We’reexpandinganddefining themarket.Wedidn’tsetout tostealcustomersaway fromFolgers orMaxwellHouse orHillsBrothers.Wedidn’t go for thewidestpossibledistribution.Wesetout, rather, toeducateourcustomersabouttheromanceofcoffeedrinking.Wewantedtointroducethemtofinecoffeestheway wine stewards bring forward fine wines. Just as they might discuss thecharacteristicsofawinegrowninaspecificregionordistrictofFrance,wewantour baristas to be able to intelligently explain the flavors ofKenya andCostaRicaandSulawesi.

Starbucks built up brand loyalty one customer at a time, communicatedthroughourpeople, in thesettingofcompany-ownedretailstores.Today,evenmanagersofbigconsumerbrandsarestarting torealize that ifyoucancontrolyourowndistribution,youwillnotfindyourselfatthemercyofaretailerwhomayormaynot understandyour product. It’s an enormously effectiveway tobuildanauthenticbrand,butit’scertainlynottheeasiestway.About 80 percent of the coffee sold in the United States is purchased on

supermarketaisles.Butfromthebeginning,weleftthesetraditionalchannelstoothers and concentrated our efforts instead on our own retail stores in highlyvisible,high-trafficdowntownsitesandresidentialneighborhoods.Welocatedinlobbiesandonthegoing-to-worksideofthestreet.Weattractedpeopleandgotthemtotryourwhole-beancoffeebyfirstromancingthemwithespressodrinks.Our competitive advantage over the big coffee brands turned out to be our

people. Supermarket sales are nonverbal and impersonal, with no personalinteraction. But in a Starbucks store, you encounter real people who areinformedandexcitedaboutthecoffee,andenthusiasticaboutthebrand.Whichbrandnameareyoumostlikelytoremember?Today,there’salotofmarketingrhetoricaboutaddingvaluetoproducts.At

Starbucks, the valuewas there from the beginning, in the coffee itself.Whenyouraverage sale isonly$3.50,youhave tomakesurecustomerscomeback.Andoursdo—onaverageeighteentimesamonth.Starbucks certainly wasn’t the first company to build a reputation through

retail stores. Hundreds of local specialty retailers in cities everywhere do thesamething.Yourlocalpizzashopmaytakeprideinitsuniquespicysauce.OryoumayknowaChineserestaurantthathasauthenticdimsum,withagreatcheffromHongKong.Oryoumayfrequentalocalbookstorebecausetheownerwillspecialorderobscurebooksforyou.Thepointis,youknowfromexperience,orfromwordofmouth,thatthey’rethebestintown.Traditionally,localretailershavealwaysthrivedbydifferentiatingthemselves

fromthecompetitionandbywinningloyalcustomerswithproductsorservicesorqualityunobtainablenearby.What’sextraordinaryaboutStarbucksisthatweused thatmodel to become a national company and then leveraged our brandreputationbeyondourstores,towholesaleandfood-servicechannelsaswellastonewproductssoldthroughgrocerystoresandotheroutlets.Starbucks’successprovesthatamultimillion-dollaradvertisingprogramisn’t

aprerequisite forbuildinganationalbrand—norare thedeeppocketsofabigcorporation. You can do it one customer at a time, one store at a time, onemarketatatime.Infact,thatmaybethebestwaytoinspireloyaltyandtrustin

customers. By word of mouth, with patience and discipline, over a period ofyears, you can elevate a good local brand to a great national brand—one thatremainsrelevanttoindividualcustomersandcommunitiesforyears.

AUTHENTICITYMAKESBRANDSLAST

In this ever-changing society, themostpowerful andenduringbrandsarebuiltfrom the heart. They are real and sustainable. Their foundations are strongerbecausetheyarebuiltwiththestrengthofthehumanspirit,notanadcampaign.Thecompaniesthatarelastingarethosethatareauthentic.TakeNikeas an example.Fewpeople remember thatPhilKnightdisdained

advertisingforyears,preferringeventpromotionsandathleteendorsements.HebuiltNike’s reputation on the basis of authenticity, focusing on how its shoesimproved athletic performance. Long after running shoes became a fashionstatement and street wear, Nike continued to highlight technical superiority.LongafterNikebecameknownforitsmegamillion-dollaraward-winningTVadcampaigns, thecompany still embraced its legacyas the shoeof choiceof thebestathletes.Bycontrast,takeGloriaJean’s,acoffeecompanystartednearChicago,which

beganfranchisingnationwidein1986.Bylate1991,itwasaheadofStarbucks,with 120 stores, compared to our 110. ButGloria Jean’s never developed theloyalty Starbucks did, and ownership ended up changing hands several times.Onereasonis that thecompanyfranchised theconcept inmore than100citiesacross the country, and each isolated franchise failed to create strong loyaltyamongcustomers.Morefundamentally,though,thecompanyneverestablishedaword-of-mouthreputationforauthenticityandquality.Massadvertisingcanhelpbuildbrands,butauthenticityiswhatmakesthem

last.Ifpeoplebelievetheysharevalueswithacompany,theywillstayloyaltoabrand.

THESTARBUCKSBRANDISMORETHANCOFFEE

Thenumber-onefactorincreatingagreat,enduringbrandishavinganappealingproduct.There’snosubstitute.InStarbucks’case,ourproductisalotmorethancoffee.Customerschooseto

cometousfor threereasons:ourcoffee,ourpeople,andtheexperienceinourstores.

Romancingthebean.Nothingmattersmoreinourbusinessthanthetasteofthecoffee.Wearefanaticalaboutbuyingthehighest-qualityarabicacoffees intheworldandroastingthemtothedesiredflavorcharacteristicsforeachvariety.It’sbecomeabenchmarkforus;everythingelsewedohastobeasgoodasourcoffee.Wemakemuchoftheromanceofcoffeebuying,tellingthestoryofhowDave

Olsen andMaryWilliams travel to origin countries and talk to growers. Butultimately,thepointisnotthemystiquebuttheperformanceinthecup.Coffeeiseasilyruined.Evenifyoubuytherightbeans,theycangostaleon

theshelf,beunder-orover-roasted,brewedimproperly,orservedlukewarm.Wearefastidiousaboutmakingsurenothinggoeswronganystepoftheway.Behindthescenes,ourretailpartnersgotogreatlengthstoensureourcoffee

stays fresh and flavorful. We keep the beans in vacuum-sealed bags or darkdrawers tominimize the harmful effects of air, light, andmoisture.We grindthem to aprecise level of coarsenessor finenessdependingonhow they’ll bebrewed. Then we measure the proportions of coffee and water according toexactingstandards.Ifabarista-in-trainingtakeslessthaneighteenormorethantwenty-threesecondstopullashotofespresso,weaskhimorhertokeeptryinguntilthetimingisright.Because98percentofcoffeeiswater,badwatercanruinthetasteofeventhe

bestcoffeebeans.So,behindthecounterineverystore,wheremostcustomerscan’tevenseeit,weevenhaveaspecialwaterfiltrationsystem.Eachofthesecarefulstepsaddstoourcostofoperation,buttheymakeadifferencecustomerscan tasteandguaranteeastandardof flavorandquality that isconsistent fromstoretostoreandregiontoregion.

Romancingthecustomer.DaveOlsenhasasaying:“Coffeewithoutpeopleis a theoretical construct. People without coffee are somewhat diminished aswell.”And Howard Behar has another: “We’re not in the coffee business serving

people.We’reinthepeoplebusinessservingcoffee.”It’sourpartnerswhopassontocustomerstheirknowledgeandpassionabout

Starbucks. Ifwegreet customers, exchange a fewextrawordswith them, andthencustom-makeadrinkexactlytotheirtaste,theywillbeeagertocomeback.So much of the retailing experience in America is mediocre. At the dry

cleanerorthesupermarketorthebank,you’rereducedtoanumber,oracreditcard, or a personal identification code.You’re just one transaction in a file ofconsumersthatcomebeforeyouandafteryou.

Butwhenyoumeetwithanexperienceatahigherlevel,whereyouaretreatedpositively,wheresomeonegoesoutofherwaytomakeyoufeelspecial,whereyou’re welcomed with a smile and assumed to be intelligent, the experiencestandsout.BecauseweentrusttheStarbucksbrandtothehandsofthebaristas,it’svitally

importantthatwehiregreatpeopleandimbuethemwithourpassionforcoffee.Wedothatthroughatrainingprogramwhosesophisticationanddeptharerareinretail.Foryears,Starbucksspentmoreontrainingourpeoplethanonadvertisingour

product.We’vecontinuallyrefinedthetwenty-fourhoursoftrainingweoffertoeach hire. Every new barista has to take some basic courses in CoffeeKnowledge (four hours),Brewing thePerfectCup (four hours), andCustomerService(fourhours),aswellasclassesinbasicorientationandretailskills.Fromtheirfirstday,wetryto immersetheminourvalues-centeredculture,showingthem the importance of treating customers and one another with respect anddignity.Ourtrainersareallstoremanagersordistrictmanagersthemselves,withon-site experience. We train baristas to make eye contact with customers, toanticipatetheirneeds,toexplainthedifferentcoffeessimplyandclearly,andtocompensatedissatisfiedcustomerswithaStarbuckcouponthatwillget themafreedrink.Eachtimeweopenstoresinanewmarket,weundertakeamajorrecruitment

effort.Eighttotenweeksbeforeopening,weplaceadstohirebaristasandstarttheirtraining.WesendaStarTeamofexperiencedmanagersandbaristasfromexistingstoresanduseabuddysystemforone-on-onetraining.Wealsoencourageadialoguewithcustomersbyprovidingcommentcardsin

eachstore.Typically,we receiveabout150 responsesamonth.Abouthalf thecommentsarenegative,30percentarepositive,andtheremainderarequestionsor requests. The number-one complaint is about long lines. Some customersidentifywithussostronglythattheywritelengthy,eloquentletters,whosetonesrange from the sublime to the horrific. One man wrote a three-page, single-spacedepicaboutatensedrivetothehospitalwithhispregnantwife,andhowalattehadeasedthestress.Torespondthoughtfullytosuchcomments,weaskedone of our longest-tenured employees, Barbara Reed, to set up a customerrelations function in 1992. She had joined the company in 1982 as a barista,managedthePikePlacestoreformanyyears,andworkedasadistrictmanagerinCanada,soshewasfamiliarwiththerealitiesofcustomerserviceatthestorelevel.

Romancingallthesensesinthestoreexperience.AtStarbucks,ourproductis not just great coffee but also what we call the “Starbucks experience”: aninviting,enrichingenvironmentinourstoresthatiscomfortableandaccessibleyetalsostylishandelegant.Moreandmore,Irealize,customersarelookingforaThirdPlace,aninviting,

stimulating, sometimes even soulful respite from the pressures of work andhome.PeoplecometoStarbucksforarefreshingtime-out,abreakintheirbusydays,apersonaltreat.Theirvisithastoberewarding.Ifanydetailiswrong,thebrandsuffers.That’swhywelovethesaying,“Everythingmatters.”Ineffect,ourstoresareourbillboards.Customersformanimpressionofthe

Starbucksbrandtheminutetheywalkinthedoor.Theambiencewecreatetherehasasmuchtodowithbrand-buildingasthequalityofthecoffee.Every Starbucks store is carefully designed to enhance the quality of

everythingthecustomerssee,touch,hear,smell,ortaste.Allthesensorysignalshavetoappealtothesamehighstandards.Theartwork,themusic,thearomas,the surfacesallhave to send the samesubliminalmessageas the flavorof thecoffee:Everythinghereisbest-of-class.What’s the first thing you notice when you approach a Starbucks store?

Almost always, it’s the aroma. Even non–coffee drinkers love the smell ofbrewing coffee. It’s heady, rich, full-bodied, dark, suggestive. Aroma triggersmemoriesmorestrongly thananyof theother senses,and itobviouslyplaysamajorroleinattractingpeopletoourstores.Keepingthatcoffeearomapureisnoeasytask.Becausecoffeebeanshavea

badtendencytoabsorbodors,webannedsmokinginourstoresyearsbeforeitbecameanational trend.Weaskourpartners to refrainfromusingperfumeorcologne.Wewon’t sell chemically flavored coffee beans.Wewon’t sell soup,slicedpastrami,orcookedfood.Wewantyoutosmellcoffeeonly.The sounds that fill our stores also contribute to the brand image. Until

recently,oursignaturemusichasbeenclassicalorjazzinstrumentals,butlatelyTimothyJoneshasstarted tovary themusicalmoodwithopera,blues, reggae,evenBroadway show tunes.Butmusic is only one element ofwhat you hear.Afteryouplaceyourorder,you’llusuallyhearthecashiercalloutthenameofyourdrink,andthenhearitechoedbackbythebarista.Thehissoftheespressomachine, the clunk-clunk as the barista knocks the coffee grounds out of thefilter, the bubbling of the milk steaming in a metal pitcher, and, at the beancounter, theswishof themetal scoopshovelingoutahalf-poundofbeans, theclatterastheyhitthescale—forourcustomers,theseareallfamiliar,comfortingsounds.

Tomatchthewarmfeelofthecupintheirhands,wehavetopayattentiontoeverything the customers touch: the style of the chairs, the edges of thecountertops, the textureof theslatefloors.Evencleanliness ispartof thestoreexperience,and it’sonefactorwemonitor regularly,using“mysteryshoppers”whoposeascustomersandrateeachlocationonaseriesofcriteria.Webuild the romanceof coffee into thevisualdesignof every store.Many

includedisplaysof coffeebeansatdifferent stagesof roasting, from thegreenraw beans to the cinnamon roast used for most canned coffee to the darkStarbucks roast—withanexplanationofwhywebelieve in roastingdark.Ourlateststoredesignbringsthecoffeebeansoutfromtheirdrawersandintolargemetal hoppers, a feature that piques people’s curiosity and gets them askingquestions.Wekeepour look fresh by designing colorful banners andposters to evoke

specific moods during different seasons, enriching the Starbucks brand withvisualimpactandinterest.Wereceivehundredsofrequestsfromcustomersforcopiesoftheirfavoriteposters,themostpopularofwhichincludedanearlyoneofSumatratigersandthreeoriginalimagesofthesirenwecommissionedforourtwenty-fifth anniversary from artists known in 1971 for their psychedelicimagery.We even use the cups themselves to carrymessages, including three“chapters” of our history printed on cups during our twenty-fifth anniversarycelebration.Thewaymerchandise is displayed also reflects on the brand.Wepore over

every detail and have great debates about whether or not to offer variousproducts:Dobagsofpolentareinforceorharmthebrandimage?Wristwatches?Jelly beans? We even work directly with Italian artisans to create originaldesignsandhand-paintourmugs.Authentic brands do not emerge from marketing cubicles or advertising

agencies.Theyemanate fromeverything the companydoes, fromstoredesignandsiteselectiontotraining,production,packaging,andmerchandisebuying.Incompanies with strong brands, every senior manager has to evaluate eachdecisionbyasking:“Willitstrengthenordilutethebrand?”

CANYOUREALLYBUILDABRANDBYWORDOFMOUTH?

InSeattle, it tookfifteenyearsforgreatwhole-beancoffee tocatchon.It tookfiveyearsforespressodrinks.Yet,somehow,weunderestimatedhowmuchtimewewouldneedtocaptureimaginationsinothercities.

When we went into Chicago in 1987, we were so confident that we haddevelopedacaptivatingformulathatwetookitforgrantedthatcustomerswouldautomaticallycomeflocking.Whatwehadn’ttakenintoaccount,however,wasthat our word-of-mouth reputation had not preceded us. Few people outsideSeattleknewwhatStarbucksstoodfor.From that experience,we learned that itwasn’t enough to simply open our

storesandassumecustomerswouldcome.Wehadtocreateadvanceexcitementineachcitywepreparedtoenter.HowcouldwegetpeopletostarttalkingaboutStarbucks the dayweopenedour first store in their neighborhood?With eachmarketweentered,welearnednewtechniques,sothatby1994and1995,whenwerapidlyacceleratedthenumberofnewmarketopenings,wehaddevelopedamulti-prongedapproach.JenniferTisdel,ourvicepresidentforretailmarketingsince1992,organizeda

marketentrystrategythatbeganbyhiringalocalpublicrelationsfirmtohelpusunderstandtheheritageandconcernsofagivencity.Earlyinourstore-openingsequencewealwayspickedaflagshipsite,averyvisiblelocationinabusypartof the city, to build a high-profile store, such as those in Dupont Circle inWashington,D.C.,andAstorPlaceinNewYork’sGreenwichVillage.At thesame time,ourcreativepeopledesignedartwork thatcelebratedeach

city’s personality, whether it was Paul Revere and the name Beantown forBoston, twin coffee cups for the Twin Cities, a peach-shaped coffee cup forAtlanta,orNewYork’sStatueofLibertydrinkingcoffee.Weusedtheartworkoncommutermugs,T-shirts,andinvitationsforourpartnersandcustomers.Unlikemostotherretailstores,coffeehousesareplaceswherepeoplenaturally

come together, so we try to integrate our stores into the fabric of their localcommunities. For each new market, we planned at least one big communityevent to celebrate our arrival, with the proceeds going to a local charity. InBostonandAtlanta,KennyGgavebenefitconcerts, towhichwe invited localleaders.Beforeeachopening,weassembledalistofpeoplewhocouldserveaslocal

“ambassadors” for Starbucks. We started by asking our partners if they hadfriends or family in that city,whomwe then invited to pre-opening orGrandOpening events, along with local shareholders, mail-order customers, andsponsorsofCAREorothercauseswesupport.Wesentthemeachtwofree-drinkcouponswith anote asking them to “ShareStarbuckswith a friend.”Weheldtastings with local reporters, food critics, chefs, and owners of well-regardedrestaurants. To give our baristas a chance to practice,we let them invite theirfriends and family to pre-opening parties, where the coffee and pastries were

free, with a suggested $3 donation to a local nonprofit group. Finally, we’dthrow a Grand Opening party, usually the Saturday after the store opened,sometimeswiththousandsattending.Communityeventsandsponsorshipsbecameanongoingpartofourmarketing

work,inparttobuildawarenessbutalsobecausewebelieveit’stherightthingtodo.InadditiontooursupportofCARE,wetrytobesensitivetolocalissues,with our main emphasis on supporting AIDS programs; children’s causes,especiallychildren’shospitals;theenvironment,withafocusoncleanwater;andthearts,especiallyjazzandfilmfestivals.Forthepastseveralyears,300to400StarbuckspartnersandcustomershavemarchedinSeattle’sannualAIDSwalk.WehavealsodevelopedapartnershipwithDoernbecherChildren’sHospitalinPortland that included selling specially designed commuter mugs; sponsoredfilm festivals in Toronto, San Francisco, and Seattle; and raised money forRhode Island’sSave theBayproject.These activities, only a fewof hundredswe’vesponsored,growdirectlyoutofourMissionStatement,whichstatesourcommitmentto“contributepositivelytoourcommunitiesandourenvironment.”Not only do these sponsorships create goodwill, but they also have a positiveeffectinternally,makingourpartnersproudtobeassociatedwithacompanythatgivesback.Intheweeksaftereachopening,weoftensetuparewardsystemtothankour

customers for their repeat business. Starting in 1993,we issuedpassports thatentitled customers to a free half-pound of coffee once they had taken aworldtour by trying coffee beans fromdifferent origin countries. In other cities,weinvitedthemtotryfivedifferentbeverages,afterwhichtheyweregivenafreelocalmarkettumbler.We also offer company-wide printed in-store materials, which provide

information for customers interested in learningmoreabout coffee.Each storecarriesadisplayofbrochures,includingTheWorldofCoffee,whichdetailsthedifferent tastes of each type ofwhole-bean coffeewe sell;The Best Coffee atHome, on how to grind and brew whole-bean coffee; and A Quick Guide toStarbucks Specialty Beverages, with diagrams explaining such drinks ascappuccinoandcaffèlatte.In addition,we publish and distributeCoffeeMatters, amonthly newsletter

focusing on the romance and culture of coffee through the ages.We use ourannualreports totellourstoryaswell,fromsectionson“romancingthebean”andthe“artof roasting” in1992throughthe innovativeandunusualdesignofour twenty-fifth anniversary annual report in1996.Anotherkey contributor tobrand-building has been our mail-order catalogue, which allows direct

communicationwithcustomers.Our800numberprovidesthemwithimmediateaccesstocoffeeexpertswhocanknowledgeablydiscussthedifferencebetweenSumatraandSulawesi,GoldCoastandYukonblends.With the rapid pace of expansion, our marketing people in Seattle can no

longer monitor local needs and interests as well as people in the field. Inresponse,wehavedecentralizedourmarketing efforts,with twelvepartners infour zones scattered across theUnitedStates, handling store openings, events,andsponsorshipsfortheirregionsandhelpingensureourcompany-wideeffortsarerelevantonalocallevel.BecauseStarbucksdeliveredahigherstandardatatimewhensomanyother

retailers were lowering expectations, it has emerged as a beacon in the retailbusiness.Atypicalcustomermightsay,“Wow!IcomeinhereandI’mtreatedsowell.AndwhenIcomebackthenextday,theyknowmynameandtheyknowmydrink!Andthere’saseathere,andI’mlisteningtojazz,andIcanclosemyeyesandhavefiveminutesofrestawayfromworkandawayfromhome.Icandoiteveryday,andit’sforme,andit’sonlyadollarfiftyortwodollars.Ican’taffordavacationtoHawaii,butthisissomethingIcantreatmyselfto!AndIcanafforditeveryday.”Enthusiasticallysatisfiedcustomerslikethatarethepowerbehindourword-

of-mouth strategy. If every new store can evoke that kind of reaction, theStarbucksbrandwillstandforameaningful,personalexperiencenomatterhowubiquitouswebecome.

