H O W A R D S C H U LT Z :
BUSINESS LEADERSHIP
MASTERCLASS
H O W A R D S C H U LT Z 2
LESSON 1 / JUMP IN
We live in a time that offers entrepreneurs unprecedented
“I think this is opportunities. But starting your own business still requires
an enormously you and your initial team to make big sacrifices. Consider
this before jumping in:
exciting time
Pros to entrepreneurialism today:
for a young
entrepreneur • Easily available technology
to dream about • Large amounts of accessible capital
• A global consumer who’s open to new ideas and products
starting a
• Relatively low barriers to large markets
business.”
Caution: Success today requires discipline, a focus on
your fiduciary duties, and a sense of “moral duty” to the
communities you serve.
TERMS
Fiduciary duty: A legal and ethical ob- Self-doubt is natural. You can overcome it by being
ligation of one party to act in the best conscious of what you’re willing to sacrifice for your
interest of another party. For example,
endeavor. While there’s an opportunity cost to jumping in,
corporate officers and executives are
typically considered to have a fiduciary remember you may also pay for not jumping in. Regret is
duty to their shareholders. They are ex- expensive.
pected to act in good faith and to put
the interests of the company first.
Opportunity cost: What is lost or
A SK Y O U RSELF
missed out on when choosing one
possibility over another. When a group • What will it cost you to make the leap into entrepreneur-
of investors, or even a country, is pre- ship? Consider tangible factors, like money, but also the
sented with multiple options or trading intangible ones, like time with your friends and family.
partners, the opportunity cost is what
money or productivity is lost when
• What will it cost you if you don’t make the leap? Again,
selecting the one option.
consider both the obvious elements, like the financial
possibilities, and the less obvious ones, like regret,
personal satisfaction, and the ability to give back to
your community.
• Create a list of pros and cons based on your answers.
MASTERCLASS
H O W A R D S C H U LT Z 3
LESSON 2 / VALUES AND PROFITS ARE
NOT ENEMIES
Not only is it possible to balance your company’s values
“Not every and profits, it’s the key to success.
decision in • After seeing his injured father be tossed aside by his
business is an employer, Howard made employee dignity a top value for
Starbucks. Under Howard’s leadership, Starbucks became
economic one.” one of the first U.S. companies to offer health insurance
and stock options to part-time workers.
• This value also helped the company finally achieve suc-
cess in China after almost a decade of struggle. Starbucks
knew family was a core value for the Chinese, so it creat-
ed a new benefit: critical illness health insurance for the
parents of its partners.
• Values-based choices helped the company in two ways: It
was able to differentiate itself in the marketplace, and it
was able to attract and retain loyal, dedicated employees.
• A requirement for being a values-based company is that
you must have good financial performance. This is possi-
ble if you build your values into the way you make every
strategic decision.
A SK Y O U RSELF
• What is your core purpose and reason for being?
• What are your core values? Why do they matter to you?
• What does your “ideal company” look like? What are
the values you want your company to embody?
• How can your company thread these values into
decisions and operations?
MASTERCLASS
H O W A R D S C H U LT Z 4
LESSON 3 / BE CURIOUS
Curiosity is one of the most important traits for entrepre-
“We’re all in neurs of every age. To constantly learn and maintain your
need of learning. competitive edge, you must always seek out new people
and new experiences. Never lose the curiosity to see
I’m 65 years old, around corners.
and I’m trying to • Starting out as an employee, rather than an entrepreneur,
be more curious is an opportunity to learn how organizations work. Use
your early job roles to observe how management teams
than ever.” make strategic decisions and to develop the humility,
resilience, and competitiveness you will need as a leader.
• New or junior employees are usually not in the room
when company leaders make strategic choices. To learn
what goes into their decision-making, approach company
leaders with humility. Explain that the reason for your
curiosity is so you can learn how to make the company
stronger.
• Putting yourself in a position to learn is uncomfortable.
It may lead you to experience failure. Put yourself there
anyway. Embrace failure and learn from it.
• When you’re looking for a mentor, be aware that you’re
asking someone to assume a serious responsibility. Seek
out people who have expertise in domains where you’d
like to grow, and allow your relationship to evolve natu-
rally. When you do ask them to mentor you, define the
obligation in a way that’s comfortable for both of you. For
example, you may want to specify that you’re looking for
a mentor who’s able to meet with you once a month.
