Chapter 40 - Men and Rubber: The Story of Business
Today’s Chapter is based on the book “Men and Rubber: The Story of Business” by Harvey S. Firestone, the founder of Firestone Tire and Rubber Company.
Buy it on Amazon here:
https://www.amazon.com/Men-Rubber-Business-Harvey-Firestone/dp/1778063837
Here’s what I have learned from the book:
Labour of Thinking
“Thinking is the hardest work there is, which is probably the reason why so few engage in it.”
— Henry Ford
Blaise Pascal once said that “all of humanity’s problems stem from man’s inability to sit quietly in a room alone.” I believe that part of the reason for this is due to the importance one should put in the labour of thinking. In fact, Harvey Firestone explains that it is quite difficult in business to find some time to yourself to think as numerous things come up every day that will need your attention.
However, Firestone mentions that thinking is primordial in making good decisions and to run a successful business in the long run. In his book, he provides the example of Henry Ford, the founder of Ford Motor Corporation. While Ford is known for making business decisions quickly, in reality, “He reaches his decisions slowly and alone; he does not jump at anything, and so, when the time comes for execution, everything moves with marvelous rapidity because everything has been previously thought through and planned.“
As a matter of fact, Ford was a master of delegating executive duties to others and made sure to have enough time on his own to think, and to plan and to watch. He would make sure to never assign any executive duties to himself and to have no social obligations.
“He has had the time to do this thinking and planning because he has used his time himself instead of permitting others to use it for him. And he is certain that plans will be executed for him, because he knows how to let men go when they grow too rich and lazy to execute.”
— Harvey Firestone
This reminds me of the importance of saying no. It is often mentioned that the difference between average results and exceptional results is what you avoid. There is only a set amount of hours per week and saying yes consumes time while saying no saves time. As Warren Buffett once said: “The difference between successful people and really successful people is that really successful people say no to almost everything."
The famous Daniel Kahneman has a rule that he never says yes on the phone and will only reply later by email after thinking about it, which he rarely does. By saying no, you are able to save more time to spend thinking or to focus on better opportunities.
“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying ‘no’ to 1,000 things.”
— Steve Jobs
Furthermore, Firestone hated working with people that made quick decisions without having a long train of thought behind them. He once said, “I do not want to have around me the kind of man who can give me an instant decision on anything I may bring up, for, if he has not had the opportunity to give the question serious thought, then he is only guessing. And I can do my own guessing!”
In fact, unless he was under an emergency, Firestone much preferred taking his time and to only make decisions after serious thinking and he was known for taking things one at a time. He once said, “One thing at a time is a pretty good rule—a rule that I never break.”
Similarly, he always made sure that his companies had enough money on the balance sheet. This would avoid being forced to make quick decisions due to financial pressure. This lesson was taught to him by his father who would often tell him “Never rush in on a deal. Let it come to you.”
“That is the course he followed, and by the time he was ready to trade, he knew the whole market. If his survey convinced him that the market was not a good one either to buy or to sell in, he simply went home again. He often held his stock a year to get better prices, and he was so good a judge of conditions that I do not recall that he ever made a mistake by holding. If the market were high and seemed to be going higher, he would seldom wait long to sell, and he never held back in the hope that the prices would soar to some impossible figure. Although he probably had never heard of Baron Rothschild’s advice never to buy at the top or sell at the bottom, he literally followed it. He never wanted to get more than his stock was worth or to buy stock for less than it was worth, which is probably the reason why everyone in the market respected him and dealt with him fairly.”
— Harvey Firestone
This reminds me of the concept of fishing in the right waters that we have learned from Robert Kuok, the founder of Shangri-La. In fact, Kuok explains that, in business, it is important to put ourselves in a good position to succeed.
This can only be done when you give yourself enough time to think things through. Inversely, it is difficult to be in good circumstances to succeed if you are forced to make quick decisions due to financial pressure or due to time constraint.
Likewise, in a recent podcast with Tim Ferriss, Shane Parrish explains how everybody can look like an idiot if put in a bad situation and anyone can look like a genius if they are in a good position. Here’s how Parrish would describe the success of Warren Buffett due to his ability of being always in a great situation:
“And so what he’s always doing is everybody thinks he’s out of touch and he looks like an idiot. But he always wins because no matter what the outcome is, he wins. If the stock market goes up, he wins. If the stock market crashes, he wins because he’s put himself in a position where no matter what happens, he can take advantage of circumstances rather than having circumstances take advantage of him. And I think that that’s a key element we don’t realize. If you put Warren Buffett in a bad position where all of his options are bad, it doesn’t matter how smart he is, it doesn’t matter how Warren Buffett he is.”
