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Partnering Strategy
- Rockefeller learned to avoid partnering with individuals who have modest goals.
- His first partner was too easily satisfied, while Rockefeller always pursued ambitious goals.
- This experience shaped his partnering strategy for the rest of his career.
Transcript:
David Senra
That is exactly what he does when he's shipping oil with the railroads. When he leaves and goes out and starts his own commodity house, he realizes he picked the wrong partner. And one thing that he's going to learn from this experience and then never do again is he will refuse to partner with people who had modest goals. His first partner was too easily satisfied when Rockefeller was after something big from day one.
Rockefeller as a Borrower
- Rockefeller became a skilled borrower because he needed an edge over competitors in his commission house.
- He offered commodity loans, fronting money to farmers for their produce.
- Since he didn't have the capital, he had to learn to borrow effectively.
- He was a familiar face at Cleveland banks, even when they rejected his requests.
- Rockefeller's partner even called him the greatest borrower he ever saw.
Transcript:
David Senra
And the reason this happens is very interesting. He starts learning how to borrow because he just started his own commission house. There is a bunch of other commission houses. So he's like, how do I have an edge over my competitors? And one edge that he discovered is, hey, I will front you the money in advance on the produce that you're growing or shipping. He essentially is inventing commodity loans before they existed. He cannot front money he does not have, so therefore he must learn how to be a good borrower. Now, the way he borrows is the way he does everything. Rockefeller was a familiar face at all Cleveland banks. The visits were not always pleasant. They often turned down his request for money. What if the president of a bank refused to make me a loan? That was nothing. Obviously, there's a direct quote from Rockefeller here. What if the This is...
Focus on Top Priority
- Identify your top priority in business, like transportation costs for Rockefeller.
- Dedicate the majority of your time to developing an edge in that area.
- Obsessively seek control over as much of your business as possible.
- Rockefeller opened a workshop in his refinery to make his own barrels.
- He studied the business, borrowed aggressively to scale, and didn't want to rely on others.
Transcript:
David Senra
And so something that jumps off the pages is, hey, transportation is our top priority. If something is your top priority, you should spend the majority of your time thinking about how to develop an edge there. This is so important. I have another obscure biography of Rockefeller. The title of that biography is Rockefeller's Secret Weapon. It's an entire book about this rebate on transportation and Rockefeller's obsession with it. So that idea, focus in on the highest priority. Spend the majority of your time thinking about how to develop an edge there. From the very beginning, Rockefeller is obsessed with control. He wants to control as much of his business as possible. He has a single refinery at this time, and he opens a workshop in the refinery and starts making his own barrels. So he does not have to rely on other people. He continues to study the business. This goes back to the maxim that the good ones know more. And he keeps borrowing like hell. He's like, I cannot survive. I will not survive if I'm a single refinery. And so his idea…
Rockefeller's Secret Breakup
- Rockefeller secretly secured financing to break away from partners who were taking too many loans.
- He forced a breakup, understanding the opportunity to expand was limited.
- During the auction, he outbid his partners, shocking them.
- At 25, Rockefeller became the owner of one of the largest refineries in the world.
Transcript:
David Senra
And Rockefeller's response this tells you a lot about him. So he's going to force a breakup from these small minded partners. And he does this in secret. He does everything in secret. In fact, there's a great line from one of his other biographies that says secrecy shrouded all of his operations. So there's actually a book called Conspiracy is written by Ryan Holiday. And there's this, he's got this great description in that book about this story in Rockefeller's career. I'm going to read from that book now. It says, there's a story about a young John D. Rockefeller who found himself stuck with bullying, corrupt business partners. He wants to break with them, but he can't because they control the votes. They are squeezing his business. They abuse him. They talk about forcing him out. What is he to do? Quietly, Rockefeller lines up financing from another oil man and waits. There's a confrontation. One of them tries to threaten him. You really want to break this up? Yes. He calls their bluff. They go along knowing that the firm's assets will have to go to auction. They're sure they'll win. Rockefeller…
Rockefeller's Breakup with Corrupt Partners
- Rockefeller faced bullying and corrupt business partners who controlled the votes and squeezed his business.
- He secretly secured financing from another oil man and waited for the right moment.
- During a confrontation, he called their bluff, leading to an auction of the firm's assets.
- Rockefeller won the auction, shocking his partners who realized he had been planning his move all along.
- Rockefeller described his approach to people as sitting next to them, talking to them nicely and quietly, and winning them over.
- Those who worked for him described him as patient, gracious, and always the same in his manner, but this was a mask.
Transcript:
David Senra
I'm going to read from that book now. It says, there's a story about a young John D. Rockefeller who found himself stuck with bullying, corrupt business partners. He wants to break with them, but he can't because they control the votes. They are squeezing his business. They abuse him. They talk about forcing him out. What is he to do? Quietly, Rockefeller lines up financing from another oil man and waits. There's a confrontation. One of them tries to threaten him. You really want to break this up? Yes. He calls their bluff. They go along knowing that the firm's assets will have to go to auction. They're sure they'll win. Rockefeller doesn't have that kind of money. He bids. They bid, he bids, they bid. Rockefeller wins the auction. A few weeks later, the newspapers…
Rockefeller's Mask
- Rockefeller cultivated an unaggressive, patient, and gracious exterior, treating everyone the same regardless of status.
- This behavior was a carefully constructed mask, hiding traits he tried hard to conceal.
- Behind the calm facade lay self-confidence, worry about the future, and lethal judgments about business associates.
- Rockefeller presented a modest, team-oriented image publicly, but privately acknowledged his individual role.
- This mask rarely slipped, showcasing his enormous self-control.
Transcript:
David Senra
And part of this is the fact that Rockefeller cultivated an unaggressive exterior. People that worked with him for decades described him in a very similar way. They said he was patient, gracious. He never said an unkind word. He always was the same in his manner and he treated everyone the same regardless of their status. Now, this is the important part. This was a mask. This goes back to his incredible self-control. This is excellent writing describing the mask of Rockefeller. Behind that placid exterior lay traits he tried hard to hide. He exuded self-confidence, but his wife knew of the numberless nights he spent worrying about the future. Publicly, he never said an unkind word about anyone. Privately, he delivered lethal judgments about all his business associates. The outwardly modest man carried an enormous ego. To the press, he always used we when talking of his company's success. But in private, I often came forth. It was…
Rockefeller's View of Problems
- Rockefeller saw problems as opportunities, a lifelong trait.
- He was preoccupied with how Cleveland could overcome its disadvantage as a refining center.
- He also wanted to know how Rockefeller and Andrews could surpass their competitors in Cleveland.
- His travels revealed no easy answers because refining was still a relatively simple operation.
Transcript:
David Senra
That might be the most important phrase in that entire sentence, an attention to opportunity. His competitors were amateurs by comparison, and he saw them for what they were. This goes back to his lifelong trait that he saw problems as opportunities. So there's two problems that are preoccupying him. How can Cleveland overcome its disadvantage as a refining center relative to the other geographic oil regions? And number two,
Rockefeller's Strategy: Volume and Crude Oil Purchasing
- Increase production volume to raise profits.
