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REID HOFFMAN:
Welcome back, it's Day 29 of the Mindset of Scale. We're glad you've found these 10 minutes to join us. In today's Daily Practice, I want to talk about a different type of scaling: scaling social impact. Now, you may think this doesn't apply to you, you may think you're running a for-profit business and you can't afford to shift your focus. And I agree with you. But here's the thing: Your business will shape the world. Exactly how, is up to you. If you're intentional, and creative, you can bend it not just toward your profits, but your values too.
To show you what I mean, here's a story with Howard Schultz, the former chair and CEO of Starbucks. Howard took over Starbucks in the late '80s – when it was a single store and a roasting plant – and immediately set out to not just expand the business, but also benefits offered to his employees. More than 20 years later, Starbucks is well known for offering health insurance and college tuition for employees and hourly workers – but it was a battle. One that took Howard into the boardroom to show exactly how the cash expenditure would make its way back to Starbucks bottom line – how doing good would be good for the bottom line. Here's how he thinks about it.
HOWARD SCHULTZ:
For years, I've sat in our management team weekly meeting, metaphorically thinking about two empty chairs in every one of those meetings, and I think about it in terms of one chair is empty but occupied by a customer and the other is empty and occupied by a Starbucks partner.
HOFFMAN:
Howard calls all of his employees "partners," by the way. So, it might help to imagine a green aproned barista in that second chair.
SCHULTZ:
And I'm always asking myself, silently, is this decision going to make the customer and the partner proud? If the answer is even remotely gray, I know we're on the wrong side of the debate.
HOFFMAN:
I want you to notice two things in Howard's comment. First of all, he's always willing to ask: "Are we on the wrong side of this debate?" A necessary ballast for any strong-minded entrepreneur. And Howard – as you've probably already noticed – is strong-minded. But for our purposes, it's more important to notice that Howard always gives equal weight to his customers and his employees – I mean, "Partners."
SCHULTZ:
I view them interchangeable. We can't make our partners proud if our customers are not, and we can't make our customers proud if our partners are not.
HOFFMAN:
This viewpoint is far from universal today. And it was much less common when Howard took the reins at Starbucks in the late 1980s. His board members, at the time, didn't quite know what to make of him.
SCHULTZ:
"What do mean? What are you talking about? This isn't working, you're losing money."
HOFFMAN:
Howard and his archetypical friends haven't always sat easily with the shareholders – but Howard keeps bringing these two groups together. The origin story of those archetypical friends goes back to a very real and searing experience from his childhood. He grew up in public housing in Canarsie, on the eastern shore of Brooklyn.
SCHULTZ:
My father was a World War II veteran, high school dropout, and came back from the war with yellow fever, and unfortunately ended up really not realizing the aspiration of the American dream he thought he was going to come home to after the war.
He was a delivery driver picking up and delivering cloth diapers, before the invention of Pampers. In March of 1960, on a delivery, he fell on a sheet of ice and fractured his ankle and broke his hip. The injury caused him to get fired, no Workman's Compensation, obviously no health insurance.
When I was seven years old I literally came home from school, opened the apartment door, and saw my father laid out on a couch with a cast from his hip to his ankle.
Listen, at the age of seven, how could I possibly understand the impact that would have on me, but it scarred me to watch and witness my parents and my mother just go through such a hard time.
As I got older, I think I've always been sensitized to people living on the other side of the tracks, and as Starbucks evolved, I think I was trying to build the kind of company my father never got a chance to work for. A company that would try and balance profit with conscience.
HOFFMAN:
Notice his phrasing here: He wants to balance profit with conscience – as if too much profit will strain his conscience and vice versa. And there's some truth to that – but it's not the whole truth.
Profit and conscience are neither enemies nor friends – they're frenemies. You have to be creative about how you bring the two together.
Howard didn't put benefits ahead of profits. But he didn't put profits first either. He started tackling both problems simultaneously.
In 1987, he acquired Starbucks for $3.8 million. By the end of that year, he had 11 stores, 100 employees, and a dream of creating a national brand to bring specialty coffee – and coffee culture – to the country.
So, what does he do next? He starts planning a benefits package for those 100 employees. For Howard's private investors, this would be the first of many befuddling encounters.
SCHULTZ:
You can imagine this conversation, we were small, losing money, and not yet proven the model, and I said, "I want to provide health insurance and equity in the form of stock options for every person who works for the company."
HOFFMAN:
Yeah.
SCHULTZ:
They said, "What do you mean by that?"
