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Schultz, Howard

Howard Schultz

Born: 1953
Brooklyn, New York
Chairman of the board, Starbucks Corporation

Howard Schultz took a small coffee shop chain and infused it with an Italian flair for fun and relaxation to create a unique American cultural phenomenon. There may be dozens of imitators, yet none has matched the popularity of Starbucks. The success of Starbucks is due mostly to Schultz, who is praised by analysts and competitors alike. In 1995, Tricia Reebs, an analyst for Dain Bosworth, discussed the Starbucks owner with Jeanne Sather of Business Journal-Portland, "He's a very, very strong idea person. He has a vision of what he wants to create, and he has the follow-through. It's something in his characterpassion, belief, confidence."

Schultz, however, is the best person to discuss his own business philosophy. In an interview with Entrepreneur magazine in May 1998, he modestly explained: "You need the self-esteem to hire people who are smarter than you and give them the autonomy to manage their own areas. Surround yourself with great people and get out of the way."

"There are a lot of similarities between rearing a family, where the parents imprint values on their children, and starting a new business, where the founder sets the ground rules very early. If you do it right and maintain those values, growth will be managed so you don't lose the soul of the company."

An Uneasy Childhood

Howard Schultz was born in Brooklyn, New York, in 1953. With little money, both parents worked long hours to support the family. To escape being "poor" young Howard turned to sports and played football, baseball, and basketball. He did so well in high school that he was awarded an athletic scholarship to Northern Michigan University.

When he left New York to go to college, Shultz's father was a broken man. He had never gotten ahead in any of his low-paying jobs and was rarely shown any respect by his employers. "I watched my dad's self-esteem fracture," Schultz commented to Sather in 1995. Because of his family's financial troubles, Schultz made the most of his college days, both athletically and academically. He received a bachelor's degree in business and marketing in 1975, proud to be the first member of his family to attend college.

On the Right Track

Schultz returned to New York after graduation and worked for the Xerox Corporation before joining a Swedish housewares company called Hammerplast. On a business trip to Seattle, Washington, in 1981 Schultz walked into a Starbucks and fell in love with the flavorful coffee. He met with one of the owners, Gerry Baldwin, to sell Hammerplast coffeemakers and expressed an interest in working there. By the following year, Schultz was hired as marketing director for the Seattle business.

When he started at Starbucks, the company had about a dozen locations and sold coffee beans and related products, not coffee by the cup. Yet after a trip to Milan, Italy, in 1983, Schultz became convinced that espresso or coffee "bars"which served the steaming beverages by the cup and offered customers chairs to sit and chat awhilewere the wave of the future. "I believed the relationship I saw between people and coffee in Italy was transferable to America in a big way," Schultz explained to Jennifer Reese of Forbes magazine in December 1996.

The owners of Starbucks disagreed, however, so Schultz decided to venture out on his own. Rounding up money from investors (including the Starbucks partners who were willing to invest), he opened the first II Giornale coffee bar in 1984. The small, friendly cafe was a hit with Seattle's sophisticated coffee drinkers who, thanks to Schultz, could get Starbucks coffee by the cup and a bag of beans from the real Starbucks down the street.

As Schultz planned additional Il Giornale coffee bars, he heard that one of the Starbucks partners intended to leave the business. Schultz offered to buy out all the partners and did so in 1987. He then merged II Giornale and Starbucks to form the Starbucks Corporation. From the start, Schultz wanted to make Starbucks a nationally recognized brand, to take the premium coffee from the West Coast to the East Coast and everywhere in between. He succeeded, and Starbucks coffee bars blossomed almost overnight, creating devoted customers with every new opening. Expansion was important, but quality and consistency, as well as the company's workers, were the keys to his success.

Lessons Learned

One lesson Schultz learned from his childhood was to never forgot how his father was treated by his employers. Schultz went in the opposite direction, treating all Starbucks employees as important members of a team. "I believe very strongly that the success of our company," Schultz told Business Journal-Portland, "has been achieved because of the relationship with our people." Not only are Starbucks workers (called "partners") given a thorough training program, but both full-and part-timers receive generous health benefits and after five years can buy shares in the company. The shares are called "Bean Stock."

Howard Schultz took the name for this book, Pour Your Heart Into It: How Starbucks Build a Company One Cup at a Time from one of his many business guidelines: "If people relate to the company they work for, if they will form an emotional tie to it and buy into its dreams, they will pour their hearts into making it better."

By the 1990s, Starbucks was an international phenomenon, with locations and sales jumping upwards from year to year. By 1992, there were 165 Starbucks locations and just two years later, by 1994, there were 425. Sales mushroomed from $100 million in 1993 to $465 million in 1995, while new products such as bottled Frappuccino and Starbucks ice cream began appearing on grocery store shelves.

