#371 James J. Hill: The Empire Builder

What I learned from rereading James J. Hill: Empire Builder by Michael P. Malone. ---- Ramp gives you everything you need to control spend, watch your costs, and optimize your financial operations —all on a single platform. Make history's greatest entrepreneurs proud by going to Ramp and learning how they can help your business control your costs and save more. ---- Founders Notes gives you the ability to learn from history's greatest entrepreneurs on demand. You can search all my notes and highlights from every book I've ever read for the podcast. Get access to Founders Notes here. ---- Join my free email newsletter to get my top 10 highlights from every book ---- Notes and highlights from the episode: —He had unlimited energy, was stubborn, had a temper, was supremely arrogant and he did more to transform the northern frontier of the United States than any other single individual. —One of the things he learned from history and biography: The power of one dynamic individual: Like so many other nineteenth-century youths, young Jim Hill fell under the spell of Napoleon. He came to believe in the strength of will, the power of one dynamic individual to change the world, the conquering hero. (He says that the railroad entrepreneurs conquered the distance between remote communities in the American west) —He accustomed himself to handle a large workload. —If you want to know whether you are destined to be a success or a failure in life, you can easily find out. The test is simple and it is infallible: Are you able to save money? If not, drop out. You will lose. You may think not, but you will lose as sure as you live. The seed of success is not in you. –James J. Hill —He held people’s attention as he engaged them in characteristic rapid-fire, highly animated conversation, gesturing expansively and driving home his point with jabbing motions of his hands—the embodiment of high energy. —He worked incredibly hard, sometimes laboring late into the night, falling asleep at the desk, then getting up for a swim in the river and a cup of black coffee, then going back to work. —“Rebates existed in other industries. I just applied them to oil.” Rockefeller said. [Don’t copy the what, copy the how] —John D: The Founding Father of the Rockefellers by David Freeman Hawke. (Founders #254) —"The very best employee at any job at any level of responsibility is the person who generally believes that this is their last job working for someone. The next thing they'll start will be their own. — Max Levchin in The Founders: The Story of PayPal and the Entrepreneurs Who Shaped Silicon Valley by Jimmy Soni. (Founders #233) —Hill drank little, worked hard, and confined his socializing to respectable settings. As always, he read incessantly. He permitted himself few distractions in his relentless drive to achieve wealth and status. —Inefficiency disturbs him greatly. —James J. Hill loved eliminating steps. —Genius has the fewest moving parts. —Hill limited the number of details. Then he makes every detail perfect. —Hill called vertical integration, rational integration. —Hill always gets out quickly in front of the emerging trend. —Hill had an entirely pragmatic business personality. When competition suited him in a market, he competed fiercely. But when competition became wasteful to him, he did not hesitate to end it, even if this meant joining with old enemies and creating a monopoly. —Hill was making profits owning steamboats. Then a competitor from Canada starts running the same route and the rates and profits dwindle. Hill discovers a neglected maritime law that prohibited foreign ships from operating in American waters. Hill then persuades the US Treasury Department to enforce the law against his competitor. The competitor has to transfer ownership to an American. After that Hill then merges with that competitor and forges another monopoly. —This railroad is my monument. — James J Hill —As man emerged into history, he became a road maker; the better the road, the more advanced his development. — James J. Hill. —By 1885 Railroads brought in twice the revenue than the federal government. Railroads were the nations largest employer. The railroaders were the largest private land holders in the country. They owned more than 10% of land in the United States. —Hill identified an opportunity hiding in plain sight: Unlike most who viewed the Saint Paul and Pacific as a near-worthless derelict, Hill viewed it as a miracle waiting to happen, a potentially wondrous enterprise simply lacking competent leadership. He studied the road constantly, reading every scrap of information he could find about it and boring anyone who would listen with endless detail as to what it could one day be. —He possessed a priceless advantage compared with most other nineteenth-century rail titans. Rather than coming from the outside world of finance, as most of them did, he arose from the inside world of freighting and transportation, and he knew this world in all its complexities. He was about to demonstrate how certain well-established, regional capitalists on the frontier could challenge and even best larger eastern interests. —Being obsessed is an edge. Hill was obsessed getting control of the bankrupt Saint Paul & Pacific rail line: Hill, who knew the road better than anyone else, constantly argued to his friends, the potential prize defied description. He seemed completely fixated on the project. Many years later, his friend recalled that Jim had spoken of it to him “probably several hundred times” during the mid-1870s. —James J. Hill finds what he is best at in the world at, at 40 years old, in a field where he had no direct experience. —“It pays to be where the money is spent” — James J Hill —James J. Hill was very easy to interface with. He had an easy to understand organizing principle for his company. Hills credo: What we want is the best possible line, shortest distance, lowest grades, and least curvature that we can build. —He had appreciation for those who had dirt underneath their fingernails. —Many observers would later compare Hill with Villard. The comparison was inevitable. “While Hill was building carefully and checking his costs minutely Villard built in ignorance of costs.” Like other transcontinental plungers, Villard did in fact build rapidly and poorly, much of his main line would later have to be torn up and rebuilt. He had rushed to get the massive land grants. Amid mounting deficits and acrimony, Villard was then forced to resign the presidency of the NP in 1884. —Find what you are good at and pound away at it forever. —He simply could not delegate authority and live with the outcome. —Hill on how to build a railroad: Work, hard work, intelligent work, and then more work. — James J Hill. —They managed the finances of the railroad in a highly conservative and prudent manner. Hill advocated and practiced a policy of plowing large percentages of profits directly back into the property, knowing that the best defense against invading railroads was a better-built system that could operate at lower rates. —Give me Swedes, snuff and whiskey, and I'll build a railroad through hell. — James J. Hill —From the Hour of Fate: James J. Hill had built the Great Northern with deliberate thrift and brutal efficiency. His railroad would become among the most profitable in the Northwest. He didn't need JP Morgan the way other railroad executives did. (Financial strength was kryptonite to JP Morgan) —He cared most about freight, never frills. —The life of James J. Hill certainly demonstrates the impact one willful individual can have on the course of history. —I’ve made my mark on the surface of the earth and they can’t wipe it out. — James J Hill. ---- “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 ---- 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?

  I found out about James J. Hill from Charlie Munger. Munger said that Hill was a great operator like John D. Rockefeller and Andrew Carney. And I thought those very high praise. And what jumps out when you read a biography on James J. Hill is just how difficult Hill was to compete with. And in this biography, they are constantly comparing the way Hill runs his business to his main competitors. And here's one example. It says, "Many observers would later compare Hill with Henry Villard. The comparison was inevitable. While Hill was building carefully and checking his costs minutely, Villard built in ignorance of his costs. Amid mounting deficits, Villard was then forced to resign the presidency. Hill knew that the best defense against invading railroads was a better-built system that could operate at lower rates."

• 0:45David Senra?

  Well, just how sound was the system that James J. Hill built? Well, the Great Northern Railway lasted from 1889 to 1970. Hill died in 1916. That's over 50 years after he died. And you'll think that you'll find this interesting. The Great Northern Railway in 1970 is merged into the Burlington Northern Railway, which then the Burlington Northern Railways merged in 1996 to the BNSF Railway. And in 2010, Warren Buffett bought the BNSF Railway. Buffett still owns it to this day. And this all started with James J. Hill. James J. Hill knew that you could find a competitive advantage if you controlled your costs better than your competition. In fact, Sam Walton said exactly that. Sam Walton said, "Control your expenses better than your competition.

