James J. Hill: The Empire Builder

0:00 in the dead of winter in 1870 a young James J Hill was on a 500m track from Canada to St Paul Minnesota he had traveled by dog sled horseback and he was now on foot it was dark he was exhausted and covered in snow he arrived at an inn in the town of calonia in the Dakota territory the inkeeper took one look at Hill and refused to rent him a room Hill then had to backtrack on foot

0:28 and trudging through snow 15 miles to a farmhouse where a widow allowed him to stay for the night James J Hill would never forget the Widow's kindness he would not forget the cruelty of the inkeeper in calonia who had refused him shelter either 10 years later Hill was building his Railroad and intentionally built his line to avoid calonia and instead pointed his Road past the town of the Widow who had taken him in as a result Caledonia disappeared from the

0:57 map the widows Town became the capital of the county that town was renamed Hillsboro in Hills honor and still exists to this day that was a story that I found while I was watching this four-part documentary called the Empire Builder James J Hill on the Great Northern Railway that I was watching at the same time I was rereading this great biography on James Hill called James J Hill Empire Builder of the Northwest which is written by Michael P Malone in

1:23 the late 1800s and the early 1900s when James Jill was alive he was one of the most famous entrepreneurs in America his nickname was was the Empire Builder Hill had unlimited energy he was stubborn he had a temper he was supremely arrogant and he did more to transform the northern Frontier of the United States than any other single individual so I want to talk about his early life there's a few things that jump out when you're reading about James J Hill's

1:47 childhood he grows up in a poor family in Canada it said that family led a frontier existence later in life James talks about knowing what it was like to be poor and that his father was not very prosperous one of of his most Vivid childhood memories is the fact that he would lay awake at night staring at the Moonlight that would beam through the holes in their roof and that was back when he had two good eyes when he was 9

2:10 years old he was out hunting with a bow and arrow the bow that he had handmade had snapped and the arrow flies backwards hitting his right eye and prying it out of its socket they were able to reattach the eye but he was permanently blind out of that eye and even with one eye he read everything all the time there's a handful of traits that James J Hill has even when he's Young that he carries with him

2:31 throughout his entire life one is this vicious reading habit that left eye proved to be very strong and would serve him Faithfully through a long lifetime of intensely close reading and Reckoning Hill would often tell other people about the inadequacies of his education he says he never went to school a day after he was 14 but he could read write and reckon and more importantly he loved to learn and this won't surprise you but one of the subject matters he loved was

2:53 history and biography now this is something that he learned from reading a bunch of biographies he learned the power of one dynamic individual this is what the book says like so many other 19th century youths young Jim Hill fell under the spell of Napoleon he came to believe in the strength of will The Power of One Dynamic individual to change the world he believed in the Conquering Hero in fact later on he says that the railroad entrepreneurs

3:18 conquered that's the word he uses he said that the railroad entrepreneurs conquered the distance between remote communities in the American West and so this is the way I thought about Hill right before his father dies cuz his father's actually going to die suddenly on Christmas Day when James was 14 that's why he said I never went to school day after I was 14 years old he couldn't he had to quit school and go to work right before his father's death he

3:39 had a poor father a frontier existence one eye and he was a voracious reader and so now he has no father he still living on the frontier has to go to work to support his family still has one eye still reading everything he can get his hands on but then we start to see something that another trait that he carries for his entire life he accustomed himself to a large workload if you were able to ask James Jill

3:59 starting at 14 when he goes to work and then all the way up until he dies when he's in 70s how many hours a week do you work his response would be all of them so at 14 he gets a job at a general store he keeps the books does clerical work milks cows and cuts wood he is still in Canada a few years later a Trader from St Paul Minnesota is at the store and James is helping him with his

4:21 horse the trader hands James a copy of an American newspaper with the headline that says Splendid chances for young men in the West and the trader tells him go out there young man that's the place for you Hill carries the copy of that newspaper around and he reads and rereads it until it falls to pieces and it's at 17 when he makes the most important decision of his life and that's when he decides to seek adventure and profit and go to

4:46 America now there's something that we're going to talk a lot about this the fact that he was an engineering and a financial genius and something that opened up future opportunities for him is the fact that he saved all of his money in fact there's a quote that he says if you want to know whether you were destined to success or failure in your life you can easily find out the test is simple and it is invaluable are

5:04 you able to save money if not drop out you will lose you may think not but you will lose as sure as you live the seed of success is not in you and so this is what the book says about this part of his life he left with $600 in cash his life savings he took with him all the tools he would need to succeed in America a quick intelligence self-sufficiency genuine courage an engaging personality a fierce ambition

5:29 and a remarkable work ethic so actually we need to get into his personality he was extremely charismatic he was a natural salesman he was a natural promoter he held people's attention as he engaged them in characteristic rapid fire highly animated conversation gesturing expansively and driving home his point with jabbing motions of his hands he was the embodiment of high energy so keep that in mind because that's going to serve him well when he winds up starting to work in the Rowan

5:56 industry he doesn't start working in the Rowan industry till he's 40 so more than 20 years in the future but at the time railroad entrepreneurs were actually called promoters James J hill was a natural-born promoter so he goes to the town that the trader was from which is St Paul and he gets a job in St Paul working for a company that serves a fleet of Steamboats his job title was technically shipping clerk and he did

6:19 maintain the books but he also did a ton of manual labor so he would have to handle incoming and outgoing Freight he'd work on the docks and in the warehouse he also gets a job working for wholesalers who are shipping Commodities by both Rail and by Steamboat which gives him a ton of experience in logistics and forwarding this is going to be another advantage that he's going to have when he moves into railroading in about 20 years and so this is how

