Editor’s Note: The following is a guest post by my friend Marc Marmino, defense analyst, coffee lover and resident of the beautiful Pacific Northwest.

Those of us fortunate enough to live near Seattle (if only for the coffee) have the opportunity to visit the original Starbucks in Pike Place Market. If you too live in Seattle, or are visiting sometime in the near future, I strongly recommend forgoing the opportunity to see the “original Starbucks” in the market. Instead, visit the nearby newly “de-branded” store caddy-corner to the market on 1st and Pike. It is a throwback to the original conception of Starbucks, and a concept that has a lot of merit in my eyes as to what the company should strive to return to.

Also, you may be disappointed after waiting in the long line and flustering amongst the impatient crowd at the “original Starbucks” only to learn that it was actually the 4th store built and operated by the company. Actually, you’d never learn that unless I told you, because its location simply lends to a feeling of originality. So Starbucks actually goes along with the white lie that it’s the company’s first storefront. It’s great for business as several thousands of visitors flock through the market daily after disembarking from their cruise ship in the Seattle Harbor.

Speaking of Starbucks, what’s going on with that company nowadays? Last I’d heard: Howard Schultz had returned to the company as CEO after the stock price was greatly diminished, stores were closing all over the globe, and employees were laid off in droves. It seems that regardless of these facts, I still loyally buy almost 3 cups of the best Joe on the planet per week from the store. So where are they now in the face of their recent challenges? I did some research to find out…

As a quick recap of the company’s woes: The company was a part of the massive boom in the coffee industry following the turn of the century when the US retail coffee market recorded a growth of 157% in value terms between 2000 ($3,258 million) and 2005 ($8,372 million). As a leading coffee retailer during this lucrative period for the industry, Starbucks accumulated a large amount capital at a rapid pace. Accordingly, the company began to offer outstanding salaries and benefits to their employees while opening new stores at a feverish-pace. Starbucks was expanding globally and the company’s stock price rose quickly up until FY2007. At that point in time, Starbucks ran into a series of difficult circumstances that ultimately led its financial performance into a downward spiral.

Starbucks Corporation faced several challenges in recent years including:

• intense competition
• low employee productivity
• changing consumer habits from the global economic downturn.

As a result of these challenges, “the company’s profit margin decreased nearly $500 million (an approximate 50% decline) during FY2008 in comparison to FY2007”.

Accompanying this fiscal crunch was the closing of many stores and the termination of thousands of jobs within the organization. Additionally, the anticipated growth of the company came to an abrupt halt in the face of diminished capital. The retained employees received massive cuts to their pensions and a seemingly hollow promise from the revived CEO Howard Schultz that the company would return to its once prominent spot atop the food and beverage industry. While it is apparent that recent results suggest that he is on the right track…some observers remain skeptical.

What has the company done to correct itself?

The coffee giant has taken several steps to address their current problems. First and foremost, it underwent a major restructuring effort that included downsizing the overall size of the company. To improve their balance sheet, Starbucks executives decided to cutout several liabilities in the form closing nearly 700 stores, both existing and under construction. In addition, the company made the difficult decision to lay off several thousand employees in the midst of a recession. The company has also attempted to shed their monopolistic-faux image by undergoing a “de-branding”.

The brand itself began as a local-niche-firm, one that was incredibly inviting and sparked the interest of millions of customers. Inevitably the firm grew quickly and eventually became a global brand that has lost its once niche appeal. According to one coffee advertiser, the relatively rapid success of the company “led to issues of brand depersonalization”. Now, in an attempt to return to its wildly successful roots, the company is de-branding in an effort to regain a community personality and the image of the neighborhood coffee shop.

There is an incredible urgency for this company to return to profitability. Mainly, competitors both small and large threaten to take over the majority of the market share in coffee retail and production. According to Data Monitor, “Starbucks faces intense competition in coffee beverage segment from other specialty coffee shops, restaurants, and doughnut shops”. Namely, McDonalds and Dunkin Donuts have increased their share of overall coffee sales worldwide.

In an effort to not miss out on the market of consumers thirsting for better quality coffee beans, grocery markets have adopted the practice of selling their company’s own higher-quality coffee-beans. In addition, coffee bean companies (i.e. Folgers) that have traditionally used lower-quality beans began offering a higher-quality bean choice to consumers. The urgency in this market shift deals with the risk associated with the recent economic downturn.