- Borrow money to expand refining capacity.
- Control raw material prices, specifically crude oil.
- Buy crude oil in large lots when prices bottom out.
- Monitor the crude market daily and frequently.
Transcript:
David Senra
Other refiners, this is so key here, other refiners complained about these restrictions, but they accepted them as facts to live with. Rockefeller refused to do so. There's a great line in his biography, Titan, that says he was not one to persist in a flawed situation. Rockefeller had worked out a strategy that would carry his company to success. The surest way to raise profits was to increase the volume of production. To that end, he borrowed more money and started building another refinery. All of these problems that he is seeing, which he realizes once solved, they will open up extreme economic opportunities to whoever can solve them. And so he starts doing things that his competitors don't. So he's like, okay, we need to find a way to control the prices of our raw materials. They are refining crude oil. How can we get an advantage on how much we spend on crude oil? So he hires a guy named John Andrews and sends him to Oil City and gives him one objective, a single objective. You are to oversee our purchases of crude. This is important because the cost of crude fluctuated wildly. There's extreme volatility in their business. And so it says…
Rockefeller's Business Strategy
- Increase refining output.
- Buy large amounts of oil at opportune times.
- Eliminate middlemen whenever possible.
- Hire A players.
- Focus efforts by giving people a single top priority.
Transcript:
David Senra
What is Rockefeller doing at this time? Okay. He's increasing our refining output. We're buying large amounts of oil at opportune times. We're eliminating middlemen at every opportunity, and we're hiring A players. And so once Flagler's inside of the company, what does he do? Rockefeller gives Flagler one job. You see how he keeps doing this over and over again? You are going to focus on your top priority. What does he want Flagler to focus on? Concentrate fully on our highest priority, transportation. Flagler had a single objective, control as much as possible the cost of transportation.
Rockefeller and Flagler's Partnership
- Rockefeller recruited Henry Flagler, who brought not only talent but also contacts and money.
- Flagler focused on controlling transportation costs, which Rockefeller identified as the top priority.
- Rockefeller and Flagler worked closely, sharing an office and walking together to discuss and plan.
- Flagler insisted on building refineries with solid and substantial facilities, despite the perceived risks of the oil trade.
Transcript:
David Senra
Rockefeller has a true partner. Theirs was a true partnership. This is what Rockefeller wrote about Flagler decades later in his autobiography. For years and years, this early partner and I worked shoulder to shoulder. Our desks were in the same room. We both lived on the same street. We met and walked to the office together. We would walk home for lunch, and then we'd walk back after lunch to the office and home again at night. On these walks, when we were away from the office interruptions, we did our thinking, talking, and planning together. Flagler was Rockefeller's alter ego. This is another person obsessed with being the very best, very different from the amateurs that they were competing against. This is what Rockefeller wrote about this. Another thing about Flagler, for which I think he deserves great credit, was that in the early days he insisted that when a refinery was to be put up, it should be different from the flimsy Shacks, which it was then custom to build. Everyone was so…
Storytelling for Fundraising
- Most companies struggle to tell their story effectively.
- Collateral helps craft a compelling narrative for your company.
- According to Don Valentine of Sequoia, storytelling is critical for entrepreneurs.
- Money flows as a function of stories, highlighting the importance of mastering this art for fundraising.
Transcript:
David Senra
Collateral helps you make more money. Most companies are terrible at telling their own story. Collateral helps you craft the most compelling story your company. Why is that important? There's a great line. There's actually a great quote from Don Valentine, who's the founder of Sequoia, about this. He says, the art of storytelling is critically important. Most of the entrepreneurs who come to talk to us can't tell a story. Learning to tell a story is incredibly important because that's
Rockefeller's Early Speculation
- In a volatile market, Rockefeller looked for other income sources when his product's market was depressed.
- Early in his career, Rockefeller took more risks, despite later claiming to despise speculators.
- He speculated in oil futures and even moved to New York for two years to focus on it during a downturn.
- This was crucial for his survival, but he stopped after seeing a large speculator's failure.
Transcript:
David Senra
So another idea that Rockefeller would use over and over again, he is in a highly volatile market. And so when the market for his product is temporarily depressed, Rockefeller would look for other sources of income. And one thing that you see a lot in these stories is the fact that they take a lot more risk earlier in their career, even if they tell a different story later on. Rockefeller took a hell of a lot of risk early in his career. He took less, obviously, later on. So even though later on Rockefeller would say that he despised speculators, early in his career, he speculated in oil futures. And he may have not survived if he didn't do this. And speculating in oil futures is a very tricky business. And it was so important to him that he actually moved to New York to focus on it during a downturn. He did this for two years. This is 1867 and 1868. The reason I'm telling you those years is because in 1868,
Stacking Advantages
- Rockefeller repeatedly sought leverage and hidden profits.
- He stacked advantages, such as borrowing heavily to invest in growth and using his size to gain transportation cost advantages.
- He knew transportation costs were key because of his earlier work at the commission house.
- Rockefeller started a deal with Jay Gold, who temporarily had aligned interests.
- Gold wanted Cleveland refiners tied to the Erie Railroad to increase traffic and manipulate the stock price.
Transcript:
David Senra
Looking for points of leverage and finding hidden sources of profits is something he's going to do over and over again. And the reason it's so important to go over all these back to back is because what you notice when you study Rockefeller, he's going to stack one advantage on top of another. So remember earlier, the fact that he said, yeah, I'm going to borrow heavily so I can invest in growth. Then he would use his size to get an advantage on transportation costs over his smaller competitors. And he knew he could do that because remember when he was working on the commission house, he noticed, hey, poster rates of transportation. All is not as it appears on the outside. So he starts doing this deal with Jay Gold, who controls the railroad. Jay's interests happen to temporarily align with Rockefeller. Why? Because he wants to tie the largest Cleveland refiners to the Erie Railroad to get the traffic
Rockefeller's Secret Allies
- Rockefeller developed a network of secret allies to maintain an advantage.
- He used Standard Oil's cap table as a weapon, offering cheap stock to prominent Cleveland bankers.
- This incentivized them to loan to Standard Oil and deny loans to competitors.
- Rockefeller also acquired companies owned by well-connected people to gain access to their networks.
- For example, he offered Oliver Payne $400,000 (company worth $250,000) and a position at Standard Oil.
Transcript:
David Senra
Rockefeller didn't stop there. He believed in developing a network of secret allies. Rockefeller would use his cap table as a weapon. He would give prominent Cleveland bankers the opportunity to buy Standard Oil stock cheaply. He wanted it to make it in their interest to loan to Standard Oil and, more importantly, to not loan to Standard Oil's competitors. Rockefeller knew the power of relationships, the fact that relationships around the world, that relationships drive everything. So he's constantly trying to press his advantage in that department. He would buy companies of other well-connected people so their connections would become his connections. There's one guy that he does this with. He approaches a guy named Oliver Payne, and he offers to buy his company
Rockefeller's Competitive Advantages
- Rockefeller developed a network of secret allies by offering Standard Oil stock cheaply to prominent Cleveland bankers, incentivizing them to loan to Standard Oil and not its competitors.
