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

0:00 To Rockefeller, business resembled a form of war. It seemed natural for him to open a letter with the words I'm in the midst of a hard battle today. He transmitted messages in code. And secrecy covered all of his operations. That's all too true, he admitted.

0:15 But I wonder what general ever sends out a brass band in advance with orders to notify the enemy that on a certain day He will begin an attack, he said. Rockefeller the field marshal, laid down strategy and relied on his general staff to carry it out. When tactics for a battle had been set. Orders went out to quote

0:34 Fight it out on this line. It surprised none who knew him well that in old age Rockefeller compared himself to Napoleon. The revelation came while vacationing in France. Not far from a spot. Where Napoleon had won a great victory.

0:49 A casual remark from a companion led to an extraordinary soliloquy. Rockefeller's longest on record. This is what he said. It is hard to imagine Napoleon as a businessman.

1:01 But I have thought that if he had applied himself to commerce, he would have been the greatest businessman the world has ever known. My What a genius for organization. He also had what I always regarded as a prime necessity for large success in any enterprise. That is a thought understanding of men.

1:20 An ability to inspire in them Confidence in him. And Confidence in themselves. See the men he picked as marshals.

1:29 And the heights to which they rose under his inspiration and leadership. It is by such traits as these that men get the work of the world to Done. It is all A battlefield.

1:41 Napoleon. without the able marshals that he had about him. Would not have been the master of his age. He went into a battle. With the knowledge that his marshals could be dependent on.

1:52 That's In a given situation. they could be relied upon to do the necessary thing. Their devotion to him. Coupled with their enthusiasm.

2:02 That's another great attribute. And the qualities with which his influence upon them brought out. One. The fight. Another thing about Napoleon.

2:11 Was his virility. He was viral. Because he came direct from the ranks of the people. There was none of that stagnant blood of nobility or royalty in his veins. That's where he had the advantage over the monarchs of Europe to begin with.

2:24 He could think quicker. And along more individual and original lines. than any of them. The men whom he had to combat didn't understand either him or Or the people.

2:35 And it is always hard. To successfully control What you don't understand. Napoleon didn't play that game. And then coming direct from the people, he had their sympathy.

2:46 He appealed to their imaginations. Europe had not yet been educated to the fact. that it could get along without any kings at all. Leaders of their own kind were few. And that made it easier for Napoleon.

2:59 To rise to the heights. with which he attained. A Napoleon. Would be impossible. In our day.

3:06 There are too many able and ambitious rivals. To hold in check. One who aimed. Too high. That is an excerpt from the book I'm gonna talk to you about today, which is John D.

3:18 The founding father of the Rockefellers, and it was written by David Freeman Hawk. Okay, before I jump into the book, I need to tell you how this fits into everything else that you and I have been talking about. About a month ago I re read, I spent an insane amount of time re reading. uh the the most popular biography of Rockefeller that's ever been made.

3:34 It was uh episode two forty eight. It was Titan. I found the book that I hold in my hand in the bibliography of Titan. This is a very old book. It was published over forty years ago. And it took a while for it to reach me. And once I started reading it, I had an experience that I've had several times on this podcast And what I would compare it to is like, oh, everybody knows about Titan, it's the most famous of Rockefeller's biography. And yet as I started to read this book, I was like, Oh, that's where all these ideas came from. The way I would what I would compare this to is you start studying Steve Jobs, you realize he had all these great ideas.

4:04 You're learning so much, and then you go read about his hero, Edwin Lan, the founder of Polaroid, and you're like, Oh Jobs was just taking Lan's ideas and applying it to his work. And so the reason I'm telling you all this is because I'm gonna make the case today. That you should actually read this book.

4:19 Before reading Titan. Titans, you know, over seven hundred pages. The book that I hold in my hand is two hundred and fifty pages. It might be more detailed. Then tightness. And what I mean by that is not more detailed in like the personal life of Rockefeller.

4:35 But detailed in how he built his business, which is what you and I are most interested in. Okay, so I want to jump right into the book. I'm gonna read the note. of this this idea that's playing out over several pages. And it's this idea that he may have disliked his father later in life and there's a a series of resentment that he definitely had towards his father. But he believed

4:54 by his own admission, that the business lessons that his father taught him were extremely valuable. So it goes it starts with Uh, this person that knew Rockefeller when he was a child, do you know where he got his greatness from? A man who had known. Rockefeller's a boy once asked.

5:08 It came from his mother. She trained him from childhood. Rockefeller had his mother's quiet, pensive demeanor. His devotion to the church came from her. She taught him from an early age to give regularly and unobtrusively to the church and charity.

5:21 Лайк Хер і анлайк із фар. He was outwardly self effacing and never sought the limelight. All of his life. Rockefeller handed out platitudes as though they were dime, many of these he learned from his mother. Save what you can and not what you have to.

5:35 As one example, a good tree brings good f uh forth good fruit. Uh, you don't get bitter water from a good spring. And there's a time to sow and a time to reap. But now here's the reason I'm reading all this to you. But Rockefeller did not think That he owed all he became.

5:51 to his mother. And so the background on the relationship that he had with his father His father winds up having multiple families. He would leave for m uh many months at a time, later in life, sometimes for years at a time. He was an ardent individualist. who prioritized his own needs and wants over his children and and his all of his families. But when he did come to town

6:09 He wind up having a big impression on his sons. And so it says occasionally big Bill, that's what they everybody called uh Rockefeller's father, took Rockefeller on a business trip. Once they stayed in a first class hotel that charged a dollar a day. And had marble floors. The father would have seen to it that the boy knew the cost of the room.

6:27 For he talked constantly of the importance of money. To the point Where a young Rockefeller seemed obsessed with it. He saved every dollar he made. And this is a quote from Rockefeller describing this point in his life when he was a much older man, I can still see upon the mantle that little box that I kept my money in.

6:43 It was safe there. I had loaned out money and got interest on it before I was fourteen years old. And I knew well how to make out a note. My father taught me these things. The father threw the boy into the world of business early on.

6:56 He used to dicker with me and buy things for me. He taught me how to buy and sell. Big Bill put the matter more bluntly. I cheat my boys every chance I get. I wanna make'em sharp.

7:06 I trade with the boys and I just beat them to be sharp traders. And this is Rockefeller describing what this experience in his childhood was like was like. We imbibe these ideas with our daily food. And where we did not emphasize them enough, this wise, able, and positive man found ways without difficulty and very readily to reinforce his teachings. By the time I was a man, this is a hell of a line.

7:29 By the time I was a man. Long before it. I had learned the underlying principles of business and the rules of business, as well as many men acquire them by the time they are forty. I needed no one. To advise me about the nature of transactions.

7:43 With which I had been carrying on Since childhood. And so Big Bill's philosophy on parenting was hey, throw your kids in the deep end. And you'll force them to swim. This is an example of that. Big Bill, still favoring the rural life, settled his family 13 miles outside of Cleveland. This is before he's gonna leave and then start another family right after this. Then in the fall of eighteen fifty three, he drove Rockefeller into the city.

8:04 He found a boarding house close to the high school, opened a small bank account for him, and left the boy Aged fourteen. To fend for himself. He had dropped Rockefeller. Just in from the country.

8:16 Into a strange Bewildering world. And then Rockefeller's response to this experience tells you a lot about him and kind of how he moved through his entire life. He faced the city as he did all new experiences. Moving ahead slowly.

8:31 Cautiously. Saying little And observing all around him steadily. So it's not clear if Rockefeller actually graduated high school. If he did, he didn't bother to attend graduation or pick up his diploma. He did do like this mail course, like a course by mail. where he's learning like the fundamentals of bookkeeping and basic like as they understood business as much as they could. Keep in mind this is like in the eighteen fifties. And so we're gonna fast forward because his approach to life

8:55 In my opinion. is ref and I've read obviously Titan twice, reading this book and then reading Rockefeller's autobiography. my interpretation of this is that his approach to life is actually reflected in his approach to finding his first job. And so we're gonna see that here. The art of living, as Rockefeller saw it, consisted of facing problems and solving them.

9:14 He said. It has been that way all my life. Find a problem. Work at it. Solve it as well as I can.

9:21 Put the administration of that in good hands and then go on to the next. From the city directory he drew up a list of firms that he considered suitable for work. Each morning after breakfast he dressed in his best clothes and started out to canvas firms. He knew no one important in the city. He had no letters of introduction.

9:37 He would open the door of a bank. A railroad office, a commission house. A shipping firm. and he'd ask to see the man in charge. If denied that.

9:45 He would speak to whoever would lend an ear. He continued his rounds until the offices closed for the day. He did this. Six days a week. Week after week.

9:54 Sustained only By his incredible Self confidence and determination. After visiting every important firm in the city. He began the rounds again.

10:05 I was not discouraged, he said later. But he must have shown signs of wilting for at one point he His father said It's all right, John. You go out to the country and I'll take care of you.

10:16 When John thought of remain remaining dependent on his father, He said a cold chill. ran down my spine. And stiffened his resolve. Buried beneath the preys.

10:28 that he heaped upon his father Lay a tightly controlled Resentment. So he finally gets a job as a bookkeeper. at a commission house.

10:36 It's called Huddle, excuse me, Hewitt and Tuttle. Really, uh I'm gonna tell you my notes before I read this section to you. There's a lot of things happening here that are really important to understanding how he's able to build a monopoly later on in life. And funny enough, there's just a lot of things that are said in this book that remind me of what I've learned about reading about Jeff Bezos. But really what what's happening here is like the idea is like you should try to expose yourself to experiences that are slightly ahead of your skill set or understanding. And you should do so constantly. So it says the partners expected him to do a lot more than just the books. Hewitt and Tuttle are

11:07 bought and sold commodities on commission. Such houses were then a relatively new form of business in America. One made possible largely By their technology of their day, which was always fascinating to read about. By the railroad and telegraph. The telegraph.

11:21 gave the commission merchant instant news of price changes in the wholesale markets and the railroad let him take advantage of that information of information of favorable swings by carrying his shipment swiftly to the buyer. And this is important to know because after He works at this commission house, he's gonna start his own commission house, and then he's from that commission house, he's gonna have the opportunity to invest in oil, which obviously he dedicates his life to. Uh, Rockefeller once explained some of the complexities of the business. We would receive, for example, a shipment of marble from Vermont To Cleveland.

11:51 This involved handling by railroad Canal and lake boats, just like oil will in the next few years. The cost of losses or damage had to be somehow fixed between these three different carriers, and it taxed all the ingenuity of a boy of seventeen to work out this problem to the satisfaction of all concerned. So that's what I meant about The benefit of constantly exposing to yourself to experiences that are slightly ahead of your skill set or understanding. I said uh this experience

12:17 uh in conducting all sorts of transactions at such an impressionable age Was highly interesting, Rockefeller said. Within a year after Rockefeller been hired. Total quit. Soon, Rockefeller was in charge of the office and working side by side with his employer.

12:32 He posted the books, handled all the cash. Wrote the checks. Paid the bills. I soon became known as being reliable. He said.

12:40 And this is the part that made me think of Jeff Bezos. He worked as though he owned the firm. Remember that sentence. He worked as though he owned the firm. I scrutinized every bill. If it ever had if it had ever so many items, I went over each one, verified it, and carefully added the totals. The bill had to be accurate in every detail before I okay it to be paid. One day a captain of a boat gave Rockefeller trouble. Now look here, Captain, Rockefeller said.

