Business Method Archives : Innowiki

Paid Cable Television Channels

Background

Charles Dolan was a cable TV pioneer who received a license to build a cable television system in lower Manhattan. Due to New York City restrictions, cables needed to run underground, vastly increasing the cost of the infrastructure. New Yorkers lacked enthusiasm. By 1971, Dolan only had 400 subscribers.

To increase sales, Dolan eventually decided to create a paid channel available only to cable subscribers. Working with Time-Life, they developed the concept under the codename Home Box Office. Straightaway, focus groups and customer surveys overwhelmingly rejected the idea but Dolan moved forward anyway.

HBO

Dolan’s HBO launched Nov. 8, 1972, and carried hockey game unavailable over broadcast TV. It was channel 21 on the tiny Teleservice cable system in Pennsylvania. Subsequently, the film Sometimes a Great Notion was broadcast after the game.

HBO is now known as the home of The Sopranos, Sex in the City, and Game of Thrones but it took a while to find its legs. Earlier, in Feb. 1973, the next HBO special broadcast, a three-hour event called the Pennsylvania Polka Festival.

Dolan’s cable system continued bleeding money. In 1973, seeing a long-term opportunity to own a cable-TV system in Manhattan, Time-Life purchased 20% of Dolan’s struggling company. However, not long after, they fired him. Soon after that, they acquired HBO.

In Sept. 1973, HBO struggled with 8,000 subscribers across 14 cable systems, all in Pennsylvania. By April 1975, there were 100,000 subscribers in Pennsylvania and New York State. The young channel turned profitable.

In Sept. 1975, HBO became the first television network to broadcast to cable providers via satellite. The strategy is common now but, at the time, was an enormous risk. They expanded their footprint and, by 1980, operating in all 50 states.

Custom Content

By the 1990s, there were countless television stations. To differentiate, HBO began to create their own programming rather than relying solely on content available to others. The Larry Sanders Show was popular. In 1998, HBO launched the $68 million From Earth to the Moon miniseries and the comedy Sex in the City. The Sopranos, launched in 1999, cemented the channel’s reputation for movie-quality entertainment delivered on television.

It’s difficult to describe how terrible television was before the influence of HBO. Slate’s Peter Aspden described a season of the broadcast mid-1980’s TV show Dallas as “Borgesian surrealism (that) gave every impression of having been scribed on the back of a spent cocaine packet in a Los Angeles traffic jam.”

Indeed, countless social commentators note we’re in a rebirth of television, with a plethora of high-quality content. As of 2019, Hollywood is fighting against admitting Made-For-TV movies to be eligible for Academy Awards. It’s only a matter of time until old-guard Hollywood will loses that fight. Dolan’s HBO is largely to thank.

Just-In-Time Manufacturing

Just in time manufacturing delivers the parts required to complete a product shortly before they are needed. Accordingly, this vastly reduces inventory cost while typically increasing quality by aligning the manufacturing needs of part suppliers and the final manufacturer.

Background

Toyota engineer Taiichi Ohno needed a better way to manufacture. Specifically, efficiency was low and quality suffered, especially when necessary parts ran out. In due time, he noticed that supermarkets used a visual card to indicate when an item was running low. Therefore, this system signaled to supermarket workers to restock the bin immediately. Without this system, bins might be filled with unneeded food that would spoil or sit empty, forcing customers to make a later trip or go to a different store.

Ohno adapted this system calling it “Kanban,” which means “visual signal” or “card” in Japanese.

Eventually, Ohno brought the system to Toyota’s manufacturing facilities. When parts ran low, workers turned over a car and somebody quickly came to replenish the parts. There were never too many nor too few parts for a workstation on an assembly line.

Kanban has four core properties. First, visualize the workflow. It is necessary to lay out a workflow so an ordinary person can grasp it visually. Second, limit work-in-progress. There must never be too much nor too little work-in-progress. Third, manage flow. It is necessary to align the workflow with the workers and the need for literal or figurative parts. Fourth, make process policies explicit. Clarify the workflow so everybody understands what is required. Fifth, create feedback loops. Ask and observe what works and what doesn’t and adjust accordingly. Finally, improve collaboration. Use small, continuous, incremental evolutionary changes that stick. Do not try to boil the ocean.

Toyota found Kanban vastly increased efficiency and decreased costs and adopted it through the Toyota system.