6:38 Hill's biographer described this part of Hill's life he worked incredibly hard sometimes laboring late into the night falling asleep at his desk then getting up for a swim in the river and a cup of black coffee then going back to work these years formed his apprenticeship and he learned much more than bookkeeping he learned how to extract favorable rates from shippers how to beat back their attempts to inflate their rates artificially how to purchase commod ities cheaply and undercut

7:01 competitors how to deliver efficiently and how to cultivate and maintain the loyalties of customers by anticipating and looking after their every wish these lessons would serve him well when he switched over to the world of Transportation so when I'm sitting here reading about the work that Hill is doing for these Wholesale grocers this reminded me of a very similar experience that Rockefeller had early in his career and so I want to read you my note and

7:25 highlight from what is my favorite Rockefeller biography of all time it's it's the book that I covered back on episode 254 the book is called John D the Founding Father of the Rockefellers and it's describing a young Rockefeller having a similar work experience as a young James J Hillis and at the time Rockefeller is working for huet and Tuttle which are forwarding groceries and other Commodities by Rail and the book says Rockefeller saw that posted rates supposedly fixed could also be

7:51 negotiated all was not as it seemed on the outside a favored shipper at the end of the month would receive a rebate on that rate that could to a substantial Su and so the note I left myself when I read that is there is no Standard Oil Monopoly without this happening first rebates played a huge role in rockefeller's Empire and he says rebates existed in other Industries I just applied them to oil and so when you read

8:14 about the early career of both James J Hill and John D Rockefeller you realized that the sequence that experiences happening is very important there is no Standard Oil Empire without the experience of Rockefeller as a hin Tuttle and there is no Great Northern Railway Empire without James J Hull having all these businesses and jobs that all interacted with the railroad for two decades before he gets control of his own Railway and so Hill is a great employee but he doesn't want

8:38 to stay an employee forever says if there was ever a born entrepreneur it was Jim Hill highly intelligent highly motivated highly acquisitive and it was only a matter of time before he went into business on his own there is a great line from Max lebin one of the co-founders of PayPal it is from this book called the founders written by my friend Jimmy Sony which tells the history of PayPal and in that book it says Le added an unexpected

9:00 qualification for PayPal employees that he felt contributed to the company's success and the later achievements of it of its alumni many of its earliest employees simply hated being employees the very best employee at any job at any level of responsibility is the person who generally believes this is their last job working for someone the next thing they'll start will be their own and one thing that James J Hill understood is that relationships around the world and a great way to transition

9:27 from employee to entrepreneur is by partnering with an older more established wealthier businessman so he works very hard at befriending this guy named Norman kitson so Norman kitson is about a generation older than Hill he's one of the most successful entrepreneurs in St Paul he had made money in the fur trade and as a steamboat operator eventually he's also going to partner with Hill on railroads as well Norman kitson is going to be so important to

9:49 Hill that Hill names his firstborn son James Norman in kitson's honor and so Hill partners with Norman kitson and helps kitens with his existing fur trading business and one of the things that kitson and everybody around James Sho at this point in his slide just realized how focused he was it says Hill drank little worked hard and confined his socializing to respectable settings as always he read incessantly he permitted himself few distractions in his Relentless drive to achieve wealth

10:15 and status and so in addition to working with kitsen he's going to found his very first company this is going to be the James J Hill company now this is very fascinating and again another trait that he has for his entire life inefficiency disturbs him greatly okay so he is watching he's on the River Bank he's seeing that Dock Workers are unloading cargo from steamboats onto horse carts then they would haul the cargo use the hores horse carts to haul the cargo up

10:44 the hill so then be reloaded under railroad cars that extra step of adding the horer carriages up the hill Disturbed him so much that he found the a company to fix and to remove that step so at this is goes back to why he kept saying if you can't save money you know the seed of success is not in you and he was always very financially conservative so much so I guess I should tell you this now James J Hill the reason that

11:07 he's so remarkable I guess I should tell you how I found him I didn't know who James J Hill was until many many years ago like five or six years ago I'm reading poor Charlie's omac and Charlie Monger James J Hill was mentioned twice in there and so Monger is talking about how great Jim snagle the founder of Costco is and he says Jim Sagal is a fabulous business operator like a Carnegie Rockefeller or James J Hill and

11:27 so you and I have talked about this a bunch of times but is really important when you find somebody you admire like I admire Charlie Munger go find who they admire and then read about them too and so that's what made me pick up a biography of James J Hill for the first time five or six years ago but then when you read about him you realize why Munger and other people admired him so much James J Hill was the only American

11:47 railroad entrepreneur in history to build a railroad and never go bankrupt and one of the things that made him so hard to compete with is how efficient he was constantly refining the efficiency of his ra he was obviously obsessed with was watching his costs and there's multiple examples in his biography where they compare how he managed the the expense side of the railroad compared to his other competitors and he was constantly preaching the importance of being financially conservative in

12:11 building for the long term so at 27 years old he winds up withdrawing his life savings which at that time was $2,500 and he uses that money to start the James J Hill company this company is going to be a forwarding agent for the St Paul and Pacific Railroad that is a railroad he's eventually going to buy out of bankruptcy many years in the future okay so his company this time they get hired to transfer goods from

12:33 the riverboats and load them on the trains and so his first Innovation was hey I'm just going to build a two-story Warehouse on the riverbank the first floor is going to be level with the dock the second story was level with the railroad making it much easier to transfer from boat to Railroad and eliminated the need to unload and reload onto horses I would say from reading a lot about him and then spending four hours watching the documentary too he

