#120 Billy Durant (Creator of General Motors)

What I learned from reading Billy Durant Creator of General Motors: The Story of the Flamboyant Genius Who Helped Lead America into the Automobile Age by Lawrence Gustin. ---- [0:32] DURANT MAY BE THE MOST IMPORTANT AUTOMOBILE PIONEER: Of all the colorful men who propelled the United States into the automobile age, Billy Durant was perhaps the most unusual, and from an organizational standpoint in the pioneering era, the most important. Durant had a hand in shaping the beginnings of three of the four major American automobile manufacturing corporations that exist today. [4:16] HIS LIFE STORY HAS A SURPRISING END: The guy founded General Motors, Chrysler, and Frigidaire. Three gigantic, successful companies. How does he die with no money? [6:04] DURANT TRIED TO PROTECT HIS INVESTORS: He had an attitude, not a common among men of big money. He tried to protect the people who invested with him, even if this protection would break him. Finally, it did. And when he was unable to save the dollars of his supporters he plunged from multimillionaire to bankruptcy. [10:29] DURANT WAS SKEPTICAL OF AUTOMOBILES: Durant starts out as an automobile skeptic. He builds the General Motors of horse-drawn transportation and then takes that same playbook and uses it again to do the same thing in the automobile industry once he gets over his skepticism. [17:08] IF SOMETHING IS IMPORTANT TO YOUR BUSINESS YOU NEED TO CONTROL IT: We have seen this over and over and over and over again in these stories throughout the history of entrepreneurship. If something is important to your business, you need to control it. Durant line up a big contract for the buggies only to find that Patterson chanced upon the same buyer and told him that since the product was actually being made at his factory, the buyer could save money by buying directly from him. Durant that from then on they would build all their own vehicles. [19:12] DURANT ON SALES: Assume that the person you are talking to knows as much or more than you do. Do not talk too much. Give the customer time to think. In other words, let the customer sell himself. That system works best when you have a good product. Look for a self - seller. If you cannot find one, make one. [21:48] ON CONTROL. HENRY FORD REALIZED THIS. THE DODGE BROTHERS DID TOO: We started out as assemblers with no advantage over our competitors. We paid about the same prices for everything we purchased. We realized that we were making no progress and would not unless and until we manufactured practically every important part that we used. We proceeded to purchase plants and the control of plants, which made it possible for us to build up the largest carriage company in the United States. [31:36] DURANT WAS AT THE RIGHT PLACE, AT THE RIGHT TIME, WITH THE RIGHT SET OF SKILLS: For the first time, he began to see that the automobile had a future. The stockholders of Buick were so desperate that they were willing to turn over controlling interest to him. And perhaps most important, the Durant-Dort Carriage Company had a large, idle factory. [39:11] IT WAS HARD TO RAISE MONEY FOR GENERAL MOTORS: I had a long, hot session with our friends in New York yesterday and was pretty nearly used up at the finish. If you think it is an easy matter to get money from New York capitalists to finance a motor car proposition in Michigan, you have another guess coming. Money is hard to get owing to a somewhat unaccountable feeling of uneasiness and a general distrust of the automobile proposition. [44:25] BILLY DURANT’S MASTER PLAN FOR GENERAL MOTORS: Durant's aim was nothing less than to gain control of some of the biggest and best automobile companies in America. But he also wanted to get in on the ground floor with companies just starting. Durant: “They could be purchased by exchanging small amounts of stock, and who could tell what their patents, products, and inventions might bring? The automobile industry was in its infancy, the public was fickle, the only sure road to power and success was to have a wide range of products. I figured if I could acquire a few more companies like the Buick, I would have control of the greatest industry in this country. A great opportunity, no time to lose, I must get busy.” [51:30] DON VALENTINE TEACHES YOU BUSINESS IN TWO MINUTES: There are two things in business that matter, and you can learn this in two minutes --you don't have to go to business school for two years: high gross margins and cash flow. All companies that go out of business do so for the same reason- they run out of money." —Don Valentine [55:10] GENERAL MOTORS RUNS OUT OF MONEY! DURANT IS FORCED OUT: The bankers demanded control of the company. Durant had no choice but to accept. Automotive historians have generally described the terms as exorbitant. And Durant, in his memoirs, fumed: “The $ 15 million loan finally offered had outrageous terms which I was forced to accept. Under the terms, I received $ 12,250,000 cash ( not $ 15 million ), for which I gave $ 21,600,000 of the best securities ever created — the enormous interest of $ 9,350,000. [57:57] DURANT’S STRATEGY FOR CHEVROLET WAS TO FOCUS ON THE LOW PRICED MARKET BECAUSE IT HAD MORE DEMAND THAN SUPPLY : Henry Ford couldn't build enough cars to satisfy the entire demand for a low priced automobile. [1:04:50] THE UNUSUAL HAPPENS, USUALLY. BILLY DURANT IS THE OPPOSITE OF HETTY GREEN OR MARK SPITZNAGEL: In 1920 the boom that had followed the end of WWI came to a rather abrupt halt and the United States slumped into a sharp recession. The price of GM stock began to decline steadily. GM sold 47,000 cars a month. By November monthly sales were down to 12,000. Durant realized GM needed money. [1:10:26] BILLY DURANT’S LIFE SHOULD HAVE HAD A HAPPIER ENDING: All that can be said for certain about Durant’s last days at GM is that his activities in the stock market placed him in an extremely vulnerable situation. Louis Kaufman said in 1927 that had Durant not become involved in the market he would have been worth $500 million and still in charge of GM. ---- 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?

  It's fitting that Durant's name as GM's founder is cast in bronze on a historical marker in front of the corporation's headquarters. Because neither GM nor its most famous American brands would likely exist today had he not either created or saved them. That marker is about the only public reminder at General Motors of the man who created GM, the largest industrial corporation in the history of the world. William Durant is no longer exactly a household name. He's seldom mentioned in the same breath with Henry Ford, Walter Chrysler, or Alfred P. Sloan. Yet of all the colorful men who propelled the United States into the automobile age, Billy Durant was perhaps the most unusual, and from an organizational standpoint in the pioneering era, the most important.

• 0:44David Senra?

  Durant had a hand in shaping the beginnings of three of the four major American automobile manufacturing corporations that exist today. Of the major US auto manufacturers that survived, only Ford was not significantly influenced by Durant. Unlike most of the pioneer automotive giants, Durant was not a back shop tinkerer. While other men put automobiles together, he put organizations together, and he did it with dramatic flair. He was an extremely complex and paradoxical personality, a super salesman who spoke in a soft voice, a builder of fortunes who cared very little about money and who ultimately died without any.

• 1:25David Senra?

  He dreamed great dreams and made them come true because he had unparalleled vision and courage, an iron will, and a legendary charm that made him an adored leader of thousands. Even those who did not always agree with his methods called him a genius, though they also sometimes called him a dictator and a gambler. He was all three. Okay, so that's an excerpt from the book that I'm going to talk to you about today, which is Billy Durant, Creator of General Motors: The Story of the Flamboyant Genius Who Helped Lead America Into the Automobile Age, and was written by Lawrence Gustin. A note about the book, as you could probably guess from that opening paragraph, the book is rather old. It was first published in 1973, so at the time, GM was the largest industrial corporation

• 2:10David Senra?

  in the history of the world. Obviously, that's not true anymore. Okay, so I want to start at the very end. I want to talk more about the fact That he had a very paradoxical personality. So let me tell you a little about that real quick. He was capable of fantastic successes and equally fantastic failures. At times, he seemed childlike in his business dealings. At other times, he outsmarted the sharpest leaders of finance. He plunged headlong into catastrophes that an average man might easily have seen coming. But that same overriding optimism permitted him to create great organizations. So that paragraph right there, it's one of the main lessons in the book. The same thing that made Billy Durant strong ultimately destroyed him.

• 2:55David Senra?

  And so the reason I, at the very beginning of our conversation today, I want to start at the end is because, and it breaks my heart to say this, the story of Billy Durant is a cautionary tale. We're going to learn a lot of his good ideas today, but we're also going to learn mostly what not to do. That is probably why, as the author notes, that he's not as well-known as Henry Ford, Chrysler, and Sloan. It's because he was extremely successful, but he also died broke. And the reason I say it's hard for me to tell you that is because this is, you know, an ongoing series I'm doing about all the different automotive founders and pioneers from the early 1900s. And out of all the ones that I've read about so far, Billy Durant is by far the most likable

• 3:39David Senra?

  person. And the stuff that happens to him, which in large part is based on bad decisions he wound up making, remember, they called him a gambler. If you, if you listen to the podcast I did about Andy Beal playing in the, the greatest poker game of all time, I talked about in that podcast how they, they knew what made them strong could also destroy them, so they would take some of their winnings and they would never play with it. Billy bet everything constantly. He did a lot of, and he does it, as, as we'll see later on, he just, he's a very likable person and unfortunately made a series of bad decisions and you don't want to wind up 80 years old. Think about the guy who founded General Motors, Chrysler, and Frigidaire. These are three gigantic, successful companies. How does he die with no money?

