Starbucked Page 6
“It was so immediate and physical that I was shaking,” he wrote. “It seemed so obvious. . . . If we could re-create in America the authentic Italian coffee bar culture, it might resonate with other Americans the way it did with me.” At that moment, Schultz became the true believer, an espresso evangelist determined to bring his vision of a chain of Italian-style coffee bars to life. In hindsight, this scheme sounds both brilliant and financially prudent. But at the time, even the eager Schultz knew the idea he was pushing was a huge, potentially disastrous gamble. “Howard will always say he knew this would work, but he’s full of shit,” Howard Behar, a member of Starbucks’s board of directors who was Schultz’s right-hand man for many years, told me. “We didn’t know how it would turn out.”
Gourmet coffee was, in every regard, a strange career path for Schultz. Born in 1952 to working-class parents, Schultz spent his childhood in Brooklyn’s federally subsidized Bayview Projects. He was a mediocre student but a gifted athlete and an obsessive Yankees fan; for years, he drew Mickey Mantle’s uniform number, seven, on all of his belongings. Growing up, Schultz believed his athleticism would carry him out of the projects, and he budgeted his time accordingly. Every spare moment went to pickup baseball, basketball, and football games in the P.S. 272 schoolyard, where your team had to win to stay on the field. At Canarsie High, a 5,700-student school too cash-strapped to pay for even a home football field, Schultz was the star quarterback. “He wasn’t really a great football talent, but he was a really hard worker,” one of his teammates, Mike Camardese, told a BBC television crew in 2002. “The team back then wasn’t that good, so he was always getting banged around. But he always came back.”
More than anything, Schultz wanted to avoid turning out like his father. Fred Schultz worked a string of low-paying, blue-collar jobs, from delivering diapers to driving a cab, which left his homemaker wife and three children with no savings to fall back on if he were unable to work. Howard thought his father had no dignity, and he resented his family’s poverty deeply; once, the young Schultz refused to return to a summer camp after discovering that it was for children from needy families. It wasn’t until after Fred Schultz’s death in 1988, from lung cancer, that Howard forgave his failure to provide better for the family. (His father also expressed doubt that people would ever pay as much for coffee as his son was charging, while his mother, Bobbie, drank instant coffee and never developed a taste for Starbucks’s roast — a source of constant frustration for her son.)
In the end, Schultz’s prediction proved correct: sports broke him out of Canarsie. By chance, a Northern Michigan University football scout saw him play and offered him a scholarship. Since it was the only offer Schultz received, the following autumn his parents drove him out to frigid Marquette, Michigan, to become an NMU Wildcat. His college football career lasted less than a week. In one of Schultz’s first practices, a linebacker hit him from his blind side, shattering his jaw and bringing his playing days to a sudden halt. The injury was severe enough that twenty years later, Schultz had to have his jaw rebroken on both sides and his teeth moved because of recurrent dizziness and headaches. Consequently, when Starbucks was spreading across America in the early nineties, its leader wore braces. They made Schultz so self-conscious around reporters that some early profiles called him “timid,” with an “apologetic manner”; a New York Times story from 1994 said of him, “He looks like a well-meaning camp counselor.”
Schultz floated through school without distinguishing himself, and after he graduated in 1975 he found himself adrift. An intense fear of failure made him ambitious, but he had little idea what he wanted to do with himself. At one point, he even considered acting school. Back in New York, he took an unglamorous sales job with Xerox, for $800 a month. From this experience came two lessons that would serve him well in later years at Starbucks: first, that after making fifty cold sales calls a day, often encountering outright hostility, he could handle rejection; and second, that he was a very good salesman. Schultz parlayed his Xerox job into better and better sales posts, finally landing a vice president position with Hammarplast, a Swedish house-wares company, which paid him $75,000 a year, as well as providing a company car and an expense account. He and his soon-to-be wife, an interior designer named Sheri Kersch, bought an apartment on the Upper East Side and settled into a comfortable life, spending weekends in the Hamptons. Yet the twenty-eight-year-old Schultz couldn’t muster much passion for kitchen utensils and bird feeders.
