Test: Neil Shen in Conversation with Howard Schultz: How HSG and Starbucks Embrace “Evergreen Principles”

On May 18, 2023, Neil Shen, Founding and Managing Partner of HSG, sat down for a fireside chat with Starbucks founder Howard Schultz.

As globally respected business leaders and investors, both have guided companies through more than half a century of collective history, navigating periods of profound change and economic uncertainty.

Over the course of their hour-long conversation, Shen and Schultz reflected on innovation, entrepreneurship, and what it takes to build enduring businesses. Drawing from their experiences as founders and leaders, they discussed how to shape company culture, embed values that foster respect and sustainability, and lead with purpose in today’s world.

A lightly edited transcript of their discussion is included below.

Neil Shen: So, Howard, shall you say a few words to the audience?

Howard Schultz: Sure. Thank you so much for having me. It’s a great opportunity. I have not been back to China in almost five years. And so, coming here is a great opportunity for me to meet with Starbucks partners, over 50,000 people who work for Starbucks in more than 6,000 stores.

We’ve been in business now for almost 25 years, and I’m very proud of what we’ve done here and proud that we are a company that has been received so well by the Chinese customer.

Neil Shen: Thank you. So let’s start from the very beginning, the beginning of Starbucks. Today, Starbucks is the most respected and loved consumer brand in the world—it’s iconic. But I know that you started from a single store in Seattle, selling roasted beans, and now you’ve become a global brand, enjoyed by millions and millions of users. So, how did you start? Why did this become your passion?

How Did Starbucks Evolve from a Single Store to a Global Icon?

Howard Schultz: Yeah, sure. Well, first off, I grew up in New York City, and my wife and I had just gotten married in 1982. As an adventure, we decided to go to Seattle, Washington. There was a Starbucks store already in the Pike Place Market. That store only sold whole-bean coffee, no beverages.

In 1983, I took my first trip to Italy. I had never been to Europe before. I walked the streets of Milan and then took a train to Verona. I was captivated by the Italian espresso bar. There are hundreds of them throughout Italy. You almost can’t walk a block without coming across one. As I walked into those stores, the shot of espresso, the romance of espresso, and the sense of community. I raced back to America with the idea of transforming Starbucks from a company that only sold coffee for the home to one that would introduce espresso, café lattes, and cappuccinos to America.

Now, I had no money. I didn’t have a dollar. I had to try to convince American investors to provide me with some venture capital to expand Starbucks. Two hundred forty-two individuals and institutions said no.

Neil Shen: Wow.

How Was Starbucks Built with Both Profit and Purpose in Mind?

Howard Schultz: They all said no. They said nobody would buy a cup of coffee for two or three dollars with Italian names they couldn’t pronounce. I had another idea besides coffee, and that was because I grew up in a very poor family that did not have health insurance. I wanted to build a company that provided health insurance and ownership to every employee.

So, not only was I telling an investor to give me money to invest in the company, but I also shared with them that I was going to “dilute” their investment by giving ownership to employees and health insurance. Now, I didn’t see it as dilutive; I saw it as accretive.

Neil Shen: You were helping your employees.

Howard Schultz: Helping our employees, reducing turnover, increasing performance, and creating a sense of ownership. Well, I finally got a few people to give me some money to invest. And in 1987, we had 11 stores, 100 employees, and a dream to build a different kind of company.

A company that would be profitable, have fiduciary responsibility, and a conscience, to do well for our people and the communities we serve. That was the foundation for the beginning of my entrepreneurial journey.

Neil Shen: Wow, this is amazing. So the vision and inspiration you had carried this company over. I’m pretty sure you ran into many challenges over time, right?

Howard Schultz: We could spend a whole day on challenges.

Neil Shen: Tell me one big challenge, something from when you started with just one shop in Seattle.

How Did Starbucks Navigate the 2008 Financial Crisis?

Howard Schultz: Sure. In 2008, I’ll fast-forward a bit, but we can go back if needed. During the financial crisis, Starbucks found itself in a very, very tough position.

For the first time in our history, we had to close stores and lay people off. I held a company-wide meeting, and I started to cry. I cried because I knew we had to make important decisions for Starbucks’ future, but those decisions would have an adverse effect on a number of people at Starbucks.

Neil Shen: These are tough decisions.

Howard Schultz: It was a tragic moment for us. Now, something else happened during that period. Because the cataclysmic financial crisis was so bad and we were in financial trouble like many other companies, one of our institutional holders – now, keep in mind, we had gone public in June of 1992 with a market cap of $250 million. My mother thought I hit the lottery.

