Henry Ford's Autobiography

1. 0:00 – 5:36

   Why Study Ford and Jobs: Education Through Life

   1. DSDavid Senra0:00

      An able man is a man who can do things, and his ability to do things is dependent on what he has in him. What he has in him depends on what he started with and what he has done to increase and discipline it. An educated man is not one whose memory is trained to carry a few dates in history. He is one who can accomplish things. A man who cannot think is not an educated man, however many college degrees he may have acquired. Thinking is the hardest work anyone can do, which is probably the reason why we have so few thinkers. There are two extremes to be avoided. One is the attitude of contempt towards education. The other is the tragic snobbery of assuming that marching through an education system is a sure cure for ignorance and mediocrity. You cannot learn in any school what the world is going to do next year, but you can learn some of the things which the world has tried to do in former years and where it failed and where it succeeded. If education consisted in warning the young student away from some of the false theories on which men have tried to build so that he may be saved the loss of the time in finding out by his own bitter experience, its good would be unquestioned. A man's real education begins after he has left school. The true education is gained through the discipline of life. That is an excerpt from the book that I'm gonna talk to you about today, which was published 100 years ago, and it's My Life and Work: The Autobiography of Henry Ford. So back on episode 263 in that biography of Edwin Land, it's called Land's Polaroid: The Company and the Man Who Invented It. In chapter three, it goes through all the different heroes and people that Edwin Land was studying, like the great people that came before him that influenced his approach to, uh, building p- his- all of his work really, his scientific work and the building of Polaroid. And so it's like people, there, there'll be like one or two paragraphs, maybe like a page or two on the people that he was studying as like a young person. He's like 17 or maybe 19 at the time, and it's like people like Michael Faraday, Thomas Edison, Alexander Graham Bell, Henry Ford is, is, uh, one of the people which is, I'll get to in a minute why I'm rereading his autobiography, uh, and George Eastman. And so what I've been trying to do the last few weeks is like set up, okay, if you had to ask like who are the-- who's the most influential entrepreneurs of the last 100 years? And I think the top two are blatantly obvious, and it's Steve Jobs and Henry Ford. And you and I are living in the world that Jobs changed, so I don't have to tell you what the introduction of the smartphone changed. You just lived through it. But I think a lot of people miss how fundamentally innovative the Model T was. Henry Ford's Model T was the first mass-produced car in history. Before that, humans were getting around on foot, horse, maybe horse-driven carriage, or maybe a bicycle. Henry Ford was the first person in history to figure out how to produce a car at a price that everybody could buy one. But I like this idea of studying the two most important entrepreneurs of the last 100 years, Steve Jobs and Henry Ford back to back. So with that, let's jump into the book. Now, this is technically called an autobiography, but that's not really the way it's set up. So when he-- the reason I opened the podcast that way where he says, "Hey, you know, true education is actually gained through the discipline of life," I think that's how Henry Ford thought about this book as well. We'll learn like a little bit about his early life, but mostly it is like h- reading this book is like having a one-sided conversation where one of the greatest entrepreneurs to ever live just speaks directly to you and tells you, "Hey, this is my philosophy on company building." And so let's go to the first chapter, and it just opens up in a very odd way for an autobiography to open up. He just gets right into the main point. Power and machinery, money and goods are useful only as they set us free to live. They are but a means to an end. The fact that the For- that the commercial success of the Ford Motor Company has been most unusual is important only because it serves to demonstrate that the theory, and in other words his theory, to date is right. So I'm gonna pause right there. He publishes this book in 1922. In 1919, he has b- he has bought out all of his investors. He owns the Ford Motor Company. He owns 100% of the Ford Motor Company, and this is at a time in history when he is making like half, I think something like half of all cars in the world. A rough analogy of what that would be like today is if you own like let's say a 10 or a 20 billion, something like that, 10 or $20 billion company 100%. And so he opens up, he's like, "Listen, I have a lot of criticisms about the way other businesses are built, and I think I, my criticisms are valid, and they're b- they're more-- people will be more open to hearing them because I have betted- benefited immensely financially from the system as is, and I still wanna change it." So that is what he's talking about in these two paragraphs. Considered solely in the light, I can criticize the prevailing system of industry and the organization of money in society from the standpoint of one who has not been beaten by them. There, and something's gonna be obv- uh, apparent, Henry Ford had a giant ego. And this is like a key thing to think about because it's why it's so important for founders to learn from other founders, uh, because a lot of this, uh, a lot of the assets to a successful founder and a lot of the things they do are almost in direct opposition of what polite society would tell you to do. And so far after reading about 100,000 pages of these biographies of entrepreneurs over the last few years, uh, something jumps out, like small egos don't build giant companies. The only difference is some of the founders are better at hiding it, which was the advice Sam Walton had. He's like, "Listen, I know you have an ego. Hide it. Don't..." He's like, "Use it to drive you, but don't let people see it." It's an internal driven thing, not an ext- not something to like strut about externally.

2. 5:36 – 9:39

   Business Exists to Provide Service

   1. DSDavid Senra5:36

      But that is just the first line, and there's gonna be several of them today where he's just like, "Okay, I can criticize this." Most of the time people criticizing the way businesses are built and how money shapes society, they're usually the ones that have been beaten by it. And he's like, "Listen, I can criticize because I'm, have not been beaten by them." At the time this is being written, he is one of the richest people on the planet. So he continues, "As things are now organized, I could, were I thinking only selfishly, ask for no change. If I merely want money, the present system is all right. It gives money in plenty to me, but I'm thinking of service." The present system does not permit of the best service because it encourages every kind of waste. It keeps many men from getting the full return from service. And I wanted to bring that up right at the beginning because I'm gonna give you an opportunity to jump out. Oh, I don't know how long you and I are gonna talk right now, maybe an hour, maybe two hours, depends on how long it takes me to get through this. I'm essentially just gonna repeat his main thing. His main idea is that business exists for one reason and one reason only, and that is to provide service for other people. The note I left myself when I reread that paragraph is everything I do is serving my true end, which is to make a product that makes other people's lives better. I have both the paperback version and the Kindle version of this book. He uses the word service 129 times. And then he's gonna echo an idea from his hero. So I just went through the, the fact that at the beginning Edwin Land was studying all these other people. A lot of, so, uh, Henry Ford, Edwin Land, Steve Jobs, they share a lot of heroes, which is interesting. And so Henry Ford idolizes Thomas Edison. Thomas Edison's like a few, maybe like a generation older than Henry Ford. They wind up becoming really good friends, like, he, um, Henry Ford considered Edison like his, maybe even his best friend. But what he's about to say here is very Edisonian. Ideas are themselves extraordinarily valuable, but an idea is just an idea. Almost anyone can think up an idea. The thing that counts is developing it into a practical product. So Edison was famous for saying, "Hey, I make a lot of inventions. I'm only interested in inventing things that people want to buy because a sale is a proof of utility." And then Ford says, "Hey, these are the ideas I used to build one of the most valuable companies in the world. That company just happens to produce or mass manufacture cars, but these ideas can be used in any business." And later on, uh, he gets so frustrated with the inefficiency of a railroad that he winds up buying it and showing. He's like, "Listen, that playbook I just ran on the Ford Motor Company, I'm gonna run on this railroad, and I'm gonna demonstrate that the, the principles are, they actually work." And he says, "I am now most interested in fully demonstrating that the ideas we have put into practice are capable of the largest application, that they have nothing particularly to do with motor cars." And so there's a maxim that you and I have talked about over and over and over again. The way I would compress that idea so you can always remember and take it with you is that you don't copy the what, you copy the how. In addition to his main theme of service, Henry Ford detests lazy people, and he's gonna bring this up over and over again. Humans are made to work. The way I, I, you know what? I'm gonna read this to you first, and then I'll write, I'll tell you what I wrote down right after I read it. So he says, "The natural thing to do is work, to recognize that prosperity and happiness can be obtained only through honest effort. Human ills flow largely from attempting to escape from this natural course." So the way I think about that is humans are made to work. The sense of accomplishment from overcoming difficulty is satisfying in a way that a life of leisure and ease will never be. And then he's gonna compare and contrast his philosophy with which he sees, like, the prevailing philosophy of his day, and then I'll have a way to, like, summarize this and kind of break it down a little bit more, uh, than, 'cause he, he goes on for quite a bit here. So he says monopoly is bad for business. Profiteering is bad for business. The lack of necessity to hustle, the lack of necessity to hustle is bad for business. Business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets. So keep in mind he grew up on a farm, so that's why he talks the way he does. So it's like business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets or what, what it eats, right? Things were coming too easily. There was a letdown of the principle that an honest relation ought to obta- be attained between value and prices.