BRAND-BUILDINGOUTSIDEOURSTORES

Today, theStarbucksbrand isoutgrowing thewallsofourstores. Increasingly,peopleareencounteringourcoffeeonairlines,oncruiseships,inbookstores,insupermarkets. That broader exposure has forced us to rethink our brandpositioning.Aside from restaurants and airports, we long refused to let anyone sell

Starbucksbrandcoffee.Toprotect thebrand,weespecially refused tomake itavailable at drugstores, convenience stores, or gas stations. In 1993, though,Nordstromagreedtosellourcoffee.Withitsreputationfortop-qualityclothingandsuperiorservice,Nordstromwas thekindofstrategicpartnerwho,wefeltcertain, would enhance, not dilute, our brand. Later, when we pickedsupermarketstolocatekiosksin,weaimedtofindoneswiththetopreputationintheirmarkets,suchasQualityFoodCentersinSeattle.Nowthatwehavesuchnewproductsas icecreamandbottledFrappuccino,

bothofwhich are sold in supermarkets, an innovative approach to graphics isevenmorecrucial.OurFrappuccinobottlesevokethemilkbottlesofyesteryear,butaredecoratedwithapatternofstarsandswirlsthatpromisesanunexpectedtaste.Whenwereachedbottlingcapacityconstraints,wehadtoconsiderputtingFrappuccino in an aluminum can. It was a tough call, since cans connotemainstream soft drinks. But once again,we created a great design in keepingwiththebrandequityofStarbucksandthesub-brandofFrappuccino.Perhaps the most intense internal debate we have had regarding product

design came over our ice cream packaging. One group argued that sinceStarbuckswasenteringunfamiliarterritory,weshouldusethewell-knownbrandgraphicsandselltheicecreaminwhitepackageswiththegreenlogo,orinthefamiliarterracottaand-charcoalcolorsofourcoffeebags,withthesteampattern.Icecreamwasenoughofaninnovation;weshouldpicksomethingfamiliarandprovenforpackaging.Butanothergrouparguedthatweoughttoseizeeveryopportunitytopushthe

brandfurtherwithanewdesignthatwasboldandfreshandasplayfulandfunaseating ice cream. Using the existing design, they feared, would be admitting,“Thisisasgoodaswecanget.”Ultimately, the innovative, playful approachwon out.We adopted a bolder

look developed by Terry Heckler, with a field of swirls and stars against abackgroundofbrownsandorangesandyellows.Isawitasachancetostepout,insteadofjuststeppinginplace.The Starbucks brand image has even affected the design of our offices. In

1997, when we redesigned our building and named it Starbucks Center, wewantedittoreflectanewsenseofplayfulness.WhenwetookdowntheSODOsign on the clock tower of our building, we replaced it with the head of theStarbuckssiren,peekingoutoverthetopofthebuilding.Noweveryonevisitingour offices, which were once unmarked and invisible from the street, will betreatedtothesightofatalltowertoppedbyapairofeyesandastarredcrown.Eventhoughfewofourcustomersevervisitouroffices,ourredesignreflects

anewspirit thatStarbucksistakingonaswemovebeyondourretailbase.Asfanatical as we remain about coffee and the store experience, we also wantpeopletorealizethatStarbuckshasasenseofhumorandaplayfulside,awell-roundedpersonalitywithbothexuberanceandirreverence,onethatcanconnectwithpeopleatmanylevelsandinmanymoods.

ELEVATINGTHEBRANDTOANEWLEVEL

By1995, theStarbucksbrandfacedanidentitycrisis.Althoughwehadbuiltareputationbasedonworld-classcoffeeandameaningfulconnectionwithpeople,the fieldwasgetting so crowded that somecustomers couldn’tdifferentiateusfromscoresofcompetitors.Distractedbyoursizeandubiquity,theymissedthepointaboutourqualityandcommitmenttocommunity.Clearly,wordofmouthwasno longer sufficient togetourmessageout.As

long aswe didn’t clearly statewhatwe stood for,we left room for confusionaboutourintentions.We’vealwaysreliedonourcoffee tospeakfor itself.Gradually, though,we

realizedthatwehadtobemoreproactiveintellingourstory.Walkingdownthestreetyoumaypasstwoorthreecoffeeplaces.Howareyoutoknowwhichoneserves the best espresso drinks? How can you tell which one roasts its owncoffeeandsendsitsbuyersallovertheworld,searchingforthebestbeans?Bythemid-1990s,weneededabetterway to articulateour story and toweave itintoamorecomprehensiveimage,onethatencompassedoursoulandvision.Great brands always stand for something far bigger than themselves. The

Disney name connotes fun, family, and entertainment. Nike signifies superiorathletic performance.Microsoft aims to bring a computer to every desktop. IwantedtoraiseStarbuckstothenextlevel,tomakeitstandforsomethingevenmorethanagreatcupofcoffeeandawarm,invitingatmosphere.As we grew larger, it became clear that we needed a dedicated brand

champion,someonewhoseresponsibility itwouldbe toclarifyandelevate theStarbucks message. I had always taken a direct and active role myself inmarketing and merchandising, because they are so closely integrated into thevalueofeverythingwedoasacompany.Butby1994,Iwaslookingforanewsenior marketing executive, and I wanted it to be someone who had alreadytakenabrand tonational,orevenglobal,prominence. I left the topmarketingpositionemptyforeighteenmonthswhilewesearchedfortherightperson.Itproved tobeadifficult job to fill.Therightcandidatehad tobesomeone

classicallytrainedinmarketing,whocouldbothunveilthebrandpersonalityofStarbucks and bring it to life, working with the other departments of thecompany.Ithadtobesomeonewhohadbothacreativemindandtheabilitytoexecuteastrategy. Inaddition, IwantedsomeoneIcould learnfrom,someonewhowasconsidered tobe thebestand thebrightest inbranddevelopmentandmarketing.ThefutureoftheStarbucksbrand,Iknew,wouldbeinthisperson’shands.InFebruary1995IfoundScottBedburyinacabininsnowycentralOregon,

writingabookaboutunlockingthecreativeprocessinbusiness.Hehadworked

asNike’sdirectorofadvertisingfrom1987toNovember1994,theyearswhen“BoKnows”and“JustDoIt”becamepartofAmerica’svocabulary.Havingjustgone independent, he hadwrittenme a letter, offering towork as amarketingconsultant.Ihadadifferentplaninmind.“Yo!”heansweredthephone,thinkingitwashiswife.“IsthatScottBedbury?ThisisHowardSchultz.”“Oh,hi!”hegreetedme,andthenlaughed.“Youwon’tbelievethis,butIjust

wroteapassageaboutStarbucksinmybook.”He readme the piece, an entire page filledwith good insights.He sounded

young,bright,hip,energetic.Hetalkedfast,theideasspillingoveroneanother.IinvitedhimtoSeattlesowecouldmeetfacetoface.Lessthantwoweekslater,Scottwasinmyoffice,tryingtosellhimselfasa

consultant.Hedressedinanimpeccablecasualstyle,ashealwaysdoes,andhisblue eyes flashed as he talked. He looked even younger than his thirty-sevenyears, like someone who would be in tune with the styles and needs of thetwenty-something generation. He talked with excitement about his newconsultingbusinessandaboutthethreeotherpotentialclientshehadlinedup.Within five minutes, I turned the tables on him. “I really don’t need a

consultant,”Itoldhim.“WhatIneedissomeonetobeourheadofmarketing.”Hewastakenaback.Hehadalreadyplannedhislifeoutforthenexttwenty

years. But he eventually accepted, and by June he had moved his family toSeattle and was beginning to think about a long-term marketing strategy forStarbucks.ScottimmediatelyfoundhimselfchallengedbythefactthatStarbucksisnot

onlyabrandbutalsoanimporter,amanufacturer,aretailer,awholesaler,andadirect-mail business. No company that he knew of had done all five andsurvived.Buthe foundsomesurprising similaritieswithNike, too.LikeNike,Starbucks had entered a low-margin commodity industry and transformed itsproduct intoaculturalsymbol.AndIwassurprisedtohear thatNike, too,hadstarted out by building its brand one customer at a time. PhilKnight initiallyhiredrunningzealotstosellNikeshoesattrackmeetsoutofthetrunksoftheircars.WhenScott had joinedNike in1987, itwas in transition, just beginning its

leaptonationaladvertising.Ithadgreatathleticfootwearbuthadnevertriedtoappeal to anyone other than men and runners and basketball players. Scotthelped Nike “widen the access point” to its brand to include women and“weekendwarriors” looking not for a personal best butmerely for the fun ofphysical exercise. Nike held tight to its core identity as a shoe for athletic

performancebutpokedfunat itselfand its loyalists,atbasketball rolemodels,amateur joggers, even dog-walkers. Its commercials and print ads hit anemotionalchordthatresonatedfardeeperthanadvertisingnormallydoes.Manyarestillremembered,fivetotenyearslater.WhenScottarrivedatStarbucks,hehadmoreinnovativeideasthananyofus

could keep track of. He was particularly intrigued by the idea that Starbucksneedn’tbeconfinedwithinthefourwallsofourstores,andhisimaginationspunitevenfurther thanwehad imagined.Weshouldbringcoffee towherepeopleenjoyitmostorwantitmost,hesaid,aslongaswecanensureitsquality.Wehadonstaffthousandsgreatbaristas,manyofthemaspiringartistsormusicians,who could get out onto the streets to proactively meet the needs of ourcustomers.ScottbelievesthatStarbucksshouldbea“knowing”company:inonthelatest

jokes, the latest music, the latest personalities, up to date about politics,literature,sports,andculturaltrends.HeplanstoshakeupwhatsomeseeasthepredictabilityofStarbuckswithideasthatarevibrantandinnovative.UntilScottjoined,Starbuckshadspentonlyasmallpercentageofourrevenue

on advertising.To someoneused toNike’s $250millionworldwidemarketingbudget,ourfewmilliondollarsseemedpaltry.IwishIcouldhavehandedScottawarchestofcashforadvertisingthedayhewalkedinthedoor,buthighcoffeepricesmeantwehadtotemporarilyputsomecostlyprojectsonhold.Inspiteofthat restriction, we went ahead and began the process of creating a voice toexpressourbrandpersonality.Themediadollarswouldcomelater.Even beforeScott had been hired,we hadmade the decision to find a new

advertisingagency.Weselectedfourtop-notchagenciesandaskedthemeachtoprepareapresentation.Thatsummer,ateamofusfirstmetwithallfour,andIexplainedmygoalsforStarbucks.TheydidmarketresearchwithconsumersandStarbucks partners before making their presentations, and they uncovered adisturbing theme:The key threat to theStarbucks brandwas a growing beliefamong customers that the company was becoming corporate and predictable,inaccessible,orirrelevant.Thevehemenceofthosefeelingsshockedme.AsCEO,Ihaddeliberatelykept

alowprofile, inordertokeepthefocuswhereIfelt itbelonged:onthecoffeeand our stores. But when I heard that some people viewed us as a facelesscorporation,IknewIhadtotakeamorevisibleroleinexplainingwhoIamandwhatmygoalsforStarbucksare.Ironically,onceacompanyisbigenoughtoadvertiseheavily,ithastodisarm

people who are suspicious of size and ubiquity. Clearly, we had not told our

story well enough. We needed to communicate who we are: a passionate,entrepreneurialcompanydedicatednotonlytoprovidinggreatcoffeebutalsotoenrichingeverydaymomentsformillionsofpeople.Pickinganagencywasatoughchoice,sinceallfourhadgreatcreativeideas.I

letScott decide, andhewentwithGoodby,Silverstein&Partners, the award-winningSanFranciscoagencythatcreated“GotMilk.”ItoldScottandtheGoodbypeoplethatIwantedStarbuckstobecomepartof

people’s lives, toenrichthemwithasenseofdiscoveryandhope.Itshouldbehumanandreal.Ouradvertisingshouldtellpeoplewhoweareandwhatwedo.Once we had signed with Goodby, Scott plunged into our own market

research,hiringanexpertfromNike,JeromeConlon,toleadtheeffort.Jeromehad been at Nike for fourteen years, including ten as the head of consumerinsights.The twoof themembarkedon theBigDig,a three-stage,nine-monthresearch project, beginning with focus groups in three cities. They watchedthroughone-waymirrorsascustomersandpotentialcustomerswereaskedabouttheir perceptions of the coffee and the Starbucks experience.Why do peoplecome to Starbucks? How do they envision an ideal coffeehouse? Scott wasespecially interested in hearing the opinions of young, college-aged people,tomorrow’s coffee consumers, many of whom preferred offbeat local coffeeplaces.Again,wegotblastedbysomeoftheopinionsweheard.Customersintheir

thirtiesandfortiesandwhole-beanloversaregenerallyhappywiththeStarbucksexperience.Buttwenty-somethingswantmorefromacoffeehouse.Theywantaplace that’s funky andunique, not necessarilywell-lighted and efficient.Whatmatterstothemisaplacetohangoutatnight,notaquickto-golatteonthewaytowork.Theresearchhelpedusrealizethatcustomershavedifferentneedstates,and

thatwehave anopportunity to try tomeet them indifferentways in differentstores.During theday,acollegestudentmaywantsomewhere tostudywithacupofcoffee.Duringtheevening,thatsamestudentmaypreferaplacetomeetwithfriends,freeof theheavyinfluenceofalcohol, thatoffersgreatmusicbutalsoachancetotalk.Onherwaytowork,amiddle-agedattorneymaywanttobuyaquickdoublelatteatadrive-through,butatmid-morningshemayneedatableandrelaxedatmospheretodiscussbusinesswithaclientovercoffee.Thechallengewefacedwastomaintain,ifnotstrengthen,therelevanceofabrandthatattractedsuchadiversegroupofconsumers.Theresearchforcedustorethinkourmarketingstrategy.Weseeourselvesas

the respectful inheritors of the European coffeehouse tradition, with all its

connotations of art, literature, and progressive ideals. We can strengthen andenrich the Starbucks experience by drawing from this legacy and findingparallels in contemporary America, as we did when we began offering high-quality books recommended byOprahWinfrey in 1997.We need to continuesatisfyingourcorecustomersatsomelocationsbutalso“widentheaccesspoint”toappealtothosewhowantastimulatingThirdPlaceinwhichtogatherintheevenings.National advertising poses a dilemma for a company like ours.With more

thana thousandstoresacross theUnitedStates,weneed tospeak topeople inmanycitiesatonce.Butbyitsverynature,nationaladvertisingfuelsfearsaboutubiquity.Howdowereachanationalaudiencewhilestillbeingrespectedatthelocal level?Weworked formonthson amasterplan, rejectingmanyconceptsalongtheway.However we approach our customers, we have to do so with respect,

intelligence, humor, and energy. You can’t hold the attention of people todayunlessyoutreatthemasyouwouldarespectedfriendofthefamily.Inourcase,thesefriendsareourcustomers.Thebrandconnectsourpartners,ourcustomers,ourproducts,andourcorevaluesthesamewayafamilydoes.Goodbyhasbegunhelpinguscraftan image that issimple,elegant,soulful,

and uplifting, focusing on the emotional benefits we all look for in a coffeebreak,whileembodyingtheplayfulandhumorousspiritGoodbyisknownfor.Theyareseekingtobalancethesuccessfulcorporategiantagainstthepersonal,human interactionour customershaveevery time they take timeout togogettheirfavoritecoffee.A hint of Goodby’s approach can be seen in these proposed advertising

statements:

“We’vegotcoffeedowncold”—foroursummer1996promotionofbothicecreamandFrappuccino.

“Today,someone’swriter’sblockwillevaporateinthesteamofacupofKonaandthegreatAmericanmemowillbewritten.”

“One sip of an icy Frappuccino creates a private personal coldfrontallaroundyou.”

Weaim for theunexpected, theoffbeat, theclever.Comingupwith just the

rightmessageandtonehasprovedmuchharderthanIimagined.Myhighestaimis to have not just our advertising but the entireStarbucks experience providehuman connection and personal enrichment in cherishedmoments, around theworld,onecupatatime.

CHAPTER19TwentyMillionNewCustomersAreWorthTakinga

RiskFor

Securityismostlysuperstition.Itdoesnotexistinnature,nordothechildrenofmenasawholeexperienceit.Avoidingdangerisnosaferinthelongrunthanoutrightexposure.Lifeiseithera

daringadventureornothing.

—HELENKELLER,THEOPENDOOR,1957

HOWNOTTOBETTHECOMPANYONARISKYDECISION

InJanuary1996,almostovernight,Starbucksmorethandoubledthenumberofpeopleitwasreaching.UnitedAirlinesbeganservingourcoffee.Overthenextfewweeks,wereceivedhundredsofphonecallsfromallover

thecountry.“You’vegottogetoutofthis,”peoplecomplained.“ThecoffeeonUnited tastes weak and cold.” “Nobody can believe it’s really Starbucks.”“You’vegottofixit.”What was supposed to be a moment of glory was feeling instead like a

disaster.Wehadtakenabiggamble,andtheearlyreturnsweren’tlookinggood.Every traveler knows that airlines can’t serve a decent cup of coffee. Yet

Starbucks livesordieson the reputationof its coffee.Sowhydidwe risk theassociation?Becausewehadachance todosomethingnoonehadeverdone:redefinetheimageofairlinecoffee.ThegamblewetookwithUnitedputtothetestoneofthefoundationsofour

business:trust.Ifpeoplecan’ttrusttheStarbucksnametomeanqualitycoffee,thebrandbecomesmeaningless.The United Airlines partnership started in June 1995 with a phone call by

Vincent Eades, who had joined Starbucks only three months earlier as seniorvicepresidentforspecialtysalesandmarketing,thedepartmentthathandlesourwholesaleandrestaurantbusiness.VincentfoundoutaboutarecentlycompletedUnitedAirlinesstudyinwhichitspassengerscomplainedaboutthequalityofitsin-flightcoffee.HeproposedthatStarbucksmightbetheanswertothatproblem.Since United is based in Chicago, most of its employee/owners knew

Starbucks and were excited about the potential of the idea, even though ourcoffeeistypicallymorethantwiceasexpensiveasthecompetition.Unitedpilotsand flight attendants had to suffer daily with what the rest of us face onlyoccasionally:badairlinecoffee.ButinsideStarbucks,thepropositionprovokedastrongdebate.Didthismove

makesenseforthecompany?Whatdamagewouldwesufferif itdidn’twork?Howmanynewcustomerscouldwegainfromit?Ultimately, itcamedowntotwokeyquestions:Woulditdiminishtheintegrityofthebrand?And,couldwereliablydeliverthequalityourcustomersexpected,onmorethan500planesallovertheworld?Itwasahugeopportunity:Nearly80millionpeopleflyUnitedannually,and

between 25 percent and 40 percent of them request coffee. That’s a potentialmarket of at least 20million people a year, many of whomwould be tastingStarbuckscoffeeforthefirsttime.Vincent arranged with Ted Garcia, head of our supply-chain operations, to

explorewhat itwould take to supplycoffee toUnited.Teddiscovered thatwewouldneedtoprovidegroundcoffeein21/2-ouncefilterpacks,yetguaranteethehighest quality possible.Thatmeantworkingwithour supplier to create aone-ofa-kind packaging machine for our needs. Because the manufacturerneededasix-month lead time,Tedwentaheadandordered theequipment,notsureifthedealwouldbeapproved.Wewere,infact,alreadysupplyingcoffeetoHorizonAirlines,ahigh-quality

regional carrier based inSeattle.Horizonwas the first airline to recognize theadded value that great coffee gives to its passengers. But Horizon brews ourcoffeeontheground,undercontrolledconditions,ratherthanonboard,andthen

servesitquicklyonshort-hopflights.Unitedwasfarriskier.Withitslongerflights,ithadnochoicebuttoprepare

itscoffeeinflight.Thatprocessismuchmoredifficultthanbrewingcoffeeinarestaurant. Airlines pick up water from cities everywhere, and its quality andtastevarydramatically.Onlong-haulflightsacrosscontinentsandoceans,flightattendants are tempted to leave coffee sitting on a burner far longer than thetwentyminutesmaximumwerecommend.Airplanebrewingequipmentvariesinquality,andairlinesarealwayslookingforwaystolessentheweightofalmosteverythingonboard.Unitedhasmorethan22,000flightattendantsworldwide,and training each of them tomake a perfect cup of Starbucks coffee seemedalmostimpossible.Thedownsideriskwastremendous:TwentymillionpotentialcustomerswhosefirstimpressionofStarbucksmightbeawful.InSeptember,weturnedUniteddown.VincentEadeswasdevastated.Sowas

TedGarcia.Butourmarketingpeople,aswellassomeboardmembers, fearedthatthebrandcouldbeirreversiblydamagedifitwereassociatedwithabusinessthat was perceived as big, mainstream, and too ordinary. They were afraidUnitedwouldtreatus likejustanothervendor.Theydidn’tbelieveUnitedwascommittedtoservingourcoffeethewaywewanteditserved.Andfinally,theyweren’t convinced that United would promote Starbucks as much as we hadhoped.ButUnitedwouldn’ttakenoforananswer.Thenegotiationsresumeduntilwe

finallyworkedoutanarrangementthatsuitedbothcompanies.WeaskedUnitedtoagreetoaprogramfarmorecomprehensivethananythat

theyorwehadeversignedbefore.Weaskedthemtomakeafirmcommitmenttobrewthebestqualitycoffee.Wewantedtotrainalltheirflightattendants,notonlyinthebrewingofcoffeeandthefundamentalsofwhatmakescoffeefreshbutalsointhehistoryandvaluesofStarbucks,soflightattendantscouldanswerquestionsaskedbypassengers.We insisted on a comprehensive, grueling quality assurance program. We

examined everything from thedosage andgrind to thewater filtration system.ThebrewingequipmentonUnitedwassomeofthebestonanyairline,butourresearchanddevelopmentdepartmentfoundouttheywereplanningtoreplaceastainlesssteelpartwithalessexpensiveplasticone.Wetestedthecoffeemadebothways,measuringthesolublesolids,andaskedthemnottoproceedwiththesubstitution.Theyagreed.Toguaranteethattherewouldbeanimmediateupsideforus,Unitedpromised

topromotethefactthatitwasnowservingStarbuckscoffee.InJanuary1996,itplacedadsonthebackcoversofBusinessWeek,Time,andU.S.News&World

Report. It was not only our first national advertising but also a ringing third-party endorsement from the employee/owners of the nation’s biggest airline—exposurewecouldn’taffordtobuy.TheyincludedalinethatIparticularlyliked:“Afterall,wedon’tjustworkhere.Wehavetodrinkthecoffee,too.”United even designed a funny and ingenious TV ad that captured what

Starbucksmeant to them. In it, adeliverymanwitha rippedbagofStarbuckscoffee trails roasted beans through the airport to a plane door, attractingcustomersallalongtheway.Aftersomuchcarefulpreparationandqualitycontrol,thecoffeeshouldhave

beengreatfromDayOne.Butwehadnotanticipatedonemajorglitch.Wehadset February 1996 as the target date to start serving Starbucks on all Unitedflights.Bythatdate,Unitedwouldhaveusedupallsuppliesofcoffeefromitspreviousvendor.ButastheStarbucksprogrambegan,only30or40percentofits500-plusplaneshadtherightbrewingequipment.Wehaddiscoveredthatintheoldmachines,thehotwaterwaspassingthroughthegroundstooquickly.Toremedythat,Unitedarrangedforabrewcupwithametalplateatitsbottomtobecustom-built,butthesupplierhadn’tbeenabletoproduceallthenewpartsbyFebruary.Onsomeflights,Unitedhadtousetheoldcoffeemakersforthefirstmonthorso.United got an earful, too.Butwith guts and determination, both companies

decidedtostaythecourse.Weimmediatelythrewalotofpeopleattheproblemtofixit.Withinfourmonths,thenewbrewingequipmentwasbuiltanddeliveredtoallUnitedplanes,andthecoffeestartedtastingflavorfulandstrong.Today,UnitedratesitsdecisiontoserveStarbucksasoneofitsbestmoves—

right up there with the idea of offering Happy Meals to kids. A survey weconductedinApril1996indicatedthat71percentofcoffeedrinkersonUniteddescribed the coffee as excellent orgoodoverall.About14percenthad tastedtheirfirstStarbuckscoffeeonUnited.Whilesomesaidthein-flightcoffeewasnotquiteasgoodaswhattheyhadboughtatStarbucksstores,alargemajorityofpassengerssaidthatitwasbetterthanthatofotherairlines.There’s ametaphorVincentEades likes to use: “If you examine a butterfly

according to the laws of aerodynamics, it shouldn’t be able to fly. But thebutterflydoesn’tknowthat,soitflies.”AtStarbucks,welikewisedothingswedon’tknowwe’renotsupposedtobeabletodo.AtbothUnitedandStarbucks,wethinktheriskhaspaidoff.And20million

people, on 2,200 flights a day to destinations on every continent around theglobe,aredrinkingStarbuckscoffee,at35,000feet.

