Onward: How Starbucks Fought for Its Life Without Losing Its Soul

by Howard Schultz

  In 2009, as we explored future options for innovative, disciplined growth, we were asking ourselves several questions.

  How could we re-create and improve the store experience, which is our heritage and the foundation of the brand's identity?

  How might we expand on our value proposition, which has always been about emotional and human connection?

  How should we strengthen our voice to better tell our story?

  And how could the company extend its coffee authority beyond the stores, as I'd once envisioned happening with Mazagran?

  Personally I did not fear failure. While I did not like or want to fail, I was willing to take risks. And I did worry that the company, given its battered stock price and morale, would not be able to emotionally or financially survive a high-profile setback. Whatever we chose to do had to be done right and done well.

  The risks were huge. But the way I saw it, Starbucks had no choice but to forge ahead and create. After all, innovation is in our DNA.

  Back in 1989, Dave Olsen had come into my office and offered me a cup of coffee to taste.

  “How do you like it?” he asked.

  “It's great,” I answered after taking a sip. “Is it a new arrival?”

  Dave said no, of my favorite coffee, Sumatra. But it was not freshly brewed. It had been made from a powder. I was incredulous. Essentially, Dave explained, what I had just tasted and enjoyed was an instant version of Starbucks. Again, I did not believe him. How could any instant coffee—a universally sour, watery, and simply undrinkable liquid made from a combination of robusta and arabica beans—smell or taste even remotely like Starbucks’ rich dark roast? Where did it come from?

  Prior to Dave walking into my office, a man named Don Valencia had walked into our Pike Place store and handed a barista a small pouch containing a coffee powder that he had created. He asked the baristas to mix it with hot water and taste it. They obliged and kindly told him that what they had just sampled was okay, but definitely not as good as Starbucks’ coffee. Don was in town from Sacramento to visit his wife Heather's family, and after he bought a latte for his wife, the baristas also sold him a pound of Sumatra, one of our best-selling coffees. When Don returned to Sacramento, he made another powder, this time using Starbucks’ coffee, and sent a sample back to our baristas, who were impressed enough to pass it on to the coffee specialists at our support center. Not long after that, Dave brought the beverage to me and told me about Don.

  I had to meet him myself, and a few days later I flew to Sacramento to hear his full story.

  Don was a remarkable individual.

  He was a cell biologist who specialized in autoimmune disease diagnostics—essentially, the science of determining whether people are suffering from any number of autoimmune diseases, such as lupus, in which the body attacks its own cells. At age 28, he founded a company, Immuno Concepts, to pursue an idea that others told him was a waste of time. But Don proved them wrong by successfully inventing a better way for doctors to test blood for autoimmune diseases. Similar to test kits already being used by doctors and hospitals, Don's product included cells. But unlike other tests, the cells in Don's kit had a long shelf life because Don had figured out a way to safely freeze-dry them without compromising their properties. Health-care practitioners around the world began using Don's invention.

  Then he told me about the coffee. In his free time, Don was an outdoorsman, but the only kind of coffee he could carry with him when he and Heather went hiking was instant, which to Don tasted lousy. One day he decided to apply the same science that he had applied to the cells in his kits to the extract from coffee grounds.

  Don turned his kitchen into a makeshift lab where, on weekends, he made a concentrated form of coffee that he then brought to his office laboratory. There, using a tall, boxy machine that freeze-dried cells, Don subjected the concentrated coffee grounds to the same delicate process he used on cells, trying to find the best way to dehydrate the concentrate but preserve the flavor and aroma. On Monday mornings, Don's colleagues would walk into a lab that smelled like coffee and sample his latest batch.

  Eventually, Don nailed it. His process produced a soluble powder that, when mixed with water, delivered a much better-tasting cup of instant coffee than he'd ever had.

  Until I met Don in the late 1980s, it had never occurred to me that Starbucks might go into the instant coffee business. The mere notion seemed an anomaly, incongruent with our brand and premium position. There were many reasons to dismiss it: Starbucks is a retailer, not a consumer products company, and we did not have aspirations or the resources to become one. Besides, people's bias alone would kill the idea. Mention “Starbucks” and “instant” in the same breath, and loyal Starbucks customers as well as our baristas would cringe. Instant was lowbrow. Beneath our standards.

  The reason most instant coffee is so vastly inferior to high-quality brewed coffee is because its manufacturers subject poor-quality beans to intense water extraction and drying processes that strip the beans of their natural aromatic compounds and flavors. By the time the resulting powder, or “crystals,” are mixed with water, any quality in the raw bean is long gone. Yet instant coffee consumers accepted this mediocrity. Their palates had adapted. And without customers demanding a better product, consumer goods companies focused on making water-soluble coffee as cost-effectively as possible. As a result, the instant coffee market had not seen any real innovation since just after World War II.

  Why, most people would ask, should a small coffee company even bother to try?

