Founders - #254 John D. Rockefeller: The Founding Father of the Rockefellers

Starting point is 00:00:00 To Rockefeller, business resembled a form of war. It seemed natural for him to open a letter with the words, I'm in the midst of a hard battle today. He transmitted messages in code, and secrecy covered all of his operations. That's all too true, he admitted. But I wonder what general ever sends out a brass band in advance with orders to notify the enemy that on a certain day he will begin an attack, he said. Rockefeller, the field marshal, laid down strategy and relied on his general staff to

Starting point is 00:00:29 carry it out. When tactics for a battle had been set, orders went out to, quote, fight it out on this line. It surprised none who knew him well that in old age Rockefeller compared himself to Napoleon. The revelation came while vacationing in France, not far from a spot where Napoleon had won a great victory. A casual remark from a companion led to an extraordinary soliloquy, Rockefeller's longest on record. This, what a genius for organization. He also had what I always regarded as a prime necessity for large success in any enterprise. That is, a thoughtful understanding of men and ability to inspire in them confidence in him and confidence in themselves.

Starting point is 00:01:27 See the men he picked as marshals and the heights to which they rose under his inspiration and leadership. It is by such traits as these that men get the work of the world done. It is all a battlefield. Napoleon, without the able marshals that he had about him, would not have been the master of his age. He went into a battle with the knowledge that his marshals could be dependent on, that, in a given situation, they could be relied upon to do the necessary thing. Their devotion to him, coupled with their enthusiasm, that's another great attribute, and the qualities with which his influence upon them brought out won the fight. Another thing about Napoleon was his virility.

Starting point is 00:02:12 He was virile because he came direct from the ranks of the people. There was none of that stagnant blood of nobility or royalty in his veins. That's where he had the advantage over the monarchs of Europe to begin with. He could think quicker and along more individual and original lines than any of them. The men whom he had to combat didn't understand either him or the people. And it is always hard to successfully control what you don't understand. Napoleon didn't play that game. And then, coming direct from the people, he had their sympathy. He appealed to their imaginations. Europe had not yet been educated to the fact that it could get along without any kings at all. Leaders of their own kind were few, and that made it easier for Napoleon to rise to the heights with which he attained. A Napoleon would be impossible in our day.

Starting point is 00:03:06 There are too many able and ambitious rivals to hold in check one who aimed too high. That is an excerpt from the book I'm going to talk to you about today, which is John Dee, the founding father of the Rockefellers, and it was written by David Freeman Hawk. Okay, before I jump into the book, I need to tell you how this fits into everything else that you and I have been talking about. About a month ago, I reread, I spent an insane amount of time rereading the most popular biography of Rockefeller

Starting point is 00:03:33 that's ever been made. It was episode 248. It was Titan. I found the book that I hold in my hand in the bibliography of Titan. This is a very old book. It was published over 40 years ago and it took a while for it to reach me. And once I started reading it, I had an experience that

Starting point is 00:03:48 I've had several times on this podcast. And what I would compare it to is like, oh, everybody knows about Titan. It's the most famous of Rockefeller's biography. And yet, as I started to read this book, I was like, oh, that's where all these ideas came from. The way I would, what I would compare this to is you start studying Steve Jobs. You realize he had all these great ideas. You're learning so much. And then you go read about his hero, Edwin Land, the founder of Polar Ward, and you're like, oh, Jobs was just taking Land's ideas and applying it to his work. And so the reason I'm telling you all this is because I'm going to make the case today that you should actually read this book before reading Titan. And that's going to sound crazy because Titan's,

Starting point is 00:04:23 over 700 pages. The book that I hold in my hand is 250 pages. It might be more detailed than Titan is. And what I mean by that is not more detailed in like the personal life of Rockefeller, but detailed in how he built his business, which is what you and I are most interested in. Okay, so I want to jump right into the book. I'm going to read the note of this idea that's playing out over several pages. And it's this idea that he may have disliked his father later in life. And there's a greatness from? A man who had known Rockefeller as a boy once asked. It came from his mother. She trained him from childhood. Rockefeller had his mother's quiet, pensive demeanor. His devotion to the church came from her. She taught him from an early age to give regularly and unobtrusively to the church and charity. Like her and unlike his father, he was outwardly self-effacing and

Starting point is 00:05:25 never sought the limelight. All of his life, Rockefeller handed out platitudes as though they were dimes. Many of these he learned from his mother. Save what you can and not what you have to. As one example, a good tree brings forth good fruit. You don't get bitter water from a good spring, and there's a time to sow and a time to reap. But now here's the reason I'm reading all this to you. But Rockefeller did not think that he owed all he became to his mother. And so the background of the relationship that he had with his father, his father winds up having multiple families. He would leave for many months at a time later in life, sometimes for years at a time. He was an ardent individualist who prioritized his own needs and wants over his

Starting point is 00:06:05 children and all of his families. But when he did come to town, he wound up having a big impression on his sons. And so it says occasionally Big Bill, that's what everybody called Rockefeller's father, took Rockefeller on a business trip. Once they stayed in a first class hotel that charged a dollar a day and had marble floors. The father would have seen to it that the boy knew the cost of the room, for he talked constantly of the importance of money, to the point where a young Rockefeller seemed obsessed with it. He saved every dollar he made. And this is a quote from Rockefeller describing this point in his life when he was a much older man. I can still see upon the mantel that little box that I kept my money in. It was safe there. I had loaned out money and got interest on it before I was 14 years old,

Starting point is 00:06:48 and I knew well how to make out a note. My father taught me these things. The father threw the boy into the world of business early on. He used to dicker with me and buy things for me. He taught me how to buy and sell. Big Bill put the matter more bluntly. I cheat my boys every chance I get. I want to make them sharp.

Starting point is 00:07:06 I trade with the boys, and I just beat them to be sharp traders. And this is Rockefeller describing what this experience in his childhood was like. We imbibe these ideas with our daily food. And where we did not emphasize them enough, this wise, able, and positive man found ways, without difficulty and and very readily to reinforce his teachings. By the time I was a man, this is a hell of a line. By the time I was a man, long before it, I had learned the underlying principles of business and the rules of business, as well as many men acquire them by the time they are 40. I needed no one to advise me about the nature of transactions with which I had been carrying on since childhood.

Starting point is 00:07:47 And so Big Bill's philosophy on parenting was, hey, throw your kids in the deep end and you'll force them to swim. This is an example of that. Big Bill, still favoring the rural life, settled his family 13 miles outside of Cleveland. This is before he's going to leave and then start another family right after this. Then in the fall of 1853, he drove Rockefeller into the city. He found a boarding house close to the high school, opened a small bank account for him and left the boy aged 14 to fend for himself. He had dropped Rockefeller just in from the country into a strange,

Starting point is 00:08:18 bewildering world. And then Rockefeller's response to this experience tells you a lot about him and kind of how he moved through his entire life. He faced the city as he did all new experiences, moving ahead slowly, cautiously, saying little and observing all around him steadily. So it's not clear if Rockefeller actually graduated high school. If he did, he didn't bother to attend graduation or pick up his diploma. He did do like this mail course, like a course by mail, where he's learning like the fundamentals of bookkeeping and basic, like as they understood business as much as they could. Keep in mind, this is like in the 1850s. And so we're going to fast forward because his approach to life, in my opinion, is, I've read obviously Titan twice,

Starting point is 00:08:59 reading this book and then reading Rockefeller's autobiography. My interpretation of this is that his approach to life is actually reflected in his approach to finding his first job. And so we're going to see that here. The art of living, as Rockefeller saw it, consisted of facing problems and solving them. He said, it has been that way all my life. Find a problem, work at it, solve it as well as I can, put the administration of that in good hands, and then go on to the next. From the city directory, he drew up a list of firms that he considered suitable for work. Each morning after breakfast, he dressed in his best clothes and started out to canvas firms. He knew no one important in the city. He had no letters of introduction. He would open the door of a bank, a railroad office, a commission house, a shipping firm, and he'd ask to see the man in

Starting point is 00:09:44 charge. If denied that, he would speak to whoever would lend an ear. He continued his rounds until the offices closed for the day. He did this six days a week, week after week, sustained only by his incredible self-confidence and determination. After visiting every important firm in the city, he began the rounds again. I was not discouraged, he said later, but he must have shown signs of wilting, for at one point his father said, It's all right, John, you go out to the country and I'll take care of you. When John thought of remaining dependent on his father, he said,

Starting point is 00:10:25 A cold chill ran down my spine and stiffened his resolve. Buried beneath the praise that he heaped upon his father lay a tightly controlled resentment. So he finally gets a job as a bookkeeper at a commission house. It's called Huddle, excuse me, Hewitt and Tuttle. Really, I'm going to tell you my notes before I read this section to you. There's a lot of things happening here that are really important to understanding how he's able to build a monopoly later on in life. And funny enough, there's just a lot of things that are said in this book that remind me of what I've learned about reading about Jeff Bezos. But really what's happening here is like the idea is like you should try to expose yourself to experiences that are slightly ahead of your skill set or understanding.

Starting point is 00:11:02 And you should do so constantly. So it says the partners expected him to do a lot more than just the books. Hewitt and Tuttle bought and sold commodities on commission. Such houses were then a relatively new form of business in America. One made possible largely by the technology of their day, which was always fascinating to read about by the railroad and telegraph. The telegraph gave the commission merchant instant news of price changes in the wholesale markets, and the railroad let him take advantage of that information, of information of favorable swings, by carrying his shipment swiftly to the buyer. And this is important to know, because after he works at this commission house, he's going to start his own commission house, and then from that commission house, he's going to have the opportunity to invest in oil,

Starting point is 00:11:41 which obviously he dedicates his life to. Rockefeller wants to explain some of the complexities of the business. We would receive, for example, a shipment of marble from Vermont to Cleveland. This involved handling by railroad, canal, and lake boats, just like oil will in the next few years. The cost of losses or damage had to be somehow fixed between these three different carriers, and it taxed all the ingenuity of a boy of 17 to work out this problem to the satisfaction of all concerned. So that's what I meant about the benefit of constantly exposing yourself to experiences that are slightly ahead of your skill set or understanding. It says, this experience in conducting all sorts of transactions at such an impressionable age was highly interesting, Rockefeller said. Within a year after Rockefeller had been hired,

Starting point is 00:12:25 Tuttle quit. Soon, Rockefeller was in charge of the office and working side by side with his employer. He posted the books, handled all the cash, wrote the checks, paid the bills. I soon became known as being reliable, he said. And this is the part that made me think of Jeff Bezos. He worked as though he owned the firm. Remember that sentence. He worked as though he owned the firm. I scrutinized every bill. If it had ever so many items, I went over each one, verified it, and carefully added the totals.

