Shen Nanpeng talks to the founder of Starbucks: I was rejected by 242 investors

2023/05/19 09:39
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One is the world's number one investor, and the other is a world-renowned business leader. The companies behind them have a history of more than half a century, and have successfully gone through several dark moments and economic cycles.

As promised.

Tonight (May 18), Shen Nanpeng, global executive partner of Sequoia and founder and executive partner of Sequoia China, had a fireside chat with Starbucks founder Howard Schultz.

This is a rare meeting: one is the world's number one investor, and the other is a world-renowned business leader. The companies behind them have a history of more than half a century, and have successfully traveled through several times. Dark Hours and Economic Cycles.

In this conversation, which lasted for nearly an hour, Shen Nanpeng and Howard Schultz shared their latest thinking on innovation and entrepreneurship, bit by bit, eloquently.

The following is a record of the conversation, authentic:

A piece of entrepreneurial history: 242 investors have rejected me

Shen Nanpeng : Starbucks today is one of the most acclaimed and most popular brands in the world. We all know that when you guys were starting out, Starbucks was just a small shop in Seattle that was roasting and selling whole bags of coffee beans. Now Starbucks has become one of the most famous brands in the world, with countless users, can you tell us the story of your origin, what made you choose coffee as your favorite career?

Howard Schultz : I grew up in New York City, and after we got married in 1982, my wife and I moved to Seattle, Washington. At that time, there was already a Starbucks in Pike Place Market, and that store only sold whole bags of roasted coffee beans, no coffee drinks.

In 1983, I went to Italy for the first time, I had never been to Europe before. I walked the streets of Milan and then took the train to Verona, and at that time I was fascinated by Italian cafes. There were hundreds of cafés all over Italy at the time, basically you would come across a little café on every block, and when I walked into these shops and had a glass of espresso, it was full of romantic charm and The gracious sense of community touched me deeply.

So, I immediately returned to the United States with an idea. I wanted to transform Starbucks from a company that only sells whole bags of coffee beans to a company that recommends and sells coffee drinks such as lattes and cappuccinos to American customers. I had no capital at the time, and I had to convince American investors to give me some venture capital money to expand the Starbucks business . However, 242 investors and investment institutions rejected me . They say nobody wants to pay $2-3 for a cup of coffee in Italian that they can't pronounce.

At that time, I had other thoughts besides coffee, and that was because I grew up very poor, without health insurance. I want to create a company that can provide medical insurance and equity to all partners. So not only did I tell investors to invest in this company, I also told them that I would give a portion of the equity to our partners and give them health insurance, which in a sense would "dilute" them Part of the investment, but I don't think this is "diluted", it is a value-added investment.

I want to help our partners, reduce churn, improve performance and build their sense of ownership. Then I finally got some investment. In 1987 we had 11 stores and 100 partners, and we had a dream - to build a different kind of company, one that was both profitable and socially responsible, one that would serve the communities we were in with a conscience. A company where people create well-being. That's the cornerstone of my business, and that's where the entrepreneurial journey begins.

Shen Nanpeng : Tell me about the biggest challenge you encountered in the first store in Seattle at the beginning of its founding.

Howard Schultz : During the 2008 financial crisis, Starbucks was in a very, very difficult position. For the first time in history, we had to close stores and lay off employees. I had a company-wide meeting. I cried because I knew we had to To make this important decision is for the future of Starbucks, but it will have a very negative impact on many people.

It was a tragic time for us, and some other things happened during that time, because the catastrophic financial crisis was so bad, we were in financial trouble, like many other companies. At that time we were already a listed company.

An institutional shareholder called me, whom I know very well, and said to me, "Howard, now is the perfect time for you to cut your partner's health insurance." However, Starbucks' culture, values, and code of conduct are the cornerstones of our success , If I cut off the partner's medical insurance at that time, we would have destroyed the most important cornerstone of building this company, that is trust, the trust established with the partner, and the sincerity, so I refused. Then he told me that when the equity market value report for the next quarter comes out, you will see that we will cut the investment amount to almost zero, because you are not willing to cut off your partner's medical insurance.

