7 Months From Insolvency, Starbucks Did This -- Here’s Why It’s More Applicable Than Ever

As the saying goes, history does not always repeat itself but it does rhyme. 

In other words, sometimes we need to look back in order to validate the way forward. I don’t know about you, but for me, moving forward is a lot easier once I’ve had my daily cup of Starbucks coffee in the morning. 

In 2008, reeling from the worst financial crisis in a lifetime, things had gone south for Starbucks. The famous coffee giant was burning cash quickly, and best estimates gave the company 7 months to turn things around or face the very real prospect of insolvency. 

Staring failure in the face, Starbucks, under the guidance of then-CEO Howard Schultz, did something that shocked investors, advisors and board members alike. As Shcultz says, “In 2008, Starbucks was tested with our core purpose and reason for being. For us, we had to go back to the core principles of who we are and what we do. We had to exceed the expectations of our customers, but in order to do that, we had to exceed the expectations of our people. We had to build trust and confidence with every constituency.”

This is the story of how one man embraced adversity, showed total vulnerability and invested in his people at a time of crisis. By openly admitting the gaps, the challenges, the adversity and the long road ahead, Schultz was able to rally his people and help Starbucks stage a historic comeback.

It’s a story that has been told before, however, with the new context of current events in 2020, I believe we can look back and glean many more lessons as we look on from a different lens. 

As we’ll see, when organizations admit their imperfections, the vision yet to be realized is the biggest opportunity to engage, motivate and connect with people. 

For companies trying to find their feet in the wake of the COVID-19 crisis, the Starbucks journey has a number of timeless and pertinent lessons that demonstrates the value of culture, people and a compelling employer brand. 

The Starbucks story – the power of investing in your people at a time of crisis

When Howard Schultz resumed stewardship of the Starbucks brand in 2008, his announcement as CEO couldn’t have come at a more challenging time. 

For years, the company had been slowly bleeding cash, diluting its brand identity and corrupting the one thing that made Starbucks become so successful: the experience. With serious cash flow problems, failing stores and a global financial meltdown to contend with, most advisors were advocating for practical, short-term measures: reduce the number of stores, let go of staff and cut as many costs as possible. 

Despite the evidence, Schultz recognized that the problem was more endemic than profit and loss. In fact, tumbling margins were the outcome of a failing culture that had lost its way, not the actual cause itself. 

“The foundational structure of any company that is going to endure is culture, values and guiding principles. It’s very easy to embrace this when you have the wind at your back because it’s convenient. The hardest thing for organizations to do is to stand up for what you truly believe in when you’re facing significant challenges and people who are sceptical and cynical of what you’re trying to achieve.” 

At the time, Schultz’s philosophy was met with serious concern, questioning and ridicule. Despite the criticism thrown his way, Schultz stayed strong in the commitment to put his people first and invest in their future. This, he believed, would be the key to restoring the Starbucks brand and saving it from the brink of insolvency.

“I felt strongly at the time that there was a need to demonstrate our conscience as a company. This all came about when I decided to close every single store for an afternoon to retrain our people on the fundamentals of coffee and customer service at great cost,” Schultz notes.

Pause to reflect on this for a moment. It’s 2008. America is facing the worst financial crisis most have ever seen. Starbucks is haemorrhaging money. Cash flow is dwindling and there’s a real chance the company will go bust in half a year. 

In the face of this tumult, Schultz decided to close every single Starbucks store in America at a cost of $33 million to the brand. 

“I needed an opportunity to speak with our 11,000 store managers in person. People said that was too costly, that it was impossible. At that time, no one in America was travelling. Despite this, we took 11,000 people to New Orleans post-Katrina at a cost of $33 million in housing, planes, food and subsistence.” 

Schultz continues, “We didn’t have that kind of money, and there was a tremendous resistance among shareholders and the board. But the question was: what better opportunity was there than to invest in our people?” 

This single idea would transform the future and fortunes of the Starbucks brand. 

“The equity of the Starbucks brand,” Schultz poignantly declares, “is not based on advertising or marketing. It’s based on the experience. That experience only comes to life through our people, so we had to rekindle the spirit and culture of the company.”

When Schultz, his leadership team and 11,000 Starbucks store managers landed in New Orleans, this culture and equity was immediately put to work. “We committed 50,000 hours of community service to New Orleans’ ninth ward, which had been devastated by the impact of Hurricane Katrina.” 

“On the third day,” Schultz emphasizes, “I had to give my $33 million speech to 11,000 of our people. An hour before I went on stage, my colleagues said, ‘What are you going to talk about?’ I showed them what I was going to say and they freaked out. My team said, ‘You can’t share this information with 11,000 store managers. You’re going to scare the hell out of them.’” 

Knowing the truth and harsh reality of the financial situation that Starbucks was in, it’s understandable that the board did not want to share this information with the public, let alone the staff it needed to keep daily operations functioning. 

“At a time of crisis, when you’re the leader and you’re asking people to believe in you, to believe in the aspirations and dreams of the company, to believe in the journey that we’re all on, how could they possibly be part of something larger than themselves if they don’t have the same information that I do?,” Schultz declares.