Starting point is 00:12:57 The bill had to be accurate in every detail before I okayed it to be paid. One day, a captain of a boat gave Rockefeller trouble. Now look here, Captain, Rockefeller said. I can't make out the bill for that amount. It just doesn't tally with the actual cargo. Come, come, young man. You will make it out the way I say. No one is ever going to know. Why everybody allows a margin like that, Rockefeller responds. I'm sorry to say no. If I'm going to do right by you, I can't begin by doing wrong for somebody else, can I? And if I did, you would soon be afraid that I would cheat you too. Isn't that so? Nonsense, the captain replied. You're too strict. And then the author

Starting point is 00:13:32 makes a great point that I double underlined. That strictness lasted to the end, meaning the end of his life. He was always like that. And so that sentence where it says he worked as though he owned the firm, when I read that, it made me think of one of my favorite exchanges in the book, The Everything Store. I've read it a bunch of times. I think I've done two podcasts on it. I actually did a three-part series on Jeff Bezos. If you haven't gone back and listened to it, it's 179 and 180. And then there's a bonus episode, I think, in between those two books, because it's the first biography by Brad Stone and then the sequel by Brad Stone as well. And so one of Jeff's maxims that he'd repeat over and over again is that you need to think like an owner. And so I love hearing stories about these founders

Starting point is 00:14:10 when they were much younger. You know, the Jeff of today is very different from the Jeff that actually built Amazon. So this is a story that takes place, I think Jeff is around 35 years old when this is happening. So it says a veteran of long distance provider MCI, this guy's name is Price, Price came to Amazon in 1999. He blundered early by suggesting in a meeting that Amazon executives who traveled frequently should be permitted to fly business class. Bezos often said he wanted his colleagues to speak their minds, but at times it seemed he did not appreciate being personally challenged. You would have thought I was trying to stop the earth from tilting on its axis, Price says, recalling that moment with horror years later. Jeff slammed his hand on the table

Starting point is 00:14:56 and yelled, that is not how an owner thinks. That is the dumbest idea I have ever heard. And here's a ton of stories just like that in the early days of Amazon. I want to get into how he applied like his approach to work, even as a young man. This is going to remind me. So I always bring up to you that this idea that I learned from David Ogilvie a long time ago. I discovered David Ogilvie because I was reading Warren Buffett shareholder letters and Warren Buffett called him a genius. And I was like, oh, that's interesting. So I should read about him. I started reading about him. Then I became obsessed with him. I think I've read five books and they're in the archive.

Starting point is 00:15:27 But he has this idea that the good ones know more, and he knows that so few people actually take the effort to just collect more information. You don't even have to be much smarter than everybody else, just actually collecting them. And so he gave an example in one of his books. It's like, hey, if you're designing ads for your client and they're an oil company, you know, read books on geology, go to the gas station, interview the customers, take a tour of your client's fact, uh, manufacturing facilities. And he says, you do this over and over again. Like you do this in like, you really apply this yourself at it. And in two years, you'll know more than your boss. Well, that's exactly

Starting point is 00:15:56 what Rockefeller did. And so that's why these, these, these ideas are, I try to repeat over and over again, cause they're like important and you see them pop up in all different times in history and all different, uh, like all over again because they're important. You see them pop up in all different times in history and all different industries. They're obviously very important. It says, a fascination with business that can only be called a passion held Rockefeller to the office. Figures in the ledger were to him like words to a poet. The yearly account books resembled volumes of the history. He's going back into the history of the firm that he's working for.

Starting point is 00:16:21 I used to go over the old books, he once said. Soon, he knew more about the firm than Hewitt did. That's exactly what Ogilvy said. He's like, you do this, you're going to wind up knowing more than your boss. So he says he wind up knowing more about the firm than Hewitt did and more about the commission business past and present than anybody else in Cleveland. And the reason I think it's important to note is because what Ogilvy believed, he's like, I'm going to tell you to do this, and most of you just won't. There's a line right there between the people that shoot up in their career like a rocket and people that don't, and they're doing the same job 10 years from now

Starting point is 00:16:53 because you just won't even do this basic, very achievable thing. The good ones no more. And so as he's doing all this research, like if you really think about what's happening in the book, I guess I should explain it to you before I read it to you. The sequencing, like the sequence that you the experience that you have had the sequence that those experiences happen in is extremely important there is no standard oil monopoly without this experience this working experience as rockefellers have having at the moment without it happening first and why is that important because the main

Starting point is 00:17:24 strength of standard oil there's a lot lot of obviously things they did that are intelligent, but if you want to identify the most important thing they did, because they're operating a commodity business, is they were absolutely ruthless with getting rebates on transportation from the railroads. This is before the invention of the technology pipelines that come later. He also monopolizes that technology as well. And so the reason I'm bringing that to your attention because he made the point in other books, I think this might've been in his autobiography, but he's like, listen, rebates existed in other industries.

Starting point is 00:17:53 I just applied them to oil first. And so that idea that you and I always talk about, it's like, we're not copying the what, we're copying the how. You and I are not trying to build an oil company. That would be copying the what, but we could take the ideas that he applied to his business and copy those, that's copying the how. You and I are not trying to build an oil company. That would be copying the what. But we could take the ideas that he applied to his business and copy those. That's copying the how. And that's exactly what he's doing now, because he just copied the how that he's learning in the commission business to oil. So it says the ledgers combined with

Starting point is 00:18:16 experience revealed something that neither the courses at his commercial college, that's the the male, like the degree by male thing I mentioned earlier, nor his father had taught him. And this is so important. My eyes were opened to the business of transportation. A large part of his time went to dealing with freight agents, boat captains, barge canal owners. He learned more than how to negotiate settlements with these people. He saw, this is the most important sentence in this entire page, and I have a ton of highlights on these people. He saw, this is the most important sentence in this entire page, and I have a ton of highlights on this page. He saw that posted rates supposedly fixed

Starting point is 00:18:51 could also be negotiated. And this is the maxim that I think will let you and I, allow us to carry this idea into the future. All was not as it seemed on the outside. He saw that posted rates supposedly fixed could also be negotiated. All was not as it seemed on the outside. And so what is he discovering? That a favored shipper at the end of the month would receive a rebate on that shipping rate that could amount to a substantial sum. The exact idea that him and Flagler. So it might be Rockefeller's

Starting point is 00:19:24 idea, but Flagler was the one that actually executed this idea, more so than anybody else in history. It says, Rockefeller once said that the three and a half years of business training I had in that commission house formed a large part of the foundation of my business career. One of the things he learned was how not to run a business. His boss, Hewitt, in his eyes was incompetent. He had been in various enterprises. This is now Rockefeller describing why he felt this guy was an idiot. He had been in various enterprises. They had all proved unsatisfactory.

Starting point is 00:19:56 He was groping around one way or another. He was litigious and costly court cases drained his purse. He spread himself too thin, often giving more time to investments in warehouses, office buildings, and land in and around Cleveland than to his commission house. So then he jumps from employee to founder. He teams up with this older guy. He's working the same business. They're like, hey, why don't we just do it ourselves? And so the reason I'm going to read this section to you is because he has to learn how to borrow money at the beginning of his career. And then he uses that knowledge on how to borrow money when he gets into the oil business. And that sets him apart from his competitors because, one, he's better at it and he's bold. Like it's so much so that his he wants to have to leave his first oil partners because they were too scared of how bold he was.

Starting point is 00:20:40 Borrow money in the present, his father believed, in order to accumulate a fortune in the future. Rockefeller practiced that philosophy. He was, Clark said later, the greatest borrower I ever saw. Though Clark's name came first on the company's calling cards, it was Rockefeller's strategy that dominated the firm's operations. The firm was prepared to make liberal advances on consignments of produce, which is exactly what he was doing when he was working for Hewlett and Tuttle. In a day before commodity loans, farmers were often desperate for a quick return on what they had shipped to market. So this is the opportunity that, like the service that Rockefeller

Starting point is 00:21:15 is providing, okay? A firm that promised liberal advances, which is what Rockefeller's marketing material said, a firm that promised liberal advances, not when the consignment had been sold, but when the bill of lading had been received, was bound to attract customers. So they're saying, hey, everybody's willing to loan you money or front you money, I guess is a better way to think about this. We will just do that, but more so. In order to make these large advances, the company must borrow and borrow heavily. And so that's the edge that a young Rockefeller saw in his business that gave him an edge up on his competitors. And so that's where he's like, okay, I have to learn how to be the best borrower ever.

Starting point is 00:21:51 From then on, Rockefeller was a familiar face at all the Cleveland banks. The visits were not always pleasant. Older men resented his youth and his persistence. They suspected his judgment and often turned down his request for money. What if the president of a bank refused to make me a loan? This is Rockefeller reflecting on this point in his career when he's a much older man. What if the president of a bank refused to make me a loan? That was nothing.

Starting point is 00:22:16 He might lecture me on the folly of making a loan for the purpose for which I was seeking it. That made no difference to me. It simply meant that I must look elsewhere until I got what I wanted. That persistence was always low key, but it was relentless. And so Rockefeller copies the how and not the what. And when he switches to oil, I'm going to fast forward to that. He's borrowing so much. He's being super aggressive, super bold. This is what's going to cause the breakup of his first partnership. we have been taking on too many loans in order to extend this oil business maurice clark said and this is rockefeller's response we should borrow whenever

Starting point is 00:22:52 we can safely extend the business by doing so so his partner responds if that's the way you want to do business we better dissolve and let you run your own affairs to suit yourself he then leaves the office shortly afterward so there's like a part I think there's four of them in here. Shortly afterward, another partner comes in and him and Rockefeller are going to have a conversation. Shortly afterward, Samuel Andrews entered the office. Rockefeller told her the conversation that had just occurred. He objects to my borrowing money. It is unreasonable. He knows, as you do, that I am very capable, excuse me, that I'm very careful about loans. And this is what Rockefeller's point is like, we got to act now. We have an opportunity now to expand, which may

Starting point is 00:23:31 not last long. So he wants to take advantage of that now. And it's also the important thing is like, why is the timing right to jump? He's clearly trying to jump from the commission business to oil. And so this is why. It says Rockefeller had calculated the risk in his bold leap from the commission business to oil refining. By now, he had enough outside investments to support himself if the gamble failed. But the Civil War was winding down, and that meant the huge boom in profits, the profits that came from the war, and the commission house would soon diminish. Several new wells, oil wells, had been recently discovered in Pennsylvania. The supply of crude was now about 10,000 barrels a day. And it looked certain to Rockefeller, that is,

Starting point is 00:24:11 at least for the near future. And so there's just a couple more lines I have to bring to your attention. But something I need to tell you is like, you have four partners, the Clark brothers are together. They think Andrews is with them. Andrews had secretly done a pact. John had secretly said, hey, let's, they keep saying we're going to break up. I'm going to wait for the right point. But when we do break up, who are you with? Are you with me or them? And the reason I bring this to your attention, because this pops up a lot. And I think the best person to describe this is actually Paul Graham. I've heard him talk about this, the founder of Y Combinator. And he just, he warned you, like, you got to be careful with who you choose as a co-founder, who you choose as a partner. I forgot the numbers he used, but it's