• 1:30David Senra?

  This is where you could always find the competitive advantage." For 25 years running, long before Walmart was known as the nation's largest retailer, "We ranked number one in our industry for the lowest ratio of expenses to sales. Anyone who is committed to being great at building their business is obsessed with watching their costs." Think about last week, the founder of IKEA said, "We pushed cost awareness at all levels with almost manic frenzy." Warren Buffett has a great quote about this. He says, "A good manager must be a demon on costs." Sam Walton, Ingmar Kamprad, James J. Hill, every person that runs a Berkshire-owned business, and countless of history's greatest founders, all have one thing in common: they made cost control. An obsession. That is exactly why Ramp is now a partner of this podcast because all the founders of Ramp

• 2:15David Senra?

  listen to the podcast. They picked up on the main theme from the podcast over and over again, the importance of watching your cost and controlling your spend and how doing so gives you a massive competitive advantage. That is the reason that Ramp exists. Ramp exists to give you everything you need to control your spend. Ramp exists to give you everything you need to make cost control an obsession. Ramp gives you easy to use corporate cards for your entire team, automated expense reporting, and cost control. As you're about to hear in this episode, James J. Hill was obsessed with efficiency. Ramp helps you run an efficient organization. I read a Ramp customer review that I think sums this up perfectly. It says, "Ramp is like having a teammate who you never need to check in on because they have it handled." Ramp's website is incredible. Make history's greatest entrepreneurs proud by going to ramp.com to learn how they can

• 3:00David Senra?

  help your business control costs. That is ramp.com. In the dead of winter in 1870, a young James J. Hill was on a 500-mile trek from Canada to St. Paul, Minnesota. He had traveled by dog sled, horseback, and he was now on foot. It was dark. He was exhausted and covered in snow. He arrived at an inn in the town of Caledonia in the Dakota Territory. The innkeeper took one look at Hill and refused to rent him a room. Hill then had to backtrack on foot and trudging through snow 15 miles to a farmhouse where a widow allowed him to stay for the night. James J. Hill would never forget the widow's kindness.

• 3:42David Senra?

  He would not forget the cruelty of the innkeeper in Caledonia who had refused him shelter either. 10 years later, Hill was building his railroad and intentionally built his line to avoid Caledonia and instead pointed his road past the town of the widow who had taken him in. As a result, Caledonia disappeared from the map. The widow's town became the capital of the county. That town was renamed Hillsborough in Hill's honor and still exists to this day.

• 4:11David Senra?

  That was a story that I found while I was watching this four-part documentary called "The Empire Builder: James J. Hill and the Great Northern Railway," that I was watching at the same time I was rereading this great biography on James Hill called "James J. Hill: Empire Builder of the Northwest," which is written by Michael P. Malone. In the late 1800s and the early 1900s, when James J. Hill was alive, he was one of the most famous entrepreneurs in America. His nickname was "The Empire Builder." Hill had unlimited energy, he was stubborn, he had a temper, he was supremely arrogant, and he did more to transform the northern frontier of the United States than any other single individual. So I want to talk about his early life. There's a few things that jump out when you're reading about James J. Hill's childhood. He grows up in a poor

• 4:54David Senra?

  family in Canada. It's said that family led a frontier existence. Later in life, James talks about knowing what it was like to be poor and that his father was not very prosperous. One of his most vivid childhood memories is the fact that he would lay awake at night staring at the moonlight that would beam through the holes in their roof. And that was back when he had two good eyes. When he was nine years old, he was out hunting with a bow and arrow. The bow that he had handmade had snapped, and the arrow flies backwards, hitting his right eye and prying it out of its socket. They were able to reattach the eye, but he was permanently blind out of that eye. And even with one eye, he read everything all the time. There's a handful of traits that James J. Hill has, even when he's young, that he carries with him throughout his entire life. One is his voracious reading

• 5:37David Senra?

  habit. "That left eye proved to be very strong and would serve him faithfully through a long lifetime of intensely close reading and reckoning." Hill would often tell the people about the inadequacies of his education. He says he never went to school a day after he was 14, but he could read, write, and reckon, and more importantly, he loved to learn. And this won't surprise you, but one of the subject matters he loved was history and biography. Now, this is something that he learned from reading a bunch of biographies. He learned the power of one dynamic individual. This is what the book says. "Like so many other 19th-century youths, young Jim Hill fell under the spell of Napoleon. He came to believe in the strength of will, the power of one dynamic individual to change the world. He believed in the conquering hero. In fact, later on..."

• 6:21David Senra?

  He says that the railroad entrepreneurs conquered, that's the word he uses. He said that the railroad entrepreneurs conquered the distance between remote communities in the American West. And so this is the way I thought about Hill right before his father dies, because his father's actually going to die suddenly on Christmas Day when James is 14. That's why he said, I never went to school the day after I was 14 years old. He couldn't. He had to quit school and go to work. Right before his father's death, he had a poor father, a frontier existence, one eye, and he was a voracious reader. And so now he has no father. He's still living on the frontier, has to go to work to support his family. Still has one eye, still reading everything he can get his hands on. But then we start to see something that, another trait that he carries for his entire life. He accustomed himself to a large workload. If you were able to ask James J. Hill, starting at 14, when he goes to work,

• 7:06David Senra?

  and then all the way up until he dies when he's in his 70s, how many hours a week do you work? His response would be, all of them. So at 14, he gets a job at a general store. He keeps the books, does clerical work, milks cows, and cuts wood. He is still in Canada. A few years later, a trader from St. Paul, Minnesota, is at the store, and James is helping him with his horse. The trader hands James a copy of an American newspaper with the headline that says, "Splendid Chances For Young Men In The West." And the trader tells him, "Go out there, young man. That's the place for you." Hill carries the copy of that newspaper around, and he reads and rereads it until it falls to pieces. And it's at 17 when he makes the most important decision of his life, and that's when he decides to seek adventure and profit and go to America.

• 7:51David Senra?

  Now, there's something that we're going to talk a lot about, this fact that he was an engineering and a financial genius. And something that opened up future opportunities for him is the fact that he saved all of his money. In fact, there's a quote that he says, "If you want to know whether you are destined to be a success or failure in your life, you can easily find out. The test is simple, and it is infallible. Are you able to save money? If not, drop out, you will lose. You may think not, but you will lose as sure as you live. The seed of success is not in you." And so this is what the book says about this part of his life. He left with $600 in cash, his life savings. He took with him all the tools he would need to succeed in America. A quick intelligence, self-sufficiency, genuine courage and engaging personality, a fierce ambition and a remarkable work ethic.

• 8:35David Senra?

  So actually, we need to get into his personality. He was extremely charismatic. He was a natural salesman. He was a natural promoter. He held people's attention as he engaged them in characteristic, rapid-fire, highly-animated conversation, gesturing expansively and driving home his point with jabbing motions of his hands. He was the embodiment of high energy. So keep that in mind because that's going to serve him well when he winds up starting to work in the railroad industry. He doesn't start working in the railroad industry till he's 40, so more than 20 years in the future. But at the time, railroad entrepreneurs were actually called promoters. James J. Hill was a natural-born promoter. So he goes to the town that the trader was from, which is St. Paul, and he gets a job in St.

• 9:17David Senra?