As Starbucks introduced new items for coffee drinkers and non-coffee drinkers (such as tea blends, steamed milk, and hot chocolate), Schultz, too, went in a new direction. He wrote a book with business writer Dori Jones called Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. Published in 1997 by Hyperion, the book told the story of Starbucks and the various business principles and life philosophies Schultz believes shaped the company's climb from small coffee retailer to corporate giant. All proceeds from the book, which sold well, were given to the Starbucks Foundation, formed by Schultz in 1997, to support literacy.

Taking a Step Back

Schultz began to slow down in the later 1990s and in 2000 turned over his duties as president and chief executive to Orin Smith, while keeping his job as chairman and "chief global strategist." With less responsibility and more time, Schultz was able to dabble in other business ventures like an Italian restaurant chain and health-food grocery stores. He was also able to spend more time with his wife, Sheri, and two children. They live in the Seattle area, and Schultz is very protective of the family's privacy.

Howard Schultz is more than the man behind a coffee-buying revolutionhe also changed the vocabulary of millions of people who had never even heard of a "cappuccino" before Starbucks burst on the scene. Now cappuccino, caffe mocha, caffe latte, and a variety of hip coffee terms are a part of our everyday language. Despite the immense success of Starbucks and the wealth it generated for Schultz and others, he said back in 1995 to Business Journal-Portland, "This has never been about money, never. It's about our passion for coffee."

For More Information

Books

Olsen, Dave, et al. Starbucks Passion for Coffee: A Starbucks Coffee Cookbook. Menlo Park, CA: Sunset Publishing, 1994.

Pendergrast, Mark. Uncommon Grounds: The History of Coffee and How It Transformed Our World. New York: Basic Books, 1999.

Schultz, Howard, with Dori Jones. Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time. New York: Hyperion, 1997.

Periodicals

Barron, Kelly. "The Cappuccino Conundrum." Forbes (February 22,1999): p. 54.

McDowell, Bill. "The Bean Counters (Company Profile)." Restaurants & Institutions (December 15, 1995): p. 40.

. "Starbucks Coffee (Company Profile)." Restaurants & Institutions (August 1, 1994): p. 53.

Prinzing, Debra. 'Schultz: Grande Designs for Filling Tall Order." Puget

Sound Business Journal (December 25, 1992): p. 8.

Reese, Jennifer. "Starbucks: Inside the Coffee Cult." Fortune (December 9, 1996): p. 190.

Sather, Jeanne. "Starbucks's Captain." Business Journal-Portland (March 3, 1995): p. 16.

Smith, Scott S. "Grounds for Success (Interview with Howard Schultz)."Entrepreneur (May 1998): p. 120.

Yang, Dori Jones. "An American (Coffee) in Parisand Rome." U.S. News

& World Report (February 19, 2001) p. 47.

Web Sites

Starbucks Corporation. [On-line] http://www.starbucks.com (accessed on August 16, 2002).

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"Schultz, Howard." Leading American Businesses. . Encyclopedia.com. 19 Oct. 2017 <http://www.encyclopedia.com>.

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Schultz, Howard 1953–

Howard Schultz
1953

Chairman and chief global strategist, Starbucks Corporation

Nationality: American.

Born: July 19, 1953, in Brooklyn, New York.

Education: Northern Michigan University, BS, 1975.

Family: Son of Fred Schultz and Elaine (maiden name unknown); married Sheri, an interior designer (maiden name unknown).

Career: Xerox Corporation, 19761979, sales; Hammarplast, 19791982, manager of U.S. operations; Starbucks Corporation, 19821985, director of retail operations and marketing; Il Giornale, 19851987, founder and CEO; Starbucks Corporation, 19872000, chairman and CEO; 2000, chairman and chief global strategist.

Awards: Top 25 Best Managers, BusinessWeek, 2001; Top Six Entrepreneurs of the Year, Restaurant Business, 2001; Botwinick Prize in Business Ethics, Columbia Business School, 2000; Executive of the Year, Restaurants and Institutions, 2000.

Publications: Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, 1997.

Address: Starbucks Corporation, 2401 Utah Avenue South, Seattle, Washington 98134; http://www.starbucks.com.

When Howard Schultz acquired Starbucks' assets in 1987, the company consisted of six retail and wholesale coffee shops in the Pacific Northwest. When Schultz gave up his position as CEO 13 years later to become chief global strategist, Star bucks cafés could be found all over Europe, the Middle East, and the Far East, as well as in over two thousand locations across North America. Though he often shunned prevailing wisdom, Schultz's original vision of providing specialty coffee and old-world charm to the masses eventually became a multibillion dollar reality.

FINDING HIS NICHE

Schultz grew up in the Carnisie housing projects of Brook lyn, where he was deeply affected by his father's struggle to provide for his family. Looking for a way to stand out and be successful, Schultz turned to sports and gained a football schol arship to Northern Michigan University in 1971. He was an unmotivated student, however, and didn't discover his fore-most talent until he took a sales position with the Xerox Corporation. Schultz flourished in competitive environments and rose quickly when he joined the housewares company Ham marplast in 1979. As a general manager with Hammarplast he traveled to Seattle in 1981 to investigate a small coffee company that was ordering an extraordinary number of speciallyshaped coffee filters. This was his first encounter with Star-bucks.

