#378 The Last Oil Baron: Leon Hess

0:00 Leon Hess could recite the margins of every gasoline station on the East Coast. John Mackie, the founder of Whole Foods. could do the same for every Whole Foods. store. I actually spent a few days with John Mackie and he told me one of the craziest things that anyone has ever said about the podcast. He had listened to over a hundred episodes before we met. And he told me that founders existed when he was younger.

0:21 Whole Foods would still be an independent company. that since the podcast and all of His She's Grace Entrepreneurs constantly emphasize the importance of controlling expenses. He would have put more of a priority on it, especially during good times. During boom times, it's very natural for a company. And for human nature to just not watch your costs as closely because everything is going so well. This is something That history's greatest founders would warn a guest.

0:44 In fact. Andrew Carnegie would repeat this mantra time and time again. He would say. Profits and prices were cyclical, subject to any number of transient forces of the marketplace. Costs, however,

0:55 Could be strictly controlled. And any savings achieved in cost were permanent. This is something. that I was talking about with my friend Eric, who's the co founder and CEO of Ramp. Ramp is now the presenting sponsor of this podcast. I've gotten to know all the co founders of Ramp.

1:10 I've spent a bunch of time with them over the last year or two. They all listen to the podcast. And they've all picked up on the fact that the main theme from the podcast is on the importance of watching your costs and controlling your spend. And how doing so can give you a massive competitive advantage. That is a main theme for Ramp. The reason that Ramp exists

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3:35 Tom David sent you. That is Vesto with a V, so Vesto.com. The link will also be down in the show notes. I hope you enjoyed this episode. Leon Hess was a remarkable person. who led a remarkable life. The book that I want to talk to you about today is called Hess, The Last Oil Baron

3:51 And it's written by Tina Davis and Jessica. Resnick Alt. I actually want to start at the very end of the book. At the end of the book, the two authors Actually talk about why they decided they spent so much time studying the life of Leon Hess and why they thought writing the book was really important. He said, We think this extraordinary man lived an extraordinary life.

4:09 The reason we call Hess the last oil baron is that we believe him to be the last of his kind. The last man who could create a multi billion dollar Multi national vertically integrated energy behemoth. That could do everything from finding oil in far flung fields off the coast of Indonesia

4:26 To selling you a tank of gas and a pack of gum. at the local station on the corner. Sixtін years after his death. Leon's legacy. Is starting to be erased.

4:38 From popular memory. This book is an attempt to capture his life. The company he created. The man he was and the ways in which his life and industry had Changed the nation.

4:49 He should not disappear. From public view after reading the book. After spending s the last several days. re reading all of my notes and all of my highlights. And really just thinking about the outline and the conversation I wanted to have with you, I couldn't agree more. He should not disappear from public view.

5:04 I wanna start the story of Leon Hess. I think the best way to start the story of Leon Hess is actually talking about His father. And really the failures of his father's Or heard of his father.

5:14 that led to in in large part that led to the success of his son. I always think of this maximum that repeats throughout the history of entrepreneurship, that you can always understand the son by the story of his father. The story of the father is embedded in the son. So Leon's dad. was a fail entrepreneur, said Leon's dad dabbled.

5:30 in many things but never had great success at any of them. He had strong entrepreneurial energy. And he tried his hand on a lot of things. He tried to sell produce and he opened a bunch of butcher shops and he tried in real estate. And finally he tried to deliver coal. So Leon's dad

5:44 begins. A small coal distribution business. in New Jersey. This is very important. Without Had

5:51 doing this and then Leon realizing that they were in the wrong business, there would no be no Pass oil corporation. So during the Great Depression Leon's dad actually goes Bankrupt.

6:03 And as a result of this Leon's family is unable to send him to college. He's the youngest son. The three older children all get to go to school. So even though Leon never went to college, he later succeeds in a cutthroat and highly technical business. Despite Lacking a quote unquote formal education.

6:22 There's a series of odd jobs that Leon does and Leon and his brothers do to try to help the family survive the the Great Depression. One of them is they would go down to the the Jersey shore. and actually dig up clams and then sell the clams to local restaurants. So they would Work all day.

6:39 and they'd be lucky to make fifty to seventy five cents a day. From digging up clams. One of the benefits that Leon gets from being a kid and working for his father in a coal yard. Delivering coal is that He got used he he was accustomed to handing on a large workload.

6:55 It says the hard labor at the coal yard helped shape Leon's ethic of working long hours. He worked every weekend, you'll see even when he's has this giant uh you know, vertically integrated oil company. He would still work tirelessly all the time. There's stories of You know, him popping up a plants at two in the morning to check on things to make sure everything's Going well.

7:12 Now There's something that's I think this is one of the most important parts of the book is He's he's gonna start this company at nineteen years old, right? He's gonna get into the fuel delivery business. So The reason I think this is one of the most important parts

7:25 Of Leon's like story. is because Leon realizes that his dad picked the wrong business. This also shows how shrewd and smart Leon was from a young age because He's like w the coal business is a dead end. We're hauling these hundred pound

7:39 Bags of coal. And the profit margin is Tiny. And with what might be one of the most important ideas Leon ever has. Arguably the most important ID ever has he's decides he's gonna

7:49 uh switch from delivering coal To delivering fuel oil. So I get to this part of this book. Leon reminded me of Sam Bronfman, so Sam Bronfman and Leon has both started multi billion dollar family dynasties.

8:03 And both started By fixing the mistakes of their father. So I did not know who Sam Bronfin was. I didn't know about the Bronfin family. Many, many years ago. I'm actually reading this is all the way back on episode fifty three.

8:15 I was reading Mike Ovitz's excellent autobiography, which is called Who is Mike Ovitz? And in that book, it talks about Mike is Mikeovitz's brokering a deal. uh between Seagram, which is the Bromfman's Family company. Uh Seagrum buys MCA Universal for five point seven billion dollars.

