Growth Is Not A Strategy

Go to any
major city and you’ll see Starbucks.  Not
a Starbuck, but Starbucks, lots of them. There are 8 in Fairfield, where I
live, and roughly 90 in San Francisco. There are over 7,000 in the United
States. That’s why, when I heard Harold Schultz, the CEO of Starbucks, say in
an interview, “Growth is not a strategy,” I was caught off guard.

He’s right,
and it is a lesson that Starbucks learned the hard way.  Starbucks had strayed from their mission: “To inspire and nurture the human spirit –
one person, one cup, and one neighborhood at a time.”
They increased the
number of stores and the products offered at those stores because they could,
not because they should.  Meanwhile,
customer satisfaction fell, profitability declined and in 2008 and 2009 they
closed over 700 of their coffee shops.

Schultz’s
observation that growth is not a strategy applies whether we are talking about
cups or cows.  Expanding an enterprise
will not increase profit unless there is a production strategy in place that
results in a strong gross margin per unit, whether that unit be a cup or a
cow. 

Starbucks
strategy was to be a place “between work and home” where people could relax,
refresh and socialize.  Schultz said that
they strayed from that mission.  As they
expanded, they diversified their product offering to include sandwiches and
other items to increase revenue in each store. It didn’t work. As they
unintentionally transformed a coffee shop into a restaurant, they lost
customers and profits. Walking into a Starbucks, Shultz said he smelled burned
cheese rather than brewed coffee.

Starbucks
dropped the sandwiches and returned to its core mission. They closed all of
their stores for one day to retrain their 135,000 employees “to pour the perfect shot of espresso.”
Profits are up and Starbucks has started growing again. This time the growth
isn’t just for growth’s sake. It is to serve more people a great cup of coffee.
Growth does not create success.  Success
creates growth.

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6 Comments


  1. Don’t breath that sigh of relief yet. I didn’t say that it is enough to produce a great product. It’s not. Just because you produce a great product doesn’t mean that people will find out about it, that it is the product people really want, that is priced appropriately, or that it won’t have to compete with other great products offered by other people. The point I intended to make is that growth in and of it’s self doesn’t necessarily increase profit. I really like the cancer analogy that Mark made. But, and this is a BIG BUT, that doesn’t mean that growth isn’t important. It is just that growth must be consistent with your mission and based on a sound business model.

    I hope that limited scale producers don’t use this article to justify staying small. Having enough scale to cover overheads is essential.

    Business exists to serve our customers and clients. Only by serving them can a business serve the owners. Expansion, when it is consistent with our mission, means we get to deliver more value to more people. Why would we want to limit the number of people we serve?

    We resist increasing scale because we think it means more work. That’s the perspective of an employee, not a business owner. Besides raising 400 cows is not twice the work of raising 200.

    Scale is important, in fact it is one of the three secrets for increasing profit. Its just that increasing scale must be done in a way that is consistent with your mission.


  2. The cancer analogy is a good one. Unfocused growth is like a cancer. On the other hand, don’t think that means slow, steady growth is always the answer. Planned, organized growth doesn’t necessarily mean growth has to be slow. Growth is often accompanied with growing pains. Sometimes it is best to get them over with in a short period rather than draw them out.

    Starbucks’ problem wasn’t so much the pace of growth, but that the growth did not support their mission. When an opportunity for explosive growth presents itself it can be a breakthrough, provided that the growth is consistent with our mission. It can lead to a break up when it’s not.


  3. What a relief. What this and other articles that I have recently read, indicate that if I will just concentrate on the important points of raising natural grass fed beef, all of the other, including growth take place. Me and my wife have really enjoyed raising all natural beef, because we know it is providing a real service to society. Buy my buisness has not yet experienced growth to the point most people would consider this buisness a success.


  4. When cells in your body grow quickly without organization, they call it cancer. I see a parallel in business growth as well. Successful growth is a carefully planned and orchestrated endeavor with a clearly defined goal, implemented at a sustainable pace.


  5. This is in part one factor that led to the demise of Thundering Hooves. My grass fed meats company. Lesson learned. It is my hope that others will avoid this fate. I am not done with the vision of selling what I raise!

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