Chapter 2 - What I Learned About Business
My "gasoline buggy" was the first and for a long time the only automobile in Detroit. It was considered to be something of a nuisance, for it made a racket and it scared horses. Also it blocked traffic. For if I stopped my machine anywhere in town a crowd was around it before I could start up again. If I left it alone even for a minute some inquisitive person always tried to run it. Finally, I had to carry a chain and chain it to a lamp post whenever I left it anywhere. And then there was trouble with the police. I do not know quite why, for my impression is that there were no speed-limit laws in those days. Anyway, 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. I ran that machine about one thousand miles through 1895 and 1896 and then sold it to Charles Ainsley of Detroit for two hundred dollars. That was my first sale. I had built the car not to sell but only to experiment with. I wanted to start another car. Ainsley wanted to buy. I could use the money and we had no trouble in agreeing upon a price.
It was not at all my idea to make cars in any such petty fashion. I was looking ahead to production, but before that could come I had to have something to produce. It does not pay to hurry. I started a second car in 1896; it was much like the first but a little lighter. It also had the belt drive which I did not give up until some time later; the belts were all right excepting in hot weather. That is why I later adopted gears. I learned a great deal from that car. Others in this country and abroad were building cars by that time, and in 1895 I heard that a Benz car from Germany was on exhibition in Macy's store in New York. I traveled down to look at it but it had no features that seemed worth while. It also had the belt drive, but it was much heavier than my car. I was working for lightness; the foreign makers have never seemed to appreciate what light weight means. I built three cars in all in my home shop and all of them ran for years in Detroit. I still have the first car; I bought it back a few years later from a man to whom Mr. Ainsley had sold it. I paid one hundred dollars for it.
During all this time I kept my position with the electric company and gradually advanced to chief engineer at a salary of one hundred and twenty-five dollars a month. But my gas-engine experiments were no more popular with the president of the company than my 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 say: "Electricity, yes, that's the coming thing. But gas--no."
He had ample grounds for his skepticism--to use the mildest terms. Practically 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. As with every comparatively new idea, electricity was expected to do much more than we even now have any indication that it can do. I did not see the use of experimenting with electricity for my purposes. A road car could not run on a trolley even if trolley wires had been less expensive; no storage battery was in sight of a weight that was practical. An electrical car had of necessity to be limited in radius and to contain a large amount of motive machinery in proportion to the power exerted. That is not to say that I held or now hold electricity cheaply; we have not yet begun to use electricity. But it has its place, and the internal combustion engine has its place. Neither can substitute for the other--which is exceedingly fortunate.
I have the dynamo that I first had charge of at the Detroit Edison Company. When I started our Canadian plant I bought it from an office building to which it had been sold by the electric company, had it revamped a little, and for several years it gave excellent service in the Canadian plant. When we had to build a new power plant, owing to the increase in business, I had the old motor taken out to my museum--a room out at Dearborn that holds a great number of my mechanical treasures.
The Edison Company offered me the general superintendency of the company but only on condition that I would give up my gas engine and devote myself to something really useful. I had to choose between my job and my automobile. I chose the automobile, or rather I gave up the job--there was really nothing in the way of a choice. For already I knew that the car was bound to be a success. I quit my job on August 15, 1899, and went into the automobile business.
It might be thought something of a step, for I had no personal funds. What money was left over from living was all used in experimenting. But my wife agreed that the automobile could not be given up--that we had to make or break. There was no "demand" for automobiles--there never is for a new article. They were accepted in much the fashion as was more recently the airplane. At first the "horseless carriage" was considered merely a freak notion and many wise people explained with particularity why it could never be more than a toy. No man of money even thought of it as a commercial possibility. I cannot imagine why each new means of transportation meets with such opposition. There are even those to-day who shake their heads and talk about the luxury of the automobile and only grudgingly admit that perhaps the motor truck is of some use. But in the beginning there was hardly any one who sensed that the automobile could be a large factor in industry. The most optimistic hoped only for a development akin to that of the bicycle. When it was found that an automobile really could go and several makers started to put out cars, the immediate query was as to which would go fastest. It was a curious but natural development--that racing idea. I never thought anything of racing, but the public refused to consider the automobile in any light other than as a fast toy. Therefore later we had to race. The industry was held back by this initial racing slant, for the attention of the makers was diverted to making fast rather than good cars. It was a business for speculators.