- He leveraged his cap table as a weapon and understood the power of relationships, buying companies of well-connected people to gain their connections.
- For example, he bought Oliver Payne's company for $400,000, even though it was only worth $250,000, due to Payne's politically connected family.
- This set Rockefeller up to take bold actions, buying 23 companies in four weeks in what became known as the Cleveland massacre, consolidating his power.
Transcript:
David Senra
Rockefeller didn't stop there. He believed in developing a network of secret allies. Rockefeller would use his cap table as a weapon. He would give prominent Cleveland bankers the opportunity to buy Standard Oil stock cheaply. He wanted it to make it in their interest to loan to Standard Oil and, more importantly, to not loan to Standard Oil's competitors. Rockefeller knew the power of relationships, the fact that relationships around the world, that relationships drive everything. So he's constantly trying to press his advantage in that department. He would buy companies of other well-connected people so their connections would become his connections. There's one guy that he does this with. He approaches a guy named Oliver Payne, and he offers to buy his company for $400,000 and…
Cleveland Massacre
- Rockefeller's strategy was to eliminate competitors early to expand his company and leverage its size for further advantages.
- The 'Cleveland Massacre' involved Rockefeller buying 23 companies in four weeks.
- Rockefeller saw the acquisitions as a way to help less fortunate competitors by offering them stability and returns on their capital.
- He aimed to bring order to chaos and control the market, rather than competing.
- Several Cleveland refiners claimed that Rockefeller directly threatened them.
Transcript:
David Senra
His idea is you need to take out your competitors early, you need to add their size to yours, and then use your size to stack more advantages on top of each other. This is the Cleveland massacre. In four weeks, Rockefeller bought 23 companies. Historians later dubbed this swift and astonishing campaign, the Cleveland massacre. Rockefeller saw it otherwise. This is his description of it. This procedure was without precedence. It goes back to the fact that he's an independent thinker. He's comfortable trusting his own judgment. We find here the strongest and most prosperous concern in the business. He's describing himself. He's saying, my company is the strongest. It is the best, which had made, and he's talking about his company, which had made money in each year of its existence, turning to its less fortunate competitors, these amateurs, who It well knew had been losing money. Again, going back to, he collects more information…
Retain Equity
- Rockefeller would offer to buy out competitors with stock or cash options.
- He encouraged them to take stock and never sell it, as his wealth grew more in retirement because he never sold his stock.
- He advised, sell everything, even the shirt on your back, but hold onto that stock.
- Rockefeller understood the power of letting equity feed upon itself.
Transcript:
David Senra
What's amazing to me is he would offer to buy you out. Of these 23 people, he would offer stock or cash. You choose. Only five took the stock. And something he would repeat over and over again. Do not sell your stock. You keep it at all costs. Rockefeller said, sell everything you've got, even the shirt on your back, but
Rockefeller's Hidden Company Tactic
- Rockefeller acquired smaller, profitable companies that specialized in niches within the oil industry.
- He allowed these companies to operate independently under their original names, concealing any connection to Standard Oil.
- This tactic allowed Standard to expand its empire discreetly.
- Some refiners unknowingly sold to Standard Oil through these hidden companies, thinking they were selling to local competitors.
Transcript:
David Senra
Another tactic of how he worked, the secret ally and the hidden company. So Rockefeller would find these highly profitable but smaller companies that would usually have a lot of success because they carved out a niche in the oil industry. So one example is a refinery that specialized in canned oil for export to Europe. Rockefeller would buy the companies, but he'd have them operate as if nothing had changed. They'd keep the same name. No connection to Standard would ever be revealed publicly. The hidden company was a technique that Standard would use to build its empire. The secret ownership of other companies was so well-preserved that often a refiner that was enraged by Standard's ruthless tactics would refuse its
Rockefeller's Strategy: Exploit Second-Rate Talent
- Rockefeller built a network of secret allies and targeted markets with second-rate talent.
- He organized the National Refiners Association, a confederation of competing refiners, and became its head.
- He anticipated the association's failure due to the industry's lack of talent and covenant-keeping.
- As president, Rockefeller gained access to every member's operation, understanding their strengths and weaknesses.
- He used this knowledge to identify competent operators to buy out and integrate into Standard Oil.
Transcript:
David Senra
Rockefeller again would use this idea over and over again. You should build a network of secret allies identify markets full of second rate talent. So Rockefeller organizes this loose confederation of competing refiners called the National Refiners Association. This is one of my favorite ideas that he ever has done. So the goal was very simple. We're going to operate out in the open. It's not going to be secret. We're going to join together in this loose confederation. We're going to buy crude as a group, and we're going to negotiate transportation with the railroads as a group too. This is before he's a monopoly. In fact, the information he gets from this association helps him become a monopoly. And so Rockefeller's actually chosen to be the head of the association. That's really important because then he gets to know every single business. He has to see their books. He's the one…
Align Interests to Transform Competitors
- Rockefeller understood he couldn't force competent people to cooperate; instead, align their interests.
- He transformed competitors into collaborators by offering them a part of the best oil company, retaining autonomy and authority.
- He opened his books to potential partners, showcasing high profits even in hard times.
- Policy would be set by the home office, but considerable authority would be given to the division leaders.
- Each of the key men in the local refining areas would have a voice in setting company policy.
- Independent thinking men, founders, found it hard to refuse the offer and none did.
Transcript:
David Senra
It's one of the most important ideas in the book. It's so crazy. Now for the competent people, he understood that he could not force them to cooperate, that you have to align your interests. And so this is how he aligns the interests and he would transform competitors into collaborators. This is what Rockefeller said. In all the history of the world, men have not made a success of a concern into which they were forced or driven. You cannot have a winning cooperation except by willing partners. And so he explains how he approached those he wanted in his company. We say to these men, let us look at the facts together. We think it is to your interests and to ours to work together. Do not be in a hurry. Think it over. Take your time. He would open his books to them. Those who looked over his books came away…
Patent Infringement Tactic
- Rockefeller used patent infringement as a tactic to acquire smaller companies.
- Standard Oil secretly approached a company named Tweedle and offered to cover all legal costs if they were sued for patent infringement.
- Tweedle infringed on a smaller company's patent.
- Standard Oil purposely dragged the case through the courts to financially exhaust the smaller company.
- Eventually, the smaller company was forced to sell its patents to Rockefeller.