In early 1981, Schultz spotted something strange about one Hammarplast account: a tiny Seattle company called Starbucks Coffee, Tea, and Spices was placing more orders for a certain kind of drip coffeemaker than Macy’s. This being well before the meteoric rise of Microsoft and Amazon.com, most East Coasters envisioned Seattle as a remote and rustic place, like Alaska — especially New Yorkers, many of whom still seemed to think that the preferred mode of transportation in the Northwest was the covered wagon. Curious about this accounting oddity, Schultz decided to fly out to investigate.
The specialty-coffee industry may be packed with misanthropic ex-hippies, but they still enjoy their gossip, and one particularly pervasive rumor about Schultz alleges that he arrived in Seattle with an embarrassing gift for Jerry Baldwin: a can of supermarket coffee. Baldwin claims it didn’t happen. Still, the Howard Schultz who stepped off the plane that spring day knew next to nothing about coffee; he’d never had much interest in it. That would soon change. After checking into his hotel, Schultz headed for the Pike Place Market Starbucks to try the product, and his recounting of his first fateful sip is a remarkable piece of advertising in itself. The store, he says in his book, “looked like a temple for the worship of coffee.” When a Starbucks employee bestowed a cup upon him,
The steam and the aroma seemed to envelop my entire face. There was no question of adding milk or sugar. I took a small, tentative sip. Whoa. I threw my head back, and my eyes shot wide open. Even from a single sip, I could tell it was stronger than any coffee I had ever tasted. Seeing my reaction, the Starbucks people laughed. “Is it too much for you?” I grinned and shook my head. Then I took another sip. This time I could taste more of the full flavors as they slipped over my tongue. By the third sip, I was hooked. I felt as though I had discovered a whole new continent.
Chalk up another epiphany: Schultz was smitten. Before long, the slick sales shark was imploring Baldwin, the erudite Berkeley liberal who had organized Starbucks as an anticapitalist enterprise, to invent a marketing position for him. (Zev Siegl had sold out of the business in 1980, and Gordon Bowker was busy founding other ventures — like Redhook Ale Brewery and the newspaper Seattle Weekly — which left Baldwin in charge of things.)
Baldwin was skeptical. He realized it was time for his company to bring in professional business expertise, but Schultz’s sudden fervor spooked the Starbucks clan. Baldwin still wanted to keep things small, yet Schultz insisted the company could be a national megahit. Schultz was persistent, finding several excuses over the course of the next year to fly back to Seattle and woo Baldwin. Over dinners and phone calls, he employed characteristically lofty selling pitches, telling Baldwin and company that if they would only expand, “You could enrich so many lives.” Baldwin tried to tell him no; Schultz redoubled his efforts. He spoke of Starbucks’s destiny and the need for courage. After more than a year of this, Baldwin finally caved. Schultz had the job, but they couldn’t pay him much, and there was no guarantee they’d actually listen to his suggestions. But Schultz was not a man who argued with his epiphanies. In August 1982, he and his wife loaded their belongings and their golden retriever, Jonas, into their Audi 5000 and made the transcontinental drive to Washington.
Despite the yawning chasm between their personalities, Baldwin and Schultz got on well — Schultz, wife, and dog even lived at Baldwin’s home for a few weeks after they arrived. Schultz also won over his coworkers quickly. “We all liked Howard,” Jim Reynolds, an Einstein-haired former Starbucks roaster, told me. “He
did create some shockwaves because of his personality, and maybe I didn’t always agree with his business decisions, but Jerry liked him and I liked him a lot.” His pull over the younger employees was especially strong. “We all looked up to Howard,” said Roger Scheumann, Baldwin’s stepson, who worked at Starbucks as a teenager. “He was incredibly charismatic and unbelievably motivating. You wanted to be around him and do right by him.” By all accounts, Schultz enjoyed donning the apron and selling customers on the virtues of Sumatran beans.
But after his trip to Milan in 1983, Schultz grew increasingly frustrated. He had sacrificed a high-paying job and posh lifestyle in Manhattan for Starbucks, yet Baldwin wasn’t buying into his espresso-bar idea. As Baldwin explained it, “We just had no interest in selling cups of coffee. We were focused on quality and brewing at home, so the idea of expanding into foodservice wasn’t appealing at all.” Schultz couldn’t stand it. “Howard came back from Milan and he was just insane,” said Dawn Pinaud, an early Starbucks employee. “He kept saying, ‘This is where the money is — we have to do beverages. We’re crazy if we don’t do this.’ And when Howard wants to do something, nothing can stop him.”
