#254 John D. Rockefeller The Founding Father of the Rockefellers

In the midst of a tumultuous oil industry, John D. Rockefeller, the mastermind behind Standard Oil, believed in a higher law doctrine applied to business, viewing his aggressive consolidation and elimination of competition as a benevolent crusade for efficiency and cooperation. Despite legal and societal opposition, Rockefeller pursued his vision ruthlessly, centralizing control and employing tactics like espionage, secret allies, and media manipulation. His strategy of increasing production to negotiate better transportation rates and buying out competitors, including the smartest businessman he knew, Jay Gould, led to a near-monopoly. Rockefeller's empire, operating under the guise of multiple "independent" companies, eventually caught the government's attention, resulting in the 1911 Supreme Court order to dissolve Standard Oil. Ironically, the dissolution only increased Rockefeller's wealth, potentially making him the world's first billionaire, a testament to his unwavering confidence in his methods and their impact on the nation's prosperity.

• Rockefeller viewed business as a form of war, employing strategies similar to a military campaign.
• He believed in secrecy and the transmission of coded messages to maintain an advantage.
• Rockefeller likened himself to Napoleon, admiring Napoleon's genius for organization and understanding of men.
• He valued the ability to inspire confidence and leadership in others, seeing it as essential for success.

"Rockefeller, the field marshal, laid down strategy and relied on his general staff to carry it out."

This quote highlights Rockefeller’s strategic approach to business, drawing parallels to military operations where he, like a field marshal, devises strategies and depends on his team to execute them.

• While vacationing in France, Rockefeller expressed admiration for Napoleon's leadership and organizational skills.
• He believed that if Napoleon had been a businessman, he would have excelled due to his quick thinking and connection with the people.
• Rockefeller saw similarities between his own business practices and Napoleon's military strategies.

"It is hard to imagine Napoleon as a businessman, but I have thought that if he had applied himself to commerce, he would have been the greatest businessman the world has ever known."

Rockefeller speculates that Napoleon’s talents in leadership and strategy could have made him an unparalleled businessman, reflecting his belief that the principles of success in warfare and business are analogous.

• The speaker reread a popular biography of Rockefeller, "Titan," and discovered the book "John D." which influenced many ideas in "Titan."
• "John D." is considered to be more detailed in terms of business building strategies than "Titan."
• The speaker suggests reading "John D." before "Titan" to better understand Rockefeller's business acumen.

"This is a very old book. It was published over 40 years ago."

The speaker introduces "John D." as an older, influential book that provides detailed insights into Rockefeller’s business practices, suggesting its priority over the more popular "Titan."

• Rockefeller's greatness was attributed to his mother's training from childhood.
• His mother influenced his pensive demeanor, religious devotion, and philanthropy.
• Despite his mother's influence, Rockefeller acknowledged the business lessons from his father as valuable.

"Rockefeller had his mother's quiet, pensive demeanor. His devotion to the church came from her."

This quote summarizes the maternal influence on Rockefeller’s character, emphasizing the traits of quietness, thoughtfulness, and religious commitment inherited from his mother.

• Rockefeller's father, "Big Bill," was an individualist with a controversial parenting style, emphasizing sharpness in business.
• He exposed young Rockefeller to the business world, teaching him the importance of money and negotiation skills.
• Despite resentment, Rockefeller recognized the practical business lessons imparted by his father.

"I cheat my boys every chance I get. I want to make them sharp."

The quote from Rockefeller’s father reveals his unorthodox approach to teaching his children about business, aiming to make them savvy by directly engaging them in challenging transactions.

• It's uncertain if Rockefeller graduated high school, but he pursued a mail course in bookkeeping and business fundamentals.
• He demonstrated persistence in job searching, visiting numerous firms until he was hired.
• Rockefeller approached problems methodically, solving them and moving on to the next challenge.

"The art of living, as Rockefeller saw it, consisted of facing problems and solving them."

This quote encapsulates Rockefeller’s philosophy of life and work: methodically addressing and resolving challenges as a continuous process.