• 4:24David Senra?

  And he dies in one of the last businesses. He's trying to, like, he's working a bowling alley. He's trying to start a chain of bowling alleys when he's over 80 years old. So maybe 75 years old, whatever the case is. I'll get there in a minute, but I do want to bring that up, that he's Let's say, let me compare him real quick. Let me stop here and let me compare him to Henry Ford and the Dodge Brothers. Let's say you could only learn about entrepreneurship, business, building a remarkable life from one person and only one person. There's very few people that you'd pick above Henry Ford, right? Extremely, extremely gifted entrepreneur. He had a really good ideas about business, but he's also, you know, kind of a crackpot, racist, you know, had these, he was an autocrat. He wanted full control, made sure that he wouldn't want his employees to drink.

• 5:08David Senra?

  Like, he controlled way too much of other people's lives, right? And then you have the Dodge Brothers, who are extremely gifted machinists, extremely gifted entrepreneurs, and entertaining people to learn about, but they're wild. They break people's legs, they solve business problems with fists, they get drunk all the times, they're beating the crap out of people. So they may be entertaining to learn about, but probably not people you want around you, right? Henry Ford, same thing. I want to learn from him, I want to be his friend, I want to hang out with him? No, no, probably not. Billy Durant, though, was somebody that you could learn from because he had some good ideas, but he's also somebody that you want to be around. So when you, I spent, you know, 10, 15 hours reading this book, but in the book, you're heartbroken because, you know, the guy, him and his wife wind up being destitute, he's

• 5:52David Senra?

  having to borrow money from his daughter. It's just, it's really a heartbreaking story. So I want to bring that to your attention right up front. I'm going to talk about the end of his life first, and then we'll go into how he built General Motors, because he's got a lot of good ideas at the very beginning. He had an attitude not common among men of big money. He tried to protect the people who invested with him, even if this protection would break him. That's an important sentence I need you to remember for later, okay? Finally, it did. And when at last, he was unable to save the dollars of his supporters, he himself plunged from multimillionaire to bankruptcy. By 1940, Durant was back where he had started, working hard in Flint, Michigan, and planning great business expansions.

• 6:33David Senra?

  Except by then, he was 78 years old and no longer wealthy, and his business was bowling, not automobiles. He was operating a bowling alley. "I haven't a dollar," he told a visitor, "but I'm happy and I'm carrying on because I can't stop." Okay, so that's how his life ends. Let's go to the very early. In fact, I'm going to talk to you about his grandfather, which normally I don't spend too much time on the ancestors of these founders, but his grandfather picks up on something about Billy's father that maybe Billy inherited from his father, unfortunately. So, believe it or not, his grandfather's last name was Crapo. Okay? So, Crapo did well in Flint. He became one of the city's leading lumber barons. By 1860, he was mayor, and then from there, he advanced quickly to state senator.

• 7:18David Senra?

  In 1864, he became governor. Crapo's business and political leadership qualities were enormous. So, Billy's grandfather, wise, very successful, had a great life. So, this is grandfather Crapo talking to his daughter, which is Billy's mother, right? He's essentially saying, hey, your husband's a bum, and listen to what he says about him. The governor was much concerned, however, that his son-in-law, Billy's father, was neither a good husband nor a good father. The governor criticized William Clark Durant at length, complaining that the man was imbued with a mania for stock speculation, that he had penchant for reckless ventures and wild speculations.

• 7:58David Senra?

  Unfortunately, at the end of life, you could probably say similar things about Billy, but maybe his motivations were more altruistic, as opposed to his father, who was a drunk. Billy wasn't a drunk. His father was a drunk and gambled away the family's money. Okay, one thing to know about Billy Durant, not much is really known about his early childhood. So, it says Billy's boyhood is recorded in bits and pieces, since he did not talk of it often. Just after his 17th birthday, Durant dropped out of high school and started to work. So, another high school dropout that winds up becoming fabulously wealthy and starting all these companies. We've seen that over and over again. Now, between this period of time where Billy drops out of high school and before he gets

• 8:40David Senra?

  into the vehicle business, this seven-year period, and I'm just going to give you a quick summary of what's going on at this time, remember, he's a master salesman. That's probably his most important trait to remember. So, Billy Durant had sold lumber, groceries, patent medicines, cigars, and real estate. He was now a partner in a thriving insurance agency. So, that's what he was doing right before he gets into the vehicle business. Before I get there, I also want to talk to you about The, the, not only are we studying the early automobile pioneers, but also this, this, this extremely special geographic location in Flint, Detroit, and Lansing, Michigan, that just birthed this, this, one of the most important industries the world's ever seen, right?

• 9:24David Senra?

  So I need to tell you a little bit about the background of Flint at this time. That was really interesting. Well, I'll tell you my note after I read this section to you. So it says, "He was starting out in the business world at a time of difficult readjustment in Flint. The prosperous lumbering era was over. The grapevine forests were now depleted." That's where his grandfather made a bunch of money. "Lumber money financed the," this is the important part. "Lumber money financed the transition from harvesting raw materials to engaging in manufacturing." Now, this is something we're going to talk about a lot later, too, because it's really interesting to think about where a lot of the pioneers in the automobile industry, where did they get their money to start their companies from, right? And it's this idea that the decline of one industry can give way, can give rise to another.

• 10:07David Senra?

  So in this case, we see the lumbering giving rise to the manufacturing. Now, some things they manufactured were prosperous for a short amount of time, and, but nothing grew like the automobile industry. So they had like cotton mills, furniture, farm, all these kind of different enterprises. Now, the reason I bring this up is because you could see the same thing happens in Durant's lifetime. When horse-drawn transportation gives way to the automobile, Durant starts out as an automobile skeptic. He builds the General Motors of horse-drawn transportation. And then essentially takes that same playbook and, and uses it again to do the exact same thing in the automobile industry, once he gets over his skepticism, okay? All right, so, oh, and before I move on to when he starts getting into the vehicle, they call it the vehicle industry, it's horse-drawn vehicles, okay?

• 10:53David Senra?

  I want to tell you this idea he had when he was selling cigars. That's just really, really smart and shows a, you know, everybody calls him a genius over and over again. He was extremely smart at a young age. So he starts making money, first he's, you know, he's making like 75 cents a day as a manual labor. And then he realizes, wow, there's a lot more money in sales. And so he gets, he gets a job at a, for a local cigar manufacturer. And this is what he does. Another enterprise boosting the local economy was the manufacture of cigars. Durant got into the selling end of the cigar business. The cigar man offered to pay him $4 a day. So essentially, he says, hey, go door to door and sell cigars. And Billy's like, that's a terrible idea. So he says, ignoring his employer's order to stop at all the towns between Flint and Port Huron, this was a larger city outside of Flint at the time,

• 11:38David Senra?

  Durant took the train directly to Port Huron and went to see everyone in town who sold cigars. And he explained to them that it would be to their advantage to buy them directly from the manufacturer. So he comes back in two days, right? And maybe, maybe his employer expects him to sell, you know, a couple hundred cigars. Says in two days, in the two days that he was gone, he had gotten orders for 22,000 cigars. Really, really smart move to do that. Okay, so let me bring the story to the beginning of, of General Motors. Or what I consider, what he considers the beginning of General Motors, okay? So he's working at an insurance company, but he's also, and this is something you have to know about Billy Durant, he can never focus on one thing. And there's so many times where I'm, I'm reading this book and I just want to shake him like,

• 12:22David Senra?

  no, Billy, don't do that, please. Please just focus on the business that's already working. Do not do that. And he just can't help himself. So he's working at the insurance company, he's also at night working for utilities. So in 1886, he's going to read a meter for a utility company. And he runs into his friend. Now Billy Durant has thousands of friends in his lifetime and they wound up saving his ass later on in life. So he runs into his friend Johnny Auger. And Johnny Auger had just bought this road cart, which I didn't even know what that was. It's a cart that you put behind a horse. And the, the innovation here is it produces a smooth ride. Up until this point, it was, you're in a horse cart, but you're still like, it's still bumpy as if you're riding a horse, right? So it says, this, this is the evening that led to the start of a fabulous career.

• 13:07David Senra?

