The Starbucks Experience

Dr. Joseph Michelli, author of the bestselling book “The Starbucks Experience: Five Principles for Turning Ordinary into Extraordinary,” is an international speaker, an organizational psychologist by training, and a business consultant. While his newest book, The New Gold Standard, was released in July 2008, Michelli took some time out of his busy schedule recently to talk to Chris about the lessons that can be learned from Starbucks and how those lessons can be applied to any business. Kennedy’s is another “experience-based” business selling “affordable luxuries” all while being another “third place.” Keep reading to see the parallels.

CH: I don’t think a lot of folks understand the magnitude of Starbucks, as odd as that may sound. Let’s start by going through some of the statistics. As you talk about in the book, approximately 35 million customers go to Starbucks every week, and I think you said that the average customer goes there 18 times a month, right?

JM: That’s right.

CH: There’s a lot to be learned from Starbucks when you think about it – – who DOESN’T want repeat customers that come to you 18 times a month? And the customer evangelism about Starbucks – – it seems like it’s second to none out there. I don’t think they have anybody that’s a close second in their marketplace.

JM: No, there really isn’t a market competitor. The point about customer evangelism is that people either love it or hate it. I think when you find great businesses that have a lot of emotional connection with people, those people are going to have either a strong positive emotional connection or a strong negative one. You’ll find blogs out there like ihatestarbucks.com. You won’t find that for Subway sandwiches, for example.

CH: Before we get into the five key principles noted in the book, you spent about 18 months and had a lot of access to the Starbucks leadership when you wrote the book. You want to tell us a little more about that?

JM: Sure. The Starbucks experience at the bottom line is this: it’s the creation of a place that its founder Howard Schultz called the third place – – it’s between work and home that people go to. The next best place besides work and home.

He wanted that place to have single detail from beginning to end all fit with creating the living room of the community. So this is going to be a third place that’s functioning as a living room in the community, and it’s going to be staged in an environment of affordable luxury. That’s what the goal is. So having said that, then these five principles come into play.

The first principle, “make it your own,” is this belief that in order for people to really have their living room in the community, you need to make sure they can participate in the experience that’s happening for them at the store. It’s customized around your tastes, wants, desires and preferences. So that’s one of the elements.

To really leverage that and to get customers who are connected to that living room of the community, you need to have people working for you who really take an ownership position. The concept was to create in Starbucks an ownership. So Howard, at the very beginning of this journey, offered them health benefits if they worked 20 hours a week. He also offered them Bean Stock and stock options in the company. Because of that, he really got a different kind of ownership behavior.

CH: A lot of the innovative products that they’ve come up with have come through the employee channel, has it not?

JM: Absolutely. I think you’re probably hinting about the Frappucino, which is their blended beverage. That came directly from an employee named Nina Campin who was working at a Santa Monica store. When they went to L.A., it was the first time they’d been in a warm weather environment and their product wasn’t selling all that well. Well, Nina, who had an ownership stake, because she had the 20-hour-a-week health benefits and stock and all that, she basically brought a blender in from home and started mixing coffee in with ice, but all she had was watered down coffee.

Then, she threw an emulsifier in the form of cream and that made it better and then she put some vanilla syrup in there and it was just awesome. She passed the idea up the food chain and people listened, and the Vanilla Frappucino was born.

CH: The second big principle you talk about in the book is this notion of “everything matters.”

JM: Right. Every business owner has to decide what details are essential to create the experience. I mean, if we’re going to say it’s the living room community, which is Starbucks, then when can we still cut back in tough economic times and not impact the customer’s experience of the living room in the community?

I’ll give you a classic example of the struggles of Starbucks. They used double-ply toilet paper in their bathrooms, and they do this – – it’s all part of the experience of affordable luxury.

Now, the bean counters – – which is my view of the accountants at Starbucks said, “Well, we could save tens of thousands, maybe hundreds of thousands, of dollars if we went to single-ply toilet paper in the bathrooms of these operating units.” And so they have this moment of, “Okay, can we make this choice?”

The answer, obviously, is no. Because if you’re going to stage the experience around affordable luxury, and you have affordable luxury in the cup and you have affordable luxury in the way the couch feels, then you go into the bathroom and the toilet paper does not give you an affordable luxury experience, you have just negated one of the details that delivers on your brand. So they couldn’t save money in that particular way.

I think we always have to ask ourselves what is the impact on the customer in those times? If it’s negligible, you can certainly do it. If it’s substantial, you might have to find another way to cut back.

CH: The book was written a couple years ago and talks about the growth up to that point. But obviously, since the book’s come out, there are some critics out there, and certainly the stock market seems to indicate that they maybe haven’t paid as close attention to some things – – they’ve sort of given in a little bit on this “everything matters” notion in order to continue some of the growth.

JM: Yeah. That’s a challenge they’re facing right now, and it’s where they’ve made the compromises. Probably the biggest compromise has been on the training.

CH: Let’s talk about training – a couple of months ago they actually got a lot of press about shutting down for three and a half hours…

JM: Right. So, they locked down around 4:00 p.m., during their prime time, and retrained on the basics of the product. Going back to that principle of “everything matters,” they made sure that people knew how to transact the product successfully.

Schultz wanted, first off operationally, to make sure the employees could make a cup of coffee and draw a good espresso shot. But he also used those three hours in time to explain the goal experience. When people come in the door, they need to be welcomed – really welcomed.

It was also a great publicity stunt with an amazing amount of free PR that they would not have gotten had they stayed open those three hours.