Neil Shen: That’s a decent company at that point.

Why Did Starbucks Refuse to Cut Healthcare?

Howard Schultz: So, in 2008, this institutional shareholder calls me and says, “Howard, this is the perfect time to cut the healthcare benefit for your employees.”

Now, the culture, the values, and the guiding principles of Starbucks are the foundation of our success.
If I had cut healthcare then, we would’ve fractured the most important part of building a company: trust, trust with our people, and being authentic.

So I said no. And he said to me, “When you look at the next quarter’s cap table of who owns stock, you’ll see we’ve cut our investment to almost zero.” Because I did not cut the healthcare benefit.

And in fact they did. The next quarter, half of their shareholder value was gone. But I made the right decision. It was a tough decision, but we couldn’t cut healthcare.

That’s just one example of trying to stay true to your values, to your purpose, and reason for being. We’ve never been in business just to make money. That has been the manifestation of our values and the growth of the company.

Neil Shen: Wow. This is an amazing decision. I have to say, it’s not easy for people like you to make that kind of decision at the most difficult time.

What Does True Leadership Look Like Under Pressure?

Howard Schultz: It’s very easy to be a leader when the wind is at your back. But a true leader makes tough decisions when the headwinds are in your face.

Neil Shen: Absolutely.

Howard Schultz: And it’s very lonely. Very lonely. But Neil, you’re someone who is highly respected in China and in America for your investment acumen. What are you looking for in the investments you make, in the people?

Neil Shen: I think that’s a great question, and frankly, I’m also thinking about that because I need to learn from both successes and failures.

Like you said, I think, just like Starbucks, the founder must be passionate about the business. And second, he needs to be well prepared for it. I’ll give you one example.

One of our founders used to live in Australia; he’s Chinese. He wasn’t in the financial services business. Interestingly, he was running a few small coffee shops. You know, in Australia, there are many of those coffee shops.

Howard Schultz: Yeah, they have very good coffee in Australia.

Neil Shen: Yeah, exactly. And he actually found a very pressing issue: he had customers all around the world, and people had different payment approaches, different credit cards, from Latin America, from Africa, obviously from China, all over the place. Some people paid in cash, some with a credit card, some with a debit card, everything. So, instead of running a coffee shop, he decided, “I need to build a modern payment company to address the issue. I am passionate about it…”

Howard Schultz: But he had no experience?

Neil Shen: No. That’s the second point. He was passionate about it, but before running his entrepreneurial coffee business, he was with Morgan Stanley, in the IT department.

Howard Schultz: Okay.

Neil Shen: So, he was trained, obviously with a computer science background, and he had worked in the financial services sector as an IT guy, so he knew a part of it. So I would say: you’re passionate about it, and at the same time, you’re well-prepared for it.

Howard Schultz: That’s a great story.

Neil Shen: I think it tells you that people found companies not because of money, not because they want to build a market cap of X, but rather because they want to build something people really need. And they want to solve the unmet needs of people around them. And that is a great vision. And we’ll come back to that point later, but I hope that our CEOs here in China will learn from what you’ve done. This is really staying true to your vision and your insights. And that’s so important.

How Did Starbucks Crack the Chinese Market?

Neil Shen: So, let’s talk about China. You entered China in 1999, right? This is a country with a deep tea culture, but not necessarily coffee, at least not back then. So what gave you the confidence that you could build a substantial business here in China and create something people would love, just like in other parts of the world?

Howard Schultz: I’m going to answer that question with specificity, but I want to give some context first.

Starbucks Coffee Company today is doing business in 84 countries around the world, with different languages, different histories, different religions, different cultures, and different politics. But what’s the one thing that cuts through all of this? And this is what I’ve learned, and it is the answer to your question.

The differences that we have across the globe, in terms of language, religion, culture, politics, etc., they’re subordinate, they’re secondary to our shared sense of humanity.

When I ask young Chinese people, “What are you hopeful for? What do you want?” They say to me – and these are people who work for Starbucks, as well as others I’ve met. I’ve been coming to China for 30 years – “I want to create an opportunity for myself. I want to make my parents, my grandparents, and my family proud. I want to work for a company that, when I go home at night, I feel really good about what I’m doing. It fills me up. It gives me pride.”

