John Henry Patterson took a company that three previous owners failed to make profitable, built it into a global success, and changed how businesses worked. He did it selling cash registers.
There was just one problem. Nobody had a clue why they needed a cash register.
The cash register was invented in 1879 by a man named James Ritty. Ritty tried to make it into a business but failed. So he sold to another guy. He failed too and sold it to a local group of investors, who also failed.
When Patterson bought the company in 1884, not much had changed in those five years. Other than a few sales to saloon and store owners, most people were skeptical of the machines. In fact, local business owners mocked Patterson for buying a horrible company that had no demand for its product.
So Patterson set out to create demand.
There are two things to which I must devote the greater part of my time — the ﬁrst is advertising, the second selling. If we advertise properly we pave the way for our agents. If we have a thoroughly trained selling force, the men can sell our goods in good times or bad. The important things to do, therefore, are to improve our advertising and improve our sales force. If we get the orders we can easily manufacture the product and make the proper records, but ﬁrst we must get the orders.
Anyone who’s been in sales will think that what Patterson did next was obvious. Except, it had never been done before.
He initially gave every sales agent a list of 500 prospects. The prospects were sent a mailing campaign of 18 letters. Each letter advertised a single reason how a cash register helped the store owner. Then agents would close the prospect with their sales pitch.
Everything revolved around giving his agents the best possible chance to make a sale. The entire program was treated like an experiment in selling and advertising. It was continuously tested and retested to find the best results.
By 1887 they had a manual — called The Primer — with a standardized sales scripts for the agents. Another manual contained every answer to every argument and question a prospect might offer. At first, agents were expected to follow it word for word. But it was later tested and changed because results improved when agents followed The Primer but in “their own words.”
With the success of The Primer, Patterson started a training school. Every agent had to go through training to learn how to sell. The school was so successful, people would learn at the school, then take their newfound skills and sell for another company.
Agent conventions and seminars came next. Finally, a newspaper was published for the agents, so they could continue learning out in the field (Patterson conveniently used it to published sales numbers to drive competition between territories). The process involved agents sharing their experiences and sales tactics so everyone could get better.
Advertising followed a similar path. The mailing campaigns eventually became a monthly newspaper that eventually reached a half-million prospects per month. The constant testing led Patterson to a few simple advertising principles:
- Few words — short sentences — big ideas — small words.
- No ‘ad’ is large enough for two ideas.
- Illustrations. (Pictures are more convincing than descriptive matter.)
- Tell WHY as well as HOW to do it.
- Strong headings — avoid precedent — avoid repetition — tell the truth.
The experimentation was a huge success. It became the company’s philosophy.
Patterson’s believed that nothing was ever finished. The business, down to the tiniest detail, should always be made better.
The business that is satisﬁed with itself — with its product, with its sales, which looks upon itself as having accomplished its purpose — is dead. The actual burial may be postponed; but it is dead because it is not going forward.
Selling, advertising, everything was a work in progress to find the right way to do it.
The first thing he did, after taking over the company, was to change the name to the National Cash Register Company. It immediately removed the stink of failure associated with the old name.
The second thing he did — improve the product. His policy was simple. The cash register was an unfinished product. He did everything to make it better. He solicited complaints from customers, created an inspection department, an R&D department, switched to standardized interchangeable parts, and kept a notebook of ideas that might help the business later.
His goal was to always be a few steps ahead of the competition and what the customer needed:
My idea of successful business is this: Fill not only every known want of your customers but also have in ready reserve that which you calculate they are going to need next year or the year after. That is, do not merely keep up with the market but preferably a few paces ahead in what you are actually offering and about a mile ahead in your reserve offerings.
He even got the employees involved. Patterson realized he had a brain trust of 5,000 employees strong sitting idle. So he put their minds to work making the business better. He created a suggestion box and an annual contest that paid cash awards for the best ideas. Nothing was off-limits.
It turns out, most of the improvements to the cash register came not from customers but employee suggestions.
And he recognized and rewarded his employees for their help — better than most business owners back then.
I would recommend changes to keep labour happy no matter what might be the immediate effect upon our business, for it is only the ultimate effect that counts. It all comes down to this: In our farmhouse my mother nursed the hired men and cared for them just as though they had belonged to her; she felt that they did. They came to feel so, too. The factory has now taken the place of the old farm, but the methods that were a success on the farm are just as good to-day in the factory. Times have changed but human nature has not.
To say he took care of his employees is an understatement. Early on, he noticed employee turnover was too high. So he fixed it, first by asking existing employees what could be improved, and then fixing it.
At first, he cleaned up the work area and added comfortable stools for the workers to sit on while building registers. He added a separate lunchroom so they didn’t have to eat at their workstation. He eventually built a separate dining hall, serving hot meals below cost.
Wages were raised above the union rate. New factories were built with all-glass walls to let in natural light. Safety devices became a priority, which included a hospital staffed with a doctor. Locker rooms were built with hot showers. He built a theatre to show free movies and seminars during the lunch hour. He converted the company’s campus into a fully landscaped park, complete with baseball diamonds, tennis courts, and a country club. He built a library, night school for specialized education, and an apprenticeship program for any employee who wanted to advance their education.
Finally, in 1917 he introduced a profit-sharing plan. He basically split the company’s profits between the company and the employees.
Patterson believed profits only existed to make the business bigger and better. So roughly half the profits were reinvested back into the business. The other half went to the employees.
Patterson believed that any “losses” due to the higher cost of taking care of his workers was made back multiple times over in more efficient work. In short, it paid to take care of his crew.
In 1885, his first full year in business, they sold around 500 cash registers. That number doubled in 1886. It doubled again the next year. And in 1890, they sold 9,091 registers. The whispers of a saturated market began around 1893 after selling the most cash registers ever — 15,487.
The whispers were wrong. The international business was officially organized in 1895 (though it unofficially started in 1885). Eventually, the company had sales teams in every European country, Russia, and parts of Northern Africa — 27 in all. NCR sold 23,097 registers in 1897.
By the time the company sold its millionth cash register in 1911, it was a near-monopoly.
Every step of the way, he was ridiculed for spoiling his employees. They called him crazy for breaking from business norms.
Yet, everything he did was about making the company better. Few realized he started a trend. He built the first global tech company and transformed business for the next century.
John H. Patterson: Pioneer in Industrial Welfare
- The Bubble 500 – Verdad
- The S&P 500 Grows Ever More Concentrated – J. Rekenthaler
- A Viral Market Update: The Resilience of Private Risk Capital – Musings on Markets
- The Art of the Bubble – J. Zweig
- Revisiting the Ides of March: A Thousand-Year Flood – Part 1, Part 2
- The “I Love Me” Effect – Klement on Investing
- Good Things Taken Too Far – M. Housel
- Eight Timeless Buffett Contributions That Go Beyond Returns & Bind Shareholders – ValIdea
- Active Management has Become a Game of Musical Chairs – Behavioural Investment
- Our History is a Battle Against the Microbes – Our World in Data
- Redlands Forum: Peter Kaufman (video) – ESRI Events