“The question was: ‘Do I trust my people enough to share this information?’” 

In a profound example of vulnerability and transparency, Schultz put faith in his people to handle the truth and rally together in the face of adversity. 

“In an unvarnished way, I told the truth,” Schultz continues. “I said, ‘We’re seven months away from insolvency. If we continue on this track, you are going to be out of a job and your families are going to be hurting. This is what we need to do individually and collectively.”

“It wasn’t the speech that turned things around,” says Schultz. “It was everyone facing in the same direction, everyone having the same level of information and everyone understanding their personal responsibility to the mission and what we had to accomplish. Starbucks would not be here today if that meeting didn’t happen.” 

Lessons from Starbucks’ story

For CEO’s, board members, employer brand leaders and senior HR professionals alike, Schultz’s story demonstrates the true value of investing in your people at a time of crisis. It’s pretty remarkable when you look back and realize that this man risked everything on one simple yet incredibly profound idea: what better opportunity is there than to invest in your people?

As we turn our gaze back to 2020, it’s obvious that many companies are hurting. The aftermath of the COVID-19 crisis has caused an even more dramatic shock to the system than the 2008 financial crisis, and as a consequence, organizations are looking to cut costs, reduce staff and steady the ship.

For business leaders, there are a number of powerful lessons we can take from that blustery October afternoon in New Orleans that would end up saving the Starbucks brand.

Lesson 1: Difficult times will test “fair weather” organizations 

It’s easy for companies to keep culture, morale and employee well-being high when times are good. When times are hard, the “fair weather” organizations will be found out. That’s why you need to invest in an authentic employer brand that is built on inclusivity and clarity. In doing so, you can clearly depict the demands and expectations of your employer or associate experience as well as the ‘sunshine’ aspects of strengths, benefits and opportunities.

While current times may be challenging, there’s never been a more poignant moment to invest in your employer brand and in your people. As Schultz showed, doing so can lead to a profound momentum shift in employee morale and behavior, which then has a direct impact on the material success of an organization. 

Lesson 2: Vulnerability breeds trust

Imagine if organizations had the courage to be vulnerable. To admit the gaps. To talk about the challenges, the adversity, and the long road ahead. If you admit your imperfections, the vision yet to be realized is the biggest opportunity to engage, motivate, and connect with people. It’s also the fastest way to communicate how everyone can contribute to a cause and create incredible impact they will be proud of.

Talking about a vulnerability doesn’t mean talking about something that’s particularly negative or a major disadvantage to competition. If you back up a vulnerability with the conviction to change, improve, or do good, it can be incredibly alluring and very difficult to resist, especially when you believe you could have a significant role in getting them there.

Lesson 3: At a time of crisis, invest in your people

When times are tough, there’s a natural tendency to cut back financially, often to the detriment of employee happiness and well-being. The COVID-19 crisis has made this paradigm remarkably evident. Right now, there is a clear tension between organizations fighting for financial fitness and the integrity to do what’s right by their employees. In a situation like this, the best businesses will do both. 

Find where these two often competing priorities overlap and create a strong call to arms that will unite people together. Be clear with what you need people to do in order to drive the business forward towards a more financially secure future.

Lesson 4: Learn to “Repel the Many and Compel the Few” with the same message 

If you want to define a fully authentic employee experience, then you need to seek out the harsh realities within your organization and craft a balanced value exchange rather than a one-way broadcast of your strengths. At Ph.Creative, we call this mutual value exchange the ‘Give and Get’. 

Some people will be challenged and engaged by the adversity within your organization. They will find your expectations and demands to be fair and even revel in the idea that they can cope where others could not. Other candidates, however, will be turned off, dissuaded and completely deterred from applying for any roles you may have. 

This is how you “repel the many and compel the few” with the same message. For the right candidates, spelling out the adversity is the most inspiring route to sharing how people find fulfilment, a sense of achievement and pride in their work. 

Lesson 5: The best employer brand will deliver real purpose, impact and belonging

Ultimately, people want a sense of purpose and impact. These two values lead to a galvanized workforce, a cohesive team that pulls in the same direction, almost by definition. This sets the stage for a culture of true belonging as long as you have also made a commitment to be inclusive, because you’re satisfying the underlying principles that everyone is truly after. 

Purpose is the feeling that you have something worthwhile to achieve, a reason to exist or a goal to focus your attention and efforts toward that has personal meaning. To embed purpose in the workplace, you need to identify and articulate what’s at the end of any struggle, challenge or adversity. In short, you must answer the question of “Why?”. 

Impact, meanwhile, can be articulated on any level, from executive vision down to grassroots day-to-day work that is contributing toward the bigger picture. It’s an innate feeling that someone is making a difference with what they do, and is a reason to keep doing what you’re doing because you see the value you create and the difference you make. 

Finally, belonging should be a naturally produced outcome that drives cohesion and happiness at work. A sense of belonging is, fundamentally, the feeling that you belong and have shared values, beliefs and interests with others.

The best employer brands will work to address all three aspects of purpose, impact and belonging, to truly meet and satisfy the needs of every individual.