HOFFMAN:
Yup.
SCHULTZ:
I said, "Well, it's pretty clear what I mean. I want to invest in our people, and I think I will be able to prove that we will lower attrition, raise performance, but most importantly, create the kind of company in which people feel part of something larger than themselves."
So, 25 years before the Affordable Care Act, Starbucks became the first company in America to provide comprehensive health insurance to everyone, including part-time people, working 20 hours or more. And we figured out a way to provide equity in the form of stock options to every single employee, again, even part-timers.
HOFFMAN:
Howard, as we've seen, is a master at "sneakily doing good through a business model." As Howard connected the dots between employee good vibes and shareholder returns, his investors might be forgiven for questioning his logic. But this gets back to Howard's hypothesis. He just didn't see his business the same way other people did. Starbucks, it turns out, was not selling coffee. It was a social experiment.
SCHULTZ:
A long time ago someone said, at Starbucks, we're not in the coffee business serving people, we're in the people business serving coffee. Well, we really believe that. When we go off course and make mistakes, it's because we lose focus and attention on the fact that we are in the people business, and the innovation has come as a result of putting that front and center.
HOFFMAN:
So, innovation, to Howard, doesn't just mean the latest frappuccino flavor. It means new programs for employees that make them happier, more engaged, and more loyal. You might start with health insurance, or equity. You might add free meals or an office ping pong table. But if you want to remain competitive over time, you have to stay attuned to deep foundational employee needs as they evolve. Especially as they evolve.
In Starbucks' case, they're very attuned to the fact that their staff, as a whole, is young. When you're young and ambitious, the first thing on your mind is a college diploma. But college is staggeringly expensive – and out of reach for the average Starbucks employee earning a barista's salary. Identifying this worry led to an idea.
SCHULTZ:
Can we provide free college tuition for every one of our employees in the United States? And we started looking at the cost of it, there was great trepidation and concern that we could not afford to do that.
HOFFMAN:
Free college tuition for every employee. It was a wild idea. One that would strike the most idealistic of listeners as deeply impractical. But to Howard, it made perfect sense.
SCHULTZ:
The country is $22, $23 trillion in debt, it doesn't have the financial capability to do the things that we would aspire America to do and so the responsibility falls on its citizens, and in this case, our companies. It's in our interest to provide more for the communities we serve and the people we employ. One, because the government is not capable and is not doing it, and two, I'd selfishly say, it's good business, and it's good business because it attracts and retains great people.
HOFFMAN:
He just had to figure out how to make it pay for itself.
SCHULTZ:
And then the question, like anything else, is when you got a group of smart people in a room and you leave your ego outside, you say, "We're not going to leave the room until we solve the problem," and the problem is how do we make this cost neutral? And we figured out a way.
HOFFMAN:
In 2014, Starbucks introduced a first-of-its-kind partnership with Arizona State University to cover, in full, college tuition for every American Starbucks employee working 20 or more hours a week. Note that once again, they approached it as a business. They didn't say, "Education is priceless so any cost is okay." Instead it was, "No, no, no. Figure out how to get the best value."
Starbucks and ASU split the tuition costs 60-40. The degrees were exclusively offered online, allowing employees to stay in their jobs and ASU to keep their cost structure contained. At this point in Starbucks' trajectory, there's no doubt that the company has a massive, ubiquitous presence – not just in storefronts on streets, but in the national consciousness.
As companies reach the kind of massive scale that Starbucks achieved, they inevitably face a new set of challenges. Those twin questions: "How do I do good?" and the, "How do I do good business?" become more complicated as your opportunities – and your responsibilities – grow massive.
When it comes to thinking about people broadly, all businesses could stand to learn a lesson here. When we build something that could take over the world the way Starbucks did, there's an opportunity to ask: What do we want to stand for? What impact can we have? How can we make people's lives – the whole world, really – better? And how can we do that in a way that strengthens our business?
Howard thinks it boils down to an idea that any entrepreneur can apply to their business. And I agree.
SCHULTZ:
Starbucks is not profit-driven. Starbucks is values driven, and as a result of those values, we have become very profitable. Not every business decision should be an economic one.
And this is very important, I think, especially for young people to understand, is that you're going to make a series of decisions about your business, and if every decision goes through a very defined lens of how much money can you make as a result of this, it's not going to add up to much at the end. There has to be balance between the profit you're searching for and the values that will endure. Starbucks is living proof. And again, we're not perfect, we make mistakes, but our financial performance is directly linked to the enduring values and culture that we are constantly trying to enhance and preserve.
