#9 I Invented the Modern Age The Rise of Henry Ford

Abstract
Summary Notes

Abstract

In this episode of "Founders," David Senra delves into the life and legacy of Henry Ford, exploring his journey from an engineer with a vision for the horseless carriage to the founder of the Ford Motor Company. Senra draws parallels between the transformative impact of the railroad and the microprocessor to Ford's Model T, which revolutionized 20th-century transportation and manufacturing. He discusses Ford's relentless pursuit of control and mass production, leading to the unprecedented ownership of a half-billion-dollar company. Senra also references insights from Tim Urban's blog "Wait But Why" on Elon Musk's admiration for Ford's problem-solving determination. The episode touches on the complexities of Ford's character, including his anti-Semitism and eccentricities, while highlighting his entrepreneurial spirit, which clashed with investors like Malcolmson and the Dodge brothers, ultimately leading to Ford's complete buyout of the company's shares.

Summary Notes

Technology's Impact on Society

  • Every century, a new technology reshapes society.
  • The railroad transformed habits and thought patterns in the past.
  • The microprocessor is the transformative technology of the current era.
  • Technologies influence punctuality, communication speed, and thinking processes.

"Henry David Thoreau, hearing the train's passing, once wrote, 'Have not men improved somewhat in punctuality since a railroad was invented? Do they not talk and think faster in the depot than they did in the stage office?'"

This quote by Henry David Thoreau highlights the impact of the railroad on punctuality and the pace of thought and conversation, suggesting that technology significantly influences human behavior and societal norms.

Henry Ford's Influence

  • Henry Ford is credited with inventing the modern age.
  • The creation of the Model T and the system of mass production revolutionized the 20th century.
  • Ford's self-education through McGuffey's reader era textbooks was a foundation for his innovation.

"And, young man, Ford snapped, 'I invented the modern age.'"

Henry Ford's assertion that he "invented the modern age" reflects his belief in the profound impact his innovations, such as the Model T and mass production techniques, had on shaping the modern era.

The Founders Podcast

  • David Senra hosts "Founders," a podcast about history's greatest entrepreneurs.
  • The podcast draws inspiration from Tim Urban's blog "Wait But Why" and his series on Elon Musk.
  • Senra emphasizes the importance of covering entrepreneurs like Henry Ford, who changed the trajectory of history.

"So obviously, you can't really do a podcast about history's greatest entrepreneurs and not cover Henry Ford."

David Senra explains the necessity of discussing Henry Ford on his podcast, given Ford's significant contributions to entrepreneurship and the shaping of the 20th century.

The Idea: Gas-Powered Horseless Carriage

  • Henry Ford's initial idea was to create a gas-powered horseless carriage.
  • Ford's background in steam engines and metal forging was crucial, but he needed to learn about electricity.
  • He joined Edison Illuminating to gain knowledge and pursue his passion for engines.

"He sat and brooded over some technical magazines. He mentioned the engine he spent the day with, and he said he believed it could be used to power a horseless carriage."

This quote describes Ford's early thought process, where he was contemplating the use of an auto engine to power a horseless carriage, marking the beginning of his journey towards creating the automobile.

Ford's Move to Detroit

  • Henry Ford moved to Detroit to work for Edison Illuminating and further his engineering knowledge.
  • His wife Clara was supportive despite the sacrifices involved.
  • Ford's father William was disappointed, hoping Henry would continue farming.

"Clara was horrified... The Fords left their house on the morning of September 20, 525, and Henry started his job at Edison, illuminating the same day."

The quote reflects the personal challenges and family dynamics involved in Henry Ford's decision to leave farming and pursue his engineering interests in Detroit, a pivotal moment in his career.

Ford's Meeting with Thomas Edison

  • Ford idolized Thomas Edison and later became a benefactor to Edison's projects.
  • Ford's meeting with Edison validated his work on the gasoline engine.
  • Edison's encouragement was a significant motivator for Ford to continue his automotive work.

"Young man, that's the thing. You have it, keep at it."