Opera and Bow Ties
Judging him solely by his autobiography and his various public statements over the years, one can reach but a single conclusion about Howard Schultz: that he is the nicest, most warmhearted guy on the planet. In the book, Schultz relentlessly adorns his memories with inspirational platitudes; for instance, one chapter is titled, “Act Your Dreams with Open Eyes.” He wants his company to “lead with its heart and nurture its soul” and asks, “Who wants a dream that’s near-fetched?” His worst vice, he implies, is his overwhelming passion for coffee. (In today’s business culture, of course, feeling “passion” for a product or service is roughly akin to having saintlike nobility of spirit.) Flipping through the pages, one almost starts believing that the whole Middle Eastern conflict could be cleared up in an hour if the leaders of Israel and Palestine would just grab a couple hazelnut lattes at the nearest Starbucks and share their feelings.
The sappiness is hardly surprising — CEOs today aren’t exactly renowned for their soul-baring candor — but the sentimental bromides don’t tell us much about how one actually builds a global coffee juggernaut. If you really want to get to know Schultz, try engaging in a friendly sporting contest with him. How about volleyball?
“Howard was so competitive,” said Dawn Pinaud. “I remember once we played volleyball at a company picnic and I missed the ball. Howard was so furious. I asked him, ‘Are you going to fire me because I missed the volleyball?’ He wouldn’t play again for two years because everybody made such a big deal out of how competitive he was. I’m surprised he hasn’t had a heart attack by now. He just loses it.”
Okay, maybe basketball?
“I formed an intracompany basketball team with Jim Reynolds, me, Gordon, Jerry, Howard, all of those guys, in some little gym on Capitol Hill,” recalled Chris Calkins, who managed Starbucks’s restaurant accounts. “Howard’s a hell of a guy, but he is the most aggressive guy I’ve ever played basketball with. I mean, he really showed his colors.”
Put simply, Schultz despises losing. In a drawer of his old mahogany desk at home, he keeps dozens of newspaper and magazine clippings by those who have doubted Starbucks; he once told Fortune magazine, “Not a week goes by when I don’t look at those pieces.” Schultz has been known to call reporters at home and berate them after reading stories he disliked, and according to Dori Jones Yang, the coauthor of his autobiography, he even named his first child, Jordan, after one of the most fiercely competitive athletes who ever lived: Michael Jordan. This drive to succeed made Schultz stick out in the tranquil Pacific Northwest. “I didn’t know what to make of Howard back then, to be honest,” said Joe Monaghan, a Seattle coffee industry veteran. “He was aggressive, not at all like the typical person I was used to dealing with in the coffee industry — laid-back people who thought one or two stores would be plenty. Howard was always thinking bigger than that.”
Given his distaste for defeat, Schultz refused to let his Italian espresso idea die, and when Baldwin decided to open a sixth Starbucks in the spring of 1984, Schultz finally convinced him to devote a small corner of the space to an espresso bar. With the help of Bowker, who was always game for making a scheme work, Schultz threw himself into the preparations, practicing steaming milk and pulling the levers on the new chrome espresso machine. The three decided not to advertise the experiment; they’d just let customers find it on their own.
Everyone agrees that Starbucks served its first espresso on a cold, damp morning that April, on the corner of 4th and Spring in Seattle. Everyone also agrees that the store was crowded with espresso customers that opening day, though not necessarily because of popularity. “Yes, it was gangbusters with the coffee bar,” Baldwin recalled. “Gordon and Howard said there was a line out the door from the first moment — but that may have been because we were moving so slow. It’s not like they knew how to handle it yet.” By Schultz’s reckoning, four hundred customers visited the store that day, 150 more than usual. Two months later, it was serving twice that number. The experiment was a success, and it was mostly thanks to one drink: the caffe latte, a cup of warm milk with a shot of espresso dropped in.