• Rockefeller was passionate about business, comparing ledger figures to poetry.
• He learned the commission business thoroughly, eventually knowing more than his employer.
• His experience with transportation and negotiation of rates became foundational for his future business ventures.

"He saw that posted rates supposedly fixed could also be negotiated."

Rockefeller’s realization that seemingly fixed rates were negotiable is a key insight that informed his later business strategies, particularly in securing rebates in the oil industry.

• Rockefeller's strategy involved borrowing money to extend business operations.
• He learned the importance of borrowing and liberal advances on consignments from his early commission house experience.
• His persistence in borrowing and negotiating with banks was a hallmark of his business approach.

"The greatest borrower I ever saw."

This quote from a former partner of Rockefeller highlights his exceptional ability to secure loans, a skill that was crucial in expanding his business ventures.

• Recognizing the diminishing profits in the commission business post-Civil War, Rockefeller transitioned to oil refining.
• He calculated the risks and seized the opportunity presented by new oil wells and the demand for crude oil.
• His boldness in borrowing and expanding the oil business led to a split with conservative partners.

"We should borrow whenever we can safely extend the business by doing so."

Rockefeller’s assertive stance on leveraging borrowing to grow the business underscores his aggressive and forward-thinking business strategy, which was instrumental in establishing the Standard Oil monopoly.

• Paul Graham, founder of Y Combinator, advises caution in choosing a co-founder or business partner.
• Majority of Y Combinator founders experience 'founder divorce' or require mediation.
• Often, one dominant partner emerges in successful companies.

"You got to be careful with who you choose as a co-founder, who you choose as a partner."

This quote emphasizes the importance of selecting the right business partner or co-founder, as it can significantly impact the success and harmony within a startup.

• Rockefeller, at 25, became the largest refiner in Cleveland by secretly arranging financing to buy out his partners.
• He considered the separation from his former partners as the beginning of his success.

"How fortunate was that? I bought out all those men, Rockefeller recalled later. I point to that day when I separated myself from them as the beginning of the success that I have made in my life."

Rockefeller reflects on the pivotal moment when he bought out his partners, which he believes was the start of his subsequent success.

• There is a tendency to focus on the successful version of a person rather than the version that built the success.
• Bill Gates' early life and intense drive are often overlooked in favor of his later philanthropic image.

"The best example of this, I think it was founders number 140. It was the biography of Bill Gates, but it's a biography of Bill Gates from the first 35 years of his life."

The speaker notes that biographies, such as the one on Bill Gates, often highlight the formative years and the intense drive of successful individuals, which is crucial to understanding their success.

• Rockefeller's success was attributed to his insight, organizational ability, financial skill, and ruthlessness.
• His charming personality was a tool for business, often disarming and seducing before dominating.

"Like his father, he could charm birds from trees. Unlike his father, he trapped the prey before it knew the seduction had begun."

This quote describes Rockefeller's ability to charm and strategically maneuver in business, which was a significant factor in his success.

• Rockefeller exuded confidence but was privately anxious about the future.
• He was publicly kind but privately critical of business associates.
• His modesty masked an enormous ego, which he believed was necessary for building a giant company.

"The silent man that outsiders saw could be loquacious."

This quote reveals the contrast between Rockefeller's public persona and his private self, highlighting his complexity as an individual and a business leader.

• Rockefeller believed in listening more than speaking, gaining an informational advantage.
• He strategically positioned himself to receive valuable information from competitors.

"Listen, let the other fellow talk."

Rockefeller's strategy of listening to gain an advantage is encapsulated in this quote, emphasizing the value of information in business competition.

• He extensively studied all aspects of the oil industry, from production to distribution.
• Rockefeller identified problems as opportunities for economic gain.

"At the very beginning, Rockefeller set about studying all sides of the oil industry."

This quote demonstrates Rockefeller's meticulous approach to understanding the oil industry, which laid the groundwork for his future success.

• Rockefeller viewed problems as exciting opportunities, similar to Jeff Bezos' mentality.
• He believed in improving efficiency and eliminating waste to create opportunities.

