Andrew Carnegie was among the first to go big in the industrial age. He was a titan. He built the steel industry and, in turn, became the richest man in the world.
His autobiography details his journey from Scotland to America, from bobbin boy to captain of industry. While Carnegie paints a rosy picture at times, some lessons on business, investing, and life stand out.
It pays to be early.
Carnegie wasn’t the first to build an iron mill. He wasn’t the second or third or fourth. But he did know the railroad industry. He knew it was in its infancy based on personal experience.
When he joined the Pennsylvania Railroad, no rails had crossed the Mississippi River yet (the first bridge over the river was built at Rock Island in 1856). He recognized that industries that needed iron products had a massive growth runway.
One of Carnegie’s earliest endeavors was a rail-making company. The North had a supply problem during the Civil War. There were more than enough raw materials to supply the war effort. What they were short on was iron rails.
Iron rails were less durable than steel but steel didn’t exist. Iron bent, broke, and wore down so quickly that rails needed to be replaced as often as once a year, if not more often. Manufacturers couldn’t make rails fast enough to replace existing tracks. Carnegie started his rail-making company when rail demand was highest, but early enough to experience decades of railroad industry expansion.
Carnegie’s locomotive, iron bridge, and sleeper car companies were started for similar reasons. Massive demand for locomotives led him to form the Pittsburgh Locomotive Works at the end of the Civil War. Carnegie’s personal experience with wood bridges breaking and burning down led him to conclude, correctly, that more durable iron bridges were the future.
Finally, sleeping cars didn’t exist until T.T. Woodruff invented it. Woodruff approached Carnegie with the idea. Carnegie saw its importance immediately, sold his bosses at the Pennsylvania Railroad on the concept and the first sleeping cars were born. Years later Carnegie merged his company with George Pullman’s Pullman Company creating a monopoly in the sleeping car business for decades.
Carnegie’s businesses capitalized on new industries that presented massive growth opportunities for decades.
Sometimes it pays to wait.
Steel was the future. Carnegie knew it. Other mill owners knew it too. However, steel was costly and inefficient to make. So they stuck with iron.
The Bessemer process changed everything in 1856. The process removed impurities from iron and made stronger steel more efficiently than before. It allowed for the mass production of steel from pig iron.
Except, like most innovations, an experimental stage was needed to figure out how to scale a small working furnace into an industrial-sized operation. A few American iron mills raced to produce steel first, unaware of what it would cost. And it almost cost them their business.
Carnegie built his first steel mill in 1872. He avoided the costly experimental stage until other companies worked out the kinks in the process. His mills still faced problems with the new furnaces but nothing like their competitors. It cost twice what they expected to build. It didn’t work efficiently…at first. Help from a British steel producer and testing solved the problem. But it was nothing compared to what the early steel mills spent to be “first.”
Carnegie’s patience paid off. He avoided the early stages of steel innovation that came with massive costs of experimentation and build-out. The industry’s long growth runway gave him ample time to catch up.
It pays to stay ahead of the competition.
Carnegie was the originator of big business. He took what today seem like obvious concepts but was one of the first to apply them.
For example, quarterly financial statements are the norm but they weren’t in Carnegie’s time. Most mill owners didn’t know how well their company did financially until the books were done at the end of the year.
Carnegie changed that. He hired accountants to track revenue and costs month after month. It gave him an up-to-date picture of each business.
I insisted upon such a system of weighing and accounting being introduced throughout our works as would enable us to know what our cost was for each process and especially what each man was doing, who saved material, who wasted it, and who produced the best results.
His system allowed for cost controls and improved efficiency in each step of the manufacturing process.
That focus on efficiency led Carnegie to find ways to reduce waste byproducts or turn waste into profits. He upgraded to more efficient furnaces before competitors despite the higher costs. He also borrowed a washing process from the British that turned a coal company’s waste into usable coke. He signed 10-year contracts with the coal companies to turn their waste into his profits.