Edison's endorsement of Ford's gas-powered car concept provided Ford with the validation and encouragement he needed to persevere in his automotive endeavors.

Starting the Ford Motor Company

  • The formation of the Ford Motor Company was a significant step in commercializing Ford's ideas.
  • The company's foundation was laid out in a letter by Ford's attorney, John Anderson, to his father.

"On June 4, John Anderson, which is one of Henry Ford's attorneys, sat down and wrote a long letter that turned out to be well worth the wrist cramping amount of effort he put into it."

This quote describes the effort put into the foundational legal work for the Ford Motor Company, indicating the importance of meticulous preparation in the establishment of a successful business venture.

Birth of Ford Motor Company

  • John writes to his father about investing in the Ford Motor Company.
  • Henry Ford is recognized as a top automobile mechanical expert.
  • Ford's racing history and his decision to sell his interests in Cadillac are highlighted.
  • Henry Ford's entrepreneurial spirit is emphasized, focusing on control and building the best machine.
  • The letter mentions the partnership with Malcolmson and the assembly approach to manufacturing.

"Dear father John began, Horace and I have an opportunity to make an investment that is of such a character that I cannot refrain from laying the details before you for your consideration."

This quote introduces the investment opportunity that John is presenting to his father, emphasizing the potential and importance of the venture.

"Mr. Ford of this city is recognized throughout the country as one of the best automobile mechanical experts in the US."

This quote establishes Henry Ford's reputation as a leading expert in the automobile industry, which is a key selling point for the investment.

"Having perfected the machine in all its parts and demonstrated to their complete satisfaction and to the satisfaction of automobile experts and cycle journal representatives from all over the country who came here to inspect it, that it was superior to anything that had been designed in the way of an automobile and that it was a sure winner."

Here, the quote assures the reader of the machine's superiority and the widespread satisfaction it has garnered from experts, reinforcing the investment's potential success.

Ford's Production Strategy

  • Ford's strategy involved subcontracting parts and focusing on assembly.
  • The Dodge brothers were contracted to manufacture automobiles less wheels and bodies.
  • The Dodge brothers' colorful history and their choice to work with Ford over others are noted.
  • The Ford Motor Company's humble beginnings in a small factory are described.
  • The minimal viable product approach is highlighted as a cost-effective strategy.

"After canvassing the matter thoroughly, instead of forming a company with big capital erecting a factory and installing an extensive plant of machinery to manufacture it themselves, they determined to enter into contracts with various concerns to supply the different parts and simply do the assembling themselves."

This quote explains Ford's innovative approach to manufacturing, which involved outsourcing parts to avoid the high costs of setting up a complete factory.

"So they entered with the Dodge brothers here to manufacture their automobile complete less wheels and bodies for $250 apiece."

The quote indicates the specific partnership with the Dodge brothers and the cost-effective nature of their agreement, critical to Ford's early production strategy.

Investment Details and Profit Margins

  • John details the investment opportunity, emphasizing the lack of capital tied up in a big factory.
  • The cost breakdown of the automobiles and the projected profit margins are outlined.
  • The anticipated profits from the season's output of 650 machines are calculated.

"Now, as to the investment feature, you will see there is absolutely no money to speak of tied up in a big factory."

This quote reiterates the low initial investment needed due to the assembly-focused production strategy, which is a key selling point for potential investors.

"The machines sell for $750 without a backseat. And with a backseat, $850. This is the price of all medium-priced machines and is standard."

The quote provides the pricing strategy for the automobiles, comparing them to competitors and highlighting the additional revenue from optional features like the backseat.

Dr. Anderson's Visit and Investment Decision

  • Dr. Anderson, John's father, visits Detroit with skepticism due to a prior bad investment.
  • He is unimpressed with the small factory but is convinced to invest after a test ride.
  • The fundraising for Ford Motor Company is described as slow and challenging.

"Dr. Anderson could have saved him some trouble and anxiety simply by staying put in lacrosse after receiving his son's lengthy plea. He was evidently a fond father, for after having looked up with dismay upon the Mack Avenue factory and gotten stuck in the park in its sole product, he gave his son the $5,000 he'd asked for."