12:57 loved James J Hill loved eliminating steps eliminating that one step drastically reduced the cost of transfer there's a maximum that I have about this that I think about all the time says genius has the fewest moving Parts this will be a reoccurring theme for everything that Hill does if you study what he does he's an unbelievably clear thinker he limits the number of details and then he makes every detail perfect and so his first business is founded on

13:24 an observation that hey I could do that A Better Way his second business is founded on an observation the railroad operators are spending a lot of money on fuel at the time that's mostly wood I should start a business that sells fuel to the railroads and so there's a ton of things going on his life so right now he's starting more businesses he's learning more about railroads you'll see immediately he has this bias towards vertical integration what we call

13:49 vertical integration he has a great line for it he called it rational integration and then we also see that he has uncompromising standards he's very difficult person to deal with so he winds up partnering with this guy named Griggs they start Hill Griggs and Company and it's a fuel company and it starts out selling wood for fuel to the railroads and so at the exact same time because Hill's very observant he notices that coal is starting to be used in

14:12 place of wood that had many more benefits that coal had many more benefits as a fuel source than would and so there's a line in the biography that again is another trait that I need to put into your brain about James Jah Hill he always quickly gets out in front of an emerging Trend he immediately goes all in on the coal business and this is the description in his biography Hills rise to the top of the coal business is

14:31 interesting not only because it formed a Cornerstone of his career and generated venture capital for later Investments but also because it revealed the first time his instincts toward vertical integration and ruthless monopolization he purchased Mass tons of high quality coal then as the size of his shipments and his bargaining power grew he remorselessly leveraged railroads to deliver the coal at preferred rates he formed a purchasing pool with other large coal businesses his Partners controlled a third of all the freight

15:02 traveling on this Railway route now about his uncompromising standards he applied this not only to his employees for the rest of his life but also to his Partners As Time passed he felt his partner Griggs wasn't cutting it and so he forces a breakup of the partnership Griggs gets mad is going to set up his own fuel business and then compete directly with Hill and that leads us to another lifelong trait of Hill the fact that he was very pragmatic this is a

15:29 great description of how his motus operand how he' operate through his entire career ever the pragmatist as well as a tough competitor he'll also eventually previewed another future characteristic when he abruptly changed course and parlayed with his chief competitors to bring peace to the coal industry by joining together in a market sharing Consortium Hill had an entirely pragmatic business personality when competition suited him in a market he competed fiercely but when competition became wasteful to him he did not

15:59 hesitate to end it even if it meant joining with old enemies to create a monopoly now shortly after this he's going to leave the fuel business to go fulltime into railroads because he thinks it's the opportunity of a lifetime before I get there I need to tell you two other stories that I think will give you a good idea of who Hill was and just how difficult it would be to have to compete with this guy so at

16:20 the time there is a violent dispute between two different groups on land owned by Canada Hill was worried that this potential War would interfere with his trade business so he travels to Canada to meet with a member of the House of Commons of Canada and a powerful businessman who he thought would help resolve the this dispute this is a trip that happens in the dead of winter he leaves Minnesota by rail then he has to transfer to Stage Coach which

16:44 is you know horra stage coach for the next 100 miles multiple times the stage coach gets stuck in the snow they have to get out and actually dislodge the stage coach from the snow then at the end of that route he has to travel the next 200 mil on for back into Canada then he has to hire a dog sled team through territory with all Native Americans that could potentially kill him he has the meeting and then has to

17:07 do the entire trip in reverse the whole thing takes seven weeks Hill then gets back and writes a report to the Canadian Prime Minister and as a result of this experience on the report the prime minister is able to resolve the dispute and avoid a war that would interfere with James J Hills Business that is a great description of being high agency Hill was high agency he also read everything looking for an advantage so at the time Hill was making a bunch of

17:33 money taking people and goods on steamboats he was the only operator in this area then a competitor from Canada starts running the same route and they get into a rate war and as a result of the rate War the profits that Hill had was started to dwindle so Hill reads all the regulations of maritime law he discovers a neglected maritime law that prohibited foreign ships from operating in American Waters Hill then persuades the US Treasury Department to enforce

17:58 the law law against his competitor that forces his competitor to transfer ownership of their steamboats to somebody else after that then he'll merges with that competitor and forces and forges another Monopoly I think now you're starting to see why Monger said hey this James J hill guy was one of the best business operators he's up there with a Carnegie he's up there with a Rockefeller so I want to get into what is truly his life's work and that is

18:23 working on the railroad he's going to start this a 40 and work on it until he dies and there's a few quotes from James J Hill that I've collected that think give you an idea of how important he just understood how important railroading was going to be the first quote is some people build great monuments this railroad is my monument and the second quote is in the dawn of civilization the trail gave way to the beaten path and that gave way to the

18:45 Caravan route as man emerged into history he became a road maker the better the road the more advanced his Development building his railroad will be the most important work of his life and he has better at it than anyone else and I know I've told you this before I just think there's a lot of parallels between the railroad industry and the early internet industry this is by far the most the railroads at the time they're by far the most important

19:12 industry of Jame J's Hills day some of these stats about the railroad industry are just mind-blowing so by 1885 railroads brought in twice the revenue than the federal government did railroads were the nation's largest employer railroaders were the largest private landh holders in the country they owned more than 10% of the land in the United States Hills railroad will enable the creation of other gigantic Industries Industries not just gigantic companies entire Industries as a result of his railroad he helped launch the

19:43 agricultural Timber and Mining industries of the American West and it all started because he saw opportunity hiding in plain sight all of his businesses at the time bracketed each side of the St Paul and Pacific Railroad his Warehouse businesses on one side and his Steam businesses on the other in addition to selling fuel to the railroads and the reason I say he found an opportunity hiding in plain sight because he had a vastly different view on the potential of the St Paul and

