Founders - #266 Henry Ford's Autobiography

Starting point is 00:00:00 An able man is a man who can do things, and his ability to do things is dependent on what he has in him. What he has in him depends on what he started with and what he has done to increase and discipline it. An educated man is not one whose memory is trained to carry a few dates in history. He is one who can accomplish things. A man who cannot think is not an educated man however many college degrees he may have acquired. Thinking is the hardest work anyone can do, which is probably the reason why we have so few thinkers. There are two extremes to be avoided. One is the attitude of contempt towards education. The other is the tragic snobbery of assuming that marching through an

Starting point is 00:00:46 education system is a sure cure for ignorance and mediocrity. You cannot learn in any school what the world is going to do next year, but you can learn some of the things which the world has tried to do in former years and where it failed and where it succeeded. If education consisted in warning the young student away from some of the false theories on which men have tried to build so that he may be saved the loss of the time in finding out by his own bitter experience, its good would be unquestioned. A man's real education begins after he has left school. The true education is gained through the discipline of life.

Starting point is 00:01:33 That is an excerpt from the book that I'm going to talk to you about today, which was published 100 years ago. And it's My Life and Work, the autobiography of Henry Ford. So back on episode 263 in that biography of Edwin Land, it's called Land's Polaroid, Accompanying the Man Who Invented It. In chapter three, it goes through all the different heroes and people that Edwin Land was studying, like the great people that came before him, that influenced his approach to building all of his work, really his scientific work and the building of Polaroid. And so it's like people, there'll be like one or two paragraphs, maybe

Starting point is 00:02:02 like a page or two on the people that he was studying as like a young person. He's like 17 or maybe 19 at the time. And it's like people like Michael Faraday, Thomas Edison, Alexander Graham Bell. Henry Ford is one of the people, which I'll get to in a minute why I'm rereading his autobiography. And George Eastman. And so what I've been trying to do the last few weeks is like set up. Okay, if you had to ask, who's the most influential entrepreneurs of the last hundred years? And I think the top two are blatantly obvious.

Starting point is 00:02:30 And it's Steve Jobs and Henry Ford. And you and I are living in the world that jobs change. So I don't have to tell you what the introduction of smartphone changed. You just live through it. But I think a lot of people miss how fundamentally innovative the Model T was. Henry Ford's Model T was the first mass-produced car in history. Before that, humans were getting around on foot, horse, maybe horse-driven carriage, or maybe a bicycle. Henry Ford was the first person in history to figure out how to

Starting point is 00:02:57 produce a car at a price that everybody could buy one. But I like this idea of studying the two most important entrepreneurs of the last hundred years, Steve Jobs and Henry Ford, back to back. So with that, let's jump into the book. Now, this is technically called an autobiography, but that's not really the way it's set up. The reason I opened the podcast that way, where it says, hey, true education is actually gained through the discipline of life. I think that's how Henry Ford thought about this book as well. We'll learn a little bit about his early life.

Starting point is 00:03:23 But mostly, reading this book is like having a one-sided conversation where one of the greatest entrepreneurs ever lived just speaks directly to you and tells you, hey, this is my philosophy on company building. And so let's go to the first chapter and it just opens up in a very odd way for an autobiography to open up. He just gets right into the main point. Power and machinery, money and goods are useful only as they set us free to live. They are but a means to an end. The fact that the commercial success of the Ford Motor Company has been most unusual is important only because it serves to demonstrate that the theory, in other words, his theory to date is right. So I'm going to pause right there. He publishes this book in 1922. In 1919,

Starting point is 00:04:06 he has bought out all of his investors. He owns the Ford Motor Company. He owns 100% of the Ford Motor Company. And this is at a time in history when he is making like half, I think something like half of all cars in the world. A rough analogy of what that would be like today is if you own, like, let's say a 10 or 20 billion, something like that, 10 or $20 billion company, a hundred percent. And so he opens up, he's like, listen, I have a lot of criticisms about the way other businesses are built. And I think I, my criticisms are valid and they're, they're more, people will be more open to hearing them because I have bedded benefited immensely financially from the system as is, and I still want to change it. So that is what he's talking about in these two paragraphs. Considered solely in the light, I can criticize the prevailing

Starting point is 00:04:48 system of industry and the organization of money society from the standpoint of one who has not been beaten by them. There, and something's going to be apparent, Henry Ford had a giant ego. And this is like a key thing to think about because it's why it's so important for founders to learn from other founders. Because a lot of this, a lot of the assets to a successful founder and a lot of the things they do are almost in direct opposition of what polite society would tell you to do. And so far, after reading about 100,000 pages of these biographies of entrepreneurs over the last few years, something jumps out like small egos don't build giant companies. The only difference is some of the founders are better at hiding it, which was the advice Sam Walton had.

Starting point is 00:05:25 He's like, listen, I do have an ego. Hide it. Don't. He's like, use it to drive you. But don't let people see it. It's an internal driven thing, not an external, not something to like strut about externally. But that is just the first line. And there's gonna be several of them today where he's just like, OK, I can criticize this. Most of the time, people criticizing the way businesses are built and how money shapes society. They're usually the ones that have been beaten by it. And he's like, listen, I can criticize because I have not been beaten by them. At the time this is being written, he is one of the richest people on the planet. So he continues, as things are now organized, I could, were I thinking only selfishly, ask for no change. If I merely want money, the present system is all right. It gives money in plenty to me. But I'm thinking of service.

Starting point is 00:06:06 The present system does not permit of the best service because it encourages every kind of waste. It keeps many men from getting the full return from service. And I wanted to bring that up right at the beginning because I'm going to give you an opportunity to jump out. I don't know how long you and I are going to talk right now. Maybe an hour, maybe two hours. It depends on how long it takes me to get through this.

Starting point is 00:06:26 I'm essentially just going to repeat his main thing. His main idea is that business exists for one reason and one reason only, and that is to provide service for other people. The note I left myself when I reread that paragraph is everything I do is serving my true end, which is to make a product that makes other people's lives better. I have both the paperback version and the Kindle version of this book. He uses the word service 129 times. And then he's going to echo an idea from his hero. So I just went through the fact that at the beginning,

Starting point is 00:07:00 Edwin Land was sending all these other people. A lot of, so Henry Ford, Edwin Land, Steve Jobs, they share a lot of heroes, which is interesting. And so Henry Ford idolizes Thomas Edison. Thomas Edison's like a few maybe like a generation older than Henry Ford. They want to becoming really good friends like Henry Ford considered Edison like his maybe even his best friend. But what he's about to say here is very Edisonian. Ideas are themselves extraordinarily valuable, but an idea is just an idea. Almost anyone can think up an idea. The thing that counts is developing it into a practical product. So Edison was famous for saying, hey, I make a lot of inventions. I'm

Starting point is 00:07:34 only interested in inventing things that people want to buy because a sale is a proof of utility. And then Ford says, hey, these are the ideas I used to build one of the most valuable companies in the world. That company just happens to produce our mass manufactured cars. But these ideas can be used in any business. And later on, he gets so frustrated with the inefficiency of a railroad that he winds up buying it and showing. He's like, listen, that playbook I just ran on the Ford Motor Company, I'm going to run on this railroad. And I'm going to demonstrate that the principles, they actually work. And he says, I am now most interested in fully demonstrating that the ideas we have put into

Starting point is 00:08:07 practice are capable of the largest application, that they have nothing particularly to do with motor cars. And so there's a maxim that you and I have talked about over and over and over again, the way I would compress that idea. So you can always remember and take it with you is that you don't copy the what you copy the how. In addition to his main theme of service, Henry Ford detests lazy people. And he's going to bring this up over and over again. Humans are made to work. I'm going to read this to you first, and then I'll tell you what I wrote down right after I read it. So he says,

Starting point is 00:08:35 The natural thing to do is work, to recognize that prosperity and happiness can be obtained only through honest effort. Human ills flow largely from attempting to escape from this natural course. So the way I think about that is humans are made to work. The sense of accomplishment from overcoming difficulty is satisfying in a way that a life of leisure and ease will never be. And then he's going to compare and contrast his philosophy, which he sees like the prevailing philosophy of his day. And then I'll have a way to like summarize this and kind of break it down a little bit more because he goes on for quite a bit here. So he says, monopoly is bad for business.

