#146 Milton Hershey (Chocolate)

What I learned from reading Hershey: Milton S. Hershey's Extraordinary Life of Wealth, Empire, and Utopian Dreams by Michael D'Antonio. ---- [0:01] Perhaps the only thing about Milton Hershey that is absolutely certain is that he believed in progress. He was always moving. [2:51] This blew my mind. Only six universities held larger endowments. Which meant that the Milton Hershey School was richer than Cornell, Columbia, or the University of Pennsylvania. [4:14] Milton’s father was unrealized ambition personified. [5:44] One of the biggest things Milton learned from his father and something he avoided. His father had 1,000 schemes and never stuck to any of them. He didn’t know what perseverance meant. [7:25] Rockefeller had arrived in Oil City in the same year as Hershey, 1860. But unlike Henry, he was possessed of extraordinary energy, remarkable financial savvy, and an uncanny ability to remain focused on his goals. [8:00] Henry’s had a preference for talking about things rather than doing them. Even neighbors could see that the man was lazy. Milton was the direct opposite of these traits. [8:37] This gives you an insight into why Milton would leave a large fortunes to orphans: Milton was denied the kind of stability children need to feel secure. He had been moved from place to place, and he listened to his parents argue with increasing frequency and anger. Milton went without proper shoes and the little family didn’t have enough to eat. [9:14] He learned to channel all of his energy and passions into a single outlet: work. [10:47] The main takeaway from this book: Milton Hershey had perseverance in abundance. [12:43] Hershey experiences multiple business failures before he founds his first successful company. [14:34] Things start to go bad. He realizes he has another “me too” product. He faced intense competition from hundreds of other candy retailers and wholesalers in the city. He doesn’t find success unit he actually innovates. Milton finds a way to turn a luxury product — milk chocolate — into a mass produced, inexpensive product. [16:37] This is an important part. He is being squeezed by suppliers. Later on in life he realizes if something is important to your business you must control it. He starts his own sugar plantation. He does this for other ingredients he needs to make his product. [19:08] His simple idea: Caramel is really popular in Western states. The candy makers in Denver figured out how to make caramel that don’t go bad and taste very well. That was not happening where he was from. He decided to take that idea back east and build my own caramel empire. He sells that company for $1 million and uses that money to start Hershey Chocolate. [22:34] Milton is doing exactly what you and I are doing right now. He is studying successful entrepreneurs. [24:44] Bouncing back from defeat is essential for growth in any endeavor. [25:00] Milton is at rock bottom. He is somewhat depressed and downtrodden. But there is something freeing about that. Because he realizes I can only go up from here. [25:30] The main theme in the life of Milton Hershey is perseverance. He has been working in this industry for 14 years. He has had two gigantic business failures. He has borrowed money from everybody he possible can. He is tapped out. He is embarrassed. He is a failure. Yet he doesn’t quit. [26:12] If failure is the best instructor he could argue that he had earned a doctorate. He intended to make candy no one else produced. [29:48] This is the wild part. He had told me all. He did not conceal the bad part. He made no excuses for it. He was honest. I decided I would lend him the money. But I was afraid to present the bank that note with that story. To avoid the trouble I put my own name on the note. The banker takes out the loan for Milton —in his name! [30:50] Milton tried to make small improvements over a long period of time. [31:30] Small continuous improvements over many years produces miracles. [31:54] No one alive visited more retail stores than Sam Walton. He was obsessed with studying and learning from other entrepreneurs. No one alive had gone into more confectionaries and candy shops than Milton Hershey. [32:20] While visiting Europe he notices that companies were creating a big new industry serving low cost chocolate to the masses. [33:54] He is constantly redesigning his manufacturing process, making it more efficient. It becomes so efficient no one else can compete with him. [36:41] Only the Swiss had figured out how to mass produce milk chocolate. They aren’t going to tell Milton how to do it. He must experiment on his own. . . To do this he sets up a milk chocolate skunkworks. [38:13] How many people are willing to put in this much work? Milton and about 18 workers would rise at 4:30a.m. to milk the herd of 78 cows. After breakfast they’d go to work. Sometimes they didn’t come out until the next morning. [40:05] What Milton Hershey did for the mass production of chocolate is the same thing that Henry Ford did for the mass production of automobiles and its the same thing the McDonald’s brothers did for the mass production of fast food. [46:15] This one act would create something unique in both philanthropy and capitalism. It made the school, under its trustees, the majority owners of a national company that was poised to double in size, many times over, in the decades to come. ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  Perhaps the only thing about Milton Hershey that is absolutely certain is that he believed in progress. As an industrialist, a philanthropist, and a social engineer, he was always moving forward. For this reason, the advances made by his company were true to his spirit. In his rare moments of open reflection, Milton Hershey showed his greatest affection for the little fellows whom he hoped to save. Those were the children that he intended to rescue that came from fractured families. They were challenged by schoolwork. They knew loneliness, hunger, and want. In short, they were quite similar to the boy

• 0:43David Senra?

  Milton Hershey had once been. His father had neglected him when he was young, never providing him any real security and comfort. His mother had struggled to feed her children. Milton had never been a good student. As an adult, Milton fulfilled his father's dream of success and acclaim by building a great industry. With the creation of his utopian town, he heeded his mother's admonitions about serving something higher than the accumulation of personal wealth. Then, when it came to consider his legacy, he invested his fortune with a poignant flourish. He would save himself symbolically by rescuing little boys in the

• 1:28David Senra?

  straits he knew as a child, over and over again, in perpetuity. That was an excerpt from the book that I'm going to talk to you about today, which is Milton Hershey's Extraordinary Life of Wealth, Empire, and Utopian Dreams. Okay, so before I jump into the rest of the book, I gotta tell you about this school that they're referencing, which is the Milton Hershey School. Milton Hershey had one of the most unique ideas that I've ever come across in all the books that I've read for this podcast. And he didn't have any biological children, so he decided to leave his assets. He starts his orphanage, this school for orphans, as they were just referencing, to help save the poorest and most disadvantaged people in his community, right? But the unique

• 2:12David Senra?

  part is, he leaves, he sets up the Milton Hershey School Trust, which funds the school, right? And the Milton Hershey School Trust owns a controlling interest in the Hershey Company.