"We must try not lose our nerve when the market gets to the bottom, as some people almost always do, we will surely make a great mistake if we do not buy."

Rockefeller's perspective on market challenges is revealed in this quote, where he sees downturns as buying opportunities rather than setbacks.

• Rockefeller expanded his business by directly controlling export operations, eliminating the need for wholesalers.
• He recruited top talent for specific strategic roles within his company.

"The basic team that would shape the company's growth for the next decade had been formed."

This quote underscores the importance of assembling a strong core team with clear roles to drive the company's growth.

• Rockefeller's strategy included retaining profits for reinvestment and expansion.
• This approach was unique at the time and proved to be a crucial element in Standard Oil's success.

"Rockefeller saw to it that there was always plenty of cash in the till when the time seemed right for expansions."

The quote highlights Rockefeller's foresight in maintaining liquidity for strategic expansion, which was a key aspect of his business strategy.

• Real-time market data allowed Rockefeller's company to make informed decisions quickly.
• This advantage enabled them to capitalize on fluctuations in the market and byproducts.

"The Telegraph and post office tied the Cleveland oil city and New York offices into a tight web, and communications between them flowed back and forth daily."

The use of technology to maintain communication and leverage market data is highlighted in this quote, showing how Rockefeller's company stayed ahead of competitors.

• Rockefeller used his company's size to negotiate favorable transportation rates.
• He found secret sources of income, such as rebates from railroads, to finance expansion.

"The only certain result of gold's manipulations was that Rockefeller profited mightily from them."

This quote illustrates how Rockefeller benefited from the complex maneuvers of others in the industry, using these opportunities to further his own company's interests.

• Flagler's plan to reorganize the company into a flexible corporation allowed for rapid expansion.
• The formation of the Standard Oil company marked a significant shift in their business strategy.

"Under his guidance, the Standard Oil company started with a capitalization of a million dollars, was formed on January 10, 1870."

The establishment of Standard Oil as a corporation is captured in this quote, signifying a strategic move that facilitated their growth and dominance in the industry.

• Rockefeller sought a partnership with railroads for reduced shipping rates.
• Standard Oil reinvested profits to increase production capacity.
• Standard Oil made agreements with other local refiners to ship their oil cheaper, sharing its railroad arrangements.
• The company managed freight for all Cleveland oil, creating a hidden source of income by not disclosing savings on freight charges to other refiners.

"He said if the road would give Standard a substantially reduced rate on shipments from Cleveland to New York, that is the second step, right?"

This quote highlights Rockefeller's strategy to secure reduced shipping rates from railroads, which was crucial for expanding Standard Oil's operations.

"Standard had agreed to handle the freight arrangements for all Cleveland oil slated for export."

This quote shows Standard Oil's move to manage shipping for other refiners, which provided them with an additional, albeit hidden, revenue stream.

• Rockefeller aimed to bring the oil industry under his control.
• He believed that enduring stress and anxiety was necessary for breakthroughs in business.
• Rockefeller planned to unite Cleveland refiners into a single efficient organization to outcompete other regions.
• He viewed the Southern Improvement Company (SIC) as a precursor to his monopoly.

"I need to bring this godless industry under my control."

Rockefeller's determination to dominate the oil industry is evident in this quote, where he refers to the industry as "godless" and in need of his control.

"Withstanding prolonged periods of anxiety can lead to a breakthrough."

This quote reflects Rockefeller's belief that enduring hardship and stress is often a precursor to significant business achievements.

• SIC aimed to end rate wars and limit oil production to stabilize prices.
• Membership in SIC was falsely advertised as open to all, but it was not.
• SIC provided rebates to members and charged higher rates to nonmembers, forcing refiners to join or sell.
• Rockefeller used SIC as leverage in what became known as the Cleveland Massacre, buying out competitors.

"If the plan worked, no refiner could long survive outside the southern improvement company."

This quote explains the underlying strategy of SIC to eliminate competition by making it financially impossible for nonmembers to operate.

"He goes around to his other competitors in Cleveland, and he's like, listen, you got to join or you got to sell."