  Now, we got to the beginning of General Motors, which happens about, let's say 20 years, yeah, we're about 18 years in the future. But this really is the beginning of General Motors, if you think about the story of Billy Durant. So Durant could tell you all about how he had founded General Motors in 1908, but that wasn't the beginning. It really, it all started back in 1886 on the streets of Flint. He was 24 years old then, already a successful business and in, as usual, a hurry. That's another thing you're going to have to learn about him. He had a frantic energy. I'm going to go over, he'd work, he'd sleep only four to five hours a night. He didn't require vast amounts of sleep. And so he'd call meetings at like 1:30 in the morning and stuff. And if he saw an idea, like he went immediately to do that idea. So one night,

• 13:52David Senra?

  He rides in his cart. The very next day, he goes and tries to invest in the company that made the cart because he was so impressed with the product. And so this little story I'm going to tell you is also will teach you how Durant did his deals. Now, again, we started, the author starts at the very beginning, says, hey, you know, he's paradoxical. What brought him success also destroys him. So you can imagine when you realize how he does his deals, why this could destroy him in the end. The guy that made the cart was named Thomas O'Brien. Durant and Thomas O'Brien exchanged introductions. Durant started to talk. He had ridden in one of O'Brien's carts and had been so pleased that he wondered whether he might buy small interest in the business. "Why not buy at all?" O'Brien asked. Durant was startled. He had had very little money. So he says, "I will go to Flint this afternoon and see if I can obtain the money, which must

• 14:37David Senra?

  be in your hands within the five days or we won't have a deal." So he's trying to get the guy to agree. "In that reply is much of the spirit that guided his life. Decide quickly, make your pitch, nail down the details, and don't worry about the money." Now, this is also a story that it's a reminder to us that everything starts small. He gets a loan of for $2,000, right? This is the beginning of the Durant Dort Carriage Company. This becomes, this will soon become the largest company of its kind. So the same, the same way that GM is the largest automobile manufacturer, right? He's going to be the largest horse carriage manufacturer. Some people call them carriages, carts, whatever you want to call them.

• 15:19David Senra?

  So his road car business is a success almost immediately. And a lot of it has to do with the fact that Durant, again, over and over again, they talk about that he's a master salesperson. And I'm going to give you a bunch of examples of that. Let me read this part to you. "After a few years, the company," meaning the carriage company, "took first place in volume production and held that position until the horse-drawn vehicle passed out of the picture and was supplanted by the automobile." This is the first initial business that makes Billy Durant, high school dropout, turn into Billy Durant, self-made multimillionaire. Okay? So he's a, just because his life ends in failure, so we want to, what I would say is like, we want to learn from the beginning of his life and then we want to cap it right there. We want to take all the ideas he has of building wonderfully profitable businesses.

• 16:03David Senra?

  But none of the ideas that he has about risking all of his dollars and buying stocks on margin and doing all this dumb stuff that he does later in his life. All right, now Durant sells, this is how fast he moves. He sells 600 of these carts before he even knows how to make one. He didn't buy a factory. He bought the guy's essentially like blueprint, but he needs somebody to build them. So he says, he finds this guy Patterson, okay? Again, 600, remember, because he does the exact same thing when he starts GM. He sells, he starts his Buick. And I think he sells like a thousand Buicks in like a weekend at an auto show before they, I think they were making like 40 cars at the time, something like that. So same thing, there's a show, he sells 600 of them. And he's like, oh, okay, well, we have demand.

• 16:47David Senra?

  Now we need to, we have to fill the supply. So he meets with this guy Patterson and he's going to learn what not to do from this guy Patterson. Durant told Patterson that he was new to the carriage business, that he had orders for 600 carts, but no hope of producing them on his own. So he lines up this huge, these huge contracts and Patterson betrays them. And the reason I bring this to your attention is because we see this over and over and over and over again in these stories throughout the history of entrepreneurship. If something's important to your business, you need to control it. Durant lined up a big contract for the Buggies only to find that Patterson chanced upon the same buyer and told him that since the product was actually being made at his factory, the buyer could save money by buying directly from him. So he cuts out Durant, takes his 600 orders. That did it.

• 17:32David Senra?

  Durant and his partner Dort decided that from then on, they would build all their own vehicles.

• 17:39David Senra?

  Okay, now I'm going to pause here and we're going to take a tangent because Durant's life story intersects with several important early automobile industry founders. That's exactly why we're doing this series right now about this very special time in Detroit, in Michigan in the early 1900s. And one of this, one of these people that worked for That eventually worked for Durant. It's this guy named Charles Nash. Charles Nash, something you know about him before I give you his brief bio, is that he was the future president of GM and then the eventual founder of Nash Motors. He winds up betraying Durant, or Durant took it that way. And so Durant is going to wrestle, he's going to get kicked out of GM, then wrestle control back, and then, once he wrestles control back, he fires Nash.

• 18:20David Senra?

  All right, so it says, "Durant noticed the industriousness of a young man and hired him as a labor in the road car plants. Nash stuffed cushions for buggy seats." Remember, this is pre-GM. We're not, we're still dealing with horse-drawn transportation. "He was paid," meaning Nash was paid, "according to how many cushions he stuffed. And he worked so hard and so fast that other laborers began to grumble. He was making them look bad. 'I need the money,' he explained, and no one knew the value of money and ethic of hard work better than Nash. At the age of 12, he ran away, he went away from the farm and was hired out as a laborer. So essentially, no education, has to start working full-time at 12. And so we're meeting him, I think he's like, let's say, late teens here, might be early 20s.

• 19:05David Senra?

  After he started work at the factory, he continued to seek any job that he would pay a few, that would pay a few cents. He winds up dying a very wealthy man. Okay, I'm going to give you some explicit advice from Durant, and I think probably on the thing that he's most qualified to speak about, and that's his advice on sales. Durant was a super salesman. That's not just me repeating it. That thing is, that statement is repeated over and over again in the book, not only from the author, but from other people that knew Durant. Billy Durant could arrive in town, find the best salesman, and hire them away from whatever they were doing. He could sell a customer a cart, a salesman a career, or you a company. It was this talent that made Durant a dynamic force in the vehicle industry for more than 40 years. Durant had a theory about salesmanship, so now we hear specifically from the wisdom of Durant.

• 19:47David Senra?

  "Assume that the person you're talking to knows as much or more than you do. Do not talk too much. Give the customer time to think. In other words, let the customer sell himself." That system works best, of course, if you have a really good product. So look for a self-starter, and if you cannot find one, or, excuse me, self-seller, I'm sorry, look for a self-seller. And if you cannot find one, make one.

• 20:13David Senra?

  Okay. Now, we're still in the early days of this Durant Dort carriage company, right? And you're already seeing Durant's penchant for wheeling and dealing. So it says Durant, now, oh, man. The note I left myself before I knew what this would eventually do to him was this is admirable, but where's the risk for investors? Just remember that as I read this section to you. I didn't know at the time I read this that this is going to be, partially lead to his undoing later in life.

• 20:43David Senra?

  Okay, here we go. Durant and Dort also became interested in a bicycle company, and they persuaded local investors to back it. When the company failed, the investors lost their money. But Durant decided that the investors should be repaid out of the Durant Dort coffers. After all, he reasoned, the company's officials had urged the men to invest, and therefore Durant Dort was responsible. On several other occasions, Durant again protected investors. And here's the end result of this. This is very frustrating. It was soon evident that the best investment was a business backed by Durant. You might get rich. On the other hand, if the investment was lost, Durant would make good. Eventually, he doesn't have unlimited money. He can't do that. And that's why I said, this is admirable.

• 21:27David Senra?

  It just comes from the fact that he's an extremely nice person. He didn't care about money, other than as a tool to build an empire. But he wanted to like, he made thousands of people rich that were not rich beforehand, right?

• 21:40David Senra?

  And it's admirable, but he doesn't have unlimited money. And eventually, he dies penniless. All right. Durant comes to this realization that he needs more control. Okay? And this is, he makes the same decisions when he has General Motors, but he's doing this for his carriage company. Now, the reason I bring this up is because we learned last week, the Dodge brothers did this too, and the week before, Henry Ford did this as well. If you see the same people in separate times, in separate companies, making the same decisions, that's a good indication that it's probably important. And it's the fact that you need to control things that are important to your business. This is Durant talking directly to us. We started out as assemblers with no advantage over our competition. We paid about the same prices for everything we purchased.

• 22:22David Senra?

  We realized that we were making no progress, and we would not until we manufactured practically every important part that we used. Now, he comes to that realization because- He's buying all these pieces and assembling them together. But just like we've seen in various other domains, anytime there is, before like the Sherman Antitrust Act, you had to deal with these trusts, you can call them a trust, monopoly, cartel, doesn't matter what you call them, but anytime there was a valuable aspect in the manufacturing process, inevitably there'd be an entrepreneur building a monopoly. So they do that, they start controlling individual pieces that Durant needs to make his carriages. And so he can't make any money because they control prices. So he's like, oh, well, you have to manufacture everything.

