OTHER BUSINESS EXPERIENCES AND BUSINESS PRINCIPLES
Going into the iron-ore fields was one of those experiences in which
one finds oneself rather against the will, for it was not a deliberate
plan of mine to extend my cares and responsibilities. My connection
with iron ores came about through some unfortunate investments in the
Northwest country.
These interests had included a good many different industries, mines,
steel mills, paper mills, a nail factory, railroads, lumber fields,
smelting properties, and other investments about which I have now
forgotten. I was a minority stockholder in all these enterprises, and
had no part in their management. Not all of them were profitable. As a
matter of fact, for a period of years just preceding the panic of
1893, values were more or less inflated, and many people who thought
they were wealthy found that the actual facts were quite different
from what they had imagined when the hard experiences of that panic
forced upon them the unpalatable truth.
Most of these properties I had not even seen, having relied upon the
investigation of others respecting their worth; indeed, it has never
been my custom to rely alone upon my own knowledge of the value of
such plants. I have found other people who knew much better than I how
to investigate such enterprises.
Even at this time I had been planning to relieve myself of business
cares, and the panic only caused me to postpone taking the long
holiday to which I had been looking forward. I was fortunate in making
the acquaintance of Mr. Frederick T. Gates, who was then engaged in
some work in connection with the American Baptist Education Society,
which required him to travel extensively over the country, north,
south, east, and west.
It occurred to me that Mr. Gates, who had a great store of common
sense, though no especial technical information about factories and
mills, might aid me in securing some first-hand information as to how
these concerns were actually prospering. Once, as he was going South,
I suggested that he look over an iron mill in which I had some
interest which happened to be on his route.
His report was a model of what such a report should be. It stated the
facts, and in this case they were almost all unfavourable. A little
later he happened to be going West, and I gave him the name and
address of property in that region in which I held a minority
interest. I felt quite sure that this particular property was doing
well, and it was somewhat of a shock to me to learn through his clear
and definite account that it was only a question of time before this
enterprise, too, which had been represented as rolling in money, would
get into trouble if things kept on as they were going.
NURSING THE COMMERCIALLY ILL
I then arranged with Mr. Gates to accept a position whereby he could
help me unravel these tangled affairs, and become, like myself, a man
of business, but it was agreed between us that he should not abandon
his larger and more important plans for working out some philanthropic
aspirations that he had.
Right here I may stop to give credit to Mr. Gates for possessing a
combination of rare business ability, very highly developed and very
honourably exercised, overshadowed by a passion to accomplish some
great and far-reaching benefits to mankind, the influence of which
will last. He is the chairman of the General Education Board and
active in many other boards, and for years he has helped in the
various plans that we have been interested in where money was given in
the hope that it would do something more than temporary service.
Mr. Gates has for many years been closely associated with my personal
affairs. He has been through strenuous times with me, and has taken
cares of many kinds off my shoulders, leaving me more time to play
golf, plan roads, move trees, and follow other congenial occupations.
His efforts in the investigations in connection with our educational
contributions, our medical research, and other kindred works have been
very successful. During the last ten or twelve years my son has shared
with Mr. Gates the responsibility of this work, and more recently Mr.
Starr J. Murphy has also joined with us to help Mr. Gates, who has
borne the heat and burden of the day, and has well earned some leisure
which we have wanted him to enjoy.
But to return to the story of our troubled investments: Mr. Gates went
into the study of each of these business concerns, and did the best he
could with them. It has been our policy never to allow a company in
which we had an interest to be thrown into the bankruptcy court if we
could prevent it; for receiverships are very costly in many ways and
often involve heavy sacrifices of genuine values. Our plan has been to
stay with the institution, nurse it, lend it money when necessary,
improve facilities, cheapen production, and avail ourselves of the
opportunities which time and patience are likely to bring to make it
self-sustaining and successful. So we went carefully through the
affairs of these crippled enterprises in the hard times of 1893 and
1894, carrying many of them for years after; sometimes buying the
interests of others and sometimes selling our own interest, but all or
nearly all escaped the expenses and humiliation of bankruptcy,
receivership, and foreclosure.