Transcript:
David Senra
Let me give you an example. A small company invents a new way to neutralize the offensive odor that was found in lubricant oil. The company receives a patent for their innovation. Shortly afterward, another smaller company appears on the scene with the same innovation that is clearly based on the other company's patent. The company that's infringing on the patent is this company called Tweedle. Standard Oil had secretly approached Tweedle and told them that they will cover all the legal costs when Tweedle gets sued for patent infringement, which indeed happens. They then purposely drag the case through the court slowly to bleed the smaller company. Eventually, the smaller company breaks and sells its patents to Rockefeller.
Rockefeller buys Empire Transportation
- Empire Transportation Company, a subsidiary of the Pennsylvania Railroad, decided to enter the refining business, directly competing with Rockefeller.
- Rockefeller retaliated by depriving the Pennsylvania Railroad of his oil traffic, which accounted for 65% of their business.
- The Pennsylvania Railroad offered to sell Empire to Rockefeller without informing Potts, the guy running the subsidiary.
- Rockefeller bought Empire and refused to invite Potts into Standard Oil, which he retold with glee for the rest of his life.
- Rockefeller waited patiently for the right opportunity to act on a grand scale.
Transcript:
David Senra
Rockefeller does not like that. So Rockefeller goes to the president of the railroad, which is technically the guy running the subsidiaries, his boss. This guy's name is Thomas Scott. And Rockefeller tells Thomas Scott, hey, I don't appreciate a competitor in the refining business that is associated with the company that I'm shipping a lot of my oil through. Now, at first, Scott doesn't agree to do anything about his subsidiary, which is called Empire, because Scott is worried Standard is getting big and will continue to get bigger, and If they aren't contained now, they might have complete control over all oil shipments across the entire railway system in the United States, which he was right to worry about because That is what indeed happens later. So initially, Scott refuses to intervene between his…
Rockefeller's Byproduct Strategy
- Standard Oil sold over 50 byproducts from the refining of oil.
- Rockefeller didn't create those innovations himself.
- He waited for others to develop a profitable market.
- Then, he would swoop in and buy out every single producer of those byproducts.
- He paid high prices because those products were protected by patents.
Transcript:
David Senra
This reminds me of Microsoft, does very similar things 120 years later. So Standard Oil sold over 50 byproducts from the refining of oil. Standard did not create a single one of those innovations. Rockefeller would let others experiment. He'd wait until they developed a profitable market, and then he would move in. And when a profitable byproduct was proven, he would swoop in and buy out every single producer.
Follow the Data, But Be Willing to Adapt
- Initially, Rockefeller lets others experiment and prove a market before moving in.
- When a profitable byproduct is proven, he swoops in and buys out every producer, paying high prices due to patents.
- However, Rockefeller initially fought the innovation of pipelines because his advantage was rebates from railroads.
- He was ruthless in trying to stop pipelines using various tactics.
- Rockefeller was willing to change his mind when facts changed.
- Embrace innovation even if it initially threatens your existing advantages.
Transcript:
David Senra
Standard did not create a single one of those innovations. Rockefeller would let others experiment. He'd wait until they developed a profitable market, and then he would move in. And when a profitable byproduct was proven, he would swoop in and buy out every single producer. And he would pay high prices because those products were protected by patents. Rockefeller was also very human. Rockefeller made the very common mistake. He made the mistake of fighting an innovation that would weaken his strength. So other companies outside of Standard Oil are the ones that invent and start building pipelines to carry oil. Rockefeller's advantage was the rebates from shipping oil by railroad. So he wants to stop the pipelines initially. And he is ruthless in trying to stop them. He buys up land in the way of the pipeline companies. He plants stories in the press that say pipelines were prone to…
Embrace Change
- Rockefeller was willing to change his mind when the facts changed.
- When Rockefeller's advantage of railroad rebates was threatened by pipelines, he initially resisted but then embraced the innovation.
- He built his own pipelines and subsidized the railroads to offset their losses.
- Recognize that you cannot fight a technological phenomenon if it's a more efficient solution.
- Rockefeller realized that ignoring the outside world wasn't an option as he got bigger.
Transcript:
David Senra
But here is one of the most brilliant things that he does. Rockefeller was willing to change his mind when the facts changed. He reverses his decision and decides to embrace the innovation. So then he starts building his own network of pipelines. But his partners at the railroads start to protest. When they protest, he tells them that any oil traffic lost because of the pipeline would be made up by subsidy. Think about what he just said. He built his entire career on getting rebates from railroads. When the facts change, he reversed the traditional rebate pattern. Instead of collecting the rebates, he is now paying them. That's incredible and also very smart. You cannot fight a technological phenomenon. Pipelines were obviously way more efficient, the most efficient way to move oil. And once that fact sunk into his mind, he embraced it completely. In many cases, Rockefeller would try to ignore the outside world. As he got bigger and bigger, he realized you can't do that.…
Rockefeller's Adaptability
- Rockefeller was willing to change his mind when the facts changed.
- Initially, he resisted pipelines to protect his railroad rebates.
- He reversed course, embraced pipelines, and built his own network.
- He subsidized the railroads to offset their oil traffic losses due to the pipeline.
- He reversed the traditional rebate pattern. Instead of collecting rebates, he started paying them to the railroads.
Transcript:
David Senra
But here is one of the most brilliant things that he does. Rockefeller was willing to change his mind when the facts changed. He reverses his decision and decides to embrace the innovation. So then he starts building his own network of pipelines. But his partners at the railroads start to protest. When they protest, he tells them that any oil traffic lost because of the pipeline would be made up by subsidy. Think about what he just said. He built his entire career on getting rebates from railroads.
Bearing the Risk
- Rockefeller demanded extreme focus from himself and his partners.
- He settled disputes by taking on all the risk and blame himself.
- During a disagreement about buying oil leases, Rockefeller offered to use $3 million of his own money.
- If profitable, the company would repay him; if not, he would personally take the loss.
Transcript:
David Senra
He demanded of his partners as well. He would settle disputes between himself and his partners in a very clever way. He would put all the risk and the blame on himself. So they're having this disagreement on continuing to buy oil leases. As usual, Rockefeller is being aggressive and pushing to buy more. And his partner, this guy named Pratt at the time, thought it was smarter to wait. So after going back and forth a few times, Rockefeller said, hey, I'm going to use my own money. This is $3 million, a ton of money at the time. I'm going to use my own money. I'm going to take $3
Rockefeller's Righteous Cause
- Rockefeller's actions make sense when you understand that he truly believed his cause was righteous.
- This belief drove his relentless pursuit of his goals.
- Understanding this underlying conviction is key to understanding Rockefeller's behavior.
- He saw Standard Oil's work as new, revolutionary, and a force for strengthening.
Transcript:
David Senra
I can take the risk if you can. And all this leads up to, I think, one of the most important ideas to understand about Rockefeller. It makes a lot more sense about why he did what he did. If you understand that he truly believed, he truly believed that his cause was righteous.
Rockefeller's Motivation
- Rockefeller truly believed his cause was righteous, viewing the Standard Oil Company's work as revolutionary and strengthening.