13:03 I can't make out the bill for that amount. It just doesn't tally with the actual cargo. Come, young man. You will make it out the way I say. No one's ever gonna know.

13:13 Why everybody allows a margin like that. Rockefeller responds, I'm sorry to say no. If I'm going to do right by you, I can't begin by doing wrong for somebody else, can I? And if I did You would soon be afraid that I would cheat you too.

13:26 Isn't that so? Nonsense. the the captain replied, You're too strict. And then the author makes a great point that I double underlined. That strictness

13:35 lasted to the end, meaning the end of his life. He was always like that. And so that sentence where it says he worked as though he owned the firm. When I re when I read that, it made me think of one of my favorite exchanges. uh in the book The Everything Store. I've read a bunch of times. I think I've done two podcasts on it. I actually did a three part series on Jeff Bezos, so if you haven't gone back and listened to it, it's one seventy nine and one eighty, and then there's a bonus episode, I think, in between uh those two books,'cause it's the first biography by Bradstone and then the sequel by Bradstone as well.

14:02 And so one of Jeff's maxims that he'd repeat over and over again Is that you need to think like an owner. And so I love hearing stories about these founders when they were much younger. you know, the Jeff of today is very different from the Jeff that actually built Amazon. So this is a This is a story that takes place I think Jeff is around thirty five years old when this is happening.

14:21 So it says a vent uh a veteran of long distance provider MCI. This guy's name is Price. uh price came to Amazon in nineteen ninety nine. He blundered early by suggesting in a meeting that That Amazon executives who traveled frequently should be permitted to fly business class. Bezos often said he wanted his colleagues to speak their minds.

14:41 But at times it seemed he did not appreciate being personally challenged. You would have thought I was trying to stop the earth. From tilt on its axis. Prices. Recalling that moment with horror.

14:53 Years later. Jeff slammed his hand on the table and yelled. That is not how an owner thinks. That is the dumbest idea. I have ever heard.

15:03 And there's a ton of stories just like that in the early days of Amazon. Um, I want to uh get into how he applied uh like his approach to work even for as a young man. This is gonna remind me, so I always bring up to you that this idea that I learned from David Ogrevy a long time ago. I discovered David Ogrevy'cause I was reading Warren Buffett's shareholder letters and Warren Buffett called him a genius and I was like, Oh, that's interesting, so I should read about him. I started reading about him then I became obsessed with them. I think I've read five books and they're in the archive. But he has this idea that the good ones know more. And he knows that so few people actually take the effort to just collect more information. You don't have to be much smarter than everybody else, just actually collecting them. And so he gave a gave an example in one of his books. It's like hey, if you're doing if you're an ad uh you're d designing ads for

15:39 Your client and they're an oil company, you know, read books on geology, go to the gas station, interview the customers, take a tour of your clients' fact uh manufacturing facilities. And he says, You do this over and over again, like you do this in like you you really apply this yourself at it. And in two years you'll know more than your boss. Well that's exactly what Rockefeller did. And so that's why these um these these ideas are I try to repeat over and over again'cause they're like important and you see them pop up.

16:03 in all different times in history and all different uh like all different industries are obviously very important. So it says a fascination with business that can only be called a passion held Rockefeller to the office. Figures in the ledger were hi to him like words to a poet. The yearly account books resembled volumes of of the history, so he's going back into the history of the firm that he's working for. I used to go over the old books, he once said, and soon he knew more about the firm than Hewlett did. That's exactly what what uh What over he said, he's like, You do this, you're gonna wind up knowing more than your boss.

16:32 Uh so he says um he went up knowing more about the firm than Hewitt did and more about the commission business, past and present. than anybody else in Cleveland. And the reason I think it's important to to note is because what Og of you believed. He's like, I'm gonna tell you to do this and most of you just won't. There's a line right there between the people that shoot up in their career like a rocket and people that don't and they're doing the same job ten years from now'cause you just won't even do this basic very achievable thing. The good ones no more.

16:59 And so as he's doing all this research, like if you really think about what's happening in the book, I guess I should explain it to you before I read it to you. The the sequencing Like the sequence that you the experience that you have ha the the sequence that those experiences happen in is extremely important.

17:13 There is no standard oil monopoly. Without this experience, this working experience as Rockfellows h have. Having at the moment. Without it happening first.

17:22 And why is that important? Because the main strength of standard oil, there's a lot of obviously uh things they did that are intelligent, but that they're if you want to identify the most important thing they did. 'Cause they're operating a commodity business. is they were absolutely ruthless with getting rebates on transportation from the railroads. This is before the invention of the technology pipelines that come later. He also monopolizes that technology as well. And so th the reason I'm um I'm bringing that to your attention because

17:47 He made the point in other books. I think this might have been in uh his autobiography, but he's like, listen, rebates existed in other industries. I just applied them to oil. First. And so that that idea that you and I always talk about it's like we're not copying The what. We're copying the how.

18:02 You and I are not trying to build an oil company. That would be copying the what? But we could take the ideas that he applied to his business. And copy those. That's copying the how. And that's exactly what he's doing now, because he just copied the how. that he's learning in the commission business to oil.

18:15 So it says the ledgers combined with experience revealed something that neither the uh The courses at his commercial college, that's the the the male Like the degree by mail thing I mentioned earlier. Uh nor his father had taught him. And this is so important.

18:28 My eyes were opened to the Business of transportation. A large part of his time went to dealing with freight agents. Boat captains. Barge canal owners.

18:39 He learned more than how to negotiate settlements with with these people. He saw this is the most important sentence in this entire page, and I have a ton of highlights on this page. He saw that posted rates Supposedly fixed Could also be negotiated. And this is uh the maximum.

18:56 That I think We'll let you and I c uh allow us to carry this idea into the future. All was not as it seemed. On the outside. He saw that post rates supposedly fixed.

19:07 Could also be negotiated. All was not as it seemed on the outside. And so what is he discovering? That a favored shipper at the end of the month would receive a rebate. on that shipping rate that could amount To a substantial sum, the exact idea that him and Flagler flow.

19:23 Might be Rockefeller's idea, but Flagler's the one that actually executed this idea to to like the the more so than anybody else in history. So it says uh Rockefeller once said That the three and a half years of business training I had in that commission house formed a large part of the foundation of my business career. One of the things he learned. Was how not to run a business.

19:43 His boss Hewitt in his eyes was incompetent. He had been in various enterprises. This is now Rockefeller describing why he felt this guy was an idiot. He had been in various enterprises. They had all proved unsatisfactory. He was groping around One way or another.

19:58 He was litigious, and costly court cases drained his purse. He spread himself too thin. often giving more time to investments in warehouses, office buildings, and land in and around Cleveland. Than to his commission. House.

20:12 So then he jumps from employee to founder, he teams up with this older guy working in the same business, they're like, Hey Why don't we just do it ourselves? And so the the reason I'm gonna read this section to you is because he has to learn how to borrow money at the beginning of his career. And then he uses that knowledge on how to borrow money when he gets into the oil business. And that sets him apart from his competitors'cause one, he's better at it and he's b he' bold. Like it so much so that his he went to having to leave his first oil partners'cause they were too scared of how bold he was.

20:40 Uh borrow money in the present, his father believed, in order to accumulate a fortune in the future. Rockefeller practiced that philosophy. He was, Clark said later, the greatest borrower I ever saw. Though Clark's name came first on the company's calling cards, it was Rockefeller's strategy that dominated the firm's operations. The firm was prepared to make liberal advances on consignments of produce, which is exactly what he was doing. when he's working for Hewitt and Tuttle. In a day before the commo and a day before commodity loans

21:08 Farmers were often desperate for a quick return on what they had shipped to market. So this is the opportunity that Like the service that Rockefeller's providing, okay? A firm that promised liberal advances, which is what Rockefeller's marketing material said. A firm that promised liberal advances, not when the consignment had been sold, but when the bill of lading had been received. was bound to attract customers. So they're saying, Hey Everybody's willing to loan you money or front you money, I guess is a better way to think about this. We will just do that, but more so.

21:37 In order to make these large advances, the company must borrow and borrow heavily. And so that's the edge that a young Rockefeller s saw in his business that gave him an edge up. On his competitors. And so that's where he's like, Okay, I have to learn how to be the best borrower ever. From then on, uh Rockefeller was a familiar face at all the Cleveland banks. The visits were not always pleasant.

21:56 Older men resented his youth and his persistence, but They suspected his judgment. And often turned down his request for money. What if the president of a bank refused to make me a loan? That w this is Rockefeller r reflecting on this point in his career.

22:11 When he's a much older man. What if the president of a bank refused to make me a loan? That was nothing. He might lecture me on the folly on the folly of making a loan for the purpose for which I was seeking it. That made no difference to me.

22:23 It simply meant that I must look elsewhere until I got what I wanted. That persistence was always low key. But it was relentless. And so Rockefeller copies the how and not the what and he switch when he switches to oil. I'm gonna fast forward to that.

22:40 He's barring so much, he's being super aggressive, super bold. This is what's gonna cause the breakup of his first partnership. We have been taking on too many loans in order to extend this oil business, Maurice Clark said. And this is Rockefeller's response. We should borrow whenever we can safely extend the business by doing so. So his partner responds, If that's the way you want to do business, we better dissolve and let you run your own affairs to suit yourself.

23:01 He then leaves the office. Shortly afterward, so there's like a part I think there's four of them in here. Shortly afterward, another partner comes in. And him and Rockefeller are gonna have uh conversation. Shortly afterwards, Samuel Andrews entered the office. Rockefeller told her the conversation that had just occurred. He objects to my borrowing money.

23:18 It is unreasonable. He knows as you do that. that I am very capable excuse that I am very careful about loans. And this is

23:27 We have an opportunity now to expand. Which may not last long. So he wants to take advantage of that now. And it's also the the important thing is like why is the timing right to jump? He's clearly trying to jump. From the commission business to oil. And so this is why.

23:43 says Rockefeller had calculated the risk in his bold leap From the commission business to oil refining. By now he had enough outside investments to support himself if the gamble failed. But the civil war was winding down, and that meant the huge boom boom in profits. the profits that came from the war and the commission house would soon diminish. Several new wells, oil wells, had been recently discovered in Pennsylvania. The supply of crude was now about ten thousand barrels a day.

24:09 And it looked certain to Rockefeller, that is. At least for the near future. And so there's just a couple more lines I have to bring to your attention, but something I need to tell you is like You have four partners. The Clark brothers are together.

24:20 They think Andrews is with them. Andrews had secretly done a pact, John had secretly said, Hey Let's they keep saying we're gonna break up. I'm gonna wait for the right point, but when we do break up, who are you with? Are you with me or them? And the reason I bring this to your attention, because this hop pop pops up a lot. And I think the best person to to describe this is actually uh Paul Graham. I've heard him talk about this, the founder of Y Combinator.

24:41 And he just he warns you like you gotta be careful with who you choose as a co-founder, who you choose as a partner. I forgot the numbers he used, but it's just like, you know, the m vast majority of like the Y combin combinator founders, like they have some sort of like founder divorce or Why combinator has to step in and mediate. It's just, you know, it's it's it's very difficult to get right. And there's always usually just one domineering partner anyways. If you look at just even if you look at companies that are no longer startups.

