Latest / The CEO Diary with Fexingo: Leadership Lessons, Executive Decisions, and Corner Office Stories / How Howard Schultz Brought Starbucks Back From the Brink
Transcript
- Lucas: It's June 2026, and Starbucks is everywhere — drive-thrus, airports, grocery stores, college campuses. But seventeen years ago, the company was in real trouble. Same-store sales were falling for the first time, the stock had lost half its value, and the founder had just come back to fire the CEO he'd handpicked. Luna: Howard Schultz returning in 2008 — that's the story. He'd stepped down as CEO eight years earlier, stayed on as chairman, watched his successor expand too fast, and finally said 'enough.' Lucas: Exactly. And what he did next is a case study in leadership conviction. Because the easy moves would have been to cut costs, lay off baristas, shrink store sizes. Schultz did the opposite in some ways, and the unpopular thing in others. And he was right. Luna: Before we dive deeper — and I know this is a busy time for everyone — I want to mention something. A few listeners have asked how we keep this show running without ads or a paywall. Lucas: Yeah, it's a good question. The honest answer is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. That's it. No corporate sponsors, no intrusive ads. Just listeners who find value in these conversations. Luna: And if these episodes have ever helped you think differently about a decision at work or understand a business move better, that's exactly the kind of support that keeps it going. No pressure — just wanted to put it out there. Lucas: Right. So back to Schultz. When he retook the CEO seat in January 2008, he gave a leaked memo to the board that basically said: we've lost our soul. The aroma of fresh coffee was being replaced by the smell of burnt milk from warmed-over sandwiches. He was furious. Luna: That leaked memo is legendary. He wrote about how the stores had become 'sterile,' how the romance of coffee was gone. And he was calling out his own company. Lucas: Right. And then he acted. One of his first moves was to shut down every single company-operated store in the US for three and a half hours on the same evening — February 26, 2008. 7,100 stores. To retrain baristas on how to pull the perfect espresso shot. Luna: That must have cost millions in lost sales. And the press had a field day — 'Starbucks closes for espresso lessons.' But Schultz didn't care. He said, 'We have to earn the customer's respect back, and that starts with the product.' Lucas: It was a huge bet on quality over convenience. And it worked — in the sense that same-store sales stabilized within months. But the really controversial move came next: he killed the breakfast sandwiches. Luna: The sandwiches that were actually driving morning traffic? That seems counterintuitive. Lucas: It does. But Schultz argued that the smell of warmed eggs and cheese was overwhelming the coffee aroma. He said, 'We are not a sandwich company. We are a coffee company.' And he took a short-term revenue hit to protect the brand identity. Luna: But didn't they bring sandwiches back later? Lucas: They did — but only after redesigning the recipes so they didn't produce that overpowering smell. The point was, Schultz forced the company to solve the problem before scaling it again. And he made another big bet that year: the Clover machine. Luna: Oh, the single-cup brewer that made one cup at a time — for a premium. That was a huge departure from the fast-drip model. Lucas: Exactly. Starbucks bought the company that made Clover — the Coffee Equipment Company — for an undisclosed sum, and then installed the machines in high-end stores. It was a signal: we will slow down and make you a truly excellent cup of coffee, even if it takes longer. Luna: And it worked partly because it created a theater — customers would watch the barista brew their cup, pour it over. It felt premium. Lucas: Right. But here's the thing that really separates Schultz from a lot of turnaround CEOs. He didn't just cut costs — he increased spending on things that mattered. He expanded health insurance coverage for part-time workers, even as the economy was tanking. He invested in farmer support programs. He opened new stores in international markets. Luna: That's a lesson in itself. When everyone else is pulling back, you can invest in your people and your product and pull ahead. Lucas: And Schultz was very deliberate about it. He wrote in his book 'Onward' that he wanted to 'reignite the emotional connection' with customers. That's a soft metric, but it translated into hard numbers. By 2010, Starbucks' revenue was back to pre-crisis levels, and the stock had more than tripled from its 2008 low. Luna: So what's the one thing you'd take away from this story for a leader today? Lucas: I think it's that you have to be willing to make decisions that look bad on a spreadsheet in the short term if they protect the core identity of your business. Schultz closed stores for training. He killed a product line that was making money. He bought a slow, expensive coffee machine. Each of those moves was criticized. But they all reinforced the same message: we care about the quality of this coffee. Luna: And he never wavered. He didn't let the stock price or the headlines dictate his strategy. That conviction is rare. Lucas: It is. And it's why Starbucks is still here, still growing, still relevant. The turnaround wasn't just about financial engineering — it was about remembering what the company was actually for.