Today I would like to share with you what I learned by reading My Life and Work by Henry Ford. This book is packed full of valuable lessons in business. Documenting Ford’s journey from a young man through the duration of his career.
Today I would like to share with you what I learned by reading My Life and Work by Henry Ford. This book is packed full of valuable lessons in business. Documenting Ford’s journey from a young man through the duration of his career.
Henry Ford was a pioneer in the automobile industry! Along the way we see a young man who was deeply driven to teach himself about the gasoline engine and build his first car. We would have early struggles in business, with two failed automobile companies.
One Ford discovers his love of 100% control over his business; we would incorporate Ford Motor Company. From its humble beginnings, Ford would grow it to great scales of the course of his career!
Along the way he would relentlessly improve his car with a keen focus on the highest level of quality and streamlines manufacturing. This would lead him to implement and perfect the assembly line, drastically increasing his output to match demand.
Ford believed in the highest quality of service first and that if you did this, the profits would follow. This was at the core of the Ford business from the early days, and he would drive this value deeply into his company. We explore this in great details so that we can fully learn Ford’s viewpoint.
We learn that Ford believed in paying his men well above market rates. This helped him reduce costs through increased productivity and reduction in turnover. He had jobs for all men regardless of their background or physical ability. If you wanted to show up and work hard, Ford had a job for you.
I am excited to share this journey with you, my friend!
My Life & Work
In-N-Out Book
Sam Walton - Made in America
#1 My Life and Work by Henry Ford
[00:00:00] Our purpose is to construct and market an automobile, specifically designed for everyday wear and tear. Business. Professional and family use an automobile which will attain to sufficient speed to satisfy the average person without acquiring any of those breakneck velocities which are so universally condemned.
A machine which will be admired by man, woman, and child alike. For its compactness, its simplicity, its safety, it's all around convenience. And last, but not least it's exceedingly reasonable price and places it within the reach of many thousands who could not think of paying the comparatively fabulous prices.
Asked for most machines.
This selection is from the book, my Life and Work, which is an autobiography by Henry Ford. It was co-authored by Samuel Crowther. Additionally, the opening lines were [00:01:00] from Ford's first advertisement to the public. These words project a powerful statement to the world, and they embody Ford's way of designing, manufacturing, and selling cars for the common man.
A term that he would later come up with called The Universal Car, which would eventually be the Model T.
Today I'd like to share with you several things that I learned by reading my life and work. This book reads like Ford's personal Blueprint for Business. It's packed with valuable ideas and insights. What we don't see in back to the future is when Doc Brown gets in, his DeLorean, goes back in time, grabs Henry Ford and delivers him to your house. It's literally like Henry Ford knocking on your front door, sitting on your couch, and talking with you for 10 hours.
I'll do my best to try to walk us through the various highlights in the book that I found valuable.
for the full conversation with Ford. I would highly recommend picking up this book. I'll put a link in the show notes for you for [00:02:00] any other books that I referenced throughout the episode. I'll also leave links for you to explore as well. So before we get into the early years of Henry Ford's life, I just wanted to talk about his view of service. service is at the heart of Ford's entire business acumen, and it's mentioned over and over throughout the book,
and it's an extremely valuable lesson to take away. I would argue it's probably the most valuable lesson that we could learn from Ford. was his view on service. Let me just read for you here real quick,
the essence of my idea. Is that waste and greed blocked The delivery of true service waste is due largely to not understanding what one does ,or being careless in doing it. Greed is merely a species of nearside. Inness. I have striven towards manufacturing with the minimum of waste, both of materials and a human effort, and then towards distribution at a minimum of profit, depending on the total profit, upon the volume of [00:03:00] distribution.
So we can see right here that Ford is focused on eliminating waste and removing greed from his business. He believes that ultimately everything is about service. He believes that service comes first, and without service, you have nothing.
Ford teaches us the principles of his service in the following way. Number one, the absence of fear of the future and of 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's 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 the thing best ought to be the one to do it. It is criminal to try to get business away from another man criminal [00:04:00] because one is then trying to lower for professional gain the condition of one's fellow man to rule by force instead of by intelligence.
And number three, the pudding of service before profit. There's that service again, 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 a profit must be inevitably will come as a reward for good service.
It cannot be the basis, it must be the result of service. Amen. Mr. Ford. 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 giving it to the consumer, gambling, speculating, and [00:05:00] sharp dealing tend to only clog the progression.
So as a quick recap, we see here that fear will ultimately drive you to fail. There's nothing wrong with failure, but. A fear of trying to start. Well, that's certainly a disgrace in itself. Disregard to competition. So Ford thinks that the man that does it best should be the one to do it. I certainly agree with that.
However, I also believe that competition makes all of us better. At the end of the day, putting service before profits. I believe in that wholeheartedly. in our businesses. We should be focusing on service first, allowing profits to come as a result. And then manufacturing is not buying low and selling high.
Manufacturing is assembling all of the components and driving your product out of the door at a cost that is fair to the consumer. All right let's go ahead and jump into chapter one. And this is gonna be the beginning of [00:06:00] Ford's, business here. So Henry Ford, he's, born July 30th, 1863. He's born on a farm in Dearborn, Michigan.
And there's really not a lot said about his early life until he is about the age of 12, which at this point Ford has his first interaction with a mechanical machine.
The biggest event of those early years was meeting with a road engine about eight miles out of Detroit. One day when we were driving to town, I was then 12 years old. The second biggest event was getting a watch. What happened in the same year? I remember that engine as though I had seen it only yesterday.
It was intended primarily for driving thring machines and saw mills and was simply a portable engine and boiler mounted on wheels with a water tank and a coal car trailing behind.
So what we'll see next is extremely interesting. At the age of 12, [00:07:00] Ford explores his curiosity.
The engine had stopped to let us pass with our horses, and I was off the wagon and talking to the engineer before my father who was driving, knew what I was up to. The engineer was very glad to explain the whole fair. That reminds me of myself when I was younger. I often asked a lot of questions. I think that's the key for you and I in life, is to always be curious, asking questions.
And we'll see this later in the book when Ford has the opportunity, uh, to meet Thomas Edison in his very first encounter. He's gonna come to Edison from a point of curiosity.
So we fast forward a little bit. Uh, we'll jump to when, Ford is approximately 15 years old. By the time I was 15, I could do almost anything and watch repairing. There is an immense amount to be learned simply by tinkering with things. It's not possible to learn from books how everything is made, and the real mechanic ought to [00:08:00] know how nearly everything is made.
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. Excellent point. We should always be applying what we learn if we simply just read and don't apply anything at all. Nothing will result.
So at the age of 17, Ford undertakes his first apprenticeship. He works night in the jewelry store as well, so we can already see early on. The Ford is certainly dedicated to,, working hard and learning as much as he possibly can. I work nights. At repairing in the jewelry shop, I thought that I could build a serviceable watch for around 30 cents and nearly started in the business, but I did not because I figured out that watches were not universal necessities and therefore people [00:09:00] generally would not buy them.
can you imagine if Ford had just went into the watch business, , versus cars, how different our world, might be today? I mean, ultimately I think cars would've,, still been developed, but I think, without Ford's ingenious methodologies and manufacturing and the way that that was done, it would've been a drastically different world, , for a very long time.
And I'm wondering what it would be like today. So thankfully he did go into cars and gave us all of those, beautiful, beautiful things that he worked out throughout the course of his business career.
So during this time,, Ford is working as an expert, , on the road engine. And this is, for Westinghouse. And this is only, a couple years after he had first seen the road engine. So those early curiosities, sparked his imagination for all of those years, and I can only imagine him churning that over and over and over in his mind as he thought about, the road engine and the way that worked.
And Ford would work with Steam, during this [00:10:00] time, and eventually he would come to a point where he determined that Steam was not gonna be a viable method to use with, uh, automobiles. Let's just take a quick look at, his thinking around this time.