Then, in the next quarter, almost half of the shareholder value evaporated, but I think I made the right decision, which was a very difficult decision, but even then we can't cut the partner's health insurance. This is just an example. Be loyal to your values, stick to your core will, and stick to your original intention of starting a business. Profit is not our only goal in this business, but it reflects our values and the value of development.

Shen Nanpeng : It is not easy to make this decision at the most difficult time.

Howard Schultz : It wasn't easy, and it was very isolated. It's easy to be a leader in good times. However, true leaders need to make difficult decisions in the face of adversity,

Howard Schultz : You are a well-respected investor in China and the United States. When you are investing, what is the most important quality of an entrepreneur?

Shen Nanpeng : Frankly speaking, I am also thinking about this issue, because I need to learn from success and also from failure. As you said, like Starbucks, founders need to be passionate about what they do. Second, he must be fully prepared for it.

Let me give you an example. The founder of one of our member companies is a Chinese living in Australia. He opened a few small coffee shops in Australia, but soon found a very pressing problem, that is, his customers are all over the world, and people use different payment methods - cash, credit card, debit from all over the world Card. So instead of running a coffee shop, he decided to create a modern payment system company to solve this problem. He developed a great enthusiasm for this matter. Although he had never worked in financial services, he was able to pick it up quickly thanks to his background in computer science and his background in computer science, having worked in Morgan Stanley's IT department. So, if you are passionate about a career, you need to be prepared for it.

This shows from another aspect that entrepreneurs set up a company not only to make money or create a market value, but to continuously meet people's real needs but unfulfilled needs. This is the fundamental vision for companies to embark on the road to everlasting growth.

Starbucks Secret: Never Play "Defense"

Shen Nanpeng : Let's talk about the Chinese market. You entered the Chinese market in 1999. China has a very profound tea culture, but there was almost no coffee culture at that time. What gave you the confidence to engage in such a grand business in China, and to create a lifestyle that people love like in other markets in the world?

Howard Schultz : Today Starbucks has opened stores in 85 countries and regions around the world. We have different languages, different histories, different religions, different cultures and politics, but what can break all these differences? That is what we have learned and the answer to your question. These differences are secondary, the first and most important thing is that we have a common sense of humanity, the universal values of mankind.

When we ask Chinese young people what do you hope for? what do you want It's been 30 years since I first came to China, and during that time, whether it's my colleagues who work at Starbucks or other people I meet, they say: I want to create opportunities for myself, I want my parents, my grandparents And family proud. I want to work for a company that makes me come home at night feeling satisfied and accomplished, fulfilled and proud of what I do. This answer is the same one I get all over the world.

When I think of Chinese customers, who had no concept of coffee at that time, our strategy is to be a pioneer and popularize coffee knowledge and culture in this market. The real opportunity, however, is that we create a store experience where we exceed the expectations of our partners so they exceed the expectations of their customers.

Even though when we first opened our store in China in 1999, customers knew almost nothing about coffee, they would still realize that this is a place I want to come back to, I want to share this experience with my friends, it brings me Joy, kindness and love abound here. So from the beginning, we created the Starbucks experience, providing a place to enjoy coffee, bring a sense of community, and create a third space for customers outside of home and work, which is where they want to be. Later, our stores became an extension of our customers' homes and offices, so we started talking about some other topics, some of the initiatives that we have been successful in other markets around the world. It's not marketing, it's not PR, we use great coffee to prove it's delicious. At the same time, we also bring different customized flavors to local customers.

Today we have more than 6,000 stores in 240 cities in China, when I came to China in 1999, just like I was trying to raise funds in 1987, no one in the United States or China believed that we could achieve such a big here success. The main thread running through this success is humanistic feelings. What everyone wants is the same thing. They all want to gain respect and dignity, and they all want to be taken care of and treated like customers. This feeling is not that the store wants to earn our money, but wants to share it with us. This is how we achieve success.

