Starbucks: A Fall from Grace

Just a few short years ago, Starbucks’ status as an international coffee giant was unquestioned.  Starbucks had enjoyed a meteoric rise to become a giant, multi-billion-dollar corporation with tens of thousands of locations across the globe.  The economy here in the U.S. was good enough for millions of Americans to feel okay with spending up to $5 on a coffee drink.  In 2006, the Starbucks stock hit an all-time high and the company was expanding feverishly.  Multiple locations could be seen on the same street in many cities, and there weren’t any signs of stopping.

Then, sales began to drop off.  The stock got hammered. The company hired back its key founder to help them get on the right track, and announced the closing of 600 stores across the U.S.  It was a swift decline for a company that had swelled to 16,000 stores since its inception in 1971.

So, where did Starbucks go wrong? Their first problem was they got too big for their britches. Starbucks failed to recognize that saturating the market would give rise to a sea of detractors, not to mention the fact that there’s only so much coffee that people can drink.  In growing so large, Starbucks also made the fatal mistake of cutting out what made them stand out in the first place: fresh, high quality coffee and what CEO Howard Schultz describes as ‘romance and theatre’.

When Starbucks first became popular, it was their fresh-ground, top shelf coffee beans that were brewed with a smile and friendly conversation in an intimate environment that made them so alluring.  As they grew into a monster corporation, these elements were put to the wayside so the company could shave money off their budget and maintain a formula that could be easily copied.  It was a dangerous bargain, though they didn’t realize it at the time.

Starbucks took for granted the idea that customers embraced them because they’re Starbucks, not because the coffee was great.  The pre-ground beans, automated espresso machines and drive-thrus chipped away at what made people like Starbucks in the first place. They removed most of the soft, comfortable chairs and carpeting from their stores.  All of this made people less likely to see Starbucks as a place to relax, read, chat with friends or hold business meetings.

They also began to muddle their brand a bit by experimenting with various reportedly smelly breakfast sandwiches, movie promotions, liqueurs and their very own record label.

As Americans’ wallets got lighter, more of them began to scorn high-priced fancy coffee drinks and respond to advertising by competitors like Dunkin’ Donuts, who espouse the idea of simple coffee at low prices, though they do offer lattes, mochas and frappuccino-like drinks as well.  And then there’s the uprising of locavores, who believe that coffee shops should be small, intimate, unique and independently owned.

The company is working on turning it all around, though.  In addition to closing 600 stores and laying off some 1,000 employees, Starbucks is trying to get back to its roots at a rapid pace.  They’re improving their espresso equipment to ensure the freshest, highest quality brew possible, and they’re also focusing more on the brews they offer.  Their simple, comparatively inexpensive drip coffee will get more attention, and a reward program for loyal customers is being put into place.  They’ll be putting more emphasis on training baristas to make consistent drinks across the board, so customers know what they’ll be getting at each location.  The reaffirmation of their focus on what made them successful in the first place – coffee – will likely be their saving grace after this brush with disaster.

The biggest lesson that Starbucks has learned from all of this – and that you can take away from it as well – is to know when to stop.  You don’t have to go along with every idea.  You don’t have to grow to the point of making your company the butt of one-on-every-corner jokes.

Better times may well be ahead for Starbucks, if they can manage to stick to their current goal of keeping it simple and sticking to what works.

Photo by Flickr user jimg944

3 Business Rock Stars Who Have Shaken Up Their Industries

There are successful businessmen, and then there are successful businessmen who tower above the rest with innovative strategies that have propelled them into the realm of the rock star.
Beyond mere prosperity, these guys have achieved fame and fortune that most businessmen can only dream of, and they act as inspiration to many of the men and women who are out there trying to bring their own goals to fruition. Steve Jobs, Mark Cuban and Donald Trump stand out in each of their respective industries because of decisions and events both planned and accidental, and as a result, they’re enjoying the best of what can be achieved in business.

Steve Jobs – Technology should be an exciting industry, and that’s one belief that Steve Jobs has always displayed throughout his career. Over the years, as co-founder and CEO of Apple and majority shareholder of Pixar Animation Studios/Walt Disney, Steve has combined entertainment with technology with an emphasis on aesthetics. It’s something that none of his competitors have bothered to do, giving Apple an edge that makes the company’s products highly attractive to young people in particular. Steve helped transform the computer industry from an endless parade of bland, humdrum beige machines to elegant products that transcend function straight into the realm of fashionable. As a result, Apple has raised the bar to such an extent that other computer and electronics companies are still struggling to catch up.

Mark Cuban – Some people show signs of impending business success from a very early age, and Mark is one of those people. As a child, he calculated ways to make money, once netting $1,100 from a chain letter he started. The ‘technology maverick’ started his first company, MicroSolutions, in the ‘80s and soon sold it to CompuServe for a profit of $2 million after taxes. He then combined his interests in college basketball and webcasting along with friend Todd Wagner to start Audionet, which became Broadcast.com and sold to Yahoo in 1999 for $5.9 billion. Mark deftly diversified the wealth that he gained, landing at #133 on Forbes’ 2007 ‘World’s Richest People’ list with a net worth of about $1.2 billion. He’s best known for his opinionated, oft-controversial decisions as owner of the Dallas Mavericks basketball team. He also provides business tips on his popular blog, Blog Maverick.

Donald Trump – It’s hard to like The Donald. He’s pompous, obnoxious – and then there’s that hair. But, you can’t deny that Donald Trump is extremely unique in his field – can you name a single other real estate developer who’s anywhere near as famous? Of course, from an early age Trump parlayed his privileged upbringing into a plethora of business opportunities, and began a series of large building projects in Manhattan with his father’s company, the Trump Organization in the early ‘70s. Over the years, Trump’s soap opera-like twists and turns through extreme wealth and bankruptcy gained him the fame that led to his current success as a television personality. His signature hairstyle and trademark catchphrase (“You’re Fired!”) have only added to the caricature that is Donald Trump.