Starting point is 00:24:48 just like, you know, the vast majority of like the Y Combinator founders, like they have some sort of like founder divorce or Y Combinator has to step in and mediate. It's just, you know, it's very difficult to get right. And there's always usually just one domineering partner anyways. If you look look at just even if you look at companies that are no longer startups and you go through the ones in history, you're not going to find, you know, it's usually even if they start off with one, two, three, four co-founders like there's one. It's usually one person. So this is an example that the four partners met one evening in February 1865. The Clarks, assuming that Andrews was with them, once again called for a dissolution of the company. So they agreed. And then the Clarks were astounded to learn that Andrews was not with them and that Rockefeller had secretly lined up financing to buy them out. And so this is when he becomes, I think he's 25 years old at the time, he becomes the largest refiner in Cleveland. And this is what he said, how fortunate was that I bought out all those men Rockefeller recalled later. I point to that day when I separated myself from them as the beginning

Starting point is 00:25:50 of the success that I have made in my life. And then in the next chapter, the author makes a fantastic point, which is something I've tried to bring to your attention a few times, that we tend to focus on the version of the person that gets to enjoy the success and not the version that built it. The best example of this, I think it was Founders Number 140. It was the biography of Bill Gates, but it's a biography of Bill Gates from the first 35 years of his life. It ends on the day of the Microsoft IPO. And the reason I use that example is because like the Bill Gates you see on TV giving interviews to this day, that's not who built Microsoft. The Bill Gates that built Microsoft was the guy that dressed like Mr. Rogers,

Starting point is 00:26:25 but underneath that costume, he was Genghis Khan. By far one of the most extreme founders that you could, in the early days of Microsoft, by far one of the most extreme founders that you could ever study. The picture of John Dee, fixed in the minds of many, is this bent old man passing out dimes and platitudes between swings on the golf course. Lost from view is the Rockefeller that Cleveland knew in the 1960s.

Starting point is 00:26:47 A vigorous, alert gentleman with a quiet but extraordinary personality. Those who seek to explain his success generally comment on Rockefeller's insights of mind, his ability as an organizer, his skill as a financier, and his ruthlessness. Rarely do they remark on his personality. To understand the success of Standard Oil, one must know something about his personality. Like his father, he could charm birds from trees. Unlike his father, he trapped the prey before it knew the seduction had begun. Rockefeller knew of his talent, and as an old man, one afternoon he admitted it by relating a dream that he had the previous night and this

Starting point is 00:27:26 is the dream i dreamt that i was sitting on a lawn and i was told that someone looking rather like a ruffian wanted to see me and they all advised me not to see him that he meant no good i'll see him i said and he appeared and i said to him nicely and sweetly sit down and he sat down next to me and i talked to him nicely and quietly and he said of course if it's shooting you want actually and i said of course if it's shooting me you want all these people here are quietly ready to shoot and so something about rockefeller she got a ton of death threats so that's what he's referencing there well i talked to him and i won him over and he departed all good and then they just go more into his personality.

Starting point is 00:28:05 Those who knew him in the office gave equally consistent reports. He was never in a hurry. He was patient and gracious. I never heard him say an unkind word about anyone. The chief thing I remember about Mr. Rockefeller is his easy courtesy to everybody. He was always the same in his manner and it didn't matter whether he was meeting the biggest or the smallest one he dealt with. Behind that placid exterior lay traits that he tried hard to hide. And then we get some insights into what traits he had that he tried to hide. He exuded self-confidence, but his wife knew of the numberless nights that he spent worrying about the future. Publicly, he never said an unkind word about anyone. Privately, he delivered lethal judgments

Starting point is 00:28:49 about all of his business associates. The silent man that outsiders saw could be loquacious. That's just a fancy word. He likes to talk. Could be loquacious among friends. The hourly modest man carried an enormous ego. That's another thing I think I brought to your attention over and over again. There's not a person that I have covered in the 260 biographies I've read so far that had a small ego. Small egos do not build giant companies. The smartest founders, though, that we've studied hide that ego. They use it as like internal drive and they don't really try to show it as much to the

Starting point is 00:29:22 outside because people don't like to see ego in other people. That's just a fact of human nature. But I would push back heavily on the idea that John D. Rockefeller is able to build one of the most valuable, maybe the most valuable company ever created in history and not have an enormous ego. That's just not going to happen. To the press, he always used we when talking of his company's success.

Starting point is 00:29:41 But in private, I often came forth. It was as if as a youngster, he had willed himself to give the world a face, not necessarily his own. And so if you read a lot about Rockefeller, that's something that'll come over and over again. They felt like he had like a mask. He wore a mask, like an external mask to the world.

Starting point is 00:29:59 I think it's a good way to think about that. Rockefeller never tried to draw attention to himself. He dressed quietly in the fashion of the times. Few knew in the 1860s that he was quickly becoming one of the richest men in Cleveland. And part of this was a strategy. So he would say, let the other fellow talk. He felt that you should be always listening more than you're talking. And this is something we just came up with. Henry Goldman, the son of the founder of Goldman Sachs, the podcast I did on last week. Michael Jordan said this over and over again.

Starting point is 00:30:27 Successful people listen. Those that don't listen don't last long. Rockefeller would agree with that. And the way he would say this is, listen, let the other fellow talk. You can see through his actions, he always wanted this asymmetric informational advantage. He's going to pump you with all this kind of information. Wait till I get... Oh my goodness. There's later on in the book. he's going to pump you with all this kind of information wait till i get they his oh my

Starting point is 00:30:45 goodness there's there's later on in the book it's just it's crazy how foolish some of his competitors were they band together they create this something something called like a refiner's refineries association i'll get there later on and they put him in charge and part of him being in charge is he has to set like okay you send your oil on this railroad you send you send it over here and so to know that he's got to know the in and outs of your business. And so all this value, you could think of it as a way of him like not speaking and just listening. And he's getting all this valuable information from his competitors. Like imagine your competitors are all private companies and they open their books and tell you how much money they're making, how many barrels of oil are shipping, and they give you all that information.

Starting point is 00:31:22 A person, you're giving that person, you're giving that information to a person like Rockefeller. That is insane. And so let's go into how he mapped out his thoughts of like the oil industry at the very beginning. Rockefeller set about studying all sides of the oil industry. He traveled regularly to the oil regions, this is all in Pennsylvania at the time, and got to know the business from that end.

Starting point is 00:31:41 He talked to the producers, the men who drew oil from the ground, to the owners of the gathering pipelines that carried the crude from the well to the railhead, where they met up with the railroad, to the people who bought the crude, to railroad men who shipped to the refinery. So he's, again, doing exactly what Ogilvy says, the good ones no more. Same thing he was doing in the commission business. You just see that he's just doing it in the business he's in now. He went on to New York, to Philadelphia, and Pittsburgh to meet his competitors and to study their operations. This is not what I mean about the refineries association that comes much later on. Two problems preoccupied Rockefeller. How could Cleveland overcome its disadvantages as a

Starting point is 00:32:17 refining center? And how could Rockefeller and Andrews, the company that predates Standard Oil, surpass its competitors in Cleveland. His travels revealed no easy answers. So I'm going to pause here. These are the notes I'm writing to myself as I'm reading the book. All of these problems that he's identifying, right? Once solved, if he could be the one that solves them, will open up extreme economic opportunities. But those economic opportunities only flow to the person that solves them and when we get to this point he's like I don't know how to do it yet but he found the opportunity exciting this is when I started to think more about Jeff Bezos again and so there's a highlight from the everything store which is all due back of founders number 179 that I thought about and it says

Starting point is 00:32:59 somebody that worked for Jeff talking about an unusual experience that he had with Jeff and he said I brought Jeff very bad news about our business. And for some reason, he got excited. That made me think of another comment by Jeff Bezos. This comes from Founders 155. It's a book called Invent and Wander, the Collected Writings of Jeff Bezos. And this is Jeff describing why he gets excited at problems. Because another maxim that you and I have talked about over and over again

Starting point is 00:33:24 is that problems are just opportunities and work clothes. But most people don't look at them like that. They have a problem. They complain. They bemoan what they're experiencing. And people with founder mentality like Jeff Bezos are like, oh, that's an opportunity. It's just disguising itself in work clothes. The customer experience path we've chosen requires us to have an efficient cost structure. The good news for shareholders, this is coming from one of Jeff's shareholder letters, the good news for shareholders is that we see much opportunity for improvement in that regard. Everywhere we look, we find what experienced Japanese manufacturers would call muda or waste. And this is Jeff's unusual response to that.

Starting point is 00:34:03 I find this incredibly energizing. I see it as potential years and years of variable and fixed productivity gains and more efficient, higher velocity capital, flexible capital expenditures. And that is a way to think about John, a young John D. Rockefeller looking like, OK, well, Cleveland is further away from where the oil is coming out of the ground than other people, other refineries like the ones in New York and Pennsylvania. Not only that, in Cleveland, there's a bunch of other competitors. So, like, how do I solve these two problems? And knowing that if I saw this, this is muda or waste, right, I'm going to open up incredible economic opportunity. Refining was still such a relatively simple operation that even the most efficient operator could gain only a slight advantage over competitors. So he's got

Starting point is 00:34:49 to find another way in. Because their shipments were still too small to use as a bargaining lever against the railroads, what he does later, they would have little control over transportation costs. The refiners groused about these restrictions, but in general, they accepted them as facts to live with. This is such a powerful sentence that is coming. Get ready for it. Rockefeller refused to do so. It's a perfect example, right? The other refiners, oh, these suck, these restrictions, but, you know, we don't like them, but that's just the facts that we have to live with. Rockefeller's like, no, I don't have to live with anything. I can change things. He had worked out a strategy that would

Starting point is 00:35:24 carry him and his company to success. The surest way to raise profits was to increase the volume of production. To that end, he borrowed, there's that other idea that he's used in the past multiple times, right? To that end, he borrowed more money and started building a second refinery. Now, before I move on to the next thing he did, when you study Rockefeller, he's never just hitting it. There's never only like one attack vector right he's like i have an idea but i have i'm going to circle this idea with five or six other ways to attack that's why i started the book or the podcast with him comparing himself to napoleon okay so it says to that end he borrowed more money and started building a second refinery then uh john d hired his partner's brother this guy named john andrews

Starting point is 00:36:02 and sent him to Oil City to oversee the production at the source of crude, right? The cost of crude, now why is that important? The cost of crude fluctuated wildly. Rockefeller regarded its timely purchase, buying, which he defined as buying as the price was bottoming out and buying in large volumes, as a central element in his strategy. One so important that he gave Andrews little discretion in the business. And it's also the only thing Andrews can focus on. OK, and this is what he told him. He says, keep me posted here on the crude market each day as frequently as there's any

Starting point is 00:36:37 change. And so that means the price is changing. At this point, the price would change four or five or six times a day. And so he's like, you need to tell me every single time this is happening. The bulk of Rockefeller's borrowing in the early days went to buy crude. Why? His huge purchases was central to the company's success, and they often made those around him nervous. And so this goes on. This is what I mean. It was like, this is going to sound strange to you that how can a 250 page book be more detailed than a 700 page book?