Shen Nanpeng : Starbucks has always enjoyed a high reputation around the world. Sometimes when we talk about investment, we always say that we want to invest in companies with the spirit of evergreenism. Starbucks is a typical representative. How have you grown the brand over the past 30 to 40 years and made it truly a timeless company? I know that during the epidemic, you also returned to the CEO position. How much did your input contribute to the success of Starbucks?

Howard Schultz : Let me use an analogy, let's imagine there are two cisterns, and they're both full. One reservoir, from which you are constantly pumping water, and the other, which is constantly storing water. Therefore, the most important thing in building a great and enduring brand is to continuously "reserve water" to your brand equity.

People think Starbucks is a great marketing company for our brand, yet we don't advertise, we've never been a marketing-driven company, the secret is, we're a culture-driven company. In fact, we build our brand from the inside out, through the eyes, thoughts, and love of our Starbucks green apron-wearing partners.

To build a great and lasting brand, you have to build trust and recognition on every dimension. Trust your partners, trust your customers, trust your suppliers, everyone. But sometimes, like in 2008, we had to close stores and lay off staff, which was very bad, and we lost our brand equity.

So, another question is, if you lose brand equity, how are you going to compensate? I'm constantly thinking about values, guiding principles, our brand culture, and more. How can we continue to empower the brand culture? Worst of all though, and I've seen it many times, brand success breeds arrogance and arrogance.

No one can achieve success easily, success must be earned through hard work day in and day out. Starbucks is a growing company, and if you start thinking you're so good, so successful, that you take your success for granted, there's a disease like cancer that creeps into the company.

This disease I call arrogance. When arrogance enters a company, the "reservoir" is slowly drained. Suddenly, you lose touch with what matters most, and there have been moments in Starbucks' 52-year history when growth and success were taken for granted. The role of the leader is not only to build the company, but also to be aware of what is going on. So the leader has to be constantly walking around, visiting stores, talking to everyone. So you will really understand, in my world view, I hope that today we still have the desire and aggressiveness to succeed when we are not successful, when we are rejected by 242 people, like in 1987.

I would like to remind those who have just joined Starbucks that 5 million people have worked in Starbucks in the past 52 years. Today we stand on their shoulders. For those predecessors who founded the company, we have a responsibility to them, and we must continue Stick to doing the right thing. In addition to continuous efforts to win success, there is another thing, we must maintain the entrepreneurial gene (DNA) of Starbucks.

Now Starbucks is successful. When you are successful, you tend to start to be cautious, just like starting to play defense in a game. Suddenly you find yourself not charging forward, but retreating backward. I want to move forward, I want to challenge the status quo. Also, I can accept failure, I don't want to repeat failure, but I want to encourage everyone to try.

We must constantly promote innovation, not be satisfied with the status quo, and not be self-righteous. I don't want to just look at the stock price, I don't want to just look at the income statement, that's not indicative of our success.

Shen Nanpeng : I think the two points you mentioned are very important: first, always maintain sensitivity to new trends, and constantly seek innovation, don't be afraid of making mistakes, and, if you are a market leader, don't just play "defensive" war", you cannot feel that you are safe and nothing is taken for granted. Second, putting employees and customers in the same most important position is a very important consideration when making business decisions. Many times the shareholders of a company, whether private or public, can forget this. They forget that if you are a CEO, the most important thing in your business ecosystem are customers and employees. From a long-term perspective, this can determine whether the company can last forever.

Howard Schultz : Yes, you said very well, you also mentioned innovation, let me talk about my understanding of innovation. First of all, when I hear innovation, the first thing that comes to my mind is to have disruptive innovation, I think disrupt the market. There have been many times when a product line extension, new flavor introduction, or even a new size change is considered a great innovation because of positive customer feedback. But in fact this is not innovation, this is responsibility. I want to disrupt the market, just like we launched olive oil coffee drinks, which is a disruptive innovation.