• 2:26David Senra?

  So at the time I'm recording this, they have like $12 billion in assets now because this has been compounding for over half a century. The school was founded in 1909. So to this day, it's considered one of the wealthiest schools in the world. So let me read this, this highlight from the book. And at the time, this book is published in 2005, so the numbers are a little different. I think at this time, they had an estimate like $5 billion in assets, something like that. But check this sentence out. This blew my mind. Remember, this is a school for poor, young people. Only six universities held larger endowments, which meant that the Milton Hershey School was richer than Cornell, Columbia, or the University of Pennsylvania. And it's not just a school, it's a unique

• 3:11David Senra?

  idea. We'll see how he built his company today. But let me just read this paragraph because, again, this, this book is very unique. This, this person is very, very unique. It says, "M.S. Hershey inspired the kind of reverence because he had created not just a great business and an enormous charity, but a complete prosperous and self-sustaining community that reflected his idealistic attitudes about everything from commerce to education and architecture." So what they're talking about there is, when he was building his chocolate factory, almost like Willy Wonka, in the sense that he created his own world there. He, this is Hershey, Pennsylvania, the small town that he builds. I remember at the beginning of that excerpt, it says he was a, an industrialist, a philanthropist,

• 3:53David Senra?

  and a social engineer. The social engineering is the building of this town and this closed ecosystem, or closed economy, rather, that he created around his business. Okay, so I want to jump to his early life. I want to tell you about his father. One of my greatest fears in life, I would say, would be unrealized ambition. And Henry Hershey, Milton's father, was unrealized ambition personified. So it says, ambitious to a fault, he saw himself as a dramatic figure destined to do great things. He was so independent that he could walk away from his faith and his community without showing a single sign of self-doubt. Lack of formal education prevented him from becoming a writer, which was his first and

• 4:36David Senra?

  greatest ambition. A little bit about his personality. And Henry Hershey, Fanny, which is Milton's mother, found a dreamer of the first order. His independence touched something rebellious in her. She was, she was a free thinker, too. Most of their families and the area they're in in Pennsylvania, primarily the main occupation is farming. Henry hated that. At this time, this is right around the Civil War and after Civil War, this is this giant economic boom that is happening in America. And it's a sentence about Henry seeing other ambitious people succeed and having the ideas like, why not me? He says, "In Lancaster, Henry Hershey could see the magic that happened when ambitious men were armed with capital. Henry Hershey chafed at farm life and never

• 5:18David Senra?

  really looked into the distance for both an escape and a chance to make it big. He was a man of imagination. All he needed was a little inspiration. It appeared oozing out of the ground." So what they're talking about there is a giant oil boom that's happening in Pennsylvania in 1860s, the one that John D. Rockefeller is going to come and to monopolize. It says, "While the earth was gushing money in the northern part of the state, Henry Hershey tried in vain to pull profits from a small farm that he had purchased. Given the result, it's hard to imagine he made much of an effort." And that's one of the biggest things, I think, that Milton learned from his father and something that he avoided is, Henry had a thousand schemes and never stuck to any of them. He doesn't even know what the word perseverance meant.

• 5:59David Senra?

  It says, "Just two months and two days after he acquired the place, Henry gave the property back to the seller and agreed to sell everything he owned to pay his creditors. A public auction netted just over $1,100. Within weeks, the Hersheys were on their way to Oil City." At this point, Milton is just a baby. And this is a great description of the mining fever that was taking place at this time. "They were caught up in the peculiar dynamics of a mining fever. Whether it was gold in California, silver in Colorado, or oil in Pennsylvania, the scenario was the same. A big discovery drew hope-filled men to a desperate race for riches. While most were certain to fail, the real successes of the few kept hope alive for everyone else. It was hard to walk away when you believed that

• 6:41David Senra?

  one more pan of gravel or a hole in the ground could make you rich." Unfortunately, Henry does not succeed. It says, "Against the backdrop of the excitement and steadily increasing number of productive wells, Henry Hershey's failures were that much more painful. He was fast running out of cash, and Fanny was six months pregnant with their second child." That is actually going to be Milton's little sister, who unfortunately dies, I think, of either typhoid fever or scarlet fever when she's about four years old. Now, as this is happening, Fanny's family, who are rather successful farmers, successful for the area they were in, decide to come. They see the living conditions, and they essentially rescue Fanny, and they bring everybody back to the farm.

• 7:23David Senra?

  But before I get there, I want to tell you that the author does a great job of contrasting Henry Hershey with John D. Rockefeller. So this is the difference between the two people. Rockefeller had arrived in Oil City in the same year as Hershey, 1860. But unlike Henry, he was possessed of extraordinary energy, remarkable financial savvy, and an uncanny ability to remain focused on his goals. So it's back to working on the farm for the Hershey family. At this time, Milton's a small boy, so he's also working on the farm. It says Milton was introduced to fresh air and farm chores. He carried water, fed chickens, and collected eggs. More about his father, and I would say that Milton was the direct opposite of these traits.

• 8:06David Senra?