— Shane Parrish
How to Sell
“You have to sell the products, and to do that you have to show the potential buyer the real value of what you are selling.”
— Akio Morita
As Naval Ravikant once said, “Learn to sell, learn to build, if you can do both, you will be unstoppable.” In Firestone’s case, his career in business started as a salesman selling patented medicines and flavoured extracts. Throughout this experience, he has learned valuable salesmanship skills that would help him when building the Firestone Tire and Rubber Company.
Firstly, he realised that the first principle of salesmanship is to thoroughly believe in what you are selling. This is especially true considering the basis of selling is to show the value that your product can bring to the potential customer.
Notably, Firestone once said that “the single reason for the existence of any business must be that it supplies a human need or want, and, if my experience is worth anything, a business which has this reason for its existence will be bound in the end to prosper if thought be put into it.”
“Selling is first a matter of having something to sell, then of finding whom to sell to, and, finally, of finding real reasons why this prospect should buy.”
— Harvey Firestone
Secondly, he understood quickly that some products are much more difficult to sell, especially those that need to build up their reputation via advertising. In fact, Firestone explains that selling flavouring extracts were much easier than patent medicines since “The extracts did not need to be advertised, because people did not have to be educated into the belief that vanilla extract will give a vanilla flavour, whereas they do have to be educated or fooled into the belief that a spring tonic will cure spring ills.”
As such, choosing a good product to sell is essential to the success of a business. It is much better to build a good product than to hire good salesmen.
“It is the duty of management to provide so good a product and then to let people know so thoroughly about it that any man of reasonable intelligence can go out and sell it.”
— Harvey Firestone
Finally, Firestone mentions that it is primordial for a good salesman to know when to sell. As a matter of fact, while he labels it as common sense, he often sees salesmen making the mistake of selling at the wrong time. He emphasises that “There are more wrong times to sell to a man that there are right times, and if I ever should write a book on salesmanship I should give about one third of the book to the topic “Common Sense.””
For example, Firestone explains that usually individuals do not like to be bothered in the evening especially when they are intruders.
“A good salesman will never intrude. In the first place, he will know that intruders do not make sales, and in the second place he will have to have brains enough to arrange for the right kind of meeting with his prospect—no man likes to be panhandled, and some selling comes to close to panhandling.”
— Harvey Firestone
This concept of knowing when to sell reminds me of what we have learned from Jim Pattison who mentioned that his success as a car salesman is due to his simple approach: hard work, sincerity and honesty. In fact, Pattison believed that the most important thing was to gain the customers’ trust and to do so, you always need to point out what’s wrong as well as what is right with the car. In fact, Pattison would often tell his customers when the car wasn’t the best for them, even if it would cost him a sale.
By consequence, the concept of “when to sell” should also be about understanding to only go for the sale when the product fits the customer needs. Firestone explains that “The job of the salesman is to find out the exact requirements of the prospect and sell to him the tire that will best fulfil those requirements.”
To do so, it is primordial for the salesman to understand their products so thoroughly that they can explain to the potential customer the benefits of their products. For Firestone, the following two points are essential to success in sales:
Knowledge of product
Knowledge of organization to the end of selling the product
“A trained man who goes into the field with confidence and a knowledge of his goods can do well almost from the start.”
— Harvey Firestone
Finally, in Firestone’s opinion, knowing how to sell isn’t restricted to knowing how to sell your products, you also need to know how to sell your company. In fact, when Firestone first started in the tire industry, he had to sell his company’s idea to find partners to start his business as he was in need of capital. This was also essential later on when he had to sell extra shares of his business to other investors in order to have sufficient working capital to grow the Firestone Tire and Rubber Company.
“I cast about among my friends and selected a man who I thought would make a good partner and who had money. Then I invited him for a drive; and I took some pains to let him realize how much easier the riding was than with steel-rimmed wheels. Actually, I was making a demonstration, but without any proposition; I wanted him to sell himself before I did any talking. We had dinner together, and I told him what I had in mind—that if he and I both thought that rubber tires were a great improvement over steel, others could be made to think likewise, and we had before us a new business that might grow to any extent. Of course, I figured out the number of buggies in the United States, and then said that if we sold only one half of those owners, we could have a business like Standard Oil. At length he agreed with me and said he would go into the business.””
