Chapter 36 - Anton Philips of Eindhoven
Today’s Chapter is based on the book “Anton Philips of Eindhoven” by P.J. Bouman, a biography on Anton Philips the co-founder of Philips.
Buy it on Amazon here:
https://www.amazon.com/Anton-Philips-Eindhoven-P-Bouman/dp/B0007J2DBI
Here’s what I have learned:
Imagination
“I am enough of an artist to draw freely upon my imagination. Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
— Albert Einstein
The story of Philips is a good example of how David beats Goliath. In fact, Philips & Company was established in the small town of Eindhoven, Netherlands by two brothers with limited capital and limited resources and yet, they were able to defeat their larger German competitors. Part of the reason for their success over their bigger foes is due to Anton Philips’ exceptional abilities. Philips himself believes that the most important quality he had was his sense of imagination.
“And then, finally, there is another quality that I deem necessary. Imagination. The ability to imagine reality. It is possible to see into the future. Possibilities which do not yet exist, but which will exist five years hence. It can be termed vision. It is based on avoiding routine thought, on continually asking: can this be done differently? Can it be done better? I have found imagination to be one of the most important qualities for success in life.”
— Anton Philips
As a matter of fact, when the Philips brothers first started their company, large-scale enterprise did not exist in Holland. Not only that, the demand for light bulbs were limited in their country of origin compared to Germany just across the border. To make it worse, competitive companies in Germany, who were much larger in scale, were dominating the market.
Nonetheless, this did not discourage Philips and was actually sights of inspiration for Anton Philips in building his company. Whenever he visited Germany, he left with new impressions that would evolve into the vision he had for his company.
“So far we have stressed the 'sporting' element in Anton's character and have made little reference to his imagination, the kind of imagination that envisaged new combinations and new possibilities. Intuitively he gave his ideas new form, shaped them into practical realizations, colourful pictures of the future. German industrial life gave Anton his vision of what could lie ahead. Clearly he saw what Philips & Company might one day become. The ideal of a world-wide concern had not yet occurred to him, but he was already thinking of a well-equipped, large-scale factory which could hold its own in the development of Europe's modern industry.”
— Anton Philips
Anton Philips’ imagination was extremely helpful for the company during time of crisis. In fact, back in 1900, Germany, which was an important market for Philips & Company, stopped taking in order due to the serious economic crisis. Instead of panicking, Anton showed a great sense of improvisation and started finding potential clients in entirely new areas such as Spain and Italy.
While it seemed unimaginable at the time due to the higher expenses to obtain new clients, the company not only managed to turn a profit quickly, it solidified and increased its’ worldwide market share once the German markets recovered.
Turning a crisis into an opportunity with imagination is certainly not uncommon for Anton Philips. He was eager to find inventive ways to make sure that his company became antifragile and independent from failure of suppliers or shipping companies.
“As the war proceeded, a greater strain was put on Anton's powers of improvisation. The blockade measures of the belligerents were threatening to bring to a stop all the country's exports. When, in 1917, the Germans proclaimed unrestricted submarine warfare, it seemed that Philips would have to suspend the export of goods overseas. To Anton, however, it was yet another challenge to set at defiance, even if the cost were as high as the risk. If the shipowners were not prepared to do the job, then he would become a shipowner himself.”
— P.J. Bouman
However, in my opinion, what made Anton Philips’ imagination such a strength and quality of his is the fact that he was also fully aware of the limit of his imagination. He understood the danger of “blindness” that can occur due to his imagination.
By consequence, he was always open to listen and to discuss with others about his big plans to have an unbiased view on the feasibility of his outlandish projects.
“One of his great qualities was that, however aspiring his imagination, he was always prepared after discussion to tone down his more ambitious projects, and he would acknowledge his obligation to the person who had helped him achieve the synthesis between temperament and common sense.”
— P.J. Bouman
This concept of imagination reminds me of what we have previously learned from Steve Jobs who mentions that having a creative mindset is the key to achieving the impossible. As a matter of fact, he mentions that Apple was a group of misfits, crazy ones, and troublemakers which allowed them to think differently. It is by staying hungry and by staying foolish that you can change the world.