3. 9:39 – 16:09

   Customer Obsession, Idleness and "Money Comes from Service"

   1. DSDavid Senra9:39

      The public no longer had to be catered to. There was even a public be damned attitude in many places. So he's saying a public be damned attitude by business owners. Henry Ford, like Jeff Bezos, was extremely customer obsessed. At the same time I was reading this book, I listened to an episode of Invest Like The Best podcast with this guy named Ravi Gupta. And he said something that was really interesting and so interesting that I took a note and, and saved it in my phone. And he says, "I think Amazon's culture is largely based on one thing. It is not based on 14. It is based on customer obsession." That is what Bezos would die on the hill for. And I think this, this almost maniacal obsession and dedication to providing cust- customers the best service at the lowest cost is a way to think about Henry Ford. Because to me, it's like every single ... Once you, once you really put it into your brain, like every single decision that he's gonna make in the building of the company is all gonna flow from that one thing. And if he sees a business that doesn't, and this is like the big ego part, if he do- if he sees a business that doesn't have that thing, like he's gonna talk shit about it. And so that's exactly what he's doing here. The public no longer had to be catered to. He's always gonna try to cater to them. There was even a public be damned attitude in many places. It was immensely bad for business. Some men called this abnormal condition prosperity. So he's coming right off of like this big financial boom. It was not prosperity. It was just needless money chase. Money chasing is not business. And so this is what he thinks business should be. It is the function of business to produce for consumption and not for money or speculation. Producing for consumption to the consumer, right, implies that the quality of the article ... I need to pause there. Any time you read books in like this age from like 1900s, uh, 1910, 1920, 1930, for some bizarre reason, uh, and I've read a ton of them obviously for this podcast, they use the word article. When he says the word article, it's not how we think of the word article today, like something like a newspaper or something like that. He, the, he's saying product. So when you hear article, I will try to, before I even say it to you, I'll try to change it into product, but in case I don't, if you hear Henry Ford say the article produced, he, he's not talking about writing something. He's talking about m- his product, the Model T. So let me start this sentence over again. Producing for consumption implies that the quality of the article, the quality of the product produced will be high and that the price will be low, that the art- that the article, there I go again, that the product be one which serves the people and not merely the producer. And so I have the Kindle version up right now. I just realized something. I told you that the word service, it appears in this book 129 times. That word serve or serves is another 55. He's just gonna repeat this over and over and over again for 200 pages. So let me wrap up this section. I'll tell you how I, how to think about Henry Ford's philosophy in, like, something that fits into, like, a, a tweet size, like, maybe a paragraph size, okay? "The producer depends for his prosperity upon serving the people." [laughs] I hope you don't get annoyed at me. I promise I'm not, like... The... It's very interesting. This book is, I think, a must-read for any entrepreneur, and you can read it really fast, but it's just h- funny that he just pounds on this thing over and over again. "The producer depends for his prosperity upon serving the people. He may get by for a while serving himself, but if he does, it will be purely accidental. And when the people wake up to the fact that they are not being served, the end of that producer is in sight." So I probably read that paragraph, you know, maybe, I don't know, five times in the, in the preparation to talk to you today. It didn't just hit me till just now. So I'm reading that, and I'm like, "Oh, wait a minute. There is, like, some weird thought that just popped into my mind that I forgot." It's gonna come from, uh, Jeff Bezos. That is episode 179 of Founders, if you wanna listen to that. But what brought that to mind, that brought that book to mind, and I'm gonna read a excerpt to you from hi- from in a minute, is where Henry Ford's like, "You're gonna focus on serving yourself over your customers. That's fine. You might temporarily have success, but one day you're gonna wake up. One day the customers are gonna wake up and realize there's a better option out there." So B- Bezos called a, uh, all-hands in the early days of Amazon, and he said, "Listen, it's..." Because they were worried that Barnes & Nobles... At the time in Amazon history, Barnes & Nobles, they're only selling books. Barnes & Nobles is opening an online store, and this is what Bezos told, told his team: "Look, you should wake up worried, terrified every morning, but don't be worried about our competitors because they're never gonna send us any money anyway. Let's be worried about our customers and stay head-down focused." And so that's the main theme of Bezos. He's like, "Listen, you need to be focused on your customers over your competitors, and as long as you're serving them, don't give them a reason to go anywhere else. And if you do that, they won't go anywhere else." So this, everything I'm reading to you comes across, like, several different pages, and I kind of put it all, put it all together. And then this is the note I was really thinking is, like, how can I... I, I need to, like, you know, take this, like, 500 words or whatever this is. I, I need this to... I need to compress this so I can actually take this with me. And so I wrote, like, okay, how can I distill what I... is my understanding of Henry Ford's philosophy. So it's get rid of waste, increase efficiency through thinking and technology, drop your prices, and make more money with left, less profit per car. Watch your cost religiously. When needed, bring that business process in-house, and always stay focused on service. Fast-forward a few pages. He's back at it again. "Being greedy for money is the surest way to not get it. But when one serves for the sake of service, for the satisfaction of doing that which one believes to be right, then money abundantly takes care of itself." This next sentence, I think is my favorite. He's got a lot of good quotes. This is my, this is my favorite Henry Ford quote. "Money comes naturally as the result of service." Money comes naturally as a result of service. I... That, that... I've probably repeated that in conversation, like, 100 times. It's just a fantastic way to think about what we're doing. Money comes naturally as a result of service. So then he gets back into this fact that he just ha- he detests lazy people, and he says, "In my mind, nothing is more abhorrent than a life of ease. None of us has any right to ease. There is no place in civilization for the idler." So when I had reread this now the second time, I read a bunch of it now since the f- since the first time I read this book and now, you know, I've probably read, I don't know, like, 200 books, whatever it is, and I read two of them on Winston Churchill. I remember reading this book, this biography of Churchill, and, like, almost spitting out the water that I was drinking [laughs] when I got to this part of the book, 'cause he's writing a letter. Churchill's writing a letter to his son. When I got to this part, I was like, oh, this reminded me of what Churchill said to his son. And Churchill, writing to his son, he says, "Your idle and lazy life is very offensive to me. You appear to be leading a perfectly useless existence." And then the author says Churchill loved his son, but over time he liked him less and less.

