#121 Billy Durant and Alfred Sloan (General Motors)

What I learned from reading Billy, Alfred, and General Motors: The Story of Two Unique Men, A Legendary Company, and a Remarkable Time in American History by William Pelfrey. ---- [0:01] They were oil and water in all respects. Billy Durant, the high school dropout, was the flamboyant dreamer and gambler, focused on personal relationships and risk. Alfred Sloan, the MIT engineer, was the stern organizer and manager, focused on data, logic, and profit. [4:40] The paradox of this book in two sentences: Sloan’s most constant criticism of Durant was that he acted on instinct and whim rather than facts. Yet the achievements and decisions of Durant the dreamer were what made Sloan the manager’s spectacular career possible. [6:50] Alfred Sloan telling us it is a lot harder to stay successful over a long period of time: “The perpetuation of an unusual success or the maintenance of an unusually high standard of leadership in any industry is sometimes more difficult than the attainment of that success or leadership in the first place.” [10:45] Walter Chrysler left the highest paying job in the entire automobile industry because of Billy Durant’s wasted his time: More than once, Chrysler had been summoned by Durant only to be kept waiting then to discover that the urgent matter that needed to be discussed was nothing that couldn’t have been resolved quickly at the plant level rather than wasting top management’s time and brainpower. [12:52] Sloan believed Billy Durant had no right to be distracted by the financial markets while Durant was supposed to be running General Motors: Sometimes I used to feel as if he were always holding a telephone in his hand. I think there were twenty telephones in his private office and a switchboard. He had private wires to brokers’ offices across the continent. In the same minute, he would buy in San Francisco, sell in Boston. It did not seem to me that the operating head of a corporation had any right to devote himself to the market, even if the stock of the corporation was involved. [17:13] Billy Durant will remind you that everything is possible: What was it in Billy’s genes and character that had led the high school dropout from rural Michigan to even dream of building an empire that would change the world? [20:30] Billy Durant would tell you to control the things that are important to your business: Billy Durant would never forget the bitter lesson of what he saw as Paterson’s treachery: Always control your own production and, whenever possible, all of the links in the supply chain. [23:05] Unlike Durant, Alfred Sloan had a singular focus. His singular focus was General Motors: By the early 1930s, Alfred Sloan was widely considered to be one of the richest men in the world, but he had no known hobbies and had never sold a single share of General Motors stock. His only known investment of either time or money in anything beyond the domain of General Motors was the purchase of a yacht at the urging of friends and his wife. [26:37] There are ideas worth billions in a $30 history book: In Henry Singleton’s case that is literally true. Reading Sloan’s book had a multiple billion dollar effect on the outcome of Teledyne. [29:04] Sloan would not tolerate any excuses: Sloan is kinda like Yoda. Do or do not. There is no try. [29:48] A key ideological difference between Alfred Sloan and Billy Durant was how growth should be financed: What Alfred didn’t mention in his letter was that Hyatt’s growth had come from reinvestment of the company’s own profits, rather than the acquisition and stock market strategy mastered by Billy Durant. A divergence of fundamental strategy that would be at the core of the General Motors crisis and showdown of 1920. [31:12] An important lesson from history is that new and important industries can start out looking like toys: In 1899 the automobile industry in America was no more than the strange and wild obsession of a few tinkerers and an amusing diversion for the wealthy investors who backed them. Cars were still widely considered impractical toys and dangerous nuisances by most people. [34:35] Alfred Sloan admired and copied Henry Leland, founder of Cadillac and Lincoln: Of all the American automobile industry’s unique and colorful characters, the one whom Alfred Sloan most admired and emulated was Henry Leland. Leland was a perfectionist who expected and demanded higher standards than any of his peers. He accepted no excuses and suffered no fools. Sloan devoted more words and detail to what he learned from Leland than he did any other person. [45:55] Alfred Sloan on why vertical integration was so important in the automobile industry: Every piece of the motor car is essential in the sense that the automobile is not complete unless every part is available. Delay in delivery of any part stops the work. A dependable supply of parts might well make the difference between success and failure. [48:08] Henry Ford's ONE idea was different from every other automobile manufacturer: He was determined to concentrate on the low end of the market, where he believed that high volume would drive costs down and at the same time feed even more demand for the product. It was a fundamental difference in philosophy. [49:35] Comparing and contrasting Billy Durant and Alfred Sloan’s approach to growth: For him, the thrill was always in the next deal, not in the nuts and bolts of daily operations. In his mind, empires were built by conquest, not through internal growth. And the road to conquest was through other people’s money and other people’s confidence in his genius, rather than the quiet, conservative road of knowing the fundamentals of manufacturing and marketing, as was followed by the likes of Henry Leland and Alfred P. Sloan. [56:05] Why Innovation is so important. We must arm the rebels! The automobile sparked not only the great oil boom it also sparked innovations in petroleum refining and metal alloys that led to further innovation in chemicals. It also spawned the motel industry as well as gasoline retailing. Thanks solely to the demand for gasoline to run the internal combustion engine automobile, crude oil production in the United States soared. The first gasoline pump appeared in 1905. By 1915, Standard Oil had developed the first chain of gasoline service stations. In 1916, the federal government began funding the interstate highway system. Ten years later, motels and road side restaurants were common in every state. Thanks to Henry Ford’s Model T, Billy Durant’s vision of a nation transformed by the automobile had become a reality. [57:47] When most of your revenue comes from one or two major customers you are fragile. Or Why Alfred Sloan sold Hyatt Roller Bearing to Billy Durant: The problem for Alfred and his peers was that, compared with the manufacturers, the suppliers’ pockets were not nearly as deep. Expanding their production capacity meant investment in new plant and equipment, but there was no guarantee that the boom would continue once these commitments were made. Nor was there any guarantee from the manufacturers that they would not shift to a different supplier with lower cost at some point in the future, leaving Supplier A stuck with both excess capacity and the cost of the original expansion. [1:14:23] How Alred Sloan positioned General Motors product line: Sloan developed a product strategy targeted at buyers’ specific aspirations. Its essence was to divide the market into price segments and offer cars with the most appeal and value in each segment. Sloan called it “a car for every purse and purpose.” No General Motors vehicle division or brand would compete against any other in any of the segments; each was to have a distinct identity and appeal to a distinct buyer. [1:15:10] David Ogilvy on positioning your product: Now consider how you want to ‘position’ your product. This curious verb is in great favor among marketing experts, but no two of them agree what it means. My own definition is ‘what the product does, and who it is for.’ I could have positioned Dove as a detergent bar for men with dirty hands, but chose instead to position it as a toilet bar for women with dry skin. This is still working 25 years later. [1:16:48] Alfred Sloan —like Sam Walton—made it a priority to visit dealers: I made it a practice throughout the 1920s and early thirties to make personal visits to dealers. I went into almost every city in the United States, visiting from five to ten dealers a day. I would meet them in their own places of business, talk with them across their own desks in their closing rooms and ask them for suggestions and criticism concerning their relations with the corporation, the character of the product, the corporation’s policies, the trend of consumer demand, their view of the future, and many other things of interest in the business. I made careful notes of all the points that came up, and when I got back home I studied them. [1:20:46] Billy Durant’s metaphor on the difference between him and Alfred Sloan: But, you see, this infantry captain didn’t have the disadvantage of a West Point education and he didn’t know he couldn’t do it, so he just went ahead and did it anyway. ---- 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?

  They were oil and water in all respects. Billy Durant, the high school dropout, was the flamboyant dreamer and gambler focused on personal relationships and risk. Alfred Sloan, the MIT engineer, was the stern organizer and manager focused on data, logic, and profit. Billy managed to create General Motors in bold defiance of the industrial and financial powers of his day. Alfred went on to transform it into the largest and most successful enterprise the world has ever seen. Today, executives and employees all over the globe in all kinds of businesses are dealing with the effects of precedents set in motion by what these two men wrought in the first half of the 20th century.

• 0:42David Senra?

  Their business legacies, like their lives, are studies in contrast. Billy was done in by his own wizardry in expanding his empire through financial manipulation and speculation. Alfred mastered both the art of corporate vision and the science of nuts-and-bolts management. Yet his tragic failure to understand the changing nature of the relationships between employees, company, and government left a legacy of resentment and mistrust that remains unresolved today.

• 1:12David Senra?

  Okay, so that is an excerpt from the book that I'm going to talk to you about today, which is Billy, Alfred, and General Motors: The Stories of Two Unique Men, a Legendary Company, and a Remarkable Time in American History, and is written by William Pelfrey. Okay, so this is an ongoing series that I'm doing right now where we're trying to learn from the wild personalities of the early automobile founders. So last week, I did a biography of Billy Durant. The week before that, I covered the Dodge Brothers, and the week before that, I covered Henry Ford. So back on founders number 73, 74, and 75, I did a three-part series about Andrew Carnegie and Henry Clay Frick. And they were partners, and their lives were so intertwined that it's hard to understand the career of one without analyzing the career of the other.

• 1:56David Senra?

  And so as I was studying, last week studying Billy Durant, I realized how large a part that Alfred Sloan played in his own life story. So Billy's the founder, gets kicked out. And Alfred, like the author just said, is oil to his water, is the one that actually transformed GM into the company, the wildly successful company that it became in the three decades that he ran it after. I realized you can't really study Billy Durant if you don't also study the life and career of Alfred Sloan. So this book compares and contrasts both of them. Next week, I'm going to analyze and review the autobiography of Alfred Sloan.

• 2:36David Senra?