“If you don’t have any of these feelings, called dreams, then you’re in trouble. Before you “spend” four or more years of your life going in a direction your heart may or may not want you to go, you need to recapture them. Be a creative person. Creativity equals connecting previously unrelated experiences and insights that others don’t see. You have to have them to connect them. Creative people feel guilty that they are simply relaying what they “see.” How do you get a more diverse set of experiences? Not by traveling the same path as everyone else …”
— Steve Jobs
Innovation
“Starting and growing a business is as much about the innovation, drive and determination of the people who do it as it is about the product they sell.”
— Elon Musk
Another reason for Philip & Company’s victory over their larger German competitors was because of their constant innovation. In fact, Anton’s brother, Gerard was a phenomenal scientist that led most of the innovation in the company.
As such, Philips & Company were able to lower their prices compared to their German competitors because they had a highly efficient factory with low wages due to being located in Eindhoven. But more importantly, it carried few R&D expenses since Gerard did all the experimenting himself.
While Anton was not a scientist himself, he understood the importance of innovation. In fact, due to his imagination, he was able to look ahead and envisage possibilities, in terms of application of new technical products, that technicians themselves could not think of.
Anton Philips was always willing to invest heavily in R&D in the company. As P.J. Bouman said, Anton Philips understood that “no commercial success can ever guarantee permanent sales, especially if technical developments do not keep pace with the most recent discoveries.”
“Even when commercial interests would in the long run force the decision, Anton never lacked the boldness to finance expensive technical experiments if there were a possibility of their leading to economically justifiable exploitation of new inventions.”
— P.J. Bouman
Furthermore, in no way was scientific research restricted even during times of crisis. On the contrary, Philips believed that scientific research was the path to overcome times of crisis. He believed that the exploitation of new discoveries can bring solutions to their problems.
For example, if they were unable to obtain a material to build their electric lamps, they would find a new material to replace it. And once Philips saw an opportunity through his company’s scientific research, he was decisive in exploiting it immediately.
“We were first and we were the quickest, and that is why we did big business. And if we consider how fast everything moved, and how fast it will have to move again, we must never be satisfied with saying, "Oh, we shall be able to make a start with that by the end of the year." If valuable discoveries are made by the laboratory, then we must apply them immediately, before the others, for he who is first has won the greater part of the field. And it is the same in television.’”
— Anton Philips
This concept of constant innovation reminds me of what we have learned with Jeff Bezos at Amazon. Bezos took a long-term approach and was not timid in making investment decisions where he had an opportunity in gaining market leadership advantages even when he knew that some of his investments would not pay off.
Furthermore, Bezos also understood that as Amazon grows in size, everything needs to be scaled and this includes the size of their failed experiments. In fact, if the size of failures of Amazon didn't grow, then they would not be inventing at a size that would actually move the needle. Obviously, not all experiments will pan out, but the good thing is that, in the long-run, the big winners should cover all the losses.
“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
— Jeff Bezos
Finally, not only was Anton Philips consistently innovating in his business, he was also focused in innovating his personal knowledge. Philips once said, “I never feel too old or too wise to learn from others, and I can assure you that, in my position, I manage to do so at least once a month!”
In fact, Philips had a principle in life that he vowed to respect to the best of his ability: “to accept advice, to listen, to take note of changing circumstances, and thus to retain the flexibility to change course in time, in short the policy of rapid adaptation so valuable to a leader.” He was well aware of the danger of expert blindness and understood the power of listening and of changing one’s mind.
“When, after having reached some conclusion, you find that someone else has a better idea, don't be headstrong; never think of opinions as a matter of prestige. It is better to turn back half way than to persist on a wrong course.”
— Anton Philips
This reminds me of the idea of “Shoshin” in buddhism which is the concept of letting go of your expectations and preconceived notions about something and to see things with an open mind just like a child or a beginner. It is much more useful for one to live with the attitude of a beginner and to keep one’s mind empty and open. It is only in this state that one is able to use his sense of imagination and his sense of innovation. As Shunryu Suzuki once said, “In the beginner’s mind there are many possibilities, but in the experts there are few.”
