My Life and Work
do not know how many motor cars a family will desire to use of the
particular kind that we make. We know that, as the price has come down,
the farmer, who at first used one car (and it must be remembered that it
is not so very long ago that the farm market for motor cars was
absolutely unknown--the limit of sales was at that time fixed by all the
wise statistical sharps at somewhere near the number of millionaires in
the country) now often uses two, and also he buys a truck. Perhaps,
instead of sending workmen out to scattered jobs in a single car, it
will be cheaper to send each worker out in a car of his own. That is
happening with salesmen. The public finds its own consumptive needs with
unerring accuracy, and since we no longer make motor cars or tractors,
but merely the parts which when assembled become motor cars and
tractors, the facilities as now provided would hardly be sufficient to
provide replacements for ten million cars. And it would be quite the
same with any business. We do not have to bother about overproduction
for some years to come, provided the prices are right. It is the refusal
of people to buy on account of price that really stimulates real
business. Then if we want to do business we have to get the prices down
without hurting the quality. Thus price reduction forces us to learn
improved and less wasteful methods of production. One big part of the
discovery of what is "normal" in industry depends on managerial genius
discovering better ways of doing things. If a man reduces his selling
price to a point where he is making no profit or incurring a loss, then
he simply is forced to discover how to make as good an article by a
better method--making his new method produce the profit, and not
producing a profit out of reduced wages or increased prices to the
public.
It is not good management to take profits out of the workers or the
buyers; make management produce the profits. Don't cheapen the product;
don't cheapen the wage; don't overcharge the public. Put brains into the
method, and more brains, and still more brains--do things better than
ever before; and by this means all parties to business are served and
benefited.
And all of this can always be done.
CHAPTER XI
MONEY AND GOODS
The primary object of a manufacturing business is to produce, and if
that objective is always kept, finance becomes a wholly secondary matter
that has largely to do with bookkeeping. My own financial operations
have been very simple. I started with the policy of buying and selling
for cash, keeping a large fund of cash always on hand, taking full
advantage of all discounts, and collecting interest on bank balances. I
regard a bank principally as a place in which it is safe and convenient
to keep money. The minutes we spend on a competitor's business we lose
on our own. The minutes we spend in becoming expert in finance we lose
in production. The place to finance a manufacturing business is the
shop, and not the bank. I would not say that a man in business needs to
know nothing at all about finance, but he is better off knowing too
little than too much, for if he becomes too expert he will get into the
way of thinking that he can borrow money instead of earning it and then
he will borrow more money to pay back what he has borrowed, and instead
of being a business man he will be a note juggler, trying to keep in the
air a regular flock of bonds and notes.
If he is a really expert juggler, he may keep going quite a long time in
this fashion, but some day he is bound to make a miss and the whole
collection will come tumbling down around him. Manufacturing is not to
be confused with banking, and I think that there is a tendency for too
many business men to mix up in banking and for too many bankers to mix
up in business. The tendency is to distort the true purposes of both
business and banking and that hurts both of them. The money has to come
out of the shop, not out of the bank, and I have found that the shop
will answer every possible requirement, and in one case, when it was
believed that the company was rather seriously in need of funds, the
shop when called on raised a larger sum than any bank in this country
could loan.
We have been thrown into finance mostly in the way of denial. Some years
back we had to keep standing a denial that the Ford Motor Company was
owned by the Standard Oil Company and with that denial, for
convenience's sake, we coupled a denial that we were connected with any
other concern or that we intended to sell cars by mail. Last year the
best-liked rumour was that we were down in Wall Street hunting for
money. I did not bother to deny that. It takes too much time to deny
everything. Instead, we demonstrated that we did not need any money.
Since then I have heard nothing more about being financed by Wall
Street.
We are not against borrowing money and we are not against bankers. We
are against trying to make borrowed money take the place of work. We are
against the kind of banker who regards a business as a melon to be cut.
The thing is to keep money and borrowing and finance generally in their
proper place, and in order to do that one has to consider exactly for
what the money is needed and how it is going to be paid off.
Money is only a tool in business. It is just a part of the machinery.
You might as well borrow 100,000 lathes as $100,000 if the trouble is
inside your business. More lathes will not cure it; neither will more
money. Only heavier doses of brains and thought and wise courage can
cure. A business that misuses what it has will continue to misuse what
it can get. The point is--cure the misuse. When that is done, the
business will begin to make its own money, just as a repaired human body
begins to make sufficient pure blood.
Borrowing may easily become an excuse for not boring into the trouble.