  Paul, working for a company that serves a fleet of steamboats. His job title was technically shipping clerk, and he did maintain the books, but he also did a ton of manual labor. So he would have to handle incoming and outgoing freight, he'd work on the docks and in the warehouse. He also gets a job working for wholesalers who are shipping commodities by both rail and by steamboat, which gives him a ton of experience in logistics and forwarding. This is going to be another advantage that he's going to have when he moves into railroading in about 20 years. And so this is how Hill's biographer described this part of Hill's life. "He worked incredibly hard, sometimes laboring late into the night, falling asleep at his desk, then getting up for a swim in the river and a cup of black coffee, then going back to work. These years formed his apprenticeship, and he learned much more than bookkeeping. He learned how to extract favorable rates from shippers, how to beat back their attempts

• 10:01David Senra?

  to inflate their rates artificially, how to purchase commodities cheaply and undercut competitors, how to deliver efficiently, and how to cultivate and maintain the loyalties of customers by anticipating and looking after their every wish." These lessons would serve him well when he switched over to the world of transportation. So when I'm sitting here reading about the work that Hill is doing for these wholesale grocers, this reminded me of a very similar experience that Rockefeller had early in his career. And so I want to read you my note and highlight from what is my favorite Rockefeller biography of all time. It's the book that I covered back on Episode 254, the book is called John D., the founding father of the Rockefellers. And it's describing a young Rockefeller having a similar work experience as a young James J. Hill is.

• 10:45David Senra?

  And at the time Rockefeller is working for Hewlett and Tuttle, which are forwarding groceries and other commodities by rail. And the book says Rockefeller saw that posted rates supposedly fixed could also be negotiated. All was not as it seemed on the outside. A favored shipper at the end of the month would receive a rebate on that rate that could amount to a substantial sum. And so the note I left myself when I read that is there is no standard oil monopoly without this happening first. Rebates played a huge role in Rockefeller's empire. And he says, rebates existed in other industries. I just applied them to oil. And so when you read about the early career of both James J. Hill and John D. Rockefeller, you realize that the sequence that experiences happen in is very important. There is no standard oil empire without the experience of Rockefeller as a Hewlett and Tuttle.

• 11:29David Senra?

  And there is no Great Northern Railway empire without James J. Hill having all these businesses and jobs that all interacted with the railroad for two decades before he gets control of his own railway. And so Hill is a great employee, but he doesn't want to stay an employee forever. Says if there's ever a born entrepreneur, it was Jim Hill. Highly intelligent, highly motivated, highly acquisitive. It was only a matter of time before he went into business on his own. There is a great line from Max Levchin, one of the co-founders of PayPal. It is from this book called The Founders, written by my friend Jimmy Soni, which tells the history of PayPal. And in that book, it says Levchin added an unexpected qualification for PayPal employees that he felt contributed to the company's success and the later achievements of its alumni.

• 12:12David Senra?

  Many of its earliest employees simply hated being employees. The very best employee at any job at any level of responsibility is the person who generally believes this is their last job working for someone. The next thing they'll start will be their own. And one thing that James J. Hill understood is that relationships run the world, and a great way to transition from employee to entrepreneur is by partnering with an older, more established, wealthier businessman. So he works very hard at befriending this guy named Norman Kitson. So Norman Kitson is about a generation older than Hill. He's one of the most successful entrepreneurs in St. Paul. He had made money in the fur trade and as a steamboat operator. Eventually, he's also going to partner with Hill on railroads as well. Norman Kitson is going to be so important to Hill that Hill names his firstborn

• 12:55David Senra?

  son, James Norman, in Kitson's honor. And so Hill partners with Norman Kitson and helps Kitsons with his existing fur trading business. And one of the things that Kitson and everybody around James J. Hill at this point in his life just realized how focused he was. It says, "Hill drank little, worked hard, and confined his socializing to respectable settings. As always, he read incessantly. He permitted himself few distractions in his relentless drive to achieve wealth and status." And so in addition to working with Kitson, he's going to found his very first company. This is going to be the James J. Hill Company. Now, this is very fascinating, and again, another trait that he has for his entire life. Inefficiency disturbs him greatly. Okay, so he is watching, he's on the riverbank.

• 13:38David Senra?

  He's seeing that dock workers are unloading cargo from steamboats onto horse carts. Then they would haul the cargo, use the horse carts to haul the cargo up the hill to then be reloaded under railroad cars. That extra step of adding the horse-tron carriages up the hill disturbed him so much that he founds a company to fix and to remove that step. So this goes back to why he kept saying, "If you can't save money, you know, the seed of success is not in you." And he was always very financially conservative. So much so, I guess I should tell you this now. James J. Hill, the reason that he's so remarkable, I guess I should tell you how I found him. I didn't know who James J. Hill was until many, many years ago, like five or six years ago. I'm reading Poor Charlie's Almanac,

• 14:19David Senra?

  and Charlie Munger, James J. Hill is mentioned twice in there. And so Munger's talking about how great Jim Sinegal, the founder of Costco, is. And he says, "Jim Sinegal is a fabulous business operator, like a Carnegie, Rockefeller, or James J. Hill." And so you and I have talked about this a bunch of times, but I think it's really important. When you find somebody you admire, like I had admire Charlie Munger, go find who they admire and then read about them too. And so that's what made me pick up a biography of James J. Hill for the first time five or six years ago. But then when you read about it, you realize why Munger and other people admired him so much. James J. Hill was the only American railroad entrepreneur in history to build a railroad and never go bankrupt. And one of the things that made him so hard to compete with is how efficient he was constantly refining the efficiency of his railroad.

• 15:03David Senra?

  He was obviously obsessed with watching his costs. And there's multiple examples in his biography where they compare how he managed the expensive side of the railroad compared to his other competitors. And he was constantly preaching the importance of being financially conservative in building for the long term. So at 27 years old, he went to withdrawing his life savings, which at that time was $2,500. And he uses that money to start the James J. Hill Company. This company is going to be a forwarding agent for the St. Paul and Pacific Railroad. That is the railroad he's eventually going to buy out of bankruptcy many years in the future. Okay, so his company this time, they get hired to transfer goods from the riverboats and load them on the trains. And so his first innovation was, hey, I'm just going to build a two-story warehouse on the riverbank. The first floor is going to be level with the dock.

• 15:48David Senra?

  The second story was level with the railroad, making it much easier to transfer from boat to railroad. And it eliminated the need to unload and reload onto horses. I would say from reading a lot about him and then spending four hours watching the documentary too. He loved, James J. Hill loved eliminating steps. Eliminating that one step drastically reduced the cost of transfer. There's a maxim that I have about this that I think about all the time. It says genius has the fewest moving parts. This will be a reoccurring theme for everything that Hill does. If you study what he does, he's an unbelievably clear thinker. He limits the number of details and then he makes every detail perfect. And so his first business is founded on an observation that, hey, I could do that a better way.

• 16:32David Senra?