YOUARETHECOMPANYYOUKEEP

Manypeoplearesurprisedathowmanyopportunities forpartnershipswe turndown—far more than we accept. At the time we were debating the Unitedarrangement, for example, we nearly implemented anothermultimillion-dollardealwithachainofstoresthatwouldhavetakenourcoffeetotownsacrosstheUnited States. But that store’s image and philosophy, we decided, were notconsistentwithours.While87percentofoursalesarestillgeneratedthroughourownretailstores,

we are besieged by inquiries to expand the distribution of our coffee to othervenues.Inassessinganyoftheseventures,Vincent’sspecialtysalesgrouplooksnotforstandardvendorsbutforstrategicpartners.Wehavea fairly rigorousscreeningprocess.Companieswe’ve turneddown

include those who compete too directly with our retail stores, those whosemanagement does not have the same quality orientation, and those whoseattitudetowardcustomersisincompatiblewithours.Sometimes,too,wearen’tprepared, logistically, to service the business, often because of its geographiclocation.Wealsohavetomakesurewecanbuildalong-termrelationshipthatisbeneficialtobothparties,intermsofbothprofitsandbrand-building.What began as Starbucks’ restaurant division, supplying coffee to white-

tableclothrestaurantsintheSeattlearea,hasnowformedallianceswithanelitegroupoforganizations.Insteadofmerelyevaluatingproposalsthatcomeacrossthe transom, Vincent has turned the specialty sales group into a professionalsales force that strategically approaches specific businesses that fit into ourlargerobjectives.Ourgoalistomakeourcoffeeavailablewherepeopleshop,travel,play,and

work.Strategicpartnershipshavemadeitpossible todrinkStarbuckscoffeeatNordstrom stores, on Holland America cruise ships, at Sheraton and Westinhotels, and in Barnes&Noble andChapters bookstores, aswell as in officessuppliedbyU.S.OfficeProducts.Thelistkeepsgrowing.Butasourcoffeebecomesmorewidelyavailable,theinherentcontradictions

betweenincreasingsalesandpreservingbrandintegrityhaveintensified.Ideally,wewanteverybodytohaveaccesstoStarbuckscoffee.Buteverytimewesignonanotherbigaccount,wefacethesameworrywefacedwithUnited:Willwelosecontroloverquality?Andwilltheincreasedexposurehelporhurtourretailstores?The answer,we found,was picking the right partners, training their people

thoroughly,andmonitoringascloselyandregularlyaswecantheiradherenceto

ourstandards.When we enter into any partnership, we first assess the quality of the

candidate.Welookforacompanythathasbrandnamerecognitionandagoodreputation in its field, be it hotels or airlines or cruise ships. It must becommittedtoqualityandcustomerservice.WelookforpeoplewhounderstandthevalueofStarbucksandpromise toprotectourbrandand thequalityofourcoffee.Allthesefactorsareweighedbeforefinancialconsiderations.Vincent Eades, who joined us from Hallmark Cards, has a quick way of

weedingoutinappropriatepartners.Hesimplyasksthem:“Ifapotofcoffeehadbeensittingonaburnerforonehourandacustomercamein,wouldyouservethemacuprightaway?”Iftheanswerisyes,weshowthemthedoor.Ifthey’renotwillingtothrowawayhalfapotandbrewafreshpot,theydon’tunderstandStarbucks’commitmenttoquality.Another key determinant is how willing a potential partner is to train

employees. Usually, the owner or manager is not the person who serves thecoffee.Whileatthenegotiatingtable,hemaydeclarehisappreciationforqualitycoffee, but is his company reallywilling tomake the necessary investment oftimeandmoneytotrainhiswaitstaff?We start with one-year agreements and then extend the commitment to

multiple years if the partnership seems successful. That arrangement gives ustimetoevaluatehowwellourstrategicpartnersarelivinguptotheirpromises,anditgivesthemtimetoseeiftheStarbucksconnectionenhancestheirbusiness.Sofar,allourcorporatepartnershipsareworking.The nail-bitingmoments with United highlighted for me the need to make

riskydecisions.Nothing trulygreat caneverbe achievedwithout taking risks.Forabrand-dependentcompany, it’svitallyimportant tochampionandelevatethe brand, but you can’t let that worthy goal prevent you from breaking newground.Whenproblems cropup, serious setbacks thatmight seem to threatenthe imageyouhave lovinglycultivated,youhave towithhold judgmenton thesuccess of the venture until you’ve thrown all your resources into attempts tosolvethosedifficulties.Whateveryoudo,don’tplayitsafe.Don’tdothingsthewaythey’vealways

beendone.Don’ttrytofitthesystem.Ifyoudowhat’sexpectedofyou,you’llneveraccomplishmorethanothersexpect.

CHAPTER20YouCanGrowBigAndStaySmall

Thefundamentaltaskistoachievesmallnesswithinlargeorganization.

—E.F.SCHUMACHER,SMALLISBEAUTIFUL:

ECONOMICSASIFPEOPLEMATTERED,1973

HOWTOBEEVERYWHEREWITHOUTBEINGFACELESS

Actress JaneaneGarofalo recently joked about us on theHBOComedyHour:“TheyjustopenedaStarbucks—inmylivingroom.”Welikedthatlinesomuchthatweadapteditforanadthatpicturedabottleof

Frappuccinoandawomanstandinginanemptyfield,withthecaption:“AgreatplacetoopenaStarbucks.”Funny as those lines are, they do strike perilously close to the heart of

Starbucks’greatestvulnerability.We’reopeningsomanystoresthatpeoplearestarting to feel we’re approaching ubiquity. The danger is that the bigger thecompanygets, the lesspersonal it feels, tobothpartnersandcustomers. Ifourcompetitiveadvantagehasalwaysbeentherelationshipoftrustwehavewithourpartners, how can we maintain that as we grow from a company of 25,000peopletooneof50,000?ThereisnodoubtinmymindthatStarbuckscanrealizeitsfinancialgoals.A

morefragileissueiswhetherourvaluesandguidingprincipleswillremainintactaswecontinuetoexpand.Iforonewouldconsideritafailureifwereachedthe$2billion–pluslevelattheexpenseofouruniqueconnectionwithourpeople.How do we grow big but maintain intimacy with our people? This is the

toughestdilemmaIfaceastheleaderofStarbucks.Achieving that idealmayultimatelybe impossible, acontradiction in terms.

Butwe’vegottotry.Ifwedon’t,Starbuckswillbecomejustanothersoullessbigchain.I’mdeterminednevertoallowthattohappen.

CANABUSINESSGROWBIGWITHOUTBECOMING“BIGBUSINESS”?

InAmerica, smallbusinesses aregenerally admired,yetBigBusiness ishatedandfeared.Perhaps thereason lies inourstrong leaning toward individualism.Yetthemoresmallbusinesssucceeds,thebiggeritbecomes.Doesthatmakeitsuddenlyworthyofscorn?If you asked people in a focus group, “TellmewhatBigBusinessmeans,”

you’dalmostcertainlygetaseriesofnegativestatements.AtoneextremetheymightmentiontheExxonValdezoiltankercrashingandruiningAlaska’swaters.You’d get “asbestos.” You’d get “Love Canal.” You’d get “people who lie.”You’d get Danny DeVito’s movie Other People’s Money. Big Business, thecommonthreadwouldrun,iscapitalisticandthereforethreatening.Andwhat’s small business?Ask the same focus group, and theymaywell

give you a set of completely opposite reactions. Small business means hard-working people struggling to earn a living. Small-business owners are oftenwell-intentioned and care about their customers. Some have left jobs in bigcorporationsandwanttolivelifeadifferentway.Finally, if you ask: “Howmany big businesses act like small ones?” most

peoplewouldanswer:“Notverymany.”Whenwetellpeoplethatwe’retryingto build a big business on a foundation of small-business values,many don’tbelieveit.Eithertheyassumewe’reincurableoptimistsortheybeginlookingforhiddenagendasthatwouldexplainourrealintentions.OneofStarbucks’greatestchallengesis totrytobreakthemind-set thatbig

can’tbegood.Ifwedon’t,we’lllosetheveryvaluesthatattractedpeopletousinthefirstplace.

VALUESDON’TWITHERASSALESGROW

Ever since Starbucks started on its trajectory of fast growth, we’ve facedskepticswhocriticizedthatstrategy.Mostofusweresopumpedaboutachievingourvision,however, thatwe justdiscounted them.Ourcustomerswere tellingus, with their frequent return visits and enthusiastic comments, that theyapproved of us. Today, that approval is stronger than ever. More than fivemillioncustomersaweekvisitourstores,andtheirsarethevotesthatcount.But increasingly,we’vealsobeenhearingothervoices.AsStarbucksgrows

faster every year, opening hundreds of stores and entering locales ever moredistantfromSeattle,thechanceformisunderstandingloomseverlarger.Onesitelocation,mishandled,candamageareputationwetookyearstobuild.Inahandfulofplaces,we’vegottenpushbackfromactivistswhodon’twant

Starbucksintheirtown.Afewtimesalocalbusinessowner,fearfulthathecan’tcompete, has gotten his customers to protest and keep us out. In a few cases,critics have made unfair charges that are hard for us to respond to withoutappearingdefensive.Howcanweconvincepeoplewhohavenoexperienceofourstoresandourcoffeethatwe’renot“predatory”or“ruthless”?It is painful to hear such words. Starbucks is not some faceless corporate

entity. It’sme,andDaveOlsen,andHowardBehar,andother individualswhohave defied conventional wisdom and built a company based on passion andvalues. We set out to win, no doubt about that, but our goal is to win withintegrity,asatalentedandhighlyprincipledplayerinthefreeenterprisesystem.Wechannelourcompetitiveenergyagainstrivalsfarlargerthanourselves,likethebigpackagedfoodscompanies,notagainstlocalmom-and-popcoffeehouses.Ourmissionistoexpandthenumberofpeoplewhoappreciategreatcoffee,tomakeitevermorewidelyavailableandenjoyed.The criticisms leveled against us, I think, crystallize a deeper issue: the

growingfearaboutthehomogenizationofneighborhoodsandtowns.Mostoftheoppositionwe’veencounteredhasbeeninclose-kniturbanareasorsmalltowns,wherepeoplearehighlyprotectiveoftheirdistinctivecharacter.Theyworrythatnationalchainswilldisplacelocallyownedstoresandthatfast-foodrestaurantswill elbow out the corner diner. A few groups have even prevented us fromopeningastore,bypassingsomeordinanceorclaiminginsufficientparking.Somecommunitiesdon’tknowwhattomakeofStarbucks.Wedon’tfitneatly

into existing categories of retail, restaurant, or fast-food. Starbucks is not arestaurant but a high-end specialty retailer that serves coffee beverages. Butbecausemost retail stores don’t serve foodor drinks,weoccasionally have toapplyfora“changeofuse”permitbecauseweprovideseating,asrestaurantsdo.Then there are people who expect a coffeehouse to be bohemian, with wood

floorsandfabricwallcoveringsandworntablesandmismatchedchairs.Whenthey see that Starbucks is clean and efficient with a complete line of coffee-relatedmerchandise,theyarebaffled.Clearly, there’s room for many different styles of coffee stores and

coffeehouses in a given neighborhood. We’ve noticed that whenever severalcoffeebusinesses locatenearoneanother, customers flock there.Whenpeopleknow that an area has neighborhood gathering places, theymake plans to gothere,andthendecidewhichcoffeehousetovisit.Theymayvarytheirchoiceofestablishments,dependingontheirneedormood.Intheend,allofusbenefit.ThewayIseeit,we’veenhancedthecoffeecategory.Coffeeconsumptionin

AmericahasimprovedsinceStarbucksarrived,bothinquantityandinquality,inlargepartbecauseoftheawarenessandchoicesthatthespecialtycoffeeindustryhasprovided.SomeofourcompetitorshaveopenlyadmittedthattheywaitforStarbuckstoenteramarketandeducatecustomersbeforetheygoin.OneofourSeattlerivalsannouncedadeliberatestrategyofopeningastoreacrossthestreetfromeveryStarbucks.Doesthatmakemehappy?No.Butweconcentrateonourcustomers,notthecompetition.Landlords occasionally exacerbate the problems we face in new markets.

Goodsitesarehardtofind,especiallyinsmalltownswheretheretailcorridorisonlytwoorthreeblockslong.Ourrealestatepeoplehavetoactquicklywhenasite becomes available. Property owners sometimes use Starbucks as abargainingchip,informinganothercoffeecompanyoranotherprospectivetenantthatweareinterestedinthespaceandthenjackinguptherent.ThenStarbucksgets blamed for the rent increase when we were never even involved in thenegotiation.In a few cases, we have been deliberately misled. A landlord might call

Starbucks up and ask: “Are you interested in leasing our space?” They don’tmentionthatit’salreadyoccupiedbyanothercafé,perhapsatenantwithwhomtheyhavenothadagoodrelationship,onetheywant togetridof.Weexpressinterest, but before we have a chance to investigate, an outraged story in thelocalpaperannounces,“Starbucksiscomingtotownandiswillingtopayhigherrentsbecausetheywanttokicksomebodyoutofthemarket.”Wedon’tfindoutabout theexistingtenantuntilhestartsagrassrootscampaignagainstus.Oncewe’vebeenpaintedasaheartlessnationalchain,noonewantstohearoursideofthestory.Intwocases,whenactivistsprotested,weexaminedthesituationcloselyand

decidednottoopenastoreintheircommunity.Wewantpeopletofeeldelightedandexcited thatwe’re in theirneighborhood,notputupon.Ourgoal is tofind

communitiesthateagerlywelcomeus.An article inNewsweek particularly angeredme by comparingStarbucks to

Wal-Mart. The charge is unfair and inaccurate. First, we don’t change theeconomicsofatown.Wedon’tundercutpriceschargedbyotherstores;inmostcases, our prices are higher, not lower.We don’t draw traffic out of town towarehouse locations; instead, we enhance downtown commercial districts andexistingretailcenters,increasingtrafficforneighboringshops.Infact,Starbucksrecently received the 1997 Stafford Award, an honor that Scenic Americapresents,inrecognitionofour“sensitivereuseofolderspaceswithincities”andourexcellentdesignstandards.ScenicAmericaistheonlynationalorganizationdedicated to preserving and enhancing the scenic character of America’scountryside andcommunities.Manycomplementary retailers, suchasbakeriesandbagelshops,locatetheirstoresnearoursasamatterofstrategy.Manycafésaresmall,localbusinesses,andsomeofthemaccuseStarbucksof

having abandoned its principles simply because it has grown large. Theycomplainthatwedeliberatelyopenupacrossthestreetfromthemtolureawaytheir customers. In fact, though, if theyweren’t competingwith Starbucks forlocations, theywouldbe competingwith someone else.As tenants,we cannotcontrolrentalrates;rentsaremarket-drivenandsetbylandlords.Asanentrepreneurmyself,Ihavegreatrespectforanyonewhogoesoutand

creates a business, whether it’s a coffeehouse or some other enterprise. Agrowingcategorylikespecialtycoffeehasprovenlargeenoughformanyofustosucceed. Pleasing customers and thinking ahead of the curve are much morerelevanttoacompany’ssuccessthanwhoopensastoreacrossthestreet.From the beginning, we’ve executed our expansion plans according to our

ownrealestatestrategy—locating insitesweconsiderdesirable—andnotasaresponsetothecompetition.Wecarefullyanalyzethedemographicsofagivenarea,ourhumanandfinancialresources,thelevelofcoffeeknowledge,andeachmarket’sabilitytoaccommodateaclusterofstores.Almost everywhere we open a store, we add value to the community. Our

stores become an instant gathering spot, a Third Place that draws peopletogether.That’swhatcommunityshouldbeallabout,yetafewactivistspersistin arguing thatwe’redamaging thecharacterof their communities. I think it’smoreaboutmisunderstandingthanreality.Nevertheless,it’stroubling.What I’ve learned in the process of responding to these critics is that

Starbucks has to increase its sensitivity to local issues and loyalties. Incommunitiesthataretroubledaboutourentry,wehavemetwithlocalleaderstounderstandlocalconcerns.Wealsoneedtospeakupmoreforcefullyaboutour

valuesandthecontributionswehavemade.Starbucksmanagershavethepowerto allocate donations to local causes like ballet and opera companies, AIDSorganizations, food banks, schools, and PTAs. In every city, all eight-day-oldcoffeebeansaredonatedtofoodbanks.Storemanagersalsoprovidecoffeeforfund-raisers.One store in Seattle gives half its profits to theZionPreparatoryAcademy, an African-American-run school for inner-city children. In fiscal1996,wegaveawaymorethan$1.5millionincashandkind,equalingabout4percent of our net earnings. Since we don’t exploit these actions for publicrelations,alotofourcustomersdon’tevenknowaboutthem.Communitygivingisapolicytowhichwe’vebeencommittedsincewebegan

inbusiness.Wedoitbecauseit’srightandbecauseitmakesStarbuckspartnersproud to work here. At Starbucks, we’re human, so we don’t always hit thebull’s-eye.Butwestrivetoliveourvalues.Ourhopeisthatthepublicwilljudgeusbyourintentionsandouractions,notbyhearsay.

HOWDOYOUGROWBIGANDSTAYSMALL?

Ultimately,theanswertothisconundrumliesinthehandsofourbaristas.Onceastoreopens,it’sthepersonbehindthecounter,makingtheespressodrinksandsellingthecoffee,whoisthefaceofStarbucks.Thecustomerwon’tcareaboutubiquityifthestoremanagerisherneighbororthebaristaisherson’sfriendorshegetstoknowthestaffascordialandwelcoming.Buthowcanwemakenewbaristas feel a senseof identitywithStarbucks?

We’rehiringmorethan500peopleamonth.It’sadilemmaallretailersfaceiftheyexpandtocityaftercity.AsStarbucksgrows,howcaneachbaristafeelthesamepassion for thecoffee, the samedrive, the sameheartfelt commitment tothecompanythatourearlybaristasdid?IfyouaskpeoplewhowerewithStarbucksinitsearlieryearswhatmotivated

them,itwasanintimacyandasenseofcommonpurpose.In1987,wehadfewerthan 100 employees, and the offices and roasting plant were in the samebuilding.Whenastoremanagerneededsomething,heorshecouldcalltheplantandhaveitwithinafewhours.Ihadanopen-doorpolicy,andthosewhohadagripefeltfreetocometomyofficeandtellmeaboutit.Wecelebratedthebirthsofourchildren,mournedthedeathsofourparents,andlaughedatpie-throwingcontestseachHalloween.(Inevercaughtoneintheface,butOrinandHowardBehar did.)Dave Seymour,who hasworked in distribution in the plant since1982,becameourunofficialphotographer,andhehasboxesofalbumsandhomevideosofthosegatherings.I used to think that marketing was the most important department at

Starbucks. Today, I’d say, unequivocally, it’s human resources. Our successdepends entirely on the people we hire, retain, and promote. Howeveroutstanding our performance in marketing, design, real estate, manufacturing,storeoperations,newproducts,orR&D,itisultimatelyinterpretedandgivenlife and meaning by the people of the company. How well each function iscarriedoutdependsentirelyonhowtheyfeelaboutoneanotherandhowmuchtheycareaboutStarbucks.But how can 25,000 people feel intimatewith a corporation? I ponder this

questionallthetime.Givingstockoptionstoallouremployeeswasprobablythebeststepwetook

towardkeepingthecompanypersonalandcaring.Asapartnerandpart-owner,eventhemostremotebaristasensesaconnectiontothecompany.We’vealwaystriedtokeephourlywageshigherthantheindustryaverageand

to offer benefits second to none. In addition,we have crafted awide array ofprogramstoensurethatwecontinuetorecognizeourpartnersasindividuals.Inaddition to responding to our partners’ Mission Review comments, wecommunicatedirectlythroughquarterlyOpenForums.Every fall we bring field management from all over the United States and

CanadatoSeattleforaleadershipconference.Weshowthemaroundthesupportcenterandtalkwiththeminlarge-andsmall-groupsettings.WehonormanagersofthequarterineachregionandinvitethemtoanannualdinnerinSeattlewherewecelebratetheachievementsofourManagersoftheYear.Every storehasE-mail, calledDatelineStarbucks, andwe try tokeep retail

partnersup-to-datewithvoice-mailmessages. I sendout recordedmessages toallpartnerswheneverthecompanyhasimportantnews.Butdisembodiedvoicescan’tdowhatrealpeoplecan.Inmid-1994,whenour totalworkforce reached2,800,we recruitedasenior

human resources executive, Sharon Elliott, to help us deal with the “peopleissues”ofgrowingbigandstayingpersonal.FromheryearsatMacy’s,Squibb,andAlliedSignal,sheunderstoodthehazardsfacedbylargecompanies.Butshehadneverencounteredacultureasfast-movingandcaringastheoneshefoundat Starbucks. “This isn’t a mystique. This is the way Starbucks is,” she saidshortlyafterjoining.“IfeellikeI’mhome.”We handed Sharon twomajor assignments: to recruit a seniormanagement

teamthatwouldtakeusthroughtheyear2000andtomaintainthecaring,small-companyatmospherethathadforsolongnurturedourvalues.Withinayear,thefirsttaskwascomplete.Wehadsevennewseniormanagers,

allwithexperienceatcompaniesfarlargerthanStarbucks:

MichaelCasey,our chief financialofficer, hadworkedatGraceandFamilyRestaurants.VincentEades,specialtysalesandmarketing,camefromHallmark.Ted Garcia, head of distribution and manufacturing, had worked at Grand

Met.ShelleyLanzahadbeengeneralcounselatHondaofAmerica.ScottBedburyhadheadedadvertisingatNike.WandaHerndon,communicationsandpublicaffairs,broughtexperiencefrom

