Masters of Enterprise

H.W. Brands

• Publisher: Free Press
• Year: 2012
• ISBN:
  9781476726939
• Topic: Business
• Subtopic: Leadership
• Index: Business

From the early years of fur trading to today's Silicon Valley empires, America has proved to be an extraordinarily fertile land for the creation of enormous fortunes. Each generation has produced one or two phenomenally successful leaders, often in new industries that caught contemporaries by surprise, and each of these new fortunes reconfirmed the power of fanatically single-minded visionaries. John Jacob Astor and Cornelius Vanderbilt were the first American moguls; John D. Rockefeller, Andrew Carnegie, and J. P. Morgan were kingpins of the Gilded Age; David Sarnoff, Walt Disney, Ray Kroc, and Sam Walton were masters of mass culture. Today Oprah Winfrey, Andy Grove, and Bill Gates are giants of the Information Age. America has again and again been the land of dizzying mountains of wealth.Here, in a wittily told and deeply insightful history, is a complete set of portraits of America's greatest generators of wealth. Only such a collective study allows us to appreciate what makes the great entrepreneurs really tick. As H. W. Brands shows, these men and women are driven, they are focused, they deeply identify with the businesses they create, and they possess the charisma necessary to persuade other talented people to join them. They do it partly for the money, but mostly for the thrill of creation.The stories told here -- including how Nike got its start as a business-school project for Phil Knight; how Robert Woodruff almost refused to take control of Coca-Cola to spite his father; how Thomas Watson saved himself from prison by rescuing Dayton, Ohio, from a flood; how Jay Gould nearly cornered the gold market; how H. L. Hunt went from gambling at cards to gambling with oil leases -- make for a narrative that is always lively and revealing and often astonishing. An observer in 1850, studying John Jacob Astor, would not have predicted the rise of Henry Ford and the auto industry. Nor would a student of Ford in 1950 have anticipated the takeoff of direct marketing that made Mary Kay Ash a trusted guide for millions of American women. Full of surprising insights, written with H. W. Brands's trademark flair, the stories in Masters of Enterprise are must reading for all students of American business history.

1

GROWING UP WITH
THE COUNTRY

John Jacob Astor

• • •

IN JANUARY 1789, IN ACCORD WITH THEIR FRESHLY RATIFIED CONSTITION, Americans began electing members of their new federal government, which would shortly take up business in New York City. In that same month, in the same city, a local newspaper carried a notice:

John Jacob Astor

At No. 81 Queen Street,

Next Door but one to the Friends’ Meeting House,

Has for sale an assortment of

Piano Fortes of the Newest Construction,

made by the best makers in London, which

he will sell at reasonable terms.

He gives cash for all kinds of Furs

And has for sale a quantity of Canada

Beavers and Beavering Coating, Raccoon Skins,

and Raccoon Blankets, Muskrat Skins, etc., etc.

Music soon became a sideline for Astor, but otherwise his commercial activities thrived. As the new country grew, spreading its boundaries across North America, so did Astor’s mercantile empire. His agents ranged north into Canada and west to the Pacific. His ships traveled still farther—to the Orient and around the world.

Yet the core of what became, by his death in 1848, America’s greatest fortune lay much closer to his Manhattan home. Sooner than most of his contemporaries, Astor understood that long-term real-estate values in a growing country like the United States could only go up. He acted on that understanding, riding out the short-term bumps that discouraged some of his less resolute contemporaries and profiting enormously from his insight and perseverance.

By heritage and training, Astor should have been a butcher rather than a merchant or a real-estate investor. But his father, Jacob Astor, a butcher in the German town of Waldorf, had never made much of meat, and John Jacob didn’t see how he could either. Evidently the feeling was common among the Astor boys, who had already begun to scatter. George lived in London; John Henry had gotten as far as New York, perhaps as one of the Hessian mercenaries employed by the British during the American Revolutionary War. In any event, when George invited John Jacob to join him in England, the boy accepted with alacrity. He left Waldorf with a bundle slung over his shoulder; later legend had him stopping at the edge of the village, looking back and pledging, as if to the dear mother who had died before his fifth birthday, to be honest and industrious and never to gamble. In his business dealings he would adhere to the first two of these three pledges; in his personal affairs to the last two.

John Jacob spent four years in London learning English and saving his shillings for passage to America, which seemed to him the obvious destination for an ambitious young man. He probably would have left before 1783 but the Revolutionary War still raged; as it was, no sooner had word arrived from Paris of the peace treaty with the now-former colonies than he booked a berth west. He sailed in the autumn of 1783 with five guineas in his pocket and seven flutes under his arm; the former constituted his life savings while the latter, purchased from his brother, a manufacturer of musical instruments, were the entire stock-in-trade of a twenty-year-old who hoped to make a career as a merchant.