A group of men of speculative turn of mind organized, as soon as I left the electric company, the Detroit Automobile Company to exploit my car. I was the 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. The whole thought was to make to order and to get the largest price possible for each car. The main idea seemed to be to get the money. And being without authority other than my engineering position gave me, I found that the new company was not a vehicle for realizing my ideas but merely a money-making concern--that did not make much money. In March, 1902, I resigned, determined never again to put myself under orders. The Detroit Automobile Company later became the Cadillac Company under the ownership of the Lelands, who came in subsequently.
I rented a shop--a one-story brick shed--at 81 Park Place to continue my experiments and to find out what business really was. I thought that it must be something different from what it had proved to be in my first adventure.
The year from 1902 until the formation of the Ford Motor Company was practically one of investigation. In my little one-room brick shop I worked on the development of a four-cylinder motor and on the outside I tried to find out what business really was and whether it needed to be quite so selfish a scramble for money as it seemed to be from my first short experience. From the period of the first car, which I have described, until the formation of my present company I built in all about twenty-five cars, of which nineteen or twenty were built with the Detroit Automobile Company. The automobile had passed from the initial stage where the fact that it could run at all was enough, to the stage where it had to show speed. Alexander Winton of Cleveland, the founder of the Winton car, was then the track champion of the country and willing to meet all comers. I designed a two-cylinder enclosed engine of a more compact type than I had before used, fitted it into a skeleton chassis, found that I could make speed, and arranged a race with Winton. We met on the Grosse Point track at Detroit. I beat him. That was my 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--unless it beat other racing cars. My ambition to build the fastest car in the world led me to plan a four-cylinder motor. But of that more later.
The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process which is that the money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture as long as whatever was done got by and took the money. In other words, an article apparently was not built with reference to how greatly it could serve the public but with reference solely to how much money could be had for it--and that without any particular care whether the customer was satisfied. To sell him was enough. A dissatisfied customer was regarded not as a man whose trust had been violated, but either as a nuisance or as a possible source of more money in fixing up the work which ought to have been done correctly in the first place. For instance, in automobiles there was not much concern as to what happened to the car once it had been sold. How much gasoline it used per mile was of no great moment; how much service it actually gave did not matter; and if it broke down and had to have parts replaced, then that was just hard luck for the owner. It was considered good business to sell parts at the highest possible price on the theory that, since the man had already bought the car, he simply had to have the part and would be willing to pay for it.
The automobile business was not on what I would call an honest basis, to say nothing of being, from a manufacturing standpoint, on a scientific basis, but it was no worse than business in general. That was the period, it may be remembered, in which many corporations were being floated and financed. The bankers, who before then had confined themselves to the railroads, got into industry. My idea was then and still is that if a man did his work well, the price he would get for that work, the profits and all financial matters, would care for themselves and that a business ought to start small and build itself up and out of its earnings. If there are no earnings then that is a signal to the owner that he is wasting his time and does not belong in that business. I have never found it necessary to change those ideas, but I discovered that this simple formula of doing good work and getting paid for it was supposed to be slow for modern business. The plan at that time most in favor was to start off with the largest possible capitalization and then sell all the stock and all the bonds that could be sold. Whatever money happened to be left over after all the stock and bond-selling expenses and promoters, charges and all that, went grudgingly into the foundation of the business. A good business was not one that did good work and earned a fair profit. A good business was one that would give the opportunity for the floating of a large amount of stocks and bonds at high prices. It was the stocks and bonds, not the work, that mattered. I could not see how a new business or an old business could be expected to be able to charge into its product a great big bond interest and then sell the product at a fair price. I have never been able to see that.
I have never been able to understand on what theory the original investment of money can be charged against a business. Those men in business who call themselves financiers say that money is "worth" 6 per cent, or 5 per cent, or some other per cent, and that if a business has one hundred thousand dollars invested in it, the man who made the investment is entitled to charge an interest payment on the money, because, if instead of putting that money into the business he had put it into a savings bank or into certain securities, he could have a certain fixed return. Therefore they say that a proper charge against the operating expenses of a business is the interest on this money. This idea is at the root of many business failures and most service failures. Money is not worth a particular amount. As money it is not worth anything, for it will do nothing of itself. The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you to produce or buy and no more. If a man thinks that his money will earn 5 per cent, or 6 per cent, he ought to place it where he can get that return, but money placed in a business is not a charge on the business--or, rather, should not be. It ceases to be money and becomes, or should become, an engine of production, and it is therefore worth what it produces--and not a fixed sum according to some scale that has no bearing upon the particular business in which the money has been placed. Any return should come after it has produced, not before.
