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John Henry Patterson was an American industrialist. He bought a floundering cash register company and turned it into a global success while pioneering advertising, sales, and other business practices still used today.
The Notes
- “One of the reasons for his success was that from the very first he had objectives larger than his business — he never worked for money as money. He did not believe in sharpshooting for profits. He wanted his money to come as an incident to service.”
- Patterson’s Primary Principle: “Good enough is the enemy of all progress.”
- “For a great many years Mr. Patterson conducted the greatest business university in America. I am not sure it was his intention to do just that. His methods attracted ambitious and capable men from all parts of the country to his organization. When he had secured them, by the example of his tremendous energy and initiative, and through his unprecedented driving ability, he forced them very rapidly — either to the front or out the back door. The men who survived were fit. Few survived. Most of them were unable to stand the pace to maintain their popularity with the Big Chief. But all who went through his industrial university came out of it better men, abler men, and the country is dotted with leaders who secured a new conception of business possibilities from John H. Patterson.” — Alvan Macauley, President of Packard Motor Car Company
- His business methods were copied because employees took it with them when they were hired to run other businesses. It’s a long list but the most well-known was Thomas Watson of Computing-Tabulating-Recording Company, later known as IBM.
- “In no sense a businessman, he was the founder of most of the practices which distinguish modern American business from all other business in the world. Not a salesman, he was the founder of modern salesmanship. Not a speaker, he was among the most effective of public demonstrators. Not a financier, he was the chief exponent of getting money by spending money and yet not overreaching. Not a manufacturer, he was the originator of the modern American factory. Not a judge or a picker of men, he was the father of organized business and the developer of more business leaders than any other man who ever lived. Not a man of commanding personality, he was a rare leader of men, equally sure in threatened defeat or in expected victory.”
- He grew up on a farm. His father never kept receipts of transactions and often forgot to write it into his accounts book. People would always make sure they were credited for the correct labor but never for the correct amount of goods sold to them. Patterson learned early, “I realized that mistakes mean a loss to the seller and not to the buyer.”
- On college: he says he learned what not to do. He spent the rest of his life learning what school failed to teach him.
- Patterson’s first job was a toll collector for a canal. One of the first things he did was create a system of receipts to put an end to barge captain’s disputing the amount of the tolls.
- The Coal Business:
- Patterson started a side job at age 25 (in 1868) selling coal and wood while working on a canal. Business was so good, he brought his brothers into it. They bought out a coal yard in town. Within 8 years they had half the retail coal business in Dayton and owned several coal mines too.
- “Charge a profit — a reasonable profit, but always a profit on every sale. Then make your real money by volume of business.” — John Patterson
- Patterson believed all profits should not be taken out of the company but reinvested to grow and strengthen the business. If he was short on money, more sales was the answer because he believed cutting expenses was guaranteeing failure.
- On selling a commodity: “He made a specialized product out of an ordinary commodity. Then, when he had something special, he advertised it.”
- He realized customers had no reason to buy his coal over his competitors. So he created reasons to build a loyal customer base. He bought exclusive rights to cleaner coal, he added a shovelful of extra coal so as not to skimp on orders, he dressed up the horses and carts with gold and silver trim to make his coal appear special, he created receipts, complete with order details, to be signed on delivery, and he set up multiple offices around town to make it as easy as possible for customers to place orders. He would later color code the receipt system to avoid errors made by employees who couldn’t read.
- The coal business got so big, they started mining their own coal. They leased mines, built coal cars to ship the coal via railroad, and shipped the coal to Dayton.
- Lesson on incentives: he had a company store near the coal mines to sell goods to the workers. He rewarded store clerks who sold the most goods but found out the clerks gave away goods to build a following, which led to a big shortfall in profits. Patterson fired the culprits, hired new clerks, and kept an eye on them with a new machine that registered sales. The cash registers worked so well, he added registers to the retail coal yards.