Schultz was immediately captivated by the passion of Star-bucks' founders, Gordon Bowker and Jerry Baldwin, who talked about coffee as if they were discussing the various qualities of fine wine. Fired with enthusiasm, Schultz soon talked them into hiring him as their director of retail operations and marketing. Despite the misgivings of his family, Schultz gave up a respectable job in Manhattan to immerse himself in the arcane business of gourmet coffee. He even found himself attracted to the countercultural aura of Seattle that had given birth to the American coffeehouse. Most importantly he had found a business he could be passionate about, and he threw himself into it wholeheartedly.

On a buying trip to Italy in 1983 Schultz's growing obsession with coffee took another step with his discovery of Italian coffee bars, where the experience of enjoying espresso drinks was woven into the fabric of daily business and social life. Schultz thought that the coffee-bar experience could be the next evolutionary step for Starbucks in America; when the founders disagreed, he reluctantly left the company and opened his own Italian-style espresso bars in the Seattle area. He called his new enterprise Il Giornale, Italian for "daily." Three years later, in 1987, Il Giornale was successful enough for Schultz to find investors when the opportunity arose to buy Starbucks from Bowker and Baldwin.

Schultz had optimistically promised investors that Star-bucks would expand rapidly, even though Seattle was already filled with coffee stores and the rest of the country had yet to show interest in espresso drinks. During the new corporation's first year, expansion amounted to 15 additional stores; by 1992 there were nearly 150 Starbucks locations, including in such trendsetting cities as Chicago, Los Angeles, and San Diego. A markedly growing mail-order business paved the way for the Starbucks brand in many other areas outside of the Pacific Northwest, such that the only advertising the company needed was word of mouth.

While it might have seemed like Schultz was merely cashing in on a new fad for specialty coffee, he built for long-term success by acting on principles that were uniquely his own. The example of his father's struggles prompted him to offer health coverage to all employees who worked at least 20 hours per week in 1988. While he tried to maintain the atmosphere of the Italian coffee bar as much as possible, he was flexible enough to give in to American customers' requests for in-store seating and for nonfat milk in their lattes and cappuccinos.

DIVERSIFICATION AND EXPANSION

In 1992, after the company had shown profits for two straight years, Schultz completed the initial public offering of Starbucks common stock on the NASDAQ national market. The following year Starbucks began its relationship with Barnes & Noble, which placed the company in the center of the growing trend toward combining coffeehouses with large bookstores. This combination was in line with Schultz's abiding vision of the coffeehouse experience, which was to provide an oasis for busy people in the midst of hectic and fragmented lives. He wanted to build the Starbucks brand into a trademark experience that people could trust.

Building that trust entailed ensuring Starbucks quality in every product that the company offered. The desire for impeccable quality control caused Schultz to reject franchising as a way of raising extra capital in the mid-1990s, when Starbucks expansion was at its peak. It did not hinder him from attaching the Starbucks name to a growing number of products, however. In 1994 Starbucks began to sell music CDs in its outlets in response to customers' requests to purchase the music they heard in the stores. In 1995 Schultz approved the development of Frappuccino, a cold milk and coffee drink that would prove popular in warmer climates. That same year Starbucks entered into partnership with Dreyer's to produce coffee-flavored ice cream.

In 1996 Starbucks expanded into the Far East with its first location in Japan. Against the predictions of market experts, the Japanese were eager to carry Starbucks cups as they walked down the street. Within a few years there would be locations in Singapore, Thailand, New Zealand, Taiwan, Malaysia, China, Korea, Kuwait, and even Lebanon. The increasingly global nature of Starbucks prompted Schultz to relinquish his CEO duties in 2000 in order to focus on larger worldwide issues as chief global strategist. Three years later Starbucks opened its thousandth Asia-Pacific store.

The global success of Starbucks allowed Howard Schultz to once again immerse himself in sports, the passion of his youth, with his purchase of the National Basketball Association's Seattle Supersonics in January 2001.

See also entry on Starbucks Corporation in International Directory of Company Histories.

sources for further information

Koehn, Nancy, Brand New: How Entrepreneurs Earned Consumers' Trust from Wedgewood to Dell, Boston, Mass: Harvard Business School Press, 2001.

Schultz, Howard, Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, New York, N.Y.: Hyperion, 1997.

Michael T. Van Dyke

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"Schultz, Howard 1953–." International Directory of Business Biographies. . Encyclopedia.com. 19 Oct. 2017 <http://www.encyclopedia.com>.

"Schultz, Howard 1953–." International Directory of Business Biographies. . Encyclopedia.com. (October 19, 2017). http://www.encyclopedia.com/economics/news-wires-white-papers-and-books/schultz-howard-1953

"Schultz, Howard 1953–." International Directory of Business Biographies. . Retrieved October 19, 2017 from Encyclopedia.com: http://www.encyclopedia.com/economics/news-wires-white-papers-and-books/schultz-howard-1953