  Okay, so I want to start at the very end, and I want to compare and contrast the way that they're remembered when they died. This is the end of Billy's life, and it says, "Apart from creating General Motors and losing control of it not once but twice, he had amassed and lost several personal fortunes." So a note, I'm going to try to avoid recovering the things that I already talked about in Billy Durant's career last week. Okay, so last week's podcast ended with him getting kicked out of GM. This paragraph I'm about to read you now is, he still had another 20 or so years left in his life from there. And so this is the continuation of that. So he says, "When he finally declared bankruptcy after losing all his money in the stark market

• 3:18David Senra?

  crash of 1929 and the Great Depression, he listed his total assets at $250. That was the value of the clothes on his back." Remember, in 1920, about a decade before he declares bankruptcy, he was worth at least $90 million in 1920 dollars. Billy's obituaries, not surprisingly, focused on his spectacular fall rather than what he had contributed to the auto industry. And so now we have the author trying to restore a little bit of that balance. Says, "The New York Times mentioned only that he had been responsible for the building up of General Motors, when in fact, he had created the company single-handedly." That's a hell of a statement. Now, listen to the difference in how Alfred Sloan was utilized.

• 4:02David Senra?

  "When Alfred died, all of the obituaries focused on how he had led General Motors to such heights. Under his leadership, the company's share of the US automobile market had risen from 12% to 52%. Its organizational structure and product strategy were emulated by corporations around the world. Its an-" this is a crazy sentence, check this out. "Its annual revenues surpassed the annual gross national product of half the world's countries."

• 4:27David Senra?

  Now, why I found this book so fascinating? Because there's this gigantic paradox that is present as you read this book. And that's something we've talked about over and over again on the podcast. And the author does a great job right here in explaining the paradox of the book in two sentences. He says, "Sloan's most constant criticism of Durant was that he acted on instinct and whim rather than facts. Yet the achievements and decisions of Durant, the dreamer, were what made Sloan the manager's spectacular career possible." That's why I said at the beginning, you can't really understand Billy Durant if you don't study Alfred Sloan, and you can't really understand Alfred Sloan if you don't study Billy Durant. That's what we're doing today.

• 5:10David Senra?

  This is my, the note I left myself here, is this is why I think you should read the book. It has lessons in it that benefit your life and career. So it says, "Business theorists, executives, and investors alike are questioning whether the structures and policies established by Alfred Sloan have become barriers rather than enablers of speed and innovation in the 21st century. Leaders in all kinds and sizes of companies are attempting to redefine their enterprises in a world far more complex, interdependent, and uncertain than either Billy or Alfred could have envisioned. They are also struggling to resolve many of the same core issues that Billy and Alfred faced. Those leaders and companies look for new insights about what works and what doesn't."

• 5:53David Senra?

  The story, and this is his main point right here, "The story of the ascendance of Billy, Alfred, and their general is more relevant and more filled with lessons than ever." Okay. So I'm going to go back and forth and constantly compare and contrast Sloan's philosophies against Durant's. And we're going to see how they might work in one aspect of a company. Maybe Durant's, obviously, talents were more suited for the founding and the beginning of new organizations, and Sloan was definitely, Sloan thought of himself as a professional manager. I would say Durant thought of himself as a gambler. So here's Sloan talking about like, what is harder? He has a point here.

• 6:36David Senra?

  Now, we celebrate the unique, on this podcast, we celebrate the unique skill set, personalities, approaches to life of people that start

• 6:47David Senra?

  And start something from nothing. But it's a lot. Sloan's point is it's a lot harder to stay successful than to attain temporary success. And so that's where you have to give Sloan his credit. Like Billy, over and over again in his career, started out with many different, he was able to achieve success in many different domains, yet he lost it. Sloan maintained it for three decades. And this is what he says, "The perpetuation of an unusual success or the maintenance of an unusually high standard of leadership in any industry is more difficult than the attainment of that success or leadership in the first place." And in that statement, I think he's clearly saying, "There's tons of people that start companies and those companies can be successful a short amount of time.

• 7:30David Senra?

  There's a lot fewer that are able to maintain success as long as I have." 1920 is an extremely important year in the story. That's the year that Billy Durant gets kicked out of GM for the second and final time. And shortly thereafter, Alfred Sloan is promoted and takes over the company. Now, this was fascinating to me. These are the top American industries in 1920. And just a reminder, that change is constant. It says automotive production ranked number one among the nation's top 10 industries. Okay, 20 years earlier, it wasn't even an industry at all. Clothing was a distant second, followed by coal. And you'll never guess what number four was, and it's on its way out. It was hay. All right. So one of the main criticisms that Sloan has of Durant, he does say, you know, definitely

• 8:14David Senra?

  a founding genius, definitely did have talents, was definitely a great leader, but he thinks that he ran a sloppy company. And Sloan valued precision. And so this is Sloan on the sloppiness of GM under Durant. He says, "Alfred Sloan saw growing problems where others seemingly failed to see anything beyond a constant flow of black ink and revenue growth. While he felt a moral obligation to help the enterprise that had given him his greatest opportunity, he also believed the enterprise was threatened by the leadership failings of its visionary founder, who also happened to be the man who had hired him." And I'll go into more detail later on how they went up working together. In Sloan's mind, high-flying Billy Durant had fallen victim to the news media's glowing headlines and his own boundless dreams.

• 8:59David Senra?

  That's something else you want to know about Sloan.

• 9:03David Senra?

  He was very different than Henry Ford and Billy Durant. He did not want personally, he did not want to be personally in the limelight. He wanted his company to be in the limelight. Sloan was convinced that too much of General Motors' growth had been financed through the issuance of stock and Billy's personal charm, rather than through cash and hard assets. He was convinced that the dozens of separate business units within the company were out of control. So he's going to continue about why he's worried about General Motors, and this is before, this is, I'll say 19, actually, this is in 1919. So before Billy Durant gets kicked out. And it says Sloan's doubts about Durant's leadership had begun surfacing in the spring of 1919. The catalyst was the abrupt resignation of one of Durant's most able lieutenants and Sloan's best friend, Walter P. Chrysler.

• 9:48David Senra?

  Chrysler, at the time, was in charge of all General Motors' manufacturing and was the highest-paid man in the entire auto industry, with an annual salary exceeding $600,000. So it's an insane amount of money to be making in 1919. The reason I bring that up, though, and the reason I wanted to tell you about that is because a few years earlier, he got recruited by Durant, Chrysler got recruited by Durant, and he starts off with a salary of $6,000. So from $6,000 to $600,000 in just a few short years, it's just a reminder that life's a lot more nonlinear than we think. Some people, especially when I talk to people that are not entrepreneurs, investors, people that maybe, you know, are used to the normal pay structure in a normal company, it's like, okay, maybe I make X amount this year, next year I might make, you know, 2% more than

• 10:33David Senra?

  that, the year after I might make 2% more of that. But there's tons of opportunity out there where, you know, it's not 2%, you can go to 2,000%, and you can do it, in some cases, really, really fast. So why would Chrysler quit? He was undoubtedly one of the most talented people in the early automobile industry. Well, Chrysler had a disdain for Billy's leadership style, and we're going to see a lot of that today. Where a lot of the people around him, the people that had strong personalities, the people that were not yes men, had, they were in constant conflict of Billy because they did, Billy, through his actions, I don't think he did this intentionally, through his actions, he showed that he didn't value, he valued his own time, but he didn't value the time of the talented people around him. And if you're an extremely driven, curious

• 11:16David Senra?

  and talented person, you're just not going to put up with that. And Chrysler didn't put up with that. So he says, "More than once Chrysler had been summoned by Durant, only to be kept waiting, then to discover that the urgent matter that needed to be discussed was nothing that couldn't have been resolved quickly at the plant level, rather than wasting top management's time and brainpower." Something to know about Durant, you would call his, his method of management, micromanaging is really what you would call it. Now, Sloan's description of 1920, of what's taking place and why he was so worried, tells us a lot about, one of Billy's, in my opinion, his largest weaknesses, in that he was constantly distracted. So I want to read this section to you, and I also want

• 12:00David Senra?

  to, while I read this to you, keep in the back of your mind, if you listen to the podcast I did about the founder of IKEA, Ingvar Komprad, and how he described himself. We're going to see some similarities between Ingvar and Sloan. So Sloan described the 1920 predicament as follows, "Everything, if we kept on our course, added up to just one way, ruin." Okay, so if you remember back on Founder's number 93, the genius that is Ed Thorp, he warned us explicitly. In his autobiography, he says, "You must avoid ruin at all costs." You don't take risks if there isn't a tiny, tiny probability of it ruining you, you don't do that. So he says, "I could not protect my," this is back to Sloan, describing the conundrum, because he almost, before Billy was fired, he was about to resign too, just

• 12:44David Senra?

  like Chrysler was. So he says, "I could not protect myself and sell my stock without being disloyal to Durant. That was impossible. I wanted to think this matter out." So he calls a meeting with Billy. He says, "I'd like a month's leave of absence, Mr. Durant." He was telephoning. Sometimes I used to feel as if he was always holding a telephone in his hand. I think there were 20 telephones in his private office and a switchboard. He had private wires to brokers' offices across the continent. In the same minute, he would buy in San Francisco and sell in Boston. My fingers were drumming on his desk. And this is, this is, this is, he's right here. And I think this is the most important sentence of this section I'm reading to you. "It did not seem to me that the operating head of a corporation had any right to devote

• 13:29David Senra?

  himself to the market, even if the stock of the corporation was involved." You can't run a gigantic corporation, and GM already in 1920 was a gigantic corporation, part-time. Especially when most of your day you're spent buying and selling stocks. What are you doing, Billy? He looked up. "What is it?" There was a fleeting smile. And this is, also tells us a lot about why Billy's so likeable and his personality. He says, "He was never too tired to be kind." "I wish to go away. I'm not feeling well." "Certainly," he said. "That'll be perfectly all right with me. Get some rest." "I went to Europe and I made my mind. I'd return back to New York and I would resign." "But on the day I got back, I walked into the office and I sensed something unusual. Where's Durant?