Consumers are now making more decisions based upon a cost-benefit analysis vice brand-name recognition. If an organization puts forth a product that is nearly equivalent to a traditionally higher-quality product for a lower price, the consumer is increasingly more inclined to choose the former product. In the case of Starbucks, competitors are doing just this, at a lower price. While the strong brand-name has seemingly protected Starbucks thus far, if they cannot fix their problems soon, many industry experts expect the company to fall further into irrelevancy in the eyes of the global consumer.

Motivation is one of the key elements towards positively changing the progress of the company. No one is more in tune with this concept than the resurrected Starbucks CEO Howard Schultz. Starbucks most recently dropped only 5% in year-on-year sales in the second quarter of 2009 compared to the same period in 2008 (beating analysts’ expectations).

Schultz sees hope in the progress made thus far, but is quick to not discount the work that lies ahead of the company and its employees. This sentiment was readily apparent in Schultz’s rhetoric when he recently stated that “There’s no victory lap going on at Starbucks here…We have a lot of work to do, one quarter [of improving sales] does not make a trend”. This cautious optimism that Schultz maintains is critical towards ensuring that the company does not become overly confident or complacent in its change effort.

If it fails to make the necessary changes, the coffee company will likely lose its majority stake in the marketplace to competitors, and ultimately lose money for its shareholders. A publicly-held company exists solely to make money for its shareholders, and a shrinking company fails to achieve its mission. Such an outcome would draw down levels of capital within the company from outside investors. Lower levels of capital equate to more job losses and store closings. In the worst case scenario, Starbucks would go bankrupt or even become obsolete. These reasons are indicative of why it is so important for Starbucks to make the necessary changes to ensure its viability for years to come.

In these times of financial uncertainty for so many companies, one thing is for certain…God they make great coffee…

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Everyone wants the ability to change the world around them, but some carry much more influence than others. These people possess authority. Authority is an interesting thing because unlike power, which can be gained independently, authority must be given by others. From Wikipedia, “…’power’ refers to the ability to achieve certain ends, ‘authority’ refers to the legitimacy, justification and right to exercise that power. For example, whilst a mob has the power to punish a criminal, such as through lynching, only the courts have the authority to order capital punishment.”

In academia, authority is often associated with someone or some work that is definitive, respected, and found to be the most knowledgeable or accurate in a certain field. Authority is often correlated to the number of times the person or work is cited in other academic publications. Technorati, a popular blog ranking site assigns each blog an “Authority” rank based on the number of other web sites linking to that specific blog. Again, authority is given by others.

Webster’s defines authority as, “power to influence or command thought, opinion, or behavior,” and also as “convincing force.”

How, then, does one gain authority? The following are three paths to gaining authority that apply regardless of career, position or geography:

Service – People will rarely allow you to have access into their life if you have not served them in some capacity. The most trusted professions in America happen to be the professions most associated with service–doctors, police officers, teachers, and military officers are among the highest ranking. It should come as no surprise that the most trusted professions are also rewarded with the most authority. The act of putting other people before yourself is widely preached and rarely practice, but the individuals, businesses and organizations that do this best reap the benefits.

Just think of the last time a business went the extra mile in serving you, what was your reaction? The most common reaction to service is greater trust. Howard Schultz has built Starbucks around the concept of serving his employees using measures such as stock options and benefits for employees working as little as 20 hours a week. As a result, he and the rest of the management team has gained authority in the lives of each Starbucks partner resulting in higher quality people working at Starbucks, low turnover rates, and widespread adoption of the companies values and culture. Starbucks is an excellent example of how service is a direct path to authority. The question is how much do you really have to offer others? All of us have something to give, but the more we can offer others the more authority we create.

Excellence – “Do you see those who are skilled in their work? They will serve before kings; they will not serve before officials of low rank,” – Proverbs 22:9 TNIV. One of the truly universal currencies at work today is excellence. Someone who is excellent at his profession will always be in high demand. Excellence is proof that authority is due, the evidence that one has knowledge, has mastered his skill or craft and can be trusted to execute. Excellence shuts the mouth of critics and gives a platform for one to exercise her authority.

It is possible to gain authority without excellence, but it will be nearly impossible to keep it. Who you know may many times get you in the door, but what you know will keep you there. Incompetence leads to distrust and a shrinking of one’s circle of influence. Excellence opens doors that would otherwise be shut. What makes our new globalized, flat world interesting is that through the rise of the internet, global communications and the cheapening of travel, geography has become less of a factor in regards to success and influence, while excellence has quickly become THE factor. No longer can one rely on the protection of trade unions, favorable geography or birth right to secure authority, if someone in India can program better than the kid in San Francisco the Indian will most likely get the job and the authority with which it comes. Excellence is a sure path to gaining authority and a must-have in maintaining authority.