8:34 And so that led me to start researching the Bromfin family. I find out the patriarch of the Bronfin family is this guy named Sam Bronpin. I find his biography. I read it. And then I'd make an episode. This is uh episode one sixteen. I think it was six, seven years ago. And

8:46 In that episode Is the very first time that I use the phrase generational inflection point, which is this idea that a single individual can change the trajectory. Of its entire Family for generations to come. Sam Bronfin was that from the Bronfin family.

9:01 Dynasty. Leon Hess is that for the Le uh is for the Hess family. So In that the the reason I I I I thought of this when I I was reading about Leon Hass and I got to this section of the book. Is because

9:12 Sam's a young kid working in the family business. H and he realizes that his dad is doing it wrong. His dad has the wrong idea. So Sam's dad sold horses. And every time

9:24 And Sam's like a little kid when this is happening. And so what and Sam's you know, following his dad around. And working the family business is very similar to what Leon's trying to do with his fat uh father when he was really young. And so every time

9:35 Sam's dad would sell A horse? He would take the customer to a bar For a celebratory drink. And young Sam realizes hey Dad

9:44 We're on the wrong side of this transaction. We're in the wrong business. The the guy selling us The drink is making more money than the guy selling the horse. And that observation, that single observation, that single idea that the young Sam Brahman has

9:58 Changes the Bronfin family forever. Sam proceeds to create uh goes on and creates, you know, the world's largest liquor distilling firm. They they branch out into all kinds of different businesses. To this day the family, you know, hundred year 150 years later, 120 years later, however long it's been. Is Still, you know, one of the wealthiest families in the world.

10:14 So Leon realizes Dad, we're in the wrong business. and proceeds to switch the product too. So Leon sees an opportunity.

10:23 And he's like, I'm gonna bet on oil, specifically fuel oil. Instead of coal. as a more economical way to get energy. So in his own words later on, there's only a few quotes from Leon, he's very quiet person. Uh

10:36 He says he started a quote unquote little oil company. So he starts his little oil company. In nineteen thirty three. Leon is nineteen years old. And as Leon describes this, y you couldn't start from more humble beginnings.

10:50 His entire oil company His fuel company's fuel delivery service. He says I bought a second hand truck. And I started selling heating oil.

10:59 And I built this company up over a number of years. So Nineteen thirty three, nineteen years old. One used truck. That is going to be the beginning of the Hess family dynasty. So he is going to find buyers. For residual oil that refiners didn't want. What is residual oil that refiners didn't want? This is gonna remind you.

11:18 Or reminded me at least. of Sam Zamurri in the book The Fish That Eat the World. You could think of the same business the same way that Sam Zamurie built his business, is the same way that Leon Hess built his business. In the sense that They discovered opportunity hiding in plain sight. Literally the product that both of

11:35 Both Sam Zamurra and Leon Hess are gonna sell. Was just being thrown away. This is one of the most important parts of the book and of Leon's life. So Leon realizes that he could sell what was called number six Fuel, oil.

11:47 It's called residual oil. It's called black oil. Essentially it's this heavy Almost like molasses. Uh Thick.

11:55 Oil. that other refiners are just throwing away. So Leon's plan is hey, I'm gonna take this seven year old second hand use truck, right? It's it holds six hundred and fifteen gallons. Of oil.

12:08 I'm gonna go collect this fuel that you're throwing away anyway, so he gets a good deal on it. From area refineries in New Jersey. And then repurpose it as a cleaner alternative to coal. So what he realizes is that They call it light refining. It's really like essentially boiling.

12:23 Just boiling this Black oil, this fuel oil. you could actually then go and resell it. So he sells it to businesses and manufacturers. use it to as heating oil. So he sells it to for large ships can use it.

12:36 power plants, so a lot of like our early electricity uh plants would use it. And then if you have like a giant factory and you need to heat in the winter. It would uh if you could use fuel oil for industrial heating as well. And so when I got to the section of the book, I went and pulled out my notes and highlights for the book on Sam Murray, which is called The Fish Sake the Wheel. It's episode two fifty five, you haven't listened to it yet. The parallels between Sam and Leon are remarkable because they're both nineteen.

12:58 At this exact same time when they find Wh will turn out to be their life's greatest opportunity. So I want to read Some quotes here that sounds exactly like what's happening in Leon Hess's life. Sam spotted an opportunity where others saw nothing. The other refiners

13:11 are literally throwing this in the trash. is exactly what Samson Murray did when he got when he started in The banana. uh trade. He he started with this thing these things called ripes.

13:21 Where they're they would come Uh into the port. And they were just throw them away'cause they're like, Hey, these things you have to eat'em in like the next two or three days. We can't deliver to the end customer fast enough. So let's just throw it away. So it th there's a quote from uh the fish eight the wheel that describes this opportunity that was hiding in plain sight.

13:37 He says as far as he was concerned. Ripes were considered trash only because Boston Fruit and other large firms We're too slow footed to cover ground. It was a calculation based on arrogance. I can be fast.

13:49 Where others have been slow. I can hustle. Where others have been satisfied. with the easy pickings of the trade. And I would say not only was the calculation based on

13:58 Arrogance, but in both of Leon's case and Sam Zimmer's case. It was a calculation based on desperation. They had no other option but to succeed where others had failed. So Five years later.

14:10 Okay, now we're nineteen thirty eight. Leon now has a fleet of about ten trucks. That are buying You know, there's there's previously disposed fuel oil from other refiners. doing this light boiling, this light refinery.

14:22 And then transferring it and delivering it to other customers throughout the East Coast. He eventually is buying so much of this fuel oil that he has to buy a piece of land and he purchases some secondhand oil storage tanks. And he starts an oil storage terminal.

