"Building a Trusted and Enduring Brand in China and around the World" – Speech by Howard Schultz, Executive Chairman, Starbucks Coffee Company, at Tsinghua SEM
April 13, 2017
Howard Schultz, Executive Chairman, Starbucks Coffee Company, delivered a speech at Tsinghua SEM
Thank you very much for that warm introduction. I am honoured, really honoured to be here today. I know that you’ve had some very distinguished speakers in the past. I am going to try and have a different type of conversation with you tonight, and I am also going to try to challenge you in ways that perhaps you did not expect.
So let me begin by saying three years ago, at a Starbucks shareholder’s meeting, I asked a very important question to our shareholders and to our people. And this question has been on my mind for quite some time, and that is: In the world that we are living in, and the changes that are going on, not only in business, but around the world, what is the role and responsibility for a for-profit public company? Is it just to make money, is it to build shareholder value, or is it to try and create the fragile balance between profit and conscience? These questions are really going to be at the core of what I want to talk to you about.
In 1987, Starbucks had 11 stores and just 100 people working for the company. We had a dream to create a different kind of company. A company that would not only build a national brand, but a company that would demonstrate that you can take your people with you on the journey, and share success in ways that perhaps had not been done before.
As the Dean mentioned, we were the first company in America to provide comprehensive health insurance and equity in the form of stock options, to our employees, at the time we were a private company. There were many people around that time who considered those benefits to be shareholder deluding, and in fact would not be sustainable. What we thought back then, and what we think now is that success is best when it’s shared. And that you have to approach the business very differently today than perhaps people had in the past.
Today, as the dean said, there are over 25,000 stores in 75 countries, we employ 330,000 people and last week, 91 million people came through our stores. So the question is: How did a company selling coffee in a paper cup, in Italian names that most people could not pronounce at $3 and $4 a cup, giving benefits that had never been done before, go from 11 stores in 87, to near 26,000 today, with a market cap of almost $90 billion? How did it happen?
And the same question could be asked – how did a company open up one store in China in 1999 and now have 2637 stores, serving 5 million people a week, employing 40,000 people and made a milestone announcement today that is emblematic of the values, the culture, and the guiding principles of the Starbucks Coffee Company; and that announcement was emblematic of who we are. Every business, no matter what product, what service, what industry, what country, has to really define what their core purpose and reason for being is. Our core purpose and reason for being was defined today in Beijing, when we announced that we would start on June 1st, creating healthcare insurance for critical illness, for the parents of our employees.
Now why did we do that? Why would a company spend that kind of money, multi million dollars, in providing the insurance for the parents of our people? And the question goes back to 1987. The answer is: not every business decision is an economic one. In fact I would argue that so many of the decisions that we’ve made, that have not been economic, that are against the grain, and which we’ve taken the road less travelled time and time again, is the primary reason we have been financially successful. Because in order to create a great, enduring company, in the environment that we are all living in today, the primary currency of success is trust. And as managers and leaders, our obligation, our responsibility is to exceed the expectations of our people and build trust with them so that they can exceed the expectations of our customers.
Now where did this philosophy, these values, this culture, these guiding principles come from? The first thing I would say is that we are absolutely sourcing and roasting the highest quality coffee in the world. We probably have the best global real estate portfolio of any retail company anywhere. Our store designs are second to none. Quality coffee, real estate, store designs, operational excellence: we’re at the top. But those disciplines are secondary to the foundation of the company, which is its culture, its behaviour, the way that we act. That culture and those values began, believe it or not, when I was a young boy. I grew up in New York, in Brooklyn, New York in public housing, government housing. You probably have all heard of the American dream, the promise of America, where your station in life does not define you? Well, at the age of seven, I came home from school one day and my father, he had a series of bad jobs, and this job he had at that point, when I was seven years old, was probably one of the worst. He was a truck driver, picking up and delivering cloth diapers, before the invention of Pampers, and on a cold winter day, in March of 1960, he fell on a sheet of ice, he broke his leg and his hip, and in America in 1960, if you were an uneducated worker, and you got hurt on the job, you were dismissed, you were fired. And so there was no income, and there was no health insurance and at the age of seven, I saw first-hand the fracturing of the American dream. I saw my parents go through hopelessness, despair, and we were in big trouble.
