How Community Focus Allowed Starbucks to Build a Global Empire

In 1981, Starbucks coffee had been around for ten years, but had not expanded outside of the Seattle area. At the time a twenty-eight year old Howard Shultz was a salesman selling coffee makers and supplies for the Swedish company, Hammarplast. Intrigued as to why one coffee chain in Seattle was ordering so many plastic filters, Shultz got on a plane and flew out there to find out. According to Shultz, when he walked into that first Starbucks he said, ‘I knew I was home.’ For the next year, Shultz remained in contact with the company and in 1982 was hired as their director of retail operations and marketing.

Starting Small

At the time, Starbucks only had three stores and didn’t serve drinks. They sold raw beans to customers who would brew the coffee themselves. That all changed in 1983 when Shultz took a trip to Milan. There, Shultz was met by the sight of espresso bars on nearly every street corner. Shultz was impressed by how the shop owners knew their clients by name and by the role the cafes played as a meeting place for the community. Shultz brought the idea for an Italian-styled community café back to Starbucks. But the idea was rejected. Two years later, Shultz left the company to pursue this project on his own.

Shultz needed to raise $1.6 million to get his idea off the ground. For the next year he talked to everyone he could. Almost none of them invested. In his book, Pour Your Heart Into It, Shultz recalls, ‘I spoke to 242 people, and 217 of them said no. … Try to imagine how disheartening it can be to hear that many times why your idea is not worth investing in. … It was a very humbling time.” But Shultz was undeterred and after speaking with enough investors he was eventually able to raise enough money to open his own chain. He called it, Il Giornale. By 1987, the idea had taken enough of  a hold to allow Shultz to acquire the six Seattle based Starbucks, for $3.8 million. The Starbucks Corporation was born. By the end of 1987, Shultz had expanded beyond Seattle to Chicago and Canada and had opened 17 more stores.

Treating Employees Well

When Shultz was seven years old his father, a truck driver, broke his hip and ankle and was unable to work. With no health insurance, no workers comp, and no severance, the already poor family found itself unable to make ends meet. Shultz vowed then that if he ever had the opportunity to make a difference in people’s lives, he would. Thus in 1988, one year into owning the Starbucks Corporation, Shultz offered full health insurance to both his full-time and part-time employees. This even included coverage for domestic partnerships. Three years later in 1991, Starbucks became the first privately owned U.S. company to offer a stock option program to its part-time employees. The culture Shultz fostered paid off and the company continued to grow. By 1992, with 165 stores open nationwide, Starbucks Corporation completed it’s IPO at $0.27 cents-per-share (adjusted for six two-for-one stock splits)

Stepping Aside

For the next eight years, the company continued to boom, and opened another 3,300 stores. Over the eighteen years he was in the coffee business Shultz had built the company from its humble beginnings into a global power player. He had achieved this by smart product launches (such as the Frappuccino), shrewd expansion (as in moving into super markets and airports), wise acquisitions (such as Seattle’s Best, Tazo Teas, and Ethos water), and an unwavering dedication to employee and community wellness.  Then in 2000 stating exhaustion as the cause, Shultz decided to step down as CEO.

The time away would not last. By 2008, in the face of slumping sales and concerns that the company had drifted away from its core values, Shultz accepted an offer to return to Starbucks as its CEO. In order to get the company back on track, his first order of business was to temporarily shut down 7,100 stores and retrained its baristas on how to make the perfect espresso. The move was rewarded, and within two years profits had tripled from $315 million in 2008, to $945 million in 2010.

Philanthropy and Outreach

In a continuing effort to refocus the brand, the company also adopted a new mission statement: “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.” Shultz was determined to show this was not simply lip service. In order to foster a community work environment in 2010 Starbucks began to offer free unlimited Wifi at all its stores. In 2011, the company continued to expand its philanthropic outreach as well and launched its first annual Global Month of Service. Later that same year, Starbucks also opened a farmers’ support center in Tanzania. The following year Starbucks would open two more in Manizales, Colombia, and Yunnan, China. In 2013, Starbucks strengthened its ethical sourcing efforts and opened a farming research center in Costa Rica. Also in that same year at its annual shareholders meeting, Shultz reinforced the company’s commitment to marriage equality.

In 2014, Starbucks continued its efforts to give back to the community and committed to hiring 10,000 veteran service men and women and their spouses by 2018. Also in an effort to show its continuing appreciation for its employees, in 2015 the company committed to offering full college tuition for 25,000 of them. That same year the company also achieved its goal of using only 99% ethically sourced coffee beans. Seeing the company he had built was back on track, on December 1, 2016, Shultz announced he would once again be stepping down as CEO effective April 3, 2017.

The End Result

Over it’s history Starbucks shares have soared at an astronomical compounded annual growth rate of 26.13%. In 2016 alone, the company enjoyed $26.1 billion in revenue and a market capitalization of $86.6 billion. Currently, Starbucks shares trade at $55.63 which markets an astounding 19,000% return on its IPO.

Today Starbucks is one of the world’s most recognized and well respected brands. It has expanded to over 26,000 stores and is found in 75 countries. Few companies are a better example of what a business can achieve when it focuses not only on quality but also the community it serves as well.