20:07 Pacific than anybody else did in his day said unlike most who viewed the St Paul and Pacific as a near worthless derel he'll viewed it as a miracle waiting to happen a potentially wondrous Enterprise simply lacking competent leadership he studied the road constantly reading every scrap of information he could find about it and boring anyone who would listen with endless detail as to what it could be one day and the reason I wanted to spend a bunch of time telling you

20:34 about the two decades of experience that he had before he entered railroading because railroading is his life's work it's what we should focus on right but this previous experience on the other side was an asset that his railroad competitors lacked this is what the book says he possessed a Priceless Advantage compared with most other 19th century rail Titans rather than coming from the outside world of Finance as most of them did he arose from from the inside world

20:59 of freighting and transportation and he knew this world in all its complexities he was about to demonstrate how certain well-established Regional capitalists on the frontier could Challenge and even best larger Eastern interests Warren Buffett has this great quote where he says writing a check separates conviction from conversation and that is one of the things I admire about James J Hill who was willing to go all in on the opportunity of a lifetime so keep in mind this point in his life

21:28 he is in his late 30s he's Rich he's prosperous he's got a growing family he's got a great lifestyle he's one of his City's leading businessmen he has a diversified set of businesses from Fuel and transportation to warehousing and brokering and yet he so believes in this opportunity he's willing to risk everything and go all in on the railroads this is very reminiscent of Andrew Carnegie if you look at the early days of Andrew Carnegie he had a

21:51 diversified set of businesses already rich but then he sees the opportunity and steal and he sells off everything else and devotes all his time to building his Steel company it's exactly what James J Hill is going to do in building his Railroad and so it says hill now staked everything he had his entire career on the gamble for the railway this is the St Paul in Pacific he began cutting back on any new commitments and moving out of his other

22:12 businesses to devote his full attention to acquiring the road this is why Hill who knew the road better than anyone else constantly argued to his friends the potential prize defied description he seemed completely fixated on the project many years later his Banker friend recalled that Jim had spoken of it to him probably several hundred times during the mid 1870s time and time again you and I see that being obsessed is an edge Hill was obsessed with completing the bankrupt St

22:43 Paul in Pacific he had been researching this for years before he had the ability to gain control of the rail line and this is how he thought about the opportunity here stood the kind of opportunity that came only with the opening of a new frontier once in a lifetime once in many lifetimes and so we see his same Mo what's he going to do he's going to read everything he's going to learn everything this is another

23:05 example of that maximum the good ones no more he summarized well his feverish hunt for whatever knowledge he could gain I commenced to get all the information I could find copies of the mortgages of the complaints keep in mind the row line is in bankruptcy this is what he's talking about I commenced to get all the information I could find copies of the mortgages of the complaints of any books published in connection with the lawsuits of the

23:27 records in the court and such information as I could gather from parties who were likely to have information as to the situation in Holland there's a there's a the controlling party here is uh a collection of Dutch investors that's what he's talking about as to the situation with the bond holders as their relations to the Dutch committee the position of the several lawsuits the grounds upon which the lawsuits were brought and with Council discussed the merits of or probable merits of those

23:53 cases and one of the most remarkable Parts about this is the reason I kept I kept saying hey he found an opportunity hiding in plain sight first he thought you know this is just a crappy Line it's gonna it's bankrupt there's a reason it's bankrupt he thought has poor management this opportunity seemed so impossible to other people that most people didn't even try but remember we just went over the fact that Hill James Jay Hill was excessively extremely high

24:16 agency so it may have seemed impossible to them it didn't seem impossible to him and so what he realizes is like I need to get the Dutch sh shareholders to settle with me so I can get this Railway out of bankruptcy and the numbers that he is running he's like okay he's doing all the math and he's like okay I think we're going to need to invest $5 million and if we invest $5 million we'd get a

24:38 $19 million gain uh number one he does not have $5 million he's going to go in with three other businessmen all of them are richer and a little older than James jaho was at this point they also combined do not have $5 mil number two he underestimated how much money it is going to be a much it's a much larger return it's going to cost about $55 million somewhere around there to get control of the the rail line but the

25:00 gain is going to be a lot more than $19 million and so Hill convinces the Dutch investors to accept about a 10% down payment on the purchase price and then the rest is financed with bonds that that pay them 7% interest so now we have gotten what I feel is the most interesting part to me it's how he built operated and managed his railroad this is one of the most important ideas that have been sharing in private

25:22 conversations with founder friends uh this week is the fact that James J Hill he finds what he is best in the world at what he is best at at 40 years old in a field where he had no direct experience he had been around railroads he sold to railroads he had business adjacent to railroads he had never operated a railroad there's a great quote by Mark andreon where Mark says I'm a firm believer that most people who do great

25:53 things are doing them for the first time I'd rather have someone all fired up to do something for the first time than someone who's done it before and isn't that excited to do it again you rarely go wrong giving someone who is high potential a shot and so something's going to happen at the very beginning when they take control of the railroad we're going to see again this reoccurring trait that James Jayo had he had uncompromised standards he only

26:16 wanted to be around incredible incredibly talented people and he was also the most comfortable doing the job himself so originally Hill and the four Associates that's what they're called had another guy named Farley in charge of the ual Construction in the railroad and like Hill did in the past even if you're his partner if you if he did not think you were good enough he would cast you aside he is going to maintain his uncompromising standards and keep in