  His second business is founded on an observation. The railroad operators are spending a lot of money on fuel. At the time, that's mostly wood. I should start a business that sells fuel to the railroads. And so there's a ton of things going on in his life. So right now, he's starting more businesses. He's learning more about railroads. You'll see immediately, hey, he has this bias towards vertical integration. What we call vertical integration, he has a great line for it. He called it rational integration. And then we also see that he has uncompromising standards. He's a very difficult person to deal with. So he winds up partnering with this guy named Griggs. They start Hill, Griggs and Company, and it's a fuel company. And it starts out selling wood for fuel to the railroads. And so at the exact same time, because Hill's very observant, he notices that coal is

• 17:15David Senra?

  starting to be used in place of wood that had many more benefit, that coal had many more benefits as a fuel source than wood. And so there's a line in the biography that, again, is another trait that I need to put into your brain about James J. Hill. He always quickly gets out in front of an emerging trend. He immediately goes all in on the coal business, and this is the description in his biography. Hill's rise to the top of the coal business is interesting, not only because it formed a cornerstone of his career and generated venture capital for later investments, but also because it revealed the first time his instincts toward vertical integration and ruthless monopolization. He purchased mass tons of high-quality coal. Then, as the size of his shipments and his bargaining power grew, he remorselessly leveraged railroads to deliver the coal at preferred rates.

• 17:59David Senra?

  He formed a purchasing pool with other large coal businesses. His partners controlled a third of all the freight traveling on this railway route. Now, about his uncompromising standards. He applied this not only to his employees for the rest of his life, but also to his partners. As time passed, he felt his partner Griggs wasn't cutting it, and so he forces a breakup of the partnership. Griggs gets mad is going to set up his own fuel business and then compete directly with Hill. And that leads us to another lifelong trait of Hill, the fact that he was very pragmatic. This is a great description of how his modus operandi, how he would operate through his entire career. Ever the pragmatist, as well as a tough competitor, Hill also eventually previewed another future characteristic

• 18:44David Senra?

  when he abruptly changed course and parlayed with his chief competitors to bring peace to the coal industry by joining together in a market-sharing consortium. Hill had an entirely pragmatic business personality. When competition suited him in a market, he competed fiercely. But when competition became wasteful to him, he did not hesitate to end it, even if it meant joining with old enemies to create a monopoly. Now, shortly after this, he's going to leave the fuel business to go full-time into railroads because he thinks it's the opportunity of a lifetime. Before I get there, I need to tell you two other stories that I think will give you a good idea of who Hill was and just how difficult it would be to have to compete with this guy. So at the time, there is a violent dispute between two different groups on land owned by Canada.

• 19:29David Senra?

  Hill was worried that this potential war would interfere with his trade business, so he travels to Canada to meet with a member of the House of Commons of Canada and a powerful businessman who he thought would help resolve this dispute. This is a trip that happens in the dead of winter. He leaves Minnesota by rail. Then he has to transfer to stagecoach, which is, you know, horse-drawn stagecoach, for the next 100 miles. Multiple times, the stagecoach gets stuck in the snow. They have to get out and actually dislodge the stagecoach from the snow. Then at the end of that route, he has to travel the next 200 miles on horseback into Canada. Then he has to hire a dog sled team through territory with his own Native Americans that could potentially kill him. He has the meeting and then has to do the entire trip in reverse.

• 20:14David Senra?

  The whole thing takes seven weeks. Hill then gets back and writes a report to the Canadian Prime Minister. And as a result of this experience on the report, the Prime Minister is able to resolve the dispute and avoid a war that would interfere with Jane J. Hill's business. That is a great description of being high agency. Hill was high agency. He also read everything looking for an advantage. So at the time, Hill was baking a bunch of money, taking people and goods on steamboats. He was the only operator in this area. Then a competitor from Canada starts running the same route and they get into a rate war. And as a result of the rate war, the profits that Hill had was starting to dwindle. So Hill reads all the regulations of maritime law.

• 20:54David Senra?

  He discovers a neglected maritime law that prohibited foreign ships from operating in American waters. Hill then persuades the US Treasury Department to enforce the law against his competitor. That forces his competitor to transfer ownership of their steamboats to somebody else. After that, then Hill merges with that competitor and forces and forges another monopoly. I think now you're starting to see why Munger said, hey, this James J. Hill guy was one of the best business operators. He's up there with a Carnegie, he's up there with a Rockefeller. So I want to get into what is truly his life's work, and that is working on the railroad. He's going to start this at forty and work on it until he dies. And there's a few quotes from James J. Hill that I've collected that I think give you an idea of how important. He just understood how important railroading was going to be.

• 21:37David Senra?

  The first quote is, "Some people build great monuments. This railroad is my monument." And the second quote is, "In the dawn of civilization, the trail gave way to the beaten path, and that gave way to the caravan route. As man emerged into history, he became a roadmaker. The better the road, the more advanced his development." Building his railroad will be the most important work of his life, and he is better at it than anyone else. And I know I've told you this before, I just think there's a lot of parallels between the railroad industry and the early internet industry. This is by far the most, the railroads at the time, they're by far the most important industry of James J.'s Hill's day. Some of these stats about the railroad industry are just mind blowing.

• 22:21David Senra?

  So by 1885, railroads brought in twice the revenue than the federal government did. Railroads were the nation's largest employer. Railroaders were the largest private landholders in the country. They owned more than 10% of the land in the United States. Hill's railroad will enable the creation of other gigantic industries. Industries, not just gigantic companies, entire industries. As a result of his railroad, he helped launch the agricultural, timber, and mining industries of the American West. And it all started because he saw opportunity hiding in plain sight. All of his businesses at the time bracketed each side of the St. Paul and Pacific Railroad. His warehouse business is on one side and his steamboat business is on the other, in addition to selling fuel to the railroads.

• 23:06David Senra?

  And the reason I say he found an opportunity hiding in plain sight, because he had a vastly different view on the potential of the St. Paul and Pacific than anybody else did in his day. Said unlike most who viewed the St. Paul and Pacific as a near worthless derelict, Hill viewed it as a miracle waiting to happen. A potentially wondrous enterprise, simply lacking competent leadership. He studied the road constantly, reading every scrap of information he could find about it and boring anyone who would listen with endless detail as to what it could be one day. And the reason I wanted to spend a bunch of time telling you about the two decades of experience that he had before he entered railroading, because railroading is his life's work, it's what we should focus on, right? But this previous experience, on the other side, was an asset that his railroad competitors lacked.

• 23:50David Senra?

  This is what the book says. "He possessed a priceless advantage compared with most other 19th century rail titans." Rather than coming from the outside world of finance, as most of them did, he arose from the inside world of freighting and transportation, and he knew this world in all its complexities. He was about to demonstrate how certain well-established regional capitalists on the frontier could challenge, and even best, larger eastern interests. Warren Buffett has this great quote where he says, "Writing a check separates conviction from conversation." And that is one of the things I admire about James J. Hill, who is willing to go all in on the opportunity of a lifetime. So keep in mind, at this point in his life, he is in his late 30s.

• 24:35David Senra?

  He's rich, he's prosperous, he's got a growing family, he's got a great lifestyle. He's one of his city's leading businessmen. He has a diversified set of businesses from fuel and transportation to warehousing and brokering. And yet, he so believes in this opportunity, he's willing- To risk everything and go all in on the railroads. This is very reminiscent of Andrew Carnegie. If you look at the early days of Andrew Carnegie, he had a diversified set of businesses, already rich. But then he seized the opportunity in steel and he sells off everything else and devotes all his time to building his steel company. It's exactly what James J. Hill is going to do in building his railway. And so it says, "Hill now staked everything he had, his entire career, on the gamble for the railway." This is the St. Paul in Pacific. "He began cutting back on any new commitments and moving out of his other businesses to devote his full attention to acquiring the road."