Starting point is 00:09:10 Profiteering is bad for business. The lack of necessity to hustle, the lack of necessity to hustle is bad for business. Business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets. So keep in mind, he grew up on a farm, so that's why he talks the way he does. So it's like, business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets. So keep in mind, he grew up on a farm, so that's why he talks the way he does. So it's like, business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets or what it eats,

Starting point is 00:09:31 right? Things were coming too easily. There was a letdown of the principle that an honest relation ought to be attained between value and prices. The public no longer had to be catered to. There was even a public be damned attitude in many places. So he's saying a public be damned attitude by business owners. Henry Ford, like Jeff Bezos, was extremely customer obsessed. At the same time I was reading this book, I listened to an episode of Invest Like the Best podcast with this guy named Ravi Gupta. And he said something that's really interesting and so interesting that I took a note and saved in my phone. And he says,

Starting point is 00:10:06 I think Amazon's culture is largely based on one thing. It is not based on 14. It is based on customer obsession. That is what Bezos would die on the hill for. And I think this, this almost maniacal obsession and dedication to providing customers, customers, the best service at the lowest cost is a way to think about

Starting point is 00:10:25 Henry Ford. Because to me, it's like every single, once you really put that into your brain, like every single decision that he's going to make in the building of the company is all going to flow for that one thing. And if he sees a business that doesn't, and this is like the big ego part, if he sees a business that doesn't have that thing, like he's going to talk shit about it. And so that's exactly what he's doing here. The public no longer had to be catered to. He's always going to try to cater them. There was even a public be damned attitude in many places. It was immensely bad for business. Some men called this abnormal condition prosperity. So he's coming right off of like this big financial boom. It was not prosperity. It was just needless money chase.

Starting point is 00:11:00 Money chasing is not business. And so this is what he thinks business should be. It is the function of business to produce for consumption and not for money or speculation. Producing for consumption to the consumer, right? Implies that the quality of the article, I need to pause there. Anytime you read books in like this age from like 1900s, 1910, 1920, 1930,

Starting point is 00:11:21 for some bizarre reason, and I've read a ton of them, obviously, for this podcast, they use the word article. When he says the word article, it's not how we think of the word article today, like something like a newspaper or something like that. He's saying product. So when you hear article, I will try to, before I even say it to you, I'll try to change it into product, but in case I don't, if you hear Henry Ford say, the article produced, he's not talking about writing something. He's talking about his product, the Model T. So let me start the sentence over again. Producing for consumption implies that the quality of the article, the quality of the product produced

Starting point is 00:11:53 will be high and that the price will be low. That the article, there I go again, that the product be one which serves the people and not merely the producer. And so I have the Kindle version up right now. I just realized something. I told you that the word service appears in this book 129 times. That word serve or serves is another 55. He's just going to repeat this over and over and over again for 200 pages. So let me wrap up this section. I'll tell you how to think about Henry Ford's philosophy and like something that fits into like a tweet size, like maybe a paragraph size. Okay. The producer depends for his prosperity upon serving the people. I hope you don't get annoyed at me. I promise. I'm not like, it's very interesting. This book is, I think, must read for any entrepreneur and you can read

Starting point is 00:12:37 it really fast, but it's just funny that he just pounds on this thing over and over again. The producer depends for his prosperity upon serving the people. He may get by for a while serving himself, but if he does, it will be purely accidental. And when the people wake up to the fact that they are not being served, the end of that producer is in sight. So I probably read that paragraph, you know, maybe I don't know, five times in the preparation to talk to you today. It didn't just hit me till just now. So I'm reading that. I'm like, oh, wait a minute. There is like some weird thought that just popped into my mind that I forgot. It's going to come from Jeff Bezos. That is episode 179 of Founders, if you want to listen to that.

Starting point is 00:13:14 But what brought that to mind, that brought that book to mind, and I'm going to read an excerpt to you from it in a minute, is where Henry Ford's like, you're going to focus on serving yourself or your customers. That's fine. You might temporarily have success, but one day you're going to wake up. One day the customers are going to wake up and realize there's a better option out there. So Bezos called all hands in the early days of Amazon. And he said, listen, it's because they were worried that Barnes & Noble's at the time in Amazon history, Barnes & Noble's, they're only selling books.

Starting point is 00:13:40 Barnes & Noble's is opening an online store. And this is what Bezos told his team. Look, you should wake up worried, terrified every morning. But don't be worried about our competitors because they're never going to send us any money anyway. Let's be worried about our customers and stay head down focused. And so that's the main thing with Bezos. He's like, listen, you need to be focused on your customers over your competitors. And as long as you're serving them, don't give them a reason to go anywhere else.

Starting point is 00:14:02 And if you do that, they won't go anywhere else. So this, everything I'm reading to comes across like several different pages i kind of put it all together and then this is the note i was really thinking is like how can i i need to like you know take this like 500 words or whatever this is i need this i need to compress this so i can actually take this with me and so i wrote like okay how can i distill what i is my understanding of henry ford's philosophy so it's get rid of waste, increase efficiency through thinking and technology, drop your prices, and make more money with less profit per car. Watch your cost religiously. When needed, bring that business process in-house and always stay focused on service. Fast forward a few pages, he's back at

Starting point is 00:14:42 it again. Being greedy for money is the surest way to not get it. But when one serves for the sake of service, for the satisfaction of doing that which one believes to be right, then money abundantly takes care of itself. This next sentence, I think, is my favorite. He's got a lot of good quotes. This is my favorite Henry Ford quote. Money comes naturally as a result of service. Money comes naturally as a result of service. Money comes naturally as a result of service. I've probably repeated that in conversation like 100 times.

Starting point is 00:15:12 It's just a fantastic way to think about what we're doing. Money comes naturally as a result of service. So then he gets back into this fact that he just detests lazy people. And he says, in my mind, nothing is more abhorrent than a life of ease. None of us has any right to ease. There is no place in civilization for the idler. So when I had reread this now, the second time, I read a bunch of it now since the first time I read this book. And now, you know, I've probably read, I don't know, like 200 books, whatever it is.

Starting point is 00:15:40 And I read two of them on Winston Churchill. I remember reading this book, This Biography of Churchill, and like almost spitting out the water that I was drinking when I got to this them on Winston Churchill. I remember reading this book, this biography of Churchill and like almost spitting out the water that I was drinking when I got to this part of the book because he's writing a letter. Churchill's writing a letter to his son. When I got to this part, I was like, oh, this reminded me of what Churchill said to his son and Churchill writing to his son.

Starting point is 00:15:57 He says, your idle and lazy life is very offensive to me. You appear to be leading a perfectly useless existence. And then the author says, Churchill loved his son, but over time he liked him less and less. Another main idea from Henry Ford's philosophy, he wants to make simple products and he wants to make them at scale. My effort is in the direction of simplicity. People in general have so little and it costs so much to buy even the barest necessities. Because nearly everything that we make is much more complex than it needs to be. Real simplicity means that which gives the very best service and is the most convenient in use.

Starting point is 00:16:33 Start with a product that suits and then study to find some way of eliminating the entirely useless parts, which is, if you think about it, is exactly what he did. He's giving us advice. He's like, hey, if you want to build a business, you want to build a product about it, is exactly what he did. He's giving us advice. He's like, hey, if you want to build a business, you want to build a product, start with a product that already exists, study it, and just find a way to get rid of the useless parts. Well, that's, I mean, he starts out building like $6,000 luxury cars for other people at a time when the average worker was making like $2 or $3 a day. And he realized like, we have all this stuff in the car that's just not needed. And so you can think about Ford's career.

Starting point is 00:17:06 It's like, okay, that's the state of cars now. And so for the next 15 to 20 years, I'm going to find a way how to keep making this simple, keep making it lighter. And then the more simple I make something, the more of them I can make, the more of them I can make, the lower the price gets. And so there you go. He's just changed the entire, literally changed our physical world with his one idea. Henry Ford had one idea. So back on Founders number 120, 121, and 122, I did a three-part series on Billy Durant and Alfred Stone. So Billy Durant is, everybody knows the company General Motors. Nobody knows who Billy Durant is. He's the founder. Outside of Henry Ford, Billy Durant is by far the most important other founder for the creation, the very foundation

Starting point is 00:17:44 of the American automobile industry. It's remarkable how few entrepreneurs actually know who he is. So there's just one paragraph in one of these books. It is from Founders No. 121. And it just gives you this idea, because I think this is really important to know up front when you're studying Henry Ford, that he literally had one idea his entire career, and it was completely different from every other automobile manufacturer and it says he was determined to concentrate on the low end of the market where he believed that high volume would drive costs down and at the same time feed even more demand for the product

Starting point is 00:18:15 it was a fundamental difference in philosophy so why did i bring that up to you now because when he's telling you and i at this part of the book hey find a product that already exists study it and then eliminate the useless parts he's telling you that and he's telling me that because that's what he did and then he talks about this sounds simple but it takes a long time because you got to do it not only not only the product but every single part in the construction and manufacturing of the product he goes into a lot of detail i'm going to pull out one because this is important so at the the point at this time, there's like a good amount of wood that is being put into these cars. And so he says, take wood, for example, for certain purposes, wood is now the best substance we know. But wood is extremely wasteful. The wood in a Ford car contains 30 pounds of water.

