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Starbucks legend Howard Schultz has revealed secrets from the company’s early days, shared some of his biggest regrets, and warned that the coffee chain is heading in the wrong direction. A spectacular three-hour interview On the Acquired podcast released this week.
Schultz pioneered the coffeehouse concept in the U.S. He served as chairman and CEO of Starbucks from 1986 to 2000 and again from 2008 to 2017, and served as interim CEO from 2022 to 2023.
The business guru also spoke about how he met Bill Gates Sr., Steve Jobs, the co-founders of Costco, Coca-Cola and Pepsi, and luxury goods mogul Bernard Arnault.
Below are 12 of the best quotes from the episode, lightly edited for length and clarity. Starbucks declined Business Insider’s request for comment.
1. Starbucks didn’t originally sell its own coffee.
“When Starbucks opened in Pike Place Market in 1971, they were using Peet’s Coffee. Nobody knows that. It’s a new thing.”
Schultz said that before he started roasting his own coffee, he brought Peet’s Coffee from San Francisco to Seattle, repackaged it and sold it under the Starbucks brand.
2. Italian coffee giant Lavazza turned down an early investment opportunity.
When Schultz launched his Il Giornale coffee bar concept, he approached two Italian companies for financial backing but was turned down.
“I’d never told them this before. One was the espresso company Faema, and the other was Lavazza, a major Italian coffee company. I asked them both to invest in my idea, but they both turned me down.
“Lavazza and Faema, let it be on the record, have rejected my offer. They will deny it. That is a fact.”
3. Bill Gates’ father helped Schultz buy Starbucks.
In the late 1980s, when Schultz was raising money to buy Starbucks from its founder, an investor made a cash offer to the company in an attempt to cut Schultz out of the deal.
Through a friend, Mr. Schultz secured a meeting with Bill Gates, the top lawyer and father of the Microsoft co-founder, who listened to his story and then escorted him to the offices of the investor in question, Samuel Strom, where, according to Mr. Schultz, he told him:
“I don’t know what you’re planning, but whatever it is, it’s not happening. Howard Schultz is going to buy Starbucks Coffee Company, and he’ll never hear from you again.”
Gates not only warded off the threat, but also helped fund Schultz’s acquisition of Starbucks.
Bill Gates Sr. and Bill Gates.
4. Schultz regrets not acquiring the rights to two of his innovations
When Schultz was sourcing better coffee cups and lids for Starbucks than traditional Styrofoam, a Chicago paper company he worked with became a huge success.
“They came up with this beautiful bite-sized lid that is now found all over the world. Howard Schultz should have said to them, ‘We want to sell this lid exclusively,’ because it became the global standard. If I had figured it out.”
“Another thing I didn’t do was introduce the latte to America but didn’t trademark it. Later I trademarked the Frappuccino but not the latte. I didn’t think of it and I missed it.”
5. Costco’s partnership with United Airlines creates controversy
Costco co-founder Jeff Brotman helped Schultz finance his purchase of Starbucks in 1987 and served on the company’s early board of directors. Former Costco CEO Jim Sinegal They were Schultz’s mentors, he said.
Schultz said the three men worked together to make a “big decision” to sell Starbucks coffee in Costco, which sparked “a rebellion within Starbucks.”
Schultz said the company saw a measurable increase in sales at a Seattle Costco store by selling its beans there, boosting brand awareness and bringing more traffic to the nearby store.
The former CEO of Starbucks faced similar backlash when he agreed to supply the company’s coffee to United Airlines.
“If you thought the Costco rebellion was too much, imagine what would happen if I said there was an opportunity with the United Airlines deal. People were like, this is absolute sacrilege, don’t do that. And then again, it’s the exposure and the opportunity to surprise and delight customers in a place where they’ve never had anything close to good coffee before.”
6. I don’t like Frappuccinos
“Because I’m a very smart person, I looked down on the Frappuccino. I didn’t like the name, I didn’t like the drink, and I didn’t think it belonged at Starbucks. I just thought Starbucks was pure about coffee, and apparently I was wrong. Dead wrong.”
Starbucks Frappuccino.