• 25:20David Senra?

  This is why. "Hill, who knew the road better than anyone else, constantly argued to his friends. The potential prize defied description. He seemed completely fixated on the project. Many years later, his banker friend recalled that Jim had spoken of it to him probably several hundred times during the mid 1870s." Time and time again, you and I see that being obsessed is an edge. Hill was obsessed with completing the bankrupt St. Paul in Pacific. He had been researching this for years before he had the ability to gain control of the rail line. And this is how he thought about the opportunity. Here stood the kind of opportunity that came only with the opening of a new frontier, once in a lifetime, once in many lifetimes. And so we see his same MO.

• 26:05David Senra?

  What's he gonna do? He's going to read everything. He's going to learn everything. This is another example of that maxim, "The good ones know more." "He summarized well his feverish hunt for whatever knowledge he could gain. I commenced to get all the information that I could find, copies of the mortgages, of the complaints." Keep in mind, the rail line is in bankruptcy. This is what he's talking about. "I commenced to get all the information that I could find, copies of the mortgages, of the complaints, of any books published in connection with the lawsuits, of the records in the court, and such information as I could gather from parties who were likely to have information as to the situation in Holland." There's a controlling party here is a collection of Dutch investors. That's what he's talking about. "As to the situation with the bondholders, as their relations to the Dutch committee, the position of the several lawsuits,

• 26:49David Senra?

  the grounds upon which the lawsuits were brought and with counsel discuss the merits of, or probable merits, of those cases." And one of the most remarkable parts about this is the reason I kept saying, hey, he found an opportunity hiding in plain sight. Firstly, thought, you know, this is just a crappy line. It's bankrupt. There's a reason it's bankrupt. He thought, oh, it just has poor management. This opportunity seemed so impossible to other people that most people didn't even try. But remember, we just went over the fact that Hill, James J. Hill, was excessively, extremely high agency. So it may have seemed impossible to them. It didn't seem impossible to him. And so what he realizes is like, I need to get the Dutch shareholders to settle with me so I can get this railway out of bankruptcy.

• 27:34David Senra?

  And the numbers that he is running, he's like, okay, he's doing all the math and he's like, okay, I think we're going to need to invest $5 million. And if we invest $5 million, we'd get a $19 million gain. Number one, he does not have $5 million. He's going to go in with three other businessmen. All of them are richer and a little older than James J. Hill was at this point. They also combined do not have $5 million. Number two, he underestimated how much money is going to be a much, it's a much larger return. It's going to cost about $5.5 million, somewhere around there to get control of the rail line. But the gain is going to be a lot more than $19 million. And so Hill convinces the Dutch investors to accept about a 10% down payment on the purchase price, and then the rest is financed with bonds that pay them 7% interest.

• 28:18David Senra?

  So now we have gotten what I feel is the most interesting part to me. It's how he built, operated and managed his railroad. This is one of the most important ideas that I've been sharing in private conversations with founder friends this week, is the fact that James J. Hill, he finds what he is best in the world at, what he is best at, at 40 years old, in a field where he had no direct experience. He had been around railroads. He sold to railroads. He had business adjacent to railroads. He had never operated a railroad. There's a great quote by Mark Andreessen where Mark says, "I'm a firm believer that most people who do great things are doing them for the first time. I'd rather have someone all fired up to do something for the first time

• 29:03David Senra?

  than someone who's done it before and isn't that excited to do it again. You rarely go wrong giving someone who is high potential a shot." And so something's going to happen at the very beginning when they take control of their railroad. We're going to see again this reoccurring trait that James J. Hill had. He had uncompromised standards. He only wanted to be around incredibly talented people. And he was also the most comfortable doing the job himself. So originally, Hill and the four associates, that's what they're called, had another guy named Farley in charge of the actual construction of the railroad. And like Hill did in the past, even if you're his partner, if you, if he did not think you were good enough, he would cast you aside. He is going to maintain his uncompromising standards. And keep in mind, he has all of his money into this thing. If this thing fails, he'll lose everything.

• 29:48David Senra?

  And so Hill is going to cast aside Farley. Farley is going to be referenced here as the old man. And this is the way the biography describes it. "Impetuous and impatient, Hill crowed the old man remorselessly and began taking on more of the tasks of the management himself, eventually removing Farley completely. Hill now entered one of the most dynamic phases of his life, for the first time engaging in the work of railroad construction. He would prove remarkably good at it, demonstrating a rare ability to muster and command men and materials and to control both a broad strategy and a myriad of details. Hill worked and worried by day and night. He would be at his St. Paul office until after midnight and then in the field, driving himself to the limit

• 30:33David Senra?

  and seeing little of his family. He found it imperative, he said, to be where the money was being spent." That is another maxim that James J. Hill would repeat. He says, "It pays to be where the money is spent. Staying close to the money is excellent advice." And here's the result. Hill soon had the workers laying rails at a rate of more than two miles per day, over twice the pace that Farley had made earlier. And I think one of the most important things that Hill did is he had a credo and a philosophy in which he had a very, it's very easy to interface with. It's very clear and simple what he wants. He says, "What we want is the best possible line, the shortest distance, the lowest grades, and the least curvature that we can build." And so remember, inefficiency offends, offends Hill.

• 31:18David Senra?

  The reason he talks about the reason he wants the lowest grade and the least curvature. So the grade is the incline or the decline where the track is. He wants the track to be as level as possible because then the trains can maintain higher speeds and use less energy. Those advantages compound over the life of not only the locomotive, but also the railway because it makes it more fuel efficient and reduces the strain on all the moving parts. So at the very beginning, he sets out this credo. This is going to be our company's organization principle. Okay, we're going to build the company around the fact that we want the best possible line, shortest distance, the lowest grades, and the least curvature. He also had another philosophy that's related to and enhances his credo. And that's if you're going to do something, do it so that lasts a long time.

• 31:59David Senra?

  And so Hill is importing more expensive Bessemer rails from England. And so Hill's rails are technically more expensive, but they're more durable and thus more profitable in the long run because he doesn't have to rip up old, worn out rails and redo the track like his competitors do. Another difference in the way he built his railroad, most of the people were financiers on the east. He was out on the track. And so when he needs to figure out the best path for one of his rail tracks to take, he actually goes out and scouts it himself personally on horseback. And so in countless interviews in the documentary and all throughout the biography, it talks about the fact that, they call him a micromanager, but the way I would put in something that reappears in these biographies over and over again is just if it's something important, then you need to do it yourself.

• 32:43David Senra?

  And I think his bias to be close to where the money is being spent, to do as much of the work as himself as possible, to take the most important tasks and do it himself. You have to, like, he talks over and over again about the way he does and like, he manages his business and the way his competitors do. So his main competitors is this railroad called the Northern Pacific. And it says, "Hill held the Northern Pacific group in utter contempt as a bunch of eastern speculators who did not have their act together. Many of them were not on site. They were back east." And the one thing to think, one thing to know about Hill is that he had appreciation for those who had dirt underneath their fingernails. In this way, Hill was very much, he reminded me of Sam Zemurray. Sam Zemurray is the main character in one of my favorite books that I've ever read. The book is called The Fish That Ate The Whale.

• 33:28David Senra?

