Only the Innovative Survive

The streets of Seattle were still dark as Howard crunched his way through the morning frost. Bleary-eyed merchants were beginning to fill the alleyways as the bluish glow of dawn seeped across the horizon. When a storefront framed with rustic green wood was within sight, Howard pulled out the key he kept with him at all times and unlocked the door with a familiar click. 

The rich aroma of fresh coffee beans washed over him, followed by a rush of nostalgia. He contemplated the magnitude of the coming day's events as he ran his hand along the oak counter. Later that day, Howard Schultz would be announcing his controversial return as CEO of Starbucks. 

Schultz would be joining a long lineage of “boomerang” executives, including Steve Jobs and Michael Bloomberg. It’s a tradition that remains strong today—witness Bob Iger’s recent return to Disney. But for all the drama of these stories, a 2019 study of over 6,000 CEO tenures found that returning executives perform significantly worse compared to their first-time counterparts. 

So the odds would’ve been stacked against Schultz even under normal circumstances, let alone during a year like 2008. Only a handful of people were aware at the time, but Starbucks was on the brink of collapse. By his calculations, they were mere months away from insolvency. The timing couldn’t be worse: just as Starbucks was beginning to fall apart, one of the most cataclysmic financial disasters in history was gearing up to shatter the world’s economy. 

Schultz was knowingly taking the wheel of a sinking ship and sailing headfirst into a hurricane. He had no idea whether it was possible to steer Starbucks away from ruin, never mind how to do it. But it was there, standing in the darkness of the original Pike Place Market store, surrounded by rows of porcelain mugs and four decades of history, that he made two commitments to himself.

First, he would not blame anyone or point fingers for the mistakes that had created this situation. It would be essential to instill everyone with a sense of confidence about the future. 

Second, and perhaps most important of all, he promised to innovate. 

All of the above and forthcoming details about Starbucks’s turnaround are sourced from Schultz’s book Onward: How Starbucks Fought for Its Life Without Losing Its Soul. It offers one of the most detailed accounts of recession leadership on record. 

The innovators’ paradox 

The idea that a crisis is a good time to innovate may seem counterintuitive. Surely it’s better to play it safe and steady during precarious times. 

Indeed, most companies aren’t willing to run the risk of being innovative during a downturn. There’s a danger of wasting resources and overextending yourself at a time when businesses are the most vulnerable. So when most businesses find themselves in a crisis, whether it’s self-inflicted or the result of an economic recession or a global event, innovation becomes the least of their priorities. 

Numerous studies have found that many businesses halted innovation during the 2008 recession. Research and development budgets were often the first costs to be targeted. Overall investments in innovation retracted. Ongoing projects were canceled. Technology spending plans were revised. 

This pattern also held true for the Covid-19 pandemic. A McKinsey research report found that the number of executives who listed innovation as their first or second priority fell from 55% pre-crisis to 23% during the pandemic. 

Yet there’s little evidence to suggest that this approach is effective. In fact, researchers consistently find that innovation during a crisis yields a “survival advantage.” Businesses that innovate are not only the most likely to survive a downturn, but emerge thriving afterward. 

Obviously, everyone knows that innovative companies are superior to non-innovative ones. But a flurry of studies over the past few years has found that those who remain innovative even during bad times are more likely to survive and become market leaders post-crisis. 

Recent analyses of tens of thousands of businesses in Italy, Spain, and the Netherlands found that crisis-innovators were all significantly more likely to come out on top after the recession. Meanwhile, a study of 2,894 U.S. businesses found that those with an innovative culture were more likely to survive the pandemic, while a study of 15,451 companies across 27 countries observed how those that innovated the fastest in response to the pandemic were less likely to shut down. 

But wait. Couldn’t you make the argument that innovation is a perk for businesses that are already the strongest, or the least affected by a crisis, and that their success is not a result of innovation per se? 

It turns out that the biggest predictor of whether a company will innovate during a downturn is the already established presence of an R&D department—suggesting that it’s the ability and commitment to innovate that gives these businesses an edge above and beyond other factors, including size and industry. 