4. 16:09 – 23:18

   Simplicity, Eliminating Waste and Ford's One Idea

   1. DSDavid Senra16:09

      Another main idea from Henry Ford's philosophy, he wants to make simple products, and he wants to make them at scale. "My effort is in the direction of simplicity. People in general have so little, and it costs so much to buy even the barest necessities. Because nearly everything that we make is much more complex than it needs to be. Real simplicity means that which gives the very best service and is the most convenient in use. Start with a product that suits and then study to find some way of eliminating the entirely useless parts." Which is, if you think about it, is exactly what he did. He's giving us advice. He's like, "Hey, if you wanna, wanna build a business, you wanna build a product, start with a product that already exists, study it, and just find a way to get rid of the useless parts." Well, that's ex- I mean, he starts out bu- building, like, $6,000 luxury cars for other people at a time when, like, the average worker was making, like, $2 or $3 a day. And he realized, like, we have all this stuff in the car that's just not needed. And so you can think about Ford's career as like, okay, that's the state of cars now, and so for the next 15 to 20 years, I'm gonna find a way how to keep making this simple and keep making it lighter. And then the more simple I make something, the more, uh, the more of them I can make. The more of them I can make, the lower the price gets, and so there, there you go. He's just changed the entire... literally changed our physical world with his one idea. He liter- Henry Ford had one idea. So back on Founders number 120, 121, and 122, I did a three-part series on Billy Durant and Alfred Sloan. So Billy Durant is... Everybody knows the company General Monders- Motors. Nobody knows who Billy Durant is. He's the founder. Outside of Henry Ford, Billy Durant is by far the most important other founder for, like, the, the very, the creation and the very foundation of the American automobile industry. It's remarkable how few entrepreneurs actually know who he is. So there's just one paragraph from one of these books. It is from Founders number 121, and it just gives you into this idea, 'cause I think this is more... it's really important to know up front when you're studying Henry Ford that he literally had one idea his entire career, and it was completely different from every other automobile manufacturer. And it says, "He was determined to concentrate on the low end of the market, where he believed that high volume would drive costs down and at the same time feed even more demand for the product. It was a fundamental difference in philosophy." So why did I bring that up to you now? Because when he's telling you and I at this part of the book, "Hey, find a product that already exists, study it, and then eliminate the useless parts," he's telling you that and he's telling me that because that's what he did. And then he talks about this sounds simple, but it takes a long time because you gotta do it not only to, not only the product, but every single part in the construction and manufacturing of the product. I'm-- He goes into a lot of detail. I'm gonna pull out one because this is important. So s- at the point-- At this time there's like a good amount of wood that is being put into these cars and so he says, "Take wood for example. For certain purposes wood is now the best substance we know. But wood is extremely wasteful. The wood in a Ford car contains 30 pounds of water." There mu- And then this very like basic... It's, it's like simple but not easy. Like his approach to building a business is simple but not easy, right? So it's like, okay well this is just one material in one part of a car that has, you know, hundreds maybe thousands of different, um, pieces to it. And so he's like, "Okay, well this seems to be very wasteful. The wood in a Ford car contains 30 pounds of water." And h- this thought process is fantastic. So he goes, "There must be some way of doing b- better than that. There must be some be- method by which we can gain the same strength and elas- elasticity without having to lug around useless weight." And this is the punchline, this is so important and why I'm reading it to you. "And so through a thousand processes." His point is like I didn't just think about this for wood in the car. I thought about it for every single part of my product, every single part of my business. That line of thinking takes time because you have to do it a thousand times to different areas of your business. But if you are willing to invest that time, by the time he starts mass producing, by the time the first Model T comes off of the assembly line he has been experimenting and using this kind of thought process for 20 years, right? So they think, okay. And th- why is that important? Because by the time that process starts the game is already over. Game, set, match because now he can make a product in 12 minutes that takes his competitor two days. And so he talks about in kind of like a weird un- hard to understand way that, you know, basically I only had one idea. I wanted to make the car for the every man. I was only interested in trying to get that car, the price as low as possible. And so what he's about to say here is like really like you start with the product and the product that he wanted to make was the inexpensive car for the everyday man and then you try to work backwards on how to do that over many, many decades. "The place to start manufacturing is with the product. The factory, the organization, and the selling and the financial plans will suit themselves to the product." And that process is extremely long. He says, "I spent 12 years before I had a Model T that suited me. We did not attempt to go into real production until we had a real product." So he had made a bunch, I think he made like eight or nine different versions of Ford cars before the Model T so that's what he's talking about. It's like start with something big and expensive even if it was cheaper than what my competitors were giving but it's still not the one idea I had in my mind what I saw, what I was going for. It took me 12 years of trying to figure out how to get to the point where I can mass produce it and actually make that car for the everyday man. And then I wanna point out something here like the great thing about this book is just he's very straightforward. I don't think the writing is great. It's like sometimes you have to hard understand but like he doesn't bury the lead. He's like this is just what I think and then he'll give you an example of why he thinks. So he says, "The essence of my idea then is that waste and greed block the delivery of true service. Both waste and greed are unnecessary. Waste is due largely..." This is so important. "Waste is due largely to not understanding what one does or being careless in doing it." And the only way to truly understand what you're doing, right, is to do it for a long time and focus on it and think about it. At this point that he's writing this he's been trying to build cars for 30 years. There's no shortcut. You have to put in the time. There's a fantastic quote by Mickey Mantle that I think kind of like echoes what, like what we're talking, what you and I are talking about right now and it's like, "It's unbelievable how much you don't know about the game that you've been playing all your life." And so he's saying, hey other entrepreneur, waste is largely due to not understanding what one does or being careless in, in the doing of it. Greed is merely nearsightedness. "I have striven towards manufacturing with a minimum of waste both of materials and of human effort and then towards distribution at a minimum of profit." That means profit per, per car not-- He's not trying to artificially suppress the amount of money he makes. He just doesn't wanna make a lot per, per car. "Depending for the total profit upon the volume of distribution." So there you go. I kinda ran over h- his point there. And then he has like this four-part philosophy of service. I'm gonna save that for the end 'cause he repeats that in the last chapter as well. So I'm gonna skip to... He, he's gonna actually give us-- Oh, oh my goodness so all we've been talking about is philosophy in his autobiography now we actually hear s- a little bit about his life and he says, "On May 31st 1921 the Ford Motor Company turned out car number five million." And he's about to tell us, hey I've been at this a long time. I'm happy I just made my five millionth car and the For- and the Model T alone he's gonna sell 15 million just of the Model T.

5. 23:18 – 26:16

   One Idea Versus GM's Many Models

   1. DSDavid Senra23:18

      So he's talking about number, number five million of any Ford car. That's not include-- Like Model T alone is 15 million but that, that's gonna happen over the next like decade and a half from where we're at in the story. But the reason I'm bringing this to your attention is 'cause like he said I-- He built a gasoline buggy which is like kinda like the first primitive car 30 years before he produced his five millionth car. And why is he bringing this up? Because listen car number five million he's like he says, "It's simpler than my first car but almost every point in it may also be found in the first car." This is why I keep saying like he had literally had one idea and in every single book that I've read on Henry Ford like it just jumps out. He's just like I had one idea, had no idea how I was gonna do it but I just kept working at it until I got to it. Just happened to take a long time and then once he figured it out it's, it's like okay well the game's over. No one's gonna be able to produce as fast as possible and what's fascinating is the fact that he focused on-- I don't wanna be too complicated 'cause I don't wanna direct your attention away from what we're talking about but there is something interesting in studying the early days of the automobile industry that I think applies universally to other industries. Like Ford took the lead, was the dominant player, had over 50% market share but this-- He, uh, he's like that's how good his one idea was but that one idea led to the, uh, giant gap. Because Billy Durant of GM's like, "I'm not gonna just make one car. I'm gonna make like a conglomerate. I'm gonna have like a cheap car, a medium car, a luxury car. I'm not gonna do all this. I'm gonna go out and..." What he did is like, "I w- I'm gonna go out and buy all these other existing..." He bought like Buick and Cadillac, and I think he started Chevrolet. I don't know if he bought it. I can't remember. But the point being is it's like eventually people got tired of just having the one black Model T, and once they started, then cars became like, hey, your car says something about you, and there's all these other things. But the entire time that Henry Ford was having success, Billy Durant, and then really Alfred Sloan, because Billy Durant lost control of his company, and Alfred Sloan was the one that brought GM's... Billy... Essentially, Alfred F- Sloan was the one that brought Billy Durant's ideas to fruition in the marketplace. And because GM had better product offerings, once the Model T tapered out, that's when GM had this huge rise. And I think by like 19... I wanna say like 1950 maybe. I, I don't know the number, but like let's say 1950, 1960. It's, GM's like one of the largest, uh, companies on the planet. And really the takeaway there is like, okay, y- one industry, you have two legendary founders. They both have completely different philosophies, and sometimes the philosophies work depending on the time. Like think about Microsoft and Apple, it's like a, a kind of a good parallel to that. So anyways, didn't mean to go on that tangent. He's saying, "Listen, that first car, it's like a lot worse, but it's very similar to this 5 million car." And he says, "The changes have been brought through experience in the making and not through any change in the basic principle." Uh, essentially, hey, I had one idea. I'm not changing that. I'm just getting better at actually expressing that idea in a physical car. "Which I take to be an important fact demonstrating that given a good idea to start with, it is better to concentrate on perfecting it than to hunt around for a new idea. One idea at a time is about as much as anyone can handle."