Business men believed that you could do anything by "financing" it. If it did not go through on the first financing then the idea was to "refinance." The process of "refinancing" was simply the game of sending good money after bad. In the majority of cases the need of refinancing arises from bad management, and the effect of refinancing is simply to pay the poor managers to keep up their bad management a little longer. It is merely a postponement of the day of judgment. This makeshift of refinancing is a device of speculative financiers. Their money is no good to them unless they can connect it up with a place where real work is being done, and that they cannot do unless, somehow, that place is poorly managed. Thus, the speculative financiers delude themselves that they are putting their money out to use. They are not; they are putting it out to waste.
I determined absolutely that never would I join a company in which finance came before the work or in which bankers or financiers had a part. And further that, if there were no way to get started in the kind of business that I thought could be managed in the interest of the public, then I simply would not get started at all. For my own short experience, together with what I saw going on around me, was quite enough proof that business as a mere money-making game was not worth giving much thought to and was distinctly no place for a man who wanted to accomplish anything. Also it did not seem to me to be the way to make money. I have yet to have it demonstrated that it is the way. For the only foundation of real business is service.
A manufacturer is not through with his customer when a sale is completed. He has then only started with his customer. In the case of an automobile the sale of the machine is only something in the nature of an introduction. If the machine does not give service, then it is better for the manufacturer if he never had the introduction, for he will have the worst of all advertisements--a dissatisfied customer. There was something more than a tendency in the early days of the automobile to regard the selling of a machine as the real accomplishment and that thereafter it did not matter what happened to the buyer. That is the shortsighted salesman-on-commission attitude. If a salesman is paid only for what he sells, it is not to be expected that he is going to exert any great effort on a customer out of whom no more commission is to be made. And it is right on this point that we later made the largest selling argument for the Ford. The price and the quality of the car would undoubtedly have made a market, and a large market. We went beyond that. A man who bought one of our cars was in my opinion entitled to continuous use of that car, and therefore if he had a breakdown of any kind it was our duty to see that his machine was put into shape again at the earliest possible moment. In the success of the Ford car the early provision of service was an outstanding element. Most of the expensive cars of that period were ill provided with service stations. If your car broke down you had to depend on the local repair man--when you were entitled to depend upon the manufacturer. If the local repair man were a forehanded sort of a person, keeping on hand a good stock of parts (although on many of the cars the parts were not interchangeable), the owner was lucky. But if the repair man were a shiftless person, with an adequate knowledge of automobiles and an inordinate desire to make a good thing out of every car that came into his place for repairs, then even a slight breakdown meant weeks of laying up and a whopping big repair bill that had to be paid before the car could be taken away. The repair men were for a time the largest menace to the automobile industry. Even as late as 1910 and 1911 the owner of an automobile was regarded as essentially a rich man whose money ought to be taken away from him. We met that situation squarely and at the very beginning. We would not have our distribution blocked by stupid, greedy men.
That is getting some years ahead of the story, but it is control by finance that breaks up service because it looks to the immediate dollar. If the first consideration is to earn a certain amount of money, then, unless by some stroke of luck matters are going especially well and there is a surplus over for service so that the operating men may have a chance, future business has to be sacrificed for the dollar of to-day.
And also I noticed a tendency among many men in business to feel that their lot was hard--they worked against a day when they might retire and live on an income--get out of the strife. Life to them was a battle to be ended as soon as possible. That was another point I could not understand, for as I reasoned, life is not a battle except with our own tendency to sag with the downpull of "getting settled." If to petrify is success all one has to do is to humour 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. I saw great businesses become but the ghost of a name because someone thought they could be managed just as they were always managed, and though the management may have been most excellent in its day, its excellence consisted in its alertness to its day, and not in slavish following of its yesterdays. Life, as I see it, is not a location, but a journey. Even the man who most feels himself "settled" is not settled--he is probably sagging back. Everything is in flux, and was meant to be. Life flows. We may live at the same number of the street, but it is never the same man who lives there.
