Tag: McCormick– Cyrus

Easy Credit

Background

Cyrus McCormick’s mechanical reaper revolutionalized agriculture. McCormick’s reaper enabled one man to harvest the same amount of grain in one day as he could in two weeks by hand. Since grain goes bad when not timely harvested, the reaper enabled farmers to plant far larger crops with commensurate profits. Additionally, the reaper lowered the price of grain, enabling the booming US population to cost-effectively eat.

His company, McCormick & Odgen (the major of Chicago), grew at a fast pace. Eventually, McCormick bought out Odgen and the McCormick Reaper Company thrived.

However, McCormick faced one major problem; his patent was expiring. In 1848, McCormick entered into an epic showdown with Obed Hussey, who invented and patented a similar reaper before his. After heated litigation, the judge did a Solomon and declared both patents invalid. Countless reaper manufacturers started selling low-cost knockoffs.

In response, McCormick marketed heavily. One of his biggest challenges was a chicken-and-egg problem. Farmers using reapers will realize increased revenue and profit. But, with their smaller farms and crops, reapers were not affordable.

Easy Credit

In response, McCormick came up with a seldom-used strategic move: easy credit. Knowing that the reaper will increase revenue and profit, McCormick extended credit to virtually anybody who wanted a reaper. Since McCormick’s business was already profitable he could afford to do this. However, the myriad of me-too knockoff reaper companies did not have the capital to compete.

McCormick’s strategy was wildly successful. His business, later renamed International Harvester, went on to dominate the field for 150 years. Interestingly, in 1984, International Harvester sold the farming division after suffering enormous losses due to a months-long strike. The CEO responsible for the strike, Archie McCardell, is the same CEO who ignored the Xerox PARC inventions during his time as CEO of Xerox. The Board of Directors fired him the day after the strike finally settled. McCardell was also at the helm of Xerox when Japanese competitors took the bulk of the copier market.

Combine Harvester

Background

Before the combine harvester farmers would need to hire groups of people to harvest crops before they rotted. Since there were only so many people available, the ability to harvest limited the volume of crops that could be grown. The harvester fixed that, doing the work of many people at once. This enabled the large farms, and relatively cheap food, we see today.

The reaper harvests wheat. There is a short amount of time that wheat can be harvested before it rots. Before the mechanical reaper men would use scythes, cutting from sunup to sundown. They could only plant what could be harvested in a two-week window, before the crop rotted, limiting the amount of grain and the amount of food. Reapers dramatically increased efficiency, allowing a reaper with a small number of helpers to do the work of many times the number of people.

Patrick Bell invented but did not patent a horse-drawn auto-reaper in Scotland. Obed Hussey patented the reaper a year before McCormick. They competed and fought but Hussey folded, selling his patent rights to McCormick in 1858. Historians suggest that Hussey’s early reapers were flawed technology, but that McCormick had higher quality standards. Hussey died in an 1860 train accident but his descendants argue, convincingly given the patent dates, that he is the true innovator of the modern reaper. Hiram Moore improved and patented a large-scale reaper, pulled by 20 horses.

International Harvester

Cyrus McCormick built an enormous harvester business that, later combined with others, eventually became International Harvester. Moore and McCormick did not like one another (Moore sued McCormick) and there are reports insinuating McCormick was somehow stealing Moore’s patents before they could be processed.

A hyper-litigious McCormick sued a railroad over an $8.75 overcharge then litigated the case for 20 years, including three visits to the US Supreme Court. He fired his little brother, the then foreman of his factory when McCormick was 62 years old.

Historians argue McCormick’s brother, Leander, preferred one-off production but McCormick wanted a factory that could mass produce using standardized parts. As McCormick’s company grew he consolidated competition via acquiring companies, patents, and (according to some historians) some amount of espionage.

Besides McCormick’s harvester, he also pioneered a new idea, easy credit for farmers to purchase the harvesters on affordable terms. Despite easy credit he lent money at 6%, the same rate he paid as a large and well-established manufacturer; he purposefully used self-financing to build sales volume, not as a profit center itself.