6. 26:16 – 29:52

   Farm Origins and the Mechanic's Mindset

   1. DSDavid Senra26:16

      And now he gets into, okay, why the hell are you building a car in 1893 anyways? "It was life on the far- farm that drove me into devising ways and means of better transportation, for even when I was very young, I suspected that much might somehow be done in a better way." He always says this, like, "A man should never do something that a machine can do better." Like, that, we should, that should be our main focus. And he starts out thinking about, it's like, "How can I get myself out of the physical labor through mo- through, like, building motors on a farm?" "That is what took me into mechanics, although my mother always said that I was born a mechanic. I had a kind of workshop with odds and ends of metal for tools before I had anything else. My toys w- were all tools, and they still are." That's a fantastic sentence. "The biggest event of my early life was meeting with a road engine about eight miles out of Detroit one day when we were driving into town." So he's driving into town by horse. There is no cars when he's saying driving, right? "I was 12 years old. I remember that engine as though I'd seen it only yesterday, for it was the first vehicle other than horse-drawn... It was the first vehicle that wasn't horse-drawn that I had ever seen." And so he continues talking about the impact that just this one experience had on him, right? "From the time I saw that road engine as a boy of 12 right forward to today, my great interest has been in making a machine that would travel the roads." And so that's why he has a love of mechanics, and he con- considers himself a mechanic. "There is an immense amount to be learned simply by tinkering with things. Machines are to a mechanic what books are to a writer. He gets ideas from them, and if he has any brains, he will apply those ideas." And then he's gonna give advice, especially for young people, but it applies really to everybody, that, hey, you can't live the life like the, your life the way other people want you to, even your family. You, sometimes you gotta say, "Hey, shut up, Mom and Dad." "My father was not entirely, uh, sympathetic with my bent towards mechanics. He thought that I should be a farmer. When I left school at 17 and became an apprentice in a machine shop, I was g- all but given up for lost by his father." And so now he's apprenticing in a machine shop, and it's just one sentence, and he, he, I think you already know this. "I wanted to make something in quantity." He repeats this a lot. "I don't wanna make five cars a week or five cars a day. I would like to make five cars every two minutes." And then this paragraph is, I think I was trying to explain this to you earlier. I don't know how, like I'll have to listen to it back if I did a good job or not, but I was trying to make this point. It's like, listen, the, the reason Henry Ford is so worthy of study is because his product literally changed the world, like the geography, like the physical world, where we live and what it looks like. That's insane to think about. And he says, "One of the most remarkable features of the automobile on the farm is the way it has broadened the farmer's life. We simply took for granted that unless the errand was urgent, we would not go into town, and I think we rarely made a trip into town more than once a week." And so what's interesting is, again, at this point in history, humans are getting around mainly by horse, so even one of the early criticisms of, uh, the early automobiles you'd hear from people, which is, you know, consistent with human nature, history doesn't repeat, human nature does, is that why do we need a car? We have a horse. And Ford is like, "I felt perfectly certain that horses, considering all the bother of attending to them and the expense of feeding, uh, feeding them and cleaning up after them, did not earn their keep." And the point is, is like picking up horse shit used to be a job in s- main cities. Like, there was people, all they did was pick up horse shit off of roads. And so Henry Ford's point is like, what if I just made a product that, you know, never, it couldn't travel. It traveled just as far and just as fast as a horse. Just the fact that somebody doesn't have to follow it around with a shovel means my product is better.

7. 29:52 – 34:53

   Distrust of Experts and Betting on the Gas Engine

   1. DSDavid Senra29:52

      So now he's talking about the en- the, like, the entrepreneur environment in, uh, Michigan at this time. Let's say this is like the late 1800s. If you were mechanically inclined, there's a lot of people who wanted to build cars, a lot of people were experimenting. And so, uh, I, I've brought this up on several podcasts in the past, but a lot of people are surprised that like the, the, the main engines that they were trying to build cars before the internal combustion engine, uh, was steam and electri- uh, electricity. Those are like the eight... People didn't know there was electric cars in the late 1800s. But his whole point here is that he repeats over and over again, he's very suspicious of experts, and he feels that if you could actually fill up your competitor's company with experts, that you're, that, like, it's a nefarious way to get an unfair advantage. So it says, "The idea of gas engines was by no means new, but this was the first time that a real serious effort had been made to put them on the market. They were received with interest rather than enthusiasm, and I do not recall anyone who thought that the internal combustion engine would ever have more than just limited use." This is his idea. 'Cause he wants his cars to travel far, and steam, first they thought that was super dangerous 'cause they could explode, and there w- and, and elect- electrical cars couldn't go very far. So he's like, "Okay, well, I'll try to use internal combustion engine," and other people are telling him, was like, "No, you can't do that. It's just gonna be like a tiny little thing." All the wise people demonstrated conclusively that the engine could not compete with steam. They never thought that it might carve out a career for itself. That is the way with wise people. They are so wise and practical that they always know to a dot just why something cannot be done. They always know the limitations. That is why I never employ an expert in full bloom. If I ever wanted to kill opposition by unfair means, I would endow the opposition with experts. They would have so much good advice that I could be sure that they would do very little work. Henry Ford [chuckles] is very blunt. It actually makes reading his autobiography, uh, rather refreshing. I, I like the s- the simple way he communicates, and he's just like, "This, this is what I believe. I don't care if you agree with me or not," kinda thing. What's fascinating is he's doing all these experiments on the internal combustion Edison, or engine. Here's a ... I just ran over, I'm about to run over my own point. He was doing this while he was working for an electric company. He was offered a job. He's like, uh, "At this point I was offered a job with the Detroit Electric Company as an engineer and a machinist." So he's working at an electrical c- company during the day, and he says, "Every night and all of Sunday night I worked on my motor. I cannot say that it was hard work. No work with interest is ever hard." And really the way you think about it, okay, so he's got a full-time job. He's got a wife. Every night and on Saturdays, right, he's working on this dream of his, this dream of this internal combustion engine. Everybody around him is telling him this is a stupid idea, right? And the way I think about this is I think about the amount of work ethic put in. He's been told, he's already told us like, what, five, four or five times up until this point that he hates lazy people who thinks of idleness. And so when I read this section, I thought of ... What I wrote down is, like, if you can't handle the workload, someone else will. And the fact that he not only endured the workload, but he enjoyed it. He just said, "I can't say it was hard work. No work without interest is ever hard." He was fascinated by what he was doing. So what's the result? In 1892, I completed my first motor car. Why is that important? Because the public praises people for what they practice in private. He has already been experimenting for years, and we're still decades away from the Model T. This is what he called his first car. He said, "My gasoline buggy was the first, and for a long time, the only automobile in Detroit." This line is hilarious. "I had to get a special permit from the mayor, and thus for a time enjoyed the distinction of being the only licensed [chuckles] chauffeur in America. I built three car- cars in my home shop, and all of them ran for years in Detroit." So check this out though. He's, you know, he's selling these cars. Obviously if there's only one car, people are like, "Well, what is this thing? Who, who made it?" His boss at the electric company tries to get him to give up his experiments. During all this time I kept my position with the electric company and gradually advanced to chief engineer. I was making $125 a month. But my gas experiments were no more popular with the president of the company than my first mechanical leanings were with my father. It was not that my employer objected to experiments, only to experiments with a gas engine. I can still hear him saying, "Electricity, yes. That is the coming thing, but gas, no." And this is Ford's point. Remember we're in 1892, maybe 1893 at this point. No one had the remotest notion of the future of the internal combustion engine, while we were just on the edge of the great electrical development. So everything, like all the energy, the attention, the money, the entrepreneurial energy and spirit is going into electricity, and yet Ford was able to ignore that distraction and with great independence of mind be like, "Uh, no. I'm gonna f- I'm gonna focus on this thing 'cause I'm, I like it. I'm interested in it. I think it has a future." That is so... That's easy to say, "Oh yeah, think for yourself." It is almost impossible to actually do, especially when everybody around you is focused on something else. And this is where Henry Ford at every... There's always like a fork in the road in an entrepreneur or founder's life, right? It's like at some point none of this is gonna work if you don't bet on yourself, and usually you're not in the best position when you have to make this decision, which is why so few people do it.

8. 34:53 – 37:26

   Quitting to Build Cars and the First Failed Company

   1. DSDavid Senra34:53

      The Edison Company offered me the general superintendency of the company, but on a condition that I would give up my gas engine and devote myself to something useful. That's their words. I had to choose between my job and my automobile, and I chose my automobile. This is a crazy thing, right? It, this is a calculation based on arrogance. There was really nothing in the way of choice, for already I knew that the car was bound to be a success. I quit my job on August 15, 1899 and went into the automobile business. Why did I say that is a calculation based on arrogance? At this point there is no such thing as a commercially successful car company, and he's saying, "I already knew it was bound to be a success." It gets even more unbelievable. I had no personal money. What money was left over from living was all used in experimenting, but my wife agreed that the automobile could not be given up and that we had to make or break. There was... And this is so important. He's talking about the fact that at the beginning there is no demand. Like, he's essentially describing the creation of a new industry and how humans are likely to react to a change. He says there was no demand for automobiles. There is never demand for a new product. At first, the horseless carriage, not even called an automobile, right? The horseless carriage was considered merely a freak notion, and many wise people explained why it could never be more than a toy. No man of money even thought of it as a commercial possibility. In the beginning, there was hardly anyone who sensed that the automobile could be a large factor in industry. The most optimistic people at this time hoped for a development that was akin to the bicycle. So his first car company fails. This is really important to know because their idea... He, he still has this idea. He's like, "I want it to be available to everybody." At this point, the few people that are making cars, they're extremely expensive. I rem- referenced this earlier, so I'm just gonna give one paragraph till we jump into where he starts the company that's successful. The Detroit Automobile Company is the one that, uh, he's organized Uh, "I was a chief engineer and held a small amount of the stock. For three years, we continued making cars more or less on the model of my first car. We sold very few of them. I could get no support at all toward making better cars to be sold to the public at large." Don't wanna make a luxury car like everybody else. I wanna make a car for the everyman. The whole thought was to make it, was to make the car to order and to get the largest price possible for each car. He finds that idea repulsive.

