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Alfred Sloan

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2020-04-26

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2020-04-26

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1. “It is equally evident that from 1921 to 1946, the corporation avoided long-term debt. What is he saying? I avoided long-term debt. I myself had feelings against debt, perhaps because of what I had seen of it in my experience. And yet I cannot really say that we had an anti-debt policy in that period. The facts show that we were in general able to do without it. So we were never explicitly saying we're not going to use debt, but our financial performance was so great that we didn't need debt. I guess I just ran over my own point here. In other words, we paid off and grew without debt, except for bank loans during the short period in the 1920s. Now, he's going to describe the early days of the automobile industry. And this is a really important, really interesting point that I don't even know if he meant to make. Let me read this section to you first. During the early years of the automobile industry, the immediate goal of the engineers and inventors”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Even so, the expansion of 1918 and 1920 might have worked without crisis if it had been assisted by management and financial controls. And it now, you might have been able to pull it off if you ran your company a little better. But in your personal life, that wasn't the case. In his personal affairs, it was obviously debt that had brought disaster to Mr. Durant in the economic slump of 1920. This is a hell of a statement here. So much for that.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “The strategic question in industrial finance, assuming you have something to work with in the way of a going business, is how to optimize its elements. The latitude for opinion or subjective judgment here is wide, but I think it would generally agree that in principle debt enhances the return on the stockholder investment while at the same time increasing the risk involved. So here's what he's saying. Debt fragilizes. It would be agreed, I think, again, debt can increase your investment in good times, but in bad times he's going to talk about what happens. I think it would be agreed, I think, that Mr. Durant had a strong desire to spend and had little inhibition about debt. Remember, he's constantly comparing. What he feels durant and he did correct.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “Because he has this idea when he's a younger man building hyatt roller bearing. And it doesn't really, there's nothing that he experiences in his career that causes him to think that he's wrong. In fact, he sees the experience of others, thinks he's correct. So this is Sloan on debt.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “So he says he had a convinced consumers that his product is superior to his competitors. This may not be necessary. It may be sufficient to convince consumers that your product is positively good. I love this idea. Tell customers why your product is positively good. He continues. If the consumer feels certain that your product is good and feels uncertain about your competitors, he will buy yours. If you and your competitors all make excellent products, don't try to imply that your product is better. Just say what's good about your product and do a cleaner, more honest, and more informative job of saying it. Sales will swing to the marketer who does the best job of creating confidence that his product is positively good. This is fantastic. Now towards the end of the book, it was very interesting.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Features often influence a sale. So, what is he really saying? In other words, you don't have to be the best, you just have to be different. And another way to think about this is David Olgovy. He had this idea in his book Olgovy on Advertising, which I'd pick up immediately if you haven't, of his idea of a positively good product, which is a completely different way to think about competing with other people. He says, let me read from that book. In the past, just about every other advertiser has assumed that in order to sell his goods, he has to convince consumers that his product is superior to his competitors. But Sloane is just telling us there's no such thing as a superior car because tastes are so varied. The market has been, you have all the markets wide open now, and you've had, he says a decade at that point, two and a half decades of intense competition of people trying to find different wedges, different ways, different things that they can build in their car that give them advantage.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “He's got a really interesting point here. So think about this. After decades of intense competition, customers have more variety, right? And so they start making purchase decisions based on features they valued that you might not be able to predict. This is why that pyramid strategy is so important. They may be picking something just on a matter of taste and everybody has different tastes. So let me read this and let me tell you how it ties into something else we learned. My general point, I believe, was valid, namely that selling had begun to focus on personal preferences of the consumer, especially matters of style. People like different things. Many people do not want to have exactly the same thing that their neighbor has. The design of any car is an artistic and engineering compromise. No car can embrace all the desirable features. And this is what he has to deal with. Relatively inconsequential.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Grew relatively to encompass 73% of the industry's unit car sales compared with 52% in 1926. So everybody's out of work. They're making less money. They all gravitate towards a lower price, right? This meant, now here's the problem for GM, this meant for the old car line, meaning their product line. Remember, I said he thinks of his product line as a pyramid, which Chevy is a base, that we would have four lines in 20% of the market and one line in 73% of the market. So in other words, the company that, and this was Durant's strategy, he's like, I'm starting Chevy to attack Ford because I think the greatest opportunity is the lower end of the market, right? 1933, so 13 years after he's kicked out Chevy saves GM's ass. 73% of their sales is coming from one of their five brands. That's amazing.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Our profits dropped from two hundred fifty million in 1929 to $165,000 in nineteen thirty two. two hundred and fifty million sixty five thousand, yet still in the black, thinks mainly to our financial control procedures. I'm pretty sure the entire multiple decade reign of Alfred Sloan, they never had a loss in a year. I'm almost positive.”