Borrowing may easily become a sop for laziness and pride. Some business
men are too lazy to get into overalls and go down to see what is the
matter. Or they are too proud to permit the thought that anything they
have originated could go wrong. But the laws of business are like the
law of gravity, and the man who opposes them feels their power.
Borrowing for expansion is one thing; borrowing to make up for
mismanagement and waste is quite another. You do not want money for the
latter--for the reason that money cannot do the job. Waste is corrected
by economy; mismanagement is corrected by brains. Neither of these
correctives has anything to do with money. Indeed, money under certain
circumstances is their enemy. And many a business man thanks his stars
for the pinch which showed him that his best capital was in his own
brains and not in bank loans. Borrowing under certain circumstances is
just like a drunkard taking another drink to cure the effect of the last
one. It does not do what it is expected to do. It simply increases the
difficulty. Tightening up the loose places in a business is much more
profitable than any amount of new capital at 7 per cent.
The internal ailments of business are the ones that require most
attention. "Business" in the sense of trading with the people is largely
a matter of filling the wants of the people. If you make what they need,
and sell it at a price which makes possession a help and not a hardship,
then you will do business as long as there is business to do. People buy
what helps them just as naturally as they drink water.
But the process of making the article will require constant care.
Machinery wears out and needs to be restored. Men grow uppish, lazy, or
careless. A business is men and machines united in the production of a
commodity, and both the man and the machines need repairs and
replacements. Sometimes it is the men "higher up" who most need
revamping--and they themselves are always the last to recognize it. When
a business becomes congested with bad methods; when a business becomes
ill through lack of attention to one or more of its functions; when
executives sit comfortably back in their chairs as if the plans they
inaugurated are going to keep them going forever; when business becomes
a mere plantation on which to live, and not a big work which one has to
do--then you may expect trouble. You will wake up some fine morning and
find yourself doing more business than you have ever done before--and
getting less out of it. You find yourself short of money. You can borrow
money. And you can do it, oh, so easily. People will crowd money on you.
It is the most subtle temptation the young business man has. But if you
do borrow money you are simply giving a stimulant to whatever may be
wrong. You feed the disease. Is a man more wise with borrowed money than
he is with his own? Not as a usual thing. To borrow under such
conditions is to mortgage a declining property.
The time for a business man to borrow money, if ever, is when he does
not need it. That is, when he does not need it as a substitute for the
things he ought himself to do. If a man's business is in excellent
condition and in need of expansion, it is comparatively safe to borrow.
But if a business is in need of money through mismanagement, then the
thing to do is to get into the business and correct the trouble from the
inside--not poultice it with loans from the outside.
My financial policy is the result of my sales policy. I hold that it is
better to sell a large number of articles at a small profit than to sell
a few at a large profit. This enables a larger number of people to buy
and it gives a larger number of men employment at good wages. It permits
the planning of production, the elimination of dull seasons, and the
waste of carrying an idle plant. Thus results a suitable, continuous
business, and if you will think it over, you will discover that most
so-called urgent financing is made necessary because of a lack of
planned, continuous business. Reducing prices is taken by the
short-sighted to be the same as reducing the income of a business. It is
very difficult to deal with that sort of a mind because it is so totally
lacking in even the background knowledge of what business is. For
instance, I was once asked, when contemplating a reduction of eighty
dollars a car, whether on a production of five hundred thousand cars
this would not reduce the income of the company by forty million
dollars. Of course if one sold only five hundred thousand cars at the
new price, the income would be reduced forty million dollars--which is
an interesting mathematical calculation that has nothing whatsoever to
do with business, because unless you reduce the price of an article the
sales do not continuously increase and therefore the business has no
stability.
If a business is not increasing, it is bound to be decreasing, and a
decreasing business always needs a lot of financing. Old-time business
went on the doctrine that prices should always be kept up to the highest
point at which people will buy. Really modern business has to take the
opposite view.
Bankers and lawyers can rarely appreciate this fact. They confuse
inertia with stability. It is perfectly beyond their comprehension that
the price should ever voluntarily be reduced. That is why putting the
usual type of banker or lawyer into the management of a business is
courting disaster. Reducing prices increases the volume and disposes of
finance, provided one regards the inevitable profit as a trust fund with
which to conduct more and better business. Our profit, because of the
rapidity of the turnover in the business and the great volume of sales,
has, no matter what the price at which the product was sold, always been
large. We have had a small profit per article but a large aggregate
profit. The profit is not constant. After cutting the prices, the