14:37 on this river in New Jersey. Now keep in mind. This was one of the fascinating things about this part of the book. Leon's twenty four years old at this point. And he's still living with his parents. And his dad is now working for Leon helping him, in fact.

14:50 Leon provides a job for his dad. All the way until his dad was in his nineties. And so for the first few years of his oil business, this is what his business consists of. It says Leon cut his teeth Around transporting oil to refineries as efficiently as possible.

15:08 and distributing the freshly produced fuel effectively. Now He is very unusual. Uh, Leon is very unusual for most of the oil barons that you might read about. Because essentially he works backwards.

15:20 to the source. A lot of people, you know, they write a ton of books about the people actually discovering oil, right? He actually Leon comes into the industry incrementally. So he starts with the sale of the end product. Before working his way backwards into Fuel storage.

15:34 Refinering. And then finally oil exploration. And actually discovery. So as a young Leon Hess is trying to build his oil business, World War Two breaks out. This winds up becoming excessively important because

15:48 He's going to go to Europe. Leon actually serves as the fuel supply officer for General Patton. This experience helps Leon develop talent for logistics and moving fuel efficiently. They create this thing called the Red Ball Express. The Red Ball Express was a vital ally logistics operation during World War Two. It was established to rapidly transport supplies. From Normandy.

16:08 to advancing troops following the D Day invasion. So If you've ever studied General Patton and I have a few books on him, including his autobiography, which I'll I'll probably do an episode on eventually. His one of his main things was that he he's just gonna move faster than everybody else. He thought speed was one of the best weapons. In fact, uh

16:24 He's got this great i if you haven't listened to Patton's speech to the third army. It's one of the most famous speeches ever given. I've listened to it a bunch of times. But there's a couple of lines in there that kinda give you what was important to Patton. And so when he says when a man is lying in a shell hole, if he just stays there all day, a German will get to him eventually.

16:40 To hell with that. My men don't dig foxholes. Foxholes only slow up an offensive. Keep moving. Later in the speech he says I don't want to get any messages saying I'm holding my position. We're not holding a goddamn thing.

16:53 We're advancing constantly and Patton wouldn't have been able to advance constantly, you know, he was a tanker. Without This This the way to transport

17:02 fuel rapidly and to follow him essentially as he just marches through France. And the way that he was able to have uninterrupted supplies was the Red Ball Express, which A young Leon Hess. was working on so the Red Ball Express. was a marvel of logistics.

17:16 and helped ensure the Germans crumpled under the onslaught onslaught of a quick moving opposition. Said the Germans were still heavily reliant on moving things through h by horses, moving fuel and supplies by horses, which blew my mind. uh the Red Ball Express lasted for eighty one days. In its eighty one days it created a blue print

17:35 for how to move much needed supplies across the field of war. At its peak. Six Man by twenty three thousand people.

17:45 including drivers and mechanics. Red ball trucks. Transported over four hundred and twelve Wow. Four hundred twelve.

17:53 Thousand tons. of supplies in total in eighty one days. So then we get to the part where post World War Two he comes back to America. And he's gonna have this massive explosion. uh in the size and success of his business.

18:07 And so anytime that there's an idea, I assume that you have Portra the book Portray Zalmac. Um, if not, I'd order it immediately. And I would go to the index of that book. And I would read about poor uh about Charlie Munger's surfing model. And so what what

18:21 Uh What Munger does is Essentially you can reverse engineer like why somebody would was successful. And so in that book, he r there's a There's a f uh a few pages where Munger is analyzing the outside success of Les Schwab.

18:36 And Munger says anytime you have extreme success, it's usually you know, this Lalapalooza effect, it's these multiple factors working together to create these exceptional results. And so he analyzes What were the multiple factors that were contributing to less Schwab success.

18:49 He's like riding the Japanese tire wave. He had this Brazil br brilliant incentive systems where he would share profits with uh fifty percent of the profits with each of the employees who worked in each store. Uh he was a you know a talented fanatic. He was A gifted marketer and advertiser. He had this very systematic approach.

19:07 Uh and how he executed and how he wanted all of his stores operating. And so over a few pages, you know, Munger is just analyzing this for us. And so I thought of this when I came back because there's I I feel the same exact thing is happening in Leon Hess's life. Where There's

19:21 Leon's post World War Two wave. There's a series of events that were outside of his control that he surfed that they first of all interacted with each other to produce this Lollapalooza effect, but also he surfed magnificently. So first of all He comes home. And he comes back to New Jersey and he's just like well

19:37 I just got essentially world class education. In logistics. How to use trucks to mu to move fuel. That just so happens to be the best thing that could have happened to me, considering that is my business. Okay.

19:51 So at this time again, it goes back to he's still moving fuel oil. This is that you know, they has a consistency of molasses. It uh oil other oil men. would call it the bottom of the barrel because it was so heavy. It was the heaviest of all the refined products, okay? Why is that important? And why w at one point I think they said that

20:09 Uh, I think the book says that Leon has something like eighty percent of the market. uh market share for few oil. Why? Because to move fuel oil successfully. Right. You are required to move.

20:21 Quickly. And you have to have a mastery of logistics. Because If it's not kept at the right first of it's not delivered fast enough. And if it's not kept Warm enough.

20:29 It will transform from liquid into like It cools and it and it hardens. So the first part of Leon's post World War Two wave is the fact that now he is maybe has maybe the most advanced logistics training for any of his competitors, and he's able to transport this.

20:44 Faster. And more efficiently than anybody else. So number one, he's just able to get the job done. Number two Fuel oil. is now going to have a massive

20:55 increase in demand. Demand for fuel oil surged to unprecedented levels as its use for power generation. Electricity plants used it. Uh and in shipping expanded. Hess called fuel oil. The workhorse fuel of industrial America. For its uses in utility boilers.

21:11 Factory machinery, and heating large Buildings. Number three, you have this massive explosion in demand of driving. The industry grew to serve a burgeoning US middle class That wanted and needed to drive more.

