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The Man Who Democratized Travel
The ordinary way of doing business is not the best way.
Henry Ford
Ancient history? No one in business today can remember the earthquake caused by Henry Ford, and even in business schools his case is rarely taught. Yet we will see that Ford’s story has priceless lessons for any ambitious entrepreneur or executive today.
When he was 45, and a moderately successful industrialist, Henry Ford took a brave stand that shook the world. The decision not only created his fortune but made him a leading architect of the twentieth century and one of the most celebrated and influential people on the planet.
He decided to simplify and democratize the automobile.
Video by Richard Koch: How Henry Ford’s Simplifying vision eclipsed all others in the car industry: www.simplify.fm.
Ford recalled the turning-point in his autobiography:
“What I am trying to emphasize is that the ordinary way of doing business is not the best way. I am coming to the point of my entire departure from the ordinary methods. From this point dates the extraordinary success of the company.
We had been fairly following the custom of the trade. Our automobile was less complex than any other. We had no outside money in the concern. But aside from these two points we did not differ materially from the other automobile companies.”1
When Ford had his light-bulb moment, several hundred rival entrepreneurs were making cars. They were much the same in background and activity: all engineers; nearly all product designers; all auto enthusiasts, entering cars in motor races and taking a keen interest in who won; and all making no more than a few cars a day. They sold them to the same type of customer, too — the only market at that time for cars — rich and leisured gentlemen, usually motor “nuts,” skilled in driving and maintaining their beautiful beasts. Ford, though not the market leader, was one of the biggest manufacturers, making around five vehicles a day.
But however conventional he appeared in 1908, there was always something odd about Henry Ford and his opinions. “From the day the first motor car appeared on the streets,” he wrote, “it had to me appeared to be a necessity.”2 This was considered an eccentric view at a time when the cost of a car was far more than the annual wages of a skilled worker. Yet Ford was a stubborn man. Though his whole industry was in the business of providing “pleasure cars” for the rich, Ford conceived a vision of something completely different. To their horror, he told his salespeople:
“I will build a motor car for the great multitude. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary would be unable to own one — and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”3
This vision, he said, “led me to build to one end — a car that would meet the wants of the multitude . . . year following year, the pressure was, and still is, to improve and refine, and make better, with an increasing reduction in price.”4
The idea of democratizing the automobile inspired Ford. His great insight was that the key was price. If he could make a car cheap enough, it would, he believed, sell in vast quantities. He had some supporting evidence: in 1905–6, Ford made two models, one priced at $1,000 and the other at $2,000. The company sold 1599 cars that year. The following year he simplified both models and slashed the prices: “The big thing was that [my] cheapest car sold for $600 and the most expensive for only $750, and right there came the complete demonstration of what price meant. We sold 8,423 cars, nearly five times as many as in our previous biggest year.”5
It’s all very well to realize that price might be the key to expanding sales, but how did Ford manage to keep his prices sufficiently low to create a new mass market? His first idea was to redesign the product and make just one standardized, simple model:
“Therefore in 1909 I announced one morning, without any previous warning, that in future we were going to build only one model, that the model was going to be the ‘Model T,’ and that the chassis would be exactly the same for all cars . . .6
The most important feature of the new model . . . was its simplicity. There were but four constructional units in the car — the power plant, the frame, the front axle, and the rear axle . . . I thought it was up to me as the designer to make the car so completely simple that no one could fail to understand it.
That works both ways and applies to everything. The less complex an article, the easier it is to make, the cheaper it may be sold, and therefore the greater number may be sold.”7
So, by making a single product — for more than a decade, with few variations and options permitted — Ford could reduce his costs considerably.
He also paid great attention to the materials that went into his cars. For example, he pioneered the use of vanadium steel, a French invention that was both very light and very strong — ideal to create usefulness for the customer. There were initial difficulties to overcome: no steel maker in America could manufacture it. So Ford found a small company in Canton, Ohio, and covered the cost of the early trials himself. As he recounted, “the first heat was a failure. Very little vanadium remained in the steel. I had them try again, and the second time the steel came through.”8 The new product had a tensile strength of 170,000, about 260 percent that of normal American steel. The vanadium steel disposed of most of the weight in Ford’s car — decreasing fuel consumption — yet actually cost less than the traditional alternative.
The other plank of Ford’s low-price car was a new production system, geared to make vehicles at high scale and low cost. He built the world’s biggest factory — not just the biggest car factory — on a massive sixty-acre site at Highland Park, near Detroit. It opened on New Year’s Day, 1910, and the gain in productivity was marked: “Contrast the year 1908 with the year 1911 . . . The average number of employees [rose] from 1,908 to 4,110, and the cars built from a little over six thousand to nearly thirty-five thousand. You will note that men were not employed in proportion to the output.”9
However, although Ford managed to increase the number of cars produced per employee by nearly three times in just three years, and his cars became much cheaper to make than those of any of his rivals, the absolute level of efficiency remained low. The real breakthrough came with a proprietary innovation, designed by his production managers: the move from batch production to a continuously moving assembly line. This didn’t happen until 1913, and it was then that Ford famously insisted that all of his cars would be painted black, because only Japan black paint could dry quickly enough to keep up with the speed of the line.
The effect of simplification and scale was to move the price of a Model T down to $550 by 1914, when 248,307 of them were sold. By 1917, the price had fallen even further, to $360, with the result that sales soared to 785,432. In 1920, 1.25 million Model T’s were bought. Compared to 1909, a price reduction of 63 percent — to almost a third of the original price of the Model T, which was itself a good fifth cheaper than comparable cars — had resulted in a sixty-sevenfold increase in the number of cars Ford sold.
Compared to Ford’s sales
