Per-Hour Learning Potential / Utility: ★★★★★★ (6/7)
Readability: ★★★★★★ (6/7)
Challenge Level: 1/5 (None) | 384 pages (official)
Blurb/Description: Like many companies that went from startup to category-killer, things weren’t as smooth as they seemed at Starbucks circa 2007: with professional management prioritizing comps over customers, the company started running into problems, quickly exacerbated by the global financial crisis. Onward is the unusually open and honest story of how once-and-future CEO Howard Schultz came back to right the ship.
Summary: relative to Pour Your Heart Into It, which is excellent in its own way, Onward is focused more on Schultz dealing with business realities than it is with the “story” aspect. Specifically, the story of how this happened, and how it was fixed:Starbucks had begun to fail itself. No single bad decision or tactic or person was to blame. The damage was slow, quiet, incremental: like a single loose thread that unravels a sweater inch by inch. - Howard Schultz, ex-Starbucks CEO Click To Tweet
If you’re a business reader rather than a startup entrepreneur, I would recommend Onward over PYHII if you only want to read one.
Highlights: Schultz continues with the great tone of PYHII, and doesn’t shy away from admitting what Starbucks (and even he) did wrong. He continues to display great emotional awareness.
Lowlights: The book is a little lengthy, and there are sections such as the one about fair trade that are not particularly interesting/useful for our purposes. Additionally, if you’ve already read PYHII, some of the origin story is repeated – though this is not an issue if you’re reading Onward solo.
You should buy a copy of Onward if: you want an honest, open account of how a talented, determined CEO dealt with a major crisis stretching across multiple parts of the business, while trying to appease all major stakeholders (customers, employees, shareholders/Wall Street, and the Board of Directors.)
Reading Tips: feel free to skim at points when the book starts getting repetitive or wanders into areas (like fair-trade coffee) that aren’t particularly interesting for your purposes.
Pairs Well With:
“Mistakes were Made (but not by me)” – MwM review + notes. This book, by psychologists Carol Tavris and Elliot Aronson, is perhaps an unintuitive and offbeat pairing, but I think a lot of SBUX’s problems circa the mid-2000s have analogies to the process of self-justification – see, for example, my discussion of contrast bias and just-noticeable differences. It never hurts to pick up a copy of Richard Thaler’s “Misbehaving” (M review + notes), either.
More Detailed Notes + Analysis (SPOILERS BELOW):
IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK. Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive. It was primarily created for my own personal reference.
Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference. Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.” Do so at your own peril.
I provide these notes and analysis for five use cases. First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.
Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall. However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.
Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made. I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning. Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.
Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.
Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.
Altogether too often, business managers frame mistakes the same way a job interviewer might say “oh, I’m a workaholic…”
Not so with Schultz, who, after starting Onward with a very brief recap of the personal and business history covered in Pour Your Heart Into It, once again pulls no punches. Here is the fuller version of the introductory quote, which highlights contrast bias – specifically, just-noticeable differences:
“by 2007 Starbucks had begun to fail itself. Obsessed with growth, we took our eye off operations and became distracted from the core of our business. No single bad decision or tactic or person was to blame. The damage was slow and quiet, incremental, like a single loose thread that unravels a sweater inch by inch. Starbucks was losing some of the signature traits it had been founded on.”
(Schultz later repeats other PYHII anecdotes, including his blue-collar dad losing his job, his paradigm-shifting experiences seeing espresso bars in Italy, the decision to go with the Starbucks vs. Il Giornale name, etc – see my notes on Pour Your Heart Into It for more details.)
Schultz starts the story with the day that Starbucks closed all its stores, at a meaningful financial cost ($6MM), to focus on quality training; a push for efficiency (and likely, though not mentioned here, the company’s scale growth) had led to espresso-pulling and milk-steaming practices that sacrificed quality. This is, of course, a local vs. global optimization and n-order impacts problem, one that’s not uncommon as companies scale.
