Carnegie, Vanderbilt and Rockefeller were the empire builders of the 19th Century, just like Gates, Walton and Ford are titans of the 20th. In this article, however, we will look at three pioneering men who laid the foundations that these latter captains of industry built upon. (Make your dream a reality. Find out what you can do to reach your financial goals in How To Make A Million In Your Small Business.)
John Jacob Astor
John Jacob Astor, the fourth son of a butcher, left Germany to make it big in the American fur trade in the 1700s. The fur trade was an extremely important and competitive industry at that time. Astor took up a position in the less volatile area of middleman, buying furs from trappers and natives and then selling them for a profit to trading vessels. Astor's American Fur Company quickly became a powerhouse. In return for help financing the revolution, Astor gained concessions from the government that squeezed out Canadian competition, and then he bought out the Canadian companies' American holdings at a discount. One by one, he crushed out all his competition and held all the companies together via an early version of a trust.
Although Astor's holdings were increasing, the overall sales in fur were dropping. Seeing the eventual decline of the fur industry, Astor sold and put the proceeds from selling his fur empire into buying the undeveloped land around New York. He bought a considerable chunk of Manhattan and either developed it or leased it for development. He later regretted not buying the entire island. John Jacob Astor spent the last years of his life overseeing his vast real estate holdings. He was America's first millionaire, and left most of his fortune to his family, using a small amount for charitable works. The Astor family became the first "old money" family formed in the U.S., and their extravagant parties and balls were the definition of American upper class. Astor's life became legendary and inspired immigrants from all over the world to come to the land of opportunity and make it rich. Not bad for the fourth son of a butcher. (Quit your job, be your own boss and earn a paycheck. Find out what to do to make it happen, in Start Your Own Small Business.)
Thomas Edison gave up the life of a telegraph operator and moved to Boston in 1868 to become an inventor. He revealed his first invention to the world: an electrical vote recorder. It fell flat. When Edison designed an improved stock ticker printer, however, the resulting success allowed him to leave the railroad behind forever. Edison opened up the world's first R&D firm in Menlo Park, CA, to create new technology and improve on existing models. As a hired gun, he improved the telephone and invented the phonograph and light the bulb. (Discover how technology changed the way we exchange information when trading, check out The History Of Information Machines.)
If we are trying to imagine a world without Edison, however, we can't merely subtract the light bulb, but the fixtures, cables, wiring, sockets, power plants, generators, storage batteries and many other components that have to be in place so the light bulb can fight off the night. With the help of J.P. Morgan, Edison mass produced not just the light bulb, but the infrastructure needed to power it. This became a textbook case of vertical integration, as the Edison Electric Company merged, created and bought out companies that fit along its business lines. (Find out how the economic system we now use was created, read The History Of Capitalism.)
The savings in cost and the economies of scale from mass production put an electric light in every home in America, while the rest of the world was still burning candles, whale oil and kerosene. This steadily growing combination of companies became General Electric in 1892. The lesson of mass production and vertical integration was certainly not lost on one of Edison's employees, Henry Ford. Most inventors are remembered for one innovation. Edison, by making invention a business and using mass production to distribute the results, has put his name to thousands of innovations that we use everyday, and inspired millions more by his systematic approach - his name can still be seen all over the world.
Alexander Turney Stewart
Alexander Turney Stewart was born in Ireland in 1803 and worked as a teacher before striking out for the new world. Stewart and his wife started a small dry goods shop that quickly grew in both size and the range of products it sold. Stewart had an uncanny eye for quality, particularly with fabrics, and bought entire shipments wholesale in order to give customers the best price. He was a leader in customer service and one of the first merchants to give customers, "a little extra," as an encouragement for repeat business. For all his kindness to customers, Stewart was very hard on his employees. In a time when extravagant and outright lies were considered necessary sales skills, Stewart docked his employees' pay when he caught them doing anything to the detriment of the customer. Stewart was also one of the first to display goods openly in the windows to attract customers passing by on the street.
His willingness to go the extra mile and his habit of passing on the savings from his hard bargaining with wholesalers led to smaller profits on each sale compared with competitors, but it vastly increased his volume of sales. This is the same economies of scale approach that Wal-Mart uses today. Stewart's cash position was so strong in that he was able to buy up the goods and properties of competitors who failed during the depression of 1837. Stewart opened the first of his large stores in 1848.
Stewart organized the goods into various departments to make finding a specific product easier for customers, thus giving us the term "department store." He also used his excess profits to buy up suppliers and distributors in Europe, Asia and South America ensuring that his stores had a steady and reliable supply line. He sent specialists, each trained to buy products for one of the departments, all over the world in search of quality at wholesale value. Stewart believed that if he offered the best goods at the best prices, he would never lose a customer. Stewart's "customers first" approach drew huge crowds to his massive department stores, and by the 1870s, many outlets were earning thousands in sales every day, and millions every year. In his later years, Stewart mimicked Astor by putting much of his fortune into real estate, until he died in 1876. (Owning property isn't simple, but there are plenty of perks. Find out how to buy in Investing In Real Estate.)
The Bottom Line
The strategies used by Astor, Edison and Stewart - namely, economies of scale, vertical and horizontal integration - inspired later financial titans to build equally massive and profitable industrial empires. The story of Astor, in particular, inspired a flood of ambitious immigrants who spread out all over the country and helped transform the young nation from an outpost to a financial giant. The lessons are still being put to good use today in industries that even the imaginative Edison could never have foreseen. But even with all the dynamic changes in the intervening centuries, ideas like Stewart's customer-first approach never get old. (Read more about titans of business in Henry Ford: Industry Mogul And Industrial Innovator, J.D. Rockefeller: From Oil Baron To Billionaire and Giants Of Finance: Charles Dow.)