- He aimed to unite competitors, offering them a share in the business to end the old chaotic struggles.
- Rockefeller saw cooperation as essential, contrasting it with individuals undermining the collective structure.
- He believed Standard Oil was a force for building, benefiting everyone through centralization, savings, and service.
- Rockefeller maintained unwavering faith in his approach, even amidst detractors.
- His detractors have since faded away.
Transcript:
David Senra
I can take the risk if you can. And all this leads up to, I think, one of the most important ideas to understand about Rockefeller. It makes a lot more sense about why he did what he did. If you understand that he truly believed, he truly believed that his cause was righteous. As a much older man looking back on this, this is what he said. The Standard Oil Company's work was of such a new and revolutionary character. It was a force for strengthening. We wanted a new idea to prepare. We wanted the old struggle to cease. We wanted these men to pull together, to join us, and to take their full share of the business. It is fair to say that the strong men who were competitors in the oil refining business, the aggressive men in the best financial condition and the most intelligent, indeed, the class Of men who would be most likely to survive in the…
Rockefeller's Self-Confidence
- Rockefeller displayed immense self-confidence from a young age.
- Cornelius Vanderbilt, the richest man in America, wanted to meet him.
- Rockefeller insisted that Vanderbilt travel to Cleveland and meet him in Rockefeller's office.
- This illustrates Rockefeller's early belief in his business acumen and self-assuredness.
- He felt he had mastered the principles of business at a young age.
- He was raised in the country, dropped off in the city as a teenager, and had to fend for himself.
Transcript:
David Senra
So Vanderbilt, Cornelius Vanderbilt was 45 years older than Rockefeller. He's the richest person in America and he wants to meet Rockefeller. And Rockefeller would only meet with Vanderbilt if Vanderbilt came to Cleveland and met Rockefeller inside of his office. And so this quote gives you insight into the self-confidence and the belief in himself that Rockefeller had in terms of he knew he was really good at business. It says, 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 40. I needed no one to advise me about the nature of transactions which I had been carrying on since childhood. A Another very interesting thing that Rockefeller would apply to his business. He would speak in religious terms. Remember this for the end. This is very important. So he would not say, hey, we're going to enter into a contract.…
Religious Business Terms
- Rockefeller would use religious terms in his business dealings.
- Instead of saying 'contract', he would say 'covenant'.
- He considered fidelity to a covenant a sign of a real man.
- He was methodical, cautious, observant, and quiet.
Transcript:
David Senra
A Another very interesting thing that Rockefeller would apply to his business. He would speak in religious terms. Remember this for the end. This is very important. So he would not say, hey, we're going to enter into a contract. He says we would have a covenant. And he said, fidelity to a contract or what he calls a covenant, fidelity to a covenant was the sign of a real man. Rockefeller was methodical. He would move ahead slowly, cautiously. He would say little and he would observe everything around him.
The Good Ones Know More
- Rockefeller believed that successful people simply know more, not necessarily because of talent but due to their effort in gathering information.
- He had a passion for business, spending considerable time reviewing ledgers and figures.
- Rockefeller viewed the yearly account books as volumes of history, gaining deep insights into the firm's operations.
- He collected more information and knew more about the business than anyone else.
Transcript:
David Senra
Now, another trait that Rockefeller had is this maxim that says the good ones know more. This is not an issue of talent or intelligence. This is an issue of effort. They just collect more information. They know more about what they're doing. So it says that fascination
Rockefeller's partner with modest goals
- Rockefeller realized he picked the wrong partner after leaving and starting his own commodity house.
- He learned from this experience to refuse to partner with people who had modest goals.
- Rockefeller was after something big from day one, which his first partner didn't share.
- He became skilled at borrowing money, which was crucial to his success.
- His partner even called him the greatest borrower he ever saw.
Transcript:
David Senra
That is exactly what he does when he's shipping oil with the railroads. When he leaves and goes out and starts his own commodity house, he realizes he picked the wrong partner. And one thing that he's going to learn from this experience and then never do again is he will refuse to partner with people who had modest goals. His first partner was too easily satisfied when Rockefeller was after something big from day one. And so one of the most important things that Rockefeller ever got good at was borrowing money. He borrowed as much money as he could at the beginning of his career. In fact, his partner called Rockefeller, quote, the greatest borrower I ever saw. This was such an important part of his life story. There's an entire chapter
Rockefeller as a Borrower
- Rockefeller became exceptionally skilled at borrowing money early in his career.
- His partner even called him 'the greatest borrower I ever saw.'
- He started borrowing to gain an edge over competitors in his commission house by fronting money to producers.
- This was essentially inventing commodity loans.
- Because he did not have this money, he needed to master borrowing.
Transcript:
David Senra
And so one of the most important things that Rockefeller ever got good at was borrowing money. He borrowed as much money as he could at the beginning of his career. In fact, his partner called Rockefeller, quote, the greatest borrower I ever saw. This was such an important part of his life story. There's an entire chapter in the book called The Greatest Borrower I Ever Saw. And the reason this happens is very interesting. He starts learning how to borrow because he just started his own commission house. There is a bunch of other commission houses. So he's like, how do I have an edge over my competitors? And one edge that he discovered is, hey, I will front you the money in advance on the produce that you're growing or shipping. He essentially is inventing commodity loans before they existed. He cannot front money he does not have, so therefore he must learn how to be a good borrower. Now, the way he borrows is the
Transportation Costs
- Rockefeller realized transportation was the largest expense in the oil refining business, costing more to ship a barrel of oil than to refine it.
- He strategically chose a refinery location next to both a railroad and a river to utilize cheaper water transport.
- Shipping by water was 50% cheaper than by rail.
- Focus on the highest priority and spend the majority of your time developing an edge in that area.
Transcript:
David Senra
And one thing that he notices is like, wait, the transportation is our largest expense. At this time, this is nuts. It costs more to ship a barrel of oil than to refine it. So if transportation is your highest priority, that means the location of your refinery is key. The site that he chose for his refinery was genius. He selected a location that was next to both the railroad and on the banks of a river. Why? That means he could ship by rail or boat. Shipping by water was 50% cheaper than shipping by rail. And so something that jumps off the pages is, hey, transportation is our top priority. If something is your top priority, you should spend the majority of your time thinking about how to develop an edge there. This is
Rockefeller's Breakup
- Rockefeller's partners disagreed with his aggressive borrowing to rapidly expand their oil business.
- His partner suggested dissolving the partnership, preferring a more conservative approach.
- Rockefeller saw an immediate opportunity for expansion that might not last.
- He secretly forced a breakup with his small-minded partners to pursue his ambitious growth strategy.
- Rockefeller's operations were shrouded in secrecy.