26:39 mind he has all of his money into this thing if this thing fails he'll lose everything and so Hill is going to cast aside Farley Farley is going to be referenced here as the old man and this is the way the the biography describes it impetuous and impatient he'll crowd The Old Man remorselessly and begin taking on more of the tasks of the management himself eventually removing Farley completely hill now entered one of the most dynamic phases of his life

27:06 for the first time engaging in the work of railroad construction he would prove remarkably good at it demonstrating a rare ability to muster and command men and materials and to control both a broad strategy and a myriad of details Hill worked and worried by day and night he would be at his St Paul office until after midnight and then in the field driving himself to the Limit and seeing little of his family he found it imperative he said to be where the money

27:34 was being spent that is another Maxim that James J Hill would repeat he says it pays to be where the money is spent staying close to the money's excellent advice and here's the result Hill soon had the workers laying rails at a rate of more than 2 miles per day over twice the pace that Farley had made earlier and I think one of the most important things that Hill did is he had a CREDO and a philosophy in which he had a very

27:58 it's very easy to interface with it's very clear and simple what he wants he says what we want is the best possible line the shortest distance the lowest grades and the least curvature that we can build and so remember inefficiency offends offends Hill the reason he talks about the reason he wants the lowest grade and the least curvature so the grade is the incline or the decline where the track is he wants the track to be as level as possible because then the

28:22 trains can maintain higher speeds and use less energy those advantages compound over the life of not not only the locomotive but also the railway because makes it more fuel efficient and reduces The Strain on all the moving parts so at the very beginning he sets out this crto this is going to be our company's organization principle okay we're going to build the company around the fact we want the best possible line shortest distance the lowest grades and

28:45 the least curvature he also had another philosophy that's related to and enhances his Credo and that's if you're going to do something do it so that it lasts a long time and so Hill is importing more expensive best Custer rails from England and so Hills rails are technically more expensive but they're more durable and thus more profitable in the long run because he doesn't have to rip up old worn out rails and redo the track like his

29:11 competitors do another difference in the way he built his railroad most of the people were financiers on the East he was out on the track and so when he needs to figure out the best path for one of his rail tracks to take he actually goes out and Scouts it himself personally on Horseback and so in countless interview in the documentary and all throughout the biographer talks about the fact that they call him a micromanager but the way I would put in

29:33 something that reappears in these biographies over and over again is just if it's something important then you need to do it yourself and I think his bias to be close to where the money is being spent to do as much of the work as himself as possible to take the most important task can do it himself you have to like he talks over and over again about the way he does and like he manages his business and the way his

29:52 competitors do so his main competitor is this this railroad called the Northern Pacific and it says he'll held the northern paciic specific group in utter contempt as a bunch of Eastern speculators who did not have their act together many of them were not on site they were back East and one thing to think one thing to know about Hill is that he had appreciation for those who had dirt underneath their fingernails in this way Hill was very much he reminded

30:16 me of Sam zuray Sam zuray is the main character in one of my favorite books that I've ever read the book is called the fish that ate the whale and is about these competing banana Empires so I want to read a paragraph from that book that is technically describing Sam Z Murray and how he approached building his banana business but could also apply to James Jay Hill and how he built his Railway and then how zuray and Hill's

30:41 competitors were off in some remote office somewhere so it says zuray worked in the fields besides his Engineers Planters and machete men he was deep in the muck sweat covered swinging a blade he helped map the plantations plant the rinds clear the weeds lay the track unlike most of his competitors he understood every part of his business he was contemptuous just like Hill he was contemptuous of banana men who spent their lives in the North far from the

31:08 plantations those smoks what do they know they're there we here and so one of the most important ways that hill was different from the his competitors is that he insisted on the most direct and economical Road and you're like okay yeah you're building a roadroad like who wouldn't do that okay here's the problem the Northern Pacific did not choose the most direct route why they were responding to terrible incentives remember what Charlie Monger says always remember that incentives rule everything

31:37 around you so the US government at this time this makes no sense to us now I guess it I mean they're building Rockets the same way and the defense department still like this I guess so it I guess this still uh persists to this day unfortunately so the government paid railroad companies by the mile railroad companies would literally receive governmen issued bonds for every mile of track that they made they would also get land grants so in addition to bonds

32:03 railroads are awarded land grants for every mile of track laid This Is How They wind up owning over 10% of the country when I mentioned earlier so this meant that as the companies build more miles of track they acred more land on either side of the track which then they could later sell and use that Revenue so if you're the Northern Pacific and you're building a railroad across the state and you see these rules these incentives that that guide the game that

32:27 you're playing you're not incentivized to take the most direct route it's the opposite you want as many miles as possible cuz the more miles of track you lay the more twists and turns and everything else the more money you get per mile and the more land you get per mile hill thought this was short-term thinking but most people in the railroad industry were short-term thinkers so the guy running the Northern Pacific is this guy named Henry Villard there is a bunch

32:51 of comparisons between Henry Villard who they call a Speculator and James J Hill and here's one example many observers would later compare Hill with Villard the comparison was inevitable while Hill was building carefully and checking his cost minutely Villard built in ignorance of cost so Villard is going to drive his line into bankruptcy and JP Morgan is actually going to get control of this but that happens in the future so it says Villard built an ignorance of cost

33:18 like other transcontinental plungers and speculators Villard did in fact build rapidly and poorly much of his line would later have to be torn up and rebuilt he had rushed so he could get massive land grants amid mounting deficits Viller would then be forced to resign in 1884 so I want to go back to Hill in his early days building his first line the these are traits the idea of building for the long term uncompromising standards using the best materials

33:46 investing technology these are things that Hill's going to do for the next for the remaining 37 years of his life but at this point he's building his first line he says keeping work crews in the fields and keeping them working at capacity proved especially difficult Hill could joed and coerced his workers he learned many of the men's names and would walk around along the track calling out to them on the other hand he R teeny fired shift bosses when they

