How to do good and do good business, w/Starbucks' Howard Schultz

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From Silicon Valley, where no game show has ever been born, welcome to The Liars Club. This is the Masters of Scale edition of the 1976 game show, and now the host of the Liars Club. Reed Hoffman. Welcome everyone.

Thank you. Thank you. The rules of the Liars Club haven't changed from the 70s, but if you're not watching the reruns on YouTube, Let me refresh your memory. We have three esteemed panelists, and each of them will tell us a story. But only one will be telling the truth.

You have to guess which. And that's the game. Our panelists all come from podcasts we really admire. From Business Wars, which chronicles epic company rivalries, meet David Brown. From Death Sex and Money. The show that talks about things that people don't talk about.

It's great to have you. NSL. From the thread. Which explores history's interlocking lives and events. May introduce the one and only Sean Braswell.

So listeners Listen closely, said Only one of the following panelists Is telling a true story of an American company's expansion into China. The other two are artfully lying.

If you guess correctly, tweet us at Masters of scale when you hear this sound below. And you might just win the bonus prize. What's the bonus prize? It's Aunt Ida's complete hostess serving selection in artificial silver plate. featuring a coffee service, punch bowl set, champagne cooler, and a large serving tray with matching chip and dip tray. All furnished by the Ant Item Manufacturing Company.

Now Back to you, Reed. We'll start with panelist number one. David Brown from the New Hit Podcast. Business.

Wanna take you back to Groupon. You remember Groupon? I mean it's not doing gangbusters in the US right now. But back in twenty eleven it was a different story and the company was thinking, okay, how do you grow, how do you take advantage of the size at the moment, the momentum they had. And the answer was kind of obvious. You look abroad, right? And the biggest Kahuna out there was China.

Groupon moved really fast and the management team wasn't exactly steeped in Chinese culture and so they uh found a partner fairly early, WeChat. They recommended Doing something called the Digital Red Pockets Campaign. This is sort of like an online version. of those traditional red envelopes that older Chinese use to give kids money, right? So with this launch the concept was The first X number of people to sign up, I don't remember how many, they get an extra hundred Ranimbi in their virtual envelope. That's about ten dollars. But the problem was, once they launched this campaign, it got hot so fast.

that the WeChat online platform actually crashed. But once they got it up and running. Well, it was hugely successful. Even by China's standards. And it's become sort of an annual event. Each year during the lunar celebration, this digital red pocket campaign starts all over again. So even though

Groupons had pulled back a little bit here in the US. The success story on China is a big part of why as a company they're still doing pretty well. That's my story. You can take it to the bank. Wow, David, a campaign so big, it brought down WeChat. Let's go to panelist number two, Anna Sale from Death, Sex, and Money. I'm gonna tell you about Uber's epic rise in China. The company knew that China was a great opportunity. The population is obviously the world's largest, but perhaps more importantly, China has enormous sprawling cities and a very low rate of personal car ownership.

There was just one problem. A giant local competitor had a pre existing relationship with the Chinese government. In fact, they were also integrated into WeChat, the group messaging service that David just talked about. This made the competing ride service much easier and cheaper to the consumer. So in twenty sixteen Uber decides to launch a competitive social media messaging system in an effort to match its competitors' advantage.

The messaging platform was called Yobo Bay. Uber requires its fleet of one hundred thousand drivers to exclusively use Yobo Bay. They succeed. But when the Chinese government realized that Uber was competing with WeChat, a state owned enterprise, it shut down Yobo Bay. Within a year.

Uber threw in the towel and pulled out of China. Ouch. It's hard to go up against the Chinese government and win. Alright, panelist number three, Sean Brasswell of The Thread. What's the story you're going to tell? It's the story of Starbucks expansion into China, led by former CEO and now chairman Howard Schultz.

Now Reed, you first of all have to keep in mind that China is predominantly a tea drinking society, right? So Starbucks really had a steep climb. They struggled for nearly ten years, with poor sales and high staff turnover, This was tough for Starbucks because they pride themselves on being employee focused. Their turnaround came when Starbucks recognized the dominant role that Chinese parents play in their kids' career choices.