9. 37:26 – 45:28

   Racing, the 999 and Founding Ford Motor Company

   1. DSDavid Senra37:26

      So he leaves, and he's like, "All right, I'm gonna start, try to do this on my own." He rents a, a shop. It's like a, really like a one-story shed, and he continues his experiments to find out, like, what the automobile business, like, really is. Like, what is it at this point? What can I do? And so one of the first things he builds are race cars, and he does that because he viewed racing as a means to an end. It's probably, racing is the greatest marketing invention of the automobile industry. It's funny that they're using this in, like, 1899. Actually, no, I think this is in 1902, actually. So they're using this in 1902. You and I know because I've done three episodes on Enzo Ferrari. Like, for, that's w- that's laid the foundation. Obviously, Enzo Ferrari was just maniacally obsessed, like one of history's greatest obsessives. Like, he worked seven days a week, 12 to 16 hours a day for 60 years on Ferrari 'cause he's an absolutely insane person. Maybe history's greatest obsessive in terms of, like, he only thought about that one thing. But my point being is, like, he used that same idea. The fact that Ferrari is winning all those races in the '50s and '60s, maybe even in the '40s, is what built, like, the demand. They're like, "Okay, Ferrari means winning. I want some of that winning. I'll buy that car." So anyways, Ford's doing the same thing. He says, "We met at the racetrack in, in Detroit, and I beat him." So it's essentially like it's a spectacle that the press can cover, and that's like, that's how he's getting his initial traction, is the way you could think about it, uh, his initial traction for these cars that he's making. So he says, "I met him at the Grosse Pointe track and I beat him. That was my very first race, and it brought advertising of the only kind that people cared to read. The public thought nothing of a car unless it made speed and unless it beat other racing cars. My ambition to build the fastest car in the world led me to plan a four-cylinder motor." And I feel it's been a few minutes since he's uttered the word service, but don't worry. He's gonna say it right here. "The most surprising feature of business as it was conducted in then," and really he would argue now, outside of the Ford Motor Company, "was the large attention given to finance and the small attention given to service. That seemed to me be reversing the very natural process, which is that money should come as a result of work and not before the work. The second feature was the general indifference to b- to better methods of manufacturing as long as whatever was done got by and took the money." So they're like, "Hey, we're making money selling five and $6,000 cars," right? The other competitors. Or in some cases, like $10,000 race cars. It's like, well, what seems to be the problem? Like, we don't have to fix anything. This is great. And Henry Ford's like, "No, this is just the very beginning." In other words, a product apparently was not built with reference to how greatly it could serve the public, but with reference solely on how much money could be had for it, and that without any particular care whether the customer was satisfied. To sell the customer was enough. And when I reread this part, I said, uh, this is what I wrote down. This is why Henry Ford is one of my favorite entrepreneurs, and I mean his approach to work. As a person, he's a creep. Uh, I, I, I've covered that on other, um, podcasts and when I read, like, a, another biography of him, I'll go into more detail, but that is obviously absent in this book. But the reason that he's one of my favorite entrepreneurs is because think of it from the other side, right? We're customers. Like, you and I, we're all building products, right? For other people to use. But we are customers to way many more businesses than... Like, we get to make one product, but we have to, uh, one product or service, but we s- buy, you know, what, thousands, like an incalculable number of products and services from other businesses all over our life, right? So, like, we have one company, yet we are customers of an incalculable number of businesses. Of course you'd want the businesses that you give money to to have Ford's philosophy. Service to the customer over everything. And yet, you know. I mean, go, go think about the last dozen businesses that you've given money to. How many of them had truly great service? How many were making decisions based on what was best for their customer and not what was best for them? And then we get back to this idea of his, he detests laziness. Uh, there's a great Kobe Bryant quote on this: "I can't relate to lazy people. We don't speak the same language. I don't understand you, and I don't want to understand you." And so this is Henry Ford's version of that: "I noticed a tendency among many men in business to feel that their lot was hard. They worked against the day when they might retire and live off an income. Get out of the strife. Life to them was a battle to be ended as soon as possible. That was another point that I could not understand, for as I reasoned, life is not a battle except with our own tendency to sag with the downpull of getting settled. If to petrify is success, all one has to do is humor the lazy side of the mind. But if to grow is to suc- is success, then one must wake up anew every morning and keep awake all day. Life as I see it is not a location but a journey." And the way I personally think about this is I love the climb. I don't care where the summit is. And so anything that Henry Ford sets his mind to, he's going to be really good at. He starts winning races, builds more race cars, and, like, just builds faster and better ones. This one was hilarious. So it's like he made one. In some cases, he would race them, right? But he's like, "This one scares the hell out of me. Uh, I'm not gonna race it. We gotta find somebody else that does." And so they find a guy, and this is a description of him: "The man did not know what fear was." So at the beginning of the race, they have to crank these cars, right? There's no electric starters yet. Um, and so, or self-starters is I guess what they were called at this point in history. And so Henry Ford's, the race is about to start. Henry Ford is, like, cranking it, and listen to what this guy says: "While I was cranking the car for the start, he remarked cheerily, 'Well, this chariot may kill me, but they will say afterward that I was going like hell when she took me over the bank.'" And then Ford talks about he's pretty sure that the race car driver never even used the brakes ever. He just went like hell, like he said. He was about half a mile ahead of the next man at the end of the race. And so he uses the publicity of the 999, which is the race car that he's talking about here- And it says, "This 999 advertised the fact that I could build a fast motor car, and so a week after the race, I formed the Ford Motor Company." He makes a mistake at the beginning because he was short on funds, and he owned like, I don't know, like 20% or maybe 30% of the company. So he's working on it for like a year or two, but we get an insight into his personality. He says, "Listen, I very short, shortly found that I have to have control, and therefore in 1906, with funds that I had earned in the company, I bought enough stock to bring my holdings up to 51% of the company." So really you could think of in the early days of the Ford Motor Company, they're like, they're like assemblers. They're not even really manufacturers. They're buying the parts from all the, all, all of, uh, other companies. They ship them to their like... It's more like a warehouse than a factory, and then they just put it together. But even from that, he's like, okay, he was determined. He's like obsessed with taking weight out and like simplifying the product. He's already mentioned it a bunch of times. And it says the most beau- and this is why, "The most beautiful things in the world are those from which all excess weight has been eliminated." And I would argue same for companies too. This, uh, the, the best expr- expression of this idea, even though it, it pops up over and over again, I read The Music Producer's Biography, uh, Rick Rubin, right? It's episode 245. And one of my favorite things Rick Rubin said, Rick Rubin said is like, you know, they would describe him as a producer, and he's like, "I'm not a producer. I'm a reducer. Like, I take your music and I take away everything that is not the music." The most beautiful things in the world are those from which all excess weight has been eliminated. That is true for a song, a car, and a company. And then this is funny. "Whenever anyone suggests to me that I might increase weight or add a part to my car, I look into decreasing weight and eliminating a part." [laughs] So he just knows human nature. We like to make simple things more complex, so if somebody's trying to get you to do something complex, just fight in the, uh, like react vigorously and go in the other direction. It's like, "Okay, yeah, we're gonna add a part. You want me to add a part or increase weight? Actually, I'm gonna find out a way to decrease the weight I already have, so not only am I not adding to it, I'm making it lighter and more simpler. In other words, sir, I reject your advice." [laughs] A little bit about his mindset in the early days of his company. Argue, I would argue he maintained this mindset his entire life. "We did not," meaning our company, "did not make the pleasure appeal. Our ads or when we teach people about our products, it's not like, oh, it's a pleasure mobile. It's big, luxurious," right? He's like, "I'm not making..." He's just like, "I build..." What did Steve Jobs said? Steve Jobs said, "I build tools." Henry Ford thought the exact same way. "We did not make the pleasure appeal. We never have. In its first advertising, we showed that a motor car was a utility."

