Today’s Chapter is based on the book “The Life of Sir Henry Royce, Bart., M.I.E.E., M.I.M.E” by Max Pemberton. Henry Royce is well-known as the famous engineer that co-founded Rolls Royce.
Here’s what I have learned from the book:
Learning by Yourself
“The object of education is not to fill a man’s mind with facts; it is to teach him how to use his mind in thinking.”
— Henry Ford
As we have learned from Edwin Land at Polaroid, an education can be obtained through reading 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. 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
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.
In the same way, Henry Royce did not have much of a formal education and started working as a newspaper boy at the age of ten in order to provide for his family after the early death of his father. However, what he may have lost from formal education, he learned through experience working. As a matter of fact, his career as a mechanic started when he became an apprentice at the Great Northern Railway where he earned mechanical skills.
Despite Royce’s lack of formal education, he loved reading books. He understood that he had to devote most of his time to learning on his own to repair for his lack of schooling. As such, he managed to teach himself about electricity, algebra and foreign languages. Lord Herbert Scott once described Royce as “a very thoughtful reader and blessed with that rare gift, a retentive memory. There were few subjects of interest, except perhaps politics, in which he was not well versed.”
Perhaps due to his lack of education, Royce was always a diligent learner and did not like wasting precious time. Frank Lord once said that “Royce was a man who could never be idle.” He always using his time to learn or to think. In some way, Royce was a genius as he had that talent of teaching himself anything through hard work. Even without any formal education, Royce with extreme patience and labour, produced a 500 pages book on mechanics that has no rival in the history of mechanics.
"If I have any regrets, it is because I think I might have worked harder."
— Henry Royce
Similarly, this concept of learning through reading reminds me of Stef Wertheimer, the founder of ISCAR, who was also an eager learner through reading rather than through the formal education route. In fact, he took his lack of education as a motivation to learn more on his own through reading. This passion for learning definitely came from his father who was known as a man of integrity. Wertheimer says that his father “was intelligent, an autodidact, a lover of books, someone who was interested in all subjects, and a person of uncompromising principles.” As such, Wertheimer mentioned that he had the habit of reading a book a day, at the least.
“I also continued to read voraciously. I was eager to learn, but in my own way. I always resisted conventional, banal classroom studies, with the teacher instructing the class and the pupil receiving instruction.”
— Stef Wertheimer
This ability to learn on his own through learning was definitely a useful ability that helped Wertheimer throughout his career. As a matter of fact, when he was enrolled in the army, Wertheimer was once assigned to repair air-conditioning systems. However, at the time, he had zero knowledge on the subject. By consequence, he had to learn on the subject through books and within a few days, he was able to fix anything that was in need of reparation!
Experimentation
“When there's no experimenting there's no progress. Stop experimenting and you go backward. If anything goes wrong, experiment until you get to the very bottom of the trouble.”
— Thomas Edison
As Konosuke Matsushita once said, “It is when the textbook is put into practice through actual experience that knowledge comes alive.” As such, once we’ve learned through books, it is important to put it to the test. This concept of learning through experimentation was the key to the success of James Dyson as an inventor.
As a follower of the Edisonian Approach, Dyson has encountered many failures through his experiments. Dyson had created over 5000 hand-made prototypes over four years before finally achieving success with the cyclonic vacuum cleaner. According to Dyson himself, his success comes from improving everyday objects that were always assumed to be unimprovable through experimentation.
“I gather data of many thousands of experiments as a starting point, and then I make thousands more.”
— Thomas Edison
Similarly, Henry Royce went into the car industry because after observing the existing motor cars, he figured there were many great improvements that can be made. Hence, he decided to do it himself. In fact, most motor cars, especially English ones, in Royce’s time were considered unreliable and would break down easily.
Royce’s success in the car industry came from his power of observation and experimentation. As a matter of fact, without any experience with motor car and no experience in manufacturing, experimentation and observation was the only way he could learn. He would sit for hours watching the working of an exhaust valve and would spend hours breaking down a little French car and putting it back pieces by pieces again and again. He also made his own experiment upon experiment: “he smashed things up, drove parts to the breaking-stage that he might study the limits of their endurance. He insisted as he always did upon the perfection both of material and of finish.”
While Royce didn’t do anything revolutionary in his work on motor cars, it is his attention to even the smallest detail that made his products superior to others. His attention and thoroughness to details turned him into a man that was always consistently trying to find ways of improving small components of the car. But accumulatively, similarly to a snowball, the small improvements led his motor cars being far and away better than anybody else.