DuPontandDowChemical.Somepeopleinthecompanyfeltthreatenedbytheheavydoseofnewtalent,

all arriving at the same time. But I was exhilarated by it, for it showed thatStarbuckshadgrowntothepointwhereexecutiveswouldleavelarge,successfulcompaniesandmovetoSeattletojoinourteam.In recruiting seniormanagers,we looked for peoplewho shared our values

andbroughttheskillsandexperienceweneeded.Butwealsodeliberatelyaimedfor diversity in our executive team. As a high-powered African-Americanherself, Sharon was especially conscientious about making sure we met thisgoal.Beforeshearrivedin1994,ourseniormanagementteamconsistedofeightwhitemenandtwowhitewomen.By1996,itconsistedofninewhitemen,threewhitewomen,twoAfrican-Americanwomen,andoneAfrican-Americanman—agroupfarmorerepresentativeofthefaceofAmericainthe1990s.But as a human-resources professional, Sharon had a far broader view of

diversity than one considering only race and gender. She encouraged abroadeningoftheworkforceintermsofage,handicaps,personality,andlearningstyle.Wehadalreadydecidedtogivebenefitstosame-sexdomesticpartners,notas a political stance but as a recognition of the needs of the wide variety ofindividualswhoalreadyworkedatStarbucks.Wealsobegantolocatestoresinawider variety of neighborhoods, recognizing that people of different racial,ethnic,andagegroupsalsowantconvenientaccesstohigh-qualitycoffee.Andwe began to offer diversity training for all partners, stressing tolerance as notonlytherightthingtodobutalsoasakeytowinningandgoingglobal.In 1996, Sharon proposed adding a line about diversity to our Mission

Statement,thefirstchangemadetoitsinceitsadoptionin1990.Tous,itfeltasmomentousaschangingtheConstitution,butitwasunanimouslyapproved.Sharonalsoencouragedgreaterdirectnessandaccountabilityinourrelations

with one another. After she arrived, she encountered too oftenwhat she calls“theDarkSideoftheForce”:anunspokenbeliefthatbeingdirectandopenwithco-workers is the equivalent of treating them with insufficient respect and

dignity. Supervisors were reluctant to tell people honestly when they wereunderperforming, to thepoint that employeesoccasionallyweren’t evenawaretheir supervisors were dissatisfied and were shocked when they weresubsequently fired. It was the downside of niceness, and I was as guilty asanyone. Sharon relentlessly reminds us that it’s more professional to beforthright with people about their shortcomings so they know how they canimprove.AnotherofSharon’sstrategicmoveswastohireWandaHerndon,whoplaysa

keyrole inourefforts toexplainourvalues toanincreasinglyskepticalworld.Wandadevelopsthestrategies toshapeourpublic imageandcommunicatenotonlywithourpartnersbutalsowithcommunities,customers,andthemedia.ShealsoplansshareholdermeetingstomakeinvestorsfeeltheyarevaluedmembersoftheStarbuckscommunity.Wandatendstodisarmcritics:AsasmartlydressedAfrican-Americanwomanwithclose-croppedhairandan infectious laugh,sheisfarfrommostpeople’spreconceivedimageofastiffcorporateexecutive.Sheraiseseyebrowswithherdirectandfrankstyle.To ensure two-way communication with our store partners, we have

undertakenfrequentsurveysandculturalaudits.Theresultsofonecoordinatedby ARC Consulting in October 1996 gave us a sobering wake-up call. ARCconducted fifteen focus groups in seven cities and surveyed 900 partners bytelephone.Theiroverallfindingsconfirmedmybeliefthatwehavemanagedtomaintainanextraordinaryculturethattrulyvaluespeople:

88percentweresatisfiedwiththeirjobs,

85percentthoughtStarbucksshowedconcernforitsemployees,

89percentwereproudtoworkatStarbucks,and

100 percent thought “working for a company that you respect” was animportantfactorinjobsatisfaction.

The professionals at ARC,who surveymany companies, told us that thesemarkswereextraordinarilyhigh.Thepollalsorevealedthatahighpercentageofourbaristaswereintheirlate

teens or early twenties, andmany sawworking at Starbucks as an acceptable“way station” on the road to a meaningful career. Baristas took pride in thecoffee skills they had learned and judged a Starbucks job as much higher instatusthanworkingatafast-foodoutlet.Thatwasthegoodnews.

The worrisome findings were that their level of satisfaction seemed to beslipping.Whenstoremanagersfeltoverworkedorbaristasworriedaboutshort-staffing, they tended toblame theseproblemson the company’s rapidgrowth.They expressed concern that Starbucks would become just another huge,impersonal chain, losing its respect for the individual. Although still in theminority,otherpartnersfearedthatStarbuckswasbeginningtocaremoreaboutgrowthandprofitsthanaboutitsemployees.Fortunately,wehavebeenabletoprovideanenvironmentthatmakespeople

want towork forus.Evenmore than their stockoptions, baristas toldus theycared about the emotional benefits they got from their jobs: the camaraderieamong co-workers, interaction with customers, pride in a new skill andknowledge, respect frommanagers,and thefundamentalsatisfaction thatcamefromworkingforacompanythattreatedthemwell.Clearly, we needed to find better ways to ensure that the quality of the

Starbucksexperiencecontinued,bothforpartnersandforcustomers.When I heard these results, I knew that the company stood at a crossroads.

The tension that accompanied our rapid expansion was a symptom of anunderlyingailment that couldhave long-termconsequences. Ifwewere toputthebrakestoourgrowth,evenforjustayear,wewoulddisappointshareholders,who expect continuous rapid earnings growth. It would also erode themomentum and pride our people take in working for a vibrant, successfulcompany. The solution, it seemed to me, is to be continually diligent in oureffortstoprovideagreatworkenvironmentforourpartnersandtoofferthemarangeofopportunitiestodeveloptheirskills.Andweneedtocommunicateourmissionbetter, tohelpStarbuckspeopleunderstandthatourgoalisnotgrowthforgrowth’ssake(orworse,forWallStreet’ssake)butrathertobringourgreatcoffeetothewidestpossibleaudience.Weneededtoreinvigoratetheiremotionalconnectiontothecompany.

ASYOUGROW,YOUNEEDTOGROWYOURPEOPLE,TOO

AnycompanythathasexpandedasdramaticallyasStarbucksinevitablyrealizesthatfastgrowthcanbepainfulfortheindividualsinvolved.AtStarbucks,wetrytopromotefromwithin,butsometimesthesheerspeedofgrowthoutpaces theabilities of our early contributors. We also find that people who throw theirheartsandenergy into theirwork to thedegree thatwedoareatanespeciallyhighriskforburnout.Acompanywhosegrowthneverstopsacceleratingseldom

managesenoughtimetorewarditsemployeesforachievementsothercompanieswouldcelebrate.Forme, themostpainfuldownsideofgrowthhasbeen those fewoccasions

whenwe’vehadtoletgocaring,committedpeoplewhowerenotuptothenextlevelneeded.I’llneverforgetthedaywhenoneloyal,long-termpartnercametomyofficeintearsbecausehismanagertoldhimhedidn’thavetheexpertisetostay in his job. “This ismy company, dammit!” he shouted. Iwas filledwithsympathy,butnotsurehowmuchmorewecoulddoforhim.Fortunately,hewasabletofindanotherpositionatStarbucks,butothershavehadtobeletgo.Forme, this kind of experience is gut-wrenching. It forces me to consider thequestion:Howfarshouldwegotoprovideforanindividualifheorsheisnotcontributingasmuchasweneed?Almostasdifficulthavebeen those timeswhenpassionate,devotedpartners

cometomyofficetotellmetheycan’ttakethestressanymore.It’shappenedtoooften. I’m aware that the demands of the work and the level of intensity atStarbucksaretoohighformanypeople.It’sharderforsomethanforotherstosustain passion about work day after day, year after year. But when you’vesharedadreamandagoalwithsomeone,it’shardtoseehimorhergo.Incontrast,oneofthemostrewardingexperiencesformehasbeentowitness

the development of gifted people who do grow with the company, howeverpainfulthatmaturingmaysometimesbe.Atoneboardmeetingnotlongago,Iwatched with pride and respect as one of our executives made a highlyprofessionalandpersuasivepresentation.ShewasChristineDay,nowStarbucks’vicepresidentofoperations services, responsible for strategicplanning forourbiggestdivision.SheisthesameChristinewhojoinedIlGiornaleasmyofficeassistantwhenwehadonestore.Christine’ssuccessisagoodillustrationoftheopportunitiestogrowacareer

within aquickly expandingcompany.Butherprogresshasn’tbeenwithout itsmomentsofangst.WhenweboughtStarbucks, the transitionwashardforher.Shehadto letgoofmanyof the thingsshehadmanagedandcarveoutanewrolewithanarrowersetofresponsibilities.Herjobeventuallyevolvedintooneof managing purchasing, traffic, and inventory, and coordinating new storeconstruction until 1990. She had to transform herself from a generalist in anentrepreneurialcompanytoaspecialistinaprofessionallymanagedone.In1990,Christinebecamevicepresident forstoreplanning,duringaperiod

whenourstoreopeningschedulewasacceleratingeveryyear.InApril1995,shemoved to retailoperations.Gradually, shebecamemorecomfortableandmorecapableassheacquiredtheknowledgeandexperiencesheneededateachlevel.

Shehad to learn to livewithconstant changeandpressure,while someofhercolleagueschosenottomakethetransitiontoworkingforalargecompany.ChristineadoptedtheStarbucksvisionasherown,ashavemostoftheother

managers at the company. “We all believe,” she says. “We believe becausethere’svalueandqualityintheproductandinthepeopleweworkwithandintheworkenvironment.That’swhatmakesitspecialandwhyitworks.”Although Christine is the only one who advanced from assistant to vice

president, Starbucks is filledwith individualswho, like her, chose to stay andgrowwith the company, despite the hurdles.Our longest-tenured partner,GayNiven,startedin1979answeringphonesforthemerchandisingmanager,whenthe old Starbucks had only three stores. She later headed retail merchandisebuying aswe grew to the 50-store level. Since then, she has developed retailtraining programs and worked in several depart ments, becoming our chiefstorytellerandhelpingtopassonthelegacyandculturetonewpeople.DeborahTippHauck,whomIhiredasastoremanagerin1982,istodayvice

presidentformarketsandproducts.JenniferAmes-Karreman,whoin1986wasthefirstIlGiornalebarista,laterheadedretailoperationsfortheNorthwest,andthen became retail director for coffee.Countless others, still keeping alive thepassionthatbroughtthemhere,havefoundwaystodevelopfulfillingcareersbygainingexperienceinavarietyofdepartments.ManyofthosewhohelpedrefineourMissionStatementin1990haveremained,whetherinourroastingplants,inourwarehouse,orinourretailstores.It’shard,fromtheCEO’soffice,toassesshowwellourpassionistakingroot

innewermarkets.InDecember1996,Irackedupalotoffrequent-flyermilesbyattendingpre-ChristmassalesmeetingsinCalifornia,NewEngland,Wisconsin,and Canada. I was the keynote speaker at each. As I sat and listened to theopeningspeeches,Itooknoteoftheconnectionspeoplehadtooneanother,andtothecoffee,andfinallytothecompanyitself.One of these gatherings took place in Newport, Rhode Island, for partners

fromNewYork, New Jersey, Philadelphia, andNew England. It was the onemeetingIwasmostconcernedabout,becauseIwassensitivetothefactthattheEast Coast is amore difficult operating environment. Some have toldme it’shardertofindpeopletherewhoarenotcynicalaboutemployersandwork.Iwasafraid that, at these meetings far from Seattle, I’d see a fracturing of theStarbucksculture.Buttomysurprise,IfoundmyselfoverwhelmedwiththeenergyandpassionI

sawineveryregion,especiallyinNewEngland.Goingfromcitytocity,Iheardmanagers stress the same themes and I saw the same reactions from the

audience.Isawlaughterandenthusiasmatthesameinflectionpoints.PartnersIhadnevermetcameuptometosaytheyhadneverworkedforacompanythatcaredsomuch.Thattriptaughtmethattherearepeopleineverycitywhowanttobelievethat

workcanbemoreengagingandrewarding thanpunchinga timeclock. Ican’tknoweveryone’snameanymore,andwecan’tbeasfamiliaraswewerein1987,but Starbucks can still be an employer of choice by providing a workenvironment with more camaraderie and concern and emotional rewards thanmost.Ourpartnersknowwhat’sgenuineandwhat’sphony.WhenIspeak to them

fromtheheart,theyrelatetotheStarbucksvisionandtheStarbucksexperience.Whenmanagementlistenstotheirconcernsandrespondshonestly,theyrealizethat Starbucks is neither faceless nor impersonal. We are going to makemistakes.Butifourpeoplerecognizethatwhatwe’retryingtodo,inourhearts,isbuildvalue forusall, they’remore likely to forgive themistakes.Manyarealreadycomingtounderstandtheadvantagesoursizebrings,andarehelpingtoensure thatwecangrowbigand still be the samekindof company.TheyareStarbucks,anditssuccessreflectstheirachievements.

CHAPTER21HowSociallyResponsibleCanaCompanyBe?

Theevidenceseemsclearthatthosebusinesseswhichactivelyservetheirmanyconstituenciesin

creative,morallythoughtfulwaysalso,overthelongrun,servetheirshareholdersbest.Companiesdo,

infact,dowellbydoinggood.

—NORMANLEAR,FOUNDERTHEBUSINESSENTERPRISETRUST,

INAIMINGHIGHERBYDAVIDBOLLIER

As CEO, my primary responsibility is to the people of Starbucks: partners,customers,andshareholders. I also feelaccountable to thosewhocamebeforeme,thosewhocreatedthelegacyofStarbucksandbuiltitintowhatitistoday.To me, “corporate responsibility,” the term President Clinton used for a

conferenceofCEOsinMay1996,meansthatmanagementmusttakegoodcareof the peoplewho do thework and show concern for the communitieswheretheylive.Sowhatabout“socialresponsibility,”thetermusedbycompaniesthatgivea

percentageoftheirearningstocharity,orsellorganicproducts,ortrytosavetherain forest? We don’t use that term to describe Starbucks’ approach, in part

becauseour companydoesn’thaveanypolitical leanings, andweencourageadiversityofopinionamongourpeople.Onbalance,though,Ithinkit’sapositivewhenotherscategorizeuswithsuchenterprisesbecause“contributingpositivelytoourcommunitiesandourenvironment”haslongbeenpartofourmission.Still, as an employer and a public company,Starbucks needs to sustain and

growitsbusiness.Weneedtogenerateprofitstodemonstratethatthecompanyis healthy and well-managed. Actually, we’ve never distributed dividends; allourprofitsgorightbackintothebusiness.Some shareholders think companies should not make any charitable

contributions; theyprefer tomake thesedecisionsdirectly, rather than throughstockstheyown.ButIhaveadifferentview.Toreflectthecollectivevaluesofourpartners,webelieveStarbucksasacompanyshouldsupportworthycausesin both the communitieswhere our stores are located and the countrieswhereourcoffeeisgrown.Whoshouldsettheagendatodecidewhichcausestosupportandhow?And

howfarcanwetakethisresponsibilityifitseemstoconflictwiththeneedsofbuilding our brand and our business? Those are questions that becomeincreasingly troubling as we grow and become more capable of making adifference.

WHENTHEUNDERDOGBECOMESAWINNER,THECHEERINGSTOPS

Before Starbuckswent public in 1992,wewere a struggling Seattle companytryingtomakeitbig.Oncewemadeit,though,publicattitudestowardusbegantochange.Someofthesamepeoplewhooncerootedforusbegantosnipeatus.Once they decided we were no longer an underdog, they looked for ways toknockusdown.Whenmeasuredagainstfivemillionsatisfiedcustomersaweek,ourdetractors

arefewinnumber.Butwhenyouaresincerelytryingtobuildanenterprisewithhigh principles, you can’t help feeling discouraged when your intentions aremisunderstood,andattimesevenmisrepresented.Manyofourcustomersandshareholdersstillviewusasabelovedlocalcoffee

company, an inviting Third-Place café, a tenacious enterprise that’s alwaystryingoutboldnewideas.Butourverysuccesstendedtomakeotherssuspiciousof us and eager to believe the worst they hear. I’ve been called a “coffeemagnate” and accused of being arrogant and ungenerous. It’s the downside ofsuccess,andit’shardtoswallow.

Executivesatbigcorporationsgrowaccustomedtobeingmagnetsforattacksfromcause-orientedgroups.WhenStarbucksstartedbeingtargeted,itcaughtusoff-guard. We were so used to regarding ourselves as the good guys, as thestrugglingunderdogs, thatwecouldn’tbelieveotherswouldwant toattackus.Atfirst,wewereconfusedbywhatweperceivedassimplemisunderstandings.Werespondedhonestly,andsometimeswegotbitten.

WHOSECODEOFCONDUCTSHOULDYOUFOLLOW?

WhenwesetStarbucks’standardshigh,weneveranticipatedthatwewouldbecriticized because we set high standards. That’s what happened in late 1994,whenanetworkofGuatemalaactivistgroupsstartedaleafletandletter-writingcampaignagainstus.Somebackground: InApril 1989,PeterBlomquist, thenNorthwest regional

director for CARE, the worldwide relief and development foundation, wasstandinginlineataStarbucks.Whilewaitingtoorderhismorningcappuccino,hepickedupaStarbucksbrochureentitledAWorldofCoffee,whichincludedapictureofDaveOlsenandamapshowingthecountriesaroundtheworldwherewe buy coffee. Almost all were locations where CARE sponsors health,education, andotherhumanitarian aidprojects. “Youcouldhave laid thatmapoveramapofcountrieshelpedbyCARE,”Peterrecalls.He approached Dave about donating to CARE, and both agreed it was a

natural fit.After traveling toalmosteverycoffee-growing region in theworld,DaveknewonlytoowellhowpoorthelivingconditionsareinruralareasoftheThirdWorld.Bypayingapremiumtofarmerswhogrowhigh-qualitycoffee,hebelieves we are inherently supporting local economies while also providingincentives forbetter-qualitycoffee.Still,wedependoncoffeegrowers forourlivelihood,andhewasenthusiasticabouttheideaofhelpingimprovetheirlivesthroughanorganizationwithaproventrackrecord.Dave talked to me about CARE, and we both liked its approach. CARE

programsdon’tjustfeedthehungry,theyhelpimprovebasiclivingstandardsinpoorcountriesby suchefforts aseducatingpeopleaboutbasichealthcareandhelpingthemgetaccesstocleanerwater.Althoughwewerethenasmall,privatecompanywithannualsalesoflessthan$20million,welikedtheideaofgivingbacktocoffee-origincountriesthroughCARE.Butatthatpointwewerenotinapositiontogive.Starbuckswasgrowingfast

in1989,adding20storesonabaseof26,andwewerestilllosingmoney—more

than$1millioninthatyearalone.Wehadtomakeupourlossesbeforewecouldevenmentioncharitablecontributions to theboard.ButDaveand I set agoal:Oncethecompanybecameprofitable,wewouldstartdonatingtoCARE.In1991,DaveOlsentookatriptoAfricatoobserveCAREprojectsinKenya.

HevisitedaschoolandsawhundredsofAfricankidsusingCARE’smagazine,thePiedCrow,tolearnabouthygiene,familyandcommunity,landreclamation,environmental protection, and rural development. Two hundred of the youngstudentssangKenya’snationalanthemforhimandhisfamily,andtearscametohiseyes.Hecamebackfiredupandreadytoformalizeourinvolvement.InSeptemberof1991,finallyin theblack,Starbuckslaunchedapartnership

with CARE, kicking it off with a benefit concert by Kenny G.We not onlycommitted to annual donations of at least $100,000, but promised PeterBlomquist that we would integrate CARE into every aspect of Starbucks’business.WebeganofferingCAREsamplersofcoffeeandotherCARE-relateditemssuchasmugs,backpacks,andT-shirts,inourmail-ordercatalogueandourstores. When customers buy these items, a portion of the price they pay isdonatedtoCARE.WehavefeaturedCAREinin-storepromotions,stand-aloneinformationalkiosks,andarticlesinCoffeeMatters,aswellassupportingitbyorganizingbenefitconcertswithKennyGandMaryChapinCarpenter.Each year we increased our donation to CARE, until by 1993 we were

CARE’s largest annual corporate donor in the United States. In 1996, forCARE’sfiftiethanniversarywesent threepartners,DaveOlsen,DonValencia,and events specialist Vivian Poer, on a fund-raising climb to the summit ofAfrica’sMt.Kilimanjaro.OurcontributionstoCAREhavesupportedprogramsinfourcoffee-producingcountries—Indonesia,Guatemala,Kenya,andEthiopia—includingsuchprojectsasclean-watersystems,healthandsanitationtraining,a literacy effort, and a new project to help small farmers in Ethiopia’s ZegePeninsula where, according to legend, coffee originated. We target programswherewe can help develop lasting, life-saving solutions thatwill remain longafterCAREhasmovedontoaddressotherneeds.Because our relationshipwithCARE has become a source of pride for our

partners, we were taken aback when, shortly before Christmas of 1994, aChicago-basedgroupofGuatemala laboractivistsbeganpassingout leafletsatourstores.Theycontainedclaimsthatweremisleadingandhighlyinflammatory.TheysaidthatcoffeeworkersinGuatemalaworkedunderinhumaneconditionstoearnonly twocentsapound,whileStarbuckssells thebeans forup to$9apound.Theleafletledpeopletobelieve,falsely,thattheseworkerswereonourpayroll and that Starbucks was pocketing the difference. Finally, it called for

peopletowritetomeandtoorganizeagainstStarbucks.We were understandably dismayed, for we believed we not only had been

behavingresponsiblybutinfacthadtakeninitiativesthatwentfarbeyondwhatanyothercoffeecompanyhaddone.Wehadn’texploitedoursupportofCARE’sprogramsinthesecountriesforpublicrelationspurposes,andnowwewonderedifwe had erred in not beingmore vocal about it. Itwas clear thatwe had torespondtothisattack,buthow?Overthenextfewmonths,wereceiveddozensofphonecallsandthousands

ofcardsand impassioned letters.Well-meaning individualswrote,askingus totriplethedailywagesofcoffeeworkers,whileothersdismissedourlongstandingsupportofCAREas“ahand-out.”Althoughwepurchaselessthan1/20thof1percent of all the world’s coffee, and coffee prices are set on internationalcommodity exchanges, people seemed convinced that we single-handedly hadthepowertochangethecoffeeplantationsysteminGuatemala.It quickly became clear that Starbucks was being targeted for a reason:

because we have both a well-known national brand and a reputation as aprincipledcompany.PreciselybecauseofourCAREdonations,activistgroupsknewwewere concerned about issues impacting ThirdWorld coffee-growingcountries.Theywantedustouseourpurchasingpowertopromotesocialchangeaccordingtotheiragendas.Someofoursupportersevenbeganasking:“WhynotjuststopbuyingcoffeefromGuatemala?”Yetweknewthataboycott—orevena threat to boycott—would hurt most directly the people who could leastwithstandit—thecoffeeworkers.Whattheseprotestersdidn’tunderstandwasthat,sincewedon’tgrowcoffee

ourselves,wecannotguaranteewhichfarmproducesit,whosehandspickit,orhowmuch farmworkersarepaid.TheGuatemalancoffeewesellcomes fromthousands of different farms. It is processed, bagged, and delivered to anexporter before it is shipped to us.We can inspect the quality, butwe cannoteasilydetermine,foranygivenshipment,exactlywhichfarmsitcamefrom.Weareonecustomer,andnoteventhelargestcustomer.IfwerefusedtobuyfromGuatemalan exporters, theywould sell to someone else.Our customerswouldloseout,andthecoffeeworkerswouldnotbeanybetteroff.We can’t bow to pressure from every cause-oriented group that pickets our

stores. But the working conditions of coffee workers is amatter close to ourhearts,andwedidn’twantevenonecustomertothinkweweren’tdoingallwecouldtohelpthem.So,aftermuchinternaldiscussionwithDaveandtheboard,wedecidedtostudytheissuesinvolvedtoseeifitmightmakesensetoestablishacodeofconductforoursuppliers.

