I recently read the Howard Schultz interview in the July/August issue of the Harvard Business Review. The interview details the drive, decline, and resurrection of Starbucks. It’s an informative read that touches upon many business themes dramatized in my TOUGH LOVE screenplay about “Galaxy Coffee.”
Interesting quotes from Howard Schultz and TOUGH LOVE correlations include:
“Being the CEO of a public company over the past couple of years has been difficult. And lonely.” — Howard Schultz
David Pearl, the fictitious CEO of Galaxy Coffee, experienced the same difficult feelings of loneliness as he fought to reverse the decline of Galaxy. To help overcome those feelings of loneliness and self-doubt, David, during a few pivotal scenes, recites a saying his father instilled in him as a child, “Get up. Head up. Never give up.”
“The issues of social media, digital media, and getting smart about the rules of engagement emerged as a tremendous weakness for the company.” — Howard Schultz
Similar to Starbucks, Galaxy Coffee wasn’t smart about social media. Internal memos and videos were leaked and used by detractors to belittle the company. On numerous occasions, a Galaxy Coffee Public Relations Executive failed to properly coach David Pearl on the new rules of engagement when talking to the media about the company. The result was Galaxy’s reputation suffered greatly and the company was positioned as being out-of-touch.
“Everything we did more or less worked. And that produced a level of hubris that caused us to overlook what was coming.” — Howard Schultz
Galaxy suffered the same fate of egotism and neglect. The company never knew losing and when the losses started to mount, Galaxy didn’t know how to react. Worse yet, because of hubris, Galaxy didn’t realize how disconnected the company had become with its customers and employees. Ultimately, egotism led to the decline of Galaxy Coffee. (What exactly happens to Galaxy Coffee? Gotta read the TOUGH LOVE screenplay to find out.)
“The marketplace was saying, ‘Starbucks needs to undo all these company-owned stores and franchise the system.’ That would have given us a war chest and significantly increased return on capital. It’s a good argument economically. It’s a good argument for shareholder value.” — Howard Schultz
This is exactly the argument made by activist investor Conner Langley as he amassed Galaxy stock in hopes of gaining a position on the Galaxy Board of Directors. The “Langley Plan” called for turning 1,500 Galaxy locations into franchised stores. In the end, Galaxy’s Board of Directors decided not to pursue the “Langley Plan.” Instead, Galaxy went in a different direction, which increased shareholder value much more substantially and quickly. (I can’t reveal the specific direction Galaxy chose because that would spoil the TOUGH LOVE story for you.)
there are a couple of things really interesting in that article.
#1...HS recognizes that they pooped the bed on coming up with a strategy for the online space and social media when, internally, they had several of us bringing up the issue (ultimately, I ended up blogging on urls that I'd recommended that we buy) of paying attention to this space and how we treat it.
#2... the account of having to stand in front of employees and tell them that he had decided to lay partners off and close stores was like this "revelation" when the reality of it was that Alling had been continually bringing up the issue of closing 200 stores almost 2 years prior and HS's response was "we will never close stores"... I believe the moniker for the list was "Alling's 200".
I think it's either a weird spin on the truth or he just forgets what was he was being told. It's kind of surreal to read him recount the journey in a kind of "poor me/us" tone... Thanks for keeping the topic alive JM... PN
Posted by: Pat Nerr | July 13, 2010 at 02:35 PM