21:24 And has metamorphosized. From a small dealer into one of the largest gasoline retailers on the east coast. This is part of Hess's constant march to go to the source. Memory starts a fuel delivery. Then storage, then refineries, then retail gas stations, and then finally oil drilling and expiration number four.

21:41 S this is a massive increase. Th this is wild to me. The expansion of the industry that Hess is operating in in forty five years, okay? So let's start The the the dawn of the twentieth century, when Rockefeller was at his peak.

21:54 Right. Production. was a hundred and seventy four thousand barrels a day. Even at that size, that can make Rockefeller probably the richest person on the planet, right? You fast forward forty five years. Where we are in the story where Le uh young Leon Hess is building his oil company.

22:07 The production is now four point six million barrels a day. And then number five, Leon starts building relationships and contacts, which are going to lead to greater sources of capital. So if you really think about what the what the the Leon's post World War II wave. Number one, he's got the logistics expertise. Right person, right set of skills, right time. Number two, the demand for fuel oil is exploding. Number three, the US economy expands drastically.

22:29 Increasing the purchasing power of the middle class and as a result demand for gasoline skyrockets. Number four. America's insatiable appetite for all types of oil. And then number five, he finally unlocks relationships in capital, including going public, which I'll talk about in a minute, but And you talk about what about w hi hi one of maybe the most important relationship that that he ever builds.

22:48 is this relationship with this guy named David Willens. David is almost like I mean essentially it's his i it's gonna wind up being his father in law. But I would Think of him as almost like the father that Leon chose. So David is actually the Attorney General of New Jersey.

23:03 And the book says that Land's connection to David was critical in helping shape his success, David would become his friend, his advisor ultimately his father in law And help support Leon's transformation from Cole Hall Haller. to oil barren.

23:16 Leon met David before the war. In fact, while he was fighting in the war, David oversaw Leon's business. So he comes back. From the war. His business has growing demand, but he's in dire need of money. And so actually David helps Leon build a relationship with Chase Manhattan Bank. That bank at the time is being run by David Rockefeller, which is an interesting connection here. And one of the most important traits for Leon was

23:39 Loyalty. He expected loyalty and he gave it in return. And so because He he says he gave all of his business to Chase. because of the effort they put into building the relationship with them. He says they were the only ones who ever paid any attention to me. The rest of the banks never took me seriously.

23:55 David saw a lot of potential in Leon. In fact, David is the one that introduced his daughter Norma to Leon. They're gonna be married for the rest of their lives. At the at the time where he does this Leon doesn't have a lot of money. All the money's going back into the business, so he actually has to borrow money to buy a suit for their first Date. The contrast between their classes was obvious. This is the daughter of the attorney general who had grown up with a great deal of privilege.

24:17 was in a different class from the owner of a fledgling fuel business. And yet David and Leon continue to share a deep connection until David died in in nineteen eighty eight. And after David died, someone else described David's view and relationship with Leon. says David didn't mind rich people. He liked them.

24:33 But the ones he really liked started out poor. Like his son in law Leon, whom he loved. And it's also from David where Leon learned, you have to balance work and family. So says Hess was fully established as Leon's first child before he met Norma. And he spent long evenings and weekends dedicated to the company's birth and early upbringing.

24:50 But just as David had balanced a demanding career. With dinner at home each evening. Leon did the same. Sometimes having to return to the office for long hours at night after spending time with with his wife and children.

25:03 So then Leon continues his march to getting closer and closer to the actual source. At this point, he's buying and selling and storing fuels. And Lion wasn't going to be content with just buying oil from refineries. He's going to start his own refineries. So he actually builds his first refinery in New Jersey in 1957. So now as a result, the company would no longer just be a middleman between refiners and their customers. It can now make its own product at its own facility.

25:26 And then he starts adding other refineries. Builds one in Texas. But eventually the reason I wanna read this part to you, this entire section, which this actually blew my mind because again Speaks to the size and the scope of his ambition. You know, he starts out as this nineteen year old kid.

25:39 Use truck. I'm just gonna try to make my own way in this world. Now we're fast forward Three decades later, he wants a building The largest refinery

25:49 In the Western hemisphere. And he does so in the US version Islands. Why? Why US Virgin Islands? Because the US Virgin Islands hold a key advantage. So the location that he chooses for this refinery.

26:02 allowed Leon to take advantage of federal tax benefits. This may be the only place in the world that you could have done this. So the refinery is able to secure foreign refiner status, which allows it to circumvent federal rules. that required the use of higher cost US flag vessels. When shipping oil to the east coast.

26:21 While Simultaneously, at the same time. Also receiving Subsidies. from the United States Department of Energy as a domestic refinery.

26:30 There is a line I read in the biography, the autobiography of Trader Joe. The the the guy that started, you know, the the grocery store. That I think about over and over again. And he says as I learned Time and time again.

26:44 Success in business often rests on a minute reading. of the regulations that impact your business. That's exactly what Leon Hess did here. He picked the one place on the planet. We had this combination

26:57 of unfair And I don't mean it's legal'cause it's completely legal. of unfair advantages. And I want to stack another unfair advantage on top of this, or Leon stack another unfair uh advantage on the top of this.

27:08 It was going to be a local monopoly. There was only going to be one company allowed to build a refinery on the island. Leon had to win this, in fact. There's a funny interview. With the governor of the Virgin Islands.

27:20 uh talking about how he negotiated with how how Leon Hess negotiated. Says from the day Leon Hess entered my office, he did not leave the Virgin Islands until the deal was consummated. And then Leon also negotiated for another series of benefits, so he also gets Uh sixteen years tax free in St. Croix. partial government reimbursement for dredging a channel and free use of that channel for sixteen years.

27:41 Now This this minute reading of regulations. It's not like this is a one off This is not something that Leon did one time. He he found another loophole and another like uh regulatory advantage. Leon figured out ways to make laws work to his advantage, in one instance.