  Henry's preference for talking about things rather than doing them. Even neighbors could see that the man was lazy. Henry farmed in his own peculiar, half-hearted way. So Henry's essentially half-assing his way through life. Eventually, his wife is going to get sick of this, and at this time, and especially in their religion, they couldn't get divorced. But they lived separately. They wound up living separately, and Fanny tells everybody that she's a widow. So that gives you an insight into how much she detested her husband. This is a little bit more about Milton's childhood. Milton was denied the kind of stability children needed to feel secure. So this kind of gives you insights. And why would he leave one of the largest fortunes to an orphanage, a school that he

• 8:49David Senra?

  starts for poor little boys? He had been moved from place to place, and he listened to his parents argue with increasing frequency and anger. Milton went without proper schools and the little family didn't have enough to eat. The pain of this life showed on his face, Milton's face that is. Neighbors saw Milton as an overly serious child. And although Fanny and others, although through Fanny and others, he learned to channel all of his energy and passions into a single outlet: work. So in this time of the story, his sister dies, his parents separate, and his father's farm fails. But during this, this probably described as the worst part of his life,

• 9:31David Senra?

  he starts what will eventually be his life's work. And it's due in large part to his mother's guiding hand. She is trying to guide him to not be like his father. Not long after her daughter was buried, Fanny ceased talking about her. She also rejected Henry for good. As his wife turned away from him, Henry also suffered a big setback on the farm. Milton finished school for good in 1870 at age 12. After he gets out of school, his father tries to get him apprentice to a printer. So he's an apprentice for a printer who published a newspaper in a small town. Milton didn't like the print shop at all. And after a few months, he purposely let his hat fall into the press, and he got himself fired. And this is where his mother steps in.

• 10:14David Senra?

  Milton's next job would be one Fanny preferred, at Lancaster Confectionery, named Royer's Ice Cream Parlour and Garden. Fanny did not abandon her own desires for comfort and wealth. She would devote her time, energy, intellect, and labor to the only other male who might help her realize all her unexpressed ambition and pride: her son. So, starting at 14 years old, Milton is going to find his life's work. He's going to work in this industry till he dies. I think he dies around 87 years old. And I would say the main take, I'll tell you right up front, the main takeaway from this book, which I'll talk to you a lot about today. Echoes that Steve Jobs quote that I always think about where he says that, this

• 10:57David Senra?

  is a direct quote from Steve, he says, "I'm convinced about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance." And we're going to see that Henry Milton, or excuse me, Henry Milton, Milton Hershey, has perseverance in abundance. So before we get that, this is the benefits of the apprenticeship. "Joseph Royer was able to teach Milton much of what he knew, and the boy became both reliable and competent. He soaked in his employer's 'always please the customer' philosophy and learned about buying ingredients, managing inventory, pricing goods, and handling employees." So Milton had a lot of ambition. He wasn't going to be satisfied just being an apprentice

• 11:37David Senra?

  for very long, but he's also pushed again in a good direction by a smart observation from his mother. So let me read this to you. "If these twin archetypes, heroic boy and great man of industry, weren't enough to make Milton Hershey chafe at the limits of apprenticeship, he also felt his mother's ambition. Early in his training, Fanny saw that candy, which had a long shelf life and came in many varieties, was the most promising of Royer's products. She visited the shop and paid Royer to excuse her son from his ice cream duties. He needed to learn all he could about the confections that would yield the greatest profit. Now a young man of 18, Milton was going to the big city to

• 12:17David Senra?

  make his name and fortune. He knew a trade, confectionery, and its secrets." And that big city they're referencing is Philadelphia. He moves to Philadelphia. His mom and his aunt help him set up shop. And it says, "Young Milton Hershey." So this is actually, remember I just mentioned that the main takeaway from this book is the value of perseverance. This is the rise and fall of his first candy business. He has multiple failures before he actually founds his first successful candy business. So this is the first one. "Young Milton Hershey could not have chosen a better time and place to put what he had learned from Joe Royer into a business of his own."

• 12:59David Senra?

  So at this point, the centennial, so the 100-year anniversary of the founding of America is happening, and they have this gigantic exhibition and fair that's taking place in Philadelphia. So to some degree, he opens at the right time and the right place because 10 million people are going to visit the centennial exposition. And this is at a time when the total American population was just 46 million people. So it's an insanely high percentage of total Americans that actually come and visit Philadelphia at this time. And his shop is going to be right down the street from where this is happening. So it says, "The centennial would bring in nearly $38 million," so that's the equivalent of $700 million in $2,005 to Philadelphia.

• 13:39David Senra?

  "A flood of cash so huge that even a novice shopkeeper would have had to try really hard to fail. A great deal of that money rested in the pockets and purses of people who passed his shop on their way from the fairgrounds to Independence Hall and the city center." So during the celebration, he has a huge boom. Surprising enough, even after the celebration's over, his business is still growing temporarily. "Depressing as the post-centennial scene may have been, commerce in the city did not crash. Milton Hershey's business kept growing. He opened a wholesale shop in another part of town and moved a retail store a few doors down the street to a larger place. In 1877, his mother and his aunt arrived to add their unpaid labor to the boy's promising new business.

• 14:23David Senra?

  Fanny, Matty, that's his aunt, and Milton worked long hours making and wrapping candies that were sold wholesale to other shops and retail." But at this point in the story, things start to go bad. They realize they have another me-too product. This is what I mean by that. "Things began to go awry in late 1879 and early 1880. He faced intense competition from literally hundreds of other candy retailers and wholesalers in the city." So yeah, he has a trade. Yeah, he knows the secrets of the industry. Yeah, he's already worked by this time, almost, let's see, his business fails, I think he's 24. So he's working in the industry for almost a decade up until this point.

• 15:05David Senra?

  But he doesn't find success until he actually innovates in the industry. So this was actually surprising to me. So the reason that Hershey chocolate was so successful is because Milton Hershey actually innovated. At the time that in in history that we're talking about, milk chocolate was considered a luxury. It was sold by Swiss chocolateeers as a luxury. And what Milton did is do a lot of experimentation and then innovation in the actual mass production of chocolate. He made it affordable to everybody, where you could buy it for a nickel. So that is the the innovation that he builds his entire empire on. But that's going to take place like 15 years into the future from where we're at. So let me finish this section up real quick.

• 15:48David Senra?