- Eventually, Patterson got caught up in a sketchy deal with a railroad upstart. He was offered part ownership in the Southern Coal and Iron Company, in exchange for running a part of the business and signing a contract with the road to deliver their coal. But the railroad never came close to meeting the demand. Which cost the brothers a lot of money. In March 1884, they sold their interest in Southern Coal, their retail coal business, and mining interests below fair value. From that point on, Patterson would never go into business he didn’t fully control.
- National Manufacturing Company was born after purchasing a cash register company and rights from J.H. Eckert, who couldn’t make it profitable. Eckert bought the company and rights from James Ritty, who invented the cash register in 1879. Ritty, also, couldn’t make a profit.
- John Patterson first bought into the National Manufacturing Company on May 8, 1883, with his brothers. They bought 50 shares for $2,500. By early 1884, the company showed a loss, and John’s brother advised them to sell the shares, which they did.
- His second brush with the National Manufacturing Company came after meeting an east coast business owner in Colorado Springs, who used cash registers to track daily business sales. He was convinced cash registers would be a big thing. So he returned to Dayton to buy the company.
- On November 22, 1884, John Patterson — 41 years of age — bought control of the National Manufacturing Company for $6,500. The next day he had second thoughts. He tried to back out of the deal but was refused. He was in the cash register business.
- Local business owners mocked him for buying a horrible business with no demand.
- The first thing he did was change the name to the National Cash Register Company.
- The second thing he did was to make improvements to the existing registers. He made the totals indicator easier to read from further away and improved the cash drawer to only open when the register key was pressed.
- Cash registers were sold on an installment plan. The first payment covered the factory cost of making the machine. Agents were paid solely on commission taken out of each payment. The downside of the installment plan is it hampered advertising and growth. With payments spreads out over time, he was forced to borrow to cover the high up-front cost of advertising.
- The company was growing so fast in the first several years, that it outgrew new buildings before construction on them finished.
- Patterson followed the idea: Strong opinions loosely held. He ran the business the way he thought was right. But if someone had a better idea, that improved the business, the idea became the new right way to do business. He created an environment of constant improvement, where every employee had a chance to contribute ideas to make the business better.
- Patterson Principle: “To accomplish an unusual end do the unusual thing.”
- Patterson’s main goal was building an institution not reliant on any one person. — “When we get to the point where all depends on one man, let’s fire him.”
- “He used to say that you did not have to take the whole shell off an egg to find that it was rotten, and so one piece of complete stupidity was enough to make him fire any man. He would fire a man for not obeying orders and he would fire him for obeying them too literally. The whole policy was to keep the men on their toes and to check the least signs of bumptiousness.”
- He learned about swings in the business cycle from a book called Benner’s Prophecies of Future Ups and Downs in Prices. He learned to be prepared for the period of recession that followed prosperity.
- He saw recessions and panics as a chance to revise his business methods, grow sales, and increase market share. He believed company survival was assured through increased sales not cutting costs.
- On Advertising and Selling:
- He needed to create demand. He had two obstacles to overcome from the start: convincing store owners that a cash register would help them make more money and convincing the public of the benefits too.
- Sales were generated by agents paid on commission-only. He couldn’t afford salaries in the beginning. He also believed that since an agent’s job was to sell, his income should be based entirely on sales i.e. results.
- He also believed it was the companies responsibility to help its agents earn as much as possible.
- Each agent was given a guaranteed territory to work in. Any sales in that territory were credited to its agent regardless of who sold the machine.
- He relied on concentrated marketing through direct mail campaigns. Each agent was given a list of 500 prospective customers in their territory. It was the agent’s job to maintain the list. Each name was sent 18 direct mail ads where each mailing explained one reason why a cash register would help make them money. Then agents would go to the customers to sell the machines.
- The goal of the advertising and sales pitch was to educate the customer first in order to create demand. Cash registers were brand new. Patterson knew that customers wouldn’t buy it until they understood the benefits.
- “His messages all went to show the merchant’s need of a register and not the N. C. R.’s need of a sale.”
