5 Rules On How To Make Your First Billion
Howard Schultz had a vision. And he was just goofy, relentless, naive and determined enough to pursue it – and, in so doing, make a billion dollars for himself. So let’s look at the executive chairman of Starbucks – because if you’re in business, if you’re thinking about how you’d like to change the world and make your first billion, his story is really not a bad place to start.
I met him in a Starbucks in SoHo in Lower Manhattan. He was drinking coffee and so was I. He was dressed in a dark suit and tie, ready for a board meeting, and he had that mix of intensity and relaxation sported by powerful people with limited time. Cool and focused. Laser eyes. Leaned in when he talked. Not too heavy on that, though. A certain sense of balance. Yes, that was it. Balance. Like a quality brewed cup. We discussed his life, his book, Onward: How Starbucks Fought for Its Life without Losing Its Soul and, of course, coffee. Let me assure you: the guy thinks about coffee pretty much all the time. I ended up liking his book primarily because, while Schultz does unload dollops of business philosophy (which can make me impatient), he also dishes the real stuff with some gusto – lots of inside sports, texts of memos and so on. In his saga you can ascertain the outlines of how a regular guy from Brooklyn can become a captain of industry. Here’s my interpretation of Schultz’s personal business plan. Use it to make your own fortune.
Billionaire CEO rule #1 See what’s not there
Schultz was born in 1953 in the most populous district of New York. He enjoyed a poor but dignified lower-middle-class upbringing and went into the coffee business. Unhappy with the in-your-face world of New York, he gravitated to what is arguably the most European city in the United States, Seattle, where in 1982 he joined a little enterprise named after the first mate in Moby-Dick. The firm sold a beverage people liked and did it well, but had yet to change the world. One day, in pursuit of his duties, Schultz travelled to Milan, where they take food almost as seriously as sex and often don’t care about much else.
On that trip, while other men might have been thinking about the beautiful Italian models floating through the streets, Schultz was thinking about coffee. He noticed people sitting around in little cafes doing nothing but immersing themselves in what he now refers to as “coffee experiences”. This is vision. Where you or I might have seen a bunch of rather indolent Europeans wasting time sipping tiny cups of battery acid, Schultz experienced one of those life-changing epiphanies that transformed society as we know it. He describes in Onward the flight of the Milanese barista as he spun a sensuous cocoon of sights, smells and tastes: “Moving gracefully and with precision, he seemed to be doing a delicate dance as he ground coffee beans, steamed milk… and chatted with customers standing side by side at the coffee bar. Everyone in the tiny shop seemed to know each other and I sensed that I was witnessing a daily ritual.” This is a key insight. Coffee is a daily ritual for people. A powerful one. Have you ever noticed how people refer to the beverage as “my coffee”? As in, “I can’t function until I have my coffee.” The possessive pronoun says a lot. We own our coffee. It’s not business; it’s personal. This is the emotional raw material from which habits, dreams and great amounts of money are made. Schultz saw that and did not waver from his vision. “At our core,” he says now, “we are defined as an experiential brand.”
So it’s not just about coffee, see? What Starbucks is selling is an experience. The place that provides that experience is “very comfortable and soft and provides human contact”. What’s that worth? About $10.7-billion in revenue in 2010 (about R149-billion at 2010 exchange rates). In fact, Starbucks has become so deeply steeped in American culture that the company’s logo eliminated its printed name entirely – and in so doing, elevated the brand to the iconic levels enjoyed by the Apple and the Swoosh.