JIT

During the 1950s – 1970s, the quality of Japanese manufacturing rapidly increased while the quality of US manufacturing similarly declined. American executives studied the Japanese and found the core two components of Japan’s secret sauce was the use of Kanban and techniques taught by statistician W. Edwards Deming after the war. Deming tied Kanban’s flow into a statistical system called Total Quality Management TQM, producing higher quality goods (especially cars) at lower prices.

Eventually, US firms adopted Kanban and TQM while the process evolved in both Japan, the US, and elsewhere. Most notably, Michael Dell created a computer company that relied heavily on parts created by others. Dell computers were custom-configured when ordered, then quickly delivered. He needed a system where vendors aligned with his own factory to quickly build high-quality computers. Dell’s Just-In-Time (JIT) methods revolutionized manufacturing, enabling him to work with countless suppliers to ensure the supply bins were never either empty nor too full.

Rock & Roll

“If you’re not doing something different, you’re not doing anything.”
Sam Phillips

Background

Billboard magazine started charting songs in 1940. Eventually, they divided songs into three categories, pop, country-and-western, and “race music.” Around 1949, race music was renamed rhythm and blues (R&B).

Music sales were proprietary and closely guarded so Billboard based their charts off of popularity estimates from Jukebox and radio play. Before the 1940s three national broadcast networks dominated. The Federal Communications Commission mandated more local radio licenses. From the beginning to the end of the 1940s the number of local radio stations increased from about 800 to over 2,000.

Billboard categorized a song as pop or R&B depending upon whether the audience was African American or white. The songs on radio stations targeted to African Americans or Jukeboxes in African American clubs were R&B. Those targeted to white people were pop.

Rock & Roll

Rock & Roll came from a convergence of two events in Memphis, Tennessee. The first is a recording studio owned by Sam Phillips. “We Record Anything – Anywhere – Anytime” was their slogan. Any aspiring musician could visit and audition. If Phillips liked what he heard, he’d record them. Musicians could cut their own records for a fee.

One of the local African-American radio stations in Memphis was WDIA. In 1949, they began broadcasting and hired a disk jockey and on-air performer named B.B. King. Radio waves did not respect the racial segregation lives in Memphis. One WDIA listener, a B.B. King fan, was a young white man named Elvis Presley.

Young Elvis wasn’t alone. By one estimate, about 40% of the people buying R&B music, at African-American record stores, were young white people.

Just about this time the major labels exited the R&B market, segregating their music tastes to white people. In response, countless minor labels sprung up. Phillips decided to create one of his own, considering his stream of fresh talent, calling it Sun Records.

About this same time, television began widespread penetration. One of the featured events of live television were musical performances. Phillips had great musicians and a great sound but knew television, in those days, would refuse to broadcast African-American performers. “If I could find a white man who had the Negro sound and the Negro feel, I could make a billion dollars,” Phillips said. In 1956, the Nat King Cole television show was canceled after only a year due to a dearth of sponsors. “Madison Avenue is afraid of the dark,” he noted.

Elvis

Elvis showed up at Phillips studio in the summer of 1953, at age 18, to record two songs. They paid him four dollars, noted “Good ballad singer. Hold.” and ignore him. Phillips invited him back a year later to try some ballads. Nothing clicked but Phillips added some musicians, an electric guitarist and standup bass player. After a few songs, Elvis suggested trying R&B music, singing “That’s All Right.”

Phillips asked a friend with an R&B show on a white radio station (yes, Memphis was that segregated) to roll the record. Dewey Phillips played it and, due to repeated requested, kept playing it. Soon enough, he was singing to 40 million people on television.

During those years, Phillips recorded Elvis, B.B. King, Howlin’ Wolf, Ike Turner, Carl Perkins, Johnny Cash, Jerry Lee Lewis, and Roy Orbison. And in a small studio in Memphis Rock and Roll was born.

Health Insurance

Background

Germany has the oldest health insurance system, the Sickness Insurance Law of 1883. Employers paid one-third and employees two-thirds. The insurance covered both medical treatment and sick leave. In 1911, the UK created basic health insurance. Russia followed in 1912, nationalizing all healthcare after the Russian Revolution of 1917.

Most countries rolled out some form of Universal Healthcare Coverage after WWI. Some countries for care directly, including the UK and Canada. There are no co-pays.

France created a hybrid system. The government program pays for basic care. However, individuals are obligated to purchase supplemental policies from private non-profits insurance companies. Most French doctors and clinics are private whereas most hospitals are government-owned. Many service providers require out-of-pocket payment which is reimbursed, via a single-payer system, to the patient’s bank account.

