#307: The World's Great Family Dynasties: Rockefeller, Rothschild, Morgan, & Toyada

0:00 This is a book about family and business. At its heart is the dynasty. The succession and interaction of family members over generations. And the firm. The business unit that embodies and expresses

0:11 This interaction. I shall define a dynasty as three successive generations of family control. No small achievement. Growth, diversification, and technological advance. Can all work against the continuity of the family firm.

0:23 I shall add another. Success. Simply put. As the firm develops power and prestige.

0:31 The airs. Find many interesting and amusing things to do. Rather than run their business. Typically. Rather than wear the shirt sleeves of their forefathers

0:40 They finish in silks and velvets. And focus on politics, culture. And the unabashed pursuit. Of the good life. As a historian, I was drawn into the drama of these stories.

0:51 and the larger than life qualities of many of these competitors for wealth. These tales trace the entangled histories. Of legendary lineages. Such as the Fords. The Rockefellers and the Guggenheims.

1:03 But one that need not be a Rothschild or a Toyota. To have use for the lessons in this book. Our own families play central roles in most of our lives. And the successes, failures, and cautionary notes of these narratives. Can inform and inspire us all.

1:17 We can learn a great deal about business from these dynasties. These are extraordinary men and women. Full of eccentricities. And genius. As an example, consider the legendary patriarch

1:29 The bold enterpriser who sets out to do well for himself. and ends up founding an empire. Nathan Rothschild fits this bill. He had a super keen mind, a sharp tongue, And a sense of dignity and authority that some families need many generations to acquire.

1:46 Nathan quickly moved from selling merchandise into banking. And outdid the best of his competitors. The Brits, his existing competitors, were not always ready or able to understand the force of this outsider. Who ignored the rules of proper behavior. This is an example of one of my favorite maxims, which is those on the margins often come to control the center. Those on the margins often come to control.

2:08 The center. One day a powerful, wealthy English dignitary pushed his way into Nathan's office and interrupted the busy banker At his task. Nathan told him to take a chair.

2:18 That he'd be with him in a minute. The man was offended. Don't you know who I am? he said. Pointing to the royal crest. On the lining of his top hat?

2:26 Nathan's reply? Then take two chairs. Another time someone asked him how he had made his fortune. And he answered By minding my own business.

2:36 It is from such brash. Keen, dedicated entrepreneurs. That great dynasties. That was an excerpt from the book that I'm gonna talk to you about today, which is Dynasties. Fortunes and Misfortunes of the World's Great Family Businesses.

2:51 And it was written by David Landis. So I've told you before, one of my favorite things to do is uh spend time in news book stores. And this is where I stumbled upon this book. Picked it up. Read within like

3:00 Two minutes. I was like, Oh, I'm definitely buying this book. What it is is the author is a historian. And he profiled Eleven family dynasties throughout history. Uh in three primary

3:12 uh industry. So you got banking, automobiles, and then natural resources. And so before I jump into the first family dynasty, this is what after studying all these different families across all these different industries, This is what he realized was the largest predictor Or the largest largest cause, rather. for their eventual like decline and downfall.

3:31 And the way you and I have spoken about this in the past is the fact that they it's very common in human nature that they go to sleep on a win and they wake up with a loss. And so this is what I mean here the biggest threat to continuity, meaning dynastic family continuity, okay? The biggest threat to continuity was enrichment and success. We will see this story repeated across industries.

3:51 Once the family had the wherewithal to indulge their inflated ambitions. They tended to copy their better. So I need to pause there. So what is he talking about? Almost all the di the dynasty started as outsiders.

4:02 This is something that's very obvious in this book, but also very obvious if you read, you know, a couple hundred biographies of some of the great uh history studious entrepreneurs. That's why I said one of my favorite maxims, actually it comes from Game of Thrones, the one I mentioned in the intro. that those on the margins often come to control the center. So what happens after those on the margins get to control the center, you see this over and over again.

4:21 Uh, once the family had the wherewithal to indulge their inflated ambitions, they tended to copy their better, meaning They started on the outside, they easily overtake their competitors. Generating wealth and what do they do? They just copy and imitate the people. That they are replacing. So that's what he means.

4:37 That is, they tend to buy estates, they purchase honors and titles. And live the life of idleness and self indulgence that was the mark of gentility. And so all these dynasties without exception can be traced to one formidable individual Somebody that's intensely and insanely focused.

4:54 On the building up of both Their business and their family. Think about what David Ogie told us last week. Uh, I think it was in episode three oh six. He says great industrial leaders are always fanatically committed to their jobs. They're not lazy or amateurs.

5:08 These are power law type people. Of course individual families are not going to be able to produce multiple family members of the same caliber. That doesn't mean they can't c like continue on. And so the first family I'm going to talk about is the one that really out of everybody in the book kind of buck the trend, and that's the Ross Childs and we'll get into their Uh,'cause you know, there's not another there's never been another Nathan Rothschild, but they have been able to muster enough talent and discipline

5:30 to not squander the wealth that's been built up over the last few centuries. And so David has a great way of putting the mint the difference in mentality between like the founder of the dynasty And those usually the people that come afterwards. He he he writes it in French, so I had to go and um I had to actually go and translate this. This is the first time I've come across this maxim, and it's excellent. Something that I I already put in a read why something I'm gonna like keep reminding myself of. And he says for many of the great founders

5:53 Appetite comes with eating. I was like w what the hell does that mean? And it's a saying that means that the more you have, the more you want to have. The great founders are obsessed with what they're doing. They want to continue doing more of it. They enjoy it. It's like work as their own h uh hobby. There

6:08 Their descendants. just like the fruits of the labor in many cases the labor that they did not themselves do. And so they like the these like lazy Like w what he calls a life of idleness and self indulgence. But that is one of my favorite lines in the entire book for many of the founders.

6:22 Appetite comes with eat eating. The more that you have the more you want to have. And I think that's obvious if you look back on a lot of the founders that you and I've talked about, a lot of the founders that you and I've read biographies on. Their exit strategy is death.

6:34 They found their life's work and they they had no intention of retiring and they just kept doing it because they enjoyed to do it. Okay, so with that the first family I I I picked four families that I'm gonna talk about. Uh, many of them. Three out of the four families have done multiple podcasts on What I will do is I would use this podcast, this episode. as like a jump off point, I will list in the show notes you can find on their podcast player and at founders podcast dot com.

6:55 All of the episode and the episode numbers of all the different podcasts I've done. On the Rothschilds, the Rockefellers, and the Morgan family. This will be the first time I talk about the Toyota family, which I actually really enjoyed. And then from there, based on what you hear and hear, if you want to go deeper, the you'll be you can use that as a reference point. But I do want to start with the Rothschilds because they seem to be the the exception

7:15 uh to the rule, at least in the the leaven families profiled in this book. It says more than anything, the Rothschilds are a case study in tenacity And a dynasty in which the traits of persistence and intense focus. have been passed down from one extraordinary generation to the next. Their family dynasty is going to start. in a ghetto, I think it's the world's actually first Jewish ghetto in Europe.

7:37 Uh it's Frankfurt. It was the ancestral home of the Rothschilds. And it was neither a pleasant nor an auspicious place to start a global empire. It was home to the first Jewish ghetto in Europe, which was created in fourteen sixty. First thing that pops out here is number one, the Rothschilds uh capability of turning an a a liability into an asset.