Before these matters were entirely closed up we had a vast amount of
experience in the doctoring of the commercially ill. My only excuse
for dwelling upon the subject at this late day is to point out the
fact to some business men who get discouraged that much can be done by
careful and patient attention, even when the business is apparently in
very deep water. It requires two things: some added capital, put in
by one's self or secured from others, and a strict adherence to the
sound natural laws of business.
THE ORE MINES
Among these investments were some shares in a number of ore mines and
an interest in the stocks and bonds of a railroad being built to carry
the ore from the mines to lake ports. We had great faith in these
mines, but to work them the railroad was necessary. It had been begun,
but in the panic of 1893 it and all other developments were nearly
ruined. Although we were minority holders of the stock, it seemed to
be "up to us" to keep the enterprise alive through the harrowing panic
days. I had to loan my personal securities to raise money, and finally
we were compelled to supply a great deal of actual cash, and to get it
we were obliged to go into the then greatly upset money market and buy
currency at a high premium to ship west by express to pay the
labourers on the railroad and to keep them alive. When the fright of
the panic period subsided, and matters became a little more settled,
we began to realize our situation. We had invested many millions, and
no one wanted to go in with us to buy stock. On the contrary,
everybody else seemed to want to sell. The stock was offered to us in
alarming quantities--substantially all of the capital stock of the
companies came without any solicitation on our part--quite the
contrary--and we paid for it in cash.
We now found ourselves in control of a great amount of ore lands, from
some of which the ore could be removed by a steam shovel for a few
cents a ton, but we still faced a most imperfect and inadequate method
of transporting the ore to market.
When we realized that events were shaping themselves so that to
protect our investments we should be obliged to go into the business
of selling in a large way, we felt that we must not stop short of
doing the work as effectively as possible; and having already put in
so much money, we bought all the ore land that we thought was good
that was offered to us. The railroad and the ships were only a means
to an end. The ore lands were the crux of the whole matter, and we
believed that we could never have too many good mines.
It was a surprise to me that the great iron and steel manufacturers
did not place what seemed to be an adequate value on these mines. The
lands which contained a good many of our best ore mines could have
been purchased very cheaply before we became interested. Having
launched ourselves into the venture, we decided to supply ore to every
one who needed it, by mining and transporting with the newest and most
effective facilities, and our profits we invested in more ore lands.
Mr. Gates became the president of the various companies which owned
the mines and the railroad to the lake to transport the ores, and he
started to learn and develop the business of ore mining and
transportation. He not only proved to be an apt scholar, but he really
mastered the various complexities of the business. He did all the
work, and only consulted me when he wished to; yet I remember several
interesting experiences connected with the working out of these
problems.
BUILDING THE SHIPS
After this railroad problem was solved, it was apparent that we needed
our own ships to transport the ore down the lakes. We knew absolutely
nothing of building ships for ore transportation, and so, following
out our custom, we went to the man who, in our judgment, had the
widest knowledge of the subject. He was already well known to us, but
was in the ore transportation business on a large scale on his own
account and, of course, the moment we began to ship ore we realized
that we would become competitors. Mr. Gates got into communication
with this expert, and came with him one evening to my house in New
York just before dinner. He said he could stay only a few minutes, but
I told him that I thought we could finish up our affairs in ten
minutes and we did. This is the only time I remember seeing personally
any one on the business of the ore company. All the conferences, as I
said before, were carried on by Mr. Gates, who seemed to enjoy work,
and he has had abundant privileges in that direction.
We explained to this gentleman that we were proposing to transport our
ore from these Lake Superior lands ourselves, and that we should like
to have him assume charge of the construction of several ships, to be
of the largest and most approved type, for our chance of success lay
in having boats which could be operated with the greatest efficiency.