I built a steam car that ran. It had a kerosene heated boiler, and it developed plenty of power and neat control, but the boiler was dangerous. To make it evenly reasonably safe, required an excess of weight that nullified the economy of high pressure. For two years, I kept experimenting with various sorts of boilers,
and then I definitely abandoned the whole idea of running a road vehicle by steam.
And so at this point, Ford would turn his focus to the gasoline engine. And the general consensus at the time was that, , gas was not gonna be able to compete with steam, but Ford had ideas otherwise eyes. The work with the Westinghouse representative, only served to confirm the [00:11:00] opinion that I'd, that steam was not suitable for light vehicles. This is why I stayed only a year with that company. There was nothing more that the big steam tractors and the engines could teach me and I was not about to waste my time on something that would lead to nowhere.
All the wise people demonstrated conclusively that the engine could not compete with steam. This 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. This is why I never employ an expert in full bloom. If ever I wanted to kill opposition, by unfair means, I would endow the opposition with experts.
And throughout the book we're gonna see that Ford generally distances himself,, from experts
in general. He doesn't feel that they bring a lot of value and he thinks that once you become an expert in [00:12:00] one little specific area, that you close yourself off to the outside world and you don't see the limitations and possibilities for other things that could be.
So Ford continues,, with the gasoline engine and in 1885, he works on his first, gasoline engine.
And this would be the auto engine, , which he encounters at the Eagle Iron Works in Detroit. And at this time, nobody knows anything about the engine and they bring it to him, , thinking that he could figure it out. So after working with the engine for a little while, he eventually figures out how it works and this sparks his curiosity even further.
So around this time, Ford also, returns back to the farm so that he can, continue his experiments. His father had given him 40 acres of wooded forest and allowed Ford to clear the land. So what Ford did was, , he cleared the timber and the first timber that he cleared, he used to build a house, and then he would also build himself a [00:13:00] workshop in which he would develop the, , gasoline engine even further.
And Ford would say in my workshop when I was not cutting timber, I was working on the gas engine, learning what they were and how they acted. I read everything I could find, but the greatest knowledge came from the work.
And this reminds me of Kobe Bryant and his work ethic. So I read the book Showboat by Ron Lazenby a few months ago, and in it he describes Kobe's work ethic. Typically Kobe would be practicing, hours and hours before his team practice, and then normally would stay after team practice to shoot buckets even more.
Kobe was always studying, game film, obsessively when he wasn't on the court. And he took extreme pride in working harder than anybody else in the industry, and he often stated that he would outwork, Michael Jordan as well.
So after a while spending time on the farm, , [00:14:00] Ford decides to take a position. with the Detroit Electric Company as an engineer and a machinist for $45 a month. I took it because that was more money than the farm was bringing me, and I decided to get away from farm life anyways, during the first several months I was working the night shift in the electric light company.
I cannot say that the work was hard. No work with interest is ever hard. I am always certain of the results. So again, like Kobe Ford is focusing intently on his work, ford continues his work on the car at the same time. He says, for the transmission and the steering gear and the general construction, I could draw on my experience with the steam tractors.
In 1892, I completed my first motor car, but it was not until the spring of the following year, it ran to my satisfaction.
his very first buggy would have a whopping [00:15:00] horsepower of four and would be, , able to carry two people at that given time.
In this next statement, I think is extremely valuable, especially for those of us in any sort of manufacturing. I draw a plan and work out every detail on the plan before starting to build for otherwise. One will waste a great deal of time in Makeshifts as the work goes on and the finished article will not have coherence.
Many inventors fail because they do not distinguish between planning and experimenting. So I think that's incredibly valuable, that we should plan all of our work in advance. We should have a rock solid plan, and then once we have that plan in place, we can put it into production.
If we're just trying to produce things on the fly and we don't have a plan in place, we're gonna waste a lot of time. Ford was very adamant about this over the course of his career, and I think that was one of the major [00:16:00] reasons why he was ultimately successful as a founder and as a entrepreneur.
Alright, back to the book, heading into chapter two, I just wanted to summarize,, some developments for you.
These are taken over the course of, several pages by gasoline buggy was the first, and for a long time, the only automobile in Detroit.
I ran the machine about 1000 miles through 1895 and 1896, and then sold it to Charles Ainsley of Detroit for $200. That was my first sale. I still have the first car. I bought it back a few years later from the man who Mr. Ainsley had sold it to. I paid $100 for the car, so right there I was starting to see the durability and the resale value of Ford cars.
I kept my position with the electric company and gradually advanced to chief engineer at a salary of $125 a month. I did not see [00:17:00] the use of experimenting with electricity. For my purposes, the road car could not run on a trolley even if trolley wires had been less expensive. No storage battery was in sight of a weight that was practical and electrical car had of necessity to be limited in radius and to contain large amounts of modem machinery in proportion to the power it exerted
The Edison Company offered me the general superintendency of the company, but only on condition that I would give up my gas engine and devote myself to something really useful. I had to choose between my job and my automobile, and at this time he had only sold,, one automobile. I chose the automobile or rather I gave up my job.
There was really nothing in the way of choice already. I knew the car was bound to be a big success. I quit my job on August [00:18:00] 15th, 1899, and went into the automobile business.
So at that time, Ford is incredibly insightful about, his vision for the automobile of the future. And one thing that I wanted to call out here, I'm just gonna jump back to page 120, because, , a couple years before he had the opportunity to meet, Thomas Edison, , for the first time.
And, , if you remembered, just back a few minutes ago, I had mentioned, , Ford's curiosity would, , come into play here when he met Edison soon.
Couple years earlier around, 1887, he was at a convention and Thomas Edison was present and he says,being in the same room with Edison suggested to me that it would be a good idea to find out if the master of electricity thought it was good to be the only power in the future. So after Mr. Edison [00:19:00] had finished his address, , I managed to catch him alone for a moment. I told him what I was working on.
He answered in the following fashion, yes, there is a big future for any lightweight engine that can develop a high horsepower and be self-contained. No one kind of motive power is ever going to do all the work of the country.
We do not know what electricity can do, but I take it for granted that it can't do everything. Keep on with your engine. If you get what you're after, I can see great future.
That is the characteristic of Edison. He was the central figure in the electrical industry, which was then young and enthusiastic. The rank and file of the electrical men could see nothing ahead of electricity, but their leader could see with crystal clearness that no one power could do all the work of the country.
[00:20:00] I suppose that is why he was the leader. so can you only imagine from Ford's viewpoint that he is working on the gasoline engine a couple years before he is offered this general superintendency And Edison confirms that what he's working on is the right path, man, that would only give you just fuel, fuel in your belly to continue forward at full, full force.
And we could see that Ford worked, during his regular job and he also continued to work building his automobile after hours. This is incredibly powerful. Just a couple of quick comments, in regard to Ford and Edison. So they would eventually become, close friends and they would often take, trips together and Ford quite admired,, Edison, and he said, , about Edison.
His knowledge is almost universal. He is interested in every conceivable subject, and he recognizes, no limitations. He believes that all things are possible. Man, that really gives me a smile and a sense of warmth [00:21:00] when I think about that.
All right, so let's go ahead and, , head back to, the part of the book where Ford's getting ready to start his first company.
So he has this confidence and it's been built in him, by his idol at the time, who was Edison. And then he also has a great vision for the automobile.
Ford would start his first company, which was called the Detroit Auto Company. And when he started this, he would be the chief engineer. At the time, they made to order cars. The founders of this company were trying to command the highest dollar amount for, cars that were custom made. And at the time, there's not really a market for cars, so this is kind of absurd that they would make, custom owner cars and ultimately, Ford would see through this and, agree as well that, you know, there is no market, for custom made cars right now because people aren't buying cars.
So Ford would resign from the company just a few years later in 1902. And at this point, he's determined to never work for anyone else [00:22:00] again. We're gonna see later in the book that Ford, values control over his projects and his companies and what he's working on.