Transcript:
David Senra
This is going to start a war between him and his current partners. This is one of the best things that ever happened to Rockefeller. And so his partner comes to him and says, we've been taking too many loans in order to extend this oil business. Rockefeller replies, we should borrow whenever we can safely and extend the business by doing so. His partner replies, if that's the way you want to do business, we better dissolve and let you run your own affairs to suit yourself. Rockefeller replies, we have an opportunity now to expand. It may not last long. And Rockefeller's response this tells you a lot about him. So he's going to force a breakup from these small minded partners. And he does this in secret. He does everything in secret. In fact, there's a great line
Rockefeller's Mask
- Rockefeller cultivated an unaggressive exterior, described by his colleagues as patient and gracious.
- He maintained a consistent demeanor and treated everyone equally, regardless of status.
- This behavior was a carefully constructed mask, hiding his self-confidence and worries about the future.
- While publicly avoiding unkind words, he privately made critical judgments about his business associates.
Transcript:
David Senra
And part of this is the fact that Rockefeller cultivated an unaggressive exterior. People that worked with him for decades described him in a very similar way. They said he was patient, gracious. He never said an unkind word. He always was the same in his manner and he treated everyone the same regardless of their status. Now, this is the important part. This was a mask. This goes back to his incredible self-control. This is excellent writing describing the mask of Rockefeller. Behind that placid exterior lay traits he tried hard to hide. He exuded self-confidence, but his wife knew of the numberless nights he spent worrying about the future. Publicly, he never said an unkind word about anyone. Privately, he delivered lethal judgments about all his business associates.
Refuse Flawed Situations
- Other refiners accepted restrictions as facts to live with, but Rockefeller refused.
- Increase production volume to raise profits.
- Borrow money and build another refinery.
- Solve problems to open up economic opportunities.
Transcript:
David Senra
Other refiners, this is so key here, other refiners complained about these restrictions, but they accepted them as facts to live with. Rockefeller refused to do so. There's a great line in his biography, Titan, that says he was not one to persist in a flawed situation. Rockefeller had worked out a strategy that would carry his company to success. The surest way to raise profits was to increase the volume of production. To that end, he borrowed more money and started
Henry Flagler's Approach to Refining
- Rockefeller highlighted Henry Flagler's insistence on building substantial refineries, unlike the flimsy shacks common at the time.
- Flagler believed in investing in the best facilities and solid construction, even if the oil supply might fail.
- Flagler's courage in acting on his beliefs laid a strong foundation for later years.
- Flagler was bold, aggressive, and focused on winning.
- Flagler kept a sign on his desk that said, do unto others as they would do unto you, and do it first.
- The team that shaped the company's growth for decades had already been formed.
Transcript:
David Senra
This is what Rockefeller wrote about this. Another thing about Flagler, for which I think he deserves great credit, was that in the early days he insisted that when a refinery was to be put up, it should be different from the flimsy Shacks, which it was then custom to build. Everyone was so afraid that the oil would disappear and that the money expended into buildings would be a loss that the meanest and cheapest buildings were erected for use as refineries. This was the sort of thing Flagler objected to. While he had to admit that it was possible the oil supply might fail and that the risks of the trade were great, he always believed that if we went into the oil business at all, we should Do the work as well as we knew how, that we should have the very best facilities, that everything should be solid and substantial, and that nothing should be…
Rockefeller's Rebates
- Rockefeller and the other two largest refiners initially received a 10-cent rebate on every barrel shipped on the Erie Railroad.
- He later negotiated rebates for his own shipments and also for those of his competitors.
- Rockefeller then offered competitors better shipping rates through him, profiting from their shipments.
- His company refined 1,500 barrels a day but shipped 4,200, making money on competitors' barrels.
- He leveraged relationships with Cleveland bankers by offering them cheap Standard Oil stock.
- This incentivized them to loan to Standard Oil and deny loans to its competitors.
Transcript:
David Senra
Rockefeller and the other two largest refiners would get a rebate back for 10 cents on every barrel they ship. Later on, Rockefeller is going to maneuver himself into such a dominant position that he would get a rebate for any barrel of oil he shipped over the railroad and a rebate for any of his Competitors shipped as well. Those profits are going to be enormous in the future. Even at this time, they're huge. Remember, we're in the 1860s. So these rebates are adding $50,000 a year in profit each year at a time when most other refiners couldn't even break even. Most of them were losing money. So at this point, Rockefeller has built this virtuous flywheel and he's just pushing it. We're going to raise more money to increase production. We're going to use increased production to get better rates on transportation and other refiners.…
Cleveland Massacre
- Rockefeller took out competitors early, adding their size to his own to gain further advantages.
- In four weeks, he bought 23 companies in what became known as the Cleveland Massacre.
- Rockefeller approached struggling competitors, offering to take over their risks and provide a return on their capital.
- He aimed to impose order on chaos through cooperation and control, avoiding competition.
- He described his company as the 'strongest and most prosperous' concern in the business.
Transcript:
David Senra
So now Rockefeller set himself up to a perfect position to take a bold and daring action. His idea is you need to take out your competitors early, you need to add their size to yours, and then use your size to stack more advantages on top of each other. This is the Cleveland massacre. In four weeks, Rockefeller bought 23 companies. Historians later dubbed this swift and astonishing campaign, the Cleveland massacre. Rockefeller saw it otherwise. This is his description of it. This procedure was without precedence. It goes back to the fact that he's an independent thinker. He's comfortable trusting his own judgment. We find here the strongest and most prosperous concern in the business. He's describing himself. He's saying, my company is the strongest. It is the best, which had made, and he's talking about his company, which had made money in each year of its existence, turning to its less fortunate competitors, these amateurs, who It well knew had…
Rockefeller's Conviction
- Rockefeller believed his Standard Oil stock was the most valuable thing to own, and he consistently bought more.
- Even during drastic downturns, like a boycott that severely reduced Standard Oil's employee count, he remained steadfast.
- When partners panicked and offered to sell their stock, Rockefeller advised them to wait.
- However, he eventually bought one partner's stock after repeated requests, demonstrating his conviction in Standard Oil's long-term value.
Transcript:
David Senra
Rockefeller would identify what his most valuable asset was, and he would not diversify. So this over and over again, Rockefeller believed his standard stock to be the most valuable thing to own, and he always bought more of it. The reason I'm bringing this up again, he would do this even during drastic downturns. When there was a boycott organized by companies taking crude out of the ground against Rockefeller, they essentially shut off his supplies to his raw materials. This goes on for several months. It's so drastic. It takes Standard Oil's employee count from 1,200 all the way down to 70. And so several of Rockefeller's partners inside of Standard Oil panicked and offered to sell their stock to him. And so in one case, Rockefeller told one of his partners, you're a member of the Standard Oil company. You should wait. His partner waited until after lunch and then asked Rockefeller again to buy his stock. So Rockefeller wrote the check. Rockefeller again…
National Refiners Association
- Rockefeller organized the National Refiners Association, a loose confederation of competing refiners, to buy crude and negotiate transportation as a group.
- He became the head of the association to access every business's books and allot quotas.
- Rockefeller anticipated its failure because the industry was full of second-rate talent.
