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Coffee jitters Thursday, January 17, 2008 ·

By: Bryan Corliss

Jet Set

It's been a tough month for coffee company executives. Just a few weeks after Starbucks dumped CEO Jim Donald and two of his senior VPs, replacing him with co-founder Howard Schulz, Seattle-based Tully's Coffee suffered a management exodus, with five top executives quitting within a week.

Tully's CEO John Buller quit, reportedly after a dispute with Chairman and founder Tom O'Keefe over how to get the coffee company into the black. CFO Kristopher Galvin also left, as did the company's chief legal counsel and two vice presidents.

It's been a tumultuous time for Seattle's two biggest coffee houses. Starbucks saw its stock values drop by more than 40 percent in 2007, after recording its first-ever year-over-year drop in same-store sales. That was what led to Donald's ouster, according to Howard Behar, a long-time Starbucks executive who now sits on the board of directors.

"The facts of life are performance goes with this," Behar said in an interview with Washington CEO this week. "Jim Donald's a good guy. I love Jim Donald. But at the end of the day, you've got to turn in performance."

Tully's meanwhile pulled back on plans for an initial public stock offering last August, which would have infused $34.5 million into the company. Executives blamed the turbulence in the stock market, which was just starting to feel the upheaval in the financial services sector.

After that, Tully's ? which lost $9.8 million in its most-recent fiscal year and has only turned a profit once in its 16-year history ? began laying off headquarters workers. According to published reports, that's what sparked the disagreement. O'Keefe wanted more corporate cost-cutting; Buller opposed it.

Buller was replaced by Carl Pennington, a long-time Alberton's executive who was running seven Tully's franchises in Idaho. He becomes the seventh top executive at Tully's since O'Keefe stepped down as CEO in 2001.

In the midst of all this, Behar, coincidentally, came out with a new book titled "It's Not the Coffee." The book distills management principals he implemented during a 19-year career at Starbucks, which saw him rise to be president of Starbucks' international and North American divisions, overseeing the company's expansion from a local Seattle chain to a global powerhouse.

In it, Behar emphasizes that successful leaders will listen to customers and employees. Too many CEOs focus on growing the business. Instead, they should "grow the human beings, start there first," he says. "Usually, if you get out of the way, the people will grow the business."

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