Founders - #122 Alfred Sloan (General Motors)

Episode Date: April 26, 2020

What I learned from reading My Years with General Motors by Alfred Sloan.----Get access to the World’s Most Valuable Notebook for Founders by investing in a subscription to Founders Notes----[2:40] There are ideas worth billions in a $30 history book: Henry talked to me on several occasions about a book by the former chairman of General Motors. He told me he had learned a very important concept from that book, which he wished to use in the growth of Teledyne. . .during a very difficult economic time of recession, General Motors had needed additional funds to finance their growth and had a plan to sell bonds to the general public. The bond sale was a complete failure, and the chairman (Sloan) had written in his book that it had taught him an important lesson. It was that for a corporation to grow and to have a strong financial base, it needed to have, as part of itself, an interest in substantial financially oriented institutions. So General Motors had started GMAC and invested in other financial groups. As a result of his interest in this idea, Henry had decided that at some point, he would seek out financial organizations we could acquire. We began acquiring a number of financial and insurance companies, which was a significant change from our usual aerospace, metals, industrial and consumer company acquisitions.[5:45] Alfred Sloan had a singular focus: General Motors and the Hyatt Roller Bearing Company, have been almost the sole interests of my business life.[6:28] Alfred Sloan’s perspective on work: I simply took the view that we should go at the job vigorously and without hampering restrictions. I put no ceiling on progress.[12:22] Billy Durant came up with the idea for General Motors. Alfred Sloan perfected it: Durant’s pioneer work has yet to receive the recognition it deserves. His philosophy was an emerging one in the Model T era and was afterward to be realized not by him but by others, including myself.[19:08] The accumulated intelligence of mankind is what makes us special amongst all other species Everything is built upon the foundation before it: It has been called to my attention that Eli Whitney, long before, had started the development of interchangeable parts in connection with the manufacture of guns, a fact which suggests a line of descent from Whitney to Leland to the automobile industry.[29:20] Alfred Sloan had a great perspective on problems. They are temporary and we can fix them: Economic declines have a way of shaking out the weak ones in business, and we had weaknesses. Some people cannot see beyond a slump, but I have never yielded to economic pessimism and in times of decline have kept in mind the eventual upturn of the business cycle and the long—range dynamics of growth. Confidence and caution formed my attitude in 1920. We could not control the environment, or predict its changes precisely, but we could seek the flexibility to survive fluctuations in business. I mention this because confidence is an important element in business; it may on occasion make the difference between one man’s success and another’s failure.[33:15] Sloan on how difficult Henry Ford was to compete against: With Ford in almost complete possession of the low—price field, it would have been suicidal to compete with him head on. No conceivable amount of capital short of the United States Treasury could have sustained the losses required to take volume away from him at his own game. [38:40] Alfred Sloan on committees: I have often been taxed, by people who do not know me, with being a committee man—and in a sense I most certainly am—I have never believed that a group as such could manage anything. A group can make policy, but only individuals can administer policy.[44:20] General Motors was able to overtake Ford because they widened a niche: It was that plan, policy , or strategy of 1921—whatever it should be called— which, I believe, more than any other single factor enabled us to move into the rapidly changing market of the twenties with the confidence that we knew what we were doing commercially and were not merely chasing around in search of a lucky star. The most important particular object of that plan of campaign, which followed from its strategic principles, was, as I have said, to develop a larger place for Chevrolet between the Ford car below and the medium—price group above, a case of trying to widen a niche. That was all, in the beginning, despite the completeness of the plan with regard to the whole market.[56:40] Alfred Sloan knew the car market was changing. You didn’t make sales by having the best car. You made sales by being different. David Ogilvy called this idea “a positively good product”: In the past, just about every advertiser has assumed that in order to sell his goods he has to convince consumers that his product is superior to his competitor’s. This may not be necessary. It may be sufficient to convince consumers that your product is positively good. If the consumer feels certain that your product is good and feels uncertain about your competitor’s, he will buy yours. If you and your competitors all make excellent products, don’t try to imply that your product is better. Just say what’s good about your product – and do a clearer, more honest, more informative job of saying it. Sales will swing to the marketer who does the best job of creating confidence that his product is positively good.----Get access to the World’s Most Valuable Notebook for Founders by investing in a subscription to Founders Notes----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested, so my poor wallet suffers.”— GarethBe like Gareth. Buy a book. It's good for you. It's good for Founders. A list of all the books featured on Founders Podcast. ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

We knew that the product had great potential, but I can hardly say that any of us realized the extent to which the automobile would transform the world, reshape the entire economy, call new industries into being, and alter the pace and style of everyday life. It was my personal satisfaction to be associated, as a supplier or a competitor, with a large number of the able citizens who created and contributed to the development of this industry. The names of a few of them, by their association with cars and companies, stand for a new American legend. Mr. Ford, Mr. Buick, Mr. Chevrolet, Mr. Olds, Mr. Chrysler. Involved with thousands of others in the destiny of this industry, they conducted the prosaic operations of running a business without being aware of the revolution they were making. The field was open to all. Technical knowledge flows from a common storehouse of scientific progress. The techniques of production are an open book. The market is worldwide and there are no favorites except those chosen by the customers.

When we started on this great adventure in the early 1900s, the whole automotive industry was searching for ways and means to find itself. In those early days, we lacked the techniques that today are taken for granted. Things just seemed to happen to us and to the industry. The number of sales by dealers was unknown. The number of cars held by dealers was unknown. Trends in consumer demands were unknown. There was no awareness of the importance of the used car market.

There were no statistics on the different cars' market penetration. No one kept track of registrations. Production schedules were set with no real relationship to final demand. Our products had no planned relation to one another or to the market. The concept of a line of products to meet the full challenge of the market had not been thought of. We had to start from that beginning. My impressions of all of this, after more than 65 years in and around the automobile industry, 45 of them with General Motors are the basis for this book. All right, so that's an excerpt from the book that I'm going to talk to you about today,

which is My Years with General Motors by Alfred Sloan. Okay, back on Founders 110, I covered, this is the second podcast I did on Henry Singleton. And I talked to you about the book called Distant Force, a memoir of the Teledyne Corporation and the man who created it. This is the book I was reading where I first found out about Alfred Sloan's autobiography, which is the one I'm going to talk to you about today. But I want to read an excerpt before I jump into the lessons from Alfred Sloan from Distant Force. And it says, Henry talked to me on several occasions about a book by the former chairman of General Motors Corporation. He told me he had

learned a very important concept from that book, which he wished to use in the growth of Teledyne. He explained that in about 1921 or 1922, after World War I, and during a very difficult economic time of recession, General Motors had needed additional funds to finance their growth and had a plan to sell bonds to the general public. The bond sale was a complete failure, and the chairman had written in his book that it taught him an important lesson. It was that for a corporation to grow and to have a strong financial base, it needed to have, as part of itself, an interest in substantial financially oriented institutions. So General Motors had started General Motors Acceptance

