Starbucks legend Howard Schultz spilled the beans on the company’s early days, shared some of his biggest regrets, and warned the coffee chain is on the wrong track in an epic three-hour interview on the Acquired podcast, released this week.
Schultz helped pioneer the coffeehouse concept in the US. He served as Starbucks’ chairman and CEO from 1986 to 2000 and from 2008 to 2017, and as interim CEO between 2022 and 2023.
The business guru also told the stories of how he crossed paths with Bill Gates Sr., Steve Jobs, Costco’s cofounders, Coke and Pepsi, and luxury tycoon Bernard Arnault.
Here are the 12 best nuggets from the episode, lightly edited for length and clarity. Starbucks declined a request for comment from Business Insider.
1. Starbucks didn’t sell its own coffee early on
“When Starbucks opened in Pike Place Market in 1971, they were using Peet’s Coffee. No one knows that, that’s new.”
Schultz said that before it began roasting its own coffee, the company brought Peet’s Coffee from San Francisco to Seattle, repackaged it, and sold it under the Starbucks brand.
2. Italian coffee giant Lavazza turned down the chance to invest early
When Schultz was launching his Il Giornale coffee bar concept, he approached two Italian companies for financial backing but they turned him down.
“I’ve never told this. One is the espresso company Faema, 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.
“Lavazza and Faema, just get that on the record, turned me down. They’ll deny it. That’s a fact.”
3. Bill Gates’ dad helped Schultz buy Starbucks
When Schultz was raising money to buy Starbucks from its founders in the late 1980s, one of his investors made a cash offer for the company in a bid to cut him out of the deal.
Schultz secured a meeting with Bill Gates Sr. through a friend. After the top lawyer and father of the Microsoft cofounder heard his story, he walked him over to the offices of the investor in question, Samuel Stroum, and in Schultz’s telling, said:
“I don’t know what you are planning, but whatever it is, it’s not going to happen. Howard Shultz is going to acquire Starbucks Coffee Company, and he’s never going to hear from you again.”
Not only did Gates see off that threat, he also helped finance Schultz’s takeover of Starbucks.
4. Schultz regrets not snagging the rights to two innovations
When Schultz was sourcing a better coffee cup and lid for Starbucks than the traditional Styrofoam, the Chicago paper company he enlisted struck gold.
“They found a lid, that beautiful sip lid, which is now ubiquitous in the world. 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.
“The other thing I didn’t do is we introduced caffè latte to America but we didn’t trademark it. We trademarked Frappuccino later on, but we didn’t trademark cafe latte. I wasn’t thinking; I missed it.”
5. Partnering with Costco and United Airlines ruffled some feathers
Costco cofounder Jeff Brotman helped finance Schultz’s takeover of Starbucks in 1987 and was an early board member, and Brotman and ex-Costco CEO Jim Sinegal were mentors to Schultz, he said.
Together the trio made the “huge decision” to sell Starbucks coffee in Costco, which sparked a “revolt inside the halls of Starbucks,” Schultz said.
The company saw a measurable increase in sales at stores near the Costco in Seattle, as selling beans there boosted brand awareness and store traffic nearby, Schultz said.
The former Starbucks CEO faced similar blowback when he agreed to let United Airlines serve his company’s coffee.
“If you thought the Costco revolt was high, you can imagine when I say we have an opportunity with United Airlines. People thought it was absolute blasphemy, don’t do that. And again, the exposure and the opportunity to surprise and delight customers in places that they’ve never had anything close to good coffee.”
6. Not a Frappuccino fan
“I’m so smart that I looked at that Frappuccino with disdain. I didn’t like the name, I didn’t like the beverage, I didn’t think it was appropriate for Starbucks. I just saw Starbucks as such a purity with regard to coffee and I was wrong, dead wrong, obviously.”
7. Coke said no, Pepsi said yes
Schultz approached both Coca-Cola and Pepsi with his idea for a bottled Frappuccino to be sold in grocery stores. The meeting with Coke in Atlanta lasted less than 30 minutes: “They dismissed me, didn’t understand what I was trying to do, and didn’t give me much time to even explain it.”
In contrast, Schultz met with Pepsi’s CEO and other top executives in New York and “on a napkin, I swear, shook hands and created a multibillion-dollar business for Pepsi and Starbucks.”
8. Steve Jobs’ frank advice
Schultz recalled that Starbucks was having challenges at one point, so he took a walk with Steve Jobs at Apple’s campus in California.
“I just told him all my problems, everything that was going on, and he stopped me and he said, ‘This is what you need to do.’ He just looked at me and he said, ‘You go back to Seattle and you fire everyone on your leadership team.’
“I thought he was joking. I said, ‘What do you mean fire, what are you talking about fire everybody?’ He said, ‘I just told you, f’ing fire all those people.’ He was like screaming at me in my face: ‘Fire all those people, that’s what I would do.’ I said, ‘Steve, I can’t fire all those people, who’s going to do the work?’
“He said, ‘I promise you, in six months, maybe nine, they’ll all be gone.’ He was right; except for one, the general counsel, they were all gone.”
Justin Sullivan / Staff / Getty Images
9. Mobile app dangers
“It is the biggest Achilles’ heel for Starbucks and there’s not even a close second,” Schultz said about the Starbucks app that allows customers to order on their smartphones.
Schultz explained the app can erode the sense of community and a shared “third place” that he sees as fundamental to a Starbucks store. It can also overwhelm workers with orders which can lead to delays, confusion, and customer anxiety, he noted.
“My view is we should not succumb to the mobile app,” Schultz said, saying that he would have restricted its availability early on to test its impact instead of making it available 24/7.
“We’re not a beverage company serving coffee, we are a coffee company serving people. We need to be much more coffee forward and we cannot continue to allow the mobile app to be a runaway train that is going to consistently dilute the integrity of the experience of Starbucks.”
10. Coffee in Italy
“I know I’m gonna be chastised for what I’m about to say, but it’s true. By and large, coffee in Italy is not as good as it once was,” Schultz said. “I’m going to be killed for that, but that’s my truth.”
Schultz also discussed how Starbucks only entered the home of espresso when it was truly ready to shine.
“I knew the knives would be out in ways that we couldn’t even possibly imagine given the history and the cultural relevance of espresso and the coffee bar, and so we waited and waited and waited.”
His strategy was to first open one of Starbucks’ marquee locations, The Roastery, in Milan. He decided the empty post office building was the perfect venue, and upon discovering Blackstone owned it, he was able to strike a deal with the private equity titan.
Schultz also revealed the No. 1 beverage for Starbucks across its 30 stores in Italy is espresso, suggesting locals have embraced the brand.
11. Showing the Arnaults around
Schultz recalled giving a tour of the Roastery in Seattle to one of the world’s top business figures, LVMH CEO Bernard Arnault, and his son Alexandre, a top executive at Tiffany’s.
“His level of curiosity was very high,” Schultz said about the man behind Louis Vuitton and a luxury empire. “I remember, he kept looking at the leather railing and stitching and I just said, ‘You’re spending a lot of time on the leather.'”
Donato Sardella/Getty Images for Louis Vuitton
12. Starbucks is on a bad path
Schultz warned the company he built is at risk of becoming arrogant, complacent, and conservative.
“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 won’t go well. And I think over time, that has happened at Starbucks.”
Schultz criticized the company for not investing enough when he wasn’t in charge, and for using stock buybacks to raise earnings per share.
“The company has not executed the way that I think it should have. I go into the stores, I know the company, and I think we’re not at our best right now.
“If the company is doing a drift toward mediocrity,” he said, “I hold leadership and the board responsible for that.”