Harken back to the chapter in Pour Your Heart Over It where Schultz discussed the company’s refusal to shift to lower-quality beans to offset a spike in coffee prices engendered by the Brazil frost – he firmly believed that quality could not be sacrificed in the name of anything else, yet Starbucks had clearly gotten away from that as it had grown.
He gave baristas permission to throw out shots of espresso that weren’t good enough, and following the day of closure, quality scores went up and stayed up – perhaps not so much because of the training as the symbolic line in the sand: Starbucks proved it was willing to sacrifice profits to get its coffee right.
“there are moments in our lives when we summon the courage to make choices that go against reason, against common sense, and the wise counsel of people we trust… we refuse to be bystanders… ‘life is a sum of all your choices,’ wrote Albert Camus. Large or small, our actions forge our futures, hopefully inspiring others along the way.”
Schultz recounts how, in his very first memo to employees, he closed with “Onward” rather than “Sincerely” or “Thank You” (and I adapted this, with a little dash of manifest destiny, to my own “Westward On” closing in investor letters.) Pg. 179 describes the Onward credo in more (and very eloquent) detail.
Schultz notes that after he left as CEO in 2000 (leaving the company in the capable hands of former COO Orin Smith), things had started to change:. While Starbucks had originally been premised on quality coffee (see extensive discussion in Pour Your Heart Into It), what ended up happening was:
“what [customers] wanted was convenience in all its forms. They didn’t want to wait in line for their lattes, but they also did not want to walk a few more blocks or drive an extra mile to get it.”
Continuing from Pour Your Heart Into It, Starbucks kept up the aggressive growth rate and willingness to cannibalize their own stores to make the experience better for customers, and, off a much larger base, tripled storecount from 2000 – 2005.
When new CEO Jim Donald took the reins, Starbucks had really expanded beyond its core into entertainment such as music, books, and movies, viewing itself as a tastemaker.
Nice read-across to the Six Flags case study, which was one of the few useful things I covered in B-school – they were making about the same mistake at the same time, viewing themselves as an entertainment company rather than a theme park operator – wonder if it was something in the water).
Schultz had trouble not stepping on Donald’s toes that he didn’t have with Orin (who had been with him forever), and Starbucks was heavily focused on maintaining its ambitious 20% revenue and earnings growth targets (see the “ incentives” and “ commitment bias” mental models).
Throughout the book, Schultz frequently notes pressure from Wall Street to meet short-term targets (at the expense of longer-term investments or strategic imperatives) as a negative influence. The core challenge, per Schultz:It was as if we were running a race but no longer knew what we were running for. - Howard Schultz, ex-Starbucks CEO Click To Tweet
Schultz wrote a detailed, heartfelt memo describing what he viewed as some of the major problems that needed fixing; to his shock, this memo was leaked. In an anecdote that reminds me of myself (and explains, to a large degree, why I empathize/identify with Schultz), he recounts a conversation he had with SBUX’s former head of global communication, who had often suggested he not put sensitive thoughts in writing – but that wasn’t in Schultz’s nature:
“it is my nature to speak from the heart, usually unedited. Second, I conduct my life with an expectation that people will do the right thing. Yet even with all my experience, I am still surprised when they do not.”
I previously noted (in my notes on PYHII) that Schultz seemed to be remarkably good at controlling his ego and taking a growth mindset; when a consultant later told Schultz that he had “winced” when reading the memo, Schultz thanked him for his candidness rather than jumping down his throat – a lesson we’d all do well to learn from.
Nonetheless, he continued to be open and heartfelt; his speeches (as portrayed throughout the book) are all very good (see pgs. 61, 100, 103-105, 112-113, 201-202, 206 for some examples.) Later in the book (see page 176), when Starbucks was going through its darkest days, Schultz let employees vent at him in a public forum and responded empathetically.
Schultz steps away from the furor back into his past, echoing something that seems to be a part of every great retailer:
“it’s not unusual for me, no matter where I am in the world, to hop in a cab or go walking to visit other retailers. I do not know how many times I have done this in my life. Hundreds. I love to experience different stores – sole proprietors’ and large chains’ – and to see firsthand how they present their products and communicate with customers.