7:55 The ghetto was a terrible environment in which to live, but the adversity and oppression bred traits That would be central to the rise of the Rothschilds. First, a network of Jewish traders and financiers developed. who offered one another support. Second.

8:07 The Rothschild learn. That family was their greatest resource. The one place where they could place absolute trust. So no one wants to be born into an environment like this, but the people that are capable of surviving they develop a very unique

8:21 Uh set of skills. Uh from this environment they fought to overcome oppressive oppressive conditions and became stronger, more savvy, and better connected as a result. And there's really only two generations of Rothschilds that have to deal with it. So the founder of the Rothschild dynasty. I I did a two part series on the Rothschilds. Episode one ninety seven is on the the the dad mayor. And episode one ninety eight is more on his sons.

8:42 So let's go over a few traits that he had that are valuable. Uh number one, he had an innate talent for his trade. I starts out they're merchants, but they're also money lenders and money changers. Mayor had a good head for figures, meaning he's good at math. Which was great advantage in a world of multiple monies, multiple currencies, is what they mean there. Number three, he took time.

9:00 and built a foundation of the empire by gaining specific knowledge. Very valuable specific knowledge. One specialty of money changers, which was their business, their initial business, was a knowledge of the rare coins that passed through their hands. There was a significant market among collectors for these items. And savvy dealers, which was what Mayer was.

9:19 We begin systematic uh systematically hunting for rarities, which then they resold To specialists. So that skill and specific knowledge is valuable and interesting. But what makes it even more powerful is that

9:30 Mayor combines it. with a trait that actually bucks human nature. He thought that long term relationships were more valuable than short term profit. That may be e easy to say when you're already rich. This guy is living in a ghetto.

9:43 He's living in a two room house. Wait, I think they have like something like ten kits. So let me give you example of this. Uh Mayer was a go getter. He would shave his margin or even sell a loss for important people. The readiness to prefer connections.

9:56 To immediate profit. Testified to his long term horizon. Second thing he did, he realized that they were w without a lot of financial resources at the time. So everybody in the family had to help the business. This is something that they would continue over the next few generations.

10:11 Uh, so they're changing money, they're collecting coins, but they're also selling dealing merchandise. So they would sell things like fabric, yarn. Uh goods from tropical lands. They would sell spices, teas, coffee, and chocolate. Where's he gonna put all the stuff? He's gotta put it in his house. His crowded house was jammed with crate, barrels, and stacks of merchandise. The family occupied what little space was left. There was one bedroom for Mayor and his wife.

10:31 In the other bedroom the children, boys and girls of all ages. were piled together atop As they grew old enough, They were all enrolled in the business.

10:42 As the children got old enough to marry. Their spouses. We're also joined in the enterprise as employees, but never as partners. He actually puts that rule in writing. Uh on like his last will and testament.

10:54 They were very, very fearful of outsiders and another way they avoided this Which I'll get into a little bit is uh there's a lot of incest. Eventually this is something that's gonna reoccur. Like I said, all the dynasties can be traced out back to one formidable individual. We call the people the power law.

11:09 Uh person Eventually the power law person will appear. And that is gonna be for the rush outs that is going to be Nathan Rothschild. It was Mayer's third son, Nathan Rothschild, who gave the Rothschilds a special advantage when he immigrated to England.

11:21 Nathan was bright and enterprising and he had the kind of pride That exacerbated those who expected Jews to be suitably meek and deferential. And as we'll see, he also had extreme Extreme levels of self confidence. Way before I always talk about the there's this great maximum that belief comes before ability.

11:39 He had extreme levels of self belief. way before there was any evidence that that belief was justified. We'll get into that in a minute. He quickly in cottons And then married the daughter of one of the richest Jews in England. When his prospective father in law asked for proof of his prospects, meaning This is very common.

11:55 Like are you gonna be able to provide for my daughter? Like what's your business, how much money do you make, that kind of stuff. Let's this is what I mean about excessive self belief. uh father in law asked for proof of his prospects. Nathan told him that if he was concerned about having his daughters provided for, he might as well just give them all to Nathan and be done with it.

12:13 Whoa. Nathan then moved to London and began competing with other bankers for a share of government issues. That's gonna be the main uh source of like the they're gonna have a bunch of different businesses, but essentially like they're financing governments, they're financing wars. they're having some of the most powerful people in Europe indebted to them. Uh Nathan became the commanding general of the clan of his entire family, even though he was his father still alive.

12:36 He's the third son, they all recognized him. For as just this unique Formidable genius. Uh, he ran his office under strict rules of privacy and discipline. No one could enter unless summoned.

12:46 This is uh something I already mentioned in the intro, but it's one of my favorite stories, so I'm gonna repeat it. One day an English dig dignitary pushed his way in. Uh Nathan recognized Uh the visitor said take a seat. I'll be with you in a minute. The visitor was offended by such offhand disrespect. Don't you know who I am? he said, showing Nathan the royal crest on his hat.

13:02 Nathan was in no way d uh disconcerned. Then take suit two seats. It was a great time to work and earn in London. So It's something that you see over and over again. Some of this is just, you know, randomness, luck, whatever you want to call it.

13:16 But Nathan was the right person at the right place at the right time in history with the right set of skills. And this is an example of that. It was a great time to work and earn in London. British businessmen were far ahead of anyone else in industrial enterprise, and they needed a constant flow of funds. Nathan had come along. Just at the right time. So The order I have that I'm gonna talk to you about

13:40 Uh start with the Rothschilds, then I'm gonna go go into the Morgan's. Because the Morgans Just like everyone They w I don't even know why I'm repeating this,'cause this is so obvious at this point. The Morgans patterned themselves

13:52 off of the great people that came before them. So they literally study the Rothschilds. And they look at the career of the Rush Hild family dynasty and said, Okay How can we do that? What did they learn over the course of their career that we can use on our own, right? And what is fascinating to me

14:07 Is So the Rothschild started line, they're at the right place, right? They miss the at this point in history, you'd rather be in London than anywhere else. Now what the Morgan's growth the of the Morgan family dynasty is the Morgans are gonna play that role, but in America And the Ross Child

14:23 Had Rush outs had an uh The opportunity. To expand to America before the Morgans. And they didn't think they needed to do so because all their power derived from Europe. And so that gap in the market that the Rothschild seeded.

14:38 The Morgans jumped into And so therefore you could also argue that JP Morgan Was The right person, the right place, at the right time, with the right set of skills and in the right geographic location. Okay, so moving on. At the beginning of this

14:52 Chapter and Rothschild. like ten, fifteen pages earlier than where I am in the book right now. says the Rothschilds developed the technique of absolute discretion to perfection. It's like okay, what does that mean?

15:04 Later on it gets into some of the services. that they're offering these great like royal houses all throughout Europe. And a lot of them not only did they need financing. But they also needed the Rothschild to help them hide and then move their wealth around the continent. And so when you go back and you read books on the Rothschild.

15:22 a lot of it was the value of the network they built, not only the network for business people, but also like the logistical network. The rush out scrambled around using special carriages, horse drawn carriages. Prearrange relays of horses and hidden compartments. They also had a network of ships where they can move things over water. Nathan's biggest coup.