Regarding customers and partners, I think so. We're a 100% consumer-run company, and our employees, internally called partners, because they own equity. We have to face customers, but we can't just face customers and ignore our partners. So while you innovate for customers, you must also innovate for partners.

In the history of Starbucks' development in the United States, we provided medical insurance for our partners 25 years earlier than the US government provided medical insurance for citizens. Starbucks was the first company in the United States to provide medical insurance for our partners. A few years ago, Belinda Wong (Wang Jingying, Chairman and CEO of Starbucks China) told me that she liked the benefits we provided for American partners, and she hoped to do something for Chinese partners, hoping that we could become the first company to provide The company that provides critical illness insurance for the partner's parents. this is a good idea. She found an insurance company, and together we found the relevant government department to start a discussion. That's what we wanted to do, and suddenly we had great partners. Starbucks, insurance companies, government departments, together we do inspiring things. This is an investment for partners, showing Starbucks' intentions and business conscience. This is innovation, which is not only facing customers, but also facing partners and people.

Humanism: Employees are the greatest differentiated competitiveness

Shen Nanpeng : This is also a localization initiative based on Chinese family and culture. You mentioned a word, starting from the heart. Obviously, you built Starbucks with passion and heart. So is there any example or story like this, when you launch a certain product, when you have to make a choice, what is the process like? It's not math, it's not about financial numbers, it's intuition, your heart telling you what's the best option.

Howard Schultz : Yes, for many of us our adult lives, both personally and professionally, are strongly tied to our family of origin. I grew up in federally funded public housing, my parents never owned a home of their own, my dad worked a lot of crappy jobs, and I watched an American family break because we had nothing.

If I wasn't a great sports student, I wouldn't be able to go to college at all. Ten years ago, young people in the United States encountered great difficulties in going to college. College tuition was too expensive, and many people dropped out of school because they could not afford the high debt. Today, there are still a lot of people who have a lot of debt that they have a hard time paying off.

So again, we're looking hard and thinking hard about what we can do, what's critical to our partners. We conducted a survey and asked our American partners, what kind of welfare do you think is of great significance to you? The result we got was "free college tuition". "Free college tuition?" What a great but very expensive idea.

How should we do it? First of all, we prepared a proposal for cooperation with American universities, hoping to provide our partners with free university study opportunities. We communicate with Ivy League schools, very famous universities in the world. One of the largest universities in the United States, Arizona State University, has a hundred thousand students and a distinguished president. He came to us and shared his college tuition secrets with us. The secret is that universities spend a lot of money on marketing, which comes from student tuition, because universities, like businesses, compete for good students. what did we do We said, we'll remove this expense on your income statement, it'll disappear, and the US government has a grant to help college students. So again, the government, ASU, and Starbucks came together, and we became the first company in the United States to offer free college tuition to our partners.

Shen Nanpeng : Provide services and benefits with practical actions to benefit employees.

Howard Schultz : We talked about building an everlasting, enduring company, and that kind of goodwill runs through the history of Starbucks. We will continue to do this project and it will not disappear. Now 25,000 partners come to the university to study every year. Any company should put heart and conscience at the center of the enterprise. We can't think of employees as "labor machines", just like you can't think of customers as "commodity orders".

Shen Nanpeng : I remember when I was managing a listed company, the analyst asked me what is your competitive advantage? For a long time, people usually say that we have better technology and better products. In fact, people sometimes forget the real competitive advantage. It is because you win the hearts of employees that you can win the hearts of customers. This is the real differentiation advantage.

Last week, my colleagues and I also talked about a topic. I ask them, how much time do they spend every day in different places, at home or in the office, or other places? They mentioned Starbucks, and Starbucks became a third place outside their home and office. Obviously, we want them to be able to stay in the office for a longer period of time, because after the epidemic, people want to communicate face-to-face. However, the concept of the third space plays a very important role in our daily life. So how do you see the development after the epidemic? Especially when the global digitalization process, including China, is significantly accelerated.