10. 45:28 – 50:10

    Weight Reduction, Intransigence and the Universal Car

    1. DSDavid Senra45:28

       He just mentioned the need for control. Why is he talking about the need for control? Why eventually does he have no partners? "My associates were not convinced that it was possible to restrict our cars to a single model." So at this point, I think they have like three different ones. But his whole thing's like, "I got one idea, and when I figure out how to get that one idea," when they do the Model T, they don't sell anything else. And so when I got to this point, one of my favorite things that I've ever read in any of the books I've covered for the podcast came from Charles de Gaulle. And he says, "Intransigence is my only weapon." This is the first of many disagreements with other people that Henry Ford has to oca- overcome to remain true to his one dream. And so when his associates convince him to build other cars, this is how he describes it. "We scattered our energy among three models." He does not like that. And so he goes into detail about like what they're making, how much it costs, how many they're selling, all this other stuff. I'm just gonna give you like the, the highlights here. So 1905, 1906, th- they're selling models, and some of the models are $2,000 and $1,000 each, and he's like, "It's cheaper than like a $6,000 car or a $4,000 car that was common at the time," but he's like, "It's still too expensive." And so he's like, "At $2,000 and 1,000, we only sold 1,500 cars." And so he eventually goes like this continuous improvement, and this is still way before the Model T, keep in mind. But he gets the price down. Instead of 2,000 and 1,000, it's 750 and 600, and this is where he's like, "Oh, I'm right and everybody else is wrong." Because once he got the price low enough, then he goes from selling 1,500 cars to almost 8,500. So what's fascinating is like even though they're selling thousands and thousands of cars, he's getting closer to his original idea. He's not there yet. His, the other people, like the shareholders and other people in the business, are like, "Okay, like this is good enough." But again, Henry Ford's like, "No, I just have one idea. I'm glad of the progress I'm making towards it. I think I'm getting closer, but I'm still not there yet." And so he says, "We were a prosperous company. We might have easily sat down and said, 'Now we've arrived. Let us hold onto what we got.' Indeed, there was some disposition to take this stand. Some of our stockholders were seriously alarmed when our production reached 100 cars a day. They wanted to do something to stop me from ruining the company. And when I replied to the effect that 100 cars a day was only a trifle and that I hoped long before to make 1,000 a day, they were shocked." And he says, "The temptation to stop and hang on to which, to what one has is quite natural. I can entirely sympathize with the desire to quit a life of activity and retire to a life of ease. I have never felt the urge myself." So again, there's like a little bit of a ego there. He's like, "Yeah, they thought 100 cars a day was fine. They thought 1,000 cars a day was crazy." He's like, "Listen, I understand it's very natural. We, you don't wanna mess up what you have. You know, I sympathize your desire to kinda take it easy, but that's not why I'm here. I have never felt the urge myself." And he continues, "It was, it was however no part of my plan to do anything of that sort. I regarded our progress merely as an invitation to do more." And why is that? Because he says, "I had been planning every day through these years towards a universal car, and we are not there yet. So therefore, we are not stopping." And so now we get to his, like Henry Ford's iPhone. So we can think of it, I designed eight models before the Model T. I made the following announcement. "I will build," this is him quoting himself. "I will build a motor car for the great multitude. It will be large enough for a family but small enough for the individual to run and care for. It will be constructed of the best materials and by the best men to be hired after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one." That is Henry Ford's one single idea. It will be So low in price that no man making a good salary would be unable to own one. He has to... The, the, the important part is like, it's easy to just say, "Oh, just make my, my product cheaper." But he's like, "I don't wanna make a low quality cheap product. I wanna make a high quality cheap product." And so for there, he's literally got to invent the ability to mass produce cars, which did not exist before Henry Ford. So he makes this statement, then he runs this ad, and it says, "The question was already being asked, how soon will Ford blow up? Nobody knows how many thousand times it has been asked since. It is asked only because of the failure to grasp that a principle rather than an individual is at work, and that the principle is so simple that it seems mysterious." And so then he goes into all... I mean, there's a million different decisions he has to make, and a million different processes that he has to examine and just continuously improve over and over again. And you do that for decade after decade, and you get to be able to build a high quality product at a price nobody can match.

11. 50:10 – 58:49

    Continuous Improvement, Rockefeller and Rejecting Experts

    1. DSDavid Senra50:10

       But the way he, his brain works is very similar to the way Rockefeller's brain works. And so, for example, he said, he's talking about the layout of the factory and the workflow, and he says, "Hey, if we can save 10 steps a day for each of the 12,000 employees that I have, you will save 50 miles of wasted motion and misspent energy every day." So that's his idea, is like Ford's focus on the continuous improvement as his company scaled, right? It's gonna remind you of when I just reread Titan. It's episode 248. And Henry Ford and Rockefeller understood this, like these little things make a big difference 'cause our organizations are gonna be gigantic. And so Rockefeller's watching, uh, a machine that would like solder caps to cans, and he's like, "How many drops of solder do you use on each can?" And the guy's like, "We use 40." And he's like, "Have you, have you tried 38?" Rockefeller asked. And the guy's like, "No, but I will." And so he tries 38 drops, and a small percentage of the cans leaked, so that doesn't work. But then they try 39 instead of 40, and none of them leaked. And so at 39 drops, the solder became the new standard, uh, at Standard Oil, at all the Standard Oil refineries. And why is that important? Rockefeller's gonna tell us right now. That one drop of solder, and I'm pr- I'm most likely pronouncing that word incorrectly, by the way. That one drop, uh, saved $2,500 the first year, but that export business kept on increasing after that, and doubled, and then quadrupled, and then became immensely greater than, than what it was, and the savings has steadily gone along, one drop on, uh, on each can, and now has amounted since to many hundreds of thousand dollars every year. One drop on one process on one tiny part of a gigantic enterprise. That is how Rockefeller and Ford thought. Then we go back to this idea, 'cause he repeats it over and over again. He says, like, if you actually know what you're doing, you would never consider yourself an expert. None of our men are experts. We have most unfortunately found it necessary to get rid of a man as soon as he thinks that he's an expert, because no... This is such a good line. Check this out. No one ever considers himself an expert if he really knows his job. A man who knows a job sees so much more to be done than he has done, that he is always pressing forward and never gives up an instant of thought to how good and how efficient he is. Thinking always ahead, thinking always of trying to do more, brings a state of mind in which nothing is impossible. The moment one gets into an expert state of mind, a great number of things become impossible. Summarize that. No one is an expert if he truly knows his job. This is another... I just love his, like, unapologetic level of optimism that he has, and probably for, mostly for his own, like, skill set and thoughts. Uh, c- especially when you hear the way he talks about other people. But this is one of my favorite Henry Ford quotes. I refuse to recognize that there are impossibilities. I cannot discover that anyone knows enough about anything on this earth definitively to say what is and what is not possible. And so of course, if you believe that, you're always focused on this continuous improvement in every little aspect of your business, right? Not a single operation is ever considered as being done in the best or cheapest way in our company. What is that? What is he saying? Things can always be done better. He just says it with more words than he needs to. Not a single operation is ever considered as being done in the best or cheapest way in our company. Things can always be done better. That is the idea behind that sentence. And so a main theme in the history of entrepreneurship is that repetition is persuasive. I've now moved, like, 20 pages ahead of where we just were, and he's still at it. We are never satisfied with the way that everything is done in any part of the organization. We always think that it ought to be done better, and that eventually it will be done better. And why? One cent saved on each part would amount to millions a year. Therefore, in comparing savings, the calculations are carried out to the thousandth part of a cent. That is how far he thinks, he takes things. My improvements may be so minuscule that I cannot even calculate them unless I take out my calculations to the thousandth part of a cent. Imagine trying to compete with this guy. Then he has a bunch of, like, one-liners and maxims spread throughout the entire book. This one I love, 'cause essentially when you're studying history, that's what you're doing. It's like, I don't care what we think human nature is or it ought to be. It's like, what is it? Well, just read it. Like, if you're reading these books, it's like you're watching tape. It's like the same thing, same way a basketball player watches tape, a game tape, or an, any kind of athlete watches game tape. That's what reading biographies is. We're just watching game tape of some of the greatest people in history, like how, how they did life, right? And he says there are t- far too many assumptions about what human nature ought to be, and not enough research into what it is. Another one-liner. The habit of acting shortsightedly is a hard habit to break. Another one-liner. There will never be a system invented which will do away with the necessity of work. Idle hands and minds were never intended for any one of us. Work is our sanity, our self-respect, and our salvation. Then he takes the same idea and he applies it to a different domain. He's like, "Listen, if you... The reason that I'm preaching continuous improvement," and I'm kinda like maniacally obsessed with this stuff, 'cause his whole point, he's like, "Listen, continuous improvement makes your business likely to survive economic downturns. There is no use waiting around for business to improve in a, in a, like an economic slump. If a manufacturer wants to perform his function, he must get his price down to what people will pay. There is always, no matter what the condition, a price that people can and will pay for a necessity, and always, if the will is there, the price can be met. It cannot ma- be met by lowering quality. It has to be met by lowering price." And the way he lowers prices is through to, is because he eliminates waste. And so that, all these ideas, like, it's kinda like a snake eating its tail, right? Continuous improvement means less waste. Less waste means, uh, lower prices. Lower prices means that you can survive, uh, your more, your business is more likely to survive economic downturns. And then once I get to this part for the second time, I wrote to myself, "This is when I realize that this book is less of an autobiography and more of a manifesto. There are shortsighted men who cannot see that business is bigger than any one man's interest. Business is a process of give and take, live and let live. It is a cooperation among many forces and interests. Whenever you find a man who believes that business is a river whose beneficial flow ought to stop as soon as it reaches him, you find a man who thinks he can keep business alive by stopping its circulation." And what is the circulation of business to Henry Ford? Service to others. Let's go back to this idea where he, he told us earlier, "Hey, start with the product and everything that the business needs, that that product needs," right? That, in other words, that we call business, will appear around it. And it also clarifies your thinking. He says, "You will notice that the reduction of price comes first. We have never considered any cost as fixed. Therefore, we will first reduce the price to a point where we believe more sales will result, then we go ahead and try to make that price." So really, what is he saying at this point in the book? If we had to sell the Model T for only $300, and right now it costs $400 and nine, $490, how would we be able to do it? Well, one way to force our way, our, ourselves to figure that out is say, "The price is now 300. How do we make that happen?" A large part of the book is the fact that he feels a lot of people confuse finance and business. He does not feel business, uh, he does not feel finance is busi- I- is business. There's a lot of these opinions where he's like, "You need so much financing 'cause your business sucks." [laughs] It's basically what he says. We have demonstrated that we di- did not need, need any money. And why is he saying that at this point? 'Cause he's like, "My business is throwing off oodles of cash. I don't even know what to do with it." And so he's gonna elaborate on his philosophy. He says, "Money is only a tool in business. It is just a part of the machinery. You might as well borrow 100,000 lathes as $100,000 if there's trouble inside your business." So lathe is just a machine for, like, shaping wood or metal or something else you would need in the, the manufacturing process. So he's like, "Okay, you might as well borrow 100,000 lathes as w- as $100,000 if the trouble's inside your business. More lathes will not cure it, neither will more money." So his point is, like, he's analyzing the way that a lot of financing has been done. He's also talks about, like, this is a big problem in the railroad industry and why he bought a railroad at one point is because, like, they have a crappy business that's mismanaged and wasteful, and they throw more money at it, and that's not what you should do. His opinion is like you solve the problem first, and usually the, the financing that you need is, is in the elimination of the waste, right? So it says, "More wei- lathes will not cure it, neither will more money. Only heavier doses of brains and thought and wise courage can cure. A business that misuses what it has will continue to misuse what it can get. The point is cure the misuse. When that is done, the business will begin to make its own money."

