Electronic Maps – Geographic Information Systems (GIS)

Electronic maps simplify planning and routing. They lower the cost of transportation by sharply reducing the cost of getting lost. Furthermore, they allow optimization of store and advertisement placement. The reason Starbuck’s always seems to be “on the way” is due to the use of GIS.

Dangermond found Environmental Systems Research Institute (ESRI) in 1969 for land-use studies. Eventually, they pioneered the use of computer mapping. ERSI remains one of the world’s largest suppliers of GIS data with 2016 revenues of approximately $1.1 billion. For example, the ERSI retail use-case explains “know where customers live, work, and shop.”

As of 2017, Dangermond is #200 on the Forbes 400 wealthiest people with an estimated net worth of $4.9B.

Examples of consumer electronic maps include Google Maps and Waze, among others.

Superstore, v2 (Walmart)

In 1962, the median lifespan of a US man was 67 years old. Arkansas, with 1.79 million residents, had the 33rd lowest GDP in the United States, $3.8 billion.

That year, Sam Walton, at age 44, opened a new type of store in his hometown of Bentonville, Arkansas, naming it Walmart.

Walton’s strategy was to place low-priced stores in areas that had small retailers who usually relied on high margins to stay in business. He reasoned that enough stores would eventually produce enough volume to reduce prices across a large network of no-frills low-cost stores.

Large volume stores had existed for ages. By 1962, A&P was the largest retailer in the world, a position they already held for a decade. Like A&P, Walmart fought for ever-decreasing prices in a general-purpose store rather than as a grocer.

Walmart relied on both scale and automation. They rapidly adopted retailing technology, especially barcodes and large-scale automated ordering systems, to continually lower prices.

Eventually, in 1987, Walmart opened “Hypermart USA stores” that combined traditional Walmart’s with food. Following their success, “Supercenters” opened in 1988, with larger food selections.

In 2010, Walmart became the largest food retailer in the US.

Walmart remains headquartered in Bentonville. In 2019, their revenue of $514.4 billion is significantly higher than Arkansas’s total GDP of $109 billion. Sam Walton died in 1992 and his stock was distributed to his heirs. If he’d lived, his shares would make him the wealthiest man in the world in 2019.

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

Sam Walton

Container Shipping

Before container shipping, trucks were manually unloaded by longshoremen, loaded onto ships, and the process repeated at the destination. This added enormous cost, slowed shipping times and increased the risk of breakage.

Inspired by WWII standardization, McLean designed containers that fit directly on ships. His standardized containers and ships enable faster and less expensive loading and unloading of ships.

Container shipping puts the cargo part of trucks, the “container,” on ships, no unloading and reloading needed.

McLean’s containers move directly between trucks and ships. To spur scale and encourage standardization, he licensed his patents for free.

In 1969, McLean sold his company to RJR Reynolds for $500 million, pocketing $160 million personally. A later company, that envisioned super-shipping ships, went bankrupt. McLean made money, lost much of it in a later venture, and died comfortable but without recognizing the bulk of the wealth he created.

In total, he founded three companies that went on to be listed on the NYSE. At one point, he was one of the 400 wealthiest men in the US. However, due to bad investments, he went bankrupt.

Container shipping remains the dominant form of shipping. The OOCL Hong Kong is 400 meters long (5.5 football fields), 60 meters wide, and 32.5 meters deep.

Vessel Photo at Venue F (002)2
OOCL Hong Kong

Planned Communities / Cookie-Cutter Suburbs

Levitt produced inexpensive homes. He subcontracted building parts of the home to specialists who would do the same work repeatedly, from house to house. His methods reduced costs and increased quality: a standardized parts assembly line for houses.

Levitt’s methods were copied with cookie-cutter style suburbs dotting the US especially, where people have limited choices for houses that are then mass-produced.

Despite that he himself was Jewish, Levitt prohibited Jewish people and African Americans from purchasing homes in his housing developments. A Jewish family eventually bought a Levitt house without disclosing their religion. They then purposefully violated the restrictions by selling their house to a Black family in 1957. Eventually, racial and religious restrictions were ruled illegal in a series of lawsuits throughout the early 1960s.

ITT purchased Levitt’s house factory in July 1962 for $92M ($763M in 2018). $62 million of the purchase price was in stock which went on to decline dramatically in price before Levitt was allowed to sell.

Additionally, Levitt had a non-compete for ten years. To contrast the sales price, top US homebuilder D.R. Horton has a market cap of $15.9B in 2018.

