Jun 4, 2024 · 3h 15m · acquired
Starbucks (with Howard Schultz) · Acquired
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In this extensive retrospective, Acquired hosts Ben Gilbert and David Rosenthal are joined by former Starbucks CEO Howard Schultz to analyze the company's rise from a local Seattle bean seller to a $90 billion global cultural icon. The discussion details Starbucks' unit economics, partner-first labor philosophy, international expansion, digital bottlenecks, and the intricate art of founder stewardship.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ben and David hold 37% of the talking time here. How this is scored →
Ben and David as informed peer 5.2 Guest teaching 4.2 Guest disagreement 1.5 Ben and David pushing back 1.2
speaking balance: gold is Ben and David, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 2:42:03 Rejection of the caffeine addiction premise
Schultz forcefully pushes back when the hosts frame Starbucks as having built its empire on an addictive legal drug, insisting it is entirely about experiential craft and customization.
Hardest push from Ben and David ▶ 2:07:47 Ben challenges Schultz's hatred of mobile ordering economicsBen directly challenges Schultz's dismissal of Mobile Order & Pay by outlining the enormous merchant interchange savings and billions in interest-free gift card float.
Biggest teaching moment ▶ 6:46 Schultz reveals Starbucks originally brewed Peet's coffeeSchultz surprises both seasoned hosts by revealing that Starbucks originally did not roast coffee when opening at Pike Place Market, secretly using Peet's beans in Starbucks packaging.
Ben and David hold their own ▶ 1:06:21 Ben calculates the 800x split-adjusted Beanstalk returnBen demonstrates exhaustive preparation by detailing the exact 1991 Beanstalk strike price, the six stock splits, and the 800x return achieved for part-time workers.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ben and David as informed peer | Guest teaching | Guest disagreement | Ben and David pushing back | Why |
|---|---|---|---|---|---|---|
| Studio Banter and Acquired Theme Song | 5 | 6 | 1 | 1 | Ben and David introduce the history and their personal Starbucks metrics, but Schultz quickly educates them with historical trivia they did not know regarding the 1971 Pike Place store originally selling Peet's coffee. | |
| The Post-War Coffee Landscape and Arabica vs. Robusta Beans | 6 | 4 | 1 | 1 | The hosts cite historical coffee trends and post-war Robusta bean usage, which Schultz validates while detailing his early Xerox background and sales mentality. | |
| The Milan Epiphany and the First Espresso Bar Test | 5 | 5 | 1 | 1 | Schultz recounts his Milan epiphany and the struggle of pitching Italian espresso bars to Jerry Baldwin and Italian investors who rejected him. | |
| Acquiring Starbucks and Bill Gates Sr.'s Decisive Intervention | 6 | 5 | 1 | 1 | Schultz reveals the high-stakes buyout of Starbucks and Bill Gates Sr.'s direct confrontation with Sam Stroum, while Ben supplements the narrative with anecdotes from Sherry Schultz. | |
| Merging Il Giornale with Starbucks and Strict Debt Aversion | 6 | 4 | 1 | 1 | Ben highlights the corporate reverse merger mechanics between Il Giornale and Starbucks, while Schultz explains his strict anti-debt policy and the 2:1 sales-to-investment economic model. | |
| Iconic Packaging, Italian Sizing, and Organic Brand Marketing | 5 | 5 | 1 | 1 | Schultz discusses packaging choices, cup designs, Italian naming conventions, and how baristas writing names on cups emerged organically from staff rather than executive orders. | |
| The 'H2O' Leadership Trio: Schultz, Behar, and Smith | 6 | 4 | 1 | 1 | Ben frames the distinct operational and cultural roles of the 'H2O' trio (Schultz, Behar, and Smith), which Schultz elaborates on with memories of creative internal friction. | |
| Expanding to Los Angeles and Defining Affordable Luxury | 7 | 4 | 1 | 1 | Ben brings detailed historical stock split calculations regarding the 1991 Beanstalk program, demonstrating significant host preparation while Schultz contextualizes early employee equity. | |
| High-Visibility Partnerships: Costco, United Airlines, and Barnes & Noble | 5 | 4 | 1 | 1 | Schultz explains how early partnerships with Costco, United Airlines, and Barnes & Noble functioned as marketing billboards that built national awareness without ad spend. | |
| Disciplined Geographic Expansion and The Coffee Connection Acquisition | 6 | 4 | 1 | 1 | The hosts and Schultz examine the disciplined pacing of geographic expansion, the acquisition of The Coffee Connection in Boston, and the 1992 IPO. | |