• 14:12David Senra?

  Gone away, a month's vacation." "He had never done anything of the sort before. I decided to postpone my resignation." And now this is, we get to the part where how Sloan thinks about himself, which is extremely important when you, when you study founders. How do they describe themselves? "I was a manufacturer, and this could be, this could be the grandest manufacturing enterprise the world had ever seen. I did not want to leave. So I said to myself, 'I'll ride along a while and see what happens.'" So Sloan is described by other people, genius executive, gifted engineer, great manager. But he describes himself as a manufacturer. The reason I bring that up is because when I was studying the founder of IKEA, and if

• 14:55David Senra?

  you haven't gone back and listened to that podcast, I highly recommend you do, think about it. Ingvar Kamprad founded IKEA when he was 17 years old, worked on it till he was 91 years old. He might be, in human history, he might, he might be the person, the sole owner, ignoring the complicated.

• 15:13David Senra?

  Organizational structure that he used later in his life. He owned all of IKEA and he probably died with a net worth somewhere at $60 billion. But the reason I bring that up is because, you know, people talk about him as a great entrepreneur, gifted managers like Sloan, but he says, "I'm a furniture dealer." And I think there's something beautiful in just thinking, what do you, like, what is your sole purpose of what you're doing as your craft? And for Ingvar, he's like, "I'm just trying to manufacture and sell you furniture." And for Sloan, he's like, "I want to make things. I want to manufacture things and I can't leave GM because this might be the grandest manufacturing enterprise the world has ever seen." Okay, so just how big, what I love about this book is it adds additional context that

• 15:55David Senra?

  wasn't in the biography of Durant that we covered last week. So just how big was the crisis at GM? Well, a good way to figure out how big the crisis was is what did they have to do after Durant left? And this is, this is what Sloan was tasked with dealing with. He says, "The way in which General Motors dealt with the issues of organizational structure, production control, forecasting, brand management, finance, leadership, development, and communications became the paradigm for all large companies during the following 50 years until a handful of Japanese manufacturers established a new manufacturing and marketing paradigm and forced General Motors to again deal with the same problems that had almost sunk it in 1920." So that's everything that he had to redo and think about, basically from first principles,

• 16:39David Senra?

  like, how would I do this? Let's not pay attention to how Durant organized the company. Like, how do we make sure that this company survives? Okay, so I want to go back to Durant for a little bit and fill in a little details about his personality, who he was as a person. And kind of, the more we understand him as a person, we kind of understand why he made some of the curious decisions he made. It says, "Billy faced the crisis that won in 1920, as he did all others, with resolute and incorrigible optimism. That optimism had already taken him on one of the most incredible journeys of anyone of his generation, maybe anyone in history, I would say. Where did the optimism come from? What was it in Billy's genes and character that had led the high school dropout from rural Michigan to even dream of building an empire that would change the world?"

• 17:22David Senra?

  And then what also makes it interesting is the author's going to compare and contrast. What made him so different from Sloan? What led then to take such opposite approaches to leadership and management? And in the end, were they actually more alike than either would ever imagine, let alone admit? In the end, Billy Durant was perhaps not only the most forgotten, but the most enigmatic of the 20th century's greatest entrepreneurs and innovators. He was the son of an alcoholic father who abandoned his family. He was raised by a socialite divorcee in the era where single mothers were shunned. He was a high school dropout, a devoted son, but a distant father. The romantic suitor of a teenage girl younger than his own daughter.

• 18:05David Senra?

  A tea taller who passionately supported the prohibition of the sale and consumption of alcoholic beverages. A constant dreamer, never content to hold one job or stay focused on just one enterprise or endeavor. The creator of what was to become the world's largest and most effective enterprise, only to lose control of it twice. And the Warren Buffett of his day, at one time leading an investment syndicate with more than $4 billion in paper assets. More about his personality. People who claimed to know him well and even his enemies always put integrity at the top of the list of his character traits. This is why I say he's the most likable of any automobile founder that I've studied so far, including Sloan. He's much more likable, he's much more personable.

• 18:48David Senra?

  Not only was he never too tired to be kind, but he had high levels of integrity. More about his personality here. He was asked, "Do you ever worry?" "Never," Billy answered with his usual smile. "In the daytime, I'm too busy, and at night, I'm too sleepy." He had very few close friends, but hundreds of business associates, all of whom claimed to know him well, but few of whom had an inkling of the demons behind his drive. So what do they mean there? It's very hard because he didn't leave a lot of writing behind, but a good indication of why he was so driven, why he pushed himself so hard, was that he was driven not to end up like his loser father. Remember, his father was an alcoholic, a gambler, abandoned his family, divorced his wife.

• 19:32David Senra?

  You know, they call him a ne'er-do-well. Just a loser is another way to think about it, and he was terrified to end up like him. With Billy, the deal always came first, the details later. That also comes back to bite him later on in life. More about his personality, his management style. He would later quip that titles never concerned him. What did concern him was being at the center of the action and in charge, and that he was. So he very much had dictator-like tendencies, like most of the people that found companies like GM and otherwise. But the interesting thing is, yeah, he was dictator, yeah, he was a micromanager, but he was also nice. Normally, we see the people that have these dictatorial personality traits, they can be really harsh and cold.

• 20:16David Senra?

  In fact, I would say Sloan has actually has those personality traits. He's very cold, wouldn't suffer fools, essentially put the bottom line above everything else. All right, so here's a lesson from Durant. I touched on this a little last week, but again, it comes up over and over again in these books, different industries, different time periods. It's just too important not to bring up to your attention. And it's the idea that you need to control things that are important to your life and your business. Billy Durant would never forget the bitter lesson of what he saw as Paterson's treachery. So this goes back to when he was assembling carriages, which is, think of horse carts, this is before the automobile industry. He sells all these carts, and then his manufacturer winds up cutting them out of the deal and

• 21:01David Senra?

  saying, hey, I'm the one making carts, just buy them for free. So the lesson here is always control your own production and whenever possible, all the links in the supply chain. So this is something that Billy Durant figured out the hard way. Henry Ford figures this out. The Dodge brothers figured it out. Almost every single person in the automobile industry realizes that one part, you're missing one part from an automobile, you can't ship it. So you have to control everything, or else you're going to wind up with bottlenecks that are going to cost time and energy. Now, let's go back to Sloan. This is personality. Through it all, Alfred remained the quiet, virtually unseen master planner and operator. Silent Sloan was what many of his colleagues had called him.

• 21:44David Senra?

  Now, just like Billy, and I think all of us, he's had demons and things that, you know, maybe he didn't share with other people, things that drove him deep, you know, on a deep psychological level. Says beneath that image of the perfect modern CEO, there was also demons and faults. He held grudges. He suffered no fools, even if others told him they weren't fools. And he put the bottom line above everything else. Interesting enough, Sloan was actually, so he, he had this like fanatical, controlling desire to control all messaging around General Motors. He was adamant that every communication would help the customer, the company, instead of management. And interesting enough, General Motors was the first company

• 22:28David Senra?

  to have full-time in-house public relations staff, which is extremely common today. So it says, "Every message was crafted and targeted to further the company's own agenda, not Alfred's own glory." An example that many chief executives later on wished they had, they had followed. So one, I think this is, this is just part of his personality. He did not like the limelight. He just was much more focused on engineering and manufacturing. But I think he wanted to course correct because he thought Billy was obsessed and kind of like high off his own press. Because Billy Durant may not be well-known today, but in the late 1800s, early 1900s, he was really, really famous. Okay, so Sloan was also the opposite of Durant in the regard that,

• 23:09David Senra?

  and this is where I, I respect Sloan in this regard more than Billy. And I go back and forth between the two. Sloan had a singular focus, and I think that's essential. The people that I most admire had this singular focus. And his, Sloan's singular focus was General Motors. So it says, "By the early 1930s, Alfred Sloan was widely considered to be one of the richest men in the world, but he had no known hobbies and never sold a single share of General Motors' stock. His only investment of either time or money in anything beyond the domain of General Motors was the purchase of one yacht at the urging of friends and his wife. And interesting enough, He only used the yacht a few times and then he wound up selling it. He did not smoke, hardly ever drank, and never played any sports. Now, this, I'm not, I like that he's singular focus.

• 23:53David Senra?

  I also don't like, I would never want to be described as their, as the New York Times is about to describe Sloan now. He says, "They described him as a functional, frivolous man. Mr. Sloan was of, was of that school for whom technology was progress, life was work, money was a measure of success, and success the goal." So, just to clarify, I think, obviously, being of a singular focus is a way to achieve great things in your, in your career, but, you know, you also gotta enjoy the time we're here. So, I think maybe Sloan was too much on the spectrum of, hey, I literally only think about General Motors, and only General Motors. Okay, so I'm gonna give you a preview too of next week's book.

• 24:37David Senra?

  And that's My Years with General Motors. It became an immediate bestseller and a manual for up and coming would be corporate leaders. Now, I want to go all the way back to, one of the people that I've studied on the podcast that I respect the most is this guy named Henry Singleton. And I didn't even know who he was until I started studying the writings and speeches of Warren Buffett and Charlie Munger, and they kept bringing up, they've said over and over again, hey, the, the failure of business schools to study people like Henry Singleton is a crime. Charlie Munger said Henry Singleton, his returns were, I forgot what he said, like, ludicrous, or absolutely insane, something like that. And so, I wound up reading two books and I did two podcasts on Henry Singleton. I highly recommend you go back and, and listen to them and then read the books, because Warren

• 25:19David Senra?