That answer is the same one I hear around the world. And when I think about the customer, the Chinese customer didn’t know anything about coffee – the strategic bet we made was that we had to be a pioneer, and we had to educate the market about coffee. But the real opportunity was creating an experience in our stores that would exceed the expectations of our people, and they, in turn, would exceed the expectations of the customer.

And the customer, even though they didn’t know anything about coffee when we opened in ’99, would realize, “This is an experience I want to come back to. This is an experience I want to tell my friend about. This is an experience that brings me joy, and it feels like something rooted in kindness and love.”

So, the experience of Starbucks, at first, of course, was about providing the environment for coffee. But we also wanted to create an experience where the environment, the sense of community, the third place between home and work, would be a place people want to be. Our stores became an extension of both home and work, and then we began saying something else.

The proof of what we’ve done around the world isn’t marketing or PR, it has to prove itself in the cup. It has to taste good, and we have to customize the flavors for the local customer. Today, we have over 6,000 stores in China across 240 cities.

Back in 1999, when I came to China, just like in 1987 when I was trying to raise money, no one believed, whether in America or in China, that we would come here and be this successful. But the success is the thread of humanity. We all want the same thing: to be respected, to be dignified, and to feel good, as customers, that the company isn’t just trying to take our money, but to share something meaningful with us. That has been the way in which we have succeeded.

Neil Shen: This is again, you know, an amazing part of the Starbucks story in China. But what you have done right to win this market, I’m pretty sure, obviously, it’s a big market and, initially you had a great brand, you did a lot of educational work. But along the way, like any other part of the world, you ran into competition.

How did you deal with those challenges, especially in a country that is different in many aspects compared with the U.S.?

Howard Schultz: I’m going to tell you the secret of the mistakes that we made in the first nine years we came to China. And the mistakes that were made were made by one person: Howard Schultz. I made the mistake.

Neil Shen: Well, you also had the vision, and I’m pretty sure that you corrected them.

What Did Starbucks Learn About Localization and Empowering Teams in China?

Howard Schultz: So here’s the mistake: The success that we had in many countries early on was that we took Starbucks leaders from America, from Seattle, and we said, “Would you go to Japan? Would you go to Spain? Would you go to France and open up the market? And most often, people were very excited to go. Well, we did that twice in China. We brought in U.S. people thinking, and the people in Seattle thought we knew best and would be able to create the environment, the design, the menu, etc. And two consecutive times, we basically had American people running the Chinese market.

Really good people, but they didn’t understand the customer. They didn’t understand society. They didn’t understand the culinary differences. It wasn’t until we decided, with the help of Belinda Wong, that we had to do something in China that we’d never done in our entire history. And that was: we had to decentralize China. You can imagine sitting in a boardroom in Seattle, or in a management team meeting, when we had all this success around the world, and we said – or I said, “In order to succeed in China, we have to break the model. And we’ve got to give the Chinese team the authority and the autonomy to create success based on what they know, not what we know.”

Neil Shen: Localized products and services.

Howard Schultz: Yeah. And I have to tell you, there were a lot of people in Seattle who said, “This is a bad idea. It won’t happen.” So we had to trust Belinda and her team to go to China and show us how to do it. And that was the beginning of the unlock.

Neil Shen: Share a few examples. What are the new products that weren’t available in Seattle or the U.S., but here in China, you have them, and people love it?

Howard Schultz: Well, let’s start with the opposite. The people in Seattle said, “We need to give them a blueberry muffin in the morning.” Well, Chinese people aren’t eating blueberry muffins. That’s an American product. Or, “Let’s bring bagels to China.” We did all of that.

Neil Shen: That doesn’t work.

Howard Schultz: No. It’s like, what are we doing? And so we had to start creating flavors for Frappuccino. We had to create flavors for all the beverages that were interesting to the Chinese customer. And the design of the stores, look at this store we’re in now. This is not a store like when you walk around, or all of the stores – or the Roastery in Shanghai – they don’t feel like the American design. So, every aspect of look and feel, of taste, was through the lens of being Chinese. And we didn’t know how to do that.

Neil Shen: I’m pretty sure you had some very interesting trials, but along the way, you indeed created something very, very unique. But your brand has always been very strong globally. And sometimes, when we talk about investment, we like to invest in the enduring companies, and Starbucks is definitely one of them. Over the last 30, 40 years, how have you been able to maintain and enhance the brand and really become an enduring company? I know that you have come back to the role of CEO, most recently during COVID, and that your input has really contributed to that success.

How Do Trust and Culture Sustain Starbucks’ Brand Equity?

