Many have heard of business titans such as Cornelius Vanderbilt (Railroads), Andrew Carnegie (Steel), John D. Rockefeller (Oil), and John Pierpont Morgan (Financier). Far fewer have heard of Gustavus Franklin Swift, the meatpacking titan.
Enjoy this excerpt from our case study on Gustavus Swift.
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Gustavus or “Stave” as his friends would call him was a pioneer. He came from nothing. In fact, he would run a small butcher shop in Clinton, MA for 14 years before deriving his plan to turn the cattle-meat industry upside down by focusing on shipping meat instead of shipping cattle. This might seem easy, but he first had to invent refrigerated railcars, refrigerated coolers, build a national infrastructure for ice cultivation and ice houses. He had to fight with the railroads who liked shipping cattle vs dressed beef (more tonnage) and a prejudiced consumer who thought it was disgusting to eat beef that was slaughtered and shipped from a thousand miles away. Gustavus Swift persevered and wore down his adversaries. A close friend of Swift said of him, “He had abiding faith in his ultimate success. He was afraid of nothing.”
Henry Ford credit’s Swift in his autobiography, My Life and Work, to opening his eyes to the virtues of using moving conveyer systems and fixed work stations in industrial applications. Swift exuded many of today’s intelligent fanatic best practices. He hated titles. He rarely hired from outside the company – He promoted from within. He was one of the first businessmen to give equity to employees, customers, distributors, suppliers to promote long-term loyalty and partnership. He knew every aspect and every detail of his business. His vision always outdistanced his capital. He was constantly raising capital for expansion. He teetered on the brink of failure several times. His own employees, many of them, loaned the company money to keep it solvent during crisis. In the end he prevailed, and at his death in 1903, Swift & Company was one of the largest companies in the world.
Swift built his empire in the late 1800’s and started from nothing. The obstacles he faced were extreme. In many ways his success resembles that of pushing a large snowball uphill. As he pushed the resistance grew greater and greater. When you face business challenges and obstacles, just think about what Swift had to overcome and use it as inspiration.
Obstacle #1: Consumer Perception
In the 1870’s, no consumer had ever been served steak or beef which originated more than a few miles from the stove that cooked it. Cattle was brought in by rail from across the country, sold at the regional stockyards, then resold sometimes at the local stockyards, and then slaughtered close to the end consumer. Slaughterhouses were built a few miles outside of every town, and fresh meat would be delivered within a day or two of being butchered. The very thought of eating beef that had been slaughtered a week prior and shipped across the country would have been disgusting. The consumer didn’t realize that due to Gustavus’s obsession, thoroughness, and cleanliness, Chicago dressed beef was far better in quality and in taste then locally slaughtered beef.
Swift was diligent in beating down consumer’s prejudice. He devised a network of distributors that were incentivized with stock who had tested the meat to their liking. For example, he would sign up a distributor in Boston, MA for his Chicago dressed beef, and also sell them a block of Swift & Co stock. He created partnerships like this with hundreds of distributors. He convinced the beef distributors his beef was better, and then made them partners. Once the distributors were on board the consumer prejudice could be beaten. Once consumers would experience Swift’s Chicago dressed beef, they would be converted.
Obstacle #2: Railroads
The railroads were paid by tonnage so it’s of no surprise they wanted to haul a 1,000-pound steer versus the 600 pounds of edible meat that came from it. This was wasteful. Why pay shipping on tonnage that would never be eaten? In addition, you had to pay to feed the animals when they were shipped. The animals were often bruised and injured during the journey, and they often lost considerable weight during the trip. It was all very wasteful. It made much more sense to ship the edible parts that would be consumed.
Swift fought single handed a railroad association which would not haul his dressed beef at a rate he could pay. He would fight with them for ten years until laws were put into place where railroads couldn’t discriminate against dressed beef versus other commodities
Obstacle #3: Refrigerated Rail Cars
Swift needed a refrigerated rail car. Due to pressure from the railroads, the railroad car companies were in no hurry to help Swift either. It was only because of the demand for shipping fruits and vegetables long distances did the rail car companies work diligently to help him produce a refrigerated rail car. Swift then took their best ideas, experimented hundreds of times, bought the patent rights to several cars and created a better refrigerated rail car. In 1880, He paid to have ten cars made to his specifications. Two years later he would have 200 cars. Still no one took him seriously until it was too late and Swift’s method was dominant.
Obstacle #4: Build out a Nationwide Ice Infrastructure
Refrigeration needed ice. Lots of ice. After the railroads refused to build ice stations at their railroad stations so that he could have ice readily available for his rail cars, he had to build them himself. He also had to build out ice production facilities so get the ice to the railroads. Several years after he completed building out the infrastructure and it was obvious, even to the railroads, that shipping dressed beef would become the standard, did the government step in and force Swift to sell the ice stations to the railroads. The government viewed that Swift had an unfair advantage over competition because the competition had to pay to use Swift’s ice stations. Swift & Co would become the largest user of ice in the country. (Picture: Ice Harvesting Operation 1890)
Obstacle #5: Financing the Vision
Gustavus Swift’s capital was always depleted as he grew the business. Financing his vision was always the issue. From 1875 until well into the 1890’s the company was always strapped for cash. He was a born expansionist. Every cent the business yielded went back into it again. He believed you make a profit on high volumes, not low volumes. He didn’t mind taking a loss for a period of time as long as he was getting volume. He rationalized if we have the volume we can find the areas to optimize so it can be done profitably.
He borrowed heavily, but always paid on time. His credit was very good because of his unbroken record of prompt payment, history of commercial success, and his personality. His debts were strategically scattered across many banks so that a single bank or institution couldn’t influence him.
In 1893, he paid a rather large dividend, depleting cash reserves, while also increasing the debt of the company to $10,000,000 to expand. It was too much debt at the wrong time. For several months, he did not know two days in advance just where he was going to get the money which to meet obligations. Rumors were rampant about Swift & Co on the brink of failure.
One day, the Chicago Board of Trade carried on its ticker tape that the Swift & Company had failed. When Gustavus heard of this, within a half hour he rode his horse to the exchange, walked out onto the floor of the board, “walked to a table and rapped on it with his hard-heavy fist on a table and yelled, ‘Attention!’. The floor went silent. He said, ‘Swift & Company has not failed. Swift & Company Cannot fail!’ and walked off the floor.”
On several occasions in the summer of 1893, the company would not have survived if it weren’t’ for the “super human” efforts of the founder.
Most of the company’s managers had lent the company money, and many of the subordinate employees also lent money as well. “The men knew their chief needed cash, so they brought him what they could.” The aggregate amount of employee loans was large, and if it weren’t for them the company would have likely failed. Swift hustled and turned over every rock and borrowed from every person he could find.
“G. Swifts handling of the whole situation revealed to the pessimistic bankers a consummate financial skill of which they had never suspected him. If ever he had lost his head, if ever he had become careless, he would have crashed the company into a cliff. How he ran along tranquilly, getting the money somehow on the day he had to have it, day after day, and meeting every obligation on the dot, is one of the wonder points in business history. Certainly, it was the height of his accomplishment.”, said Louis F. Swift.
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