Rockefeller - How he viewed business (excerpts from God's Gold)

Rockefeller has always been a man who was hated and admired. I thought 2 great books written on him were “Titan” by Ron Chernow and God’s Gold.

One interesting thing to note was that both industrialists Andrew Carnegie and Rockefeller both started their careers by either studying accounting or starting off as a book keeper. Later, Rockefeller started his own firm for selling dry goods and foods and later went into oil refining before exploration, since he deemed oil derivatives to be the safer play.

 The fact that we have Vaseline, gasoline, plastics, etc, these all come from drilling (now there’s even fracking) for crude oil. Rockefeller decided that refining was the sure win businesses before he went on to exploiting the entire business and monopolizing it and calling it standard oil. He even had a rebate from railway/train companies, so his competitor’s couldn’t match his price since he was the largest customer for railways/train. It was interesting how early on, Rockefeller used so debt to his great advantage in expanding. Eventually, when the railway/train companies caught on and wanted to raise their prices, Rockefeller bypassed this through oil pipelines.

I want to list some anecdotes/quotations below from God’s Gold and Rockefeller’s letter to his son below:

Chance is made up of those unforeseen elements which the planner leaves out of his calculations. To defeat chance is to look closely at all possible combinations which others overlook. To plan minutely, to see more than anyone else, is to reduce the control of chance over one’s fortunes. This is what Rockefeller did. But he was far from the modern efficiency man making elaborate charts and tables and laying out precise schemes on paper.

In later years he said: “ I have small faith in the man who plans elaborately on paper. I once asked a landscape gardener to under-take the improvement of 2,000 acres of land. He set to work on an elaborate scheme which I saw at a glance was impossible. He was not practical. He planned too much on paper.”

Rockefeller planned in his mind. His mind was a living plan. He made everything show up for some use or else he rejected it. “It has always been my rule in business to make everything count,” he told an old friend in Owego. “To make everything count something. I never go into an enterprise unless I feel sure it is coming out all right. For instance, a promising scheme may be proposed to me. It may not altogether satisfy and is rejected. My brother Will would probably go into it and make $10,000. Another equally promising scheme comes along. He goes into that and loses $10,000. The result is he hasn’t made any advancement in these two ventures and is actually losing time. Meantime in some surer enterprise, I have made, say, $5000 in the same time the other fellow has lost twice as much. But mine counts and his doesn’t. I believe the only way to succeed is to keep getting ahead all the time.”

This is why Rockefeller was often accused of being timid. It is why it has seemed difficult for some critics to reconcile his timidity in some things with his apparent audacity in others. He was not timid. He refused to enter upon operations where he could not see the project all the way through. But having satisfied his mind and gone in, he hesitated at no sacrifice, no cost, no measures, however vast and even cruel, to drive through his objective.

-          From the Chapter The Hostile Camps in the Book God’s Gold, page 131 (Von Mises Institute)

This goes back to the concept of being in businesses with high predictability. Looking at Rockefeller’s ventures and his brother Will’s, it can be seen that Rockefeller was actually not greedy. He just wanted a surer return even if it was less. The concept of not losing money as rule number 1 and thinking about the probabilities about how you could fail is of utmost importance.

The fact that Rockefeller was so cruel to drive his objectives is that in most industries, it is winner take all. Be number 1 or 2 or OUT. For software, when IBM couldn't or wouldn't make a deal with Gary Kildall, Microsoft bought what became MS DOS from Seattle Computer Products for $50,000 and licensed it to IBM. It was written by Tim Paterson, who mimicked CP/M's application programming interface. This eventually allowed Microsoft to get into the stranglehold of being the high priest in computing by owning the operating system and necessary office products— they got to decide which hardware manufacturer wins or not.

In the same fashion, Google bought Android and became the dominant player/ the high priest in cell phone apps. This blimp cost Microsoft at least 400 billion in market capitalization and allowed Google to control which hardware manufacturers get to play. Look at what happened to HuaWei. They may circumnavigate and find other hardware suppliers, but the O.S is going to be bloody hard to replace. There is a whole eco-system of developers making good apps for Android using Java as a base. Ultimately, under Moore's law, all hardware depreciates in value fast, and the only competitive advantage created is through software. Why is Apple so valuable? It locks you into through their software. If they only had high-end hardware phones, they wouldn't be selling so much and retaining so many customers. Also, technology has planned obsolescence, the software programmers force you to switch to a new phone. 

On a side note, Bill was quite good with programming. He had one of the fastest pancake sorting algorithms at Harvard. People say Ballmer is a dunce. But look at who scored higher at the Putnam math  competition, it was Steve, not Bill. If you read his first partner's biography, Idea Man by Paul Allen, he was quite cut throat when he tried to dilute Allen's shares when he was sick. Same for Sergiy Brin, if I remember correctly, he scored really high on the Putnam math competition.  But it’s Larry who called all the shots back then and was the better leader and businessman.