Archive for June 23rd, 2008

When is a stock crash a crisis? Thoughts on Starbucks.

June 23, 2008

I think Starbucks CEO’s Howard Schulz’s efforts to rebuild his company’s cachet and stock value is one of the most interesting examples out there of crisis management (the other really interesting one being the campaign of course). While we don’t normally consider marketing, promotional PR, investor relations and the challenges of the marketplace to fit in the realm of crisis communications, there is no doubt the company is in for a fight of its life and Mr. Schulz’s stellar reputation as an innovative business leader and marketing genius is on the line.

A few observations then about this fight from a crisis management perspective. And I should mention I am a share holder ( a very longtime and loyal shareholder), an admirer of the marketing savvy that catapulted them to the top and created the premium coffee category, and have that local pride of having seen and visited the original Starbucks store in Pike Place Market back in the days before Howard Shulz–when it was a real hippie coffee house like Bellingham’s own Tony’s Coffee.

Crises like this aren’t singular events. The term “perfect storm” is often applied to crises these days–particularly deep, intractable ones. Several things contributed to the decline in share value that this crisis is all about: more and more competition (even from the likes of McDonalds!), a weariness with paying ever higher prices for coffee drinks, a weakening economy (more of a psychological factor re coffee than real I think) and then, of course, Howard’s very bad move of selling the Seattle Sonics to a guy who made it clear from the get-go that he was going to move the team to Oklahoma City. It turned local pride into bitter animosity.

Like most crises, it looked sudden but was far from it. The roots of the problem are many, deep and quite predictable. Competition has been building for the past years–much faster than the innovative leader was innovating. And Schulz’s move into professional sport team ownership was more than a diversion of attention–it was a clear signal that he wanted to play with the rich boys. The loss of attention to what was going on with the company along with the clear desire to cash in his chips and enjoy life contributed to what seemed an unreasonable revolt among shareholders. He clearly signaled he wasn’t into taking care of them, and when the exodus started, they signaled what they thought of that.

What is Howard doing to resolve this crisis? In crisis communication we keep saying the ultimate goal is to build trust and the way you do that is by full and open recognition of what is happening, what went wrong and why–and then crystal clear, entirely transparent communication about what you are doing to fix it and prevent it from happening again. It seems clear to me that Howard is taking his crisis very seriously and appears to have gotten serious about rescuing his once darling company. It may be too late to really rescue it. But he seems to be pulling out lots of marketing stops. My problem is that I don’t see the mea culpa of what went wrong, I don’t see or haven’t seen the shockingly honest acceptance of responsibility that it takes and I haven’t seen the crystal clear communication of what is being done about it. In other words, it seems to me that Howard is treating this as a business problem and not a reputation crisis.

I think that is a big mistake and one that a lot of companies facing huge share losses may make. And why not? Wall Street tends to think if you make your numbers things will be OK. They are not. Recent results showed increased store sales of 6% but the stock went down something like 5% – 7%. Why? Wall Street expected 7-8% growth–not a paltry 6%. I look at it and say, given the doo doo the company is in, the competition, the market, the animosity among some circles, the big disappointment among people like me, 6% looks dang good, almost miraculous. They have a whole and they are digging out, but it is not enough. And solving it with business strategies –although unquestionably effective in producing those numbers–will not solve their underlying crisis. Because it is a crisis, not a business problem. A crisis is about credibility, character, emotion, anger, risk, disappointment. It is not a cold calculation of 6% or 8%.

My advice to Howard–get visible. This is about your credibility. Say you’re sorry for taking your eye off the ball. Over and over and over until you are sick to death of it. Tell us you care about our tanked stock, about your employees, about making Starbucks shine brighter than ever. Tell us you are going to innovate your way out of this like you innovated yourself to the top. And show us something exciting and new. Take some risks–all within the core values you created and make consistent. Get on the road and talk to your customers and shareholders. Make us believe in magic again.