At that time the largest ships carried about five thousand tons, but
in 1900, when we sold out, we had ships that carried seven thousand or
eight thousand tons, and now there are some that transport as much as
ten thousand tons and more.
This expert naturally replied that as he was in the ore-carrying trade
himself, he had no desire to encourage us to go into it. We explained
to him that as we had made this large investment, it seemed to us to
be necessary for the protection of our interests to control our own
lake carriers, so we had decided to mine, ship, and market the ore;
that we came to him because he could plan and superintend the
construction of the best ships for us, and that we wanted to deal with
him for that reason; that notwithstanding that he represented one of
the largest firms among our competitors, we knew that he was honest
and straightforward; and that we were most anxious to deal with him.
EMPLOYING A COMPETITOR
He still demurred, but we tried to convince him that we were not to be
deterred from going into the trade, and that we were willing to pay
him a satisfactory commission for looking after the building of the
ships. Somebody, we explained, was going to do the work for us, and he
might as well have the profit as the next man. This argument finally
seemed to impress him and we then and there closed an agreement, the
details of which were worked out afterward to our mutual
satisfaction. This gentleman was Mr. Samuel Mather of Cleveland. He
spent only a few minutes in the house, during which time we gave him
the order for about $3,000,000 worth of ships and this was the only
time I saw him. But Mr. Mather is a man of high business honour, we
trusted him implicitly although he was a competitor, and we never had
occasion to regret it.
At that time there were some nine or ten shipbuilding companies
located at various points on the Great Lakes. All were independent of
each other and there was sharp competition between them. Times were
pretty hard with them; their business had not yet recovered from the
panic of 1893, they were not able to keep their works in full
operation; it was in the fall of the year and many of their employees
were facing a hard winter. We took this into account in considering
how many ships we should build, and we made up our minds that we would
build all the ships that could be built and give employment to the
idle men on the Great Lakes. Accordingly we instructed Mr. Mather to
write to each firm of shipbuilders and ascertain how many ships they
could build and put in readiness for operation at the opening of
navigation the next spring. He found that some companies could build
one, some could build two, and that the total number would be twelve.
Accordingly we asked him to have constructed twelve ships, all of
steel, all of the largest capacity then understood to be practicable
on the Great Lakes. Some of them were to be steamships and some
consorts, for towing, but all were to be built on substantially the
same general pattern, which was to represent the best ideals then
prevalent for ore-carrying ships.
In giving such an order he was exposed, of course, to the risk of
paying very high prices. This would have been certain if Mr. Mather
had announced in advance that he was prepared to build twelve ships
and asked bids on them. Just how he managed it I was not told until
long after, and though it is now an old story of the lakes I repeat it
as it may be new to many. Mr. Mather kept the secret of the number of
ships he wished to construct absolutely to himself. He sent his plans
and specifications, each substantially a duplicate of the others, to
each of the firms, and asked each firm to bid on one or two ships as
the case might be. All naturally supposed that at most only two ships
were to be built, and each was extremely eager to get the work, or at
least one of the two vessels.
On the day before the contracts were to be let, all the bidders were
in Cleveland on the invitation of Mr. Mather. One by one they were
taken into his private office for special conference covering all the
details preparatory to the final bid. At the appointed hour the bids
were in. Deep was the interest on the part of all the gentlemen as to
who would be the lucky one to draw the prize. Mr. Mather's manner had
convinced each that somehow he himself must be the favoured bidder,
yet when he came to meet his competitors in the hotel lobby the beams
of satisfaction which plainly emanated from their faces also compelled
many heart searchings.
At last the crucial hour came, and at about the same moment each
gentleman received a little note from Mr. Mather, conveying to him the
tidings that to him had been awarded a contract sufficient to supply
his works to their utmost capacity. They all rushed with a common
impulse to the hotel lobby where they had been accustomed to meet,
each bent on displaying his note and commiserating his unsuccessful
rivals, only to discover that each had a contract for all he could do,
and that each had been actually bidding against nobody but himself.