34:07 failed to perform to his satisfaction when one whole crew rebelled he faced them off and fired the entire Entourage so it talks about multiple times that he had very strict rules of conduct so not only if you're not working fast enough you get fired but as you could imagine you're on the frontier there's a lot of like drunkenness and violence so if you violated these codes of contact uh conduct he would just the the line that

34:28 the description of this is that he would fire employees at an alarming rate for his entire life he's going to refuse to bend his standards to other people now this's also a result he winds up managing the railroad to profitability right away go back to a monger said about him he is one of the best operators ever the line showed net profits by the end of the year Well above $500,000 that is an $1,878 so it says it made well about

34:57 $500 ,000 indicating what a vast earning potential it truly had among the associates only Hill had fully anticipated the road's true strength remember before this every was like oh it's derel there's no opportunity there within a year he's got it making over half a million dollar in $1 1878 and so right away you see that Hill's like this is going to be my life's work another thing another idea and Maxim that I learned from Charlie Munger I think about all the time Munger

35:25 would say that you need to find what you're good good at and then pound away at it forever that is a great description of what James J Hill does starting at age 40 with his first line with each passing month as the attention of his fellow Associates wandered Hill became ever more focused and his authority over and control became nearly absolute matching incredibly long hours at his desk with frequent forays into the field he built up a remarkable

35:51 command of the details of the railroad its infrastructure its operations and its land indeed his knowledge of the railroad in even the most minute detail quickly became a matter of Legend So that idea of micromanaging of paying attention to every Last Detail you know this is no different from Steve Jobs from Walt Disney Bernard ool you see this over and over again so he's going to change the name of his railroad to express his ambition he's going to

36:16 change it to the Great Northern Railway and one of the most important things to understand about the Great Northern was that the Great Northern was built in stages slowly you the way a great business is built it's slowly they slowly created profitable lines got them profitable before extending the road further into undeveloped western territories his competitors did not do that they threw a bunch of money in there they created something fast that was sloppy that had to be ripped up and

36:45 then eventually would go bankrupt when you think about this it says the Great Northern was built in stages they would slowly create the profitable lines and then they would do that before extending the road further that's exactly how ingvar cprad did Ikea how you I talked about this last week and just like ingar would show up unannounced and do all these site visits like 5:30 in the morning you know he wanted to stay close to where the money was being spent to

37:05 use that Hill Maxum Hill's doing the exact same thing he is constantly riding his own line looking for defects looking for weaknesses in his tracks he winds up taking notes on anything tiny things like oh there's bad housekeeping at one of the railroad stops that needs to be fixed uh this engine is a need of repair that needs to be fixed hey this this missing workers at their they're not at their designated posts he was a

37:27 micromanager for sure and I'm not using that term as a pejorative this was his lice work and he was all in he simply could not as a great description of him I think this in the documentary it might be in the book but it said something along the lines that he just simply could not delegate Authority and live with the outcome and you add that tendency with a likely photographic memory he's standing at a railroad stop

37:47 he sees the engine they're all numbered so the engine number 94 from that number just seeing the number of the the engine that's coming in he walks up to the engineer addresses him by name no that the engine had just been in for repairs and is able to speak in detail about what needs to be done that obsession over detail for an individual train he does exact same thing for the industry itself it says he'll learn the industry

38:09 itself its parameters problems and potential his genius lay precisely in his ability to master detail by fashioning broad vision and strategy Hill memorize the details of 1,600 miles of railroad track one time he gets a letter that complains about the draining in a ditch that runs along a part of the track from a farmer he'll remembered that ditch said the farmer was right to complain and immediately dispatched his employees to fix it in effect by using

38:38 his company's own product over and over and over again he becomes like best critic and he sees exactly what needs to be fixed and so he's just riding the rail back and forth back and forth and there's only one other thing that he would be doing when he's not noticing defects that he needed to improve he was reading it says his rail car the one that he was his personal rail car that he would travel in it was Spartan

38:57 there's almost nothing in it and it was Spartan in every aspect except one it was loaded with books and so this next sentence is a great description of Hill and will not come as a surprise to you it says this same intensity and drive made him a very difficult man to work for and with as his responsibilities mounted so did his Persona as a demanding raging autocrat while riding one of his trains that was exceeding the

39:22 postage speed limit he went up and queried the engineer about it when the poor engineer did not recognize his boss and casually admitted to transgression Hill fired him hill was not a man to disappoint anger or cross and so he was asked like how do you build a railroad and his answer was work hard work intelligent work and then more work he was doing this to be the very best another smart thing that he would do

39:48 that his competitors would not is that he would reinvest profits back into infrastructure improvements so he's constantly wanting to improve the engineering of his Railroad and was constantly trying to eliminate curves and decrease grates and so his bias would be to using the best technology of the day if that technology of the day would help him become more efficient eliminate curves and decrease grates and this constant attention this over time lowered his cost of carrying tons of

40:13 freight remember everything is going to serve Hills Credo this simple to remember organizing principle that he's keeping everybody in line with that we what we want is the best possible line shortest distance lowest grade and least curvature that we can build and he does that because he knows that's the best defense this is a highly competitive industry almost all of his competitors have more money than he does and yet he whips them so he says they managed the

40:38 finances of the railroad in a highly conservative and prudent manner they were not Reckless speculators but were in the business for the long run unlike Jay gold or Henry Villard Jim Hill took the opposite tack from speculative practices such as milking a railroad of its land grants and its resources and then dump dumping the stock to a gulal public instead he advocated and practiced a policy of plowing large percentages of profits directly back into the property knowing that the best