Corporation, also known as GMAC, and invested in other financial groups. As a result, and this is the important part, as a result of his interest in the idea, Henry had decided that at some point when Teledyne had reached a certain size, he would seek out financial organizations we could acquire. So near the very end of our acquisition period, we did go in that direction before we finally stopped. We began acquiring a number of financial and insurance companies, which was a significant change from our usual aerospace, metals, industrial, and consumer company acquisitions. So the note I left on that, when I read that part of the book,

the note I left on that page was actually another quote that is found in Poor Charlie's Almanac. And it explains why Charlie Munger and Warren Buffett are so fanatical about reading biographies and studying history. And it says, there are ideas worth billions in a $30 history book. And for in the case of Henry Singleton and Teledyne, the effect that the book that we're going to talk about today that had the effect of that one idea that Henry found in that book, that is literally true. It had a multi-billion dollar effect on the outcome of Teledyne. And it's just another, to me, it's just another illustration of why we're on the right path with what we're doing here at Founders by going through and reading all these biographies, because there's

so many ideas that people spent their entire careers, and in many cases, making mistakes that they warn you to not follow in their path. So I just wanted to bring that to your attention to tie all this together. I want to jump right into this book. I want to first start talking about, I think, what jumps off the page as soon as you study Alfred Sloan. So again, we talked about Sloan a lot in the last two podcasts because we were talking about the founder of General Motors, Billy Durant. And so the way to think about how Sloan fits into the picture as we continue this multiple part series is we're studying the early automobile industry founders and pioneers. Billy Durant started the company and Sloan perfected it. Okay. So first, uh, something to know, uh, about Sloan is he was, uh, a striking difference between him and Durant. Durant had, you know, a ton of

different things he juggled at one time. He'd be investing. He'd run a bunch of different companies. Sloan had a singular focus. And he says, so. He says, General Motors and the Hyatt Rollerbearing Company have been almost the sole interests of my business life. And I think that's one of the things, just like similar to Henry Singleton, even though Singleton ran a conglomerate, he had a singular focus. And I think that's something that when I started studying Henry Singleton, something that has changed the way I want to approach my life and something, an idea I hope I never let go of. All right. Another thing to know about Sloan. He always thought big. And I love this idea. He says, I simply took the view that we should go at the job vigorously and without hampering restrictions.

I put no ceiling on progress. This gives you a good indication of his personality. He's extremely serious, extremely dedicated, extremely driven. So this is Sloan. Now this is, it's funny, this is advertised as like an autobiography. It's not an autobiography. He talks about his personal life and his family and the stuff you would expect to find in an autobiography for like a few paragraphs. The vast majority is extremely detail uh detail oriented around the decisions he made while running general motors and i've read in other books that he had over 20 different researchers helping him go through the archives of general

motors to pull out minutes for meetings all kinds of stuff so this book is massive it's 600 pages extremely detailed but i do want to tell you a little bit about his early life, to the small degree that he covers it. This is Sloan on his family traits. He says, I think we all we have all had in common a capability of being dedicated to our respective interests. So he talks about he's talking about his siblings there, that whatever profession they chose, they all chose different professions, but they took it very seriously. A little bit about his early life. And as I read this section to you, I just want you to think about, we see this trend again and again. Sloan was at the right place at the right time with the right set of skills.

And so he's indicating that to us here. He says, I came of age at almost exactly the time when the automobile business in the United States came into being. In 1895, the first gasoline automobile manufacturing company in the United States was started. That same year, I left MIT with a BS in electrical engineering and went to work for the Hyatt Roller Bearing Company. The Hyatt Bearing, the product they're making, was later to become a component of the automobile. And it was through this component that it came into the automotive industry. Remember, he worked in the industry for 65 years. Except for one early and brief departure from it, I have spent my life in the industry. So think about how valuable that is. He's over six decades of experience in one industry, the things that we can learn from this person. Now, this is what I found fascinating. This is his salary and the

job description when he started working at Hyatt Rollerbearing. We were doing business of under $2,000 a month, so $2,000 a month in revenue. I was kind of an office boy, a draftsman, a salesman, and a general assistant to the enterprise at a salary of $50 a month. Okay. So why am I bringing up? Why is this important? Because this is another example of growing into the person that you need to become. He started at $50 a month. At one time in his life, he is the second richest person in the United States behind Henry Ford. And the other thing I wanted to bring up is the fact that the business, when he started working, it was only doing $2,000 a month. Eventually he takes over this business. This is the same business that he's going to run for about 15 years, something like that. And he sells to Billy Durant for $13.5 million. Okay. So he leaves the company, comes back,

they buy Hyatt because it's about to go out of business, about to be liquidated. And his father buys it with an associate and they give him six months to turn it around. So let me just bring you up to speed on this real quick in case you haven't yet listened to last week's podcast. In 1898, it appeared that the company would have to liquidate. But my father and an associate of his combined to put $5,000 into Hyatt. So $5,000 investment that they want. His father is a shareholder the entire time up until the point where he sells it to Billy Graham.

So they put $5,000 into Hyatt with the understanding that I would go back for six months and see what I could do with it. At the end of six months, we had made some advances in volume and economy and we made a $12,000 profit that put the business into a position where we recognize that it might be successful.

And this is so important. I could not know then that through Hyatt, I had entered into the headwaters of General Motors. So what is Sloan saying there? He's saying that the opportunity that he was about to be presented was unpredictable. Not only did he become a supplier to General Motors, Ford and others, but of course, General Motors winds up buying the company about a decade and a half in the future from where we're at. Something to know about Sloan. Again, I don't think they're going to write a book about you if you don't have this personality trait. He was persistent and determined. So he says for the next four or five years at Hyatt, we had growing pains. It was difficult to get business. And when we got it and expanded, we needed working capital and we could

not get that outside the company. So another contrast to Durant, who wanted to fund most of his company money through his companies through stock issuances and collecting people money from other people. Sloan grew his company through internally, mainly through profits. In five years, we made progress. Our profits got up to about $60,000 a year. That's amazing considering they're in $2,000 a month when you start working there. And the prospects improved as a young automobile industry opened up a new market, meaning a new market for the bearings. Now, my two favorite parts of reading this book was Sloan has an immense amount of knowledge into the early days of the automobile industry, which I, of course, find fascinating. So I'm reading so many books on it. And second, which I'll get to later is he's

extremely detailed in his head to head competition with Henry Ford, which he winds up winning. So I'm going to tell you more about his strategy, which is which is really fascinating. And he goes into great detail, which is a fantastic part about the book. So on the early days of the automobile industry, he says, my first personal experience with automobiles was much like that of others at the time. I wanted one, but couldn't afford it. Only about 4,000 cars were made in the year 1900, and they were expensive. So of course, you can't really understand Alfred Sloan if you don't understand Billy Durant and vice versa. So he's going to talk a lot about Durant in this book. This book was published about 20 years after Durant died. So he says, Durant's pioneer work has yet to receive the recognition it deserves. He's writing that in