• 23:07David Senra?

  So he said, "We proceeded to purchase plans and to control the plans," which made it possible for us to build up the largest carriage company in the United States. Now, I'm going to get into what he does here. Remember, Durant builds the general motors of the carriage and buggy industry. Durant Door was now not only an assembly company, but was making its own wheels, axles, paints, varnishes, buggy tops, and controlled its own source of lumber. Besides its plants and subsidiaries, it also had investments in and lists a bunch of different companies. I'm not going to name them. There's a carriage and buggy company that's essentially a competitor of theirs, a company that makes wheels and axles, one that makes just carriages, one that makes just the spokes to the wheels, and all kinds of stuff. And then they also get into what buggies are made out of. They're made out of lumber a lot.

• 23:51David Senra?

  So they had Hickory Forest and mills in multiple states. Again, really smart move, saved the company, made them vertically integrated and generated tons of profits, so it makes Billy and his partner millionaire. Okay, so just something you need to know about his personality, he's unable to focus on one thing for a long time. Remember, he's building an automobile conglomerate. But think about the people we studied, the Henry Singleton's, the Warren Buffetts, Charlie Munger's, they bought great businesses. Durant buys good businesses and a bunch of crappy other businesses, so it doesn't always work out. And this was the very frustrating part of reading his life story, because you have something so smart and full of energy, but... His inability to focus was really a downside.

• 24:35David Senra?

  And that weakness was compounded and revealed the more complex the organization he built got. And then you factor in a bunch of financial panics in the early 1900s and then eventually the Great Depression and it's bye-bye Fortune, wipes them out. Okay. So it says, "By this time Durant was losing interest in the carriage business." This is what I mean. "To a man of Durant's temperament, the fact that the Durant-Dort Carriage Company was running smoothly and making great profits meant that it was becoming rather dull." Remember, he's a gambler, unfortunately. Durant liked to create organizations. When they were going well, he would just as soon let someone else take over for the details and look for a new challenge. Okay, that's no problem. As long as the management you put in place is competent and that business is good. But if you're going to go out and do that, and then what Durant does is he takes a good

• 25:20David Senra?

  business and then mixes it in with a bunch of bad businesses. Charlie Munger has this quote, he's like, "Well, when you mix raisins and turds, you still got turds." So Billy Durant did that, unfortunately. So it says, but before I get there, I want to tell you, he has a remarkable record. It says, "In 15 years, Durant-Dort had grown from a $2,000 investment into what would soon be a $2 million concern." Now, what's his new challenge? His new challenge is the stock market, which he needed to leave alone. He just was not... This is what, him playing around in the stock market is what winds up bankrupting him twice in his life, from which he never recovers. It says, "Durant was a multimillionaire at 40, and he was eager for new adventure.

• 26:05David Senra?

  He discovered New York City and then the stock market. The intricacies of the market, the large amounts of money changing hands, the risky nature of the business, all appealed to his gambling instincts and his need for dramatic tension." So think about the descriptions that the authors told us over and over again, not only about Billy, but about his father. Later in life, people in JP Morgan, they're like, "You're not an investor, you're a speculator." You know, they meant it as a great insult, and they wind up taking a large amount of money from him as a result. Okay, now, while he's, so the carriage company is being run by his partner. He's in New York trying to be a stock market speculator, right? What's interesting to me is that he didn't see the automobile coming. So he had an associate, this guy named Hardy. And Hardy goes to Europe, and at the time, there's a lot of people in Europe, specifically in France, building automobiles.

• 26:50David Senra?

  So Hardy's in Europe, he says, "When Hardy was in Europe, he crawled under every French automobile to see how they were made. He flagged down motorists so he could study their cars in detail. He returns to Flint in 1901. He went directly to the directors of the Durant Carriage Company with a warning. Get out of the carriage business before the automobile ruins you. Nobody listened. Durant was not impressed. Automobiles, he said, were noisy, dangerous, smelly contraptions that disturbed the tranquility and frightened horses." Okay, before I go back into how Durant changes his mind, I need to tell you the difference between Hardy and Henry Ford. So Hardy's perturbed. He's annoyed that they're not listening to him. So he's like, "All right, you guys don't want to make automobiles? I will."

• 27:34David Senra?

  So Hardy was so convinced he was right about its future, and the local carriage makers were wrong, that he decided to manufacture a car himself. By late 1903, he had produced 52 cars. Now, here's the problem. He's confronted by the patent trolls. This is something we talked about with Henry Ford, using Selden's patent, right? So a bunch of people paid into the patent. Henry Ford's the one that actually said, "No, I'm not doing this." In fact, Billy paid into the patent, too. So the patent trolls discover Hardy's manufacturing cars, and they're saying, "No, no, you need to pay us." They demand a $50 royalty for each of the 52 cars Hardy had sold. Remember, this section is called "The Difference Between Hardy and Henry Ford." Hardy thought about it, then gave up. Henry Ford eventually fought the Selden patent interests, and in 1911, after years of litigation, beat them.

• 28:19David Senra?

  The court decided the patent did not apply to most American automobiles, but that was too late to save Hardy. So this goes back to this idea that's in my notes. If you have access to my notes, you just search "Determination vs. Intelligence." I think it's this talk by Paul Graham, founder of Y Combinator, and he asked the question, like, what is more important? To be successful in life, intelligence or determination. And most people's initial response is intelligence. And he makes the very convincing argument that, no, no, it's determination. And I think he's right. It's determination. Many people, whether paid or quit. Henry Ford's like, no, we're not doing this. And he was extremely determined. And that's just one area of his life. He's determined in a bunch.

• 29:00David Senra?

  So remember, I told you General Motors, eventually it starts with Buick. There's a Buick before there's General Motors. And Durant owns Buick before he founds GM, but eventually he sells Buick to GM. Okay. These are the early days of Buick, which I found interesting. And its founder had built approximately two automobiles in three years of trying. The story of Buick, to this point, was one of a small group of talented inventors who developed superior engines. So they had great product, right? But what's the problem? In the process, they spent more money than they ever made. That's a big problem. And they were doing research instead of producing for the market. And they were also backed by men who could not afford that kind of luxury. David Buick is the founder, and he's having tons of problems. He has to sell out to one organization of investors. He's financially unsuccessful, so they went up taking like 97% of the company, right?

• 29:45David Senra?

  And says Buick, meaning David, got into debt by the Briscoe brothers. Now, Briscoe brothers are funding Buick. Where did they get their money from? This is hilarious. I'll go more detail in a minute. They made money. They manufactured sheet metal for garbage cans. They don't know really what they're doing, so they sell it to another guy. And then that guy's going to sell it to Durant. Okay, so it says, I'm going to skip the names because they're not important. If there was one man who could save the day, the man was Billy Durant. There were only two problems. Durant was in New York at the moment, and he detested automobiles. So this guy Whiting or Whiting is the one that is controlling Buick. He's going to wind up selling it to Durant. So he's got to sell him on this, though. Now, he's also something that was really fascinating.

• 30:28David Senra?

  Billy Durant was 42 before he got involved with cars at all. 42. And he worked in the industry for 40 years of his life. All right, so it was late in 1904 when Billy Durant, a self-made millionaire at age of 42, had heard something about James Whiting's problems with his new automobile company. So James decides, hey, I need to sell Billy on this opportunity. Billy thinks automobiles are fat. He thinks they scare horses. He thinks it's rude to drive around in them. He winds up, but the reason I brought up David Buick to this point is because David Buick was a gifted engineer. He made a great car. And so James takes Billy in a test drive, and that which convinces Durant. Durant was impressed. His engine did seem to get it through terrain that stopped other cars.

• 31:13David Senra?

  There was something else. The automobile attracted public attention. It gathered crowds just as the little road cart had done. So when he winds up manufacturing that road car, the one that he bought for $2,000, that's the same thing. He realized, oh, this is a car, this is a product that'll sell itself because when I'm out in it, everybody gathers around and gets their attention. So he realizes, oh, I have the same thing here with Buick. Okay? Now, we talked last week how the Dodge brothers were at the right place, at the right time, with the right set of skills. You could still say, you could say the same about Billy. For the first time, he began to see that the automobile had a future. The stockholders of Buick were so desperate that they were willing to turn over their controlling interest to him. And perhaps most important, the Durant-Dort Carriage Company had a large idle factory. So he's running this company out of his carriage factory.

• 31:58David Senra?