- The mail advertising eventually grew into a monthly newspaper called The Hustler sent to half a million prospects a month — there was an American, English, German, French, and Norwegian edition.
- Testimonials were included with all ads.
- He gave factory tours to the public, which became guided lectures, on how registers were made, the benefits, etc. in the hopes of generating word of mouth.
- “There are two things to which I must devote the greater part of my time — the first is advertising, the second selling. If we advertise properly we pave the way for our agents. If we have a thoroughly trained selling force, the men can sell our goods in good times or bad. The important things to do, therefore, are to improve our advertising and improve our sales force. If we get the orders we can easily manufacture the product and make the proper records, but first we must get the orders.” — Patterson
- He created The Primer in 1887: a sales manual that laid out word for word what the agent should say in their sales pitch. It included a manual that included an answer to every customer question or argument.
- He trained agents not only on the product but on how to sell. The Primer became the standard for agents to follow when selling. Initially, it needed to be memorized but later he found that sales increased when agents followed the Primer but in their own words.
- He printed a regular circular to all agents — The N.C.R. — to continue their sales education while out in the field. It allowed individual agents to share experiences in what worked and what didn’t work to generate sales. He also published the sales quotas for each district to create competition among agents.
- Conventions and seminars were held for the agents to share their experiences and sales tactics with each other.
- Agents were pushed to open offices, outfitted with moving window displays, on prominent streets to help brand recognition and sales.
- He convinced the board of the 1893 Chicago World’s Fair that every concession stand should have a cash register. Patterson sold it as a way to keep concession stands honest because a percentage of all the sales went to the fair’s board to cover the cost, and hopeful profit, of fair.
- He opened a sales training school in 1894 to train new and existing agents. Every agent had to go through school before they could start selling. The company paid transportation, boarding costs, and a weekly stipend while they attended school. It taught the Primer, the manual, how to demonstrate the machines, price lists, store systems, how to build a prospecting list, and the parts of a machine (agents were not allowed to learn how to repair a machine, a school for repairmen was created for that). The school was so good that people came to learn, so they could then sell for other companies. A condition was added that anyone attending had to commit to selling cash register for six months.
- It was standard practice in the 1800s to cap commissions at a certain point. Patterson refused to cap commissions, angering other business leaders.
- He believed the size of the market could support one register per 400 people.
- Patterson’s Advertising Principles:
- “It isn’t quantity — it’s quality.
- Never depend upon the editor, copy reader, or proof reader to catch a mistake in your copy. The best and only way to get around this is ‘Don’t Make Mistakes.’
- Don’t be a copy-cat. Be original. Use your imagination. Be sure of your facts. Be accurate.
- Write so all can understand.
- Use small words and short sentences.
- Don’t be stingy in the use of pictures; 87% of all we know is learned through the eye.
- Be careful in the use of adjectives. Just because it sounds better don’t say ‘the bride was beautiful in a gorgeous creation of organdie’ — if she was not, and everybody knew she was not.
- If you are not sure of your facts the libel courts will find you out.
- And again:
- Few words — short sentences — big ideas — small words.
- No ‘ad’ is large enough for two ideas.
- Illustrations. (Pictures are more convincing than descriptive matter.)
- Tell WHY as well as HOW to do it.
- Strong headings — avoid precedent — avoid repetition — tell the truth.”
- Patterson’s views on how advertising helps:
- “Advertising tells the truth about merchandise important to health, comfort, and economic living.
- It gives an opportunity to compare prices.
- It increases sales.
- This means greater production and lower prices.
- Advertising enlarges the market and builds a permanent demand.
- This means steady work. There are no slack seasons. Production is evenly distributed.
- As the factory grows, opportunities for workers are greater.
- The greater the factory, the better the working conditions.
- Profits and wages increase as production increases.
- Advertising teaches the clerk all about the merchandise he sells.
- Sales are easier when both customer and salesman know the merchandise.
- Sales records are increased because of increased demand.
- Advertised goods are half sold before they are shown.