1963. Still the case today. Most people don't know who the founder of General Motors is. Everybody knows who the founder of Ford is. His philosophy was an emerging one in the Model T era and was afterward to be realized not by him, but by others, including myself. So what is he saying in that paragraph? Durant came up with the idea. I executed it. This is Sloan on Durant and Ford building personality driven companies. He says, Sloan giving him credit to what he feels were their best attributes. The second half was what they didn't do well and what he feels he did well. Now, this is also interesting because when I read that section, it made me think of this quote by Charlie Munger that I've never forgot. He says that you must follow your natural drift. And he talks about, you know, he graduated from law school. He such practiced an attorney. A lot of his early clients are business people. And he's

like, I'm not suited to be an attorney. I don't want to do this. I want to invest in businesses and I want to be a business person. I want to be an entrepreneur and I'll be investor. And he talked about like, there's plenty of like, he just had to be who he was. That's what he means by following your drift. So Sloan is talking about they're injecting their personality into their businesses. I think everybody injects their personality to their craft. And I just think the people who are the best at it are the ones that lean into whatever makes them unique. And then they match up whatever makes them unique

and following that natural drift into what they're doing for work. Some people never do that, unfortunately. And so in Sloan's case, I don't think he, you know, there's a reason why there's a bunch of other people that were suppliers first

and then turned into automobile manufacturers. The most successful example of that is the Dodge Brothers. Sloan could have done that, but that's not his natural drift. He was meant to be a manufacturer, an engineer, a manager. So I think that's important as we hear what he has to tell us and to teach us that we view it through that lens. All right, so this is Sloan on Durant being more advanced manufacturer.

He was saying Durant being more advanced manufacturer than he was saying. Durant was ahead of his time. And the reason he was so ahead of his time is because he had an eyes on vertical integration way ahead of other automobile peers because, remember, he had built the GM of horse-drawn transportation. So it says, Durant thus showed a considerable sophistication in economic matters very different from the popular image of him as a mere stock market plunger. I cannot say that he was precise in the application of his economic philosophy. So what he's talking about is economic philosophy. He's talking about vertical integration. But he emerged, this is really, really important sentence here, but he emerged prominently from a period that saw the birth and death of a great many automobile companies. So what is he saying there? You have to respect them because he survived.

And Sloan talks about that a lot. So one thing to know about Sloan, extremely focused on profit. And he's not focused on profit just because he's greedy for money. He's focused on profit because he wants his company to manufacture automobiles. And to do that, they must survive. And the only way to survive is to profit. So he talks a lot at length that a lot of these other automobile manufacturers did not focus enough on profit and so therefore they were at the the whims of other financial people whether banks or investors to continue putting money to the company and when you find what someone was talking about is when you find yourself in that situation you're gonna if you happen to need money at the same time there's an economic contraction which sloan had to manage you know he managed gm for three to four decades

he had to deal with this constantly and i'm going to get to more of his crazy impressive performance during the depression that you're going to find yourself at the whims of those people that have the money and if they don't want to give it to you you're done done. So to Sloan, he, you know, he he he has like a love hate relationship with Durant. I'll get to that. He talks about that. He views him of two minds, two different ways that are in large part contradictions. But this one sentence, like he he did respect him because he survived. There was tons of people that started companies in the early 1900s. Sloan gets kicked out of GM in 1920, but he lasts 20 years in the early automobile industry that's insane when you think about how maybe not thousands hundreds maybe thousands of companies died uh in that in that period probably hundreds i don't know

if it was thousands all right moving on uh this is sloan on the situation at gm right before he takes over thanks mainly to mr durant general motors had then the makings of a great enterprise, but it was in good part physically unintegrated and in management uncoordinated. The expenditures for new companies, plants and equipment and inventories were terrific. Some of them not to bring a return for when he meant terrific means it was a large amount of money, not that they were great. To his point, he says some of them not to bring a return for a long time, if ever. And as they went up, the cash went down, meaning they had large to not only manufacture, but to manufacture that number of amount of cars took an insane amount of money. So General Motors was headed for the crisis from which the modern General Motors Corporation would emerge. So I

bring that in there because he says you have to go through this tumultuous period. You had to make those mistakes to realize, oh, this is a problem. If we don't rectify this and if we don't course correct here, we're going to go out of business. And so when Sloan takes over, it's a period of crisis. But that's a motivating factor because that allows him or motivated him to build a very very strong financial base which he definitely does i covered last week a little bit about how sloan looked up most and learned most from henry leland the founder of cadillac i'm not going to cover we cover all of it but i do he brings them up a lot in the book so i just want to read a couple

sentences to you so he says he then taught me the need for greater accuracy in our products to meet the exacting standards of interchangeable parts mr leanland came to the industry with a mature experience in general engineering and in gasoline engines which he had long made for boats one of his specialties was precision metalwork which went back to his experience in toolmaking for a federal arsenal during the Civil War. So think about that. We're in the late 1800s, maybe early 1900s when they're interacting. Henry Leland, they talk about, you know, he's this white bearded guy. He'd already been a professional engineer for 40 years. So a generation older than Sloan, what could he learn from this person's accumulated experience? A lot.

And Sloan definitely sat and learned from him. It has been called to my attention that Eli Whitney, long before, had started the development of interchangeable parts in connection with the manufacture of guns. They're also during the Civil War. A fact which suggests, this is why I'm including this part. I love this sentence. A fact which suggests a line of descent from Whitney to Leland to the automobile industry. I love this sentence. other species everything is built upon the foundation before it so not only are we seeing that leland is building on whitney and then sloan builds on leland but then who does who builds on sloan we just started i just i just started the podcast telling you that singleton built on sloan so this this statement is true everything is built upon the foundation before it and you're doing a great disservice to yourself if you're not studying the foundation

uh okay sloan and walter ch Chrysler, one of his best friends, winds up being a competitor too. Mr. Chrysler was a man of high ambition and imagination. He was a practical man with broad capabilities. His genius, I think, was in the organization of automobile production. Definitely. He used to run all of manufacturing and production for GM. He recognized the opportunity offered

by the young and promising automobile industry. It's really funny because later in the book, Sloan is talking about how he's competing with Ford and they're all focused on Ford because it's such a dominating force in the industry. And at the time, and I'll get into more of this later, but Sloan is using the lower price brand Chevrolet as his main weapon against Ford. And out of nowhere comes Chrysler using the lower price brand chevrolet as his main weapon against ford and

out of nowhere comes chrysler with another lower price car and he knew he was a formidable character because he knew that this guy didn't play he had a lot of experience he's really an intelligent person you have to take him seriously uh this is sloan and why he thought it was a good idea to sell his company to gm so he says because of the way Hyatt's business had evolved, it had come to depend upon a limited number of customers. So what he's telling us in this section, as I continue to read, think about, he's telling you that it's a very dangerous and fragile place to be in if almost all your revenue comes from one or two people. He says, Ford alone represented about half of the sales.