In fact, companies with the fewest resources of all—startups—have the most staying power. As per a 2009 study, businesses founded in a recession or bear market disproportionately made up more than half of the Fortune 500, including Microsoft, Google, Salesforce, FedEx, and Trader Joe’s. 

One benefit of launching a business during a tough time is that you’re forced to be more resourceful and innovative to survive from the get-go. The skills you learn during this time are embedded into your organizational DNA, which then serves as a competitive advantage long after the crisis is over.

Entrepreneurs are also a lot less likely to chase nonsensical ideas during choppy economic conditions, when the ability to spot a genuine opportunity tends to sharpen. Studies have found that only founders who are “pulled” into the market by recognizing a true opening for innovation are likely to succeed. Founders who are “pushed” into entrepreneurship due to economic pressure have a substantial decrease in survival probability. 

All of the evidence points to innovation as the dominant strategy of recession victors. This was certainly true for Starbucks. 

To say that Schultz’s commitment to innovate was successful would be an understatement. The plan he and his leadership team devised during the first few months of his return would take Starbucks from the brink of failure to posting its most profitable quarter in its history by 2010—all while navigating through two of the worst years of economic activity that the world had ever seen. 

How is such a turnaround possible? What did this process of transformation look like? If the evidence shows that innovation is the best strategy, how do you come up with the kind of innovative ideas that can revolutionize an organization? 

Fortunately, Schultz’s methodology during that period has been outlined in meticulous detail. And his approach is identical to the one observed in studies of the process behind the generation of successful innovations. 

Whether it’s a new startup idea, a product or feature, or personal habits and routines, we all tend to go through the same process when we achieve our greatest breakthroughs. Shining a spotlight on the mechanics will allow you to move through your own cycles of creativity faster. 

Innovation begins, as all good stories do, with tension. 

Phase One: Dissonance 

It was December 2007, just a few weeks before Schultz’s return, and he couldn’t believe what he was seeing. 

Every morning for the past 20 years, Howard checked his screen for Starbucks’s daily same store sales data—the year-over-year differences in revenue generated by a retailer’s existing stores. For the first time, the company was reporting negative figures in the double digits, validating the feelings of frustration that had been building over the past year. 

He had watched in a state of growing angst as Starbucks departed from its original values of elevating the human spirit and prioritizing the customer experience. Instead, the company had become obsessed with delivering results for Wall Street. All anyone seemed to care about was delivering profits every quarter at any cost, long-term thinking be damned.

On the surface, it seemed to work. The numbers had climbed quarter after quarter. But Schultz could sense the underlying health of the business deteriorating—and, indeed, growth was beginning to slow. They’d opened stores at a breakneck pace, and while this strategy had kept investors happy, new stores were now cannibalizing customers from old ones.

He’d also noticed a number of issues within stores that were undermining the customer experience: wait times were too long, there was no connection between customers and baristas, beverage quality was poor, and stores had become sterile and cookie-cutter in an effort to promote scalability. 

Things were no better outside of Starbucks’s walls. Competitors were circling, including McDonald’s, which debuted a cheaper McCafe espresso offering, and consumers seemed to be under increasing price sensitivity as the economy teetered.

It was a dire situation. But these kinds of problems, frustrations, and threats are the crucibles for the best innovations—because points of failure are your richest source of information and opportunity.  

Studies have found that managers learn primarily through negative experiences, and a recent meta analysis concluded that failures teach us more than successes. Even more specifically, a study of 31 CEOs found that every single one of their breakthroughs began with a negative experience. 

The latter study—published in early 2022 by Radu Atanasiu, a professor at the Maastricht School of Management who conducts research at the intersection of business and critical thinking—found that each of the executive’s paradigm shifts started with either a major failure, a series of failures, or an ongoing negative situation. 

Atanasiu and his colleagues found that frustration of failure triggers a state known as dissonance, or as the study defines: “the psychological discomfort that occurs when we hold beliefs, ideas, or information that are not consistent with each other.” Cognitive dissonance is experienced when our mental model of the world is out of alignment with reality. While dissonance feels uncomfortable, it’s what drives us down the path toward meaningful lessons and discoveries. Frustration is the gateway to transformation. 