Howard Schultz: Sure. Let me create a metaphor. Let’s think of two reservoirs. They’re both filled up. One [reservoir] is a withdrawal. You’re taking water out of the reservoir. And the second reservoir, you are making a deposit in it. So, the most important thing to build a great, enduring brand is that you must make a deposit into the equity of the brand.

Now, in our case, people think Starbucks is a great marketing company. Well, the secret is, we don’t advertise. We’ve never been a marketing-driven company. We are a culturally-driven company. In fact, we built the brand from the inside out, and that is through the eyes, and mind, and love of the person wearing the Starbucks apron.

To build a great, enduring brand, you have to have the currency of trust in every aspect of the brand. Trust with your people, trust with the customer, trust with your vendors, all of it. But there are times, for example, in 2008, when we had to close stores during the financial crisis and lay people off, which was terrible, that is a withdrawal from the equity of the brand. And so the other question is: if you’re taking things out, what are you putting back in?

How Does Starbucks Stay Driven and Grounded?

And I’m constantly thinking, all the time, about the values, the guiding principles, and the culture of the brand. What can we do to make a deposit in the culture? And the worst thing that could happen, and I’ve seen this many times, is that success breeds contempt. Success breeds contempt. You start feeling as if you are entitled to success. No one is entitled to success. Success must be earned, and earned every day.

But it’s worse than that. Growth and success are very seductive. And Starbucks is a growth company. Now, if you allow yourself to start thinking that you’re so good, and you are successful, and you deserve success, a disease enters the company. And it’s carcinogenic. It’s like cancer. When hubris enters the company, the reservoir goes empty. And all of a sudden, you lose touch with what’s most important.

And over the 52-year history of Starbucks, there have been moments when the growth and success became an entitlement. The role of the leader is not only to build the company, but you’ve got to have touch. You’ve got to have a sense of what’s happening. And so the leader must constantly walk around, visit stores, talk to everybody, so you really understand. And my view of the world is, I want to be as hungry today as we were in 1987, when 242 people turned us down.

And I want to remind people who are joining Starbucks today that there have been five million people who have worked for Starbucks in 52 years. And we’re standing on their shoulders, and we have a responsibility to the people who came before us, who built this company, to do it the right way.

Now, one more piece of this: not only is success not an entitlement, but there’s another piece to this story. And that is, we must maintain the entrepreneurial DNA of Starbucks. Now, Starbucks is successful. And when you’re successful, more often than not, you start playing it a little safe. Well, it’s like a sports team.

Neil Shen: You start playing defense instead of offense.

Howard Schultz: You start playing defense, and all of a sudden, you find yourself moving back instead of forward. I want to be leaning in, and I want to challenge the status quo. And I also want to accept failure. I don’t want to repeat the failure, but I want to encourage us

Neil Shen: That obviously includes taking risks.

Howard Schultz: Yes. 100%. You know, we have a new beverage today that we introduced in the U.S., and this week in Japan, we’re going to bring it to China, which is Oleato. It’s extra virgin oil infused in coffee.

Neil Shen: Olive oil and coffee.

Howard Schultz: Yeah, people think it is crazy, but we have a record number of sales, because the taste is so unusual, and we discovered it. Who would have thought? The point is, we have to keep pushing and not be satisfied, not be entitled. I don’t want to look at the stock price; that’s not the proxy for our success. I don’t want to look at the income statement.

And I’ll give you one other thing. Am I talking too much?

Neil Shen: No, this is great.

Howard Schultz: Okay.

Neil Shen: And you remind me, many of those tenets we have actually been communicating to our CEOs have always been kept in mind as core principles to drive greater companies.

How Does Starbucks Use IQ, EQ, and CQ to Define Leadership?

Howard Schultz: Yeah. So, I’m asked many times, when you are interviewing people or trying to identify a great leader, what are you looking for? Well, I’m not looking for the person who has the highest level of IQ, or an MBA, or how good that résumé is. I mean, great, but that’s not it. I’ll tell you what I’m looking for. And this is my own little thing, but I’m going to share it with you.

Neil Shen: This is Howard’s criteria for a good CEO.

Howard Schultz: Yeah.

Neil Shen: A good manager.

Howard Schultz: Yeah, exactly.

Howard Schultz: It’s three things: IQ, which of the three things I’m going to give you, is the third. The second is EQ. And the first is CQ.

Neil Shen: What is CQ?

Howard Schultz: Curiosity. We can’t be narrow-minded. So, whatever business you’re in, you can’t be so narrowly focused on what you do, because it’s not going to be good enough. You’ve got to broaden your aperture.