25:09 And you go through the ones in history, you're not gonna find, you know, it's usually even if they start off with one, two, three, four co founders, like there's one. It's usually one person. Uh so just an example of that. The four partners met one evening in February eighteen sixty five. The Clarks assuming that uh Andrews was with them once again called for a dissolution of the company. So they agreed, and then they then the clerks were astounded to learn that Andrews was not with them. And that Rockefeller had secretly lined up. Financing to buy them out.

25:35 And so this is when he becomes, I I think he's twenty five years old at the time, he becomes the largest refiner in Cleveland. And this is what he said, how fortunate was that I bought out all those men. Rockefeller recalled later. I point to that day. When I separated myself from them. as the beginning of the success that I have made in my life.

25:54 And then in the next chapter, the author makes a fantastic point, which is something I've tried to bring to your attention a few times. that we tend to focus on the version of the person that gets to enjoy the success. And not the version that built it. The best example of this. I think it was founders number one forty. It was uh the the the biography of Bill Gates, but it's a biography of Bill Gates from the first thirty five years of his life. It ends on the day of the Microsoft IPO.

26:16 And the reason I use that example is'cause like the Bill Gates you see on TV giving interviews to this day. That's not Who built Microsoft. The Bill Gates at Bill Microsoft was the guy that dressed like Mr. Rogers, but underneath that costume he was Genghis Khan. By far one of the most extreme founders that you could uh in the early days of Microsoft, by far the one of the most extreme founders that you could ever study. The picture of John D fixing the minds of many is this bent old man passing out dimes and platitudes between swings of a swings on the golf course.

26:42 Lost from view is the Rockefeller that Cleveland knew in the nineteen sixties. A vigorous, alert gentleman with a quiet but extraordinary personality. Those who seek to explain his success generally comment on Rockefeller's Insights of Mind. His ability as an organizer, his skill as a financier, and his ruthlessness. Rarely do they remark on his personality. To understand the success of Standard Oil, one must know something about his personality.

27:07 Uh like his father, he could charm birds from trees. Unlike his father, He trapped the prey. Before it knew the s seduction had begun. Rockefeller knew of his talent.

27:19 And as an old man One afternoon he admitted it. by relating a dream that he had the previous night. And this is the dream. I dreamt that I was sitting on a lawn and I was told that someone Looking rather like a ruffian.

27:32 Wanted to see me. And they all advised me not to see him. That he meant no good. I'll see him, I said, and he appeared, and I said to him nicely and sweetly, Sit down and he sat down next to me, and I talked to him nicely and quietly.

27:45 And he said of course If it's shooting you want. Excuse me, and I said, Of course, if it's shooting me you want All these people here are quietly ready to shoot. And so something about Rockefeller, she's got a ton of of death threats. So that's what he's referencing there.

27:59 Well, I talked to him and I won him over and he departed. All good. And then they just go in more into his his personality. Those who knew him in the office gave equally consistent reports. He was never in a hurry. He was patient. And graces.

28:12 Gracious. I never heard him say an unkind word about any one. The chief thing I remember about Mr. Rockefeller. It's his easy courtesy to everybody. He was always the same in his manner, and it didn't matter.

28:23 matter whether he was in when he was whether he was meeting the biggest Or the smallest one he dealt with. Behind that placid exterior. Lay traits. That he tried hard.

28:34 To hide. And then we get some insights into what traits he had that he tried to hide. He exuded self confidence, but his wife knew of the numberless nights that he spent worrying about the future. Publicly, he never said an unkind word about anyone. Privately, he delivered lethal judgments about all of his business associates. The silent man that outsider saw

28:54 Could be loquacious. That's just a fancy word and he likes to talk. Uh could be loquacious among friends. The hourly modest man carried an enormous ego.

29:04 That's another thing I think I brought to your attention over and over again. There's not a person that I have covered in the two hundred and sixty biographies I've read so far that had a small ego. Small egos do not build giant companies. The smartest founders though that we've studied. Hide that ego. They use it as like internal drive and they don't really try to show it as much to the to the outside because people don't like to see ego in other people. That's just a fact of human nature. But I would push back heavily on the idea that John D. Rockefeller is able to build

29:31 One of the most valuable maybe the most valuable company. ever created in history and have and not have an enormous ego, that's just not gonna happen. To the press he always used we when talking of his company's success, but in private I often came forth. It was as if a d as a youngster he had willed himself to give the world a face.

29:49 Not necessarily his own. And so if you read a lot about Rockefeller, That's something that come over and over again. They felt like he had like a mask. He wore a mask. Like an external mass to the world, I think it's a good way to think about that. Rockefeller never tried to draw attention to himself. He dressed quietly in the fashion of the times. Few knew in the eighteen sixties that he was quickly becoming one of the richest men in Cleveland. And part of this was a strategy. See, he would say, Let the other fellow talk.

30:14 And this is something we just came up with, uh Uh Henry Goldman, the the the son of the founder of Goldman Sachs, the the podcast I did on uh last week. Michael Jordan said this over and over again, successful people listen, those that are not uh those that don't listen don't last long. Rockefeller would agree with that and the way he would say it is just listen, let the other fellow talk. You can see through his actions he always wanted this asymmetric informational advantage he's gonna pump you with all this kind of information. What do you talk about they

30:44 Oh my goodness. It's just it's crazy how foolish some of his competitors were. They band together, they they create this something something called like a refiners refineries association. I'll get there later on. And they put him in charge. And part of him being in charge is he has to set like

31:00 Okay, you send your oil on this railroad, you send the you send it over here. And so to to know that, he's gotta know the in and outs of your business. And so all this value could think of it as a way of him like not speaking and just listening. And he's getting all this valuable information from his competitors. Like imagine your competitors are all private companies and they open their books and tell you how much money they're making, how many barrels of oil they're shipping, and they give you all that information. A person you giving that person, student, you're giving that information to a person like Rockefeller. That is insane.

31:29 And so let's go into how he mapped out his thoughts of like the oil industry as at the very beginning. Uh, Rockefeller set about studying all sides of the oil industry. He traveled regularly to the oil regions This is all in Pennsylvania at the time, and got to know the business from that end. He talked to the producers, the men who drew oil from the ground.

31:44 To the owners of the gathering pipelines that carried the crude. From the well to the railhead where they met up with the railroad. Uh to the people who bought the crude. To railroad men who shipped to the refinery. So he's again doing exactly what Ogre says the good one's no more. Same thing he was doing in the commission business. You just see these just doing in the businesses and now he went on to New York, to Philadelphia and Pittsburgh to meet his competitors and to study their operations. This is not what I mean about the refineries association. That comes much later on.

32:11 Two problems preoccupied Rockefeller. How could Cleveland overcome its disadvantages as a refining center? And how could Rockefeller and Andrews, the company that predates Standard Oil? Surpass its competitors in Cleveland. His travels

32:26 Revealed no easy answer. So I'm gonna pause here. These are the notes I'm writing to myself as I'm reading the book. All of these problems that he's identifying, right? Once solved, if he could be the one that solves them, Will open up extreme економік опорніті.

32:40 But those economic opportunities only flow to the person that solves them. And when we get to this point we're like I don't know how to do it yet. But he found the opportunity exciting. This is when I started to think more about Jeff Bezos again. And so there's a highlight from the everything store, which is all the way back up founders number one seventy nine that I thought about.

32:58 And it says uh somebody that worked for Jeff talking about uh unusual experience they had with Jeff. And he said, I brought Jeff very bad news about our business. And for some reason he got excited. That made me think of another Uh another comment by Jeff Bezos. This comes from uh founders one fifty five. It's a book called Invent and Wander, the collected writings of Jeff Bezos. And this is Jeff describing why he gets excited at problems, because another maximum that you and I have talked about over and over again is that problems are just opportunities and work close. But most people don't look at them like that. They have a problem.

33:29 They you know complain, they bemoan. Uh like what's what they're experiencing. And people with like founder mentality, like Jeff Bezos, like, oh, that's an opportunity. It's just tr it's just kind of uh disguising itself in work clothes. The customer experience path we've chosen requires us to have an efficient cost structure. The good news for shareholders, this is coming from one of Jeff's shareholder letters. The good news for shareholders is that we see much opportunity for improvement in that regard. Everywhere we look

33:53 We find what experienced Japanese manufacturers would call Muda. Or waste. And this is Jeff's unusual response to that. I find this incredibly energizing.

34:06 I see it as potential. Years and years of variable And fixed productivity gains. and more efficient Higher velocity

34:15 Capital Flexible capital expenditures. And that is a way to think about John uh young John D. Rockefeller looking. It's like okay, well Cleveland is further away from where the oil's coming out of the ground than other people other refineries like the ones in New York and ones in Pennsylvania. Uh not only that

34:32 In Cleveland, there's a bunch of other competitors. So, like, how do I solve these two problems? And knowing that if I saw this, this is Muda or waste. Right, I'm going to open up Incredible economic opportunity. Refining was still such a relatively simple operation that even the most efficient operator could gain only a slight advantage over competitors. So he's got to find another way in. Because their shipment were still too small to use as a bargaining lever against the railroads, what he does later.

34:56 They would have little control over transportation costs. The refiners groused about these restrictions, but in general They accepted them as facts to live with. This is such a powerful sentence that is coming. Get ready for it. Rockefeller.

35:10 refused to do so. So perfect example, right? The other refiners are oh these suck. These restrictions, but you know We don't like'em, but that's just the facts that we have to live with. Rockefeller's like no, I I don't have to live with anything. I can change things. He had worked out a strategy that would carry him and his company to success. The surest way to raise profits was to increase the volume of production.

35:30 To that end, he borrowed, there's that other idea that he's used in the past multiple times, right? To that end, he borrowed more money and started building a second refinery. Now before I I move on to the next thing he did. When you study Rockefeller, he's never just hitting it. There's never only like one attack vector, right? He's like, I have an idea.

35:46 But I have I'm gonna circle this idea with five or six other ways to attack. That's why I started the book. Or the podcast with him comparing himself to Napoleon, okay? So it says to that end he borrowed more money and started building a second front. Then Uh, John D hired his partner's brother.

36:01 This guy named John Andrews, and sent him To oil city. To oversee the production at the source of crude. Right? The cost of crew now why is that important?

36:10 The cost of crude. fluctuated wildly. Rockefeller regarded its timely purchase. buying, which which he defined as buying as the price was bottoming out. And buying in large volumes.

36:21 as a central element in his strategy. One so important that he gave Andrews a little discretion in the business, and it's also the only thing Andrews can focus on, okay? And this is what he told him. He says, Keep me posted here on the crude market each day as frequently as there's any change. And so that means the the price is changing.

36:40 At this point the price would change four or five or six times a day. And so he's like, You need to tell me every single time this is happening. The bulk of Rockefeller's borrowing in the early days went to buy crude. Why his huge purchases Was central to the компані's success. And they often made those around him nervous.

36:58 And so this goes on. This is what I mean. I was like, this is gonna sound strange to you. That how can a two hundred and fifty page Book. Than a seven hundred page book.