• Pay it forward. One day, when someone asks you to
mentor them, say yes.
MASTERCLASS
H O W A R D S C H U LT Z 5
LESSON 3 / BE CURIOUS
A S K Y O U R S E LF TA KE A C T ION
• What are five things you appreciate about • What would you like to learn from a mentor?
your current work environment? What are What would you like that relationship to look
five things you would change? like? Write down:
• Does the company you work for share your ——Three specific skills you’d like to learn from
values? Where do your values diverge from someone with more experience.
the company’s practices?
——Three potential people you could approach
• Consider a major decision your company for mentorship.
has made in the past two years. List what
——How much time you would feel comfortable
you know about the decision, and come up
asking from each person.
with three questions you’d ask the CEO/
decision maker to learn more about their • If you have three names, how will you reach
decision-making. out to them? If you can’t identify three po-
tential mentors, how will you find them?
• Read! Make a list of books and media you
want to read daily and monthly. Expose your-
self to ideas outside your work. Know the
headlines of the day and what is happening
in the world.
MASTERCLASS
H O W A R D S C H U LT Z 6
LESSON 4 / DON’T PIONEER. DISRUPT.
The majority of businesses don’t succeed. To improve your
“The easier odds, think about the form you want your business to
route is to disrupt take. Do you want to try something completely new? Or
do you want to disrupt existing categories by bringing a
a category that pioneering mentality to your decisions?
already exists... • If you choose to disrupt an existing industry, you must
there’s an bring an innovative spirit to your enterprise. The consum-
er shoe industry, for example, is already an enormous and
opportunity oversaturated market. But Howard’s venture capital firm
chose to invest in Allbirds because the company founders
because the had a great plan to differentiate themselves in the mar-
large companies ketplace through unique fabrics, competitive pricing, a
mission-driven ethos, and an ability to emotionally con-
feel as if they’re nect with their customers. Allbirds was able to break into
a highly competitive industry by using innovative ideas
entitled to it.” that other companies had missed.
• Many entrepreneurs are excited about bringing a new
idea or product to market, but being a pioneer is the
riskiest strategy. Your idea and platform need to be so
compelling that consumers are willing to take a chance
on you. You also need to have enough resources to lose
money for the long stretch of time it takes to change
consumer behavior.
• Not every business or service needs to have a national or
global profile. Many, if not most, companies will be most
successful on a local or regional level.
• To reduce the risk of failure, seek out every peer who has
started a business—regardless of whether they succeed-
ed or not. Everyone who has done this has lessons to
teach you. Ask them about what you can expect and what
surprised them. You should also be the best student of
your competitors in the field. If you’re seeking to disrupt
an established industry, you must be prepared for those
larger companies to come after you.
MASTERCLASS
H O W A R D S C H U LT Z 7
LESSON 4 / DON’T PIONEER. DISRUPT.
A S K Y O U R S E LF
• Zero in on the business category that
captures your passion. Where do you
see opportunities to improve on accepted
practices? What industry standards do you
feel are suboptimal, and how could you
disrupt those standards in ways that would
appeal to the consumer?
• What would be the ideal-sized company for
your product or service?
• What are the most innovative features or
benefits your product or service has to offer?
How can you use these features to establish
a competitive advantage?
MASTERCLASS
H O W A R D S C H U LT Z 8
LESSON 5 / FOCUS AND GET IN THE MUD
TERMS A leader must establish the priorities of an organization.
Income statement: A financial doc-
Companies that chase too many objectives can become
ument focused on a company’s reve- overwhelmed and dysfunctional. Focus on three to five
nues and expenses during a particular audacious goals and, as Howard says, “get in the mud” to
period. Also known as a profit and loss
statement.
achieve them.
Balance sheet: A financial document
that provides a snapshot of what a • Spend time where you can have the most impact and
company owns and owes, as well as the add maximum value to your organization. Every month,
amount invested by shareholders.
do a personal assessment: Have you prioritized the right
Unit economics: The direct revenues
things? Is there an opportunity to make an adjustment?
and costs associated with a particular
business model as specifically ex-
pressed on a per unit basis. In the case
• A company’s income statement and balance sheet
of a retail store, its unit economics are represents the financial performance of the company.
the amount of revenue it’s able to gen- Use these tools to maintain financial visibility and avoid
erate every month from each customer.
surprises.