I am a sponge, always soaking up store design, layout, and salespeople’s behaviors, and over the years I’ve been intrigued by many types of stores that have nothing to do with coffee.”
Similar quotes can be found from or about retail magnates including Jeff Bezos, Sam Walton, Jim Sinegal, etc… see Sam Walton’s “Made in America” (WMT review + notes), as well as Kip Tindell’s “Uncontainable” (UCT review + notes), and my essay “Lessons From 150 Years of American Retail Dominance (And Failure).”
Schultz never seemed to give this up – see the 2009 anecdote on p 272 about the knife shop.
Schultz returned as CEO, level-set with analysts in a conference call, and focused on three strategic pillars: improving the U.S. retail business, reigniting the emotional attachment with customers, and making long-term changes to the foundations of the business.
Schultz focused on getting stuff done rather than reading news coverage; his work habits became more focused with solo quiet time. On this topic, see the busyness vs. productivity section of the product vs. packaging mental model.
See also Cal Newport’s “ Deep Work” – DpWk review + notes – and Shawn Achor’s “ Before Happiness” – BHA review + notes. Deep Work covers that “solo quiet time,” while Before Happiness touches on signal vs. noise in the context of news.
Not only was Schultz facing internal challenges, but also a rough external environment (we’re coming up on the global financial crisis – this is late 2007 / early 2008).
The company eventually retained a consulting firm that provided real value by using the Beatles as a model / case study for what icons need to do. In addition to recognizing and responding to the zeitgeist, one of the important takeaways was “disrupt yourself before someone else does” – one of my core takeaways of studying fifteen decades of American retail.
In addition to putting a lot more emphasis on barista training, Schultz made himself available to partners (not customers, but still reminiscent of jeff@amazon and ceo@salesforce – Schultz believes that happy partners lead to happy customers lead to happy shareholders, so in this sense, it makes sense that he was very focused on the frontline retail employees.
This is really not dissimilar to Sam Walton’s approach as described in the aforementioned Made In America, which Wal-Mart has obviously gotten away from today, perhaps known for often unhelpful and unmotivated associates rather than vice versa. It’s probably more similar to Kip Tindell’s approach at The Container Store, explored in depth in Uncontainable” ( UCT review + notes).
Schultz also did have a clear customer focus – see his declaration at the top of page 201 about taking it personally when he sees someone carrying a non-SBUX coffee.)
Schultz realized that by being purists about dark-roasted coffee, Starbucks was alienating customers who like tasting flavors other than “burnt” (see my somewhat self-effacingly Millennial foodie screed in the intro to my review of Pour Your Heart Into It). They eventually introduced Pike Place Roast (which is still terrible according to my palate, but clearly it worked better than whatever they were selling before.)
On the financial front, Schultz also made the widely-criticized (by analysts) decision to stop reporting comps – as I discussed earlier, he believed the company’s focus on driving comps had led to other things falling by the wayside (see: local vs. global optimization mental model).
Starbucks also acquired “Clover,” a small 11-person manufacturer of an innovative coffee-brewing machine (SBUX prided itself on its espresso drinks, but felt it wasn’t as up to snuff on brewed coffee.)
Schultz also realized that its one-way, Web 1.0 online approach was not what they needed. On vacation in Hawaii, Schultz had a conversation with Michael Dell about their “IdeaStorm” customer feedback platform built on the Salesforce CRM; it turned out Marc was also in Hawaii (the perks of being a wealthy CEO – you get to hang out with other wealthy CEOs!)
Similarly to Jeff Bezos using their earnings report as a deadline for getting Prime launched, Schultz used the Starbucks annual meeting as a go-live date for the “GreenStorm” customer feedback project as well as the fair trade initiative, the rewards program (now very successful and in fact a model for mobile payments for other companies), the new espresso machine “Mastrena.”
Interestingly, all this focus and innovation didn’t really yield much in the way of positive PR – particularly from the investment community, which more or less pooh-poohed Starbucks’ efforts – Schultz believed that outsiders failed to understand the nuances and the internal attitude shift from “comps” to “customers” (my lingo, not his).