  Eventually, he's going to reorganize and make this General Motors. Okay? So buys Buick. Now, we see another example of his master salesmanship. Billy had just returned from the auto show where he had sold 1,108 machines. At the time, Buick had built fewer than 40 cars. Just as when he'd sold 600 road carts, before building one, Durant's optimism was far ahead of his ability to deliver. Once again, he was displaying his unusual talent as a salesman. As Walter Chrysler, this is another person that's extremely important. You recognize his last name, obviously. He works with Billy. They become lifelong friends, even though they did not work well together. I'm going to read his autobiography. He's an extremely impressive person. As Walter Chrysler later wrote, "I cannot find words to express the charm of the man." He's describing Durant.

• 32:43David Senra?

  "He has the most winning personality of anyone I have ever known. He could coax a bird right down out of a tree." So again, we see his most important asset. Now, another paragraph in this book, note of myself, be careful who you listen to. In the early days of GM, this person is almost convinced Durant that he was wrong and that he shouldn't be in the automobile industry because he had no future. He stated that "I was gambling my whole established carriage business for a visionary and passing fancy. As I had great respect for his opinion, I began to feel that there might be something in his warning." Luckily, that didn't happen. Now, okay, I'm going to read you a sentence. Let me read it to you first, because there's two powerful lessons in this short sentence.

• 33:26David Senra?

  "His associates in the Durant-Dort Carriage Company had trouble understanding his intense interest in automobiles when the carriage company was doing so well." The year they're talking about, 1906, was Durant-Dort's biggest year. Two powerful lessons in that short sentence. One, it's very, very hard for us as people to give up on what is working before it's too late. There's entire books written about this phenomenon. And two, the best years can come right before a complete and irreversible decline. That carriage company they're talking about that has the best year ever doesn't even exist in less than a decade, because you're not going to buy a horse-drawn carriage when you can buy a car. All right, so this is how Billy Durant handled the panic of 1907. A series of financial panics that played large roles in his life, and really anybody's

• 34:11David Senra?

  life that lives through these things. And the note left myself was, "I wonder if this faith in writing out recession comes back to hurt him later in life," and it definitely does. In this case, his strategy of just forging ahead was beneficial. "Buick production tripled despite the fact that a financial panic created oppression across the country. People were not buying cars, and many automobile companies closed their doors. Durant ordered his factories to produce at full tilt, storing new Buicks in barns, warehouses, and fields. Durant's gamble paid off handsomely. When people were ready to buy cars again, Buick was the only automaker with plenty of cars on hand." So this is a very similar strategy that Sam Bronfman did when he started buying up

• 34:51David Senra?

  all the stocks of aged whiskey in anticipation of prohibition in the United States being resolved. And so when it was lifted, he was the only person that had tons of aged, high-quality whiskey, and that one strategy, that one move, sealed the American market for him and produced generational wealth.

• 35:12David Senra?

  And so on a smaller degree, we see Durant doing the same thing here. He's like, I'm going to keep production up even in lean times. And then when things inevitably get better, I'm, I have now all the cars. So it says after that Durant seemed never to worry about business cycles. Bad idea. Figuring he could ride out any temporary recession. Durant had made the transition from the largest, this is a good, this is speaks to his talent. He's extremely talented entrepreneur. Durant made the transition from the largest carriage maker to the largest automobile manufacturer in a little more than three years. The founder of Buick leaves. This also describes the early days of what would soon be GM. We're right at the point where he found GM same year. By 1908, David Buick was gone. He was a good technician and a quiet man and a dreamer, but he was thoroughly disenchanted

• 35:54David Senra?

  with a fever pitch of operations at the company and he got out. This is him describing it. There wasn't an executive in the place that even knew what time it was. We worked until we had the day's job done and we're ready for tomorrow. And then we went home and not until then. Durant gave Buick $100,000 to invest as he chose. David Buick chose badly. His investments in the later years went sour and he died in relative obscurity in 1929. This is the beginning of GM. Before 1908 was out, Durant had founded a new company, General Motors. Remember he has Buick, he has his carriage company, he's got all kinds of stuff. He just can't focus. So he finds General Motors, then he gets a call. Durant was called to the telephone. JP Morgan and Company and a financial backer were exploring the ideas of a large automobile merger.

• 36:39David Senra?

  Would Durant be interested? So they're saying, hey, you go out and you roll up all these manufacturer automobile manufacturers in one conglomerate and we'll give you the money to do so. And it's, it's really interesting where Durant wants to start. And so this is Durant talking to us about the beginning of GM. And this is where Ford's going to play a role. So he says, I suggested he first see Henry Ford and who was in the limelight, liked publicity, and unless he could lead the procession would not play. So I've read, I don't know, five books now on Henry Ford, four, something like that. That's a really good summary of Ford's personality. I love this idea. So Durant's trying to consolidate this whole industry under General Motors.

• 37:24David Senra?

  Right? So there's a legendary meeting between three automobile founders. Durant, Ransom Olds, who's definitely got to be a future founder's episode. He's too important to the automobile industry. And Henry Ford, they all meet. So this is really interesting. They're meeting in Durant's, like, I want to buy all your companies. There's a painful pause. Durant tried to fill the gap. If we put a value of $10 million on Ford, would Ford consider $6 million a reasonable figure for REO? This is Ransom Olds' second company after he founds Oldsmobiles. So he's running REO. And again, we're going to get more about Henry Ford's personality. Henry Ford said that he didn't have the slightest idea of the value or the earning capacity of REO. He never, he believed, I think he's right about this.

• 38:09David Senra?

  He's like, there's no experts in business. You might be able to be an expert in your own company, but the idea that you could be an expert in somebody else is probably not true. That statement, though, where he says, I don't have the slightest idea of value of the earning capacity of REO. That statement's really consistent with what I know about Henry Ford. Henry Ford had one more, had another objection in this meeting. Now, the reason I bring up this part is because one of the most powerful things to know about Henry Ford, and the most inspiring, in my opinion, is that Henry Ford had one single idea. One, you just need one idea to build a life on. He decided to build a life on and mass producing an inexpensive car so everybody could buy it. And you see this with his objection here. He says, this is 1908. Henry Ford had one objection. The tendency of consolidation, which is what Durant's trying to do, he felt was to increase prices.

• 38:53David Senra?

  He's dead right about that. Which he believed would be a serious mistake. Durant noted that Ford was in favor of keeping prices down to the lowest possible point, giving to the multitude the benefit of cheap transportation. That is his one single idea. I love that. I don't think I'll ever forget that in my life. At least, I hope I don't. Okay. Now, this is Billy Durant, which is telling us on why it was hard to raise money for an early automobile conglomerate. He had some people interested in it. And then it's also...

• 39:23David Senra?

  What he's about to tell us, he's gonna get kicked out of GM in two years from now. Okay, so he says, "I had a long, hot session with some of our friends in New York yesterday and was pretty nearly used up at the finish. If you think it's an easy matter to get money from New York capitalists to finance a motorcar proposition in Michigan, you have another guest coming." We saw this with Ford, they didn't like this. So last week, I told you also about the benefit that the Dodge Brothers, see, the Dodge Brothers dodged all this. That wasn't a, I didn't mean to make that pun, but they didn't have the complicated structures and the reliance on outside financing that Henry Ford had at the beginning and that GM had throughout their whole life. And as a result, they can make all their decisions, they moved fast, and they did that because they were already fabulously wealthy before they started making their car.

• 40:06David Senra?

  Remember, in a gold rush, and this is a gold rush in the automobile industry, they sold pickaxes. It wasn't until they made all the money off of pickaxes, metaphorically speaking, that they started their automobile company. So there's a lot to learn from the Dodge Brothers. If you haven't listened to that podcast, please go back and listen to it. It's worth your time. Okay, so it says, "You have another guest coming." So Billy's running into the same thing. Henry Ford runs into, Ransom Olds, all these people run into the same thing. "Money's hard to get owing to somewhat unaccountable feeling of uneasiness and a general distrust of the automobile proposition." In other words, the financiers in New York were unsure if there was an economic future and a way to make money in the automobile industry in the early 1900s. Now, this was really interesting. So I just brought up Ransom Olds to you.

• 40:50David Senra?