   2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “All right, now let's go back to the Great Depression because I find it fascinating. This is the effect of the Great Depression on a GM. It's almost unbelievable. Thanks to the financial and operating controls, the development of which I had described in earlier chapters, General Motors did not approach disaster as it had in the 1920 to 1921 slump, even though the economic collapse was much greater, right? We made an orderly step-by-step retreat in all matters, including wage and salary reductions. Sales dropped to $526,000 in 1932. They were $2 million in 1929. It's about a tremendous drop of 72%. And when you consider, he's talking about the drop of 72% is even more tremendous when you consider that many expenses that an automobile manufacturer has are fixed. Now here's the crazy thing.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “There. You want middle price catcher there? You want high got you there? You want something between middle and high got you there? He just unfortunately again Billy Durant came up with the idea, Sloan perfected it. Just continue. He cannot continue losing sales and maintain his profits. And yet, not many observers, now Old Master, remember Ford has complete control over his company. So he can do something like this. And yet, not many observers expected so catastrophic and almost whimsical a fall as Mr. Ford chose to take in May 1927 when he shut down his great plan, completely and kept it shut down for nearly a year to retool. Leaving the field to Chevrolet unopposed,”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “It was not difficult to see in 1925, 1926 that Chevrolet was closing it on Ford. So let's go through these numbers here, okay? 1925, Chevy had, let's call it half a million sales. Ford did two million sales. The next year, Chevy's up to almost 700,000 sales. Ford's down a half a million to 1.5. His precious volume, which is the foundation of his position, was fast disappearing. He could not continue losing sales and maintain his profits. And so for market reasons, the model T fell. So he used the word market reasons. Really, customers, what they wanted was changing. And GM, and this is where Billy Durant is now like, he had this idea from the very beginning. I'm going to build a low-priced car and I'm going to build a really expensive car in every single price in between. That's why I'm going to dominate the automobile market because I'm going to have whatever you want. You want a low-priced car, I got you.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Going to be very hard when you sold maybe 13 of the 15 million model T's you're going to sell to think that you're seeing any signs of danger because you've been dominating for so long we are very prone to make that same mistake and continue to make that mistake in the future continuing This is a really interesting strategy part of his strategy I want to bring to your attention Chevrolet's internal statement of policy at the time was that it was our objective to get a public public reputation for giving more for the dollar than Ford So what I mean by interesting strategy we can't beat him on price he's never going to try to lower to build a Chevrolet that's cheaper than the Model T But we can beat them on value per dollar and we can start educating the public and the consumers of thinking in those terms Yes, you might be able to buy Model T with $200 less than us or $150 less than us but look what you get if you increase by $150 or $200 where the number is.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “We are rationalizing creatures. We are not rational ones. It's an important distinction. It's very hard. He's been dominating the entire industry. He had 54% of all cars. He's selling 2 million cars a year doing it his way. He held 70% specifically of a market at the low price.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Now he goes into specifically how this strategy was started in the early 1920s did not start to yield dividends for GM till the mid-1920s. So Sloan right here, let me read this to you first. Ford sales held even in 1925 with a volume of about 2 million cars. So he's selling 2 million cars, okay? But since the market as a whole in that year has rose substantially, Ford's share declined market share declined from 54% to 45%. That was a sign of danger if Mr. Ford had chosen to read it. Yet he still held almost 70% of the low price field. So what's happening here? Sloan is pointing out what most people consider to be Henry Ford's single biggest mistake. But he's also bringing up, inadvertently, why Ford was so likely to make that mistake.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “Before you act, you have to use your best judgment. He's like, it's really clear as I look back, I can see how this fits into place. But at the time, we knew it was uncertain, unknown, and we were just hoping that this trend played out into our advantage. And it did.