  Buffett said, "If you added up the top 100 MBA graduates in America and you compare their record to Singleton's, Singleton's would beat them all." So, it just gives you an idea. And the reason I hold Henry, Warren Buffett and Charlie Munger in such high regard in terms of this is because, how many other people do you think have studied more founders, businesses? They've been, they've been at their craft for, you know, six, seven decades, or whatever it is. Just the amount of people and companies that they've studied, it's gotta be, they have to have studied more than maybe almost anybody else in human history. So, when they tell you that, hey, this guy is worthy of your time and attention, to me, it's a no brainer. But, what does that have to do with the next week's book? Because Singleton read Sloan's book.

• 26:03David Senra?

  And in that book, Sloan goes into detail about, hey, if you're building a company, you need to have a relationship or ownership and strong financial institutions. GM did not have that in 1920 and almost sank us. So Singleton read the book and it completely changed the way he created his company. His company was this giant conglomerate called Teledyne. And so he didn't just read the book and put it down and went about his day. He's like, oh, okay, I'm going to listen to this. And he made the ownership of financial institutions, and I think it was insurance, if I remember correctly, a cornerstone of Teledyne. So again, these books, I go back to this quote that's in Poor Charlie's Almanac. It says, "There's ideas worth billions in a $30 history book."

• 26:45David Senra?

  Now they're talking about why does Charlie and Warren and Henry and all these other people study history so much? Why is this exactly what we're doing? It's because that's, in Singleton's case, that is literally true. Reading that book had a multiple billion dollar effect on the outcome of Teledyne. Okay. So that's next week, I'll go into more detail. Now, let's go to more about, let me fill in some of the details that we're currently lacking with Sloan the person. So let's go back, as you could imagine, as a young person, founders, usually the people we cover, you know, they're not really into school that much, formal education. Billy dropped out of high school and says, "Mom, at 17, I want to go work." Sloan was the opposite. He was an excellent student. Says Sloan had a keen interest in mechanics and engineering. After high school, he was admitted to the Massachusetts Institute of Technology.

• 27:29David Senra?

  He graduated in just three years with one of the highest academic records of any MIT engineering alumnus up until that time. Now, you might have heard of the Sloan School of Management at MIT. It's named after Alfred Sloan. Okay. So this is the interesting part, too. We always talk about this idea that, hey, sometimes the best way to learn something is to see it done the incorrect way. So at his first job out of school, he's going to work at this, they make bearings. And this is also the company he's going to wind up taking over and selling to Billy Durant later. It's kind of crazy. But that's not how it started out. His first time there, he's like, "This company's so poorly run," he quit. So he says, "And things were even worse beneath the surface, with employees never knowing for sure whether their next paycheck would be there.

• 28:12David Senra?

  He quietly observed and studied the company's mismanagement. Sometimes seeing things done the wrong way teaches you more than seeing things done the right way." That company is called Hyatt Roller Bearing. They wind up, they can't even make payroll, so they're about to go under. Sloan, his father, and a small group of other investors decide, he doesn't have money, but the older people do. And they said, hey, we're going to buy this company, try to turn it back around. And he turns it around a great deal. Sloan is very gifted. Now, again, I think his personality is a little weird for me, but what he has to say is, in terms of management, organizational structure, we should definitely listen. And you see this talent from a very young age. Okay. Thus Sloan was given his first leadership assignment and a shot at saving the business.

• 28:54David Senra?

  Part of the deal was that Alfred and his friend Pete would have six months to return the business to black ink. No excuses. Okay. That sentence, right there. No excuses. So this is, his dad and other investors are telling Sloan, you have no excuses. This is something that Sloan, in turn, uses his whole career. Sloan's kind of like Yoda. For Sloan, there's no, there's no trying. It's either you do or not do. You either accomplish or you don't. But he did not, he just wouldn't accept excuses. Like, you're going to turn a profit, you're going to run this company well, or you're going to, or you're going to be removed. Their backers gamble paid off quicker than they could have imagined, with Sloan handling production and Pete, that's his partner, handling sales. The company turned a profit in the first six months, in that first six months of trial

• 29:39David Senra?

  period. Okay. Now, this is really interesting, because this is also, the company he's turning around is the one that Durant buys. But in the building of this company, we are going to observe through his actions, that there is a key ideological difference between Sloan and Durant. So here goes. Sloan's struggle and success at Hyatt Roller Bearing during the early years always remained one of his proudest memories. When he sold the company to Billy Durant for 13.5 million, he wrote a long letter describing Hyatt's growth over the years. What Alfred didn't mention in his letter was that Hyatt's growth had come from reinvestment of the company's own profits, rather than the acquisition and stock market strategy mastered by Billy Durant.

• 30:24David Senra?

  A divergence of the fundamental strategy. Why is this important? Why am I bringing this to your attention? Because this divergence of this fundamental strategy would be at the core of the General Motor Crisis of 1920. Now, after studying Henry Ford, Dodge Brothers, Durant, and now Sloan, I would say Sloan...

• 30:45David Senra?

  Durant's kind of the outlier here. Henry Ford, Dodge Brothers and Sloan, they wanted to try to grow through companies on profits. They were not fans of speculation. Remember Dodge Brothers were super rich when they started manufacturing cars. So they owned everything. They didn't have to listen to anybody. And as a result, they were able to move fast and make decisions rapidly. Left them time, many times, they left them an abundance of time to get drunk every night in the bars in Detroit. Okay. Ah, this is an important lesson from this time period that we're studying. New important industries can start out looking as toys. Remember, our species has no predictive ability. None. So it says, "When Sloan began lifting Hyatt from the ashes in 1899," how crazy is that?

• 31:30David Senra?

  "The automobile industry in America was no more than the strange and wild obsession of a few tinkers and an amusing diversion for the wealthy investors who backed them. Cars were still widely considered impractical toys and dangerous nuisances." When he was first, this is what I mean by, by humans have no, have no predictive ability. "When he was first approached about doing business with one of the hundreds of small manufacturers, he didn't take it seriously." So why are they approaching Sloan? I need to back this up. Sloan takes a very similar path that the Dodge Brothers did. He sold in a gold rush, which is what the early automobile industry was, he sold pickaxes. So he sells bearings. Bearings go in the axles. So think about it like this, the car supplier, the automobile manufacturers, they have to buy axes, axles.

• 32:14David Senra?

  The people that are selling them axles have to buy bearings. They're buying bearings from Sloan. That's how this all relates together. Okay? So Sloan doesn't wind up taking this opportunity seriously. Until he's contacted by this guy named Elwood Haynes. So Elwood Haynes was built, he built what was believed to be the second functioning automobile in the United States. And this was all the way back in 1894. So he contacts Sloan's companies, he's saying, hey, will these bearings work better for the cars I'm making? This is what opens Sloan's eyes to a gigantic opportunity. So he's like, wait, if my product is useful to one automobile manufacturer, why wouldn't be useful to all of them? So you see him reorient his entire company around this. So it says, "At that, at that point, the light bulb clicked in Sloan's mind. As he later recalled, 'That first Haynes order woke us up.'"

• 33:00David Senra?

  If one automobile manufacturer wanted something better than ordinary greased wagon axles, why shouldn't we sell, why not sell to all of them? So that gets the ball rolling. And then very soon after this, he gets a gigantic order where he's like, oh my God, the opportunities here are even bigger than I thought. In the summer of 1900, he finally received the order that made him refocus his entire business. It was an old order for a car called Oldsmobile that would soon transform the auto industry from hand assembly to volume production. So before, obviously, the Model T is the most successful of the earliest, like the largest, the most cars mass manufactured, right? But before that, you had Oldsmobile, I think it was called like the dash or the curved

• 33:45David Senra?

  dash or something like that, was the most, before the Model T, that was the most successful in terms of sheer units automobile manufacturer up until that point. And Sloan has the contract to make the bearings. All right. What, again, goes back to our inability to predict the future. This section I'm going to read to you right now, just keep in mind as I read it to you that more than 100 years, more than 100 years after this point, you and I are doing the exact same thing right now. So it says, neither Sloan nor Billy Durant yet saw the automobile as his destiny, but they had many traits in common with the strong willed cast of characters who were then shaping the infant industry in America. Those same characters would influence both Billy and Alfred's view of business and their destinies.

• 34:29David Senra?

  Both men would carry the lessons learned from the early pioneers into their future endeavors. Yes, let's go. Now, now, something I'm always fascinated by is take the people you admire and see who they admire. I think it tells you a lot about a person by who they admire. And Sloan admired and copied Henry Leland, who was the founder of Cadillac and Lincoln. And I'm going to spend some time telling you, there's a lot of lessons, I think, in this section here. So it says, of all the automobile industry's unique and colorful characters, the one whom Alfred Sloan most admired and emulated was Henry Leland. Leland was a perfectionist who expected and demanded higher standards than any of his peers. He accepted no excuses and suffered no fools. Sloan devoted devoted more words and detail to what he learned from Leland than he did any other person.

• 35:15David Senra?

  So Henry Leland also had this reputation as a hard task masker. And here's an example of that. Stories of the old man, that's what he was called, walking through the plant and foundry, kicking and throwing faulty castings aside, became legendary. Often, this tells you a lot about these standards, these high standards that Sloan wants to emulate. Often, the parts he angrily discarded because they did not meet his own standards had actually met those of his customers. But that didn't matter to Leland. So now I'm going to tell you this quick story of Leland lashing out at Sloan over product imperfections because he's buying bearings from Sloan. So it says Hyatt won the business after Leland found fault with several other bearing makers.

• 35:58David Senra?