At our next annual meeting, in February, I made a public commitment toestablish a code of conduct, setting forth guidelines for our dealings withsuppliers in coffee-origin countries. I also explained that the issues were farmore complex than the picture presented by the protesters. Human-rightsactivistsapplaudedtheannouncement,thoughIwarnedthemthatitwouldn’tbeeasy.“Idon’twanttomakeanagreementIcan’tliveupto,”Isaidatthetime.Over thefollowingsixmonths,Daveledanintensivestudyofsimilarcodes

thathadbeenadoptedbysuchcompaniesasLevi-Strauss,TheGap,J.C.Penney,andReebok,aswellasacloseexaminationofourownbeliefs,ethicalvalues,and attitudes toward supplier countries.He heldmeetingswith representativesfromavarietyofcause-orientedgroups,aswellasCAREandANACAFE,theGuatemalancoffeeproducers’association.Dave tried tokeep the toneof thesediscussionsupbeatandconstructive.Onemessagehewanted togetacross:AnattackonStarbucksisanattacknotonafacelesscorporateentity,butonagroupofpeoplewho,infact,sharemanyofthesamevaluesandgoalsasourcritics.By September 1995, Dave and his group had completed “Starbucks’

CommitmenttoDoOurPart,”aframeworkoutliningourbeliefsandaspirationsaswellasasetofspecificshort-termcommitmentsforhelping to improve thequalityoflifeincoffee-origincountries.Weusedthetermframeworkratherthancode of conduct because our guidelines necessarily differed from the codesadopted by importers ofmanufactured goods like jeans and shoes. Levi’s, forinstance, buys from about 600 discrete factories worldwide; each factory hasmachinery contained within four walls, which makes it possible to inspectworkingconditionsthere.Incontrast,Starbucksbuys,indirectly,fromthousandsof farms inabout twentyorigincountries.Wecouldneverconductmeaningfulinspectionsthewayamanufacturerdoes.We stopped short of threatening to impose penalties on Guatemalan

plantationsthatdidn’tliveuptoourstandards,assomehadproposed,becauseofthepracticaldifficultyofenforcingthosestandards.Wedid,however,outlineaspecific work plan for educating suppliers about our mission and values,communicatingourgoalstothecoffeeindustryasawhole,andgatheringfurtherinformationduringvisitstoselectedorigincountries.Ouraimwastodoourpartinwaysthatwebelievedcouldhavemeasurableeffects,andforwhichwecouldbeheldaccountable.AsfarasIknow,noAmericancompanyimportingagriculturalproductshas

everattemptedacodeofconductforforeignsuppliers.Butafterweannouncedourframework,somestillcriticizedusforfailingtoputteethinit.In early 1997, we followed up by forming an alliance with Appropriate

TechnologyInternationaltohelppoor,small-scalecoffeefarmersinGuatemalaincreasetheirincomebyimprovingthequalityoftheircropsandmarketaccess.Witha$75,000first-yeargrant,weinitiatedarevolvingfundtofacilitateloansforproducercooperatives, startingwith the fundingofawet-coffeeprocessingfacilitydesignedtominimizeenvironmentalimpact.Mostofthegrowerswe’rehelpingarestrugglingtofeedthemselvesandtheirfamiliesfromtheproduceofafewacresofland,andtheysufferfromhighratesofillnessandmalnutrition.We see this effort as just a first step, an innovative program that could beexpandedtomakeadifferenceforcoffeefarmersinothercountries,too.The leafleting incident taught us the downside of being responsible and

responsive. Itmakes you vulnerable to an ever-wider array of special interestgroups and individuals with diverse and sometimes unclear agendas. InVancouver,BritishColumbia,ourstoreswerespray-paintedandvandalizedafteranothergroupleaflettedusbecauseStarbuckssupportstheVancouverAquarium,whichkeepswhales incaptivity.Yetanothergroupaskedus topressurePepsi,our joint venture partner, to stop doing business inBurma because of human-rights abuses there.We don’t even do business in Burma! Even theAudubonSociety has petitioned us to protect migratory birds whose forest habitats arebeingcutdownforcoffeeplantations.As a company grows, its values will inevitably be challenged, but not in

predictableways.Big,successfulenterprisescanaffordtobemoregenerousandsociallyresponsiblethansmallerones,buttheymayalsobeheldtoimpossiblyhighstandards.To be responsible to employees, communities, shareholders, and the greater

goodmeans tocarefullybalanceahostofcompeting interests.Youhave tobeverysureofyourvaluesandweighthemhonestlyagainsttheneedtosustaintheenterprise. If you anger suppliers, if you alienate groups of customers, if youspend toomuch time andmoney on causes, you cannot build a strong, long-lasting company. If your company fails, or fails to grow, you can no longeraffordtobesociallyresponsible.At Starbucks,we have toweighwhat’s affordable againstwhatwe think is

right.That’swhywekeepgivingtoCAREevenwhenprofitsaretight,astheywereinearly1996.Andthat’swhywesetuptheStarbucksFoundationin1997,recruitingPeterBlomquistas itsdirector.Butwewill takeastandandsupportcauses according toour ownagenda, actingonourbeliefs andvalues andnotthosedictatedtousbyothers.“Don’tsaywe’redoingnothing,”Davesaystoourcritics.“Saywearedoing

otherthanyouwouldlikeustodo.”

Nomatterhowothersjudgeus,wewillcontinuetoholdstrongtothevaluesthatsustaineduswhenwewereunderdogs—cheeringornocheering.

WHATTODOWHENYOURENVIRONMENTALETHICSCLASHWITHBASICBUSINESS

Running a company while keeping to high ethical standards presents anotherdilemma:Sometimesyoucan’tfigureouthowtoliveuptothem.ConsiderthecaseoftheStarbuckscup.Formore than ten years, Starbucks has been selling coffee-to-go in a paper

cup with a plastic lid. Yet that cup has been one of the most nagging issueswe’vedealtwith,abrainteaser that seemed topitourvaluesagainstourbrandimageandourdesireforcustomerservice.Theproblemisthis:Hotcoffeeinapapercupcanbeuncomfortabletohold.

Espresso drinks like lattes are not as hot because they are tempered by theadditionofsteamedmilk.But for regulardripcoffeeandcaffèAmericano, wehavealwayshadtoputonepapercupinsideanothersothedrinkswillbeeasiertocarry.For customer convenience, double-cupping works fine. But every time we

double-cupaservingofcoffee,twiceasmanyStarbuckscupsendupinthetrash—an apparentwaste ofmaterial that runs counter to our environmental ethic.LivinginanenvironmentallyawarecitylikeSeattle,I’mespeciallyconsciousofandbotheredbytheamountofwastewegenerate.IfyouaskStarbucks retail partners—manyofwhomare in their twenties—

what world issues concern them most, the overwhelming consensus is theenvironment. They hate to see disposable paper cupswalking out of the storeeveryminute,Starbucksnapkins flutteringabout the sidewalk,plastic lids thatgetusedonceanddiscarded.Theylovethecoffee,buttheydon’twanttoaddyetanotherpieceofrefusetolandfillsthatarealreadyoverloaded.Inresponsetotheseconcerns,StarbuckssetupanEnvironmentalCommittee,

ahigh-levelgroupthatlookedforsystematicwaystoreduce,reuse,andrecyclewaste,aswellastocontributetolocalcommunityenvironmentalefforts.Wedevelopedwhatmaybe a unique approach to addressing environmental

questions.Tocoordinateeffortsforourretailstores,wecreatedanall-companyGreenTeam,whichconsistsofstoremanagersfromallourregions.Threetimesayeartheymeetwithseniormanagementandrepresentativesfromdepartmentssuch as marketing and retail operations, coordinate plans for Earth Dayactivities, conduct recycling audits, and champion new ideas,which they then

takebacktotheirregions.It’sourwayoftryingtogetthebestthinkingfromourpartners on how to becomenot only environmentally sensitive but a leader inthisfield.Each district of around 10 stores has an environmental liaison, who

coordinates efforts.Most stores appoint a partner tomonitor recycling effortsand come up with innovative ways to cut waste. Stores often conduct GreenSweeps, sending people out into their neighborhoods, and even to nearbybeaches,parks,parkinglots,andotherareas,topickuptrash.Weencourageourcustomers to support our environmental efforts by offering them a discount ifthey bring their own cups for us to fill, selling commuter mugs, and servingdrinksinporcelaincupsifcustomersspecify“forhere”ratherthan“togo.”Oursystemisnotalwaysaseffectiveaswe’dlikeittobe,butitensuresthat

ouroperationspeoplearealwaysconsciousofourenvironmentalgoals.Often good ideas originate in the stores and percolate upward. One store

removed plastic knives and spoons from the condiment bar, making themavailable only upon customer request. That initiative dramatically reduced thenumberof plastic utensils that are thrownaway.One regionnegotiatedwith alocal dairy to take back used milk cartons. We need to rely on local storeinitiativebecauserecyclingpracticesandservicesvaryacrossthecountry.In October 1994, we hired Sue Mecklenburg from the University of

Washingtonbusinessschooltoserveasdirectorofenvironmentalaffairs.Bythetime she joined, we had already implemented numerous initiatives to reducewaste in packing and shipping. There wasn’t, she recalls, much low-hangingfruit. So she set to work on the biggest environmental issue still facing us:double-cupping.In1995,weassembledaHotCupTeam,withmembers fromenvironmental

affairs,purchasing,marketing,R&D,retailoperations,andfoodandbeverage.Theirfirststepwastotalkwithsuppliers.Theprimaryalternativetopapercups,they discovered, is polystyrene, which insulates hot beverages far moreeffectivelythanpaper.Wechosethreekindsofpolystyrenecupsandconductedfocusgroupsontheir

usewith250customers.Thefavoredalternativewasathin,pressedpolystyrene,the kind used in convenience stores and gas stations.We produced a quantitywithourlogoandtest-marketedtheminDenver.Whilesomecustomersthoughtthese cups were an improvement over double-cupping, many disapproved.Polystyrenedidn’treflectthequalitypeoplehadcometoexpectfromus,andthepublicperceptionisthatplasticisevenlessenvironmentallyfriendlythanpaper.Todisposeofusedcups,weshippedthemtoapolystyrenerecyclingfacilityin

California. In fact, while it’s technically possible to recycle polystyrene, it’simpracticalinmanycities.Wehadtofaceanotherpracticaldifficulty,too.Typically,ourcustomersleave

ourstoreswiththeircup.Acollectionbinplacedbythedoorwouldbeuselesstosomeonewhodrankhercoffeeawayfromthestore.Anyoneplanningtofinishitinthestorecouldhaverequestedaporcelaincupinthefirstplace.Realistically,there is no way most of our customers could recycle polystyrene cupsindependently.SwitchingtopolystyrenewouldhavesavedStarbucks$5millionayearatthat

pointintime—andfarmoreasthenumberofstoresmultipliedinfutureyears.Butwedecidedagainstit.Itdidn’tsolvetheenvironmentalissue,anditwasn’tconsistentwithourimage.BackatSquareOne,westartedlookingforabetterpapercup,butwecouldn’t

findonethatmetourneeds.Sowedecidedtotestmarketapapersleeve.Insteadoftwocups,wewouldsliparingofcorrugatedcardboardaroundthemiddleofeach paper cup of regular coffee. The sleeve used only about half as muchmaterialasasecondcupandevencontainedsomerecycledpaper.Bythetimeweprintedour logoon it,werealized thesleevewouldn’tsaveusanymoney,butwedecidedtoofferitanyway.Foralonger-rangesolution,though,wedecidedtolookoutsidethecompany.

In early 1996, Sue approached the Environmental Defense Fund, which hadpartneredwithMcDonald’stofindanenvironmentallypreferablealternativetotheplasticclamshellinwhichtheyhadbeenpackagingtheirhamburgers.Eagertohelpcompaniesdevelopinnovativesolutionstoenvironmentalproblems,theEnvironmental Defense Fund had jointly established the Alliance forEnvironmental Innovation with The Pew Charitable Trusts. In August 1996,Starbucks and the Alliance agreed to work together to reduce the harmfulenvironmental impacts of serving coffee. Our goal is to reduce the use ofdisposablecupsbothbyincreasingtheuseofreusablecupsandbyintroducinganew,environmentallypreferablesingle-usecup.Wecontactedaboutforty-fiveparties—cupsuppliers,industrialdesigners,and

soon—whowethoughtmightknowofwaystosolveourproblem.Wemetwithabout twenty-five of them, reviewed their ideas and prototypes, developed ashort list of eight cups that we presented to focus groups in three cities, andtestedthethreesemifinalistsinSeattle,Chicago,andBostonduringthesummerof1997.Ourgoalwastoidentifyapreferredalternativebythefallof1997andthenmovetoproductionin1998.Holding yourself to a higher standard is expensive and time-consuming. It

requires you to spend an enormous amount of time and money dealing withissuesthatmanyothercompanieswouldcomfortablyignore.Whentheproblemsseemunsolvable,youhavetokeepafterthem.It’sanongoingstruggle.Butwecarehowpeoplefeel,whatourpartnersare

thinking,whatthecustomerbelieves.Sowekeepatit.

CHAPTER22HowNottoBeaCookie-CutterChain

Artisanadventureintoanunknownworld,whichcanbeexploredonlybythosewillingtotakerisks.

—MARKROTHKO,INTHENEWYORKTIMES,JUNE13,1943

Nothing pains memore than hearing critics compare Starbucks to a chain ofdiscountstoresorfast-foodoperations.It’snotthatIdon’tadmirethewayWal-Mart andMcDonald’s have grown their businesses, for there’s much to learnfromtheir success.But the image theyproject, in theirproductsanddesign, isfarremovedfromthetonewe’vecultivatedatStarbucks,ofstyleandelegance.PerhapsI’veset thebartoohigh.Likeanoverachievingparent,Iwantitall

forStarbucks:successinall theconventionalways,plusanextraordinarylevelofinnovationandstyle.AtStarbucks,weholddesignto thesamehighstandards thatwedemandof

ourcoffee.Ithastobebest-of-class,top-quality,andexpressapersonalitythat’ssophisticatedyetapproachable.Wewanteachstoretoreflectthecharacterofitsneighborhood,yet itmustbeclear thatallbelong to thesamefamily.Our fastgrowth has pushed us to standardize design and purchasing, yet we create avarietyofoptionssowearenotproducingachainofclones.Wewantourstyletobeconsistentwithoutbeingpedestrian.Fromthebeginning,we’vestruggled

withthisinternalcontradiction:Howdoweprojectadistinctiveandindividualstylewhenweareopeningstoressorapidly?IwouldneverallowStarbuckstosacrificeordowngradeitseleganceandstyle

for the sake of growth. In fact, we’ve been quietly heading in the oppositedirection.Aswe growbigger,we can afford to invest in the kind of creative,innovativedesignthatpushestheenvelope.That’showwe’llmaintaintheedgeof surprise and delight that has always been a hallmark of the Starbucksexperience.

CREATINGADESIGNPERSONALITY

I’vealwayslovedthedesignaspectsofStarbucks.Iconsidergraphicsandstoredesigntobeadifferentiatingfactor,awaytoshowourcustomersthatStarbucksisonestepahead.Manyofourcustomersaresophisticatedanddiscriminating,and theyexpectus todoeverythingwith taste,notonlyourcoffeepreparationbutalso theestheticdesignofourstoresandpackaging.When theycome intoour stores, they’re after an affordable luxury, and if the setting doesn’t feelluxurious,whycomeback?Starting at Il Giornale, we tried to re-create the Italian espresso bar

experience,usingdecor thatwasEuropeanandcontemporary,well-lightedandfriendly.Iworkedwithanarchitect,BernieBaker,toplanthelayoutofthestore,theplacementofthelogo,thelocationofthestand-upbarsbythewindows,thefixturesfornewspapers,andthemenuboard,whichwasdesignedtoresembleanItalian newspaper. The espresso machine stood at center stage, with counterscurvingbackfromit.Once we merged Il Giornale with Starbucks, we totally redesigned the

Starbucks stores tomake sure they reflected a similar Italian look. In thenewconfiguration, we placed the espresso bar at the back, so that the first thingcustomers would notice as they entered was the whole-bean displays. Wedroppedthebrownmercantilelookandaddedsomechairs,nomorethannineineachlocationatfirst.Atthetimethissetupwasunique.Justafterthemerger,Icameupwithanideathathassincebecomeoneofthe

mostdistinctiveelementsintheStarbuckslook:theuseofgraphicstohighlighttheuniquenessofeachtypeofwhole-beancoffee.Untilthen,whenyouwalkedintoaStarbucksstoreandaskedforapoundof,

say,HouseBlend, thepersonbehindthecounterwouldrubber-stampthenameof thecoffeeonaplainwhite andbrownbag.But thoseplainwordsdid littlejustice to the rich variety of flavors and the different cultures of the origin

countries.Tome,eachcoffeehasapersonality,basedonwhereitwasgrownorwhytheblendwascreated.Itwasincumbentuponus,Ifigured,tofindavisualwaytoreflectthosedistinctionstoourcustomers.IturnedagaintoTerryHeckler,forbothhissenseofstyleandhislinkageto

the founding of Starbucks, and asked him to create images that captured thespiritofeachcoffee.AfterhedesignedourgreenStarbuckslogo,whichweputonourbags,healsodesignedaseriesofstick-onstampsforeachtypeofcoffeewesold.Eachoneevokedculturalelementsoftheorigincountry,localfloraorfauna,orthemoodthatparticularcoffeecreatedorelevated.Tothisday,ifyouorder a half-pound of, say, Kenya coffee, the barista will put it in a standardStarbucks bag but identify it with a colorful stamp designed for that type ofcoffee—formerly an elephant, now an African drummer image. The Sumatrastamp for many years showed a tiger’s head; NewGuinea a brightly coloredtoucan;CostaRicaTresRiosawomanbalancinga fruitbasketonherhead. Iwantedthegraphicstobecomestrongvisualsignalsthatwouldremainevocativeevenaftertheproductwasbroughthome.Introducingthenewstampswasexpensive,adding2centstothecostofeach

bag of coffee. Not only did we have tomanufacture the stamps, but affixingthemtobags tooka littleextra labor inourstores.My justification,ofcourse,was:“Everythingmatters.”Weusedthoseoriginalstampsfornearlytenyears,updatingthemandadding

ones only as needed. Then, in 1997, we refreshed our look with a newlydesignedsetofstamps,withdifferentimages.Manyothercompanieshavesincecopiedourideaofstamps.Butthestamps

havebecomevisible symbolsof thestyleofStarbucks,vividmementosof theStarbucksexperiencethatresonatewithpeopleandkeepthemcomingback.Other coffeepurveyors also started to copyour storedesign, once they saw

the importanceof its role inattractingcustomers. Infact,Starbuckshashad tochallenge several competitors to stop them from using images too similar toours.Onecompanywentso faras to imitatenotonlyourstoredesign,colors,andlogobutalsoourin-storebrochures.Over theyears, our packaging evolved, aswe tried tomaintain a consistent

style but still convey variety and depth. Beginning in 1987, our coffee bags,cups, napkins, and othermaterials allwerewhitewith the green logo.But bySeptember 1992, we wanted to broaden and freshen the look, so we hired adesignfirm,HornellAnderson, toredesignourpackaging.WorkingwithMyraGoseinourmarketingdepartment,theycreatedanewgraphicvocabulary,withnaturalearthtones.Theyalsogaveusthecoffeesteampatternthatweusedon

bags,walls,posters,andwrappingpaper,abrandiconthatbecameavisualcueforStarbucks.Andtheydesignedadistinctivecoffeebagusingaterracottaredand charcoal backgroundwith the same steampattern. In 1992we also askedTerryHecklertoreviseoursirenlogo:Shestayedmostlythesamebutlosthernavel. Inside the company, Myra became the keeper of the look, the designconscience of Starbucks,making sure that any newpackaging or productwasconsistentwiththeimagewewanttoconvey.