41:09 defense against invading railroads was a Better Built system that could operate at lower rates that is one of the things that Hill had in common with Rockefeller he could make a profit at rates so low that the same rates would put his competitors out of business the best effect against invading railroads was a better Bo system that could operate at lower rates Hill worked incessantly and improving every aspect of the railroad structure and operation he traveled back

41:35 and forth along the line looking for dips and bumps and spying out curves that could be straightened and grades that could be lessened more than any other railroad leader of the day he had an engineer's passion for minimizing curves and grades knowing that these were the keys to the lower rates that would Vanquish any competition that part to me really speaks to Hill as a Craftsman it's Excellence for the sake of of Excellence it's the Professional

41:58 Pride of just doing your absolute best of learning everything you can and then doing whatever you're focused on doing it as well as you can and so this long-term bias that James J had was another Advantage because he's able to think years into the future where most of his competitors can barely see beyond their noes and one of the things that he invested in over the long term is that he knew that the success of his line

42:19 depended on attracting settlers to the region that is served by his railroad this is vast swas of uninhabited territory and he had a great way to describe why this was so important he said even a railway built to the Garden of Eden would fail if it only had Adam and Eve to serve so he had a lot of unique marketing ideas too on ways to attract settlers to the region so he winds up sending out over a 100,000

42:43 pamphlets and flyers advertising open settlements and the fact that they had all these land available for for you know cheap that you can move your entire family to that you can own that you can develop and so you have advertising brochures on land that was served by his Railroad he spreads that all through America but he also does it for Europe he recruited Farmers from Europe to immigrate to the United States he had a bias for Northern Europeans he thought

43:08 that nor he he specifically targeted Northern Europeans to try to get to the com United States because he thought they were the most talented and productive and to give you an idea of this and the extreme personality that we're dealing with he has a great quote where he says give me sweds so you know people from Sweden give me sweds snuff and whiskey and I'll build you a railroad to hell he was fine recruiting settlers one by one but he thought it

43:30 was smarter to recruit an entire Village and in some cases he would he would Target an entire church he would convince entire congregations of churches to move and develop the land that is serviced by his Railroad and this is a great description of why he thought this was so important one of James J Hill's favorite themes that he voiced repeatedly over the years stressed the community of Interest the mutual interdependence between the railroads and the regions they served

43:55 the two must be rich or poor together he said and any Regional carrier even one with a de facto Monopoly would only harm itself if it gouged its customers with excessive rates in fact later on he's going to be put under political pressure for his Monopoly and he will continue to make the case that the result of his Monopoly is the fact that it helps him push the prices down not up and Hill was such an important figure in this time of

44:22 American Business history that he pops up in all kinds of books so there's this book I read a long time ago called the hour of fate and it talks about the the war and temporary partnership between Teddy Roosevelt and JP Morgan and Teddy Roosevelt is the one that's pressuring to like break up these monopolies and these trusts and to give you an idea of how extreme a personality that hill was uh says Hill threatened the president

44:43 and the attorney general that if they do fight they will have their hands full and they will wish they had never been born before they get through with me so definitely an extreme person if you're willing to say that to the president attorney general let's get back to this point though his his point is that his product is going to connect people and lands and that this connection is going to promote economic growth and really develop and create population centers so

45:05 long term this is a good strategy to have this Mutual interdependence to make sure that they Thrive and they develop the land as much as possible because the more develop land the more they these immigrants develop the land the more people and goods are going to travel on Hills Railroad and so here's another quote from Hill about this he says we consider ourselves and the people along our line as partners in the prosperity of the country we both occupy if the

45:29 farmer cuz many of the immigrants into the lands where Hill laid track were farmers so he says if the farmer is not prosperous we are poor and I know what it's like to be poor and that policy of aligning incentives was a long-term policy it's something he was able to build and let compound for decades his competitors again could not do this let's go back to the Northern Pacific and Henry Villard villard's frantic transcontinental buildings free had left

45:52 the NP the Northern Pacific severely overextended and in need of rebuilding much of its hastily constructed Main Line the NP unlike the Great Northern Railway had alternating management so there's constantly different people running the company which Hill continued to despise as a crew of mindless speculators and he said they seemed unable to hold a consistent policy thought that was a massive Advantage for him that was a description of villard's company now let's get a description of

46:19 Hills Hill held the advantage of a wonderfully productive and well-built Road one that was slowly and carefully constructed it's just really hard to compete with a well-run company because many times they can make money at rates a poorly run company cannot we see that's the case hill hill proved able to blunt their thrust the competitive thrust by the simple way of forcing rates below what the opposition could Bear bolstered by his own well-built road which could haul High tons of

46:50 freight more cheaply and it's clear that things should be done the way the hill did them because there's other benefits that he that he enjoys later on so the the book The Hour of Fate that I me mentioned earlier they describe the advantage that James J Hill had over all the other railroad people that were forcing to bankruptcy because the the the so many of the lines went bankrupt and had to be reorganized and JP Morgan was the main

47:14 person in the country doing this and he was doing it so often that they didn't call it railroad reorganization they called it morganization and the book makes the point that James J Hill is the only one to avoid that fate and it's because of this slow deliberate way building for the long term watching his costs limit just being obsessed about uh increasing efficiency removing any defect and the the book says James J Hill had built the Great Northern with

47:40 deliberate Thrift and brutal efficiency his railroad would become among the most profitable in the Northwest he did not need JP Morgan the way other railroad Executives did and this is the note I left myself many years ago when I read the the hour of Fate is that Financial strength was Kryptonite to JP Morgan and one of the most impressive things about James Jay Hill is the fact that he's in this industry for 37 years the industry is constantly changing and

