Onward (48 page)

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Starbucks Senior Leadership Team, Fall 2010.

Left to right (standing): Jeff Hansberry, president, Global Consumer Products and Foodservice; Vivek Varma, executive vice president, Public Affairs; Mary Egan, senior vice president, Global Corporate Strategy; Troy Alstead, chief financial officer and chief administrative officer; Michelle Gass, president, Seattle's Best Coffee; Stephen Gillett, executive vice president, chief information officer, and general manager, Digital Ventures; Dervala Hanley, vice president, Corporate Initiatives and Planning; Paula Boggs, executive vice president, general counsel, and secretary; Cliff Burrows, president, Starbucks Coffee U.S.; Annie Young-Scrivner, chief marketing officer.

Left to right (seated): John Culver, president, Starbucks Coffee International; Peter Gibbons, executive vice president, Global Supply Chain Operations; Kalen Holmes, executive vice president, Partner Resources; Arthur Rubinfeld, president, Global Development; Howard Schultz, chairman, president, and chief executive officer.

Starbucks Board of Directors, photographed for FORTUNE magazine in 2010.

Left to right: Olden Lee, retired executive, PepsiCo, Inc.; Kevin Johnson, chief executive officer, Juniper Networks, Inc.; Javier Teruel, retired vice chairman, Colgate-Palmolive Company; Mellody Hobson, president, Ariel Investments, LLC; Bill Bradley (standing), managing director, Allen & Company LLC; Myron Ullman, chairman and chief executive, J.C. Penney Company, Inc.; Barbara Bass (above), chief executive officer, Gerson Bakar Foundation; Sheryl Sandberg, chief operating officer, Facebook, Inc.; Howard Schultz (standing), chairman, president, and chief executive officer, Starbucks; Craig Weatherup, retired chief executive officer, Pepsi-Cola Company; James Shennan, Jr., general partner emeritus, Trinity Ventures.

For more than a decade, a glass bottle containing a thin brown liquid had sat on my desk. What appeared at first glance to be a stout version of an old-fashioned soda bottle was actually a carbonated coffee drink that, back in the late 1990s, Starbucks had co-invented, marketed, and then watched fail miserably.

Mazagran.

The name was printed across the bottle in white capital letters, but the product's symbolism was also imprinted on my psyche: Celebrate, learn from, and do not hide from mistakes.

Mazagran, a cold, effervescent beverage infused with Starbucks coffee, had been my first attempt—in collaboration with board member Craig Weatherup when he was at PepsiCo—to extend Starbucks’ coffee outside the walls of our stores in an unfamiliar form. This was before the company sold whole and ground coffee in grocery aisles and prior to iced coffee's popularity. I was proud of our courage to create a new beverage category, and its failure to win over consumers, while intensely disappointing, did not sour my taste for creating.

But over the years, Starbucks deviated from its once unquenchable desire to truly innovate. Not since Frappuccino had we really shocked the marketplace and created a significant product platform with a multimillion-dollar revenue stream. The company's will to risk had dimmed. Was it laziness? Fear of failure? Perhaps, but failure often leads to great things. Mazagran may not have succeeded, but its development helped lead us to Frappuccino, a product line that by 2009 would be a $2 billion business.

I have always taken pride in the fact that Starbucks chases the unexpected, and part of my role as chief executive officer is to instill in the organization the same excitement about and courage for developing new products that has gripped me since Starbucks’ earliest days. It is a responsibility that I try to live up to by pushing people further than they think they can go, yet not further than I believe they are capable of going.

As I tried to reorient our people to think boldly, I was also reorienting myself, learning how to innovate the right way for the multibillion-dollar global organization that Starbucks had become since I was last in charge. Going into 2009, I was insistent that Starbucks go after big, bold, original ideas, but I also appreciated that those ideas, such as Sorbetto, could not be fueled by instinct alone. They had to be relevant to our business, scalable, thoroughly tested, integrated across business channels, and embraced by our partners in Seattle and in our stores.

In short, a new idea's execution had to be as good as the idea itself.

Taking a more cautious, calculated approach to innovation goes
against my just-do-it entrepreneurial nature, which plays off my gut and pushes for speed. But I was recognizing that the company and I needed to shift the way we brought products to market, bringing to the process the same degree of mastery that we had historically applied to roasting coffee. And because I no longer wanted the company's growth to rely only on building more stores, Starbucks’ future depended on its ability to innovate on several fronts, in multiple channels of global distribution.