| The Frappuccino Phenomenon and the PepsiCo Bottling Partnership | 6 | 4 | 1 | 1 | Schultz confesses his initial skepticism toward the Frappuccino and explains the napkin deal with PepsiCo that created the ready-to-drink coffee retail category. | |
| Hyper-Growth Realities and the Breakthrough 1996 Tokyo Launch | 5 | 5 | 2 | 1 | Schultz recounts defying consultant reports and opening in Tokyo in 1996 to overwhelming consumer demand, comparing early growth pressures to managing infrastructure bottlenecks. | |
| Sponsor: ServiceNow | 1 | 0 | 0 | 0 | Mid-roll commercial sponsorship segment for ServiceNow; no dynamic between guest and host. | |
| Returning as CEO in 2008 and the New Orleans Turning Point | 5 | 5 | 1 | 1 | Schultz recalls the severe 2008 crisis, coming within seven months of insolvency, and delivering an unvarnished speech to 10,000 store managers in New Orleans. | |
| Retraining Baristas, Quality Restoration, and Resisting Commoditization | 5 | 5 | 1 | 1 | Schultz details closing all US stores to retrain baristas, warning that excessive focus on yield efficiency commoditized the brand and that growth masks underlying operational errors. | |
| The Rise of Mobile Order & Pay and Customer Experience Trade-offs | 7 | 5 | 4 | 5 | Schultz labels mobile order and pay Starbucks' greatest Achilles' heel due to customer experience degradation, but Ben pushes back by emphasizing the staggering float and card fee interchange savings. | |
| Sponsor: Pilot.com | 1 | 0 | 0 | 0 | Mid-roll commercial sponsorship segment for Pilot.com; no host-guest conversation. | |
| China's Exponential Growth and People-First Corporate Culture | 5 | 5 | 1 | 1 | Schultz highlights Belinda Wong's pivotal role in decentralizing Starbucks China, explaining how health benefits for employees' parents won over local government and staff. | |
| Leadership Transitions, Labor Unions, and Leading with Empathy | 5 | 5 | 3 | 1 | Schultz reflects on modern labor unionization efforts, defending his management philosophy and expressing personal distress over the erosion of trust during post-COVID challenges. | |
| The Milan Roastery and Returning Espresso to Italy | 5 | 4 | 2 | 1 | Schultz discusses launching the Milan Roastery with Willy Wonka-inspired theater and controversial claims about Italian coffee quality, completing his fifty-year personal circle. | |
| Third-Wave Coffee and The Roastery Experience | 6 | 5 | 4 | 2 | When Ben and David suggest Starbucks' success relies on caffeine being an addictive substance, Schultz rejects the premise, asserting the business model is built on craft, human connection, and beverage customization. | |
| Playbook: Scaling Humanity and the ASU College Achievement Plan | 6 | 4 | 1 | 1 | The hosts synthesize the core business pillars, contrasting commoditization with high-tenure employee culture and the Arizona State University tuition partnership. | |
| Playbook: The Founder's Dilemma, Playing Offense, and Succession | 6 | 4 | 2 | 2 | Schultz reflects on founder dependency, the psychological danger of playing defense after succession, and the immense multi-industry complexity of running Starbucks. | |
| The 'Soul of the Brand' Open Letter and Modern Challenges | 5 | 5 | 3 | 1 | Schultz explains why he published 'The Soul of the Brand' open letter, emphasizing his final exit from executive roles while offering candid critique of current strategic drifts. |
Statements from this episode (65)
Schultz: Starbucks originally resold Peet's Coffee in Starbucks bags in 1971
“Now what is not known is that when Starbucks opened in the Pike Place Market in 1971, they were using Pete's Coffee. No one knows that. That's new. Because they were not roasting coffee. So they were bringing coffee from San Francisco to Seattle. They were not…”
Schultz: Starbucks sold no prepared coffee beverages until around 1985-1986
“Starbucks coffee company from 1971 until around 8586, only sold pounds of coffee. There was no beverage.”
Schultz: Starbucks has only sourced the highest tier of Arabica coffee since 1971
“There's mainly two types of agricultural coffee grown for commercial use. Robusta beans, low-end coffee, primarily in instant coffee, and high-grade Arabica coffee. But even within the Arabica coffee, there's significant segments of quality and integrity, and …”
Schultz: World War II GI rations drove post-war low-quality coffee adoption
“World War II and the GIs were kind of the impetus for that kind of quality coffee, or not quality coffee, to exist and have any kind of run after the war.”