15:38 was lending the British government the money it needed to finance Wellington's campaign against Napoleon. Nathan had just bought Eight. Hundred thousand pounds in gold.

15:47 from the East India Company. Now here's the problem. Because they're such a secret of family. There's more unanswered questions than there are like known knowns about the Rothschild. So like this one section they're when they're talking about this where They made an unbelievable amount of money. It starts th there's just a bunch of questions on this page like

16:02 How? Why? Where? And the answer to a lot of these questions are we don't know. It says Nathan made this money available to the British Crown.

16:10 Though we have no record of this operation in the Rothschild archive. But it is believed that this was the single most lucrative transaction that the Rothschilds ever made. So Nathan is running his family even though his father is alive. However, when his father dies, he leaves behind a Like a list of guiding principles for the family.

16:28 They adhere to this pretty strictly for the next let's say two generations. There's one one or two deviations. And then eventually Uh, you know, it it it changes over time, obviously you the further away you get from Mayer's death, he died in eighteen twelve. But I'm gonna tell you a little bit about the this before he went, he drew up a partnership agreement and a will that laid out the principles he felt should guide the family enterprise into the future. These clear rules For order, family behavior, and the succession of power very much distinguished the Rochals.

16:56 from the other banking dynasty. So that's why I wanted to start with them. 'Cause they are the ones that are the exception to the rule, the ones that buck the trend. Uh, he began by distinguishing his direct male descendants from any other Rothschild relations. There would be no room in the business for son in laws. They could work as employees, but they cannot they have no ownership and they have no say in the management.

17:17 And then very similar to Sam Walton's autobiography that he's writing when he's dying, he says, Hey, if you s you come with any of this foolishness. I will come back and haunt you from the grave. He has like a line that's very similar to that in his autobiography. We see the mayor puts this in his will. I shall never forgive my children if they should against my parental will take it upon themselves to disturb my sons. In the peaceful

17:37 possession of their business. I do want to get into one way that the Ross Childs try to keep the business in the family and this is what I referenced earlier. Sixteen Of the eighteen matches made by Mayer's grandchildren.

17:51 We're between uncle and niece are first cousins. So Nathan dies young at the time of his death Uh he is Likely the richest person In the world.

18:03 Nathan died in eighteen thirty six when he was only fifty nine. He may have been the richest man in the world, but he had the misfortune to live in an age Where that that did not know about anti sepsis. He was infected by an abscess on his lower back. And then this line is a great description of what I was explaining earlier, that you shouldn't expect there to be another Nathan, especially in the one family. The brilliant entrepreneur and innovator was gone and his like would not be found again.

18:26 And so what happens next? Should be expected. Human nature is constant. The family's rigid adherence to mayor's rules began to lose force as time marched forward and future generations came of age. This was inevitable. One cannot become enormously rich. drink and dine with high status dignitaries.

18:42 And play and flirt. Without absorbing new values and habits. And so it was with the Rothschilds. And really what they're about to describe is the difference between a founder and a manager. The founder wants to innovate, he wants to grow, wants to keep on going, the family's already rich. They just don't want to lose what they already have. The passage of time changed the family gradually from an active promoter and investor to a custodian of family fortunes.

19:05 So then we have this guy named Frank Harris who talks about this conversation he has with one of the grandchildren. The grandchildren are adults and running the business at this point in history. And it says Harris reports gleefully on the profits made by Barings, which is another family dynasty, and they're actually covered in this book. on this transaction they did for the Guinness Brewing Company.

19:24 And where Barings made uh over a million dollars. And this would have been in the mid to late eighteen hundreds. And so Harris says, Don't you wish that you had done the deal? And the Ross Child. Uh descendant. returns a soft answer.

19:38 We did have it and we turned it down. Harris said, Aren't you sorry now? And the Rothschild Grandchild said. When I turn down deals, I go home at night carefree and easy. When I take on a project I can't sleep.

19:51 The tacit rules of the Roschild dynasty now were aimed at preserving sleep and peace of mind. And so I got this page, I left a note to myself and I think the reason this happens over and over again It's because if your goal is just accumulation of more money. Like that's probably the right move.

20:09 You are already one of the richest families in the world, if not the richest family. And being abundantly cautious is probably the the correct move if the just the continuation and con uh continual uh accumulation of money and then pass it down to the next generation is the goal. And we are living almost two hundred years after the events that you and I are discussing in this book and We can't tell how much money they have, but we know they have a lot.

20:31 Or I should say it is likely that they have a lot. The author is then comparing and contrasting Nathan, the power law person. Power Law Founder. with uh his descendants. Nathan had given himself heart and soul

20:42 To making money. His descendants worked rather to spend it, a theme that we shall see repeat itself for many of the great dynasties. But unlike many of the great dynasties, Where the offspring began to stray. Many Rothschilds remain powerful in the business world. It is as if they possessed a secret genetic gift for making money. And then this summary of the section is exactly why I wanted to talk about them first. The Rothschild family is perhaps the most important.

21:05 and Tenacious Dynasty in modern business history. Only a few dynasties have shown that as much persistence across centuries. Okay, let's jump right into the Morgans. The great thing about the Morgan chapter is The author does a lot of the work for you and I.

21:20 Where he is going to constantly reference I guess compare and contrast. The Morgans and the Rothschilds. So since the Morgans offered a very different response to success and growth From that of the Rothschilds. The Rothschilds insisted that their bank be an exclusively family enterprise.

21:36 No outside partners. And they have held to that. The Morgans We're not numerous enough to do that. Nor did they see outside partners as intruders. On the contrary, they needed them.

21:47 The result was that the family bank moved on to a Morgan Les Managerial corporation. So I just want to pause there because they're like, Hey, the Morgans couldn't do what the Rothschilds did. 'Cause there just wasn't enough of them.

21:59 I can't remember which other family it it's talked about in the book on another another family I'm not gonna profile. where they realized that the Essentially th if you want to build a family dynasty Uh, they would recommend that you have a bunch of kids. Eight, ten, fifteen kids, whatever the case is.

22:16 You're gonna because the natural distribution of let's say you have ten kids. a handful of them are not going to be interested in business. maybe one or two are gonna have the same level of drive and intensity that maybe the founder or similar drive and intensity than maybe the founder of the family had. But that was explicitly stated in the book where they're like, Okay, the only way to get around this if you want to have a uh family dynasty that lasts a long time. Is you have to have

22:38 A bunch of kids and then you have to convince your children to have a bunch of kids. And so I'm pretty sure J P Morgan's dad, Junius, who I'm gonna talk to about in a second. I think he only had two sons and When they say kids in in this time, you know, it's obviously uh it's going to be the male line of the family that they're uh optimizing for.

22:57 Before I get to Junius, want to talk about Junius' dad. The Morgan family dynasty is interesting because the actual Morgan company wasn't even started by a Morgan. W w We'll get to there in one second, but there was a lot of wealth transferred down over multiple generations. So they were successful. Like they are a case study and successfully saying, Hey,

23:17 We start with Joseph Morgan. He's gonna make a bunch of money, he's gonna give some of that money to his son Junius. Junius is gonna make a bunch of money, gave that money to his son JP And so they were successful in

23:29 taking an inheritance and growing it and passing it on to the next generation. Uh so JP Morgan. His grandfather was this guy named Joseph Morgan. He did a bunch of things. But what he is most well known for is that he was He he made a lot of money in real estate.