Despite initial doubts and a less-than-perfect test ride, Dr. Anderson's fondness for his son leads him to invest in the Ford Motor Company, showcasing the personal element in early business investments.

James Cousins: Ford's Greatest Asset

  • James Cousins' early life and work ethic are described.
  • Cousins quickly rises through the ranks due to his diligence and attention to detail.
  • His strict and demanding leadership style is noted.

"Cousins never shirked, always chipping away the ice until the seal yielded up its secrets to his kerosene lantern."

This quote exemplifies Cousins' work ethic and dedication, which are qualities that would make him valuable to the Ford Motor Company.

"Cousins was not a popular boss. Stern, distant, and always cross."

The quote provides insight into Cousins' leadership style, which, while not endearing him to his employees, demonstrates a level of seriousness and commitment that would be influential in his role at Ford.

Jim Cousins' Work Ethic and Impact on Ford Motor Company

  • Jim Cousins was known for his strict and fair management style.
  • He owned up to his own mistakes and held himself accountable.
  • His direct approach impressed customers and superiors alike.
  • Cousins saved diligently, investing his life savings into Ford Motor Company.
  • His sister also invested, turning $100 into $355,000.
  • Cousins' $400 investment eventually grew to over $30 million.
  • Despite knowing little about cars, Cousins was deeply trusted by his employer.
  • He was given more responsibility and a bonus in the coal business, which he left for the automobile business.
  • Cousins' decisions and his role at Ford Motor Company were pivotal in its success.

"If he made a mistake, he would own up, regardless of what the results might be." This quote highlights Cousins' integrity and willingness to take responsibility for his actions, a trait that helped build trust within the company.

"Cousins so believed in Henry Ford that he put his entire life savings for the company, and it was $400." Cousins' belief in Henry Ford and his investment of $400 demonstrates his commitment and the significant financial risk he took, which ultimately paid off.

"Cousins never got near the coal business again." This quote signifies a turning point in Cousins' career, where he transitioned from the coal industry to the automotive industry, which had a profound impact on his future and the success of Ford Motor Company.

Henry Ford's Vision and the Model T

  • Henry Ford had a vision of making affordable cars for the average person.
  • He believed in mass production and standardization to reduce costs.
  • The Model T was Ford's realization of this vision, aiming to be inexpensive and accessible.
  • Ford's insistence on control and his perfectionist nature were balanced by Cousins' pragmatism.
  • Cousins ensured cars kept shipping despite Ford's desire for perfection, preventing bankruptcy.
  • He managed the company's operations with diligence and wrote effective advertising copy.
  • Cousins' partnership with Ford was essential in building an organization that amazed the world.

"The way to make automobiles is to make one automobile like another automobile, to make them all alike." Ford's quote encapsulates his philosophy of standardization and mass production, which was revolutionary for the automotive industry and led to the success of the Model T.

"Cousins told Ford no. Cousins would, he said, be willing to dispatch a mechanic to anywhere in the country to fix an ailing model A, but stop shipping and we go bankrupt." Cousins' refusal to halt shipments demonstrates his strategic foresight and understanding of the importance of continuous operations for the company's financial stability.

The Conflict with Alexander Malcolmson

  • Malcolmson initially supported Ford but later disagreed on the direction of the company.
  • Malcolmson wanted to produce expensive cars, while Ford aimed for affordability.
  • Cousins sided with Ford, creating tension with Malcolmson.
  • The Dodge brothers, key suppliers, also disagreed with Malcolmson, isolating him further.
  • Ford and Cousins' alliance prevailed, leading to Malcolmson's eventual exit from the company.
  • Malcolmson's attempt to replace Cousins backfired, reinforcing Cousins' position.
  • A strategic move by Ford and Cousins doubled Cousins' salary, provoking Malcolmson.
  • Malcolmson's protests against Cousins' salary increase led to his ousting from the company.

"I told Malcolmson that I did not want him, but that I wanted his man cousins." Ford's statement shows his preference for Cousins over Malcolmson, highlighting Cousins' importance to Ford and the company.