  When the old man also found fault in the Hyatt bearings, he called Alfred Sloan into his office for one of the most severe tongue lashings Alfred would ever experience. Sloan describes this encounter. "Mr. Sloan, Cadillacs are made to run, not just sell. On his desk were some of our roller bearings, like the culprits before a judge. These bearings should be accurate, one like another to 1,000th of an inch. But look here." I heard the click of his rigid fingernail as he tapped it against a guilty bearing. "There is nothing like uniformity here." Precision-trained Henry Leland seemed to be out of patience with all bearing manufacturers. "But he had some excuse to be short-tempered with us,

• 36:41David Senra?

  as I discovered when he challenged me abruptly. 'Mr. Sloan, do you know why your firm received this order?' As I started to answer, he got up, strode over to a window, becking me to follow. He pointed into the factory yard, where a lot of axles were piled up. 'The bearings in those axles out there did not stand up under the Cadillac load,' Leland explained. 'They broke and crumbled. We canceled the order. Unless you can give me what I want, I'm going to put your axles out there besides those rejects.'" Sloan, now reflecting on what he learned from that unpleasant experience. And this is where you have to respect Sloan. You know, some people might be like, oh, this guy was rude to me. He's yelling at me. You know, they might, they might approach it from like an emotional standpoint. Sloan had the exact opposite.

• 37:25David Senra?

  This guy is right, and I need to, I need to get my own standards up. So he says, this is now Sloan talking. He says, "A genuine conception of what mass production should really mean grew in me with that conversation. I was an engineer and a manufacturer, and I considered myself conscientious. But after I had said goodbye to Mr. Leland, I began to see things differently. I was determined to be as fanatical as he in obtaining precision in our work. An entirely different standard had been established for Hyatt bearings as a result of Leland." So what's happening? He's telling us a bunch of things. One, something that comes up over and over again. Comfort is a false god. You are not going to grow, you're not going to reach your potential if all you do is seek comfort.

• 38:07David Senra?

  Sloan's reaction to getting dressed down by Leland is exactly right. I need to get my standards up. I was recently just going over my notes for Ed Catmull, founder of Pixar, co-founder of Pixar, Steve Jobs. His book, fantastic book, Creativity, Inc. And in one of them, he tells a story about what he learned from when the space race between the Soviet Union and the United States. And when, when Sputnik beat the United States to orbit, he said that he loved, he said that the response from the US government at the time was, I can't remember the word he used, enlightened or something like that. But he said, oh, their, their reaction to this challenge was, okay, we need to get smarter. And that's something that's stuck with Ed Catmull's whole life.

• 38:52David Senra?

  And you're seeing that here with, with Sloan in a completely different domain. He's like, okay, you're right. Your, your standards, I thought I had high standards. And then I got next to you. And now as a result, because I, I'm taking what you're telling me as a lesson, Leland's a generation older than him. So it's almost like a father figure in some sense. He said, okay, my standards will go higher now. I love that. Oh, here, he talks, so this is more on Sloan on Leland. He said, "Quality was his god," meaning Leland's god was quality. Says, "Mr. Leland was a generation older than I, and I looked up to him as an elder, not only in age, but in engineering wisdom. He was a fine, creative, intelligent person."

• 39:31David Senra?

  Back to Billy. Now, we have this precision, this rigidness, this professionalism in Sloan, and that, in contrast with Billy's, like, he's just a wild person. But he's also, again, we need the wild people. We need them. We need them both. That's the point of this podcast, right? Billy's crazy. And so it says Billy told, we need visionaries and weirdos like Billy Durant. It says Billy told his two friends that day that the day would soon come when a single car company would sell 10,000 and even 10,000 vehicles in a single year. Remember, this is the early 1900s, okay? There's no Model T yet, none of that. They're hand-making these cars. So he's like, "We're gonna sell 10,000, even 100,000 vehicles in a single year."

• 40:14David Senra?

  His two friends is Nash and Dort. He says Nash turned to Dort and declared, "Billy's crazy." Yes, but we need those people. Okay, so let me go now, I've been talking about Sloan's management style and the things that are important to him. Let's go a little bit more about Durant. It says, "Life was not simple for the lieutenants of the hard-charging Durant. He expected his executives to push themselves as hard and as fast as he's pushed himself, which was further and faster than most normal people, especially those with families, could endure over an extended period of time. He'd burn people out, just like Henry Ford, just like a lot of these hard-charging people. They might be able to work with you for a year, two years, five years, but they're not lasting decades. Each man also knew that Billy would

• 40:55David Senra?

  take any liberty at any time to offer new ideas and suggestions, as well as questions." And so the author says, "This style would later be called micromanagement." I thought this idea was really interesting. This is how Billy viewed time. "Time to him was one of life's most precious elements." It's the same for all of us, even if we don't think about it. Of course, it's literally what life is made out of. "Time to him was one of life's most precious elements. While he spent uncounted hours on any detail he thought important, the waste of a minute was in his eyes an affront to the divine creator." Okay, so I bring that up because everybody knows, you know, we shouldn't waste time, we shouldn't, it's non-renewable. But here's the problem. He's like,

• 41:36David Senra?

  The waste of a minute was in his eyes an affront, but he wouldn't let you waste his time, but he would waste the time of other people. And as we saw with that earlier story with Chrysler and all these other people, even DuPont, which plays a large role in this story, comes to bail him out. And he makes DuPont, who's supremely successful in his own right, supremely wealthy, and makes him wait for a few hours in his... This is not a good trait you want to have. And I could see why people got, especially people that are, you know, that have self-respect. Like, I'm not gonna... My time is valuable too. And when you... By your actions, Billy, you're saying that your time is more valuable than me. And that's probably not a message you want to be sending people around you.

• 42:20David Senra?

  Here's another lesson from Billy, and it's really a lesson of something that he failed to adhere to. You need drive, but you also need focus. So it says, "Not even Billy's worst critics would charge that he lacked energy and drive. The problem was focusing that energy and drive." So we have to talk about the skillset of Billy Durant, too. He's very different from the early tinkers. So Leland is a machinist. He could make the car. Ford could make the car. Dodge Brothers could make the car. Billy could not. So he might not have been able to make the car, but he could tell if the customer's getting a good product or not. And this ties into the fact that he just had a supreme belief in his ability to sell anything. And so this is the early days of Buick. Buick is one of the first companies he takes, automobile company he takes over, which starts in a few years from now, starts

• 43:05David Senra?

  GM. But this is also, again, not everybody's gonna be technical. That doesn't mean you don't have contributions to make. And in this sense, what I'm about to read to you, I want you to think about all the podcasts. I think we've done six podcasts now on Steve Jobs. Think about what we learned on those podcasts as we go through this section now, okay? During this time, Durant, a non-tinkerer and non-mechanic, took the Model B, which is the Buick car, through its paces. He personally tested the car not only for its performance durability under differing driving conditions, but for its comfort, visual appeal, and ease of operation and maintenance. He quickly concluded that it was the perfect car for the non-technical operator.

• 43:46David Senra?

  So what is he doing? He's testing the car just like a customer would test it. Says with no technical experience of his own to guide him, Mr. Durant applied the only test he could, but he did so with thoroughness. So when I read that section, I thought, this is, Steve Jobs would be proud of Billy Durant. Remember when he talked about when you're demoing software to Steve Jobs, you were not allowed to give him any explanation. So he says, like, when they'd start like, "Okay, well, this is what I was thinking when I was made this." Steve would cut him off. He's like, "Are you gonna be there when the customer uses the device?" And the person doing the demo is like, "No." He's like, "Okay, you're not. So I'm going to..." Steve is saying, "I'm going to go through your demo as the same way a customer would. Just like you're not gonna be there over my shoulder, over the shoulder of a customer explaining,

• 44:31David Senra?

  "I'm not gonna allow you to do that here." So I think that's just a really good idea. Now, going back to this idea that you need drive and focus, there seems to be a correlation between Billy being focused and Billy succeeding. So it says on number one, first, 1904, Durant officially assumed manager responsibility of Buick, and he abandoned his security office in New York and moved back to Flint full-time. He was fully committed, fully focused, and fully energized. What is the result? A wild success. It's only when Billy takes his eye off the ball that he runs into this trouble. And obviously, he's got like some kind of severe gambling speculation problem. Because he, like, it's one thing to make, you know, you can make a mistake, get caught slipping one time, but he makes the same mistake over and over again. And we see the same thing when he gets kicked out of...

• 45:14David Senra?

  So he gets kicked out of GM the first, the first time, and he goes and founds the company Chevrolet. And Chevrolet's wildly successful. He's also focused on it. This is Sloan on... He gives Durant credit that Durant was early. Remember, Durant built the GM of horse-drawn transportation before there was the GM of automobiles, right? And so Sloan is explaining what Billy tapped on, that vertical integration is really important. Why was it so important in the automobile industry? Well... Durant had a huge advantage because he realized if it's important in horstron transportation, why wouldn't it be important in automobiles? So it says, and this is Sloan explaining why.

• 45:57David Senra?

  "Every piece of the motor car is essential in the sense that the automobile is not complete unless every part is available. A delay in delivery of any part stops the work." These are giant companies, so if you have to shut down or wait a day or a week for a part, that's going to cost you, that could be the difference between a profit and a loss. A dependable, Sloan continues, "A dependable supply of parts might well make the difference between success and failure." Okay, I just used the word profit-loss, he's using success and failure, same thing. Now, this is Sloan on the state of the automobile industry between 1900 and 1910. Okay, and this is, again, he's giving credit to people like Billy Durant and Henry Ford. They were early to know what was about to happen, or they had an inkling to guess of what was about to happen.

• 46:41David Senra?