Starting point is 00:18:59 And then there's very like basic. It's like simple, but not easy. Like his approach to building a business is simple, but not easy. Right. So he's like, OK, well, this is just one material in one part of a car that has, you know, hundreds, maybe thousands of different pieces to it. And so he's like, OK, well, this seems to be very wasteful. The wouldn't afford car contains 30 pounds of water. And this thought process is fantastic. So he goes, there must be some way of doing it better than that. There must be some method by which we can gain the same strength and elasticity without having to lug around useless weight.

Starting point is 00:19:33 And this is the punchline. This is so important and why I'm reading it to you. And so through a thousand processes. His point is like, I didn't just think about this for wood in the car. I thought about it for every single part of my product, every single part of my business. That line of thinking takes time because you have to do it a thousand times to different areas of your business. But if you are willing to invest that time, by the time he starts mass producing, by the time the first Model T comes off of the assembly line, he has been experimenting and using this kind of thought process for 20 years, right? So they think, okay, and why is that important? Because by the

Starting point is 00:20:11 time that process starts, the game is already over. Game, set, match. Because now he can make a product in 12 minutes that takes his competitor two days. And so he talks about in kind of like a weird, hard to understand way that, you know, basically I only had one idea. I wanted to make the car for the everyman. I was only interested in trying to get that car, the price as low as possible. And so what he's about to say here is like, really, like you start with the product and the product that he wanted to make was the inexpensive car for the everyday man. And then you try to work backwards on how to do that over many, many decades. The place to start manufacturing is with the product, the factory, the organization and the selling and the financial plans will shoot themselves to the product. And that process is extremely long. He

Starting point is 00:20:55 says, I spent 12 years before I had a Model T that suited me. We did not attempt to go into real production until we had a real product. So he had made a bunch. I think he made like eight or nine different versions of Ford cars before the Model T. So that's what he's talking about. It's like start with something big and expensive, even if it was cheaper than what my competitors were giving, but it's still not the one idea I had in my mind, what I saw, what I was going for. It took me 12 years of trying to figure out how to get to the point where I can mass produce and actually make that car for the everyday man.

Starting point is 00:21:28 And then I want to point out something here. Like the great thing about this book is just, he's very straightforward. I don't think the writing is great. It's like, sometimes you have to harden our state, but like he doesn't bury the lead. It's like, this is just what I think. And then he'll give you an example of why he thinks. So he says the essence of my idea then is that waste and greed block the delivery of true service. Both waste and greed are unnecessary. Waste is due largely, this is so important, waste is due largely to not understanding what one does or being careless in doing it. And the only way to truly understand what you're doing, right,

Starting point is 00:21:56 is to do it for a long time and focus on it and think about it. At this point that he's writing this, he's been trying to build cars for 30 years. There's no shortcut. You have to put in the time. There's a fantastic quote by Mickey Mantle that I think kind of like echoes what we're talking about, what you and I are talking about right now. It's like, it's unbelievable how much you don't know about the game that you've been playing all your life. And so he's saying, hey, other entrepreneur, waste is largely due to not understanding what one does or being careless in the doing of it.

Starting point is 00:22:26 Greed is merely nearsightedness. I have striven towards manufacturing with a minimum of waste, both of materials and of human effort, and then towards distribution at a minimum of profit. That means profit per per car. Not he's not trying to artificially suppress the amount of money he makes. He just doesn't want to make a lot per per car, depending for the total profit upon the volume of distribution. So there you go. I kind of ran over his point there. And then he has like this four-part philosophy of service.

Starting point is 00:22:52 I'm going to save that for the end because he repeats that in the last chapter as well. So I'm going to skip to, he's going to actually give us, oh my goodness. So we've been talking about his philosophy and his autobiography. Now we actually hear a little bit about his life. And he says on May 31st, 1921, ford motor company turned out car number five million and he's about to tell us

Starting point is 00:23:09 hey i've been at this a long time i'm happy i just made my five millionth car in the four in the model t alone he's gonna sell 15 million just of the model t so he's talking about number number five million of any ford car that's not included like model t alone is 15 million but that's gonna happen over the next like decade and a half from where we're in the story but the reason i'm bringing this to your attention is because like he said he built a gasoline buggy which is like kind of like the first primitive car 30 years before he produced his five millionth car and why is he bringing this up because listen car number five million he's like he says it's simpler than my first car but almost every point in it may also

Starting point is 00:23:46 be found in the first car this is why i keep saying like he had literally had one idea and in every single book that i've read on henry ford like it just jumps out he's just like i had one idea had no idea how i was going to do it but i just kept working at it until i got to it just having to take a long time and then once he figured it out it's like okay well the game's over no one's gonna be able to produce as fast as possible and what's fascinating is the fact that he focused on i don't want to be too complicated because i don't want to direct your attention away from what we're talking about but there is something interesting in studying the early days of the automobile industry that i think applies universally to other industries like ford took the lead was the

Starting point is 00:24:21 dominant player had over 50 market share but this he is that's how good his one idea was but that one idea led to the giant gap because billy durant of gm's like i'm not going to just make one car i'm going to make like a conglomerate i'm going to have like a cheap car a medium car a luxury car i'm not going to do all this i'm going to go out and what he does like i'm going to go out and buy all these other existing he bought like buick and cadillac and then he started chevrolet i don't know if he bought it Buick and Cadillac and then he started Chevrolet. I don't know if he bought it. I can't remember.

Starting point is 00:24:46 But the point being is just like, eventually people got tired of just having the one black Model T. And once they started, then cars became like, hey, your car says something about you and there's all this other things. The entire time that Henry Ford was having success,

Starting point is 00:25:01 Billy Durant and then really Alfred Sloan because Billy Durant lost control of his company and Alfred Sloan was the one that brought GM's, essentially, Alfred Sloan was the one that brought Billy Durant's ideas to fruition in the marketplace. And because GM had better product offerings, once the Model T tapered out, that's when GM had this huge rise. And I think by like 19, let's say like 1950, maybe, I don't know, I don't remember, but like 19 let's say like 1950 maybe i don't know then remember but like let's say 1950 1960s gm's like one of the largest uh companies on the planet and really the takeaway there is like okay one industry you have two legendary founders they both have

Starting point is 00:25:37 completely different philosophies and sometimes the philosophies work depending on the time like think about microsoft and Apple's like a kind of a good parallel to that. So anyways, didn't mean to go on that tangent. He's saying, listen, that first car, it's like a lot worse, but it's very similar to this 5 million car. He says the changes have been brought through experience in the making and not through any change in the basic principle. Essentially, hey, I had one idea. I'm not changing that. I'm just getting better at actually expressing that idea in a physical car, which I take to be important fact, demonstrating that given a good idea to start with, it is better to concentrate on perfecting it

Starting point is 00:26:08 than to hunt around for a new idea. One idea at a time is about as much as anyone can handle. And now he gets into, okay, why the hell are you building a car in 1893 anyways? It was life on the farm that drove me into devising ways and means of better transportation. He always says, it's like, a man should never do something that a machine can do better. Like, that should be our main focus. And he starts out thinking about, it's like, how can I get myself out of the physical labor through, like, building motors on a farm? That is what took me into mechanics, although my mother always said that I was born a mechanic. I had a kind of workshop with odds and ends of metal for tools before I had anything else.

Starting point is 00:26:51 My toys were all tools and they still are. That's a fantastic sentence. The biggest event of my early life was meeting with a road engine about eight miles out of Detroit one day when we were driving into town. So he's driving into town by horse. There is no cars when he's saying driving, right? I was 12 years old. I remember that engine as though I'd seen it only yesterday for it was the first vehicle other than horse drawn. It was the first vehicle that wasn't horse drawn that I had ever seen. And so he continues talking about the impact that just this one experience had on him, right?