  It says, "Ransom Olds secured financial backing from a copper magnet." So I just want to bring this to your attention. This seems to be a common source of funding. And what I mean by that is the way people got rich in the 1800s, and we've covered a bunch of these people, copper, railroads, construction, steel, that was the source of funds for a lot of the early automobile founders. They then take that money and then are investing in and loaning money, sometimes on an equity basis, sometimes on a debt basis, to the early founders. I think that's really fascinating, and that's something that obviously will continue. But I think it's so important to study the history of entrepreneurship to have a fundamental understanding of these same themes that seem to play out over and over again. Now, Durant buys Oldsmobile. Ransom's not there, Ransom Olds is not there anymore, but he buys, Buick and Oldsmobile's

• 41:35David Senra?

  the beginning of GM, he's gonna buy Calix, he can buy all this stuff. But I'm bringing up this not because he buys Oldsmobile, but I want to give you an example of Durant's odd schedule. Durant arrived in Lansing after midnight one night. He roused the Olds executives from bed and at 3:00 AM, galloped through the Olds' plants for a 15-minute tour. They talked until dawn about the sale of Oldsmobile. He's famous for doing things extremely fast and extremely odd hours. It's an example. Now, I want to take a slight detour, if you'll allow me. The books are the original links. Durant meets this colorful founder by the name of Albert Champion. I've already ordered this book. He's going to be a future founder episode as well, but he's not. Again, he's selling pickaxes. But he's a really interesting person. He says, "The fellow showed him a gadget that had some merit,

• 42:19David Senra?

  but it wasn't suited for Buick's. But it was really well-designed and Durant thought the man might be able to produce other products that he could use. His name was Albert Champion." What a great name. "What are you making?" Durant asked. "Magneto's and spark plugs. We don't use Magneto's, but I'm interested in spark plugs. Can you make one?" Durant was having trouble finding a spark plug. So Albert Champion's going to make a fortune in spark plugs. Pickaxes, man, let's do this. "Only one company made such a spark plug for Buick, and it was charging 35 cents." Could Champion, he wanted to see if Champion could produce something cheaper, and he could. "He succeeded in submitting to our engineers a spark plug of real merit, and the price we paid him was 25 cents, saving 10 cents each day, or 10 cents on each spark plug." And Buick's using 1,000 spark plugs a day at this time,

• 43:03David Senra?

  so that savings is going to compound. "The Champion Ignition Company of Flint was incorporated. Durant gave Champion $25,000 in stock." This is early GM stock. Now, here's the deal. This stock makes, in addition to the two successful companies that he founds, Albert Champion gets rich off this stock. There's another lesson here. There's plenty of people that had way less GM stock than Durant ever had. The difference between them and Durant was they sat on it and they became wealthy. Durant played all kinds of unnecessary games with his stock, usually on a margin, and he died impoverished. There's the lesson there. Let me give you a quick bio on Albert Champion, and you'll see why I want to do an episode on him. Champion had been born in Paris in 1878.

• 43:47David Senra?

  By age 12, he was an errand and office boy for a Paris bicycle manufacturer. He became interested in bicycle racing. He won the championship in France. He won American and world, and then world champions, championships. He returned to France to study automobile manufacturing and then moved to the United States in 1900. He tried automobile racing, almost lost a leg in a racing accident, and then organized a Champion company. In Flint, Champion became known as one of the most colorful and flamboyant figures in a town full of them. He lived to see both his new company, later named AC Spark Plugs, and the company he had left, the Champion Spark Club Company, become giants in their field. He was a multimillionaire when he died. Okay, let me get to Durant's strategy. This is his master plan.

• 44:28David Senra?

  This is the best summary you'll find in a book about his master plan for GM. "His aim was nothing less than to gain control of some of the biggest and best automobile companies in America." We're also going to see, when I mentioned earlier, that his strategy is very different from the strategy we've studied in the past, Henry Singleton, Warren Buffett, Charlie Munger. You'll see why here. "But he also wanted to get on the ground floor with companies just starting. They could be purchased by exchanging small amounts of stock, and who could tell what their patents, products, or inventions might bring? So this is why they call him a speculator and more of a gambler. The automobile industry was in its infancy. The public was fickle. The only sure road to power and success was to have a wide range of products." Durant says, "I figured if I could acquire a few more companies like Buick, I would have control of the greatest industry in the country.

• 45:12David Senra?

  A great opportunity and no time to lose, I must get busy. I felt confident because of the hazardous nature of the automobile business that if money in sufficient quantity could be attained, a reasonable number of good companies could be induced to sell out or become members of a centralized organization." When Durant predicted, now this is something that he was right about. "When Durant predicted that someday half a million automobiles would be built and sold in a single year, the bankers thought he was mad. Durant did not care what they thought. He knew he was right." Another person we're going to cover is Henry Leland, the founder of Cadillac. He demanded precision machining in every part he manufactured. He winds up selling his company to Durant. This is actually really amusing. This is a note about the Cadillac purchase.

• 45:57David Senra?

  The price was 3.5 million a few months earlier, but Durant couldn't get the money. Once he gets the money lined up, the price is now 4.7. So he's got to pay 1.2 million more, right? This is what was amusing about it. It was, this is Durant talking. It was several months before I had occasion to inspect my purchase. Although I received many invitations from Lelands to go, I would give my reason that I couldn't because there was pressure of important business. Durant's telling us. The real reason was that I was negotiating. Listen, this is so weird. The real reason I was negotiating for the purchase of many other concerns, some of who were fearful that a connection with General Motors might mean a change of policy and management. So, the reason he doesn't go to Cadillac is to convince other people that he's hands off, but he's not hands off.

• 46:41David Senra?

  To meet the situation, it was only necessary to refer them to Cadillac management, who could truthfully say that Durant had never been in the Cadillac plant. Strange. One reason that Durant's strategy worked so well at the very early days of the automobile industry is that in the first two years of GM's existence, Durant purchased, he was able to purchase partial or complete ownership in about 30 companies. And he did that because they would take stock for it. He says Durant didn't need much cash to acquire companies. Leland, interesting enough, demanded cash. With General Motors as his holding company, he could exchange GM stock for the stock of the company he was buying. The individual auto companies did not need a lot of money in those early days. They would need more money once they could ramp up production, but a lot of them weren't at that stage and that he's buying them.

• 47:25David Senra?

  They could buy their supplies on credit and finance expansion with their profits. Now, I need to, this is a fantastic little story. This is one remark that'll sum up his whole life. Durant's burst of empire building in this period was incredible. He worked late into the night and people wanting to see him were amazed when he made appointments with them at midnight or 1 a.m. or even later. "1:30 a.m.? Don't you mean P.M.?" asked one person. "No, 1:30 a.m." Durant answered. "We'll get this in today." Durant was pushing himself hard. His longtime personal secretary recalls one particular revealing episode. He and Durant were headed by car to Detroit to catch a train, and Durant was driving. Durant veiled through a ditch. There was a loud snap as a spring broke.

• 48:10David Senra?

  "What was that?" Murphy shouted. "Never mind," yelled Durant. "We're still running." Murphy never forgot the remark. It caught the spirit of the whole of Durant's life. So this was, there's a fascinating, unknown piece of early automobile history, and that's Durant almost successfully bought Ford for $8 million. They had an agreement, and then the financing that Durant was relying on fell through. And so this is Durant on Ford. A few years later, Durant ran into Cousins. This was the early days of the Ford company, the most important person in the Ford company. And Cousins told him that Ford's earnings were then up to $35 million a year. Durant said that his banker friends never forgave themselves for failing to approve the loan.

• 48:55David Senra?

  "He appeared to feel no regrets." "I never would have built up that business the way Henry Ford did," he remarked decades later. "The Ford business would never have been what it was without Henry Ford." Okay, so now we get to the part where Durant is going to lose control of GM for the first time. And, well, this may have been caused because the bankers started to believe, there's a panic of 1910 that's gonna, that Durant's gonna find himself on the wrong side of, right? And it also causes the bankers to believe that loaning money to automobile companies are dangerous. But Durant played a role in this because he was not organized enough.

• 49:38David Senra?

  He didn't know, and this is something he does even later in life. It's like, how do you run this business and not know what's going on? This is the very frustrating part. So it says, "But it was almost impossible to put together more than 20 companies of varying profitability and uneven management in two years, and be entirely certain of what was going on. Durant had little faith in a central staff, so he didn't have one." Again, Henry Singleton didn't have a large central staff. Warren Buffett and Charlie Munger don't. But you gotta have good businesses. You can't just say, "I'm not gonna have a staff if you need a staff." Oh, okay. There was no, this, think about this. Think about this. There was no uniform bookkeeping procedure, no clear control of our inventories, and the various GM subsidiaries

• 50:21David Senra?

  still operated for the most part independently. He doesn't know what's going on in the businesses he owns, and yet he doesn't stop adding to those businesses. That's going to work when in good times, but as soon as you have a downturn, which is what's about to happen, you're going to be wiped out. So they get too big, they get too fast, and he commits a mortal sin. They don't have enough cash flow. Between 1908 and 1910, Durant had pulled into General Motors some of its most productive divisions, right? That's great. Cadillac's doing well, Buick's doing well, but the others aren't. Some of the other subsidiaries were disastrous from the start. GM's sales volume increased from 29 million in 1909 to 50 million in 1910. But here's the problem. You're jumping up, and you're generating 10 million a year

• 51:03David Senra?

  in profit, right? That sounds good, but there's not enough money to finance expansions and then purchase supplies. So what happens? GM's forced to borrow heavily from its suppliers and commercial banks, it's going to go to business. But the panic of 1910 is happening at this exact same time. And says Durant finally realized that he can no longer operate on sheer optimism. Okay, so at this point in the story, Durant and GM are quickly going to run out of money. They got big way too fast. There is another quote that's in my notes. It's from the founder of Sequoia called, his name's Don Valentine, and this may be one of my favorite quotes I've ever heard. And he says, "There are two things in business that matter, and you can learn this in two minutes. You don't have to go to business school for two years. High gross margins and

• 51:47David Senra?

  cash flow. All companies that go out of business do so for the same reason. They run out of money." And he says, he's applying that to business. I say it applies to families and applies to individuals as well. Think about that quote right now as we get into, like, what do you think's going to happen when you absolutely have to have money or the company's going to go bankrupt? You're not going to get good terms. You're going to get, Durant gets kicked out of this because he was such, he allowed himself to get in such a fragile position. This is the frustrating part of Durant's personality. He knows better, he just can't control himself. Durant recorded his version of his trials in 1910. You recall the General Motors from 1908 to 1910 was expanding very rapidly.

