This is the third in my series of posts about the five businessmen the History Channel profiled in a terribly inaccurate and un-historical miniseries titled The Men Who Built America. I’m writing these posts in response to several comments and e-mails from TV viewers who have expressed interest in a more accurate version of the story.
Post #3: Cornelius Vanderbilt, Age Twenty-Four to Thirty-Four
In last week’s post I described the first eight years of Cornelius Vanderbilt’s career, up to the point where he shut down his profitable shipping business and accepted a job as a steamboat captain. There were good reasons for this move, although Vanderbilt might have been the only person who could see them at the time. Vanderbilt, like all the really successful businessmen of the nineteenth century, had a knack for thinking strategically.
Great entrepreneurs, like the five men portrayed in the History Channel series, tend to have a lot in common. There are certain characteristics that mark all the great success stories in American history, and the five men in the series exemplified most or all of these characteristics. All of them worked very hard and refused to be discouraged by failure. All were exceptionally bright. All were decisive. All of them understood that the most important resources are human resources.
And, indispensably, all of them had the ability to see the future of an industry, and make appropriate strategic moves based on that vision. (Thomas Edison once said of Henry Ford “Ford’s foresight is so long it sags in the middle.”) This kind of vision is what led Rockefeller to build tanker cars when the railroads were unwilling to build them. It’s what led Carnegie to make each of his timely changes of focus. And it’s what led Vanderbilt to walk away from his own successful business in 1818 to become the employee of a businessman named Thomas Gibbons.
(On a humorous note, it also seems to help to have a father whose first name is William. In the nineteenth century William Carnegie, William Rockefeller, and William Ford each had a son who started with nothing and eventually became the richest man in the world. In the twentieth century William Gates Jr. had a son who eventually achieved the same distinction, although Bill Gates III. didn’t have to overcome childhood poverty to reach that status.)
When Vanderbilt accepted a job in Gibbons’ company it was a good strategic move for several reasons. For one thing, Gibbons was a much older and more experienced businessman, who had achieved great success in several different businesses in three different states. Vanderbilt later described Gibbons as “one of the strongest-minded men I was ever acquainted with.” It’s clear that there was a mentor-protege aspect to the relationship.
Gibbons was also an experienced lawyer, able to fight the legal and political battles that were a necessary part of the steamboat business in those early days. The heirs of Robert Fulton held a much-disputed government monopoly on most of the steamboat routes to, from, and around New York; and Gibbons was battling in court and on the water to establish himself as a player in the business. Vanderbilt could see that steamboats were the wave of the future, and a transition from sail to steam was going to require Vanderbilt to either leave the New York area; or align himself with the Fulton heirs or someone like Thomas Gibbons.
Initially Gibbons paid Vanderbilt only sixty dollars a month to captain a single steamboat, but as the Commodore proved his merit his role in the company grew. Soon Mrs. Vanderbilt was running a Gibbons-owned hotel in New Jersey while the Commodore managed all of the day-to-day business of Gibbons’ nautical operations.
In the fall of 1819 the Fulton heirs and their partners offered Vanderbilt a salary of $5,000 per year, roughly a 25% increase over what Gibbons was paying him at that time, to bring his talents and his work ethic over to their side. Vanderbilt remained loyal to Gibbons.
By 1824, according to Renehan, “In addition to commanding the Thistle, (Vanderbilt) had the captains of the Bellona and Mouse reporting to him. It was Vanderbilt who set the schedules and fares for all the boats, administered the budgets, managed the food and drink service on the various boats, and made sure the craft were maintained properly. Vanderbilt also hired and fired crew members, negotiated the purchase of wood for fuel, and arranged advertising in New York and New Jersey newspapers.”
Vanderbilt also helped design each new boat Gibbons commissioned, and oversaw the construction of each craft as it was being built.
That same year, 1824, the US Supreme Court ruled in favor of Gibbons and his company, ending the Fulton monopoly on steamboat routes between New York and New Jersey. Vanderbilt and Gibbons operated more efficiently than most of their competitors and waged price wars to attract passengers. In a couple cases they actually offered free passage on certain routes to drive the competition away.
In May of 1826 Thomas Gibbons died, leaving everything to his son William, who lived in Georgia. With an absentee owner, Vanderbilt’s management role in the company became even more important. Less than two years later William Gibbons made it known in New York that he would sell the steamboat business to any interested buyer for $400,000. Vanderbilt, who had apparently been interested in buying at least a part interest in the company himself, informed anyone who might be interested in buying that he would resign the minute the business was sold.
Vanderbilt was arguably the most valuable resource the company had, so his ultimatum drove off any potential buyers. He personally commissioned a shipyard to build him a steamboat of his own, and continued working for Gibbons while the boat was being built. When it was nearly completed he resigned his position with Gibbons. When the new boat was launched in early 1829 Vanderbilt was thirty-four years old. The Commodore went into business for himself for the first time in ten years. He would never work for a paycheck again.
Meanwhile the New York area steamboat business continued to be just as fiercely competitive as it had ever been. Without Vanderbilt’s management skills William Gibbons soon found himself unable to compete. His steamboat business started hemorrhaging money and he had to shut it down. Vanderbilt bought two of Gibbons’ boats at fire sale prices and hired skippers for them, increasing his total fleet from one boat to three.
Next week’s post will cover Vanderbilt’s steamboat business in the early 1830’s.
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