12. 58:49 – 1:03:30

    Finance, Problems and Wages

    1. DSDavid Senra58:49

       He continues that, hey, this environment, this easy money environment is not helping any. "Borrowing may easily become an excuse for not boring into the trouble within your business." And his point is like, okay, your business is going through difficult financial times? Good. Problems are just opportunities in work clothes. "And many a businessman should thank his stars for the pinch," the economic pinch, "which showed him that his best capital was in his own brains and not in bank loans." And so there's this idea that all a business is is a problem-solving machine. This came from... I did this book, who knows, [scoffs] five, four years ago. It's Danny Meyer's fantastic autobiography. It's called Setting the Table. And he s- he's at, like, a dinner with the guy from St- this guy named Stanley, uh, Marcus from Neiman Marcus, and he's a much older gentleman, if I remember correctly, and Danny's like, you know, just, like, down and out about a problem. And so I'm gonna read from that book right now, and he says, "Opening this new restaurant, I said, might be the worst mistake I've ever made. Stanley set his martini down, looked me in the eye and said, 'So you made a mistake. You need to understand something important and listen to me carefully. The road to success is paved with mistakes well-handled.' His words remain with me through the night. I repeated them over and over to myself, and it led to a turning point in the way I approached, uh, approached my business. Stanley's lesson reminded me of something my grandfather had told me. The definition of a business is problems." Business is problems. "His philosophy came down to a simple fact of business life. Success lies not in the elimination of problems, but in the art of creative problem... uh, excuse me, in the art of creative, profitable problem-solving. The best companies are those that distinguish themselves by solving problems most effectively." The way I think about this, this idea is business is problems, and successful companies are just effective problem-solving machines, and that is a point that Henry Ford is making. You should thank your stars for the problem that you're having, 'cause once you solve it, you will now have better problem-solving abilities, and therefore it's likely over time that your company becomes more successful as a result of you being forced into this very difficult position to actually grow and acquire these new skills, because business is problems. And the reason that Ford is so fanatically obsessed with continuous improvement and continuous problem-solving is because his view is completely counter to anybody else in business at this point. And he talks about this. "Old-time business went on the doctrine that prices should always be kept to the highest point at which people will buy. My business has taken the opposite view." And so what I wrote here is Ford would not agree with Warren Buffett. Ford would say just because you can raise prices, prices on See's Candy, and it doesn't ... Like, sales don't go down and more people buy, doesn't mean that you should. Ford and Buffett are playing different games. Another main point of Ford. He's like, "Listen, I want low prices and high wages," and this is why. This is fantastic. "There is something sacred about wages. They represent homes and families and domestic destinies. People ought to tread very carefully when approaching wages. On the cost sheet, wages are mere numbers. They're mere figures. Out in the world, wages are bread boxes and coal bins, babies' cradles, and children's education, family comforts, and contentment." What he's really telling you and I here is never forget the people behind the wages you pay. Wages aren't the same as your other expenses. There is a ruthlessness that Henry Ford, uh, definitely has though, and his point is everything and everybody must produce or get out. What is he talking about there? In a company that's dedicated to service, there's no room for waste. And he has an entire paragraph dedicated to one of the, uh, my favorite lines. Read George Lucas' fantastic biography. It's called George Lucas: A Life. Uh, the writer's Brian Jay Jones. I think it's Founders number 35. But there's a line in that book I never forgot, and he says, "George Lucas unapologetically invested in what he believed in most, himself." It is possible to even overemphasize the saving habit. It is proper and desirable that everyone have a margin, margin of safety, have some money in the bank, right? It is really wasteful not to have one if you can have one, but it can be overdone. We teach children to save their money as an attempt to counteract thoughtlessness and selfish expenditure. That makes sense, right? But that has value, but it's not always positive. It does not lead the child out into the safe and useful adventures of self-expression or self-expenditure. To teach a child to invest and use is better than to teach them to save. Most men who are laboriously saving a few dollars would do better to invest those few dollars first in themselves and then in some useful work. Eventually, they would have more money to save as a result. Young men ought to invest rather than save. They ought to invest in themselves and then create creative value.