Switzerland is entirely private but people must purchase healthcare policies.

Regulation of Medical Costs

All countries, besides the United States, regulate rates for care and medicine. For example, in France’s semi-privatized system, the government sets a reimbursement rate for ordinary physician visits. Doctors may charge more and patients pay out-of-pocket or have a supplemental policy which pays all or part of the different.

Health Insurance in the United States

The United States took a different approach than the rest of the world, leaving most people covered by entirely private loosely regulated insurance plans. There are government programs for the elderly and poor people. Government workers, including soldiers, enjoy health coverage. Government retirement plans usually include high-quality health coverage. However, the vast majority of Americans carry private insurance or are uninsured.

US law prevents the US government from negotiating lower drug prices, legalizing price gauging. Drugs in the USA routinely cost many times what the same drug, from the same manufacturer, produced in the same factory, costs in Europe.

Finally, US health insurers are exempt from antitrust law. That is, they may openly and legally collude with one another to drive up prices and profits.

These provisions create an extremely expensive healthcare system in the US. Besides the obvious problems, American healthcare providers spend an enormous amount on overhead trying to negotiate with the myriad of healthcare providers. Additionally, healthcare providers spend enormous sums trying to minimize prices. None of this leads to better care.

In 2016, the United States spent 17.2% of GDP on healthcare, compared to 8.9% of the 36 OECD countries. However, American healthcare outcomes are mediocre at best.

Processed Foods with Statistical Quality Control

By design, countless food products look and taste exactly the same. Nobody opens a name-brand candy bar and wonders if it will taste different than any other bar they may have chosen. Each can of Coca Cola, Pepsi, or Guinness Beer tastes exactly the same as any other.

All major food companies can thank Guinness brewer William Gosset who developed modern statistics. Many articles note that Gosset wasn’t an academic because he worked for a brewery. However, he was a highly educated mathematician.

His techniques are in use to this day in countless fields.

Regulators decide whether to approve new drugs. People base their professional careers on favorable figures using his statistical analytical tools. Governments calculate the value of human life, balanced against new regulations, using tools developed by the brewer. Insurance companies set rates, civil engineers design master plans, investors gamble trillions, and even spacecraft rely on his techniques.

Due to rules of secrecy at Guinness, Gosset published his work under the Nom De Plume student. Granted, his obvious creativity did not extend to name-picking. In any event, the student’s t-distribution, statistical significance, and Monte Carlo method are all his work. Some argue the entire field of quality control comes from his work. However, by the time he was born the American Manufacturing System was producing high-quality standardized parts.

In any event, the idea that food can be processed to a high degree of sameness, something that permeates store shelves to this day, is certainly his.

Modern Advertising

Before Albert Lasker advertisements tended to be crude, raising awareness or reinforcing a brand name. Many ads were not much more than offers to purchase something, with no overarching idea. Lasker used the emerging science of psychology and budding technology of radio to radically change advertising.

Background

Born in Germany, Lasker moved to the US as a baby. He was raised in Texas and, as a teenager worked on the Congressional campaign for Republican Robert Hawley. In the late 1800s, Texans still remembered the Civil War and Republicans stood little chance of election. However, thanks to some clever politicking and a little luck Hawley won.

Lasker then moved to Chicago joining the prestigious advertising firm Lord & Thomas. He became a partner at the age of 23 and outright purchased the firm at the age of 32.

The success of his ad campaigns is legendary. Many Lasker ads focused on women, on the assumption they controlled purse strings. Traditional ad campaigns usually focused on men, on the incorrect assumption that as primary breadwinners (at that time) they must also be the decisionmakers related to spending.

Campaigns

Few women smoked and he devised a campaign that Lucky Strike cigarettes helped keep them slender.

Lasker realized nobody likes to do dishes and created a campaign that Palmolive soap is good for the hands, focusing on the positive.

A spinoff from paper giant Kimberly-Clark created a new type of absorbent material. They sold it to the army for use in WWI. French nurses found it worked great as a menstrual pad. Kimberly Clark saw the market opportunity but found the concept embarrassing. Lasker branded the waste-paper product “cellucotton,” so it sounded natural, and created a wholly-owned subsidiary, the International Cellucotton Products Paper Company with one brand, Kotex. He branded the menstrual pads “sanitary napkins” and marketed a box where women could put in a coupon and receive a pack without talking to men. He also created a curriculum for teachers to explain to girls how to use pads. The modern menstrual hygiene market was created.