EARLYSTOREDESIGN:BALANCINGCONSISTENCYWITHSTYLE

Beginning in 1987, we developed a strong overall design theme that wouldensurethatourstoreslookedalike.MyobjectivewastomakeeachstoreineachnewmarketreflectamirrorimageoftheearlyStarbucksstoresinSeattle.WhenwemovedtoChicagoandLosAngelesandothercities,IwantedthenewstorestoprojectthevaluesandstyleoftheoriginalStarbucks.Astherolloutaccelerated,wegraduallyrealizedtheimportanceofdesigning

our stores ourselves, for speed and efficiency as well as design integrity.Wetriedusingoutsidedesignersandarchitects,butsomeofthemdidn’tgetit.Theygaveuswhatwas“in”inretailthatyear,andwewantedalookthatwasuniqueandsustainable.Sowemadeadecision thatwascostlybutalsofarsighted:Starting in1991,

webuiltupourownteamofarchitectsanddesigners,toensurethateachofourstores would convey the right image. Most entrepreneurial companies can’tafford to employ such skilled people at this stage of growth. At first, theyworkedunderChristineDay,whowasthenvicepresidentforstoreplanning.Wehad,ineffect,anin-housearchitectureanddesignfirm.The first 100 or so storeswere designed by hand, on drafting tables, and I

examined and approved the detailed plan for each, from signage to counterfinishes.Once,when layout issues cropped up at our first three stores in LosAngeles,Iflewtherewithourdesignersthenextdaytofigureouthowtomakeitright.Ironically,thoughallourstoreslookedsimilar,theywereneveruniformina

cookie-cutterway.Atfirst,infact,wecustom-designedeverystorebecausewehadto.UnlikeMcDonald’s,wedon’townourrealestateandbuildfreestandingstores,butrathersignleasesandmoveintoexistingspacesthatdifferinsizeandshape.Tocontrolcosts,wehadtousesimilarmaterialsandfurnishings,butnotwostoreswereexactlyalike.Forexample,dependingonthesetting—urbanor

suburban, formalor informal—wevaried the typeofwoodfinishesused (darkcherry,lightcherry,ormaple)withinthelargerdesignparameters.Tokeepthelookconsistentandtheexpensesreasonable,twoofourdesigners,

BrookeMcCurdyandKathleenMorris,developedaseriesofpalettes,eachwithsixbasiccolorsandmultipleoptions,includingchoicesofvariouslightfixtures,countertops,andcolorsofhardwoodveneers.ChristineDayusedtheanalogyofsisters—eachwithan individualappearance,butclearly from the same family.Our designers had a sense of ownership for each project, and often took callsfrom the field when construction managers uncovered a brick wall or otheraspectthatmightaffectdesign.Still,asStarbucksexpandedacrossthecountry,peoplebegantocomplainthat

toomanyofourstoreslookedalike—avulnerabilitythatcompetitorswereeagertoexploit.IneverycityinAmerica,small,independentcoffeehousesopenedupwithoriginaldecortailoredtothelocalmoodandsensibility.Incollegetowns,they were funky and offbeat. In suburbs they were down-home and cozy.However the coffee tasted, if they created an atmosphere that felt comfortableandpleasant,theywouldattractcustomers.Peoplebegantosayourdesignwashard-edgedandinstitutional.It’s a criticism that cuts to the heart. We want to establish a personal

connectionwithourcustomers,butwealsowantourstorestobeaccessibleandconvenient.Howdoyouopen300storesayear,eachoneofthemdistinctiveanddesignedtofitthetoneofthelocalneighborhood?In 1994, under Arthur Rubinfeld, we began to experiment with different

formats.Wedesignedahandfulofuniquestorescustomizedtofitspecificneeds.Weexperimentedwithafewdrive-throughsinlocationswherecommuterswereinarushtogetsomewhere.Wedesignedkiosksinafewsupermarketsandotherpublicplaces.ButmostimportantforthosewhowantedaThirdPlace,weaddedseatingand

introduced the concept of Grand Cafés, large flagship stores with fireplaces,leather chairs, newspapers, couches, attitude. Customers love them. There’ssomethingwonderfullysatisfyingaboutcurlingupwithacupofcoffeeinfrontofafireplace.AtonelocationinManhattan’sUpperEastSide,wecreatedabohemianliving

room on the second floor. Complete with tattered couches and easy chairsbought at garage sales, it quickly became an afternoon oasis and an eveninggatheringplaceinacitynotknownforsafeplacestokickbackandrelax.But this approach led to abiggerproblem.Our rapidgrowth intonumerous

new markets, coupled with our larger formats, was causing initial store

investmentstospiraloutofcontrol.Ouraveragestore-openingcosthitapeakof$350,000in1995,animpossiblyhighfigure.TheGrandCaféswehadcustom-designedcostmuchmore.Sowefacedanewdilemma:howtocutcostsdrasticallyyetstillcomposea

next-generationdesignschemethatwouldlookfreshnomatterhowmanystoreswebuilt.

TOSTAYONESTEPAHEAD,YOUHAVETOINVESTINCREATIVITY

That’stheconundrumwehandedWrightMasseywhenArthurhiredhimin1994tobevicepresidentofdesign.Wrightdoesn’tfitthetypicalimageofadesigner.Withhis thickfaceandstrongjaw,he looksas ifhe’dfeelmoreathomeonafootball field than ina studio.Yetnotonly isheanexperiencedarchitect—hehasdesignedsomefortyhotels—buthe’salsoawatercolorartist.He’soutspokenanddirect,withastrongCarolinadrawl,quicktocriticizeandquicktorecognizeabrilliantidea.Wrightforcedourpeopletoworktogetherasateaminwaystheyneverhad

before. He had them hammer out a plan for “synergistic rollout,” laying outexpectationsforourpeopleineachofthedisciplinesofrealestate,construction,design,operations,purchasing,andcontractmanagement.Beforethateffort,ourdesignershadkeptmostinformationintheirheads,liketribalknowledge,andhepushed them towrite it down and systematize it.The goalwas to revamp thewholeprocessofstoreplanningtoachievequickerdevelopment,lowercost,andbetterdesigns.BeforewehiredWright,ourpeopleinthefieldhadbeentryingtoparedown

our costs on a per-project basis. But Wright recognized that the big savingswouldcomeonlyifwetookadvantageofoursizeandscale.Buildinghundredsof stores a year gave us tremendous buying power that we had never reallyleveraged. So we centralized buying, developed standard contracts and fixedfees,andrevisedourrelationswithcontractors,promisinglargevolumesofworktothosewhokeptcostsundercontrol.But thatwasn’t enough.Whatwe needed to dowas to learn a few lessons

from the cookie cutters. Our retail operations group outlined exactly theminimum amount of equipment each core store needed, and the design groupworkedwith purchasing to pre-order and pre-stock standard items at 20 or 30percent lower cost by getting volume discounts direct from the vendors. Thatmeant findingwarehouse space or implementing complex just-intime delivery.

For parts needed in every store, such as drawers forwhole-bean coffee or theespressobar,wewere able to standardize the sizes and cuts, so thatwe couldorderinbulk.Anyoddspacescouldbecoveredwithfillerpanels.Thegoalwasto develop processes that didn’t enslave designers but helped them be morecreative.Althoughmodularcaseworkisusuallythekissofdeathforgooddesign,we

foundawaytomakeitworkforus.In1996,werevampedourcomputersystemanddevelopednewsoftwarethathelpedusfitinstandardequipmentandfixturesandestimatecosts as thedesignevolved.By takingadvantageofour sizeandcoordinating our operations needswith our design goals,wewere able to cutstore development time from twenty-four to eighteen weeks and reduce theaverage store costs significantly. That freed up the resourceswe needed for amorefulfillingproject:designingourStoresoftheFuture.Wright’sgoalwastoraiseourstoredesigntoahigherlevel,leapingaheadof

our competitors. He aimed to create a lyrical and esthetic new design, withrichnessandtexture,strongenoughtotelltheStarbucksstory,goingbeyondjustarevisednewcolorscheme,anotherkindofwood,oranewstyleofchairs,andtrying to capture the essence of the Starbucks experience. He directed hiscreativeteamtodrawfromcultureandmythologytoweaveafantastictale.“Gooddesignisnotprettycolors,”Wrightlikestosay.“It’sputtingsomething

outofreachandmakingpeoplegogetit.”To get the creative juices flowing,we set up a “secret” studio, deep in the

recessesoftheStarbucksCenterbuildinginSeattleandhiredateamofartists,architects,anddesignerstofashionournextgenerationofstores.Fewknewofthestudio’sexistence.Onlyahandfulofpeoplehadkeys,andothershadtosignnondis-closure forms to be admitted.We kept the project hush-hush so we’dhaveamajorimpactwhenthenewdesignswerereleasedinlate1996.DaveandImetwiththeStore-of-the-Futuredesignteamearlyon,explaining

our vision for what Starbucks should be: an authentic coffee experience, anextension of the front porch, an enriching, rewarding environment that couldaccommodate both fast service andquietmoments.Then the designers took itfurther, doing research about sirens, as seductive and unpredictable as coffeeitself, and about Starbuck, the level-headed first mate. They explored themythologyof the sea, the ideaof theThirdPlace,and theart and literatureofcoffeeculturethroughouttheages.Theylearnedaboutcoffeeblendsandorigincountries. The designs they created try to convey these themes subliminally,throughmuralsandiconsandotherimages.Theygotridofeverythingstiffandhard-edged,andbroughtinromanceand

mythology,mellowness andwarmth, using contemporaryproductionprocessestocaptureaneclectic,handmade look.But theykeptmyoriginalvisionof theartistry of espresso-making, spotlighting it by placing the machine behind aroundedbarandcreatingawooden“hand-off”planewherebaristascouldplacefinisheddrinksreadyforcustomers.Rather thanoptforasimple,uniformlook, theyevolvedcomplexvariations

on the fourelementsof earth, fire,water, andair,by relating them to the fourstages of coffeemaking: grow, roast, brew, and aroma. That allowed for fourdifferent store designs, each with its own color palette, lighting scheme, andcomponent materials, yet all unified by an overarching concept. Grow, forinstance,highlightsshadesofgreen.Roastcombinesdeepredsandrichbrowns.Brewemphasizesblue,forwater,andbrown,forthecoffee.Aromausesalightcolor palettewithyellows, greens, andwhites.All of the concepts incorporatenatural textures, hand-blown light fixtures, and suspended ceiling elementsbased on organic shapes.Within these four basic templates, we can vary thematerialsandspecificdetailstoadaptthemtodifferentsettings,fromdowntownbuildingstosuburbanareastocollegetowns.Forthepeopleinvolved,theprocesswasgut-wrenching,withwideswingsof

morale,redefinitionofroles,andreexaminationofcorevalues,likearebirthofStarbucks. They were, after all, messing with the image I had carefullycomposedforStarbucks.Wrightsayshewondered,somedays,ifhewasgoingto get fired or shot for the revolution he was trying to bring about. At timesprogresswasslowandagonizing,andsomeearlyconceptseitherwenttoofarordidn’thaveenoughedge.ButImadeapointofsteppingbackfromtheteam’sworkandlettingtheirimaginationsrun.IrememberhowIfeltwhenIwalkedaroundthemock-upstoresinourfifth-

floorstudio tosee thefinaldesignconcepts.ArthurandWrightwerewithme,butIdidn’twanttohaveanydiscussionsorlistentoanyexplanations.Isimplywanted to immerse myself in the mood the team had created. What I sawreflectedalevelofcreativityandartistrysofarabovewhatwehadcomefrom,thatoriginalIlGiornaledesign.Theartistsshowedmeiconstheyhaddeveloped,usingvariationsontheshape

of the siren, for use in the stores, and an entirely redesigned set of stamps toidentify our coffees. The end result was a series of images so original andimaginativethatIfeltasenseofaweatthekindoftalentwewereabletoinspire.Someoftheseimagesappearinthisbook.“Thisisgreat,”Isaid.“Hurryupandgetitintoournewstores.”Once the new store prototypes were approved, we faced the challenge of

findingwaystobuildthemwithinthestrictbudgetthathadbeensetforexistingstores. That meant negotiating contracts with a different set of vendors andsuppliers. By June 1996Wright and his team had figured a way to purchasemore than 300 items directly from vendors, lowering our overall investmentcostsby10percent.The final plans, rolled out in late 1996, included four formats and four

palettes.Ourtypical1,400-square-footCoreAstores,withflexibleseatingareasandacompleteselectionofmerchandise,canuseanyofthefourcolorpalettesand designs. Core B stores, formatted for smaller spaces, emphasize spatialefficiency.Theydrawonthesamefourdesignpalettes,butcostlesstobuild.Wealsointroducedtwonewformats:thebrevebarandthedoppio.Brevebars

aredesignedasastore-within-a-storeinsupermarketsorofficebuildinglobbies,and are compact enough to fit into sites previously considered too small for afull-sized Starbucks. Doppios, named for a double shot of espresso, are thesmallestoutlet,fittingintoanapproximately8-foot-squarespace.Theyareself-containedandcanbeeasilyrelocated.Boththesmallerunitsusethesamestyleandfinishesasthelargerstores.Given the apparently contradictory tasks of lowering costswhile creating a

betterdesign,Wright’steamnotonlyaccomplishedthatbutalsoathird:devisingnovel formats that would allow sales in locations we never could haveconsideredbefore.Itwasn’t just the“cookie-cutter”criticismthatdrove theStore-of-the-Future

effortin1995and1996.Wewerereachinghigherthanthat.ButthisexperienceistypicalofthewayStarbucksreacts.Ifthere’saproblem,wetrynotonlytofixitbuttocreatesomethinginnovativeandelegantintheprocess.

CHAPTER23WhenTheyTellYouToFocus,Don’tGetMyopic

IfyoucankeepyourheadwhenallaboutyouArelosingtheirsandblamingitonyou,

Ifyoucantrustyourselfwhenallmendoubtyou,Butmakeallowancefortheirdoubtingtoo;...

IfyoucanfilltheunforgivingminuteWithsixtyseconds’worthofdistancerun,YoursistheEarthandeverythingthat’sinit,And—whichismore—you’llbeaMan,myson!

—RUDYARDKIPLING,“IF”

December1995wastheholidayseasonfromhell.EveryChristmas,we,likemostretailers,preparetobeincrediblyfrenzied—in

theroastingplant,inthestores,intheoffices.AtStarbucks,it’stheonetimeofyearwhenourretailmerchandise—coffeebeans,espressomachines,chocolates,mugs—become as important as the daily lattes and cappuccinos. Usually, theholiday spirit pervades the bustle, customers ooh and aah over the colorfulproductsontheshelves,executivespitchinatthecashregisters,andwecollapseattheendofthemonthwithcontentedsmiles,promisingourselvesthatwewill

bebetterorganizednextyear.Christmas1995,however,wasadifferentstory.Windstormsandheavysnows

hit several different regions, forcing a number of stores to close for days at atime.Thepaperswerefilledwithdesperatequotesfromretailers,tryingtowishshoppersintotheirstores.Predictionsfortheshoppingseasongotevergloomier.Eachmorning our retail sales teammet in the conference roomnext tomy

office. These meetings were increasingly full of bitten nails and twitchingankles. Someone would hand out the computer reports of the previous day’ssales,brokendownbyregion,byproductcategory,bysalesdollars,bynumberofcustomers.Itwaslikegettingourtestscores.Wewouldcompareactualversusbudgetedfigures,andwouldreviseourforecasteveryweek.Ifwedidn’tmakeplanoneday,wewouldrecalculatesomenumberstofigureoutwhatweneededtomakeplan for the restof theweek,and then for themonthandquarterandyear.Thekey figurewas thedailycomp,whichmeasuredsalesgrowth for stores

open a year or more. With more stores open, overall sales were obviouslygrowing.Butwaseachindividualstoresellingmorethantheyearbefore?Monthly comps had been averaging about 5 percent growth over the same

monthin thepreviousyear.Nowthedailycompnumberswerecominginat2percent,1percent,0,sometimesevennegative.Itwasafrightfultrend.Adding to the pressure was the fact that our stock kept breaking through

recordhighs.Ifwedidn’tmakeournumbersforthemonth,weknew,investorswouldreactdramaticallyandthestockwouldplummet.To make things worse, we knew our profit targets would be hard to meet

anyway, since Starbucks still had high-priced coffee inventories purchasedduring the summer of 1994. Orin expected some of his cost-savingmeasureswould bear fruit, but itwas too early to calculate just howmuch impact theywouldhaveonthebottomline.WithOrin,IcouldbehonestabouthowdejectedIwas.Hefeltthesameway.Whatcouldwedo?Mostof thekeydecisions thatdeterminedoursaleshad

been made six months earlier, when we ordered merchandise, designedpackaging, and bought coffees for our blends. We quickly discovered somemistakes that we couldn’t fix. For Christmas 1995, we had rejected thetraditional red-and-green packaging for playful pastels, and customers didn’ttake to it. We had ordered too many espresso machines and not enoughaffordablegiftitems.Ourplanningwasoff,sothatwehadpreparedfartoomuchinventory of certain coffees, including ourChristmas blend.Wehad packagedour gift coffees in big one-poundbags, as usual, but also offered, for the first

time,tinyquarter-poundsamplesofcoffeeasstockingstuffers.Thesmallbagswereahit,butwehadalreadyprepackagedmostofourcoffeeinthelargerbagsbeforeDecember.Peopleattheroastingplanthadtoworkovertime,franticallyemptying coffee frombig bags and stuffing it into tiny ones. Itwas an addedexpensewecouldillafford.Still, inpreviousyearswehadalwaysbeenable toboostholidaysaleswith

specialpromotionsorotherlast-minutetweaking.SoOrinandIcreatedagameplan.We’dcheckwhichproductsweresellingaheadofplan,whichbehind,andrefineouradvertisingmessageaccordinglyeachweek.ScottBedburyhadbeeneagertotrysomeimage-buildingsloganslikeBrewuntoOthers,butweendedupfocusingonthemorestraightforwardGreatGiftsforunderTwentyDollars.At my suggestion, we even offered free coffee after 5 P.M., to encouragecustomerstostopbyourstoresaftershopping.Inaspendingmood,theymightnoticeandwanttobuysomeofourmerchandise.Early in themonth, it felt as thoughourbusinesshadbecomeahigh-stakes

pokergame.Thechipsweredown,butIwassurewewouldwin,onewayortheother.Butwitheachpassingday,Ifeltlessandlesssanguine.IdecidedtocancelmyfamilyvacationtoHawaii.ThatwashardonSheriandthekids,butIfeltIneededtobeinthebunkerwiththetroops.Everymorning,Ireceivedafaxathomewiththepreviousday’ssalesfigures.

ThenI’drushintotheofficefora7:30A.M.meetingwithOrin.Afterthat,we’dmeet with the retail operations team. I began to dread these meetings. Mystomachwouldbetwitching,butIknewIhadtoappearoptimistic.Thepeoplein our offices and stores were jittery, and I wanted to pump them full ofoptimism.TheworstthingIcoulddo,Ithought,wastostartspreadingthewordthat I was terrified about the holiday season. That would just exacerbate theproblem.Oneofthefundamentalaspectsofleadership,Irealizedmoreandmore,isthe

abilitytoinstillconfidenceinotherswhenyouyourselfarefeelinginsecure.Finally, inmid-December, I came to a conclusion thatwasbothpainful and

liberating.Becauseofthesizeandscaleofthecompany,Inolongeramabletomake the singular difference in solving crucial problems. In the old days,Starbuckswaslikeaspeedboat,nimbleandeasytosteeraroundobstaclesinitspath.Whatevertheissuewas,Icouldgetinvolvedand,withconcentrationandeffort,helpbringaboutasolution.Ifsaleswerelagging,wecouldchangesalestacticswithaday’snotice, respondingquicklyand intuitively. I could turn thesteering wheel one inch or a half-inch, and the entire boat would turn. Theresultswereimmediate.

By1995,Starbuckshadbecomemorelikeanaircraftcarrier.Onceitwassetinagivendirection,itscoursecouldn’teasilybealtered.NomatterhowmuchIjerked thewheelat the lastminute, theshipploughedahead. Ithadgrown toobigforquickhandling.As a large company, we needed to rely more and more on planning and

discipline, rather than on our instincts and last-minute fine-tuning. That’s anabilityweshouldhavedevelopedlongbeforeDecember1995,butunfortunately,ittookamajorproblemtomakeusallunderstandthatweneededtofindmoreaccurate forecasting methods and plan for longer lead times. And I wasbeginningtoacceptwhatmanagementconsultantshaveadvisedmesince:Tobeanenduring,greatcompany,youhavetobuildamechanismforpreventingandsolvingproblemsthatwilllongoutlastanyoneindividualleader.OnceIrealizedthis,Ichangedtactics.Idecidedtocommunicatemyworries

openly,notonlywithmymanagers,butwitheverybody inside thecompany. IcalledabigmeetingofallthepeoplewhoworkedatourofficesinSeattle.Sinceour commons areawasn’t finishedyet,wegathered in a cafeteria on the thirdfloor,everyonestandinginacrowd,withmeatthecenter.The cafeteria was decorated with Christmas trimmings, but there was no

holiday spirit in the room. I was surrounded by long faces and somber eyes.Although most partners didn’t see the daily numbers, rumors had beencirculatingthatwewerenotgoingtohitourtargets.What I did then was uncharacteristic, for I’ve always been known for

deliveringupbeat,rousingtalks.Butonthisday,Iknew,aspeechlikethatwouldhavesimplystuckinmythroat.“PerhapsforthefirsttimeinthetenureofmanyofyouryearsatStarbucks,”I

began,“we’rehavingadisappointingholidayseason.We’renotperformingaswell as we had hoped for. There’s no excuse. It’s no one’s fault. But I’mworried.” I explainedmyconcernsandwhat the ramificationswouldbe ifoursalesandearningsnumbersfellshortofplan.“Success,”Itoldthem,“isnotanentitlement.”Wehadtoearnit,everyday.

JustbecauseStarbuckshadachievedallitsgoalsinthepastdidn’tmeanthatwewere immune to mistakes.We had to be in a mode of constant renewal andrecognize that the future of our companywasnot basedonwhatwe achievedyesterday.Wehadtopersevere,evenwhenournear-termtargetsseemedoutofreach.Forabunchofoverachievers,thatmessagewashardtoswallow.Icouldsee

eyesglancingdownwardandfeetshiftingweight.“Ihopewe’llmakeournumbers,” Iconcluded.“But ifwedon’t,we’restill

the samecompanywewere amonth ago.” I tried toget them to focuson thelong-term issues: what the company stands for, not to allow a disappointingseasontogetinthewayofthegreatenterprisewehadbuilt,andtolearnfromourmistakes.Peoplecameuptomelateron,saying,“I’veworkedforothercompanies,and

I’ve never heard a CEO speak so honestly and emotionally about a difficultsituation.Iappreciatehowdirectlyyouexplainedwhatwe’redealingwith.”ButIalsoheardotherstellmetheywishedIhadn’tbeensostraightforward.

Theyhadviewedmeastheconqueringhero,thestarhitterwhocouldturneventheworstgamearound,and theydidn’t like itwhen I steppedoffmypedestaland admitted I wasn’t invincible. They thought I should have hidden mypersonalvulnerabilitiesandconcerns.Afewfellowmanagerscametomyofficelaterthatday,saying,“Howard,Ireallydon’tthinkyoushouldhavedonethat.What’sthepoint?Whyaddmorefear?”It took a few months before my inner circle came to the same conclusion

aboutthecompanythatIhadreached.Goingthroughadversitylikethattogetherhelped hone the seniormanagement team—fully one-third ofwhom had beenwiththecompanylessthansixmonths.Oneproblemallofusinmanagementhadwasdealingwiththeguilt.Unlike

thecoffee-pricecrisis,thiswasadisasterwefeltwecouldhaveprevented.Wefelt personally responsible, that we had let each other down. The magic hadalwaysstartedwithus,andthiswasthefirsttimewecouldn’tsprinklestardustandwipetheproblemaway.Today, with hindsight, I’m convinced that speaking frankly was the right

course of action. The head of a company can’t, and shouldn’t, always be thecheerleader.Hehas tobewilling to let his people see theweaknesses and thepain, as long as theyunderstand them in the context of the company’sgreateraccomplishments.Whenthechipsaredown,it’swrongtogivearah-rahKnuteRocknespeech.