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Below the median price group above. So that's a weird sentence, but essentially saying, hey, what I just said, there's the model T, then you have where we're up, but we're in the middle and we're in, GM was anywhere from the middle of the market all the way to the top. We're going to say, hey, there's a wedge, there's a growing demand right on top of the Model T. Think of GM's product strategy as a pyramid, right? So you have Catalic at the very top. And as you move down the period, the pyramid, excuse me, you have Cadillac's the most expensive. Then you have Buick, other brands. At the bottom, his base layer, though, is going to be Chevy. That's going to be where he's going to get the most actual sales and most revenue, right? So think about that's how he's thinking about this here. Let me go back to this point, though, because he says something here that I think can be applied to tons of opportunities today. It's actually how to find an opportunity today. He's summarizing that weird sentence. A case of trying”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “So this is, it was that plan, policy, or strategy of 1921, whatever it should be called, which I believed more than any other single factor enabled us to move into the rapidly changing market of the 1920s with the confidence that we knew what we were doing commercially and we were not merely chasing around in search of a lucky star. So to review, he's talking about the idea is like we're going to use Chevrolet as our wedge to attack Ford and we're going to say, hey, there's another growing market. There's going to be more demand right a smidge above Model T. Can't get below model T, can't get to Model T. We're thinking that customers taste are changing there for the markets developing, and this is the vehicle we're going to use to overtake Ford, right? The most important particular object of that plan which followed from strategic principles was to develop a larger place for Chevrolet between the Ford car”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “So in other words, we're lucky that during our time of reorganization we had an increase in sales due to things largely outside of their control. Now, Sloan is going to continue to elaborate on GM's plan for the 1920s. And again, I said this over and over again. It's very fascinating how large a part of it had to be in response to the dominant position of Ford”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “During this time, though, I'm going to get back to the effects of the Great Depression because I find it fascinating. But I really like how Sloane was aware. This is Sloan telling us it's important to understand what is influencing your growth or decline, some of which is under your control and some of which is out of your control. Things happen to be going good in the early 1920s for a GM, but it's not because they were extremely disorganized. They were still trying to fix things. And yet their sales are going through the roof. It had nothing to do with what they were doing. It says by the middle of 1920s, General Motors had accomplished some things. But apart from survival and reorganization, they, meaning our accomplishments, was more in the realm of the mind than of reality, that our volume of business had increased after the slump of 1921 could be attributed less to our own wits than to the improvement in the general economy and the rising demand for automobiles. They were just bailed out because the industry they were in was growing rapidly.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Utilization of funds. That's one of the craziest things I've ever read. Solution to this, I'm not going to belabor the point. He's centralized cash controls. This is Sloan's summary of the effectiveness of the centralized financial controls that he put into place. The need for financial controls grew out of crisis. Controls were brought in to ensure that the crisis did not recur. Their effectiveness was demonstrated particularly in the Depression year 1932. The corporation's unit volume in that year was 50% less than that of 1931 and 72% below the high of 1929. That is insane how giant the Great Depression was. Think about that.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “The way cash was handled at that time is almost unbelievable. Now the idea that he uses the word unbelievable, this is about as animated as you're going to find Sloan in his writing. He's a very serious person. That's like him using a bunch of curse words. He does not write like that. So this, and I understand why he starts this section with saying this is almost unbelievable. He says, each division controlled its own cash, depositing all receipts in its own accounts and paying all bills from the same account. So when he says division, he means different company, right? GM is a collection of car manufacturers. So Buick has a different account, Cadillac has a different account, all the different companies, and all of them are separate. None of the cash receipts flow directly to the corporation itself. We had no effective, so that's really bizarre, right? It gets way, way crazier. We had no effective procedure for getting cash from the points where we happen to have some.