He branded the first sports stadium, Wrigley Field.

After a betting scandal, he invented a “baseball commissioner” to restore confidence in the integrity of professional baseball.

Food & Politics

Californians were cutting down orange trees for lack of interest. He invented the idea that oranges should be juiced and that orange juice is a vital part of breakfast. Then he created the Sunkist brand. Demand for orange juice boomed.

Raisins were never especially popular until the California Associated Raisin Company (CARC) approached Lasker. He rebranded the company Sun-Maid and sold the raisins in small boxes sent to lunch with students. Sales boomed. How could a company sell a new recipe they had for wheat and rice? Puffed Wheat and Puffed Rice became breakfast cereals.

He worked for Republican Warren Harding and focused on the 22 million women who just won the right to vote. Harding won by a landslide.

Kimberly-Clark asked if he could find a use for the thin paper used in WWI gas masks; Kleenex was born.

Radio Ads

Lasker decided to become the sole sponsor and promote a radio show, Amos & Andy. His client, Pepsodent, paid him in stock. Sales doubled and became the second-largest shareholder in the company.

His third wife was heavily involved in the Birth Control Federation, a group founded by Margaret Sanger. The public did not like the name. In response, Lasker rebranded the group Planned Parenthood.

After retiring with a then staggering sum of $45 million he became a philanthropist, donating heavily to the American Society for the Control of Cancer. They struggled for donations until Lasker suggested a name change, The American Cancer Society. After convincing a popular radio show to do a segment on cancer, a dreaded concept, donations “flooded in.”

Blue Ocean Strategy & Finance: Margin Lending

Margin lending refers to the process of using borrowed money for investing. For example, a traditional investor may purchase 100 shares of a business for $10, spending $1,000. However, using margin, that same person may purchase 150 shares, spending the same $1,000 and borrowing another $500. If the stock price goes up, they pay the loan costs and keep the gains. However, if the price declines, they are forced to sell the stock to pay off the loan. Margin lending is an example of the use of blue ocean strategy in finance.

Early History

Building early railroads was an expensive undertaking and Americans were short liquid capital in the mid-1800s. To finance businesses in the early 1800s, people typically turned to broker Nicholas Biddle of Philadelphia who marketed sterling bonds from the UK. This funding mechanism dried-up with the failure of the Bank of the United States of Pennsylvania in 1841. State Street, in Boston, took over and became the primary financier for railroads. In 1847, a severe recession caused a liquidity crunch that left the bank standing but unable to finance large projects.

Subsequently, lenders turned to New York-based merchants, bankers, and brokers who typically had more capital to make loans. Funds flowed from Wall Street to build railroads in the Southern and Western states.

Brokers considered early railroad bonds low-risk, and they competed to sell bonds. Therefore, they offered to partially finance bond purchases. A person who wished to purchase, say, $500 of railroad bonds could use $250 cash and borrow another $250 with the bond as collateral. This type of funding mechanism, encouraged by the government because it helped build infrastructure, was referred to as a “call loan.”

Margin Lending

Over time the US flourished. Eventually, the stock market became more popular. Brokers and eventually ordinary people used a similar type of call loan. Brokerage houses lent funds to buy stock secured by the stocks as collateral. For example, a person who wished to buy $1,000 of stock might pay for $500 of stock and finance another $500, with the loan secured by the initial $500 block of stock.

Margin loans worked great when stocks went up in value. Using the example above, if the stock price increased by 25% then the stock would be worth $1,250. The person could then sell the stock, use the proceeds to pay off the $500 loan, and realize $250 profit. Without the margin loan, our hypothetical stock buyer could have only purchased $500 of stock that would have increased in value by $125. Margin lending doubled their profits.

Image result for roaring 20s stock market

Margin Mania

By 1929 the US stock market was booming, and everybody was buying stocks. Margin lending requirements were extremely weak; everybody was buying stocks on margin and making lots of money. In the winter of 1928, financier Joseph Kennedy, father of the late President, famously quipped “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

By this time some brokers were leveraged 10:1. That is, they’d pay $100 and borrow $900 for $1,000 of stock.

When stocks began to drop in price, the underlying collateral securing the margin loans was no longer enough. Subsequently, brokerages made “margin calls.” They demanded margin borrowers sell the underlying stocks to pay down or pay off the loans. This forced selling caused the price of the stock to drop further, setting off further margin calls.