Neil Shen: Open-minded.

Howard Schultz: And see the world. And I want people so curious to see around the corners and have the courage to come back and say, “I found something, and we’re going to do it.” So, IQ is certainly important, but it is not the most important. EQ and CQ. That’s what I want. I want a three-tool person.

Neil Shen: Well, this is fantastic advice. I think it also applies to our CEOs. If today this CEO is from an HSG portfolio company, there are two takeaways I found from what you’ve shared. One is, obviously, to always stay alert to new trends and always try looking for innovations, and don’t be afraid of making mistakes. And don’t play defense if you are a market leader and feel like you can just play it safe. There’s nothing you can take for granted.

And number two, I found it very interesting to hear from you. You put employees as well as customers really at the forefront of your priorities. You mentioned employee benefits. The insurance benefits. This is such a core component when you make a decision. And this is so important because, oftentimes, shareholders of the company, whether private or public, will forget about that and will be looking at financial statements, revenue, profit, and all that. But they forget that if you are a CEO, what’s most important is your customers, your employees, and your ecosystem partners. This is what actually determines, in the long term, whether a company will be successful or not.

Howard Schultz: Yeah. Well, you said it beautifully. And you also mentioned the word “innovation.” Let me talk about innovation in my view.

So first off, when I hear “innovation,” the first thing I think about is: I want to have disruptive innovation. I want to disrupt the marketplace.

Now, there have been times when people think a line extension, or a new flavor, or even a new size — because the customer is responding so positively — is great innovation. But that’s not innovation. That is your responsibility.

I want to disrupt the marketplace, like we’re doing with olive oil, which is exactly disruptive innovation.

The other piece is, you mentioned customer and employee. Now, the way I think about it is this: we are a customer-facing company, 100% of the time. But the employee, in our case, we call them partners because they have equity, and the customer – you can’t have so much focus on customer-facing and leave the employee behind. So, the innovation that you have for the customer, you must have the same innovation for the employee.

Let me give you a great example. The history of Starbucks in America is, 25 years before the United States government provided health insurance to its citizens, Starbucks became the first company in America to provide health insurance for our people.

Neil Shen: You led the way.

How Can Leading With Heart Create Real Value for Starbucks Employees?

Howard Schultz: Now, Belinda Wong came to me a number of years ago, and she said, “I love what you did for the employees in America, but I want to do something for the employees in China.” I said, “Okay, what is it?” And she said, “I want us to be one of the first companies to ever provide health insurance to the parents and grandparents.” That’s a great idea.

So she found an insurance company, and then we went to the Chinese government, and we started talking about, “This is what we want to do.” And all of a sudden, we had a great partnership. Starbucks, the insurance company, the government, and figuring this out in a way that we’re going to do something that lifts people up and demonstrates the heart and the conscience of Starbucks. Because it’s an investment. And it’s partner-facing, employee-facing.

And that’s innovation. So it’s not just innovation for the customer, it’s innovation for your people.

Neil Shen: Yeah, this is, I think, again, a localized effort, a localized approach, based on what Chinese families need, and obviously the culture.

You mentioned one word: “heart.” Built from the heart. So you obviously have built Starbucks with your passion, and built it from your heart. Tell me a story about when you were developing a particular product, when you had to make a choice, and how that came about. It’s not the mathematics, the financial numbers, but rather the instinct, your heart telling you what the best choice is.

Howard Schultz: For so many of us, our adult life, privately and professionally, is deeply linked to our origin story and our childhood. So, I grew up in federally subsidized housing. My parents never owned a home. My dad had a series of bad jobs. And so I saw firsthand the fracturing of an American family, because we had nothing. And I could not have gone to college if I wasn’t a good sports player. That’s how I went to school.

One of the problems in America with young people going to college is it’s so expensive. So many people drop out of college because of the debt level. They can’t afford it. And so many people today are sitting with massive amounts of debt on a personal level that they’re having difficulty paying off.

So once again, not only my heart, but thinking about: what could we do that would be most important for our people? So we had an audit, asking our American employees, “What’s the benefit that would be most meaningful to you?” And what came back was free college tuition.

Free college tuition. Well, that’s a big idea, but that is expensive. How could we possibly do this?

Neil Shen: With so many employees?

