The Single Biggest Lesson
Howard Schultz built Starbucks by treating employees as partners long before it was fashionable to do so, proving that sustainable growth comes from investing in people first. His clearest lesson for any entrepreneur is that culture and financial discipline are not opposites. They must be built together, deliberately, from day one.
Howard Schultz is the businessman most closely associated with turning Starbucks from a small Seattle coffee roaster into a global retail phenomenon. He joined the company in 1982, left to start his own coffee bar business, then bought Starbucks in 1987 and expanded it internationally. He served as chief executive across several periods, including a notable return in 2008 to steer the company through the financial crisis, and again briefly in 2022. His career offers a rare, long-running case study in brand building, employee relations, and the tension between rapid growth and maintaining quality, making him a genuinely useful figure for any business owner to study closely.
Build the Brand Around an Experience, Not a Product
When Schultz travelled to Italy in 1983, he was struck by the atmosphere of Milanese espresso bars rather than the coffee itself. He saw how these bars functioned as community gathering points, places where people lingered, talked, and returned daily. This observation shaped his vision for what Starbucks could become. Rather than simply selling roasted beans, he wanted to sell an experience built around comfort, familiarity, and a sense of belonging outside home and work. This idea later became known as the “third place” concept, and it became the organising principle behind store design, seating, music, and even the pace of service. It was not an obvious idea at the time, since Starbucks originally only sold coffee beans and equipment, not brewed drinks.
How to apply this to your business: Identify the emotional experience customers actually want, not just the product they are buying, and design every touchpoint around that experience. Ask what problem or feeling your business solves beyond the transaction itself, then build your physical space, service style, and communication around reinforcing that feeling consistently.
Invest in Employees Before You Are Forced To
In 1988, while Starbucks was still a relatively small company, Schultz introduced comprehensive health insurance for eligible part time employees working as few as 20 hours a week. This was highly unusual in retail and food service at the time, where part time staff rarely received such benefits. He also introduced the Bean Stock programme in 1991, giving employees stock options tied to company performance, turning baristas into part owners of the business. These decisions were made when the company had limited cash and plenty of pressure to cut costs instead. Schultz has repeatedly said this came from watching his own father, a truck driver, struggle without benefits or security after a workplace injury, which shaped his belief that how a company treats its lowest paid workers reflects its true values.
How to apply this to your business: Treat employee benefits and ownership as a long term investment in retention and service quality, not a discretionary cost to cut when budgets tighten. Even modest gestures, such as flexible scheduling, profit sharing, or genuine career progression, can build the loyalty that reduces costly turnover.
Say No to Easy Money That Threatens the Brand
In the early years, Schultz turned down opportunities to franchise Starbucks rapidly, even though franchising would have brought in cash faster and reduced his own capital risk. He believed that franchising would dilute quality control and weaken the customer experience he was trying to build, since franchisees would have different incentives around cost cutting and consistency. Instead, Starbucks grew primarily through company owned stores for most of its expansion, giving it direct control over training, sourcing, and store atmosphere. This was a slower and more capital intensive route, requiring Schultz to raise money repeatedly through investors rather than relying on franchise fees to fund growth.
How to apply this to your business: Before accepting a growth shortcut such as franchising, licensing, or a large but demanding client, weigh whether it will dilute the standards that make your business distinctive. Growth that compromises consistency often costs more in reputation than it saves in capital.
Expect Rejection and Keep Refining the Pitch
When Schultz tried to raise capital to buy Starbucks in 1987, he approached roughly 242 potential investors, and the majority turned him down. Many were sceptical of the price he wanted to pay, the size of the coffee market, or the idea that Americans would pay a premium for espresso drinks rather than instant coffee. Schultz has spoken openly about how discouraging this period was, yet he kept refining his pitch, adjusting his financial projections, and seeking out investors who understood retail and consumer brands rather than pure financial return. Eventually he secured enough backing to complete the acquisition, which became the foundation for the company’s expansion throughout the 1990s.
How to apply this to your business: Treat repeated rejection from investors, customers, or partners as information rather than a verdict on your idea. Refine your pitch and target the people who genuinely understand your market, rather than assuming volume of rejection means the idea itself is flawed.
Return When the Company Loses Its Way
By 2007, Starbucks had grown extremely quickly, opening thousands of new stores annually, and Schultz became concerned that this pace was eroding the in store experience that had built the brand. He wrote an internal memo, later leaked publicly, warning that decisions made for the sake of growth had led to a “watering down of the Starbucks experience” and a loss of the “soul of our heritage.” In January 2008, he returned as chief executive after an eight year absence from the role, a period during which the company had drifted from some of its founding principles under different leadership. His return coincided with the onset of the global financial crisis, making the turnaround even more difficult.
How to apply this to your business: Monitor for warning signs that rapid expansion is quietly eroding the qualities that made your business succeed in the first place, and be willing to slow down or step back in personally if standards start slipping. It is often easier to prevent decline early than to reverse it once customers have noticed.
Make Hard, Symbolic Decisions During a Crisis
In February 2008, shortly after returning as chief executive, Schultz made the decision to close more than 7,000 Starbucks stores in the United States simultaneously for a single afternoon. The stores closed so that baristas could be retrained in proper espresso preparation, addressing concerns that drink quality had declined during the rapid growth years. This decision cost the company an estimated several million dollars in lost sales for that afternoon and drew criticism from some investors and media commentators who saw it as a wasteful publicity stunt. Schultz defended it as a necessary signal, both to employees and customers, that quality and craft mattered more than short term sales figures.
How to apply this to your business: When quality or culture has slipped, consider a visible, decisive action rather than a quiet policy memo, since symbolic moves communicate seriousness to both staff and customers. Accept that some short term cost is often the price of protecting long term brand credibility.