  They were describing the the financial problems they're having as a result of all this competition. It says, money seems to disappear like magic with us. Milton made it clear that he could no longer pay his bills and was about to lose his credit with suppliers. Caught in the web of family animosities and burdened with the pressures of a failing business. So what they're meaning there is they kept having, Fanny has successful family members, siblings, if I'm not mistaken. And they keep lending them a couple hundred bucks here and there. And then eventually they can't even pay them back. So that's we're talking about the family animosity. And burdened with the pressures of a failing business, Milton fell ill. He spent most of the next month in bed. No matter how hard Milton Hershey worked, he couldn't balance the the expense of making his products with the slow pace of payments from his wholesale customers

• 16:32David Senra?

  and the tight credit credit terms demanded by his main supplier, the Franklin Sugar Company. So that's an important part, actually, that he's learning is that he's being squeezed. He later on in life, he realizes, hey, if there's something, and we've seen this over and over and over again, almost every story. If something is important to your business, you must control it. In the case of making candy, chocolate, obviously, sugar is going to be a huge, is going to be of huge importance. And so later in life, he goes down to Cuba and he starts his own sugar plantations. He does this, I think, with every single ingredient that he needs, except coca, which is, I think, a lot harder to actually farm. So it says, "At 24, Milton Hershey had invested the first six years of his adult life in a

• 17:17David Senra?

  business that failed. He had driven himself mercifully, trying to prove he deserved the faith and financial backing that he had received from Mattie, his mother, and their brothers. He had practically ignored the young women of Philadelphia and enjoyed little of what the vibrant city had to offer." So he's got to pack up, he's got to go back to a small town. This gives you, the sentence gives you an idea of the despair that a young adult could have, just had a huge failure, doesn't know what to do with his life. "He would have time to reflect on the experience." So he starts wandering all over the country. At this time, his father's trying to be, trying to be like a successful miner in Colorado. So he's not sure what to do with his life. He decides just to wander the country looking for work. And this results in a very valuable idea.

• 18:02David Senra?

  So it says, "The experience in the back alley had almost no real value when compared with what he had learned while working in that Colorado candy shop." So he gets a job in another candy shop. What they're talking about there is that experience in the back alley. He went looking for work, and at the time, young, young boys would apply for jobs and it'd be like, there would be like, it'd be a fake business. They would kidnap the boys or, and sell them off as like slave labor. So he almost gets caught, this, he almost, this almost happens to him. Luckily, he had his own gun. And so when the guy went to open the door, he flashed the gun and the guy said, "Okay, get out of here." And so he wound up surviving and not being sold into slavery, essentially. So he winds up working at the Colorado candy shop. Now, what was also surprising to me was that Hershey Chocolate, what he's best well-known

• 18:47David Senra?

  for, is not his first successful candy business. This is going to be his first successful candy business. Let me read to you the idea that he learned in the Colorado candy shop. The Denver recipe for caramel, which yielded a vastly superior candy, was not under any copyright or patent. It would be his advantage in a new business. So his simple idea is, hey, it's really popular in the Western States at this time. They're selling these caramels that don't go bad. They taste really well. They figured out through trial and error, how to make a product that you could store on shelves that tastes good and that people liked. That was not happening where he was from in the East. So he's like, wait, I'm going to take this idea in the West

• 19:28David Senra?

  and I'm going to go back and build my own caramel empire in the East. And this is what he does. He winds up selling a very successful caramel business, I think for over a million dollars in the 1800s. And he uses that money to start Hershey. So he takes the idea from Denver, decides, hey, I'm not going to go back to Philadelphia. I tried it there. Let me go to New York. And there's a lot more activity and economic opportunity for me. And I'm going to do something different. I'm going to start off small and slow, which I think is another good idea. Nothing in Milton S. Hershey's New York adventures suggests that he ever intended to join the mass market pioneers. So there's, at this time, there's a lot of companies that are still around today. And they're mass marketing food, like packaged food for Americans to buy.

• 20:11David Senra?

  So think of like Campbell's Soup, Heinz ketchup, that kind of stuff. And so they're having a lot of financial success by figuring out ways to turn what, you know, it used to be where everything you ate came within close proximity to where you lived and was made by people, like you knew who was making the food. It's like more of an artisan, like farming kind of economy. Where now these companies are set up. And he's going to do, the reason I bring this up is because he does the same exact thing in chocolate. He's going to figure out how to mass produce chocolate and make it affordable to the average person, which taking what was at one time a luxury good and turning into something that's available to everybody. And in that sense, there's a lot of parallels between what he's doing here

• 20:55David Senra?

  and what Henry Ford did with autos. But we're not there yet. So let me go, Milton intended to stay small, making candy to sell retail and wholesale on the island of Manhattan. And so let me interject before I go back into that. So he's starting his business in New York, but at the same time, he's reading about and experiencing there's a lot of squalor and a lot of poor, destitute children at the time. So this is where not only does he have ideas for the business he's building, but he also has, we see the first glimpse of his intense desire to help poor orphans. And he has ideas, the social engineering ideas on how to redesign a city. So it says Milton Hershey passed through the places that this columnist revealed in his columns. This person was just writing about all the plight, about 50,000 poor children in the city, et cetera, et cetera.

• 21:40David Senra?

  So he's seeing some of this as he's going around and making wholesale deliveries. The experience would affect him for the rest of his life and contribute to his eventual decision to found one of the nation's great charities. It also formed the foundation of a critique of urban life that he expressed later on. Cities never seemed natural to me, he said, and I never learned to like them. Like it or not, the biggest city in America was the place where Milton would begin to get his business right. In New York, the quality of Hershey's products and the scale of his operation were well matched to the market. And unfortunately, as he's making progress, this business is also going to fail. He's derailed by his father. So his father would show up every time Milton was making a little bit of money and he'd have these grand ideas, right? Oh, I'm not a miner, maybe I'll be a painter. Now he's like, hey, let's mass produce cough drops.