Not only in terms on car components, Royce was also focused on improving small details in terms of manufacturing. As a matter of fact, no matter how busy he was, he would always walk through his workshop and stop a few times to watch the efficiency of workmen. He once even took the broom from a labourer’s hand to show him the right way to sweep the floor.
Royce would also always take the time to drive his car and he was always wishing for breakdowns. Yes, you read this right, Royce was constantly wishing to learn and he prayed for his car to have a breakdown. A breakdown meant a lesson, and lessons were what he was seeking. As a matter of fact, he once said that unless he found out something he could alter or improve after a drive, he might as well be driving a tramcar.
This concept of learning through drive tests remind me of what we have learned from Enzo Ferrari who believed that car racing was a great hub of innovation for the car industry. Ferrari first started in the car making business as Scuderia Ferrari, the racing team under Alfa Romeo. He believed that Ferrari was a good opportunity for Alfa Romeo to gain full report on the behaviour and performance of their cars. As a matter of fact, Ferrari once said that, “It is a recognized fact that races are useful because they stimulate technological progress.”
As such, Ferrari was always in constant innovation and experimentation in order to create a superior car after every season. He explained that “we must inevitably replace it [last year’s racing car] if we are to continue keeping just that little bit ahead.” Ferrari made over 131 prototypes of engines through racing.
Ferrari believed that car manufacturers should make great use of racing as an opportunity for experimentation of new cars, as customers are the ones who benefit directly from it:
“That is why I think that racing, which does so much in quality improvement, brings speedier advantages to a firm that is not a very big one. The customers benefit directly from this dual activity of the smaller concern, for all the innovations learnt from racing experience can find practical application in the normal production models in a relatively short period of time, the smaller output enabling them, in fact, to be introduced much more readily.”
— Enzo Ferrari
Reliability
“A brand is a promise.”
— Warren Buffett
As we have mentioned previously, Henry Royce made sure to build motor cars that would be known for their reliability. In fact, after the first few experiments, breakdowns were rare for Rolls Royce. The public at the time sought for a reliable car and Royce delivered perfectly. He had this ambition that Rolls-Royce’s brand would become a household word for reliable cars, similar as Broadwood or Steinway in connection with pianos or Chubbs in connection with safes.
“In this they succeeded, and herein was their great reward. That superlative excellence they achieved has been the pride of British industry throughout the world. There has been no greater tribute to any quality of manufacture than to say "It is a Rolls-Royce."”
— Max Pemberton
While Henry Ford succeed in the car industry by manufacturing low-cost cars, Royce was all about building high quality cars regardless of costs. His market catered to those who could recognize quality and who were willing to pay for it. Through the reliability of his cars, Rolls-Royce became a household brand name in England. As Lord Birkenhead once said, “The words “Rolls-Royce” have, indeed, almost passed into current speech.”
This importance of building one’s brand name reminds me of what we have learned from Bernard Arnault who built LVMH as a brand of luxury and exclusivity. Bernard Arnault’s concept of luxury was not well understood. In fact, before others, Arnault had understood that luxury was a truly profitable industry. While his friends said he was in love with the luxury goods industry, Arnault replied: “Not at all. You can’t explain love. My relationship to luxury goods is really very rational. It is the only area which it is possible to make luxury profit margins.”
Arnault’s tenure with Dior and at LVMH proved how brand name can be a terrific economic moat. Here’s what Arnault said concerning his objective at the helm of LVMH following his purchase of LVMH which truly highlights his understanding of the power of brand name.
“My ten-year objective is that LVMH’s leading position in the world be further strengthened in the luxury goods sector. I believe that there will be fewer and fewer brand names capable of retaining a worldwide presence and that those of our group will be among them as we will provide them with the means for growth [...] My plan for the next six months is to see all the group managers and increase their motivation by sharing my highly ambitious objectives with them.”
— Bernard Arnault
Warren Buffett once explained that Berkshire Hathaway focuses on purchasing companies with an enduring competitive advantage. In fact, he mentions that when evaluating a business’ performance on a year-to-year basis, the number one question he asks himself if if the competitive advantage have been made stronger and more durable than before, and that’s even more important than the Profit & Loss for a given year.
"So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way - it’s just too risky. We don’t know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses-or virtually all of our businesses-have pretty darned good moats.”
— Warren Buffett
As such, it is fair to say that a luxury brand name is a strong enduring moat. In fact, customers are more willing to pay more for the products due to the brand name’s recognition and exclusivity. As a matter of fact, LVMH is known to destroy unsold bags to increase the scarcity.
Beyond the Book
Read “ Henry Ford and the Actual Value of Education” by Farnam Street
Read “Moats - Competitive Advantage” by Investment Masters Class