1954 30-minute Levittown advertisement. Sousa music plays in the background when the narrator isn’t speaking and every person is white.

Sample lines:
• “We really are the folks in other nations would like to change places with.”
• “As a civic-minded citizen, you owe it to yourself and your family and to this community to favor your hometown merchants.”

American Pop Culture

In the roaring ’20s, after WWI, Americans were coming into their own, developing a culture that was distinctly not European but also no longer a country of rugged settlers.

Background

At 26, Walt Disney was on the train to success, literally. Riding from his upstart studio in Los Angeles to New York to finalize and increase a deal for a hit series about Oswald the Lucky Rabbit.

After arriving, he found he’d been double-crossed by a studio executive who secretly hired all but two of his animators away (the two refused to leave) and obtained rights to Oswald. Make the studio executive a partner in the studio Disney had created with his older brother, Roy, or find yourself destitute. Against his brother’s advice, Walt walked.

On the way back to Los Angeles, Walt realized he had to create a new character. There was a red ocean of animators at the time and they’d personalized every conceivable animal. Rather than focus on an animal people liked, he decided on one they didn’t, a rodent.

Walt drew a mouse with big ears, red velvet pants, and two white buttons. Mortimer Mouse, he told his wife, Lillian. No, she answered ー to stuffy ー Mickey Mouse. A different historian says it’s longtime Disney animator Ub Iwerks, who Disney met at his first job and who had refused to leave with the other animators, that dreamed up Micky. In any event, it doesn’t matter; they worked together and Disney was about to launch his personable rodent into a sustained success.

Disney Grows

Ub owned 20% of the studio but left, frustrated after an aggressive Walt pushed him to finish a new film faster. His studio folded after six years and he returned to Disney’s which, by that time, had grown. Disney was happy to have him back. Had Ub retained his 20% ownership, he’d have been a millionaire in the 1930s. Had his heirs retained it they’d be worth $50 billion in 2019. Ub sold his shares, when he quit, for $2,920.

Disney’s cartoons were fun but often had a dark side. In their first color cartoon (and one of the first ever made), Three Little Pigs, released May 1933, a photo hangs on the wall of the house of a pig that shows sausages and another of a ham; both have the caption “Father”. He followed up with Snow White and the Seven Dwarves, one of the first color full-length movies, in 1937 (financed by Giannini’s Bank of America and approved by Gianini personally). Snow White earned $8.5 million; tickets cost ten cents.

Steamboat Willie

Over the years, Disney had its ups and downs, but mostly ups. They created a new type of theme park and moved into live-action films and TV. As of 2019, the firm has $60 billion per year in revenue and they are the studio executives.

Airline

Count von Zeppelin, inventor of the airship, partnered with a group of other German industrialists to create a Zeppelin manufacturing company and also an airline.

Airships

Their first airship, the enormous LZ1, launched July 2, 1900. It crashed and survived but the test was not successful for the German government to invest more funds in airships. Frustrated, Zeppelin solicited small amounts of money from other governments. He’d exhausted his personal savings on the first airship so mortgaged his wife’s estate to continue the project.

LZ2 was damaged by high winds and LZ3 worked well enough to justify government investment if it could stay afloat for 24 hours. Since it could not remain aloft Zeppelin built LZ4.

Zeppelin never got along well with German government officials but the public loved the idea of his enormous Zeppelin’s. Building off that enthusiasm, and searching for funding, he launched a passenger-carrying business. The Deutsche Luftschiffahrtsgesellschaft or DELAG, is the world’s first passenger-carrying airline.

DELAG Airline

DELAG flew people around Europe and, eventually, between Europe and the United States. The company survived WWI and continued service. All was going well until one of its airships, The Hindenburg, on its 36th trans-Atlantic crossing, caught fire.

The first fixed-wing airline was created by entrepreneur Percival Fansler. He purchased a cargo plane from the Benoist Aircraft Company, that took off and landed on water. His airline flew between Tampa and St. Petersburg, a trip that would take two hours by steamship or 4-12 hours by train. The airline folded after four months, when northern residents headed home.

After WWI the US postal service decided to offer air mail and awarded contracts to companies that evolved into many of today’s large airlines. Juan Trippe’s Pan American Airlines, founded in 1927, is arguably the first modern large-scale airline.

Niche Marketing

Walker, daughter of freed slaves, is the first self-made millionaire woman and the first self-made millionaire African American (maybe – tax returns suggest it was $600K but she did very well for herself). She invented beauty products for Black people.