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “So committees to make decisions right, but here's the difference I have, or to at least like think through the ideas. I have never believed that a group as such could manage anything. A group can make policy, but only individuals can administer policy. So that's the best summary I can give you of the way he thinks about committees. I'm going to bring in all the experts. I'm going to bring in a bunch of people. We're going to hash things out. We're going to make a decision, but one person has got to be responsible to administer that policy. Now, he's going to describe more of the problems he had to deal with. This is one of the most insane things I learned in the book. This is on the need for cash control. And my jaw dropped. So he says, the way cash, he's talking about pre, like as he's taking over the company.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Now, it's interesting that he talks so much about decentralization because a large part of the way he organized GM was also through the roles of committees. In this paragraph I'm going to read to really cleared up for me what Sloan's opinions on the role of committees and individuals were because I was having a hard time reconciling that in my mind. So he says, I've often been taxed by people who do not know me with being a committee man. And in a sense, I most certainly am.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “Organization. Now, again, this sounds, this may sound commonplace now. It was not common when he's writing these words. Thousands of entrepreneurs and executives managers read this book in the 1960s and moving forward and copied these and made Sloan's ideas kind of the default. I still am of the same belief that a decentralized organization is the only one that will develop the talent necessary to meet the corporation's big problems.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “Oh, so let me back up too. There's a lot going on in this paragraph. Let me read it to you first. Let me tell you what my interpretation of it was. I recognize that my election to the presidency of the corporation was a big responsibility and a business opportunity that comes to few. I resolved in my own mind that it would take any, excuse me, I would make any personal sacrifice for the cause and I would pour forth all the energy, experience, and knowledge I had to make the corporation an outstanding success. General Motors has been for me a dedicated activity ever since, perhaps to a fall. Okay, so a few things going on in this paragraph. One, he realizes that the opportunity he has given is rare. Smart move. How many people are going to run a company like Jim in their lives? Very few. Number two, this is also why he is worthy of our time and attention to study because he spent four and a half decades running one company and six and a half decades in one industry. Three, he's talking about”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Okay, so this is really interesting. Sloan is talking about the confusing product line of GM in the early 1920s. And he's got a lot of good information in the book on how to think of product lines, especially if you're selling multiple products. And I'll get there in a minute. So he says, not only were we not competitive with Ford in the low-price field, no one really was, where the big volume and substantial future growth lay. But in the middle, we were constant with duplication. So maybe Buick had a car that competed with the old. And there's other manufacturers that are no longer in business that they owned. We're also making a car. We did not know what we were trying to do except to sell cars, which in a sense took volume from each other. Some kind of rational policy was called for. When I read that section, I thought of the most famous example, most recent famous example of this is when Steve Jobs came back to Apple from the second time in the late 90s. And he just looked at their product line. He's like, what the hell is going on? He's like, all right, we're going to scrap everything.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “The leader of GM, just like all of us have to grow into wherever we are now to where we want to go. All right, Sloan had a lot of centralized power, right? Even though the basis that he builds GM is a series of decentralization, so the operating units are decentralized, but there's tight financial and operating controls in the center, right? So that gave him a lot of centralized power, but he didn't use it. He used it with discretion, and here's why in one sentence. I got better results by selling my ideas than by telling people what to do. That statement was true in the 1920s, true when he wrote in 1963. It's still true today, and it will be true in the future. That's just a fundamental part of human nature. You got to tell people why you're doing what you're doing. You have to convince them. Dictators, they don't last long.