27:56 He found that oil Would not be considered an import. And thus therefore taxed, right, as one. If he bought it from St. Lucia to Saint Croix by Bars. So he took apart his large ships.

28:08 Had the engine propulsion cut in two. And the bulkheads wielded welded. On each side. And then pin them back together. The pins were huge, so technically the drive portion could be disconnected from the cargo portion.

28:22 Well it may not appear so to the untrained eye. Legally. These boats qualified as barges. So the massive quantities of oil they carried Were exempt

28:34 From the taxes. That would otherwise. Be levied. So now he has the largest refinery in the Western hemisphere. It's perfectly located because he's able to refine oil coming from the Middle East and South America.

28:46 He refines it in the US Virgin Islands and then ships that fuel to customers on the east coast. of America. Now There is an idea in here where If you're looking to do something in your business I bet you if you study

28:59 other industries or other companies in your same industry, they attempted something in the past that was similar. And yet forgotten. He's building in this in I think in nineteen sixties. He wasn't the first to look in the Caribbean. He wasn't the first oil baron to build a refinery in the Caribbean. Shell. built one in nineteen eighteen in Curacao.

29:16 And Standard Oil had built a refinery in Aruba in Nineteen twenty nine. And so there's all these stories in the book about how important this one refinery was to his business. And you see this with his actions. The refinery is incredibly important to Leon, so

29:27 He would fly in every Friday to inspect his refinery to review its operations, finances, and crude state. Across the refining industry stories of Leon's persistence at the plant became legend. Leon would show up and check units at two AM. To make sure they were running. Properly.

29:44 At the same time he's building his refineries, he's also starting to expand into gas stations. He w opens his first gas station in nineteen sixty in New Jersey by the end of the decade. He had gas stations in sixteen states. There was an interesting line here. that I didn't realize he purposely did the opposite.

30:00 And simplified. what his gas station did compared to the existing competitors. Unlike his competitors, the head station attendance didn't change your oil. They didn't carry batteries, tires, or windshield wipers, or have car mechanics on site. And for a long time they wouldn't even take credit cards.

30:15 Because Leon felt That slowed the refueling process down. And so two separate times Hess merges with another company. This is very important. So the first time It reads to me that he merges with this company just to take Hess public. So In nineteen sixty two, Hess merges with this company called Clear Track Corporation.

30:34 They used to be a Cleveland based farm equipment maker. Okay, but they just sold off most of its equipment business the year before. So I'm not at all uh it's not all obvious like what the company's actually doing. But this is what the book says. What Leon was getting with the purchase was a seat on the New York Stock Exchange.

30:51 Hess would finally become a publicly traded company. And becoming a publicly shaded company open new sources of financing to Leon. Six years later, there's this oil exploring Uh called Um Merida.

31:04 The name comes from combining America and Canada together. So in December nineteen sixty eight Hess merges with America. This is by far the biggest deal in Hess's history. So it takes you know, a company that originated as this small time distributor of residual oil. Now with the combination of

31:21 America's business. looks like a miniature version of Exxon. So the deal makes Hess into a vertically integrated energy company. With its hands in every single stage of oil's journey. From discovery to gas tank. Leon had join the board eleven months before the merger was announced.

31:39 To get that seat. He had to make a massive investment. So Hess made a big Two years earlier. They spent a hundred milyen dollars. To buy

31:49 Nine point seven percent stake in the company. And so this is another example of Leon getting closer to the source to the actual discovery of oil, right? And having more control over his business because After he drastically expands.

32:02 His refining capability, which I just told you about. He's buying having to buy more and more Oil. In fact he is Shells.

32:10 biggest single customer. And one thing that Leon was worried about, he's like he didn't want his company to be held captive. And the reason I The the combination of of Hess and um America was actually interesting.

32:24 was an oil refining and marketing company. With no significant production facilities. And America. was an oil producing company with no refining or marketing facilities at all. Look how close they were to

32:36 Like the the each each other's production. So The year of the merger in nineteen sixty eight. Hess. was refining an average of A quarter million barrels of crude oil a day.

32:46 And America is producing About two hundred ninety thousand Barrels a day. And there's a lot of stories of just how wild the oil business is in the book. There's a great line. It says the oil business is not all beer and Skittles. Uh, I was on my back last week. Uh I had bronchitis, so I was like super six.

33:03 For almost a a week. And so I went up uh watching a bunch of things that I normally wouldn't have time to do, and I actually binge watched the first season of this this show called Landman. Which I thought was actually pretty good. And there's a great line in Landman.

33:17 Where he said, you know, there it's it's a it's a Show about their own business. In Texas. And there's a great line from, you know, the billionaire Uh

33:25 Head of the oil company, the the one of the main characters in in Landman. He says Describing the oil business, which I thought was great. He says our business is a constant state of crisis. Interrupted by periods of immense success. I thought that was a great way to put it. Uh one of the craziest stories

33:40 uh in the book is Leon's talking about, you know, you he ha he's going all over the world. To source more oil. In s in some cases, you know, m these are these are dictators and so he's actually having to negotiate with like a representative of Gaddafi in Libya. And right in the middle of a negotiation the guy just pulls out a gun and puts his pistol on the on the tape

33:59 On the table between them. I guess as some kind of like bargaining chip. Or just saying, Hey, realise who you're dealing with here. Um but there's one thing that I admire about Leon.

34:10 He's got it. He's got a bit of like an old school East Coast. like gangster to him. And I don't mean that as pejorative. I mean like he believed in like a handshake handshake agreement between gentlemen.

34:21 He thought it was your duty to keep your mouth shut. He would talk about don't write anything down. Even when he was like bribing people. He did it in an honorable way. Uh so he he writes a A letter to shareholders. Remember, this is a publicly traded company.