- The association helped Rockefeller gain valuable information, which eventually contributed to Standard Oil's monopoly.
Transcript:
David Senra
Rockefeller again would use this idea over and over again. You should build a network of secret allies identify markets full of second rate talent. So Rockefeller organizes this loose confederation of competing refiners called the National Refiners Association. This is one of my favorite ideas that he ever has done. So the goal was very simple. We're going to operate out in the open. It's not going to be secret. We're going to join together in this loose confederation. We're going to buy crude as a group, and we're going to negotiate transportation with the railroads as a group too. This is before he's a monopoly. In fact, the information he gets from this association helps him become a monopoly. And so Rockefeller's actually chosen to be the head of the association. That's really important because then he gets to know every single business. He has to see their books. He's the one allotting the quotas. And what was interesting about this is he expected this…
National Refiners Association
- Rockefeller became the head of the National Refiners Association, a group he expected to fail because the industry was full of secondary talent.
- He used his position to access the books and operations of every member.
- He identified serious competitors to buy out and integrate into Standard Oil.
- He also identified weaker operators to eliminate.
- For competent people, Rockefeller understood that he could not force them to cooperate, that you have to align your interests.
Transcript:
David Senra
He has to see their books. He's the one allotting the quotas. And what was interesting about this is he expected this association to fail from the very beginning. Why? Because his industry was full of secondary talent. He said that this association was in large part made up of, quote, men untrained in business matters, many of whom came from a great variety of occupations, not well calculated to prepare Them to meet the demands of high grade progressive businessmen and competition. It was apparent that these men would not keep their covenants. There's that word again. Remember, Rockefeller calls contracts covenants. He said fidelity to a contract, fidelity to a covenant was a sign of a real man. He's saying these are not real men. It was apparent that these men would not keep their covenants. They would observe a covenant as long as it worked to their advantage, but would flinch and back away when the carrying out of the covenant seemed…
Rockefeller's Refiners Association Strategy
- Rockefeller joined the National Refiners Association to learn about his competitors' operations.
- He used the information to identify competent operators to buy out and less capable ones to eliminate.
- He understood he couldn't force cooperation from competent people; he had to align their interests.
- Rockefeller transformed competitors into collaborators by offering them a share in Standard Oil.
- He gave them autonomy and authority, essentially creating a company of founders.
Transcript:
David Senra
So Rockefeller says, I'm going to use this, this refiners association for my purpose. As president, he came to know the inside of every member's operation. He became acquainted with every leader in his industry. He now knows, hey, this guy, because he sees their books and their operating costs and how much they're refining and how much they need to ship. He's like, oh, this guy's a serious competitor. He's a competent operator. Therefore, I'm going to find a way to buy him out and make him a partner in Standard Oil. This other guy, he's already dead and he doesn't even know it. I'll make him sweat and then I'll eventually eliminate him from the board. It's one of the most important ideas in the book. It's so crazy. Now for the competent people, he understood that he could not force them to cooperate, that you have to align your interests. And so this is how he aligns the interests and he would transform competitors into…
Recruit Competitors
- Use the refiners association to understand each member's operation by reviewing their books.
- Identify serious competitors to buy out and make them partners.
- Eliminate the weak competitors from the board.
- For competent people, align their interests and transform them into collaborators.
- Offer them a part of the best oil company or continue to compete.
Transcript:
David Senra
He became acquainted with every leader in his industry. He now knows, hey, this guy, because he sees their books and their operating costs and how much they're refining and how much they need to ship. He's like, oh, this guy's a serious competitor. He's a competent operator. Therefore, I'm going to find a way to buy him out and make him a partner in Standard Oil. This other guy, he's already dead and he doesn't even know it. I'll make him sweat and then I'll eventually eliminate him from the board. It's one of the most important ideas in the book. It's so crazy. Now for the competent people, he understood that he could not force them to cooperate, that you have to align your interests. And so this is how he aligns the interests and he would transform competitors into collaborators. This is what Rockefeller said. In all the history of the world, men have not made a success of a concern into which they were forced or driven. You cannot have a winning cooperation except by willing partners. And so he explains how he approached those he wanted in his company. We say to these…
Rockefeller's Acquisition Strategy
- Rockefeller invited competitors to review his books, revealing high profits even in tough times.
- His pitch was to offer them a chance to own part of the best oil company, Standard, or to continue competing.
- He gave autonomy and authority to division leaders, essentially creating a company of founders.
- Independent, thinking men found Standard's offer hard to refuse when presented in that light.
- David shares an anecdote about a founder who realized he couldn't beat a competitor and chose to be acquired instead, which he considered the best decision he ever made.
Transcript:
David Senra
And so when Standard's offer was presented in that light, independent thinking men, founders, found it hard to refuse and none did. And so I have a very similar and kind of wild story. So I was having dinner with a founder that wound up selling his company. I think it was like for 6 billion or 8 billion or 10 billion. It was something in that range. And the story he told me is one I'll never forget because he talked about the fact that he always thought of himself as an entrepreneur. He never thought he would work for anybody else. And so he is in this head to head battle with this very formidable founder. This founder is still running his company and it's a public company to this day. And the fight has been going on for a while. And the founder I'm having dinner with is telling me the story after the fact. And he was raising a bunch of new capital.…
Ruthless Patent Infringement
- Standard Oil secretly funded a company called Tweedle to infringe on a smaller company's patent for neutralizing offensive odor in lubricant oil.
- Standard Oil covered all legal costs for Tweedle when they were sued for patent infringement.
- They purposely dragged the case through the court to financially ruin the smaller company.
- Eventually, the smaller company was forced to sell its patents to Rockefeller.
Transcript:
David Senra
Let me give you an example. A small company invents a new way to neutralize the offensive odor that was found in lubricant oil. The company receives a patent for their innovation. Shortly afterward, another smaller company appears on the scene with the same innovation that is clearly based on the other company's patent. The company that's infringing on the patent is this company called Tweedle. Standard Oil had secretly approached Tweedle and told them that they will cover all the legal costs when Tweedle gets sued for patent infringement, which indeed happens. They then purposely drag the case through the court slowly to bleed the smaller company. Eventually, the smaller company breaks and sells its patents to Rockefeller. Rockefeller is now dispatching all of his partners out and wants them to consolidate power in their specific geographic area, just like he did with the Cleveland massacre. And the approach was the same. Rockefeller would tell his partners, concentrate first on the largest and strongest…
Ruthless Tactics
- Rockefeller used ruthless tactics to eliminate competition.
- Standard Oil secretly funded a company, Tweedle, to infringe on a smaller company's patent.
- Standard Oil covered all legal costs for Tweedle when the smaller company sued for patent infringement.
- They dragged the case through the court slowly to financially ruin the smaller company, eventually forcing them to sell their patents to Rockefeller.
- Rockefeller then dispatched his partners to consolidate power in their areas.