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “I mentioned this because confidence is an important element in business. It may on occasion make the difference between one man's success and another's failure. I love that. All right, he's going to continue. He says in the course of my 20 years or so at Hyatt, I learned to operate a single industrial unit, relatively small in size and with one basic product. So he's comparing and contrasting the experience he had before and now the skills he must learn with this running becomes one of the largest corporations in the world. So it says relative small size and with one basic product. This unit contained the elementary functions of a manufacturing business, engineering production, sales, and finance, but it had no organization problems of the general motors type. So he's like, yeah, things change with scale. Running a tiny bearing company is not the same thing as running general motors. But in other words, with slowness telling us, again, he had to grow into the leader because”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “Economic declines have a way of shaking out the weak ones in business, and we had weaknesses. That's a hell of a statement. Some people cannot see beyond a slump, but I have never yielded to economic pessimism and in times of decline have kept in mind the eventual upturn of the business cycle and the long-range dynamics of growth. Confidence and caution formed my attitude in 1920. We could not control the environment or predicted changes precisely, but we could seek the flexibility to survive fluctuations in business. I mention this because confidence, this is the important, most important sentence in this whole section.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “And of any means of control and operations in finance, and a lack of adequate information about anything. There was just about as much crisis inside and outside as you could wish if you liked that sort of thing. Now, those are the problems he inherited, but I think that he has a fantastic way of looking at those problems. And so as I read this section to you, the summary is, listen, we have problems, but they're temporary and we can fix them.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Short few year period between Durant Leaves, DuPont winds up running the company, but Sloan is essentially his right-hand man and eventually once the company stabilized in the next year or two. And I mean like financially stabilized, it's not growing, but it's not going to go out of business. DuPont puts Sloan in charge. So it says this is Sloan on the problems he inherited. The automobile market had nearly vanished and with it our income. Most of our plants and those of the industry were shut down. We were loaded with high priced inventory and commitments at the old inflated price level. So what they're talking about there is the inflated price level when the demand dropped out, Ford starts cutting prices. And so everybody in this she has to start cutting prices. But the problem is now you have all these, you have some dealers who have bought, let's say the car is going to go for $1,000. Now you can buy it for $750. What do you do at this case? We were short of cash. We had a confused product line. There was a lack of control.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “So again, Sloan is going to tell you over and over again be optimistic, but not in the face of uncertain economic conditions. If that can lead to the potential bankruptcy of your company. Last week, so when GM gets, or excuse me, when Durant gets kicked out, He's convinced that there was stock manipulation and he was squeezed. And essentially he's saying, I got hustled, right?”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “And he overloaded himself. Important decisions had to wait until he was free and were often made impulsively Sloan also questions if Durant was telling the truth. He says they didn't see the financial panic coming, the one in 1919, 1920, 1921 area. Mr. Rascob, who's running the company With Durant, came over from DuPont because DuPont had made a large investment. Again, I cover that in the other podcast. If you want to learn more about that, go back. So it says, Mr. Rascob went ahead pushing the expansion and paying the bills. Mr. Durant's management methods let things get out of control. So he's talking about what's happening right before Durant gets pushed out and he's telling us because this is the end of Durant's story and the beginning of his, right? So he says, I've heard that Mr. Durant became pessimistic about the national economy in late 1919, but I can find no record of it. On the record, both Mr. Durant and Mr. Rascob were strong optimistic expansionists. They seem to disagree on occasion only what to put the money into.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “I became president and chief operating officer at United Motors. United Motors is acquired by GM. Sloane takes a keen interest in GM because he has so much of his net worth tied up and it's stopped. He's working at GM as a vice president, but he's also monitoring to Durant, monitoring Durant because Durant's running the company that is responsible for a large percentage of his net worth, so he's concerned about it. He said I had proprietary as well as professional reasons for taking an interest in the corporation as a whole since most of my personal assets had been converted into GM shares. It was not long, therefore, before I began to take a close look at Mr. Durant's general policies. I was of two minds about Mr. Durant. I admired his automotive genius, his imagination, his generous human quality. So that's what I admire about him too. He's extremely likable. You want to root for him when you read his biographies and his integrity, his loyalty to the enterprise was absolute, but I thought he was too casual. It's an interesting choice of words. Some who say Sloan is too serious. I thought he was too casual in his ways of an administrator.