34:34 And he has the right. uh letter to shareholders because the the the regulations in the oil industry are changing. So I just want to read some excerpts from this letter to the shareholders. He goes, in the hope of obtaining a benefit for our corporation, I made a series of payments Substantial in the aggregate

34:49 to a foreign government official. The bribery was unsuccessful, he told shareholders. The payments were made in the hope of promoting a project. Which never materialized, and the company received nothing as a result of the payments. The bribery money was his

35:03 It did not come from the company's coffers. And had and he hadn't sought any reimbursement. And no deductions were taken from the payments. So again, even when he's E even when he's bribing.

35:15 uh you know, he's be he's doing it in in an honorable way. He's like I did with my own money. I didn't do like I didn't ask to be it didn't come from the company, I didn't ask for any reimbursements. But the reason he brought this up Is because less than a year later. uh the payments that Leon was writing about would be illegal because Congress enacted

35:31 uh a new s source of regulation. And it's called the Foreign Corrupt. Practices act. To make overseas bribery and political contributions a crime. in the United States.

35:42 It's actually a pretty funny line. In the book that came right after this. You know, kinda talked about Essentially says a practice as old as cross border trade itself. was now under scrutiny.

35:54 And I think it just speaks to how wild the oil business is. Like he you know, he's He in some cases he's negotiating with people and they're like Th they essentially one family runs the entire country. It's like okay, yeah. It's not just oh, you can buy our oil and here's the money. It's like

36:07 Here's the price for oil, by the way. you have to use this company and my uh my cousin happens to run that company and you have to use Uh, if you need to build roads, then you have to use this road construction company. Oh yeah, that happens to be my brother in law. It's just there's just Just a wild Life.

36:22 and industry that this guy uh that Leon, you know, built this this massive company in. But I I did think it was very fascinating that even though the company was publicly traded. Like he really ram it, ran it like a family business. And one of the things I most admired about Leon was how close he was to not only his son, but his entire

36:40 His entire family. He ran essentially this was like a family venture for eighty years. It just so happened to be one of the I think was like the fourteenth most valuable oil company in the world. And w I think this really speaks to this work. His son John, who takes over as a seer role after Leon does. at John's wedding, you know, Leon was the best man. And so the book talks about the family business at length. It says the Hesses were a close knit family. They spent time together not out of obligation.

37:03 But out of general affinity. And they were fiercely loyal to one another. For Leon, his life's ventures were centered on the family. So there's a bunch of interviews And quotes from the His daughters.

37:14 Uh, says he was an extraordinary father and role model. This is his daughter Marlene Hest. His standards for himself and our family were high. He couldn't tolerate deadbeats or liars. He was a man of his word, so we had to be two. He expected the best of himself and also all of us. He worked hard and so did we.

37:30 He cared deeply for his fellow man. And instill that in us too. His other daughter Constance made a list of other lessons that she remembered from her father. This is after he her father passed away. Treasure a good name. Treasure a good name is something he'd repeat over and over again.

37:44 Hold your cards close to your chest. Love is unconditional. And this is this is really funny. If you have to talk to the press, make sure that you're not the story. And so as a young girl in the nineteen fifties, his daughter Marlene said she would remember wearing her pajamas.

37:59 And her slippers. and returning to Leon's office with him after dinner. So at this time The company's headquarters We're still a set of trailers. This part actually reminded me of Walt Disney.

38:11 I read this seven hundred page biography of Walt Disney multiple times and there's a great excerpt from that biography. about Walt Disney and the way he was with his daughter that reminded me. of the way Leon Hess was with his daughters. says uh Walt Disney would chase the girls around the house, cackling like the witch from Snow White. Or he would troll them endlessly by their heels for hours and hours, Diane would say that's w one of Walt's

38:33 Daughters. Or he would stand in the swimming pool and let them climb onto his shoulders. I thought that my father was the strongest man in the world and the most fun. Dan recalled. At night he would read to them.

38:44 And on the weekends he would take them either to Griffin Park Or to ride the merry go round or to the studio. Where they would follow him. As he snooped about and pedal their bikes around the empty grounds while he worked.

38:56 This is what Walt said. They used to go they used to love to go with me in those days. And that was some of the happiest days of my life. They were in love with their dad. If you did not listen to that episode, that's episode three forty six. It's called How How Walt Disney Built Himself.

39:12 It's one of the most incredible books you can read about one of the most incredible entrepreneurs to ever live. Um, outside of the office, Leon was there. for his children while still running an increasingly major company. Uh during the summer His son would participate in swim meets.

39:25 He would arrive just in time to see John swim. And then get back into his car where a driver was waiting to whisk him away back to the office. Something that the Hess family had in common with a lot of the people you and I have been discussing the past few weeks. If you look at the Wallenbergs or Hetty Green. They train them in business. both the Green family, the Wallenberg family, and now the Hesses at a very, very young age is really smart.

39:46 Something SA Lauders family did, something the Walton family did. This just this idea just reappears over and again. says the whole Hesse's social life largely spun around Leon's growing business network as they entertain bankers and colleagues at home. indoctrinating their children, especially John in the corporation's culture and preparing John to run the rapidly expanding business. From the age of seven,

40:05 John was being groomed to take over Hess. John spent time in the trenches. It's just like the Wallenbergs and the Greens again. John spent time in the trenches, learning the business by pumping gas at a station in Jersey, doing accounting for a refinery. Are taking part in operations in St. Croix and the oil fields in Oklahoma. In college, John studied Arabic and Farsi, preparing for a career leading

40:25 A multinational oil company after getting his undergraduate degree at Harvard, John attended business school striking up connections That'll help him guide the company. Leon would tell his son and his daughters, treasure a good name. He wanted the Hess name. to be recognized and respected.