Starbucks extended health insurance to every Chinese employee And their parents. And perhaps more unusually, they started inviting all employee parents to join them at an annual company meeting. Staff retention rocketed. And that had a cascading effect on customer retention.

So who's telling the truth? And who's a liar? Tweet us now at Masters of Scale. You've got about five seconds. We're back to tell you. Sean from the Thread podcast is telling the truth about Starbucks.

But here's the thing. The others weren't total lies. Groupon really did take an almost entirely Western approach to winning over the China market. But the digital red pockets campaign with WeChat? Never happened.

Grupan shut down the China offices after just nine months. And Uber? No. They didn't launch a competitive social network to embed their technology in. Uber just couldn't compete against his more entrenched competitor, and so it sold Uber China to them in twenty sixteen.

Thanks for playing The Liar's Club. All games aside. Starbucks is succeeding in China. They have three thousand two hundred stores and a new store opens there. Every fifteen hours.

A key to their success? Recognizing the pivotal role. Parents play and guiding their kids' careers. When they added health benefits for parents as well as employees, their retention rate soared. For a Chinese company, that may be obvious.

For Americans like me, it's not intuitive. Starbucks was able to spot this because they have a philosophy of focusing on employee loyalty and happiness. Starbucks benefits plan can seem extravagantly generous at the first glance. But it inevitably pays off, as it did in China. Every successful company scales more than just revenue.

It scales your world view. And I believe you can scale. Positive social impact along with your business. But only if you're as creative and cash conscious about doing good As you are about your business itself.

Mm-hmm. You gotta have incredible talent at every position. Huge push. There are fires burning when you're going out. Can you believe it? Such an idiot. And then you go back to this is truly gonna be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Well that's just how you do it. We haven't made just how you do it. This

is masters of scale. I'm Reed Hoffman. Co founder of LinkedIn. Investor Greylock. And your host.

А найлівю канскал позитив соціаль. Along with your business. But only if You're as creative and cash conscious about doing good. As you are about your business itself.

When your business scales massively, you're going to touch lives on many different levels. You impact employees, customers, entire communities. Depending on your business, your choices can impact their mood, the quality of their interactions, their outlook on their own future. You have the opportunity to shape the world. For better or for worse.

And these touchy feely concerns shouldn't just be side effects to your business. If you're strategic about it, they will become the beating heart of your business. It's not about saying I'm a good person. So my company will do good things.

It's about asking What kind of positive impact can I have? That will also support my core business. So if you want to scale your impact You have to be as innovative about this.

As you are about your business itself. And struggling startup founders may think that it's a nice idea for later on. Something they can think about after they scale. But I'd argue that the best scale entrepreneurs Think about their social impact from day one.

I wanted to talk to Howard Schultz about this. Because he's navigating these questions. While tackling truly massive challenges of scale. As the founder Former CO and now executive chairman of Starbucks,

His job is to ask, how do you scale the intimate experience of a neighborhood coffee shop? Across tens of thousands of locations worldwide. How do you keep a quarter million employees positive, consistent, and loyal? How do you ensure that a hundred million weekly customers That's US alone.

Have delightful experiences. And perhaps closest to Howard's heart. How do I change my employees and customers' lives for the better? He's asked this question throughout his career. And he has a specific way.

For years. I've sat in our management team weekly meeting. Metaphorically thinking about two empty chairs. In every one of those meetings.

And I think about it in terms of one chair is empty but occupied by a customer, and the other is empty and occupied by a Starbucks partner. Howard calls all of his employees. Partners. By the way. So it might help to imagine a green apron barista in that second chair.

And I'm always asking myself Silently. Is this decision Going to make the customer and the partner proud. If the answer is even remotely gray,

I know we're on the wrong side of the debate. I want you to notice two things in Howard's comment. First of all. He's always willing to ask. Are we on the wrong side of this debate?

А несерди бас про ані строгмайднрепре. And Howard. As you probably already noticed, is strong minded. But for our purposes, it's more important to notice that Howard always gives equal weight to his customers and his employees. I mean partners.