- Advertising divides the selling cost between merchants and manufacturer.
- Advertising stabilizes production and makes big industries possible.
- It guarantees the growth of any business. Advertising gives the manufacturer the security of owning his market.
- It increases sales and increases profits.
- It is the driving power behind the sales organization.
- It creates the demand.”
- Like all good innovations, store clerks fought to get rid of any newly installed cash registers at first. They would purposely charge the wrong amount, hit the change key instead of charging an amount, anything to make the register not balance at the end of the day, so it looked like it didn’t work. When store owners complained early on, Patterson hired Pinkerton detectives to figure out why his registers were reporting “errors.” This was a regular occurrence early on. Once the detectives figured out the problem, the store owners were told, and they kept the registers.
- He created an inspection department to make sure every register worked properly before it was sent out.
- He religiously jotted notes in a notebook of any fact or idea that might be useful to the business.
- Patterson’s policy was that the cash register was always an unfinished product. He created the Inventions Department — R&D — to maintain constant improvements. Inventions were not always based on what the buyer wanted but what they needed to them run their business. That said, complaints were a regular source of improvement. By constantly updating and improving the registers, he stayed ahead of the customers needs and the competition, and created repeat sales.
- “The business that is satisfied with itself — with its product, with its sales, which looks upon itself as having accomplished its purpose — is dead. The actual burial may be postponed; but it is dead because it is not going forward.” — Patterson
- “There are those who say that successful selling depends upon knowing what the public is asking for and then giving it to them. I do not agree with this viewpoint. I do not think that real success is attained by following in the wake of the public.” — Patterson
- “My idea of successful business is this: Fill not only every known want of your customers but also have in ready reserve that which you calculate they are going to need next year or the year after. That is, do not merely keep up with the market but preferably a few paces ahead in what you are actually offering and about a mile ahead in your reserve offerings.” — Patterson
- “We take pains to be ready. We cannot know everything; we cannot always be certain that developments of business will follow the lines that we map out. But no matter what the situation, we have something in hand to meet it or adapt to it. We work on the plan: The secret to success in life is for a man to be ready for opportunity when it comes.” — Patterson
- Standardized interchangeable parts for the registers was the big achievement for the company. Without it, Patterson believed the company would have failed.
- Patterson almost lost control of NCR after issuing preferred stock, which contained a voting clause, to raise money to build another factory. He and his brothers owned all the common stock. He heard of a scheme to take control of the company but bought just enough preferred stock to maintain control.
- What Patterson’s learned on labor:
- “Treat people well and they will treat you well. They will not instantly respond but they will in the long run. Be square with them.
- Do not try to take any advantage and do not try to get the last cent’s worth of energy out of them. They will give you their best if they think you are giving them your best; they will not work the better for being forced.
- It pays to do good; it pays to help them to help themselves in every moral and physical way and also to give them every possible opportunity for advancing to higher positions and more money.
- The basis of a good product is labour — workers who go forward loyally and enthusiastically as a team. Hence it is necessary to let the workers know what you are trying to do by bringing-them together frequently in meetings in which the ideas and ideals of the business can be explained.
- Let every worker have the opportunity to make complaints and suggestions for betterments, reward them adequately, and make it impossible for a man to be fired on account of a personal dispute with the foreman or other subordinate.
- Extend your personal acquaintance with the men by every means possible.”
- Patterson learned that the employee turnover at the factory was too high. He listened to the worker’s complaints and set out to fix it — a little bit each week. He added a lunchroom (later, meals were served in a big dining hall, which the company lost money on), raised wages above the union rate, a new factory was built with all glass walls to let in fresh light, safety devices were added, separate baths, locker rooms, and restrooms for men and women, hospital and medical station, clean aprons for workers, flowers, shrubs, and other landscaping were added around the factory, and he eventually turned the company campus into a park for everyone to use. The company built a theatre to show free movies during the lunch hour and lectures on public affairs, a library full of magazines and books, a night school for specialized education, an apprenticeship program with the local high school, baseball diamonds, tennis courts, community clubs, and a country club for public use. The local business owners felt he was pampering the workers.