• 22:24David Senra?

  And he talks his only son into fronting the money, the money Milton didn't have. And this was a failure. But at the same time, it was important that this happened because he's also doing exactly what you and I are doing right now. He's studying and learning from successful entrepreneurs and he steals an idea from competitors that are going to beat him right now, but he's going to use in the future for Hershey. So it says, this is where his father talks him into mass producing cough drops. Hershey's cough drops were supposed to tap the enormous winter market for sore throat lozenges. The problem was New York already had a favorite, favorite brand. These simple black or red sugar lozenges, the Smith Brothers cough drops, were one of the first trademarked products in America.

• 23:06David Senra?

  William and Andrew Smith had begun making them in Poughkeepsie in 1847. So that's what, they had about a 30-year head start on, on the Hershey cough drops. The eccentric Bearded Brothers, who used their profile portraits as a trademark, developed an early method for mass production. This is really interesting, actually. The drops were made from huge batches of syrupy liquid that was boiled, cooled into a solid, and then cut. The cut pieces were then dumped into five-gallon milk pails. Wagons took the pails to homes, apartments, and farms where families worked to put the drops in paper boxes. So essentially, they're working from home instead of having a centralized factory for people to put all this together, right? At the height of winter production, some people in Poughkeepsie might have gotten the

• 23:49David Senra?

  impression that half the population was up nights boxing cough drops. By paying low wages and manufacturing their product in a low-cost area, a strategy Milton Hershey would one day copy, the Smith brothers defeated all their competitors. They would also overpower Milton and Henry Hershey, who were not able to mount a credible challenge to the Smiths. Unfortunately, the bet that he had made on cough drops was more costly than he would have anticipated. By the summer of 1886, he was unable to pay the $10,000 he owed to the company that had supplied him with the equipment he had bought to make Henry's drops. Geez, terrible. Milton closed the shop, created his machinery, and moved back home.

• 24:33David Senra?

  Okay, so this may be the most important part of the book. I have a lot of highlights on this section. I'm gonna read my notes to you before I read the highlights. And there's this great quote I heard recently, I don't know who said it, but it said, "Bouncing back from defeat is essential for growth in any endeavor." Okay? And it's important to understand that quote because that's exactly what's happening in the life of Milton Hershey. There's also something freeing. It says, essentially what Milton is saying here, "I'm at rock bottom." But he's not, you know, you're gonna be somewhat depressed and obviously downtrodden. But there's also something freeing about that because he realizes, "I can only go up from here. It can't get worse than this." It was not a glorious homecoming.

• 25:18David Senra?

  Hershey was so broke that he had to turn to his old friend to pay the railroad to release the crates that he had shipped home. Though he was only 28, the stress of two big failures made him look older. Okay, so this is what I mean about perseverance is the main theme of and the life story of Milton Hershey. He's been working in this industry for 14 years. He now has two gigantic failures. He's borrowed money from friends, from everybody he possibly can. He's tapped out, he's embarrassed. He's a failure, and yet he doesn't quit. 14 years since he became the apprentice confectioner, Milton Hershey was still infected with his mother's high expectation and his father's dreamy ambition.

• 26:03David Senra?

  He carried both of these burdens. Given family ties and their past support, Milton would set aside his embarrassment and ask for one more loan. If failure is the best instructor, he could argue that he had earned a doctorate. He intended to make candy no one else produced in the East, Denver-style caramel. So this is where, again, the first time he made a bunch of me-too candy, then anybody can do that, so he had a bunch of competitors and what happens in a competitive market? Profits are eliminated, right? The second time he goes to a bigger city, but he and he's doing well, but he's not doing his the Denver-style caramels yet, and he gets sidetracked by his father. Now he's like, alright, I have a better idea. I'm gonna make something that you can only get from me. And this is the his the third attempt at building a successful business.

• 26:48David Senra?

  This business is going to succeed. That's why it's such an important thing to remember. Bouncing back from defeat is essential for growth in any endeavor. We're seeing this in his life. Hershey's uncles and his aunt heard him out and then turned him down. Listen to this. They had finally decided that that he was too much Henry Hershey's son, and they wouldn't risk any more money on his dreams. For the first time in his life, Milton Hershey was without the support of his family. But as much as he may have felt adrift and alone, Milton had been liberated too. Years later, he would say that he realized he'd become like his father, a black sheep in the eyes of his family. This rejection was a great motivator. Alone in a rented room at a warehouse, Milton began to make candy.

• 27:31David Senra?

  He sold it himself from a handbasket on the handbasket on the streets of Lancaster. This is Lancaster, Pennsylvania.

• 27:40David Senra?

  He did well enough to buy a push cart and then move to a larger space. In the space, in the new space, Hershey had the room to make his special caramels on a large scale, but before he could start, he needed $700 to buy equipment. He decides to go to a local bank, and this, this is just wild, what's gonna happen here. Lancaster County National Bank, which had done substantial business with his relatives in the past, gave Milton Hershey a 90-day loan. Now, here's the problem, he's got only 90 days to pay back this loan, but also, this is a tiny town, there's only 30,000 people, so the market's really, really small, and he may have never got off the ground if it wasn't for a lucky break. There was a candy retailer that just happened to be visiting and, and sampled some of Milton's

• 28:25David Senra?

  caramel and decided, hey, I'm gonna do a huge order, but I need you to ship them to London for me. So, he's like, okay, I can maybe use this contract as a way to, to convince the bank to loan me more money. And this is the wild part. With the wholesale contract in hand, he went to the bank to ask for more time to repay, to repay the $700. He also requested an additional $1,000 to fill the big order. He spoke with a junior officer named Frank Brenneman, and this is also, you know, Milton did something smart here, he just lays everything on the table. I'm not gonna hide anything from you, this is the truth, are you gonna bet on me or not? Hershey came down and said, this is, this is somebody else retelling a story many years later, Hershey came down and said, "I can't pay you.