I view them interchangeable. We can't make our partners proud if our customers are not, and we can't make our customers proud if our partners are not. This viewpoint is far from universal today. And it was much less common when Howard took the reins in Starbucks in the late nineteen eighties. His board members at the time had

Didn't quite know what to make of him. What do you what do you mean? The wh what are you talking about? This isn't working. You're losing money. Howard and his archetypal friends haven't always that easily with the shareholders. But Howard keeps bringing these two groups together.

The origin story of those archetypical friends goes back to a very real and searing experience from his childhood. He grew up in public housing in Carnassie. On the eastern shore of Brooklyn. My father was a uh World War Two veteran, high school dropout.

And came back from the war. with yellow fever and unfortunately Ended up really not realizing the aspiration of the American dream he thought he was gonna come home to after the war.

He was a delivery driver picking up And delivering cloth diapers. Before the invention of Pampers. And in March of nineteen sixty

He fell on a sheet of ice. and fractured his ankle and broke his hip. The injury caused him to get fired. No workmen's compensation, obviously no health insurance. When I was seven years old, I literally came home from school, opened the apartment door

And saw my father laid out on a couch. with a cast from his hip to his ankle. Listen, at the age of seven, how could I possibly understand the impact? that would have on me, but it it scarred me. to watch and witness my parents and my mother

Just go through such a hard time. As I got older I think I've always been Sensitized To

People living on the other side of the tracks. And As Starbucks evolved. I think I was trying to build the kind of company my father never got a chance to work for. A company that

We try and balance profit with conscience. Notice his phrasing. He wants to balance profit with conscience. As if too much profit will strain his conscience. And vice versa.

And there's some truth to that. But it's not the whole truth. Profit and conscience are neither enemies. Nor friends. They're frenemies.

You have to be creative. About how you bring the two together. Howard didn't put benefits ahead of profits. But he didn't put profits first either. He started tackling both problems simultaneously.

When we sat down to talk. I asked him how he took His very first steps. Because of your experience at home with your father, did you say from the very beginning the way that we're gonna think about Employees is as partners. What what did the startup part of that journey look like?

I have many of these Old Journals that I kept I wrote something early on about the business plan of this new company was gonna be to achieve the fragile balance between profit and conscience. And then underneath that, I started thinking about what does that really mean. What's important to understand is that we had no money

To build a traditional marketing or advertising Or P R we had none of that. And so we define the brand by the experience in our stores. And we said early on

That the equity of the brand would be defined by the managers and leaders of the company exceeding the expectations of our people, so that they could exceed the expectations of the customer. And because coffee is so personal And it's frequent. We had an opportunity to create an intimacy with the customer.

That build the equity of the brand. Notice the way Howard turns a constraint into an advantage. He doesn't brood over his non existent marketing budget. He turns it into an asset. In fact, it becomes a justification for investing in his team.

Which is what he wanted to do in the first place. As a small underfunded company, it would be easy and typical to just say I'll take care of my people later. It's more innovative to say I'll find a way to take care of them now.

By making sure that it makes my business stronger. A little backstory might be useful here. Mm-hmm. I called Howard the founder of Starbucks. But this isn't technically true.

Har joined a company called Starbucks in nineteen eighty two. At that point It was a small coffee roasting company with several stores. They didn't serve cups of coffee, much less venti, no whip, double pump, hazelnut lattes. Howard Starter is a director of retail operations and marketing.

At the time. The idea of innovative coffee sounded like an oxymoron. On par with saying innovative shrimp or innovative pork ears. That is, until Howard attended a trade show in Milan. And a whole world of innovations unfurled before his eyes.

and underneath his nose. It was nineteen eighty three. Four years before Howard became the CO of Starbucks. And this trip. is now part of company law.

I went to Milan to this trade show, I would walk to the fair. And as I was walking Ай бікем енаморд. With the fact that on Every street there was two or three coffee bars.

Вот I witnessed was the romance, the тітер. And to use your word, the joy Um Espresso And I would go back to these coffee bars every day I was in Italy.

And I began to witness something. I would see the same people. Who were doing this routinely. They didn't know each other. But there was a camaraderie between them.

Because there was a sense of place, a sense of community, and there was human connection over coffee. Howard soon recommended to the owners that they open a cafe. To cultivate. This human connection over coffee. They weren't interested at first.