• 52:30David Senra?

  To handle this business, in addition to the earnings of more than 10 million a year, we needed additional working capital of 15 million. General Motors, for many years, was called a one-man institution. With respect to these endorsements and guarantees, meaning when he's loaning money, he's doing personal guarantees, it might so be considered. No other stockholder of General Motors was asked to endorse or guarantee these obligations. Again, why are you doing this? So he says, "Why did I assume these obligations?" And these are his words, and this is what I was thinking when I was reading it. "Did you ever hear of such un-businesslike and senseless procedure?" He does this over and over again. He does this with stocks later. Let me tell you why. "My early associates, for the most part, were my personal friends with limited capital." Okay. He's making a stupid decision, but he's doing it because he's too nice. This is why I feel so many people liked him, respected him, because he really did care

• 53:15David Senra?

  about other human beings and would put their needs above his own. But you can't help other people if you can't survive. And when I'm reading the story of Billy Durant, I thought about this lyric that comes from Jay-Z, and he says, "I can't help the poor if I'm one of them. So I got rich and gave back to me, and that's a win-win." You're trying to help people, that's good. There's nothing wrong with that. But you can't help them if you go broke, and that's exactly what's going to happen to you. Okay, so he says, "My early associates, for the most part, were my personal friends with limited capital. Many were willing to and did risk every dollar they possessed, believing as I did in the future of the automobile industry." Okay, not a good move. "We sometimes paid dearly for overconfidence, and in this case, I did pay plenty. Had I taken the time and been inclined in that direction, I might have arranged with

• 53:59David Senra?

  a responsible financial group to provide the necessary capital by surrendering a portion of the profits as an insurance against a severe loss or temporary stoppage of business in squally times." That's his word for financial panics. "It is easy to offer suggestions or to speculate as to what might have been, but if you knew, as I did, the opposition and skepticism of the bankers and financiers, you can understand that in those early days of the industry, money in the amount required was not readily available." So that's why, he's describing to us why he chose to raise money from people that did not have a lot of it. "Our bank loans," and he's describing what happens when the panic happens, "our bank loans were all called, and we were deprived of every dollar of working capital, the lifeblood of our institution, which brought us to a complete stoppage of our business. I tried the financial institutions.

• 54:44David Senra?

  I tried the life insurance companies. I tried men who were known to possess large fortunes." I had a wonderful proposition to offer, but my efforts in that direction were to no avail. I admit that it was discouraging, but as I, but I, as I never had what might be called a soft job in my life, my experiences taught me that the tougher the job you have, the harder you must work. I kept right on looking for the money. Keeps right on looking for the money and he finds it and the terms are severe. This is insane. The bankers demanded control of the company. Durant had no choice but to accept, so he's kicked out after only two years. Automotive historians have generally described the terms as exorbitant. Yes, they are. But when literally no one else would lend you money, are you, your company disappears. What did you expect to happen? Durant, in his memoirs, this is the autobiography

• 55:28David Senra?

  he never finished, fumed. The $15 million loan finally offered had outrageous terms, which I was forced to accept. Under those terms, I received 12 million in cash, not 15 million, for which I gave $21.6 million of the best securities ever created. So essentially to get $12 million, they have to give 9.3 million of interest. That's crazy. So when the company opened back up, because they had to furlough a bunch of employees, and this is, this is why it's so devastating, his life story is so devastating, because he had underneath all this financial shenanigans. If he just slowed down a little bit, he had a great business. The first week they opened back up, we received orders for 13, let's call them 14,000 Buick cars. The value of these cars, $14 million. He borrowed 15

• 56:13David Senra?

  million. If he just did a little better job managing, he would have never had to do this. I refer to this situation because of the fact that the bankers later reported that at the time they became interested in General Motors, it was a scrap heap, scrap heap, which is a statement which I've always resented. Okay, so, and this is, this is, this story of Billy Durant is so crazy. He gets kicked out of GM. Look, he has all this huge success with his carriage company, then huge success temporarily with GM. He gets kicked out of GM, you know he does, he starts another car company, that's Chevrolet. That's why he found GM, the carriage company, GM, Chevrolet and Frigidaire. Frigidaire is widely successful. It's just, this is what I mean, man.

• 56:58David Senra?

  It's so, when you read this book, he is such a likable character. It just, I use this word over and over again, it's heartbreaking. He had, his success was right there, right? Monumental success, right there. If you just augmented a tiny bit of your strategy or the way you were. Okay. So now Durant's telling us about early days of Chevrolet. If I ever expected to regain control of General Motors, which I certainly intended to do, and he does, which is another crazy accomplishment in his life, I should have a company of my own, running in my own way. In other words, another one man institution. But I was taking a leaf out of Henry Ford's book this time. No bankers. And Chevrolet himself, he partners with this guy, Louis Chevrolet,

• 57:42David Senra?

  who was famous at the time as a race car driver. But as Chevrolet himself remembered his arrangement with Durant, he was planning a comeback and told me, we're going to need a car. So I built one. Okay. Now, this is very interesting. He makes, Chevrolet is a fabulous success. One strategy that helped Chevrolet become successful was Durant's choice to go after the low priced market instead of the luxury market. Louis Chevrolet's like, I want to build a $2,200 car. And Durant picks up on something that's genius. He says Ford couldn't build enough cars to satisfy the entire demand for a low priced automobile. So he's saying, Ford's ramping up production at this time. Remember, he sells 15 million Model Ts, right?

• 58:28David Senra?

  But he says the demand for a cheap car, a low priced car that most people could afford, was way greater than the 15 million that he's going to produce. It's interesting to think about what other areas in our life today this applies to. If you can use that as a prompt in your thinking, you'll probably find opportunity. Where is there greater demand than supply?

• 58:49David Senra?

  Chevrolet is a success. Within a few years, by 1914, they're selling 70,000 cars a year. It's bananas. So this is the last, I'm fast forwarding, obviously. The last four years Durant had been busy with the details of starting a new empire. Now, he was ready to get back to the important matter that had probably always been in back of his mind, which is wrestling control of General Motors back from the hands of the bankers. Now, why is this five-year period, this is year four, right? Why is the five-year period important? Because the loan and the control of the board expired after five years. Okay, and so Durant starts making a play and he gets a consortium of people to help him buy GM stock. So he starts buying GM stock. This is right around 1915. It says, "During the year, the price began to rise dramatically."

• 59:31David Senra?

  Someone was buying GM and buying it in great qualities, quantities, excuse me. The man bullying the market was Durant. So Durant teams up this guy named Kaufman and DuPont. Now Pierre DuPont will also be a future episode of Founders. I have a stack of books that I haven't got to that, and a lot of these companies still exist today, about family dynasties that last 500 years, multiple centuries in some cases. And the DuPont family is one of these. I think they started selling like gunpowder in like 1600s. And now, you know, we're 300 years after the fact, and one of their descendants is going to become the largest shareholder in GM, if I'm not mistaken. So it says Durant and Kaufman formed a syndicate to buy GM shares, and during the summer of 1915, they recruited Pierre and some other members of the DuPont family

• 1:00:16David Senra?

  into their tight circle of friends loading up on the stock. Now, later DuPont, this guy's important because he's going to have to rescue Durant, and he winds up with all of Durant, him and the Morgan, the Morgan Company wind up all of Durant's GM stock. So there's a series of events that happened. So right now Durant needs DuPont to wrestle control back in, from the bankers at GM. Two years from now, there's another financial panic. What Durant's not prepared for, I don't know how the hell this guy's not prepared for the inevitable over and over again, and DuPont picks up more. And then there's another panic in 1920, he picks up it all. So I'm going to get there, but...

• 1:00:56David Senra?

