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Harvard Business School Professor, former Medtronic CEO

The Founder Returns: Howard Schultz is back as CEO of Starbucks

In returning as Starbucks´ CEO, Howard Schultz follows in the footsteps of Steve Jobs, Michael Dell, and a long line of founders who turn the reins of their companies over to a hand-picked successor and wind up being dissatisfied with the results.

Conventional psychology tells us that founders like Schultz cannot let go of their babies, get frustrated being away from the action, and believe that only they can run the company. If the explanation were that simple, these returning founders would fall flat on their respective faces. Yet surprisingly, they do extremely well in their encores. To understand why, we have to look a lot deeper at what´s going on in these “redux” performances.

First of all, founders like Schultz, Dell, Jobs and others have a far better grasp than their successors on the essentials of the business and the internal people who make it go. Their initial success was based on brilliant intuitive skills that enabled them to create unique value for their customers and to inspire their employees. They combine that intuition with an unstoppable drive to see their business succeed and the ability to motivate their teams to peak performance. They are gifted leaders, even without formal management training.

On the other hand, successors like Jim Donald at Starbucks, John Scully at Apple, and Kevin Rollins at Dell were professional managers that specialize in the processes of management, but lack the creativity and passion of the founders. In attempting to install the type of discipline and systematic approaches that mark a company like General Electric, they fail to grasp what made the business successful in the first place and demotivate the key people who make the company go. Often, they spend more time in meetings than they do in the marketplace, and more time working the numbers than learning from their employees.

Let´s delve into these three cases in point to see what´s really going on:

  • Howard Schultz built Starbucks around the principle that “satisfied employees create satisfied customers.” Even as chairman, he visited two dozen stores a week, just to observe the interplay between Starbucks employees and their customers. What he saw in the past year was deeply disturbing to him: in an effort to speed up service, Starbucks management put large, automated machines between the barista and the customer, thus taking away the charm and smell of the coffee-making process. All of a sudden, Starbucks felt more like a McDonald´s store. When Schultz wrote a confidential memo to his successor expressing this concern, he could not have been happy to see it leaked to the media.
  • Steve Jobs got brutally forced out of the company he founded by Scully and the Apple board, not even being given the dignity accorded Schultz and Dell to stay as board chair. So founded Pixar and became highly successful in creating animated film. Meanwhile, the only thing sinking faster than Apple´s market share was its morale. The “cult” of Apple´s famed software geniuses was dying, as a succession of failed CEOs nearly put the company out of business. Upon his return, a wiser but no less creative Steve Jobs brought the magic back to Apple and transformed the company with the Ipod and Iphone. These days Apple investors are smiling all the way to the bank.
  • Mike Dell built his franchise on low cost computers, distributed directly to customers. The company was wildly successful until his successor failed to master the need to provide service, especially to corporate clients. Over at Hewlett-Packard, Mark Hurd, Carly Fiorina´s successor, saw an opening and took advantage of Dell´s weakness. Without Mike Dell´s daily inspiration, morale at the company sunk rapidly and is only now beginning to recover under Dell´s second act.

These three examples, and many more like them, give us valuable insights into what makes companies successful. Simply stated, it is leadership. There is a plethora of skilled managers around who know how to manage budgets, analyze computer models, and run businesses with systems and procedures. Business schools are turning out more and more of them every year. All too often these analytically-oriented managers drive out the very leaders who make companies successful in the first place.

Brilliant leaders understand what it takes for their companies to succeed: inspired employees who can create great value for their customers. Instead of churning out numbers experts, our business schools ought to figure how to create more entrepreneurs who can follow in the footsteps of authentic leaders like Schultz, Jobs, and Dell.