But he persuaded them to test the waters with a single cafe. Five years later, he had the chance to fully realize his vision. The company had expanded to acquire Pete's coffee. Based in Berkeley, California. They were overextended.

And the owners decided to sell Starbucks. The founder came to me and said We're not gonna be able to keep both companies. I want to sell Starbucks and you're the natural person That I would trust to buy it.

And I said, That's fantastic news, but I have no money. And so he said I'm gonna make it very easy. It's three point eight million dollars to buy six stores. And a r old roasting facility. Now three point eight million dollars to me in nineteen eighty seven

was a like a billion dollar I didn't have it. I had nothing. Howard, as you might have guessed. Figure it out. He raised the money. In the nineteen eighty seven.

He acquired Starbucks for$3.8 million. By the end of that year, he had 11 stores, 100 employees, And a dream of creating a national brand. To bring specialty coffee and coffee culture to the country. So what does he do next? He starts planning a benefits package for those hundred employees.

For Howard's private investors. This would be the first of many befuddling encounters. You can imagine this conversation. We were small, losing money.

not yet proven the model. And I said А вона провай хел іншу. And equity in the form of stock options for every person who works for the company. Oh

Mm. They said, uh what what do you mean by that? Yep. I said, Well it's pretty clear what I mean. I I wanna invest in our people. And I think I will be able to prove That we will lower trition, raise performance, but most importantly.

create the kind of company in which people feel part of something larger than themselves. So Twenty five years before the Affordable Care Act, Starbucks became the first company in America. Та провій компресенсив хелт іншу. to everyone including part time people working twenty hours or more and

We figured out a way. to provide equity and form of stock options to every single employee, again, even part timers. Notice how Howard spoke the language of business. He didn't say, I want to invest in our people because it's the right thing to do. Or

I want to invest in our people. Because no one invests in my father. And this is the first thing you need to understand. To promote social good as a founder, you have to think creatively about how will help your business. You have to frame benefits and social impact.

As a means to an end. And you may have to do it in a way that no one has ever thought of before. The social good may be touchy feely. But the business results should be undeniable. If you require yourself

To adhere to that level of discipline. Your impact can scale. This approach has worked for many entrepreneurs with a mind toward social change. I can think of another good example with my friend Lila Jana. She's the founder and CO of two companies.

Samosurce and Lakshmi. Lakshmi is spelled L X M I, by the way. Lila founded both companies to bring jobs to parts of the world mired in poverty due to a lack of opportunity. But she wasn't thinking only of that mission. She believed that if she got creative, she could draw a direct line between the good she wanted to do and the profits her company would need to make.

With Lakshmi. A beauty product company. It all started with butter. Most of the shea butter in the US and European supply comes from West Africa. And this was a particularly unusual variety of shea called Nilotica.

That only grows wild at the source of the Nile River in northern Uganda, South Sudan, and Ethiopia. I come across this in a local market. Of course I start using it myself. Started using it for about a year. And kept thinking to myself, this is such an amazing product. I'd always go and restock at these markets in northern Uganda and I thought, How come no one has Created a brand around this stuff.

So Lila had spotted the business opportunity. And then she thought that This can be something more. This can help people. And

Be a profitable business. And the fact that it helps people can actually make it more appealing and more profitable. The two can work in harmony. The way this Nilotica is produced is that women from these communities hand pick these nuts, select them, grade them, and cold press them. And the women who do this are literally all war widows. They lost their partners in this really horrific war. So the number one way we can help them is by buying stuff from them. And here's this beautiful product that could be branded as a luxury product.

And command the same margins as an Estee Lauder or L'Oreal fancy skin cream, but a skin cream that actually not only makes you more beautiful, but makes the world more beautiful. Lila caught on to another truth about human behavior. Certain consumers are willing to pay a premium for products that come with social impact. It creates a justification for an indulgence they want to make on themselves. And that premium they pay can be passed on to the people who need it most. If you get creative about connecting the dots.

Lila got creative. There's such an opportunity in luxury where people are trying to demonstrate that they have the capital to purchase a luxury item and to sort of almost sneakily do good through that business model. Howard, as we've seen, Is a master. of sneakily doing good through a business model.