• 29:09David Senra?

  I want you to come, come up and see. I have material and merchandise. Let me show you what I have." The guy's name's Brenneman. Brenneman went up. Afterwards, he told me, "It was not imposing," this is Brenneman describing the early business, Milton's business at the time, "the dust, the dirt, and the racket in the wagon maker's shed. His mother and aunt were the only employees, and they were, they were sitting there wrapping caramels." Brenneman went on to say, "I don't know what to do." Brenneman was impressed by Hershey's honesty. He hadn't tried to exaggerate his little firm's potential and he made it clear that his future depended on the success of that single export contract. This is the wild part. Mr. Brenneman told me, "I told Hershey to come back the next day. I walked the floor debating whether I would take the chance.

• 29:54David Senra?

  He had told me all. He didn't conceal the bad part. He made no excuses for it. He was honest. I decided I would lend him the money." Now here's the crazy part, "but I was afraid to present the bank that note with that story. To avoid the trouble, I put my own name on the note." The banker takes out the loan for Milton in his name. And sure enough, that's the break that he needed. He went to fill in the contract. He gets the check back from London and the check is good. This saves his business and he just starts building from here. "After so much struggle, it was strange that one big break, an order from an importer

• 30:35David Senra?

  who happened to pass through town, would make Milton Hershey a success." And one thing to know about Milton Hershey is he focused on the fundamentals. He tried to do a small improvement over a long period of time. So it says, "High quality and a fair price when Hershey repeat business. Using what he had learned from the Smith brothers about branding, Milton protected his place in the market by labeling his caramels with the name Crystal A and urging his customers to accept no limitations. Steady growth over the next five years pushed the numbers of workers at Hershey's factory past 700." Remember, when he got the loan, it was just him, his aunt and his mother. Milton named his firm The Lancaster Caramel Company. This is the one he's eventually going to sell.

• 31:17David Senra?

  "Milton was free to indulge in his passion for experimentation. Although competitors could battle Hershey on price, they couldn't match his quality. And this advantage allowed Lancaster Caramel to expand its market every year." The note I left myself is a quote from the Walter Chrysler autobiography that I've never forgot. "Small, continuous improvements over many years produces miracles." Walter Chrysler did the same thing. The result was that he went from making a car in four days to making one in 15 minutes. But that doesn't happen overnight. Small, continuous improvement over many, many years." There's a saying that, I think it's in the autobiography of Sam Walton that I covered on Founder's Number Six, that nobody alive had visited more retail stores than Sam Walton.

• 32:02David Senra?

  He was obsessed with studying and learning from other entrepreneurs. I would argue that... No one alive had gone into more confectionaries and candy shops than Milton Hershey. This is an example of that. Great Britain's thriving chocolate industry was known by Milton Hershey, who had begun to travel regularly to the British Isles. In England, he also noticed that companies were creating a big new industry serving low-cost chocolate to the masses. He learned that George and Richard Cadbury, so Cadbury A is the Cadbury Chocolate Company, this company's still in existence, it's almost 200 years older, or 200 years old today. His, in many cases, the Cadbury family is a blueprint for Milton Hershey.

• 32:46David Senra?

  And I actually found a crazy book about the chocolate wars that I didn't even know existed before I read this one, that I might read for the podcast. But let me go back to what he's learning from the Cadbury's. He learned that George and Richard Cadbury, sons of the founder, had moved their factory out of the city to a rural site where they'd put up a new chocolate works and were considering building a company town to go with it. He does the exact same thing. Remember, he's in the caramel business. He eventually realizes all the success these other entrepreneurs are having in the chocolate business in Europe, and just like he took an idea from Denver and took it to East, he's going to take an idea from Europe and take it and bring it to the United States. And you're going to find a lot of success. So he jumps into the, just like Cadbury said, he jumps into chocolate, he's going to follow them there, he's going to build a town, they start a newspaper, literally, he copies their

• 33:31David Senra?

  playbook over and over again. Okay, so it says Milton Hershey visited Lehman's chocolate machines over and over again to study them in action. These are also machines, if I'm not mistaken, from Europe, that are being displayed at this giant exhibition and fair in the United States. These are very expensive machines, they're like $60,000 machines. He recognized the superior technology, so another thing you learn from him is you need to invest in technology. This is where he's going to get, he's always constantly redesigning how his manufacturing process, making it more efficient. Eventually, he becomes so efficient, no one else can compete with them, right? He recognized the superior technology on display and understood the commercial potential for European-style chocolate in America. This is what he says at the time, "The caramel business is a fad.

• 34:12David Senra?

  It is not a staple business, but chocolate is something we will always have." He's not in the chocolate industry yet. Milton placed an order to buy every single piece of Lehman equipment. Two years would pass before solid chocolate candy labeled with the Hershey, with the name Hershey would be sold to the public. Okay, so let me pause there. The note I left myself, it took him two years. What was he doing for two years? He was paying for knowledge. There's an example of that. A hands-on learner, Milton would use his time to experiment with roasting, grinding, pressing, and mixing. He does not know how to make chocolate. He has to learn how to make chocolate, and then he has to learn how to mass produce it. He does not know how to do this. He grows into it, just like the rest of us. Milton plunged into his task for hours and sometimes days on end.

• 34:56David Senra?

  He bought workers from a milk chocolate factory in Switzerland. He recruited a chocolate maker from a small firm in Chicago. And then he raided the Walter Baker and Company in Massachusetts. This is a very old and established. This company was founded in 1765. So he raided the Walter Baker Company for two more experienced men. Hershey had experts who could fill in his gaps, or fill in the gaps of his education.

• 35:23David Senra?