Integrity – Authority is directly related to trust. Due to this it is incredibly important for one to possess integrity if he or she wishes to have influence. People will not allow liars or cheats access to their lives. Without integrity the prior two authority builders, service and excellence, are irrelevant. The ripple effects of a break in integrity are tremendous harming everyone connected to the person or situation where the the failure occurred. Integrity means more than just honesty, it means doing the right thing when no one is looking, understanding there’s no such thing as a secret. Integrity is the ability to consistently make the right decisions when faced with life’s moral crossroads.

All of us have met people that are continually looking to cut corners. Most of the time it is not simply one large lie or breach or integrity that is the cause for a breakdown, but rather a series of small, seemingly inconsequential choices made poorly over a long period of time. One of my favorite definitions of integrity is “wholeness” or “completeness.” Even the smallest break in integrity can destroy a life. People of great integrity command respect and will always have authority because their standard of living raises the bar for everyone around them. Integrity must be the foundation of any person or organization endeavoring to build authority.

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As Starbucks launches its first-ever tv ad campaign, same-store sales growth is slowing and so is the stock price (down over 32% this year), raising the question of whether the titan of coffee is reaching its saturation point. With a goal of launching over 40,000 stores worldwide, CEO Howard Schultz expressed concern in an internal memo last spring that the rapid growth of the company (currently over 13,000 stores worldwide) has led to “the watering down of the Starbucks experience” for customers.

Anyone that knows me, knows I have become an avid fan of Starbucks over the past few years. I used to mock Starbucks junkies, but after discovering the breve mocha my attitude changed as quick as Barry Bonds’ bench press. One thing I love about Starbucks is that it is not just about the coffee, its about a culture and consistent experience. I admire their business model and ability to create a brand that inspires incredible loyalty from both customers and employees. No matter where I am in the world when I step inside a Starbucks I feel at home, my wife and I call Starbucks a faithful friend.

Today’s turmoil within Starbucks highlights an issue that all successful businesses must face as they grow, over-saturation. How much is too much growth? At what point does a company lose its soul and how can a company balance consistency in customer experience with aggressive growth. Even though the critics are in full force right now in regards to the demise of Starbucks I am confident that they will adapt and continue their success for three reasons:

1) Details – “Retail is detail.” – Howard Schultz
Starbucks has taken Malcom Gladwell’s advice and embraced the idea that, “little things can make a big difference.” Walking into your local Starbucks is a lesson in product placement, design and attention to detail. Everything from the napkins to the furniture to the music selection and volume is intentional. Starbucks understands, better than almost anyone, that the smallest details matter in creating the right customer experience. This attitude is widespread throughout the company and is a pillar that Starbucks was built upon. As long as this doesn’t change there is no reason why their company cannot continue to expand successfully.

2) Relaxed Affluence
One of the best-worded phrases I have heard to describe the image of Starbucks actually came from a management textbook, Strategic Management: Competitiveness and Globalization, I used in college which described the progress of Starbucks in China. “Although China is a nation of tea drinkers who generally don’t care for coffee, Starbucks is counting on its image of relaxed affluence to attract the Chinese. ” After returning from a trip to China, my wife’s best friend Sarabeth (worked at Starbucks as a barista) told us how powerful the Starbucks image had become in the land of tea drinkers. Chinese would keep their Starbucks cups, fill them with water and tote them around as a status symbol to let their peers see that they had reached the socioeconomic level required to purchase this luxury item. Starbucks is a symbol of the ever-growing Bobo (bourgeois bohemian) class, coined by David Brooks, found grazing for the past decade or so in America at places like Anthropologie, Restoration Hardware, etc. The booming Chinese middle-class is birthing its own Asian Bobos…Starbucks understands this and will, therefore, continue their success in Asia.

3) Baristas
“Sometimes you want to go, where everybody knows your name, and they’re always glad you came.” – Cheers Theme Song. Every company talks about customer service, very few really know how to put words into action. The front-line workers of the Starbucks corporation are their baristas, the people who actually make and serve the coffee. They make Starbucks what it is. They intentionally memorize the names and drinks of customers to create an inviting atmosphere. I have never met a disgruntled barista. This isn’t to say that they don’t exist, but I have talked with several people who have worked for Starbucks and never heard anything, but pride at how the company served them as employees. Treating your employees well is good business because happy employees are more willing to go the extra mile for the customer and company alike. Starbucks gets this and this is the third reason they will continue to prosper.

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