Part One to this article on Rockefeller can be found here.
As more competitors came into the marketplace, Rockefeller began to
exploit his transportation advantage. He used his location and the
ability to ship oil by water or railway to negotiate very favorable
shipping rates. His competitors, not possessing the ability to ship by
water, were forced to ship through the railways alone and couldn’t
obtain the same shipping price discounts. He also bargained with all
three railways and played them against each other to secure favorable
shipping rebates. One of the strategies he used to negotiate favorable
shipping discounts was to promise the railways a certain volume of
daily shipments. His refineries didn’t meet this production, however,
he quickly assembled a few of his competitors and began coordinating
their shipments to meet this volume. This allowed the railways to
reduce their costs, passing the cost savings on to Rockefeller.
To
secure his domination over the railways, Rockefeller began to build his
own oil tank cars. He would then lease these tank cars to the railways.
“As the owner of almost all of the Erie and New York Central tank cars,
Standard Oil’s position grew unassailable: At a moment’s notice, it
could crush either railroad by threatening to withdraw its tank cars.”
As
his income grew, Rockefeller purchased a home on Euclid Ave — then
known as Millionaire’s Row. He purchased a home that was well below his
means. He purposefully wanted to display the impression that he was not
wealthy. He preferred to blend in and didn’t display his wealth. He
reinvested the majority of his wealth back into growing his business.
In fact, he was concerned that if he advertised his own wealth through
fancy houses, he would attract investors into the refining business.
He
preferred staying home with his family over going out. He didn’t drink
and was extremely disciplined. By his mid–30s, he had a telegraph wire
installed between his home and his office. This allowed him to spend
afternoons at home working in his yard. Just like Andrew Carnegie, he
lived with daily rituals. He was critical over punctuality and guarded
his time wisely.
By 1869, he was faced with massive
competition. This competition was driving down the price of kerosene
and eroding his company’s profits. He studied the situation and looked
for the opportunity. The answer, he believed, was “to form a large
cartel that would reduce overcapacity, stabilize prices, and
rationalize the industry.” His plan was to raise more money and begin
buying the refineries that were overproducing supply.
In order
to raise the necessary capital, Rockefeller began to sell shares of his
company. He raised his firm’s capital from $1 million to $3.5 million
in three days. Some of the country’s wealthiest men invested into his
company during this time. In fact, even his vendors began buying shares
in his company stock. (This is very a very valuable lesson …)
With
lightning speed from February 17 through March 28th 1872, he acquired
22 of his 26 Cleveland competitors. In fact, in one 48-hour period, he
bought six refineries. To quote from the book: “Another businessman
might have started with small, vulnerable firms, building on easy
victories, but Rockefeller started at the top, believing that if he
could crack his strongest competitor first, it would have a tremendous
psychological impact on others.” After acquiring his competitors, he
would shut down those that were obsolete. He only kept the plants that
were up-to-date. For those he kept, he retained the company’s original
management. With this approach, he acquired some very valuable people
assets.
In 1873, the depression began causing problems in the oil
industry. On Black Thursday, crude oil prices were at there absolute
lowest point. This adversity was capitalized on as an opportunity by
Rockefeller. To quote from the book: “Just as Carnegie expanded his
steel operations after the 1873 panic, so Rockefeller saw the slump as
a chance to translate his master blueprint into reality. To capitalize
on his rival companies selling at distress-sale prices…” He continued
his feverish buying spree and by his 30s, he was the sole master of
American Oil refining. To quote from the book: “He was now living a
fantasy of extravagant wealth… And few people beyond the oil business
had never even heard of him.”
There are many additional lessons
from John D. Rockefeller that I’m not able to cover here. I would
strongly suggest reading his biography. I will end this article with a
summary of 6 additional lessons you should pay attention to for your
wealth-building.
1. He consistently turned adversity
into opportunity. One prime example was how he used the depression to
acquire competitors at bargain prices. Right now, we are in the middle
of the Great Recession. How can you turn this situation into a BIG opportunity? Can you buy more leads for less money? Can you recruit great agents to your business? What new businesses can you launch to cater to today's market conditions?
2. He understood the value of having the right
management team around him. Great people valuable assets. This means you should be
surrounding yourself with an excellent team. Recruit and train leaders
for your real estate business. To see where I found great agents for my team, read this article.
3. He didn’t scrutinize the prices
he paid for competitors. In fact, he bought many of his competitors
simply to shut them down. Some agents obsess over the price to
advertise. This dawdling over price slows you down. Instead, focus on
speed. Acquire as many clients as you can as fast as you can. In the
big picture, what is better: one client or 20 new clients? Rockefeller
opted for the 20 clients and realized that buying competitors out at
higher prices allowed him to acquire more wealth faster. You should
realize that effective advertising should be viewed the same exact way. Use the recession as an opportunity to buy more clients faster.
4. He had ferocious perseverance. Once he had a goal, nothing — and I
really mean nothing — stopped him. He figured out how to overcome every
single challenge or roadblock thrown his way. Read the book and count
how many times he persevered through challenges. This is far different from most real estate agents. Most real estate agents quit with the first sign of trouble.
5. He was immune
to criticism. After he set his mind upon a course of action, he paid no
attention to what was said about him.
6. He consistently saved a
large percentage of his income (one-third). He practiced this
discipline starting with his first job and continued year after year.
In addition, he also chose to live below his means. He purposefully did
not display his wealth.