Here’s where things get contentious: Schultz claims that he personally discovered the latte in the Italian town of Verona, and that he served the first one in American history on that April morning. Many disagree with this assertion. “He said what?” Baldwin howled when I put the proposition to him. “There’s no way that could be true. Italians were bringing espresso machines into New York in the 1950s. He couldn’t have served the first latte.” Indeed, at the time, a few embryonic Seattle coffeehouses — The Last Exit, Raison d’Etre, Cause Celebre — were already serving “what we’d now be embarrassed to call espresso,” as Monaghan put it. The city’s first espresso cart, opened in 1980 and dubbed Monorail Espresso, was said to pull in more cash than some successful lawyers; another early cart, Ambrosia Espresso, was forged from spare Boeing avionics parts. Certainly, no one obtained a notarized court document showing the exact time they served their first latte, but by 1984, espresso-and-milk drinks like the cappuccino did already exist in Seattle, making Schultz’s claim sound dubious.
Nobody disputes that the latte was a hit, however. “Caffe latte right out of the blocks was the most popular drink, and as they get bigger and bigger, people like them more,” Baldwin told me. “I had no idea how much Americans liked milk.” Years later, in the midst of the great coffee-house deluge, media stories would trumpet a national espresso obsession. But Americans didn’t drink espresso; they drank lattes. “Espresso never caught on here,” said Corby Kummer, author of The Joy of Coffee. “It was always milk drinks. They’re easier to drink, and it was also a logical transition for someone going from a big tall cup of drip coffee. People think they like espresso. They don’t.” In the land of Big Macs and super-sizing, a dainty one-ounce serving of espresso could never appeal to consumers accustomed to getting something with a little heft for their money, but the latte satisfied this requirement admirably. With each one sold, Schultz gained confidence that this was an idea worth billions.
So his anguish was even more acute when Baldwin told him that he still wasn’t interested in opening more espresso bars, in part because a strangely oedipal acquisition had left the company’s finances tight. In 1983, Starbucks bought Peet’s; the upstart kid was succeeding its grizzled mentor. After many years of nonstop toil, Alfred Peet had burned out and sold his beloved business to a Peetnik named Sal Bonavita, who soon burned out as well. When Bonavita told Baldwin over lunch one day that he wanted to sell, Baldwin became so excited that he had to walk to the men’s room to calm down. He immediately called Bowker to tell him they were buying Peet’s, end of discussion. “We didn’t have any money, though, so I don’t know where I got my confidence about it,” Baldwin said. But the thrill was short lived; b
urnout seemed to come with the job at Peet’s. Under the strain of running two companies in two cities eight hundred miles apart, Baldwin too was growing exhausted, and he didn’t care to increase his stress by gambling on Schultz’s espresso-bar concept.
Schultz’s frustration boiled over: in 1985, he decided to leave Starbucks and strike out on his own. Perhaps out of relief that he’d never have to spar with Schultz again, Baldwin volunteered to invest $150,000 from Starbucks’s depleted bankroll, provide Schultz’s new venture with coffee, and even let him keep his office. Bowker likewise offered to help, both by making a research trip to Italy with Schultz to visit local espresso bars and by giving the new business its name. Seeking to lend the enterprise an air of European class, he thought up the moniker “Il Giornale,” which literally means “The Newspaper,” though the intention was to suggest something one consumed daily. For an emblem, Schultz picked a Starbucksesque green circle, with an etching of the Roman messenger god Mercury’s head inside.
From the outset, Schultz had grand plans for Il Giornale; a 1986 Seattle Weekly story reported, quite prophetically, that Schultz “envisions Il Giornale packing them in on opposite sides of the same street.” He intended to open fifty stores at a rapid clip, which meant he needed to raise about $1.7 million from investors. But even coming out of the mouth of a talented salesman like Schultz, the espresso-chain pitch sounded a bit harebrained. Of the first 242 potential investors Schultz talked to, only twenty-five bit. “We raised money from what is called ‘sophisticated individual investors’ in the early stage,” Schultz later told CNN, “and basically, anyone who would write us a check fit that criteria.” To give an idea of how wide a net he cast, one of Schultz’s initial investors was an up-and-coming jazz saxophonist on a mission to create the easiest-listening music humankind had ever known: Kenny G. (Schultz knew his uncle.)