March 18, 2011 5:19 pm

Lunch with the FT: Howard Schultz

Howard Schultz

When I arrive at Barney Greengrass, the Upper West Side family delicatessen whose former owner Moe Greengrass was known as The Sturgeon King, there is no sign of Howard Schultz near the long counter of cured fish. I find him in the restaurant to the side, sitting at a Formica-topped, metal-legged table with Moe’s son Gary, who inherited the place.

Barney Greengrass is a relic of New York in its mid-20th century glory, when it was the global capital of business glamour, and the immigrant diaspora flocked to a joint that reminded it of family and home. Nothing much has changed. It has the same dingy green walls, the same tables packed together, and waiters exchanging the same barbed repartee with regulars. As the founder and once more chief executive of Starbucks, 57-year-old Schultz oversees 17,000 coffee stores from Seattle to Shanghai. But he first came here with friends as a teenager, taking the subway from his home in Brooklyn.

Barney Greengrass is a symbol not only of where Schultz came from but what he left. Among the photos of Hollywood actors on the wall is Leonardo DiCaprio filming a scene in the restaurant for Revolutionary Road, the film of the Richard Yates novel about a couple who long to leave New York for Paris but end up miserably in suburbia. They don’t escape, but Schultz did.

I have persuaded him to choose a place that means something to him, rather than a standard Manhattan restaurant. He has told his story so many times (how in 1982 he joined a small Seattle company called Starbucks, how he visited a Milan espresso bar and was inspired by the experience, and how he went on to buy the company) that I fear that he has nothing left unsaid.

 

He is now telling it again, focusing on the recent chapters, when Starbucks faced a crisis of over-expansion and loss of identity in 2007. Schultz, who was then chairman, responded by ousting the chief executive and reclaiming his old job. Things are looking up again as Starbucks marks its 40th anniversary this month and he has a book coming out about his return to the company and the rebound, named with typical ebullience Onward: How Starbucks Fought for Its Life without Losing Its Soul.

Schultz looks comfortably ensconced with Greengrass, chatting about the old days, but is never entirely at rest. He is tall and lean, with a big, friendly, leonine face that he thrusts close to me as I sit down. He has taken off his jacket and perches on the front of his chair in a white shirt and black tie – like the marketing executive he was before Starbucks – gazing intently as he makes his pitch.

I ask what he is up to in the city, besides publicising his book and Starbucks’ anniversary. “My kids are here,” he says. “My son is trying to be a sports writer and my daughter is a college student. She wants to be a comedy writer and she’s at film school. I discouraged both of them early on from getting involved in Starbucks. I didn’t think it would be fair, plus they didn’t have any interest anyway.”

. . .

We glance at the menu, a bafflingly long list of eggs and cured fish served in multiple combinations. “It’s authentic food and it’s relaxed and I’ve known Gary for many years. It’s kind of an extension of your house, really. It reminds me of my mother’s food,” Schultz says.

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We talk about Brooklyn for a while, a borough whose reputation as a rough melting pot has changed in the past few years towards becoming a symbol of gentrification. I live in Park Slope, the epicentre of the shift. “That’s not really Brooklyn,” Schultz says quickly. I mention another chief executive I’ve met who grew up in Bensonhurst. “That’s Brooklyn,” he says approvingly.

“You guys want to order?” The waiter says, arriving abruptly.

“I’m going to have the salmon with eggs,” Schultz says.

“Bagel or bialy?”

“Bialy. With pickled herring to start. And bring a little whitefish salad.”

I order sturgeon and salmon with scrambled eggs and onions.

“You want a bagel or a bialy, my friend?” the waiter says.

I admit that I have never tasted a bialy, an east European variation on a bagel with no hole in the middle. “Well, you’re about to have a new experience then. I’m really excited,” the waiter says laconically, walking away.

“And whitefish salad,” Schultz reiterates after him.

“Yeah, yeah,” the waiter says.

The Brooklyn where Schultz grew up was Canarsie, a rugged district between Coney Island and John F Kennedy airport. “It was a good childhood but it was tough,” he says. “My father was uneducated, an army veteran in the South Pacific. He had a series of tough, tough jobs. As a child, you saw the pressure and his personal lack of achievement and how that started eroding his self-esteem and self-respect.

“My mother was also uneducated but she had an innate spirit about America, that you could do anything.” She sounds as if she had more faith than his father, I say. He nods. “She had this incredible relationship with JFK. I mean not personal, but she believed in him. I haven’t talked about this in 100 years. When he was assassinated, it was an unbelievable emotional moment, just days on end of her being moved to tears and depression.”