23:42 But he was also one of the founders of the Aetna Fire Insurance Company. So Joseph Morgan is the first person in the Morgan family where he has a knack and a love for business and then he passes along that love and passion for business to his son. Uh so it says most important Joseph

23:58 Put his son Junius Spencer into the trade. So Junius is gonna have ten years of experience in banking. And in commercial trade. before his father passes away. Joseph left an estate of over a million dollars. So that would be about 40 to 50 million dollars when this book was published. This book was published twenty years ago, so it's even more now.

24:18 uh Junius took this money and then went after bigger game. Now he does something really smart here. He winds up moving from America. The Morgans are Americans. He moves to America'cause this is eighteen fifty four. Where is the center of commerce in the world at this point? In the Western world. Clearly London. He moved to London.

24:32 And then send his son J P Morgan to school in France and Germany. On the past episodes I've done on the Morgan family, I told you before that I found Junius to be the most impressive. Of all the Morgans. This is an example of that. This untypical breakout from local to regional to national to international over the course of generations was the building of a global family fortune.

24:54 Junius to me seems the most driven We have evidence of this here. He is. He set out. He's like, I want a dynasty. Uh, from the beginning, Junius had far reaching aspirations. He would build a dynasty. His models were the Barings and the Rothschilds. Both European banking family dynasties both are covered in this book. So it talks about his son, JP Morgan.

25:15 JP's health left much to be desired. Throughout his entire life work had to be compensated by intervals of recovery. And repose. He would engage in fierce spells of activity. Followed by long vacations

25:28 And months of travel. You can still get w if you're in the right business. You could still get really wealthy. By doing this like sprint, sprint, rest. Cadence that's very different from I would say most of the founders that you and I cover were the grinders.

25:41 When I got to this part All the way back on episode one twenty four. I did a three part series on Larry Ellison. There's this there's this fantastic biography of Larry Ellison called Soft War, an intimate portrait of Larry Ellison in Oracle. And Larry Ellison was like this too. He states in that book, he's like, Listen, Bill Gates is a gr uh is a grinder, I'm a sprinter.

25:59 And so let me just read a quote from the biography of Larry El Ellison. And it says, although he always talked about technology and oracle with passion and intensity, he didn't have the methodical relentlessness. That made Bill Gates so formidable and feared. By his own admission, Ellison was not an obsessive grinder like Gates. I am a sprinter.

26:16 I rest, I sprint, I rest, I sprint again. Ellison had a reputation for being easily bored by the process of running a business and often took time off. Leaving the shop to senior colleagues. That is h very much in my mind the model I have of JP Morgan.

26:30 And I think he was bored by the process of running a business. I think he Can't remember the exact number, like He would do a year's worth of work in three months, or maybe a year's worth of work in nine months, something like that. But I know he took at least three months off every year. But that comes later in the Morgan family history.

26:46 This is what I meant that makes their dynasty so interesting because the actual the launching p point Not including the the the money from their grandfather and Junis' father Joseph. comes from George Peabody. He's not even a Morgan. Says George Peabody. was also an American living in London. He was a high quality merchant banker of London.

27:05 Peabody is going to run across Junius and recruit him to take over I'm pretty sure Peabody was like this like miserly figure. I think at one point I'd read about him previously. Let's say he was making like three hundred thousand dollars a year.

27:18 He would live on like three thousand dollars Like he wouldn't spend any of his money. I think, you know, let's say he's making three hundred thousand, he would live on like three thousand dollars. Like he would actually spend like three thousand dollars a year. So anyways, I'm pretty sure he didn't have any kids. So he recruits Junius almost like this adoptive son. And it's from this this is the the

27:35 Like a prehistory of what becomes Now in our modern day and age, JP Morgan Chase. Uh, Chase Manhattan obviously buys out GP Morgan. I think for thirty billion dollars, that's how this chapter ends. This was a great opportunity, not only because Peabody was a lead was the leading house

27:48 In Anglo American trade. Peabody himself was also approaching retirement. He had run into Junius Morgan in various transactions. liked what he saw and offered him a partnership in nine in eighteen fifty four. When Peabody then retired ten years later, the firm became JS Morgan and Company. J S Morgan and Company.

28:06 Uh when Junius retires, it's taken over by JP, that becomes JP Morgan and Company. That is the company that Chase Manhattan buys. uh many, many years later. I I love what uh the author points out because this is exactly how I felt when I was reading the history of the Morgans uh a few years ago. The history of the House of Morgan tends to glide too quickly over the career of Junius. And yet it was he who won the family place and fame in international banking. And their first big break comes from again, we talked about this earlier.

28:33 Your competitors are always gonna leave gaps in the market. He is very much Junius is very much patterning his family off the Rothschilds. The bearings even came before the Rothschilds. They're all operating In Britain at the time, this is the center of the financial universe.

28:46 And there is this War between. Prussia and France that France loses and needs a bunch of money for restoration. This is an eighteen seventy.

28:56 But the leading British bankers, including the Barings and the Rothschilds. Had little faith in this opportunistic French political creation. So they're like, No, we're gonna pass on this. Junius is like, Oh, I'll take this up, I'll take you up on this. It was at this point that J S Morgan Company stepped forward and agreed to underwrite the loan. And so there's a bunch of more detail about what happens. I'm just gonna get to the punchline. Junius made a fortune from this unanticipated windfall. Estimated he made about four hundred and fifty million dollars in today's money from this one trans this one single transaction.

29:24 Like the Rothschilds after the Napoleonic Wars, he now felt himself a legitimately important player in international finance. And like the Rothschilds then He found the old timers. Beginning now with the Rothschilds unwilling to concede status. to this brash newcomer.

29:41 Just like in the story of Nathan Rothschild, the people that were in power, the the powerful families, powerful businesses uh business owners at the time In England. did not want to cede their position to this young upstart. Now two I think a generation, two generations later, we have Junius playing the role of Nathan Rostow.

29:58 Junior sends his son JP. Two America. Junius is gonna stay in London. So they're gonna have like basically the the bank of Morgan, the house of Morgan becomes like this two headed monster. And this was perfect timing again. And this is probably why JP Morgan is so well much well known throughout history than than his dad was, even though his dad might have even been a more impressive person.

30:17 'cause he's at the right place where you're gonna have this gigantic explosion in the American economy. And that is where his son is. Junius Morgan continued to thrive by doing business with American exporters and importers. Much of this rise was the work of his son JP. And so for the next thirty years, and this this is terrible

30:33 That this happened. J P winds up uh burning all these letters, but For the next thirty years. We just have Junius.

30:41 You have thirty years of history of Junius and J P writing uh letters back to each other. And Junius is really trying to shape and get his son ready. to take over the family dynasty. A little bit of detail about that here. Junius did his best to provide his enterprison with experience, guidance, and working connections. Junius was a tough act to follow.

30:58 The father is determined to shape the son to the highest standards. His technique was to scold and chastise. And give no praise. And this is something he also had in common with How Nathan Rushald.

31:09 But he did the same thing that Junius did. JP exerted himself to meet these boundless demands, driving himself to fatigue, depression, and even physical illness. But not even his father could keep JP in line. JP would not haggle and he dealt with others On a take it or leave it basis. Biographer Ron Trenow describes JP as a young moralist turned despot. JP found it hard to find collaborators.

