Giants of Enterprise

Richard S. Tedlow

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061744204
• Topic: Business
• Subtopic: Leadership
• Index: Business

Seven business innovators and the empires they built.

The pre-eminent business historian of our time, Richard S. Tedlow, examines seven great CEOs who successfully managed cutting-edge technology and formed enduring corporate empires.

With the depth and clarity of a master, Tedlow illuminates the minds, lives and strategies behind the legendary successes of our times:

. George Eastman and his invention of the Kodak camera;

. Thomas Watson of IBM;

. Henry Ford and his automobile;

. Charles Revson and his use of television advertising to drive massive sales for Revlon;

. Robert N. Noyce, co-inventor of the integrated circuit and founder of Intel;

. Andrew Carnegie and his steel empire;

. Sam Walton and his unprecedented retail machine, Wal-Mart.

PART ONE

The Rise to Global Economic Power

ANDREW CARNEGIE

GEORGE EASTMAN

HENRY FORD

INTRODUCTION

The three executives profiled in this section take us from a time in which the United States was an economic power distinctly of the second rank to an era when we were the dominant force in the world in terms of output, income per capita, and technological progress. The first business leader we discuss, Andrew Carnegie, was born in Scotland in 1835 and emigrated with his family thirteen years later. With this simple observation, we encounter a phenomenon of fundamental importance. From Carnegie’s time down to the present day, the United States has benefited enormously from what has been the greatest voluntary mass movement of human beings in the history of the world.

Of course, the great irony of America during Carnegie’s early years here was that not all the immigration from which we benefited was voluntary. A mere forty-five miles south of Pittsburgh, where Carnegie settled, was Virginia, a slave state. Cheek by jowl with the hotbed of entrepreneurial activity which was Pittsburgh in the late 1840s was a society where some men, to paraphrase Abraham Lincoln’s immortal second inaugural address, wrung their bread from the sweat of other men’s faces. Carnegie was acutely aware of this fundamental contradiction in the American polity, and from the beginning he was an ardent advocate of the abolition of slavery.

Once Carnegie got to the United States, there was less standing in his way than there would have been in other countries. And Carnegie knew it. As he grew older, he embraced the United States and American ways with all the fervor of the convert. He enjoyed teasing, touting, and sometimes taunting his European friends with the superiority of his adopted land. He began a book in 1886 with what was to become a famous line: “The old nations of the world creep on at a snail’s pace; the republic thunders past with the rush of the express.”¹

When Carnegie began his rise to fortune in 1848, Great Britain had the world’s leading economy. As late as 1870, Britain produced more steel than the rest of the world combined. Carnegie made steel his own industry, and he thundered past his native land with the rush of an express. In 1900, the year before Carnegie’s retirement, the United States produced twice as much steel as Britain,² and a lot of that steel was from Carnegie’s own mills. It was the highest-quality, lowest-priced steel available anywhere.

As a man, Carnegie presents many issues which we will encounter repeatedly. How he dealt with these issues�including how he treated those who helped him early in life, how he treated his partners, how he treated his labor force�defined who he was. So also did his passionate desire to hold on to the past (he bought a huge estate with a castle in Scotland) and to “thunder” into the future. Each of the people portrayed in this book had to come to terms with their own wealth. Each became far richer than they had any right to expect when they were young. Carnegie had his own unique response to this situation.

Carnegie was part of a set of business titans born in the 1830s who later became known, fairly or not, by the unlovely label of “robber barons.” J. P. Morgan, for example, was born two years after Carnegie. John D. Rockefeller was born in 1839, two years after Morgan. Our next chapter deals with a man nineteen years Carnegie’s junior, George Eastman.

Eastman is never referred to as a “robber baron,” and the differences between Carnegie and him are striking. Carnegie was an extraordinarily voluble man, writing articles and books that had a wide circulation. He had a zest for life; he was greedy for it and could not get enough of it. Pittsburgh was not big enough to hold him; he divided the two decades of his retirement between his magnificent Scottish estate, where he entertained the world’s notables, and his sumptuous house in Manhattan. Carnegie would have made the Faustian bargain to live life again.

Eastman, by contrast, was remote. This man who made his fortune commercializing photography was hidden. He wrote innumerable letters but few if any articles and no books. His most intimate business associate was a man named Henry Alvah Strong, who could appreciate him but never (as Strong himself acknowledged) understand him. His closest bond was with his mother; but his affection for her was not, as far as one can judge such things on the basis of limited information, fully and satisfactorily reciprocated. Eastman is the only business leader in this book, and one of a mere handful of chief executive officers of major corporations in American business history, who never married. Despite being much celebrated not only in his hometown of Rochester but around the world as well (his Kodak camera was marketed everywhere) George Eastman was a lonely man in later life. In old age, having outlived his friends and in failing health, he was not thinking about a Faustian bargain. He committed suicide.

