Starbucks' Bean Stock

From this page: http://www.mhhe.com/business/management/thompson/11e/case/starbucks-1.html, I read about the Bean Stock of Starbucks. (Actually I read the Pour Your Heart into It : How Starbucks Built a Company One Cup at a Time, and then searched for Bean Stock and found this page).

By 1991 the company’s profitability had improved to the point where Schultz could pursue another employee program he believed would have a positive long-term effect on the success of Starbucks—a stock option plan for all employees.12 Schultz wanted to turn all Starbucks employees into partners, give them a chance to share in the success of the company, and make clear the connection between their contributions and the company’s market value. Even though Starbucks was still a private company, the plan that emerged called for granting every employee company wide stock options in proportion to base pay. In May 1991, the plan, dubbed Bean Stock, was presented to the board. Though board members were concerned that increasing the number of shares might unduly dilute the value of the shares of investors who had put up hard cash, the plan received unanimous approval. The first grant was made in October 1991, just after the end of the company’s fiscal year in September; each partner was granted stock options worth 12 percent of base pay; the value of these first shares was pegged at $6 per share. Each October since then, Starbucks has granted employees options equal to 14 percent of base pay, awarded at the stock price at the start of the fiscal year (October 1). Employees, if they wish, can cash in one-fifth of the shares granted each succeeding year, paying the initial year’s price and receiving the current year’s price. It took five years for the shares to fully vest. Each of the shares granted in 1991 was worth $132 in October 1996; thus, an employee making $20,000 in 1991 could have cashed in the options granted in 1991 for more than $50,000 in October 1996. In 1991 when the Bean Stock program was presented to employees, Starbucks dropped the term employee and began referring to all its people as partners because everyone, including part-timers working at least 20 hours per week, was eligible for stock options after six months. At the end of fiscal year 1997, there were 8.7 million shares in outstanding options at an average exercisable price of $19.72 (which compared very favorably to the current stock price of $43.50).

I do believe the Bean Stock played a very important role in the success of Starbucks. When I read the book of Schultz, I feel the integrity and honesty in this person. Of cause I also felt the hardship he experienced in the last 20 years.

As a head of a business in China, I face the dilemma very day. There are some typical questions I am asked. The answer is simple, but…

Short Team or Long Term

This is the most basic question. For example, I want to keep the team as small as possible, and then do the right thing, while my peers are expanding their team aggressively. Remember the last expansion of Blog China, and then 1/3 layoff? This is nothing but rare in the Chinese Internet. Although sometimes you firmly believe in something, we need to realize and understand, and feel the difficulty the person who make the decision face in that situation. It is just like refusing to buy overpriced stock, or house before economic bubble - easy said hard done.

In Starbucks case, they face the rapid increase in Coffee Bean price. With the price at 2.00 USD, whether it goes up to 4, or down to 1, or 0.8? No one knows. They decided to take the risk to buy enough stock of coffee bean for 10 months. The reason is, they know if the price goes down to 1 or lower, the company can afford it. But it goes up to 4 or higher, the company will be forced to close. The result was, the price does down immediately after they bought the coffee. This is a very good story for me. When the result comes, no one care about the effort to avoid risk - if the risk does not really become reality.

For us, we did a lot of things to eliminate risks, and to keep the company and community health. But this is for long term and maybe only time will tell.

Do Good or Do Evil

In terms of website traffic, many sites go up and many go down. I know the tricks of going up, but I don’t want to do it. Many sites attracted traffic in a bad way, and looked so bad when they die…