Howard Schultz : It's one of the hidden secrets of today's global society, not just America, not just China, that people feel very, very alone. In many ways, social media is not a good thing, it makes direct relationships shallower, but people need spaces where they can communicate and connect with each other. We are engaged in the business of connecting people. Coffee brings people together. It is a drink with warmth. Everyone will meet for a cup of coffee. Therefore, in many ways, the partners, coffee, and store design in the store are the assets of our company. From the perspective of the physical environment, the store builds a community, which will be a very important part of the company's future. We must find new ways to prevent technology or digitization from stripping away the sense of real experience brought by the third space.

Shen Nanpeng : Just now you talked about employees many times. Can we talk a little bit about customer experience? I think that's one of the things that makes you a very special company. What do you do differently to create a very unique customer experience?

Howard Schultz : We think about this from the perspective of the customer's experience journey. The first thing we thought about was what happens when a customer walks into a Starbucks store? What are the non-verbal signals that customers can get? Our store design brings a sense of style, the music we play in the store and the aroma of coffee are pleasant. So we bring visual sensations, olfactory sensations, and physical environments with a sense of community. One of the biggest benefits is that we create drinks for customers all over the world, and customers themselves create customization. So, thousands of people come to Starbucks every day, they may create a drink that is not on our menu version, and customers customize it according to their taste. What's more, our partners are very responsive to create drinks for customers only for them. You can't have this drink at home, because we made it just for you.

Obviously, Starbucks has become, I don't want to say a status symbol, I don't like that expression. But it does engender a great deal of respect among customers, and people are happy to hold a Starbucks cup. Now you ask me when we first came to China in 1999, people told me that Chinese customers would never walk down the street with a Starbucks cup, they wouldn't do it, I think it was just because of the behavior at the time does not exist yet.

Shen Nanpeng : You created this consumption behavior.

Howard Schultz : I think so. The other thing is, Starbucks has been in movies for years, but we've never paid for product placement. We actually turned down a lot of film placements because we didn't think the script was in line with our values. So many celebrities drink Starbucks coffee, and we benefit from the establishment of such cognition.

Shen Nanpeng : OK. Let’s talk about the coffee industry, which has been iterating very rapidly. If instant coffee is the coffee 1.0 era and specialty coffee is the 2.0 era, then what is the coffee 3.0 era? Starbucks has always been at the forefront of innovation, so what do you think we should expect from the next exciting coffee product?

Howard Schultz : Very good question. Our innovative drink has been launched in the United States and Japan. In the future, we will bring it to China, and we will also bring it to the United Kingdom and the Middle East. It is Oleato.

Shen Nanpeng : Oleato is olive oil + coffee, right?

Howard Schultz : Yes. Oleato means "oil" in Italian. Let me quickly share the background with you. Last summer in Sicily, Italy, I met a man whose family had been growing olives for a hundred years, and of the highest quality. I went to see him every morning and saw that he always drank a spoonful of olive oil. On the third day I asked him, what is the benefit of drinking this olive oil? Why are you doing this? He told me that the Romans, Greeks and Italians had been eating olive oil for thousands of years. Life expectancy is high in this area of Sicily, largely due to it.

Shen Nanpeng : By the way, do they taste good?

Howard Schultz : Very good. Olive oil and coffee collide and blend, which has wonderful magic. I think it's a very good idea and will become a global product line.

Finally, talk about something else

Shen Nanpeng : You recently retired from the position of CEO. You just talked about your vision and corporate value system. When you are no longer involved in the company's daily operations, how do you ensure that Starbucks can continue to uphold such vision and values? ?

Howard Schultz : I love Starbucks, it's in my blood. I pay close attention to the company and care about my partners very much. Can I now hire some people externally and expect them? Will they love this company as much as I do? I have to be realistic and objective about these issues, they are not the founders of the company.