CH: No question. The next key principle you talk about in the book is the notion of “surprise and delight.” You want to elaborate on that for us?

JM: Sure. Let’s go back to the key point that in order to have satisfied customers, you have to deliver what they want. If every time they come to you they can get what they expect, that’s pretty delightful.

But consistency isn’t enough. When you’re in business, you have to think about how to engage customers, and non-customers for that matter, in predictable and consistent experiences. But then, how do you put a little wrinkle in there to surprise them, and then how do you make sure that the same surprise isn’t used over and over again? Because then all of a sudden it just becomes a service delivery expectation. So it’s a challenge.

My favorite example of Starbucks’ advertising is a “surprise and delight” example. If you were in New York City or Boston and you saw a cab riding around with a Starbucks cup on top of the cab, and if you ran up to the cab driver to let them know their fare probably left their Starbucks there, that cab driver is authorized to give you a $25 Starbucks gift card, (the cup on the top of the cab is magnetic so it’s not going to fall off the cab).

What it has done is drawn the good Samaritan-ship out of you. So if you’re a customer or non-customer, you’ve just been rewarded for being a good person with the product itself. That’s a pretty cool surprise.

CH: Yes, it is. The next principle you talk about in the book is an “embraced resistance.” You want to elaborate on this?

JM: I’d love to. This is probably the most counterintuitive of all, and the one that businesses do the worst. I’m pretty good at listening to my loyal customers and talking to them and finding out what they like about the business and all that stuff. That’s kind of easy. What I’m not so good at is when somebody really doesn’t like me, for me to say to them, “Help me understand what I could be doing to help this business meet your needs more.”

I think there’s this message of listening for the voice of resistance and learning how to always entertain the possibility that there’s something good in there. Not that there always is, because some people are just flat out mean and not very constructive in their criticism. However, you have to listen to every piece of criticism as if there is a possible peaceful lesson.

CH: The next principle you talked about in the book is “leave your mark.”

JM: Right. And I think that this principle is about when you create experiences for your customers, you can’t just do it because you want them to pay you. You have to really think about experiences that truly have an impact on people’s lives.

Starbucks wanted to show that they can do good both in the community and financially. One of the classic programs they have is that if you’re a Starbucks employee and you want to go read at your kid’s school, assuming the school is a legitimate entity, Starbucks will make a cash contribution to the school for every hour you volunteer, up to a certain dollar amount, obviously.

The point is that instead of just handing the check to them, they’re saying, if you, as an employee, want to get involved in the community, Starbucks will support your philanthropy. It doesn’t disincentive somebody from volunteering, but it leverages their volunteering to have even greater impact.

CH: Starbucks had their annual shareholder meeting recently, and Howard Schultz said they’re going to be doing a bunch of different things. It seems like they’re moving in the right direction again. What do you think?

JM: I think they’re on the right track; you have to teach your people to have folks only want to come to your store. You must have your people so connected with the customers who walk in, making even a momentary, powerful connection, or else I’m going to go to a place that sends me a coupon for $3 and see if it’s a better cup of coffee.

But watch McDonald’s – – it’s going to be fun. They’re actually going to open up their own coffee kiosks in select McDonald’s store. It’s going to be a separate coffee bar away from the counter that serves patrons. They’re going to have baristas drawing espresso shots at McDonald’s. This is war.

CH: It will be interesting. I appreciate you taking the time to be with me today.

Dr. Joseph Michelli’s books “The Starbucks Experience” and “The New Gold Standard” are available at all major bookstores.

Chris Hurn is currently President, CEO, Cofounder and Board member of Mercantile Commercial Capital (MCC). His company was recently added to the 2007 Inc. 500 list of the fastest growing companies in America, number 245 with 951% growth over the past 3 years. Chris is well-known for his innovative marketing achievements and continues to coach and consult with various business owners and entrepreneurs. To date, MCC has closed commercial loans in 31 states for over $350 million in total project costs – one business owner at a time, and has been voted “Best Place to Work” by the Orlando Business Journal for 3 years running.

A few other business achievements Chris has received:

• Reader’s Choice Award for “Most Respected Executive in Central Florida” and “Best Small Company in Central Florida.”
• “SBA Marketing Guru of the Year.”
• NADCO’s Banker of the Year.
• SBA Financial Services Champion.
• Top Twenty Most Influential People in Small Business lending.
• Hallmark Award for Top Producer in Mortgage Lending.
• “Top Male, 40 Under 40″ in Orlando.
• One of the “100 Most Influential People” in Orlando.

Throughout his career, Chris has been in various leadership positions, including his background as business consultant and financier with GE Capital and as CFO for the NAI RealVest group of companies. Chris’ educational achievements are equally impressive. He graduated from Loyola University with two magna cum laude Bachelor Degrees; earned a Master’s Degree from the University of Pennsylvania’s Fels Center (formerly at the Wharton School of Business); and only spent one year at Georgetown University Law Center before wising-up about becoming an attorney. Chris is a frequent speaker and writer and has appeared in the Wall Street Journal, Inc. Magazine, LA Times, the Sacramento Bee, the Orlando Sentinel, Scotsman Guide and many other regional and nationally-recognized trade publications. He maintains a busy civic calendar as a Board member with the Orlando Regional Chamber of Commerce’s Small Business Board and the Florida Hospital Foundation Board, as well his involvement with many other esteemed community organizations. Chris is married to his wife of 12 years, Shannon, and has two children, Reilly and Julianna.

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