He was 10 at the time. The same year, his aunt took him to Manhattan for the first time in his life. After visiting Radio City Music Hall they went to an automat restaurant, where the food items were displayed behind windows on a long wall and customers put coins into slots to release them. Schultz was stunned by the theatricality of it. “I said: ‘Aunt Shirley, how?’ She said: ‘There’s a magician behind the wall’ and I believed her.”

. . .

The automat’s “romance, its emotional connection to the customer” stuck with Schultz. He won a scholarship to Northern Michigan University and then returned to New York to work first for Xerox and then Hammarplast, a Swedish coffee machine maker. His job took him to the Pacific coast in 1981 to visit Starbucks in Seattle.

“As soon as I got off the plane, it was one of those phenomenal days when the sun was shining and the snow was ... it was just like magic, unbelievable euphoria. As I was driving into the city, I felt like I was in The Wizard of Oz: ‘Where am I? What is this place?’.” He laughs. “No one told me that it rained half the time.”

 
The first Starbucks in Seattle

The first Starbucks, Seattle

Our waiter returns, thumping various plates of food down on the table. There is a lot of it. “Let me give you the whole thing,” Schultz says, pointing around each dish in turn. “This is whitefish salad. Taste it. Tell me how good that is.” I obey and nod. It is fresh and tasty. I bite into some of the herring as Schultz continues his story.

He first had to persuade the owners of Starbucks to employ him as their marketing director. It took a year because they found his New York intensity and ambition intimidating. “We became friends, trust was built, my intentions were honourable,” Schultz says. It sounds endearingly old-fashioned, as if he were asking for their daughter’s hand in marriage.

In 1985, he had to work on his real-life father-in-law, who arrived for a visit from Ohio when Schultz had left Starbucks (which, despite a successful pilot, had refused to roll out his espresso bar concept). He was trying to raise money to open his own chain of coffee bars in Seattle and Vancouver, called Il Giornale, and was working for no pay. His wife Sheri was about to have their first child.

“He asked me to go for a walk. I knew what was coming. We sat down on a park bench. As God is my witness this is exactly what happened. He says: ‘I don’t want to be disrespectful but I want you to see the picture I’m looking at. My daughter is seven months pregnant and her husband doesn’t have a job, just a hobby. I want to ask you in a heartfelt way, with real respect, to get a job.’

“I started to cry, I was so embarrassed. We went back to the house and I really believed it was going to be over. That night in the privacy of our bedroom, I told my wife the story. I was so disappointed. Not angry, disappointed. She was the one that said: ‘No, we’re going to do it. We’ll raise the money.’ If she’d said: ‘He’s right,’ it would have been over. I’m sure of it.”

. . .

He reflects that his feelings for the business are still like “a love story” and then pivots skilfully into the reason for our lunch – his return to the company in 2008, eight years after he’d stepped back from day-to-day management to be chairman. I mention that his account of the crisis in his book makes it sound like a psychological shock as well as a financial one. He writes about being unable to sleep at night and being too tense to eat breakfast.

Schultz nods. “I was seeing something dying that was an extension of myself and I had no influence. I’d given up the CEO title and I wasn’t paying attention. The week I came back, I stood up in front of everyone and apologised for letting them down. This was never a job, this was not a company, this was my life’s work and I was watching it fade away. It was turning into something I didn’t admire.”

Although Schultz is generous in the book about Jim Donald, the former chief executive, he is scathing about the way that Starbucks had “become operationally driven, about efficiency as opposed to the romance”. He waves around the room. “This is an experience. If a professional manager came in here, he’d say the place isn’t very efficient, let’s clean it up. We’d lost the soul of the company.”

Did he need to take the reins himself? “I knew where the bones were buried in a way, and I had the licence from people to do things that were necessary, even unorthodox ones such as closing all the stores for retraining for half a day. We had to admit that we weren’t as good as we had once been. It was not about how many drinks we made per hour but making the perfect beverage.”

Appealing though Schultz’s narrative is, I visit Starbucks not because I am in love with its stores but because it offers a reliable level of quality. If I want something quirky and adorable, I will go to an independent. Surely, I suggest, he does not think that a corporation with 17,000 stores can combine size with Barney Greengrass-style authenticity?