Great was the hilarity which covered their chagrin when they met and
compared notes and looked into each others' faces. However, all were
happy and satisfied. But it may be said in passing that these amiable
gentlemen all united subsequently in one company, which has had a
highly satisfactory career, and that we paid a more uniform price for
our subsequent purchases of ships after the combination had been made.
A LANDSMAN FOR SHIP MANAGER
With these ships ordered, we were fairly at the beginning of the ore
enterprise. But we realized that we had to make some arrangement to
operate the ships, and we again turned to our competitor, Mr. Mather,
in the hope that he would add this to his cares. Unfortunately,
because of his obligations to others, he felt that this was
impractical. I asked Mr. Gates one day soon after this:
"How are we to get some one to run these big ships we have ordered? Do
you know of any experienced firm?"
"No," said Mr. Gates, "I do not know of any firm to suggest at the
moment, but why not run them ourselves?"
"You don't know anything about ships, do you?"
"No," he admitted, "but I have in mind a man who I believe could do
it, although when I tell you about him I fear you will think that his
qualifications are not the best. However, he has the essentials. He
lives up the state, and never was on a ship in his life. He probably
wouldn't know the bow from the stern, or a sea-anchor from an
umbrella, but he has good sense, he is honest, enterprising, keen, and
thrifty. He has the art of quickly mastering a subject even though it
be new to him and difficult. We still have some months before the
ships will be completed, and if we put him to work now, he will be
ready to run the ships as soon as they are ready to be run."
"All right," I said, "let's give him the job," and we did.
That man was Mr. L.M. Bowers; he came from Broome County, New York.
Mr. Bowers went from point to point on the lakes where the boats were
building, and studied them minutely. He was quickly able to make
valuable suggestions about their construction, which were approved and
adopted by the designers. When the vessels were finished, he took
charge of them from the moment they floated, and he managed these and
the dozens which followed with a skill and ability that commanded the
admiration of all the sailors on the lakes. He even invented an anchor
which he used with our fleet, and later it was adopted by other
vessels, and I have heard that it is used in the United States Navy.
He remained in his position until we sold out. We have given Mr.
Bowers all sorts of hard tasks since we retired from the lake traffic
and have found him always successful. Lately the health of a member of
his family has made it desirable for him to live in Colorado, and he
is now the vigorous and efficient vice-president of the Colorado Fuel
and Iron Company.
The great ships and the railroad put us in possession of the most
favourable facilities. From the first the organization was successful.
We built up a huge trade, mining and carrying ore to Cleveland and
other lake ports. We kept on building and developing until finally the
fleet grew until it included fifty-six large steel vessels, This
enterprise, in common with many other important business undertakings
in which I was interested, required very little of my personal
attention, owing to my good fortune in having active, competent, and
thoroughly reliable representatives who assumed so largely the
responsibilities of administration. It gives me pleasure to state that
the confidence which I have freely given to business men with whom I
have been associated has been so fully justified.
SELLING TO THE STEEL COMPANY
The work went on uninterruptedly and prosperously until the formation
of the United States Steel Corporation. A representative of this
corporation came to see us about selling the land, the ore, and the
fleet of ships. The business was going on smoothly, and we had no
pressing need to sell, but as the organizer of the new company felt
that our mines and railroads and ships were a necessary part of the
scheme, we told him we would be pleased to facilitate the completion
of the great undertaking. They had, I think, already closed with Mr.
Carnegie for his various properties. After some negotiation, they made
an offer which we accepted, whereby the whole plant--mines, ships,
railway, etc.--should become a part of the United States Steel
Corporation. The price paid was, we felt, very moderate considering
the present and prospective value of the property.
This transaction bids fair to show a great profit to the Steel Company
for many years, and as our payment was largely in the securities of
the company we had the opportunity to participate in this prosperity.
And so, after a period of about seven years, I went out of all
association with the mining, the transporting, and the selling of iron
ore.