48:07 he's able to change and adapt with it in fact he usually sees the the the trends because he knows the business better than almost anybody else he sees the trends changing and happening before anybody else does so he's one of the at the time he's built up this fabulous Regional independent Regional railroad but he's one of the first people to understand that the days of being able to have an independent Regional railroad was going to come to an end that to

48:29 survive he had to continue to extend and actually build a transcontinental system the regional railroads were going to be swallowed up by the bigger players he sees this as inevitable and he's like okay this is the time right now is the right time to get ahead of this it's the right time to build and he thought it would work because at the time United States had entered into like this long period of deflation and interest rates

48:50 were really low and so as a result Hill saw this as like oh this may be the time in which I can build this for the lowest cost possible and he's going to need every advantage that he could muster because he's going to have to build through the Rocky Mountains and so the opposite of a low grade would be building over mountains and so he does what he always does he reads everything so he gets this set of maps called the

49:10 Pacific survey it is a 12 volume set in the entire 12 volume set he finds one brief mention of a possible route that would give you a low Passage through the Rocky Mountains and so he'll hires the best engineer he can find this guy named John F Stevens John Stevens is going to be the engineer that is going to build the Great Northern Railway through the Rockies about 15 years later Stevens will also be the chief engineer on

49:36 building the Panama Canal and I think this brief paragraph illustrates just how remote dangerous and difficult this job is going to be and then how talented Stevens is so it says they're walking on snowshoes that they had just made Stevens and His companion climbed to the Headwater in deep snow on the night of December 11th when the thoroughly frightened Indian guide refused to go farther Stevens left him behind by a fire and went on alone towards the

50:05 Towering Peaks suddenly Stevens realized that he was a stride in especially advantageous pass unable to build a fire he stomped around through the night in minus 40° cold both to stay alive and to be sure that the Western end of the passage really did Lay across the Divide Steven talked about this later the reason he had to keep walking cuz if he stopped he would have froze to death this decision to build all the way to

50:32 the Pacific is going to lead to the hardest work of Hills life it is just struggle after struggle after struggle this paragraph Just describes some of the problems he had to solve trying to manage a railroad while building it West Hill worked night and day agonizing over expenses and the slow pace of construction workers in these remote mountains proved hard to get and to keep they often had to labor on steep slopes with hand tools and to move dirt in hand

50:57 carts and terrain where even horses proved difficult to use the pace of building fell to merely a few miles per week and Hill Fred as he saw his hope of completion fading away and yet even in the most difficult time of his life you see one of his traits that's most pronounced throughout his life is that he admires true Excellence true talent I think a part of human nature is that competency is always respected so keep

51:22 in mind his manager on the site is the civil engineer John F Stevens okay Steven sends a report to Hill and he says hey we have to do a 13° curve and Hill looked at the report he's like this is ridiculous remember he always wants to straightest route possible so he tells Stevens hey stop all construction until I get out there and so Hill travels out to this remote part he realizes once he gets there realizes

51:43 that Stevens did not obey his orders and he kept construction going so Hill then tells Stevens show me this curve Stevens shows it to him and Hill realizes that Stevens was right it had to be a 13° curve there was no other option he'll also realize that Stevens was right to defy his direct order to stop construction and so he'll immediately raises Stevens salary by 50% Stevens was the one that made it possible for James J Hill to reach the goal he had for the

52:12 Great Northern Railway which was to get it all the way to the Pacific and once he reached the Pacific he didn't stop there there's a great description of the way he'll thought about this I think it's a great idea to think of your business as a living organism something that's always adapting and improving and it said to the hill the railroad trunk lines and their spreading branches formed a living vital organism which constantly needed to be replenished

52:34 Hills life passion lay in straightening curves lowering grades laying highgrade steel rails raising tonnages hauled by ever larger cars and engines and lowering rates and extending over ever longer distances he cared most about Freight never Thrills there's a line in the biography of the founder of that you and I talked about last week that I think could also be a description of Hill it said the day he is free of Ikea life for him will no

53:03 longer be worth living he loves it always wants to lie as close as possible to it and never tires of improving it James J Hill never stops improving his Railroad and works on it until he dies and I think this is the perfect place to close like most other robber barons and captains of industry and like Dynamic individuals of any generation James J Hill displayed a dualism his positive traits were quite remarkable a quick intelligence and a power of

53:30 analysis an incredible power of Will and personality and an unparalleled work ethic and commitment his negative attributes were mirror images of the positive and extreme temper that sometimes exploded into rage a willfulness that could turn into outright ruthlessness a cold manipulativeness that he used on adversaries and such a preoccupation with the purpose at hand that he sometimes lost sight of the broader perspective what does one conclude in the final analysis about this remarkable man surely the Northwest will never

54:01 again witness an individual with such sweeping power simply because the unique opportunity provided by an opening Frontier and a transportation Monopoly will never again appear it is entirely appropriate that the passenger train from Chicago to Seattle is called the Empire Builder in his memory for his hand reached every aspect of building the regional economy in social order from transportation to agriculture mining lumbering Maritime trade and town and city building his Larger than Life stature is well attested by the

54:33 persistence nearly 80 years after his death of his memory and Legend the life of James J Hill certainly demonstrates the impact one willful individual can have on the course of history as Hill said I've made my mark on the surface of the Earth and they can't wipe it out and that is where I'll leave it for the full story highly recommend reading the book I will leave a link Down Below in the show notes and available Founders

55:00 podcast.com if you buy the book using that link you'll be supporting the podcast at the same time that is 371 books down 1,000 too and I'll talk to you again soon