Howard Shultz: Yeah, how do we do that? So we did an RFP of universities in America, and we said, “We want to create a partnership with you to try and create free college tuition for our people.” And we spoke to Ivy League schools, the most famous in the world. And there’s one university, the largest university in America, which is Arizona State University, with 100,000 students, with a brilliant president named Michael Crow. And he came to us and he shared with us a secret about what college tuition costs people today.

And the secret is the colleges spend so much money on marketing, that the fee to get into school, what’s built into that fee, is the college expenses they have to spend marketing to students, because they’re competing with each other like a business.

Neil Shen: Yeah.

Howard Schultz: So what did we do? We said, “We will take that expense off your income statement. It’ll go away.” And the United States government has something called a Pell Grant, which helps college students. So once again, the government, ASU, and Starbucks came together, and we became the first company in America to provide free college tuition for our employees. That’s unbelievable.

Neil Shen: That’s a great way to actually provide those services and this benefit to your employees.

Howard Schultz: And that goodwill, we talk about building a great, enduring company. The history of Starbucks, that’s not something that’s going to go away. We’re doing that, and we’ve got 25,000 people in school every year. And so, the heart and the conscience of any company has to be front and center. You can’t view your people as a commodity, just like you don’t view your customers as a commodity.

Neil Shen: I remember when I was running a public company, when analysts asked me, “What’s our competitive edge?” Oftentimes we say, “Oh, we have better technology, we have a better product,” but people forget: this is the real competitive edge. Because you win the hearts of the employees and obviously the customers as well. So that is the real differentiator.

Howard Schultz: What we do at Starbucks is we conduct these open forums, which basically are town hall meetings. The highlight of my trip will be standing in front of thousands of Starbucks partners – talking about the company, talking about them, and showing compassion and empathy as a leader because of everything they’ve been through over the past few years – everything we’ve all been through.

And I’m not there to talk about profit. I’m not there to talk about a new promotion. I’m here to talk about you and your families and just demonstrate how much we care about you. And it’s genuine.

Neil Shen: This is, I think, definitely a great thing to share with our audience. Last week, actually, I was talking with some of my colleagues, and I asked them this question – not to prepare for this interview, but I asked them: how much time are you spending in different places in a single day? Your home, your office… and where else?

Howard Schultz: Yeah.

How Is Starbucks Preserving Human Connection in a Digital World?

Neil Shen: They mentioned Starbucks. So this becomes a third place, other than their home and office. Obviously, we hope they can stay in the office for a longer period of time, because people want to communicate in person post-COVID. But your place, this concept, has really played a role in people’s daily lives. So, how do you see this evolving post-COVID, especially with, obviously, the acceleration of digitalization globally, including in China?

Howard Schultz: One of the hidden secrets of our global society today, and it’s not American, it’s not Chinese, it’s that people feel very lonely. Very lonely. Social media has not been a great thing in many ways. It’s actually moved the world to kind of a more shallow place. So people need spaces where they can connect.

We are in the human connection business. Coffee brings people together. It is a beverage that is warm and it’s… You meet people over coffee. You don’t meet people over a glass of wine. And so our stores, in so many ways, the assets of the company – our people, the coffee, the design – but the physical aspect of the stores has built a community. And that has to be a major component of the future of the company. And we have to find new ways to do that and not allow technology or digitalization to strip the physical third place away from the company.

Neil Shen: You talk about employees a lot. Can we talk a little bit about the customer experience? Because that’s also something that puts you out there as a very special company. How have you done things differently to create a very different and unique customer experience?

Howard Schultz: So, we think about this in terms of the customer journey. And we start by thinking about what happens when the customer crosses the threshold and walks into a Starbucks store. What are the nonverbal signals that the customer is receiving? And our stores are designed to produce a positive feeling.

We also have music in our stores, and the aroma of coffee is very pleasing. So we have sight, smell, and the physical environment, the sense of community. Now, one of the great benefits of something that we did not do, but the customers around the world did, is we created all these beverages, but the customers created customization and personalization.

So, hundreds of thousands of people every day are coming to Starbucks, and they are creating a beverage that doesn’t exist on the menu. They’re customizing it to their own taste. And our people are so good at being able to think very fast and create a beverage just for them.

And one of the aspects of this is, you can’t get that drink at home – because we make it special for you. And clearly, the equity of the brand, the Starbucks mark, has become – I don’t want to say a status symbol, I don’t like that expression – but it certainly has become something around self-esteem. People are proud to hold a Starbucks cup.

Now, you asked me a question about when we came here in 1999. I was told that a Chinese customer would never, ever walk in the street holding a Starbucks cup. They won’t do that, because the behavior didn’t exist.