Schultz: Starbucks' first espresso pilot reached 500 daily customers within a week
“On the corner of Fourth and Spring in Seattle, and it was the sixth Starbucks store, and out of about 1200 square feet, I got a hundred feet, and I designed and opened the coffee bar, worked behind the counter as a barista, and Starbucks probably had two to 30…”
Schultz: Starbucks ran into financial trouble after acquiring Peet's Coffee
“Now between 83 and 85, Jerry Baldwin, because of his love of Pete's and his relation with Alfred Pete, had an opportunity for Starbucks to acquire Pete's Coffee Company. And they did. Unfortunately, Starbucks buys Pete's, and they get into financial trouble.”
Schultz: Faema and Lavazza both rejected investing in Il Giornale
“One is the espresso company, Faima. And one is the large Italian coffee company Lavazza. And I asked them both to invest in my idea. And both of them turned me down.”
Schultz: An Il Giornale investor tried to hijack the 1987 Starbucks acquisition
“Jerry gave me about, I think he gave me 90 days to raise 3.8 million dollars. Around the second month, he just came to me and said, where are you with all this? And I think I had about half of it raised. I might have fibbed a bit and said I had a little bit mo…”
Schultz: Bill Gates did not know his father saved the Starbucks acquisition
“Bill did not know the whole story. He didn't know any of it. He didn't know what his father had done for me. He's hearing it for the first time.”
Schultz: Starbucks had 11 stores and 100 employees at end of 1987
“August of 87. We bought the six Starbucks stores. We had the three old Eldranales, and there were two stores under construction. So at the end of the calendar year, we had 11 stores And a hundred employees in 1987.”
Schultz was rejected by 217 of 242 investors for initial $1.6M round
“For the initial 1.6 million that you raised for Il Giornale, you talked to 242 investors, 217 of which said no.”
Schultz: Childhood trauma led to strict zero-debt rule at Starbucks
“No, it was totally my childhood. My parents were always in debt. Bill collectors were always calling. And no, there was, we never had any debt the entire time. Never.”
Schultz: Starbucks beverage retail achieved roughly 80% gross margins early on
“The ability to source and roast coffee And put that through the supply chain of a beverage gave us probably at the time an 80% gross margin.”
Schultz: Starbucks store model targeted 2:1 sales-to-investment and 20% operating profit
“The model basically was a sales to investment ratio of two to one. And a operating profit of 20%.”
Schultz: Starbucks should have secured an exclusive on the modern sip lid
“Howard Schultz should have said to them, I want an exclusive on that lid. Because that lid became the standard for the world. If I would have just understood that.”
Schultz: Starbucks introduced the caffè latte to America without trademarking it
“The other thing I didn't do is we introduced cafe latte to the, to America. We didn't trademark it. You know, we trademarked Frappuccino later on, but we didn't trademark cafe latte.”
Schultz: Starbucks spent zero dollars on marketing in its early days
“We didn't spend any money on marketing. Zero. It was no money for market in the cup. The iconic cup became a badge of honor because people were doing something that was new and novel and walking in the street with it”
Schultz: Gloria Jean's Once Had More Stores Than Starbucks via Franchising
“That was Gloria Jeans out of Chicago. And at one point, I think they had more stores than we did because of the franchising opportunity.”
Schultz: Starbucks Pricing Has Become a Problem Amid Recent Inflation
“There certainly was a fair amount of discussion all the time about the sensitivity of the price points, and I think in later years, maybe in the last couple years, given the consumer inflationary time, I think it's become a bit of a problem.”
Schultz: Starbucks Granted 14% of Base Pay in Stock Options Pre-IPO
“Ultimately we gave 14% of everyone's base pay in the form of stock options at the end of the year based on the strike price. And I had to do it the year before the IPO.”
Gilbert: Starbucks Offered Healthcare to Part-Time Workers and Same-Sex Partners in 1988
“So in 1988, the health benefits roll out even to Part-time employees, including gay couples in domestic partnerships. I believe the first of its kind. That was a 33 store company at that point.”