37:08 But it's because they it's focused on how he's building his company. And so there's a ton of highlights that are coming here. I need to give you an overview because I think it's gonna help understand why I'm reading all this to you. Think about what Rockefeller's doing right now. He is He's like listen, we are increasing Or refining output.

37:23 We are buying large amounts of oil at opportune times. We are eliminating middlemen at every opportunity. And we're hiring A Players.

37:34 So we're gonna get into the next part of his strategy. Just wanna tie up this this other section we're here, or this other part where it's like, Hey, this guy's borrowing a ton of money, he's buying crude Uh cr a bunch of crude oil. The prices could fluctuate m massively. And so this is him explaining this to his partners. We must try and not lose our nerve when the market gets to the bottom, as some people almost always do.

37:54 Uh we will surely make a great mistake if we do not buy. The next phase of John D's strategy was equally daring. Other refiners were satisfied. To let wholesalers handle their export business. Rockefeller.

38:07 Was not. So now he sends he hires his brother. Brings him into the business and gives him one job. He's like, We're not gonna let these wholesalers take that m like that's profit for us. He sent William to New York.

38:18 to open an office under the name of Rockefeller and Company. Statistics showing a sudden change in the distribution of refined oil Prompted Rockefeller's action. In the previous year Less than half of all refined oil had been sold abroad. So they're mostly selling.

38:34 More than half their money is coming domestically, right? But in one year It jumped to where it's not. Exports are now seventy percent of the total output. Rockefeller saw that. hired William, sent him to New York, and now we are going to to remove the wholesalers From our business.

38:50 Once that's done, this is when Henry Flagler Think it's what two forty eight? Or two forty nine episode two forty eight or two forty nine nine. Can't remember which one. just did his biography, another formidable individual that's worth uh your time studying. So this is where Rockefeller brings him in. He's soon enticed into the firm, Henry Flagler. Flagler brought in not only himself.

39:08 But money. And he brought in Really successful. Older Which

39:13 Entrepreneurs that are now going to advise Rockefeller. Flagler brings in this guy, Harkness, one of the richest people in Cleveland. Harkness had made a fortune. And I've read a couple other things. He did more than just whiskey. Uh Harkness joined as a silent inactive partner. So he's not gonna manage at all. He doesn't want to manage But he like Rockefeller picks his brain.

39:32 Rockefeller consulted him. Parkness on all large decisions. And so what is Flagler's main job? His main job was to control as much as possible the cost of transportation.

39:45 While Rockefeller concentrated on financial matters. So you're recruiting a bunch of A players, and you're not telling them here, here's five things I want you to focus on. Here's your top ten priorities. Like, no. Yeah, one priority. Destroy. Do it more than anybody else possibly will. Uh Flagler and Rockefeller shared an office with the dead with their desks back to back. Neither acted until both agreed on a course of action.

40:05 The basic team That would shape the company's growth for the next decade. Had been formed. This is reminded me. of uh I read uh I did a three part series on Larry Ellison.

40:17 And one of those books is called Soft War, An Intimate Portrait of Larry Ellison and an Oracle. And I think his founders one twenty four. And he said something in there that was really interesting. Like you do not want turnover. on your core team. that knowledge compounds and don't interrupt the compounding, which is very different because a lot of people express in technology today. industry like I I f I can't remember where I read this, but it's like, you know, the turnovers like a year and a half, two years, three years.

40:39 And so this is from software. While many parts of the business actually need uh staff turnover to stay fresh and vigorous, Ellison believed that keeping the elite kernel group together has been vital. The process of building a software product teaches a programmer what to do and what to avoid. the accumulated knowledge and experience within the forty or fifty strong group. comes from continuous work on improving the core code. And so you think of Elison's idea is like you don't want tur core you don't want turnover on your core product team, your core team.

41:06 Same thing, they just said. It's like listen, he's assembling. These are these are all A players. A lot of them were founders before they came into standard oil, right? And it's just like you don't want You d all the experience the two, three, five years that now Flagler's gonna be working on transportation uh costs. What if you don't want to lose that

41:22 That knowledge. So the basic team that would shape the company's growth for the next decade had been formed. All of its member members accepted a final element in the strategy. Only a fraction of the profits would be distributed in dividends. The rest was retained in the business. R that was Rockefeller's idea.

41:38 He's doing that because Rockefeller saw to it that there was always plenty of cash in the till. He thought this policy of retained earnings than unique in American business. the crucial element in his strategy.

41:51 And then looking back, they're talking about how difficult this point in their lives was, but how satisfying it was that they succeeded. That struggle made it more satisfying in old age. Energy and intelligence and relentless attention to the partners gave uh that the partners gave to every detailed a business. Their days were long and hard, but they derived infinite pleasure from them. And it always saddened Rockefeller that so few people remarked in this. Yes, often the days were full of stress and strain, he said, full of care, full of ex and full of anxiety. It is true, and yet full of happiness. That words cannot express. happiness because we were triumphing over the difficulties

42:24 And we were being strengthened and prepared to meet our larger responsibilities. Let's go back to one of the advantages that Rockefeller put together and that's the fact that he sent his brother to New York. And the way you think about this is like they have real time market data. that their competitors lacked, especially their competitors in Cleveland. No one else in Cleveland had this.

42:43 So it says unquestionably Rockefeller's company was run more efficiently than most, but its large profits in lean years. Owed more to William's presence in New York than to efficient production. William diminished the advantages that New York refiners had long held over Cleveland. That and then again it goes back to the use of technology, right? The telegraph and post office tied the Cleveland

43:04 Oil City and New York Offices. Into a tight web. And communications between them flowed back. back and forth daily. So again, they have real time market data that their competitors in Cleveland lack. The price of crude rose and fell with the price of refined oil. When William sensed the drop ahead in refined, he would wire

43:25 John to hold off buying more crude until the oil city exchange had reacted. And then they have these opportunities those these are these like buy products. uh and in competing products in some cases of kerosene,'cause that's the main use of oil d uh what like how they're making money at this point in history. obviously it's gonna change when he retires and you have this gigantic increase in the size of the American um automobile industry. So there's this there's an example of that that's still taking place in the on this page. So it's this thing called napta.

43:51 Napta was a low grade aluminate that most refiners burned as waste because its market price was usually far below that of kerosene. However, sometimes it could be sold at a profit. When William saw a good market for napta ahead. He would wire Cleveland to To shift operations to take advantage of it.

44:10 So the author just described the fact that they have real time market data that their competitors lack, and now they're explaining what they did with that information. In war months, Cleveland shipped its oil. East by canal. But at a moment's notice from William it could shift to rail to railroads to catch a rising market. that would more than make up for the added expense'cause they could decide, hey, I'm not to send it by boat to you know the east coast, maybe I'll send it by rail to the West Coast because that market right now has just shifted and now we could actually make more

44:39 Per barrel. Doing that than sending it by boat. And so again, it goes back to this idea that the sequence in which events happen is really important because They're more efficient. They have all this real time market data, they're making more money than their competitors. What do they do? They increase the size of which their business is, and then they go and use their size to negotiate cheaper shipping and transportation rates with the railroads than their Cleveland competitors could possibly match. Again, it goes back and why is that important?

45:05 'Cause it goes back to what he was learning. When he was working in the commission house as a seventeen year old. That all is not how it seems from the a from the outside. In the early months of that year.

45:16 Uh John, William and Flagler spent an inordinate amount of their time trying to pry the largest possible rebates out of the airy eerie railroad. They concentrated on the eerie. Because it was the weakest and the hungriest for traffic. And so this is where Rockefeller is going to meet the person that he later says in life that he's the best business person he's ever dealt with. That's Jay Gold.

45:39 There because Jay Gold had just taken over the eerie. He Jay Gold's so think about this. They have like almost like parallel ambitions. in different industries. Rockfell's like I want to monopolize the The the the oil. uh industry. And Jay Gould's like I want to own all the railroads. I want to monopolize the railroad industry.

45:56 Um so there is A ton of information about what Jay Gold's doing here. I read this chapter. Uh twice. I still don't even under it's so complex I can't get my head around it. I can give you like the end result.

46:08 of all of Jay Gold's like secret manipulations of the railroads. And that's what I'm gonna focus on because that tells us like why why this relationship with gold was so important in the early career of Rockefeller. And this paragraph right here will give you an indication of why it was so confusing. I still have no clue how like complex this this idea that

46:28 that gold did. So it says in the year that followed, gold bought into He he bought into rated Least Are cornered the proxies of the Michigan Southern Railroad. These are all railroads I'm gonna list for you. Michigan Southern, India Indiana Central.

46:42 What Wabash in Western Fort Wayne in Pittsburgh. Cleveland and Pittsburgh, and even the centrals. One of his few lasting accomplishments

46:51 While with the Erie was to make Cleveland the leading refining center in the nation. Pittsburgh had always led the amount of crude it took fr from the regions. But that changed. After gold. Took an interest in the matter.

47:05 And this is the punchline why I'm reading this to you. The only certain result of gold's manipulations was that Rockefeller profited mightily from them. They probably added at least fifty thousand dollars annually to their treasury, to the company treasury of Rockefeller. The gift from gold helped to carry the company through two hard years Through the two hard years that lay ahead, and to finance an expansion program at a time When most other refiners were barely breaking even.

47:31 And so this idea of having secret sources of income is all over the book. It's all over the career of Rockefeller, that was just the first example. And so now th these are like bad years for the oil industry in general. And so I gotta lay out the playbook that they're gonna use over the next few pages. Here's the highlight or the outline for you. You raise money so you can in produ increase production. Then you use your increased production to get better rates on transportation than

47:56 other refiners are capable of doing. Then step three. You use your increased profits because you have better transportation on a commodity product. To buy your competitors. And then step four.

48:06 You continue to find secret sources of income. It was Flagler who came up with a plan to reorganize the company into a flexible corporation that could expand at will by increasing its capitalization and selling more stock. Under his guidance, the Standard Oil Company uh started with a capitalization of a million dollars was formed on january tenth, eighteen seventy. So that's the raising money part, right? The new corporation made its first strong impression on James Devereaux, who headed the Lakeshore Railroad.

48:34 Yeah, it was just a r a short railroad that fed into the oil regions and Cleveland. Henry Flagler proposed to give the lakeshore sixty carlo car loads Of o of refined oil a day. Every day of the year, he said. If the road would give Standard a substantially reduced rate on shipments from Cleveland to New York, that is the second step, right? Devereaux accepted Standard's proposal. So standard continues to reinvest money, increases its production, but here's the problem. They gotta send forty two hundred

49:01 barrels of crude a day. Right. At the time. Their c daily capacity was only fifteen hundred barrels. So what do you do? Again, this is that maximum all is not as it seems from the outside.

49:11 So like okay, how are we gonna make up Like how are we gonna fulfill this this obligation, this contract that we just signed with them? And so they go to the other refiners, there's about like twenty five to thirty of them at this point, and say, Hey, we could ship your oil cheaper than you can. Standard was willing to share with other local refiners. It's a rangement.

49:28 When these with these other railroads. And because the deal that standard is offering them is better than the one they can get on their own, so they agree. Standard had agreed to handle the freight arrangements for all Cleveland oil slated for export. The deal surely gave them one more hidden source of income. What is that hidden source of income?