This business, if lost, could not be replaced because no new customer of such magnitude existed. Second, so he goes through three. That's the first reason. This is the second. I recognize that the kind of roller bearing we made at the time was destined to be supplemented and perhaps superseded by other types. And what then? Another reorganization?

A different product? In effect, you'd have to create an entire new business, essentially what he's saying there. I may say that in the past 45 years, what I thought then would happen to the product has happened. Hyatt's old type of bearing had gone out of automobile design. So he's right about that. Third, I had spent my entire working life, I was 40 years old then, developing a property, and I had a large plant with a great deal of responsibility, but I never much yielded out of it dividends. Mr. Durant's offer presented an opportunity to convert Hyatt's profits into readily saleable assets. So what he's saying, I want to get paid. I want to know what it's like to be rich. I worked really hard. I want to take some money out. Nothing wrong with that.

So Durant winds up buying the company. Durant's running this company at the time called United Motors. Don't worry about the name. It's just a proxy to get control of GM and gets folded into GM once uh Durant uh gains back controls just ignore this part but the important part is that he's getting out of his comfort zone we talked about this over and over in the podcast comfort is a false god you're not going to do anything great with your life if you just if you try to seek comfort constantly so he says for for the first time in my business horizon widened beyond a single component of the automobile. I became president and chief operating officer at United Motors. United Motors is acquired by GM.

Sloan takes a keen interest in GM because he has so much of his net worth tied up in its stock. And this is where he starts telling us he's working at GM as a vice president, but he's also monitoring Durant because Durant's running the company that is responsible for a large percentage of his net worth. So he's concerned about it. He said, I had proprietary as well as professional reasons for taking an interest in the corporation as a whole since most of my personal assets had been converted into GM shares. It was not long, therefore, before I began to take a close look at Mr. Durant's general policies. I was of two minds about Mr. Durant. I admired his automotive genius, his imagination, and his generous human qualities. That's what I admire about him, too.

He's extremely likable. You want to root for him when you read his biographies. And his integrity. His loyalty to the enterprise was absolute, but I thought he was too casual. It's an interesting choice of words there. Some would say Sloan is too serious. I thought he was too casual in his ways of an administrator and he overloaded himself. Important decisions had to wait until he was free and were often made impulsively.

Sloan also questions if Durant was telling the truth. He says they didn't see the financial panic coming. The one in 1919, 1920, 1921 area. Mr. Raskob, who's running the company with Durant, came over from DuPont because DuPont had made a large investment. Again, I cover that in the other podcast. If you want to learn more about that, go back. So it says Mr. Raskob went ahead pushing the expansion and paying the bills. Mr. Durant's management methods let things get out of control. So he's talking about what's happening right before Durant gets pushed out.

And he's telling us this because this is the end of Durant's story and the beginning of his, right? So it says, I've heard that Mr. Durant became pessimistic about the national economy in late 1919, but I can find no record of it. On the record, both Mr. Durant and Mr. Raskob were strong, optimistic expansionists. They seem to disagree on occasion only what to put the money into. So again, Sloan is going to tell you over and over again to be optimistic, but not in the face of uncertain economic conditions if that could lead to the potential bankruptcy of your company. Last week, so when Durant gets kicked out, he's convinced that there was like stock manipulation and he was squeezed. And essentially he's saying i got hustled right i went but we from studying durant's perspective i just when i when i see something like that when you transfer over durant calls it like some of the most valuable securities in the world like

you know for for a fraction of what they were soon to worth. I always ask in situations like who benefits? And so would it surprise me if DuPont or Morgan had some kind of deal where, you know, they wanted Durant's GM stock? No, that wouldn't surprise me at all. We study human nature, like, no, they have a huge financial benefit. And when humans have huge financial benefits, they do, you know, things that are in their interest and usually not in yours. And, you know, DuPont wanted as much GM stock as he could get because he'd already dumped tens of millions of dollars into his company or into General Motors stock. He could have reinvested that money back in his own company. He was running DuPont, a hugely successful DuPont company at the time. So I don't, I've read three books on this right now I have no idea who got hustled

Durant feels you know they manipulated it on purpose Sloan and DuPont are of different minds and so I'm going to present to you Sloan's opinion on this matter I think also the arrangement the Morgans

and the DuPonts made with him to take over his stock obligations in such a critical period was a generous one. That's a that's a 180 degree difference than Durant thinks. Consider the following. Mr. Durant's 1920 in in 1921, Mr. Durant sold back to the DuPonts. His interest in the company formed to bail him out. He received for his interest 230,000 shares of General Motors stock, which at the time had a market value of, let's say, $3 million. Their market value, if he had held them to the time of his death in 1947, so 26 years later, would have been $26 million.

So again, Sloan has a completely different opinion of DuPont than does Durant. He feels the leadership of DuPont after 1920 is what saved the company. Durant would disagree with that statement. At this point, I think I've given up on trying to figure out who's right. I just want you to know that there's multiple different versions of the same story. All right, so this is the end of Durant's story with GM in the beginning of Sloan. To return to the events of 1920, the slump in the national economy and its impact on the corporation,

the lack of control of operations. So this is where he's essentially just saying, hey, Durant's running a sloppy company. And Mr. Durant's resignation shook the enterprise to its foundation and started an entirely new period in its history, which is where the main part of my story begins. Okay, so there's a brief, short, few-year period between Durant leaves,

DuPont winds up running the company, but Sloan is essentially his right-hand man, and eventually, once the company's stabilized in the next year or two, and I mean financially stabilized, it's not growing, but it's not going to go out of business, DuPont puts Sloan in charge. Okay, so it says, This is Sloan on the problems he inherited. The automobile market had nearly vanished and with it, our income.

Most of our plants and those of the industry were shut down. We were loaded with high priced inventory and commitments at the old inflated price level. So what they're talking about there is the inflated price level. When the demand dropped out, Ford starts cutting prices. And so everybody in this research has to start cutting prices. But the problem is now you have all these, you have some dealers who have bought, let's say the car is going to go for a thousand dollars. Now you can buy it for 750. What do you do at this case? We were short of cash. We had a confused product line. There was a lack of control and of any means of control and operations and finance and a lack of adequate information about anything.