Starting point is 00:37:08 But it's because it's focused on how he's building his company. And so there's a ton of highlights that are coming here. I need to give you an overview because I think it's going to help understand why I'm reading all this to you. Think about what Rockefeller is doing right now. He is he's like, listen, we are increasing our refining output. We are buying large amounts of oil at opportune times. We are eliminating middlemen at every opportunity. And we're hiring A players.

Starting point is 00:37:34 So we're going to get into the next part of his strategy. Just want to tie up this other section right here or this other part where it's like, hey, he's buying a ton of money. He's buying crude, a bunch of crude oil. The prices fluctuate massively. And so this is him explaining this to his partners. We must try not lose our nerve when the market gets to the bottom, as some people almost always do. We will surely make a great mistake if we do not buy. The next phase of John D's strategy was equally daring. Other refiners were satisfied to let wholesalers handle their export business. Rockefeller was not. So now he says he hires his brother, brings him into the business,

Starting point is 00:38:11 and gives him one job. He's like, we're not going to let these wholesalers take that money. That's profit for us. He sent William to New York to open an office under the name of Rockefeller and Company. Statistics showing a sudden change in the distribution of refined oil prompted Rockefeller's action. In the previous year, less than half of all refined oil had been sold abroad. So they're mostly selling. More than half their money is coming domestically, right? But in one year, it jumped to where exports are now 70% of the total output. Rockefeller saw that, hired William, sent him to New York, and now we are going to remove the wholesalers

Starting point is 00:38:48 from our business. Once that's done, this is when Henry Flagler, I think it's what, 248 or 249, episode 248 or 249, can't remember which one, just did his biography. Another formidable individual that's worth your time studying. So this is where Rockefeller brings him in.

Starting point is 00:39:04 He's soon enticed into the firm, Henry Flagler. Flagler brought in not only himself, but money. And he brought in really successful, older, rich entrepreneurs that are now going to advise Rockefeller. Flagler brings in this guy, Harkness, one of the richest people in Cleveland. Harkness had made a fortune in whiskey. And I've read a couple other things. He did more than just whiskey. Harkness joined as a silent, inactive partner. So he's not going to manage at all. He doesn't want to manage, but he, like Rockefeller, picks his brain. Rockefeller consulted him, Harkness, on all large decisions. And so what is Flagler's main job? His main job was to control as much as possible the cost of transportation while Rockefeller concentrated on financial matters.

Starting point is 00:39:47 So you're recruiting a bunch of A players and you're not telling them, here's five things I want you to focus on. Here's your top 10 priorities. Like, no, you got one priority. Destroy that priority. Do it more than anybody else possibly will. Flagler and Rockefeller shared an office with their desks back to back. Neither acted until both agreed on a course of action. The basic team that would shape the company's growth for the next decade had been formed.

Starting point is 00:40:12 And this reminded me of, I read a three-part series on Larry Ellison. And one of those books is called Soft War, An Intimate Portrait of Larry Ellison at Oracle. And I think it's Founders 124. And he said something in there that was really interesting. Like, you do not want turnover on your core team. That knowledge compounds and don't interrupt the compounding, which is very different because a lot of people, especially in technology today, industry, like, I can't remember where I read this. But it's like, you know, the turnover is like a year and a half, two years, three years. And so this is from Software.

Starting point is 00:40:45 While many parts of the business actually need staff turnover to stay fresh and vigorous, Ellison believed that keeping the elite kernel group together has been vital. The process of building a software product teaches a programmer what to do and what to avoid. The accumulated knowledge and experience within the 40 or 50 strong group comes from continuous work on improving the core code. And so you think of Ellison's ideas like you don't want turnover on your core product team, your core team. Same thing they just said. It's like, listen, he's assembling, these are all A players. A lot of them were founders before they came into Standard Oil, right? And it's just like, you don't want, all the experience of two, three, five years that now Flagler is going to be working on transportation costs. You don't want to lose that knowledge. So the basic team that would shape the company's

Starting point is 00:41:25 growth for the next decade had been formed. All of its members accepted a final element in the strategy. Only a fraction of the profits would be distributed in dividends. The rest was retained in the business. That was Rockefeller's idea. And he's doing that because Rockefeller saw to it that there was always plenty of cash in the till when the time seemed right for expansion. He thought this policy of retained earnings, then unique in American business, the crucial element in his strategy. And then looking back, they're talking about how difficult this point of their lives was, but how satisfying it was that they succeeded. That struggle made it more satisfying in old age. Energy and intelligence and relentless attention to the partners gave that the partners gave to every detail to business. Their days were long and hard, but they derived infinite pleasure from them. And it always saddened

Starting point is 00:42:09 Rockefeller that so few people remarked on this. Yes, often the days were full of stress and strain, he said, full of care, full of anxiety. It is true and yet full of happiness that words cannot express. Happiness because we were triumphing over the difficulties and we were being strengthened and prepared to meet our larger responsibilities. Let's go back to one of the advantages that Rockefeller put together, and that's the fact that he sent his brother to New York. And the way to think about this is like they have real-time market data that their competitors lacked, especially their competitors in Cleveland. No one else in Cleveland had this. So it says, unquestionably, Rockefeller's company was run more efficiently than most,

Starting point is 00:42:46 but its large profits in lean years owed more to Williams' presence in New York than to efficient production. Williams diminished the advantages that New York refiners had long held over Cleveland. Then again, it goes back to the use of technology, right? The Telegraph and Post Office tied the Cleveland, Oil City, and New York offices into a tight web, and communications between them flowed back and forth daily. So again, they have real-time market data that their competitors in Cleveland lack. The price of crude rose and fell with the price of refined oil. When Williams sensed a drop ahead in refined, he would wire John to hold off buying more crude

Starting point is 00:43:26 until the oil city exchange had reacted. And then they have these opportunities, there's all these like byproducts and competing products in some cases of kerosene because that's the main use of oil, like how they're making money at this point in history. Obviously, it's going to change when he retires and you have this gigantic increase

Starting point is 00:43:43 in the size of the American automobile industry. So there's an example of that that's still taking place on this page. So it's this thing called NAPTA. NAPTA was a low-grade illuminant that most refiners burned as waste because its market price was usually far below that of kerosene. However, sometimes it could be sold at a profit. When William saw a good market for naphtha ahead, he would wire Cleveland to shift operations to take advantage of it. So the author just described the fact that they have real-time market data that their competitors lack, and now they're explaining what they did with that information. In warm months, Cleveland shipped its oil east by canal, but at a moment's notice from William, it could shift to rail, to railroads, to catch a

Starting point is 00:44:26 rising market that would more than make up for the added expense because they could decide, hey, I don't have to send it by boat to the East Coast. Maybe I'll send it by rail to the West Coast because that market right now has just shifted. And now we could actually make more per barrel doing that than sending it by boat. And so, again, it goes back to this idea that the sequence in which events happen is really important because they're more efficient. They have all this real time market data. They're making more money than their competitors. What do they do? They increase the size of which their business is, and then they go and use their size to negotiate cheaper shipping and transportation rates with the railroads than their Cleveland competitors

Starting point is 00:45:02 could possibly match. Again, it goes back, and why is that important? Because it goes back to what he was learning when he was working in the commission house as a 17-year-old. That all is not how it seems from the outside. In the early months of that year, John, William, and Flagler spent an inordinate amount of their time trying to pry the largest possible rebates out of the Erie Railroad. They concentrated on the Erie because it was the weakest and the hungriest for traffic. And so this is where Rockefeller is going to meet the person that he later says in life

Starting point is 00:45:35 that he's the best business person he's ever dealt with. That's Jay Gold. Because Jay Gold had just taken over the Erie. So think about this. They have almost like parallel ambitions in different industries. Rockefeller's like, I want to monopolize the oil industry. And Jay Gold's like, I want to own all the railroads. I want to monopolize the railroad industry.

Starting point is 00:45:56 So there is a ton of information about what Jay Gold's doing here. I read this chapter twice. I still don't even understand. It's so complex. I can't get my head around it. I can give you like the end result of all of Jay Gold's like secret manipulations of the railroads. And that's what I'm going to focus on because that tells us like why this relationship with gold was so important in the early career of Rockefeller. And this paragraph right here will give you an indication of why it was so confusing.

Starting point is 00:46:24 I still have no clue how like complex this idea that Gold did. So it says, in the year that followed, Gold bought into, he bought into, raided, leased, or cornered the proxies of the Michigan Southern Railroad. These are all railroads I'm going to list for you. Michigan Southern, Indiana Central, Wabash in Western, Fort Wayne in Pittsburgh, Cleveland in Pittsburgh, and even the Centrals. One of his few lasting accomplishments while with the Erie was to make Cleveland the leading refining center in the nation. Pittsburgh had always led the amount of crude it took from the regions, but that changed after gold took an interest in the matter. And this is the punchline why I'm reading this to you.

Starting point is 00:47:12 The only certain result of gold's manipulations was that Rockefeller profited mightily from them. They probably added at least $50,000 annually to their treasury, to the company through the two hard years that lay ahead and to finance an expansion program at a time when most other refiners were barely breaking even. And so this idea of having secret sources of income is all over the book. It's all over the career of Rockefeller. That was just the first example. And so now these are like bad years for the oil industry in general. And so I got to lay out the playbook that they're going to use over the next few pages. Here's the highlight or the outline for you. You raise money so you can increase production. Then you use your increased production to get better rates on transportation than other

Starting point is 00:47:56 refiners are capable of doing. Then step three, you use your increased profits because you have better transportation on a commodity product to buy your competitors. And then step four, you continue to find secret sources of income. It was Flagler who came up with a plan to reorganize the company into a flexible corporation that could expand at will by increasing its capitalization and selling more stock. Under his guidance, the Standard Oil Company started with a capitalization of a million dollars was formed on January 10th, 1870. So that's the raising money part, right?

