Friday, June 11, 2010

KNOW YOUR BUSINESS AND BRAND DNA – A Key Fundamental Business Tenant

Ask the following questions of yourself, your business, your organization:
At the absolute core….
     What is the reason you do what you do and what are you trying to accomplish?
     What is the need you are trying to fulfill?
     Why do your clients / customers purchase your products and services?
The answers to these (and other) questions determine the DNA of your organization. Why it exists, why customers buy the product / services, why employees work there (why the good ones stay), and why you will be successful over the long term (assuming you have a viable business model).

You should be asking yourself these questions when you are formulating your idea, in Year 1 when you are frantically accumulating customers and refining the product / service, when you are raising private or public money, when you are the largest in the market and others are copying you. While this might seem obvious, I believe most organizations focus on this only when starting up, or when compelled by new management, owners, or a change in brand strategy.

As a leader / founder, it is critical that you decide what parts of your original vision and mission for the business are “sacred” and what others can and should evolve as the market changes, as your consumer’s tastes and needs change, and as your business matures. In that way, your organizational DNA lives and grows yet stays true to a fundamental vision or ideal. The successful company must observe what its customers and employees are doing through the lens of its core mission and goals. You should then evaluate whether your current practices or any major project you are considering are consistent with and therefore reinforce your core DNA, or confuse people as to what you really are.

If you are not constantly evaluating how your messaging and business practice reinforces your DNA, you run the risk of gradually losing focus on the core reasons you exist. As mentioned in the Focus posting, the biggest challenge to most growing organizations is not finding ways to grow, but managing a myriad of opportunities that present themselves. This isn’t just the “Don’t go international yet”, or “Don’t launch that new product yet” lesson, it gets to the basics of your core product / service. You need to be intimate with your DNA and stay disciplined to know exactly how to describe your core product / service, how to position your product with your customers, how to communicate your competitive differentiation, and how to build corporate culture with your employees. 

Let me highlight an example of a great company that I believe has lost sight of one part of its DNA as a result of extraordinary growth:

Starbucks: I needn’t highlight the meteoric growth of Starbucks as a business. In short, the company was started in 1971 when three academics opened the first cafĂ© in the touristy Pikes Place market in Seattle. The goal then was to give consumers (i) the best cup of coffee possible at the store, and (ii) supply them with beans so that they could brew excellent coffee at home. By 2009, Starbucks had grown to over 17,000 stores in 49 countries and almost $10 billion in revenues.

Clearly, moving from an artisan coffee shop to 17,000 stores around the world requires superhuman vision, discipline and flexibility. To his credit, Howard Schultz (who joined in 1982 and ultimately became the CEO that drove its growth) was intensely focused on maintaining quality, culture and mission as well as being a remarkable visionary. (The Founders originally only wanted to sell beans – Schultz pushed to get into the beverage business.) But even with his focus and commitment, meeting customer expectations of (i) super premium quality and (ii) not having to wait more than 3 minutes for a cup of coffee and investor expectations of constant double digit profit growth, proved very difficult. I will not review the various machinations of Starbuck’s growth strategy – selling music, expanded food menu, ice cream, etc. there are others that have done far more work on that. What I will ask is “What is Starbuck’s DNA?” and “Are its current mission, strategy, and actions in line with its DNA?”.

Starbuck’s DNA: How would you answer the three questions at the top if you were on the Starbucks’ Board of Directors? Here is how I would answer them:

What is the reason you do what you do and what are you trying to accomplish? Starbuck’s goal is to improve people’s lives and benefit communities by providing the highest quality products (mainly coffee) and a retail environment that facilitates community and business interaction. (Note that these are actually two very related but different business ideas.)

What is the need you are trying to fulfill? Consumers desire a high quality coffee beverage as part of their daily routine and enjoy having a quiet place to interact with friends and business acquaintances. Other options are either lower quality or non-existent.

Why do your clients / customers purchase your products and services? Thanks in large part to Starbucks, consumers now appreciate a high quality cup of coffee and are willing to pay premium prices for it. That said, at $3-$4 per cup, quality is everything. There is clearly a convenience factor and certain consumers will trade off quality for speed & convenience. These needs (quality vs. convenience) can conflict. Additionally, Starbucks is a great place to meet because there is always one close, it is relatively inexpensive space (only requires a small purchase) and the atmosphere is highly conducive to interaction.

Starbucks’ original mission (ca. 1982): "To establish Starbucks as the premier purveyor of the finest coffees in the world while maintaining our uncompromising principles as we grow." One interesting quote from Founder Jerry Baldwin: "We don't manage the business to maximize anything other than the quality of the coffee." In 1991, the Los Angeles Times named Starbucks as the best coffee in America.

Starbuck’s new mission as of 2008: "To inspire and nurture the human spirit - One person, One cup, and One Neighborhood at a time." The mission then sets forth how the company pursues this mission through its Coffee, Partners, Customers, Stores, Neighborhood, and Shareholders.  (See the links below.)

My thoughts: Both missions are admirable and aspirational. In my view though, I believe the demands of meteoric growth have forced Starbucks to sacrifice the quality of its product (the DNA expressed in the original mission ) for speed and convenience. Recall, if you can, back in the early 1990’s when Starbucks actually was the best coffee one could reasonably find without a trip to Italy. Whether it was drip coffee or a fancy espresso drink, quality was everything. Again, at $3-$4 dollars a cup, it had to be. Quality takes time, patience, attention to detail, training and costs money. Over the years, convenience, speed and efficiency took precedent over taking the time to brew the coffee perfectly every time, get the foam just right, or really understand the difference between the various coffees in the store. What is interesting is that due to the pressures of growth (opening more locations, driving more volume through the store, etc.) Starbucks trained the consumer to value convenience and speed over quality. When one used to require a perfect cup of coffee for $3-$4 dollars and was willing to wait, one is now willing to pay the premium to know that there is a store within 300 yards and one can get a caffeine hit in less than 3 minutes.

Starbucks now competes based on convenience and speed (and price) rather than quality. The result is companies that also specialize in convenience, speed and price soon become competitors – See McDonalds, 7-Eleven, Dunkin Donuts, etc. Obviously this is a massive “red ocean” of competition (in marketing parlance) that I believe puts Starbucks in a vulnerable position long term. That said, this opens the door for other more nimble companies to grab the quality positioning and steal consumers – See Blue Bottle, Espresso Vivace, Gorilla, and Ninth Street (frankly, Nespresso makes an infinitely better coffee and it is owned by Nestle).

So… Decide which components of your vision / mission are “sacred” and listen to the market, your consumers and your employees – get intimate with your DNA. Then make sure all activities from sales and marketing to new product development and employee hiring reinforce that DNA. If you do that, you might sacrifice some near term growth opportunities, but consumers will know what you stand for and you will build a healthier organization and stronger brand over the long term. Otherwise, your long term future may be at risk.


Some interesting Starbucks reference documents: