Chapter 105 - Insull: The Rise and Fall of a Billionaire Utility Tycoon
Today’s Chapter is based on the book “Insull: The Rise and Fall of a Billionaire Utility Tycoon” by Forrest McDonald.
Samuel Insull was an entrepreneur who played a pivotal role in the development of the electric utility industry in the United States. Initially working as Thomas Edison’s secretary, he later consolidated multiple electric companies into the Commonwealth Edison and created an extensive network of utilities across the Midwest, significantly lowering production costs and improving efficiency
Here’s what I learned:
Self-Learning
“Don't let schooling interfere with your education”
— Mark Twain
From a young age, Insull displayed an extraordinary capacity for learning and a relentless drive to improve himself. His early life was marked by a commitment to self-education, fueled by a belief in the ideals of hard work and self-reliance. Forest McDonald mentions that “Judging by his temperament and taste and the intellectual traits he showed in his teens, Sam's most obvious attributes as a student were by-products of his energy: a capacity for racing through large quantities of reading material, effortlessly perceiving its important assumptions and generalizations, and thoroughly assimilating its salient details.”
Insull devoured books on a wide range of subjects, committing vast amounts of information to memory. This intellectual hunger was not merely academic; it was deeply practical. He taught himself bookkeeping, studied engineering principles, and absorbed everything he could find about the emerging field of electricity. This dedication to self-improvement laid the foundation for his future success.
“Because note-taking required too much time, he learned to commit to memory everything he read. Because reading was possible only in off moments—on a train, shaving, walking from place to place—he learned to gulp down and quickly digest what he read, and he developed a flexibility of mind that enabled him, at a moment's notice, to concentrate on a single subject, no matter how trivial, and to completely shut out everything else, no matter how pressing.”
— Forest McDonald
Furthermore, Insull learned quickly that having a great mentor or hero is important in one’s learning. As a matter of fact, his admiration for Thomas Edison, the inventor who became his hero and later his mentor, further encouraged his ambition for learning. As McDonald explains, “Edison was the epitome of the scientific and inventive spirit of the age, a man destined to tinker around until he had transformed the world. Insull read everything about Edison that he could find…and everything he read confirmed his initial impression. Immediately Edison became Insull's hero.” It is clear that Insull mastered Isaac Newton’s concept of standing on the shoulders of giants.
"Self-help, under his circumstances, meant self-education. Much of what he sought to learn was practical information: for example, he taught himself bookkeeping by buying standard works on accounting."
— Forest McDonald
Insull’s story reminds me a lot of Edwin Land’s story at Polaroid. As we have learned previously, at an early age, Land realised the importance of self-learning through books rather than through the normal education system, something he called “an education without a degree”. As a matter of fact, Land first took a leave of absence from Harvard University to move to New York. He studied polarization by reading all books available at the New York Public Library.
The second time Land left Harvard, this time for good, it was to create his own laboratory with George Wheelwright. Land realised that opening his own laboratory to make his own experiments would be more educational than continuing with his degree. This desire to learn through reading continued for the rest of his life. This led to Land insisting on having his own company’s library at Polaroid with two full-time librarians.
This is eerily similar to James Dyson who learned all about hydrodynamics for boats or cyclonic systems for vacuum cleaners through reading:
“Anyone can become an expert in anything in six months, whether it is hydrodynamics for boats or cyclonic systems for vacuum cleaners. After the idea, there is plenty of time to learn the technology.”
— James Dyson
Democratization of Electricity
"We will make electricity so cheap that only the rich will burn candles."
— Thomas Edison
As we have seen previously, Edison believed in purposeful innovation and that electric lighting could only become a success if it can be sold to the public at a reasonable price. This insight led him to form the Edison Electric Light Company in New York in 1878, backed by famous financiers like J.P. Morgan and the Vanderbilt family, with the sole purpose of making electric lighting as accessible as possible by developing a complete system for distributing electric light.
As such, it is fair to say that Edison did not merely invent for the sake of novelty and to obtain new patents. Instead, he was solely focused on creating practical solutions that would have a lasting impact on society.
Similarly, Samuel Insull, who took Edison as his hero, fully believed in continuing his vision. As a matter of fact, Thomas Edison, recognizing early that Insull had the ability to render his chaotic operations into a systematic, efficient enterprise, hired him to work for him. As Forest McDonald writes, "Edison was ready, after the first day, to entrust him [Insull] with far more, and in the ensuing months he was quick to perceive three things about the skinny young man from London that qualified him uniquely to take full charge of Edison’s business affairs. The first was his absolute devotion to Edison: He could and would mangle anybody, high or low, who stood in Edison’s way. The second was that he worked even longer and harder than did Edison himself, and he did so with almost unbelievable speed. The third was that he could render anything—even Edison’s kaleidoscopic doings—orderly and efficient."
As such, at the heart of Insull’s vision at the helm of Commonwealth Edison and of Chicago Edison was the belief that electricity should be accessible and affordable for all, not just the wealthy. He understood that the key to expanding the utility industry lay in mass production, which would lower costs and increase consumption. His approach to pricing and sales was revolutionary, emphasizing volume over profit margins and prioritizing long-term growth over short-term gains.
McDonald explains that "Insull’s thinking, as reflected in his operations and his statements at the same private meetings, was based on the premise that electricity should be considered as for everybody, 'even the smallest consumer,' and that it should be sold at the lowest possible price."
To achieve this, Insull implemented aggressive rate cuts and innovative pricing structures. He scrapped conventional flat-rate pricing and introduced sliding scales to attract larger customers. Insull’s focus on affordability extended to residential customers. Under his leadership, the cost of electricity in Chicago plummeted, making it the cheapest in the nation. As McDonald notes, "Average rates for all classes of service fell from around 20 cents in 1892 to 10 cents in 1897, to 5 cents in 1906, to 2½ cents in 1909. The cost of electricity in Chicago was far below that in most comparable cities."
"Long-term private contracts at low rates became Insull’s basic method of acquiring the big lighting customers."
— Forest McDonald
This aggressive pursuit of affordability paid off in extraordinary growth. Under Insull’s leadership, Chicago Edison and Commonwealth Electric (later merged to become the Commonwealth Edison Company) grew from serving a small fraction of the population to hundreds of thousands of customers. As a matter of fact, during Insull’s first forty-two months at the helm of Chicago Edison, he quadrupled its connected load and increased its annual sales from 2.8 to 13.7 million kilowatt-hours.
Insull’s emphasis on mass production and affordability not only revolutionized the utility industry but also set a precedent for other sectors, demonstrating the power of economies of scale in driving growth and accessibility.
Business Ethics
“I think you’ll make more money in the end with good ethics than bad.”
— Charlie Munger
In a previous podcast, William Green, the host of the “Richer, Wiser, Happier” podcast, mentions that Charlie Munger once told him that “People like Mohnish [Pabrai] and me, we actually don’t deserve nearly as much credit for our morality as we deserve, if we were doing it against our own interests. We’re both actually doing better in business and life because we’re ethical.”
Similarly, Pabrai explains that “Probably a huge portion of why I’m so ethical is because of self-interest, and light and self-interest. I think what people don’t realize is most things in life function on trust. They don’t function based on contracts. They function based on trust. If you become very trustworthy, it gives you a massive competitive advantage, a huge leg up in life.”
“If I have a relationship with a printer for my business, I want those relationships to go on for decades. I want the printer to do well. I don’t want to be squeezing him every time and get three quotes and take the lowest and all of that. I don’t want to do it that way. I want to make sure that it’s fair and we don’t need to go to multiple quotes. Just run our business on trust. What happens is that when you show trust in a company or a human being, they react really positively.”
— Mohnish Pabrai
In the case of Samuel Insull, it is clear that he understood that the success of his business relied not only on technological innovation, but also on strong morale ethics and on relationships with both the public and his employees. He was a pioneer in public relations, using transparency, education, and goodwill to win the trust of customers. At the same time, he cultivated a loyal and motivated workforce through progressive labor policies and a sense of shared ownership.
One of Insull’s most effective public relations strategies was his commitment to rate cuts, which as we mentioned not only made electricity more affordable but also enhanced his reputation as a champion of the public good. As Forest McDonald mentions, "By far the most effective device Insull had for winning public favor, however, was rate cuts. To be sure, the cuts were dictated simply by good economics, but they also had immense publicity value—who ever heard of a public utility voluntarily cutting its rates?—and Insull exploited it to the full."
Insull also believed in educating the public about his industry. He was one of the first utility executives to publish annual financial reports, and he frequently made public appearances to explain his business practices. His philosophy was clear, as he once said, “If the rights of the public are properly taken care of in producing lower costs and in steadily improving the service, the rights of the stockholders will take care of themselves."
“I am a great believer in publicity. I believe it is our duty to the properties we manage, to the stockholders who own them, and to the communities they serve, that we should enlighten those communities on the situation. I believe in doing it not in any gumshoe way, but openly and boldly. I believe in presenting the facts to the employees, whose interest is just as vital as that of the managers, to the citizens of the State who are owners of the properties, to every customer of a gas company, and electric light and power companies, or a street railway.”
— Sam Insull
Furthermore, in terms of employee relations, Insull was ahead of his time. As a matter of fact, he provided his workers with benefits rare in the early 20th century, such as pensions, medical care, and more importantly profit-sharing. He encouraged employees to buy stock in the company in order to foster a sense of ownership and loyalty. As McDonald explained, "Above all, employees were urged to become stockholders, both individually and through group installment purchases. They were persuaded not by pressure but by terms so advantageous as to be irresistible, and soon the overwhelming majority of Commonwealth Edison’s employees owned stock in the company."
In return of this trust, Insull expected his employees to return the favor to the company’s customers. In fact, by building a loyal workforce, Insull demanded that his employees engage in services toward the public. As McDonald mentions, "Everywhere they turned, employees would be reminded that they were in the service of the public and that they worked for the best public service organization in the world."
Finally, one of Insull’s genius idea was the concept that the best way for the customer to trust his company was by making him an owner of the company. As McDonald explains, “He had decided during the war that the best way of winning friends for the "cause" was to get them to invest time and work in it; now he decided that the best way to win friends for utilities was to get them to invest their money in it. If, Insull reasoned, every customer had a financial stake, however small, in the utility that served him, he might consider the company's interest to be synonymous with his own.”
To conclude, it is fair to say that by running his business ethically, Insull created a powerful network of trust and loyalty from his customers that contributed significantly to his success.
Beyond the Book
Read "Accelerated Learning: Learn Faster and Remember More" by Farnam Street
Read "Standing on the Shoulders of Giants" by Farnam Street
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It seems that Samuel Insull was the godfather of "conscious capitalism"!