Per-Hour Learning Potential / Utility: ★★★★★ (5/7)
Readability: ★★★★★★ (6/7)
Challenge Level: 1/5 (None) | 368 pages (official)
Blurb/Description: Published in 1999, Pour Your Heart Into It is the origin story of Starbucks: how they went from local Seattle coffee roaster to global phenomenon.
Summary: So here’s the ironic thing about me loving this book: I don’t even like Starbucks; I can’t tell if their beans are good or not because they basically do everything short of subjecting them to the nuclear apocalypse before serving them to you – if your beans are dark and oily, you’ve roasted them too far, and all you’ll taste is “bitter” (no flavor). I only patronize indie third-wave coffee shops and buy ridiculously expensive single-origins… yes, I’m that Millennial, apparently.
But the truth is that I have Starbucks to thank for my frou-frou coffee tastes: without them, arguably, coffee would never have grown from a commodity substance into a gourmet good like wine.You may not remember when coffee was only scooped out of a can… before the late 1980s, hardly anyone in the United States ordered an espresso. - Howard Schultz, ex-Starbucks CEO Click To Tweet
Pour Your Heart Into It is somewhat light on operational/business details, but heavy on inspiration and raw determination. I’d forgotten how much I enjoyed this book until I reread it.
Highlights: Schultz’s conversational tone, raw determination, and detailed explanation of how he faced various problems. There’s some particularly good discussion around how he mitigated his ego that we can all learn from.
Lowlights: While Schultz alleges that “[w]e treat warehouse workers and entry-level retail people with the kind of respect most companies show for only high executives,” it’s not clear that mantra has remained as Starbucks has grown – for example, see this piece from 2014: In fairness, this is non-unique, as similar things could be said about Wal-Mart’s culture (at least after Sam Walton’s death).
Mental Model / ART Thinking Points: agency, base rates, zero to one, trait adaptivity, margin of safety, planning fallacy, planning, culture, status quo bias, planning, intuition, zero-sum games, absolute vs. relative skill,
You should buy a copy of Pour Your Heart Into It if: you like coffee and want to know the story of how it got to be drinkable, or if you’re looking to start your own business and need some rah-rah. (I mean that in a good way.)
Reading Tips: The book weakens around page 250… it gets repetitive and far less interesting… on my second read-through, I really rapidly skimmed the last part of the book and would recommend that somewhere in this neighborhood, readers close up shop and skip on to Onward, which is worth reading.
Pairs Well With:
The Everything Store (TES review + notes) – Starbucks and Amazon are very different businesses, but there are some surprising similarities between Bezos and Schultz.
Reread Value: 3/5 (Medium)
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.
The full version of the intro quote:
“If you are under the age of 30, you may not remember when coffee was only scooped out of a can, dripped from a vending machine or from a lukewarm stainless steel pot in an office break room, and served in a Styrofoam cup or a diner mug… before the late 1980s, hardly anyone in the United States ordered an espresso or a non-fat latte with extra foam.”
Schultz doesn’t pull any punches at the beginning, starting with a brutal (though very brief) vignette about his hardscrabble upbringing as the son of a blue-collar family living in the projects. By his own description, he comes “from common roots, with no silver spoon, no pedigree, no early mentors” – and yet achieved success – his goal isn’t to tell you how to run a business, but rather to:
“reassure people to have the courage to persevere, to keep following their hearts even when others scoff.”
Schultz appeared to be relatively close with his family (except his father), and especially with his brother Michael, who was eight years younger and followed Schultz everywhere – he garnered the nickname “The Shadow.”
Schultz received one football scholarship offer, to the University of Northern Michigan, but didn’t end up playing and made it through college with a B average on loans, becoming the first graduate in his family. He was determined to become successful:I willed it to happen. I took my life in my hands, learned from anyone I could, grabbed what opportunity I could, and molded my success step by step. – Howard Schultz, ex-Starbucks CEO Click To Tweet
After college, Schultz ended up in Xerox’s sales training program, where he:
“learned more… about the worlds of work and business [than in college.]”
He moved on to a Swedish housewares company and was doing very well professionally/financially. In the process, he discovered selling “has a lot to do with self-esteem.”
Nonetheless, Schultz felt like he was missing something. In an example of luck, he noticed that a small coffee chain in Seattle was ordering more of a certain type of coffeemaker than all of Macy’s, so he went to investigate
At the flagship store in Pike Place Market, he saw the attention and care they put into their coffee, at a time when nobody thought of it as a premium product, an example of zero to one.
(Note: it seems that Starbucks’ heritage of wildly over-roasting its coffee started from Day 1; Schultz described the coffee as the “blackest he’d ever seen” – ugh… but anyway.) One of the founders was also running a microbrewery – remember, again, this is 1979/1980 we’re talking about…
The “spiritual grandfather” of Starbucks was Alfred Peet (who founded Peet’s coffee), one of the first to bring higher-quality “arabica” coffee to the U.S. (Peet was, shamefully, also a proponent of dark-roasted – BOO.)