And just as a side note, it's interesting that the Detroit Auto Company would eventually, become the, Cadillac company.
So upon his departure, Ford says, I ran outta the shop. A one story brick shed at 81 Park Place. To continue my experiments and to find out what business really was, I thought that it must be something different from what it had proved to be in my first adventure the year from 1902 until the formation of the Ford Motor Company was particularly one of investigation in my little one room brick shop.
I worked on the development of a four cylinder motor, and on the outside I tried to find out what business, what really was, and whether it needed to be quite so selfish, a scramble for money, as it seemed to be from my very first short [00:23:00] experience.
So Ford not only works on his car, he defines his business strategy during this time. On the next page, we see two key points of his thinking. One, service over finance and two, lack of disregard for quality manufacturing and trying to get the most out of an item, when you should be focusing on quality. There's such a great section in the book, uh, let me read this for you. The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process, which is that money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture, as long as whatever was done got by and took the money.
In other words, an article apparently was not built with reference to how great [00:24:00] it could serve the public, but with reference solely to how much money could be had for it, and that without any particular care whether the customer was satisfied. To sell him was enough. A dissatisfied customer was regarded not as a man whose trust had been violated, but either as a nuisance or a possible source of more money in fixing up the work, which ought to have been done correctly.
in the first place, for instance, in automobiles, there was not much concern as to what happened to the car once it had been sold, how much gasoline it used per mile was of no great moment. How much service it actually gave did not matter, and if it broke down and had to have parts replaced, then that was just hard luck.
For the owner, it was considered good business to sell parts at the highest possible price on the theory that since the man had [00:25:00] already bought the car, he simply had to have the part and would be willing to pay for it.
So, I mean, we can see early on that Ford is certainly gonna be successful and just with that passage alone
I recently read that book, in and Out, , by Stacy Perman. And, uh, in there she describes, Harry Schneider, who was the founder of In-N-Out, his philosophy on business, seems, very similar,, to Ford here in one that he believed in, high quality service, often training as employees to smile at customers and greet them in a friendly manner.
And then also, in the quality of the foods that they serve. You know, they often sourced, foods directly from farmers, cut everything and prepared everything, directly on site. Um, so this is similar to what Ford is doing here. You have to keep your fundamentals,, basic. If you keep things basic in business, good service and great quality, you're always gonna be successful, my friend.
So these fundamentals develop a basic, philosophy for [00:26:00] Ford. My idea was then and still is that if a man did his work well, the price he would get for that work, the profits and all the financial matters would care for themselves, and that a business ought to start small and build itself up and out of its earnings.
In that statement right there continues to remind me about, , in and Out and what I learned by reading that book. So they would only build new locations, when they had cash to do so. And in addition, it reminds me of, Costco. They also expanded in a similar manner, expanding their footprint globally when they had the cash and they didn't take on a lot of debt either to grow.
So both of these companies also have a obsessive customer following and I hope to cover, both of them in future episodes.
But, let's continue with Ford here. So at this point, you know, we're starting to get a sense, that he's, about to embark on something, quite great, , in regards to money. , Ford sees it simply as a tool [00:27:00] and many times in the book, he scorns money in bankers, as a way to grow business.
He believes that you should grow business from the profits of the things that you're selling. Just a few excerpts, from his early, thinking around this.
The only use of money is to buy tools to work with or the products of tools. Therefore money is worth what it will help you to produce and buy and no more. I determined absolutely that never would I join a company in which finance came before the work, or in which bankers or Financeers had any part.
For the only foundation of real business is service.
So I love this. Let's expand upon that sentence.
A manufacturer is not through with his customer when the sale is completed. He has then only started with the customer. In the case of an automobile, the sale of the machine is only something in the nature of an introduction. If the [00:28:00] machine does not give service, then it is better for the manufacturer.
If he never had the introduction for, he will have the worst of all advertisements. A dissatisfied customer. There is something more than a tendency in the early days of the automobile to regard the selling of a machine as a real accomplishment, and therefore it did not matter what happened to the buyer.
That is the shortsighted salesman on a commission attitude. If a salesman is paid only for what he sells, it is not to be expected that he is going to exert any great effort on a customer out of whom no more commission is to be made., and it is right on this point that we ladder made the largest selling argument for Ford.
The price and the quality of the car would undoubtedly have made a market and [00:29:00] a large market. We went beyond that
in the success of the Ford car. The early provision of service was an outstanding element,
. In that section I had written down, customer loyalty. This is when Ford really develops his, sincere passion and loyalty for the men and women that would be buying his cars. and I think if you only take one thing away from this, book, it would be that of service, service, service, service.
So around this time in the automobile industry, we would see, competition starting to creep in.
He says, time spent in fighting competition is wasted and had better be spent doing work. There are always enough people ready and anxious to buy, provided you supply them with what they want and at the proper price. And this applies to personal services as well as to goods.
So this just continues to build on his belief in customer loyalty. Let's see. Skipping [00:30:00] ahead just a little bit. So I think most of you will relate to this next passage that I'm about to read here. I had plenty of time for I never left my business. I do not believe a man can ever leave his business. He ought to think of it by day and dream of it by night. It is nice to plan to do one's work in office hours, to take up the work in the morning, to drop it in the evening and not have to care until the next morning.
It is perfectly possible to do that if one is committed as to be willing through all of his life, to accept direction, to be an employee, possibly a reasonable employee, but not a director or a manager of anything.
So that point right there I think is incredibly interesting that as business owners, we should always be focusing on what it is we're doing. You know during working hours, during resting hours, we can always be thinking about ways to improve our business, ways to serve our customers, ways to help our, [00:31:00] employees excel and exceed, I think as a business owner and a founder, that you should always be working on this aspect to make improvements and to, propel your business forward.
I just wanted to take a brief pause and talk about, reflection for a moment. So when you're, reading or listening to something, it's critically important to stop and just take a few moments and think about,, what you've just learned. When you do this, it helps you build, cognitive understanding and it strengthens your memory retention.
And it also gives us deeper insights and prepares you,, to be ready for discussions. And I've noticed, that it helps me retain information better.
And I would just encourage you to do that. Take a couple minutes and just, pause and reflect, and this leads us into Ford's personal reflection after his,, first year of work. And I'm gonna summarize, his reflections here and what he has derived from his, business dealings and what he understands.
Number one, that finance is given a place ahead [00:32:00] of work and therefore tends to kill the work and destroy the fundamentals of service. Number two, that thinking first of money instead of working, brings on fears of failure. And this fear blocks every avenue in business. It makes a man afraid of competition, of changing his methods or of doing anything which might change his condition.
And then number three, that the way is clear for anyone who thinks first of service, of doing the work in the best possible way. Those three elements are affords a reflection after being in business for a short period of time. Let's, move forward, to the next chapter, and this one's called Starting the Real Business.
As Ford Embarks on his second company, he takes a position, , to make cars for what he calls the 95%. And I find this, very interesting and I'm just gonna summarize it 'cause it's, a page or so in the book. So what he says is that out of a hundred people, if you ask them what they want in a [00:33:00] car, 80 of them aren't gonna have really any idea about what they want.
They just know that, you know, they might want a car, 15 out of the a hundred are gonna think that they should say something, but they don't really know what it is they should say. And then the remaining of five, they're gonna want something special or something custom. But out of those five, you know, three of 'em might not be able to even pay.
So this leads forward to, , manufacturer on quality and cost that would attract the 95%. And going forward, in the book, we're gonna see this concept of the 95% quite a few times, as we,, continue forward.
So we reached the year, 1903 and, Ford Motor Company has started, this is,, approximately four years after he had left the Edison Company, and Ford describes his position at the Ford Motor Company as.
The vice president, designer, master [00:34:00] mechanic, superintendent, and general manager. The capitalization of the company was $100,000, and of this I owned 25.5%. The total amount subscribed in cash was about $28,000, which is the only money that the company ever received for the Capital Fund from other than operations.