  It would have been easy, and understandable, for me to thank Don for sharing his experiment with us, wish him well, and return to my work. But Don Valencia and his invention intrigued me. His scientific prowess, his innate curiosity, and his deep-rooted values further impressed me. I also genuinely liked visiting with Don. He, too, was an entrepreneur motivated by impossibilities; “it can't be done” was perhaps the one statement that most motivated him. I knew he could be an asset to Starbucks.

  We stayed in touch, and by 1993 Don had accepted my offer to run Starbucks’ research and development operations. Of course, we did not have an R&D facility, but it didn't matter. Don had introduced me to an exciting new possibility, and because Starbucks was young and hungry and nimble enough to adopt the unexpected, I would have been shortsighted, as an entrepreneur and as Starbucks’ chief executive officer, not to turn his enthusiasm and innovative work into potential value for the company. So instead of asking “Why?” I asked, in true entrepreneurial fashion, “Why not?” and asked Don—a man who had never worked in the retail or coffee industry—to build a world-class R&D team and create a water-soluble coffee that was as bold and rich as a cup of fresh-brewed Starbucks and could be mass-produced and commercialized.

  To be clear, the goal was not to make a better cup of instant coffee. No. Our aspiration was much higher. And while I might not have specifically articulated this back then, I sensed that Starbucks had the potential to once again create a new product category so that, one day, coffee lovers who once would not have dreamed of drinking instant coffee would drink ours.

  Don labeled the secret assignment JAWS, an acronym for “just add water and stir.” Neither of us imagined that something sounding so simple would prove to be so very, very complex.

  Don approached his research intellectually, studying the chemical properties of coffee and trying to understand why aromatic compounds got lost during the process of extraction and drying, destroying the coffee's flavor. Yet scaling the process that Don had conjured up in his lab so the powder could be produced in large batches proved incredibly difficult. Every time he experimented with a new process, the resulting powder, once in the cup and mixed with water, did not taste or smell fresh-brewed—or anything like Starbucks. But Don did not give up. Instead, he brought a handful of other talented people into the fold.

  Among them was a tenacious Panamanian engineer named Urano “Uri” Robinson. Like Don, Uri did not have a coffee backg
round—he came from the pharmaceutical world—but as Don confidently described JAWS's proposition, the daunting David-versus-Goliath challenge piqued Uri's interest. Uri was a dogged engineer and, like many others who worked for Starbucks, also desired to do work that he found meaningful. In 1997 Uri moved his family to Seattle to join Starbucks’ tiny R&D department.

  Over the years—and it would be years—Don and Uri and a rotating team that included product developer Hannah Su secretly toiled away on a project that no one else at Starbucks knew or cared much about. Don routinely equated the JAWS journey to hiking Mount Kilimanjaro. It demanded well-honed skills, resilience, self-confidence, and, most importantly, a passionate belief in the project's goal and purpose: Reshape the coffee industry by improving the perception and quality of instant. Once again, Starbucks could change the way people drink coffee. If we could crack the code.

  In 1998, on a shoestring budget, Don, Uri, and their small cadre of engineers developed something they had not originally been after: a coffee powder that, while not of high enough quality to fulfill Don's original vision, had another useful and lucrative purpose. Known internally as BBCB, the extract became the new coffee base for Starbucks’ blended Frappuccino beverages and, eventually, bottled Frappuccino, a popular product Starbucks and PepsiCo jointly produced.

  Discovering this powder was no small achievement. Up until that time, our baristas had prepared every Frappuccino by blending extra-strong brewed coffee, milk, sugar, and other ingredients. The preparation was complicated and time-consuming, and as Starbucks’ Frappuccino business skyrocketed, simplifying the process to keep up with demand became a priority. The new powder reduced Frappuccino's prep time and preserved its authentic coffee taste, as well as boosted the product's profitability. In fact, BBCB's benefit to the company was so significant that, by 2000, with Starbucks stores rapidly expanding outside North America, JAWS was put on hold and the R&D team's attention turned to scaling up BBCB's production for our Frappuccino platform of products around the world. This intense, five-year focus would take Uri and others to Europe, Asia, and South America. Eventually, working with manufacturers on two continents, Starbucks produced two proprietary soluble powders that are used for a variety of our ready-to-drink beverages and brand extensions, from flavored ice creams to coffee liqueur.

  When Don retired in 1999 to spend more time with Heather and his two children and engage in charitable work, I felt as if a close friend was leaving the company. While he did not achieve the original goal he had set out to, Don's innovations were nonetheless invaluable to Starbucks. And even once he left, Uri and his colleagues did not let Don's original vision die.

  By 2005 Starbucks’ ability to produce enough soluble powders for our global ready-to-drink and brand-extension businesses was at capacity. Not only were we seeking out additional sources of production, but also, in our quest for quality and efficiency, the R&D team was perpetually working to develop even higher-quality yet less-expensive soluble coffee powders. That year, the R&D team began a formal initiative to expand our pantry of soluble coffees.