Starting point is 00:48:29 The new corporation made its first strong impression on James Devereaux, who headed the Lakeshore Railroad. It was just a short railroad that fed into the oil regions and Cleveland. Henry Flagler proposed to give the Lakeshore 60 carloads of refined oil a day every day of the year, he said, if the road would give Standard a substantially reduced rate on shipments from Cleveland to New York. That is the second step, right? Devereaux accepted Standard's proposal. So Standard continues to reinvest money, increases its production. But here's the problem. They got to send 4,200 barrels of crude a day, right? At the time, their daily capacity was only 1,500 barrels. So what do you do? Again, this is that maximum. All is not as it seems from the outside. So like, okay, how are

Starting point is 00:49:12 we going to make up, like, how are we going to fulfill this obligation, this contract that we just signed with them? And so they go to the other refiners, there's about like 25 to 30 of them at this point, and say, hey, we could ship your oil cheaper than you can. Standard was willing to share with other local refiners its arrangement with these other railroads. And because the deal that Standard is offering them is better than the one they can get on their own, they agree. Standard had agreed to handle the freight arrangements for all Cleveland oil slated for export.

Starting point is 00:49:41 The deal surely gave them one more hidden source of income. What is that hidden source of income other refiners in the city would have no way of knowing what part of the savings and freight charges were passed on to them okay so i want to move ahead to where he gets this idea he's like okay i need to control this i need to bring this godless industry under my control and really the main point of these these few sentences here is that withstanding prolonged periods of anxiety can lead to a breakthrough. And just most people aren't willing to endure that pain, so they give up too soon. Work by day and worry by night, week in and week out, month after month. If I could have foreseen the future, this is all a quote from Rockefeller, I doubt if I would have had the courage to go on. Sometime during the year,

Starting point is 00:50:24 Rockefeller began to mull over a plan to unite the refiners of Cleveland into a single organization whose size and efficiency would be able to undercut the Pittsburgh and New York as well as the oil region. So those are the three other areas of the country that are all refining oil that are their main competitors. So just like Titan, this book goes on for quite a bit about the SIC, which is the Southern Improvement Company. This is just, I'm going to give you like the top highlights. This is a clear, to me, a clear description of what the SIC did and why. And you could think about the best description I've ever read about this is like, it's a dress rehearsal for the monopoly that Rockefeller eventually builds later, because this idea is never going to, like he just uses

Starting point is 00:51:05 this idea as a threat. It never actually gets off the ground. The company's purpose was first to end rate wars by evening oil traffic among the Pennsylvania, Erie, and New York central railroads. Second, it would limit production. The country had a daily refining capacity of 40,000 barrels, but the market could only absorb 16,000 barrels. So you're producing too much. You already know what the supply demand is. You can imagine what that is going to do to the cost, right? Ostensibly, membership in the company would be open to all refiners. That's a lie.

Starting point is 00:51:31 The company would sign contracts with the railroads, which would grant members substantial rebates. That's why they're doing it. And also drawbacks on oil shipped by non-members. For example, if the posted rate on a barrel of refined oil going from Cleveland to New York was two dollars and 80 cents, members would get a dollar 80. So non-members are paying. Let's say let's let's use round numbers for our sake. Right. Non-members are paying three bucks a barrel. Members are paying a dollar a barrel.

Starting point is 00:51:58 If the plan worked, no refiner could long survive outside the Southern Improvement Company. And so then Rockefeller says, hey, this is the plan we have. He goes around to his other competitors in Cleveland. He's like, listen, you got to join or you got to sell. And this is going to be known as the Cleveland Massacre. He saw a chance to use the Southern Improvement Company as a club to force Cleveland refineries to accept our plan. In Cleveland, he immediately approached Oliver Payne of Clark Payne and Company. And this is why he's doing that.

Starting point is 00:52:24 He always says, like, he should target. He gives this advice later on, too. He's like, if you're trying to take over, like, an industry or an area in the country, target the most formidable opponent first. And if you can knock him down, all the others will fall, like dominoes, basically. Payne came from one of Cleveland's wealthiest and socially most important families. Rockefeller offered him $400,000 for his company and a position in Standard Oil. Rockefeller said later that the large amount he was willing to pay

Starting point is 00:52:52 was meant to lure Payne into Standard Oil, where his Cleveland connections might attract more money into the firm. His plan worked. So at the very same time that he's doing this, he does something that's also extremely smart and something that he does his entire career. And that's he's constantly developing a network of secret allies. And this time he does it with the bankers. And this is why every important Cleveland banker was given a chance to buy modest blocks of stock, which thereby committed them to standards welfare. Hereafter, it would be in their interest to lend the company money and not to lend to refiners who refused to sell to standard. These bankers became a secret ally of standard.

Starting point is 00:53:41 And so what's happening here is the historical event known as the Cleveland Massacre. But the reason I want to bring this to your attention is because when we get to Rockefeller describing this time in his life, it sounds to me like a religious sermon. In the four weeks between mid-February and mid-March, Rockefeller and Flagler bought out 23 companies. All but one of them was in Cleveland. Historians later dubbed a swift and astonishing campaign the Cleveland Massacre. Rockefeller sought otherwise. Now here's a quote from him. The procedure was without precedence. We find here, he's describing his own company here, this he's using weird language, but this is his own company right here. We find here the strongest and most prosperous concern in the business, which had made money

Starting point is 00:54:26 in each year of its existence, turning to its less fortunate competitors, how benevolent of you, John, who it well knew had been losing money and become discouraged in saying to them practically, we will stand in for you and the risks and the hazards of the refining business. Again, so benevolent on your part, John. You need not contribute any money unless you desire to do so. Standard turned to these men with whom it had been in sharp competition and said to each, Come with us and we will do you good. See what I mean about this sounds like a religious sermon?

Starting point is 00:55:03 We will undertake to save you from the wrecks of this refining business and give you a return on the capital which you have in the plant and your land. Or if you prefer, we will take the business off your hands. And the mistake these guys made is they, he gave them an option. Do you want stock or cash? And it says all but five took cash. Most simply doubted that Rockefeller's plan would work. John, it cannot be done, they said. Neither Rockefeller nor Flagler threatened anyone during the campaign. They did not have to. They started at the top with the largest refiners,

Starting point is 00:55:40 and by the author Ryan Holiday. He was on a podcast promoting his book Conspiracy, which talks about the plot between Peter Thiel and Hulk Hogan to take down Gawker. And he described it the most succinctly after spending a ton of time studying what actually went down. And he says it was ruthless efficiency and hyper competence. And so those are the five words that I wrote down on this page when I got, this is the end of the chapter, when it just lays out every secret machination and form of strategy that Rockefeller did. And the way I would sum that up is ruthless efficiency and hyper competence. And if you could think in that five word sentence, the most important word is and. It is the combination of those traits taken to their most extreme application.

Starting point is 00:56:47 Ruthless efficiency and hyper competence. So there's a short chapter called A Remarkable Letter, and it is all about a letter that to Rockefeller from his brother, William. William is in New York. And the author just does a fantastic job breaking down why this letter is so remarkable. And so I'm just going to read you his description of what's taking place and why it just gives us insight into the early days of Standard Oil and how they thought. So it says, this letter calls for explanation. It is one of the few to survive from Standard's early years that reveals in detail how the leaders thought and the way they operated. The first astonishing revelation is DeVos' enormous profits on a small investment. So the letters is basically from his brother saying, hey,

Starting point is 00:57:30 there's a very profitable refinery. We can buy them or we should buy them. And here's why. And the way to think about this is like, well, he tells us right here, it's a small refinery, but it has like a specialized niche. And so it's extremely profitable. The first astonishing revelation is DeVos enormous profits on a small investment. So remember, this is 1870, 1871 and 1872. And this small refinery made a profit of $800,000. And if you use one of those inflation calculators online, that'd be like $20 million in today money. So it says it's modest refinery specialized in canned oil for export. They were exporting a product that was popular in Europe. Why is that important? Because they say DeVoe

Starting point is 00:58:10 had carved out a unique market for himself because the three years that William mentions were very lean ones in the oil industry. And William's recommending buying this because once they like the overall economic environment, the oil market rather like improves, he thinks that they can more than double the profits and they could do so within the next year under standards management. And he continues breaking down this letter. The phrase in the event of either war or peace indicates that the thought was afoot with the Rockefellers and Flagler to invade the New York market, which is where the companies that he wants his brother to buy is located. Charles Pratt's willingness to go along with

Starting point is 00:58:51 Standard's purchase of DeVoe is another surprise, which is obviously mentioned in the letter. Why is that a surprise? Because Pratt had refused to join the SIC, the Southern Improvement Company. He was one of Standard's strongest competitors in New York. So he's saying, I'll join with you guys, right? Previously, he'd been a big critic. He was one of Standard's strongest competitors in New York and uninterested at the time in any form of cooperation. Yet here he is, and this is a quote from Pratt, very anxious to get into our arrangement. And so the author adds some historical context for us about why this is important, because Pratt was no fool. Indeed, he was generally regarded as one of the shrewdest and ablest men in the oil business. Yet the letter shows that William is luring Charles Pratt

Starting point is 00:59:34 into a trap that will eventually, if all goes as planned, let Standard devour his business. Once Standard had the DeVoe company, it will gain a monopoly on canned kerosene, and soon after, Pratt would be included in that statement. When William writes that the present competition will naturally be kept, he means that the DeVoe company will continue to operate under its own name after Standard buys it. So that goes back to this idea that Rockefeller loves secret allies. He does this over and over again, over and over and over and over again. This may be the first recorded reference to a technique that Standard would soon use to build its empire, the hidden company. That is a supposedly independent firm operating under its own name, but in fact wholly owned by the Standard

Starting point is 01:00:25 Oil Company. And this paragraph is the single best way to think about this and why this was such an effective tool. The secret ownership of other companies was so well preserved that often a refiner enraged by Standard's ruthless tactics would refuse its offer to buy him out and sell instead to a local competitor, unaware that he had in fact sold out to Standard. And that's one of my favorite maxims, an illustration of one of my favorite maxims, bad boys move in silence. So we go back to this idea that Rockefeller looked at business as war. In war, obviously your opponent can fire back.

Starting point is 01:01:04 And so that's what happens to the Petroleum Producers Union, the people that are actually producing the product, they decide to band together and boy it's interesting. Rockefeller's reaction to this is interesting. So it says, the Petroleum Producers Union immediately levied a boycott on all the members of the South Improvement Company. And so it's a problem. Rockefeller can't survive if they don't sell to them. So what I'm about to read to you, this is the important part, at least it was to me. What I'm about to read to you is happening during a boycott, right, that takes Standard Oil employees from 1,200 to 70. They have to close up shop. And so Rockefeller, even though this is happening, he thinks this is temporary. So he, and there's a bunch of examples of this in his own private writing and in recollections from conversations he had, he identified that he

Starting point is 01:02:01 believed that Standard Oil stock is the most valuable thing in the world to own and always bought more of it. And so we're going to see that he has continued to resolve even when his own partners and his own brother don't. William wrote this is happening during the boycott. This is a very scary time. Imagine having 1,200 people in your company that you see going down to 70. You're not going to be really optimistic. William wrote John that he wanted to sell 50,000 to 100,000 more of his stock. Do you want it? Maurice Clark also became uneasy about this time,

Starting point is 01:02:31 and he told Rockefeller that he wanted to sell him his stock. Maurice, John said, you're a member of the Standard Oil Company. You had better wait. Maurice waited until after lunch, and then he said he still wanted to sell. Rockefeller says, so I gave him a check. So that boycott lasts like a month or two, maybe three months. I can't remember exactly. Eventually gets resolved, and so they start scaling back up. So they're like, okay, the SIC, that's not going to work. They're like, we still think this is a good idea.