There was just about as much crisis inside and outside as you could wish if you like that sort of thing. Now, those are the problems he inherited, but I think that he has a fantastic way of looking at those problems. And so as I read this section to you, the summary is, listen, we have problems, but they're temporary and we can fix them. Economic declines have a way of shaking out

the weak ones in business and we had weaknesses. That's a hell of a statement. Some people cannot see beyond a slump, but I have never yielded to economic pessimism and in times of decline have kept in mind the eventual upturn of the business cycle and the long-range dynamics of growth. Confidence and caution formed my attitude in 1920. We could not control the environment or predict its changes precisely, but we could seek the flexibility to survive fluctuations in business. I mention this because confidence, this is the most important sentence in this whole section, I mention this because confidence, this is the most important sentence of this whole section. I mentioned this because confidence is an important element in business.

It may on occasion make the difference between one man's success and another's failure. I love that. All right. He's going to continue. He says, in the course of my 20 years or so at Hyatt, I learned to operate a single industrial unit relatively small in size and with one basic product so he's comparing and contrasting the experience he had before and now what he the skills he must uh learn with this running what becomes one of the largest corporations in the world so it says relatively small size and with one basic product this unit

contained the elementary functions of a manufacturing business, engineering, production, sales, and finance, but it had no organization problems of the General Motors type. So he's like, yeah, things change with scale. Running a tiny bearing company is not the same thing as running General Motors. But in other words, what Sloan is telling us is that, again, he had to grow into the leader, become the leader of GM, just like all of us have to grow into wherever we are now to where we want to go. All right. Sloan had a lot of centralized power, right?

Even though the basis that he builds GM is a series of decentralization. So the operating units are decentralized, but there's tight, especially tight financial and operating controls in the center, right? So that gave him a lot of centralized power, but he didn't use it. He used it with discretion. And here's why in one sentence, I got better results by selling my ideas than by telling people what to do. That statement was true in 1920s, true when he wrote in 1963, it's still true today, and it will be true in the future. This is a fundamental part of human nature. You got to tell people why you're doing what you're doing. You have to convince them.

Dictators, they don't last long. Okay, so this is really interesting. Sloan is talking about the confusing product line of GM in the early 1920s. He's got a lot of good information in the book on how to think of product lines, especially if you're selling multiple products. And I'll get there in a minute. So he says, not only were we not competitive with Ford in the low price field, no one really was, with a big volume and substantial future growth lay, but in the middle, we were concentrated with duplication. So maybe Buick had a car that competed with Oldsmobile, and there's other manufacturers that are in business that they owned were also making a car. We did not know what we were trying to do except to sell cars, which in a sense took volume from each other. Some kind of rational policy was called for when i read that section i thought of the most famous example most recent famous example this is when steve jobs came back to apple from the second

time in the late 90s and he just looked at their product line he's like what the hell is going on he's like all right we're gonna scrap everything we're gonna focus on four products uh i think it was consumer laptop and pro laptop and consumer macintosh and pro macintosh if i remember correctly um so steve the reason i bring that up is because when steve jobs looked at apple apple's lineup sloan's doing the same thing and they're both saying why why is this product here this is like this was this is not a cohesive product strategy they they were maybe accumulated over several years through several different why is this product here? This is not a cohesive product strategy. They were maybe accumulated over several years

through several different acquisitions, whatever the case may be. But if you're starting fresh today, you wouldn't do this. This doesn't make any sense. It's exactly what Sloan's saying here. Now, we'll talk more about Ford. Because Ford, again,

you can't talk about the early automobile industry without talking about Ford. It's so hard to understand how dominant Ford was. And we're going to get into some of the numbers the difference in size of scale it's just it's it's really baffling so ford was so powerful that of course it's going to influence gm strategy in 1920s right so at the beginning 1920s they're getting trounced by ford by the end of the decade they beat him chevy overtakes them um so at this point they realize hey we can't beat ford on production yet so what they he's selling us something really smart here he's like i'm not

gonna out ford ford so where do we find our edge and so we start getting into a slight summary of of his his strategy for competing with ford so he says with ford in almost complete possession of the low price field it would have been suicidal to compete with him head-on. No conceivable amount of capital short of the United States Treasury could have sustained the losses required to take volume away from him in his own game. So, therefore, the strategy we devised was to take a bite from the top of his position, conceived as a price class, and in this way, build up Chevrolet volume on a profitable basis. So they're saying, hey, he's been dominating with a Model T for a long time. His production numbers are four or five times our amount, which means he could sell for way cheaper than we are. So there's no room at the bottom. Can't match him on price. But what Sloan's

picking up is like, think of the Model T as strictly utility. It is just transportation, bare bones, cheap as can be. He's saying with the growing, the more automobiles that we sell, we're going to see consumers' tastes change and the market's going to open up. So there's Cadillac at the higher end of the market. We got Buick a little below that. I was like, what if there's like a wedge in between the high end of the market and maybe the $100, $200 more than the Model T, but a lot more value for the money? That is their wedge. Okay.

So I'm going to go into that more detail. I just want you to know where we're going. Oh, so let me back up too. There's a lot going on in this paragraph. Let me read it to you first. Let me tell you what my interpretation of it was. I recognize that my election to the presidency of the corporation was a big responsibility and a business opportunity that comes to few. I resolved in my own mind that I would take any I would I would make any personal sacrifice for the cause and I'd pour forth all the energy, experience and knowledge I had to make the corporation an outstanding success. General Motors has been for me a dedicated activity ever since, perhaps to a fault.

Okay, so a few things going on in this paragraph. One, he realizes that the opportunity he has given is rare. Smart move. How many people are going to run a company like GM in their lives? Very few. Number two, this is also why he's worthy of our time and attention to study because he spent four and a half decades running one company and six and a half decades in one industry. Three, he's talking about his singular focus. He even said, perhaps to a fault. Again, one of the most important lessons that I've learned from reading these biographies is that we need to focus. Your attention, your time and attention is the most valuable asset you have. And allowing people to hijack it or take time away

from what you should be focused on. I just read, it's funny, I just read this interesting excerpt from an interview with Jerry Seinfeld. And let me read it to you. It's Jerry Seinfeld on doing good creative work. He says, let me tell you why my TV series in the 90s was so good. Besides just an inordinate amount of pure good fortune. In most TV series, 50% of the time is spent working on the show. 50% of the time is spent dealing with personality, political, and other issues of making something. We spent 99% of our time writing. Me and Larry David, the two of us, the door was closed. It's closed. Somebody calls.