And more importantly, the Shoshin state of mind allows one to change his or her mind with new information. In business and in investing, it is much better to seek the truth than to be right. In fact, Jeff Bezos once said that he observed that “the smartest people are constantly revising their understanding, reconsidering a problem they thought they’d already solved. They’re open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking.”
“If Berkshire has made modest progress, a good deal of it is because Warren and I are very good at destroying our own best-loved ideas. Any year that you don’t destroy one of your best-loved ideas is probably a wasted year.”
— Charlie Munger
Interest in the Human Element
“When people talk, listen completely. Most people never listen.”
— Ernest Hemingway
Another quality that led to Anton Philips’ success is because he had a way with the people. In fact, whether it was his customers or his employees, he tried to understand them. In fact, he took a special interest in his staff; “the men and women with whom he first worked never lost their place in his affections even when the firm had grown into an organization of great complexity.” He made sure that his employees felt they were not just mere numbers, but genuine human beings.
Philips prided himself in getting to know all of his employees in the company. As a matter of fact, due to him taking interest in the affairs of his employees, he “knew the advantages and drawbacks of every job in the factory, the work on the vacuum pumps, the work of checking by means of the photometer.” Moreover, by having a way with the people, he was familiar with all the manufacturing techniques happening in his company, despite having no technical knowledge.
“Painstakingly he sought to familiarize himself with manufacturing techniques; although his basic knowledge was scant, his interest in these processes rapidly developed. Within a short time, he had acquired a fund of information with which he often amazed his brother. He had soon mastered the technique by which Edison had manufactured carbon filaments: by carbonizing cellulose; he knew how complete combustion was halted by placing the filaments in small glass balloons that were exhausted through a hole that was then hermetically sealed.”
— P.J. Bouman
Furthermore, Anton Philips due to his understanding of human nature, had terrific leadership skills. P.J. Bouman says that he had “the gift of making leadership pedagogic: the ability to rouse enthusiasm, to delegate authority in such a way that in demanding from a man his utmost proficiency he called forth an ingenuity from which the business profited.“
He was equitable and made sure that his employees were paid fairly, sometimes even raising a man’s salary four times in the course of a year.
However, what made Philips stand out as a leader was his ability of memorization which impressed those who worked with him. P.J. Bouman mentions that “it was his memory that enabled him to keep in mind anything that interested him. By comparison, by remembering replies made to his inquiries, by having figures cut and dried in his head, by his memory for names, he ensured that no fault, however small, escaped him in his tours of the factory.”
“Yet his memory was not solely factual. Perhaps it was even more retentive concerning details about people. Psychology teaches us that interest helps to select the facts memorized. It was typical of Philips that in his everyday social contacts, he missed as little as he did in business affairs. He never forgot the brand of cigar smoked by his friends; he remembered the sizes of footwear and gloves worn by his women relatives for whom he enjoyed buying presents when abroad; he knew exactly what kind of sweets and toys his children, nephews and nieces preferred.”
— P.J. Bouman
Anton Philips’ understanding of people also appeared in the way he treated his customers. This certainly helped his early career as the sole salesperson of Philips & Company. At the age of 24, without any introductions and no knowledge of the language, he was able to successfully ousts his German competitors from the Russian market.
What made him such a successful salesman? In my opinion, it is because rather than to be looking for a quick sale, Philips tried to build a long-term relationship with his buyers. As a matter of fact, a contracting electrician, tempted by a new type of lamp, once gave him an unexpectedly large order. Instead of sealing the deal, Anton Philips questioned him on the wisdom of laying in so much stock. He would ask the contractor to let him see his sales figures and would advise him on the matter of dead stock. Thus, Philips was all about making friends and this led him to have a great reputation.
