Context

Starbucks Coffee has become a staple in most people’s morning routine. However, more than a decade after securing a strong foothold in the market for premium coffee, Starbucks set out to experiment and capitalise on its popularity. 

The global chain of coffeehouses launched its own music label and ventured into film production – all in an attempt to diversify beyond coffee. The move disenchanted loyal customers.

By 2008, Starbucks had strayed far from its roots. That same year, Howard Schultz returned as CEO and worked to regain what the company had lost during rapid expansion.

Real Life Story

When Starbucks ventured into unfamiliar territory, sales declined and the stock price plummeted from US$37 to just a little under $8. The company was forced to lay off 18,000 employees and shut down 977 stores. Worst of all, its reputation hit an all-time low.

Witnessing the turmoil, the leadership began to take action. The company withdrew from the entertainment business to concentrate once again on its core offering: coffee. Meanwhile, stores modernised their equipment and improved the customer experience. 

Schultz was determined to safeguard the culture at Starbucks. The company temporarily closed all its outlets for an entire day to retrain 10,000 employees and lay down the new “rules of engagement”. 

The changes were painful but worth the agony they caused, Schultz recalled. 

PostScript: Today, Starbucks is valued at over US$100bn and operates more than 38,000 stores worldwide. 

Practical Tools

Key elements that contributed to Starbucks’ successful turnaround:

• Passion is Non-negotiable: Entrepreneurs must have an unwavering love for their work, and be capable of enduring sacrifices and overcoming challenges. Your passion is what makes even the toughest days worthwhile.

• Stay True to Your Core: Starbucks' venture into music and film production shows the risks of straying too far from your core business. Focus on what you do best to maintain clarity and strength in your market.

• Recognise When to Pivot: The company’s willingness to pull back from unsuccessful diversifications and refocus on coffee highlights the importance of recognising when a strategy isn’t working and having the courage to change course.

• Quality Over Expansion: The decline in Starbucks' sales and reputation was a direct result of prioritising rapid expansion over product and service quality. Maintaining high standards is crucial for long-term success.

• Invest in Your Team: Closing every outlet for a day to retrain baristas demonstrates Starbucks' commitment to quality and its employees. Investing in your team ensures that everyone is aligned with the company’s values and goals.

Find Out More

Do you want to learn more about the practical tools noted above? Are you aiming to find the right support for scaling up your business?

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Until next week, may the force be with you.

Kevin

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