Starting point is 01:02:58 Let's find another route in. And so this is what I mentioned earlier, how his competitors are actually going to give Rockefeller the what he wanted information about their business. This is so crazy. So says they tried a new idea. They call it the Pittsburgh Plan, which the public name was the National Refiners Association. And so the idea is like, hey, let's all join together. We're going to use our increased size to negotiate better rates with the railroads. And then we need somebody to even out

Starting point is 01:03:26 traffic on the railroad. So the railroads get this like from a railroad perspective, you get, you know, hey, I have guaranteed this is how much you're going to send me. This is the price we're going to pay. Like just makes their their their business way more predictable. Right. And this is the crazy part. Rockefeller was chosen to head the association. Refiners dare draw on his talents now since power was spread through a representative governing board and no one feared he would or could gain control of the organization. And this is important because his election as the head of this association, all the benefits are going to accrue to him and Standard Oil.

Starting point is 01:03:59 Rockefeller worked to make the association succeed, yet he expected it to fail the moment the oil industry confronted a crisis. And he says in this association, he's describing why he thought this was going to fail. In this association, you couldn't fix a penalty. And by penalty, he means it's all carrots and no sticks. Because his point is like, listen, this organization of people is made up of men to a great extent that are untrained in business matters, many of whom came from a great variety of occupations, not well calculated to prepare them to meet the exigencies of high grade progressive businessmen and competitions. He's essentially saying like they don't they're not good enough and they're not disciplined enough. And this is how they're going to react if there's like this depression in the oil market. It was apparent that these men would not keep to their covenants, meaning they wouldn't even, you couldn't trust their word. He's

Starting point is 01:04:47 insulting them, essentially what's happening here. They would observe a covenant as long as it worked out to their advantage, but would flinch and back away when the carrying out of the contract seemed temporary to their disadvantage. That's exactly what winds up happening, by the way. It's going to disband. But before that happens, he's getting all this valuable information. He would use the refiners association to his purpose. As president, he came to know the inside of every member's operation. He had to do this in order to allot the quotas fairly. And in his travels for the organization, he became acquainted with every leader in the industry. And shortly after this depression that's going to last four years winds up hitting the country. And it says the association collapsed with its onset, just as John predicted. Now,

Starting point is 01:05:30 I'm going to bring into like, so how does early in his career, still has not built his monopoly yet, how is he going to act in a financial and economic depression? And his answer is that they're going to start vertically integrating. A few months later, Standard made two bold revolutionary moves that indicated that Rockefeller and Flagler had shifted strategy. Now they began to integrate vertically, branching into aspects of the industry others had not touched. First, they started to build their own pipelines in the oil regions. Next, Standard purchased a half interest in this company called Chess, Carly and Company, which was the largest distributor of refined oil to the South and Southwest. I'm going to keep reading and I'll explain all this to you in a minute. Together, they purchased a number of the newly introduced bulk tank cars,

Starting point is 01:06:15 which they're going to fill with oil, obviously. In them, Chess Carley shipped turpentine from Southern Pine Forest to Cleveland. When the cars were emptied in Cleveland, the turpentine was sold in the local market. They were then filled with kerosene and sent back to Louisville for distribution. Why is that important? Because in a single swoop, the huge expense of shipment by barrels had been eliminated. And Chescarly continued to operate under its own name. No one in the industry was aware of the partnership it had with Standard. So think about what's happening.

Starting point is 01:06:52 They're selling into new markets, right? They're eliminating costs. That's exactly what we just described. And they're collaborating secretly. So we're still in this economic depression. Obviously, when you have an economic depression, the weak people are going to be like what Warren Buffett says. You don't know who's swimming naked until the tide goes out. That's an example of that.

Starting point is 01:07:09 What Rockefeller is doing in this part, though, is like it's really interesting. He understood humans, right? So he would align. This is how he would align interest to transform competitors into collaborators, which is something that, you know, that's this whole thing. It's like we should be collaborating. We should not be competing. He was not a fan of competition in all the history of the world men have never made a success of a concern into which they were forced or driven this is rockefeller

Starting point is 01:07:32 talking you cannot have winning cooperation except by willing partners he went on to explain how he william and flagler approached those they wanted in the company we We have said to these men, now let's look at these facts together. We think it is in your interest and ours to work together. The cause is thus. Do not be in a hurry. Think this over and take your time. Those who looked over Standard Oil's books came away astonished at the high profits they made in hard times. The second carrot was the appealing pattern of organization that John Dee offered for the enlarged company. So he's building, essentially these are a bunch of like acquihires, right? His entire team is going to be a former founders.

Starting point is 01:08:14 Policy would be set at the home office, but considerable authority would be given to the quote unquote division leaders. These are the companies he's buying. The division would to a large degree be semi-autonomous. Each of the key men in the local refining areas would have a voice in setting company policy. It's almost like he sets this up like almost like the mob did, the mafia did in America and other places. Like they have mob bosses in all these different cities. So it's like Lockhart in Pittsburgh, Warden in Philadelphia, Pratt in New York, Archibald in the oil regions would run their own divisions.

Starting point is 01:08:47 And they would also sit in on company strategy meetings in the home office. Think of Rockefeller as like the boss of all bosses, right? When Standard's offer was presented in that light, independent thinking men like Pratt, Archibald, Worden, and Lockhart, founders, right, found it hard to refuse and none did. So go back to when he was looking for a job as a young man he's 16 17 years old i said there was like a lot you could use the the the way he approached his uh search for a job as like a metaphor for how he approached his life there's a more detail in this book than i found elsewhere about like how did he work like what was it like in the office in the office he proceeded in the same steady, methodical way

Starting point is 01:09:25 that a farmer plowed a field. His method of getting business attended to was the acme of simplicity. Unfinished business in the form of letters, telegrams, and memos, and so on, was placed in a pile on the right-hand side of his desk. He would take up the first paper, give an answer or issue his instructions to someone else. And then when the matter was off his mind, the papers were handed over to be filed. If the paper could not be immediately attended to, he turned it upside down and put it on the left-hand side of his desk. When the pile at the right side was demolished, he would turn the pile at the left side, right side up, and transfer it to the right right hand side to be taken up again the following

Starting point is 01:10:05 day but i just love that that visual it gives you like he's going about he's proceeded in the same steady methodical way that a farmer plows a field and now that he's convinced his most formidable competitors to become collaborators we see the ruthlessness in which he operated in because his whole thing is like i I want all the business. I don't want 50 percent. I don't want 90 percent. He never gets above, I think, 90 percent. And sometimes even before it's dissolved, some competitors kick him down to like 80 percent. But his whole thing is like, I want it all. I want 100 percent.

Starting point is 01:10:38 Good manners that he displayed up to 1875 had been imposed on him. He lacked the power to force his will upon the industry, and he had to proceed with care in order not to frighten or antagonize those he sought to entice within the fold. Once they had joined, Rockefeller's method of operation changed. And so we see more ruthless efficiency and hyper-competence here. He wanted a monopoly. To achieve it called for a change of tactics. From now on, deploying his general staff with Napoleonic skill, he would blend the genteel methods of persuasion with a ruthlessness and sometimes unscrupulous use of the power he had accumulated.

Starting point is 01:11:12 Here's an example. The general staff he had assembled by 1875 would carry standard through the next decade. It was a band of tough, smart, progressive businessmen. And so here's an example of one that they called an exploit. There is a small refiner. His name is Joshua Merrill. Merrill had patented a process that neutralized the offensive odor that up to them had slowed the sale of lubricant oil. His product instantly caught on and sold at several times the going price of competing lubricants. He had barely begun to market it when a mysterious Dr. Tweedle invaded the market with a deodorized lubricant, obviously based on Merrill's patents. Merrill sued, unaware

Starting point is 01:11:54 that behind Tweedle lay Lockhart and behind Lockhart lay Rockefeller and Standard Oil, who had promised to pay all litigation costs. The case dragged through the courts for years, and they finally broke Merrill. Eventually, he sold his patents to Standard for $20,000, which was a pittance compared to the more than $100,000 that he had spent in legal fees. Lockhart's assignment was to oversee the cleanup operation of Pittsburgh's independence, always, of course, under the eye of John. It was Rockefeller, for instance, who suggested planting in the local press a story hinting that a burgeoning refining industry in Buffalo would hurt Pittsburgh.

Starting point is 01:12:39 So that's another one of the tactics they used over and over again. They would use the press to plant fake stories. After that story was planted, this is the result. Rockefeller also mapped out the battle tactics for Lockhart. Concentrate first on the largest and strongest independent refiner. With him secured, the balance can be brought out easily, meaning the other competitors. That plan worked. Soon after the chosen prey fell, six other independents trotted meekly into the fold. So there's a ton of stories in this book about Rockefeller picking on and destroying smaller refineries. But he also would punch up.

Starting point is 01:13:15 And this story is an example of that. For all practical purposes, Standard in 1877 had a monopoly on the refining end of the oil industry. But a threat to its control loomed that year in the form of Joseph D. Potts, who, with the Pennsylvania Railroad as a collaborator, set out to loosen Standard's firm grip. Rockefeller's company may have been the leviathan of the oil industry, but it was a medium-sized fish compared to the Pennsylvania Railroad, whose assets approached $400 million.