  And it is about these competing banana empires. So I want to read a paragraph from that book. That is technically describing Sam Zemurray and how he approached building his banana business, but could also apply to James J. Hill and how he built his railway, and then how Zemurray and Hill's competitors were off in some remote office somewhere. So it says, "Zemurray worked in the fields besides his engineers, planters, and machete men. He was deep in the muck, sweat-covered, swinging a blade. He helped map the plantations, plant the rhines, clear the weeds, lay the track. Unlike most of his competitors, he understood every part of his business. He was contemptuous, just like Hill. He was contemptuous of banana men who spent their lives in the North, far from the plantations.

• 34:13David Senra?

  Those smucks, what do they know? They're there, we're here." And so, one of the most important ways that Hill was different from his competitors is that he insisted on the most direct and economical route. And you're like, "Okay, yeah, you're building a railroad. Like, who wouldn't do that?" Okay, here's the problem. The Northern Pacific did not choose the most direct route. Why? They were responding to terrible incentives. Remember what Charlie Munger says, "Always remember that incentives rule everything around you." So, the US government, at this time, this makes no sense to us now. I guess it's, I mean, they're building rockets the same way, and the Defense Department's still like this, I guess so. I guess this still persists to this day, unfortunately.

• 34:54David Senra?

  So, the government paid railroad companies by the mile. Railroad companies would literally receive government-issued bonds for every mile of track that they made. They would also get land grants. So, in addition to bonds, railroads are awarded land grants for every mile of track laid. This is how they wind up owning over 10% of the country, when I mentioned earlier. So, this meant that, as the companies build more miles of track, they accrued more land on either side of the track, which then they could later sell and use that revenue. So, if you're the Northern Pacific, and you're building a railroad across the state, and you see these rules, these incentives that guide the game that you're playing, you're not incentivized to take the most direct route. It's the opposite.

• 35:36David Senra?

  You want as many miles as possible, because the more miles of track you lay, the more twists and turns and everything else, the more money you get per mile. And the more land you get per mile. Hill thought this was short term thinking, but most people in the railroad industry were short term thinkers. So the guy running the Northern Pacific is this guy named Henry Villard. There is a bunch of comparisons between Henry Villard, who they call a speculator, and James J. Hill. And here's one example. Many observers would later compare Hill with Villard. The comparison was inevitable. While Hill was building carefully and checking his costs minutely, Villard built in ignorance of costs. So Villard is going to drive his line into bankruptcy and JP Morgan is actually going to get control of this. But that happens in the future.

• 36:21David Senra?

  So it says Villard built in ignorance of costs. Like other transcontinental plungers and speculators, Villard did in fact build rapidly and poorly. Much of his line would later have to be torn up and rebuilt. He had rushed so he could get massive land grants. Amid mounting deficits, Villard would then be forced to resign in 1884. So I want to go back to Hill in his early days building his first line. These are traits, the idea of building for the long term, uncompromising standards, using the best materials, investing in technology. These are things that Hill is going to do for the next, for the remaining 37 years of his life. But at this point, he's building his first line. He says, "Keeping work crews in the fields and keeping them working at capacity proved especially difficult. Hill cajoled and coerced his workers.

• 37:04David Senra?

  He learned many of the men's names and would walk around along the track, calling out to them. On the other hand, he routinely fired shift bosses when they failed to perform to his satisfaction. When one whole crew rebelled, he faced them off and fired the entire entourage." So it talks about multiple times that he had very strict rules of conduct. So not only if you're not working fast enough, you get fired, but as you can imagine, you're on the frontier, there's a lot of drunkenness and violence. So if you violated these codes of contact, uh, conduct, he would just, the line, the description of this is that he would fire employees at an alarming rate. For his entire life, he's going to refuse to bend his standards to other people. Now, this is also a result. He winds up managing the railroad to profitability right away. Go back to what Munger said about him.

• 37:49David Senra?

  He is one of the best operators ever. The line showed net profits by the end Of the year well above $500,000. That is an $1878. So it says it made well above $500,000, indicating what a vast earning potential it truly had. Among the associates, only Hill had fully anticipated the road's true strength. Remember before this, everybody's like, oh, it's derelict. There's no opportunity there. Within a year, he's got it making over a half a million dollars in $1878. And so right away, you see that Hill's like, this is going to be my life's work. Another thing, another idea and maxim that I learned from Charlie Munger that I think about all the time.

• 38:30David Senra?

  Munger would say that you need to find what you're good at and then pound away at it forever. That is a great description of what James J. Hill does. Starting at age 40 with his first line, with each passing month, as the attention of his fellow associates wandered, Hill became ever more focused and his authority over and control became nearly absolute. Matching incredibly long hours at his desk with frequent forays into the field, he built up a remarkable command of the details of the railroad, its infrastructure, its operations and its land. Indeed, his knowledge of the railroad in even the most minute detail quickly became a matter of legend. So that idea of micromanaging, of paying attention to every last detail, you know, this is no different from Steve Jobs, from Walt Disney, Bernard Arnault.

• 39:15David Senra?

  You see this over and over again. So he's going to change the name of his railroad to express his ambition. He's going to change it to the Great Northern Railway. And one of the most important things to understand about the Great Northern was that the Great Northern was built in stages, slowly. The way a great business is built, it's slowly. They slowly created profitable lines, got them profitable before extending the road further into undeveloped Western territories. His competitors did not do that. They threw a bunch of money in there. They created something fast that was sloppy. That had to be ripped up and then eventually would go bankrupt. When you think about this, it says the Great Northern was built in stages. They would slowly create the profitable lines and then they would do that before extending the road further.

• 39:58David Senra?

  That's exactly how Ingvar Kamprad did IKEA, how you and I talked about this last week. And just like Ingvar would show up unannounced and do all these site visits like 5:30 in the morning, you know, he wanted to stay close to where the money was being spent, to use that Hill maxim. Hill's doing the exact same thing. He is constantly riding his own line, looking for defects, looking for weaknesses in his tracks. He winds up taking notes on anything, tiny things, like, oh, there's bad housekeeping at one of the railroad stops, that needs to be fixed. This engine is in need of repair, that needs to be fixed. Hey, there's missing workers, they're not at their designated posts. He was a micromanager for sure. And I'm not using that term as a pejorative. This was his life's work and he was all in. He simply could not, there's a great description of him, I think it's in the documentary, it might be in the book, but it said something along the lines that he just simply could

• 40:43David Senra?

  not delegate authority and live with the outcome. And you add that tendency with a likely photographic memory. He's standing at a railroad stop, he sees the engine, they're all numbered, so the engine number 94, from that number, just seeing the number of the engine that's coming in, he walks up to the engineer, addresses him by name, notes that the engine had just been in for repairs, and is able to speak in detail about what needs to be done. That obsession over detail for an individual train, he does the exact same thing for the industry itself. It says, "Hill learned the industry itself, its parameters, problems, and potential. His genius lay precisely in his ability to master detail by fashioning broad vision and strategy." Hill memorized the details of 1,600 miles of railroad track.

• 41:28David Senra?