He honed his abilities. Through years of tough conversations with Starbucks investors. As Howard connected the dots between employee good vibes and shareholder returns, his investors might be forgiven for questioning his logic. But this gets back to Howard's hypothesis. He didn't just see his business the same way other people did.

Starbucks, it turns out. Was not selling coffee. It was a social experiment. A long time ago someone said in Starbucks, we're not in the coffee business serving people. We're in the people business serving coffee. Well, we really believe that.

And when we go off course and make mistakes is because we lose focus and attention. on the fact that we are in the people business. And the innovation has come as a result

Of putting that front and center. So Innovation Howard Doesn't just mean the latest Fapppuccino flavor, it means new programs for employees that make them happier, more engaged, and more loyal. You might start with health insurance or equity. You might add free meals or an office ping pong table.

But if you want to remain competitive over time, You have to stay attuned to deep foundational employee needs as they evolve. Especially as they evolve. In Starbucks' case. They're very attuned to the fact that their staff as a whole is young.

When you're young and ambitious The first thing on your mind is a college diploma. But college is staggeringly expensive. And out of reach for the average Starbucks employee. earning a barista salary.

Identifying this worry. led to an idea. Can we provide free college tuition for every one of our employees? in the United States and we started looking at the cost of it, there was great trepidation. And concern that we could not afford to do that.

Free college tuition. For every employee It was a wild idea. One that would strike the most idealistic of listeners as deeply impractical. But to Howard.

It made perfect sense. The country is$22,$23 trillion in debt. It doesn't have The financial capability. to do the things that we would aspire America to do.

And so The responsibility falls on its citizens. And in this case our companies It's in our interest. To provide more

For the communities we serve. And the people we employ. One, because the government is not capable and is not doing it. And two I'd selfishly say

It's good business. And it's good business because it attracts retains great people. He just had to figure out how to make it pay for itself. And then the question like anything else is When you get a group of smart people in a room

And you leave your ego outside and you say, we're not gonna leave the room until we solve the problem. And the problem is how do we make this cost neutral? And we figured out a way. In two thousand fourteen, Starbucks introduced a first of its kind partnership with Arizona State University to cover In full. College tuition.

For every American Starbucks employee working twenty or more hours a week. Note that once again. They approach it as a business. They didn't say Education is priceless, so any cost is okay.

Instead, it was no no no Figure out how to get the best value. Starbucks and ASU split the tuition cost sixty forty. The degrees were offered exclusively online. allowing employees to stay in their jobs and ASU to keep their cost structure contained.

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Learn more at creative planning dot com slash masters of scale. Oh Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future?

That is human centered. I'm Rana El Calyubi. On my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in.

Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford's CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. At this point in Starbucks trajectory.

There's no doubt that the company has a massive ubiquitous presence. Not just in storefronts on the streets. But in the national consciousness. That meant one thing to Howard. An opportunity.

The role and responsibility of a public company today. Especially given The political environment that we in right now It's the rules of engagement.

have dramatically changed. And they were even changing before This current administration. As Howard began thinking more broadly about Starbucks opportunity, he started thinking of the stores differently. Their employees and their customers had a hundred million interactions each week.

What can we accomplish In those conversations. Starbucks is such a visible company They could start a national conversation.

В часто фірс. Or in one memorable case. Two words. In twenty fifteen. the company initiated a national campaign to get its employees and its customers talking about race relations in the United States.

You might remember it. It was called Race together. It mostly took the form of Burisa's writing those two words on customers' cups. Inviting them to engage in a candid conversation about race and tolerance.

The intention was to build empathy. Racially charged tragedies We're unfolding across the country. The way Howard's taught Starbucks had a civic responsibility to help people talk about it.

Things didn't exactly go according to plan. Within two hours Of launching race together. It was hijacked. By social media.

And we lost the narrative. And we lost it very fast. Critics called the campaign insensitive and tone deaf. Some worried that the baristas who wrote those words to their customers could face hostile backlash. The whole thing felt like a marketing ploy.

It was the first time where we experienced Anonymous haters. All we were trying to do is a company. was raised a level of empathy and compassion. Towards one another.