Walker was born in a sharecropper’s cabin. She is orphaned at seven. A freelance launderer, she married at 14, is a mother at 17, and a widow at 20. She never attended school but self-taught herself to read.

At 35 she is still a freelance launderer but bald; her hair fell out. Pope figured out this was due to the use of goose fat and other meat-based products, and strong soaps, that Black women used to style their hair. Pope who set up a hair products company and hired Breedlove as an early sales agent.

Breedlove, by then in her late 30’s (the average lifespan for non-white women was 35 years), formed her own company. She claimed to have invented her own beauty products from scratch using money from sales commissions.

Flamboyant and well dressed, Breedlove always focused on selling. She gave generously and openly to charities. At one point, a $10,000 gift to the then young NAACP was the largest donation in its young history. Sales and charity fundraising determined commissions.

“I am a woman who came from the cotton fields of the South. From there I was promoted to the washtub. From there I was promoted to the cook kitchen. And from there I promoted myself into the business of manufacturing hair goods and preparations. I have built my own factory on my own ground…”

Sarah Breedlove “C.J.” Walker

Branch Banking

Branch banking allows ordinary people to utilize banks and theoretically makes banks safer since larger banks are less prone to catastrophic losses than smaller banks.

Amadeo Pietro “A.P.” Giannini started life as a fruit wholesaler. He built and sold a large business, decided he was too young to retire, then innovated an entirely new type of bank.

Background

While in the fruit business he had routinely extended credit to farmers waiting for their crops to mature and decided to open a bank for ordinary people that could offer even small bridge loans, a new concept at the time. Giannini started the Bank of Italy when he was 34 years old, which was relatively well into middle-age for the time. He had no background in banking at all.

Giannini’s renamed Bank of America was a bank for ordinary people rather than the wealthy and elite. His bank was open longer hours and on weekends, recognizing that people were at work during normal banking hours. He also advertised both banking and loan availability, offending other bankers at the time who thought it gauche.

Giannini’s push to open ever-more branches, eventually spanning the entire US, was an innovation. At the time the belief was that a large number of small banks would prove safer, because if one was reckless customers would go elsewhere. Giannini argued the opposite, that large banks were safer because they could better absorb the risk of a bad decision. Further, because of their large size, they could take more risks and not worry that one bad deal would destroy the bank. In this regard, he arguably created the Too Big To Fail Bank.

Expansion

Bank of Italy charged less interest than the small, independent banks. The Federal Reserve Prime Rate was 5%; small banks would charge 12%, Giannini would typically charge 7%. Giannini utilized leverage at a much higher rate than other banks.

In 1927, Giannini purchased 100 new banks giving him 276 branches in 199 localities and changed the name from Bank of Italy to Bank of America. Because banks were limited state-by-state at the time, he had to create a holding company for each state’s banks, the Transamerica Corporation.

Giannini died in 1949, aged 79, with an estate worth $489,278. By then, BOA was enormous, the large bank in the US. Many of his shareholders were worth much more. Historians say that Giannini had no interest in earning a large fortune for himself, only in building an enormous bank. When he died, BOA employees owned about 40 percent of the stock.

Automobile Assembly Line

Assembly lines leverage standardized parts to break auto assembly into discrete components, each that can be done by a small number of people (often just one). Standardized parts evolved into standardized jobs.

Ransom Olds, inspired by a musket factory that used standardized parts with workers each focused on one part, created the first auto assembly line. Olds, the founder of Oldsmobile, did well. His cars sold for $150 less than Ford’s (pre-Model T). However, investors, determined to build pricier cars, pushed him out of his company.

The “disassembly” lines at Chicago slaughterhouses served as inspiration for Ford employee William Klann. One person repeatedly performs an individual task, butchering animals in stations. However, the single station factory is an old concept, arguably dating back to at least Arkwright-era factories.

Ford, via Klann, adopted the auto assembly line. He is generally (and wrongly) credited with the innovation of the auto assembly line.

King Camp Gillette’s Razor Blade Business Model

Gillette’s Razor Blade business model reinforces the blue ocean strategy concept of buyer utility. Specifically, when analyzed on the blue ocean strategy buyer utility map, Gillette’s disposable blades were convenient to purchase, use, and dispose of. Like many blue ocean offerings, disposable blades also broke the cost/value trade-off, offering higher value at lower cost than the then prevalent straightedge razors.

Create a razor and razor blade business model is a common refrain. While it certainly didn’t rock the world like most other innovations on this list, the Gillette “razor/razor-blade” business model has had a profound impact on the business world.

