LEADING THE STARBUCKS WAY

5 Principles for Connecting with Your Customers, Your Products and Your People

McGraw-Hill Education

Contents

CHAPTER 1

The Starbucks Connection

A couple in Switzerland make their first visit to a Starbucks(r) store and arewelcomed enthusiastically. When asked what they'd like to have prepared forthem, they both respond that they aren't there to make a purchase. They justwant to see "what all the Starbucks fascination is about." They become regularsat that store.

A partner (as employees are called at Starbucks) shares how he was "moved" whileattending the funeral of a regular customer. During the eulogy, the son of thedeceased expressly mentioned the significance of those daily interactionsbetween his father and that Starbucks partner.

A man sits alone at lunch in his favorite Starbucks store and tells a greenapron–clad Starbucks barista (coffee preparer) that the store is his middayrefuge, noting, "At Starbucks, you are nice to me, you remember me, and you seemgenuinely grateful that I am here."

These actual stories exemplify a company whose leaders establish a compellingvision and manifest behaviors that culminate not only in product sales but inpowerful, loyalty-rich human connections. You are probably looking into thepages of this book to essentially understand how "all this Starbucks fascinationcomes about." How do leaders at Starbucks strategically and tactically stewardthe company's products and people to build customer engagement, loyalty,advocacy, and even brand love? How do these leaders model and inspire excellencein product delivery, the creation of moments of authentic service, anenterprise-wide appreciation for the importance of shareholder value, and acontagious demonstration of social conscience? You are probably also interestedin what Starbucks partners are doing to expand relationships beyond the caféenvironment, how they leverage technology to enhance customer experiences, andthe ways in which they customize offerings to address local desires across theglobe. Ultimately, lessons from Starbucks leaders, managers, and frontlinepartners will teach you to build connections with those you serve to effectivelyenrich your business and personal life.

STARBUCKS: A LEADERSHIP BENCHMARK

Starbucks is consistently recognized as one of the world's most effectively ledand beloved brands. For example, Entrepreneur magazine ranks the company amongthe 10 "most trusted" businesses, and Fortune magazine places it among the "mostadmired" global brands. Before delivering an important jobs speech, U.S.president Barack Obama placed a call to the president, chairman, and chiefexecutive officer of Starbucks, Howard Schultz, because of Howard's leadershipon job creation. Fortune magazine has named Howard Schultz as businessperson ofthe year, and other magazines have suggested that he is among the top tier ofglobal leaders when it comes to his impact on business ethics. Leadership acrossall levels of the company has produced more than 54 million Facebook fans, andmillions more follow the company on Twitter and Pinterest.

Most important, Starbucks leaders are responsible for substantial globaleconomic and social impact as well as considerable workforce stewardship.Starbucks leaders guide more than 200,000 people who serve the more than 60million weekly customers frequenting more than 18,000 stores in more than 60countries worldwide.

My previous book about Starbucks, The Starbucks Experience: 5 Principles forTurning Ordinary into Extraordinary, looked at how Starbucks leaders positionedthe company for meteoric growth through much of the 1990s and early 2000s.Following the publication of that book, Starbucks leaders faced challengesresulting from their frenzied speed of expansion, decisions they made to driveyear-over-year sales numbers, the effects of a sliding global economy, and lessfrequent visits from loyal customers to Starbucks U.S. stores. In 2008, HowardSchultz, who had been serving as the chief global strategist for Starbucks,returned to the helm as the company's chief executive officer. At the fiscal2008 second-quarter earnings conference call, when Howard was explaining a 21percent earnings decline over the prior year period, he noted, "While ourfinancial results are clearly being impacted by reduced frequency to our U.S.stores, we believe that as we continue to execute on the initiatives generatedby our Transformation Agenda, we will reinvigorate the Starbucks Experience forour customers, and in doing so, deliver increased value to our shareholders."

Howard's "Transformation Agenda" is detailed in his 2011 book titled Onward: HowStarbucks Fought for Its Life without Losing Its Soul. At its core, Starbucksleadership crafted a transition plan that established a forward-looking visionthat enhanced the company's established mission. While the Starbucks mission was"to inspire and nurture the human spirit—one person, one cup and oneneighborhood at a time," the transformation vision set an energizing andrallying objective, "to become an enduring, great company with one of the mostrecognized and respected brands in the world, known for inspiring and nurturingthe human spirit."