Carnegie’s focus on efficiency also led to chemists at his mills — another industry first.
What fools we had been! But then there was this consolation: we were not as great fools as our competitors. It was years after we had taken chemistry to guide us that it was said by the proprietors of some other furnaces that they could not afford to employ a chemist. Had they known the truth then, they would have known that they could not afford to be without one.
The chemists found the best mix of ore, coke, and lime to make pig iron. They tested existing and defunct mines to find the highest quality ore. They bought those mines to ensure a consistent supply of high-quality raw materials.
In the end, Carnegie’s mills became the lowest-cost producers of iron and steel in, not only the U.S., but the world.
It pays to be lucky.
There’s random luck, like buying a lottery ticket and winning.
There’s another type of luck. It comes from a mix of preparation, hard work, and seizing opportunities that arise. It’s the type of luck you get from studying a field all your life, seeing a missed opportunity, taking advantage of it, working your butt off, and making a success of it. It’s not an easy thing to do, mind you, because it doesn’t always work out. The difference is that you have some control over the process that you don’t have with random luck.
A lot of Carnegie’s “luck” is that second type of luck and it came early in his life. The first big opportunity came thanks to the generosity of Colonel Anderson. He opened his personal library to any local “working boy” who wanted to advance his knowledge. Every Saturday, local boys could borrow a book, read it, and exchange it for another the next week.
The fundamental advantage of a library is that it gives nothing for nothing. Youths must acquire knowledge themselves. There is no escape from this.
Carnegie was a messenger boy at the time and Anderson’s generosity changed his life. He always carried a book with him to read between message deliveries. It instilled in him the habit of reading and learning — preparation — throughout his life.
Carnegie’s early jobs were one opportunity after another that he seized upon. The chance to be a messenger boy got him out of the factory, gave him a raise, and a chance to learn how the telegraph machine worked. Learning the telegraph machine, led to a job as a telegraph operator, got the notice of Thomas Scott, who hired him at the Pennsylvania Railroad. Company management saw his hard work and promoted him until he ran the Pittsburgh division.
Of course, a job at the Pennsylvania Railroad gave him an insider’s perspective of the industry. It also introduced Carnegie to people he would later partner with in his business affairs.
Sure, Carnegie was lucky. A lot of things had to go right for a bobbin boy from Scotland to become the richest person in the world. He probably would have done well for himself with a little less of it.
It does not pay to obsess over more wealth.
When Carnegie was 33 years old, he wrote a memo about his future dreams. It had nothing to do with business or wealth. He was candid about his obsession for more wealth, writing:
Man must have an idol—the amassing of wealth is one of the worst species of idolatry—no idol more debasing than the worship of money. Whatever I engage in I must push inordinately; therefore should I be careful to choose that life which will be the most elevating in its character. To continue much longer overwhelmed by business cares and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery. I will resign business at thirty-five, but during the ensuing two years I wish to spend the afternoons in receiving instruction and in reading systematically.
Carnegie’s businesses produced at least $50,000 in annual income for him in 1868. It was more money than he would ever need. He planned to quit while ahead at age 35 — retire, study at Oxford for three years, move to London, buy a controlling interest in a newspaper, and focus on public matters around “education and improvement of the poorer classes.”
Yet, he kept pushing. His obsession drove him to build for another 33 years. He finally sold out in 1901 to live his dream.
His obsession allowed him to donate the bulk of his fortune. And it did a lot of good. He built libraries, schools, pension funds, and more. But how necessary or healthy was it?
We all have a number that represents enough. It’s a number that allows us to live the life we want without much financial worry. It’s a number where one more dollar won’t have a marked improvement in your life.
Carnegie knew his number — $50,000 per year. He already achieved that goal at age 33. He could have retired comfortably two years earlier than planned if he wanted. He had enough, but his drive pushed him for more.
Source:
The Autobiography of Andrew Carnegie
Related Reading:
Notes: The Autobiography of Andrew Carnegie