One seemingly natural extension of the brand that I had long entertained introducing was having Starbucks become a larger player in the health and wellness market, beyond just offering healthier food and beverages in our stores. To explore this option, I asked Richard Tait—who, as the cofounder of the award-winning Cranium game and toy company, has a knack for reinventing the status quo—to apply his innovative muscle to articulating how Starbucks might succeed in the health and wellness market. Richard made a compelling case that included some exciting but risky new ideas, and Starbucks’ leadership team and I would have to decide if the company had the resources to take them on at this time in our evolution.

In 2009, as we explored future options for innovative, disciplined growth, we were asking ourselves several questions.

 

• How could we re-create and improve the store experience, which is our heritage and the foundation of the brand's identity?
  
 

 

• How might we expand on our value proposition, which has always been about emotional and human connection?
  
 

 

• How should we strengthen our voice to better tell our story?
  
 

 

• And how could the company extend its coffee authority beyond the stores, as I'd once envisioned happening with Mazagran?
  
 

Personally I did not fear failure. While I did not like or want to fail, I was willing to take risks. And I did worry that the company, given its battered stock price and morale, would not be able to emotionally or financially survive a high-profile setback. Whatever we chose to do had to be done right and done well.

The risks were huge. But the way I saw it, Starbucks had no choice but to forge ahead and create. After all, innovation is in our DNA.

Back in 1989, Dave Olsen had come into my office and offered me a cup of coffee to taste.

“How do you like it?” he asked.

“It's great,” I answered after taking a sip. “Is it a new arrival?”

Dave said no, of my favorite coffee, Sumatra. But it was not freshly brewed. It had been made from a powder. I was incredulous. Essentially, Dave explained, what I had just tasted and enjoyed was an instant version of Starbucks. Again, I did not believe him. How could any instant coffee—a universally sour, watery, and simply undrinkable liquid made from a combination of robusta and arabica beans—smell or taste even remotely like Starbucks’ rich dark roast? Where did it come from?

Prior to Dave walking into my office, a man named Don Valencia had walked into our Pike Place store and handed a barista a small pouch containing a coffee powder that he had created. He asked the baristas to mix it with hot water and taste it. They obliged and kindly told him that what they had just sampled was okay, but definitely not as good as Starbucks’ coffee. Don was in town from Sacramento to visit his wife Heather's family, and after he bought a latte for his wife, the baristas also sold him a pound of Sumatra, one of our best-selling coffees. When Don returned to Sacramento, he made another powder, this time using Starbucks’ coffee, and sent a sample back to our baristas, who were impressed enough to pass it on to the coffee specialists at our support center. Not long after that, Dave brought the beverage to me and told me about Don.

I had to meet him myself, and a few days later I flew to Sacramento to hear his full story.

Don was a remarkable individual.

He was a cell biologist who specialized in autoimmune disease diagnostics—essentially, the science of determining whether people are suffering from any number of autoimmune diseases, such as lupus, in which the body attacks its own cells. At age 28, he founded a company, Immuno Concepts, to pursue an idea that others told him was a waste of time. But Don proved them wrong by successfully inventing a better way for doctors to test blood for autoimmune diseases. Similar
to test kits already being used by doctors and hospitals, Don's product included cells. But unlike other tests, the cells in Don's kit had a long shelf life because Don had figured out a way to safely freeze-dry them without compromising their properties. Health-care practitioners around the world began using Don's invention.

Then he told me about the coffee. In his free time, Don was an outdoorsman, but the only kind of coffee he could carry with him when he and Heather went hiking was instant, which to Don tasted lousy. One day he decided to apply the same science that he had applied to the cells in his kits to the extract from coffee grounds.

Don turned his kitchen into a makeshift lab where, on weekends, he made a concentrated form of coffee that he then brought to his office laboratory. There, using a tall, boxy machine that freeze-dried cells, Don subjected the concentrated coffee grounds to the same delicate process he used on cells, trying to find the best way to dehydrate the concentrate but preserve the flavor and aroma. On Monday mornings, Don's colleagues would walk into a lab that smelled like coffee and sample his latest batch.

Eventually, Don nailed it. His process produced a soluble powder that, when mixed with water, delivered a much better-tasting cup of instant coffee than he'd ever had.

Until I met Don in the late 1980s, it had never occurred to me that Starbucks might go into the instant coffee business. The mere notion seemed an anomaly, incongruent with our brand and premium position. There were many reasons to dismiss it: Starbucks is a retailer, not a consumer products company, and we did not have aspirations or the resources to become one. Besides, people's bias alone would kill the idea. Mention “Starbucks” and “instant” in the same breath, and loyal Starbucks customers as well as our baristas would cringe. Instant was lowbrow. Beneath our standards.