Tactically, Starbucks leaders identified "seven bold moves" to focus on existingstrengths and identify innovations and process improvement objectives thatshould position the company for long-term viability. Those bold moves werestated as follows:

1. Be the undisputed coffee authority.

2. Engage and inspire our partners.

3. Ignite the emotional attachment with our customers.

4. Expand our global presence—while making each store the heart of the localneighborhood.

5. Be the leader in ethical sourcing and environmental impact.

6. Create innovative growth platforms worthy of our coffee.

7. Deliver a sustainable economic model.

Adherence to these seven bold moves has resulted in desired financial outcomes,as evidenced by 13 consecutive quarters of global comparable store sales growthgreater than 5%. While Starbucks was making its turnaround, global economicfactors were triggering peak business failure rates, as Dun & Bradstreetreported: "The number of formal bankruptcy filings in the 12 months ending June2010 ... increased by 10% ... and the year over year increase between 08 and 09 was50%." Unlike the leaders of the proliferation of businesses that failed in 2008,2009, and 2010, Starbucks leadership positioned the company for enduringprofitability and brand respect.

This book, Leading the Starbucks Way, outlines the foundational principles thathave guided Starbucks leaders during sustained periods of meteoric growth,economic downturn, recovery, and transformation. Like the tactical coursedefined in the Transformation Agenda, Leading the Starbucks Way looks at keystrategies and tools that leaders are deploying to achieve sustainable success,particularly in the areas of product creation, category growth, internationalexpansion, and technological and social media innovation. These guidingprinciples and strategies are presented in language consistent with theStarbucks culture, even though that language may be somewhat unusual for mostleadership discussions. The foundation for Starbucks leadership is reflected interms like connection, humanity, humility, passion, and, yes, even love.

WHAT'S LOVE GOT TO DO WITH IT—LEADING A HIGH-PERFORMANCE ORGANIZATION

When you're sitting across from Howard Schultz, it doesn't take long for him toget to the heart of leadership excellence. From Howard's perspective, much ofleadership comes down to three traits: "Take love, humanity, and humility andthen place it against a performance-driven organization; these are in conflictto the naked eye. But I believe that performance is significantly enhanced bythis kind of leadership. I am so convinced of it because we have become moreperformance driven than at any other time in our history and the values of thecompany are at a high level. If we can infuse love, humanity, and humility on aglobal basis and build it into a performance-driven organization, we areunbeatable."

While Howard's views about positive emotional connections and high performancestandards are somewhat unusual among CEOs of large corporations, thatperspective is consistent with a groundswell of opinions and findings fromleadership experts and researchers. Leadership author James Autry, for example,notes, "Good management is largely a matter of love. Or if you're uncomfortablewith that word, call it caring, because proper management involves caring forpeople, not manipulating them." Professor Leonard Berry of Texas A&M summarizesdecades of consumer research by noting, "Great brands always make an emotionalconnection with the intended audience. They reach beyond the purely rational andpurely economic level to spark feelings of closeness, affection, and trust.Consumers live in an emotional world; their emotions influence their decisions.Great brands transcend specific product features and benefits and penetratepeople's emotions."

Consumers are not the only ones who "live in an emotional world." Employees doso as well. Starbucks demonstrates, and research confirms, high levels ofpartner (employee) engagement, retention, and productivity when supervisorspositively penetrate the emotions of those they lead.

At Starbucks, leadership champions the human connection in all aspects ofbusiness. Additionally, leaders build their business strategies based onopportunities that emerge from connections with partners, customers,communities, and shareholders. Ultimately, they manage through a lens ofhumanity and high performance expectations.

STANDARDS, OPPORTUNITY, AND CONNECTION: FORGING A HOLISTIC LEADERSHIP APPROACH

This book shares essential principles used by Starbucks leaders as they forgeemotional connections that drive innovation, grow new business product lines,and foster employee and customer loyalty. These principles are especiallyrelevant in a service world that has been revolutionized by mobile technology,social media, and increasing consumer choice. Each principle is outcome-focusedand is easily applied, no matter where your business is in its developmentaljourney. The principles in Leading the Starbucks Way are the result of more thantwo years of research spanning all regions that Starbucks serves. Access wasgranted to leaders and partners at all levels of the company. More than 500hours of interviews and research produced the following five leadershipprinciples:

1. Savor and elevate.

2. Love to be loved.

3. Reach for common ground.

4. Mobilize the connection.

5. Cherish and challenge your legacy.

Executing on these principles produces powerful bonds with employees, customers,suppliers, and even noncustomers. In turn, these operational and emotional bondswill help any leader achieve sustainable profits, increase brand equity, andfuel online and offline stories of loyalty and love.