  One time he gets a letter that complains about the draining in a ditch that runs along a part of the track from a farmer. Hill remembered that ditch, said the farmer was right to complain, and immediately dispatched his employees to fix it, in effect by using his company's own product. Over and over and over again, he becomes like best critic and he sees exactly what needs to be fixed. And so he's just riding the rail back and forth, back and forth. And there's only one other thing that he would be doing when he's not noticing defects that he needed to improve. He was reading. It says his railcar, the one that he was, his personal railcar that he would travel in, it was Spartan. There was almost nothing in it, and it was Spartan in every aspect except one. It was loaded with books. And so this next sentence is a great description of Hill and will not come as

• 42:12David Senra?

  a surprise to you. It says, "This same intensity and drive made him a very difficult man to work for and with. As his responsibilities mounted, so did his persona as a demanding, raging autocrat. While riding one of his trains that was exceeding the posted speed limit, he went up and queried the engineer about it. When the poor engineer did not recognize his boss and casually admitted to transgression, Hill fired him." Hill was not a man to disappoint, anger, or cross. And so he was asked, like, "How do you build a railroad?" And his answer was, "Work, hard work, intelligent work, and then more work." He was doing this to be the very best. Another smart thing that he would do that his competitors

• 42:53David Senra?

  were not, is that he would reinvest profits back into infrastructure improvements. So he's constantly wanting to improve the engineering of his railroad, and he was constantly trying to eliminate curves and decrease grades. And so his bias would be to using the best technology of the day, if that technology of the day would help him become more efficient, eliminate curves, and decrease grades. And this constant attention to this, over time, lowered his cost of carrying tons of freight. Remember, everything is going to serve Hill's credo, this simple-to-remember organizing principle that he's keeping everybody in line with, that what we want is the best possible line, shortest distance, lowest grade, and least curvature that we can build. And he does that because he knows that's the best defense. This is a highly competitive

• 43:36David Senra?

  industry. Almost all of his competitors have more money than he does, and yet he whips them. So he says, "They managed the finances of the railroad in a highly conservative and prudent manner. They were not reckless speculators, but were in the business for the long run. Unlike Jay Gold or Henry Villard, Jim Hill took the opposite tack from speculative practices, such as milking a railroad of its land grants and its resources, and then dumping the stock to a gullible public. Instead, he advocated and practiced a policy of clawing large percentages of profits directly back into the property." Knowing that the best defense against invading railroads was a better-built system that could operate at lower rates.

• 44:20David Senra?

  That is one of the things that Hill had in common with Rockefeller. He could make a profit at rates so low that the same rates would put his competitors out of business. The best defense against invading railroads was a better-built system that could operate at lower rates. Hill worked incessantly at improving every aspect of the railroad's structure and operation. He traveled back and forth along the line, looking for dips and bumps, and spying out curves that could be straightened and grades that could be lessened. More than any other railroad leader of the day, he had an engineer's passion for minimizing curves and grades, knowing that these were the keys to the lower rates that would vanquish any competition. That part, to me, really speaks to Hill as a craftsman. It's excellence for the sake of excellence.

• 45:02David Senra?

  It's the professional pride of just doing your absolute best, of learning everything you can, and then doing whatever you're focused on, doing it as well as you can. And so this long-term bias that James J. Hill had was another advantage, because he's able to think years into the future, where most of his competitors can barely see beyond their nose. And one of the things that he invested in over the long term is that he knew that the success of his line depended on attracting settlers to the region that is served by his railroad. This is vast swaths of uninhabited territory. And he had a great way to describe why this was so important. He said, "Even a railway built to the Garden of Eden would fail if it only had Adam and Eve to serve." So he had a lot of unique marketing ideas, too, on ways to attract settlers to the region.

• 45:45David Senra?

  So he winds up sending out over 100,000 pamphlets and flyers, advertising open settlements and the fact that they had all this land available for, you know, cheap, that you can move your entire family to, that you can own, that you can develop. And so you have advertising brochures on land that was served by his railroad. He spreads that all through America, but he also does it for Europe. He recruited farmers from Europe to immigrate to the United States. He had a bias for Northern Europeans. He thought that Nor-- he specifically targeted Northern Europeans to try to get them to come to the United States, because he thought they were the most talented and productive. And to give you an idea of this and the extreme personality that we're dealing with, he has a great quote, where he says, "Give me Swedes," so, you know, people from Sweden, "Give me Swedes, snuff, and whiskey, and I'll build you a railroad through hell."

• 46:32David Senra?

  He was fine recruiting settlers one by one, but he thought it was smarter to recruit an entire village. And in some cases, he would target an entire church. He would convince entire congregations of churches to move and develop the land that is serviced by his railroad. And this is a great description of why he thought this was so important. One of James J. Hill's favorite themes, that he voiced repeatedly over the years, stressed the community of interest, the mutual interdependence between the railroads and the regions they served. "The two must be rich or poor together," he said. "And any regional carrier, even one with a de facto monopoly, would only harm itself if it gouged its customers with excessive rates." In fact, later on, he's going to be put under political pressure for his monopoly,

• 47:17David Senra?

  and he will continue to make the case that the result of his monopoly is the fact that it helps him push the prices down, not up. And Hill was such an important figure in this time of American business history. He pops up in all kinds of books. So there's this book I read a long time ago called "The Hour of Fate", and it talks about the war and temporary partnership between Teddy Roosevelt and JP Morgan. And Teddy Roosevelt is the one that's pressuring to break up these monopolies and these trusts. And to give you an idea of how extreme a personality the Hill was, it says, "Hill threatened the president and the attorney general that if they do fight, they will have their hands full, and they will wish they had never been born before they get through with me." So definitely an extreme person, if you're willing to say that, to the president and attorney general. Let's get back to this point, though.

• 48:00David Senra?

  His point is that his product is going to connect people and lands, and that this connection is going to promote economic growth and really develop and create population centers. So, long-term, this is a good strategy to have this mutual interdependence, to make sure that they thrive and they develop the land as much as possible. Because the more they develop the land, the more these immigrants develop the land, the more people and goods are going to travel on Hill's railroad. And so here's another quote from Hill about this. He says, "We consider ourselves and the people along our line as partners in the prosperity of the country we both occupy." If the farmer, because many of the immigrants into the lands where Hill laid track were farmers. So he says, "If the farmer is not prosperous, we are poor." And I know what it's like to be poor. And that policy of aligning incentives was a

• 48:45David Senra?

  long-term policy. It's something he was able to build and let compound for decades. His competitors, again, could not do this. Let's go back to the Northern Pacific and Henry Villard. Villard's frantic transcontinental building spree had left the NP, the Northern Pacific, severely overextended and in need of rebuilding much of its hastily constructed main line. The NP, unlike the Great Northern Railway, had alternating management. So there's constantly different people running the company, which Hill continued to despise as a crew of mindless speculators. And he said, "They seemed unable to hold a consistent policy." He thought that was a massive advantage for him. That was a description of Villard's company. Now, let's get a description of Hill's. "Hill held the advantage of a wonderfully

• 49:27David Senra?

  productive and well-built road, one that was slowly and carefully constructed." It's just really hard to compete with a well-run company because many times, they can make money at rates a poorly-run company cannot. We see that's the case with Hill. "Hill proved able to blunt their thrust, the competitors' thrust, by the simple way of forcing rates below what the opposition could bear, bolstered by his own well-built road, which could haul high tons of freight more cheaply." And it's clear that things should be done the way that Hill did them, because there's other benefits that he enjoys later on. So the book, "The Hour of Fate," that I mentioned earlier, they describe the advantage that James J. Hill had over all the other railroad

• 50:11David Senra?

  people that were forced into bankruptcy, because so many of the lines went bankrupt and had to be reorganized. And JP Morgan was the main person in the country doing this. And he was doing it so often that they didn't call it railroad reorganization, they called it "morgization." And the book makes the point that James J. Hill is the only one to avoid that fate. And it's because of this slow deliberate way, building for the long term, watching his costs, just being obsessed about increasing efficiency, removing any defect. And the book says, "James J. Hill had built the Great Northern with deliberate thrift and brutal efficiency. His railroad would become among the most profitable in the Northwest. He did not need J. P. Morgan the way other railroad executives did."