We're not taking the call. You can actually hear his voice. I hear his voice when I'm reading this. We were going to make this thing funny. That's why the show was so good. And I think for the vast majority of people, they're going around and they're giving their craft 20% of their attention, 40%, maybe 50%. And the people we cover, they're giving 99, 95%, whatever the number is. I'm talking about things that are actually important to your business.

I'm not telling you to ignore your family, your health, other things. Definitely not. But as far as not letting things distract you, I cannot. It's just such an important aspect that you see over and over again, do all these biographies. All right. So he starts out describing the principle that his plan for reorganizing GM is anchored to. And he largely builds on this principle for three decades, I would say the vast majority of this book is on this, I'm just going to give you the two sentence summary here. I approached the matter of organization from the standpoint of a thorough belief in a decentralized

organization. Now, again, this may sound commonplace now. It was not common when he's writing these words. Thousands of entrepreneurs and executives and managers read this book in the 1960s and moving forward and copied these and made Sloan's ideas kind of the default i still am of the same belief that a decentralized organization is the only one that will develop the talent necessary to meet the corporation's big problems now it's interesting that he talks so much about decentralization because a large part of the way he organized gm was also through the roles of committees in this this paragraph i'm going to read to really cleared up for me what sloan's opinions on the role of committees and individuals were because I was having a hard time reconciling

that in my mind. So he says, I've often been taxed by people who do not know me with being a committee man. And in a sense, I most certainly am. So committees to make decisions, right? But here's the difference. I have to at least like think through the ideas. I have never believed that a group as such could manage anything. A group can make policy, but only individuals can administer policy. So that's the that's the best summary I can give you of the way he thinks about committees. I'm going to bring in all the experts. I'm going to bring in a bunch of people. We're going to we're going to hash things out. We're going to make a decision. But one person has got to be responsible to administer that policy now he's going to describe more of the problems he had to deal with this is one of the most insane things i learned in the book

this is on the need for cash control and i can't my jaw dropped so it says the way cash he's talking about pre like as he's taking over the company the The way cash was handled at that time is almost unbelievable. Now, the idea that he uses the word unbelievable, this is about as animated as you're going to find Sloan in his writing. He's a very serious person. That's like him using a bunch of curse words.

Like, he does not write like that. And I understand why he starts this section with saying this is almost unbelievable. He says, Each division controlled its own cash cash depositing all receipts in its own accounts and paying all bills from the same account so when he says division he means different company right gm is a collection of people car manufacturers so buick has a different count cadillac has different account all the different companies um and all of them are separate since only the vision sold products none of the cash receipts flow directly to the corporation itself. We had no effective, so that's really bizarre, right?

It gets way, way crazier. We had no effective procedure for getting cash from the points where we happen to have some to the points where we happen to need some. When the corporation, as an operating company, had to pay dividends and taxes and such items as rent, salaries, and other expenses, the usual procedure was for the treasurer to request cash from the divisions. It gives an example of how insane this procedure was. I remember that Buick, for example, at the time was very loathe to give up its cash. That's the

cash cow of the early GM, by the way. This profitable division was the most prolific source of cash for the corporation and long experience had made Buick's financial staff highly adept at delaying its report of the cash they had on hand. So Buick is hiding how much money they have from GM. Buick made a practice of maintaining large cash balances in its factory sales branches the amount this is this doesn't make any sense the amounts of these balances were not ascertainable at headquarters so how much money does buick have and in turn how much does gm have i don't know no idea when the corporation needed cash the treasurer would try to guess how

much buick actually had and how much of it he could probably get from them. So now he does not know how much they have. He doesn't know how much they're willing to give them. What is happening here? Then he would have to go to Flint, Flint, Michigan, discuss whatever other questions might be outstanding between Buick and headquarters, and at last casually bring up the subject of cash. What is happening here? Buick's financial people would invariably express surprise at the size of the treasurer's request and would try to resist the transfer of such a large amount. Naturally, this cat and mouse game did not result in the most efficient utilization of funds. That's one of the craziest things I've ever read. So Sloan's solution to

this, I'm not going to belabor the point, he centralized cash controls. This is Sloan's solution to this, I'm not going to belabor the point, he centralized the cash controls. This is Sloan's summary of the effectiveness of the centralized financial controls that he put into place. The need for financial controls grew out of crisis. Controls were brought in to ensure that the crisis did not recur. Their effectiveness was demonstrated particularly in the depression year 1932. The corporation's unit volume in that year was 50 percent less than that in 1931 and 72 percent below the high of 1929 that is insane how giant the general the great depression was think about that you're down in three years you're down 72 percent and in one and was that one year yeah in one year you're down 50 but the corporation was not demoralized as it had been in 1920 and it had stayed in the black not many corporations did as well um during this time though i'm gonna get back to the

the effects of the general the great depression because i find it fascinating um but i really like how sloan was aware he this is sloan telling us it's important to understand what is influencing your growth or decline some of which is under your control and some which is out of your control things happen to be going good in the early 1920s for gm but it's not because they were extremely disorganized they were still trying to fix things and yet their sales are going through the roof it had nothing to do with what they were doing. It says, by the middle of 1920s, General Motors had accomplished some things,

but apart from survival and reorganization, they, meaning our accomplishments, were more in the realm of the mind than of reality. That our volume of business had increased after the slump of 1921 could be attributed less to our own wits than to the improvement in the general economy and the rising demand for automobiles. They were just bailed out because

the industry they were in was growing rapidly. So in other words, we're lucky that during our time of reorganization, we had an increase in sales due to things largely outside of their control. Now, Sloan is going to continue to elaborate on GM's plan for the 1920s. And again, I've said this over and over again, it's very fascinating how large changing market of the 1920s with the confidence that we knew what we were doing commercially and we were not merely chasing around hey, there's another growing market. There's going to be more demand right a smidge above Model T. Can't get below Model T, can't get to Model T. We're thinking that customers' tastes are changing, therefore the market is developing, and this is the vehicle we're going to use to overtake Ford, right? The most important particular object of that plan,

which followed from strategic principles, was to develop a larger place for Chevrolet between the Ford car below the median price group above. So that's a weird sentence, but essentially saying, hey, what I just said, there's the Model T, then you have what we're up, but we're in the middle and we're in GM was anywhere from the middle of the market all the way to the top. We're going to say, hey, there's a wedge. There's a growing demand right on top of the Model T. Think of GM's product strategy as a pyramid. So you have Cadillac at the very top. And as you move down the pyramid, you have Cadillac's the most expensive. Then you have Buick, other brands.

At the bottom, his base layer, though, is going to be Chevy. That's going to be where he's going to get the most actual sales and most revenue, right? So that's how he's thinking about this here. Let me go back to this point, though, because he says something here that I think can be applied to tons of opportunities today. It's actually how to find an opportunity today. He's summarizing that weird sentence. A case of trying to widen a niche. Now, I love that sentence.