Make our customers and our people proud. that we want to stand up for justice. That's all we're trying to do, but once we lost the narrative. There were other issues at play. Including partner safety.

A misinterpretation by the media. Of what we're trying to do. In short Race Together was not well received.

We had to close it down. But Howard Doesn't regret it. At all. Of all the things we've done over the many years.

We didn't execute that properly. We learn something. About the cause and the effect of social media and what could happen. We don't have moral authority.

But we had moral courage. We discussed this at the board level, at the management team level. And I'm so proud that All of us Locked arms, faced in the same direction, and said

Yes, it is very different for a corporation of any size. To talk about race. But If we don't do it Who will?

As I look back on it We're proud that we tried to do something. That was good. And just and had a level of empathy and compassion associated with it.

If you were to have a phone line to your younger self What would you have told yourself to do differently? I think We needed the help And the support

of influences On both sides of the debate. to understand That We were not taking a position.

We were simply offering the opportunity To have a compassionate level of understanding. That the country is in need Of human kindness.

We put it out there and we assume people would understand. And I think we would have benefited. From a swath. of Americans Who could have helped

А In support of what we're trying to do. Because the interesting thing is they came out much later. Saying I'm so proud of what you've done. If you're gonna build a great enduring company

Not only do you have to take a risk every now and then, but you've gotta be able to jump into the deep end of the pool and say, You know, we're gonna figure it out. The entrepreneurial DNA of a company Must remain. Even for a company of this level of scale and ubiquity.

As companies reach the kind of massive scale that Starbucks achieved. They inevitably face a new set of challenges. Those twin questions? How do I do good? And the how do I do good business?

become more complicated as your opportunities and your responsibilities grow massive. How do you keep what Howard calls their entrepreneurial DNA? How do you keep a human focus? How do you prevent customers from becoming revenue and employees from becoming headcount? This tension

Is at the heart. of every great scale company. But Starbucks is perhaps an extreme. Starbucks will do I don't know, between twenty

three and twenty five billion dollars in revenue this year. But Our average sale is five dollars. And so just think about that. We're in the pennies and small dollar business. So in order to do that much revenue

We're totally dependent on human behavior. Howard is right to marvel at that ratio. An average sale of five dollars and a yearly revenue of twenty five billion dollars. That's a lot of cups of coffee.

As an entertaining aside, I have to add that it always helps. to be in the business of selling legitimate drugs. I often tell entrepreneurs I only invest in companies that play to one of the seven deadly sins.

Coffee. May just be the eighth deadly sin. At least for me. That aside. Howard is also right.

That his business completely relies on two sides of a human interaction. A customer making an order And a Starbucks employee fulfilling that order perfectly. And this is the perspective Howard brings as he enters new territory. He asked what innovation

Can he bring to the market? And what innovation can he bring to the employees? You might remember from the top of this episode. That Starbucks is by every measure succeeding in China. They have thirty two hundred stores.

A new one opens every fifteen hours. But it wasn't always so. We lost money for nine consecutive years in China. And during that time as a public company, Yeah, you know, they just said this isn't working.

You're losing money, it's a tea drinking society. Close it up. The kyse. His years of focusing on employee happiness let him spot a key opportunity. The pivotal role.

Parents play. Eighty seven percent of our employees, our partners in China then and today. Are college graduates. And the parents

in China, especially given the one child Rule. are deeply involved in the lives and aspirations of their children. And they felt I've sent my son or daughter to college.

And they're working and serving coffee as opposed to working For Apple or Google Or Alibaba or Tencent. Why are they working in Starbucks? Doesn't it's not right. The idea that turned it around?

It came from a friend. I have been friends with Jack Ma for Before Jack was Jack. Jack Ma, by the way, is the CEO and founder of the e-commerce giant Alibaba, and the richest person in China. And he and I have

talked for many years about Chinese philosophy and Chinese values and He asked me to speak. A long time ago. At a Alibaba function. And um

There were a lot of older people there. And I said who Who are the are these employees? Who are they? And he said no, they're the parents. Of some of our employees.

I said, really? What do they What are they doing here? He said, we invite him.