  Durant dies thinking that he got set up by his friends. Let me just tell you that. And I'll go, we can't really prove it. Okay, so eventually Durant gets control. Okay, so he winds up wrestling control and management of GM, which is a dramatic victory. He says Durant's clear and dramatic victory could have been followed by a great celebration. Instead, we learned more about his personality and character. He took his wife out to dinner at a fast food chain restaurant in New York City. In the course of the meal, he casually mentioned, "Well, I took General Motors back in the bankers today." And reestablishing personal control of General Motors had astounded the world of business and industry. I don't want to downplay his accomplishments here. This was an amazing accomplishment. The bankers had been routed.

• 1:01:39David Senra?

  Chevrolet had, he used his smaller company to take control of the larger company. Chevrolet had controlling interest in General Motors and Durant and his friends controlled Chevrolet. Writers of the time liken the situation to Jonah swallowing the whale. The note I left myself is simple, not again, double exclamation points. It was not until late, I'm going fast to a series of events that's going to happen over five years. It was not until late in 1917 that events led to a large DuPont company investment in GM. The opportunity was apparently the result of a sharp drop in GM's stock prices after the United States entered the war. The stock fell from $200 in the early summer to $75 in the fall. Durant, as a major GM, this, look what he's doing. Why?

• 1:02:25David Senra?

  Durant, as a major GM stockholder, was holding large blocks of stock by paying only 10% margin required in those days. So he found himself in personal financial trouble. We've seen this over and over again. Hetty Green builds an entire fortune taking advantage of people, not even taking advantage, being on the other side of the transaction, sitting on tons of cash, not buying things on margin. And then when the stock market moves against them, they sell it to her. So here you go. He's in personal financial trouble again.

• 1:02:55David Senra?

  I want to bring up something, though, about his personality before I get in there because I just mentioned, I'm going to get to Hetty Green in a minute. I want to talk about, at this time, he's working with Walter Chrysler. And this is before Chrysler works for Durant before he founds Chrysler. So it's very important. And this section is important to understand Durant as the person, also understand Chrysler, and the strong people. Durant was an extremely gifted leader, but there were some people that were not born to be yes men, and inevitably, they had to leave the company. But what's fascinating is normally when people leave companies, especially under acrimonious terms, like, they hate each other. But these men loved Durant for the rest of his life. Again, it goes back to, it's such a, this tragedy that it was his life because he was

• 1:03:40David Senra?

  likable, and unfortunately, things didn't work out for him. So it says, "Not long after his three-year agreement with Durant had expired, Chrysler felt it was time to go. He had had enough of Durant's style, though the two men remained friends for a lifetime. Durant bought Chrysler's stock from him for $10 million, a well-earned fortune for the man who had started at Buick seven years earlier, making only $6,000 a year. Chrysler's departure from GM eventually led to the creation of the Chrysler Corporation. Durant had already created an enormous organization, but he was so self-confident and so dominant a figure that many of his best men either quit or wanted to. Men such as Nash, Chrysler, and Sloan had minds of their own. They were not built to be yes men.

• 1:04:23David Senra?

  And yet, years after their business associations with Durant, all three wrote quite kindly about the man with whom they had so strongly disagreed. Chrysler in his autobiography described Durant as a genius, and wrote that the automobile industry owes more to Durant than it has yet acknowledged. In some ways, he had been its greatest man. Sometimes we found ourselves in arguments, but we also had a lot of fun." Okay, so now I'm at the point where he's going to lose control, and this is, there's two times in his life where he almost, where he ruins his financial fortunes. This is the first one. The second one, he never recovers from. And the note I left myself, Billy Durant, the note I left myself after this was, Billy Durant is like the opposite of Hetty Green and Mark Spitznagel.

• 1:05:08David Senra?

  So if you haven't listened to this podcast, Mark Spitznagel was Founder's number 70, Hetty Green is Founder's 103, I think? Yeah, founders 103. Here's the thing about what I don't understand people haven't learned. Every time there's a financial panic or a financial collapse, like, oh, it's unexpected. Nobody could have seen this coming. The best description of this is four words. The unusual happens usually. You have to be prepared. Hetty Green and Marcus Nangle built their businesses to benefit of the eventual, of the unusual happening, because the unusual happens usually. Billy Durant could only succeed in good times. And he never learned, because this happened a bunch of times. So this is in 1920, the boom that had followed the end of World War I came to a rather brunt

• 1:05:53David Senra?

  halt, and the United States slumped into a sharp reception, or sharp recession, excuse me. The price of GM stock began to decline steadily. GN went from selling 47,000 cars a month to down to 12,000 cars a month. So what happens? Same situation in 1915. GM has to raise money. What compounds this situation is GM is doing bad financially and personally, Durant is buying up and all trying to support the GM stock. He's trying to fight against the financial panic. DuPont persuaded JP Morgan and Company to become another new partner and distributed 1.4 million shares to raise 28 million. So remember when they raised 12 million and they had to pay 9 million in commissions? This time, they raised 26 million and have to pay 2 million.

• 1:06:38David Senra?

  So that's why they came up with a 28 million number. So it cost them 2 million to get 26 million. So it's a little better terms, a lot better terms. But this is, this is going to do in, this is where Durant is convinced that JP and DuPont hustled him out of his, his stock. Durant was concerned about the Morgan partnership. He had never fully trusted bankers after his experience in 1910. The Morgans, and for their part, considered Durant a speculator. But Durant realized GM needed money, so the agreement was made. Durant was involved in several syndicates in an effort to support the market price of GM stock. Bad idea. One of the syndicates was with a partner at Morgan, this guy named Ed Stenius.

• 1:07:22David Senra?

  Ed then sells, they're supposed to be working together. Ed sells 125,000 shares. They get it for a good price, insider price. They see the stock's price is dropping. They're go, Ed's things like, I'm going to sell now and buy later. Stenius told him, Durant, meaning, meaning Durant, that he thought the stock would go lower and they should sell short 200,000 shares. He's trying to get Durant to sell short his own company. Durant opposed short selling. Durant told Stenius that the sale was a betrayal of trust and led directly to his personal disaster. What does he mean? What is the author telling, talking about his personal disaster? Durant's about to lose $90 million in 1920 money. Certainly Durant had not been required to buy stock outside of the Morgan syndicate.

• 1:08:06David Senra?

  Had he not, he would have not been so severely hurt by the dip in market prices. So this is what I mean. Yeah, they probably hustled him, but they, he, he made it easy for them to do so. Why was, this is the question. I couldn't understand when I was reading this section. Finally, the author's going to ask it for us. Why was Durant buying so heavily to support the market price of GM? The answer to that, to that is not entirely certain. Durant later said he was trying to support the price temporarily so that the British Canadian money, meaning a syndicate, was going to come and give money GM, GM to continue operating and he was worried that the price dropped, they would renege on the deal. So he says, trying to support the price so that British Canadian money that a pledge

• 1:08:50David Senra?

  would come in. Now, at this point, he's buying stock to save his friends from ruin over, even though he's about to be ruined himself. When some associates who had bought GM's stock on his advice said they were facing ruin as the price declined, Durant offered to take their stock, though he was in trouble himself. So we saw that at the bicycle company back in the day. He's still doing the exact same thing. Now, this is where you get really, really frustrated with, with, with Billy. So this is happening in his personal money, right? Dupont, his partner, and Raskov, who's Dupont's man, who's also running GM with Durant, they're going to see if they can help him out. Durant, Dupont and Raskov met in Durant's office to try to find the extent of Durant's indebtedness. Remember, personal.

• 1:09:34David Senra?

  The indebtedness was in the millions of dollars, but he was not certain of the figure since he had no records. How could you not know? It would take days to get reports from his brokers. This is game over here, essentially, is what I'm about to tell you. The Morgans and the Duponts would raise money to make a cash offer to recover Durant's indebtedness. Durant would resign as president or GM, and when the dust settled, Durant figured he lost $90 million. The Durant era at General Motors had ended. So he goes home, and his daughter, Marjorie, tells us what happens. Marjorie Durant recalled that she saw her father immediately after.

• 1:10:16David Senra?

  He came home and, for the first time, gave way to his emotions. He put his arms around me, and I could feel his body tremble, and tears were running down his cheeks. Louis Kaufman said in 1927 that if Durant had not become involved in the market, he would have been worth $500 million and still in charge of GM. But Durant had not created his empire by being prudent, or practical, or listening to others. He had been daring, impulsive, erratic. He won big, and he lost big. But on balance, he created what became the largest industrial corporation in history. I'll leave the story there. I highly recommend reading the book.

• 1:11:01David Senra?

  That is 120 books done, 1,000 to go. If you want to read the book, buy the book using the link that's in the show notes. And by doing so, you'll be supporting the podcast at the same time. I will talk to you again soon.