Peoplewantguidance,notrhetoric.Theyneedtoknowwhattheplanofactionis,andhowitwillbeimplemented.Theywanttobegivenresponsibilitytohelpsolvetheproblemandtheauthoritytoactonit.Alotofmanagersfindithardtoadmittheirfearstothosewhodependontheir

decisions.ButIbelievethatifyoulevelwithyouremployeesinbadtimes,theywilltrustyoumorewhenyousaythingsaregoingwell.IthinkourpeoplecameawayfromtheexperienceofChristmas1995withahigherdegreeoffaithinmeand,moreimportantly,inwhatStarbucksstandsfor.

DON’TLETTHEFUTURESLIPAWAY,SLICEBYSLICE

OtherinsightsstruckmethatChristmas,too.Oneishoweasyitistolosesightofthelongtermwhenshort-termproblemsscreamforattention.Whentimesaretense,it’seasyforpeopleintherankstomakebaddecisionsbecausetheydon’tunderstandthelargerimplications.In the early days, the businesswas easier to understand, and eachmanager

could quickly see what impact his choices would have on the company as awhole.Aswegrew,wehiredmoreexpertswithspecializedfunctions,butmanyof these people—because they came from larger, more risk-averse companiesand because they had observed only a thin slice of the business—had narrowviewpoints.Oneofmymostgnawing fears iswhat I call incrementalization.Whatmay

look right for each specialist’s sliceof thebusinesscouldbeadisaster for thecompanyasawhole.It was eggnog latte that drove the point home to me during that holiday

season. That’s a drink that Dave and I had introduced back at Il Giornale in1986.IthassincebecomeagreatseasonalfavoriteforStarbuckscustomers.In1994,someoneinthefoodandbeveragegroupfoundagreatwaytosave

money and time. Rather than going to all the trouble of opening carton aftercarton of eggnog to make these drinks, went the reasoning, why not use apremixed,eggnog-flavoredsyrup?Itcouldbedispensedbypressingabuttononalever,holdingthecaffèlatteunderneath.Itwassimpleandelegant.Wetestedthe new version of the drink at our Portland stores during the 1994 holidayseason,anditwaswell-received.ButwhenwewenttorollitoutnationallyforChristmas1995,somehowthesyrupdidnot taste thesame,andnoonecaughttheerror.Becauseofthesizeandscaleofthecompany,Iwasneverinformedofthechange.So in the middle of this lousy Christmas season, I was reading customer

commentcards,asIalwaysdo,andIbegantonoticemanyofthemmakingthesame complaint: “Your eggnog tastes bad” and “What happened to the fresheggnog?”Istrode intoa foodandbeveragemeetingandsaid:“What isgoingonwith

the eggnog latte?” The members of the department looked at one anothersheepishly. On paper, the syrup made a lot of sense, and Portland customershadn’t complained during the test. Butwhen eggnog latte sales started fallingsharply, they realized what a blunder it was. Here was an example of the

businessbeingslicedsonarrowthatnoonewaspayingattentiontotheoveralleffect.We learned our lesson. The following Christmas, we brought back the real

dairyversionofeggnoglatte.Agoodchiefexecutivekeepsthebroaderpictureinmindwheneveryoneelse

isfocusingonthedetails.Butmanagementalsoshouldstronglyurgedepartmentheads to consult one another and examine the wider implications of policychanges.Adecision to cut costsor raise efficiencywill addvalueonly if it isconsistentwiththeoveralllong-termgoalsthecompanyistryingtoachieve.

GETTINGABOVETHENOISEINANOVER-RETAILEDNATION

Whatevermistakeswemayhavemadeinternally,themajorreasonforourweakChristmassaleswasexternal.AsDecemberwenton,webegantohearalarmingreports from other retailers. Gymboree, a great company, had negative 19percent growth at comparable stores for the month of December. ComputerCity’scompswereoff8percent.Mervyn’sfell1.4percent.ForallU.S.retailers,same-storesalesforDecemberfell4.1percent,accordingtoTelecheckServices.Bycomparison,ourtroubleslookedminorleague.Weendedthemonthwith

positivesame-storesalesgrowthof1percent.ClearlytheproblemwasbiggerthanStarbucks.The United States has become an over-retailed nation in which too many

stores are chasing too fewcustomerdollars.Consumers simply face toomanychoices in the marketplace to be able to wisely decide how to spend theirdisposableincome.By the time Starbucks entered the national arena in the early 1990s, over-

retailinghadbecomeaseriousproblem.Everyyearwefindithardertogetourmessage out. We don’t have a huge national advertising budget as largecompanies do. People are busier and less inclined to shop around and try outnewplaces.Yet over-retailing creates tremendous opportunity for Starbucks. Unlike

packagedfoodbrands,weareabletoconnectwithpeople,oneatatime,throughourstores.Andbecausewestrivetoconsistentlydeliveraqualityproductandaqualityexperience,whenotherretailersarefallingintomediocrity,westandout.Butsurprisinganddelightingourcustomersgetshardereveryyear.We’veled

ourcustomerstoexpectahighstandardofservice.Likeeverygoodretailer,wecontinually have to differentiate ourselves by offering products or experiences

theycan’tgetelsewhere.Wehavetoworktoprovidemoredepth,morevarietyand richness in store design. Rather than driving down the highway exactlybetweenthedottedlines,wemayhavetobounceofftheguardrailsafewtimes.Customersarealwayslookingforsomethingfreshandinteresting,especially

at Christmastime. That demand necessitates continuous self-renewal andreinvention from retailers acrossAmerica, and for us specifically.We have tokeep on trying to create new categories and new products that will capturecustomers’imaginations.Every retailer dreams of a blockbuster product thatwill fly off the shelves.

That’swhattheBlueNoteBlendCDwasforusinMarch1995,andFrappuccinointhesummersof1995and1996.Butyoucan’texpecttodevelopthatkindofahiteveryfourweeks.That’swhy,eveninthefaceofheart-rendingChristmassalesnumbers,Ikept

pushing our R & D and marketing teams to continue their efforts for newproduct development. We need those farsighted projects to retain customers’interestandloyalty.Even though we could identify obvious external trends that explained our

disappointing sales, it would have been wrong to just sit back and say,“Everybody’shavingabadyear.It’snotourfault.”Wehavetokeeplookingforawaytoriseabovethenoiseinanover-retailednation.

THEBESTCEOSAREBOTHFARSIGHTEDANDNEARSIGHTED

Intheend,wedidn’tfigureitoutthatyear.InearlyJanuary,whenweannouncedour same-store sales numbers, the stock price sank. Later that month, wecalculated thatwehadmissedourprofit-growth targetbyonlyonepercentagepoint, thanks to Orin’s backroom improvements. Starbucks was still veryprofitable,butearningswerenotgrowingasquicklyaswehadpredicted.Still,WallStreetanalystsweremerciless.Afewblamedmeandmyproduct

innovationsfordistracting thecompanyfromitscorebusiness.History,oneofthemsaid,showsthatthebiggestdangerforretailandrestaurantoperatorsisaloss of focus. “When this occurs, any brand equity the company has built upbeginstodilute,”hesaid.“Wewouldprefertoseemoreattentionpaidtostore-levelexecution.”Thatburnedmeup.It’spreciselythisshort-termorientationthatannoysmany

CEOsaboutWallStreet.Acompanywhosemanagementisnotplanningforthedistantfuturecannevergrowbeyondthelatestfaddishconcept.

Even insideStarbucksduring thosemonths,somepeoplegroused that Iwasputting too much pressure on them, demanding work on longer-term projectswhen our core businesses needed urgent repair. I heard resentment in somevoices.While they were mopping up the post-Christmas mess, I was playingwith my new toys: ice cream, bottled Frappuccino, a big new contract withUnitedAirlines.Wasmyeyeofftheball?No.Myeyeswerefocusedonthelong-termfuture.Iwaslookingaroundthe

corner,toseewhatwouldhitusnext.Procter&Gamblehadjustboughtoneofthelargestsuppliersofwhole-beancoffeetothesupermarkets,MillstoneCoffeeofEverett,Washington.Werethemajorscomingafterus?Shouldwereconsiderourearlydecisionnot tosellourcoffee insupermarkets?Whatproductscouldwecreatethatwouldbeproprietary,thatwouldgiveusanunassailablenicheinan ever-more competitivemarketplace?How couldwe leverage the Starbucksbrand,keepingitseleganceandstylebutreachingmorecustomers?Weneededto pursue a long-term vision of building the Starbucks brand by creating newproducts. To be ready by the year 2000, we had to start experimentingimmediately.With improvements in manufacturing, retail operations, and planning,

Starbucks also got better at handling the short-term future. During Christmas1996weavoidedmanyoftheproblemsthatbesetusinthepreviousyear.Onceagain,theoverallretailclimatewasweak,andweatherwasbad,especiallyinthePacificNorthwest.Oursame-storesalesgrowth,at2percent,wasnotasgoodaswewould have liked. But our cost containment efforts hadworkedwell, andearnings came in right atWall Street’s consensus estimate. As managers, weknewwhattoexpect,andthestockmarketdidnotoverreact.Wedideverythingwecouldtoensurestrongsalesduringtheholidayseason

in1996.Wedidourhomework.Weexecutedaccording toawell-craftedplan,and,withfarmoreaccurateforecasts,packagedalmostexactlytherightamountofcoffeetomeetdemand.What’smore,Iwasmoresanguineandcouldputitincontext.Ididn’texpectalast-minuteChristmasmiracle,andIcouldfocusontheoutlook for the new year.With a new vice president formerchandising, PeterGibbons,hired fromDisney, anda larger staff inDonValencia’s labs,wehadnewproductsinthepipelineforsummer.Thatsecondyear,wewereallcalmer.Irealizeditwouldn’tbetheendofthe

world ifweweren’t able to knock the cover off the ball forChristmas.Why?Becauseweallknewthevaluethatwewerecreating,overthelongterm,forthebrand and for the company. Christmas sales do not determine the fate of

Starbucks.WallStreet,too,understood,andthestockbegantoriseinJanuary,reflecting

thepositiveoutlookfor1997.Like the captain of that aircraft carrier, I set my eyes on the horizon and

steamedahead.ThistimeIdidn’tevenmisstheoldspeedboat.

CHAPTER24LeadwithYourHeart

Leadershipisdiscoveringthecompany’sdestinyandhavingthecouragetofollowit....Companiesthatendurehaveanoblepurpose.

—JOEJAWORSKI,ORGANIZATIONALLEARNINGCENTER,MIT

AVISIONFORTHELONGTERM

Onthebookshelfinmyoffice,Ihaveasmallcrystalball.Itwasgiventomebythe local chapter of the Young Presidents Organization, as a symbol of theirMerlinaward.According to legend,Merlin was born in the future and lived backward in

time, moving toward the past. He must have often felt out of step with hiscontemporaries,filledashewaswithunconventionalnotionsofwhatmightbe.I’mnosage,butsometimesIthinkIknowhowhemusthavefelt.Myvisionforthefuture,myaspirationsofwhatkindofcompanyStarbucksshouldbe,aresoeasilymisunderstoodbypeoplebothinsideandoutsidethecompany.A Santa Fe, New Mexico, management consultant, Charles E. Smith, has

comparedvisionaryexecutivestothefamouswizard.“Exceptionalleaders,”hewrotein1991,“cultivatetheMerlin-likehabitofactinginthepresentmomentas

ambassadorsofaradicallydifferentfuture,inordertoimbuetheirorganizationswithabreakthroughvisionofwhatitispossibletoachieve.”Backintheearly1980s,andevenmoresotoday,Ihadaprettyclearideaof

whatStarbuckscouldbecome.Iknewthe lookIwanted, thefeeling thestoreswouldconvey,thepaceofgrowth,andtheconnectionwithourpeople.Today,whenIlookahead,Iseeafutureextendingfarlongerthanthetwenty-

fiveyearsStarbuckshas livedsofar. Inannualstrategicplanningsessions,ourseniormanagement team has been refining that vision tomake sure it is bothaudacious and achievable. We’ve been clarifying our values and trying toarticulate our long-term goals. Even though many of our executives arerelativelynew,I’mamazedathowsimilarourbeliefsandgoalsare.The company we envision is a great, enduring one, still zealous about its

missionofbringinggreatcoffeetoeveryoneeverywhere.Itsstoreswillprovidea rewarding experience and enrich people’s lives in communities around theworld,onecupatatime.Butwewantourboldnessanddefianceofconventionalwisdom to take it in newdirections, too, leveraging the strength of the brand,inventingnewproductsthatsurpriseanddelight,sellingthroughmanychannelsofdistribution,possiblymovingbeyondcoffeetootheritemsthattouchpeople’sdailylives.Theopportunitiesareexciting.Inmostcountries,averageadultconsumption

ofcoffee is twocupsaday,yet thequalityof thatcoffee is, for themostpart,prettybad.StarbucksiswellonitswaytodoublingthenumberofitsstoresinNorthAmericaby theyear2000, and I’mconvinced thatwecould eventuallyhavemore stores in Asia than we will have in North America.Within a fewyears,weexpectourjointventurewithPepsi,bysellingbottledFrappuccinoandother products, to produce revenues in excess of $1 billion, a sum larger thanStarbucks’totalannualsalestoday.Butourplansgofarbeyondthenumbers.Theunderlyingfoundationof this

companyisnotaboutgrowth.It isabout thepassionate,soulfulconnectionwehavewithourpeople,ourcustomers,andourshareholders.NomatternowmanyavenuesStarbuckspursues,andnomatterhowmuchwe

grow,ourfundamentalcorevaluesandpurposewon’tchange.IwantStarbuckstobeadmirednotonlyforwhatwehaveachievedbutforhowweachievedit.Ibelieve we can defy conventional wisdom by maintaining our passion, style,entrepreneurial drive, and personal connection even as we become a globalcompany.It’simperativethatStarbuckspeopleatalllevelsshareinthesuccessof the company, in terms of both pride and financial rewards. And if by ourconduct and principles we could inspire individuals and leaders of other

companiestoaimhigher,thatwouldbecauseforrejoicing.I’mconvinced,morethanever,thatwecanbothdowellanddogood.Wecan

beextremelyprofitableandcompetitive,withahighlyregardedbrand,andalsoberespectedfortreatingourpeoplewell.Intheend,it’snotonlypossibletodoboth,butyoucan’treallydoonewithouttheother.Wehavetoleadwithourhearts.Inbusiness,asinlife,weeachshouldhave

an internal compass that guides our decisions, an instinctive understanding ofwhatmattersmostinthisworld.Forme,it’snotprofits,orsales,ornumberofstores, but the passion, commitment, and enthusiasm of a dedicated group ofpeople.It’snotaboutmoney,it’saboutpursuingadreamothersthinkyoucan’tachieve and finding a way to give something back, to the employees, to thecustomers,tothecommunity.IwouldhopethatifyouexamineStarbucks,everytimeyoufocusonanypartoftheimage,insteadofafracturingofvaluesyougetaclose-upof theguidingprinciplesof thecompany.Asyoulookdeeper,whatyouseeishonestandauthenticandrespectfulanddignified.IntheirbookBuilttoLast,authorsJamesCollinsandJerryPorrastalkof“Big

Hairy Audacious Goals.” For Starbucks, our ambitious long-term goal is tobecome an enduring great company with the most recognized and respectedbrandintheworld,knownforinspiringandnurturingthehumanspirit.TheStarbucksoftodayfallsshortofthesehighaspirations.Wemakealotof

mistakes.Nocompanycaneverbeautopia.But ifyoudon’taimhigh, ifyouaimforonly“goodenough”or“aboveaverage,”that’spreciselywhatyou’llget.Ifyoureachforexcellence,you’llinspireyourteamtoworkforahighergoal.Whenyouencounterdifficultiesandshortcomings,youshoulddealwiththemina way that is forthright and consistent with doing better in the future. Yourpeoplewillbemore forgiving if theyunderstand thecommonmissionyouareworkingtogethertoachieve.TheproblemsthatStarbuckshasfacedinrecentyears—theflakwe’vegotten

about our ubiquity, volatile coffee prices, disappointing Christmas sales,complaintsandprotests—haven’tblindedustothelargerpicture,thelong-termvalue we’ve created. No enterprise can be built, no dream achieved, withoutconfronting challenges, surprises, disappointments along the way. The moreheartfeltourcommitment,themorethesesetbackswillhurt,butthemorewe’llbecapableofdevisingsolutionsthatreflectourvalues.Starbucks still fightshard to succeed, andwewill facemanyhurdles in the

future,somefarmoreseriousthananywe’veovercometodate.Wecan’tkeepincreasingourrevenuesandearningsatarateof50percentayearindefinitely.All great companies have passed through bad years that forced soul-searching

and rethinking of priorities.Howwe dealwith themwill be the litmus test. Ihopeweinmanagementhavelearnedenoughfromoursmalltroublestomanagethroughthebiggeronestocome.IsuspectthatmanyoftheextraordinaryideasthatwillshapeStarbucks’future

will percolate up from within. By emphasizing a strong commitment toreinvention and self-renewal, bykeeping the entrepreneurial spirit alive,we’redoingallwecantofosteranatmospherethatencouragesinnovation.

KEEPLISTENINGFORTHEMUSIC

The music of the Beatles resonates with me, as with many members of mygeneration,because it remindsmeofpeopleandplacesand timeswhen Iwasgrowingup.SoIwaseager towatch theBeatlesanthologyspecialonTVandhear theBeatles themselves talkabout thehistoryof theband. Inan interviewduringoneoftheprograms,PaulMcCartneysaidsomethingthatreallyhithomewithme.Itwasafter theyhaddrawnacrowdof“only”50,000atSheaStadium,and

theyweregettingfedupwithtouring.TheirfinaltourendedatCandlestickParkinSanFranciscoonAugust29,1966.On the TV program, Paul, George, and Ringo were sitting around a table,

recalling thereasons theyhaddecided toquit touring.“Weweregettingworseandworseasabandwhileallthosepeoplewerescreaming,”Paulsaid.“Itwaslovelythattheylikedus,butwecouldn’theartoplay.”Thatonequotestruckmeasprofoundlyrelevant.Theycouldnolongerhear

themusic.Whenthathappened,theylosttheirmeaning.Theyhadtogobacktothestudiotofindtheirsoundagain.At Starbucks—as in any business, in any life—there are so many hectic

momentsduringthedaywhenwearesimplytryingtodothejob,tryingtoputout thefires, trying tosolveanynumberofsmallproblems, thatweoften losesightofwhatitiswe’rereallyheretodo.I would be devastated if, twenty years from now, Starbucks achieved the

penetration, thepresence,andtherecognitionweaimforat theexpenseofourcorevalues.Ifweloseoursensitivityandourresponsibility,ifwestartthinkingit’sacceptabletoleavepeoplebehindonourclimbtothetop,Iwillfeelwe’vesomehowfailed.Nomatterhowmuchclamorsurroundsus,wehavetomakesurewecanstill

hear themusic.Asoneofmy favoriteauthors,NoahbenShea,wrote inJacobthe Baker, “It is the silence in between the notes that makes the music.”

Sometimeswehavetostopandlistenforit.SomenewerpartnersatStarbuckshearus talkabout thenumbersanddon’t

yet appreciate the foundation of values and principles that mean so much tothoseofuswhobuiltthecompany.Forthemandforourcustomers,weneedtomakeithumanandpersonal.Weneedtospeakwithourownvoiceandshowourpersonality,soothersdon’tmisjudgeusbasedonlackofknowledge.We need to make Starbucks into a global enterprise while maintaining the

culture,theheart,andthesoulofasmallcompanyinSeattle,Washington.

WHAT’SHOPEGOTTODOWITHIT?

Mykindofunfetteredidealismis,Irealize,outofsyncwiththecynicismofthe1990s.Skepticismhascometobesynonymouswithsophistication,andglibnessis mistaken for intelligence. The pundits regard idealists as either naive orcalculating.Andevenifsomeoneisdoingright90percentofthetime,thecriticswillinevitablyfocusontheother10percent.Ifacompanysetshighstandards,it’seasiertojudgeitaswanting.Insuchanatmosphere,whybotheraiminghigh?Fartoomanypeopledon’t.SomediocrityisfartoocommoninAmericaand

throughout the world. As we approach the end of the millennium, we findourselvesconfrontinganeverdeepeningfracturingofvalues.Overthelastfewyears,asmytwochildrenhavebeengrowingup,I’vetried

toguide themandmakesure theymature into responsibleandcaringadults. IwanttopassontothemthevaluesthatI’vefoundmeaningfulinmylife.OnenightwerentedthemovieForrestGumpandwatcheditasafamily.My

kids loved it, and foraweek theykeptquoting the line,“Life is likeaboxofchocolates.” I began to think about why that film, which wasn't especiallyprofound, produced such a powerful, emotional effect on somany people. Itsherowasamanwho,thoughobviouslyslow,provedtohavemoreinsightthananyone else because he hadn't let the world's negative values muddle hisunderstandingofwhatreallymattersaboutlife.Afewweekslater,ItookmysontoseeHoopDreams.Thatfilmhadasimilar

effect on him, for he shares my love for basketball. Here was a lengthydocumentary set in the inner city, center of despair, yet its subjects wererelentlesslyshootinghoopsinanefforttobeattheodds.Whatstruckmeaboutbothmovieswas that they inspiredstrongfeelingsof

hope.We'reallsohungryforahero,forastorythatringstrue,thateveryonecanrelate to. We're all eager for something upbeat, something honest, something

authentic.That heartfelt need again became apparent a few weeks later, when Cal

Ripkenbroke theall-timerecord fornumberofbaseballgamesplayed.Asmyson and I watched Ripken deliver his speech on television, my eyes misted.Standingnearhim, inhis shadow,wasa teary-eyedJoeDiMaggio,heroofallheroesforthelastfiftyyears,aguywhohadactuallyplayedwithLouGehrig.ThenCalRipken says, "I can't even saymy name in the same breath as LouGehrig."You could seeRipken'smother and father and hiswife and his kids,ordinarypeople,caughtinaninspiringmoment.Why were so many fans so invested in Cal Ripken's success? It was not

simplyaboutcheeringhimonforbreakingtherecord,butagenuineresponsetohishumbleness.Dayinanddayout,ashesaid,allhe'sdoneishisjob,buthe'sdone it selflesslyandbetter thananyoneelse. Inanerawhenhalf a seasonofbaseballcanbecanceledbecauseofastrikeovermoney,ourheartsgoouttoaplayerwhojustgetsoutandplaysball,againandagain,andendsupbreakinganall-timerecord.Intheethicalvacuumofthisera,peoplelongtobeinspired.Evenifit'sjusta

movie,oraTVprogram,oragreatcupofcoffee, theywantabreak from thenegativenoise that inundatesusall.Whenyoustep intoa theaterorpickupagoodnovel,youjustneedsometimeout.WhenfivemillionpeopleaweekseekoutaStarbucksstoreandwaitinline

foranespressodrink,whencustomers return several timeseachweek, they’renot just coming for the coffee. They’re coming for the feeling they getwhenthey’rethere.Andthatfeelingisdirectlyrelatedtothefactthatwerefusetodothingsthewayothersdo.Wewon’tgiveuphopethatthere’sabetterway.