However, I spent six months with our new CEO, during which time I continually imprinted on him the company's values and corporate conscience. I've also spent a lot of time this past year with the leadership team at Starbucks, constantly talking about what I'm talking about and what you're talking about today. I will keep an eye on all this in a positive way. I am very optimistic that the future of the company will be very bright. But as I said before, this is not something to be taken for granted, it has to be earned. I don't want to be the shadow of the new CEO, but I will help him when he needs it.

Shen Nanpeng : In your opinion, what are the criteria for judging an excellent CEO and an excellent professional manager?

Howard Schultz : Three characteristics: the third is intelligence quotient (IQ), the second is emotional intelligence (EQ), and the first is curiosity level (CQ).

No matter what industry you're in, we can't just focus so narrowly on what you do that we can't do it well enough. You have to broaden your horizons and open your heart to see the whole world. I want people to be curious about the corners and have the courage to say I've discovered something new and we're going to do new things. Intelligence quotient (IQ) is indeed important, but not the most important. Emotional intelligence (EQ) and curiosity level (CQ) are what I want. I want someone with these three characteristics.

Shen Nanpeng : Question from the audience: Do you think it is better to start a business immediately after graduation, or is it better to start a business after having some work experience?

Howard Schultz : I worked for Xerox for three years after college. After three years, I don't think this place is for me anymore. However, these three years have been a very good training experience for me. I learned about the company's organizational structure and how a company operates, about how the company strikes a balance between profitability and culture... When you are just starting out, it is It is impossible to gain insight into these.

I don't think there's a right or wrong answer to this question, but I've benefited a lot from working for a company. My advice to young people is that you can go to a company whose values are consistent with your own for a few years, find your passion and love, and then go all out.

Shen Nanpeng : What do you think of the success of Starbucks? Can it be replicated? If someone wanted to start a similar company today, say in the coffee business or the tea business, what do you think they should learn from your experience to be successful?

Howard Schultz : We made a very important decision in the early days of our business, which was not to franchise Starbucks. We want the company to have a complete system, in which the company's culture is an important asset, and it is an exclusive asset.

There are so many opportunities to get investment today, if we start today, we may not have time to build a company's own system, we may be defeated more than a hundred times.

If you start a company today and you have a vision of building a big company, you may need to form partnerships along the way. The challenge is how do you create a common culture with your partners where they are all engaged with your business. how do you do it So, I think the challenge of creating a Starbucks-type business today is much more difficult than when we started it in the past.

Shen Nanpeng : Because there are already too many good brands in this industry.

Howard Schultz : Now if you find something that's really unique that doesn't exist in the market, go for it, and there are new ideas coming out all the time. The challenge is that today's physical retail business is very difficult without e-commerce and food delivery.

Shen Nanpeng : What about those young people who just joined Starbucks? As a boss, what qualities do you value more in a young person, you will feel that he/she has great potential, and you are willing to spend time training him/her.

Howard Schultz : I think the most important thing is that I want to find people who share my values. When we do performance reviews at the end of the year, it's not just based on you, but based on what have you done for the people you've worked with? You look at your employees, how many people have grown. I don't just care about academic qualifications. I want to see people's experiences. I guess I have a soft spot, probably because of my own background. For those who come from difficult backgrounds, they had to overcome many personal challenges to reach this position. Nothing is given to them, everything is earned by themselves.

Shen Nanpeng : Yes, in the venture capital industry, there are also many entrepreneurs who were not optimistic at the beginning. They may not have a good educational background, and they may not have a particularly bright performance at the beginning of their careers. But he keeps trying and has the same values.

Thank you, it was a pleasure chatting with you, I think our time is almost up, very much looking forward to seeing you again, whether it is in Seattle or your next visit to Beijing.

Howard Schultz : Thank you for having me for this conversation. In the United States, you are also a very well-known investor, and you are respected both in terms of personal character and investment philosophy. I am grateful for this opportunity.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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