Howard Schultz

Howard Schultz is the visionary entrepreneur credited with transforming Starbucks from a small Seattle coffee bean retailer into a global cultural phenomenon. For value investors, his story is less about coffee and more about the incredible power of a long-term vision, obsessive product quality, and the creation of a nearly unassailable brand. Schultz's genius lay in recognizing that he wasn't just selling coffee; he was selling an experience—a “third place” between home and work. This focus on building a powerful intangible asset in the form of the Starbucks brand is a textbook example of how a leader can create immense, durable shareholder value over decades. His career demonstrates that a founder's passion and a deep understanding of the customer can be a company's most potent competitive moat.

The legend begins in 1981 when Schultz, then a general manager for a Swedish kitchenware company, walked into a small coffee roaster in Seattle called Starbucks. He was captivated by the founders' passion for high-quality coffee. A year later, on a trip to Italy, he had an epiphany in the espresso bars of Milan. He saw not just coffee shops, but community hubs—places for conversation and human connection. This was the “experience” he wanted to bring to America. The original Starbucks founders, however, wanted to remain solely as coffee roasters. Undeterred, Schultz left in 1985 to start his own coffee bar chain, Il Giornale. He built it around the Italian experience he so admired. In a twist of fate, he returned in 1987 to purchase Starbucks and its six stores, merging the two companies under the Starbucks name. What followed was one of the most remarkable growth stories in modern business history, as Schultz relentlessly executed his vision of making premium coffee an affordable luxury and Starbucks a globally recognized brand.

Schultz's management style was as distinctive as his vision. He believed that a company's success was inextricably linked to the well-being of its employees. This wasn't just corporate jargon; it was a core business strategy.

Schultz famously referred to his employees as “partners,” not just workers. In 1988, long before it was fashionable, he extended comprehensive health coverage to all employees, including part-timers. In 1991, he introduced “Bean Stock,” a revolutionary stock option plan that made every partner a part-owner in the company. From a value investor's perspective, this was a brilliant move. It wasn't an expense; it was an investment in human capital. By fostering loyalty and reducing employee turnover in a high-turnover industry, Schultz ensured a more consistent and positive customer experience. This exceptional service became a cornerstone of the Starbucks brand and a key differentiator from competitors.

After stepping down as CEO in 2000, Schultz watched as Starbucks's rapid expansion led to a dilution of its core experience. The “romance” was gone. In 2008, as the company's stock price plummeted during the financial crisis, he made a dramatic return. He took decisive and sometimes painful action, including temporarily closing thousands of U.S. stores for a single afternoon to retrain baristas on the art of pulling the perfect espresso shot. This bold move signaled a return to the company's roots: a fanatical focus on product quality and customer experience. The subsequent turnaround was a powerful lesson in the importance of protecting the brand at all costs.

Studying Howard Schultz's career provides a rich playbook for evaluating a company's leadership and competitive advantages.

When analyzing a company, look for leaders who exhibit similar traits. These are often signs of a business built for the long haul.

• Founder's Mentality: Does the leader have a deep, almost obsessive passion for the product and the customer? They see the business as a legacy, not just a line on a resume.
• Long-Term Horizon: The leader's language and actions should focus on building enduring value over years and decades, often at the expense of short-term quarterly profits.
• Stakeholder Focus: Great leaders understand that creating value for shareholders starts by creating value for customers and employees. Look for evidence of a strong corporate culture and high employee morale.
• Brand Custodianship: The CEO should act as the ultimate protector of the brand. They understand that a brand is a promise, and every decision must be measured against its impact on that promise.

Schultz's greatest achievement was building brand equity that allowed Starbucks to command premium prices for a product that is, essentially, a commodity. This pricing power is a holy grail for value investors.

1. Look for Pricing Power: Can a company raise prices without losing significant business? This is a key indicator of a strong brand.
2. Assess Customer Loyalty: Do customers choose the brand out of habit and affection, or just because it's the cheapest or most convenient option? A loyal customer base is a formidable asset.
3. Evaluate Consistency: The Starbucks brand promises the same experience whether you are in Toledo or Tokyo. This consistency builds trust and is difficult for competitors to replicate on a global scale.