Schultz continued with his plan, though, next axing the excessive entertainment follies that he viewed as distractions from the core retail business. (Starbucks, probably wisely, later turned down a potential partnership with Blizzard’s World of Warcraft.)
Not everything was a success – notably, the “Sorbetto” beverage launch (intended to be the heir of the Frappuccino) failed for both unit-economic and other reasons, and Schultz realized that there was no silver bullet to save the company – just a lot of doing little things right.
They also seemed to be open to trying new things, such as an election-day “get out the vote” campaign where they gave vscoters a free coffee (which, seemingly, sparked an understanding of how traditionally advertising-lite SBUX – see Schultz’s commentary in “Pour Your Heart Into It” – PYH review + notes- could occasionally use it to their advantage.)
Additional realizations, as the economic backdrop worsened, were that the company needed massive upgrades to its IT – baristas were now enthusiastic and motivated, but just didn’t have enough tools to do the job. Continuing his trend of not relying too much on resumes the way other people would read them, Schultz hired a 32-year old with no retail experience to become the CIO – the youngest for a Fortune 500 company at the time.
Another challenge was fixing the supply chain organization, which had been a blind spot with SBUX’s historical focus on quality coffee (not the seemingly pedantic aspect of getting it to stores). In addition to more back-office focus, Starbucks eventually also embraced a bottom-up, in-store Lean approach (See pgs 281 – 285 for the Lean discussion.)
Separately, a lot of recent openings had been undisciplined on site selection, leading to 20% of stores opened in the past three years needing to be closed (a far cry from the 2% closure rate that Schultz cited for SBUX’s first decade in Pour Your Heart Into It – again demonstrating the challenges of scaling.
Later, Starbucks also laid off 1,000 corporate (i.e. not in-store) employees. It seems like it was a hard decision, but Schultz implies that it was more important to lose the shoe and save the foot… the company later (fall 2008, when everything was falling apart) started modeling what things would look like if comps went down 20%+, and the BoD strongly encouraged them to make deep cost cuts “Plan A.” At the same time, the company wasn’t stingy on spending money in areas where it saw a payoff, including a big conference in New Orleans that seemed to re-energize the organization and help attendees clarify their values.
Schultz notes that the failed “Mazagran” product from the 1990s is kept on his desk to remind him to:Celebrate, learn from, and do not hide from mistakes. - Howard Schultz, ex-Starbucks CEO Click To Tweet
A great example of growth mindset.
He was still focused on innovation and (at this point recounting the PYHII story about immunologist Don Valencia) decided that one market that hadn’t seen any innovation in a very long time was instant coffee – a project which SBUX had been working on throughout the mid to late 2000s.
After Valencia’s passing, VIA was eventually launched in February 2009, again to boos from the peanut gallery. Schultz used a party trick to introduce it to the media: at the launch conference, SBUX gave everyone coffee that they thought was Colombian or Italian whatever, but turned out to be VIA – and of course, everyone was fooled.
I haven’t mentioned it up until now, but there’s also a lot of examples of you either die a hero or live long enough to become the villain (not an official mental model) in Onward – the anecdote on p. 264 about the UK’s business secretary taking a potshot at both Starbucks and Schultz personally is a prime example, but throughout the book, there are examples of how Starbucks was often a lightning rod for media/blogger criticism (even when its customers were relatively happy with it).
With a lot of the “critical” issues taken care of, Starbucks didn’t rest on its laurels, but pressed ahead solving new challenges: redesigning the U.S. stores to be more attractive and inviting, expanding in areas like China (while catering to local tastes just as they did when porting Italian coffee to the U.S. – see Eleven Commandments essay).
The “Tribute” chapter (p 313 on) briefly recaps some of the major initiatives of the turnaround and provides retrospective looks at how they did.
# Times Read: 2
Planning To Read Again? maybe
First Read: Spring 2015
Last Read: Summer 2017
Review Date: Summer 2017