That is, that's quite, that's quite, uh, that's quite amazing. Only $28,000,, that they received to inject into the capital fund.
And so we would see, at this point, he doesn't have a controlling share of the company, and he certainly does not like this. So three years later , with his own funds that he had earned from the company, he started buying back, , stock in the company until he was up to, um, 51% owner. And then he would, keep going forward, eventually owning, 58 and a half [00:35:00] percent of the new company
in which all of the, , stock would be purchased, , from earnings that were derived from the business. Now Ford goes on and drops a huge bomb on us. , listen to this. In 1919, my son ETL purchased the remaining , 41 point a half percent of the stock because, , certain of the minority stockholders disagreed with my policies , for these shares, he paid at the rate of 21,500 for each $100 par, and in all paid about 75 million. Holy smokes. So 75 million gets him the remaining shares of the Ford Motor Company. So 13 years after he started acquiring shares, he is now 100% owner of Ford Motor Company. And this is 16 years after starting the business, he is 100% owner, which is simply [00:36:00] incredible.
And later on in the book, he would mention that, they had borrowed $70 million to, , finance the purchase of these outstanding shares. Now, while Ford was generally against borrowing money, throughout the book, he does describe a couple of areas where it is okay to generally borrow money. One, is when you have money, it's okay to open lines of credit because bankers aren't gonna be clamoring down your throat to lend you money when you have money. Two, was for the expansion of your plant , and then, , obviously, this one here would be,, to require the outstanding shares of the company in which you founded. Let's just step back in the bootstrapping days of Ford in 1903. . And in this era, Ford was simply an assembler of cars. So they would,, procure parts from all different manufacturers [00:37:00] and simply assemble them, , in their little shop that they had at the time.
So in the first year, , Ford sold, 1,708 cars, which was a Model A that they sold for $850.
And very quickly the car started to gain a reputation for their durability, , simplicity, and that they were well made and at a very fair price. In their second year, they sold a few less cars,, at 16 point 95. , but this was spread across three different models, all of which, , costed more.
And at this time, Ford says, we scattered our energy and increased the prices, and therefore we sold fewer cars than in the first year.
So in their third year, this would be, um, 1906. Make two models, both at a higher price than the first year, and they sell a few less models yet at,, 15 9 9.
And also in that same year, oh six, Ford [00:38:00] Wood realized that his shop was inadequate. So he uses capital to build a three story plant. And this was raised,, by increasing the cost of the cars by. $100 the year before. So that could certainly help explain, , the decline in sales. Prices went up, the sales went down, but this did allow him to move into a real manufacturing facility and allow them to begin making some of their own parts at the same time, because they were starting to have some challenges with manufacturers.
And so you might recall, , a few moments ago, at the end of oh six, they had sold 1,599 cars. Fort says,
I thought it was because our cars were too expensive. They did not appeal to the 95%. There's that 95% we talked about, , just a few minutes ago.
In oh six and oh seven, we entirely left off making touring cars and made three models of roundabouts and roadsters, none of which differed materially from the others in the manufacturing process or in component parts, [00:39:00] but were somewhat different in appearance. The big thing was that the cheapest car sold for $600 and the most expensive for only 750, and right there came the complete demonstration.
Of what price meant. We sold 8,423 cars, nearly five times as many as in our biggest previous year.
And then moving forward in their fifth year, , Ford departs and builds a bigger, more expensive car. And I wonder why Ford does this. Perhaps it's that he's getting pressure from other equity holders. 'cause he doesn't have full control of the company at this time.
So possibly they're pressuring him to build bigger cars. He doesn't really say, but sales end up dropping to 6,398.
And so Ford would go on a call his first five years experimental period. During this time they would start selling in Europe and they would also start hiring salesmen.
I just wanna read for you, how they hired their salesman and what the [00:40:00] requirements were. They had a nine point checklist here, if you will. , number one, a progressive up-to-date man keenly alive to the possibilities of business. Number two, a suitable place of business, clean and dignified in appearance.
Number three, a stock of parts sufficient to make prompt replacements.
Number four, an adequately equipped repair shop, which has in it the right machinery for every necessary repair and adjustment. Number five, mechanics who are thoroughly familiar with the construction and operation of cars. Number six, comprehensive bookkeeping systems. Number seven, absolute cleanliness throughout every department.
Number eight, a suitable display sign, and the last one. Number nine, the adoption of politics, which will ensure absolutely square dealing and the highest character of business.
And so this really reminds me of something that I learned from Dave [00:41:00] Ramsey in business, and this is the idea of thoroughbreds versus donkeys when you're hiring. So a thoroughbred is someone who is a top tier performer. They're motivated, they're discipline, and they command excellence. They raise themselves and others around them to excel for the best.
So donkey would be someone who lacks motivation. , discipline and drive. They blame others and do a bare minimum, , of work. Donkey is really a form of cancer for any type of business. So Ford had clearly, , outlined his expectations here for salespeople and I believe what he was going after or what are, , known as thoroughbreds.
Those that would come in and represent the Ford brand and raise everyone around them to do their best and service the customer to the best of their abilities. At the end of the day, and I think, , you and I friend in business, we really need to focus on, , those that were hiring and we should be really looking for those rockstar thoroughbred people out there in the [00:42:00] market.
We may have to pay more for them, but one thoroughbred. Could do the work of 20 donkeys and maybe more. So we should really be focusing on those that we hire and bring into our business and look for those thoroughbred type of rockstar folks that wanna be engaged and involved in the business. Alright,, let's move forward here.
As Ford Motor Company grows, , Ford makes a keen observation.
The temptation to stop and hang on to what one has is quite natural. I can entirely sympathize with this desire to quit a life of activity and retire to a life of ease. I have never felt the urge myself , but I can comprehend what it is.
So I think that's extremely powerful. We get to the points in our businesses where we're comfortable and we could quit and walk away, or we could hang in there and not give up on the future. And when we do that,, I think great things are gonna happen. , in modern times we see this as an [00:43:00] example, in what would be Elon Musk.
At the age of 27, he sells his first company zip two, to compact. And at the time, I think he sold it for something like $300 million. And this puts, $22 million into his pocket, So he takes that money and he puts it into PayPal.
And then at one point they sell it to eBay and then he has $170 million. So, I mean, two points in his life he could have stopped at age 27 or after he sells PayPal and he could have lived the rest of his life, extremely comfortable. But what does he do? He puts it all into SpaceX and Tesla and Solar City and he almost loses everything along the way.
And I think that's a fascinating story and I'd like to explore that more and report back to you guys on the future,, in regards to what I learned and share it with you. But how many 27 year olds do you know that would've acted like that? I think, , Musk and Ford are extremely, , close in nature in regards [00:44:00] to moving forward, not being lazy and driving forward in business.
And I just wanna reread this, I think is extremely powerful, the temptation to stop. And hang on to what one has is quite natural. Yes sir. Mr. Ford, it is natural as you sit on my couch and tell me that it is very natural. But I think you and I friends, we need to understand that we need to keep driving forward in life, not to retire and not to give up and not to take the easy road.
Alright, let's jump back into the book here. I regarded our progress merely as an invitation to do more as an indication that we had reached a place where we might begin to perform real service. So Ford is always looking to improve his quality and service. And an important thing happened in 1905,
I call this keeping your eyes open to all possibilities in my notes. I think this is [00:45:00] incredibly important. I wanna read this, , for you guys and then at the end I'll have a couple of, uh, comments.
In 1905, I was in a motor race at Palm Beach. . There was a big smash up, and a French car was wrecked. We had entered our model K, the high powered six. I thought that the foreign car had smaller and better parts than we knew anything about. After the wreck, I picked up a little valve strip stem.
It was very light and very strong. I asked what it was made of. Nobody knew. I gave the stem to my assistant, find out what this is all about. I told him, this is the kind of material we ought to have in our cars. He found out eventually that it was a French steel and that there was a.