Schultz glances down, as if realising that he has not yet closed the deal. “You can. You can,” he says quietly. “We’re doing it right now.” He still looks disappointed by my question and he switches to corporate language. “I appreciate you coming in, for whatever reason. Customers have different need states and life experiences. Our aspiration is to exceed their expectations whatever their need states might be.”

We tussle for a while longer, with Schultz recalling a company-wide conference in New Orleans in October 2008, just after Lehman Brothers collapsed, at which he stood up in front of 10,000 store managers and appealed for help. “I displayed my own vulnerability and said: ‘Howard Schultz cannot transform Starbucks alone. We’ve let our customers down and we can only do this if all of you know what it means not to embrace mediocrity’.”

The waiter appears with a cup of tea for Schultz and some fruit and babka, an east European yeast cake with chocolate, for both of us. “The challenge of the retail business is the human condition,” he says. “We’re only as good as the moment, that fragile moment when we please or hopefully don’t disappoint the customer.”

Schultz’s remedy appears to have worked because Starbucks’ earnings and its shares are rising, and it is again rolling out stores. He has just returned from visiting China (Starbucks has 400 stores in mainland China) and Kuwait. “We are back growing again, but I would say not in the same somewhat reckless way.”

His lasting achievement may not be individuality but convergence. He talks happily of visiting Kuwait, which is a long way from Brooklyn. “The physical environment and coffee bring people together, like the British pub 30 years ago. I walked into one store and it was packed. The people were dressed differently but they were doing the same thing as they do here. It’s about humanity.”

Preparing to wind up, I ask him why he does not relax. His stake in Starbucks is worth $540m and he has achieved everything he could have imagined as a boy in Brooklyn, yet he is still nervy and driven, seeking not only growth but also approval. As he ponders this, the waiter arrives with the bill and a family at the next table say hello. Finally, he returns to the question.

“Let me try to answer. I think my whole life, because of where I came from, I had a fear of failure. Sitting in front of you now at the age of 57, and having achieved what most people might think is the American Dream, I still have it. That’s what drives me. I can’t answer the question intellectually, I just feel it.” He grins as if mystified by his own nature. “But it’s honest.”

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Barney Greengrass

541 Amsterdam Avenue, New York

Whitefish salad $12.00

Pickled herring $9.00

Nova Scotia salmon scrambled with eggs and onions $14.00

Sturgeon and Nova Scotia salmon scrambled with eggs and onions $17.75

Tea and soft drinks $11.50

Total (including tax) $70.20

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John Gapper on the second comings of chief executives

Howard Schultz’s return to run Starbucks as chief executive three years ago puts him alongside other entrepreneurs who have handed over power to a professionally trained manager after launching their companies, only to be disappointed by the result.

The best-known and most successful example of recent business history is Steve Jobs, who was pushed out of Apple in 1985 by John Sculley, whom he had himself recruited from PepsiCo. Jobs eventually returned to the helm in 1997 as “interim CEO” and started Apple’s spectacular revival, culminating in the business becoming the second most valuable US company.

Other company founders have not done so well. Jerry Yang, one of the co-founders of Yahoo, returned as chief executive after stepping back to become “Chief Yahoo” and handing over power to Terry Semel. He took back the lead role at the troubled company in 2007 but failed to solve its problems and stepped down again in 2009.

Michael Dell pioneered the direct selling model in the personal computer industry and then stepped down as chief executive in 2004, ceding day-to-day power to Kevin Rollins. Three years later, he took back the job but has since struggled to restore Dell’s earlier lustre.

The phenomenon of the founder’s return is particularly common in the technology industry because so many founders of large companies are still alive and young enough to take back power. They also tend to have a large enough stake in their enterprises to impose their will.

However, it also occurs sometimes in other industries. A notable example in the financial services sector was Charles Schwab, a pioneer of discount retail stockbroking in the US who ousted David Pottruck as chief executive in 2004 after his eponymous company strayed from its roots.

Strictly speaking, Schultz was not the founder of Starbucks – it was launched 40 years ago this month by Jerry Baldwin, Gordon Bowker and Zev Siegl – but it was Schultz who transformed it from being mainly a chain of stores selling coffee beans into a coffee bar business after buying it from the founders in 1987.

Schultz argues that many companies go through the same phase as they grow of “bringing in professional management to manage what we’d built ... [Then] the entrepreneurs and the creative people are subordinated by the MBAs.” That was what prompted not only his return but those of many others.

John Gapper is chief business commentator of the FT

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