"Malcolmson then seems to have tried to get Cousins fired. Ford, in turn, persuaded the board to double cousin's salary from $4,000." The quote illustrates the power struggle within Ford Motor Company, with Ford taking decisive action to keep Cousins by his side, ultimately leading to Malcolmson's departure.

Ford's Business Strategy and Control

  • Henry Ford sought to integrate vertically by incorporating the Ford Manufacturing Company to make chassis for the Model N.
  • The Dodge brothers were made shareholders in the new company, while Malcolmson was excluded from the dividends of the new venture.
  • Malcolmson's decision to compete with Ford by establishing the Aero Car Company led to his forced resignation and sale of his Ford shares.
  • Henry Ford's desire for control over his company led to conflicts with partners and a strategy to buy out shareholders.

"Henry Ford announced the incorporation of the Ford Manufacturing Company, which would make chassis, but only for the Model N."

This quote highlights Ford's strategic move to vertically integrate his operations, focusing on the Model N chassis production.

"The brothers had nothing to kick about because they automatically became shareholders in the new company and recipients of all the dividends it would generate."

The Dodge brothers were compensated with shares and dividends in the new venture, ensuring their continued involvement and support.

"Malcolmson sold his one fourth interest to Ford. He got $175,000, hardly a bad return on investment of $10,000.03 years earlier."

Malcolmson's exit from Ford Motor Company was financially beneficial short term but a significant loss in potential future earnings.

"Ford announced in 1916 that henceforth he would be paying dividends of 5% monthly on the company's comically low book capitalization of $2 million."

Ford's dividend policy aimed to reward shareholders while maintaining control over the company's capital for reinvestment.

"The court told Ford that he had to drop his plans and within 90 days, pay a dividend of $19,275,000."

The lawsuit by the Dodge brothers forced Ford to pay a substantial dividend, reflecting their legal victory over the control of company profits.

  • The Dodge brothers challenged Ford's reinvestment strategy by demanding higher dividends, leading to a lawsuit.
  • The legal battle concluded with a court order for Ford to pay a large dividend, but most of the payment returned to Ford as the main shareholder.
  • The lawsuit made Ford restless, prompting his resignation as president and a deceptive plan to regain control.

"The brothers took him to court. They got a restraining order against Ford using the company funds for the rouge, or any plant expansion, and brought suit demanding the company pay out the shareholders three quarters of its cash surplus."

This quote underscores the Dodge brothers' aggressive legal strategy to protect their financial interests in Ford Motor Company.

"The trial had evidently made him restless, and on December 30, 1918, he resigned as president of the Ford Motor Company."

Ford's resignation was a direct result of the constraints imposed by the lawsuit, demonstrating his frustration with the loss of unilateral control.

Strategic Buyout and Ultimate Control

  • Ford orchestrated a buyout of shareholders by creating the illusion of a new company and a new car.
  • Shareholders, except Cousins, were persuaded to sell their shares, not realizing Ford's plan.
  • Cousins negotiated a higher selling price, while Anderson, another shareholder, reflected on his loyalty to Ford before agreeing to sell.
  • Ford had to secure a large credit to finance the buyout but ultimately gained complete ownership of the company.

"At the same time, agents began to approach the Ford stockholders, expressing cautious interest in acquiring their Ford Motor company shares."

Ford used intermediaries to discreetly persuade shareholders to sell, masking his ultimate goal of regaining full control.

"Cousins stayed out of the negotiation as the bidding started at seven, $500 per share, and the price rose and finally settled at $12,500 per share."

Cousins' strategic patience allowed him to secure a higher price for his shares, demonstrating his business acumen.

"Henry Ford, who so distrusted Wall street and all the haughty financial bastions of the east, had to swallow his pride to ask for a $75 million credit to cover his buyout."

Despite his aversion to Wall Street, Ford relied on its financial mechanisms to achieve his goal of complete company ownership.

"By the end of 1919, Henry Ford held the largest company ever in the hands of one person."

Ford's successful buyout led to unprecedented personal ownership of a major corporation, a testament to his determination for control.

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