Starting point is 00:27:24 From the time I saw that road engine as a boy of 12, right forward to today, my great interest has been in making a machine that would travel the roads. And so that's why he has a love of mechanics and he considers himself a mechanic. There is an immense amount to be learned simply by tinkering with things. Machines are to a mechanic what books are to a writer. He gets ideas from them, and if he has any brains, he will apply those ideas. And then he's going to give advice, especially for young people, but it applies really to everybody, that, hey, you can't live your life the way other people want you to, even your family. Sometimes you've got to say, hey, shut up, Mom and Dad. My father was not entirely sympathetic with my bent towards mechanics.

Starting point is 00:28:03 He thought that I should be a farmer. When I left school at 17 and became an apprentice in a machine shop, I was all but given up for lost by his father. And so now he's apprenticing in a machine shop, and there's just one sentence, and I think you already know this. I wanted to make something in quantity. He repeats this a lot. I don't want to make five cars a week or five cars a day.

Starting point is 00:28:26 I would like to make five cars every two minutes. And then this paragraph is, I think I was trying to explain this to you earlier. I don't know how, like, I'll have to listen to it back if I did a good job or not, but I was trying to make this point. It's like, listen, the reason Henry Ford is so worthy of study is because his product literally changed the world, like the geography, like the physical world, where we live and what it looks like. That's insane to think about. And he says one of the most remarkable features of the automobile on the farm is the way it has broadened the farmer's life. We simply took for granted that unless the errand was urgent, we would not go into town. And I think we rarely made a trip into town more than once a week. And so what's interesting

Starting point is 00:29:05 is, again, at this point in history, humans are getting around mainly by horse. So even one of the early criticisms of the early automobiles you'd hear from people, which is consistent with human nature, history doesn't repeat, human nature does, is that why do we need a car? We have a horse. And Ford is like, I felt perfectly certain that horses considering all the bother of attending to them and the expense of feeding uh feeding them and cleaning over them did not earn their keep and the point is is like picking up horse shit used to be a job in main cities like there was people all they did was pick up horse shit off of roads and so henry ford's point is like what if i just made a product that you know never couldn't? It traveled just as far and just as fast as a horse.

Starting point is 00:29:46 Just the fact that somebody doesn't follow it around with a shovel means my product is better. So now he's talking about the entrepreneur environment in Michigan at this time. Let's say this is like the late 1800s. If you were mechanically inclined, there's a lot of people wanted to build cars. A lot of people were experimenting. And so I've brought this up on several podcasts in the past, but a lot of people wanted to build cars a lot of people were experimenting and so i've brought this up on several podcasts in the past but a lot of people are surprised i like the the the main engines that they were trying to build cars before the internal combustion engine uh was steam and electric uh electricity there's like eight people that know there's electric cars

Starting point is 00:30:18 in late 1800s but his whole point here is that he repeats over and over again he's very suspicious of experts and he feels that if you could actually fill up your competitor's company with experts that you're that like it's a nefarious way to get an unfair advantage so it says the idea of gas engines was by no means new but this is the first time that a real serious effort had been made to put them on the market they were received with interest rather than enthusiasm and i do not recall anyone who thought that the internal combustion engine would ever have more than just limited use. This is his idea because he wants his cars to travel far. And steam, first thing, that was super dangerous because it would explode.

Starting point is 00:30:52 And electrical cars couldn't go very far. So he's like, OK, well, I'll try to use internal combustion engine. And other people are telling was like, no, you can't do that. It's going to be like a tiny little thing. All the wise people demonstrated conclusively that the engine could not compete with steam. They never thought that it might carve out a career for itself. That is the way with wise people. They are so wise and practical that they always know to a dot

Starting point is 00:31:12 just why something cannot be done. They always know the limitations. That is why I never employ an expert in full bloom. If I ever wanted to kill opposition by unfair means, I would endow the opposition with experts. They would have so much good advice that I could be sure that they would do very little work. Henry Ford is very blunt. It actually makes reading his autobiography rather refreshing.

Starting point is 00:31:35 I like the simple way he communicates. He's just like, this is what I believe. I don't care if you agree with me or not kind of thing. What's fascinating is he's doing all these experiments on the internal combustion engine. I'm about to run over my own point. He was doing this while he was working for an electric company. He was offered a job. He's like, at this point, I was offered a job with the Detroit Electric Company as an engineer and machinist. So he's working at an electrical company during the day. And he says, every night and all of sunday night i worked on my motor i cannot say that it was hard work no work with interest is ever hard and really the way you

Starting point is 00:32:13 think about okay so he's got a full-time job he's got a wife every night and on saturdays right he's working on this dream of his this dream of this internal combustion engine everybody around him selling this a stupid idea right and the way i think about is like, think about the amount of work ethic put in. He's been told, he's already told us like, what, five, four or five times up until this point, that he hates lazy people who think it's idleness. And so when I read this section, I thought of, what I wrote down is like, if you can't handle the workload, someone else will. And the fact that he not only endured the workload, but he enjoyed it. He just said, I can't say it was hard work, no work without interest is ever hard. He was fascinated by what he was doing. So what's the result? In

Starting point is 00:32:46 1892, I completed my first motor car. Why is that important? Because the public praises people for what they practice in private. He has already been experimenting for years and we're still decades away from the Model T. This is what he called his first car. He said, my gasoline buggy was the first, and for a long time, the only automobile in Detroit. This line is hilarious. I had to get a special permit from the mayor, and thus for a time enjoyed the distinction of being the only licensed chauffeur in America.

Starting point is 00:33:17 I built three cars in my home shop, and all of them ran for years in Detroit. So check this out, though. He's, you know, he's selling these cars. Obviously, if there's only one car, people are like, well, what is this thing? Who made it? His boss at the electric company tries to get him to give up his experiments. During all this time, I kept my position with the electric company and gradually advanced to chief engineer. I was making $125 a month, but my gas experiments were no more popular with the president of the company than my

Starting point is 00:33:45 first mechanical leanings were with my father. It was not that my employer objected to experiments, only to experiments with a gas engine. I can still hear him saying, electricity, yes, that is the coming thing, but gas, no. And this is Ford's point. Remember in 1892, maybe 1893, at this point, no one had the remotest notion of the future of the internal combustion engine while we were just on the edge of the great electrical development. So everything like all the energy, the attention, the money, the entrepreneurial energy and spirit is going into electricity. And yet Ford was able to ignore that distraction. And with great independence of mind, like, no, I'm going to I'm going to focus on this thing because I'm I like it. I'm interested in it. I think it has a future that is so that's

Starting point is 00:34:30 easy to say, oh, yeah, think for yourself. It is almost impossible to actually do, especially when everybody around you is focused on something else. And this is where Henry Ford at every there's always like a fork in the road in an entrepreneur or founder's life, right? It's like at some point, none of this is going to work if you don't bet on yourself. And usually you're not in the best position when you have to make this decision, which is why so few people do it. The Edison company offered me the general superintendency of the company, but on a condition that it would give up my gas engine and devote myself to something useful. That's their words. I had to choose between my job and my automobile, and I chose my automobile.

Starting point is 00:35:09 This is a crazy thing, right? This is a calculation based on arrogance. There was really nothing in the way of choice, for already I knew that the car was bound to be a success. I quit my job on August 15th, 1899 and went into the automobile business. Why did I say that is a calculation based on arrogance? At this point, there is no such thing

Starting point is 00:35:35 as a commercially successful car company. And he's saying, I already knew it was bound to be a success. It gets even more unbelievable. I had no personal money. What money was left over from living was all used in experimenting. But my wife agreed that the automobile could not be given up and that we had to make or break. There was, and this is so important, he's talking about the fact that at the beginning there is no demand. Like, he's essentially describing the creation of a new industry and how humans are likely to react to a change. He says there was no demand for automobiles. There is never demand for

Starting point is 00:36:09 new product. At first, the horseless carriage, not even call it an automobile, right? The horseless carriage was considered merely a freak notion. And many wise people explained why it could never be more than a toy. No man of money even thought of it as a commercial possibility in the beginning there was hardly anyone who sensed that the automobile could be a large factor in industry the most optimistic people at this time hoped for a development that was akin to the bicycle so his first car company fails this is really important to know because their idea, he still has this idea. It's like, I want it to be available to everybody. At this point, the few people that are making cars, they're extremely expensive.