13. 1:03:30 – 1:10:49

    Fixing the Railroad: Maximum Service at Minimum Cost

    1. DSDavid Senra1:03:30

       Okay, then I'm gonna spend some time in this section. It's a chapter called The Railroads, and it talks about, hey, this is a, his, the perfect illustration of the idea. It's like we, you need to copy the, the how and not the what. And the fact that he needs certain railroads to transport his products all around the country, and they're so efficient, it's become such a large problem at this point in his career, that he's gonna buy one. And this is where he really compares and contrasts. He's like, "This is why I'm writing the book. This is my philosophy on how to build a business, and this is why, because how most businesses are poorly run." I am entirely without any disposition to pose as a railroad authority. There may be railroad authorities, but if the service as rendered by the American Railroad today is the result of the accumulated railroad knowledge, then I cannot say that my respect for the usefulness of that knowledge is all pro- is all that profound. Let me pause right in there. What is he saying? I see no evidence of this knowledge because it's not manifested in service. I have not the slightest doubt in the world that the active managers of the railways, the men who actually do the work, are entirely capable of conducting the railway of the country to the satisfaction of everyone. The men who know railroading have not been allowed to manage railroads. So that's his way of saying, "Hey, got no problem with the actual workers doing the job. It's the management and the administrators that are greedy and wasteful." And one thing he notices as soon as he buys the railroad is that they don't even actually reinvest. They just take the money as dividends, put it in their pocket, right? A very small fraction of the money earned by the railways has gone back into the rehabilitation of their properties. And so then he's examining, like, where is all this money going? And this goes back to the fact that Ford is very pro founder and worker. He just despises anything that is not work directed at service, so he talks a lot of shit about bankers and lawyers and administrators and all that stuff. The natural ally of the banker is the lawyer. Such games as have been played on the railroads have needed expert legal advice. Lawyers, like bankers, know absolutely nothing about business. In our experience with the Detroit ... The, the name of the railroad's irrelevant. In our experience with our railroad, we bought the railroad because it, its right of way interfered with some of our improvements on the River Rouge, which was this giant plant that he's making, okay? We did not buy it as an investment or because of its str- strategic position. We literally bought it because you're interfering with what we're, we need to get done. And if you can't get the job done, then we'll just buy it and we'll do it ourselves. So it says since we bought the railroad, uh, because it interfered with other plans, we have to do something with it. The only thing to do is to run it as a productive enterprise, applying it, to it the exact same principles as applied to every department in our business. And when we think about what he's saying there, it's like, listen, since I own this thing, it needs to be an asset and not a liability. And so I'm just gonna use the same principles that I use for building cars as building the railroad. This is why ... Again, I'd pick up the whole book and just read this entire chapter. It's fascinating. It is true that applying the rule of maximum service at minimum cost, which he's always doing, right? That's a really great way. What is Henry Ford distilled down to five words? Maximum service at a minimum cost. Maximum service at minimum cost. It's five words. Five-word summary of Henry Ford for you. Maximum service at minimum cost has caused the income on the road to exceed the outgo, meaning it was losing money, now it's turning a profit, which for that road represents a most unusual condition. See, he, he also is kind of low-key funny 'cause he's like kinda like talking shit there. It has been represented that the change ... [laughs] 'Cause like for this road, that's an unusual condition. How dare they make more ... How is, how do they have more revenue than expenses? What's happening here? It has been, uh, represented that the changes we have made, and remember that they've been made simply as part of the day's work, are peculiar. Oh, he says, oh, I need to back up here. They're saying, "Hey, this is like revolutionary." Like this is, how is this happening? And Ford's like, "These are not revolutionary," and they could actually be applied to railroad management in general. And then he just has like a very common sense way of breaking down what needs to be fixed. He takes the inventory. Okay, this is what I- this is the business I own now. These are the assets. These are the people working there. Like, let's just go through and do a thorough... Like, is everything being done as good as it could do? And in other words, like what's about to happen is like the railroad is, was being run in the exact opposite way that Henry Ford would run a business. All of the rolling stock was in extremely bad condition, and a good part of it would not run at all. All the buildings were dirty, unpainted, and generally run down. The road bed was something more than a streak of rust and something less than a railway. The repair shops were overmanned and under-machined. Practically everything connected with the operation was conducted with a maximum of waste. There was, however, an exceedingly ample executive and administrative department, and of course, a legal department. So li- listen to what he's saying. Where are they investing the money? In their trains? No. Are they investing the money in the track? Nope. Are they investing the money into the latest technology so that they can actually have more machines doing work instead of the men doing it? No, they're not doing that. Where are they putting the money? There was an ample executive and administrative department, and of course, a legal department. So he's like, "Well, we're not gonna do this." There had been an executive office in Detroit, and we closed that up, and then we put that administration in charge of one man. And so he goes through some of the numbers here. It's like, oh, there's 25 administrators? Okay. See ya. There's gonna be-- We're gonna have one dude. One dude's gonna do all that. And he just goes through and does this line by line. All these unnecessary, uh, accounting and red tape were thrown out, and the payroll of the road was reduced from 2,700 people down to 1,650. And he goes on for quite a bit. I'm not gonna read all that. I'm just gonna give you what was my interpretation of what's taking place. Most businesses are overstaffed. The people running them are just not skillful operators. And so then he's like, okay, well, you can, uh, there's, uh, there's also a way to increase money is that you can actually reduce time. We are not pouring in great amount of money. Everything is being done out of the earnings from the railroad. That is our policy. The time of our freight movements have been cut down about two-thirds. And so he does that idea, the idea behind what he-- that sentence right there, he does that a lot. By increasing speed, he actually creates money. And it's very similar where Apple, uh, that's one of the best things Tim Cook did at the very beginning when, um, when Steve Jobs came back to Apple. And Apple actually did this 'cause they, they increased inventory turnover, uh, when Steve came back. And it was like, I forgot how much money saved, but it was a good amount. It was like tens of millions. It might even been like 200 million. It was a good amount of money, just like making things go faster. We are routing as much as we can around our own business over the road, but only because we g- we-- because on this road, we get the best service. For years past, we have been trying to send freight over this road that I now own, that I previously didn't, is what he's telling us, right? Because it was conveniently located. But we've never been able to use it to any extent because of the delayed deliveries. And another way to think about that is like we-- like the, he made the, the risk in buying this railroad was actually really tiny to Henry Ford because he knew as trying to be, um, as trying to be a customer of the business, it, he knew it was a poorly run business. So it's like there's obvious room for improvement here. They're just not doing it. So just increasing the obvious things makes this risk in buying the, the asset. I think he only paid like 5 million. I think he paid 5 million for the railroad, and I think he winds up selling it for like 30 million. I could... Those numbers might be wrong, but it's like a very small investment. Like, the risk is very tiny because from the outside, it's like, oh, these guys just don't know what they're doing. And his point was just like, "We-- I actually fixed what was wrong with the road. Everybody previously just kept raising more money." So he says, "Will a billion dollars solve this sort of trouble? No. A billion dollars will only make the difficulty $1 billion worse. The purpose of the billion is simply to continue the present methods of railroad management, and it is because of the present methods that we had any railroad difficulties to begin with." So what is he saying? You're just throwing more money at incompetent people. Okay.

14. 1:10:49 – 1:13:44

    Ford's Creed and Closing

    1. DSDavid Senra1:10:49

       And then we'll end where we began. This is Henry Ford summarizing his philosophy. It has been thought that business existed for profit. That is wrong. Business exists for service. If I did not think so, I would not keep working, for the money that I make is inconsequential. Business must always give more to the community than it takes away. In the first chapter was set forth my creed. Let me repeat it, for it is at the basis of all of our work. Number one, an absence of fear of the future or a veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunity more intelligently to begin again. There is no disgrace in honest failure. There is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress. Number two, a disregard of competition. Whoever does a thing best ought to be the one to do it. Number three, the putting of service before profit. Without a profit, business cannot extend. There is nothing inherently wrong about making a profit. Well-conducted business enterprises cannot fail to return a profit, but profit must and inevitably will come as a result of good service. It cannot be the basis. It must be the result of service. Number four, manufacturing is not buying low and selling high. It is the process of buying materials fairly and with the smallest possible addition of cost, transforming those materials into a consumable product and distributing it to the customer. There is always something to be done in this world and only ourselves to do it. Every advance begins in a small way and with the individual. And that is where I'll leave it. For the full story, highly recommend buying the book. If you buy the book using the link that's in the show notes, you'll be supporting the podcast at the same time. As you're buying more books and reading more books, make sure you get the Readwise app. Readwise is where I store all of my notes and all of my highlights for every single book that I read. I've done this for years, and it's one of the main benefits of listening to this podcast, 'cause not only have I lis- have I read over 100,000 pages in the history of entrepreneurship, but the way I don't forget these things is because I put them in Readwise, and I read them over and over and over again. It is by far the best app I pay for, and I could not make the podcast without it. So founders tend to read a ton, and if you're gonna read, you might as well remember what you read. And so if you go to, I think it's... I'll leave the n- the... I should know the link by now. Geez. Uh, the, I'll leave the link in the show notes in case I'm wrong, but I think it's readwise.io/founders, and you can get 60 days free. It's fantastic. That is 266 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 1:13:45