Category: Business Method

Mass Market Electricity

Edison created the first public electric company, powered by DC, in 1882 in lower Manhattan. His system included generators, junction boxes, fuses, sockets, and parallel wiring. Since DC current could not be transmitted far Edison’s initial electrical plant was limited in scope. Eventually, there would be many small, expensive electricity plants scattered around major cities in the US.

General Electric

Insull worked for Edison, starting in 1881. He created electric plants throughout the US. An early Edison employee, Insull was one of the founders of General Electric.

He left GE in 1892 under circumstances that are unclear. Historians speculate GE passed him over for promotion or he disagreed on how to finance the company. In any event, GE culture has a long history of pushing out talent.

In any event, Insull eventually moved to Chicago and ramped up his own electric company, envisioning something entirely different, a mass market for electricity. Before Insull, there were about 5,000 Chicago customers electrified because electricity was extremely expensive.

Before Insull, there were many noisy, expensive, small, polluting power plants. After him, there were far fewer, much larger, far-away power plants. He created the modern centralized electric factory transforming electricity into a mass-market product. Insull was also the first to use turbines to drive ever-larger electrical generators.

The Electric Factory & Modern Grid

Insull built massive scale, extended the grid everywhere, vastly lowered the price, and increased the reach of electric to four million people. He wanted to electrify everybody near and far, to turn electric into a must-have commodity like water. Because generated electricity that was not used was wasted Insull also had to convince his new electrified customers to use electricity.

Insull, with a personal net worth of $150 million in 1929, went bankrupt during the Great Depression. He’d raised an enormous amount of investment and lost not only his own funds but also those of his investors. Worried, he fled to Paris, was kidnapped in Turkey, then returned to the US where he was criminally charged with selling worthless stock. However, a jury acquitted him after five minutes of jury deliberation. He died, in 1938, with a net worth of -$16 million.

Franchising & Cross-Marketing

Before McDonald’s King Ray Kroc was born Martha Harper built an enormous franchise empire. At a time few women worked in business, much less founded and owned them, she developed two vital strategic moves.

Harper created cross-marketing, the concept where that stores with one purpose can sell related products. Specifically, she created hair salons to sell her hair care products. Additionally, she created the modern franchise and built an enormous network of franchised salons.

Initially, Harper developed a line of beauty products. The products were successful, but distribution was a challenge. In response, she decided to create a line of salons where they could be both sold and used.

Rather than own the salons herself, a capital- and labor-intensive undertaking, she developed a franchise system. Her first franchised salon opened in 1891. Eventually she had more than 500 salons.

Susan B. Anthony and Presidents Woodrow Wilson and Calvin Coolidge were all patrons of Harper Hail Salons. Anthony often cited Harper as proof that women were equal to men.

At age 60 and still single, she married a man 24 years younger than herself eventually retiring at age 78 and passing control to him. Despite the breadth of her empire, her franchises have long since disappeared.

It wasn’t until 1925 that another successful franchise was created, Howard Johnsons.

Management Consulting

In 1886, Arthur D. Little, of MIT, founded the first management consulting company. Despite a 2002 bankruptcy, it still exists today. Little consulting tended to focus more on technology than management or strategy. Booz started his firm in 1914, focused on management.

In 1933, Bower, a Harvard lawyer and MBA, went to work for McKinsey’s Chicago office, founded by University of Chicago Prof. James McKinsey.

Bower clashed with senior McKinsey partner A.T. Kearney about the direction of the firm. After a short time, McKinsey died in 1937, at 48 years old, and Bower and Kearney split. Kearney kept the Chicago office, renaming it after himself. Bower moved to New York to create a new branch, effectively a new firm, naming it after his deceased mentor McKinsey. Clarifying, Bower effectively founded what today is known as McKinsey. The original McKinsey firm morphed into A.T. Kearney.

Bower transformed management consulting from a field that hired older, oftentimes retired businesspeople to younger people, often just out of school. His belief was consulting firms should look and function like law offices rather than traditional businesses.

Bruce Henderson was a Westinghouse VP for 18 years then joined Arthur D. Little as VP for management services. He left after four years, in 1963, to become CEO of “The Boston Company,” a consulting division of a Boston bank. Searching for a competitive edge Henderson settled on “strategy” because the meaning was vague, so definable as an area of expertise. The firm was eventually renamed the Boston Consulting Group. Eventually, Henderson created an Employee Stock Ownership Plan that allowed him and others to buy BCG from The Boston Company.

In 1973, Bill Bain left BCG to form Bain & Company.

Long Lasting Light Bulb

Edison’s bulb is well-known but what’s less understood is the enormous infrastructure required to power it. Edison created a power plant in New York City, power cables, transformers, power meters, insulators. When the lights finally came on, at the New York Times building, it represented the end of a herculean undertaking and the beginning of a new era.

Background

At the simplest, Edison’s long-lasting bulb lowered the cost of doing things at night.

Countless people, dating back to 1802 (77 years prior to Edison’s bulb), invented various lightbulbs. Russian engineer Paul Jablochkoff lit up the Avenue de l’Opera in Paris using arc lights from an AC generator. American William Wallace used arc lights to illuminate his foundry. But arc lights were too bright for ordinary use (they’d been in use, in lighthouses, since the 1860’s) and they were dangerous, routinely throwing sparks.