  Another thing to note, the word Ford, yes, this is a book primarily about Billy Durant and Alfred Sloan, it's also about the early automobile industry. So Ford is mentioned 450 times in this book. All right, Alfred Sloan summed up the growing competition this way. "No two men better understood the opportunity presented by the automobile in its early days than Mr. Durant and Mr. Ford. The automobile was then widely regarded as a sport. It was priced out of the mass market, and it was mechanically unreliable, and there were no good roads. Yet in 1908, when the industry produced only 65,000 machines, Mr. Durant looked forward to a 1 million car year to come, for which he was regarded as a promoter of wild-cut

• 47:25David Senra?

  ideas, so they thought he was crazy. Mr. Ford had already found in the Model T the means to be the first to make that prediction come true." A little bit about Sloan's personality, I mentioned this earlier, he did not like the limelight, he preferred to spend his energy on engineering over excitement. "Unlike Billy Durant and Henry Ford, Alfred Sloan preferred to be in the background, even as his reputation as a shrewd executive continued to grow. He felt that the automobile business was attracting a host of persons who had strong appetites for excitement." Yeah, a bunch of misfits. Sloan saw himself as a different breed, dealing with those persons that had a strong appetites for excitement only when there was a need for what he saw as his own unique technical expertise.

• 48:08David Senra?

  A little bit more about Henry Ford. Because again, I think this is one of the most important, the most important lessons, key takeaways out of any book or life story that we've covered so far, and it's the fact that Henry Ford had one idea. And all you need is one idea to build a life on. Now, it also helps that the fact that Henry Ford's one idea was literally different from every other automobile manufacturer. And he says, "He was determined to concentrate on the low end of the market, where he believed the high volume would drive costs down and at the same time feed even more demand for the product. It was a fundamental difference in philosophy, meaning than all the other automobile manufacturers at the time."

• 48:53David Senra?

  Something that's also interesting that the author uses to, again, compare and contrast Durant's, you know, kind of outlier opinion as opposed to Ford and Sloan. And it says, "It led him," meaning Ford, "to resent many of the basic tenets of capitalism itself, especially the way that financiers and investors were driven by the profit motive, rather than what he saw as the more noble desire to create a product that would benefit the human race." So Billy's, you know, doing financial engineering, making a ton of money. Ford's coming at it from a completely different perspective and philosophy.

• 49:34David Senra?

  Now, I want to compare and contrast Durant and Sloan's approach to growth. For him, Durant, "The thrill was always in the next deal, not in the nuts and bolts of daily operations. In his mind, empires were built by conquest, not through internal growth. And the road to conquest was through other people's money and other people's confidence in his genius, rather than the quiet, conservative road of knowing the fundamentals of manufacturing and marketing, as was followed by the likes of Henry Leland and Alfred Sloan." So Sloan, remember Sloan says, "Part of the main issue that was occurring with GM around 1920 was the fact that they had all these different divisions, it was not organized

• 50:17David Senra?

  at all." And it's a reminder that, of this quote from David Packard, founder of HP, "That more companies die from indigestion than starvation." And that's exactly what happened to, that's a good way to describe what happened to GM under Durant. "His General Motors swallowed so many companies in its first two years that acute indigestion followed as a matter of course." This is Durant's pitch to other founders when he wanted to buy their company. This is as he's on his way up building GM. He says, "He promised the Leland's," he bought Cadillac, remember, "he promised the Leland's absolute operational independence under the General Motors umbrella, with no change in the company's name or identity."

• 50:59David Senra?

  This is a promise he made to virtually all the equally strong-willed, hands-on owners who brought their operations into the General Motors family. So, I want to bring that up to you because, as you know, I have a podcast, it's three hours long, where I read 54 or 56 years of Warren Buffett's shareholder letters. And this sentence right here, it says, "Strong-willed, hands-on owners," right? Supremely talented, you've built the company up, you're not going to want to work for other people. And so Warren Buffett talks about, the reason he has this extreme decentralization, combined with extreme centralization, that approach that he built, that him and Charlie used to build Berkshire Hathaway, is because he's like, "These people are not hirable otherwise. So I have to give them complete

• 51:44David Senra?

  leeway." Not only does he feel it's better, because he's just buying the best businesses in the world, but he's like, "If I micromanage them, they would leave. And I want their talent, so I leave them alone." And so, again, that works for Berkshire Hathaway, because they're buying great businesses. It did not work for Durant, because he bought great businesses, and he bought a bunch of crappy businesses, too. More on Durant's personality, "Neither Billy's confidence nor his energy was abated whenever a deal failed to pan out. For him, failure was only a temporary distraction." I think that is, that's such an important trait for all of us to try to emulate. Failure is just a temporary distraction, we just keep it moving. We're fine. Okay.

• 52:26David Senra?

  This is, I like how the author uses the word ironic here. So what, because what Billy wanted to do was what Sloan successfully did. That tells us the idea was right, but the management was not. So it says ironically, Billy's basic strategy had been one, uh, would one had been one that would later carry General Motors to unparalleled success under Alfred Sloan. Namely, a vertically integrated manufacturing network and a family of different brands and products that would create more volume and market leverage than the more narrowly focused competition could match. That is maybe the greatest, let's not, we don't have to use the word greatest.

• 53:07David Senra?

  It's one of the most important innovations that Sloan and Durant came up with at GM pioneered. And that's this idea that we're going to have a wide variety of products. Remember that's completely different where Henry Ford, he achieved with just the Model T made 15 million of them. But then by the time, by the time the market moved away from him and GM actually overtakes him through the Chevrolet brand, I think in 1929.

• 53:34David Senra?

  It worked temporarily for Henry Ford, but they saw Durant and Sloan, they were in the perfect position as they realized the more popular automobiles get, the more tastes that like the more variety of taste that the consumer is going to have. And guess what? Now I have all these different brands and I'm going to get you at the low end of the market. I'm going to get you in the middle. I'm going to get you at the top and I'm going to get you for your speed, comfort, all these different factors. And that's what, that's why, you know, when Sloan was done, he brought the market share from 12 to 50, 12% to 52%. Okay. This book, again, I'm going to bring up Ford because I, the author did a superb job of comparing and contrasting GM and Ford too, because these are the two leaders in the industry

• 54:15David Senra?

  at the time period we're studying and how, you know, what one was doing might work in, in that particular time period or that economic condition, but the other one maybe had a different philosophy. And again, and doing anything in life, businesses, building businesses, what they're doing, these are complex adaptive systems. They, they react in ways that are unpredictable. We all benefit from this, this constant experimentation of these different philosophies. Like how boring would business be if we had one way to do it? Or how boring would product creation be or anything that you're doing? If you, it was only done one way. So it's important to study all these different ones because you never know. What tool you need to use, given like your current situation and the constant changing environment.

• 55:00David Senra?

  So this is the two different approaches of J. Ford from 1910 to roughly 1920. Okay, and they're going to interact and weave in different ways throughout the book. So it says, "While the General Motors Bank Trust," this is after Durant's kicked out, "while General Motors Bank Trust focused on debt repayment and reorganization with great success," because they had to, "Henry Ford focused on production efficiency and price reduction with far greater success." So I'm going to go more into, that's from 19, it's not really 1910, let's call it 1915 to 1920. Okay, I'm also going to compare and contrast what they did in the following decade.

• 55:42David Senra?

  But first, I came across this paragraph, and this is so, to me, this says why innovation is so important and why we must arm the rebels. That's a quote from Toby Luque, I think is how you pronounce his name, he's the founder of Shopify. Shopify is having a lot of success, and so as it grows right now in present day, he gets a lot of comparisons to Amazon. And I love what he said, because Shopify exists to increase the number of entrepreneurs in the world, right? And why would you want to increase the number of entrepreneurs in the world? Because the more entrepreneurs are, the more innovation there is. And I'm going to tell you, like, there's like, all these effects that flow from the more innovation we have. So he's like, "Listen, Amazon's building an empire. I'm trying to arm the rebels." And I just love that mindset that he has.

• 56:25David Senra?

  So he says, "The automobile sparked not only the great oil boom," remember, the innovation that came directly from people like Henry Ford, Billy Durant, Dodge Brothers, all these people, it's really, really, you cannot understate, or overstate, rather, how important it was to the world that we live in now, the one that we inhabit over 100 years later. "The automobile sparked not only the great oil boom, it also sparked innovations in petroleum refining and metal alloys that led to further innovation in chemicals. It also spawned the motel industry as well as gasoline retailing. Thanks solely to the demand for gasoline to run the internal combustion engine, crude oil production in the United States soared. The first gasoline pump appeared in 1905, and by 1915, Standard Oil had developed the first chain of gasoline service stations.

• 57:07David Senra?

  In 1916, the federal government began funding the interstate highway system." Look at everything that happens just from what these guys were doing. And 10 years later, motels and roadside restaurants were common in every state. Thanks to Henry Ford's Model T and Billy Durant's vision of a nation transformed by the automobile, it had become a reality. Okay. So I talked about, we still haven't even got to the point where Sloan and Durant are going to intersect and they're going to intersect because Billy starts off buying product from him and then he's like, oh, I want the whole company. So this is why, and Sloan, you know, he knew that he's going to have a different philosophy that Durant did. So why would Sloan sell Hyatt Roller Bearing?

• 57:52David Senra?

  And he makes this a really important point here. This is the main lesson of the book. When you have one or two major customers, you are extremely fragile if they change to another supplier or decide to make it in-house. And so that, here's Alfred's going through his calculations, like, yeah, we're, the business is booming. We're, we're, we are supplying Ford and GM and all these other, but if Ford and GM pull, that's, that's almost all my revenue. So it says, Alfred also remembered how the industry's growth was putting constant pressure on suppliers to expand their production capacity. He's a supplier at this point. The problem for Alfred and his peers was that compared with the manufacturers, the suppliers' pockets were not nearly as deep. Expanding their production capacity meant investing in new plant and equipment, but there was no guarantee that the boom would continue once these commitments were made.

• 58:38David Senra?