31:31 He thought no one was good enough. When he did find a man that he wanted as a partner and he offered him a job, he would not take no for an answer. Hours at Morgan's Bank in America exceeded normal endurance. The house was known as a partner killer. And so now we got to the point where I mentioned earlier that JP's at the perfect time in history. The Rothschilds had missed the American boat.

31:51 Junius Morgan with his son's firm in New York had not. This frontier nation was a different world, different world than Europe. It was large scale, full of business syndicates. and monopolistic, and JP was the man to find the funds and take these things in hand.

32:06 quotes in this book. Uh, they give you an idea of who JP Morgan was as a person. I think this isn't a good example of that. JP once said, a man always has two reasons for the things he does. A good one. And the real one.

32:19 And so even though JP Morgan was not the richest of the robber barons, he did he was like involved in all the different important industries at this time. So that's why he's so well known. The American economy took off after the Civil War. At the heart of its growth. Where the railroads so he was involved in railroads. He also was involved in oceanic transportation. And then he winds up getting involved in steel and iron.

32:41 Uh, so it says linked to both the transport industries with iron and steel. And it was Morgan that in nineteen oh one put together US Steel. This is the world's first billion dollar corporation. Part of that was buying He bought a bunch of businesses, but he winds up the the main thing was buying Carnegie Steel, Andrew Carnegie's company. And the reason Morgan bought him out is because Morgan wanted to compete

32:59 In steel and Carnegie had Built by far. By far. The best. Steel company.

33:06 Morgan bought did this, meaning bought out Carnegie because Carnegie was responding to moves by other steelworks by integrating backward and forward. And Carnegie could undersell those other mills. Morgan wanted to allay this potential competition. And it just so happened that Carnegie was in the mood to listen. So he winds up buying out Carnegie for like four hundred and something million dollars, I think I think Carnegie's end. after paying out his partners or something like two hundred fifty million. What I've read in the past is that at the point at that point, and he took it in cash, he did not want stock in US steel.

33:38 At that point it was l highly likely that Andrew Carnegie had the world's largest liquid fortune. when he saw the growth of US Steel, he was like, Oh, I sold out too cheaply. Carnegie came to feel that he had sold too cheaply. Carnegie told Morgan that he should have asked for a hundred million more. Uh, there's a great book on this. I covered it all the way back in episode one forty two. I it's Excellent. I highly recommend if you're looking for something for something to read right now to buy the book. It's called The Hour of Fate, Theodore Roosevelt, JP Morgan, and the Battle to Transform American Capitalism.

34:04 And I think the description in that book is even better. It says Andrew Carnegie celebrated too quickly. He later admitted to Morgan that he had sold out too cheap. By at least a hundred million dollars. And Morgan replied Very likely, Andrew. And so if you look at all the deals that G P did, I do think this author

34:19 Really hit the nail on the head here with this. He said JP had one great strength. He had a feel for new technologies and the business opportunities they created. It was not an accident. That he had formed the General Electric Company. And I'm gonna interrupt this paragraph because this is another demonstration.

34:32 You wanna know these people exist. You may not want to be friend you probably don't want to be friends with them and you definitely don't want to work with them'cause they are ruthless. Henry Villard, president of U Edison Electric, had come to H had come to Morgan for help in taking over Edison's company. This was a mistake. Morgan.

34:46 Was not by nature a helper. He was a driver. He arranged a counter coup. And so then you can argue with JP's death, which is about to happen here, that this was actually the end of the Morgan dynasty. JP felt burned out and prepared to take one of his European yacht trips. that had always done so much to revive him.

35:03 In a conversation with George Baker before leaving, he asked his old friend to assume the role His role in the event that he JP did not return. He was not feeling well, and indeed his premonitions were justified. He suffered an acute breakdown. was very uh tired mentally and physically.

35:18 kept going downhill and he stopped eating. On march thirty first, nineteen thirteen, he died in his sleep. And this is when the Morgans permanently deviate from the Rothschilds. After JP's death in nineteen thirteen, the firm needed outside talent more than ever. Uh ten years later You they had thirteen managing outside managing partners.

35:37 This dependents on partners and managers was so different from the Rothschilds. And it was reinforced. By geneological decline. And what they mean there is one, they didn't have enough male heirs and the ones they did.

35:49 We're just not the same quality of JP or Junius. JP had match or even surpassed his father Junius. John Junior was not in the same class as his father. And his sons We're simply not cut out. For business.

36:03 Okay, so now I want to move on to a family dynasty. I am ashamed to say I have never done a founders episode on. And I'm gonna rectify this as soon as I can. If you have any great biographies or books on the Toyota family. Please send them my way. This was one of the shortest chapters.

36:20 in this book and it was it might be my fave favorite chapter. Okay, so and these names are Japanese. There's no way. D you know, by now. I don't think you expect me to pronounce anything correctly, but there's no way I'm gonna pronounce these correctly. I'm just gonna try to pronounce them phonetically. The founding father of Toyota was

36:36 Second Kichi Toyota. The patriarch of Toyota got his start in the textile industry. He was born in eighteen sixty seven, the son of a carpenter in a remote country village. So in the area he's growing up.

36:49 The men are working in agriculture. the the women are expected to earn additional income for the family by weaving cotton cloth. So most homes where he was born in the area he lived had a hand loom. That's really important because He's gonna build his The seed money for Toyota Motors.

37:05 Comes from The patriarch of the Toyota dynasty. selling his technology on a more efficient and they call it like a power loom, which I'll get to in one second. From a young age, Sakichi was fascinated with the challenges presented by these looms. He set himself to making improvements. much to the despair of his father, who felt his son should stick to carpentry.

37:26 Sikchi had his own ideas. He traveled to Tokyo to visit an industrial exposition that showed him modern mechanical marvels that he had not imagined. A year later he patented A new wooden hand loom that increased productivity by forty to fifty percent. So when I read that paragraph, the first thing I wrote down is one of my favorite quotes from the book Zero to One by Peter Teel, which I covered on episode two seventy eight.

37:48 For the second time. Properly understood. Any new and better way of doing things. is technology. The patriarch of what is soon to be

37:57 The Toyota family dynasty. is creating his initial wealth. By creating new technology. He then moves to Tokyo, where he shifted his focus to a power loom. Which would truly alter the dominant mode of production in textiles.

38:10 His first marriage failed. He had to move back to his home village, he then divorced and remarried. He left behind his first wife. But then he brings his kids, and this is important because his son Kichiro.

38:21 Uh, who, as we shall see, becomes a world class entrepreneur as an adult. And on the very next page is a bunch of fascinating ideas on how to build uh your business From the patriarch of the Toyota dynasty. Here's some notes I left myself, do it yourself.

38:34 Insist on quality. Make something that will benefit society. And pick a mission that is bigger than yourself. In Japan. The sons in laws are often brought into the family with all the rights of a child by birth.

38:47 This contrast With that of the Rothschilds. So it is through marriage, the marriage of one of his daughters, that Sakichi gets a new son. It's this guy named Riza Burrow.

38:58 who is ten years older. than his biological son, which is Chichiro. Uh, so it says Rizabero took the Toyota Name as his last name. And became in effect.