• 50:56David Senra?

  And this is the note I left myself many years ago when I read The Hour of Fate, is that financial strength was kryptonite to J. P. Morgan. And one of the most impressive things about James J. Hill is the fact that he's in this industry for 37 years. The industry's constantly changing, and he's able to change and adapt with it. In fact, he usually sees the trends because he knows the business better than almost anybody else. He sees the trends changing and happening before anybody else does. So he's one of the, at the time, he's built up this fabulous regional, independent regional railroad. But he's one of the first people to understand that the days of being able to have an independent regional railroad was going to come to an end, that to survive, he had to continue to extend and actually build a transcontinental system. The regional railroads were going to be swallowed up by the bigger players.

• 51:41David Senra?

  He sees this as inevitable, and he's like, okay, this is the time. Right now is the right time to get ahead of this. It's the right time to build. And he thought it would work because at the time, the United States had entered into like this long period of deflation, and interest rates were really low. And so as a result, Hill saw this as like, oh, this may be the time in which I can build this for the lowest cost possible. And he's going to need every advantage that he could muster because he's going to have to build through the Rocky Mountains. And so the opposite of a low grade would be building over mountains. And so he does what he always does. He reads everything. So he gets this set of maps called the Pacific Survey. It is a 12-volume set. In the entire 12-volume set, he finds one brief mention of a possible route that would give you a low passage through the Rocky Mountains.

• 52:26David Senra?

  And so Hill hires the best engineer he can find, this guy named John F. Stevens. John F. Stevens is going to be the engineer that is going to build the Great Northern Railway through the Rockies. About 15 years later, Stevens will also be the chief engineer on building the Panama Canal. And I think this brief paragraph illustrates just how remote, dangerous, and difficult this job is going to be, and then how talented Stevens is. So it says, "They're walking on snowshoes that they had just made. Stevens and his companion climbed to the headwater in deep snow on the night of December 11th. When the thoroughly frightened Indian guide refused to go farther, Stevens left him behind by a fire and went on alone towards the towering peaks.

• 53:11David Senra?

  Suddenly Stevens realized that he was astride an especially advantageous pass. Unable to build a fire, he stomped around through the night in minus 40-degree cold, both to stay alive and to be sure that the western end of the passage really did lay across the divide." Stevens talked about this later, the reason he had to keep walking, because if he stopped, he would have froze to death. "This decision to build all the way through the Pacific is going to lead to the hardest work of Hill's life. It is just struggle after struggle after struggle." This paragraph just describes some of the problems he had to solve. "Trying to manage a railroad while building it west, Hill worked night and day agonizing over expenses and the slow pace of construction. Workers in these remote mountains proved hard to get and to keep.

• 53:56David Senra?

  They often had to labor on steep slopes with hand tools and to move dirt in hand carts and terrain where even horses proved difficult to use. The pace of building fell to merely a few miles per week, and Hill fretted as he saw his hope of completion fading away." And yet, even in the most difficult time of his life, you see one of his traits that's most pronounced throughout his life is that he admires true excellence, true talent. I think a part of human nature is that competency is always respected. So keep in mind, his manager on the site is the civil engineer, John F. Stevens, okay? Stevens sends a report to Hill and he says, "Hey, we have to do a 13-degree curve." And Hill looked at the report, he's like, "This is ridiculous." Remember, he always wants the straightest route possible.

• 54:39David Senra?

  So he tells Stevens, "Hey, stop all construction until I get out there." And so Hill travels out to this remote part. He realizes, once he gets there, realizes that Stevens did not obey his orders, and he kept construction going. So Hill then tells Stevens, "Show me this curve." Stevens shows it to him, and Hill realizes that Stevens was right. It had to be a 13-degree curve. There was no other option. Hill also realized that Stevens was right to defy his direct order to stop construction. And so Hill immediately raises Stevens' salary by 50%. Stevens was the one that made it possible for James J. Hill to reach the goal he had for the Great Northern Railway, which was to get it all the way to the Pacific. And once he reached the Pacific, he didn't stop there.

• 55:22David Senra?

  There's a great description of the way Hill thought about this. "I think it's a great idea to think of your business as a living organism, something that's always adapting and improving." And it said to Hill, "The railroad trunk lines and their spreading branches formed a living, vital organism, which constantly needed to be replenished. Hill's life-passion lay in straightening curves, lowering grades, laying high-grade steel rails, raising tonnages hauled by ever-larger cars and engines, and lowering rates and extending over ever-longer distances. He cared most about freight, never frills." There's a line in the biography of the founder of IKEA that you and I talked about last week that I think could also be a description of Hill.

• 56:05David Senra?

  It said, "The day he is free of IKEA, life for him will no longer be worth living. He loves it, always wants to lie as close as possible to it, and never tires of improving it. James J. Hill never stops improving his railroad and works on it until he dies." And I think this is the perfect place to close. "Like most other robber barons and captains of industry, and like dynamic individuals of any generation, James J. Hill displayed a dualism. His positive traits were quite remarkable: a quick intelligence, and a power of analysis, an incredible power of will and personality, and an unparalleled work ethic and commitment. His negative attributes were mirror images of the positive: an extreme temper that sometimes exploded into rage; a willfulness that could turn into outright ruthlessness;

• 56:50David Senra?

  a cold manipulativeness that he used on adversaries; and such a preoccupation with the purpose at hand that he sometimes lost sight of the broader perspective." What does one conclude in the final analysis about this remarkable man? Surely, the Northwest will never again witness an individual with such sweeping power, simply because the unique opportunity provided by an opening frontier and a transportation monopoly will never again appear. It is entirely appropriate that the passenger train from Chicago to Seattle is called the Empire Builder, in his memory, for his hand reached every aspect of building the regional economy and social order, from transportation to agriculture, mining, lumbering, maritime trade, and town and city building.

• 57:34David Senra?

  His larger-than-life stature is well attested by the persistence, nearly 80 years after his death, of his memory and legend. The life of James J. Hill certainly demonstrates the impact one willful individual can have on the course of history. As Hill said, "I've made my mark on the surface of the earth, and they can't wipe it out."

• 57:59David Senra?

  And that is where I'll leave it for the full story. Highly recommend reading the book. I will leave a link down below in the show notes and available at founderspodcast.com. If you buy the book using that link, you'll be supporting the podcast at the same time. That is 371 books down, 1,000 to go, and I'll talk to you again soon. Hey, can you do me a favor? Can you go to davidcendra.com and add your email to my personal email list? And in return, I'll email you my top 10 highlights and ideas for every book that I read. I've done a terrible job letting people know that this exists, and I want to do a better job because some people find it so valuable that they print out the emails and they put them in binders, or they stack them in a pile on their desk and read through them. Joining Melissa's free, and I'd really appreciate it if you took a few seconds and added your email. As always, thank you for listening.