Operating cost: Expenses associated
with the day-to-day maintenance and • The other fundamental metric to consider is the strength
administration of a business.
of the culture and values of the company. These can be
Operating profit: An accounting figure
that measures the profit earned from a
assessed by asking questions and engaging directly with
company’s ongoing core business oper- employees and customers.
ations, excluding deductions of interest
and taxes. • Make key business decisions with employees and custom-
Operating margin: The amount of ers in mind. Ask yourself: “Is this decision going to make
profit a company makes on a dollar our employees and customers proud?” If the answer is
of sales after paying for variable costs
of production such as wages and raw
yes, you’re on the right track. If the answer is no, it may
materials, but before paying interest or be time to rethink your strategy.
taxes. It is calculated by dividing a com-
pany’s operating profit by its net sales.
Sales-to-investment ratio: A ratio F INANC IAL MO DELS
calculated by taking the projected
annual sales of a proposed business It’s vital to understand the financial model for your business.
and dividing it by the total projected
The unit economics of a best-in-class retail store should be
start-up investment.
a 2:1 sales-to-investment ratio with a 20% operating mar-
Accounts receivable: Refers to a com-
pany’s outstanding invoices. gin.
Break-even: The point at which cost
and income are equal. There is neither For the investment ratio, your goal is to generate double
profit nor loss.
the amount in sales compared to your costs for opening
Financial visibility: Term used to the store. So, if it costs $500,000 to build out and open a
portray the extent to which company
management or analysts following the store, your goal should be to make one million dollars in
company can estimate future financial sales that first year.
performance.
MASTERCLASS
H O W A R D S C H U LT Z 9
LESSON 5 / FOCUS AND GET IN THE MUD
In terms of operating margin, if you’re gener- • How familiar are you with your business’s
ating one million dollars a year in sales, your income statement and balance sheet? What
goal is to make 20 percent (or $200,000) in more can you do to maintain financial visi-
profit, with the remainder going to the store’s bility into your company? Questions to ask
operating costs. yourself regarding the details of your busi-
ness’s financial performance include:
If your retail business has a 1:1 sales-to-in-
——What is the cost of each product or service
vestment ratio—or a 10 percent operating
you sell?
margin—then you know your business does
not work. ——How quickly does your business collect its
accounts receivables?
A S K Y O U R S E LF ——If your business does what you expect it to,
• What are the top three priorities or goals of when will your cash flow reach its highest
your business this year? Where and how can and lowest points of the year? Roughly
you best maximize your skill set to achieve how much cash will it have in both of those
them? dates?
• If you run or work for a retail business, con- ——What is your break-even?
sider the unit economics of the business.
——What is your sales-to-investment ratio?
——What is your operating cost and operating
margin?
——Are these figures within range of a best-in-
class retail business?
MASTERCLASS
H O W A R D S C H U LT Z 10
LESSON 6 / FIND THE RIGHT INVESTORS
TERMS Raising money is challenging. Find investors who share
Equity dilution: The decrease in
your values, and who can be relied on when things get
existing shareholders’ ownership of a difficult.
company, resulting from the company’s
need to issue new equity.
• Before you sign any deal with an investor, do as much
due diligence on them as they will do on you. Research
their investment history. Interview other entrepreneurs
they’ve worked with. Once you take on money, your in-
vestor is part of your company. Be vigilant about knowing
who will be working with you.
• Set up hypothetical scenarios with your investor to es-
tablish how you both will act when, and if, things don’t
go exactly as planned. Candidly discuss what you expect
from each other in the event of a crisis.
• Convey your personal story and your sense of character
to your investor. Explain why you believe in the opportu-
nity you’re presenting. Impress upon the investor why you
are the right person to lead and why now is the right time
for them to get involved.
• In taking on investment capital, your responsibility be-
comes bigger than yourself. This responsibility trickles
down to everyone in your company. Make sure that ev-
eryone involved, particularly your senior leadership team,
understands they have a fiduciary responsibility to meet
numbers and to provide the rate of return they promised
to investors.