39:08 Sikishi's eldest son and the first heir to his fortune. Okay, so that's very, very different from the European and American dynasties that you and I have been studying. Sikichi's looms. Tested better than his German and French competitors, but never quite so well. To beat the British which had the highest quality looms. This own this is Fascinating,'cause his response was fantastic. This only stimulated him to work harder.

39:29 It is impossible to create an innovative product, he wrote. Unless you do it yourself. Pay attention to every detail and then to test it exhaustively. This sounds like James Dyson. Never entrust the creation of a product to others. That also sounds like James Dyson. For that will inevitably lead to failure and cause you deep regret. That that that whole sentence.

39:48 Those multiple sentences. Could have come out of James Dyson's uh mouth. Episode three hundred, if you have not listened to it. I got a ton of messages in the last few weeks about that episode. People seem to really love it. These new looms found a ready market abroad.

40:02 So that was important. Let me pause there. He's like I I'm beating the Germans, I'm beating the French. Can't beat the British, I'll just have to work harder. He winds up improving it. That wound up being really important. Because that leads to a sale, that sale then leads to the seed money. that's gonna give birth to the Toyota automobile fortune.

40:17 These new looms found a ready market abroad. But instead of continuing to expand the company's cloth and loom business. Sikhi made a radical choice in nineteen twenty nine, he sold his patents. That sale bought in the seed money. For the Toyota Motor Company.

40:32 Sikichi also does something very smart, realizes, Hey I built my business and my fortune in one industry. The world has changed in a generation, just like it always does. My son. You have to figure out what your path forward is. And he gives them ideas like Well I was just in America. These cars seem to be

40:46 This this automobile industry seems to be exploding. Maybe we should get into that. Sikichi himself was too old to undertake auto manufacturing, but a visit to United States convinced him. that cars had a mighty future. He saw this as a suitable task for his son Kichiero. This is The biological son, okay?

41:01 whom he admonished I devoted my most of my life to inventing new kinds of looms. Now it is your turn. You should make an effort to make something that will benefit society. That is the most important. sentence in this entire chapter. I will read it again. You should make an effort To make something

41:17 That will benefit society. He challenged Kichero to build a Japanese car. With Japanese hands. So Keichero goes to America. And he does what Sam Walton did. He visited

41:29 His soon to be competitors more than anybody else, he visited automobile plants and took copious notes. On what he saw and heard. Just like Sam Walton did. I don't remember if I mentioned on this recent sole price episode I did a few episodes ago. But uh

41:43 They catch and it They caught uh Sam Walton walking through like a price club, I think, at the time. And I think Sol Price's son was the run one running the business at this point. And he had been walking around Not just taking notes, but he had like this the like a a recorder, tape recorder. She's walking around with like a microphone.

42:00 And he's just knows to self, do this, do that, do that. Mes of getting caught. They confiscate His tape recorder and the tape. Sam Walton writes a letter to Robert Price, which is the son of Soul Price.

42:11 He's like, Hey, I understand if you don't want give me my tape back, but can I at least have my tape recorder back? And Robert's like, You know, I'm not gonna like we're not gonna destroy your tape and he sent him back You know, all the notes, didn't delete anything, and just like here, Sam, take it. Okay, so let's go back into the early development together. Remember. Keep this in mind.

42:27 Nineteen twenty nine is when they have the idea. Nineteen twenty nine is when they have this idea that we should do cars. Okay, this is gonna be Mul the success is multiple decades. in the making. At this point in history, Japan had no true automobile, even Thirty years after major companies have been established automobile companies have been established in Europe.

42:45 In America. Japan's like, oh, we need to fix this. The state appointed a committee to look into developing a national automobile industry and urged a trio of producers. Check out the names. I think all these names are still around. Maybe not a Zuzu. They asked Nissan, Izuzu, and Toyota to design a standard chassis. For all of them, this was the easy part. The big problem was the engine. They did not know how to make an engine like the Americans and Europeans did at this point.

43:08 Now his starting point is fascinating, right? He's like anybody can build a chassis, we need to figure out how to make an engine. He's gonna wind up copying an engine. And I'll tell you why I think that's smart. But from the very beginning he realized he's like, Listen, we're not just making a car. We're making a system of production. He understood that he was creating not only products but an industry. And a new system of production, this understanding of the importance of developing successful processes.

43:30 Lay and still lies at the center of Toyota's success. So when you look at books on Toyota, A lot of them goes into the Toyota production system. Which then spread to many industries outside of the automobile industry. Well what I found interesting

43:44 is Kichio decided he's like, Okay. We've never manufacture an engine before. And essentially he he reverse engineers and he copied the Chevy Engine. And so I'm gonna read this one sentence, I'm gonna read the note that came to mind.

43:58 uh after this. It says the result was an engine so exact that it could accept Chevry replacement parts A major advantage When the inevitable breakdown occurred, so a Toyota engine. Could break down. Toyota does not have an abundance of natural resources. They don't have a lot of money, but what they could do, and they don't have a bunch of excess inventory waiting uh

44:18 Uh just sitting there waiting around. And so it's like Oh wait. My Toyota engine breaks down, we can just order parts from Chevy and then we could fix our car. This is a smart move. with a country with limited natural resources. for this actual industry that they're in.

44:33 Now later on, obviously you want to control as much as possible, but at this point he's like, Okay, we just want to make sure one that we can build a car that's reliable and two, that we can sell them. I there's a there's a weird parallel that just came to mind. Uh, my friend Andrew Wilkinson started this company. He's he he's the co founder of Tiny, he owns a bunch of companies, like thirty something companies. But he started a an email management company called Mailman. And so he had mentioned it. And so I went to the mailman site. It's mailmanhq.com and I was like, Oh, this is really smart.

45:00 Mailman starts as a Gmail plugin. And what it does, it just gives you more control over like when and what email lands in your inbox, right? But I think there's actually an interesting parallel to where we are in the story of Toyota. Now, making a Gmail plugin where you have, you know, two billion Gmail users out there. is a great way to test if there's a market for the product. And if in that market people are willing to pay out their hard earned money, I h I highly suspect that this is true.

45:25 And then from there it's like okay, we can expand this, we can start stay with the plug-in, maybe that's a wonderful business, or we can create our entire own email vertically integrated email service. But this idea of starting out with something smaller to prove what you're doing, to see if there's a business there. And then if there is a business and a demand for there, going and building out and controlling more aspects of the customer experience is exactly what

45:47 I think Mayoman can do, and it's exactly what Toyota's doing at this point in the story in the book. I think that is a recurring theme in the history of entrepreneurship, that the greatest entrepreneurs are usually start out resource constrained. It forces you to be more creative, to be more resourceful, and to actually test to see if there's actually enough demand to build a valuable business for the product that you think that you're trying to put out into the world. And so this idea of lean production is a v is a major theme in the Toyota family dynasty. Kichiro also began to experiment with new systems of supplying materials. He cut back on traditional cows at cash outlays because he didn't have it.

46:19 By deliberately decreasing warehouse capacity, the goal was to produce vehicles on order and to use the proceeds to pay for materials and parts as needed. Chichero's idea came to be known as lean production. And so remember earlier I said, remember nineteen twenty nine, this is mo this is success multi many decades in the In the making the note I have on the next page. How many other car companies had to pivot to making food so they didn't starve to death? This is in the middle of this Japanese imperial expansion. They're always at war. They're eventually gonna go into war with America.