Rockefeller's ultimatum to his competitors is summarized in this quote, highlighting his aggressive approach to consolidating his power in the Cleveland oil market.

• Rockefeller developed networks of secret allies, including bankers, to support Standard Oil.
• He approached Oliver Payne with an offer to buy his company and join Standard Oil, leveraging Payne's Cleveland connections.
• Rockefeller's strategy included buying out competitors and converting them into collaborators.

"Every important Cleveland banker was given a chance to buy modest blocks of stock which thereby committed them to Standard's welfare."

This quote shows how Rockefeller secured the loyalty of Cleveland bankers by offering them stock in Standard Oil, aligning their financial interests with the company's success.

"He saw a chance to use the southern improvement company as a club to force Cleveland refineries to accept our plan in Cleveland."

Rockefeller's use of SIC as leverage to coerce Cleveland refineries into joining his organization is evident in this quote.

• Rockefeller believed in the importance of voluntary cooperation for successful business partnerships.
• He used the National Refiners Association to gather inside information on competitors.
• During economic downturns, Rockefeller pursued vertical integration, buying pipelines and distribution companies.

"In all the history of the world, men have never made a success of a concern into which they were forced or driven."

Rockefeller's philosophy that willing cooperation is essential for business success is encapsulated in this quote.

"He would use the refiners association to his purpose as president, he came to know the inside of every member's operation."

This quote reveals Rockefeller's strategic use of his position to gain valuable insights into his competitors' businesses, which he could then use to Standard Oil's advantage.

• Rockefeller was methodical and systematic in handling business matters.
• He used a simple desk organization system to manage his workload efficiently.
• His approach was likened to a farmer plowing a field, steady and methodical.

"His method of getting business attended to was the acme of simplicity."

This quote describes Rockefeller's straightforward and efficient approach to business tasks, reflecting his methodical nature.

"Unfinished business, in the form of letters, telegrams and memos and so on, was placed in a pile on the right hand side of his desk."

The quote provides a glimpse into Rockefeller's organizational method, which allowed him to maintain focus and efficiency in his work.

• Rockefeller aimed for complete control of the oil industry and adapted his tactics as his power grew.
• He and his team used a combination of persuasion and ruthless tactics to consolidate the industry.
• Standard Oil's strategy included legal battles, market manipulation, and secret ownership of competing companies.

"From now on, deploying his general staff with napoleonic skill, he would blend the gentile methods of persuasion with a ruthlessness and sometimes unscrupulous use of the power he had accumulated."

This quote summarizes Rockefeller's shift to more aggressive tactics as he gained more control over the oil industry, employing both persuasion and power to achieve his goals.

"The secret ownership of other companies was so well preserved that often a refiner, enraged by Standard's ruthless tactics, would refuse its offer to buy him out and sell instead to a local competitor, unaware that he had, in fact, sold out to standard."

The quote highlights one of Standard Oil's cunning strategies: secretly owning companies to indirectly eliminate competition.

• Potts' empire was a subsidiary of the Pennsylvania Railroad, owning rail cars, storage tanks, pipelines, and a terminal.
• Potts aimed to become the "evener" in oil transportation, offering equal rates to all shippers, which threatened Standard Oil.
• He aligned with independent refiners and the Pennsylvania Railroad to compete against Standard Oil.
• The Pennsylvania Railroad's president, Scott, joined the fight against Standard Oil to prevent being dictated by a customer on rates.
• Standard Oil's response was to cut off oil supply to Pennsylvania Railroad, shifting business to other railroads, causing financial loss and strikes for Pennsylvania Railroad.
• Scott sought peace with Standard Oil, but Potts was unaware of these negotiations.

"That traffic was its most profitable item, so Potts makes most of his money transporting oil."

The quote highlights the significance of oil transportation in Potts' business model, which was the primary source of his profits.

"Potts wanted to become the evener in the transportation of oil, the referee."

This quote underscores Potts' ambition to regulate oil transportation rates fairly for all shippers.

"Standard shut down all of its Pittsburgh refineries and deprived the Pennsylvania railroad of what had been 65% of its oil traffic."