- “We take the attitude that if anything more can be done — not reasonably done, but if it can be done at all — for the improvement of‘ comfort or safety, we will do it.” — Patterson
- “I have always believed in paying men well, but paying them on results. Every job that can be so arranged is on the piece-work basis; we encourage the making of the highest possible wages.” — Patterson
- “I would recommend changes to keep labour happy no matter what might be the immediate effect upon our business, for it is only the ultimate effect that counts. It all comes down to this: In our farmhouse my mother nursed the hired men and cared for them just as though they had belonged to her; she felt that they did. They came to feel so, too. The factory has now taken the place of the old farm, but the methods that were a success on the farm are just as good to-day in the factory. Times have changed but human nature has not.” — Patterson
- Patterson believed that any “losses” due to the higher cost of taking care of his workers was made back multiple times over in more efficient work.
- He limited his pay in later years from $80,000 to $100,000 and set a cap on his stock dividends of 2%. All of his invested money was in the National Cash Register Company. He refused to invest in other companies. The only outside investment was in Liberty Bonds sold in WWI.
- He realized he had an enormous asset in the company’s growing workforce. He came to view it as 5,000 brains at his disposal to make the business better. He added suggestion boxes throughout the company. Anyone with a suggestion/complaint — down to the smallest detail — could share their idea. He made it into a contest paid out twice a year. The best suggestions were rewarded, via 128 prizes, with cash. Most of the improvements to the cash register were from employee suggestions.
- He added an employee profit-sharing plan in 1917. 6% was deducted from profits and the rest was divided equally between the company and employees. The company used its share of profits for land, buildings, machinery, etc. to grow the business. Profits to the employees were paid out three times a year — at 6 months, 12 months, and after year-end accounting was completed if any profits remained. All employees with the company for at least 30 days were eligible.
- The company’s global expansion started in England in 1885. It expanded to 15 countries. It was unorganized and didn’t take off until 1895.
- The foreign business growth helped offset downturns during U.S. recessions. N.C.R.’s European organization was the largest of any American company and accounted for a third of its business.
- Patterson was in Berlin when WWI broke out. He returned after the war in 1919 to assess the conditions of Europe and the company. By year’s end, he had a new factory in Berlin building cash registers.
- The company eventually sold cash registers in Canada, Great Britain, Switzerland, Spain, Portugal, Germany, France, Italy, Belgium, Austria, Hungary, Czechoslovakia, Russia, Holland, Sweden, Finland, Denmark, Iceland, Norway, Greece, Romania, Bulgaria, Turkey, Serbia, Egypt, Tunis, and Algiers.
- N.C.R. factories in Europe were lost in WWI. It’s U.S. factories began making shell timers, airplane instruments, along with cash registers.
- In 1913, he shut down N.C.R.’s factories to be used for disaster relief just before the city of Dayton flooded. They built boats, provided hospital supplies, and sent out for other provisions for the town. The entire company converted to housing and feeding 2,500 people affected by the flood. All of it was paid for by the company.
- He tried to help his community, as he did his employees, by giving generously to improve education, social activities, community centers, and even creating clubs for the children set up like mini-corporations. He created a Garden Club and Box Furniture Company. The kids received shares in the company and got paid via dividends from the profits made on the vegetable and furniture sales. They learned about how to grow vegetables, build furniture, sell it, the value of a dollar, hard work, and it kept them busy in the summer and winter months.
- Sales Timeline (numbers pulled from throughout the book):
- 1884 – Bought the company.
- 1885 – 500 registers.
- 1886 – 1,050 registers.
- 1887 – 1,995 registers.
- 1889 – 6,561 registers.
- 1890 – 9,091 registers.
- 1891 – 11,956 registers.
- 1892 – 15,003 registers.
- 1893 – 15,487 registers (a recession year).
- 1896 – exceeded 16,000 registers.
- 1897 – 23,057 registers.
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