Starting point is 00:36:51 I referenced this earlier, so I'm just going to give one paragraph until we jump into where he starts the company that's successful. The Detroit Automobile Company is the one that he's organized. I was a chief engineer and held a small amount of the stock. For three years, we continued making cars more or less on the model of my first car we sold very few of them i could get no support at all toward making better cars to be sold to the public at large don't want to make a luxury car like everybody else i want to make a car for the everyman the whole thought was to make it was to make the car to order and to get the largest price possible for each car he finds that idea repulsive so he leaves and he's like all

Starting point is 00:37:27 right i'm gonna start try to do this on my own he rents a shop it's like a really like a one-story shed and he continues his experiments to find out like what the automobile business like really is like what is it at this point what can i do and so one of the first things he builds are race cars and he does that because he viewed racing as a means to an end. It's probably racing is the greatest marketing invention of the automobile industry. It's funny that they're using this in like 1899. Actually, no, I think this is in 1902, actually. So they're using this in 1902.

Starting point is 00:37:56 You and I know because I've done three episodes on Enzo Ferrari. Like that's laid the foundation. Obviously, Enzo was just maniacally obsessed like one of history's greatest obsessives like he worked seven days a week 12 to 16 hours a day for 60 years on ferrari because he's an absolutely insane person maybe history's greatest obsessive in terms of like he only thought about that one thing but my point being is like he used that same idea the fact that ferrari is winning all those races in the 50s and 60s, maybe even in the 40s, is what built like the demand. They're like, okay, Ferrari means winning. I want some of that winning. I'll buy that

Starting point is 00:38:31 car. So anyways, Ford's doing the same thing. He says, we met at the racetrack in Detroit and I beat him. So it's essentially like, it's a spectacle that the press can cover. And that's like, that's how he's getting his initial traction is the way you could think about it. His initial traction for these cars that he's making so he says I met him at the gross point track And I beat him that was my very first race and it brought advertising Of the only kind that people cared to read the public thought nothing of a car unless it made speed And unless it beat other racing cars my ambition to build the fastest car in the world Led me to plan a four-cylinder motor and I feel it's been a few minutes since he's uttered the word service, but don't worry, he's going to say it right here.

Starting point is 00:39:07 The most surprising feature of business as it was conducted in then, and really he would argue now, outside of the Ford Motor Company, was the large attention given to finance and the small attention given to service. That seemed to me to be reversing the very natural process, which is that money should come as a result of work and not before the work. The second feature was the general indifference to better methods of manufacturing, as long as whatever was done got by and took the money. So they're like, hey, we're making money selling five and six thousand dollar cars, right?

Starting point is 00:39:35 Other competitors are in some cases like ten thousand dollar race cars. It's like, well, what seems to be the problem? Like, we don't have to fix anything. This is great. And Henry Ford's like, no, this is just the very beginning. In other words, a product apparently was not built with reference to how greatly it could serve the public, but with reference solely on how much money could be had for it. And that without any particular care, whether the customer was

Starting point is 00:39:56 satisfied to sell the customer was enough. And when I reread this part, I said, this is what I wrote down. This is why Henry Ford is one of my favorite entrepreneurs. And I mean his approach to work. As a person, he's a creep. I've covered that on other podcasts. And when I read like another biography of him, I'll go into more detail. But that is obviously absent in this book. But the reason that he's one of my favorite entrepreneurs is because think of it from the other side, right?

Starting point is 00:40:20 We're customers. Like you and I, we're all building products, right? For other people to use. But we are customers to way many more businesses than like we get to make one product, but we have to, one product or service, but we buy, you know, what thousands of like an incalculable number of products and services from other businesses all over our life, right? So like we have one company, yeah, we are customers of an incalculable number of businesses. Of course, you'd want the businesses that you give money to to have Ford's philosophy, service to the customer over everything.

Starting point is 00:40:58 And yet, you know, I mean, go think about the last dozen businesses that you've given money to. How many of them had truly great service? How many were making decisions truly great service? How many were making decisions based on what was best for their customer and now what's best for them? And then we get back to this idea of he detests laziness. There's a great Kobe Bryant quote on this. I can't relate to lazy people. We don't speak the same language. I don't understand you

Starting point is 00:41:18 and I don't want to understand you. And so this is Henry Ford's version of that. I noticed the tendency among many men in business to feel that their lot was hard. They worked against the day when they might retire and live off an income. Get out of the strife. Life to them was a battle to be ended as soon as possible. That was another point that I could not understand. For as I reason, life is not a battle except with our own tendency to sag with the downpour of getting settled. If to petrify is success, all one has to do is humor the lazy side of the mind. But if to grow is success, then one must wake up anew every morning and keep awake all day.

Starting point is 00:41:55 Life as I see it is not a location, but a journey. And the way I personally think about this is I love the climb. I don't care where the summit is and so anything that henry ford sets his mind to he's going to be really good at he starts winning races builds more race cars and like just builds faster and better ones this one was hilarious so it's like he made one in some cases he would race them right but he's like this one scares the hell out of me uh i'm not gonna race it we got to find somebody else that does and so they find a guy and this is a description of him the man did not know what fear was so So at the beginning of the race, they have to crank these cars, right? There's no electric starters yet.

Starting point is 00:42:29 And so our self-starters, I guess what they were called at this point in history. And so Henry Ford's, the race about to start, Henry Ford is like cranking it. And listen to what this guy says. While I was cranking the car for the start, he remarked cheerily, Well, this chariot may kill me, but they will say afterward that I was going like hell when she took me over the bank. And then Ford talks about he's pretty sure that the race car driver never even used the brakes ever. He just went like hell. Like he said, he was about half a mile ahead of the next man at the end of the race.

Starting point is 00:42:58 And so he uses the publicity of the 999, which is the race car that he's talking about here. And it says this 999 advertised the fact that I could build a fast motor car. And so a week after the race car that he's talking about here. And it says this 999 advertised the fact that I could build a fast motor car. And so a week after the race, I formed the Ford Motor Company. He makes a mistake at the beginning because he was short on funds and he owned like, I don't know, like 20% or maybe 30% of the company. So he's working on it for like a year or two, but we get an insight into his personality. He says, listen, I very shortly found that I have to have control. And therefore in 1906 with funds that i had earned in the company i brought enough stock to bring my holdings up to 51 of the company so really you could think of in the early days of the ford motor company they're like

Starting point is 00:43:32 assemblers they're not even really manufacturers they're buying their parts from all the all of other companies they ship them to their like it's more like a warehouse than a factory and then they just put it together but even from that he's he's like, okay, he was determined. He's like obsessed with taking weight out and like simplifying the product. He's already mentioned a bunch of times. And this is why. The most beautiful things in the world are those from which all excess weight has been eliminated. And I would argue same for companies too.

Starting point is 00:44:00 The best expression of this idea, even though it pops up over and over again, I read the music producer's biography, Rick Rubin. It's episode 245. And one of my favorite things Rick Rubin said is like, you know, they would describe him as a producer. He's like, I'm not a producer. I'm a reducer. Like, I take your music and I take away everything that is not the music. The most beautiful things in the world are those from which all excess weight has been eliminated.

Starting point is 00:44:24 That's true for a song, a car, and a company. And then this is funny. Whenever anyone suggests to me that I might increase weight or add a part to my car, I look into decreasing weight and eliminating a part. So he just knows human nature. We like to make simple things more complex. So if somebody's trying to get you to do something complex, just fight in the, like react vigorously

Starting point is 00:44:45 and go in the other direction. It's like, okay, yeah, we're going to add a part. You want me to add a part of increased weight? Actually, I'm going to find out a way to decrease the weight I already have. So not only am I not adding to it, I'm making it lighter and more simpler. In other words, sir, I reject your advice. A little bit about his mindset. In the early days of his company, I would argue he maintained this mindset his entire life we did not meaning our company did not make the pleasure appeal our ads or when we teach people about our products not like oh it's a pleasure mobile it's big luxurious right he's like i'm not making he's just like i build what does steve jobs said steve jobs said i build tools henry ford thought the exact same way we did not make the pleasure appeal. We never have. In its first advertising, we showed that a motor car was a utility. He just mentioned the need for control. Why is he talking about the need for control? Why eventually does he have no partners? My associates were not convinced that it was possible to restrict our cars to a single model. So at this point, I think they have like three different ones. But his whole thing is like, I got one idea. And when I figure out how to get that one idea, when they do the Model T, they don't sell anything else. And so when I got to

Starting point is 00:45:49 this point, one of my favorite things that I ever read in any of the books I've covered for the podcast came from Charles de Gaulle. And he says, intransigence is my only weapon. This is the first of many disagreements with other people that Henry Ford has to overcome to remain true to his one dream. And so when his associates convince him to build other cars, this is how he describes it. We scattered our energy among three models. He does not like that. And so he goes into detail about like what they're making, how much it costs, how many they're selling, all this other stuff. I'm just going to give you like the highlights here. So 1905, 1906, they're selling models and some of the models are $2,000 and $1,000 each.