I don't know if I'm saying that right in it, he tried every steel maker in America.
No one can make van diem steel. I sent it to England for a man who understood how to make this steel [00:46:00] commercially. The next thing was to get a plant to turn it out. That was another problem. Van Diem required a 3000 degree Fahrenheit oven. The ordinary furnace could not go beyond 2,700 degrees. I found a small steel company in Canton, Ohio.
I offered to guarantee them against a loss if they would run a heat for us. They agreed this first heat was a failure, very little bon diem. Remained in the steel.
I had them try again and the second time the steel came through. Until then, we had been forced to satisfy with steel running between 60 and 70,000 pounds. Tensile strength, the OD diem, uh, the strength went up to 170,000 pounds. So way more than double having the diem in hand. I pull apart our models and test it in detail to determine what kind of steel was best for every [00:47:00] part.
Whether we wanted a hard steel, a tough steel, or an elastic steel, we, for the first time, I think in the history of any large construction, determine scientifically the exact quality of steel and as a result, we then selected 20 different types of steel for the various steel parts.
So this scientific discovery, , would lead forward to what he calls the universal car. That universal car would, , eventually be the Model T. But I think there's an important lesson here for you and I to learn, is that we should always be keeping our eyes open to the new way of doing things. We should be looking at what others are doing in the marketplace, evaluating, exploring.
We should always keep a mind of curiosity. And this is what Ford did. He picked up that little piece and he analyzed it and he went to great lengths to figure out how to produce it. And as a result, that made his car even better and [00:48:00] put him into this way of thinking of the universal car.
And I'll just,, paraphrase , some of the qualities that Ford outlines from his concept of the, , universal car. So, number one, quality and material to give it service and use. Number two, simplicity and operation. Number three, power in sufficient quantity. Number four, absolute reliability. Number five, lightness of the vehicle.
Number six, control, meaning that people should be able to control and drive the vehicle with ease.
And number seven, a lighter weight car that was more friendly on fuel and lubricants
Ford really felt that, , the ultimate desire was to make, , a simple car, , for the common man at the end of the day.
And so, moving forward just a little bit, , in 1908 and oh nine, Ford would sell 10,607 cars, which at the time was a record. , upon the success. Ford [00:49:00] faced, pressures to change his car and he says.
It is strange how just as soon as an article becomes successful, somebody starts to think that it would be more successful if it were only done differently. The salesman were insistent on increasing the line. They listened to the 5%, the special customer who could say what they wanted and forgot all about.
The 95% who just bought without making a fuss.
And this reminds me again of our friend Harry Schneider over to In-N-Out Burger, who stuck to his guns with a very simple menu. , he would offer his customers, hamburgers, cheeseburgers, fries, soft drinks and coffee. And that's it. And it stayed like that for a very, very long time. And I think it's still like that today, where other chains were adding, you know, chicken salads and salads and wraps and kids menus and shakes and so on and so forth.
Harry didn't do any of that. He kept it very simple and drove forward in business just like we [00:50:00] see Ford doing here. He simplified everything down to one car and focused on the best quality possible.
In 1909, Ford would announced that they will sell one car only, and that would be the Model T. And as a result, they had another record year selling 18,664 cars.
Then the next year, , Ford would slash prices, , because the year before he had to raise the price a little bit to pay for new buildings and land. And remember that Ford doesn't use debt. He only uses profits, , from his sales. So when he needs to, , build buildings or buy land, he will raise the price of the car to put that into his capital fund and finance those purchases, outright.
So, let's see. In, 1911 and 12, they sold,, 34,528 cars after slashing prices. In past this we'll see a steady decrease of cars, , as the sales numbers, , continue to skyrocket.
And this reminds me kind of the same [00:51:00] philosophy that, , Sam Walton had. I had read that book, , made in America, which I think is extremely excellent and I would recommend that you check that, , book out. But in that book, , Sam takes the, , approach of selling prices for less profit. So for example, you know, you can sell a unit of something and sell one and make $3 profit, or you could slash the price and say, sell five of the same unit and make, , one profit each.
What's better at the end of the day, you end up moving more units and making more profit, which you can put back into the business and work on hiring those, , thorough bed employee and providing, you know, top quality service, for your customers,, at the end of the day.
Let's see, let's keep moving forward here in the book. , we get into chapter five, which is getting into production. At this point, , Ford starts to classify, , the work of men. And then also he starts looking at every [00:52:00] action that they take. , for every single position in the factory.
He would say that a Ford car contains almost 5,000 parts
and what Ford observed is that men were spending half of their day, , walking around and picking up parts, tripping on each other. Now, this gives me a visual of like, from a movie when they show Union Station and people are just running around everywhere. I mean, imagine if they were just building a car right there in the middle of Union Station and you know, you had all those people running around everywhere and you had to go all the way to the other side, to get an elbow bracket for something.
, on your way to get your part, you're just running into tons of people and then you gotta do the same thing on return. This was not an optimal way to run a shop. So Ford would work on maximizing the actual work.
Ford started to take the work to the men, meaning that he would put the parts, uh, right next to the men so that they didn't have to take very many steps. They could just reach over, grab a part and put it on a car,
and then he takes things further. And the next small scale [00:53:00] test would revolutionize the auto industry and manufacturing in general.
Along about April 1st, 1913, we first tried the experiment of an assembly line.
.The result is this. By the end of the scientific study, one man is now able to do somewhat more than four did only a comparatively few years ago. That line established the efficiency of the method, and we now use it everywhere. So prior to the assembly line, it took 12 hours and 28 minutes to assemble a car. During their experimentation period, they were able to cut this, , time down to five hours 50 minutes. And then a year later, they would elevate the assembly line, , to about level of the common man in the factory.
this prevented men from having to bend over and pick up parts and they could just reach over, grab a part and put it on at level. this further optimize things, bringing the time that it took to [00:54:00] manufacture a car down to one hour and 23 minutes. I mean, can you only imagine in your business if you take something from 12 and a half hours down to an hour and a half?
I mean, what is that? It's an 11 hour savings per car. So can you only imagine the, efficiencies that you would gain and then just repurposing all of those men into different, , departments and giving them different jobs and further focusing on your business? I think that's an incredibly powerful thing that happened right there.
As the manufacturing process continued to improve, Ford was adamant that man be allowed to experiment. a record of failures, particularly if it is a dignified and well authenticated record. Deter a young man from trying. We get some of our best results from letting fools rush in where angels fear to tread. None of our men were experts. We most unfortunately found it necessary to get rid of a man.
As soon as he thinks himself an expert, the moment one gets into the expert state of mind, [00:55:00] a great number of things become impossible. Ford did not like experts at all, and he felt that they were not open to innovation. Ford. Very much like Edison. , kept an open state of mind saying, I refuse to recognize there are any impossibilities.
I cannot discover that anyone knows enough about anything on this earth. Definitely to say what is and what is not possible.
this leads him to drive his innovation down to the smallest details
in one such example. take the development of the piston rod assembly. Even under the old plan, this operation took only three minutes and did not seem to be one to bother about. There were only two benches and 28 men in all. They assembled 175 pistons and rods in a nine hour day, which means just five seconds, over three minutes each.
The foreman devised a new plan. He split [00:56:00] the operation into three divisions, , put a slide on the bench and three men on each side of it, and an inspector at the end.
Instead of one man performing the whole operation, one man then performed only one third of the operation. The former record for 28 men was 175 assemblies in a day. Now seven men turn out 2,600 assemblies in eight hours. Wow. 28 men, 175 pieces. Down to seven men, 2,600.
That's incredible. And this analysis would continue to take place in all aspects of the Ford business. Ford says that if they used the same process that they had used in 1903, they would need over 200,000 men to produce what 50,000 men were [00:57:00] producing.
Let's see, so skipping ahead a little bit, one of the biggest expenses in business is that of labor. Most of us probably know that if we've been in business for any period of time. When it came to work, Ford had a unique viewpoint. Now a business in my way of thinking is not a machine.