WHENYOUGETTOTHEFINISHLINE,BESURROUNDEDBYWINNERS

As a kid in Brooklyn, I was afraid to look into the crystal ball. After half alifetime, I have come to realize thatwe all have it in our power to shape theimageweseeinthatball.Ifweenvisionit,planit,aresmartaboutactingonit,we canwill amazing feats to happen. Butwe need tomake sure it’s a visionworthbringingtolife.Ifithasanoblepurpose,therewardsarefargreater.Success should not bemeasured in dollars: It’s about how you conduct the

journey,andhowbigyourheartisattheendofit.Business can teachus a lot aboutwhat people can achievewhen theywork

together. One person can do only so much. But if he gathers a company of

peoplearoundhimwhoarecommittedtothesamegoals,ifhegalvanizesthemand inspires them and taps into their inner drive, they can perform miraclestogether.It takes courage. A lot of people will try to tell you it’s impractical or

impossible.They’lltellyoutoloweryoursights.They’lltellyoubusinesscan’tbebenevolent.Remember: You’ll be left with an empty feeling if you hit the finish line

alone.Whenyourunaraceasateam,though,you’lldiscoverthatmuchoftherewardcomesfromhittingthetapetogether.Youwanttobesurroundednotjustbycheeringonlookersbutbyacrowdofwinners,celebratingasone.Victoryismuchmoremeaningfulwhenitcomesnot justfromtheeffortsof

one person, but from the joint achievements ofmany. The euphoria is lastingwhenallparticipantsleadwiththeirhearts,winningnotjustforthemselvesbutforoneanother.Successissweetestwhenit’sshared.

Index

Thepaginationofthiselectroniceditiondoesnotmatchtheeditionfromwhichitwascreated.Tolocateaspecificpassage,pleaseusethesearchfeatureofyoure-bookreader.

Adams,Marcia,194AEIMusicNetwork,210Africa,295,296AIDSprograms,256AimingHigher(Bollier),292airlines:

Horizon,269United,267–71,272,273,274

airports,173–74Alex.Brown&Sons,184

AllianceforEnvironmentalInnovation,304

Ames-Karreman,Jennifer,88,289–90

AppropriateTechnologyInternational,299

ARCConsulting,286AudubonSociety,300

Baker,Bernie,307Baldwin,Gerald(Jerry),27–30,32–35,38–44,47,63

espressodrinksand,58,60–62Peet’sacquisitionand,55–57,58Schultz’scoffeebarenterprisesupportedby,66,67Starbucks’expansionand,116Starbuckssoldby,90–95,99

baristas:atIlGiornale,87inItaly,50,53,59,62atStarbucks,5–6,59,173,194,246,249,250–51,262,282,286–87

Barnes,Brenda,224Bass,Barbara,152BayviewProjects,4,12–13,15,16,18–19Bean,Curt,193BeanStock,132,133–37Beatles,334Bedbury,Scott,261–64,284,320beer,169,226Behar,Howard, 113, 154–60, 166, 175, 194, 196, 203–4, 207, 211, 226, 227,244,250,278,282

nonfatmilkissueand,166–69Benaroya,Jack,78–79,144Bennis,Warren,202benShea,Noah,334–35bigbusiness,276,277BigDigproject,264BlendingtheBlues,214Blomquist,Peter,294–95,296,300BlueNoteBlend,210–13,327BlueNoteRecords,210,211,212,213BlueNoteII,213Bollier,David,292Boston,192Bowker,Gordon,27–35,40–42,63

IlGiornaleand,66–67,68Starbuckssoldby,90–95,99

Brazil,frostsin,232,235Breck,Peter,184brevebars,316Brother’sGourmetCoffee,192Brotman,Jeff,148–49,150,154BuilttoLast(CollinsandPorras),140,164,332Burma,300BusinessWeek,209

CaféAllegro,81–82,84caffèlatte,53,59,84,167,167

eggnog,324–25flavoredsyrupin,164,165,169,170nonfatmilkin,166–69

California,115–17Camardese,Mike,20Campion,Dina,206,207,209CapitalResourceCorp.,76,77CapitolRecords,211,212,213cappuccino,167

nonfatmilkin,166–69CARE,255,294–97,298,300Casey,Michael,284Chicago,111–14,115,143,149,150,243,254Christmas,188,318–27,328–29Clinton,Bill,129–30,292Coca-Cola,221coffee,249–50

arabica,30,34,35,249aromaof,252artificiallyflavored,164,165,170,252BlueNoteblend,213cannedsupermarket,32,34–35,235,246,247consumptionof,76,279,331dark-roasted,27,30,34–35,84extractof,216–20,222,226freshnessof,117–18,249

asgrowthindustry,76,150Guatemalan,294,296–99pricesof,197,232–42,263,296,297robusta,30,34ruiningof,249specialty,asindustry,76–77,114–15,145–46,165,191–92,279Starbucks’ quality control and, 36, 171–75, 238–39, 242, 250, 259, 262,268–69,273Starbucks’stampsfortypesof,308–9waterand,249–50,269whole-beansupermarket,165

CoffeeConnection,The,192–93,208coffeecups,87,253,301,302,303–4coffeedrinks,seecoldbottled

coffeedrinks;espressodrinks;icyblendeddrinks

CoffeeMatters,256,296coffeeshopsandespressobars,76,77,120,121,191–92,278–79

competingwithStarbucks,165,167,172,191–92,259,278,279,280,311inItaly,50–53,55,58,59,62,63,67,68

coffeeworkers,workingconditionsof,296–99

coldbottledcoffeedrinks,221–24Frappuccino,224–25,228,258,275,331Mazagran,224

Coleridge,SamuelTaylor,243Collins,JamesC.,140,164,332ComputerCity,326Conlon,Jerome,264CostcoWholesale,148,150Craig,Bruce,194Cronk,Rick,227cups,87,253,301,302,303–4customers,35–36,48,157–58,250–51,277

coffeepriceincreasesand,237,238,239,242lettersfrom,251mail-order,115,190,191,195,196–97,257requestsandcommentsfrom,157–58,164–71,206,207,211,251researchonneedsof,264

rewardsystemfor,256andStarbucksbrandreputation,228–29,243–66,273,277

Daubenspeck,Jani,137Day,Christine,89,103–4,112,288–89,310DiMaggio,Joe,336DiPeitro,David,184DoernbecherChildren’sHospital,256Donovan,Steve,40–42doppiomacchiato,100doppios,316DoubleBlackStout,226Dreyer’sGrandIceCream,226–27Drucker,Peter,54

Eades,Vincent,268,269,271,272,273,284Eastin,Carol,145eggnoglatte,324–25Einstein,Albert,24Elliott,Sharon,283–85employees,seeStarbucksemployeesEnvironmentalDefenseFund,304environmentalissues,301–4espressobars,seecoffeeshopsandespressobarsespressodrinks:

asaffordableluxury,119caffèlatte,seecaffèlattedoppiomacchiato,100flavoredsyrupsin,164,165,169,170nonfatmilkin,166–69

seealsocoldbottledcoffeedrinks;icyblendeddrinksEssad,Georgette,231Ewing,Anne,207,209

Faema,67–68Farber,Bill,16Fields,Stuart,194Fisher,Robert,184Flamholtz,Eric,161,201–2

FlavorLockbags,117–18Foley,Craig,149–50,151,183ForrestGump,335–36Fortune,191,241Frappuccino,196,205–9,224,244,265,266,327

bottled,224–25,228,258,275,331

Garcia,Ted,240,268–69,284Garofalo,Janeane,275Gates,Bill,Sr.,92,93GeorgiaCoffee,221,222Gersh,Gary,212,213Gibbons,Peter,329GloriaJean’s,192,248Goethe,JohannWolfgangvon,110Goldberg,Dave,211Goodby,Silverstein&Partners,263–64,265–66Gorlick,Harold,75,79Gose,Myra,309granitas,206GreatGoodPlace,The

(Oldenburg),120Green,Benny,213Greenburg,Scott,62–63,68–69,70,92,99,100GreenSweeps,302GreenTeam,302Grossman,Linda,25,26,27Grove,Andy,201,216GrowingPains(Flamholtz),202Guatemala,294,296–99,300Gymboree,325–26

HäagenDazs,227–28Haas,RobertD.,179Hammarplast,22–23,25Harmon,Jim,183Hauck,DeborahTipp,60,101,289healthcarebenefits,125–30,283,285Heckler,Terry,32–33,107,259,308,309

Hendrix,Buck,195Henkoff,Ronald,241Herndon,Wanda,284,285–86Hewitt,Hap,88Honeycutt,Bradley,133,134HoopDreams,336HorizonAirlines,269HornellAnderson,309Hornstein,HarveyA.,205HostMarriott,173–74HotJava/CoolJazz,213–14Howell,George,192–93

icecream,169,226–28,258–59,265icyblendeddrinks,169,206

Frappuccino,196,205–9,224,244,265,266,327“If”(Kipling),318IlGiornale,80–95,112

Chicagomarketand,111,112financingof,67–79,71,91firststoreof,74,86–87,99–100,124formationof,65–79Italianstylingof,68,87,307logoof,88,108nameof,67,106–7Olsenand,72,74,81–87,88,89,90,154Schultz’sleavingofStarbuckstoform,63–64secondandthirdstoresof,89–90Starbucksacquiredby,90–95Starbucks’investmentin,66,67Starbucksmergedwith,104–5,106–8,307–8valuesof,80–81,85–86

Italy,49–53,55,62,63IlGiornaleand,67–68Milan,49–53,58,59,67,68Verona,52–53,59,68

JacobtheBaker(benShea),334–35Japan,243–44

Jaworski,Joe,330Jones,Timothy,210,211,212,213,252

Kanter,RosabethMoss,215Kavanagh(Longfellow),65Keller,Helen,267Kennedy,JohnF.,123Kennedy,RobertF.,38KennyG,64,75,191,212,255,296Kenya,295,296Kern,Tim,213,222Kerrigan,Jim,128–29Kipling,Rudyard,318Knight,Phil,248,262

landlords,279–80Lanza,Shelley,284Lawrence,Ron,91,103,104–5,141Lawrence,T.E.,99Lear,Norman,292Levi-Strauss,298,299Levitan,Dan,181,182–83,184LittlePrince,The

(Saint-Exupéry),11logos:

IlGiornale,88,108Starbucks,33,108,309

Longfellow,HenryWadsworth,65LosAngeles,116Lowell,JamesRussell,230Lundvall,Bruce,212,213

McCartney,Paul,334McCurdy,Brooke,311McDonald’s,304,306,310McMartin,Scott,213mail-ordercatalogue,115,190,191,195,196–97,257Maltz,Lawrence,105,154

ManagerialCourage(Hornstein),205

Mangelsdorf,Mark,224Manhattan,192,213,243,312Margolis,Carol,69,70Margolis,Ron,69–71Massey,Wright,312–13,314,315,316Mazagran,224Mecklenburg,Sue,303,304Merlin,330–31Mervyn’s,326Milan,49–53,58,59,67,68milk,nonfat,166–69MillstoneCoffee,328

MissionStatementandMissionReviewsystem,94,131–32,139,180,256,283,285,290

Mizrahi,Yves,144,192Moix,Laura,183Monk,Thelonius,Jr.,213Moore,Dan,206,208,209Moore,Daryl,108–9Morogiello,Frank,20Morris,Kathleen,311Morris,Roly,194Mt.HoodGroup,131music,210–14,252

Newsweek,280NewYork,192,213,243,312NewYorkTimes,19,306Nike,77,248,260,261–63,264Niven,Gay,60,101,289Nordstrom,258

NorthAmericanCoffeePartnership,222

NorthernMichiganUniversity,17–18

Oldenburg,Ray,120Olsen,Dave,81,137,160,170,175,213,249,250,278

CaféAllegrorunby,81–82,84,103CAREand,294,295,296,298coffeeextractand,218coffeepricesand,231,233–34,236,238coffeeworkersand,298–99atIlGiornale,72,74,81–87,88,89,90,154IlGiornale-Starbucksmergerand,103,104nonfatmilkissueand,166,167

OpenDoor,The(Keller),267OpenForums,158–59,283

passports,256Peet,Alfred,29–30,33,34,35,55,117Peet’sCoffeeandTea,29,30,33–34,84,192

Starbucks’acquisitionof,55–57,58Starbucks’expansionand,116Starbucks’saleand,90–95

Pepsi-Cola,196,208,221–25,300,331Peters,Tom,190PewCharitableTrusts,304Pinaud,Dawn,82,88Poer,Vivian,296Porras,JerryI.,140,164,332posters,253Prentice,Arnie,71–72,75,79,151PriceClub,148Procter&Gamble,328Purcell,Ken,150PursuitofWOW!,The(Peters),190

RedhookAleBrewery,226Reed,Barbara,251restaurants,272

Reynolds,George,221Rickey,Branch,54,55Ripken,Cal,336Ritt,Steve,147Roberts,Harry,211,212,226Rodgers,Jack,76,77-78,79,112,154,172Rogers,Greg,207,209Roosevelt,Theodore,153Rothko,Mark,306Rubinfeld,Arthur,117,144-45,192,311,312,315

Saint-Exupéry,Antoinede,11SanFrancisco,116-17Sarkowsky,Herman,78-79Sarkowsky,Steve,78,79,93SBC,192ScenicAmerica,280SchroderWertheim,184Schultz,Elaine“Bobbie”

(Howard’smother),3,13,15-17,18,39,45-46,63,123,130Schultz,Fred(Howardsfather),3-4,7,8,13,14,15,16-17,63,124,125,130,138

illnessanddeathof,45-46,123-25Schultz,Howard:

childhoodof,3-4,12-20,73atcollege,17-18,20firstcoffee-barenterpriseof,seeIIGiornaleatHammarplast,22-23,25sportsplayedby,13-14,16-17Starbucksacquiredby,90-95,99-100,111,112,143,144Starbucksjoinedby,4,38-48Starbucksleftby,63-64atXerox,21

Schultz,Michael(Howard’sbrother),3,13,18,19,45Schultz,Ronnie(Howard’ssister),13Schultz,SheriKersch (Howard’swife), 22,23,38,40,42,44-47,53,63,69,147,198-99,230-31,232-33,320

careerof,22,23,40,45Schumacher,E.F,275Seymour,Dave,101,282

Shattuck,Mayo,184Shaughnessy,Martin,136-37Shaw,GeorgeBernard,38Shennan,Jamie,150-51,183,245Siegl,Zev,29,31,32,33Simon,Ralph,213Sinegal,Jim,148smallbusinesses,276-77SmallIsBeautiful:EconomicsasifPeopleMattered(Schumacher),275Smith,CharlesE.,330–31Smith,Orin,135,154–56,160–63,175,183,282,327

backgroundof,154Christmasof1995and,319,320,321coffeepricesand,231–32,233,237,239–40,241madeStarbuckspresident,196,203–4,230profitimprovementplanof,239–40

Solo,89StaffordAward,280StarbucksCoffeeCompany(originalcompany),25–37

coffeedrinksand,33,52,55,58–62expansionof,39,40–41,43foundingof,11,17,29,31–35IlGiornalemergedwith,104–5,106–8,307–8asinvestorinIlGiornale,66,67,71logoof,33,108nameof,32–33,106–7Peet’sCoffeeandTeaboughtby,55–57,58roastingplantof,27,144Schultz’sbuyingof,90–95,99–100,111,112,143,144Schultz’sjoiningof,4,38–48Schultz’sleavingof,63–64sellingof,90–95

StarbucksCorporation:advertisingby,245–46,247,250,262–66,270,275annualreportsof,256–57birthof,100–109brandreputationof,228–29,243–66,273,277causessupportedby,255–56,281,292–93,294–97,300communityawarenessof,254–56,259,281,292–93

competitorsand,165,167,172,191–92,259,278,279,280,311criticismsof,277–81,293–94,300,306,311,333designpersonalityof,306–17employeesof,seeStarbucksemployeesfinancingof,5,149–51,154,172,186franchisingeschewedby,145,165,172–73futureof,330–33,334growthandsuccessof,5,19,54,57,68,104,105,113–19,122,138,142–45, 154–56, 172, 190–204, 219, 244, 247, 257, 275–77, 279–82, 286–88,295,300,306–7,311,312,332identitycrisisin,259–60logoof,108,309MissionStatementandMissionReviewsystemof,94,131–32,139,180,256,283,285,290moneylostby,140–43,146,148–49,295nameof,106–7newmarkets enteredby, 111–14, 115–17, 190–92, 243–44, 254–55, 279–80,312officesof,144,195–96,259originsof,seeIlGiornale;StarbucksCoffeeCompanypartnershipsof,173–74,196,208,221–25,258,267–71,272–74,300,331profitimprovementplanat,239–40publicstockofferingsof,105,143,162,180–89,190,219qualitycontrolof,36,171–75,238–39,242,250,259,262,268–69,273researchanddevelopmentfacilitiesof,219–20roastingfacilitiesof,144,195,197self-renewalmovesin,215–16sizeandubiquityof,259,263,265,275–77,282,321,325stockpricesof,185,186,187,188,189,235,319,327,329storesof,seeStarbucksstoresvaluesandguidingprinciplesof,5,6,8,83,102,105–6,157,158,160,165–66,173,175,179–84,197,200–201,276–78,292–94,300–301,331,332,335

Starbucks employees (partners), 5–6, 100–103, 108–9, 138, 157–60, 193–94,245,282–91

baristas,5–6,59,173,194,246,249,250–51,262,282,286–87benefitsfor,125–30,283,285commentcardsfor,132directcommunicationamong,285

diversityin,284–85OpenForumsand,158–59,283inoriginalcompany,56–57part-time,126,127–28seniormanagers,283–84stockoptionplanfor,132,133–37,172,283surveysof,286trainingof,194,250–51

StarbucksFoundation,7,300StarbucksInternational,196,204Starbucksstores,251–54

brevebars,316brochuresin,256,294designandconstructionof,108,145,252,253,278,306–17doppios,316GrandCafés,311–12GrandOpeningeventsat,255merchandisein,253–54,255,296,318–20,325–27asoasis,119romanceof,119siteselectionfor,144–45socialinteractionat,119–22asThirdPlace,5,120–22,252,265,281,294,311–12

Stroum,Sam,78–79supermarkets,coffeesoldin,32,34–35,165,235,246,247

Starbucksand,258,316,328Sweete,Brian,224

TableTalk(Coleridge),243Tisdel,Jennifer,211,254–55Tokyo,244

UnitedAirlines,267–71,272,273,274

Valencia,Don,216–20,222,226–27,229,296,329Vancouver,89–90

Aquariumin,300Verona,52–53,59,68

Wager,Deidra,160,194WallStreetJournal,188Wal-Mart,280,306Walters,Tom,101Washington,D.C.,190–91,192water,249–50,269Watson,ThomasJ.,Jr.,164Weatherup,Craig,221,224WertheimSchroder&Co.,184Williams,Mary,213,238,249Winfrey,Oprah,265Wollner,Howard,195

Xerox,21

YoungPresidentsOrganization,330

ZionPreparatoryAcademy,281

ACKNOWLEDGMENTS

Collaborating on a book about something as personal as a life story and theinternal struggles involved in building a company requires a high degree ofmutual respectand trust.DoriJonesYangandIwerefortunate todevelop thatearlyinthewritingprocess,whichprovedtohavelowerlowsandhigherhighsthan we could have anticipated. What kept us centered during the two-yearexperience was a strong, shared belief that others could benefit from, andperhapsbeinspiredby,thestoriesandinsightsbehindStarbucks’success.DoriandIbothwouldliketothanktheseventyindividuals,insideandoutside

Starbucks,who agreed to be interviewed during the research for this book, aswell as the fifty people who read and commented upon early drafts of themanuscript.Withouttheirmemories,stories,insights,andsuggestions,thisbookcouldnothavebeennearlyaslivelyorcomplete.Inmyoffice,GeorgetteEssad,NancyKent,andChristinaPratherhelpedusininnumerablewayswiththisbookoverthecourseoftwoyears.AlthoughmanyStarbuckspartnersarenamedinthisbook,manyotherswho

arenotnamedherehavemadeinvaluablecontributionstothecompanyandhaveshownbyexamplewhatitmeansto“pouryourheartintoit.”Mythankstothemfortheireffortsandfortheircommitment.WearealsoprofoundlygratefultoJoelFishmanofBedfordBookWorks,our

literaryagent,whosprinkledstardustonthisprojectandtransformeditforever.Andwe’dliketoexpressourappreciationtoRickKot,oureditoratHyperion,whoembodiesthebalancedescribedinthisbook:meticulousandprofessionalasaneditor,sensitiveandthoughtfulinhumanrelations.Mostimportant,IwouldliketoexpressmydeepestappreciationtoSheri,for

being there every step of the way and for showingme the way to create theperfectbalanceinlifebetweenworkandfamily.

Andfromtheco-author,DoriJonesYang:

In addition to the above, I would like to extendmy personal thanks tomyparents, William B. Jones and Margaretta H. Jones, who nurtured a love ofwritinginmeatanearlyage;BruceNussbaum,myvaluedandtrustedmentor;LewYoungandSteveShepard,editors-in-chiefofBusinessWeek,whobelievedinmeoverfifteenyears;LynnTonglao,whotranscribedmanyoftheinterviews;Paul Yang, who lived through every stage of this book and provided vitalsustenanceandinspirationto“getitdone”;EmilyYang,myconfidante,helper,andbeloveddaughter;andHowardSchultz,whoreallyiswhathesaysheis.

AbouttheAuthors

HowardSchultz,anativeofBrooklyn,NewYork,joinedStarbucksin1982andhasbeenChairmanandCEOsince1987.USATODAYhascalledhim“theBillGatesofcoffee.”HelivesinSeattle.Dori Jones Yang has fifteen years of experience as a reporter, writer, and

bureauchiefforBusinessWeekinNewYork,HongKong,andSeattle.ShelivesinBellevue,Washington.

Copyright

Copyright©1997HowardSchultzandDoriJonesYang

Allrightsreserved.ExceptaspermittedundertheU.S.CopyrightActof1976,nopartofthispublicationmaybereproduced,distributed,ortransmittedinanyformorbyanymeans,or stored inadatabaseor retrieval system,without thepriorwrittenpermissionofthepublisher.ForinformationaddressHyperion,114FifthAvenue,NewYork,NewYork10011.

Excerptfrom"If"byRudyardKipling,reprintedbypermissionofA.P.WattLtdonbehalfofTheNationalTrust.

eBookEditionISBN:978-1-4013-0492-8

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