• Give up as little equity as possible, and raise more money
than you think you need. The best way to maintain con-
trol of your company is through consistent performance.
• When it comes to meeting investor expectations, aim to
under promise and over deliver. There’s nothing better
than beating projections, and nothing worse than having
to go back and ask for more money.
MASTERCLASS
H O W A R D S C H U LT Z 11
LESSON 6 / FIND THE RIGHT INVESTORS
A S K Y O U R S E LF
• Questions to ask yourself before meeting ——Which of your investments haven’t worked
with investors: out and why?
——Why am I pursuing this business venture? ——What do you value most in an entrepreneur?
——Why do I believe in this opportunity? ——What are your core business values?
——Why am I the right person to lead it? ——What is your track record of action during a
——Why is the market timing right? crisis?
——How will my business differentiate itself from • What is your investor communication strate-
competitors? gy? How often, and in what manner, will you
communicate progress (or lack thereof) with
• Questions to ask investors: investors? What information do you plan to
provide on a regular basis? How much feed-
——What are your investment practices?
back do you want from your investors?
——What have been your most successful in-
vestments and why?
MASTERCLASS
H O W A R D S C H U LT Z 12
LESSON 7 / COFFEE BREAK
Howard demonstrates his favorite method for making coffee using a
French press and Starbucks Aged Sumatra coffee beans.
1
Use coarse ground coffee that
resembles sea salt in your
press, and measure 2 table-
spoons per 6 ounces of water.
5
Pour the coffee.
Enjoy it while it’s hot.
2 Fill the press with hot
water that’s just off the
boil. Make sure to satu-
rate all the grounds.
4 3
After three to four Let coffee steep
minutes, slowly push the for four minutes.
plunger all the way to
the bottom.
MASTERCLASS
H O W A R D S C H U LT Z 13
LESSON 8 / OVERINVEST IN CULTURE
Defining and investing in culture is vital for building an
“Every single day enduring business.
in the start-up • What is culture? Howard defines it as “understanding
phase—in the human behavior and how to elevate a group of people
to realize, believe, and trust that they are a part of some-
imprinting phase thing larger than themselves; where each person has a
of a young responsibility to shape the behavior of the organization.
That behavior is the foundation of the company–it should
business—you express the company’s values and guiding principles,
which ultimately define its core purpose and reason for
are defining the being.”
culture of the • Define your company’s culture early. Building a busi-
ness culture is analogous to raising children. You are
company.” trying to imprint the child early with a set of core values,
direction, and self-esteem.
TERMS • The equity of the brand should be a reflection of the
Cultural audit: The study and examina- culture of the company. If something occurs which is in-
tion of an organization’s cultural charac- consistent with the culture, such as poor talent acquisition
teristics (such as its assumptions, norms, or tolerance of objectionable behavior, you must move
philosophy, and values) to determine
whether they are acceptable to its swiftly to eradicate it.
employees and customers, and whether
they hinder or support its vision and • Perform “cultural audits” throughout the year, by ask-
mission. ing employees to respond to questions about the cultural
health of the company.
RECOMMENDED READING
• Define work-life balance early in the life of your
101 Mission Statements from Top organization. You want to be the kind of leader who culti-
Companies by Jeffrey Abrahams, Ten
vates a work environment that is both performance-driven
Speed Press / Ten Speed Press, 2007.
and humane.
“How to Write Your Mission State-
ment” by Entrepreneur contributors,
Entrepreneur magazine, 2003.
“Answer 4 Questions to Get a Great
Mission Statement” by Patrick Hull,
Forbes magazine, 2013.
“4 Techniques for Crafting a Mission
Statement Worth Remembering” by
Chuck Cohn, Entrepreneur magazine,
2014.
MASTERCLASS
H O W A R D S C H U LT Z 14
LESSON 8 / OVERINVEST IN CULTURE
S TAR B U CK S ’S MIS S ION AND VAL U ES ——Create learning opportunities for employ-
ees, such as guest speakers and author
Starbucks’s Mission: visits.