The ship left late in the sailing season and consequently arrived in the Chesapeake Bay after ice had already begun to form. Ill winds stalled the vessel a day south of Baltimore; cold days and colder nights locked the craft in the ice. A few of the more intrepid and impatient passengers struck out on foot; Astor, knowing no one in Baltimore and having paid for food and lodging until the ship reached its destination, sat tight. Part of the attraction of doing so derived from the knowledge he was gleaning from fellow passengers regarding what they characterized as the most promising part of the peddling business for a hardy fellow: furs. Accounts vary as to who these informants were—English merchants in the Canada trade, in one version; a German immigrant with personal experience in the woods, in another. But whoever they were, they fired Astor’s imagination about the possibilities that lay ahead. Although the heat thus produced didn’t melt the ice still gripping the vessel, it drove him over the side, across the frozen bay and on to Baltimore.

There he tarried briefly before continuing to New York. The latter city had several advantages over Baltimore, not all of which a newcomer could have known. Of those that would prove most important to Astor, the first was its unmatched position as port and entrepôt. New York’s harbor was the finest on the Atlantic seaboard; commanding the Hudson Valley, it afforded access to the fur-bearing regions of upstate New York and Canada. The second advantage was the circumstance that New York’s economy had been ravaged by the Revolutionary War. During the course of the fighting the city had been nearly depopulated; now that the war was over, it was on the rebound, which provided all manner of commercial opportunities.

Astor caught the bounce and soon set himself up in business. He peddled his flutes and other musical instruments but quickly broadened out into other items, notably furs. As he soon discovered, if he hadn’t already been told, the fur business was not for the faint-hearted or discomfort-averse. With the spring he headed up the Hudson to meet the Indian, Canadian and American trappers who actually procured the pelts. One contemporary left a picture of the merchant about his business:

John Jacob Astor, with a pack of Indian goods upon his back, wandered from the Indian trail, got lost in the low grounds at the foot of Seneca Lake in an inclement night, wandered amid the howl and the rustling of wild beasts, until almost morning, when he was attracted by the light of an Indian cabin, near the old castle, and following it, obtained shelter and warmth.

Like many another business traveler, Astor missed his hearth and home. In his case these had both personal and commercial significance. Astor married Sarah Todd in the autumn of 1785; the union brought not only companionship but a $300 dowry and a second set of eyes shrewd for value. Astor didn’t dispute reports that soon began circulating that Sarah was a better judge of furs than he; it was later said, after the family business prospered beyond any but the idlest early dreams of either, that she half-jokingly insisted that he pay her $500 an hour for her skills in inventory appraisal and strategic planning, and that he unhesitatingly agreed. (Any conversion to 1990s dollars is problematic, but suffice it to say that Sarah would have been getting well over $5000 an hour in 1998.)

Other family members took to the business less cheerfully. A market panic in the early 1790s left Astor momentarily illiquid; he approached his brother Henry for a $200 loan or, failing that, Henry’s signature on a note. Henry adhered to the conservative philosophy about being neither borrower nor lender; he refused his brother’s request but made a counteroffer. “John,” he said, “I will give you $100 if you will agree never to ask me to loan any money, endorse a note, or sign a bond for you, or be obligated for you in any manner whatsoever.” Astor thought this over, decided he needed the $100 and probably wouldn’t get anything else from Henry anyway, and took it.

The business survived this and various other early trials until by 1800 Astor was one of the leading figures in New York commerce and the first factor (as fur traders were called) in the pelt-and-skin business. At that time he decided to expand his business, taking advantage of what a later generation of business analysts would call synergy. In the 1780s and 1790s American merchants began tentatively exploring the Chinese market, sending vessels from Boston and New York to trade for tea, silk and other high-value items that had formed the core of commerce with the East for centuries. But what to sell the Chinese in return had always been a problem. The Chinese government took the position that it required nothing the West had to offer. China had not “the slightest need of your country’s manufactures,” the emperor informed King George III in 1793. Eventually the British, the world leaders in the China trade, would hit on opium as a product Chinese consumers couldn’t refuse; when the Chinese government launched one of the first offensives in the war on drugs by banning opium, the British forcibly resisted, thereby triggering the so-called Opium War of 1839-1842.

From the macroeconomic perspective of the mercantilist-minded governments of the late eighteenth and early nineteenth centuries, the quest for goods to sell to China represented an effort to correct an adverse trade balance; for individual merchants it was an effort to fill their trading ships in both directions and make money going out as well as coming home. Luckily for Astor, some early merchant, probably from Russia, discovered that the Chinese loved furs, especially those of the Pacific sea otter, which the Russians called “soft gold.” Selling furs to the Chinese seemed a likely and lucrative way for Astor to expand his commercial activities.