Those scares that I experienced at the age of seven, I still have today. In fact the fear of failure, the insecurity, the vulnerability, all those things that are wrapped in shame, as a young boy, I still have today despite all the success. But with it came a level of compassion, sensitivity, respect, and dignity for everyone – in recognising that if we were going to build a great, enduring company, we had to do it in a different way. We had to link shareholder value with value for our people, and in fact we turned it upside down. At the top of the pyramid was not the shareholder. At the top of the pyramid was our people, and in the middle was the customer, and at the bottom was the shareholder.
Now in June of 1992, Starbucks Coffee Company went public, with 125 or so stores, one quarter of profitability, and we had a market cap, in 1992, of a grand total of $250 million. I thought I hit the lottery. I called my mother and I said ‘Mum, we made it, we have hit the American dream. $250 million’. 25 years have passed and the market cap of Starbucks, which was $250 million, is almost $90 billion. If you look at the success we’ve enjoyed, and where we have enjoyed it, I can tell you first-hand it’s not because I have an MBA, which I don’t. It’s not because I have a business degree, because I don’t, and I could never have gotten in to this school! But what I did have was life experience.
Everywhere I went, everything I did, I tried to have a level of curiosity and what I would say to all of you is be curious. Be really curious about the world, about your surroundings, and be very curious about the fact that you can learn lessons from many types of people and experiences. And you might be very surprised where you're going to learn it. Let me give you an example: Six months ago, Starbucks Coffee Company was getting ready to open up our first stores in South Africa. I had never been to South Africa, I was excited to go, and we went and we were getting ready to open up the two stores. We had lines out of the door in which people were waiting two hours to get in. Now I've been to lots of openings of Starbucks and I have never seen anything quite like this in my life. No advertising, no promotion, just Starbucks was coming. Well, two days before the openings, I did what I always do, and that is I wanted to sit down with the young people who were going to wear the green apron for the first time. And here is the reason why:- Many people think that Starbucks is this fantastic, quintessential, great marketing company. We are not a great marketing company.
The reason I say that, and I know I’m going to get in to trouble for that, the reason I say that is because we have built the brand by the experience in our stores. That experience comes to life by the emotional connection of relationship that our people have with our customers. The equity of the Starbucks brand is the people wearing the green apron. So I wanted to sit down in South Africa, in Johannesburg, with the people who are going to wear the green apron, our brand. I sat down with 50 young people and I asked each one of them to go around the table and tell me their story. We started going around the table. The first thing they told me is what it’s like to live in a township.
How many people have been to South Africa? Raise your hand. Anyone? A few. How many have seen a township?
Now I grew up poor, as I said, in public housing. When I visited these townships I was crushed. Heartbroken with the level of poverty and the living conditions. Yet these young people had so much joy and so much happiness, so much gratitude, because of family. When they told me their story, we went around the table, I kept hearing an African word that I had never heard before, and many of them were using it. I finally got up enough courage and I said ‘What is that word? Ubuntu. You keep using it, what does it mean?’ and they couldn’t wait to tell me. Ubuntu is a word that Nelson Mandela used many, many times, and it means ‘I am, because of you’. I am, because of you. And if there is one thing that you take away from my remarks tonight; I want you to remember Ubuntu. I am, because of you.
The level of unselfishness, the level of sharing, the level of responsibility to others – the recognition that I am only as good as the person next to me, the recognition of what it means to be a team and the understanding, the true understanding, that all ships rise when success is shared. I never knew until I heard them talk about it, not what Ubuntu really meant, but what it meant to them, and the understanding of how it applies to Starbucks.
This morning, we sat down with a group of Starbucks partners; that’s what we call our employees, because everyone’s an owner, and many of them bought their parents. We had a meeting with them because for the last five years in China, we have had an annual meeting of the parents of our partners. Not to talk about sales or revenue or profit, or the stock price, but really to talk about the celebration of family and for us to demonstrate our appreciation and respect and to show the parents the understanding of our responsibility to take care of their kids.
In that meeting this morning, we wanted to understand what it has been like watching some of their parents get sick, and unfortunately the tragedy of some of the parents who had passed away. We did a survey a few months ago and we found out the number one benefit that our partners in China want from Starbucks is the ability for them to be able to take care of their parents as they age.
We cried this morning. We cried because we heard such personal stories, such vulnerability and such courage of people sharing with us the fear and the concern that they have about their parents ageing and their inability to take care of them in the future. In China, you experience something that, for the most part, we do not experience in America, and that is the huge responsibility that each one of you take on because of the respect you have for your parents and grandparents. Not the fact that we do not in America, but that you’ve taken that on as a lifelong responsibility. So, as a company, how could we be a bystander when we hear the story and they are asking us to help them? We could not be a bystander. We had to do something.