Just like the CEOs studied, all of Starbucks’s innovations during this period stemmed from a grievance or threat. For instance, when a Consumer Reports taste test found that McDonald’s newly introduced coffee was rated more highly than Starbucks, it led to an urgent scramble within the company.  

Starbucks had always prided itself on its higher-quality, darker, bolder roasts. But when they conducted research and spoke to customers in wake of the report, the results were that many customers wanted Starbucks to sell a more consistent, balanced coffee. 

The taste test was equal parts surprising and concerning because it exposed the flawed assumption that the company had been operating with for so long: weaker, less intense flavors were associated with inferior coffee. But now Schultz wondered whether Starbucks could offer a milder brew that the company would be proud to serve.

For two intense weeks in late 2007, a team worked on operation “Consistent Brew” across from Schultz’s office. They iterated with different beans, roasting temperatures, and times until they found the perfect combination. Pike Place Roast would become the most popular whole bean coffee to brew at home and in Starbucks stores, and remains a top seller worldwide to this day. 

But they only went searching for what turned out to be such a transformative innovation after the taste test triggered a state of dissonance. The notion that our obstacles, fears, and frustrations lead to the best innovations is hardly new: 

• The Chrome browser was devised in response to an existential threat. Google realized that housing their search engine inside of other businesses' browsers was a vulnerability, so they decided to build their own. 
• Henry Ford managed to make the Model T cheaper than other automobiles by stripping away features, but the price still wasn’t cheap enough to make it accessible to the masses. This frustration is what led him to the epiphany that would become his Highland Park assembly line.
• One of the most important features launched by Airbnb in its early days was the ability to accept payments. Brian Chesky understood its importance after he forgot to bring his own money on a trip, and the host accused him of fraud.

Dissonance probably isn’t the only instigator of innovation, but as Schultz’s experience and research has shown, it’s a verified signal. Just as we can learn to interpret discomfort as a sign of growth in order to stimulate perseverance, we can also learn to interpret discomfort as a sign of an opportunity to stimulate creative breakthroughs. 

Pay close attention to your irritations, obstacles, and shortcomings, as they may lead to your best ideas. Embrace your dissonance in spite of its aggravating or uncomfortable nature. 

If dissonance is the seed of a great idea, then the next thing you need is some soil. 

Phase two: Readiness 

The blueprint for Starbucks’s turnaround was discovered through a fortuitous encounter. 

The morning Schultz awoke to double-digit negative comps, he was on vacation in Hawaii. So was Michael Dell, founder of the computer company by the same name. During a three-hour bike ride along the Kona coast, Schultz confided in Dell about his decision to return to the company. 

Dell had also stepped back in as his company’s CEO one year prior. He insisted that they bike to his home so he could show Schultz a tool that might come in handy. It was a one-page document called the “Transformation Agenda” that had proved invaluable for Dell’s turnaround. 

The agenda was an actionable framework of initiatives and innovations, a tactical roadmap that anyone could read and understand—exactly the kind of compass that Starbucks needed. 

Schultz had already mapped out three key initiatives while he’d had some space and time to think during his vacation: 

1. Starbucks had to improve the current state of its U.S. retail business. They would start by slowing the rapid-fire pace of new store openings and closing underperforming locations.
2. Starbucks would reignite the emotional attachment with customers.
3. Starbucks would make long-term changes to the foundation of the business—revamping operations in ways that would significantly reduce costs and improve customer service. 

Now he realized that the first few weeks of his return would be focused on taking those high-level strategies and fleshing them out into Starbucks’s own transformation agenda—translating these strategic pillars into a comprehensive set of tactical innovations. 

But how do you come up with such a plan, especially when the stakes are so high? Schultz intuitively knew he needed to adopt a state of readiness. 

Atanasiu’s study on CEO breakthroughs found that “readiness” is the next state after dissonance that consistently bridges the gap between frustration and breakthrough. He and his colleagues write, “The executive realizes that this trigger contradicts something in her current schema but cannot make sense of what exactly, leading to a state of readiness—a search for an explanation and a solution.” 

Readiness can feel exciting but also stressful: you have an unresolved problem, but you don’t yet have a solution. You’re waiting for a “clarifier” to spark insight and relieve your hunger for an answer. One executive reported that their sleep was disturbed while they were in this state. Schultz experienced the same, writing: “Rarely did I sleep more than four hours a night as I tried to predict what onslaught of opportunities, successes, and dilemmas the next day might bring.”