40:40 And so throughout the book, his kids are talking about the way he ran his company. The people working inside of the company for multiple decades talked about this. So I made a list of Really just things that reappear over and over again. Leon was extremely focused on details and appearances. Details, details, det details over and over again. He was obsessed with the details of delivery. At budget meetings he would quiz the head

40:59 of the company's trucking division on the amount of life Left in the tires. There's several quotes throughout the book on the importance of cleanliness. He was obsessed with things being clean. Says the first thing I look at in an oil tanker is the engine room bilge. Clean villages to no good housekeeping.

41:16 He said that in nineteen eighty seven. Remember, he starts his company in nineteen thirty three. He dies. In nineteen ninety nine. He was obsessed with cleanliness. In nineteen thirty three? He was still obsessed with cleanliness.

41:26 in nineteen eighty seven, right from the start. He made sure his trucks were kept clean. Employees learned That working at a Hess facility meant painting and repainting to make everything look like new. Whether it was a huge storage tank.

41:39 Or the white curb. at the Hess gas stations. Again, the importance of cleanness and order is repeated. Leon realized early on That having the cleanest. Safest seeming gas stations was not only aesthetically pleasing, but

41:51 It could also provide a business advantage as the family car and car tracer becoming more prevalent. Hess would be the easy choice for those looking for quick service and clean bathrooms. giving him a potential leg up on rivals who did not pitch put as much emphasis on appearances. As a manager Leon had been described as tough but fair. He had an exacting eye for detail. But he imposed the same standards on himself.

42:14 as he did on others. Work hard. Know everything you could about your business and if you made a mistake, learn from it and move on. He is often described as fatherly. And no one at either the Hess Company or the New York Jets owns.

42:26 the New York Jets for like three decades, which I'll get to in a minute. uh wanted to disappoint him. This is something his players talked about People in the coach's staff. people that the executives and even people working in refineries for Hass talked about they they did not They mired him so much.

42:39 They worked hard and they didn't want to disappoint him. Uh, he wasn't prone to emotional outbursts. He came from a school in which a handshake was sufficient for a deal. Leon was a gambler at heart.

42:51 He wasn't afraid of risk. Leon ran his company with the ambition of a major oil company combined. With the mindset of a startup and one thing that he would do He felt the fact that he was always on the road, he was a he was a tireless traveller. that he was able to seek out opportunity where other larger and uh oil companies were kinda l little lazier and they w they wanted opportunities to come to him.

43:11 uh come to them. Leon traveled a lot for his job and he encouraged those who work for him to travel as well to find new opportunities. As an entrepreneur, Leon had the opposite mindset. as some of the major oil companies that let opportunities find them. He was always hungry for new prospects. He was never averse to taking risks. He loved negotiating. He was unpredictable.

43:29 And he used that unpredictability to his advantage. He would take a lot of trouble to get to know his counterparties and their families. He built very strong relationships. He had great connections all over the world. This is very similar to the Wallenberg's if you listen to the last episode I just did. Leon knew each employee by name.

43:45 He put effort to know everyone he worked with. He even knew the name of the guy who fixed the air conditioning in his office. He had both an exacting attention to detail and the type of outgoing engaging personality That made him stop executives and industry acquaintances who were too eager to get into business talk.

44:02 At the start of a phone call. Instead, he wanted to hear about their wives, their children, and their lives outside of the office. This is something that's repeated always. Over and over again in the book. This was the type of family owned business touch. That Leon favored.

44:17 He also ran a more efficient business than his competitors. One competitor told how Leon showed them how to do more with less. He ran a facility with four hundred people. where other companies would have used twice as many workers. There's a great line in the book, How to Make a Few Billion Dollars, by Brad Jacobs, that I covered all the way up on episode three thirty five.

44:36 uh about this. He says, Brad wrote, I find that slightly understaffed teams are more focused and spend less time doing redundant Busy work. be deliberately understaffed is a really interesting idea. The personal attention that Leon showed to his employees is something that's repeated over and over again as well. Every night.

44:52 This is at one of the refineries. Every night he'd make a point of sitting down and eating dinner with the guys. He would walk around the room and shake everybody's hand. That kind of recognition brought loyalty from many employees, many of whom would describe themselves as being very devoted to him. Back to Leon's impressive attention to detail, he could recite the margin of every gasoline station on the east coast. Seven hours over two days.

45:15 Uh with John Mackie, the founder of Whole Foods. John Mackie can do the exact same thing. He he could pass a Whole Foods and he could tell you what their revenue number was. what their operating income was, what their margins were. Yeah, this like encyclopedic knowledge of the financial performance and all the numbers of all the whole foods and sounds exactly what

45:32 What uh Leon Hess had in his head for all of his gas stations. Uh Leon Hess would also do c uh things that other competitors were not doing. Uh I remember this when I was a kid. It was Leon's idea, so You remember the Hess toy trucks?

45:45 I actually had these toy trucks when I was a kid. And the idea to make them actually emerge from a conversation that Leon had with a friend. who was also a toy manufacturer at a football game in the nineteen sixties. So The idea initially was to create models of all the working heads vehicles. What I found most fascinating is Leon was personally involved

46:03 Again, goes speaks to his attention and detail. Liam was personally involved. in designing each toy. So these toy trucks start out as a idea. The the idea the original idea was like Well these are great marketing tools.

46:15 And they wind up becoming collector's items. Yeah, there' people to this day state They still collect them and the some of the prices are incredible. I would have to imagine that took Leon by surprise. I'm sure he didn't think, hey, I'm gonna make a marketing tool, I'm gonna start manuf I'm an oil company manufacturing toys and it's gonna wind up becoming a collector's item and you know, something that people cherish and reminds them of

46:34 you know, the holiday season. Decades later. Another thing. That I know for a fact. Had it taken by surprise. Is how successful his investment.

46:43 In the U in the New York Jets. Was so Leon Actually acquires A twenty percent stake. In the New York Jets.