It is a collection of people who are brought together to do work and not to write letters to one another. It's not necessary for any one department to know what any other department is doing. If a man is doing his work, he will not have time to take up any other work. It is the business of those who plan the entire work to see that all the departments are working properly towards the same end.
It is not necessary to have meetings to establish good feelings between individuals or departments. It's not necessary for people to love each other in order to work together too much. Good fellowship may indeed be a very bad thing. For it may [00:58:00] lead to one man trying to cover up the faults of another.
This is bad for both men.
When we are at work, we ought to be at work. When we are at play, we ought to be at play. There is no use trying to mix the two. The sole object ought to be to get the work done and to get paid for it. When the work is done, then the play can come and not before the Ford factories and enterprises have no organization, no specific duties attached to any position, no line of succession or of authority.
Very few titles and no conferences. We have only the clerical help. That is absolutely required. We have no elaborate records of any kind, and consequently, no red tape. We make the individual responsibly complete. The workman is absolutely responsible for his work. So in this case here, Ford is putting the [00:59:00] responsibility in his workers' hands
through the book, Ford describes that the roles are defined down to the movement. Most jobs are learned in hours. Ford goes on to say,
because there are no titles and no limits of authority, there's no question of red tape or going over a man's head, any workman can go to anybody. And so established has become this custom that the foreman does not even get sore if a workman goes over him and directly to the head of the factory. So this gives men the empowerment to make suggestions and identify issues.
And this feeds into an idea on suggestions. So I mean, when was the last time that you encourage your employees to make suggestions? I think we should always be asking for suggestions from those that work for and with us so that we can take those into consideration. It's in those suggestions that we can find valuable savings or improvements, and that allows our employees to feel more connected to the organizations in [01:00:00] which we service.
Moving forward,, to save a penny,
Ford would say that,, if they saved a penny on a part,, this would eventually save them $12,000 a year on that particular part.
So another thing that I found interesting in terms of hiring,, is that Ford didn't hire on a man's history. So he says that, they could have been in Sing Sing, they could have graduated from Harvard, they could have a degree or neuro degree. Uh, Ford doesn't really care about a man's past in terms of college.
If he has gone to college, he ought to be able to get ahead faster, but he has to start at the bottom and prove his ability. Every man's future rests solely upon himself.
Everyone came in from the bottom, the head of the factories, the foreman, the supervisors, they all started at the bottom and worked their way up. I mean, you know, if we think about it, even Ford came from the bottom and he started with steam engines. He went onto electricity, went into gas, worked on the gasoline engine for four or five years on his [01:01:00] own, slowly developed a car and worked his way up into building his company. So everyone starts at the bottom.
Another important lesson that you and I can learn from Ford is that in 1914, he set the daily pay rate at $5 an hour. And this was for an eight hour shift. At this given time, this was more than double of the market rate,, for those that were, working in a factory. And he also set the shift at eight hours.And this applied, , to all men in the factory. Ford had jobs for, all skill levels. We had 7,882 different jobs in the factory. 949 were classified as heavy work requiring strong able-bodied men.
3,595 jobs were disclosed as requiring no physical exertion. 670 could be filled by legless 26 37 by a one-legged man, two by armless men , 715 by a one arm man, and [01:02:00] 10 by a blind man. So the extent to which Ford went to classify his jobs was simply impressive. And this comes as a result of breaking each step down in the manufacturing process to its most simple form.
And this allowed him to define the roles very clearly and maximize the man's effort when they were working in the factory to get full value out of the labor. Let's skip ahead a few pages and see what happens to wages
Throughout all the Ford industries, we now have a minimum wage of $6 a day. We used to have a minimum of $5 a day. Before that, we paid whatever it was necessary to pay. It would be bad morals to go back on the old market rate of paying, but also it would be the worst sort of bad business. And then he goes on to say, it ought to be the employer's ambition as a leader to pay men better wages than any similar line of business.
And it ought to be of the working man's ambition to make this [01:03:00] possible.
And right here in the book, this is the first time that we'll see forward, mention that the employer should pay any sort of higher, , wages. And then it goes on with another key learning here. And he says, , but if they see the fruits of hard work and their pay proof of that harder work means higher pay, then they also begin to learn that they're part of the business
And that its success depends on them and their success depends on it. This is crucial for success. For example, if we go back and look at our friend Harry Schneider. Or that of Sam Walton. They were both notorious for driving wages higher and paying their employees higher than normal market rates.
And in doing so, they drove their employee loyalty to the business. , both of those companies have long term. Employees that stuck around and worked very hard for those two, , businessmen because they respected them and they were valued and they were treated well. So in [01:04:00] return, they just worked very hard and they were empowered to do so.
So if we move forward, , just a little bit
for describes another benefit of paying higher wages. In 1914, , they had 14,000 employees. And they had to hire at a rate of about 53,000 men a year just to keep a steady workforce of around 14,000. And that's crazy turnover. That's like 375% just as rough sort of math. After they increased the pay rate, what they saw was that they only had to hire about 6,500 men. On a yearly basis to keep that 14,000, , employee level. So this dropped the turnover down to about three to 6%. I mean, that's just crazy. 375% down to three to 6%. That's just wild. So that's quite dramatic and that's certainly an additional benefit that we see from paying higher wages is that people are gonna stick around and work harder for you at the end of the [01:05:00] day.
Thus far. I'm just impressed with how much we're learning from Ford here.
Let's skip ahead a little bit in the book and look at some sourcing of materials. This is an important section. So Ford had this concept of buying only the materials that were needed at the time. They didn't believe in speculation. So for example, if the price was low on some sort of steel, they wouldn't go out and buy, train cars and train cars and train cars full of it.
They just bought exactly what it is they needed. Ford did this because he realized that men could get focused on chasing good deals all of the time, and when they started chasing deals consistently like that, it took their eyes off the business. .
And I'll just quote here directly from the book, the only way to keep out of trouble is to buy what one needs no more and no less. That course removes hazards from one's business.
With that thought in mind. We start to think about price.
Ford believes in setting the price low and then [01:06:00] forcing the cost to meet his profit margin. And it really had to think about that, for a minute. And I think if I read directly from the book, , this will help us understand a little bit better. Our policy is to reduce the price. Extend the operations and improve the article.
You'll notice that the reduction of price comes first. We have never considered any costs is fixed. Therefore, we first reduce the price to a point where we believe more sales Will result. Then we go ahead and try to make the price. We do not bother about the cost. The new price forces, the cost down.
One of the ways of discovering what a cost ought to be is to name a price so low as you force everyone in the place to do the highest point of efficiency. The low price makes everybody dig for profits. We make [01:07:00] more discoveries concerning manufacturing. And selling under this force method. Then by any method of leisurely investigation, this is a quite interesting concept.
You're basically forcing your plant to meet the price, and as he said, it forces you to dig in and investigate.
This really pulls out the true grit and determination across all of your workers, your foreman, your supervisors, your leaders, everyone. 'cause you have to hit that price. If you don't hit that price, you're gonna go outta business. Ford goes on to say the payment of high wages. Fortunately contributes to the low cost because men become steadily more efficient on account of being relieved of outside worries.
The payment of $5 a day for an eight hour day was one of the finest cost cutting moves we ever made. And the [01:08:00] $6 day wage is cheaper than the five. How far would this go? We don't know.
And I think that goes to the root of when men and women are financially taken care of. They can come in and focus on their work. They're not concerned about what's going on outside of work. And Ford had every single job broken down into very minute details. So you could just come in and be an efficient machine at your job producing very high levels.
So Ford gave his employees the opportunity. To be thoroughbreds in the business. And I was very curious about this statement and I went and looked up a few statistics and some that I found, , were from Dave Ramsey's organization and they had conducted a study and they found that 45% of employees.