Starting point is 00:46:27 And he's like, it's cheaper than like a $6,000 car or a $4,000 car that was common at the time. But he's like, it's still too expensive. And so he's like, at $2,000 and $1,000, we only sold 1,500 cars. And so he eventually goes like this continuous improvement. This is still way before the Model T, keep in mind. But he gets the price down. Instead of $2,000 and $1, one thousand it's 750 and 600 and this is where he's like oh i'm right and everybody else is wrong because once he got the price low enough then he goes from selling 1500

Starting point is 00:46:55 cars to almost 8500 so it's fascinating is like even though they're selling thousands and thousands of cars he's getting closer to his original idea. He's not there yet. His other people, like the shareholders and other people in the business are like, okay, like this is good enough. But again, Henry Ford's like, no, I just have one idea. I'm glad of the progress I'm making towards it. I think I'm getting closer, but I'm still not there yet. And so he says, we were a prosperous company.

Starting point is 00:47:18 We might've easily sat down and said, now we've arrived. Let us hold onto what we got. Indeed, there was some disposition to take this stand. Some of our stockholders were seriously alarmed when our production reached a hundred cars a day. And he says the temptation to stop and hang on to which to what one has is quite natural i can entirely sympathize with the desire to quit a life of activity and retire to a life of ease i have never felt the urge myself so again there's like a little bit of a ego there's like yeah they thought 100 cars a day was fine they thought a thousand cars a day was crazy he's like listen i understand it a ego there. He's like, yeah, they thought 100 cars a day was fine. They thought 1,000 cars a day was crazy.

Starting point is 00:48:06 He's like, listen, I understand. It's very natural. You don't want to mess up what you have. You know, I sympathize your desire to kind of take it easy. But that's not why I'm here. I have never felt the urge myself. And he continues, it was, however, no part of my plan to do anything of that sort. I regarded our progress merely as an invitation to do more. And why is that? Because

Starting point is 00:48:28 he says, I had been planning every day through these years towards a universal car and we are not there yet. So therefore we are not stopping. And so now we get to his, like Henry Ford's iPhone. So you can think of it, I designed eight models before the Model T. I made the following announcement. I will build, this is him quoting himself, I will build a motor card for the great multitude. It will be large enough for a family, but small enough for the individual to run and care for.

Starting point is 00:48:55 It will be constructed of the best materials by the best men to be hired after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one that is henry ford's one single idea it will be so low in price that no man making a good salary will be unable to own one he has to the the important part is like it's easy to say oh just make my product cheaper but he's like i don't want to make a low quality cheap product i want to make a high quality cheap product and so for there he's literally got to invent the ability to mass produce cars which did not exist before henry ford so he

Starting point is 00:49:36 makes this statement they runs this ad and it says the question was already being asked how soon will ford blow up nobody knows how many thousand times it has been asked since. It is asked only because of the failure to grasp that a principle rather than an individual is at work and that the principle is so simple that it seems mysterious. And so then he goes into all, I mean, there's a million different decisions he has to make and a million different processes that he has to examine and just continuously improve over and over again. And you do that for decade after decade and you get to be able to build a high quality product at a price nobody can match. But the way his brain works is very similar to the

Starting point is 00:50:13 way Rockefeller's brain works. And so, for example, he's talking about the layout of the factory and the workflow. And he says, hey, if we can save 10 steps a day for each of the 12,000 employees that I have, you will save 50 miles of wasted motion and misspent energy every day. So that's his idea. It's like Ford's focus on the continuous improvement as this company scaled. Right. It's going to remind you of when I just reread Titan. It's episode 248. And Henry Ford and Rockefeller understood this.

Starting point is 00:50:42 Like these little things make a big difference because our organizations are going to be gigantic. And so Rockefeller's watching a machine that would like solder caps to cans. And he's like, how many drops of solder do you use on each can? And the guy's like, we use 40. And he's like, have you tried 38, Rockefeller asked. And the guy's like, no, but I will. And so he tries 38 drops and a small percentage of the cans leaked. So that doesn't work.

Starting point is 00:51:06 But then they try 39 instead of 40 and none of them leaked. And so at 39 drops of solder became the new standard at Standard Oil, at all the Standard Oil refineries. And why is that important? Rockefeller is going to tell us right now. That one drop of solder, and I'm most likely pronouncing that word incorrectly by the way that one drop uh saved twenty five hundred dollars the first year but that export business kept on increasing after that and doubled and then quadrupled and then became immensely greater than than what it was and the savings has steadily gone along one drop on on each can and now has amounted since to many hundreds of thousand dollars every year. One drop on one process

Starting point is 00:51:47 on one tiny part of a gigantic enterprise. That is how Rockefeller and Ford thought. Then we go back to this idea because he repeats it over and over again. He says, like, if you actually know what you're doing, you would never consider yourself an expert. None of our men are experts. We have most unfortunately found it necessary to get rid of a man as soon as he thinks that he's an expert. Because no, this is such a good line. Check this out. No one ever considers himself an expert if he really knows his job. A man who knows a job sees so much more to be done than he has done.

Starting point is 00:52:20 That he is always pressing forward and never gives up an instant of thought to how good and how efficient he is thinking always ahead thinking always of trying to do more brings a state of mind in which nothing is impossible the moment one gets into an expert state of mind a great number of things become impossible summarize that no one is an expert if he truly knows his job. This is another. I just love his unapologetic level of optimism that he has, and probably mostly for his own skill set and thoughts, especially when you hear the way he talks about other people. But this is one of my favorite Henry Ford quotes. I refuse to recognize that there are impossibilities. I cannot discover that anyone knows enough about anything on this earth definitively to say

Starting point is 00:53:06 what is and what is not possible. And so, of course, if you believe that, you're always focused on this continuous improvement in every little aspect of your business, right? Not a single operation is ever considered as being done in the best or cheapest way in our company. What is that? What is he saying? Things can always be done better.

Starting point is 00:53:24 He just says it with more words than he needs to. Not a single operation is ever considered as being done in the best or cheapest way in our company. Things can always be done better. That is the idea behind that sentence. And so a main theme in the history of entrepreneurship is that repetition is persuasive. I've now moved like 20 pages ahead of where we just were. And he's still at it. We are never satisfied with the way that

Starting point is 00:53:45 everything is done in any part of the organization. We always think it ought to be done better and that eventually it will be done better. And why? One cent saved on each part would amount to millions a year. Therefore, in comparing savings, the calculations are carried out to the thousandth part of a cent. That is how far he thinks he takes things. My improvements may be so minuscule that I cannot even calculate them unless I take out my calculations to the thousandth part of a cent. Imagine trying to compete with this guy. Then he has a bunch of like one-liners and maximum spread throughout the entire book. This one I love because essentially when you're studying history, that's what you're doing. It's like, I don't care what we think human nature is or it

Starting point is 00:54:24 ought to be. It's like, what is it? Well, just read it. Like if you're doing it's like i don't care what we think human nature is or it ought to be it's like what is it well just read it like if you're reading these books like you're watching tape it's like the same thing same way a basketball player watches tape a game tape or any kind of athlete watches game tape that's a reading biography we're just watching game tape of some of the greatest people in history like how how they did life right and he says there are far too many assumptions about what human nature ought to be and not enough research into what it is. Another one liner. The habit of acting short sightedly is a hard habit to break. Another one liner.