46:51 They weren't even called the New York Jets yet. In nineteen sixty three. Yeah, for which he paid Two hundred and fifty thousand dollars. And he said

46:59 I was one of five partners. The name of the team at the time was the New York Titans. They were in bankruptcy. And we changed the name to New York Jets. Before the purchase the Titans were the worst managed

47:10 Most unprofessional professional team of the modern era. There were bounce checks. Player strikes. Coach shuffling.

47:17 Questionable player choices. It was hardly A sure Investment. So as the years pass

47:24 Leon slowly over many years. buys out the four other owners. and eventually becomes the sole owner. This again speaks to how important family was to Leon Hess. It says for a man who didn't have hobbies. Sunday football.

47:37 was something he could share with his family. There's a hilarious uh story. Yeah, I think. speaks to to Leon's personality as well. The famous coach Bill Parcells tells the story of calling Leon one day

47:49 To inform him. Of yet another expensive player contract. I don't give a shit, Leon told him. If you run out of money, come over here to the oil company. I will get you some more money this afternoon. So Leon actually owns the team.

48:02 Until he dies in nineteen ninety nine. Now this might surprise you, he insisted That the jets be sold after he died. The speculation is that he insisted on this because He did not want his family to be distracted from running the oil company.

48:15 says Leon insisted that no member of the Hess family would be part of the purchasing syndicate in any way. Any family member. that did try to own a part of the team after his death. would lose a third Of their inheritance.

48:29 Woody Johnson of the Johnson Johnson Family Fortune bought the team For six hundred and thirty five milyen dollars in nineteen ninety nine. The jet sold. For almost as much as Leon's personal stake in Hess. was worth at the time.

48:44 Or about ten times less. than what the Jets would reportedly sell for today. As for the Hass Corporation, ninety years. After Leon Hass starts in his own words. A little oil company.

48:56 With just one used truck. When he was just nineteen years old. Chevron announced. That it would acquire Hess. In an all stock deal.

49:05 For fifty three. billion dollars. And that is where I'll leave it for the full story. Highly recommend buying the book. If you buy the book using the link that's in the show notes on your podcast player or available at founderspodcast.com. You'll be supporting the podcast at the same time. That is three hundred. And seventy eight books down.

49:21 One thousand ago. And I'll talk to you again soon. Okay, so I want to give you a big update to founders notes. So I'm eight years into this podcast at the end of the year. I will have read over four hundred biographies. And what I'm trying to do is I wanna organize and distill the collective knowledge of history's greatest founders, and I want to do that.

49:39 better than anybody else on the planet, which is why I work on the podcast seven days a week. So As you can imagine, mm by you know, three hundred and sixty, three hundred and eighty Biography's red or whatever I'm at right now. It's nearly impossible for me to remember and recall everything that I've read. So I built a tool that allows me to tap into the ideas from history's greatest founders on demand when I need it.

50:00 So I use this tool every day. I've told you about it in the past for the past year it's called Founders Notes. you can subscribe and access the tool that I built and I use. What you see is the exact version that I use. I don't have a different version. Literally the tool that you can subscribe to is the one that I use every day. So the update that I have for you is I've been working with the team at ReadWise, which is the company and the founders. They've helped me build this tool.

50:21 And so for the fast months we've been working on a major redesign for founders notes. That redesign is done. It's available now. The prehistory of this Is that for The first six years of the podcast. I've been using this app that called ReadWise to store all my notes and highlights for every book that I read for the podcast, right? It allows just like giant database. I could search it.

50:40 and pull up information anytime I need it. So I partnered with ReadWise over a year ago because a bunch of people listen to the podcast say, Hey I'd love to be able to access and read all of your notes and highlights. So we build this tool called Founders Notes that allows you to do that. You can still do that. You can still read all my notes, my highlights. And I keep adding to them every week and will always do so because I can't make the podcast without this tool.

51:00 But over time, we started adding other features. And what I realized is the AI assistant that we called Sage. that sits inside of founders notes is the most valuable feature. By far. So um a few weeks ago, if you listen to the episode I did with on uh Jensen Wang. In that book, Jensen says that in the future, right now, real really

51:23 Uh people will have a virtual assistant, almost like a brilliant intern with near perfect memory, capable of instantly recalling any piece of knowledge stored on any computer. And when I got to that section, the note of myself was that Sage is gonna be this, but for the collective knowledge of history's greatest entrepreneurs. So when I ask Sage a question, it reads all of my notes. All of my highlights.

51:44 Oh, my transcribe scri transcripts. And provides a concise summary and answer to the information I'm looking for. And the reason I would heavily uh recommend that you subscribe And get access to this. is because I think you should be using Sage to supplement the decisions that you make in your work.

52:03 So it is spooky how when I ask Sage a question It sounds like me except with a much better memory. And so another cool thing that we added is when you log in, you can see all these like suggested questions. Things that you could ask Sage.

52:17 All of those suggested questions. Or things that I have asked Sage. And so now as I'm continuing to ask more and to use to use it uh to to ask more and to to prompt Sage more. I continually to a

52:29 Add to this suggested uh prompts to suggested questions list. So even when you don't have a question of your own. You can actually read and learn from what I'm asking Sage. So the way I would use the tool though, the primary Uh value is

52:43 I think any question you have in your business you should be asking Sage because what happens is Kim's like you can prompt all of His greatest entrepreneurs to help solve the problem. Or to supplement your own thinking. that you're dealing with inside of your business. So if you have not already subscribed to Founders Notes,

53:00 I heavily recommend doing so. If you want to tap into the collective knowledge of History's Gaussian entrepreneurs, On demand. and use this as a supplement to the decisions that you're making in your work. Highly recommend you go to foundersnotes.com. That is founders with an S, just like the podcast.

53:16 Founder's notes. dot com and sign up today. Thank you very much for the extra support. Thank you for listening and I'll talk to you again soon.

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