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “So he's right about that. Third, I had spent my entire working life. I was 40 years old then developing a property and I had a large plant with a great deal of responsibility, but I never much yielded out of it dividends. Mr. Durant's offer presented an opportunity to convert Hyatt's profits into readily saleable assets. So what are he saying? I want to get paid. I want to know what it's like to be rich. I worked really hard. I want to take some money out. Nothing wrong with that. So he winds up Durant winds up buying the company. Durant's running this company at a time called United Motors. Don't worry about the name. It's just a proxy to get control of GM and gets folded into GM once Durant gains back controls. Just ignore this part. But the important part is that he's getting out of his comfort zone. We talk about this over and over in the podcast. Comfort is a false god. You're not going to do anything great with your life if you try to seek comfort constantly. So he says, for the first time in my business horizon widened beyond a single component of the automobile.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “On why he thought it was a good idea to sell his company to GM. So he says, because of the way Hyatt's business had evolved, it had come to depend upon a limited number of customers. So what he's telling us section is a continuer read, think about, he's telling you it's a very dangerous and fragile place to be in if almost all your revenue comes from one or two people. He says Ford alone represented about half of the sales. This business, if lost, could not be replaced because no new customer of such magnitude existed. Second, so he goes through three, that's the first reason this is the second. I recognize that the kind of roller bearing we made at the time was destined to be supplemented and perhaps superseded by other types. And what then? Another reorganization, a different product. In effect, you'd have to create an entire new business, essentially what he's saying there. I may say that in the past 45 years, what I thought then would happen to the product has happened. Hyatt's old type of bearing had gone out of automobile design.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “Okay, Sloan and Walter Chrysler, one of his best friends, wounds up being a competitor, too. Mr. Chrysler was a man of high ambition and imagination. He was a practical man with broad capabilities. His genius, I think, was in the organization of automobile production, definitely. He used to run all of manufacturing and production for GM. He recognized the opportunity offered by the young and promising automobile industry. It's fairly funny because later in the book, Sloan is talking about how he's competing with Ford and they're all focused on Ford because it's such a dominating force in the industry. And at the time, and I'll get into more of this later, but Sloan is using the lower price brand Chevrolet as his main weapon against Ford. And out of nowhere comes Chrysler with another lower price car. And he knew he was a formidable character because he knew that this guy didn't play. He had a lot of experience. He was really intelligent person. You have to take him seriously. This is Sloane.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “With a mature experience in general engineering and in gasoline engines, which he had long made for boats. One of his specialties was precision metalwork, which went back to his experience in tool making for a federal arsenal during the Civil War. So think about that. We're in the late 1800s, maybe early 1900s, when they're interacting. Henry Leland, they talk about this white-bearded guy. He'd already been a professional engineer for 40 years. So he's a generation older than Sloan. What could he learn from this person's accumulated experience a lot? And Sloane definitely sat and learned from him. It has been called to my attention that Eli Whitney long before had started the development of interchangeable parts in connection with the manufacture of guns during also during the Civil War, a fact which is why I'm including this part. I love the sentence, a fact which suggests a line of dissent from Whitney to Leland.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “Of cars took an insane amount of money. So it's a General Motors was headed for the crisis from which the modern General Motors Corporation would emerge. So I bring that in there because he says you have to go through this tumultuous period. You had to make those mistakes to realize, oh, this is a problem. If we don't rectify this and if we don't course correct here, we're going to go out of business. And so when Sloan takes over, it's a period of crisis. But that's a motivating factor because that allows him or motivated him to build a very, very strong financial base, which he definitely does. I covered last week a little bit about how Sloan looked up most and learned most from Henry Leland, the founder of Cadillac. I'm not going to cover, we cover all of it, but he brings up a lot in the book. So I just want to read a couple sentences to you. So he says he then taught me the need for greater accuracy in our products to meet the exacting standards of interchangeable parts. Mr. Leeland came to the industry.