Pour Your Heart Into It (44 page)

It wasn’t just the “cookie-cutter” criticism that drove the Store-of-the-Future effort in 1995 and 1996. We were reaching higher than that. But this experience is typical of the way Starbucks reacts. If there’s a problem, we try not only to fix it but to create something innovative and elegant in the process.

CHAPTER 23
When They Tell You To Focus, Don’t Get Myopic

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too; . . .
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!

—R
UDYARD
K
IPLING
, “I
F
”

December 1995 was the holiday season from hell.

Every Christmas, we, like most retailers, prepare to be incredibly frenzied—in the roasting plant, in the stores, in the offices. At Starbucks, it’s the one time of year when our retail merchandise—coffee beans, espresso machines, chocolates, mugs—become as important as the daily lattes and cappuccinos. Usually, the holiday spirit pervades the bustle, customers ooh and aah over the colorful products on the shelves, executives pitch in at the cash registers, and we collapse at the end of the month with contented smiles, promising ourselves that we will be better organized next year.

Christmas 1995, however, was a different story. Windstorms and heavy snows hit several different regions, forcing a number of stores to close for days at a time. The papers were filled with desperate quotes from retailers, trying to wish shoppers into their stores. Predictions for the shopping season got ever gloomier.

Each morning our retail sales team met in the conference room next to my office. These meetings were increasingly full of bitten nails and twitching ankles. Someone would hand out the computer reports of the previous day’s sales, broken down by region, by product category, by sales dollars, by number of customers. It was like getting our test scores. We would compare actual versus budgeted figures, and would revise our forecast every week. If we didn’t make plan one day, we would recalculate some numbers to figure out what we needed to make plan for the rest of the week, and then for the month and quarter and year.

The key figure was the daily comp, which measured sales growth for stores open a year or more. With more stores open, overall sales were obviously growing. But was each individual store selling more than the year before?

Monthly comps had been averaging about 5 percent growth over the same month in the previous year. Now the daily comp numbers were coming in at 2 percent, 1 percent, 0, sometimes even negative. It was a frightful trend.

Adding to the pressure was the fact that our stock kept breaking through record highs. If we didn’t make our numbers for the month, we knew, investors would react dramatically and the stock would plummet.

To make things worse, we knew our profit targets would be hard to meet anyway, since Starbucks still had high-priced coffee inventories purchased during the summer of 1994. Orin expected some of his cost-saving measures would bear fruit, but it was too early to calculate just how much impact they would have on the bottom line. With Orin, I could be honest about how dejected I was. He felt the same way.

What could we do? Most of the key decisions that determined our sales had been made six months earlier, when we ordered merchandise, designed packaging, and bought coffees for our blends. We quickly discovered some mistakes that we couldn’t fix. For Christmas 1995, we had rejected the traditional red-and-green packaging for playful pastels, and customers didn’t take to it. We had ordered too many espresso machines and not enough affordable gift items. Our planning was off, so that we had prepared far too much inventory of certain coffees, including our Christmas blend. We had packaged our gift coffees in big one-pound bags, as usual, but also offered, for the first time, tiny quarter-pound samples of coffee as stocking stuffers. The small bags were a hit, but we had already prepackaged most of our coffee in the larger bags before December. People at the roasting plant had to work overtime, frantically emptying coffee from big bags and stuffing it into tiny ones. It was an added expense we could ill afford.

Still, in previous years we had always been able to boost holiday sales with special promotions or other last-minute tweaking. So Orin and I created a game plan. We’d check which products were selling ahead of plan, which behind, and refine our advertising message accordingly each week. Scott Bedbury had been eager to try some image-building slogans like Brew unto Others, but we ended up focusing on the more straightforward Great Gifts for under Twenty Dollars. At my suggestion, we even offered free coffee after 5
P.M.,
to encourage customers to stop by our stores after shopping. In a spending mood, they might notice and want to buy some of our merchandise.

Early in the month, it felt as though our business had become a high-stakes poker game. The chips were down, but I was sure we would win, one way or the other. But with each passing day, I felt less and less sanguine. I decided to cancel my family vacation to Hawaii. That was hard on Sheri and the kids, but I felt I needed to be in the bunker with the troops.

Every morning, I received a fax at home with the previous day’s sales figures. Then I’d rush into the office for a 7:30
A.M.
meeting with Orin. After that, we’d meet with the retail operations team. I began to dread these meetings. My stomach would be twitching, but I knew I had to appear optimistic. The people in our offices and stores were jittery, and I wanted to pump them full of optimism. The worst thing I could do, I thought, was to start spreading the word that I was terrified about the holiday season. That would just exacerbate the problem.

One of the fundamental aspects of leadership, I realized more and more, is the ability to instill confidence in others when you yourself are feeling insecure.

