Did Starbucks Outgrow Its Cozy Essence?

Excerpted from Smart Growth by Edward D. Hess. Copyright 2010 Columbia University Press. Used by arrangement with the Publisher. All rights reserved.

Starbucks(SBUX) is a story of entrepreneurship, persistence, passion, great success, and recently, some poor growth risk management. Howard Schultz, the founder of Starbucks, was raised in a federally assisted housing project in Brooklyn, New York. His father was a truck driver and, as a young man, Howard watched how his father's employer treated him after he was injured and unable to work, leaving him without a job, benefits, and pension -- a beaten man. Schultz vowed that if he were ever a company leader he would never treat his employees that way. As a leader "he would not leave people behind."

Howard Schultz

The drive to escape poverty and succeed helped make Schultz a super salesman, and his serendipitous introduction to freshly brewed coffee and the idea of becoming a purveyor of coffee became his passion. That passion led to his extraordinary persistence as he spent more than a year persuading the owners of the original Starbucks coffee roasting business first to hire him in 1982 and then to let him open a coffee café. But that was not enough for Schultz, who wanted to bring the coffee experience to even more people and to do so by his own standards for both the coffee and managing the business. To accomplish this, Schultz persisted for over a year to raise money to start his own coffee café business and to build it into a profitable high-growth company while keeping his promise to himself to treat his employees fairly.

In his book Pour Your Heart Into It, Schultz stated that Starbucks was "living proof that a company can lead with its heart and nurture its soul and still make money." In that book, published in 1997, five years after Starbucks went public, Schultz stated: "A company can grow big without losing the passion and personality that built it, but only if it's driven not by profits but by values and people." However, that belief is now being tested.

Starbucks went public in 1992 with Schultz serving as CEO until 2000. When he stepped down at the age of forty-seven, he remained as chairman. During his tenure as CEO, he built Starbucks into the leading international coffee café with approximately 2,500 worldwide locations and revenues exceeding $1.6 billion, making Starbucks a model for employee engagement and partnership by offering health care and stock options widely to its workforce.