Starting point is 00:54:52 There will never be a system invented which will do away with the necessity of work. Idle hands and minds were never intended for any one of us. Work is our sanity, our self-respect and our salvation. Then he takes this same idea and he applies it to a different domain. He's like, listen, the reason that I'm preaching

Starting point is 00:55:10 continuous improvement and I'm kind of like maniacally obsessed with this stuff because his whole point is like, listen, continuous improvement makes your business likely

Starting point is 00:55:18 to survive economic downturns. There is no use waiting around for business to improve in like an economic slump. If a manufacturer wants to perform his function, he must get his price down to what people will pay there is always no matter what the condition a price that people can and will pay for a necessity and always if

Starting point is 00:55:35 the will is there the price can be met it cannot be met by lowering quality it has to be met by lowering price and the way he lowers prices is because he eliminates waste. And so that all these ideas, like it's kind of like a snake eating its tail, right? Continuous improvement means less waste, less weights means lower prices, lower prices means that you can survive at your more, your business is more likely to survive economic downturns. And then once I got to this part for the second time, I wrote to myself, this is when I realized that this book is less of an autobiography and more of a manifesto. There are short-sighted men who cannot see that business is bigger than any one man's interest. Business is a process of give and take,

Starting point is 00:56:14 live and let live. It is a cooperation among many forces and interests. Whenever you find a man who believes that business is a river whose beneficial flow ought to stop as soon as it reaches him. You find a man who thinks he can keep business alive by stopping its circulation. And what is the circulation of business to Henry Ford? Service to others. Let's go back to this idea where he told us earlier, hey, start with the product and everything that the business needs, that that product needs, right? That in other words words that we call business will appear around it and also clarifies your thinking he says you will notice that the reduction of price comes first we have never considered any cost as fixed therefore we will first reduce the price to

Starting point is 00:56:54 a point where we believe more sales will result then we go ahead and try to make that price so really what is he saying at this point in the book? If we had to sell the Model T for only $300 and right now it costs $400 and $490, how would we be able to do it? Well, one way to force ourselves to figure that out is, hey, the price is now $300. How do we make that happen? A large part of the book is the fact that he feels a lot of people confuse finance and business. He does not feel business.

Starting point is 00:57:24 He does not feel finance is business. There's a lot of these opinions where he's like, you need so much financing because your business sucks. It's basically what he says. We have demonstrated that we did not need any money. And why is he saying that at this point? Because he's like, my business is throwing off oodles of cash. I don't even know what to do with it.

Starting point is 00:57:41 And so he's going to elaborate on his philosophy. It says money is only a tool in business. It is just a part of the machinery. You might as well borrow 100,000 lathes as $100,000 if there's trouble inside your business. So lathe is just a machine for like shaping wood or metal or something else you would need in the manufacturing process. So he's like, okay, you might as well borrow 100,000 lathes well as a hundred thousand dollars. If the trouble is inside your business, more lace will not cure it. Neither will more money. So his point is like, he's analyzing the way that a lot of financing has been done. He's also talks about like, this is a big problem in the railroad industry and why he bought a railroad at one point is because like they have a crappy business that's mismanaged

Starting point is 00:58:19 and wasteful and then they throw more money at it. And that's not what you do. His opinion is like you solve the problem first. and usually the financing that you need is in the elimination of the waste, right? So it says, more lates will not cure it. Neither will more money. Only heavier doses of brains and thought and wise courage can cure. A business that misuses what it has

Starting point is 00:58:39 will continue to misuse what it can get. The point is, cure the misuse. When that is done, the business will begin to make its own money. He continues that, hey, this environment, this easy money environment is not helping any. Barring may easily become an excuse for not boring into the trouble within your business. And his point is like, okay, your business is going through difficult financial times. Good. Problems are just opportunities and workflows. And many a businessman should thank his stars for the pinch, the economic pinch,

Starting point is 00:59:11 which showed him that his best capital was in his own brains and not in bank loans. And so there's this idea that all a business is is a problem-solving machine. This came from, I did this book, who knows, five, four years ago. It's Danny Meyer's fantastic autobiography. It's called Setting the Table. And he's at like a dinner with This came from, I did this book, who knows, five, four years ago. It's Danny Meyer's fantastic autobiography. It's called Setting the Table. And he's at like a dinner with the guy from

Starting point is 00:59:29 this guy named Stanley Marcus from Neiman Marcus. And he's a much older gentleman, if I remember correctly. And Danny's like, you know, just like down and out about a problem. And so I'm going to read from that book right now. And he says, opening this new restaurant, I said, might be the worst mistake I've ever made. Stanley set his martini down, looked me in the eye and said, so you made a mistake. You need to understand something important and listen to me carefully. The road to success is paved with mistakes well handled. His words remain with me through the night. I repeated them over and over to myself and it led to a turning point in the way I approached my business. Stanley's lesson reminded me of something my grandfather had told me.

Starting point is 01:00:07 The definition of a business is problems. Business is problems. His philosophy came down to a simple fact of business life. Success lies not in the elimination of problems, but in the art of creative problem, excuse me, in the art of creative profitable problem solving. The best companies are those that distinguish themselves by solving problems most effectively. The way I think about this idea is business is problems and successful companies are just effective problem solving machines.

Starting point is 01:00:37 And that is a point that Henry Ford is making. You should thank your stars for the problem that you're having because once you solve it you will now have better problem-solving abilities And therefore it's likely over time that your company becomes more successful as a result of you being forced into this very difficult position to actually grow and acquire these new skills because business is problems and the reason that Ford is so fanatically obsessed with continuous improvement and continuous problem solving is because his view is completely counter to anybody else in business at this point. And he talks about this old time business went on the doctrine that prices should always be kept to the highest point at which people will buy. My business has taken the opposite view. And so what

Starting point is 01:01:18 I wrote here is Ford would not agree with Warren Buffett.d would say just because you can raise prices prices on seize candy and it doesn't like sales don't go down and more people buy doesn't mean that you should ford and buffett are playing different games another main point of ford so listen i want low prices and high wages and this is why this is fantastic there's something sacred about wages they represent homes and families and domestic destinies. People ought to tread very carefully when approaching wages. On the cost sheet, wages are mere numbers. They're mere figures.

Starting point is 01:01:55 Out in the world, wages are bread boxes and coal bins, baby's cradles and children's education, family comforts and contentment. What he's really telling you and I here is never forget the people behind the wages you pay. Wages aren't the same as your other expenses. There is a ruthlessness that Henry Ford definitely has, though, and his point is everything and everybody must produce or get out. What is he talking about there? In a company that's dedicated to service, there's no room for waste. And he has an entire paragraph dedicated to service, there's no room for waste.

Starting point is 01:02:28 And he has an entire paragraph dedicated to one of my favorite lines. I read George Lucas' fantastic biography. It's called George Lucas Life. The writer is Brian J. Jones. I think it's Founders No. 35. But there's a line in that book I never forgot, and he says, George Lucas unapologetically invested in what he believed in most, himself. It is possible to even overemphasize the saving habit. It is proper and desirable that

Starting point is 01:02:45 everyone have a margin, margin of safety, have some money in the bank, right? It is really wasteful not to have one, if you can have one, but it can be overdone. We teach children to save their money as an attempt to counteract thoughtlessness and selfish expenditure. That makes sense, right? But that has a value, but it's not always positive. It does not lead the child out into the safe and useful adventures of self-expression or self-expenditure. To teach a child to invest and use is better than to teach them to save. Most men who are laboriously saving a few dollars would do better to invest those few dollars first in themselves and then in some useful work. Eventually, they would have more money to save as a result.