Billionaire CEO rule #2 Stick to your plan
When Schultz returned to Seattle he tried to convince his bosses at Starbucks to pursue the vision he’d had in Milan. I’m sure they looked at him as though he was mad. People in business respect guys like Schultz, but they fear them a little, too. Men like Schultz are not businesslike in some fundamental way. They’re on a mission. They cannot be dissuaded or made to talk about something other than the pursuit of the “highest-quality brewed cup”, if that’s what they’re after. Schultz was not deterred by these conventional men. So he left Starbucks and founded a new company based on his idea. He called it “Il Giornale”. In a memo, he articulated its mission statement: “Il Giornale will strive to be the best coffee bar company on Earth. We are genuinely interested in educating our customers and will not compromise our ethics or integrity in the name of profit… We will build into each Il Giornale coffee bar a level of quality, performance and value that will earn the respect and loyalty of our customers.” This original mission corresponds almost exactly to the current Starbucks business model. (Schultz bought Starbucks in 1987 and adopted the name for his entire Il Giornale chain.) He has not wavered. And anything that has stood in the way or sullied or confused that model has been eliminated. That’s pretty amazing. Is there anything in your life that’s survived in basically the same form for 25 years? Not in mine. Things change, but not at Starbucks. Not at its core.
Billionaire CEO rule #3 Find your focus
A great CEO doesn’t just give orders, push people around and then go play golf. A great CEO is focused. Schultz is all about the customer. As we look around this Manhattan Starbucks, Schultz sees the outcome of his obsession. It’s pretty much precisely what he wanted it to be – a community place. There’s a queue of customers and a pair of very nice young employees making gentle conversation, taking orders and generally making the customers feel as if they’re already in the zone.Nobody is fidgety or cross. There’s a delicious smell of coffee permeating the place, which is quiet without seeming sedate. Schultz scans the room, gathering information, making sure, interested in the smallest nuts and bolts. Big picture. Little picture. All viewed through the prism of the people who’ve come here to participate in the experience. “We’re not in the transaction business,” he says.
Related: A Wealth Plan For Every Man
Billionaire CEO Rule #4 Blow some stuff up
This is the thorny nugget in Onward, about how Schultz tore his business down to the nub to build it back again after the recession. Like Steve Jobs at Apple in the Eighties, Schultz left his CEO post at Starbucks in 2000, voluntarily in his case, to become chairman. He hired a responsible business type to be chief operating officer. Partly due to the economic meltdown, Starbucks didn’t do well during Schultz’s absence. He returned in 2008 and initiated a revolution to make sure Starbucks would be one of the success stories of the recession.The company fought for its life without losing its soul by going back to its vision, by returning to its core purpose, one decision at a time. For example, Schultz hates the smell of toasted cheese. He believes it conflicts with the sensuous, lovely aroma of roasting coffee. Starbucks was making a ton of money on toasted sandwiches. Too bad: out went the sarmies until some genius could figure out how to eradicate the cheesy smell.
The company had also invested in these cool coffee machines. They were very tall and shiny, but interfered with the line of sight between customers and their baristas, a visual relationship that Schultz saw as crucial to the entire coffee experience. Bye-bye, cool coffee machines. The next step was perhaps the most painful. Schultz realised that Starbucks had expanded into too many territories to be managed well. Too many stores were performing poorly. So he closed a lot of them. That hurt. He also felt that his people were no longer brewing the perfect cup with passion and expertise. So one evening he closed every Starbucks in the chain and retrained his entire service staff. Ballsy. Kind of nuts. The coffee improved, though. And it wasn’t a bad publicity move, either, because he was conveying a great message: it’s all about the coffee. Now Schultz is expanding – carefully. Starbucks has placed its products in American supermarkets and, perilously, introduced an instant-coffee brand, VIA. I had some this morning. It’s good. In fact, most taste testers couldn’t tell the difference between the instant and the brewed cup. Schultz probably can, though. And until he can no longer tell which is which, his people will probably keep working on it. New is good, as long as it stays close to the core.
Billionaire CEO Rule #5 Be the brand
And that’s that. Like Sergey Brin and Larry Page of Google, Steve Jobs, Bill Gates, Warren Buffett and a few others in business, industry and the arts, Schultz is what he does. He is a walking, talking emblem of the company he has created, that serves him and that he serves. Can you be that? If so, there’s probably a really big job for you somewhere out there. If not? Well, good for you, too. I’ll see you for a drink after work.