Standard Oil's strategic move to shift its business away from the Pennsylvania Railroad severely impacted Potts' empire financially.

• Rockefeller and Flagler used strategic negotiations and financial leverage to outmaneuver Potts and the Pennsylvania Railroad.
• They were prepared to buy the empire's refineries and eventually agreed to purchase all company holdings for $3.5 million.
• Rockefeller's ability to gather cash to meet Potts' demand for payment in cash demonstrated his financial prowess and influence.

"Rockefeller and Flagler were prepared to buy the empire."

This quote indicates Rockefeller and Flagler's readiness to take over Potts' profitable company, highlighting their aggressive expansion strategy.

"No one could remember when the future of refined ornamental looked so unpromising."

Despite the uncertain market, Rockefeller and Flagler seized the opportunity to acquire valuable assets, showing their opportunistic approach.

• George Vale was hired as an auditor to oversee complex contracts and ensure compliance.
• Flagler and Rockefeller were detail-oriented and managed to maintain a comprehensive view of their business operations.
• The complexity of the contracts and rates for transportation of oil was significant and difficult for Vale to understand without Flagler's guidance.

"Flagler, which is his boss, which is Vale's boss, you have to explain to me, like, what you did here."

Vale needed Flagler's help to navigate the complexities of the contracts, highlighting the intricate nature of Standard Oil's operations.

"The statement I furnished you showing the quality of oil to be carried at the old rates by the area in the New York Central route was as follows."

Flagler's detailed explanation of the transportation rates illustrates the meticulous nature of Standard Oil's business dealings.

• Rockefeller eliminated middlemen by selling oil directly to consumers, reducing prices and increasing control over the market.
• He capitalized on Standard Oil's scale to dominate various markets without necessarily innovating but by taking over profitable ventures.

"We found that wholesale made their profit in selling oil to the retailers, and that the retailers sometimes added as much as five cents a gallon to their price in order to make their profit."

Rockefeller identified and removed the profit margins of intermediaries to lower costs and increase Standard Oil's market share.

"Once John D boasted that his company made money out of some 50 odd byproducts, everything from chewing gum to vaseline."

Rockefeller's statement reflects the diverse range of products Standard Oil profited from, showcasing the company's extensive reach into various markets.

• Rockefeller viewed his business practices as a crusade and believed in the higher law doctrine, which justified his actions despite legal and societal opposition.
• He saw cooperation as key to prosperity and considered his methods beneficial for the nation, despite criticisms and legal challenges.

"Rockefeller adopted the higher law doctrine to business. He found the oil industry in chaos."

Rockefeller believed he brought order and cooperation to the chaotic oil industry, aligning with his personal and business philosophy.

"Through cooperation, all would prosper. And if they all prospered, so too would the nation prosper."

This quote encapsulates Rockefeller's justification for his business practices, believing that his approach to cooperation would lead to national prosperity.

• Standard Oil operated with the attributes of a nation, exerting significant influence over territories and industries.
• Rockefeller admired J. Gold for his business acumen and saw parallels in their careers and approaches to business.
• Despite being a genius in business, Rockefeller made poor personal investments, contrasting with Gold's meticulous investment strategies.
• Rockefeller's wealth increased after the dissolution of Standard Oil, and he reflected on his achievements and the adoption of his business principles by other companies.

"The Standard oil company was not a nation, but it had enough of the attributes of one."

This quote reflects the immense power and influence Standard Oil wielded, comparable to that of a sovereign nation.

"Rockefeller had become the world's first billionaire on record."

The culmination of Rockefeller's business strategies and the dissolution of Standard Oil paradoxically led to his increased wealth, cementing his legacy as a business titan.

• The transcript concludes by recommending the book for further reading and reflecting on Rockefeller's impact on the business world.
• It suggests that Rockefeller's strategies have become commonplace in modern business practices, highlighting his enduring influence.

"And that is where I'll leave it. Highly recommend reading the book."

The closing statement encourages readers to explore the book for a more in-depth understanding of Rockefeller's life and business strategies.