So when we made that announcement today. It was as significant a milestone as anything that we’ve done in the history of Starbucks over the last 47 years. The reason is that we are operating Starbucks in China, not as an American company; we are actually operating here as a Chinese company, that is why we provide a housing allowance. That is why we provide equity in the form of stock options. That is why we’re involved in the last decade in the China Soong Ching Ling Foundation. All of these things are not marketing. They are not a press release. They are the essence of the culture and values of the company.
Now I said that not every business decision is an economic one. Now you're going to graduate from school and you're going to go in to your business, you might start a business, and there’s going to be pressure and the pressure is to make money. The pressure is quarterly earnings, if you're a public company. The hardest part of building a great, enduring business is to play the long game. To play the long game. Think of it this way, metaphorically: if you want to build a great, enduring business, you’ve got to make lots of deposits in the reservoir of values. Every time you take a withdrawal out because there’s a short term requirement, you’ve got to put a lot more in. There have been many, many decisions that we’ve had to make over the last 5, 10, 15 years that are against the grain, that are unorthodox, non-traditional, because of our core purpose and reason for being.
How many of you have read about what we try to do with regard to racism in America? How many? That’s it?! Okay.
How many of you read that we announced we are going to hire 10,000 refugees, globally? Why would we do these things?
How many of you understood that we are providing a four-year free college tuition for every single employee of Starbucks in America, through our partnership with Arizona State University? How many of you knew that?
This goes back to the core question: what is the responsibility of a for-profit public company in the world today. I believe, very strongly, that our core responsibility is not only to make money. In fact, I frame it this way – we are a performance driven company, through the lens of humanity. When I am sitting in our boardroom, or sitting in our leadership team meeting once a week, I think about two empty seats. I think about it all the time, and those two empty seats are occupied by a customer and a Starbucks partner. I am asking myself all the time that the question we’re debating, or the decision we’re making, or the strategy that we’re going to embrace, is this decision going to make the customer and our partner proud? And if it’s not going to make him proud, then we’re on the wrong side of the debate. If it’s a short term decision, because it’s going to make us more money, and it’s definitely not going to make people proud, it is without question the wrong thing to do.
Now the textbooks that you're reading, I guarantee you the word ‘love’, the word ‘humanity’, the word ‘compassion’, I guarantee you have not seen those words in many business books. And I would admit that the foundation of building a great enduring business is empathy, compassion, humanity and, yes, love.
I would say that in most cases, if the culture and values of a company are not integrated with those characteristics, those virtues, you're going to have a hard time attracting and retaining great people. People are not going to feel part of something larger than themselves. People are not all going to be facing in the same direction. Now you flip that over, and you say to yourself ‘you’ve got a great strategy, you’ve got a culture and set of values and guiding principles in which there is a large level of trust and confidence. That people believe in the mission and purpose, and managers and leaders every single day demonstrate true servant leadership. Servant leadership. Not much is going to be able to stop you.
So going back to Starbucks in 87 and Starbucks today, how we got from there to here, how we’ve gotten Chinese people who perhaps never drank coffee before is, yeah, we have great coffee, we have great stores, but it’s the relationship that we have with our customers as a result of the culture and values of the company. The environment we’re living in today, I would say on the one hand that access to capital is probably much, much easier today than it ever has been. On the other hand, there is so much competition, so much noise it is damn hard to create success.
So what is the difference between winning and losing, a great strategy, an enduring great company – and I am living proof, I promise you, that I am not the smartest guy in the room. I am living proof that the reason, the driving reason that Starbucks has succeeded around the world is the culture and values of what we’ve created has universal acceptance. Because whether you're Chinese, or American, or Japanese, or European, or Mexican – all these places that we are, we’ve learned great lessons. We all want the same thing. We all want to be valued and respected. We all want a better life for our children. We want to do everything that we can to make our parents proud. We want to go home at night and share with our parents, our spouse, our partner that we work for a company that we trust and respect. And we want to come to work the next day giving our all because of Ubuntu. Because I am, because of you.
