The Business of You: Building Your Railroad

by Kenneth J. Weiss
August 15, 2005

When you think of money, big money, B-I-G money, what names come to mind? Rockefeller? Vanderbilt? Carnegie? Morgan? These guys definitely had it. They epitomize the classic rags-to-riches story. But contrary to myth they started with more than "nothing."

A glimpse at their stories reveals their true resources.

Andrew Carnegie worked for a railroad company during the Civil War and moved to a bridge building company when the war ended. Later, he saw the potential of the Bessemer process for converting iron into steel and invested his own money in a new steel plant near Pittsburgh.

At the age of sixteen Cornelius Vanderbilt borrowed $100 from his mother to purchase a boat and opened a transport and freight service between New York City and Staten Island. During the War of 1812 he secured a government shipping contract and expanded his fleet. He later sold his interests and invested in steamships.

From the time he was young John D. Rockefeller was determined to work for himself. He first went into the dry goods business. The business was a modest success, but he made the decision to sell it when he learned that a more efficient way of refining crude oil had been developed. His new business was Standard Oil.

JP Morgan started as an accountant and worked for several banking firms until he eventually became a partner. Using his influence and position he began reorganizing railroads which, incidentally, put him on the boards and gave him control of vast amounts of stock. He later was the driving force in the consolidation of electric, steel, and manufacturing industries.

Do you have what they did? Did you see it? If you study their complete stories you'll find that each practiced entrepreneurial alchemy with the same basic elements.

Capital
At some point in their careers they needed cash. They saved it, borrowed it and sold businesses to get it. They may have only needed a little, but when they needed it, they found a way.

Business Model Knowledge
Some of these giants practiced vertical integration. Others exploited pricing models. Woolworth, for instance, made his fortune by selling everything at five or ten cents. Many started at the lowest positions in the company allowing them to understand it from the ground up.

Connections
It's always good to know people. Many feel that John Jacob Astor's success was in part due to the family connections he gained through his marriage to Sarah Todd. She also brought a small dowry, too. That's cash.

Proximity
Some businesses can thrive in particular locations. Levi Straus made his fortune by selling work pants during the Gold Rush in California. Some might say that this matters less in a global economy, but it is still hard to become a country singer if you don't live in Nashville.

Ambition
Blood, toil, sweat. Elbow grease. Call it what you want, these guys worked hard.

Technology Awareness
It's easy to think of the late 1800's and early 1900's as backwards. In reality the era was brimming with new inventions and technologies. Picking the right ones, much like today, was a critical element for success.

Opportunity Recognition
Being successful is not just about "right place - right time" luck. These guys had the guts to transition from successful ventures to new ones because they calculated bigger returns could be made.

Ideas
A good idea alone was rarely enough, but all of the others without an idea would not have worked either.

OK, you've seen the secret sauce. Look at a few other stories:

Mary Kay Ash began her sales career selling books door-to-door in the 1930's. By the end of the decade she was national training director for the Stanley Home Products company. In the early 60's she started Mary Kay cosmetics with $5,000 and the formula for a skin care cream she bought from an Arkansas tanner. She built an incentive-powered sales force and the company now produces more than $1 billion in annual sales.

Richard Branson began publishing a student magazine when he was 16 and just a few years later embarked on a discount records mail order business. A store soon followed, and in 1972 he started a record label called Virgin Records. The label signed artists like Genesis, The Sex Pistols, The Rolling Stones and Simple Minds. Branson eventually sold Virgin for $1 billion dollars, but held on to the name extending it internationally with everything from credit cards to airlines.

Mark Cuban grew up a funny-looking kid in Pittsburgh. He sold garbage bags door-to-door when he was twelve and dabbled in other businesses throughout his teenage years. After he graduated from college he started a computer consulting business which he later sold to CompuServe making him a millionaire. When the Internet took off he built Broadcast.com. In 1999 Yahoo purchased the business for $6 billion worth of stock.

Over the past 150 years the American economy has periodically opened and closed the door superwealth. In the late 1800's and early 1900's railroads, timber, retailing and ship building were the stuff of fortunes. Today, it's all about media, finance, software and electronics. The door is open, the fundamental elements are the same, and the world is ready for more railroads.