And out of the delusion that life is a battle that may be lost by a false move grows, I have noticed, a great love for regularity. Men fall into the half-alive habit. Seldom does the cobbler take up with the new-fangled way of soling shoes, and seldom does the artisan willingly take up with new methods in his trade. Habit conduces to a certain inertia, and any disturbance of it affects the mind like trouble. It will be recalled that when a study was made of shop methods, so that the workmen might be taught to produce with less useless motion and fatigue, it was most opposed by the workmen themselves. Though they suspected that it was simply a game to get more out of them, what most irked them was that it interfered with the well-worn grooves in which they had become accustomed to move. Business men go down with their businesses because they like the old way so well they cannot bring themselves to change. One sees them all about--men who do not know that yesterday is past, and who woke up this morning with their last year's ideas. It could almost be written down as a formula that when a man begins to think that he has at last found his method he had better begin a most searching examination of himself to see whether some part of his brain has not gone to sleep. There is a subtle danger in a man thinking that he is "fixed" for life. It indicates that the next jolt of the wheel of progress is going to fling him off.
There is also the great fear of being thought a fool. So many men are afraid of being considered fools. I grant that public opinion is a powerful police influence for those who need it. Perhaps it is true that the majority of men need the restraint of public opinion. Public opinion may keep a man better than he would otherwise be--if not better morally, at least better as far as his social desirability is concerned. But it is not a bad thing to be a fool for righteousness' sake. The best of it is that such fools usually live long enough to prove that they were not fools--or the work they have begun lives long enough to prove they were not foolish.
The money influence--the pressing to make a profit on an "investment"--and its consequent neglect of or skimping of work and hence of service showed itself to me in many ways. It seemed to be at the bottom of most troubles. It was the cause of low wages--for without well-directed work high wages cannot be paid. And if the whole attention is not given to the work it cannot be well directed. Most men want to be free to work; under the system in use they could not be free to work. During my first experience I was not free--I could not give full play to my ideas. Everything had to be planned to make money; the last consideration was the work. And the most curious part of it all was the insistence that it was the money and not the work that counted. It did not seem to strike any one as illogical that money should be put ahead of work--even though everyone had to admit that the profit had to come from the work. The desire seemed to be to find a short cut to money and to pass over the obvious short cut--which is through the work.
Take competition; I found that competition was supposed to be a menace and that a good manager circumvented his competitors by getting a monopoly through artificial means. The idea was that there were only a certain number of people who could buy and that it was necessary to get their trade ahead of someone else. Some will remember that later many of the automobile manufacturers entered into an association under the Selden Patent just so that it might be legally possible to control the price and the output of automobiles. They had the same idea that so many trades unions have--the ridiculous notion that more profit can be had doing less work than more. The plan, I believe, is a very antiquated one. I could not see then and am still unable to see that there is not always enough for the man who does his work; time spent in fighting competition is wasted; it had better be spent in doing the work. There are always enough people ready and anxious to buy, provided you supply what they want and at the proper price--and this applies to personal services as well as to goods.
During this time of reflection I was far from idle. We were going ahead with a four-cylinder motor and the building of a pair of big racing cars. I had plenty of time, for I never left my business. I do not believe a man can ever leave his business. He ought to think of it by day and dream of it by night. It is nice to plan to do one's work in office hours, to take up the work in the morning, to drop it in the evening--and not have a care until the next morning. It is perfectly possible to do that if one is so constituted as to be willing through all of his life to accept direction, to be an employee, possibly a responsible employee, but not a director or manager of anything. A manual labourer must have a limit on his hours, otherwise he will wear himself out. If he intends to remain always a manual labourer, then he should forget about his work when the whistle blows, but if he intends to go forward and do anything, the whistle is only a signal to start thinking over the day's work in order to discover how it might be done better.
The man who has the largest capacity for work and thought is the man who is bound to succeed. I cannot pretend to say, because I do not know, whether the man who works always, who never leaves his business, who is absolutely intent upon getting ahead, and who therefore does get ahead--is happier than the man who keeps office hours, both for his brain and his hands. It is not necessary for any one to decide the question. A ten-horsepower engine will not pull as much as a twenty. The man who keeps brain office hours limits his horsepower. If he is satisfied to pull only the load that he has, well and good, that is his affair--but he must not complain if another who has increased his horsepower pulls more than he does. Leisure and work bring different results. If a man wants leisure and gets it--then he has no cause to complain. But he cannot have both leisure and the results of work.
Concretely, what I most realized about business in that year--and I have been learning more each year without finding it necessary to change my first conclusions--is this:
- (1) That finance is given a place ahead of work and therefore tends to
- kill the work and destroy the fundamental of service.
- (2) That thinking first of money instead of work brings on fear of
- failure and this fear blocks every avenue of business--it makes a man
- afraid of competition, of changing his methods, or of doing anything
- which might change his condition.
- (3) That the way is clear for any one who thinks first of service--of
- doing the work in the best possible way.