Some of history’s greatest innovators had to endure years of readiness before they found their clarifier. Think of Thomas Edison testing thousands of filaments for the light bulb or of James Dyson’s 5,127 attempts over 15 years to invent the bagless vacuum cleaner. 

Part of what makes this phase so fraught is that you can’t force a solution. Clarifiers almost always “come to you” from unexpected places at unexpected times. Schultz stumbling across the transformation agenda seems lucky, but most of his breakthroughs came from similarly random places. 

Erik Dane, a professor of organizational behavior at Washington University researches the science of creativity at work, and when he studied over 500 people in 2020, he found that no one ever gave themselves credit for their best ideas. Instead, they always chalked them up to serendipity. But what people did give themselves credit for was putting themselves in a state of openness and readiness prior to clarity striking. “You can’t force epiphanies,” he concluded. “They seem to have a mind of their own; all you can do is prepare yourself.” 

Great innovators recognize the elusive nature of inspiration and understand that you can’t impel breakthroughs into existence. Instead, they engage in a range of behaviors to increase the surface area upon which a clarifier can arrive. 

Deep observation

Readiness is characterized by heightened attention. 

Schultz wrote, “Before we began the tough work of defining Starbucks’s future, we had to spend time just seeing.” His attunement to his environment ratcheted up during the crisis, and he entered a phase of deep and extensive observation. One of the first moves he made was to share his email address for feedback and ideas from Starbucks’s 12,000 employees. 

During his frequent visits to stores, Schultz noticed that the machines were too tall, cutting off communication between baristas and customers. He noticed that the smell of fresh coffee was being masked by the burned cheese from breakfast sandwiches. He noticed that new stores felt coldly designed—a far cry from the original Milan coffee houses that had once inspired him. He was also paying extra close attention to the world around him—researching inflections in technology, studying the macroeconomic landscape, and monitoring competitors. 

This sharpening of attention is a dominant theme that emerged from Dane’s data. Participants were especially attuned to their surroundings prior to a breakthrough. Dane remarked: “So if we can find ways to open our eyes to otherwise mundane moments, if we can find ways to break free from the autopilot we’re living on so much of the time, I do think it increases the chances of epiphanies and really just making better decisions and solving problems more effectively.” 

Being a great innovator means studying the world around you in detail, being open to learning, and keeping tabs on new developments and trends. You never know what piece of information will spark clarity. 

Wander 

The next strategy is to scatter deliberate blocks of time for reflection in between your periods of focused attention, and devote time to zoning out. 

Dane recommends that you let your mind roam freely anywhere from 33% to 50% of your waking hours when you’re optimizing for creativity. Allow yourself to think non-task-related thoughts and make space for whatever ideas, memories, versions of the future, or imaginative thoughts wander through your mind. 

In his book Thinking Fast and Slow, Daniel Kahneman credits his best ideas to long strolls with his collaborator. Many of history’s most creative minds went out of their way to schedule walks into their daily routines for this purpose. Sigmund Freud would walk around Vienna’s Rungstrasse at “terrific speed.” Charles Darwin had a “thinking path” that he would traverse up to three times a day. Beethoven scheduled long and vigorous walks, accompanied by a pencil and a couple of sheets of music paper.

Schultz also carved out time to think more strategically. He wrote: “In fact, almost immediately, my work habits shifted as my level of discipline heightened. I began spending quiet time alone early in the morning, either at home or at the office, preparing for the day, something I had not done as chairman or in my previous years as chief executive.”

When the CEOs in Atanasiu’s study were asked to describe the activities that generated breakthroughs, several described “periods of purposeful, active reflection—‘strategic thinking practiced daily’ with ‘detachment from operational tasks.’”

Schultz’s morning routine would often include both observation and reflection: “Now, after skimming the news before 6 a.m., I’d make calls to our overseas offices, read emails from partners—hundreds were streaming in with suggestions and observations about the business—and then sit back to consider what I needed to do that day to be as productive as possible and have the most impact on the business.”