Starting point is 01:03:22 Young men ought to invest rather than save. They ought to invest in themselves and then create creative value. Okay, then I'm going to spend some time in this section. It's a chapter called The Railroads. And it talks about, hey, this is a perfect illustration of the idea of like, where you need to copy the how and not the what. And the fact that he needs certain railroads to transport his products all around the country, and they're so efficient, it's become such a large problem at this point in

Starting point is 01:03:49 his career that he's going to buy one. And this is where he really compares and contrasts. He's like, this is why I'm writing the book. This is my philosophy on how to build a business. And this is why, because how most businesses are poorly run. I'm entirely without any disposition to pose as a railroad authority. There may be railroad authorities, but if the service as rendered by the American railroad today is the result of the accumulated railroad knowledge, then I cannot say that my respect for the usefulness of that knowledge is all that profound. Let me pause right in there. What is he saying? I see no evidence of this knowledge because it's not manifested in service. I have not the slightest doubt in the world that the active managers of the railways,

Starting point is 01:04:26 the men who actually do the work, are entirely capable of conducting the railway of the country to the satisfaction of everyone. The men who know railroading have not been allowed to manage railroads. So that's his way of saying, hey, got no problem with the actual workers doing the job. It's the management and the administrators

Starting point is 01:04:42 that are greedy and wasteful. And one thing he notices as soon as he buys the railroad is that they don't even actually reinvest. They just take the money as dividends, put it in their pocket, right? A very small fraction of the money earned by the railways has gone back into the rehabilitation of their properties. And so then he's examining like, where's all this money going? And this goes back to the fact that Ford is very profounder and worker. He just despises anything that is not work directed at service. So he talks a lot of shit about bankers and lawyers and administrators and all that stuff. The natural ally of the banker is the lawyer. Such games as have been played on the

Starting point is 01:05:17 railroads have needed expert legal advice. Lawyers like bankers know absolutely nothing about business. In our experience with the Detroit, the name of the road nothing about business in our experience with the detroit the name of the road was relevant in our experience with our railroad we bought the railroad because it's right away interfered with some of our improvements on the river rouge which is a giant plant that he's making okay we did not buy it as an investment or because of its strategic position we literally bought it because you're interfering with what we need to get done and if you you can't get the job done, then we'll just buy it and we'll do it ourselves. So it says, since we bought the railroad because the interfered with our plans, we have to do something with it. The only thing to do is to run it as a productive enterprise,

Starting point is 01:05:55 applying to it the exact same principles as applied to every department in our business. And one way to think about what he's saying is like, listen, since I own this thing, it needs to be an asset and not a liability. And so I'm just going to use the same principles that I use for building cars as building the railroad. This is why, again, I'd pick up the whole book and just read this entire chapter. It's fascinating. It is true that applying the rule of maximum service at minimum cost, which he's always doing, right? That's a really great way. What is Henry Ford distilled down to five words? Maximum service at a minimum cost. Maximum service at minimum cost. It's five words.

Starting point is 01:06:27 Five words summary of Henry Ford for you. Maximum service at minimum cost. Has caused the income of the road to exceed the outgo. Meaning it was losing money, now it's turning a profit. Which for that road represents a most unusual condition. See, he also is kind of low-key funny. Because he's kind of talking shit there. It has been represented that the chain...

Starting point is 01:06:43 Because it's like, for this road, that's an unusual condition how dare they make more how is how do they have more revenue than expenses what's happening here it has been uh represented that the changes we have made and remember that they've been made simply as part of the day's work are peculiar oh he says oh i need to back up here they're saying hey this is like revolutionary like this is how is this happening and for it's like these are not revolutionary and they could actually be applied to railroad management in general and then he just has like a very common sense way of breaking down what needs to be fixed he takes an inventory okay this is what i this is the business i own now these are the assets these are the people working

Starting point is 01:07:18 there like let's just go through and do a thorough like is everything being done as good as it could do and in other words like what's about to happen is like the railroad was being run in the exact opposite way that Henry Ford would run a business. All of the rolling stock was in extremely bad condition and a good part of it would not run at all. All the buildings were dirty, unpainted and generally run down. The roadbed was something more than a streak of rust and something less than a railway. The repair shops were overmanned and under machined. Practically everything connected with the operation was conducted with a maximum of waste. There was, however, an exceedingly ample executive and administrative department,

Starting point is 01:07:51 and of course a legal department. So listen to what he's saying. Where are they investing the money? In their trains? No. Are they investing the money in the track? Nope. Are they investing the money into the latest technology so that they can actually have more machines doing work instead of the men doing? No, they're not doing that.

Starting point is 01:08:07 Where are they putting the money? There was an ample executive and administrative department and, of course, a legal department. So he's like, well, we're not going to do this. There had been an executive office in Detroit, and we closed that up, and then we put that administration in charge of one man. And so he goes through some of the numbers here. It's like, oh, there's 25 administrators? Okay, see you. We're going to have one dude. One dude is going to do all that. And he just goes through and does this line by line. All of these unnecessary accounting and red tape were thrown

Starting point is 01:08:33 out and the payroll of the road was reduced from 2,700 people down to 1,650. And he goes on for quite a bit. I'm not going to read all that. I'm just going to give you what was my interpretation of what's taking place. Most businesses are overstaffed. The people running them are just not skillful operators. And so then he's like, okay, well, you can, there's also a way to increase money is that you can actually reduce time. We are not pouring in great amount of money. Everything is being done out of the earnings from the railroad. That is our policy. The time of our freight movements have been cut down about two thirds. And so he does that idea, the idea behind what he, that sentence right there, he does that a lot. By increasing

Starting point is 01:09:11 speed, he actually creates money. And there's very similar where Apple, that's one of the best things Tim Cook did at the very beginning when Steve Jobs came back to Apple. And Apple actually did this because they increased inventory turnover when Steve came back. And it was like, I forgot how much money saved, but it was a good amount. It was like tens of millions. It might even have been like $200 million. It was a good amount of money. It's just like making things go faster.

Starting point is 01:09:38 We are routing as much as we can around our own business over the road, but only because on this road we get the best service. For years past, we had been trying to send freight over this road that I now own, that I previously didn't is what he's telling us, right? Because it was conveniently located. But we'd never been able to use it to this road that I now own, that I previously didn't, is what he's telling us, right? Because it was conveniently located. But we'd never been able to use it to any extent because of the delayed deliveries. And another way to think about that is like we, like he made the risk in buying this railroad was actually really tiny to Henry Ford. Because he knew as trying to be a customer of the business, he knew it was a poorly run business. So it's like there's obvious room for improvement here they're just not doing it so just increasing the obvious things makes this risk in buying the asset i think he only paid like five million he paid five million for the railroad and i think he winds up selling for like 30 million i could

Starting point is 01:10:16 those numbers might be wrong but it's like a very small investment like the risk is very tiny because from the outside it's like oh these guys just don't know what they're doing and his point was just like i actually fixed what was wrong with the road. Everybody previously just kept raising more money. So he says, will a billion dollars solve this sort of trouble? No, a billion dollars only make the difficulty $1 billion worse. The purpose of the billion is simply to continue the present methods of railroad management. And it is because of the present methods that we had any railroad difficulties to begin with. So what is he saying? You're just throwing more money at incompetent people.

Starting point is 01:10:48 Okay, and then we'll end where we began. This is Henry Ford summarizing his philosophy. It has been thought that business existed for profit. That is wrong. Business exists for service. If I did not think so, I would not keep working for the money that I make is inconsequential. Business must always give more to the community than it takes away. In the first chapter was set

Starting point is 01:11:12 forth my creed. Let me repeat it, for it is at the basis of all of our work. Number one, an absence of fear of the future or a veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunity more intelligently to begin again. There is no disgrace in honest failure. There is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress. Number two, a disregard of competition. Whoever does a thing best ought to be the one to do it. Number three, the putting of service before profit.

Starting point is 01:11:56 Without a profit, business cannot extend. There is nothing inherently wrong about making a profit. Well-conducted business enterprises cannot fail to return a profit, but profit must and inevitably will come as a result of good service. It cannot be the basis. It must be the result of service. Number four, manufacturing is not buying low and selling high. It is the process of buying materials fairly and with the smallest possible addition of cost, transforming those materials into a consumable product and distributing it to the customer. There is always something to be done in this world and only ourselves to do it.

Starting point is 01:12:40 Every advance begins in a small way and with the individual. And that is where I'll leave it for the full story. Highly recommend buying the book. If you buy the book using the link that's in the show notes, you'll be supporting the podcast at the same time. As you're buying more books and reading more books, make sure you get the ReadWise app. ReadWise is where I store all of my notes and all of my highlights for every single book that I read.

Starting point is 01:13:05 I've done this for years, and it's one of the main benefits of listening to this podcast, because not only have I read over 100,000 pages in the history of entrepreneurship, but the way I don't forget these things is because I put them in Readwise and I read them over and over and over again. It is by far the best app I pay for, and I could not make the podcast without it. So founders tend to read a ton. And if you're going to read, you might as well remember what you read. And so if you go to, I think it's, I'll leave the, I should know the link by now. Jeez. I'll leave the link in the show notes in case I'm wrong. But I think it's readwise.io for such founders.

Starting point is 01:13:36 And you can get 60 days free. It's fantastic. That is 266 books down, 1,000 to go. And I'll talk to you again soon.

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Founders - #266 Henry Ford's Autobiography

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