Starbucks offers a useful warning about the difference between understanding how businesses work and knowing how to make one work.

During Laxman Narasimhan’s 17 months running Starbucks, the company lost about $32 billion in market value. Its share price fell almost 24%. 

Then Starbucks canned him.

There’s an interesting backstory.

Narasimhan spent 19 years at McKinsey, eventually becoming a director.

He later held senior roles at PepsiCo and became CEO of Reckitt before Starbucks recruited him.

He was hardly inexperienced or unqualified. 

But his background (and the result) was VERY different from that of the guy Starbucks hired to replace him.

Brian Niccol had spent years actually operating restaurant brands. He ran Taco Bell, then took over Chipotle in 2018.

During Niccol’s six years there, revenue nearly doubled, profits increased almost sevenfold and the share price rose nearly 800%. 

The market sure noticed the difference.

On the day Starbucks announced Niccol, Starbucks shares surged, adding back more than $20 billion in market value. 

I think there’s a useful lesson here for founders.

Advisors can be incredibly valuable. I make my living advising companies, so I’d better believe that.

But there is a category of knowledge you only acquire by building things and watching reality disagree with you.

Maybe you launch something customers ignore.

Or you hire someone who looked perfect, but bombed out. (Done that too.)

Maybe you discover that your brilliant pricing strategy doesn’t survive contact with real-life buyers.

You watch an operational shortcut become a super-expensive problem.

Then you FIX it.

That experience changes the way you evaluate ideas because you’ve lived through the consequences.

It’s one reason founders should be careful about handing too much authority to folks whose expertise has primarily been developed by analyzing other companies.

And there’s an equally important lesson for leaders who aren’t founders:

Act like one.

Get close enough to customers to understand what they actually experience.

Spend time where the product is made, sold and used.

Question the dashboard when it conflicts with what you’re seeing, run experiments, and own the consequences.

Interestingly, Narasimhan understood at least part of this. Before becoming CEO, Starbucks put him through months of immersion in its stores and he earned his barista certification. 

But immersion and ownership are different things.

By the end of his tenure, comparable-store sales were declining and Starbucks was struggling in both the U.S. and China.

His replacement quickly concluded that the company had drifted from the experience that made Starbucks successful in the first place. 

One of the ideas I explore in I Need That is that no amount of strategy can compensate for losing touch with the people who ultimately decide whether your product succeeds.

A great framework can tell you where the opportunity ought to be.

Building teaches you where it really IS.

If you’d like help creating and marketing products people feel compelled to buy, the product marketing consultants at Graphos Product can help.