Extraordinarily generous with his great wealth, Eastman directed his often-anonymous philanthropy toward health care, education, and culture. He had a highly developed aesthetic sense. He did more than compete in the photographic industry; he transformed it. He put a camera, the Kodak Brownie, into the hands of everyone who had $1.00 in disposable income and an interest in taking pictures.

Eastman Kodak was founded in 1880, and George Eastman was in the vanguard of businessmen who marketed consumer products (as opposed to selling to other businesses) which were, and this is very important, branded.

The 1880s was the decade that saw an explosion of branded consumer goods introduced to the mass market. Procter & Gamble had been around since 1837, but Ivory Soap floated in 1879. American Tobacco was founded in 1882. Coca-Cola and Johnson & Johnson were both founded in 1886. Heinz and Campbell Soup were also founded in the 1880s. In one product category after another, nationally branded, packaged products became dominant. In cameras, it was Kodak.

This move to brands was unprecedented. Very few brands marketed prior to 1880 survived for long. There are some exceptions, like Wedgwood, but not many. However, if we look at the above list of branded products created in the 1880s, they are all still with us. Why? What happened?

The 1860s was the decade of Civil War and political collapse. During the 1870s, the United States was struck by a devastating depression. By the 1880s, the union of the states was secure and the depression over. Just as important, the telegraph and railroad networks had reached a stage of maturity which permitted access to a national market.

Anything which collapses barriers of time and space opens up vast new opportunities for entrepreneurs with insight and the daring to act. Eastman had both. Eastman Kodak would have been impossible without the railroad and the telegraph, the two technological marvels of the age. Some believe the Internet will play a similar role in the twenty-first century, and for the same reason. It permits the movement of data with unprecedented speed and economy.

In the 1880s, Eastman had the wind at his back. But so did everyone else. What made him (and a few select others) stand out was that he knew how to sail. The 1880s were the real beginning of the American cornucopia, of an economy that produced a great deal of what people wanted, things like inexpensive cameras, as opposed solely to the food, clothing, and shelter that they needed to survive.

The third entrepreneur in this section, Henry Ford, became as famous as anyone ever born in America. When he and his company were at their high tide, in the early 1920s, the place of the United States in the world had changed completely. When Andrew Carnegie reached our shores, the United States had a classic colonial-type economy, exporting agricultural products and importing manufactured goods, trying to protect itself with tariffs, and running the constant risk of losing the gold in the treasury because of chronic balance of payments deficits in a world of fixed exchange rates.

By the early 1920s, the United States was the world leader in what were then the industries of the future, especially automobiles and electricity. Henry Ford not only dominated the automobile industry from 1908 until the mid-1920s, his methods of production became the marvel of business. He became more than a man; he became a movement. Fordism is a word translated into many languages, and many people who spoke these languages made the pilgrimage to his gigantic industrial complex on the River Rouge in the Detroit suburb of Dearborn.

During the mid-1920s, no one in the United States was worried about the nation’s status in the global financial system. The United States emerged from World War I as a creditor nation for the first time in its history. We became an export engine and also built production facilities overseas. Ford had a factory in England as early as 1911.

Henry Ford, more than any other individual, put America on wheels. He liberated a rural nation from place. He put a car within the reach of the masses. Motorized transportation changed America’s cities as well. In 1900, 2.5 million tons of horse manure and sixty thousand gallons of urine were deposited on the streets of New York City every day.³ Think about it.

The problem with Ford was that he believed his own press notices. Perhaps more than any other figure in America’s business past, he suffered from the madness of great men. His dismal life story following 1927 is an eloquent testimony to the wisdom of the fear of the founding fathers of unchecked power.

The careers of these three men�Carnegie, Eastman, and Ford�take us from America as a backwater to America at a peak in its history. Their careers posed problems to each which in some ways were similar. But they came up with very different solutions.

1 ANDREW CARNEGIE From Rags to Richest

You seem to be in prosperity. Could you lend an admirer a dollar & a half to buy a hymn book with? God will bless you. I feel it. I know it…. P.S. Don’t send the hymn-book, send the money. I want to make the selection myself.¹

MONEY

Sometime between 1886 and the turn of the century, Andrew Carnegie was visiting his widowed sister-in-law Lucy at the estate his late brother had bought in Dungeness, Florida, just off the coast of the border between Florida and Georgia. Andrew and Lucy got along well. He had named his first blast furnace for the production of pig iron after her (it was the custom in the iron trade to name furnaces after women); and she had named one of her sons (she and Tom were the parents of nine children) Andrew.

During this visit, Lucy was complaining to her bemused brother-in-law that her son Andrew neglected to write her from the college which he was attending. Without missing a beat, Carnegie told her that he could induce a response from the young collegian by return mail. He was sure enough that he bet her $10, a wager to which she immediately agreed.

So Andrew drafted what has been described as a “nice, newsy” letter to his nephew and namesake. He added a postscript that he was enclosing a check for $10 as a gift. He then deliberately left the check out of the envelope.