Reported being distracted at work [01:09:00] due to financial issues. And this is, , during modern times in the last couple of years, 36% have missed work due to financial issues.
Both Ford and Ramsey take the view of supporting employees financially with good wages. And solid employment, and we need to do the same you and I, my friend in our business, making sure that we're supporting our employees with fair wages or higher than market rate wages.
And then I don't think there's anything wrong with talking to them. About financial stability, , and if they're open to it, offering classes and education on financial stability so they know how to budget their money and pay their bills and feel good about what they're doing outside of work if they're open to that.
And hopefully, I think most people would be, who doesn't wanna do good with their money and make sure that they're financially set so that when they come to work, they can just focus on their work. So I think forward back in, when is this 19, 19, [01:10:00] 19 20 timeframe he had. The right mentality here of making sure that his employees were financially taken care of so that they could, they could meet the basics.
And this is a good thing what Ford did because his business is about to explode. , there's no other way to say it. Let's take a look at some numbers here.
In this book, we can clearly see that as price drops, the sales go up and I'm just gonna give you some numbers. , it goes into a lot of detail here, but just so you get an idea. When they dropped the price from 690 to $600 a car. , they sell 168,000 units,, 90,000 more than the previous year.
They go down to $440 a car and they sell 533,000 units. that's crazy. And then, , one year later they're down to 360 bucks a unit. And they sell,, seven 85,000 cars. Now on the flip side in 19 18, 19 19, the price goes up by [01:11:00] 90 bucks and they sell approximately 80,000 less cars during that timeframe. So we can see that Ford needed all of those workers in his plant.
As production units increased. , they also had a lot of changes in the manufacturing processes as you could only imagine. You know, I just wanted to read through, this next section here. Because I think what happens here ties into a little bit about what we're seeing around ai and I think these past events can give us some good clues of probably about what we're gonna see, , coming up here in the future, I think.
And for it says, and in the process of manufacturing, fewer and fewer men were used. What is going to become of these men? How are they going to find jobs to live?
Take the second point. First, we mentioned many machines and many methods that displaced great numbers of men, and then someone asked, yes, that is a very fine idea from the standpoint of the [01:12:00] proprietor, but how about these poor fellows whose jobs are taking away from them? The question is entirely reasonable, but it is a little curious that it should be asked for when were men ever really put outta work by the bettering of individual processes?
The stagecoach drivers lost their jobs with the coming of the railways. Should we have prohibited the railways and kept the stage coach?
Drivers,
were there more men working with the stage coaches than are working on the railways? Should we have prevented the taxi cab , because it's coming, took the brad out of the mouth of the horse cab drivers. How does the number of taxi cabs compare with the number of horse cabs when the later were in their prime, the coming of shoe machinery closed.
Most of the shops of those who made shoes by hand when shoes were made by hand only the very well to do [01:13:00] could own more than a single pair of shoes. And most working men went barefoot in the summer. Now, hardly anyone has only one pair of shoes and shoe making is a great industry.
No, every time you can so arrange that. One man will do the work of two. You so add to the wealth of the country that there will be a new and better job for the man who is displaced. If whole industries changed overnight, then disposing of the surplus men would be a problem. But these changes do not occur as rapidly as that.
They come gradually in our own experience. A new place always opens for a man as soon as better processes have taken his old job. And what happens in my shop happens everywhere in industry. There are many [01:14:00] times more men today employed in the steel industries than there were in the days when every operation was by hand.
It has to be so. It always is so and always will be so, and if any man cannot see it, it is because he is not willing to look beyond his own nose.
And I think that is a profound statement. We hear all this concern around AI and how it's gonna replace jobs in the future.
But I think you and I can learn from Ford right here.
As tech advances, it creates new jobs that didn't even exist before and I simply can't agree more. We see this over and over throughout history. There's always room for those who wanna work and they'll take the initiative to do so.
So we're making really good progress here in the book. the next section looks at Ford's view on money and borrowing. And this is a really nice setup for,, future sections in the book where he really [01:15:00] puts his money where his mouth is at.
This is quite fascinating. Let me just read you a few passages here. I regard a bank primarily as a place in which it is safe and convenient to keep money. Yes, sir. Mr. Fords. So do I.
The money has to come out of the shop, not out of the bank, and I have found that the shop will answer every possible requirement and in one case. When it was believed that the company was rather seriously in need of funds, the shop when called on raised a larger sum than any bank in the country could loan.
Then Ford would go on to say that borrowing may easily become an excuse for not boring into the trouble. Borrowing may easily become a stop for laziness and pride. Some businessmen are too lazy to get into their [01:16:00] overalls and go down and see what is the matter, or they're too proud to permit the thought that anything they have originated could go wrong.
But the laws of business are like the laws of gravity and the men who oppose them feel their power. Borrowing for expansion is one thing. Borrowing to make up for mismanagement and waste is quite another. Waste is corrected by economy. Mismanagement is corrected by brains. I.
borrowing under certain circumstances is just like a drunkard, taking another drink to cure the effect of the last one. Tightening up the loose places in the business is much more profitable than any amount of new capital.
And this kind of ties into what Sam Walton used to say about selling a large amount of an item at a lower price so that they could flush the inventory and keep customers [01:17:00] happy. If they really dug into the business, they found that they could often generate a lot of cash coming in, and then that would help them solve their immediate problems and allow them to scale their business.
And Ford has a similar mentality here when it comes to selling units. He says, my financial policy is the result of my sales policy. I hold that it is better to sell a large number of articles at a small profit than to sell a few at a large profit. This enables a larger number of people to buy, and it gives a larger number of men employment at good wages.
It permits the planning of production, the elimination of dull seasons, and the waste of carrying an idle plant,
And what that translates to is by giving customers a high quality and a low cost, you can drive more sales and with more sales. Just like Ford says, you're able to plan for production and eliminate the dull seasons and carry forward [01:18:00] and provide good jobs for all your employees.
and when those larger unit sales start really cranking through, you're obviously gonna have profits in the business. And Ford tells us that profits belong in three places.
They belong to the business to keep it steady, progressive, and sound. They belong to the men who helped produce them, and they belong also in part to the public. A successful business is profitable to all three of these interests, planner, producer, and purchaser,
and so. To summarize, Ford's summary, profits go to the business, the people, and the public. So in terms of profit to the business, Ford believes in keeping cash on hand.
The cash balance in recent years has usually been in excess of $50 million. This is deposited in banks all over the country. We do not borrow, but we have established lines of credit so that if we so cared, we might raise a very large amount of [01:19:00] money. By bank borrowing, but keeping the cash reserve makes borrowing unnecessary.
Our provision is only to be prepared to meet in an emergency. I have no prejudice against proper borrowing. It is merely that I do not want to run the danger of having the control of the business, and hence the particular idea of service to which I am devoted, taken
into other hands. So very clearly there at the end, he's saying he doesn't want to give up the control of the business because if he takes on loans, he's certainly beholden to the banks and the financiers that are giving him money.
And he doesn't want to give up that idea of service. He knows that if he's gonna owe someone a large amount of money, he's gonna have pressure maybe to cut corners. Or to, um, you know, cut wages or cut,, men from their jobs, and he doesn't want to do that. So Ford moves forward with a [01:20:00] cash only type of business.
And for you and I, I think that's extremely important when we're running our businesses, that we should take a position of no debt, if at all possible. And I realize that's certainly hard, especially when you're getting started or you're growing. There's a lot of temptation to take on debt there.
But I really feel that if you can bootstrap and dig in hard, that you should be able to, provide a quality service and outta that service, you're gonna have profits just like Ford stated. And then from those profits you can begin to grow and scale your business. It may take a little bit more time, but I think in the long run , we're gonna see the benefits of that approach play out a lot better for us.
And then that just circles right back into , what Ford's gonna tell us here. He's gonna say to repeat the place in which to finance is the shop. It has never failed us,
and once when it was thought that we were hard up for money, it served rather conclusively to demonstrate how much better finance can be conducted from [01:21:00] inside then outside. So just to hammer it home that if you dig in to your operations, it can generally produce a lot more money than you can borrow from any sort of bank, at least in the terms of the lessons that we learned from Ford right here.