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “Early 1900s, Sloan gets kicked out of JM in 1920, but he lasts 20 years in the early automobile industry. That's insane when you think about maybe not thousands, hundreds, maybe thousands of companies died in that period, probably hundreds. I don't know if it was thousands. All right. Moving on. This is Sloan on the situation at GMR before he takes over. Thanks mainly to Mr. Durant, General Motors, had then the makings of a great enterprise, but it was in good part physically unintegrated and in management uncoordinated. The expenditures for new companies, plants and equipment and inventories were terrific. Some of them not to bring a return when he meant terrific means it was a large amount of money, not that they were great to his point, he says, some of them not to bring a return for a long time if ever. And as they went up, the cash went down, meaning they had large to not only manufacture, but to manufacture that number of”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “That a lot of these other automobile manufacturers did not focus enough on profit. And so therefore, they were at the whims of other financial people, whether banks or investors, to continue putting money to the company. And when you find what someone was talking about is when you find yourself in that situation, if you happen to need money at the same time, there's an economic attraction which Sloan had to manage, you know, he managed GM for three to four decades. He had to deal with this constantly. And I'm going to get to more of his crazy impressive performance during the Depression that you're going to find yourself at the whims of those people that have the money and if they don't want to give it to you, you're done. So to Sloane, he has like a love hate relationship with Durant. I'll get to that. He talks about that he views him in two minds, two different ways that in large parts contradictions. But this one sentence, like he did respect him because he survived. There was tons of people that started companies.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “way ahead of other automobile periods because he remember he had built the GM of horse drawn transportation so it says Durant thus showed a considerable sophistication in economic matters very different from the popular image of him as a mere stock market plunger I cannot say that he was precise in the application of his economic philosophy so what he's talking about is economic philosophy he's talking about vertical integration but he emerged this is really really important sentence here but he emerged prominently from a period that saw the birth and death of a great many automobile companies. So what is he saying there? You have to respect them because he survived. And Sloane talks about that a lot. So one thing to know about Sloane, extremely focused on profit. And he's not focused on profit just because he's greedy for money. He's focused on profit because he wants his company to manufacture automobiles and to do that they must survive. And the only way to survive is to profit. So he talks a lot at length.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “Where a generation of what I might call personal types of industrialists, that is, they injected their personalities, their genius, as a subjective factor into their operations without the discipline of management by methods and objective facts. So the first half of that sentence is Sloane giving him credit to what he feels were their best attributes. The second half was what they didn't do well and what he feels he did well. Now, this is also interesting because when I read that section, it made me think of this quote by Charlie Munger that I've never forgot. He says that you must follow your natural drift. And he talks about, you know, he graduated from law school. He starts practicing an attorney. A lot of his early clients are business people. And he's like, I'm not suited to be an attorney. I don't want to do this. I want to invest in businesses and I want to be a business person. I want to be an entrepreneur and be investor. And he talked about like there's plenty of like he just had to be who he was. That's what he means by following your drift. So Sloan is talking about...”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “Of others at the time. I wanted one but couldn't afford it. Only about 4,000 cars were made in the year 1900, and they were expensive. So of course, you can't really understand Alfred Sloan if you don't understand Billy Durant and vice versa. So he's going to talk a lot about Durant in his book. His book was published about 20 years after Durant died. So he says Durant's pioneer work has yet to receive the recognition it deserves. He's writing that 1963. still the case today. Most people don't know who the founder of General Motors is. Everybody knows who the founder of Ford is. His philosophy was an emerging one in the Model T era and was afterward to be realized not by him but by others, including myself. So what is he saying in that paragraph? Durant came up with the idea, I executed it. This is Sloane on Durant and Ford building personality-driven companies. He says they...”