Anyway, the Starbucks founders either had to mail-order from Peet’s or drive up into Canada to get quality coffee – so they started their own coffee shop. Notably, business analysis would not have suggested this was a good idea, in the sense that coffee consumption had been gradually declining since 1961.
Schultz fell in love and campaigned for a year to work at Starbucks; at first they turned him down because they were cautious about his grand visions for the business, but he basically bulldozed them into giving him a job,
After a trip to Italy where he encountered espresso bars, Schultz realized that Starbucks (at the time only a coffee-bean store) was not at its full potential.
Unfortunately, his suggestion was turned down, because Starbucks’ management was more interested in acquiring Peet’s (with a debt/equity ratio of 6:1). It seems like this didn’t go well, and Schultz took away a number of management lessons (debt is bad, listen to your employees and make sure they feel valued, etc).
A year later, Schultz was finally allowed a tiny 300-sqft experiment in the corner of a new 1,500 sqft Starbucks to try the espresso bar concept – and it took off, with lines spilling out the door. Unfortunately, management still didn’t want to “go into the restaurant business” – they liked the purity of being coffee roasters – so Schultz left to start his own company.
Schultz paints himself as the classic underdog:Adversity can be invigorating... part of me relished that so many people said my plan couldn’t be done. No matter how many times people put me down, I believed strongly I could pull it off. - Howard Schultz, ex-Starbucks CEO Click To Tweet
He raised $400K in seed money, $150K from Starbucks and $100K from a doctor who didn’t even want to look at the financial projections, but believed in Schultz. And then came something that 225 people lived to regret very, very much:In the 1980s, Howard Schultz needed to raise another million dollars to open 8 locations of a newfangled espresso-bar concept called Starbucks. He approached 242 prospective investors. 217 said no. Click To Tweet
I’ve always found that inspiring. I have “Schultz 200” Sharpied on a book cover pinned to my wall as a motivational note. Eventually, he got there.
Schultz notes, insightfully, that:
“as a parent, or as an entrepreneur, you begin imprinting your beliefs from Day One, whether you realize it or not […] it is difficult, if not impossible, to reinvent a company’s culture… by then, the water’s already in the well, and you have to drink it.”
He credits Dave Olsen, who joined the company after having run his own indie shop for 10 years, as being instrumental in helping set the tone.
But here, quickly, for example, Cass Sunstein and Richard Thaler discuss in “Nudge” (Ndge review + notes) the surprising degree to which completely arbitrary cultural phenomena in research settings can persist across generations.
It’s not just in humans, either. There is some evidence that birds pass along culturetoo. Jennifer Ackerman’s “ The Genius of Birds” ( Bird review + notes) includes a number of fascinating explorations of culture in a bird context, including the fact that escapted cockatoos taught their friends in the Australian Outback the naughty words they’d learned from humans.
And, finally, Dr. James Lock – in Dr. Jerome Groopman’s “ How Doctors Think” (HDT review + notes) – observes that a completely unscientific practice for needle insertion to drain fluid from the heart persisted for the better part of a century.
Why? Easy: because that was the way it had always been done and nobody thought to question it.
Back to Starbucks: one of the early learnings was that it was less important to be 100% authentic to Italian shops (no chairs, opera playing, only ceramic cups, etc) and more important to bend slightly to meet the needs of the Seattle market.
Meanwhile, the original Starbucks founders wanted to sell Starbucks, with one wanting to exit the business and the other to focus on Peet’s; Schultz was game to buy but one of his own investors tried to stage a coup. Schultz found new investors and on August 18, 1987, became the CEO of Starbucks as it now exists today. (Nice anecdote on 106 – 107 about why they chose the SBUX name over Il Giornale.)
After getting the Seattle house in order and fixing employee morale, Schultz decided it was time to open a store in Chicago to prove the concept was portable:
They did make mistakes – for example, not realizing that in cold/windy Chicago, the store should open into a lobby rather than onto the street; it also took customers time to get used to the new concept. What do we learn from this on trait adaptivity?Trait adaptivity is a common lesson in entrepreneur books. What works in one environment doesn't always work in another. Click To Tweet
(And retailers often get in trouble by going too far beyond their circle of competence – as explored in “ Uncontainable” ( UCT review + notes), The Container Store had to change up a lot of processes to open up a store in New York City, but they wisely passed on expanding into Europe because it wa stoo far afield.)
Los Angeles was easier for Starbucks – the LA Times named Starbucks Best Coffee In America before they even opened the store. A technological enabler of their store was FlavorLock bags, which allowed them to ship coffee that would stay fresh rather than having to build roasting plants everywhere.