In no time, young Andrew Carnegie wrote back to his uncle, gratified by the gift but distressed that it had not been enclosed. Carnegie triumphantly presented the letter to Lucy; she paid him the $10 she had lost on the bet, and Carnegie sent that $10 off to his nephew.²

Andrew Carnegie and John D. Rockefeller were the two greatest American businessmen produced during the nineteenth century. They were the two richest and the two most powerful. As individuals, however, it would be hard to imagine two people less like one another. Carnegie was ebullient; until the very end of his life he was incurably optimistic; he was by turns genuinely sincere and hypocritical, intensely realistic and grandiose. Slightly manic, he was a man of enthusiasms which could be painlessly transformed into wholly different enthusiasms. He was capable of physical exertion, but he was also a physical coward. He was loyal; he was fickle. He could love. He could betray.

There was an unbridgeable gulf between the man he wanted to be and the man the business world rewarded him for being. This is a critical attribute of Carnegie’s career, and one which he shares with many another businessperson. There can be no better illustration than what Joseph Frazier Wall called “the most traumatic and highly publicized episode in his business career,”³ the bloody lockout of labor at the Homestead plant in 1892.

Carnegie had an insatiable thirst for public approbation, a need which comported ill with his insatiable thirst for money and power. He wrote incessantly, and what he wrote was as liberal and fair-minded as the image he wanted to have of himself. In April of 1886, he wrote in Forum magazine that “my experience has been that trades-unions, upon the whole, are beneficial both to labor and to capital.”⁴

Not many employers were publishing words like that in 1886. The month after the April article, the Haymarket “riot” occurred, placing labor and radicalism in the same boat to much of middle-class America. Nothing daunted, Carnegie rushed back into print. In his “Results of the Labor Struggle” in August of 1886, he wrote: “To expect that one dependent upon his daily wage for the necessities of life will stand by peaceably and see a new man employed in his stead, is to expect much. There is an unwritten law among the best workmen: ‘Thou shalt not take thy neighbor’s job.’”⁵

These sentiments struck a profoundly responsive chord among workingmen, and Carnegie was lionized for them by unions. The Brotherhood of Locomotive Engineers named a division after him and conferred upon him an honorary membership, which Carnegie happily accepted:

As you know, I am a strong believer in the advantages of Trade Unions, and organizations of work men generally, believing that they are the best educative instruments within reach…. I feel honored by your adopting my name. It is another strong bond, keeping me to performance of the duties of life worthily, so that I may never do anything of which your Society may be ashamed.⁶

The reaction of Pittsburgh’s business community, dominated as it was by Carnegie’s principal partner, Henry Clay Frick, and Frick’s banker, Judge Thomas Mellon, can be imagined. Unions were anathema to these men and to the old-time ironmasters at the center of Pittsburgh’s business economy.

Labor violence was endemic in Pittsburgh. There was a lockout in the city’s iron mills in 1874–1875. This was followed by the “Great Labor Uprising” of July 1877. During the course of the riots at the time, twenty or more Pittsburghers were killed by National Guardsmen. Paul Krause, the leading historian of labor in Pittsburgh during this era, has written that the 1877 riot was to employers “a palpable reminder that the Paris commune might yet come to the United States.”⁷

The Pittsburgh Bessemer Steel Company was formed in October 1879 by some of the most successful industrialists in Pittsburgh. The company’s goal was to put up a state-of-the-art steel mill to compete with the “ET,” as Carnegie’s Edgar Thomson mill came to be called. The site they chose for the mill was Homestead, close to the ET.

From the first, Homestead experienced labor troubles, or from labor’s point of view what would be better labeled “owner troubles.” Unlike the ET, Homestead was unionized from the start. The Amalgamated Association of Iron and Steel Workers (AAISW) was engaged in a combination of a strike and lockout during the first quarter of 1882. Conflict flared up periodically thereafter, and by the following year the owners were ready to sell to Carnegie.

Carnegie was ready to buy. The Homestead mill was the most modern in the country; and Carnegie, always looking to the future, was not unaware that Homestead could produce structural steel, in addition to rails. He bought the mill at cost, offering to pay the investors in cash or stock. Only one investor took stock. The amount was $50,000. In a decade and a half, that $50,000 in stock was worth $8 million.⁸

The sources do not tell us the number of people to whom Carnegie made the proposition to purchase Homestead. According to Wall, “representatives of five manufacturing companies” had been involved in creating the Pittsburgh Bessemer Steel Company in 1879.⁹ It is remarkable that despite the record he had already achieved by 1883, only one person wanted to become Carnegie’s partner. Carnegie once said that “I am sure that any competent judge would be surprised how little I ever risked….”¹⁰ As with so many of Carnegie’s pronouncements about his own career, this was quite untrue, however. Many of the people who declined to become his partner believed in 1883 that Bessemer steel manufacturing was a very risky business indeed. They took the money and ran.

All but one of the former owners of the Homestead mill were out of the picture by the end of 1883, but labor strife was very much still in the picture. For all his fine words about unions, Carnegie did not want organized labor at any plant of his. His effort to break the AAISW resulted in the Ho...