Transcript:
David Senra
Let me give you an example. A small company invents a new way to neutralize the offensive odor that was found in lubricant oil. The company receives a patent for their innovation. Shortly afterward, another smaller company appears on the scene with the same innovation that is clearly based on the other company's patent. The company that's infringing on the patent is this company called Tweedle. Standard Oil had secretly approached Tweedle and told them that they will cover all the legal costs when Tweedle gets sued for patent infringement, which indeed happens. They then purposely drag the case through the court slowly to bleed the smaller company. Eventually, the smaller company breaks and sells its patents to Rockefeller. Rockefeller is now dispatching all of his partners out and wants them to consolidate power in their specific geographic area, just like he did with the Cleveland massacre. And the approach was the same. Rockefeller would tell…
Rockefeller's Ruthless Tactics
- Standard Oil secretly backed Tweedle to infringe on a smaller company's patent for neutralizing odor in lubricant oil.
- Standard Oil covered all legal costs for Tweedle, dragging the case out to financially exhaust the smaller company.
- Eventually, the smaller company was forced to sell its patents to Rockefeller.
- Rockefeller instructed his partners to consolidate power by targeting the largest independent companies first.
- He aimed to make his targets sweat, stating, "We will either get them or starve them."
Transcript:
David Senra
Let me give you an example. A small company invents a new way to neutralize the offensive odor that was found in lubricant oil. The company receives a patent for their innovation. Shortly afterward, another smaller company appears on the scene with the same innovation that is clearly based on the other company's patent. The company that's infringing on the patent is this company called Tweedle. Standard Oil had secretly approached Tweedle and told them that they will cover all the legal costs when Tweedle gets sued for patent infringement, which indeed happens. They then purposely drag the case through the court slowly to bleed the smaller company. Eventually, the smaller company breaks and sells its patents to Rockefeller. Rockefeller is now dispatching all of his partners out and wants them to consolidate power in their specific geographic area, just like he did with the Cleveland massacre. And the…
Rockefeller's Leverage
- Rockefeller identifies where he has leverage and uses it.
- The Pennsylvania Railroad's subsidiary, Empire Transportation Company, expands into refining, competing with Rockefeller.
- Rockefeller goes to Thomas Scott, the railroad's president, to complain.
- Scott initially refuses to intervene, fearing Standard Oil's growing power.
- Rockefeller retaliates by depriving the Pennsylvania Railroad of his oil traffic, which accounts for 65% of their business.
- The railroad eventually agrees to end the war and sell Empire to Rockefeller.
Transcript:
David Senra
He's going to identify where he has leverage and then he's going to use it. He's not the only one creating wars. Sometimes the wars, he's on the defensive end of a war. So there's, this is such a crazy story. There's a subsidiary. The subsidiary part is really important because you don't even, you don't have control. So the guy running the subsidiary, this is, this is a subsidiary of the Pennsylvania railroad. Pennsylvania railroad is a giant business by the time. And so this subsidiary of this giant company is called the Empire Transportation Company. And it decides it doesn just want to be in transportation. It wants to expand into the refining business, which then will make it a direct competitor to Rockefeller. Rockefeller does not like that. So Rockefeller goes to the president of the railroad, which is technically the guy running the subsidiaries, his boss. This guy's name is Thomas…
Rockefeller vs Empire Transportation Company
- The Empire Transportation Company, a subsidiary of the Pennsylvania Railroad, decided to compete with Rockefeller by entering the oil refining business.
- Rockefeller retaliated by depriving the Pennsylvania Railroad of his oil traffic, which accounted for 65% of their business.
- The railroad eventually offered to sell Empire to Rockefeller without informing Potts, the guy running Empire, who initiated the conflict.
- Rockefeller bought Empire and refused to include Potts in Standard Oil, which he enjoyed retelling.
- Rockefeller relentlessly eliminated middlemen and vertically integrated, even going direct to consumer in the 1870s.
Transcript:
David Senra
Rockefeller does not like that. So Rockefeller goes to the president of the railroad, which is technically the guy running the subsidiaries, his boss. This guy's name is Thomas Scott. And Rockefeller tells Thomas Scott, hey, I don't appreciate a competitor in the refining business that is associated with the company that I'm shipping a lot of my oil through. Now, at first, Scott doesn't agree to do anything about his subsidiary, which is called Empire, because Scott is worried Standard is getting big and will continue to get bigger, and If they aren't contained now, they might have complete control over all oil shipments across the entire railway system in the United States, which he was right to worry about because That is what indeed happens later. So initially, Scott…
Rockefeller vs. Empire Transportation
- Rockefeller didn't like that Empire Transportation, a subsidiary of the Pennsylvania Railroad, was expanding into the refining business.
- He told Thomas Scott, the president of the railroad, that he didn't appreciate a competitor associated with the company he ships oil through.
- When Scott didn't intervene, Rockefeller deprived the Pennsylvania Railroad of his oil traffic, which accounted for 65% of their business.
- The railroad eventually offered to sell Empire to Rockefeller without telling Potts, the guy running the subsidiary, who started the war to begin with.
- Rockefeller bought the business and refused to invite Potts into Standard Oil, and retold the story about destroying Potts with great glee.
Transcript:
David Senra
Rockefeller does not like that. So Rockefeller goes to the president of the railroad, which is technically the guy running the subsidiaries, his boss. This guy's name is Thomas Scott. And Rockefeller tells Thomas Scott, hey, I don't appreciate a competitor in the refining business that is associated with the company that I'm shipping a lot of my oil through. Now, at first, Scott doesn't agree to do anything about his subsidiary, which is called Empire, because Scott is worried Standard is getting big and will continue to get bigger, and If they aren't contained now, they might have complete control over all oil shipments across the entire railway system in the United States, which he was right to worry…
Rockefeller's Risk-Taking
- Rockefeller settled disputes with partners by taking on all the risk and blame himself.
- In one instance, he offered to use $3 million of his own money to buy oil leases when his partner Pratt hesitated.
- Rockefeller stated that if the expenditure proved profitable, the company could repay him, but he would personally bear the loss if it went wrong.
- This convinced Pratt to agree to the deal, demonstrating Rockefeller's confidence and willingness to take responsibility.
Transcript:
David Senra
He would put all the risk and the blame on himself. So they're having this disagreement on continuing to buy oil leases. As usual, Rockefeller is being aggressive and pushing to buy more. And his partner, this guy named Pratt at the time, thought it was smarter to wait. So after going back and forth a few times, Rockefeller said, hey, I'm going to use my own money. This is $3 million, a ton of money at the time. I'm going to use my own money. I'm going to take $3 million from myself and I'm going to buy the leases. And if this expenditure turns out to be profitable, then the company can repay me. And if it goes wrong, I will take the loss personally. And after hearing that, Pratt says, if that's the way you feel about it, we'll go in together. I can take the risk if you can. And all this leads up to, I think, one of the most important ideas to understand about Rockefeller. It makes a lot more sense about why he did what he did. If you understand that he…