49:46 Other refiners in the city. Would have no way of knowing. What part of the savings in freight charges Were passed on to them. Okay, so I want to move ahead to where he gets this idea, he's like, Okay, I need to control this I need to bring this godless industry under my control.

50:01 And really the main point of these these few sentences here is that withstanding prolonged periods of anxiety can lead to a breakthrough. And just most people aren't willing to to endure that pain, so they give up too too soon. Work by work by day and worry by night, week in and week out, month after month. If I could have foreseen the future, this is all a quote from Rockefeller, I doubt if I would have had the courage to go on. Sometime during the year, Rockefeller began to mull over a plan to unite the refiners of Cleveland into a single organization. whose size and efficiency would be able to undercut

50:33 The Pittsburgh and New York. as well as the oil region. So those are the three other areas of the country. that are all refining Uh oil that are their main competitors. So just like Titan, this book goes on for quite a bit.

50:45 about the SIC, which is a southern improvement company. This is just I'm gonna give you like the the the the top highlights. This is a clear to me a clear description of what the SIC did and why. And you could think about the best description of I've ever read about this is like it's a dress rehearsal for the monopoly that Rockefeller eventually builds later, because this idea is never gonna Like he just uses this idea as a threat. It never actually gets off the ground. The company's purpose was first to end rate wars by evening oil traffic among the Pennsylvania, Erie, and New York Central Railroads. Second, it would limit production. The country had a daily refining capacity of forty thousand barrels.

51:19 But the market could only absorb sixteen thousand barrels. So you're producing too much. You already know what the supply demand is. You can imagine what that's gonna do to the cost, right? Ostensibly membership in the company would be open to all refiners. That's a lie. The company would sign contracts with the railroads, which would grant members substantial rebates, that's why they're doing it, and also drawbacks on oil ship by non members. For example, if the posted rate on a barrel of refined uh oil going from Cleveland to New York was two dollars and eighty cents. Members.

51:48 would get a dollar eighty. So Non members are paying, let's say let's let's use round numbers for our sake, right? Non members are paying three bucks a barrel. Members are paying a dollar a barrel. If the plan worked,

52:00 No refiner could long survive. outside the Southern Improvement Company. And so then Rockefeller says, Hey, this is the plan we have. He goes around to his other competitors in Cleveland He's like, Listen, you you gotta join or you gotta sell and this is gonna be known as the Cleveland Massacre. He saw a chance to use the Southern Improvement Company as a club to force Cleveland refineries to accept our plan.

52:19 In Cleveland, he immediately approached Oliver Payne of Clark Payne and Company. And this is why he's doing that. He always says like you should target He gives us advice later on too. It's like if you're trying to take over like an industry or or an area in the country, target the the most formidable opponent first. And if you can knock him down All the others will fall.

52:36 Uh like like dominoes, basically. Payne came from one of Cleveland's wealthiest family uh Cleveland's wealthiest and socially most important families. Rockefeller offered him four hundred thousand dollars for his company and a position in standard oil. Rockefeller said later that the large amount he was willing to pay was meant to lure pain into standard oil. Where his Cleveland connections might attract more money into the firm. His plan

53:00 Worked. So at the very same time that he's doing this, he does something that's also extremely smart. And something that he's does his entire career and that's He's Constantly developing

53:12 A network of secret Allies. And this time he does it with the bankers, and this is why. Every important Cleveland banker. Was given a chance to buy modest blocks of stock.

53:24 Which thereby committed them to standards welfare. Hereafter, it would be in their interest to lend the company money to And not. To lend to refiners. Who refuse to sell to standard.

53:37 These bankers became a secret ally. of standard. And so what's happening here is a historical event. It's known as the Cleveland Massacre, but the reason I want to bring this to your attention is because when we get to Rockefeller describing this Time in his life, it sounds to me

53:53 Like a religious sermon. In the four weeks between mid February and mid March, Rockefeller F and Flagler brought twenty bought out twenty three companies. All of one all but one of them was in Cleveland. Historians later dubbed this swift and astonishing campaign the Cleveland Massacre. Rockefeller saw it otherwise. Now here's a quote from him. The procedure was without precedence.

54:13 We find here he's describing his own his own coun his own company here. This he's using weird language, but this is his own company right here. We find here the strongest and most prosperous concern in the business, which has had which had made money in each year of its existence. Turning to its less fortunate competitors, the How benevolent of you, John. Who in what Who?

54:34 It well knew. had been losing money and become discouraged in saying to them practically, We will stand in for you. And the risks and the hazards of the refining business. Again, so benevolent on your part, John. You need not contribute any money.

54:49 Unless you desire to do so. standard turned to these men With whom it had it had been in sharp competition And sent to each. Come with us.

54:59 And we will do you good. See what I mean about this sounds like a religious sermon? We will undertake to save you. From the wrecks of this refining business. and give you a return on the capital which you have in the plant and your land Or if you prefer.

55:14 We will take the business off your hands. And the mistake these guys made is they he gave them the option, do you want stock or cash? And it says all but five. Took cash. Most simply doubted.

55:27 That Rockefeller's plan would work. John. It cannot be done. They said. Neither Rockefeller nor Flagler threatened anyone during the campaign.

55:37 They did not have to. They started at the top with the largest refiners. And by the time they were halfway down the list, those remaining had no choice but to sell out. A refiner who thought he could survive by expanding Found that when he went to borrow money

55:52 That all of the Cleveland banks We're in standards pocket. And so That reminded me of a line by the author Ryan Holliday. He was on a podcast promoting his book Conspiracy, which talks about the plot.

56:05 between Peter Teel and Hulk Hogan to take down Gawker, and he described it the most succinctly. after spending a ton of time studying what actually went down. And he says it was ruthless efficiency. And hyper Competence.

56:17 And so those are the word the five words that I wrote down on this page when I got this is the end of the chapter when just lays out every sing secret mock nation and inform of strategy that Rockefeller did. And the way I would sum that up is ruthless efficiency and hyper competence. And if you could think in that five word sentence The most important word. His aunt.

56:38 is the combination of those traits these uh uh to the taken to their most extreme application. Ruthless efficiency and hyper competence. So there's a short chapter called A Remarkable Letter and it is all about A letter that Uh to Rockefeller from his brother William. William is in he in New York.

56:58 And the author just does a fantastic job. Breaking down. What like why this letter is so remarkable. And so I'm just gonna read you

57:07 his description of what's taking place and why It just gives us insight into the early days of standard oil and how they thought. So it says this letter calls for explanation. It is one of the few to survive from Standard's early years that reveals in detail how the leaders thought and the way they operated. The first astonishing revelation is DeVoe's enormous profits

57:26 on a small investment. So the letters is basically s from his brother saying, Hey There's a very profitable. We can buy them, or we should buy them, and here's why. And the way to think about this is like well he he tells us right here.

57:40 Uh, it's a small refinery, but it has like a specialized niche. And so it's extremely profitable. The first astonishing revelation is DeVo's enormous profits on a small investment. So remember, this is Eighteen seventy, eighteen seventy one, and eighteen seventy two, and this small refinery made a profit of eight hundred thousand dollars. And if you use one of those inflation cal calculators online, that'd be like twenty million dollars in today's money. So it says it's modest refinery specialized in canned oil for export.

58:05 They were exporting a product that was popular in Europe. Why is that important? Because they say DeVoeau had carved out a unique market for himself. Because the three years that William mentions We're very lean ones in the oil industry. William's recommending buying this because once uh the like the overall economic environment, the oil market rather.

58:24 uh like improves He thinks that they can more than double Uh the the profits. And they could do so within the next year under standards management. and he continues breaking down this letter. The phrase in the event of either war or peace indicates

58:38 That the thought was afoot with the Rockefellers and Flagler. to invade the New York market, which is where the companies that they're that he wants uh his brother to buy. Charles Pratt's willingness to go along with standards purchase of DeVoe is another surprise. Which is obviously mentioned in the letter. Why is that a surprise? Because Pratt had refused to join the SIC, the Southern Improvement Company.

59:02 Uh, he was one of Standard's strongest competitors in New York. So he's saying I'll join with you guys, right? Previously he'd he'd been a big critic. He was one of Standard's strongest competitors in New York and uninter uninterested at the time in any form of cooperation. Yet here he is

59:17 And this is a quote from Pratt, very anxious to get into our arrangement. And so the author adds some historical context for us about why this is important,'cause Pratt was no fool. Indeed, he was generally regarded as one of the shrewdest and ablest men in the oil business. Yet the letter shows that William is luring Charles Pratt Into a trap.

59:36 That will eventually If all goes as planned, Let Standard devour his business. Once Standard had the DeVoe Company. It will gain a monopoly on canned kerosene.

59:48 And soon after All eastern refiners Will be in our hands. Pratt would be included. In that

59:55 Statement. When William writes that the present competition will naturally be kept He means that the DeVoe company will continue to operate under its own name. after Standard buys it. So that goes back to this idea that Rockefeller loves secret allies.

1:00:10 He does this over and over again, over and over and over and over again. Uh this may be the first recorded reference to a technique that standard would soon use to build its empire. The hidden company. That is a supposedly independent firm operating under its own name, but in fact wholly owned. By the standard oil company.

1:00:26 And this paragraph is the the single best way to think about this and why this was such an effective tool. The secret ownership of other companies was so well preserved. That often a refiner enraged by Standard's ruthless tactics Would refuse its offer to buy him out. And sell instead.

1:00:44 To a local competitor. Unaware. That he had in fact sold out to standard. And that's one of my favorite maxims. An illustration, one of my favorite maxims.

1:00:55 Bad boys move in silence. So we go back to this idea that Rockefeller looked at business as war. In war you obviously your your opponent can fire back. And so that's what happens to the petroleum producers union, the people that are actually producing the product, right? They decide to to

1:01:10 Two uh band together and boycott. And um essentially they're trying to kill the the this plan, the Southern Improvement Company plant, which they're successful at. And I'm not d the details of that uh not that interesting to me, but w it's interesting, uh Rockefeller's reaction to this is interesting. So it says The petroleum producers union immediately levied a boycott on all the members of the South Southern uh South Improvement Company.

1:01:34 And so it's a problem. Rockefeller can't survive if they don't sell to him. So what I'm about to read to you, this is the important part, at least it was to me. What what what I'm about to read to you is happening during a boycott, right? That takes standard oil employees From twelve hundred to seventy.

1:01:48 They have to close up shop. And so Rockfall Rockefeller, even though this is happening. He thinks this is temporary. So he th he and there's a bunch of examples of this in his own private writing and in recollections from conversations he had. He identified that he believed that standard oil stock

1:02:03 is the most valuable thing in the world to own. And always bought more of it. And so we're gonna see that he has continued to resolve even when his own partners And his own brother. Don't.

1:02:14 William Roy this is happening during the boycott, right? This is a very scary time. Imagine having twelve hundred people in your company and you see it going down to 70. You're not gonna be really, really optimistic. William wrote Rock uh John that he wanted to sell fifty thousand to a hundred thousand more of his stock. Do you want it? Maurice Clark also became uneasy about this time, and he told Rockefeller that he wanted to sell him his stock. Maurice, John said. You're a member of the standard oil company.

1:02:38 You had better wait. Maurice waited until after lunch. And then he said he still wanted to sell. Rockefeller says. So I gave him a check.

