eFlourishing Masthead Outlined

 Published Weekly by Family Wealth Management, LLC 
          January 19, 2011                                                                                     Issue 46

Ours is not a philosophy for getting by.  We believe in living with purpose.  We believe in values, in goals, in achievement, and in the joy of living.

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First, an update to an earlier story regarding Iran's nuclear program:

In recent days, the retiring chief of Israel's Mossad intelligence agency, Meir Dagan, and Secretary of State Hillary Rodham Clinton separately announced that they believed Iran's efforts had been set back by several years. Mrs. Clinton cited American-led sanctions, which have hurt Iran's ability to buy components and do business around the world.

The gruff Mr. Dagan, whose organization has been accused by Iran of being behind the deaths of several Iranian scientists, told the Israeli Knesset in recent days that Iran had run into technological difficulties that could delay a bomb until 2015. That represented a sharp reversal from Israel's long-held argument that Iran was on the cusp of success.

The biggest single factor in putting time on the nuclear clock appears to be Stuxnet, the most sophisticated cyberweapon ever deployed. 1

Now, this week's main message:


The theme of the January issue of our print newsletter, Flourishing, was to praise entrepreneurship, and by logical extension, profit.  Then last night I watched two back-to-back CNBC documentaries.  Consider this a postscript to the newsletter.


The first documentary was about Ford Motor Company, and its remarkable turnaround, led by Kansas native, Alan Mulally.


Though CNBC didn't mention it, Mr. Mulally attended Lawrence High School, and subsequently earned B.S. and M.S. degrees in aeronautical and aerospace engineering from KU, and a Masters degree in Management (S.M.) as a Sloan Fellow at M.I.T.  But, this essay isn't really about Mr. Mulally, or even about Ford. It's about entrepreneurship and the profit motive as demonstrated in the second CNBC documentary, a biography of Henry Ford.


At the age of thirteen, Henry Ford saw a steam-driven land vehicle.  That sight sparked young Henry's imagination with the idea for a horseless carriage and fueled a passion to create one. Later, as a young man, Henry worked day jobs to support his family, and spent his evenings trying to build his automobile. Realizing that a steam-powered car was impractical, he based his idea, instead, on the internal combustion engine.


On Christmas Eve in 1893, Henry clamped his first gasoline engine to his wife's kitchen sink. With the home's electricity providing the spark, the engine's vibrations shook the sink and filled the air with exhaust fumes, while Clara prepared the holiday dinner.   CNBC didn't mention this either, but Clara was a saint.


The passion that drives entrepreneurship can sometimes make life difficult. Henry and Clara moved eight times in their first nine years of marriage. Henry gave up a good job at the Edison Illuminating Company to co-found the Detroit Automobile Company.  The business failed.  With no predictable income, Henry Ford moved his wife and child into his father's home.  (Henry's parents must have been patient, as well.)  Henry's dream of creating a practical automobile was still at the center of his attention.  Failure was not an acceptable outcome.


Ten years passed from the little engine on Clara's sink to the launch of the Ford Motor Company in 1903. It took five more years to produce the Model T, and yet five more to master its mass production.


Why did Henry Ford persist through those years of hardship and uncertainty?  He was thirteen when the dream was born, thirty when he clamped his first engine to Clara's sink, forty when he founded the Ford Motor Company, and fifty when the "T" was finally and successfully mass-produced.  I'll tell you why:


First, as mentioned, he had the support of his family. 


He also had the example of Thomas Alva Edison, John D. Rockefeller, Andrew Carnegie and other young men of that era who had risen from incredibly difficult circumstances in childhood, motivated, not only by the love of their work, but by the opportunity to cash in on an original, life-serving idea.


The pursuit of profit not only motivated Ford, but also his bold investors.  In 1903, a school teacher invested $100 - half of her life savings - in the Ford Motor Company. Sixteen years later, she sold her stock in the company for a total gain of $355,000.2  That girl had some gumption!


And, what kind of person would deny a young school teacher her reward for recognizing Ford's vision and risking her own money?  Well, maybe the kind of person - let's say a typical politician - who has the temerity to refer to her gain as "unearned" income.  But, I digress.


Henry Ford (like most of the successful high-tech entrepreneurs of the last forty years) didn't need a politician's scolding to lower his prices. He only needed the desire to make huge profits by reaching a mass market. Before Henry Ford, cars were too expensive for average Americans to own. Ford realized that if he could "build a motor car for the multitude", his company could become an engine of wealth creation.  That knowledge led him to create the moving assembly line, significantly reducing manufacturing costs. The original $825 price of the Model T finally bottomed at $260.  Persistence in the pursuit of profit and that strategy of lowering prices to reflect lower manufacturing costs made Henry Ford and his early investors wealthy beyond their expectations.  Personal mobility for the average person became a reality for the first time in history.


Similarly, Ford's pursuit of profit didn't result in subsistence wages, but in phenomenal pay increases.  Long before the Ford Motor Company was unionized Henry Ford shocked the world by introducing the $5 workday, more than doubling the era's prevailing wage. Why?  Because he wanted to attract the best workers, whose talents and innovations would lead to improved product quality and greater efficiency.  The higher wage rates also reduced employee turnover and training costs, further increasing Ford's profits.


Henry Ford typifies successful entrepreneurs, as Alan Mulally typifies successful managers. In both cases, profit-driven innovations improved product quality and consumer acceptance.  Neither required subsidies, only freedom and free markets. 


My hat's off (for once) to CNBC.  These two documentaries weren't without their obligatory clips of whining and distortion, but those moments were limited, and both shows were really quite good.  The message of entrepreneurialism was implicit in both.  Until next week,




1  http://www.nytimes.com/2011/01/16/world/middleeast/


2   http://www.thefreemanonline.org/featured/the-last-billionaire/


This essay is not intended in any respect to be an offer or solicitation or recommendation to purchase shares in Ford or any other company.

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