Onward: How Starbucks Fought for Its Life Without Losing Its Soul

Howard Schultz, the longtime leader of Starbucks Coffee Company, grew up in the housing projects of Brooklyn, New York, and moved to Seattle in 1982 to join Starbucks as head of marketing. After discovering the espresso bar culture in Milan, Italy, he left to found his own coffee company, Il Giornale, and in 1987 purchased Starbucks with $3.8 million raised from investors. Over the next two decades, he built Starbucks into a global brand defined by premium coffee and a commitment to balancing profit with social conscience, including offering health-care coverage and stock options, known internally as Bean Stock, to part-time workers. By 2000, Starbucks had 2,600 stores in 13 countries and nearly $2 billion in revenue. Feeling less challenged, Schultz stepped down as CEO and became chairman.

Under his successors, Orin Smith and then Jim Donald, Starbucks tripled its store count and expanded into entertainment. Wall Street pressure to deliver 20 percent annual growth fueled relentless expansion, but by 2007 cracks appeared. Automated espresso machines blocked customer-barista interaction, preground coffee eliminated the aroma of fresh beans, and cookie-cutter store designs stripped locations of their warmth. On Valentine's Day 2007, Schultz handwrote a memo titled "The Commoditization of the Starbucks Experience," cataloging how growth-driven decisions had diluted the brand. When the memo leaked online nine days later, Schultz was forced to accept that nothing at Starbucks could be presumed confidential in the digital age and that the company lacked tools to participate in online conversations about its own brand.

Throughout 2007, comparable store sales slowed and Starbucks' stock dropped 42 percent. Partners, as Starbucks calls its employees, approached Schultz privately to voice concerns. At a September board meeting, he indicated his willingness to return as CEO. Over the December holidays, he watched daily sales plummet and spent time with Dell founder Michael Dell, who shared his own experience returning as CEO and introduced Schultz to the concept of a Transformation Agenda. Schultz secretly assembled a transition team.

On January 7, 2008, Schultz returned as CEO. He introduced three strategic pillars: improving the US retail business, reigniting emotional attachment with customers, and making long-term foundational changes. He appointed Michelle Gass, a 12-year partner who had built the Frappuccino brand, as chief of staff. A team of coffee experts developed Pike Place Roast, a smoother everyday brew, while the company restored in-store grinding. Schultz also acquired the Clover, an innovative single-cup brewer that produced exceptional coffee. In February, Starbucks closed all 7,100 US stores for an afternoon to retrain 135,000 baristas on espresso preparation, at a cost of roughly $6 million. Critics called it an admission of failure, but Schultz viewed it as a galvanizing symbol of renewed commitment to quality.

In March 2008, Schultz convened a first-ever global leadership summit for 200 senior leaders, presenting the Transformation Agenda built around seven "Big Moves" covering coffee authority, partner engagement, customer attachment, global expansion, ethical sourcing, innovative growth, and a sustainable economic model. He unveiled a new mission statement and named Cliff Burrows, a seven-year partner heading Starbucks Europe, as president of the US business. He approved the Mastrena, a Swiss-made espresso machine designed to sit lower on counters so baristas could reconnect visually with customers, and launched MyStarbucksIdea.com, an online community that received 7,000 ideas within 24 hours.

By summer, conditions worsened. An Italian frozen beverage called Sorbetto, which Schultz had fast-tracked as a potential blockbuster, failed due to high costs and operational complications, teaching him there was no silver bullet. Burrows discovered widespread deficiencies across US stores, including outdated technology running on a DOS platform. Peter Gibbons, the new head of the global supply chain, found that a store's chance of receiving a complete order on time was only about 35 percent. In July, Starbucks announced the closure of 600 US stores, affecting approximately 12,000 positions; 70 percent had opened during the previous three years of aggressive expansion. Later that month, the company eliminated 1,000 non-store positions. Schultz refused suggestions to franchise the stores, reduce coffee quality, or sell the company. The third quarter of fiscal 2008 produced the first net loss in Starbucks' history as a public company.

On September 15, 2008, Lehman Brothers declared the largest bankruptcy in US history, deepening the global financial crisis. In October, viewing cancellation as a betrayal of core values, Schultz convened a leadership conference in New Orleans for nearly 10,000 store managers, district managers, and regional directors at a cost of approximately $30 million. Partners volunteered roughly 50,000 hours rebuilding homes and painting stadiums in neighborhoods still devastated by Hurricane Katrina. At the closing session, Bono, the U2 frontman, announced Starbucks' partnership with (PRODUCT) RED, an initiative that channels corporate funds to fight AIDS in Africa, and Burrows surprised the audience with laptops for every store, receiving a standing ovation.

Days later, advertising agency BBDO conceived a text-only election-themed ad offering free coffee to voters. Coordinated through social media in four days, the campaign drove more than two million cups served on Election Day, demonstrating the power of culturally relevant "brand sparks." By December, the board pushed for $400 million in permanent cost reductions. At a tense analyst conference in New York, with the stock down 61 percent from a year earlier, the team presented with conviction.

Through 2009, Schultz pursued two major bets. The first was VIA, an instant coffee in development since the late 1980s, when cell biologist Don Valencia first brought a coffee powder to the Pike Place store. Valencia joined Starbucks in 1993 to pursue the project, and his team serendipitously produced the coffee base for Frappuccino beverages along the way. Valencia died of cancer in December 2007, shortly after the team cracked the code for a soluble powder that tasted like fresh-brewed Starbucks. Despite enormous internal resistance, the product, named VIA (Italian for "street" and an homage to Valencia), launched in February 2009 to positive reviews.

The second bet was operational. Gibbons overhauled supply chain logistics with a strategy of "Service. Cost. People." Lean techniques proved transformative in stores, improving efficiency and partner retention. Arthur Rubinfeld, head of global development, reimagined store designs using reclaimed and recycled materials, with all new company-owned stores designed to qualify for LEED (Leadership in Energy and Environmental Design) certification. In June 2009, Schultz traveled to Rwanda to visit coffee cooperatives, deepening the company's commitment to ethical sourcing. He also refused an institutional shareholder's suggestion to cut health-care benefits, viewing the issue as fundamental to Starbucks' values.

By the third quarter of fiscal 2009, the tide had turned. Starbucks earned $152 million, beating analysts' forecasts, and the stock rose 17 percent. In September, Schultz traveled to China, Starbucks' most promising international market, and pledged renewed attention to global growth.

For fiscal 2010, Starbucks achieved record revenue of $10.7 billion and its highest-ever operating margin of 13.3 percent. VIA reached $100 million in US sales within 10 months. Supply chain on-time delivery improved from 35 to 90 percent, and $580 million in permanent costs had been removed, exceeding the original target. At the December 2010 analyst conference, Deutsche Bank called the performance "the most significant business turnaround we have witnessed." The stock closed at $32.76, up almost 400 percent from December 2008. Schultz closes the book at a Kent, Washington roasting plant, watching rare Galapagos beans roast for the first time, reaffirming his belief that Starbucks' best days lie ahead.