  Nor was there any guarantee from the manufacturers that they would not shift to a different supplier with lower costs at some point in the future, leaving Alfred stuck with both excess capacity and the cost of the regional expansion. So he has this idea and then he also, he learns from the Dodge brothers and learning from the Dodge brothers influenced him to sell to Durant. So he says, "The Dodge brothers had started to make Dodge cars only a year or so before. We believed," now he's talking, Sloan's talking about him and his partner at Hyatt Roller Bearing, "we believed they had changed from part manufacturers into automobile makers because they believed their biggest customers contemplated making parts previously bought from Dodge, and they were right about that. It's exactly what Ford did. He wanted to bring everything in-house. He wanted control. So did Durant.

• 59:22David Senra?

  The same uncertainties that troubled makers of, that troubled the makers of parts were valid worries of those who bought our parts. Suppose Buick or Ford suddenly got the idea that it might be cut off from an important source of supply."

• 59:37David Senra?

  Now, what would happen if they felt that way? Well, here's the problem. Lack of one tiny part might hold up their assembly line. They cannot let that occur. That fear was the nightmare of the business. And so he's realizing, okay, I'm gonna have to sell because I'm not gonna manufacture my own car. And you know, they started the business with what? I think like $2,000, $6,000, something like that when they bought it. It was a short amount of money. Maybe it's $10,000, whatever it was. Once it's selling, what is that, 16 years, something like that later? For 13.5 million. It was a fantastic success. Okay, so now we're getting later in the book. Now Durant, excuse me, Sloan is in the fold. He's working with Durant. And at the same time, he's working with Durant, Durant is teaming up with Pierre Dupont and

• 1:00:21David Senra?

  others, Morgan Company as well, to wrestle control back from GM, which he successfully does. Now, here's the problem. Billy got kicked out by one set of bankers, and now he's trading one set of bankers for another set of investors. And you're dealing with extremely adept and intelligent and successful and driven people. And Billy makes a fatal flaw here. He underestimates the person that's gonna wind up dumping tens of millions of dollars into GM. What did you think was gonna happen here? So Pierre Dupont is a director at this time of the, he's a, I'm pretty sure he's the director of the board, right? And he also has a large percentage of his personal net worth in GM's stock.

• 1:01:04David Senra?

  Okay, so he's not gonna let anyone mess up the company. Henri Leland, founder of Cadillac, also is a GM shareholder. And so in this section, we see Dupont and Leland identifying, they're starting to identify where Durant's weaknesses are. And Durant's weaknesses specifically that could jeopardize their investment. So it says Pierre was quietly using his own eyes and ears to appraise Billy's leadership and protect his own interests as well as that of other stockholders. Henri Leland warned especially of the dangers of Billy's knack and love for stock manipulation and speculation. Okay, I'm gonna get to why Pierre has so much money. He's running the Dupont company, right? And so he's got, his company's already making tons and tons of money.

• 1:01:48David Senra?

  Think about World War I. They sold chemicals and gunpowder to all the people in the war. So they're printing, I think they were making tens of millions of dollars in profit a month or something outrageous like that. And so this is a person that's not going to just like, okay, yeah, take 50 million of my money or whatever the number is. And you don't have to tell me what's going on. Like this is a fatal mistake that Durant made here. So Durant, in Durant's mind, the board's approval, the board's role was to approve policy rather than help set it. Oh, no. He had, he had no time to waste explaining his decisions to the board or asking its blessings before making the next big move. This is a mistake that would prove fatal to his reign.

• 1:02:28David Senra?

  See, the problem with disbelief is for over several years, Durant is relying on DuPont for tens of millions of dollars in investment. So that's fine if you want control, but you've got to have an organizational structure like Henry Ford or Dodge Brothers. You don't. You don't have the same organizational structure. You do not have control if you don't have ownership. So let me get to Billy makes a mistake again in 1917. He's going to repeat that mistake in 1920. That's going to be the end of his time at GM. And I'm going to talk about how it ties into the mistake. What I'm trying to tell you is like the mistakes Billy is making, he did it over several year period and every time he gave DuPont more leverage and more control.

• 1:03:08David Senra?

  And eventually DuPont exerted that leverage and control and Billy was rendered obsolete. Still absolutely convinced of General Motors' growth potential and its underestimated value, Billy began buying large blocks of GM stock on his own in the summer of 1917 in a one man campaign to stabilize the share price and the company's market capitalization. Bad idea every time. You're not going to fight against the market as an individual unless you have unlimited resources. He didn't have unlimited resources. Adding to the risk was that he bought the shares on margins using the shares of General Motors he had already owned as collateral with his brokers. When the market price of General Motors' stock fell below Billy's purchase price, brokers began calling the margin and demanding full payment of the money that they had in effect loaned to him to buy the shares. Billy's back was against the wall.

• 1:03:53David Senra?

  Now, why am I telling you this? Because it says, "In what would prove to be just the first of a series of moves that weakened his influence and control over his baby," and that's exactly how he described GM, "his baby," he went to Raskov, Raskov's DuPont's, let's consider him DuPont's right-hand man in GM, and explained his situation and he asked if they could extend him a loan. So they have to, that's the first bailout. They'll bail him out again in 1920, but when they bail him out, the second time they kick him out. Now, it's important to note, DuPont's company's printing money, and that's what enabled it to buy a large percentage of GM's stock. Just through a few years in the war, DuPont's company had an unanticipated, that's a funny word, right? Unanticipated cash surplus of $50 million.

• 1:04:37David Senra?

  That's a great problem to have. Oops, I accidentally made an extra $50 million. This is the result because they had a huge growth in wartime sales of its chemical and explosives. Now, the DuPont company, interesting enough, I gotta find a good book on this, too. It was actually founded, so we're in, let's say, we're in 1915, 1920 area. It was founded in the 1600s, so 300 years before we're at. And they would sell, originally sold gunpowder in Britain. So 300 years later, the descendants are still running it, and you know, they're still making money. Now, I've just spent the last few minutes telling you about the weaknesses of Durant, but again, he's a paradox. He was extremely talented, and I think that's a good reminder, like, you know, nobody is a perfect person.

• 1:05:21David Senra?

  So his track record was unrivaled in all of American business. He had built the world's largest carriage empire from an investment of $1,500. He had brought Buick up from the ashes with an initial capital of $75,000 and leveraged that to create General Motors. And when others thought he was ruined, he had created the Chevrolet Motor Company from scratch and leveraged his success to regain control of the larger General Motors from the bankers who still scoffed at his risk-taking. Although even the boldest of entrepreneurs may have been content with such a record, Billy Durant was still dreaming of bigger things. So again, everybody's gonna make mistakes. Unfortunately for Durant, he did what Ed Thorp has told us not to do. You cannot, you have to avoid ruin at all costs, but he was still supremely, supremely talented founder and entrepreneur.

• 1:06:07David Senra?

  Okay, so I want to get to the financial crisis. The financial crisis of 1920 is the thing that sets off the series of events that winds up making, having Durant lose his company. But the GM's response to the financial crisis compared to Ford's, and it's very interesting to think about this, because one is robust and the other is fragile. So it gives you a good idea of which, what do you want, what position you want to be in for the inevitable financial crisis that have happened throughout human history and will continue to happen in the future. And so it says, "Ford did not have a Pierre DuPont or an Alfred Sloan looking over his shoulder when the market for vehicles abruptly disappeared in the spring of 1920." What's going to happen in a financial crisis? People are going to buy less cars, of course.

• 1:06:51David Senra?

  "By then, Ford had taken his company private. Also unlike Durant, Ford generated his working capital from the reinvestment of profits rather than the issuance of stock. He was in a position to ride out the storm and emerge stronger than ever. Billy Durant was not." So he has, this is how Henry Ford reacted to the huge decrease in demand. "Within 24 hours of an edict from Henry himself, all Ford Motor production was shut down and all workers were sent home. With absolute confidence and will, Henry Ford then personally cajoled his dealers to buy his remaining vehicle inventory." Now, why would they do that? Dealers knew the cars could not be sold at retail without a loss, but they complied

• 1:07:32David Senra?

  in order to remain in Ford's good graces when the good times returned. Ford also demanded price concessions from suppliers and got them. In short, the pain was spread and shared among all Ford's constituents. General Motors, in contrast, was in no position to move quickly or forcefully on any front. General Motors' inventories and debt continued to soar, while Ford Motor companies actually declined. Henry Ford's decisiveness caused Ford Motor Company to take a severe hit in 1920. So think about it this way. Henry looked at the situation and said, I'm going to take the pain up front. And in life, it's usually always better to take the pain up front. But it's rare because we don't like to do this as humans.

• 1:08:13David Senra?

  Henry Ford's decisiveness caused Ford Motor Company to take a severe hit in sales in 1920, but it also put the company in position for a far more dramatic comeback the following year. General Motors couldn't do that. So it says, "General Motors' total vehicle sales for 1920 actually slightly exceeded the 1919 level, thanks to strong sales in the first five months of the year, but the crisis forced a drastic restructuring the following year that killed the General's momentum, while Ford Motor Company moved into high gear." Okay, so this is where Billy's kicked out. I covered this last week. I'm just going to add the things, the parts that were not mentioned in the other book. It talks about these syndicates that are trying to raise money from not only DuPont, but Morgan Company,

• 1:08:56David Senra?

  all these other investors, because they're going to run out of cash because of this financial crisis. So when the syndicates were formed, it was also agreed that neither the DuPont business interests nor Billy himself would do anything on their own to try to prop up the stock like he did in 1917. "The House of Morgan in particular was to not be interfered with by any speculating that might undermine its own efforts, even though they were speculating. You can't trust these people." Yet Billy once again proceeded secretly to start buying on his own, on margin just he had in 1970. So he does the exact same mistake over and over again. "Once again, Billy's margin calls soon exceeded his cash and forced him to pledge shares of his own General Motors stock as collateral. Those shares had given him a personal fortune

• 1:09:35David Senra?

  in excess of $90 million. By Thanksgiving, it was all gone, and he once again found himself at the mercy of Pierre DuPont for a bailout." And now the author, he brings up some good points. "What could have driven Billy to play the fool's game once again? Had all the pressures, adrenaline, and lost sleep of all his razor-edge rides finally forced him to snap in his psyche? Had the ghosts of his father's failures on Wall Street come back with a vengeance? Had he become a gambling addict long before the term was coined? Or had his eternal optimism led him to believe that comeback and greater glory were again just around the corner, no matter how bad the situation might appear at its worst moments?"