And it stuck with me. As Starbucks operations in China grew. He started paying attention not just to employee benefits But to parental benefits. They extended health insurance not only to every employee, but

But to their parents too. A huge line item. For a market that was still finding its feet. And Howard took it one step further. Taking a page out of his friend Jack's playbook.

Given the fact we had this high level of attrition. I said I wanna have an annual meeting. of the parents of our employees in China. Remember.

Starbucks opens a new store in China every fifteen hours. When Schultz says Let's meet the parents of our employees in China. He's talking about more than a few symbolic handshakes. Now the people sitting in Seattle

Wha when I said those words I think they thought I was crazy. What do you what do you mean? The why what are you talking about? And the people In China

She said. We don't know if we do this, should we rent a large r auditorium? Because a lot of people are gonna come or should we run a small one and because we don't wanna be embarrassed and I I said, you know I have a feeling if we do this right. We need a big room.

They've been filling big rooms for the past six years. In a series of annual meetings, Starbucks gathers employees and the parents Not for a financial report. But a family affair. The entire annual meeting of parents and family

І за селебраш. Of families Who are working At Starbucks. Of us highlighting their children.

We fly parents. Two Shanghai or Beijing who have never been on an airplane. They don't have the right clothes because they might be farmers. And we surprise Our partners.

Who don't know the parents are coming. It is the most emotional The most I it is the thing every year that I will not miss. The appeal of these meetings with China is

isn't just the strategic importance. For Howard They capture the essence of the company. It's humanity. When you get this big, the challenge is how do you get big and stay small?

How do you maintain the intimacy You knew all the people And you were hungry and fighting. These kinds of moments are so emotionally

Alive with the spirit and culture and values the company and what we've learned. Through all of this is that We are longing. For human connection. We're longing

for a sense of humanity and kindness and compassion and empathy. People are looking for belonging. Especially What's going on in our own country right now. Hundred percent. You and I both did the uh Daily Show on that one.

Without getting too philosophical. There is a sense of loneliness. In America. And I would even go as far as say

And I think we're approaching an epidemic of loneliness. Technology has brought us so much, but it also has taken something away. So the humanity of things become so vitally important.

And if a company Can do that and elevate that. That is our core purpose and reason for being. Howard would argue that Starbucks success in China has less to do with innovation in its product or packaging.

and more to do with innovation for its people. We see it through a different lens. Not only in terms of the coffee innovation and store design, but mostly what can we do from a people perspective. What can we do from a people perspective? This is a question that all businesses

could ask themselves more often. We invest so much of our attention in innovating new products. New platforms and new networks. We offer employees free food and company fitness rooms to keep them at work late. We can be strong on maternity and paternity leave to retain employees over the long term.

But when it comes to thinking about people broadly, All businesses Could stand to learn a lesson here. When we build something that could take over the world the way Starbucks did. There's an opportunity to ask

What do we stand for? What impact can we have? How can we make people's lives, the whole world really, better? And how can we do that in a way that strengthens our business? Howard thinks boils down to an idea that any entrepreneur can apply to their business.

And I agree. Starbucks is not profit driven. Starbucks is values driven and as a result of those values we have become very profitable. Not every business decision. should be an economic one.

And this is very important, I think, especially for your young people to understand. Is that You can make a series of decisions about your business. And If every decision goes through

a very defined lens of How much money can you make as a result of this? It's not gonna add up to much at the end. There has to be balance. Between the profit

You're searching for And the values that will endure. Starbucks is living proof And again, we're not perfect. We make mistakes. That our financial performance is directly linked.

to the enduring values and culture that we are constantly trying to enhance and preserve. Profits and values. Two old friend of these. Together again. I'm Reed Hoffman.

Thank you for listening. Masters of Scale is a Wait What original. The show is recorded on site in California and produced at the studio inside SY Partners in New York. Our executive producers are June Cohen and Darren Treff. Our producers are

Dan Kedmee, Chris McLeod, Natalie Chang. Jenny Cataldo and Van Manila. Our supervising producer is Jay Prunjabi. Original music and sound design is by the Holiday Brothers. Mixing and Mastering by Brian Pugh.

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