Starting point is 01:13:47 Nevertheless, the danger Potts and the Pennsylvania Railroad posed to his creation convinced Rockefeller that the time had come to pick a fight with the world's largest industrial corporation. And the reason Rockefeller realizes he has to fight Potts and Pennsylvania is because they want to take away his most important advantage, which is his advantageous shipping rates. Potts created, built, and ran the Empire Transportation Company. It was a fast freight line that gave dependable service throughout the East. Its small fleet of ships collected grain and produce from around the Great Lakes and took the cargos to Erie, Pennsylvania, where they were shipped by rail. It also owned 5,000 railroad cars, 1,500 tank cars that handled its expanding oil traffic. That traffic was its most profitable item. So Potts makes most of his money transporting oil. Potts also owned scores of storage tanks and over 500 miles of pipeline,

Starting point is 01:14:45 plus a terminal on the New York waterfront. Legally, it was a subsidiary of the Pennsylvania Railroad. That is going to lead to its demise, by the way. So remember that part. I didn't know that at the time when I read that. But the empire had its own stockholders and distributed dividends under its own name. It was a very profitable company. Potts wanted to become the evener in the transportation of oil, the referee. He would then give equal rates to all shippers. This made him a potential threat to Standard. So Potts goes around and he lines up all these other independent refiners who are not part of Standard. He lined up a number of the independents and promised them, and said, if you promise them your business, he in turn had promised

Starting point is 01:15:31 freight rates equal to the best that Standard got. He could do this because the Pennsylvania Railroad, over whose tracks nearly all of Pott's traffic traveled, had agreed to join in the war against Standard. Now, why would that happen? Before the war began, Rockefeller and Flagler had visited Colonel Thomas Scott, which was the railroad's president and the person, you could think of him almost as Potts' boss. And the reason that Scott is willing to go to war with Rockefeller is because Scott also knew that he must accept Standard's challenge. If Standard

Starting point is 01:16:05 was not contained now, the railroads would soon be in the humiliating position of having a customer dictate the rates it wanted. The problem is Scott waited too long. Standard is already too big to fight. So they're having this fight. So Rockefeller goes, OK, cool. I'll just not send you any of my oil. Standard shut down all of its Pittsburgh refineries and deprived the Pennsylvania Railroad of what had been 65 percent of its oil traffic. The refineries in Cleveland were run at capacity and all their oil moved over the Erie and the New York Central Railroads at low rates. Oil flooded into New York, 167 million barrels within a few months. The Pennsylvania then also suffered a violent strike and millions of dollars of railroad property was destroyed. In the same month, Standard declared a dividend of $80.

Starting point is 01:17:01 By then, Scott had had enough and let it be known that he was anxious for settlement with Standard. He sends his vice president, this guy named Cassatt. Cassatt went to Cleveland to open peace negotiations. And this is the craziest sentence in all this and the flaw in Potts' plan. No one told Potts what was up. He went to war with Rockefeller and he doesn't even have complete control over his own company because he's a subsidiary of Pennsylvania Railroad. And so what did Rockefeller do? Rockefeller and Flagler went right to the top and try to cut the head off the top of the snake. It's like, I'll just cut. I'll take away 65 percent of your business. And so Scott had no choice. It was you. You waited too long to try to snuff Rockefeller out.

Starting point is 01:17:43 You can't snuff somebody else that's responsible for 65% of your revenue, for God's sake. So it says, as a matter of negotiation between the Pennsylvania— so basically they're saying Scott didn't tell Pot because he said it was none of his business. He saw this as a matter of negotiation between the Pennsylvania and the Standard. Rockefeller and Flagler were prepared to buy the Empire— and then they wind up buying all of—this is crazy. Rockefeller and Flagler were prepared to buy the empire's refineries, but Cassatt had said no, they must purchase all the company's holdings. The timing of the demand could not have been worse for Standard. The

Starting point is 01:18:15 oil market was very sick, but you have the opportunity to buy a ton of assets from a very profitable company. No one could remember when the future of refined oil looked so unpromising, Rockefeller said. They accepted Cassatt's conditions, which are really Scott's conditions if you think about it, and the sale price was fixed at $3.5 million. That is a ton. This is in 18, we're in the 1870s. When Potts learned of the settlement made behind his back, he tried to derail it by demanding payment in cash. To his dismay, Standard came up with the money. Rockefeller told a lively story of how he went around to Cleveland Bank saying, I must have all you got. I need it all. It's all right. Give me everything you have.

Starting point is 01:18:56 And if you go back to what Scott said about why he did this, he's like, listen, I don't want to be in a position where one of our customers can dictate how much, like what our rates can be. That actually happens because now Rockefeller becomes the referee because the railroads, not only Scott, but all the railroads, they're at war with each other. And so in the war, they just keep cutting rates and they're essentially like bleeding themselves to death. And so this is when they do this extremely complex deal to act as the evener, the referee, and have the best transportation rates out of any other oil company in the world. And there's just some things that cannot be simplified. So I'm going to read,

Starting point is 01:19:36 they have a letter where they hire this guy. His name is George Vail. And they hire him as an auditor working out of the Cleveland office. And his job is to try to keep track and make sure all these complex contracts that Standard has negotiated for everybody is actually like everybody's living up to their bargain. They say it's like he asked Flagler's help in guiding him through the maze because he was hired to do a job. But he's like, I don't actually, this is so complex, Flagler, which is his boss, which is Vail's boss. You have to explain to me like what you did here. And so before I jump into Flagler's response here, there's context that I think you need.

Starting point is 01:20:11 So it says beneath the surface, the two men were much alike, meaning Flagler and Rockefeller. As Flagler's response to Vale's query made clear, like Rockefeller, Flagler had an incredible capacity to absorb detail without losing sight of the overall picture. His letter may have been dull reading for an uninterested outsider, but it was fascinating to someone who knew or wanted to know something about the intricacies of evening, quote unquote, evening the transportation of oil. It revealed a virtuoso at work, which is Flagler. And I'm going to read from the letter for you. And I'm not trying to make this boring, but the reason I'm sending this, it is boring. The reason I'm

Starting point is 01:20:51 reading this too is because you can't simplify it. Like check out how crazy this is. So this is, Vail's asking like, hey, you need to break this down for me. I don't understand this. And Flagler says, the statement I furnished you showing the quality of oil to be carried at the old rates by the area in the New York Central Route was as follows. Of refined oil to New York, 127,000 barrels of crude and 167,000 barrels of each should be taken by each road. There was also to be carried to Philadelphia by the two roads, another 100,000 barrels of crude. And so there's three paragraphs I'm not going to read to you, but it's more like this. Hey, send 100,000 going from this city And so there's three paragraphs I'm not going to read to you, but it's more like this. Hey, send 100,000

Starting point is 01:21:26 that going from this city on this railroad going down and down, right? It says this only scratched the surface of complexities. Flagler continued. After the old contracts had been worked off,

Starting point is 01:21:35 the new rates would come into effect, which on refined oil is 89 cents per barrel and on crude is 103 cents per barrel. Less than allowance if shipped by the New York Central of 30 cents to get to Irvington, or in other words, 73 and a half net from Irvington to New York via the New York Central, and 103 and a half via Erie, less 35 cents to get the oil to Oil City,

Starting point is 01:21:54 and a net of 88 and a half on crude from Oil City to New York via Erie. And I read all that for this part. Do you understand? No, Vail shot back. And then this is Flagler's response. I do not know what I can make, what I can say to make my letter any more plain, Flagler replied on November 5th. In a nutshell, it is this. And then four pages of further complexities followed. So here's another thing that's pretty wild. Rockefeller went direct to the consumer in the 1870s. This part reminded me of that famous Jeff Bezos quote where he says, your margin is my opportunity. And the reason I want to bring this to your attention is, one, it's rather remarkable that he did this, but it's just really to shed insight into the way Rockefeller thought. Like if he saw anybody in the oil industry was making even a couple cents profit, he's like, well, let's just get rid of that.

Starting point is 01:22:42 That's just another middleman. We need to control everything. And it's a quote from Rockefeller. We found that wholesale made their profit in selling oil to the retailers and that the retailers sometimes added as much as five cents a gallon to their price in order to make their profit. We bought land, put up our storage tanks, cut out the cost of barreling and freight,

Starting point is 01:23:02 made tank wagons and delivered the oil at the door of the consumers, eliminating all those intermediate profits on the way. We made a fine crop of enemies by doing this too, but we made oil far lower in price than it had ever been before. And what he would do is in any densely populated urban area, he would have horse-drawn carriages drive up and down the streets and sell oil directly. And then another thing I think Rockefeller would tell you is like, there's no point in doing all this work to get to a large scale if you're not actually using your scale. And so a lot of this is like, he wasn't trying

Starting point is 01:23:39 to innovate at this stage in his career. So it says, once John D. boasted that his company made money out of 50, some 50-odd byproducts, everything from chewing gum to Vaseline. He failed to add that Standard had not created a single one of these innovative items. He let others experiment, waited until they had developed a profitable market, and then moved in. He paid little mind to the paraffin market. This is just one example of a byproduct he did moved in. He paid little mind to the paraffin market. This is just one example of a byproduct he did this in. He paid little mind to the paraffin market until the spring of 1878,

Starting point is 01:24:11 when in one sweep, he bought up every major producer and brought them into Standard Oil. He paid reasonable prices in part because those whose businesses he wanted had created products that were protected by patents. And then the author goes into Rockefeller's own point of view of himself. Like he believed that he was a good man. He did not. His conscience was completely clear. So really over the next few pages, I just thought this was a great description of Rockefeller's point of view of himself. On the corporate level, Rockefeller was not above shenanigans. He bought politicians. He misled the public with spurious brand names.

Starting point is 01:24:49 That's that secret ally, whatever I referenced earlier. He planted false stories in the press. He used every tactic available, short of violence, to squeeze or starve into submission any man whose business he wanted. And given all this, it says he never, it never crossed his mind that he ever did anything wrong to anyone. So how is that possible? Like, how can you have this like paradox, right? Right there wrongly, he had convinced himself that he was engaged in a crusade. And to him, it was a religious crusade.

Starting point is 01:25:28 He's going to use this idea of the higher law doctrine, and he's going to apply that to business. And so it says, Rockefeller adopted the higher law doctrine to business. He found the oil industry in chaos when he joined it. The law of the jungle prevailed, yet economic and legal concepts held that unlimited competition was virtuous. This made no sense to his orderly mind. Men ought to cooperate, not fight one another, he believed. Through cooperation, all could prosper. As they had prospered, so too would the nation prosper. So again, this is the way he viewed it. This is how he could have a clear conscience, even after all the stuff he did. Through cooperation, all would prosper.

Starting point is 01:25:58 And if they all prospered, so too would the nation prosper. But the laws of the land judged his vision unconstitutional. The law said that a corporation could not own property outside the state that charted it. He did that anyways. He found legal loopholes around that, right? They held that it was illegal to restrain trade. He restrained trade. They said that common carriers, the railroads, must treat all customers alike. We know that he tried to get around that at every turn. In Rockefeller's eyes, the laws of the nation contravede common sense. A higher law must prevail if all was to be put right in God's world. And so that's very important because society, the public or the newspapers might like be criticizing him, might even hate him. He thought he should be celebrated. He thought

Starting point is 01:26:50 he was a revolutionary. And to prove this point, the author is going to use his own words, his own description of as an older man looking back at this point in the history of Standard Oil. And if you think about it, like his view is logical from his perspective, just like it's logical from the outside perspective to demonize or say, hey, you're restraining trade or whatever the case is. So it says it's time to pause in this exploration of Rockefeller's career to let him explain himself and what he thought he had achieved in the 1870s. During World War I, so it was almost 50 years later, he had opened up as much as he could. What follows has been pieced together from these conversations in which Rockefeller justified

Starting point is 01:27:30 himself before the bar of history. So this goes on a few pages. I'm just going to pull out a couple of what I feel are the main highlights into how Rockefeller viewed himself. Very complaining men had been led to believe that the leaders of this idea were enemies of theirs. So he's describing himself, right? The leaders of this idea meaning Standard Oil. Very complaining men had been led to believe that the leaders of this idea were enemies of theirs. So he's describing himself, right? The leaders of this idea meaning Standard Oil. Very complaining men had been led to believe that the leaders of this idea were enemies of theirs and not their best friends, which was really the case. The Standard Oil Company's work was of such a new and revolutionary character. And he's saying it's a good thing for the world. It wasn't a bad thing.