Image result for stock market crash 1929

As the overall market dropped, cascading margin calls and the forced selling caused the market to drop even further. By late October 1929, the stock market all but collapsed with forced and panic selling. A four-day run was the worst percentage decline in US history before or since. WWI cost less than those four days.

Great Depression

Both banks and their customers heavily invested in stocks. Banks also received margin calls. They then used reserve funds (customer deposits) to cover the margin calls. Eventually, the banks ran out of money.

During this era, deposits were uninsured. When a bank went bankrupt depositors lost their money. Therefore, when people heard their bank was in trouble they’d line up to take their funds out before the bank ran out of money, a bank run. As banks paid deposits in cash they’d have fewer reserves necessitating more margin calls, shuttering countless banks.

It wasn’t until June 1933, the US government intervened by creating the Federal Deposit Insurance Corporation to guarantee certain bank funds would be available even in the case a bank failed.

Stock losses, margin calls, and bank runs caused people to withdraw their money and save it. Americans stopped spending for anything besides the most vital goods. This caused retailers to fail, leaving their workforce unemployed and their creditors with unrecoverable debt.

With the economy in dire shape, the US decided to sharply restrict world trade, putting up protectionist barriers. Europe retaliated with their own trade barriers and export markets for US products froze, causing crop prices to drop. Farmers could not repay loans and lost their properties to widespread foreclosures.

Additionally, in an attempt to grow more crops farmers over-farmed their land resulting in widespread erosion and dust storms that destroyed vast amounts of farmland.

The margin lending, bank runs, lack of spending, trade war, and environmental mess led to the Great Depression.

Strategically Addictive Drugs

Background

Cigarettes are addictive. However the availability of tobacco around the world, in the early 1800s, limited them as a mass-market item. Even the largest wind-powered ships contained limited space. Filling ships with enough tobacco to addict a whole country was not viable during this period.

However, another product did fill this role, opium. Tobacco and opium are considered to be equally addictive, but opium is substantially more difficult to stop using. Furthermore, opium is significantly more compact than tobacco. Wind-driven ships can transport enough opium to hook and maintain the addiction of an enormous number of people.

Another product that is less addictive, albeit far easier to quit than tobacco or opium, is caffeine. And Victorian-era British loved their tea, the vast majority of it imported from China by the British East India Company. Tea was so popular The Company was running out of gold and silver to trade for it. There was a massive trade imbalance between Britain and China.

British East India Company

During this time the British East India Company was occupying and colonizing India. The company raised a private army, significantly larger than the official British army. They also privatized colonization. The British noticed the Chinese had a particular fondness for opium, which the Indians happened to be especially good at producing.

Many of the innowiki innovators remain nameless. Even those we know are often not household names. We think that’s unfair. However, in this case, whoever dreamed up this strategy likely wishes to remain anonymous. Getting to the point, the British East India Company realized they could addict countless Chinese and trade inexpensive opium for tea, selling the tea to the British.

Unwilling to do the dirty work themselves they relied on an Indian man, Jamsetjee Jejeebhoy. Like countless drug dealers that came later, Jejeebhoy came from a poor family but desired riches. With more than a little help from the British East India Company, Jejeebhoy quickly transformed himself into a Victorian-era Pablo Escobar.

This strategy proved wildly successful. The volume of opium coming into China, and the commensurate opium addiction, skyrocketed. Over ten million Chinese were addicted to opium, doing whatever was necessary to procure the drug.

Opium Wars

In response, the Chinese decided to crack down on opium imports. Chinese government officials began destroying shipments of opium and the British responded by demanding payment for the destroyed cargo. The Chinese predictably told the British to piss off and blockaded non-Chinese ships which too often carried opium. In response, the British sent a combination of government soldiers and East India Company mercenaries to fight for payment. The resulting skirmish is the First Opium War.

Most of the fighting was naval. The Chinese were badly outgunned by the British, who had far better technology and more practice thanks to never-ending European wars. In 1842, China was defeated. They signed the Treaty of Nanking, ceding Hong Kong and other small islands to Britain. China was forced to open five ports to import opium and export tea.

The next year civil war broke out in China and a rival Emperor vowing to end the opium trade. He seized a British ship, Arrow, and jailed the crew. War erupted. In the heat of battle, the Chinese killed a French mercenary leaving the French livid. Soon, China was battling all of western Europe. They lost, again. In response, the British outright demanded the legalization of opium, reparations, and the right for missionaries to engage in cultural imperialism.

