How Starbucks’ chief wants to kick-start SMEs

There is nothing we love more in the business world than a great comeback and a turnaround story. For example, the story of how Steve Jobs returned to Apple in the late 1990s and took the company from the cusp of bankruptcy to become one of the biggest companies in the world is well known.

Another spectacular corporate comeback has occurred in the last few years at global coffee chain Starbucks, where in late 2007 founder Howard Schultz came out of retirement to save a company that had basically grown itself into an unprofitable state.

While Starbucks’ presence in Australia was greatly reduced in early 2008 when it closed 61 of its 85 stores, the turnaround throughout the rest of the world has been impressive.

The company’s shares have more than doubled in the last two years and in early July hit an all-time high. Starbucks record third quarter results showed net profit was up 34% during the period to $US280 million, while revenue rose 12% to $US2.93 billion.

Having fixed his own company, Schultz is looking further afield.

In August, he sent an email to everybody in his company called “Leading through uncertain times” (you can read the whole email here).

In it, he took an almighty spray at the poisonous state of US politics, bemoaning “the lack of cooperation and irresponsibility among elected officials as they have put partisan agendas before the people’s agenda”.

He went on to say that Starbucks had a responsibility “to act in ways that can ease the collective anxiety inside and outside the company.”

Galvanised by the extensive response to his email, Schultz has began floating some big ideas, the first of which was a boycott of political donations until the Republicans and Democrats started to act in a bipartisan way for the good of the economy.

But his second idea is a fascinating one from the point of SMEs.

Earlier this month Schultz launched an initiative called “Create Jobs for USA” that will see every Starbucks outlet across America take donations from customers that will be then used to provide loans to small businesses through another organisation called Opportunity Finance Network, which has ties to a group of 180 community-development financial institutions that provide credit to small businesses across the nation.

Starbucks is giving $5 million to start the fund and will give a red, white and blue wristband with the word “Indivisible” on it to every customer who donates $5 or more.

In a clever twist, the money donated won’t be directly lent to SMEs. Instead, it will be borrowed against to create a bigger funding pool – as the New York Times reported, $50 million in donations could eventually support $350 million of lending.

“We’re going to raise millions of dollars,” Schultz told Bloomberg.

“This is about Americans helping Americans. We’re not going to wait for Washington.”

As a number of commentators have pointed out, what Schultz has created is a mutant mix of crowdfunding and charity. It’s not exactly clear from the Create Jobs for the USA website how these “loans” would be paid back to the Starbucks customers, although that’s not really the point – presumably as loans are paid back to the community banks, their capacity to lend to the next start-up or SME increase, creating even more jobs.

Schultz is hoping other retailers will start accepting donations and it will very interesting to see if the movement can gain some momentum.

The idea that ordinary citizens should be forced to step in and directly address failures by markets and governments with contributions as low as $5 seems ludicrous.

But in a country where little else seems to have worked, Howard Schultz is to be applauded for having a go.

Maybe his greatest turnaround story is yet to be written.