Starting point is 01:28:04 I shouldn't have been. It shouldn't have been broken up. I shouldn't have been castigated in the press. I should have been celebrated. It was a force for upbuilding, a friendly force for all allied interests. We wanted a new idea to prevail. We wanted the old struggles to cease. We wanted these men to pull together, to join us, to take their full share of the business. We wanted to work together. I think it is fair to say that the strong men who were competitors

Starting point is 01:28:32 in the oil refining business, the aggressive men, in the best financial condition, and the most intelligent, indeed, the class of men who would be most likely to survive in the competitive struggle, were the men who were most likely to take up our idea of cooperation. And he's saying it's only going to work if it can be organized and run efficiently. In order to make this plan work, all interests involved had to be fairly recognized. Anything less than this, and he's obviously describing the role he played, right? Anything less than this, which tended to allow each individual to have its own way, regardless of the interests of others, would tend to reproduce the old chaotic and very unsatisfactory conditions from which those most experienced and capable

Starting point is 01:29:16 and business-like men were seeking to leave. And then he's going to give this metaphor to how he believed the people that did not want to cooperate with him, his competitors. Remember, he did not believe he did anything wrong. And so he's going to describe these what he calls unreasonable men. And he's going to use an illustration. He goes, I might more clearly illustrate what I have in mind by describing these unreasonable men were like a group of men who were trying to build a house large enough to shelter all the persons interested and a part of the men who needed most the shelter and protection of this home were all the time engaged in digging under the foundations and seeing if they could pull the structure down and apparently were willing to pull it down even though it fell on them that's a hell of a metaphor if you really think about what he's doing and he said there's

Starting point is 01:30:01 like listen the people that actually needed our protection the most are the are, the ones that couldn't survive on their own. We invited them into Standard Oil and they tried to destroy it. And so again, he's like the benevolent protector. He's, I'm saving them. And then he sums it up to be very clear that he thinks what he did was like not an act of God, but it was just fantastic for humanity. As a matter of fact, the Standard Oil company has been one of the greatest, if that is because even though it was broken up as a monopoly, which I'll get to later, just made him richer. The point is like a lot of the ideas I used to build Standard Oil are now very commonplace, you know, 30 years later in the business. And he describes that as a principle of centralization. The principles of centralization, savings and service have operated as we always

Starting point is 01:31:01 believe they would. So he's like, oh, I knew this was going to happen. I demonstrated Standard Oil, now all the other businesses are realizing that for the benefit of the whole people. And those detractors have now faded away. So basically saying, you guys were criticizing what I was doing at the time. Now fast forward a decade or two and all these other businesses are centralizing,

Starting point is 01:31:19 they're vertically integrating, they're cooperating, not to the obvious degree the standard oil did, but he's like, now all the people that were criticizing me now are just doing the exact same thing that i did and then this is just great writing that describes the standard oil company right before the monopoly was broken up and keep in mind it's like something that always shocks me and i even forget and even though i've read so much about this is like you just you freak out how young rockefeller was i think he's like 40 maybe 46 at this point. But it's

Starting point is 01:31:46 just like he accomplished so much at such a young age. The Standard Oil Company was not a nation, but it had enough of the attributes of one. It was a government of men, not laws. It was ruled by an oligarchy of 41 major stockholders. The domain was divided into territories managed by men whose powers exceeded those of state governors at the time. That's insane. Its contracts resembled treaties. It had its own espionage system, its own secret codes. Its employees worked to promote the fortunes of the ruling oligarchy and their loyalty to the company approached that of citizens to a country. When its president spoke, he sounded like the leader of a nation. In theory, the laws of America denied Standard sovereignty. In practice, Standard ruled unchecked. State governments could harass it, but Standard continued to do exactly what it wished. It financed projects out of its earnings

Starting point is 01:32:45 and thereby deprived banks of any say in its operations. In 1882, God alone, so far as Rockefeller was concerned, had the power to restrain the Standard Oil Company. And I mentioned earlier the businessman that Rockefeller most admired, the one he thought was the greatest he's ever came across was Jay Gold I actually have a biography that just arrived a few days ago of this the author actually reached out to me and sent me a book and I love the fact that he was hustling his book because the book came out almost 20 years ago I was like oh I love this so I

Starting point is 01:33:18 ordered the book I think it's called like the dark genius of Wall Street or something like that but that'll be a future episode very soon. But I was reading this section, I was not expecting this, where they started out describing, and I thought, you know, I'm holding in my hand a biography of Rockefeller. I thought they were describing Rockefeller. And what they do is they use this,

Starting point is 01:33:36 and I'll just tell you this up front, it's like, no, you thought we were describing, you thought I was describing Rockefeller. This is actually Jay Gold. And so it's like a brief overview of Gold, but their point was that they thought they were very similar in some degree. So I want to run over that or go over this a little bit because I thought it was interesting. Remember, they're around the same age. They're two richest people in the in America, maybe in the world at their time. So it's just remarkable that they had so many similarities. He was reared on a farm and milked cows as a boy. He never drank nor smoked. He was affable to every employee from the head of the department to the humblest. He enjoyed his wealth quietly. So again, I was like, oh, this is all Rockefeller. No, it's gold. His wife was quiet, dignified, and

Starting point is 01:34:19 unostentatious. Neither she nor her husband had social ambitions. He rarely lost his temper. Self-control was one of my most profound attributes, he would say. He was a quiet man, and when he spoke, his words were both few and carefully chosen. He rarely boasted, but once, speaking for himself and his fellow capitalists, he said, we have made the country rich. We have developed a country, coal mines and cattle, raising as well as cotton. We have created this earning power by developing the system.

Starting point is 01:34:53 When he died, the press said that he was the world's richest man. It also called him the world's most hated man. The man I just described sounds like John Dee, but it was not. It was Jay Gold. They had much in common. They were nearly the same age.

Starting point is 01:35:08 Their careers spanned the same period. Gold died at the end of 1892 as John Dee was preparing to retire from business. Their fortunes that year were about the same, around $100 million. When an acquaintance asked Rockefeller who was the greatest businessman he had known, the answer came unhesitatingly, Jay Gold. He echoed the sentiment of Cornelius Vanderbilt, who had long ago tangled with Jay Gold and lost, and Vanderbilt called Gold the smartest man in America. Gold was perhaps the single most unsettling force ever to appear on the American industrial scene. That is a crazy sentence. And then we get some context onto that sentence. He thought in

Starting point is 01:35:53 continental terms when few contemporaries saw much beyond state boundaries. He shook to its heels an industry already settled in its ways when he set out to realize his dream of a transcontinental railroad. Given the obstacles he faced, Gold's achievements were phenomenal. He was an advanced thinker in the field of corporate finance, and he set precedents which were later followed by investment bankers and by state and federal legislatures. Among wheelers and dealers of his day, he had no peer. In his youth, he was obsessed with piling up a fortune. No holds barred. He mastered the details of running a railroad with embarrassing ease. He was a loner. Labels do not imply judgments, but if such were to be made,

Starting point is 01:36:48 Gold must rank as the less honorable and less trustworthy, but the more brilliant of the two. He was indeed the smartest man in America, at least in the business world of his day. And I just have a quick paragraph for you because it illustrates this idea that you could be a genius founder, as Rockefeller was, and a terrible investor, which he was. By 1893, Rockefeller had assembled a small private staff to handle his increasingly complicated

Starting point is 01:37:16 personal finances. And he hired three people to do this. These three people knew something that would have shocked those who regarded Rockefeller as a genius in business. He had been duped in many of his investments. It seems incredible that a man who had kept a record of every cent he earned or spent from the time he began to work could make such a mess of his investments. The casual way in which he invested in companies would have appalled Jay Gold, who explored every side of a corporation before it got a penny of his money. If a business had a weakness, Gold knew about it. And then the last part of the book is just the idea that Jay Gold dies. So Rockefeller is going to become the richest man, and then the government attacks and dissolves,

Starting point is 01:38:00 well, they attempt to dissolve Standard Oil. So it says, when Jay Gold died, the press passed on the title of America's Richest Man to Rockefeller. He accepted the dubious honor, but bore it uneasily. You must find some other designation for me, he told a reporter. I dislike being characterized in that way. Wealth isn't a distinction. If I have no other achievement to my credit than the accumulation of wealth, then I have made a poor success of my life. It also brings bad attention. Rockefeller is constantly covered in the papers, Standard Oil. There's all these articles and investigations into Standard Oil that appear in the press first.

Starting point is 01:38:35 And then once it appears in the press, it flows up into the government. So the government finally tries to do something. But I do want to point out Rockefeller's response to all this, because he's not the only person that got extremely wealthy. And he definitely got more. He got richer than anybody else. But he had a bunch of partners. But he always took all the blame himself. Rockefeller took the brunt of these attacks, always accepting responsibility for whatever Standard had done. All others to this day got off practically free of criticism. The company, it is true, was his creation and operated according to the signals

Starting point is 01:39:05 that he called, and he was its dominant shareholder as well. But as the outrage against Standard Oil intensified, he could have easily have processed it that there were others with leading roles in the company, and he was not the whole company, but he never did. And then the book ends with the dissolution of Standard Oil by the United States government, even though Rockefeller lives for another 25 years or so. On May 15th, 1911, the United States Supreme Court declared Standard Oil an unreasonable trust in order that it be dissolved. The Supreme Court's decision contributed further to his welfare, meaning made him even richer.

Starting point is 01:39:45 In the first full year after the dissolution was ordered, the value of his shares in the 38 separate and ostensibly quote-unquote independent companies that were created out of the old Standard Oil appreciated by $20 million. In 1913, the net worth of his fortune peaked at slightly under a third of a billion dollars. If the market value of his holdings was three times what he carried on his books, as it seems likely, Rockefeller had become the world's first billionaire on record. And that is where I'll leave it. Highly recommend reading the book. If you buy the book using the link that's in the show notes in your podcast player you'll be supporting the podcast at the same time the very best way to support the podcast is to give a gift subscription to a friend

Starting point is 01:40:33 colleague, co-worker, family member whoever you want that link is also down below in the show notes and is always available at founderspodcast.com that is 254 books down 1,000 to go and I'll talk to you again soon

Founders - #254 John D. Rockefeller: The Founding Father of the Rockefellers

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