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “Do stock issuances and collecting people money from other people. Sloane grew his company through internally, mainly through profits. In five years, we made progress. Our profits got up to about $60,000 a year. That's amazing considering $2,000 a month when you start working there. And the prospects improved as the young automobile industry opened up a new market, meaning a new market for the bearings. Now my two favorite parts of reading this book was Sloan has an immense amount of knowledge into the early days of the automobile industry, which I of course find fascinating when I'm reading so many books on it. And second, which I'll get to later, is he's extremely detailed in his head-to-head competition with Henry Ford, which he winds up winning. So I'm going to tell you more about his strategy, which is really fascinating. And he goes into great detail, which is fantastic part about the book. So on the early days of the automobile industry, he says, my first personal experience with automobiles was much like that.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “And volume and economy, and we made a $12,000 profit that put the business into a position where we recognized that it might be successful. And this is so important. I could not know then that through Hyatt, I had entered into the headwaters of General Motors. So what is Sloane saying there? He's saying that the opportunity that he was about to be presented was unpredictable. Not only did he become a supplier to General Motors Ford and others, but of course General Motors went up buying the company about a decade and a half in the future from a rat. Something to know about Sloan. Again, I don't think they're going to write a book about you if you don't have this personality trait. He was persistent and determined. So he says, for the next four or five years at Hyatt, we had growing pains. It was difficult to get business. And when we got it and expanded, we needed working capital and we could not get that outside the company. This is another contrast to Durant who wanted to fund most of his money through his company.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “And the other thing I wanted to bring up is the fact that the business, when he started working there, was only doing $2,000 a month. Eventually he takes over this business. This is the same business that he's going to run for about 15 years, something like that. And he sells to Billy Duran for $13.5 million. Okay, so he leaves the company, comes back. They buy Hyatt because it's about to go out of business, about to be liquidated. And his father buys it with an associate, and they give him six months to turn it around. So let me just bring you up to speed on this real quick in case you haven't yet listened to last week's podcast. In 1898, it appeared that the company would have to liquidate. But my father and an associate of his combined to put $5,000 to tie it. So $5,000 investment that they want his father is a shareholder the entire time up until the point where he sells the Billy Durant. So they put $5,000 into high it with the understanding that it would go back for six months and see what I could do with it. At the end of six months, we had made some events.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Of $50 a month. Okay, so why am I bringing it up? Why is this important? Because this is another example of growing into the person that you need to become. He started at $50 a month. At one time in his life, he is the second richest person in the United States behind Henry Ford”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “In eighteen ninety five, the first gasoline automobile manufacturing company in the United States was started. That same year I left MIT with a BS in electrical engineering and went to work for the Hyatt Roller Bearing Company. The Hyatt Bearing, the product I'm making, was later to become a component of the automobile. And it was through this component that it came into the automotive industry. Remember, he worked in the industry for 65 years. Except for one early and brief departure from it, I have spent my life in the industry. So think about how valuable that is. He's over six decades of experiencing one industry. The things that we can learn from this person. Now, this is what I found fascinating. This is his salary and the job description when he started working at higher roller bearing. We were doing business of under $2,000 a month. So $2,000 a month in revenue. I was kind of an office boy, a draftsman, a salesman, and a general assistant to the enterprise at a salary.”

    2020-04-26 · Founders · #122 Alfred Sloan (General Motors) · IDENTIFIED FROM THE TRANSCRIPT · source