Background

Safety razors consist of blades encased in something else, making it more difficult to seriously injure oneself. They are first found in two booklets by Frenchman Jean-Jacques Perret, L’Art D’Apprende à se Raser Sol-Méme (The Art of Shaving Oneself) in 1769 and L’Art du Coutelier (The Art of the Cutler) in 1771. Razors continued to evolve over the years with various types of guards for straight razors.

Brothers Frederick and Otto Kampfe Safety razor were the first to patent and commercialize safety razors, in 1880. The American Safety Razor Company acquired the Kampfe “Star Razor” business and in 1919. An advertisement from 1919 boasts “over five million users consider the Star a blessing.” The razor cost $2.00. Like all razors from this period, blades had to be sharpened: it did not contemplate disposable razor blades.

Gillette

King Camp Gillette, then a traveling salesman, spoke to an inventor who had created a better bottlecap, which contained a cork. He encouraged Gillette to invent something disposable.

Gillette’s original innovation, described in his 1904 patent, was a disposable razor blade that cost less and was far easier to use than Star Razors or other safety razors. Gillette did not claim to innovate the safety razor; he patented the easy-to-use disposable razor blade.

A main object of my innovation is to provide a safety-razor in which the necessity’ of honing or stropping the blade is done away with, thus saving the annoyance and expense involved therein, and to this end… Thus, the material from which my blades are made need only be just thick enough to take a suitable edge, so that the blades require but a small amount of material and can be ground very quickly and easily and hence I am able to produce and sell my blades so cheaply that the user may buy them in quantities and throw them away when dull without making the expense thus, incurred as great as that of keeping the prior blades sharp, and, moreover, will always brave the cutting edge of his razor-blade in the same perfect condition as that of a new blade.

Gillette Patent, Nov. 15, 1094 (emphasis added)

Gillette’s initially charged $5.00 for his razor bundled with 20 blades, advertised to last for two years of daily shaves. An Oct. 1903 Gillette advertisement offered blade re-sharpening (a then-ubiquitous service offering for razor makers) for 2.5 cents per blade or blade replacement for 5 cents each ($1 for 20 new blades).

Disposable Blades

Razor blade disposability was such an alien concept that even Gillette – with their patents on an inexpensive disposable blade – offered blade re-sharpening.

Realizing they were leaving profits on the table, the company almost immediately discontinued the blade re-sharpening service. By Nov. 1903, just a month after the re-sharpening service was advertised, the ability to re-sharpen was gone from advertisements and Gillette nearly doubled the replacement price to $1 for a dozen blades. “No Stropping No Honing” read advertisements.

The business grew steadily despite copycats that sold razors and blades at much lower prices. By 1913, Sears offered safety razor blades for 49 cents per dozen that fit into the handles of what, by then was a myriad of safety razor handles.

Gillette initially refused to allow resellers to discount razors or blades until 1913, routinely suing those who did. Eventually, they relented, probably due to anti-trust litigation and legislation. During WWI the company sold razors at cost to the US army; soldiers purchased 32 million blades. After the war, American men returned home accustomed to Gillette razors.

Profit From Blades, Not Razors

With the war over and the initial patent expiring, in 1921, Gillette changed to the low-cost razor and more profitable blade business. They lowered the price of the razor to $1.00 – the same as no-name safety razors were selling for by that point – and profited from the blades, charging $1 for ten blades. Soon the company was literally giving away low-end razors; they came gratis with canned meat or chewing gum. While dropping the price of his original safety razor, Gillette simultaneously introduced a new improved razor and blade at the original $5 price point.

It was at this point, with a free, low-cost, and high-cost razor – and blades that brought in recurring rent streams – that company profits soared, and the razor/razor blade business model was born.

Gillette has, ever since, continually offered “upgraded” razors though has arguably reached a point where innovations marginal value.

https://hbr.org/2010/09/gillettes-strange-history-with
https://bit.ly/2OfsOD1

King Camp Gillette Goes Broke

Gillette, the person, sold most of his stock in 1910 to early investor and manager John Joyce for $900,000. However, King remained the literal face of the company, appearing in ads and packaging. He continued offering suggestions but had no input on day-to-day management.

Gillette used the earnings for bad real-estate and stock investments, that were all but worthless after the Great Depression. Joyce and his Board of Directors lost their positions in 1930 after a forced merger with Gillette competitor, Auto Strop. They had patented a razor blade specifically fitted to a razor. Gillette copied the idea and Auto Strop sued Gillette for patent infringement. They settled with the merger but Auto Strop CEO Henry Gaisman almost immediately took control of the much larger Gillette.