#405 How Rockefeller Worked

Rockefeller viewed business as war, operated in secrecy, and maintained relentless focus on his business to the exclusion of all else. From his teenage years, he was obsessed with numbers and had extreme self-confidence, refusing to meet even Vanderbilt unless on his own terms. He learned critical lessons about transportation pricing (posted rates were negotiable) and developed his borrowing strategy while working at a commission house.

• •Business as warfare: transmitted messages in code, covered operations with secrecy, never announced plans in advance
• •Extreme focus and concentration: 'Do not many of us who fail to achieve big things fail because we lack concentration'
• •Obsessive attention to numbers: inspected every line of every bill, refused to be taken advantage of
• •Self-confidence from youth: made Vanderbilt come to Cleveland to meet him in his office
• •Early transportation insight: learned that posted freight rates were not fixed and could be negotiated - this became his main competitive edge

Rockefeller became 'the greatest borrower I ever saw' by inventing commodity loans before they existed - fronting money to producers in advance. His persistence in borrowing was relentless: when one bank refused, he simply moved to the next until he got what he wanted. This aggressive borrowing funded rapid expansion that competitors couldn't match.

• •Invented commodity loans to gain edge over competitors by fronting money to producers
• •Relentless persistence in borrowing: 'That was nothing. I must look elsewhere until I got what I wanted'
• •Used borrowed capital to fund aggressive growth during downturns when others were scared
• •Patience combined with boldness: 'always low keyed but relentless'
• •Would borrow heavily during market bottoms to make massive crude oil purchases

Rockefeller identified transportation as the highest cost (more expensive than refining itself) and made it his top priority. He selected a refinery location next to both railroad and river, enabling 50% cheaper water shipping. He spent majority of his time developing transportation advantages, eventually securing secret rebates that added $50,000/year in profit when competitors were losing money.

• •Transportation cost more than refining - identified this as the key leverage point
• •Genius site selection: located refinery next to both railroad and river for shipping optionality
• •Focus principle: 'If something is your top priority, spend majority of your time thinking about how to develop an edge there'
• •Secret rebate deals with railroads (like Erie) added massive hidden profits
• •Eventually shipped competitors' oil through his system, profiting from every barrel moved

At age 25, Rockefeller executed a swift campaign buying 23 refineries in four weeks. He started at the top of his competitor list and worked down - by halfway through, the rest had no choice but to sell. He used secret banking allies (who he'd given cheap stock to) to deny competitors financing. Only 5 of 23 took stock instead of cash - a decision that would make them enormously wealthy.

• •Systematic approach: made list of top refiners, started at top and worked down
• •Used cap table as weapon: gave bankers cheap stock so they wouldn't loan to competitors
• •Ruthless efficiency: threatened one refiner 'you may not be afraid to have your hand cut off, but your body will suffer'
• •Offered stock or cash - only 5 took stock (Rockefeller repeatedly said 'hold stock at all costs')
• •Combined secret allies, superior information, and financial strength to force consolidation

Rockefeller refused to partner with people who had modest goals and recruited formidable talent like Henry Flagler. His pitch to competitors: 'You can own part of the best oil company in the world or continue to compete.' He gave acquired founders autonomy and authority, creating a 'company of founders' with semi-autonomous divisions but centralized strategy.

• •Partnership with Flagler: walked to office together daily, did all thinking and planning on walks
• •Flagler's principle: build as though the trade will last, use best facilities, produce finest results
• •Recruiting pitch: opened his books to show high profits in hard times, astonishing potential partners
• •'You cannot have winning cooperation except by willing partners' - aligned interests rather than forcing
• •Semi-autonomous divisions with local authority but centralized policy - attracted independent-minded founders

Rockefeller organized a loose confederation of refiners to buy crude and negotiate transportation as a group. As president, he saw every member's books and operations, identifying which competitors were competent (to acquire) versus incompetent (to eliminate). He expected it to fail because the industry was full of 'second rate talent' who wouldn't keep their covenants.

• •Used association to gain complete intelligence on every competitor's operations and costs
• •Identified competent operators to recruit vs. incompetent ones to destroy
• •Expected failure from start: industry full of 'men untrained in business matters' who wouldn't keep covenants
• •Fidelity to contracts (covenants) was 'sign of a real man' - most competitors lacked this
• •Transformed competitive intelligence into acquisition strategy

Rockefeller relentlessly eliminated middlemen at every opportunity. He made his own barrels, went direct to consumer in the 1870s, and bought out every producer of profitable byproducts once markets were proven. He let others experiment and innovate, then swooped in to acquire proven businesses. Standard Oil sold over 50 byproducts but created none of the innovations.

• •Made own barrels in refinery workshop to avoid relying on suppliers
• •Direct to consumer in 1870s: 'delivered oil to doors of consumers, eliminating all intermediate profits'
• •Let others innovate, then acquired proven profitable byproducts - bought out every single producer
• •Sold 50+ byproducts but created zero innovations - acquisition over R&D strategy
• •Paid high prices for patent-protected products but gained monopoly control

Rockefeller initially fought pipeline innovation because it threatened his railroad rebate advantage. He used every weapon but violence to stop pipelines. However, when facts changed, he completely reversed position, built his own pipeline network, and even paid subsidies to railroads (reversing the traditional rebate pattern) to compensate for lost traffic.

• •Initially fought pipelines ruthlessly: bought land in their path, planted negative press stories, bought their customers
• •Willing to change mind when facts changed: 'cannot fight a technological phenomenon'
• •Reversed traditional rebate pattern: instead of collecting rebates, started paying them to railroads
• •Embraced innovation completely once convinced of superiority
• •Demonstrated intellectual flexibility despite strong initial position

Rockefeller truly believed his monopoly was righteous - bringing order to chaos, eliminating wasteful competition, and benefiting consumers through lower prices. He saw Standard Oil as 'one of the greatest upbuilders' in history. His principles of centralization, savings, and service operated for 'the benefit of the whole people.' He never doubted this mission.

• •Believed cause was righteous: 'wanted old struggle to cease' and bring cooperation
• •Saw competition as chaos: competitors were 'digging under foundation' of the house that sheltered everyone
• •Standard Oil as upbuilder: 'greatest of upbuilders we have ever had in this country'
• •Never doubted mission: 'I knew it at the time, though I realize it more keenly now'
• •Religious framing: used terms like 'covenant' instead of contract, saw business as moral mission