1:02:47 So that boycott lasts like a month or two, maybe three months, I can't remember exactly. eventually gets resolved and so they can start scaling back up. So they're like okay, the SIC, that's not gonna work. They're they like we have to ch we still think this is a good idea, let's find another route in And so this is what I mentioned earlier, how his competitors are actually gonna give Rockefeller the What he wanted.

1:03:05 information about their business. This is so crazy. So says they tried a new idea. They call it the Pitts Pittsburgh Plan. Which the public name was the National Refiners Association. And so the idea is like, hey, let's all join together.

1:03:18 We're gonna um use our increased size to negotiate better rates. With the railroads. And then we need somebody to even out traffic on the railroad. So the railroads get this like from a railroad's perspective, you get, you know, hey, I have guaranteed this is how much you're gonna send me, this is the price we're gonna pay. Like Just makes their pr their

1:03:36 their business way more predictable, right? And this is the crazy part. Rockefeller was chosen to head the association. refiners dare draw on his talents now since power was spread through the vr w through A representative governing board, and no one feared he would or could gain control of the organization.

1:03:52 And this is important because his election as the head of this association, all the benefits are gonna accrue to him and standard oil. Rockefeller worked to make the association succeed, yet he expected it to fail the moment the oil industry confronted a crisis. And he says in in this association then he's describing why he he p he want he thought this was gonna fail. Uh, in this association you couldn't fix a penalty. And by penalty he means it's all

1:04:17 Uh carrots and no sticks. Because his point is like listen, this ex this uh organization of people is made up of men uh to a great extent that are untrained in business matters, many of whom came from a great variety of occupations not well calculated to prepare them to meet the the extinguises of high grade progressive businessmen in competitions. He's essentially saying like they don't they're not good enough and they're not disciplined enough. And this is how they're gonna react if there's like this depression in the oil market. It was apparently that these men would not keep to their covenants, meaning they don't they wouldn't even

1:04:46 You couldn't trust their word. He's insulting them, essentially what's happening here. They would observe a covenant as long as it worked out to their advantage, but would flinch and back away when the carrying out of the con contract seemed temporary to their to their disadvantage. That's exactly what winds up happening, by the way. It's gonna disband, but before that happens, he's getting all this valuable information. He would use the refiners association to his purpose. As president, he came to know the inside of every member's operation. He had to do this in order to a to allot the quotas fairly. And in his travels for the organization he became acquainted

1:05:18 With every leader in the industry. And shortly after this depression that's gonna last four years winds up sh hitting the country. And it says the association collapsed with its onset, just as John pr predicted. Now I'm gonna bring into like how so how does

1:05:33 Early in his career, still has not built his monopoly yet. How is he going to act in a financial and economic depression? And his answer is that they're gonna start vertically integrating. A few months later, Standard made two bold revolutionary moves that indicated that Rockefeller and Flagler had shifted strategy. Now they began to integrate vertically, branching into aspects of the industry others had not touched. First they started to build their own pipelines in the oil regions. Next, standard purchased a half interest from

1:06:00 In this company called Чес. Carly and company. Which was the largest distributor of refined oil. to the south and southwest. I'm gonna keep reading and I'll just I'll explain all this to you in a minute. Together they purchased a number

1:06:12 Of the newly introduced bulk tank cars, which is they're gonna fill with oil, obviously. Chess Carly shipped Turpentime. From southern pine forest to Cleveland.

1:06:23 When the cars were emptied in Cleveland, the turbitine was sold in the local market. They were then filled with kerosene and sent back to Louisville. For distribution. Why is that important? Because in a single swoop

1:06:35 The huge expense of shipment by barrels And Chess Carly continued to operate under its own name. No one in the industry Was aware of the partnership it had with Standard.

1:06:49 So think about what's happening. They're selling into new markets, right? They're eliminating costs. That's exactly what we just described. And they're collaborating secretly. So we're still in this economic depression.

1:07:00 obviously when when you have an economic depression you're the weak people are going to be d the like what uh Warren Buffett says you don't know who's swimming naked until the tide goes out. That's an example of that. What Rockefeller's doing in this part though, it's like it's really interesting. He understood, right? So he would align this is how he would align interest. To transform competitors into collaborators.

1:07:20 Which is something that, you know, that's that's this whole thing. It's like we should be collaborating, we should not be competing. He was not a fan of competition. In all the history of the world, men have never made a success of a concern into which they were forced or driven. This is Rockefeller talking. You cannot have winning cooperation except by willing partners. He went on to explain how he William and Flagler approach those they wanted in the company.

1:07:42 We have said to these men. Now let's look at these facts together. We think it is in your interest and ours to work together. The cause is thus. Do not be in a hurry.

1:07:52 Think this over and take your time. Those who looked over Standard Orld's books. Came away astonished. At the high profits they made in hard times. The second carrot.

1:08:03 Was the appealing pattern of organization that John Dee offered for the enlarged company. Essentially these are a bunch of like aquihires, right? He's his entire team is gonna be of former founders. Policy would be set at the home office. But considerable authority would be given to the quote unquote division leaders. These are the companies he's buying.

1:08:23 Would to a large degree be semi autonomous. each of the key men in the local ri refining areas Would have a voice in setting company policy. It's almost like he sets this up like almost like a Like how the mob did the mafia did in America and other places. Like they have mob bosses in all these different cities. So it's like Lockhart in Pittsburgh, Warden in Philadelphia, Pratt in New York, Archbold in the oil regions.

1:08:46 Would run their own divisions. And they would also sit in on company strategy meetings in the home office. Think of Rockefeller as like the boss of all bosses, right? When Standard's offer was presented in that light, Independent thinking men. Like Pratt, Archibald, Warden, and Lockhart, founders, right? Food hard to refuse. And none did.

1:09:04 So go back to when he was looking for a job as a young man, as he was sixteen, seventeen years old. said there was like a lot you you could use the the m the the way he approached his Uh search for a job is like a metaphor for how he approaches life. There's a more detail in this book than I found elsewhere. about like w how did he work? Like what was it like

1:09:20 In the office. In the office he proceeded in the same steady, methodical way That a farmer ploughed a field. His method of getting business attended to was the acme of simplicity. Unfinished business in the form of letters, telegrams and memos, and so on.

1:09:36 Was placed in a pile. On the right hand side of his desk. He would take up the first paper. give an answer or issue an in uh his instructions to someone else. And then when the matter was off his mind, the papers were handed over.

1:09:48 To be filed. If the paper could not be immediately attended to, he turned it upside down and put it on the left hand side of his desk. When the pile at the right side was demolished. He would turn the pile at the left side. right side up and transfer it to the right hand side.

1:10:04 To be taken up again the following day. But I just love that. that visual it gives you. Like he's going about He's proceeded in the same steady methodical way that a farmer ploughs a field. And now that he's convinced his most formidable competitors to become collaborators.

1:10:20 We s ruthlessness. in which he operated in because his whole thing is like I want all the business. I don't want fifty percent. I don't want ninety percent. He never gets above I think ninety percent. And and sometimes even before uh it's dissolved, he g they the some competitors kick him down to like eighty percent. But his whole thing is like I want it all, I want a hundred percent. Uh, good manners that he displayed up to eighteen seventy five had been imposed on him. He lacked the power to force his will upon the industry, and he had to proceed with care in order not to frighten or antagonize those he sought to entice within the fold.

1:10:49 Once they had joined, the Rockefeller's method of operation. Changed. And so we see more ruthless efficiency and hyper competence here. He wanted a monopoly to achieve it.

1:11:00 Called for change of tactics. From now on, deploying his general staff with Napoleonic skill, he would blend the genteel methods of persuasion with a ruthlessness and sometimes unscrupulous use of the power he had accumulated. Here's an example. The general staff he had assembled by eighteen seventy five would carry standard through the next decade. It was a band of tough, smart, progressive businessmen. One of and so here's an example of w w one they call it an exploit. There is a small refiner, his name is Joshua Merrill.

1:11:28 Uh he Merrill had patented a process that neutralized the offensive odor. that up to them had slowed the sale of lubricant oil. His product instantly caught on and sold at several times the going price of competing lubricants. He had barely begun to market it when When a mysterious doctor Tweedle

1:11:46 Invaded the market. With a deodorized lubricant obviously based on Merrill's patents. Meryl sued. Unaware that behind behind Tweedle Lay Lockhart and behind Lockhart

1:11:59 Way. Rockefeller and Standard Oil. who had promised to pay All litigation costs. The case dragged to the courts for years.

1:12:08 And they finally broke Meryl. Eventually he sold his patents to standard for twenty thousand dollars. Which was a pittance compared to the more than one hundred thousand that he had spent in legal fees. Lockhart's assignment. Was to oversee the cleanup operation of Pittsburgh's independents.

1:12:23 Always of course Under the eye of John. It was Rockefeller for instance who suggested Planting in the local pressure. A story hinting

1:12:34 that a burgeon refining refining industry in Buffalo would hurt Pittsburgh. So that's another one of the tactics they used over and over again. They would use the press to plant fake stories. After that story was planted. This is a result, Rockefeller also mapped out The battle tactics for Lockhart.

1:12:51 Concentrate first on the largest and strongest independent refiner. With him secured, the balance can be brought out easily, meaning the other competitors. That plan works. Soon after the chosen prey fell. Six other independents. uh trotted meekly into the fold. So there's a ton of stories in this book about Rockefeller picking on

1:13:11 And Destroying smaller refineries, but he also would punch up. And this story is an example of that. For all practical purposes, Standard in eighteen seventy seven had a monopoly on the refining end of the oil industry.

1:13:23 But a threat to its control loomed that year in the form of Joseph D. Potts. Who With the Pennsylvania Railroad as a collaborator set out to loosen standards firm grip. Rockefeller's company may have been the leviathan of the oil industry. But it was a medium sized fish.

1:13:40 compared to the Pennsylvania Railroad. Whose assets approached. Four hundred million dollars. Nevertheless, The danger Potts and the Pennsylvania Railroad pose to his creation

1:13:52 Convinced Rockefeller That the time had come to pick a fight with the world's largest industrial corporation. And the reason Rockefeller realizes he has to fight Potts and Pennsylvania is because they want to take away his most important advantage. Which is his adventation ship adventation. Advantageous.

1:14:09 Shipping rates. Potts created, built, and ran the Empire Transportation Company. It was a fast freight line that gave dependable service throughout the east. Its small fleet of ships collected grain and produce from around the Great Lakes and took the cargoes to Erie, Pennsylvania. Where they were shipped by rail.

1:14:26 It also owned five thousand railroad cars. Fifteen hundred tank cars. uh that handled its expanding oil traffic. That traffic was its most profitable item.

1:14:37 So Potts makes most of his money. transporting oil. Potts also owned scores of storage tanks and over five hundred miles of pipeline. Plus a terminal on the New York

1:14:48 Uh waterfront. Legally. It was a subsidiary of the Pennsylvania Railroad, that is going to lead to its demise, by the way, so remember that part. I didn't know that at the time when I read that. Uh but the Empire had its own stockholders and distributed dividends under its own name.

1:15:02 It was a very profitable company. Pots wanted to become the evener in the transportation of oil. The referee. He would then give equal rates to all shippers. This made him a potential threat to standard.