Cut Costs Without Cutting Core Values
During the 2008 financial crisis, Starbucks faced falling sales, a declining share price, and pressure to slash costs aggressively. Schultz closed around 600 underperforming stores in the United States and cut thousands of jobs, difficult decisions that were necessary for survival. However, he resisted pressure to eliminate employee health benefits, arguing internally that cutting healthcare would save relatively little money compared to the damage it would do to trust and morale among remaining staff. He also continued limited investment in employee training and the Bean Stock programme even as other costs were trimmed, reasoning that abandoning these commitments during hardship would permanently damage the loyalty the company depended on.
How to apply this to your business: When cutting costs during a downturn, distinguish between expenses that are genuinely unaffordable and those that protect the trust and loyalty your business depends on long term. Cutting the wrong things to save a small amount of money can cost far more in morale and reputation later.
Use Scale to Push Ethical Sourcing Forward
As Starbucks grew into one of the largest buyers of coffee beans globally, Schultz used that purchasing power to influence sourcing standards across the supply chain. The company developed its Coffee and Farmer Equity Practices, known as C.A.F.E. Practices, in partnership with Conservation International, setting guidelines for how coffee should be grown and traded, including fair wages and environmental standards for farmers. Starbucks also invested directly in coffee growing regions through farmer support centres in countries such as Costa Rica, Rwanda, and China, providing agronomists to help farmers improve yield and quality. This was framed not purely as corporate social responsibility but as a way of securing a stable, high quality supply chain for a company whose entire business depended on coffee quality.
How to apply this to your business: Look at your supply chain as a long term partnership rather than a series of transactions, since supplier stability and quality directly protect your product consistency. Ethical sourcing decisions can be framed to stakeholders as risk management and quality assurance, not simply as goodwill gestures.
Take Public Stances Carefully and Expect Backlash
Schultz has been willing to use Starbucks as a platform for social positions, sometimes with mixed results. In 2015, the company launched the “Race Together” campaign, encouraging baristas to write the phrase on cups and initiate conversations with customers about race relations in America. The campaign was widely criticised as poorly conceived, with many commentators arguing that a busy coffee transaction was not the appropriate setting for such a sensitive conversation, and it was discontinued within about a week of visible cup messaging. Schultz has also taken public positions on issues such as marriage equality and refugee employment, some of which drew praise and others significant criticism from customers and shareholders alike.
How to apply this to your business: If you choose to take a public stance on a social issue, ensure the format and context genuinely fit your business and customer interactions, rather than assuming good intentions alone will carry the message. Be prepared for backlash even when a position is well intentioned, and have a clear rationale ready before launching it publicly.
Protect the Brand Even in International Markets
When Starbucks expanded into international markets, including notably difficult entries into countries like Japan and later China, Schultz insisted on maintaining core standards around store atmosphere, quality, and partner treatment rather than fully localising to cut costs. In Japan, this meant insisting on a no smoking policy in stores despite smoking being far more common and accepted in local cafes at the time, a decision that some local partners worried would hurt sales. In China, Starbucks invested heavily in stores designed as social gathering places suited to local customs, while still preserving the core beverage quality and employee benefit standards used elsewhere. Schultz has described this approach as adapting the packaging while protecting the substance.
How to apply this to your business: When entering new markets, distinguish clearly between elements that must be localised for cultural relevance and elements that define your brand’s core promise and cannot be compromised. Consistency in your non negotiables builds trust with customers even as surface level details change from market to market.
Know When to Step Back for the Company’s Sake
Schultz has stepped away from the chief executive role at Starbucks more than once, including in 2000 and again in 2017, and returned briefly once more in 2022 during a period of labour organising and leadership transition. Each departure was framed as making room for new leadership to bring fresh perspective, while Schultz remained involved as chairman or in an advisory capacity rather than disappearing entirely from the business. This pattern reflects an understanding that founders and long serving leaders can sometimes hold a company back if they refuse to create space for succession, even when their instincts about the brand remain valuable.
How to apply this to your business: Build a genuine succession plan well before you feel ready to step back, and be honest with yourself about when new leadership might serve the business better than your continued day to day control. Remaining involved in an advisory capacity can preserve institutional knowledge without blocking necessary change.
Frequently asked questions
What is Howard Schultz best known for in business?
Howard Schultz is best known for transforming Starbucks from a small regional coffee bean retailer into a global coffeehouse chain, and for pioneering employee benefit programmes such as healthcare for part time workers and stock ownership schemes that were unusual in retail at the time.
Did Howard Schultz actually found Starbucks?
No, Starbucks was founded in 1971 by Jerry Baldwin, Zev Siegl, and Gordon Bowker. Schultz joined the company in 1982 as director of retail operations and marketing, then left to start his own coffee bar company before returning to buy Starbucks in 1987 and lead its major expansion.
Why did Howard Schultz return as chief executive in 2008?
Schultz returned in January 2008 because he believed rapid store expansion in preceding years had diluted the quality and atmosphere that originally made Starbucks successful. His return coincided with the global financial crisis, requiring him to manage both a cultural correction and a severe economic downturn simultaneously.
What can small business owners learn from Howard Schultz’s approach to employees?
Small business owners can learn that investing in employee benefits, training, and a sense of ownership tends to reduce turnover and improve customer service, even when budgets are tight. Schultz consistently argued that cutting these investments during hard times often does more long term damage than the short term savings justify.
Was Howard Schultz always successful in his business decisions?
No, several initiatives faced significant criticism, including the 2015 Race Together campaign, which was widely seen as poorly suited to a retail coffee transaction and was discontinued quickly. His career shows that even experienced leaders make public missteps, and the willingness to acknowledge and adjust course matters as much as the original decision.
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