FOLLOW THE LAWS OF TRADE
Going over again in my mind the events connected with this ore
experience that grew out of investments that seemed at the time, to
say the least, rather unpromising, I am impressed anew with the
importance of a principle I have often referred to. If I can make this
point clear to the young man who has had the patience to follow these
Reminiscences so far, it will be a satisfaction to me and I hope it
may be a benefit to him.
The underlying, essential element of success in business affairs is to
follow the established laws of high-class dealing. Keep to broad and
sure lines, and study them to be certain that they are correct ones.
Watch the natural operations of trade, and keep within them. Don't
even think of temporary or sharp advantages. Don't waste your effort
on a thing which ends in a petty triumph unless you are satisfied with
a life of petty success. Be sure that before you go into an enterprise
you see your way clear to stay through to a successful end. Look
ahead. It is surprising how many bright business men go into important
undertakings with little or no study of the controlling conditions
they risk their all upon.
Study diligently your capital requirements, and fortify yourself fully
to cover possible set-backs, because you can absolutely count on
meeting set-backs. Be sure that you are not deceiving yourself at any
time about actual conditions. The man who starts out simply with the
idea of getting rich won't succeed; you must have a larger ambition.
There is no mystery in business success. The great industrial leaders
have told again and again the plain and obvious fact that there can be
no permanent success without fair dealing that leads to wide-spread
confidence in the man himself, and that is the real capital we all
prize and work for. If you do each day's task successfully, and stay
faithfully within these natural operations of commercial laws which I
talk so much about, and keep your head clear, you will come out all
right, and will then, perhaps, forgive me for moralizing in this
old-fashioned way. It is hardly necessary to caution a young man who
reads so sober a book as this not to lose his head over a little
success, or to grow impatient or discouraged by a little failure.
PANIC EXPERIENCES
I had desired to retire from business in the early nineties. Having
begun work so young, I felt that at fifty it was due me to have
freedom from absorption in active business affairs and to devote
myself to a variety of interests other than money making, which had
claimed a portion of my time since the beginning of my business
career. But 1891-92 were years of ominous outlook. In 1893 the storm
broke, and I had many investments to care for, as I have already
related. This year and the next was a trying period of grave anxiety
to everyone. No one could retire from work at such a time. In the
Standard we continued to make progress even through all these panic
years, as we had large reserves of cash on account of our very
conservative methods of financing. In 1894 or 1895 I was able to carry
out my plans to be relieved from any association with the actual
management of the company's affairs. From that time, as I have said, I
have had little or no part in the conduct of the business.
Since 1857 I can remember all the great panics, but I believe the
panic of 1907 was the most trying. No one escaped from it, great or
small. Important institutions had to be supported and carried through
the time of distrust and unreasoning fear. To Mr. Morgan's real and
effective help I should join with other business men and give great
praise. His commanding personality served a most valuable end. He
acted quickly and resolutely when quickness and decision were the
things most needed to regain confidence, and he was efficiently
seconded by many able and leading financiers of the country who
coöperated courageously and effectively to restore confidence and
prosperity. The question has been asked if I think we shall revive
quickly from the panic of October, 1907. I hesitate to speak on the
subject, since I am not a prophet nor the son of a prophet; but as to
the ultimate outcome there is, of course, no doubt. This temporary
set-back will lead to safer institutions and more conservative
management upon the part of everyone, and this is a quality we need.
It will not long depress our wonderful spirit of initiative. The
country's resources have not been cut down nor injured by financial
distrust. A gradual recovery will only tend to make the future all the
more secure, and patience is a virtue in business affairs as in other
things.
Here again I would venture to utter a word of caution to business men.
Let them study their own affairs frankly, and face the truth. If their
methods are extravagant, let them realize the facts and act
accordingly. One cannot successfully go against natural tendencies,
and it is folly to fail to recognize them. It is not easy for so
impressionable and imaginative a people as we Americans are to come
down to plain, hard facts, yet we are doing it without loss of
self-esteem or prestige throughout the world.