Astor learned about the China trade in some detail from certain of Sarah’s relatives who were actively involved. He tested the market during the 1790s before taking a major position in 1800 when he purchased an interest in the Severn, a ship commanded by the husband of one of Sarah’s nieces and carrying more than 30,000 skins from New York to Canton. The experiment went well; the skins and some other goods were exchanged for tea, silk, satin, chinaware and assorted other items, which arrived back in New York in the spring of 1801 after a round trip of thirteen months.

Precisely how much profit Astor cleared on this voyage and subsequent voyages is unclear, but it was sufficient to persuade him to purchase the Severn outright and afterward to commission the construction of other ships, including the Magdalen, named for his and Sarah’s daughter, and the Beaver, named for the backbone of his North American business. By 1809 five vessels carried Astor’s cargoes from New York to Canton and back.

By then he had conceived an ambitious—indeed audacious—plan for expanding both the fur trade and the China trade and for connecting the two even more intimately than before. Heretofore Astor had purchased the bulk of his furs in Montreal from two Canadian companies, of which the larger and more powerful was the North West Company. The Canadian firms naturally took advantage of their favored position to raise prices above what Astor would have liked to pay; more annoying to the patriotic sense of an adopted American, most of those furs came from territory within the boundaries of the United States, in particular the upper Mississippi and Missouri valleys. To pay cartel prices to Canadians for Canadian goods was one thing; to pay such rates for American goods was something else.

In 1804 the American explorers Lewis and Clark set out to survey the Missouri valley and the territory west to the Pacific; on their return in 1806 Astor developed a plan for breaking the Canadian grip on the American fur trade, for lowering his own costs and for expanding his share of the China market. The Canadians’ control of the trade rested on their relationships with Indian tribes and individual trappers between St. Louis and the crest of the Rocky Mountains; Astor proposed an assault from the rear. He would establish a trading network on the far side of the Rockies, in the basin of the Columbia River. Its headquarters would be at the Columbia’s mouth, near the place where Lewis and Clark had wintered; with luck this post would command the commerce of the entire basin. In addition it would give Astor a head start to China, for the furs collected from the ten thousand streams and hundreds of thousands of square miles of forest of the Oregon country (as the Columbia region generally was called) would be sent directly across the Pacific.

It was a grand scheme, which Astor set in motion in 1810. He dispatched an expedition to travel overland to Oregon, scouting the land and its prospects along the way; at the Pacific this group would be met by a supply ship sent around South Americas Cape Horn. Together the two parties would establish a fort and commence business.

The ship arrived first, and in the spring of 1811 its officers and men began construction of the fort that would be the centerpiece of a town called Astoria. But shortly thereafter tragedy struck. The ship was commanded by a martinet who was as contemptuous of the Indians as he was of his own men. He was also careless, allowing armed Indians to come aboard his vessel; one day the Indians overpowered the crew in bloody fighting. Somehow in the confusion of the melee a spark reached the ship’s magazine, blowing the vessel and both its attackers and defenders halfway to Hawaii.

This was a sharp setback to Astor’s plan—but it was merely the first. The overland party ran into various difficulties, straggling into Astoria only at the beginning of 1812. Shortly thereafter the United States and Britain went to war. The European conflicts that triggered the war had vexed American trade with the Continent for years; Astor’s business had suffered along with the rest. Now the war with Britain destroyed his hopes of a fur-trading empire in Oregon. The British had next to no navy in the Pacific, but the United States had none at all, and when a British warship approached Astoria in 1813, Astor’s agent there realized the post was indefensible. He sold the operation to a representative of the British-backed North West Company conveniently and uncoincidentally on the scene. Not surprisingly the buyer got a bargain.

Having lost a sizable investment through the actions of his government (in declaring and waging war against Britain), Astor felt justified in applying for government assistance to recoup that investment—and more. After the end of the War of 1812 he lobbied for legislation to bar foreigners from trading with Indians on American soil. When Congress approved the measure in 1816 Astor’s Canadian competitors were effectively excluded from the American fur trade. Congress conferred another boon when it closed trading posts that had been operated by the government since the end of the eighteenth century.

Astor wasn’t the only one to benefit from the exclusion of foreigners and the privatization of the fur trade; the 1820s witnessed lively (and, given the rough-hewn nature of the fur trade, occasionally deadly) competition between Astor’s American Fur Company and smaller firms operated by his rival compatriots. Some of his competitors eventually accepted his offers to join forces with him; others, in particular the Rocky Mountain Fur Company, fought stubbornly on.