— Harvey Firestone
Can It Be Simplified?
“Physics is the law, everything else is a recommendation. Anyone can break laws created by people, but I have yet to see anyone break the laws of physics.”
— Elon Musk
As we have learned previously, staying complacent in business is extremely dangerous. Notably, Chung Ju-Yung, the founder of Hyundai once said that “Every day needs to be a journey towards growth. If we pause today, it is a step backward. We must move forward even if it means only one or two steps at a time. If we don't, we will be overtaken and soon find ourselves falling behind.”
Similarly, Firestone understood that his business could not survive unless it is constantly revising its product to not only meet the demands of today, but also the potential demands of tomorrow. To do so, he was always seeking for ways to make changes in terms of improving convenience, durability or appearance of his products. The only thing that he would not allow would be to lower the quality of his products for purely economical reasons.
As a matter of fact, he mentions that “Quality must go up, not down, and if a competitor lowers his quality, that is exactly the time for you to raise yours.”
“Cutting the quality was urged on me, but it did not impress me as being an alternative. If we lowered our quality and frankly turned out poor tires, then we should eventually have to fail, because no one making and selling what he knows to be a poor thing can hope to continue to succeed.”
— Harvey Firestone
As such, the best way of lowering the price of his products was for the business to save in the cost of manufacturing by improved processes rather than by cutting the quality. In fact, in terms of manufacturing, Firestone always had the belief that “There is always a better way of doing everything than the way which is standard at the moment. It is a good thing for a man to be pushed into finding that better way.”
Firestone always ask himself the same question when looking at any operation within his company, whether in the shops or in the office: “Is it necessary?” And the follow-up question of his would always be “Can it be simplified?”.
By using these two questions, Firestone noticed that the company were able to make better quality tires for cheaper and with less manpower. The theory behind this technique according to Firestone is that more often than not a lot of the “conventional” required manufacturing steps are not necessities but merely from tradition.
“For instance, it was a tradition that rubber had to age in the warehouse a long time before it could be used. Rubber is expensive and aging cost a lot of money—for we had to keep a deal of money in idle rubber. Everyone told me that this aging was absolutely necessary, but no one could tell me why it was necessary. I suggested that we try going ahead without aging and see what happened. We did go ahead—and nothing happened. The tires stood up just as well as they ever had, and we saved millions. Someone back in the past must have laid down the rule that rubber had to age, and everyone else had followed without question.”
— Harvey Firestone
The story above reminds me of the concept of thinking unconventionally from Chung Ju-Yung. Chung’s core business motto was “shorten the time” as he believed that it was the surest way to encourage unconventional thinking in order to achieve innovation and improvement.
As a matter of fact, he believed that finding clever solutions would never come from people with conventional thinking. As a matter of fact, he mentions that “if you only think in accordance with what you learned through books, your imagination will be limited to that.”
“When we worked on the Jubail project, we had to make 160,000 drill bits to build the breakwater and shore protection structures. If we built 200 every day, it would take us 800 days to make 160,000. But at the site, the workers were making them one at a time instead of using a mold to mass produce them. Their sorry excuse for this wasteful effort was that the molds weren't the right height to fix onto the end of the cement trucks.
When I saw this, I was furious. Why did these people have brains if they weren't going to use them? It didn't take a genius to realize that the outflow ramp for the concrete on the trucks needed to be raised to fit the molds. If they just followed this simple solution, they wouldn't need a crane, and they wouldn't waste time and energy. They couldn't think to adjust the concrete mixer truck, thinking it was unchangeable. Would the gods punish them for making some small adjustments? After I made the changes, we went from 200 per day to 350 per day.”
— Chung Ju-Yung
Skin in The Game
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena.”
— Theodore Roosevelt
In investing, it is often mentioned that investing in companies with high insider ownership tends to lead to better investment returns. The reason behind this is due to the fact that management team with skin in the game are usually more willing to make decisions for the long-term while not diluting the value of their shares.
This reminds me of how Jeff Bezos at Amazon understood the importance of long-term thinking as an owner. In fact, as a majority shareholder of Amazon, he understood that in the short-term, the stock price is not reflective of the value of the company, but it would be in the long-run if the company continues to increase its future cash flows.