What now? The reason I love this is because I think it's a prompt for our thinking. What can this strategy be used for today? What niche that's out there can be widened? We know niches can be widened. Right. And the widening of the niche can open up a gigantic opportunity for you because that's exactly what happened with Chevrolet. So what

can be, you can't do it in automobiles today. Maybe you can, but it's a lot more difficult, but there's other different domains. So think about whatever it is you're doing. Like there's got to be a niche that you're focused on. Is there another one that's right next to it or right above it or right below it that can be widened it's a really fascinating like way to think uh that was all in the beginning despite the completeness of the plan uh that was all saying that's all we were thinking about yeah we did uh we did not see the movement especially the interaction of these elements in the whole automobile market as i can see it looking back uh looking as i can see it today looking back. We saw them as uncertainties, unknowns, and trends. Okay, another weird sentence there. His main point is you won't have all the

information that you need before you act. You have to use your best judgment. He's like, it's really clear as I look back, I can see how this fits into place. But at the time, we knew it was uncertain, unknown, and we're just hoping that this trend played out into our advantage. And it did. Now, he goes into specifically how this strategy, which started in the early 1920s, did not start to yield dividends for GM until the mid-1920s. So Sloan right here, let me read this to you first. Ford sales sales held even in 1925, with a volume of about 2 million cars. So he's selling 2 million cars. Okay. But since the market as a whole in that year rose substantially, Ford share declined,

market share declined from 54% to 45%. That was a sign of danger if mr ford had chosen to read it to read it excuse me yet he still held almost 70 of the low price field so what's happening here sloan is pointing out what most people consider to be henry ford's single biggest mistake but he's also bringing up inadvertently why he was so why ford was so likely to make that mistake we are rationalizing creatures we are not rational ones it's an important distinction it's very hard he's been dominating the entire industry he had 54 of all cars he's selling 2 million cars a year doing it his way he held 70 specifically of a market at the low price. It's going to be very hard when you've sold, you know,

maybe 13 of the 15 million Model Ts you're going to sell to think that you're seeing any signs of danger because you've been dominating for so long. We are very prone to make that same mistake and continue to make that mistake in the future. Continuing, this is a really interesting strategy, part of a strategy I want to bring to your attention. Chevrolet's internal statement of policy at the time was that it was our objective to get a public reputation for giving more for the dollar than Ford. So what I mean by interesting strategy, we can't beat him on price. He's never going to try to build a Chevrolet that's cheaper than the Model T, but we can beat them on value per dollar and we can start educating the public and the consumers of thinking in those terms. Yes,

you might be able to buy a Model T at $200 less than us or $150 less than us, but look what you get if you increase by $150 or $200 to where the number is. You get a hell of a lot more value. And if you divide that value by your actual dollar, the Chevy is the better deal. That's a really good way to attack. All right. So this is more on the strategy working on Chevrolet overtaking Ford. And remember, as we go through this, this is why, again, you have to give Billy Durant so much respect. He founded Chevrolet, founds GM, Frigidaire, Chevrolet. Thatm frigidaire chevrolet that guy should not have died impoverished he should not have died in a working in a bowling alley i guess he was working a bowling alley right before he died it happened a few years later but you know what i'm saying here

um he was sure that i just i can't get over the amount of companies that he founded and not only how important they went up being, you know, half a decade to a decade after he left the company. So he says the old master, meaning Ford, had failed to master change. Don't ask me why. It was not difficult to see in 1925, 1926, that Chevrolet was closing in on Ford. So let's go through these numbers here. Okay. 1925, Chevy had, let's call it half a million sales. Ford did 2 million sales. The next year Chevy's up to almost $700,000 sales. Ford's down a half a million to 1.5. His precious volume, which is the foundation of his position was fast disappearing. He could not continue losing sales and maintain his profits and so for market reasons the model

t fell so he used the word market reasons really customers what they wanted was changing and gm and this is where billy durant is now like he had this idea from the very beginning i'm gonna i'm gonna build a low price car and i'm gonna build a really expensive car and every single price in between i'm gonna that's why i'm gonnariced car, and I'm going to build a really expensive car, and every single price in between. That's why I'm going to dominate the automobile market, because I'm going to have whatever you want. You want a low-priced car? I got you there. You want a middle price? I got you there. You want high? I got you there.

You want something between middle and high? I got you there. Unfortunately, again, Billy Durant came up with the idea. Sloan perfected it. Just continue. He cannot continue losing sales and maintain his profits. I've read that part and yet not many observers now old master had remember he ford has complete control of his company so he can do something like this and yet net and yet not many observers expected so catastrophic and almost whimsical a fall as mr ford chose to take in may 1927 when he shut down his great plant completely

and kept it shut down for nearly a year to retool, leaving the field to Chevrolet unopposed. Mr. Ford regained sales leadership again in 1929, 1930, and 1935, but speaking in terms of generalities, he had lost the lead to General Motors. Mr. Ford, who had so many brilliant insights in the early years, and he definitely did. Like I said before, I'd say in some hypothetical world, you can only learn about entrepreneurship or making a product or building a business or mastering your craft from one person. Not many people tell history that, you know, you put pit above Mr. Ford. He put above Henry Ford. There's other people, you know,

definitely with him, but he's definitely in that category. He had some brilliant insights. So it says, uh, who had Mr. Ford who had so many brilliant insights since earlier seemed never to understand how completely the market had changed from the one in which he made his name and the one in which he was accustomed. All right. Now let's go back to the Great Depression because I find it fascinating. This is the effect of the Great Depression on a GM. It's almost unbelievable. Thanks to the financial and operating controls, the development of which I had described in earlier chapters, General Motors did not approach disaster as it

had in the 1920 to 1921 slump, even though the economic collapse was much greater, right? We made an orderly step-by-step retreat in all matters, including wage and salary reductions. Sales dropped to 526,000 in 1932. They were 2 million in 1929. It's about a tremendous drop of 20 or excuse me of 72 percent and when you consider he's talking about the drop of 72 percent is even more tremendous when you consider that that many expenses that an automobile manufacturer has are fixed now here's the crazy thing our profits From $250 million in 1929 to $165,000 in 1932. $250 million to $165,000, yet still in the black, thanks mainly to our financial control procedures.