Skipping ahead just a little bit. So the next key lesson, , that I learned and wanted to talk about. Is that of watching your expenses and streamlining your operations? What Ford describes here takes place over, , many pages and I'm just gonna summarize it
Around 1920, they had approximately, , $33 million in notes that they had to pay, and they had borrowed, , $70 million to purchase the remaining shares that they had, , outstanding from the minority shareholders. They actually brought 70 million, , to pay for that.
So up to this point they had paid back 37 million so far, and they owed 33 million. , plus they had 18 million in an income tax that was about to come due. And then they had their yearly employee bonuses of 7 [01:22:00] million. So that gave them a total of $58 million that they were on the hook for. And there was a lot of outside pressures because they didn't believe that Ford was gonna be able to make these huge payments.
And on their balance sheet, they only had $20 million, cash in hand. So Ford was getting hit left and right with tons of speculation about what he was gonna do to cover the money. And they were saying, you know, they were making up things like he was going, crawling on his hands and knees to the bank and that, , they thought he was gonna be in a really,, bad position at this time.
But what we see four do during this time is an intense in-house cleaning, and I think this is something that you and I French should always be doing in our businesses.
During the war, they had started, manufacturing all kinds of, things for the war effort. So they were making boats and machines for the military. one of the first things they did was they immediately removed anything Not associated, car production. So they cleaned out all the unnecessary machinery, all the unnecessary equipment [01:23:00] that they didn't need.
And so Ford sold off all the useless stuff and he really forced people to produce. So before house cleaning, they employed 15 men per car after we employed nine per car. This did not mean that six out of 15 men lost their jobs. They only ceased being unproductive. We made that cut by applying the rule that everything and everybody must produce or get out
this included, uh, four men as well. We formally had a fourfor every five men. Now we have a foreman for every 20 men,
and then overhead was cut from $146 a car down to $93 a car.
by the elimination of waste, it is possible to make an impossible price. Most important of all, we found out how to use less money in our business by speeding up the turnover.
In such a valuable lesson, by looking at [01:24:00] every aspect of your business, you can focus on processes and what is truly needed. And this is a valuable lesson that Ford teaches us right here.
Let's find out how this worked out for Ford financially. On January 1st, we had $20 million. On April 1st, we had $87 million.
So remember, they only owed 58 million or 27 million more than we needed to wipe out all of our indebtedness. This is what boring into the business did for us.
I think this is what made Ford great. He was willing to make his cars intensely focused on his business and come up with the money. It reminds me of Sam Walton in his early days, so his first five and dime store. He relied on customer service, operational efficiency, and creative merchandising, along with resourcefulness,
and he found those more critical than capital to build his business. This gave him fuel to continue his business and grow it into what we know today.
So he was [01:25:00] willing to get down on the weeds and grind it out and make it work.
If we move forward in the book here, past this point. Ford goes into a range of different topics that include prosperity of man, farming, railroads, charity, and a whole list of general things.
And I thought what I would do here is just highlight a few of those key ideas that I thought you might like so that we can wrap things up here.
Ford discusses his views on leadership and he states the following, so long as leadership thinks more of money than it does of service, the waste will continue. Waste is presented by farsighted, not by shortsighted men. Shortsighted men think first of money. They cannot see waste.
They think of service as altruistic instead of as the most practical thing in the world.
They cannot get far enough away from the little things to see the big things, to see the biggest things of all, which is that. [01:26:00] Opportunistic production from a purely money standpoint is the least profitable. And I think that just goes along the lines that we've been seeing throughout the book. That, , service is the most important.
If you provide good service, profits will follow.
It is like this podcast. I guess if I just focus on the stats from just an episode or two, it could be very easy to determine that it's not gonna be a success. However, if we just focus on quality and making good episodes, one at a time, I think that's the right mindset one that we certainly embrace longer term.
There could be some small profits that are derived, but they're not the goal. I. The love of reading, sharing knowledge and spending time with you is our true North Star. Four Teaches is a valuable lesson right here, and if we take that into account and service our customers at the end of the day and we're friendly and kind to others, that success certainly come our way.
Advancing forward a little bit. Ford talks about capital, some more and [01:27:00] he says that Capital that is not constantly creating more and better jobs is more useless than sand capital that is not constantly making conditions of daily labor better, and the reward of daily labor more just is not fulfilling its highest function.
The highest use of capital is not to make more money, but to make money, do more service for the betterment of life Unless we in our industries are helping to solve the social problem, we are not doing our principle work, we are not fully serving,
and this is an excellent viewpoint and that we should deploy our capital for the betterment of service and those that are around us. Ford remains steadfast in this approach, in his view of service
jumping ahead just a little bit. Ford talks about Edison, a little bit more in detail. And this is, , towards the end of the book. I had highlighted some of this, content earlier in the podcast, but one phrase that I just wanted to [01:28:00] reiterate here, I think is extremely, valuable for And he says his knowledge is almost universal.
He is interested in every conceivable subject, and he recognizes no limitation. He believes that all things are possible.
and that certainly makes me smile a lot. That's how I feel as well. I think that we should always keep our minds open, friends to things that are around us and continue to explore and stay curious. Those are the things that are gonna drive and propel us, Let our businesses keep our eyes open for new possibilities, better ways to serve our customers and our employees.
And I think if we take that approach, We're going to have a lot of success in life.
And this ties directly into Ford's views of thinking and education. Ford says that thinking is the hardest work anyone can do, which is probably the reason why we have so few thinkers. I think that is extremely accurate. moving forward to the next paragraph, but the best that [01:29:00] education can do for a man is to put him in possession of his powers, give him control of the tools with which destiny has endowed him and teach him how to think.
I think that is certainly important. College would certainly give you the definite tools that you needed, but when you have tools, you should put them to use. And says, A man's real education begins after he has left school. True education is gained through the discipline.
Of life, and I cannot agree more with Ford, right there. Real application comes from learning and putting things into action. I can go read five books tomorrow on swimming, but if I've never been in the pool, that's not gonna make me a swimmer. If you wanna swim, jump in the pool, put the application into use.
Let's expand on this just a little bit more. [01:30:00] Knowledge to my mind is something that in the past, somebody new and left in the form, which enables all, who will obtain it. If a man is born with normal human faculties, if he is equipped with enough ability to use the tools, which we call letters in reading or writing, there is no knowledge.
Within the possession of the race that he cannot have if he wants it. And we live in this age of unlimited knowledge. You and I have no excuse, none to not derive and be the most knowledgeable in our fields
we should be seeking out.
Seek out what? Quenches your thirst, my friend. Go after it. Take it down and bring it home. Understand it and apply it.
This will make us successful at the end of the day.
Before we close my friend, I just wanna leave you with one final passage and thank you, uh, for [01:31:00] hanging in there with me thus far. I wanna read this for you. This is, , an excellent way to close up.
What can you do to help heal the world? That is the educational test of man. If man can hold up his own end, he counts for one. If he can help 10 or a hundred or a thousand, other men hold up their ends, he counts for more. He may be quite rusty on many things that inhabit the realm of print, but he is a learned man.
Just the same when a man is a master of his own sphere. Whatever that may be. He has won his degree. He has entered the realm of wisdom,
and from my view, your real education comes from life and what you choose to do with it. We can choose to excel in life and master our dreams, or we can wither and rot let's you and I take the pathless traveled, master our spears and earn our degrees.
And [01:32:00] with that, I'll leave you. Remember to take some time for reflection today. I hope you enjoyed the podcast and learned a few things along the way.
If you have a moment, drop us a review. We'd love to know what you thought of the show. It's been a pleasure spending this time with you. Until next time, make it a beautiful day in the neighborhood, my friend.
Peace out.
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