Gilbert: Starbucks' 1991 Employee Stock Option Grants Have Appreciated 800x
“So those initial grants, the strike price was six dollars per share. Today, as we speak, the share price is 77 dollars, but there have been six splits since then, which comes out to a 64 X. So that initial grant has 800 X'd since even the part-time employees a…”
Schultz: Costco Co-Founder Jeff Brotman Invested in Starbucks' 1987 Buyout
“First, Jeff Brotman invested in Starbucks in the round to buy Starbucks.”
Schultz: Selling in Costco Directly Increased Starbucks Retail Store Sales
“In fact, putting Starbucks in Costco, we were able to measure directly
The increase in volume in the stores on the east side as a result of the proximity to the Costco store.”
Rosenthal: Jeff Bezos and Jim Sinegal first met at a Bellevue Starbucks
“Do you know where Jeff Bezos and Jim Senegal met for the first time? Not in a Costco, in the Starbucks, in the Barnes and Noble, in Bellevue.”
Schultz: Goldman Sachs rejected leading Starbucks' 1992 IPO for being too small
“We got turned down by Goldman Sachs.”
Gilbert: Starbucks had zero publicly traded coffee comps at its 1992 IPO
“I was looking up, I was trying to figure out, you know, your public comps at the time. I think there were zero publicly traded coffee companies, not bean companies, not retailers, not coffee house chains.”
Schultz: Starbucks uses lowercase employee job titles out of respect
“No, everyone was lowercase from the beginning. Out of respect. Everyone's lowercase.”
Schultz: Coca-Cola dismissed Starbucks ready-to-drink pitch in under 30 minutes
“The Coke meeting was a meeting lasted less than 30 minutes. I can't remember who I met with. They dismissed me didn't view Starbucks or, didn't understand what I was trying to do and didn't give me much time to even explain it.”
Schultz: Starbucks and Pepsi launched bottled Frappuccino via 50/50 JV
“Subsequently, Craig Weatherup and I, on a napkin, I swear, shook hands and created a multi-billion dollar business For Pepsi and Starbucks and a fifty-fifty JV and bottle Frappuccino.”
Schultz: Starbucks never paid for product placement in movies
“First of all, Starbucks never paid for placement.”
Gilbert: Frappuccinos Generated 7% of Starbucks Revenue in 1996
“The year after it launched, in 1996, Frappuccinos were seven percent of revenue.”
Schultz: Starbucks struggled and lost money in China for nearly a decade
“We struggled in China for almost a decade. Lost money. There was tremendous pressure inside the company of close China.”
Schultz: Belinda Wong is Starbucks' most valuable person
“Maybe the most valuable person in the company, from my view.”
Schultz did 100 Starbucks earnings calls as CEO, mostly unscripted
“I did a hundred quarterly conference calls as CEO. A hundred.
That's a lot of earnings prep, because each one of those has, what, two weeks before it of.
The truth is, the majority of those were no script.”
Schultz: Consulted daily with Michael Dell before returning as Starbucks CEO
“On that holiday, a friend of mine
Not, I didn't know he was there, but it was Michael Dell was there. And I must've talked to him almost every day about the transformation of Starbucks. And he was going through a similar thing at Dell almost at the same time. …”
Schultz: Starbucks never had a negative comp month before 2008
“Never had a negative comp month in my history of the company.”
Schultz: Starbucks was seven months from insolvency in 2008
“I went up there, and I laid it out. Chapter and verse. I think we have seven months left. We are going to be insolvent.”
Schultz: 10-11 daily customers per store could reverse negative comps
“And then I had this economic formula of how many customers it would take per store to turn comps around. And the number was low. It's like less than 10 per day or 11 per day.”
Schultz: Previous Starbucks leadership diluted coffee quality to maximize yield
“Because the previous administration had done things that diluted the integrity of coffee to maximize yield.”
Schultz: Starbucks Asia delivers higher brand experience than US stores
“The interesting thing to me today is that the Asian business is operating at a much higher level
Of the soft side of Starbucks than we are in the U S”
Gilbert: Starbucks profits surged from $315M in 2008 to $945M in 2010
“Your low point in 2008 profits were three hundred and fifteen million, and by 20 10 they were nine hundred and forty five million.”
Schultz: Starbucks Replaced Entire Executive Team Except General Counsel
“He was right, except for one, the general counsel. They were all gone.”
Gilbert: 33% of Starbucks orders come from Mobile Order & Pay
“I think today, 33% of Starbucks orders are done with mobile order and pay.”