“Long term thinking is both a requirement and an outcome of true ownership. Owners are different from tenants. I know of a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardwood floors instead of using a tree stand. Expedient, I suppose, and admittedly these were particularly bad tenants, but no owner would be so short-sighted.”
— Jeff Bezos
Similarly, Firestone mentions in his book that he had put everything he owned into his Firestone Tire and Rubber Company, as he believes “that a man is not truly in his business unless he has his all in it.” He explains that it is very difficult for new business to succeed unless you are willing to put every cent you’ve earned to finance the operations. As a matter of fact, Firestone mentions that during the first ten years of the company, he lived in a rental house for $40 a month in order to re-invest all profits back into the company.
He also warns that it is absolutely normal for businesses to lose money in the first few years and that “A business which starts off quickly, makes money at once, and seems to be in every respect a gold mine, often does not last long. It is just selling peanuts to the crowd in town for the circus—a once-around affair.” It is important to mention that in Firestone Tire and Rubber Company’s case, the company lost money for the first three years before making a mere profit. While losing money is usual, it is extremely important to know how and why your company is losing money and what are the solutions to reach profitability.
“Losing money is not pleasant, but every business must at times lose money. Losing money is really serious if you do not know why you are losing, or if you do know why and cannot help yourself.“
— Harvey Firestone
Furthermore, Firestone warns us about the danger of declaring dividends. In fact, he mentions that “The moment that a company starts paying dividends without regard to future needs, it is as good as finished.” As a matter of fact, while paying dividends certainly help increasing the stock value in the short-term, it is much more into the company’s long-term interest to re-invest the profits into the company as long as the rate of return are favorable.
Also, Firestone mentions that a short-term increase in value of shares is of no value to him since he purely intends to buy-and-hold shares of his company. He clarifies that he has “never bought a share on speculation—that is, with the intention of selling again. The moment that officers or directors of a company begin to speculate in its stock, the ruin of the company is not far away, for it is impossible to serve both the company and the stock market.”
This reminds me of Chamath Palihapitiya’s concept of investing in fast growth companies with CEOs that can invest all the money they make for the future. On an episode of The Knowledge Project, Palihapitiya explains that he would be livid for a company to declare dividends if it could reinvest and generate superior returns:
“If you, as a CEO Shane, if I was an investor in your company, and you said, “Chamath, I generate 30% free cashflow, and I’m going to give you a dividend.” I would say, “Shane, fck you.” I don’t want that money. What am I supposed to do with it? Reinvest it. Grow faster, please.”
— Chamath Palihapitiya
Not only did Firestone had most of his net worth in stocks of his company, he also encouraged his employees to own shares in the company. As a matter of fact, in 1917, the Firestone Tire and Rubber Company established an employees’ stock savings plan and even set a condition of employment of owning at least two shares in the company. In fact, he truly believed that “it is right and proper that the officers should stand or fall with the company, for what they do makes or breaks the company.”
“On one point I am certain—the employees ought to have some stock interest, and we have made that compulsory—a condition of employment. And also I believe that the officers should have their savings in the company they work for. Whenever stock is offered for sale, I try to get the officers of the company in on the purchase. The best results are obtained when a majority of the stockholders are directly involved in the management of the company.”
— Harvey Firestone
Finally, for Firestone, having skin in the game isn’t only about owning shares in the company, it is also about having that ownership mentality, meaning that one has to be knowledgeable about all of the operations in the company. As a matter of fact, he explains that while he doesn’t take care of active management in his company, he still visits the shops to have an understanding of what is going on and sure to learn something new.
This reminds me of the “Millionaire Mentality” concept we have learned from J. Paul Getty. A man with “Millionaire Mentality” is aware that the healthier the company, the better its profit picture and the more the shareholders and employees will benefit. As such, he must understand the business at the back of his hand to recognize opportunities for lowering overhead and production costs.
“The man with a Millionaire Mentality is not a penny pincher and money-grubber. If he is an executive, he watches costs and tries to reduce them-and strives to increase production and sales and thus profits-in every way he can because he has the interests of the company, its shareholders and employees at heart.”
— J. Paul Getty
Beyond the Book
Read "The Decision Matrix: How to Prioritize What Matters" by Farnam Street
Read "The Focus to Say No" by Farnam Street
Watch "Learn to Sell, Learn to Build" by Naval Ravikant