But the business was no longer what it had been. The fur regions were being depleted, which made competition that much more bitter and profit margins that much thinner. Worse, fur had always been a fashion item, and fashions change. Beaver hats—hats made of felt pounded from the soft inner fur of beavers—went out of style in Europe and America, seriously eroding the market for Astor’s staple product. Deciding to leave the business to younger men, Astor in 1834 sold his fur interests.

By then his wealth had another basis. As early as the 1790s Astor had begun speculating in real estate. Like many another investor in that preindustrial era he looked to land as the obvious place to put money he didn’t have any current use for. Again like others then, and later, he had the idea of purchasing land that was essentially wilderness, of surveying and subdividing it, of building roads to make it accessible, of marketing it to smaller purchasers, and of watching his investment multiply in the process. To some extent the return he would realize would result from the services and infrastructure he provided; to some extent it would simply reflect the increasing scarcity of land, of which there was (and always is) a fixed supply, relative to population, which in America in those days (and for many generations after) was growing rapidly.

Astor took fliers in undeveloped properties in Canada just across the border and in the Mohawk valley of upstate New York. The investments turned out not to be particularly profitable, entangling Astor in squabbles regarding titles, management services and fees. But he learned a valuable lesson: It wasn’t necessarily any easier to earn money in real estate than in trade. In each case investments had to be selected judiciously and tended carefully. Money didn’t grow on trees in the New York backcountry any more than furs brought themselves to market or ships sailed themselves to China.

Astor had better luck in real estate in Manhattan. In his home city he had the advantage of proximity; he knew the properties from personal experience and daily observation, and the market from constant exposure. More important, he had a feel for the growth of the city—for the patterns of population, the direction of development, the evolution of the economy.

Astor first entered the Manhattan property market in the late eighteenth century, but not until the beginning of the nineteenth did he make a serious effort in real estate there. Two considerations influenced his timing. One was the uncertainty surrounding overseas trade during the Napoleonic era. With Britain and France seizing American vessels, and the U.S. government fitfully embargoing commerce with those belligerents, merchants had to think twice about plowing their profits back into the overseas trade.

The second consideration was the phenomenal growth of population and business activity in New York. The federal constitution specified a decennial census; that ten-year tally revealed that the population of New York City nearly doubled between 1790 and 1800, from 33,000 to 60,000. It more than doubled again by 1820, and much more than doubled between 1820 and 1840. Such breathtaking expansion called out for investment; Astor heard the call and heeded it.

He made his initial plunge with the profits from his first China ship, the Severn. In 1803 he put $180,000 into various lots and buildings; in 1804 $80,000; in 1805 $80,000; in 1806 $125,000. His purchases lagged during the period when he was preparing and executing his Astoria adventure; they also fluctuated according to the returns from particular voyages to China. But by 1820 he had invested well over half a million dollars in New York real estate and was, if not the largest property-holder in the city, certainly one of the largest.

An associate described Astor’s approach to property purchas...

Table of contents

• Cover
• Dedication
• Prospectus
• Chapter 1: Growing Up with the Country - John Jacob Astor
• Chapter 2: The Warrior - Cornelius Vanderbilt
• Chapter 3: Golden Grain - Cyrus McCormick
• Chapter 4: The Speculator - Jay Gould
• Chapter 5: Auld Lang Syne - Andrew Carnegie
• Chapter 6: By Jupiter - J. Pierpont Morgan
• Chapter 7: The Monopoly Esthetic - John D. Rockefeller
• Chapter 8: The Mechanic of Revolution - Henry Ford
• Chapter 9: Organization Man - Alfred P. Sloan
• Chapter 10: Think—and Sell - Thomas J. Watson
• Chapter 11: The Faith that Launched a Thousand Ships - Henry J. Kaiser
• Chapter 12: The Gambler - H. L. Hunt
• Chapter 13: Emperor of the Air - David Sarnoff
• Chapter 14: Fantasy Inc. - Walt Disney
• Chapter 15: The Real Thing - Robert Woodruff
• Chapter 16: Sweating Burgers - Ray Kroc
• Chapter 17: Bentonville, U.S.A. - Sam Walton
• Chapter 18: The Hero of the Hit Factory - Berry Gordy
• Chapter 19: Every Woman a Queen - Mary Kay Ash
• Chapter 20: Just Do It - Phil Knight
• Chapter 21: Dress for Success - Liz Claiborne
• Chapter 22: The World in Real Time - Ted Turner
• Chapter 23: The Celebrity as Entrepreneur - Oprah Winfrey
• Chapter 24: The Paranoia Principle- Andrew Grove
• Chapter 25: Standard Operating Procedure - Bill Gates
• The Bottom Line
• Acknowledgments
• Bibliography
• Index
• Copyright