Many of us don't give our brains the space to detach or reflect, either because we feel pressured to be occupied all of the time, or because we fill what would’ve once been moments of contemplation with technology and a constant stream of stimulation. 

Taking time out to think and to mind wander isn’t necessarily procrastination. Each phase of this cycle—focused attention, strategic reflection, and deliberate detachment—is necessary for the genesis of great ideas. 

Diversify your curiosity 

Given the random and spontaneous nature of clarifiers, epiphany hunters often search in seemingly disparate places. 

Atanasiu’s executives reported using a variety of activities to broaden their exposure to different inputs. They attended peer-to-peer mentoring groups, read or listened to books, and met with people inside and outside of the company. Giving yourself a greater variety of inputs to play with increases the likelihood that you’ll stumble upon your clarifier. Schultz arranged his schedule accordingly. “By 7 a.m. for the first two weeks in January, I welcomed one or more senior leaders into my office or the boardroom where, using the three transformational pillars as a guide, we decided the company’s most immediate next steps,” he wrote.

Another rich source of clarifiers are examples that are analogous to the problem you're working on. Studying similar-but-different case studies has led to some of the greatest ideas in history: 

• Henry Ford never could have predicted that his clarifier would strike in one of Chicago’s meatpacking plants. He watched as the beef moved from one station to the next where workers focused on a single task. Was it possible to assemble a car in the same way that a cow was dismembered? This question revolutionized the time and cost of production with the introduction of the assembly line.
• The McDonald brothers, in turn, were inspired by Ford when they came up with their Speedee Service System, the restaurant assembly line that put together a hamburger like a car, thereby ending carhop service. 
• Figma founder Dylan Field was blown away when he saw a project his co-founder had been working on. Evan Wallace built a web page with an interactive swimming pool, an early example of how graphics could be rendered using a website instead of a software program. This sparked a conversation on whether it was possible to build an app like Photoshop but in the browser. 

Diversify your curiosity when you’re hunting for a solution. Allow yourself to research far and wide. Expose yourself to different people, ideas, and case studies. You never know which story, data point, or rabbit hole your clarifier is hiding in. 

Schultz understood this principle so deeply that he organized a three-day “Brainstorm Summit” for Starbucks’s leadership team a few weeks after his return. On the first day, participants were given a black Sharpie, a white iPod, and a packet of index cards. After the group listened to “Come Together” by the Beatles, they were posed with a question: “What did John, Paul, George, and Ringo teach us about the art of reinvention?” 

They spent some time thinking about how cultural icons like the Beatles, Apple, and even New York City were able to stay relevant despite disruption. They discussed how these “brands” took risks, refused to compromise, led with their hearts, and reinvented themselves while staying true to their core values. 

Seeking parallels between these famous brands and Starbucks did more than just spark creativity—it helped Schultz realize how they needed to double down on coffee quality and innovation. The group came up with several more initiatives that they would begin implementing right away. 

“Using The Beatles as a metaphor for an iconic brand was, I thought, brilliant. It swept us into a creative process, providing fresh context for us to examine and speak about ourselves and the company,” Schultz wrote.

The most innovative individuals and organizations diversify their curiosity by finding time to consider analogies and metaphors. Introducing yourself to divergent yet related stories and examples will broaden and freshen your approach to problems. 

The message from Schultz’s story and scientific studies is clear: innovation is king when it comes to recession resilience. But each innovation starts out as a simple idea. These ideas are often generated by teams and individuals through a tried-and-tested process. 

• Dissonance reveals a problem and triggers a hunt for clarity. 
• You cultivate a state of readiness as you search for your clarifier. During this period you cycle through different modes of thought: heightened attention and observation, deliberate detachment and mind wandering, and quiet time to reflect and strategize. 
• You diversify your curiosity and provide yourself with a wider sample of dots among which your brain can draw connections. 

It’s an uncomfortable and sometimes-chaotic approach—and it’s how groundbreaking transformation is made possible. 

In a follow-up piece, I’ll unpack how these principles led to the initiatives that revitalized Starbucks, and highlight additional lessons for navigating a downturn. Subscribe to make sure you get it:

Lewis Kallow is a science writer and the founder of Super Self Media.