  And so he's like, okay, now it's the time to sell my company. This is why he, why he sold his caramel company for a million dollars. The king of caramel had already decided to bring milk chocolate to America and make it his only business. When Daniel Lafine first offered to buy Lancaster Caramel. In negotiating the sale, the two men would play roles that were archetypes of modern business. This is really interesting, actually. Lafine, a latecomer to the industry, had faith that sales would continue to grow and thought his company must grow if it was to survive. Hershey believed he had ridden the market to the crest, and from that vantage point, he could see its decline. He had his eye on the next big wave. So he sells the company, takes that money, and he's gonna, this is where he starts Hershey Chocolate. Here's the problem, though.

• 36:07David Senra?

  This is the problem Hershey had to solve to make his business a success. So it's as difficult as the process might seem, large-scale production was made even more complicated by factors that the Swiss discovered through trial and error. Remember, they're the only ones that have figured out a way to mass produce. Mass-produced milk chocolate. One was that they needed enormous amounts of milk, far more than they could obtain nearby. They also discovered that the imperceptible differences in the taste of milk produced by various breeds of cows and the quality of the feed were magnified many times when the water was removed. They're talking about all the different variations that you have to figure out, you have to isolate in your experimentation. That's why it takes so long, because you can only change one variable at a time, right? It's not like the Swiss chocolate tears are going to tell Milton how to do it.

• 36:52David Senra?

  The variation was so significant that condensed milk from the wrong cows could actually ruin a batch of chocolate. With no background in chemistry or engineering, Hershey would need years of experimentation, much of it in an attempt to copy the European outright, to arrive at his own method for making milk chocolate, which he does. And to do this, he essentially sets up a milk-chocolate skunkworks. So this is a little bit about that. Hershey had so many ideas that he often drove his helpers to exhaustion. They set up, away from the rest of the company at the time, on this farm, like this homestead farm that he owns. So says with all these failures, MS came to realize that he needed better control over the various elements of his experiments, in a place where he could experiment in secrecy

• 37:36David Senra?

  and maximize the amount of time he could be on the job. For these reasons, he decided to move out to the homestead, and there he would keep his own cows, controlling their food and water, and build a small dairy to process the milk. Near the dairy, he put up a small milk condensing plant and a chocolate production line. And we get to the point where this is just, you know, this is the Edisonian principle of design that's talked about in Founder's Number Three on Thomas Edison, that James Dyson uses in his experimentation on Founder's Number Twenty-Five, doing the vacuum cleaner. And it's long and laborious, but it's the only way to develop true, unique insights. And I know myself on this page is, a lot of people say they want to succeed. How many are willing to put in this much work?

• 38:20David Senra?

  A group of about 18 men, led by MS, that's what they call them, would rise at 4:30 a.m. to milk the herd of 78 cows. They'd then eat breakfast and go to work behind a door where a sign warned, "No Admittance." Sometimes, they didn't come out until the next morning. So he'd also do something extremely bold here. He, this is where he's like, "I'm going to set up this little town," just like the Cadbury's did. He goes out and buys all this acres. He starts building the factory in the town, okay? Now, here's the problem. There remained one problem. Milton Hershey did not know how to mass produce milk chocolate. Figured out how to make it in small batches, has an idea, thinks it's going to work. Does not, he believes in his vision so much that he puts up and starts building up huge,

• 39:03David Senra?

  expensive infrastructure and social engineering projects at the same time because he believes he's going to discover, to actually work his way through and solve the problem. This reminded me of a quote from that book, My Forty Years of Ford, which I think about all the time, I'm going to read it to you now. "Henry Ford had no ideas on mass production. He wanted to build a lot of autos. He was determined, but like everyone else at the time, he didn't know how. He just grew into it like the rest of us." The crazy thing about that sentence, that paragraph, is you could change Henry Ford to Milton Hershey and autos to milk chocolate and it's the same thing. It's still true. Milton Hershey had no ideas on how to mass, on mass production.

• 39:47David Senra?

  He wanted to build, he wanted to produce a lot of milk chocolate. He was determined, but like everyone else at the time, he didn't know how. He just grew into it like the rest of us. Now, I real, I had this idea while I was reading this book, and this is where the benefit of reading all these and trying to tie these ideas together is. I realized what Milton Hershey does for the mass production of chocolate is the same thing that Henry Ford did for the mass production of automobiles. It's the same thing that the McDonald's brothers, which Ray Kroc discovered, did for, for the production of food, fast food. Let me read this, this, this sentence to you. "With workers performing simple but carefully choreographed routines and using new machinery,"

• 40:30David Senra?

  another way to think about this, using the latest technology, right? "in a building designed for efficiency, Hershey was able to make high-quality chocolate at very low cost." That is the key. He had high-quality chocolate and the lowest cost. That gave, that, the combination that gave him the massive advantage. This is Ray Kroc.

• 40:49David Senra?

  Describing what he saw when he visited the McDonald's brothers. "I was fascinated by the simplicity and effectiveness of the system they designed. Each step in producing the limited menu was stripped down to its essence and accomplished with a minimum of effort." This is not a unique idea. You see this in different industries, with different time periods, different founders. Let me give you a contemporary example. Jack Dorsey, founder of Twitter and Square, says, "Make every detail perfect and limit the numbers of details to perfect." It's the same basic idea, just expressed different ways and in different industries. I think it's an extremely powerful idea. More on the simplification that he was obsessed with. "The enormous success of Hershey Kisses and almond bars would lead Hershey towards

• 41:34David Senra?

  a business strategy that was new to confectioners. Instead of making hundreds of items at varying prices, Milton would produce huge quantities of a few varieties and price none higher than a nickel." So with his financial success, this is where he has this idea for the Hershey orphanage and the school. And this is why, at the beginning, I said he's a very unique person, because there's a lot of people that can be philanthropic and say, you know, it's... Let me read this sentence to you first. He says, "The charity in Milton Hershey's heart was sincere. Echoing Carnegie's... Andrew Carnegie, he said, 'It's a sin for a man to die rich.'" He really means that. He turns over all of his assets to the trust. The trust runs the school and the town and everything else, and the majority ownership

• 42:19David Senra?

  of the business, obviously. Not only that, he takes after his wife dies. He has this, like, they call it a mansion. It's like the biggest house in Hershey, Pennsylvania, although they said it's like nothing compared to the other estates that other robber barons at this time were building. And in his 80s, he's like, "I don't need this. Let me just have two rooms upstairs." He makes like a two-room apartment. And the rest of the house, he gives to the community to use as a country club. And this is him describing more of his thoughts on that. "I never could see what happiness a rich man gets from contemplating a life of acquisition only. With a cold and legal distribution of his wealth after he passes away," he would explain. "After all, what good is one's money unless one uses it for the good of the community and humanity in general."