HOFFMAN:
You can do good – and do good business. And I want you to notice how Howard approaches the classic question about how to do both: Starbucks' social good is linked to the bottom line. So Howard is as innovative about achieving social goals as he is in moving Starbucks products forward. By doing good by his team, he's doing good for his board; by doing good for his customers, he's doing good for the community. And he made that an integral part of his business from day one – so that those values scaled alongside the profits, and mutually reinforced each other. That's why it works.
The values side of your business shouldn't (and can't) operate independently from the profits side of your business. And if you think you're not building a business that has social impact, think again. What are you building if not a business that will scale, grow, and endure?
Today's exercise is going to help you approach the social impact of your business with a mindset of intentionality. Get a sheet of paper, something to write with, and a ruler – if you like to keep your lines straight.
Orient the paper landscape-style, with the long side horizontal. Now, across the page, draw three lines, one below the other. Make sure to leave a good amount of space in between.
Draw little arrows on each end of each line, and a notch right in the middle. What you've just done is create three horizontal sliders.
Think of the left side of the sliders as pointing toward MAXIMUM SOCIAL IMPACT. Maybe write that on the left side of the page now. The right side of the sliders point toward MAXIMUM PROFITABILITY. Write that on the right side of the page now. Next, underneath each slider, write a product, service, feature, or initiative your company is considering taking on. You should have three in all.
Now for the tricky part. For each proposal, you are going to mark where on the slider you think it lands in terms of social impact versus profitability. Is this a feature that's going to help lots of people, but at an astronomical price? Is it something that will make tons of money but do no good in the world? Mark its place on the slider accordingly. No need to pull out market research or line-item budgets here. Just use your best back-of-the-napkin estimation.
Look at your results. Do the sliders show a lot of extreme positions? Is the needle way to the left or way to the right? If so, take a moment and think of one adjustment you could make to bring more balance to the equation. How could your social good initiative feed back into your profitability? How can you take your amazing money making idea and redesign it to give more back to the world?
Later today, watch for our email with a summary of today's Daily Practice and this exercise. It's here in the app too.
Tomorrow on the Mindset of Scale, our last day: first and last, be human. See you then.
Welcome back, it's Day 29 of the Mindset of Scale. We're glad you've found these 10 minutes to join us. In today's Daily Practice, I want to talk about a different type of scaling: scaling social impact. Now, you may think this doesn't apply to you, you may think you're running a for-profit business and you can't afford to shift your focus. And I agree with you. But here's the thing: Your business will shape the world. Exactly how, is up to you. If you're intentional, and creative, you can bend it not just toward your profits, but your values too.
To show you what I mean, here's a story with Howard Schultz, the former chair and CEO of Starbucks. Howard took over Starbucks in the late '80s – when it was a single store and a roasting plant – and immediately set out to not just expand the business, but also benefits offered to his employees. More than 20 years later, Starbucks is well known for offering health insurance and college tuition for employees and hourly workers – but it was a battle. One that took Howard into the boardroom to show exactly how the cash expenditure would make its way back to Starbucks bottom line – how doing good would be good for the bottom line. Here's how he thinks about it.
HOWARD SCHULTZ:
For years, I've sat in our management team weekly meeting, metaphorically thinking about two empty chairs in every one of those meetings, and I think about it in terms of one chair is empty but occupied by a customer and the other is empty and occupied by a Starbucks partner.
HOFFMAN:
Howard calls all of his employees "partners," by the way. So, it might help to imagine a green aproned barista in that second chair.
SCHULTZ:
And I'm always asking myself, silently, is this decision going to make the customer and the partner proud? If the answer is even remotely gray, I know we're on the wrong side of the debate.
HOFFMAN:
I want you to notice two things in Howard's comment. First of all, he's always willing to ask: "Are we on the wrong side of this debate?" A necessary ballast for any strong-minded entrepreneur. And Howard – as you've probably already noticed – is strong-minded. But for our purposes, it's more important to notice that Howard always gives equal weight to his customers and his employees – I mean, "Partners."
SCHULTZ:
I view them interchangeable. We can't make our partners proud if our customers are not, and we can't make our customers proud if our partners are not.
HOFFMAN:
This viewpoint is far from universal today. And it was much less common when Howard took the reins at Starbucks in the late 1980s. His board members, at the time, didn't quite know what to make of him.
SCHULTZ:
"What do mean? What are you talking about? This isn't working, you're losing money."