• 1:10:20David Senra?

  Perhaps the only mystery greater than his own motive is how he managed to keep the gamble secret for several months until he was in a far worse position than in 1917. Billy did not leave behind any notes or letters explaining his motivation. Now that brings us to the point in the story where Sloan is going to start running GM shortly after this point. And right here Sloan summarizes for us what he feels is Durant's strengths and weaknesses. So he says, "Mr. Durant was a great man with a great weakness. He could create but not administer. And he had, first in carriages and then in automobiles, more than a quarter of a century of the glory and creation before he fell."

• 1:11:02David Senra?

  And so he continues, he just says the fact that he wasn't able to sustain this is in itself a tragedy of the American industrial history. Now, here's the difference. Sloan's approach, he approached this as, "Hey, I may not be the company founder, but I'm a professional manager." And so he coined that term. Sloan went on to be credited with coining the term "professional manager." And he viewed all key members of his leadership team just as that. Professional managers, dedicated and indebted to the perpetuation of the enterprise itself, rather to any dream or individual. Neither Billy's baby nor corporate America would ever be the same." Again, this sounds, a lot of the stuff that we're going to learn from Sloan, sounds common,

• 1:11:46David Senra?

  but he was the one in large part that pioneered a lot of this. So this is the reign of Sloan, and as I mentioned earlier, this is also the book that influenced how Henry Singleton built his business. "From the year 1921 until Sloan's retirement in 1956, General Motors' growth was unparalleled and virtually uninterrupted." In his letters to stockholders, Sloan referred to General Motors as "an institution rather than a company. The institution's culture was one of methodical, logical, result-oriented teamwork and accountability."

• 1:12:21David Senra?

  GM under Durant was a one man show essentially. A culture typified by the way Sloan and his private research and writing team structured my years with General Motors, which the reason I bring this up is because what the author says is how important that book was. Which became the bible, not only for the General Motors team, but thousands of companies and thousands more of would be CEOs. The reason it's so important and the reason I'm going to cover it next week, it says, my years with General Motors remains the only detailed and documented record of the transformation of Billy Durant's undisciplined baby into an industrial icon. Sloan's idea for reorganizing GM, he called decentralized operation with coordinated control. So I'll talk more about that next week because the book goes in great detail.

• 1:13:05David Senra?

  Just give you some idea of what, like how he approached this. Sloan's starting point is decentralized business units. Decentral-- and then he's explaining why. Decentralization was analogous to free enterprise. By that is meant that we would set up each of our various operations as an integral unit complete unto itself. The key advantage of decentralization in Sloan's view was that it encouraged initiative and creativity at the local level while limiting the individual power and control of central office executives. Exactly what he didn't like that Durant had. We realized that in an institution as big as General Motors, this is Sloan talking now, any plan that involved too great a concentration of problems upon a limited number of executives,

• 1:13:48David Senra?

  he's describing Durant's reign at GM, would limit initiative, would involve delay, would increase expense, and would reduce efficiency and development. So he's, again, just like at his first job where he learned what not to do by studying bad management, you see that he's identified the weaknesses of Durant and he's plugging those holes one by one. So Sloan describes the way Durant managed as like an autocracy. So it says it would mean an autocracy, which is just as dangerous in a great industrial organization as it is in government. Sloan's just full of really, really good ideas. And this specifically is a very smart move by Sloan. Sloan, like Billy, understood that people viewed automobile not just as a transportation

• 1:14:33David Senra?

  machine, they're not buying transportation. They view it as a statement and a reflection of their own status and aspirations. So I'm going to tie in the way Sloan thought about this as to what we learned from David Ogilvy. So it says Sloan developed a product strategy targeted at buyers' specific aspirations. This is really smart. Its essence was to divide the market into price segments and offer cars with the most appeal and value in each segment. Sloan called it "a car for every purse and purpose." No General Motors vehicle division or brand would compete against any other in any of the other segments. Each was to have a distinct identity and appeal to the distinct buyer. So what he's calling a "car for every purse and purpose," David Ogilvy would call product positioning.

• 1:15:18David Senra?

  So this is a quote from Ogilvy on advertising, that great book. This is David Ogilvy writing. "Now, consider how you want to position your product. This curious verb is in great favor among marketing experts, but no two of them agree what it means. My own definition is what the product does and who is it for. I could have positioned Dove, the soap, as a detergent bar for men with dirty hands, but I chose instead to position it as a toilet bar for women with dry skin. This is still working 25 years later." It's a really interesting idea. Okay, and Sloan understood that intuitively. Sloan also preferred tight financial controls and feedback loops.

• 1:16:01David Senra?

  This is actually really smart because this way he could catch a problem early. So he had all kinds of data and reporting coming out of every single unit and division at GM, and at most, it would be on a monthly basis. And then he would not only ask for these reports to be created, but he would read and internalize and act upon them. So it says, "To put even more fire in the bellies of his field leadership, Sloan always carried what he called his little black book, which listed each unit's latest forecasts as well as its historical performance and its competitive position vis-à-vis other units of the corporation." Whenever he visited the units, he would refer to the little black book at least once during the conversation with local management. So not as he requiring you do it, but he's also letting you know by his actions, "Hey,

• 1:16:45David Senra?

  I'm reading this, so don't mess around." Another smart move that Sloan did. He made it a priority to visit and to talk with dealers. Got to take care of his points of distribution. This is very similar to what Sam Walton did. He would constantly go to every single store. And so now Sloan is going to where the stores are where his products are sold. I made it a practice throughout the 1920s and early 1930s to make personal visits to dealers. I went into almost every city in the United States, visiting from five to 10 dealers a day. I would meet them in their own place of business, talk with them across their own desks, and ask them for suggestions and criticisms concerning their relations with the corporation, the character of the product, the corporation's policies, the trends of consumer demand,

• 1:17:30David Senra?

  their view of the future, and many other things in the interest of the business. I made careful notes of all the points that came up, and when I got back home, I studied them. Now, this is the results of all Sloan's ideas, which is nothing short of remarkable. Sloan's numbers spoke for themselves. Net sales grew from 300 million to 1.5 billion. Net income had grown from a loss of 40 million to a net profit of 250 million. It was the largest turnaround and the most thorough transformation in business history. Billy's baby had come of age. So now this is Sloan's philosophy summarized by himself. And interesting enough, like most things in life, it's simple but not easy.

• 1:18:15David Senra?

  So it's easy to explain, simple to express maybe, but difficult to follow. So he says, get the facts, recognize the equities of all concerned, realize the necessity of doing a better job every day, keep an open mind and work hard, and the last is the most important of all. There is no shortcut.

• 1:18:39David Senra?

  This is Sloan on change. This is really important. No company ever stops changing. Change will come for better or worse. I hope I have not left the impression that the organization runs itself automatically. An organization does not make decisions. Its function is to provide a framework based upon established criteria within which decisions can be fashioned in an orderly manner. The task of management is not to apply a formula, but to decide an issue on a case-by-case basis. No fixed, inflexible rule can ever be substituted for the exercise of sound business judgment in the decision-making process. Okay, so towards the end of Billy's life, he's actually supported.

• 1:19:23David Senra?

  Sloan and other executives at GM actually give Billy an annuity and make sure that he does not die, you know, he's not homeless. They wind up giving him what's the equivalent of like $100,000, something like $100,000 in today's dollars. And they also, right before he died, honored him for the role he played in founding the company. And so after that happens, Billy writes Sloan a letter. And in this letter, I think, is the greatest summary of the differences and approaches to these two people. So it says, "Billy wrote Alfred a letter thanking him for the handsome compliments in the article.

• 1:20:05David Senra?

  Fittingly, the letter also included a reminder that there was much more to success than the science of management. I do wish, Mr. Sloan, that you had known me when we were laying the foundation, when speed and action seemed necessary. You are absolutely right in your statement that General Motors justified an entirely different method of handling after the units had been enlisted. And you, with your training and experience, surrounded yourself with competent, reliable men of sound judgment, vision, and devotion to the cause, which has enabled you to create the General Motors of today, a truly great institution." But now in his letter, he's going to provide the following story.

• 1:20:51David Senra?

  And I'm going to change, it's a meeting of two generals on the battlefield. And I'm going to, one is meant to represent Sloan and one is meant to represent Durant. So I'm going to change the names of the generals, so you don't get confused, to who they're supposed to represent, okay? To sum up, the early history of General Motors reminds me of the following story. General Durant, who came up from the ranks, met Major Sloan, a West Pointer on the battlefield at Chattanooga. In speaking of the engagement, General Durant said, "Right up on that hill, there is where a company of infantry captured a troop of cavalry."

• 1:21:33David Senra?

  Major Sloan said, "Well, General, you know that couldn't be. Infantry cannot capture cavalry." To which General Durant replied, "But you see, this infantry captain didn't have the disadvantage of a West Point education, and he didn't know he couldn't do it. So he just went ahead and did it anyway." I will leave the story there. That is 121 books done, 1,000 to go. If you buy the book using the link that's in your show notes, you'll be supporting the podcast at the same time, and I'll talk to you again soon.