  In 2006 the team developed a three-year plan, and built into their schedule was an initiative to refine one of the soluble powder forms to such a degree that it could stand on its own when mixed and stirred with hot water. In other words, JAWS was back on our R&D radar. The work, which still needed to be conducted in secret, was renamed Stardust.

  Later that year, I was preparing for my first trip to Africa. Not knowing where or if I would be able to find high-quality coffee as I traveled the continent, I asked the R&D department for a small sample of one of its soluble powders to carry with me. While it was not meant to be consumed raw, I assumed it would taste better than any instant coffee on the market and certainly better than nothing. On the trip, I was delighted to discover that it tasted much better than I expected. Hardly perfect, but the team had definitely come a long way.

  “How close do you think we are?” I asked when I returned to Seattle, wondering if Don's vision might finally be attainable.

  “About 60 percent,” I was told. “Maybe 75.”

  We had the technology to get us that far but needed to work with the right manufacturing partner to take us further. Intrigued, I set up a meeting to discuss what it would take for Starbucks to finally bring its version of instant coffee to market.

  The seventh-floor Bella Vista conference room was crowded. Next to me, members of Starbucks’ leadership team sat across from experts from our R&D and coffee departments, including Andrew Linnemann, Uri, and Tom Jones, the current director of R&D. Tom was walking us through a timeline, explaining why a Starbucks instant coffee product would take approximately 32 more months to launch.

  “Why must it take so long?” I interjected, sounding impatient. “If Apple could develop the iPod in less than a year, we can do this!”

  I was frustrated by what I perceived as a lack of urgency, but at that point in time, January 2007, I was also frustrated by a variety of shortcomings at the company, many of which I would soon outline for the leadership team in the Valentine's Day memo.

  Tom calmly articulated the reasons. Not only did the existing soluble powder need to be improved upon to be worthy of Starbucks’ high standards—the very code Don had been trying to crack—but there also were a host of complicated activities that had to unfold in parallel, activities the company had little or no experience doing at such scale and speed. If Starbucks was going to shock the market by introducing its premium coffee in an instant form, the company had to come together as never before, across business functions, to overcome logistical as well as perceptual hurdles. Planning. Packaging. Trademarks and patents. Manufacturing. Global production and distribution. Customer research. Testing. Integrated marketing, digital and promotional campaigns. Winning partners’ support. The product did not even have a name!

  The elephant in the room, which no one spoke of, was that very few people inside Starbucks wanted anything to do with instant coffee. The bias against such a down-market category was considerable; even our then head of US operations (a predecessor to Cliff Burrows) wanted nothing like it in our stores. Some partners even worried that being assigned to the Stardust project might hurt their careers at the company.

  But I was resolute that we had to move forward. Going against conventional wisdom is the foundation of innovation, the basis for Starbucks’ own existence. Now, we once again had a rare opportunity to create a new category of beverage—this time, an instant coffee for people who did not drink instant. A chance to give everyone access to a great cup of coffee, anytime and anywhere. And while Starbucks was no longer as small as we had been back when Don had walked into my office, we could not walk away. I had confidence in the people seated across from me.

  I respected Tom's position that successfully launching a product this audacious in less than a year was probably impossible, but my reaction in what would become known to some as the “iPod meeting” did cast a sense of urgency over the project.

  Uri led the charge, and during the next nine months he and Andrew's respective teams worked in close partnership with a foreign supplier whose commitment to quality and innovation matched Starbucks’ own. During 14-hour days and weeks away from Seattle, the engineers and coffee experts experimented, tweaked, and tasted and tweaked again, until one day they all took a sip and agreed. They had exceeded even their own expectations, improving upon one of our existing powders so much that, when added to water and stirred, it produced a cup of coffee as rich and distinctive as Starbucks’ fresh-brewed. In the fall of 2007, almost 20 years after I had first met Don, Starbucks had cracked the code.

  Finally, the proof was in the cup.

  “Howard, I think you should go see Don,” said Dave Olsen over the phone. “He's not doing well.”

  In 2006 Don Valencia had been diagnosed with squamous cell carcinoma that had invaded his lungs, liver, and colon. Of all people, Don will surely beat this, I thought. And for 15 months, he fought a valiant battle. But b
y October 2007, he was very sick. I was in the midst of planning my return as Starbucks’ chief executive, but every other week I visited Don at home. Behind closed doors, with Don lying covered with a blanket on a couch and me sitting nearby in a big chair, we would talk for well over an hour about so much more than coffee.

  The last time I saw Don was in the hospital on a Tuesday in early December. Standing at his bedside, I leaned in close. “Don, we are going to roll out Stardust,” I whispered. I wanted Don to know that his vision—one of so many that he had brought to fruition during his lifetime—was also becoming reality.

  Four days later, on December 8, 2007, Don Valencia passed away.

  Chapter 28

  Conviction

  Sometimes, the earliest days of Starbucks seemed very far away.