Schultz: Mobile Order & Pay is Starbucks' biggest Achilles' heel
“It is the biggest Achilles heel for Starbucks. And it's not even a close second.”
Gilbert: Starbucks holds roughly $1.8B in customer gift card float
“Right now, at any given time, there's about 1.8 billion dollars of cash that Starbucks has gotten in the form effectively of as an advance from customers that Starbucks can use to operate.”
Gilbert: Customers load roughly $14B annually onto Starbucks gift cards
“In terms of velocity, about fourteen billion dollars a year gets loaded onto gift cards.”
Gilbert: Starbucks gift card deposits rival top 10% of US banks
“If Starbucks were a bank, and you treated the gift cards as deposits, it would be in the top 10% by deposits of banks in the United States.”
Schultz: Starbucks should not have launched 24/7 on-demand mobile ordering
“I don't think I would have allowed the mobile app to be on demand, 24 hours a day. I would have slow rolled the availability of it, and then understood how it was being used, and whether or not it was going to disrupt the experience.”
Schultz: Starbucks would not have succeeded under a franchise model
“I never believed that we could build, maintain, and elevate the culture of the company, which I viewed as the thing in a franchise system, where we had individual franchisees who had their own subculture. And so even though there was pressure early on because …”
Schultz: Starbucks secured China approval to insure employees' parents and grandparents
“Belinda decided that she could go to the government and go to an insurance company and come back to Starbucks and get government approval for Starbucks to do the first, do something had never been done before and provide health insurance to the parents and gra…”
Schultz: Starbucks underestimated the public groundswell for unionization after COVID missteps
“And I think the company made some early mistakes. Some of which were COVID related. Again, no textbook had to deal with COVID issues, health issues, safety issues. And then I think underestimated the groundswell of public sentiment for this movement in America…”
Schultz: Starbucks JV Partners Run Operations While Starbucks Controls Roasting and Design
“Starbucks is responsible for roasting the coffee, for all the recipes which are consistent with Starbucks worldwide, A co design of the store where we're designing the store with the JV or the licensed partner, and they control all the operations.”
Schultz: Starbucks Never Issues Individual Retail Franchises
“There are not, no individual licensed franchises of any kind, unless it's certain real estate that we can't get, that we want access to. Like, a roadway on a highway in Switzerland, or something odd.”
Schultz: Coffee in Italy is no longer as good as it once was
“The by and large coffee in Italy is not as good as it once was. There are certain coffee companies that have maintained the standard, but by and large, the coffee is not as good.”
Schultz: Straight espresso is Starbucks' number one selling beverage in Italy
“Two, three years later, what do you think the number one beverage is? It's espresso. For Starbucks. Straight espresso. Espresso is the number one beverage.”
Schultz: Third-wave coffee competitors expanded the market rather than taking Starbucks' business
“There has always been stories that all these competitors were going to steal business from Starbucks, but from. 1983 to all the way today, the consumption, especially coffee is still a small amount relative to the macro opportunity. So all those people have ex…”
Schultz: Starbucks baristas consistently make 100,000 different beverage variations
“I think I, the number that people use inside the company is a 100,000 different variations of beverages that are being made consistently. A 100,000 different beverages.”
Schultz: McDonald's and fast-food coffee copycats expanded the total coffee market
“Well, not only that, but every food company, every retail food business from McDonald's on, took a page out of Starbucks, went to school on us, put espresso machines in their stores, and started doing coffee beverages. That also expanded the market.”
Gilbert: Approximately 70% of Starbucks drink sales are now iced beverages
“What is it, 70% of drinks are now iced beverages, and it was when you started, zero percent.”
Schultz: Post-founder companies lose entrepreneurial DNA and play defense out of fear
“Founder leaves, I'm not talking about me, it's you, historically, and companies lose not only the extent of the entrepreneurial DNA, but they lose the ability to be on offense. And the worst thing that a company can do, like a sports team, is start playing def…”
Schultz: Starbucks developed hubris and shifted to playing defense over time
“The worst thing that could happen to a company is believing that you are incapable of doing anything but succeeding, and you deserve the success. But if you start playing defense and don't have the offensive mind, it's not going to go well. And I think over ti…”
Schultz: Starbucks suspended buybacks to invest over $2B into partners
“The day I came back, and I knew what the market would do, is I announced that we were suspending the stock buybacks, and stock went down. I expected it, and I announced that we were going to take basically the money we were using to stock buybacks for the year…”