And thinking about what challenges we’ve had as a company and how I can really share with you what we have had to overcome to succeed, there have been so many times when people said Starbucks would not make it. In China, as an example, when we opened up in 99, we lost money for a number of years. Many people in America said it’s time for Starbucks to shut down in China, it’s not working. We haven’t succeeded everywhere we went overnight, but the resiliency of believing in our core purpose, the passion and commitment to try and do everything that we can to put our people first, the recognition that you cannot exceed the expectations of your customers unless you exceed the expectations of your people. The understanding that culture, values, and guiding principles in many cases are as important, or more important than the strategy itself. Saying it another way: The greatest strategy in the world will not be sustainable in a culture that is deluded with the fracturing of trust and confidence, in which people do not believe in the mission, the leaders, or the company’s purpose.
Building a company, especially at the start, is like raising a young child. You are in the imprinting stage. Every company has a memory. Those early behaviours, or setting the tone the right way. Of demonstrating really what it means to be a servant leader.
How many people have heard the expression ‘Servant leadership’? I want one person to yell out, what is servant leadership, what is it. Servant leadership. Tell me.
Voice from floor:
What else? Servant leadership. Come on! I’m told this is the smartest kids in the country.
Voice from floor:
Help others succeed.
How many people want to work for a servant leader? Raise your hands. We all want to work for a servant leader.
How many people think leaders are born, and how many people think that leaders are made?
How many people think leaders are born? Raise your hands.
How many people think leaders are made? Well you are the smartest people.
Leaders are made. Leaders are made by the moment. Leaders are made by life experience, and everyone in this room has had a different life experience and everyone in this room has their own story. There is no one style of leadership. There has only been one Steve Jobs. You’ve got to decide who you are. You’ve got to be comfortable in your own skin. I would also say, with regards to leadership, the qualities of leadership have been defined in many, many instances and many experiences and many textbooks.
One quality of leadership that has been, I think undervalued, is being vulnerable; especially for men. It is hard for a man to stand up in front of a large group and demonstrate vulnerability, confess, apologise, but one thing I've learned over the years; the more vulnerable you are, the more people come towards you. So being vulnerable is a quality of leadership that I would ask you to embrace. Conversely, being a leader does not mean that you have all the answers. In fact asking for help is a strength. You want to build a great company – surround yourself with people with like-minded values. With people who are smarter and have a skill base and experience that is greater than your own, but they must have likeminded values.
I am sure everyone in this room has your own dream and your own aspirations about what you want to do. You want to make your parents proud – you're going to one of the finest universities in the world. What are you going to do when you get out? Let me speak to dreams for a minute. I met a lot of people over the last 30-40 years who have come up to me and said ‘I had that idea about coffee’. Really, what did you do? Don’t let anyone, anyone, tell you that your dreams cannot come true.
When I speak to young kids, I tell people ‘dream big, and dream bigger’, and use your disappointment and some of your failures as an opportunity to learn, not to give up, not to turn away. You don’t want to get to a point in life where you're bitter and you're angry because someone told you what you were dreaming could not come true, because you gave up. Everyone in this room has the ability and the skill, and the opportunity to do something significant and great. So whatever your dreams are – stay with it. Persevere. Go against the grain. Take the road less travelled. When you get to the place where you have succeeded, go back to the place of recognising what it means to pay it forward.
Ubuntu again. I am, because of you.
Everyone sitting in this room today is here because someone in your life, someone in your life has helped you get there. No one in this room has got here alone. Pay it back. Your neighbourhood, your community, your family. Pay it forward. Keep learning. Be curious.
Okay, one more story. I am Jewish, I go to Israel whenever I can. For many years I had a mentor, a teacher, who gave me great wisdom, and he was a Rabbi. I go there and I spent as many days as I could with him, just to sit at the knee of someone who is teaching me lessons all the time. One day he tells me this story, it’s not a story about being Jewish, but it is a story about humanity. He tells me what happened in Germany during the holocaust. He tells me the story of men and women and children being transported to death camps in a railcar, and in the cold, cold winter months. When they were being transported to these death camps, and the journey took sometimes a day or two, and they were sandwiched in, in a railcar with no light, no food, no bathroom. When they arrived at the camp, the railcar swung open, it was freezing cold outside and one person, only one, was given a blanket for every six. The person that received the blanket had to decide: am I going to keep this blanket for myself, or am I going to share it with five other people? Not all, but most people, shared the blanket with five other people.
And when I say to all of you today, whatever you're going to do in your lives, wherever you are going to go, do everything you can to share your blanket with five other people.
Ubuntu. I am, because of you.
Thank you very much.