46:48 Which obviously is a bad move on their part. Toyota workers who unbeknownst to them had barely escaped a murderous bombing scheduled by the American command for the next week. Wept at their machines. So they're in the they're closing down the Toyota factory, right? This is after they lost the war. uh World War Two to America.

47:04 And now they have to pivot. They're like, We cannot make cars, there's no demand. We have to make food. The outlook for Toyota was grim. They transferred their manufacturing efforts to focus on substance. Employees were set to planting vegetables. And the company built a flour mill.

47:18 A bakery and a charcoal plant. to take care of food and cooking. The family put other Toyota units set. to making pot and pans. This was a family that did not know the meaning of quit and tirelessly. continued seeking income in those activities that were linked to survival and everyday living. That is crazy.

47:35 How many other car companies had to pivot to making food so they didn't starve to death? Very few. Now, the weird thing is this liability winds up flipping into Uh an asset. because post World War Two Japan is occupied.

47:48 By the American Army. And they need transportation. So they look around like who can build us a bunch of trucks. Turns out Toyota has the capability of doing that. The Americans needed transportation, they asked Toyota to start making trucks again.

48:00 That is in the mid to late nineteen forties and nineteen fifties. Uh, Toyota has a huge influx in money. Because from America again, because of the Korean War. And then in nineteen fifties the company was Momentarily rescued by the Korean War. America needed friendly manufacturing uh in Asia and Japan was in the perfect position.

48:17 to supply the US department of def uh defense between nineteen fifty and nineteen fifty four nearly three billion dollars In industrial contracts flowed in Japan. And Toyota took its share. Here's another smart thing that Kichiro did.

48:31 He's getting towards the end, he's about to retire. This has been going on for multiple decades. He's like, Listen We've been making money, but we've been making money we've been saved by this artificial market. From the m U S government. We need to have the skills to survive in a free market. Towards the end of his presidency in a memo that became something of a moral car t call to arms, he said

48:48 The Japanese auto industry has been fostered and protected. In a controlled economy. Аз невер брав the rough ways. Of a free market system. It is like a hot house plant.

48:59 Moreover, viewed impartially from a global standpoint, Toyota is far from being a first class company. Because of Japan's defeat in the war, we see ourselves As something like a third class auto company, so I we need to fix this. Chichero retires.

49:16 And He leaves in charge his cousin Eja. And e J does something smart, he goes to the United States. Who could dream that a Japanese car maker at this point in history would ever be able to compete with American with an American giant. At the time Toyota was making forty cars a day.

49:32 Ford was making twenty thousand. E J learned much of value. on his trip to United States, most important He returned with the sense that nothing he'd see in Amer he saw in America. was beyond Toyota's ability.

49:45 They just have to find a way to do it with their limited natural resources. E J still really young, so the actual real power in the Toyota um Company at this time. was with this guy named Oh no. That's his last name. Oh no.

49:59 Who is a professional manager and a mechanical engineer. Ono had vision. It was he who developed and implemented K Kichero's idea of lean production into a system that became known as TPS or the Toyota Production System. Which could be used in making not only automobiles But all manner.

50:16 Industrial. products. T P S was perhaps the most important technical innovation since Ford's successful implementation of the moving assembly line.

50:27 And the Toyota production system has transformed manufacturing throughout the world. The aim was to waste neither time nor space, which they did not have an abundance of. They were lean and mean. Workers didn't need to move about and materials were delivered to them. Materials arrived only when needed are quote unquote just in time.

50:46 Which cut down considerably on waste. Much of what Ono wanted ran against deep rooted Japanese habits of hoarding against feared shortages. His lean manufacturing process took several decades to develop and perfect. So the great benefits were not clearly visible at first. And so in nineteen sixty seven the family f finally thought that E. J Toyota was ready to to take back the reins.

51:10 Uh, he finally got a chan his chance and he took over as president, the first family member by bloodline to hold the position since Kichiro. Growth continued at a rapid pace. In nineteen seventy two, the company's annual production hit two million cars. In in nineteen eighty it was three million. By the early nineteen nineties.

51:26 To Yoda could compete with anyone. Он ікум та сідів десь сус. In nineteen ninety. Was planted. In nineteen twenty nine.

51:36 By Shakichi Toyota. Sixty years Earlier. To this day, Toyota is still

51:44 A family Enterprise. Okay, so then let's end the episode on dynasties. Talking about a family that's not an actual dynasty. The Rockefellers are an interesting case study in any examination of dynasties. Everyone thinks of the Rockefellers as a dynasty.

51:59 Everyone knows the Rockefeller name and is aware that the Rockefellers remain active. And powerful in business, politics, and philanthropy. When it comes down to it though. The Rockefeller story Is really that

52:09 Of one. Person. The patriarch. John D. Rockefeller.

52:16 Rockefeller was a brilliant but difficult man, and perhaps it ought not to be surprising that a person of his drive and ruthlessness did not inspire a passion in his descendants to take command of the family enterprise. as he had. And so Rockefeller's another example of right person, right place, right time, right set of skills. Rockefeller's luck came from time and place. The Cleveland of his early years was a small boom town.

52:37 A place that favored energy and ambition. And John had plenty of both. Along with cleverness and cunning. Part of this was due to his upbringing. I cheat my boys every chance I get.

52:48 His father bragged. I wanna make'em sharp. I trade with my boys and I skin'em. And I just beat him every time that I can. And so Rockefeller did the same to the rest of his competition in the oil industry. His father's lessons paid off. John went to work as an office boy and a bookkeeper and caught the eye of his employers

53:04 As an intelligent and zealous young man. Feeling underpaid, he left to begin his own mercantile partnership. For this he needed a thousand dollars, which his father was ready to lend him at ten percent. ab above the then prevailing interest rate.

53:17 But John was happy to take it. At nineteen he was his own boss. He went down on his knees. And beg the Lord to To bless his new enterprise. Rockefeller met with immediate success.

53:29 Because he was patient and methodical. His life aim was to get money. And then use it as wisely as possible. This pursuit of wealth. was a sacred calling. I've done multiple episodes on Rockefeller. I will continue to do multiple episodes on Rockefeller in the future because he may be

53:45 Arguably the the most important entrepreneur in history. This is So important to understand Rockefeller. He believed In his like

53:53 Me and you may look at this and like this is obviously not true. He believed that he was put on the earth. By God. To make as much money as possible and then Therefore he could give it away

54:04 For the betterment of humanity. From the outside there's this huge disconnect. Between his methods. And his accumulation of monopolistic power. And

54:13 his divine belief in his mission. Бо часто the sky is blue, Rockefeller believed this. The pursuit of wealth was a sacred calling. Wealth was a sign of God's grace and poverty then. the sign of heavenly disapproval. Rockefeller believed that he would be rich.

54:31 And he believed that this was because God wanted him to be. So he has this fundamental religious belief, but he's also one of the most talented entrepreneurs that's ever walked the face of the planet. Rational, thoughtful, систематик, committed. And diligent. He also cultivated an intense curiosity.

54:46 A spirit of calculation And an attention to opportunity. His competitors and associates Вер амитр з And he saw them for what they were.