Epilogue

Like most drug dealers, Jejeebhoy eventually pivoted into a more legitimate business, selling cotton during the Napoleonic War. He also donated an enormous amount of wealth to charitable causes, a common pattern for criminals trying to gain legitimacy and respect after-the-fact.

Before the Opium Wars, the Chinese economy was arguably the largest in the world. However, the fighting, addiction, and terms of surrender proved a terrible burden. China suffered a severe economic setback for the next century.

Inexpensive Postage & Stamp

Penny postage refers to low-cost prepaid postage.

Background

By the early 1800s, postage was centuries old. But many postal carriers were essentially government couriers. They were extremely expensive. However, recipients could reject mail by refusing to pay. This made the entire system unpredictable and unstable. Furthermore, postal employees sometimes opened and read mail. Government censors ordered them to read mail searching for spies and some were merely curious.

Besides the recipient-pays scheme and censorship, postal rates varied by distance and the number of sheets in a letter. Recipients never knew how much a letter might cost until it arrived. To game the system, some letter senders would code messages onto envelopes so the recipient could reject the letter while still receiving the message. The system was a complicated, expensive, convoluted mess.

Hill Simplifies Mail

Rowland Hill realized a postal system could take advantage of massive economies of scale. Postal carriers already delivered small bundles of expensive mail. However, payment was iffy and frequently refused. If they carried more mail and payment was guaranteed, the overall system would cost less and be more useful.

Hill’s innovation envisioned vastly lower cost mail, available to any class of people, prepaid by a stamp affixed to the mail. Since recipients no longer needed to pay for mail, they would accept anything sent to them. Additionally, weight determined postage rates rather than size.

In 1840, within a half year after the introduction of his “Penny Black” stamp, the volume of mail more than doubled but costs barely budged. In a decade, the volume of mail doubled again.

The World Adopts Low-Cost Mail

The system gained worldwide fame. Every major country created an inexpensive mail system.

Hill’s inexpensive mail proved so popular that the Founding Fathers of the US wrote it into the Constitution. They explicitly charged Congress “to establish Post Offices and post Roads”. They understood that a functional, inexpensive mail system was vital to the economy of the US.

Despite the financial and logistical success of Hill’s methods and the enormous popularity of penny mail, he was fired as postmaster in 1842 when the conservatives won power. However, he was eventually rehired after the political winds shifted and was eventually knighted in 1860.

Easy Credit

Background

Cyrus McCormick’s mechanical reaper revolutionalized agriculture. McCormick’s reaper enabled one man to harvest the same amount of grain in one day as he could in two weeks by hand. Since grain goes bad when not timely harvested, the reaper enabled farmers to plant far larger crops with commensurate profits. Additionally, the reaper lowered the price of grain, enabling the booming US population to cost-effectively eat.

His company, McCormick & Odgen (the major of Chicago), grew at a fast pace. Eventually, McCormick bought out Odgen and the McCormick Reaper Company thrived.

However, McCormick faced one major problem; his patent was expiring. In 1848, McCormick entered into an epic showdown with Obed Hussey, who invented and patented a similar reaper before his. After heated litigation, the judge did a Solomon and declared both patents invalid. Countless reaper manufacturers started selling low-cost knockoffs.

In response, McCormick marketed heavily. One of his biggest challenges was a chicken-and-egg problem. Farmers using reapers will realize increased revenue and profit. But, with their smaller farms and crops, reapers were not affordable.

Easy Credit

In response, McCormick came up with a seldom-used strategic move: easy credit. Knowing that the reaper will increase revenue and profit, McCormick extended credit to virtually anybody who wanted a reaper. Since McCormick’s business was already profitable he could afford to do this. However, the myriad of me-too knockoff reaper companies did not have the capital to compete.

McCormick’s strategy was wildly successful. His business, later renamed International Harvester, went on to dominate the field for 150 years. Interestingly, in 1984, International Harvester sold the farming division after suffering enormous losses due to a months-long strike. The CEO responsible for the strike, Archie McCardell, is the same CEO who ignored the Xerox PARC inventions during his time as CEO of Xerox. The Board of Directors fired him the day after the strike finally settled. McCardell was also at the helm of Xerox when Japanese competitors took the bulk of the copier market.