1:15:18 So Potts goes around and he lines up all these other independent refiners who are not part of standard. Uh, he lined up a number of the independents who and promised them Uh and said if you promise them your business He in turn.

1:15:30 had promised freight rates equal to the best that standard got. He could do this because the Pennsylvania Railroad Over whose tracks nearly all of Potts traffic. Traveling. had agreed to join in the war against standard. Now why would that happen?

1:15:45 Before the war began, Rockefeller and Flagler had visited the Colonel Thomas Scott. which was the railroads president. And the person He you could think of him almost as uh Potts's boss.

1:15:57 And the reason that Scott is willing to go to war with Rockefeller is because Scott also knew That he must accept standard's challenge. If the if standard was allowed was not contained now. The railroads would soon be in the humiliating position Of having a customer Dictate the rates it wanted.

1:16:15 The problem is Scott waited too long. Standard is already too big. To fight. So they're having this fight, so Rockefeller goes, Okay, cool.

1:16:24 I'll just Not send you any of my own. Standard shut down all of its Pittsburgh refineries and deprived the Pennsylvania railroad of of what had been sixti five percent of its oil traffic.

1:16:37 The refineries in Cleveland were run at capacity and all their oil moved over the Erie and the New York Central Railroads. At low rates. Oil flooded into New York. A hundred and sixty seven million barrels within a few months. The Pennsylvania then also suffered

1:16:52 A violent штрак And millions of dollars of railroad property was destroyed. In the same month Standard declared a dividend of eighty dollars. By then Scott had had enough.

1:17:03 And let it be known that he was anxious for settlement with Standard. He sends his vice president this guy named Kasat. Cassat went to Cleveland to open peace negotiations. And this is the craziest sentence in all this and the flaw in Potts plan. No one told potts.

1:17:18 What was up? He was he went to war With Rockefeller, and he doesn't even have complete control. Over his own company. 'Cause he's a subsidiary.

1:17:27 of Pennsylvania Railroad. And so what did Rockefeller do? Rockefeller flagler went right to the top and try to cut the head off the top of the snake. It's like I'll just cut, I'll take away sixty-five percent Of your business. And so Scott had no choice. You can't snuff somebody out that's responsible for sixty five percent of your revenue, for God's sake. So it says uh as a matter of negotiation between the Pennsylvania uh so basically you're saying Scott didn't tell Pot because he says it was none of his business. He saw this as a matter of negotiation between the Pennsylvania and the standard.

1:17:59 Rockefeller and Flagler were prepared to buy the and then they wind up buying all of This is crazy. Rockefeller and Flagler were prepared to buy the Empire's refineries. Uh, but Kassat had said no. They must purchase all the company's holdings.

1:18:11 The timing of the demand could not have been worse for standard. the oral market was very sick, but you have the opportunity to buy a ton of assets from a very profitable company. No one could remember when the future of a find refined oral Look so unpromising. Rockefeller said.

1:18:27 They accepted Cassat's conditions, which are really Scott's conditions, if you think about it, and the sale of Price was fixed. At three point five million dollars. That is a ton. This is in eighteen we're in the eighteen seventies. When Potts learned of the settlement made behind his back, he tried to derail it by demanding payment in cash.

1:18:44 To his dismay, Standard came up with the money. Rockefeller told a lively story of how he went around to Cleveland Bank, saying I must have all you got. I need it all. It's all right. Give me everything you have. And if you go back to what Scott said about why he did this, he's like, Listen, I don't wanna be in a position where

1:19:01 Or one of our customers can dictate How much Uh like what what our rates can be. that actually happens because now Rockefeller becomes The referee

1:19:11 Uh, because the railroads not only Scott, but all the rules are at war with each other. And so they're the in the war they just keep cutting rates and they're essentially like bleeding themselves to death. And so this is when they do this extremely complex deal. to act as the evener, the referee.

1:19:27 and have, you know, the best transportation rates out of any other oil company in the world. And there's just some things that cannot be Um simplified. So I'm gonna read Uh they have a letter. Where they they hire this guy.

1:19:39 His name is George Vail. And they hire him as an auditor. Uh working out of the Cleveland office. And his job is to try to keep track and make sure all these

1:19:49 complex contracts that standard has negotiated for everybody. is actually like e everybody's living up to their bargain. They they say it's like Uh he asked Flagler's help in guiding him through the maze because he was hired to do a job, but he's like, I don't actually this is so complex, Flagler, which is his boss, which is Vail's boss. You have to explain to me like what you did here. And so before I jump into Flagler's response, here there's context that I think you need.

1:20:11 So it says beneath the surface the two men were much alike, meaning Flagler and Rockefeller. Uh, as Flagler's response to Vail's query made clear. Like Rockefeller, Flagler had an incredible capacity to absorb detail. without losing sight of the overall picture. His letter

1:20:26 May have been dull reading for an uninterested outsider. But it was fascinating to someone who knew. Or wanted to know something about the intricacies of evening quote uh quote unquote evening the transportation of oil. It revealed

1:20:40 A virtuoso at work, which is flagler. And I'm gonna read from the letter for you, and I'm not trying to to make this boring. But it the reason I'm sending this to it is boring. The reason I'm reading this to you is because just just you can't simplify it. Like check out how crazy this is. So this is a little bit more.

1:20:57 Vale's asking us like hey, you need to break this down for me. I don't understand this. And Flagler says the statement I furnished you showing the quality of oil to be carried at the old rates by the Erie and the New York Central Route was as follows. Of refined oil to New York, one thousand two uh one hundred twenty seven thousand barrels of crude. And one hundred and twenty uh sixty seven thousand barrels of each. Uh should be taken by each road.

1:21:16 They're There was also to be carried to Philadelphia by the two roads. Another hundred thousand barrels of crude. And so there's three paragraphs I'm not gonna read you, but it's the it's more like this. Hey Sent a hundred thousand.

1:21:26 Like going from this city on this railroad. Going down and down. Fiber continued. Uh after the old contracts had been worked off, the new rates would ha would come into effect. Which is on refin which on refined oil is eighty nine cents per barrel.

1:21:40 And on crude is 103 cents per barrel. Less an allowance if shipped by the New York Central of thirty cents to get to Irvington. Or in other words, seventy three and a half net from Irvington to New York. via the New York Central, and a hundred and three and a half via Erie, less thirty five cents to get the oil to oil city, and a net of eighty eight and a half on crude from Oil City to New York via Erie. Eerie. And I read all that.

1:22:00 For this part. Do you understand? No, Vale shot back. And then this is Flagger's response. I do not know what I can make. Uh what I can say to make my letter

1:22:10 Uh any more plane, Flagler replied on November fifth. In a nutshell it is this, and then four pages of further complexities followed. So here's another thing that's pretty wild. Rockefeller went direct to the consumer in the eighteen seventies. This part reminded me of that famous Jeff Bezos uh quote where he says your margin is my opportunity. And the the reason I want to bring this to your attention is one, it's rather remarkable that he did this. But it's just really

1:22:33 Like shed insight into way Rockefeller thought. Like if any if he saw anybody in the oil industry was making even a couple of cents profit. He's like, Well let's just get rid of that. That's just another middleman. We need to control everything. And it's a quote from Rockefeller. We found that wholesale made their profit in selling oil to the retailers and that the retailers sometimes added as much as five cents a gallon to their price

1:22:55 in order to make their profit. We bought land. Put up our storage tanks. Cut out the cost of barreling and freight. made tank wagons and delivered the oil at the door to the cons of the consumers.

1:23:08 Eliminating all those intermediate profits on the way. We made a fine crop of enemies by doing this too. But we made oil far lower in price. than it had ever been before. And what he would do is in any densely populated urban area, he would have

1:23:25 Horse drawn carriages drive up and down the streets and sell oil directly. And then another thing I think Rockefeller would tell you is like there's no point doing all this work to get to a large scale if you're not actually using your scale. And so a lot of this is like I he wasn't trying to innovate at the this stage in his career. So it says uh once John D boasted that his company made money out of fifty some fifty odd byproducts, everything from chewing gum to Vaseline. He failed to add that Standard had not created a single one of these innovative items.

1:23:56 He let others experiment. Waited until they had developed a profitable market. And then moved in. He paid little mind to to the paraffin market. This is just one example of a byproduct he did this to uh did this in. He paid little mind to the paraffin market until the spring of eighteen seventy eight, when in one sweep he bought up every major producer and brought them into standard oil.

1:24:16 He paid reasonable prices in part Because those whose businesses he wanted had created products There were Protected

1:24:25 By patents. And then the author goes into Rockefeller's own point of view of himself. Like he believed That he was a good man. He did not his conscience was completely clear. Uh clear, rather.

1:24:37 So really over the next few pages, like I just thought this was a great description of Rockefeller's point of view of himself. Uh, on the corporate level, Rockefeller was not above shenanigans. He bought politicians. He misled the public with spurious brand names. That's that secret ally. Uh what I referenced earlier. He planted false stories in the press. He used every tactic available short of violence.

1:24:59 To squeeze or starve into submission. Any man whose business he wanted. And given all this, it says he never it never crossed his mind that he ever did anything wrong to anyone. So how is that possible? Like how can you have this like paradox, right? Rightly or wrongly? He had convinced himself that That he was engaged in a crusade.

1:25:19 And to him it was a religious crusade. He's gonna use this idea of the higher law doctrine. And he's gonna apply that to business. And so it says Rockefeller adopted the higher law doctrine to business. He found the oil industry in chaos when he joined it. The law of the jungle prevailed. Yet economic and legal concepts held that unlimited competition was virtuous.

1:25:40 This made no sense to his orderly mind, but Men ought to cooperate, not fight one another, he believed. Through cooperation all could prosper as they had prospered, so too would the nation prosper. So again, this is the way he viewed it. This is how he could have a clear conscious even after all the stuff he did. Uh though co through cooperation all would prosper, and if they all prospered, so too would the nation prosper. But the laws of the land judged his vision unconstitutional. The law said that a cooperation could not own property uh shouldn't

1:26:08 That a cor that a corporation could not own property outside the state that chartered it. He he did that anyways. He found like legal like loopholes around that, right? They held that it was illegal to restrain trade. He restrained trade. They said that common carriers The railroads must treat all customers alike.

1:26:26 He tried to get around that at every turn. Інрокфелер'яс за лоз Controversy the laws of the nation. Contravede common sense. A higher law must prevail if all was to be put right.

1:26:39 In God's world. And so that's very important because society, the public, or the newspapers might Like uh we could be criticizing him, might even hate him. He thought he should be celebrated. He thought w he was a revolutionary. And to prove this point, the author is gonna use his own words his own description of as an older man looking back at this point

1:26:59 in the history of standard oil. And if you think about it, like his view is logical. From his perspective. Just like it's logical from the outside perspective to demonize or say, Hey, you're a straining trade or whatever the case is. So it says it's time to pause in this exploration of uh Rockefeller's career to let him explain himself and what he thought he had achieved.

1:27:19 in the eighteen seventies. During World War One, so was that fi almost fifty years later, he had opened up as much as he could. Well follows has been pieced together from these Conversations in which Rockefeller justified himself before be before the bar of history. So this goes on a few pages. I'm just gonna pull out a couple of like what I feel the main highlights into how Rockefeller viewed himself.