“To inspire and nurture the human spirit—one
person, one cup, and one neighborhood at a ——Offer in-office meditation and wellness
time.” instruction.
——Hold regular all-employee meetings in
Starbucks’s Values: which people are invited to ask leaders
With our partners, our coffee, and our custom- questions and speak freely about the com-
ers at our core, we live these values: pany. This creates a culture of trust and
transparency.
• Creating a culture of warmth and belonging,
where everyone is welcome.
• Acting with courage, challenging the status TA KE A C T ION
quo, and finding new ways to grow our
• Create an anonymous “culture audit” ques-
company and each other.
tionnaire for your partners and employees to
• Being present, connecting with transparency, distribute. Sample questions could include:
dignity, and respect.
——What makes you proud to work at this
• Delivering our very best in all we do, holding company?
ourselves accountable for results.
——How does the organization support your
professional development and career
A S K Y O U R S E LF growth?
• What is your company’s mission? What is its ——Is risk-taking encouraged? What happens
core purpose? Its reason for being? In what when people fail?
ways can the culture be a reflection of these ——How do you as a manager (or how does
pursuits? your manager) support and motivate your
• What stories from your life will inform your team?
approach to establishing an organization’s ——What are some of the ways the company
culture? Journal about personal experiences celebrates success?
you might draw from in crafting the values
and culture of a company. ——What role do company values play in hiring
and performance reviews?
• What are three creative and effective ways
you can make a deposit into the “cultural ——What’s one thing you would change about
reservoir” of your company? Examples could the company if you could?
include:
MASTERCLASS
H O W A R D S C H U LT Z 15
LESSON 9 / HIRE A VALUES-BASED TEAM
Your primary job as an entrepreneur and leader is to build
“You can’t build a team of people with diverse experiences and expertise
a hundred story but like-minded values. Seek to recruit candidates with
two essential characteristics: domain expertise in a skill
skyscraper until base beyond your own, and a value system in alignment
with your own.
you first build
the foundation • The job of attracting and retaining talent begins before
you start to raise money. One of the first questions a
to support it.” good investor will ask is: “Tell me about the team.”
• In terms of employee compensation, balance cash
with equity. Give everyone a stake in the success of the
business.
• In addition to evaluating domain expertise and qualifica-
tions, the objective of an interview is to get to know the
candidate on a personal level. Ask questions that have
nothing to do with the job at hand. Inquire about the
last book the candidate read, or a recent family trip. This
creates an environment where you can get to know the
person on a deeper level.
• Everyone makes hiring mistakes. The question is, how
long will it take you to recognize and fix the mistake?
• Create detailed immersion plans for new employees to
help them integrate properly and produce a positive
impact on your company culture.
A SK Y O U RSELF
In order of importance, what are the top five roles you
need to fill to start your business? What are the core values
you are looking for in early team members? What are your
own personal strengths and weaknesses, and how can you
hire to compensate for them? Consider what your equi-
ty-sharing plan for early team members will look like. How
much of the pie are you willing to give away? How will it be
divided? What will the guidelines be for equity increases as
the company grows?
MASTERCLASS
H O W A R D S C H U LT Z 16
LESSON 9 / HIRE A VALUES-BASED TEAM
TA K E A C T IO N
• Write three sample interview questions.
Possibilities include: What are the first
things you would do on the job if your were
hired for this position? What do you enjoy
when you aren’t working? What is your
“superpower?”
• Come up with ways to immerse new employ-
ees in the culture of the company, written
and experiential. For example, have senior
leaders work on the front lines of the busi-
ness, and have junior hires sit down with se-
nior leaders and ask them questions. Provide
every new employee with a one-page state-
ment of the company’s mission and values
so they may post it near their workspace and
refer to it regularly.
MASTERCLASS
H O W A R D S C H U LT Z 17
LESSON 10 / DON’T MANAGE. LEAD.
People don’t want to be managed, but they do want to be led.
“People don’t
want to be • Effective leaders have an open and honest communication
style. They should share the vision of the company, provide
managed. They constructive feedback, and gain credibility and trust.
want to be part • Conflict avoidance can lead to communication breakdowns,
unresolved issues, and resentment. Let people know when
of something they don’t live up to company standards and expecta-
larger than tions. Ignoring issues over time can have a toxic effect on
performance.
themselves.” • Leaders must find the balance between staying engaged and
letting people do their jobs. Great employees want
direction, but they do not want or need to be micromanaged.