Finally, in mid-December, I came to a conclusion that was both painful and liberating. Because of the size and scale of the company, I no longer am able to make the singular difference in solving crucial problems. In the old days, Starbucks was like a speedboat, nimble and easy to steer around obstacles in its path. Whatever the issue was, I could get involved and, with concentration and effort, help bring about a solution. If sales were lagging, we could change sales tactics with a day’s notice, responding quickly and intuitively. I could turn the steering wheel one inch or a half-inch, and the entire boat would turn. The results were immediate.

By 1995, Starbucks had become more like an aircraft carrier. Once it was set in a given direction, its course couldn’t easily be altered. No matter how much I jerked the wheel at the last minute, the ship ploughed ahead. It had grown too big for quick handling.

As a large company, we needed to rely more and more on planning and discipline, rather than on our instincts and last-minute fine-tuning. That’s an ability we should have developed long before December 1995, but unfortunately, it took a major problem to make us all understand that we needed to find more accurate forecasting methods and plan for longer lead times. And I was beginning to accept what management consultants have advised me since: To be an enduring, great company, you have to build a mechanism for pre-venting and solving problems that will long outlast any one individual leader.

Once I realized this, I changed tactics. I decided to communicate my worries openly, not only with my managers, but with everybody inside the company. I called a big meeting of all the people who worked at our offices in Seattle. Since our commons area wasn’t finished yet, we gathered in a cafeteria on the third floor, everyone standing in a crowd, with me at the center.

The cafeteria was decorated with Christmas trimmings, but there was no holiday spirit in the room. I was surrounded by long faces and somber eyes. Although most partners didn’t see the daily numbers, rumors had been circulating that we were not going to hit our targets.

What I did then was uncharacteristic, for I’ve always been known for delivering upbeat, rousing talks. But on this day, I knew, a speech like that would have simply stuck in my throat.

“Perhaps for the first time in the tenure of many of your years at Starbucks,” I began, “we’re having a disappointing holiday season. We’re not performing as well as we had hoped for. There’s no excuse. It’s no one’s fault. But I’m worried.” I explained my concerns and what the ramifications would be if our sales and earnings numbers fell short of plan.

“Success,” I told them, “is not an entitlement.” We had to earn it, every day. Just because Starbucks had achieved all its goals in the past didn’t mean that we were immune to mistakes. We had to be in a mode of constant renewal and recognize that the future of our company was not based on what we achieved yesterday. We had to persevere, even when our near-term targets seemed out of reach.

For a bunch of overachievers, that message was hard to swallow. I could see eyes glancing downward and feet shifting weight.

“I hope we’ll make our numbers,” I concluded. “But if we don’t, we’re still the same company we were a month ago.” I tried to get them to focus on the long-term issues: what the company stands for, not to allow a disappointing season to get in the way of the great enterprise we had built, and to learn from our mistakes.

People came up to me later on, saying, “I’ve worked for other companies, and I’ve never heard a CEO speak so honestly and emotionally about a difficult situation. I appreciate how directly you explained what we’re dealing with.”

But I also heard others tell me they wished I hadn’t been so straightforward. They had viewed me as the conquering hero, the star hitter who could turn even the worst game around, and they didn’t like it when I stepped off my pedestal and admitted I wasn’t invincible. They thought I should have hidden my personal vulnerabilities and concerns. A few fellow managers came to my office later that day, saying, “Howard, I really don’t think you should have done that. What’s the point? Why add more fear?”

It took a few months before my inner circle came to the same conclusion about the company that I had reached. Going through adversity like that together helped hone the senior management team—fully one-third of whom had been with the company less than six months.

One problem all of us in management had was dealing with the guilt. Unlike the coffee-price crisis, this was a disaster we felt we could have prevented. We felt personally responsible, that we had let each other down. The magic had always started with us, and this was the first time we couldn’t sprinkle stardust and wipe the problem away.

Today, with hindsight, I’m convinced that speaking frankly was the right course of action. The head of a company can’t, and shouldn’t, always be the cheerleader. He has to be willing to let his people see the weaknesses and the pain, as long as they understand them in the context of the company’s greater accomplishments.

When the chips are down, it’s wrong to give a rah-rah Knute Rockne speech. People want guidance, not rhetoric. They need to know what the plan of action is, and how it will be implemented. They want to be given responsibility to help solve the problem and the authority to act on it.

A lot of managers find it hard to admit their fears to those who depend on their decisions. But I believe that if you level with your employees in bad times, they will trust you more when you say things are going well. I think our people came away from the experience of Christmas 1995 with a higher degree of faith in me and, more importantly, in what Starbucks stands for.

D
ON
’
T
L
ET THE
F
UTURE
S
LIP

A
WAY
, S
LICE BY
S
LICE

Other insights struck me that Christmas, too. One is how easy it is to lose sight of the long term when short-term problems scream for attention. When times are tense, it’s easy for people in the ranks to make bad decisions because they don’t understand the larger implications.

In the early days, the business was easier to understand, and each manager could quickly see what impact his choices would have on the company as a whole. As we grew, we hired more experts with specialized functions, but many of these people—because they came from larger, more risk-averse companies and because they had observed only a thin slice of the business—had narrow viewpoints.