HOFFMAN:
Howard and his archetypical friends haven't always sat easily with the shareholders – but Howard keeps bringing these two groups together. The origin story of those archetypical friends goes back to a very real and searing experience from his childhood. He grew up in public housing in Canarsie, on the eastern shore of Brooklyn.
SCHULTZ:
My father was a World War II veteran, high school dropout, and came back from the war with yellow fever, and unfortunately ended up really not realizing the aspiration of the American dream he thought he was going to come home to after the war.
He was a delivery driver picking up and delivering cloth diapers, before the invention of Pampers. In March of 1960, on a delivery, he fell on a sheet of ice and fractured his ankle and broke his hip. The injury caused him to get fired, no Workman's Compensation, obviously no health insurance.
When I was seven years old I literally came home from school, opened the apartment door, and saw my father laid out on a couch with a cast from his hip to his ankle.
Listen, at the age of seven, how could I possibly understand the impact that would have on me, but it scarred me to watch and witness my parents and my mother just go through such a hard time.
As I got older, I think I've always been sensitized to people living on the other side of the tracks, and as Starbucks evolved, I think I was trying to build the kind of company my father never got a chance to work for. A company that would try and balance profit with conscience.
HOFFMAN:
Notice his phrasing here: He wants to balance profit with conscience – as if too much profit will strain his conscience and vice versa. And there's some truth to that – but it's not the whole truth.
Profit and conscience are neither enemies nor friends – they're frenemies. You have to be creative about how you bring the two together.
Howard didn't put benefits ahead of profits. But he didn't put profits first either. He started tackling both problems simultaneously.
In 1987, he acquired Starbucks for $3.8 million. By the end of that year, he had 11 stores, 100 employees, and a dream of creating a national brand to bring specialty coffee – and coffee culture – to the country.
So, what does he do next? He starts planning a benefits package for those 100 employees. For Howard's private investors, this would be the first of many befuddling encounters.
SCHULTZ:
You can imagine this conversation, we were small, losing money, and not yet proven the model, and I said, "I want to provide health insurance and equity in the form of stock options for every person who works for the company."
HOFFMAN:
Yeah.
SCHULTZ:
They said, "What do you mean by that?"
HOFFMAN:
Yup.
SCHULTZ:
I said, "Well, it's pretty clear what I mean. I want to invest in our people, and I think I will be able to prove that we will lower attrition, raise performance, but most importantly, create the kind of company in which people feel part of something larger than themselves."
So, 25 years before the Affordable Care Act, Starbucks became the first company in America to provide comprehensive health insurance to everyone, including part-time people, working 20 hours or more. And we figured out a way to provide equity in the form of stock options to every single employee, again, even part-timers.
HOFFMAN:
Howard, as we've seen, is a master at "sneakily doing good through a business model." As Howard connected the dots between employee good vibes and shareholder returns, his investors might be forgiven for questioning his logic. But this gets back to Howard's hypothesis. He just didn't see his business the same way other people did. Starbucks, it turns out, was not selling coffee. It was a social experiment.
SCHULTZ:
A long time ago someone said, at Starbucks, we're not in the coffee business serving people, we're in the people business serving coffee. Well, we really believe that. When we go off course and make mistakes, it's because we lose focus and attention on the fact that we are in the people business, and the innovation has come as a result of putting that front and center.
HOFFMAN:
So, innovation, to Howard, doesn't just mean the latest frappuccino flavor. It means new programs for employees that make them happier, more engaged, and more loyal. You might start with health insurance, or equity. You might add free meals or an office ping pong table. But if you want to remain competitive over time, you have to stay attuned to deep foundational employee needs as they evolve. Especially as they evolve.
In Starbucks' case, they're very attuned to the fact that their staff, as a whole, is young. When you're young and ambitious, the first thing on your mind is a college diploma. But college is staggeringly expensive – and out of reach for the average Starbucks employee earning a barista's salary. Identifying this worry led to an idea.
SCHULTZ:
Can we provide free college tuition for every one of our employees in the United States? And we started looking at the cost of it, there was great trepidation and concern that we could not afford to do that.
HOFFMAN:
Free college tuition for every employee. It was a wild idea. One that would strike the most idealistic of listeners as deeply impractical. But to Howard, it made perfect sense.
SCHULTZ:
The country is $22, $23 trillion in debt, it doesn't have the financial capability to do the things that we would aspire America to do and so the responsibility falls on its citizens, and in this case, our companies. It's in our interest to provide more for the communities we serve and the people we employ. One, because the government is not capable and is not doing it, and two, I'd selfishly say, it's good business, and it's good business because it attracts and retains great people.