Edison

Edison, by then already a well-known innovator ー the “Wizard of Menlo Park” ー invented the first bulb suitable for indoor use, safe, long-lasting. Edison’s low-cost bulb represented a revolution. It was neither too bright, nor too dark, and safe.

Edison realized a series of centralized dynamos, rather than batteries, could create long-lasting electrical current, an electricity factory. He also worked out that the key to electrical distribution, and a lamp, was low amperage but (relatively) high voltage, requiring less copper wire to power the system.

“No Matches Are Needed…”

Edison’s Pearl Street Station came online Sept. 4, 1882.

Yesterday for the first time The Times Building was illuminated by electricity. Mr. Edison had at last perfected his incandescent light, had put his machinery in order, and had started up his engines, and last evening his company lighted up about one-third of the lower City district in which The Times Building stands. The light came on in sections. First there came in a series of holes in the floors and walls. Then several miles of protected wires, then a transparent little egg-shaped glass globe, and, last of all, the fixtures and ground glass shades that made everything complete.

The lamp is simplicity itself… To turn on the light nothing is required but to turn the thumbscrew; no matches are needed, no patent appliances. As soon as it is dark enough to need artificial light, you turn the thumbscrew and the light is there, with no nauseous smell, no flicker and no glare.

The New York Times, Tuesday, September 5, 1882.

Using carbon thread, created from burnt cotton, in a vacuum tube the bulb that would light, and change the world, was born.

Decades passed before Edison’s low-cost light bulbs became ubiquitous due to a lack of widespread electrical grid.

Cornelius Vanderbilt and J.P. Morgan financed Edison’s work.

General Purpose Catalog

Background

The general purpose catalog increased the selection and decreased the costs of small-town stores that could only afford to carry limited innovatory.

Tiffany’s Blue Book is one of the oldest catalogs, from 1845. There were book, seed, and fabric catalogs in Europe dating back centuries. Ben Franklin created the first US catalog, for scientific instruments. But Montgomery Ward was the first general-purpose catalog.

Montgomery Ward

Ward’s first catalog listed 163 items on one page. By 1874 it had grown to 32 pages, bound into a book. Ward worked for Marshall Field and offered the same unconditional return policy as Marshall Fields.

Ward Catalog, 1875

By 1875 the front page of Ward’s catalog was explicit about the benefits of mail order purchasing:

“We have now, in consequence of liberal patronage, reduced our prices on every article where there was any chance to do so (as you will find by comparing), and have added largely to our list.”

1875 Montgomery Ward Catalog

Besides offering items in the catalog, Wards offered to purchase any item and resell it at a five-percent markup. However, there was little need. Ward’s catalog offered everything from straw hats ($.25 each) to genuine mink coats ($22, the most expensive clothing item). There were branded and private label goods, buggies and beds, and mail order alcohol (sold at cost which, for some reason, customers found less “offensive”).

Sears

Sears offered their first catalog in 1888, titled “Cheapest Supply House On Earth,” and quickly enlarged the offering. The catalog cost $.50 for paper bound or $1.00 for cloth bound. In contrast, a wooden chair cost $.95 at the time. By 1895 the Sears catalog was 532 pages and offered illustrations.

1895 Sears Catalog

From the 1910 Sears catalog:

“This business is for the people. Its foundation stone is public service. It’s great growth from a small beginning has been possible only because it brings to nearly five million families their daily necessities, giving to every purchaser some positive advantage – larger assortments from which to choose, newer styles, better qualities, lower prices.

These are the fundamental facts of our business, in proof of which we need offer no evidence other than the pages of this catalog. Our sole arguments in asking for your patronage are the values offered in this book.”

In 1993 Sears discontinued their catalog, announcing “… it frees up the playing field for us to move forward.” In 1994, Jeff Bezos founded Amazon.

Grocery Store Chain / Mass Retailer

The Great Atlantic & Pacific Tea Company (A&P) showed that relying on massive scale could push down prices while running a company profitably.

Relying on low prices A&P expanded rapidly. Early A&P stores were full-service. Shoppers, who typically arrived on foot to the neighborhood stores, would tell grocers what they wanted, and the grocers would remove it from shelves or a limited cold storage area. A&P pioneered the use of private label goods, purchasing entire shiploads of tea or trainloads of fruit, packaging the goods into their own containers, and selling it at their stores.

During WWI A&P sputtered as the US government commandeered food and transport dealing a setback but, after the war, A&P continued to expand. By 1930 A&P was the world’s largest retailer. At one point there were just under 16,000 stores.

In 1946, the US Dept. of Justice used anti-collusion and market protection rules to convict the company of selling food too cheaply. By the 1950’s others started to open more modern and larger stores (A&P evolved into what today we call grocery stores later in its lifecycle).

Over time, A&P failed to keep pace. Their “professional” grocers did not like the self-serve enormous supermarkets. They had a large number of small stores but, over time, lower volume than the larger retailers.

After a long decline and two bankruptcies all stores were shuttered Dec. 1, 2015. By 2018 even the old A&P website is defunct.

While A&P thrived, they did so by continually recreating their stores.