Neil Shen: You created that behavior.

Howard Schultz: I think we did. The other thing is, for years, Starbucks has been in movies, famous movies. We’ve never paid for product placement.

Neil Shen: I saw some of those and thought maybe you paid the production companies for that.

Howard Schultz: No, we’ve never paid for anything. In fact, we have turned down many movies because we didn’t think the script was compatible.

Neil Shen: Fits with your culture.

Howard Schultz: Right. With the values. And so we have benefited from the awareness of seeing so many celebrities drink Starbucks coffee, and so we’ve benefited from that.

Is Olive Oil the Next Big Innovation in Coffee?

Neil Shen: Great. The coffee industry has always evolved rapidly, right? If instant coffee is coffee 1.0 and specialty coffee is coffee 2.0, then what’s coffee 3.0? You guys are always at the forefront of innovation, so what’s the next exciting coffee product we should be expecting?

Howard Schultz: That’s a perfect question, especially given what we’ve just launched in America and Japan. We’re bringing it to China, the UK, and the Middle East—and that’s Oleato.

Neil Shen: Olive oil plus coffee?

Howard Schultz: Yeah. And so Oleato is the Italian word for oil. Can I tell a very quick story?

Neil Shen: Sure, absolutely.

Howard Schultz: So, I was in Sicily last summer in Italy. And I met somebody whose family has been growing olives for 100 years – the highest quality olives. And I’m with him, and every morning, he’s drinking a tablespoon of olive oil.

On the third day, I said to him, “What’s the deal with the olive oil? What are you doing?” And he says to me, “The Romans, the Greeks, and the Italians have been drinking olive oil for thousands of years. And the lifespan of people in this region of Sicily is the longest – because of the olive oil.”

So I have not missed a day of drinking olive oil in six months.

Neil Shen: Wow. Okay.

Howard Schultz: Now, I’ve asked my kids, “Have you seen a difference?” And they say, “No, Dad – you still look old.”

Neil Shen: Do they taste well, by the way?

Howard Schultz: It tastes good. And so I started experimenting with an espresso machine, infusing a tablespoon of olive oil into the coffee and steaming it with the milk.

And the alchemy of olive oil and coffee – this is a big, big idea. And it’ll be a global platform for Starbucks.

Neil Shen: So this started last year?

Howard Schultz: It started last month. And we did it in five months, and no one thought it would even be possible. It was a classic case of the entrepreneurial DNA of Starbucks.

Neil Shen: So, before I turn to the question from the audience, I’m going to ask you my last question, which I think is a tough one.

Howard Shultz: Okay.

Neil Shen: So, you recently relinquished your role as CEO.

Howard Shultz: Yeah.

How to Instill Values in Management Teams?

Neil Shen: You’ve talked about your vision and your value system. So how do you ensure that Starbucks continues to move forward with that same insight, that same vision and set of values, now that you’re no longer involved in the day-to-day operations of the company?

Howard Schultz: Yeah. So, I love Starbucks. It’s in my blood. I care for the company and our people at such a high level. Now, can I hire somebody from the outside and have the expectation they’re going to love it as much as me? I have to be realistic about that. They’re not the founder of the company. However, I’ve spent six months with the new CEO, Laxman. And in six months, I’ve tried to imprint the values and the conscience of the company. And in the last year, I’ve spent that kind of time with the leadership team of Starbucks, constantly talking about the things that you and I have talked about.

And I’m going to keep a mindful, watchful eye on all of this, in a positive way. But the future of the company is very bright. I’m very optimistic. But, as I said before, it’s not an entitlement, and it has to be earned. And I don’t want to be a shadow on the new CEO, but at the same time, I want to be a help to him, as a partner.

Audience Q&A: Advice for Entrepreneurs and Young Professionals

Neil Shen: With that, I want to turn to our Douyin audience. So the question is: is it better to become an entrepreneur right after graduation or after accumulating some years of work experience?

Howard Schultz: Very good question. I’ve been asked that before. I worked for Xerox for three years after I graduated from college. And after three years, I didn’t think it was the right place for me, but those three years were fantastic training.

Neil Shen: Helped you a lot?

Howard Schultz: Yeah. Just understanding organizational design, how a company works. The balance between profit and culture. You can’t get that by just starting out. And I think there’s no wrong answer here either way. But I benefited a great deal by working for a company. And I have given counsel and advice to young people: go work for a company whose values are compatible with your own for a couple of years, and then find your passion and your love, and go do it.