One such story involves Diana Kelly, a Starbucks district manager who ran acrossa circumstance that she had seldom encountered in her suburban location ofFredericksburg, Virginia—a homeless man in her store. Rather than treating thatman, Dominic, as an unwanted intrusion in her business operation, Diana boughthim a hot chocolate and asked him about his life. To her surprise, she foundthat he lived in a makeshift homeless encampment in a nearby woods. Diana andseveral other Starbucks store managers and baristas decided to go to the woodsto "connect with" and serve Dominic and dozens of people like him.

Based on those experiences, Diana and her team shared stories from the homelesscamp with customers and leveraged their customer connections by placingcollection bins in each of the 14 stores in Diana's district. The bins became arepository for items like toothbrushes, toiletries, and clothing fordistribution at the homeless camp. A local businessman (and Starbucks customer)donated the necessary funds and found a local attorney to help this grassrootscommunity effort become an actual nonprofit organization called Project Dominic.

Why did Diana take an interest in Dominic? What good could possibly come out ofsuch an act, particularly as it relates to Starbucks sustainable profits, brandequity, and love? While I suspect that her initial intentions were based onnothing more than a genuine concern for Dominic irrespective of his ability toproduce a visible impact on a Starbucks cash register, Starbucks benefited fromDiana's willingness to offer Dominic a few moments of human connection.

Specifically, Starbucks partners in Fredericksburg have had the benefit ofmaking a tangible difference in their community and engaging regular customers.Those partners and customers have been enriched through the chance to worktogether for good. Finally, without Diana and her team ever meaning for this tobe a benefit, people close to and far away from Virginia are reading about andbeing inspired to engage in actions like those that began so humbly inFredericksburg. Writing in The Washington Post, columnist Petula Dvorak noted,"The City Council called for hearings and solutions. Some residents demandedthat all the homeless be rounded up and jailed. The leaders at Micah Ministries,a Christian outreach program that provides social services, asked for calm andunderstanding.... [Diana and Project Dominic] bring hundreds of supply bags intothe woods and, with each delivery, try to talk the folks into going to one ofthe city's outreach centers for counseling, medical care and shelter. They arehelping more than 200 people." Call it what you want—kindness, compassion, orlove. I call it the Starbucks connection and leading the Starbucks way!

My hope is that this book helps you, as a leader in your organization, build andgrow your business through a genuine relational strategy, guided by theleadership excellence of individuals like Howard Schultz and his team atStarbucks. In so doing, you will not only drive success and profitability butdevelop a significant and purposeful business anchored in engaging andcompassionate leadership practices.

CHAPTER 2

If You Don't Have Passion for Your Product, Why Should Your Customer?

Only passions, great passions, can elevate the soul to great things.

Denis Diderot, French philosopher

Many books and articles suggest that with the right techniques, anyone can sellanything. The authors of these works seem to imply that you can be successful atselling any product, even if you do not particularly like what you sell.Certainly, some entrepreneurs achieve success without having a positiveemotional connection with their goods or services. Steve Chou, the founder ofBumblebee Linens, reports that his online store went from zero earnings to morethan $100,000 profit in a single year, despite the fact that he was "notterribly passionate about wedding linens. Decorative pieces of fabric don'treally make me excited and to be honest, I'm not in love with what we sell....When my wife and I first started our business, it was all about the numbers andwhether the business could make enough money so my wife could quit her job."

Even Tony Hsieh, the CEO of Zappos, a company I wrote about in my book TheZappos Experience: 5 Principles to Inspire, Engage, and WOW, notes that he is"not passionate about shoes at all." Despite running a company that has aninventory of more than 50,000 varieties of shoes, Tony has reported he ownsthree pair. Instead, Tony acknowledges that he is "passionate about customerservice and company culture," which may be why Zappos has reached a level ofsuccess that most other stores that just sell shoes have not.

While passion for the product may not be necessary for sales success, itcertainly differentiates sales leaders from most of their competitors.Additionally, employee passion for the product fuels the emotional engagement ofcustomers and facilitates sustainability. Sales consultant Troy Harrison definesthe link between employee passion and customer engagement by suggesting,"Passion is the indefinable something that creates and builds interest andexcitement on the part of the customer." From Troy's perspective, customerexcitement emerges when your people have "a need to make buyers feel the sameexcitement" that they do. To achieve that level of customer enthusiasm, Troysuggests you have to first sell yourself "on your products or services. If youwere in the position of a target customer, would you buy? ... All else ismeaningless."
(Continues...)Excerpted from LEADING THE STARBUCKS WAY by Joseph A. Michelli. Copyright © 2014 Joseph A. Michelli. Excerpted by permission of McGraw-Hill Education.
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