From the editor: The lessons of a downturn

April 3, 2011

People often ask me how I ended up in business journalism. I didn’t really plan it that way. Back in 2000, I took a job as technology editor, thinking that, with the tech boom in full fury, I’d better learn about this Internet thing.

Just a few months later the bubble burst and I thought I had made just about the worst career move of my life. But you learn a lot when an industry is in retreat. You see up close what is real and what is not, and it didn’t take long for me to become hooked on technology in particular and business in general.

I thought about that experience last week while listening to Howard Schultz, chief executive of Starbucks. Schultz was a guest of the Greater Washington Board of Trade, in town to talk about his new book, “Onward,” a tale of how he helped turn around the ubiquitous coffee chain. (Capital Business was the media sponsor.)

Schultz, who had given up the day-to-day reins of the company in 2000, returned eight years later in the middle of the economic meltdown. The company had lost its way; it was a place where “hubris and entitlement” had seeped into the executive suites, where “growth covered up a lot of mistakes.”

But with the downturn in full swing, those mistakes were now becoming more apparent.

Schultz moved quickly to refocus operations. Eight hundred stores were shuttered, many in markets where the housing crisis was most acute. Nine of 11 top executives were replaced.

More importantly, he said, he sought to return the company to its core values, and its core customers, reasoning that the cost of getting those once-loyal fans back was going to be a lot higher than keeping them.

Starbucks, he said, “is not in the transactions business. It is in the business of exceeding the expectations of our customers.”

I love an executive who can boil strategy down to simple declarative sentences. The mantra helped restore morale inside the company, as the chain began to shift its growth strategy from one that focused on opening ever more stores to one that branched out into new markets, such as instant coffee, and brands that don’t pack such a caffeinated punch.

For me, it was yet another reminder of the clarity that can come from an economic crisis.

Dan Beyers is the founding editor of Capital Business, The Washington Post’s go-to source for news about the region’s business community.
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