Neil Shen: Great. A member of Douyin asks: “How do you look at the success of Starbucks? Can this be replicated? If today, someone in China wants to start a similar coffee business or maybe a tea business, what is something that they should actually learn from your experience to become successful?”

Howard Schultz: So, one of the most important decisions that we made early on was not franchising Starbucks. We wanted to have a company-owned system, where the culture of the company would be a significant asset, something proprietary. Because there’s so much access to capital today, if we were starting now, we wouldn’t have had the time to build a company-owned system. We would’ve been knocked off a hundred times.

So the question is, if you’re starting a company today and you have a vision to build something big, you’ll probably have to create partnerships along the way. And then the challenge becomes: How do you create a common culture with partners who are operating your business when you’re not operating? How do you do that? I think building a Starbucks-type business is much harder today than it was when we started.

Neil Shen: Because the sector, this industry, has already seen so many great brands.

Howard Schultz: It’s already a very crowded space. Now, if you can find something truly unique, something proprietary, that doesn’t yet exist in the market, then go do it. And certainly, new concepts are emerging all the time. But the challenge is, a brick-and-mortar retail business today, without e-commerce, without delivery, is very difficult.

Neil Shen: Okay. So, what areas or sectors should a young entrepreneur in China look at today? Just in general. What are the areas they should be looking into? Anything that might make breaking through a bit easier?

Howard Schultz: I’ll tell you, not a company, but a sector I’ve personally invested in, in America.

Neil Shen: Okay.

Howard Schultz: It was before COVID, but COVID enhanced it. Don’t laugh: It’s anything to do with pets. The opportunity was to create a super-premium pet food company, very high-end.

Neil Shen: A premium food product.

Howard Schultz: Yeah. A premium pet brand, and then create complementary, ancillary products, because the equity of the brand is trusted. But people love their pets. And that is an opportunity.

Neil Shen: Interesting, because that’s also a sector in which China has seen tremendous growth,

Howard Shultz: In pet food? Or pet stuff?

Neil Shen: The pet industry in general.

Howard Schultz: Yeah.

Neil Shen: Obviously including pet food.

Howard Schultz: Are you an investor?

Neil Shen: We happened to invest in a few. But I think this is definitely a sector enjoying some tremendous growth. Because the younger generation will often love to have some pets at home.

Howard Schultz: People sometimes spend more money on their pets than they do on themselves. And then we had another investment, we invested in a pet insurance company in the U.S.

Neil Shen: That’s also, obviously, is going to enjoy some great growth because of the underlying market, right?

Howard Shultz: Yeah.

Neil Shen: So you just mentioned your criteria in selecting senior management: the IQ, the EQ, and the CQ. What about young people just joining Starbucks, or any company? What are the traits in young people that attract your attention as a boss? The ones where you say, “This is high potential. I’d like to spend time coaching them.” What do you look for?

Howard Schultz: I think the most important thing is, I want to find people who have common values with the values of Starbucks. And those values are based on compassion, empathy, a real desire to create opportunity for the people you’re working with, and for the people who are working for you.

When we look at the end of the year and we’re doing performance appraisals, it’s not just based on you. But what have you done for your people? And if you look at your people, how many have grown? I am not seduced by education. I’m not.

Neil Shen: That’s just a part of it, or a small part of it.

Howard Schultz: I want to see people’s experience as well. And I think I have a soft spot – because of my own background – for people who have come from a hard background, where they had to overcome a lot of personal challenges to get to their current position. Nothing was given to them.

Neil Shen: Yeah. I think in our sort of jargon, we often call that the “underdog.” People who maybe didn’t get the best education, maybe their first or second job wasn’t great, they may not have been top performers, but they always tried, and they share the same value system.

Howard Schultz: Yeah.

Neil Shen: Thank you, Howard. It was really a pleasure talking to you. I think our time is up. I’m looking forward to seeing you, whether it’s in Seattle or during your next trip to Beijing.

Howard Schultz: Hey, can I say something to your audience?

Neil Shen: Sure.

Howard Schultz: I was really looking forward to this. And, you came to see us in Seattle. You presented this opportunity to me. And I said something earlier that I want to repeat about how respected you are. I know how much respect you have here in China. But in America, you’re viewed at such a high level, for the integrity you have, obviously for your investment thesis, and the other things you do. But you’re a really good person. And I appreciate the opportunity.

Neil Shen: Thank you. Thank you for a great conversation. Thank you.