“One incident is typical of the friendliness with which Anton was regarded. He was surprised at the cessation of orders from a well-known St Petersburg firm. They received him politely but refused to buy his wares. A few months later, the business failed. They had been reluctant to involve the friendly young Dutchman in their losses. When the business was re-established in a different form, orders began to pour in once more.”
— P.J. Bouman
As such, Philips always stressed that salesmen were the frontline of the company and they had to listen to every wish expressed, and every complaint and all business relations had to be held with a human and personal touch. Anton Philips once said, “A good salesman wants to do business for always and not just once.”
Social Responsibility
“A business that makes nothing but money is a poor business.”
— Henry Ford
With his vision of building Philips & Company into a well-equipped, large-scale factory comparable to those in other countries, it was important for Anton Philips “to raise the social level of Eindhoven's population: the people were goodnatured and industrious, but had in many ways, he felt, been unduly neglected.”
While earning profits were a necessity to keep his commercial activities active, he understood that profit-making should only be used as a yardstick for measuring the success of the effort made, it cannot be the main impulse behind the action, only the reward. Improving social matters comes first.
In terms of social matters, the Philips brothers made a lot of improvement in improving the life of their workforce. For example, as early as in 1900, they had implemented a free medical service for any employee of the firm. They also established a voluntary contribution scheme to be paid to employees during periods of illness, a system similar to social insurance.
But more importantly, Anton Philips established an eight-hour working day for his workers. It is fair to say that Anton Philips’ company went beyond the norm in terms of social responsibility.
“Men of enterprise of Mr Philips's calibre, like the pioneers in England and Germany, by showing that it is possible to make industry flourish with an eight-hour working day, have done more to promote this ideal than legal mandates alone could have done. The conditions of tension under which your work must almost invariably be done have often forced you to apply for overtime permits, now for this department, now for that. At these times of stress, you were driven by the claims of the enterprise, whereas I had to bear in mind the great benefit of the eight-hour day to the workers, in that it both raises them to a higher spiritual and cultural level and at the same time lightens the return to work. But I am sincerely willing to testify that here I perceive a strong wish to depart as little as possible from the ideal, and this genuine wish has contributed to a marked extent to affirm the principle of the eight-hour day in this country.”
— P.J. Bouman
This reminds me of what we have learned from Danny Meyer, who whenever he established new restaurants, rather than opening it in a luxurious neighbourhood, much preferred opening it in an emerging neighbourhood. In fact, while he was not an expert in real estate, he understood that if he chose a location correctly and if his restaurant could succeed in playing a role in transforming the neighborhood, with a long-term lease locked in at a low rent, he could offer extreme value and excellence to his customers.
“This combination (value and excellence) would attract smart, adventurous, loyal customers, in turn giving other restaurants and businesses the confidence to move into the neighborhood until a critical mass had been reached and the neighborhood itself changed for the better.”
— Danny Meyer
Considering the importance his restaurants could play in improving their neighborhoods, Meyer insisted on investing in the community. As a matter of fact, he believed that a business that understood how powerful it was to create for the community will have a much higher chance of creating wealth for its investors.
He once said, “I have yet to see a house lose any of its value when a garden is planted in its front yard. And each time one householder plants a garden, chances are the neighbors will follow suit.” This is no suprise considering that Meyer’s business philosophy puts employees first, guests second, and community third.
“If you have a philosophy that puts employees first, guests second, community third, suppliers fourth, and investors fifth, you implicitly have a long-term perspective—at least as long as your lease. We create restaurants for the long haul, and we make decisions based on that commitment. Every time I’m faced with a decision that involves an investment of money, I analyze the potential return by asking, “Will this yield today dollars, tomorrow dollars, or never dollars?” Only the third alternative—never dollars—is unattractive to me.”
— Danny Meyer
Beyond the Book
Read "A Definition of Antifragile and its Implications" by Farnam Street
Read "The Ingredients For Innovation" by Farnam Street
Read "Changing Minds: It Takes More than Facts" by Farnam Street
Read "Jeff Bezos on Why People that Are Often Right Change Their Minds Often" by Farnam Street