• An effective leader sets high expectations, defines those
expectations, then gives people the tools to meet them.
• Employees require feedback to improve and grow. As a lead-
er, critique with kindness, honestly assessing performance
and areas for improvement. It is a leader’s role to help people
become better versions of themselves.
A SK Y O U RSELF
• What were the top two strengths of the best leader you have
worked for? What were the top two weaknesses of the worst
leader you have worked for?
• What’s your biggest strength as a leader? What is your biggest
weakness?
• What do you feel are your employees’ primary motivations?
How can you motivate employees without using compensation
as a lever?
• Are you setting the example you want employees to follow?
Do you model the qualities you want from your employees?
MASTERCLASS
H O W A R D S C H U LT Z 18
LESSON 11 / CANNIBALIZE YOURSELF
Innovation and disruption (even disrupting yourself) is at
“If you don’t the heart of entrepreneurship. Do not be afraid to disrupt
cannibalize your or cannibalize your core business. Invest consistently in
innovation, and keep exploring adjacent categories.
business yourself,
• Invest ahead of the growth curve of your business with
I can promise you product, people, and processes.
your competitors, • Strategy and execution should not be determined by
small and large, what your competitors are doing. Your competitors
should inform you of what the game board looks like, but
are going to they should not dictate your next move.
cannibalize it • Establish a wedge between yourself and your competitors
in terms of your benefit to the customer. Fulfill every
for you.” opportunity to create significant positive differentiation
between your products.
• Ensure your next level of innovation matches the found-
ing principles of the company, so you don’t create some-
thing that dilutes the core brand and business.
A SK Y O U RSELF
• Who are your main competitors?
• In what areas are they stronger than you?
• In what areas do you have an advantage?
• What distinguishes your product or services in the mar-
ketplace? How do you compare in terms of features,
benefits, price, and convenience?
• How can you establish a deeper wedge between yourself
and your competitors?
• What is your company’s core business? How can you
innovate without straying too far from your core.
• How else can your company create disruption in the
marketplace? What are the upcoming possibilities you
see on the horizon?
MASTERCLASS
H O W A R D S C H U LT Z 19
LESSON 12 / REAL LEADERSHIP: WHAT DO
YOU DO IN CRISIS?
Every business will face crisis and turmoil. This is when leader-
“Success is not ship matters most. A leader’s action during stressful moments
an entitlement. has a profound impact on the company’s future culture and the
employees’ behavior.
It has to be
• Be honest and transparent with employees about the size and
earned. And degree of a crisis. People deserve to have complete informa-
it has to be tion about the challenge the company is facing.
earned every • Eradicate entitlement. Having success today does not guaran-
tee you success tomorrow.
day.” • Believe you have what it takes to lead your company. You can
not afford to project yourself as someone unsure of his or her
ability to lead. Don’t allow emotions to get the best of you.
You can be humble and vulnerable while still being confident
and tough.
• If you know in your gut that you must make a critical but po-
tentially unpopular decision, make it as soon as you can. The
sooner it’s done, the better off both you and the company will
be.
• Making cuts can be emotionally difficult. Remember that
you have a fiduciary and moral responsibility to preserve the
business.
• Asking people to leave your company not only has an impact
on them, but on the people who remain, as well. Demonstrate
empathy and compassion. Explain in detail and with sensitivity
why the decision is being made.
• Do not forsake company values in order to affect the bottom
line.
A SK Y O U RSELF
• Do you hold yourself accountable as a leader before holding
anyone else accountable?
• How well do you behave under pressure? What steps can you
take to prevent emotional reactions to undesirable news?
• Are you a secure and confident leader? Where might there be
MASTERCLASS
blind spots in your leadership style?
H O W A R D S C H U LT Z 20
LESSON 13 / ONWARD
“There is no straight line. You’re
going to have challenges and issues.
But many of the challenges and issues
are things that intuitively you already
know you can solve, things that aren’t
in the textbooks, things based on your
life experiences that have prepared
you for this moment.”
MASTERCLASS