7. Coke: No, Pepsi: Yes
Schultz pitched his idea for a bottled Frappuccino to sell in grocery stores to both Coca-Cola and Pepsi, and his meeting with Coca-Cola in Atlanta lasted less than 30 minutes. “They ignored me, they didn’t understand what I was trying to do, and they didn’t even give me the time to explain it to them.”
In contrast, Schultz met with Pepsi’s CEO and other executives in New York and “with words I jotted down on a napkin, I swore by them, shook their hands, and created multi-billion-dollar businesses for Pepsi and Starbucks.”
8. Steve Jobs’ Honest Advice
Schultz recalled Starbucks facing hard times and taking a walk with Steve Jobs on Apple’s campus in California.
“I told him my problems, everything that was going on, and he stopped me and said, ‘Here’s what you need to do.’ He just looked at me and said, ‘Go back to Seattle and fire everyone on your leadership team.'”
“I thought he was joking. I said, ‘What do you mean fired, fire them all?’ He said, ‘I just said, fire all those motherfuckers.’ He was practically screaming in my face, ‘Fire them all, I would.’ I said, ‘Steve, I can’t fire all those motherfuckers. Who’s going to do the job?'”
“He said, ‘I promise you within six months, no, nine months, they’ll all be gone.’ And he was right. They were all gone except for one general counsel.”
Steve Jobs.
Justin Sullivan / Staff / Getty Images
9. Dangers of Mobile Apps
“That’s Starbucks’ biggest weakness, and there’s nothing close to it,” Schultz said of the Starbucks app that allows customers to order from their smartphones.
Schultz said the app could undermine the sense of community and shared “third place” that Starbucks considers essential to its stores, and that it could overload employees with orders, causing delays, confusion and customer anxiety.
“My view is that we shouldn’t give in to mobile apps,” Schultz said, adding that he would have limited their availability early on to test their impact rather than making them available 24/7.
“We’re not a beverage company that serves coffee, we’re a coffee company that serves people. We need to focus more on coffee and can’t allow a mobile app to become a runaway train that continually dilutes the integrity of the Starbucks experience.”
10. Italian Coffee
“I know I’m going to get bashed for what I’m about to say, but it’s the truth: Overall, coffee in Italy is not as good as it used to be,” Schultz said. “I’d kill for it, but that’s my truth.”
Schultz also said Starbucks entered the home of espresso at a time when it was ready to shine.
“We knew that criticism would come out in ways we could never have imagined, given the history and cultural relevance of espresso and coffee bars. So we waited and we waited.”
His strategy was to first open one of Starbucks’ flagship stores, The Roastery, in Milan. He found a vacant post office building to be the perfect location, and when he discovered it was owned by Blackstone, he was able to strike a deal with the private equity giant.
Schultz also revealed that espresso is the most popular drink at Starbucks’ 30 stores in Italy, suggesting that locals have embraced the brand.
11. Showing the Arnault family around
Schultz recalled showing one of the world’s most powerful businessmen, LVMH CEO Bernard Arnault, and his son Alexandre, who is CEO of Tiffany & Co., around a roastery in Seattle.
“He had an incredible sense of curiosity,” Schultz said of the man behind Louis Vuitton and the luxury goods empire. “I remember him staring at the railings and the stitching of the leather, and I just said, ‘You spend a lot of time on leather.'”
LVMH CEO Bernard Arnault (right) and his son Alexandre Arnault.
Donato Sardella/Getty Images, courtesy of Louis Vuitton
12. Starbucks is on a bad path.
Schultz warned that the company he built was in danger of becoming arrogant, complacent and conservative.
“The worst thing a company can do is believe that it can’t do anything but succeed, that it deserves to succeed. But if it doesn’t get on the defensive and have an offensive mentality, it’s not going to work. And I think over time that’s what’s happened at Starbucks.”
Schultz criticized the company for not investing enough when he wasn’t in charge and for using stock buybacks to boost earnings per share.
“The company is not working the way I would like it to. I’ve been to the stores and I know the company well, and I don’t think we’re in the best shape right now.”
“If the company is heading in a direction of mediocrity, I hold management and the board responsible,” he said.