Inspired by his father’s death from cancer and the knowledge that retail employees were the frontline of the business, Schultz decided to extend full healthcare benefits to part-time retail employees (anyone who worked 20 hours a week or more) and for this, was invited to the White House to meet President Clinton. He also introduced an options program (before the company went public) called Bean Stock (pun!)
On the financial side of things, Schultz was comfortable investing ahead of the curve, noting on planning that:You can’t build a hundred-story skyscraper on a foundation designed for a two-story house. - Howard Schultz, ex-Starbucks CEO Click To Tweet
He also notes the planning fallacy: that
“Things are going to take longer and cost more money than you expect”
Certainly something I’ve found to be true (both as an analyst and as a startup hedge fund manager…) Margin of safety is thus important.
Starbucks executed very well on siting, needing to close only two locations out of the first 1,000.
P 146 – 147 – good note on how isolated it can feel to be an entrepreneur/CEO – Schultz ended up looking for (and finding) a mentor.
One thing Schultz seemed to be consistently good at was mitigating his ego and listening to people who were smarter than him – he hired executives with more experience and forced himself to delegate power – but it wasn’t easy, as he notes succinctly and insightfully:
“My identity had quickly become so closely tied up with that of Starbucks that any suggestion for change made me feel as if I had failed in some aspect of my job.”
He calls out Howard Behar specifically as being a major positive – he took a different tack (candor and openness) vs. the traditional, reserved, respectful Seattle culture. (Note: Behar has written a book, It’s Not About The Coffee, that has been on my shelf for several years now, but I haven’t
Schultz also understood the importance of execution, recognizing the need to balance creativity and entrepreneurialism with grown-up management:Processes and systems, discipline and efficiency are needed to create a foundation before creative ideas can be implemented and entrepreneurial vision can be realized. - Howard Schultz, ex-Starbucks CEO Click To Tweet
This is a good bit on process as well as intuition; Tindell notes in “Uncontainable” (UCT review + notes) that intuition only comes to the prepared mind – in fact, it’s one of The Container Store’s Foundation Principles.
Orin is described as the Roy to Howard’s Walt; the slower, more deliberate thinker (vs. Schultz being an intuition guy). Schultz eventually named him COO and let him run the day-to-day of the business.
He remained focused on driving change to offset status quo bias and complacency:We're seldom motivated to seek self-renewal… even when life seems perfect, you have to take risks and jump to the next level, or you’ll spiral downhill into complacency without even realizing it. - Howard Schultz, ex-Starbucks CEO Click To Tweet
“as good as business was, I could never leave well enough alone.
And, in fact, I think my constant fiddling and messing with the status quo may have been one of my biggest contributions to the later success of Wal-Mart.”
It’s something that happens a lot.
“we [humans] are seldom motivated to seek self-renewal when we’re successful… when the fans are cheering, why change a winning formula? … because the world is changing…
even when life seems perfect, you have to take risks and jump to the next level, or you’ll start spiraling downhill into complacency without even realizing it.”
He eventually hired an immunologist who had been messing around with coffee extracts (as a hobbyist) to run a Starbucks R&D department.
Schultz also recognized the importance of meeting customers halfway: while there was, for a while, a debate over whether or not to offer non-fat milk, Schultz saw a potential customer walk out of the store to head to a competitor’s shop, and noted that:A lost customer is the most powerful argument you can make to a retailer. - Howard Schultz, ex-Starbucks CEO Click To Tweet
Later, Schultz was initially opposed to the Frappuccino, but remembering this incident, allowed the organization to test and perfect it – and it became a major (high-margin!) product for SBUX.
Over time, Schultz came to realize that many customers (particularly young ones) were coming not just for the coffee, but for the ambience and the “Third Place” – somewhere that isn’t work or home where they can socialize, relax, or work.
Starbucks bent on a few other things too – at first, Schultz was vehemently anti-franchise, believing that they would be giving up quality; however, faced with the reality that airport stores are concession-operated, Schultz decided to go down that path.
After going public, the company continued with an aggressive expansion pace, partly because their systems (repeat the same thing 100 times) and brand (attracting customers, as well as managerial talent, in new markets) allowed them to, but partially also because everyone else had woken up to the cafe trend and there were a lot of chains gunning for share.
The 1994 coffee crisis forced SBUX to raise prices modestly, focus on efficiency (which had historically not been a big focus), and also stood as a bit of a watershed moment for the brand – they could easily have lowered their quality standards a bit without consumers noticing, but they chose not to.
Speaking of branding, they spent less than $10MM on advertising (cumulatively!) in the decade following 1987 – the customer value proposition was their advertising (although once they reached some scale, and probably had more competition, they did start doing more advertising).
# Times Read: 2
First Read: Spring 2015
Last Read: Summer 2017
Review Date: Summer 2017
Notes Date: Summer 2017