1:27:39 Very complaining men had been led to believe that the leaders of this idea were enemies of theirs. So he's describing himself, right? The leaders of this idea meaning Senate oil. Very complaining men had been led to believe that the leaders of this idea Were enemies of theirs and not their best friends. Which was really the case. The standard oil companies work. was of such a new and revolutionary character.

1:28:02 And he's saying it's a good thing for the world. It wasn't a bad thing. I shouldn't have been it shouldn't have been broken up. I shouldn't have been castigated in the press. I should have been celebrated. It was a force for upbuilding. A friendly force For all Allied interests. We wanted a new idea to prevail. We wanted the old struggles to cease. We wanted these men to pull together.

1:28:22 To join us. To take their full share of the business. We wanted to work together. I think it is fair to say that the strong men who were competitors in the oil refining business The aggressive men.

1:28:35 In the best financial condition. And the most intelligent Indeed. The class of men who would be most likely to survive in the competitive struggle were the men who were most likely

1:28:46 to take up our idea of cooperation. And he's saying it only gonna work if it can be organized and run efficiently. In order to make this plan work, all interests involved had to be fairly recognized. Anything less than this And he's obviously describing the role he played, right? Anything less than this, which tended to allow each individual to have its own way, regardless of the interests of others.

1:29:08 would tend to reproduce the old chaotic and very unsatisfactory conditions. From which Those most experienced and capable and business like men We're seeking to leave. And then he's gonna give this metaphor to how he believed the people that did not wanna cooperate with him, his competitors memory, he did not believe he did anything wrong.

1:29:27 And so he's gonna describe these what he calls unreasonable men. And he's gonna use an illustration. He goes, I might more clearly illustrate what I have in mind. uh by describing these unreasonable men were like a group of men who were trying to build a house large enough to shelter All the persons interested. and a part of the men who needed most the shelter and protection of this home

1:29:47 were all the time engaged in digging under the foundations and seeing if they could pull the structure down. And apparently were willing to pull it down even though it fell on them. That's a hell of a metaphor if you think what he's doing. And he said there's like listen, the the people that actually needed our protection the most are the are the ones, the ones that couldn't survive on their own. We invited them into standard oil and they tried to destroy it.

1:30:10 And so again, he's like the benevolent protector. He's I'm saving them. And then he sums it up to be very clear that he thinks what he did was uh like not an act of God, but it was just fantastic for humanity. As a matter of fact, the Standard Oil Company has been one of the greatest, if not the greatest, of upbuilders we have ever had in this country or in any country. And that is a very pleasant reflection now as I look back. I knew it at the time.

1:30:33 Though I realize it more kinly now. I never Doubted it. And part of the reason he believes that is because even though it was broken up as a monopoly Which I'll get to later just made him richer.

1:30:46 He the point is like a lot of the ideas I use to build standard oil are now very commonplace, you know, thirty years later in The business and he describes that as a principle of centralization. The principles of centralization, savings and service. Have operated as we always believe they would. So he's like, Oh, I knew this was gonna happen. I demonstrate St. Now all the other businesses are realizing that. For the benefit of the whole people.

1:31:09 And those distract detractors have now faded away. So basically saying you guys were criticizing what I was doing at the time. Now fast forward a decade or two and all these other businesses are are centralizing, they're vertically integrating, they're cooperating. You know, not to the obviously the degree the Standard Oil did, but he's like now all the people that were criticizing me now are just doing the exact same thing that I did. And then this is just great writing that describes the standard oil company right before the monopoly was broken up. And keep in mind, it's it like something that always shocks me, and I even forget, and even though I've read so much about this, is like you just you freak out how young

1:31:42 Rockefeller was. I think he's like forty, maybe forty six. At this point. But he it's just like he accomplished so much at such a young age. Uh, the standard oil company was not a nation. But it had enough of the attributes of one.

1:31:54 It was a government government of men. Not laws. It was ruled by an all oligarchy of forty one major stockholders. The domain was divided into territories managed by men whose powers exceeded those of state governors at the time. That's insane. Its contracts resembled treaties.

1:32:13 It had its own espionage system. its own secret codes. Its employees to promote the fortunes of the ruling oligarchy, and their loyalty to the company approached that of citizens to a country. When its president spoke. He sounded like the leader of a nation. In theory, the laws of America denied standard sovereignty.

1:32:33 In practice, standard ruled unchecked. State governments could harass it. But standard continued to do exactly what it wished. It finance projects out of its earnings and there probably deprived banks of any say in its operations.

1:32:50 In eighteen. God alone So far as Rockefeller was concerned. had the power to restrain The standard oil company.

1:33:01 And I mentioned earlier the businessman that Rockefeller most admired the one he thought was the greatest he ever came across was Jay Gold. I actually have a biography that just arrived a few days ago of this. Uh the author actually reached out to me and sent me a book And I love the fact that he was hustling his book because the book came out almost twenty years ago. I was like, Oh, I love this. So I ordered the book. I think it's called Like The Dark Genius of

1:33:21 Wall Street or something like that, but that'll be a future episode very soon. But I was reading this section s I was not surpr I was not expecting this where They started out describing and I thought, you know, I'm holding a hand in my hand a biography of Rockefeller. I thought they were describing b uh Rockefeller. And what they do is they use this and I'll just tell you this up front.

1:33:38 It's like no w you thought we were describing I was you thought I was describing Rockefeller. This is actually Jake Gold. And so it's like a brief overview of Gold, but their point was that they thought they were very similar. Um in s into some degree. So I wanna run over that or uh go over this i uh a little bit because I thought it was interesting. Remember, they're around the same age. The the two richest people in the uh in in America, maybe in the world at at their time.

1:34:00 So it's just remarkable that they were they had so much like so many uh similarities. Uh he was reared on a farm and milked cows as a boy. He never drank nor smoked. He was affable to every employee from the head of the department to the humblest. He enjoyed his wealth quietly. So again, I was like, Oh, this is all Rockefeller. No, it's gold.

1:34:18 His wife was quiet, dignified, and unostentatious. Нідерші норхан had social абitions. He rarely lost his temper. Self control Was one of my most profound attributes, he would say.

1:34:31 He was a quiet man. And when he spoke his words were both few and carefully chosen. He rarely boasted. But once, speaking for himself and his fellow capitalists, he said We have made the country rich.

1:34:44 We have developed a country. Coal mines and cattle. Raising as well as cotton. We have created this earning power to buy by developing the system. When he died.

1:34:54 The press said that he was the world's richest man. It also called him. The world's most hated man. The man I just described sounds like John D. But it was not. It was Jay Gold.

1:35:05 They had much in common. They were nearly the same age. Their careers span the same period. Gold died at the end of eighteen ninety two as John D was preparing to retire from business. Their fortunes that year were about the same. Around a hundred million dollars.

1:35:21 When an acquaintance asked Rockefeller who was the greatest businessman he had known, the answer came unhesit unhesitatingly. J. Gold. He echoed the sentiment the sentiment. Cornelius Van Der Bolt. who had long ago tangled with Jay Gold and lost

1:35:35 And he and Vanderbilt called gold. The smartest man in America. Колвапс the single most unsettling force. Ever. To appear on the American industrial scene.

1:35:48 That is a crazy sentence. And then we get some context onto that sentence. He thought in continental terms. When few contemporaries saw much beyond state boundaries. He shook to its heels and An industry already settled in its ways.

1:36:04 When he set out to realize his dream of a trans continental railroad. Given the obstacles he faced were phenomenal. He was an advanced thinker and

1:36:15 In the field of corporate finance, and he set precedents, which were later followed by investment bankers and by state and federal legislatures. Among wheelers and dealers of his day. He had no peer. In his youth. He was obsessed.

1:36:31 with piling up a fortune. No holds barred. He mastered The details of running a railroad. With embarrassingly

1:36:40 With embarrassing ease. He was a loner. Labels do not imply judgments, but But if such were to be made Gold must rank.

1:36:49 As the less honorable And less trustworthy. But the more brilliant of the two. He was indeed The smartest man in America.

1:36:59 At least in the business world of his day. And I just have a quick paragraph for you because It illustrates this idea that you could be a genius founder. As Rockefeller was, and a terrible investor, which he was. Yeah, by eighteen ninety-three, Rockefeller had assembled a small private staff to handle his increasingly complicated personal finances.

1:37:18 Uh then he hired three people to do this. These three people knew something that would have shocked those who regarded Rockefeller as a genius in business. He had been duped in many of his investments. It seems incredible. that a man who had kept a record of every cent he earned or spent from the time he began to work could make such a mess of his investments.

1:37:37 The casual way In which he invested in companies would have appalled Jay Gold. Who explored every side of a corporation. before it got a penny of his money. If a business had a weakness

1:37:49 Gold knew about it. And then the last part of the book is just the idea that Jay Gold dies. Uh, so he Rockefeller's gonna become the richest man and then the government attacks and dissolves uh well, they they attempt to dissolve standard oil. So it says when Jull died The press passed on the title of American America's Richest Man to Rockefeller. He accepted the dubious honor.

1:38:11 But bore it uneasily. You must find some other designation for me, he told a reporter. I dislike being characterized in that way. Wealth isn't a distinction. If I have no other achievement to my credit than the accumulation of wealth, then I have made a poor success of my life. It also brings Bad attention.

1:38:27 Rockefeller's constantly covered in the papers, standard oil, there's all these uh articles and investigations into Standard Oil that appear in the press first, and then once it appears in the press, it flows up into the government. So the government finally tries to do something Um but I do want to point out uh the Rockefeller's response to all this. 'Cause he's not the only person that got extremely wealthy. And he definitely got more he got richer than anybody else, but he had a bunch of partners. But he always took all the blame himself.

1:38:52 Rockefeller took the brunt of these attacks, always accepting responsibility for whatever Standard had done. All others to this day got off practically free of criticism. The company, it is true, was his creation and operated according to the signals that he called. And he was its dominant shareholder as well. But as the outrage against Standard Oil intensified, he could have easily have protested that there were others with leading roles in the company.

1:39:17 And he was not the whole company. But he never did. And then the book ends with the dissolution of standard oil by the United States government. Even though Rockefeller lives For another twenty five years or so. On May fifteenth, nineteen eleven, the United States Supreme Court.

1:39:34 declared standard oil an unreasonable trust. In order that it be dissolved. The Supreme Court's decision contributed further to his welfare, meaning made him even richer. In the first full year. After the dissolution was ordered,

1:39:49 The value of his shares in the thirty eight separate And ostensibly quote unquote independent companies that were created out of the old standard oil. Appreciated by twenty milyen dollars. In nineteen thirteen. The net worth of his fortune peaked at slightly under a third of a billion dollars.

1:40:08 If the market value of his holdings was three times what he carried on his books, as it seems likely. Rockefeller had become. The world's first Billionaire. On record.

1:40:22 And that is where I'll leave it. highly recommend reading the book. If you buy the book using the link that's in the show notes in your podcast player. You'll be supporting podcasts at the same time. The very best way to support the podcast. is to give a gift description to a friend, colleague, co worker, family member.

1:40:35 Whover you want. That link is also down below in the show notes and is all always available at founderspodcast.com. That is two hundred and fifty four books down. One thousand ago. And I'll talk to you again soon.

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