54:57 More on the right place, right time, right set of skills. John D did not look for oil. Oil came to him. He was partners. With this guy named Maurice Clark. A boyhood friend of Maurice Clark is going to make Rockefeller aware. Of

55:12 The opportunity and oil. I'll get there in one second. People had long known that oil was abundant in Western Pennsylvania, but looked on it. As a nuisance. It stained the water and spoiled the ground for cultivation. This guy named George Bissell changes all that.

55:26 He came to the idea that rock oil might outdo coal oil As illuminate. And so he sent a sample to Professor to a Professor at Yale. And asked him to analyze it. The answer came back positive, not only.

55:37 could the kerosene in rock oil provide light, but the oil would yield a number of other useful components. This was all took and the oil rush was on. Sam Andrews was an industrial chemistry Who knew how to cleanse the oil And just happened.

55:51 To come from the same Hometown as Maurice Clark. And you would visit Clark and Rockefeller. And talk up the possibilities of them investing in industrial refining. The result was a major shift.

56:04 In the content and direction of the partnership. The story of oil. was in large part A story of transportation. So the question became how are you gonna move this stuff?

56:13 And so they realise, well, the best choice at this point, this is before the invention of pipelines, by the way. The best choice is railways. And so it says anyone who looked at the situation at that point would have declared that railways are going to be the inevitable winner. They could squeeze producers and refiners within an inch. of their survival. Yet that is not what happened. And so this is the idea that John D. Rockefeller and his partner Henry Flagler come up with that gives them a major edge over every single one of their competitors.

56:38 The idea was to elicit discounts and rebates. Not only on one's own shipments by rail. But on those of the competitors. And what could be better than to have your competitors working for you, especially when the railways raised rates to cover the cost of re rebates to Rockefeller and company. Rockefeller won on every count.

56:56 Published railway tariffs, meaning What they're putting out publicly is this is what it costs to move your goods on my railroad. It's fake. Published railway tariffs were for the small man. They were not for major shippers who could pay who could play one railroad

57:10 Against another While promising steady cargo, this is why this is the the most important fact that this all hinges on. Rockefeller With such a large producer. That he could promise the railways steady amount.

57:23 As you probably know, there's a history of booms and busts with railway traffic. Just like in many other industries, just like in the oil industry. And Rockefeller's like, I'm smooth that out for you, but I want the best prices available. Another important part. This was secret. When it was found out, it was made illegal.

57:38 These were not seen as ethical, so that in the long run, federal legislation made preferential rates illegal. By then the game had long been played out. Rockefeller succeeded in persuading just about every refiner of importance to join his cartel. That was the only way that they could obtain good rail rates. The stubborn holdouts, meaning the other oilmen, the stubborn holdouts. went under and died hating him.

58:02 The wise ones sold. Most of them took cash. The smart ones took stock and became rich. John D told them to do that. Good advice.

58:11 Even so They hated him. And this goes back to that predilection for long term thinking when most other humans can only see what's right in front of their face. John D deserves credit for vision, the vision of what could be If only the industry could have been gotten under control.

58:27 Where others could think only of quick profits and fast living. He thought of restraint. Organization. Rationality. And frugality.

58:37 He also knew he was best in class in a brand new industry. He his business was by far better. It was run more economically. In fact That that advantage Fed kept like kept compounding. This is one of my favorite all time Rockefeller stories.

58:49 Is He'd go y he's approaching all these different oil companies. He's gonna, you know, build he's gonna monopolize this entire industry and he's like, Listen, just just You can't compete against me. Better. Let me buy you out.

59:00 I'll give you cash if you want, but you can get stock in the best oil company the world has ever seen. And one of his closers was that he would actually give The people you try to overtake. Look at our books. Lo look at ca how can you think that you're gonna compete with me?

59:15 Uh his clincher was to offer the victim a look at the books of standard. A potential seller was dumbfounded to learn that Standard was able to sell at less than his own cost of production. They could kill him. Whenever they pleased. Another smart move that John D Rockefeller

59:31 Did and I've told in the past. He's bought you wouldn't even know if he bought up other companies. He would say, Hey's listen, it is very important to keep these contracts confidential. Keep the deal secret even from your wife. And this is also another advantage to compound. So let's say There's comp there's oil company A and oil company B, right?

59:48 Rockefeller wants to buy A and B. purchases them both, B says, Hell no, I'm not gonna sell to you. I know what you're doing. Company A sells to him. Rockefeller now secretly owns and controls company A, and then he has people from Company A go, hey

1:00:02 Let's go to company B and we can stand up and fight against Rockefeller. You just gotta sell to me. And B's like okay. To get back at Rockefeller. I'm the owner of company B, I'm gonna sell to you. Not realizing that company

1:00:13 B. had in had secretly sold To Rockefeller thinking That he was just selling to company A. That is another recurring theme in the history of entrepreneurship. Bad boys move in silence.

1:00:24 And so the reason the author says that Rockefeller Dynasty properly understood is actually not a dynasty at all, is because Rockefeller never tried to have the continuation of the business run by his family. He had partners of Standard Oil. says well into their lives the Rockefeller children were kept in ignorance of the family fortune. And when Rockefeller retired, and I say retired in like quotation marks,'cause he's still running the show. He's just not showing up at the office. uh anymore. What's fascinating is that

1:00:48 He actually retires before the mass production of cars. And so all the demand that the automobile industry will bring for oil. So he actually gets much richer in retirement, technically retirement, than he did when he was actually uh working at the office day to day. But when he chooses to retire, he actually picks his hand appointing successor who still reports directly to him. And he needed to pick a son. He picked this guy named John Archbold.

1:01:06 And so the strange decision that Rockefeller does here is he gives a ton of money to his son, but actually doesn't try to teach him the business. Between nineteen seventeen and nineteen twenty two, John D gave almost half a billion dollars to his children. Almost all of it. went to junior. I think he had one son and maybe three daughters if I remember correctly, or maybe two. Junior did not have the same taste for business that his father did, and by age thirty six, he stepped aside.

1:01:27 From many of his duties at Standard Oil to focus on the family's philanthropic work. The old patriarch wasn't doing anything to familiarize the next generation with the oil business. The founder who built the dynasty failed to influence his descendants in any way other than by encouraging a commitment to thrift and philanthropy. That urgent money making impulse was lost.

1:01:47 As was the sense of the family business. Which was transformed. The family Fortune.

1:01:55 And that is where I'll leave it for the full story, I recommend getting the book. The great thing about the book is each chapter Each family is covered in about thirty to forty pages. And you don't have to read it in chronological order. So if you like a family that's profiled, then you can go look for a more in depth and longer biography to go a little deeper. I will leave a link down below. If you buy the book using that link, you'll be supporting the podcast at the same time. Another great way to support the podcast is to sign up for Founders Premium.

1:02:18 I've been doing a bunch of these AMA episodes. You can listen to the MA episodes and ask me questions directly. That link is down below if that sounds interesting to you. And finally, if you haven't yet joined my email newsletter, for every book I read, it usually takes somewhere between like fifty to a hundred different highlights. I go over all my highlights after I'm done recording, try to to distill that down to my top 10 highlights from every book, and then I email you those top 10 highlights. That link is also down below and available at founderspodcast.com.

1:02:44 That is Three hundred and seven books down. One thousand to go. And I'll talk to you again soon.

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