HOFFMAN:
He just had to figure out how to make it pay for itself.
SCHULTZ:
And then the question, like anything else, is when you got a group of smart people in a room and you leave your ego outside, you say, "We're not going to leave the room until we solve the problem," and the problem is how do we make this cost neutral? And we figured out a way.
HOFFMAN:
In 2014, Starbucks introduced a first-of-its-kind partnership with Arizona State University to cover, in full, college tuition for every American Starbucks employee working 20 or more hours a week. Note that once again, they approached it as a business. They didn't say, "Education is priceless so any cost is okay." Instead it was, "No, no, no. Figure out how to get the best value."
Starbucks and ASU split the tuition costs 60-40. The degrees were exclusively offered online, allowing employees to stay in their jobs and ASU to keep their cost structure contained. At this point in Starbucks' trajectory, there's no doubt that the company has a massive, ubiquitous presence – not just in storefronts on streets, but in the national consciousness.
As companies reach the kind of massive scale that Starbucks achieved, they inevitably face a new set of challenges. Those twin questions: "How do I do good?" and the, "How do I do good business?" become more complicated as your opportunities – and your responsibilities – grow massive.
When it comes to thinking about people broadly, all businesses could stand to learn a lesson here. When we build something that could take over the world the way Starbucks did, there's an opportunity to ask: What do we want to stand for? What impact can we have? How can we make people's lives – the whole world, really – better? And how can we do that in a way that strengthens our business?
Howard thinks it boils down to an idea that any entrepreneur can apply to their business. And I agree.
SCHULTZ:
Starbucks is not profit-driven. Starbucks is values driven, and as a result of those values, we have become very profitable. Not every business decision should be an economic one.
And this is very important, I think, especially for young people to understand, is that you're going to make a series of decisions about your business, and if every decision goes through a very defined lens of how much money can you make as a result of this, it's not going to add up to much at the end. There has to be balance between the profit you're searching for and the values that will endure. Starbucks is living proof. And again, we're not perfect, we make mistakes, but our financial performance is directly linked to the enduring values and culture that we are constantly trying to enhance and preserve.
HOFFMAN:
You can do good – and do good business. And I want you to notice how Howard approaches the classic question about how to do both: Starbucks' social good is linked to the bottom line. So Howard is as innovative about achieving social goals as he is in moving Starbucks products forward. By doing good by his team, he's doing good for his board; by doing good for his customers, he's doing good for the community. And he made that an integral part of his business from day one – so that those values scaled alongside the profits, and mutually reinforced each other. That's why it works.
The values side of your business shouldn't (and can't) operate independently from the profits side of your business. And if you think you're not building a business that has social impact, think again. What are you building if not a business that will scale, grow, and endure?
Today's exercise is going to help you approach the social impact of your business with a mindset of intentionality. Get a sheet of paper, something to write with, and a ruler – if you like to keep your lines straight.
Orient the paper landscape-style, with the long side horizontal. Now, across the page, draw three lines, one below the other. Make sure to leave a good amount of space in between.
Draw little arrows on each end of each line, and a notch right in the middle. What you've just done is create three horizontal sliders.
Think of the left side of the sliders as pointing toward MAXIMUM SOCIAL IMPACT. Maybe write that on the left side of the page now. The right side of the sliders point toward MAXIMUM PROFITABILITY. Write that on the right side of the page now. Next, underneath each slider, write a product, service, feature, or initiative your company is considering taking on. You should have three in all.
Now for the tricky part. For each proposal, you are going to mark where on the slider you think it lands in terms of social impact versus profitability. Is this a feature that's going to help lots of people, but at an astronomical price? Is it something that will make tons of money but do no good in the world? Mark its place on the slider accordingly. No need to pull out market research or line-item budgets here. Just use your best back-of-the-napkin estimation.
Look at your results. Do the sliders show a lot of extreme positions? Is the needle way to the left or way to the right? If so, take a moment and think of one adjustment you could make to bring more balance to the equation. How could your social good initiative feed back into your profitability? How can you take your amazing money making idea and redesign it to give more back to the world?
Later today, watch for our email with a summary of today's Daily Practice and this exercise. It's here in the app too.
Tomorrow on the Mindset of Scale, our last day: first and last, be human. See you then.
Masters of Scale App
The Masters of Scale Courses app offers curated courses, each centered on a 10-minute Daily Practice, to help you build and cultivate your entrepreneurial mindset.