I'm pretty sure the entire multiple decade reign of Alfred Sloan, they never had a loss in a year. I'm almost positive. Okay, so what happens in a severe economic contraction? Let's not just think about GM in particular. Let's think of like, because this trend happens over and over again, we might be going through a severe economic contraction at the time I'm recording this. More people opt for the cheaper product, and the middle is hollowed out. Now, sometimes you see like extremely expensive, ultra luxury products. They sometimes are able to maintain their position, but we know what happens in almost every financial crisis happening in the Great Depression. I'm

going to give you the numbers for GM here. The middle is gone, right? And so at the bottom, you might be able to maintain your business there. All right, so he says the situation was this. In the automobile market of 1933, the low price group grew relatively, remember, sales are down, but how many, what percent of your customers are going now for your lower price cars, grew relatively to encompass 73 percent of the industry's unit car sales compared with 52 percent in 1926 so that everybody's out of work they're making less money they all gravitate towards a lower price right this meant now here's a problem for gm this meant for the old car line meaning their product line, I said he thinks of his product line as a pyramid, which Chevy is a base. That we would have four lines in 20% of the market and one line in 73% of the market.

So in other words, the company that, and this was Durant's strategy. He's like, I'm starting Chevy to attack Ford because I think the greatest opportunity is the lower end of the market, right? 1933. So 13 years after he's kicked out, Chevy saves GM's ass. 73% of their sales is coming from one of their five brands. That's amazing. He's got a really interesting point here. So think about this. After decades of intense competition, customers have more variety, right? And so they start making purchase decisions based on features they value that you might not be able to predict. This is why that pyramid strategy is so important. They may be picking something just on a matter of taste, and everybody has different tastes. So let me read this, and let

me tell you how it ties into something else we learned. My general point, I believe, was valid, namely that selling had begun to focus on personal preferences of the consumer, especially in matters of style. People like different things. Many people do not want to have exactly the same thing that their neighbor has. The design of any car is an artistic and engineering compromise. No car can embrace all the desirable features. And this is what he has to deal with. Relatively inconsequential features often influence a sale. So what is he really saying? In other words, you don't have to be the best. You just have to be different. And another way to think about this is David Ogilvie. He had this idea in his book, Ogilvie on Advertising, which I'd pick up

immediately if you haven't, of his idea of a positively good product, which is a completely different way to think about competing with other people. He says, let me read from that book. In the past, just about every other advertiser has assumed that in order to sell his goods, he has to convince consumers that his product is superior to his competitors. But Sloan is just telling us there's no such thing as a superior car because tastes are so varied. The market has been you have all the markets wide open now. And you've had, he says, a decade at that point, two, two and a half decades of intense competition of people trying to find different wedges different ways different different things that they can build in their car that give them advantage right so he says um he had to convince consumers that his product is

superior to his competitors this may not be necessary it may be sufficient to convince consumers that your product is positively good i love this idea think tell customers why your product is positively good he continues if the. Tell customers why your product is positively good. He continues, if the consumer feels certain that your product is good and feels uncertain about your competitors, he will buy yours. If you and your competitors all make excellent products, don't try to imply that your product is better. Just say what's good about your product and do a cleaner, more honest, and more informative job of saying it. Sales will swing to the marketer who does the best job of creating confidence that his product is positively good. This is fantastic. Now, towards the end of the book, it was very interesting

because he has this idea when he's a younger man building high at roller bearing. And it doesn't really, there's nothing that he experiences in his career that causes him to think that he's wrong. In fact, he sees the experience of others that thinks he's correct. So this is Sloan on debt. The strategic question in industrial finance, assuming you have something to work with in the way of a going business, is how to optimize its elements. The latitude for opinion or subjective judgment here is wide, but I think it would generally agree that in principle, debt enhances the return on the stockholder investment while at the same time increasing the risk involved. So he's what he's saying. Debt fragilizes.

It would be agreed, I think, again, debt can increase your investment in good times. But in bad times, he's going to talk about what happens. I think it would be agreed, I think, that Mr. Durant had a strong desire to spend and had little inhibition about debt remember he's completely constantly comparing and contrasting what he feels durant did wrong and he did correct even so the expansion of 1918 and 1920 might have worked without crisis if it had been assisted by management and financial controls. And now he's saying you might have been able to pull it off if you ran your company a little better. But in your personal life, that wasn't the case.

In his personal affairs, it was obviously debt that had brought disaster to Mr. Durant in the economic slump of 1920. This is a hell of a statement here. So much for that. It is equally evident that from 1921 to 1946, the corporation avoided long-term debt. What is he saying? I avoided long-term debt. I myself had feelings against debt, perhaps because of what I'd seen of it in my experience. And yet I cannot really say that we had an anti-debt policy in that period. The facts show that we were in general able to do without it. So we may or never explicitly say

we're not going to use debt, but our financial performance was so great that we didn't need debt. I guess I just ran over my own point here. In other words, we paid off and grew without debt, except for bank loans during the short period in the 1920s. Now he's going to describe the early days of the automobile industry and this is a really important point a really interesting point that I don't even know if he meant to make. Let me read this section to you first. During the early early years of the automobile industry the immediate goal of the engineers and inventors was simply reliability to get a car to go somewhere and come back under its own power. More of a transportation utility, right?

Many bright automotive ideas ended with a horse, a tow line, and laughter. Although progress was expensive, American motorists cheerfully paid the bills for it. In their enthusiasm for individual transportation, they bought the cars, reliable or unreliable, and thus provided the source of a substantial portion of the risk capital for experimentation and production. Not many industries have been so well favored by their customers. This is the reason I say this is an important point. What is he saying? The desire for individual transportation was so great that customers were willing to finance it. So what other opportunities are like that today? I can't think of any. It'd be interesting to continue that line of thought. What is something that's so difficult to do, but if created, customers would provide money for it hand over fist like they did in the early automobile industry. Very rare, but very interesting. Another main idea I love.

Sloan has an entire chapter on change, which, again, I think most people are afraid of, which is weird because the only thing one of the only constants in life is change. And I covered some of his ideas on change last week, so I'm not going to cover that again. But I love this idea, and it could be summarized. You can't be rigid. Building businesses, doing all the stuff that Sloan and others are doing, these are complex adaptive systems. Life is a complex adaptive system. It's going to change. You can't just be stuck in your ways.

Above all, an organization must must so he's talking about an organization you could even bring that on a personal level right above all an organization must adapt to great changes in the market you could say above all an individual must adapt to great changes in their environment same thing statement still true any rigidity by an automobile manufacturer no no matter how large or well established, is severely penalized in the market. As we have seen was the case with Mr. Ford in the 1920s when he stayed too long with his old and once dominant successful concept of the business. We had a different concept of the business, which we put into competition with his. It could have happened that he was right. And finally, this is one of my favorite paragraphs in the automotive market and the general administration of the enterprise and in the involvement of the corporation in a changing world.

For the present management, the work is only beginning. Some of their problems are similar to those I met in my time. Some are problems I never dreamed of. But the work of creating goes on. All right, that is 122 books done, 1,000 to go. I'll leave a link in the show notes. If you buy the book using the link, you'll be supporting the podcast at the same time,

and I'll talk to you again soon.