• 43:03David Senra?

  And this is just another example of him, of Hershey, using the Cadbury family as a blueprint. He says Milton Hershey was convinced that he accomplished something remarkable in his little utopia. They're talking about the town. And this is different from, you know, we've seen other companies start towns, but then they, they overcharge people for housing and for supplies. That's, Milton tried to run it at break even. He was not interested in that. He'd set up savings accounts. Again, he was really focused on social engineering. He wanted to make and to let the people working for him participate in the profits of the company. So it says convinced that he accomplished something remarkable in his little utopia. He planned to publish a magazine that would bring his philosophy. And it says his philosophy is really a combination of populism and capitalism.

• 43:47David Senra?

  And he called it the Hershey idea. So it'd bring his philosophy, the Hershey idea, to a national audience. Here again, Milton followed the Cadbury way. After he started his chocolate town, George Cadbury began publishing a widely distributed newspaper called The Daily, which promoted his ideas for social reform. And it's undoubtedly remarkable. When you take into everything this, this person was accomplished, the fact that he persevered for multiple decades of failure. He, I think at the time of his death, they controlled like 90% of the American milk chocolate market. They're doing, I think, over $100 million of sales. It's just, it's, it's really remarkable. The company still obviously exists today. He builds a town, he builds a school, but he's not perfect. He's a complex person with many contradictions.

• 44:30David Senra?

  And so this is just a bit about, you know, the complex person that was Milton Hershey. A great many factors had helped to build the image of Milton Hershey. Fawning publicity, which certainly aided his company's sales, was one of the forces that slowly turned Milton from man to icon. The fact that he had actually done what he said he would do, create a town, a booming business, and a national brand, all bearing his name, was also important. The final element was Milton Hershey's schizophrenic style of leadership. He had a temper and might fire somebody for a ridiculous reason, goosing. So that's what he calls like playing around, like horseplay. He'd fire people if he'd fire employees if he saw them doing that. And while he spent freely on luxuries for

• 45:14David Senra?

  his wife, he habitually tried to catch his employees wasting the tiny amount of electricity needed to burn an extra light. But just when someone might decide once and for all that Milton Hershey was a cheapskate, he did something generous. In 1912, he paid every one of his workers a 20% bonus, matching the dividends he paid to investors. The bonus, which he would continue to pay for many years, honored labored alongside capital. And so that's where we also see the echo of of Henry Ford's idea. Like, everybody tells me, as I'm running my business, that I shouldn't pay high wages because it's an expense to me. But he's like, no, I'm expanding my market. I'm sharing the profits of the company with the with my employees. And as a result, they get dignity, they have a

• 45:59David Senra?

  living wage, they can then consume and buy other products and services. But his point is that, you know, you should be building a company where you can pay the highest possible wages. This is actually good for not only your company, but it's also good for your country's economy.

• 46:13David Senra?

  And just a few more things. I have to touch on this. This is the trust that I was talking about that empowers the school, one of the most remarkable ideas he ever had. This act would create something unique in both philanthropy and capitalism. It made the industrial school, under its trustees, the majority owners of a national company that was poised to double in size many times over in the decades to come. The cash generated by this arrangement would make the orphaned boys some of the most financially secure children in the world, and guarantee the school the funds necessary to grow within the boundaries set by the terms of the trust. And it's still going, I think, 60 years, maybe even maybe 80 years after he died, something like that. So it's just a remarkable, remarkable idea. And now we've reached the end of his life, which, again, I think, is one of the most beneficial

• 46:58David Senra?

  things of reading biographies. And I hope you're buying and reading as many of these books as possible, because it's a constant reminder that we have nothing to lose. The same fate that is the same fate is going to befall all of us. We have limited time here. Let's not waste it. It's not morbid. It's a reminder that we have got to live the life we want to live. We have nothing to lose. On the night of Thursday, October 11th, Dr. Hostetter went for his usual visit and noticed that Milton had the symptoms of a cold. The next morning, the doctor was summoned by Milton's nurse and he ordered an ambulance to take him to the hospital. "All right," said Milton, "you're the boss."

• 47:41David Senra?

  At the hospital, Milton Hershey was placed in an oxygen tent, but his condition worsened. The boys at the Hershey School learned of his illness and prayed for him. On Saturday morning, Milton awakened for a moment, smiled at one of his nurses and said, "You never thought that you'd have to look at me in a cage like a monkey in the zoo, did you?" Then he fell asleep. Hours later, Milton Hershey's heart gave out and he died. The official cause of death was pneumonia. Milton Hershey's death was front page news in many papers. Most of these reports counted the industrial school and the town of Hershey as his greatest achievements.

• 48:25David Senra?

  The governor of Pennsylvania described Hershey in terms that would have made the utopian industrialist proud. Hershey's death takes from our midst one of the great examples of what the free enterprise plan means. Hershey amassed a great fortune, but during his lifetime, he gave it all for the benefit of those with small opportunities. And I'll leave the story there. I am very glad I learned about the story of Milton Hershey. I hope you are too. For the full story, you've got to read the book. If you buy the book using the link that's in the show notes, available at your podcast player, go to founderspodcast.com, you'll be benefiting the podcast at the same time. That is 146 books down, 1,000 to go, and I'll talk to you again soon.