This is the written transcription of a talk I gave at a conference for digital nomads in Chiang Mai, Thailand in February 2015, which you can
This is the story of a man who's widely known as one of the most competitive businessmen who ever lived. His name is Cornelius Vanderbilt.
Cornelius is born on May 27, 1794 in Port Richmond, a tiny village on Staten Island, New York. And of course, New Yorkers born in the late 18th and 19th Centuries can be divided into one of two categories: those who would become wealthy industrialists, and those who would serve those who would become wealthy industrialists. Cornelius begins his life starkly on one end of the spectrum, and finishes it wholly on the other.
And he's a New Yorker, Cornelius, which I mean in the fullest sense of the word. He dresses stiffly, and he has a long white mane, and he is stubborn and crude and forthright and has an extraordinary ego, and he rarely looks away from his work, and he has very strong feelings about the war, and he believes physical weakness is a sign of moral weakness, and he drinks heavily, and he's a ruthless competitor.
But with all of that said, Cornelius is determined to show that he's not like every other New Yorker. He's determined to make his own fate.
So at the age of 11, Cornelius drops out of school to start working on a ferry, transporting passengers between Staten Island and Manhattan. And he becomes so enamored of the concept of moving people and goods from place to place that he earns the nickname Commodore. At the age of 16, Commodore borrows $100 from his parents to buy his own ferry to operate on that same Staten Island-Manhattan route. As soon as he has his boat, Commodore immediately slashes his price and, to the dismay of his former employers, begins making a substantial profit.
Now, you need to know, shipping is a very lucrative business in the early 1800s, so there's no shortage of young Commodore's buying ferries and cargo ships in hopes of one day building a shipping empire. But out of all of them, only our Commodore truly will. And, contrary to the rest of them, he'll spend an extremely short amount of time doing it.
See, an increasing amount of the cargo traffic is made up of materials moving from the earlier-developed eastern cities of New York and Boston to the boom spurring out of the California Gold Rush. And given the geographic enormity that resides between the U.S. northeast and California, three transportation options are available.
The first, given that steamships are the primary mode of cargo transport, is the exceptionally lengthy route of circumnavigating Cape Horn at the southern tip of South America and continuing up the western coast of Chile to California. This was the only route available to steamships for many years, but its inefficiency is strikingly obvious. Conventional vessels take 159 days - over 5 months - to make the trip from New York to California. When faster vessels, so-called Clipper Ships, were invented, they could do the same route in a mere 90 days, but because Clipper Ships were designed for speed and not for cargo, the ride becomes prohibitively expensive for nearly all passengers. There has to be a better way.
The second option, land travel, is possible on a small scale but completely impractical. It means navigating a great many innavigable roads that seem to take passengers the longest route possible to reach their destination. Land transit is not the way to go.
So the third option is what the steamship operators had settled for: portaging across Central America.
But as you can imagine, it's not easy to get an entire steamship's worth of people and cargo across a body of land, so they had to choose the perfect place to make the crossing.
So hundreds, thousands of Americans went down to Central America to talk with locals, learn the local geography, and determine what the best place to cross would be. And without fail, they all came back and said "Panama. The best place to cross is in Panama." So they all crossed in Panama.
Now, it's true that Panama is the thinnest land mass in all of Central America - at its narrowest point, Panama is just 50 kilometres wide. But that still means 50 kilometres of extremely slow land travel: after unloading the ship, moving all of the passengers and cargo from one side of Panama to the other, and re-loading the ship on the Pacific coast, traversing those 50 kilometres still takes a full seven days.
But Commodore is not so easily placated.
One day, as he sits reading in his study, he shouts aloud to himself, "I've got it! I've solved the problem! I have a better way to get to California."
See, Commodore has noticed something while studying maps of Central America. It's a river, a tiny river too insignificant for anyone else to blink an eye at, but a river nonetheless. It's the Rio San Juan, and it runs 190 kilometres from Nicaragua's eastern shores into Lake Nicaragua in a relatively direct path. From there, a mere 20 kilometres of land stands between the west bank of Lake Nicaragua and the Pacific Ocean. Other steamships doing the California route had either overlooked or dismissed the idea of going through Nicaragua: the Rio San Juan was too narrow, the Nicaraguan government too unstable, and the stakes too high. But none of these deter Commodore. He personally visits Nicaragua three times, clears Rio San Juan of all obstacles, builds new steamships of unprecedented speed and fuel efficiency, and erects a road connecting Lake Nicaragua with San Juan Del Sur, his port on the Pacific coast. His new route shaves 800 kilometres and between two and seven days off of each voyage. And he does it all within 12 months!
So when Commodore enters the market with his new Nicaragua route, things change drastically. He immediately slashes his price from the market rate of $600 to $400 per passenger, and within a year of operations he lowers his price again to just $150. In response to Commodore's lower rate, passengers flood to his ships, so he turns a hefty profit. And this is the first big thing that Commodore does: he proves that when it's business vs. business - mano a mano - no matter how established the other side is, with a bit creativity you can always win the battle.
But here's the problem. Passenger fares are not the primary moneymaker for any of these route operators, and Commodore knows it. And the other two steamship lines operating on that California route have something unique Commodore will never achieve: government subsidies.
Here's the situation. In line with the population shift from east coast to west coast during the Gold Rush, a rapidly-increasing amount of mail all-of-a-sudden needs to be moved across the country as well. But the American government has its hands tied: it can't build the infrastructure fast enough to do the job itself. Instead, government turns to private enterprise and begins shelling out a massive subsidy to two companies, the U.S. Mail Steamship Company and the Pacific Mail Steamship Company, to deliver the mail on its behalf.
So what does Commodore do? Well, he knows that in order to win the market he needs to eliminate that subsidy from his competitors, so he does something absurd: he offers to deliver the mail for free.
And this is the craziest part: the government says "No." Despite his attempts to bring all of the mail from the east coast of the United States to the west coast of the United States for free, the government simply says, "No." Instead, the U.S. Mail Steamship Company and the Pacific Mail Steamship Company appeal for an even greater subsidy in order to compete with Commodore, and this time the U.S. government approves it.
Now it's Commodore who has his hands tied. He can't compete with companies receiving such massive subsidies, so he decides to sell his fleet of steamships, every last one of them, and move his entire fortune into railroads. And just like that, you've witnessed the abrupt, tragic finish to Commodore's career in the steamship industry.
So why do we talk about Commodore?
Well, we live in a world where there's lots and lots of competition. High schoolers compete to get into the best universities, university graduates compete for the best jobs, and employees compete for the best promotions. Entrepreneurs dive into markets riddled with competition because we've been taught from a young age that competing and winning is something to be proud of. And even on a primal level, men compete for the best women and women compete for the best men. Clearly, competition is deeply rooted within us, right?
Commodore disagreed. He knew from a very young age that there is a wide difference between winning and competing; they're two completely independent actions. Competing necessitates expending effort in defeating an opponent; winning does not. Instead, Commodore outlines his business strategy more like this:
See, while it seems that this is a story all about competition, it's actually the opposite - it's the story of a man who avoided competition at all costs.
And this brings me to an enormously important detail I skipped earlier. When the U.S. Mail Steamship Company and the Pacific Mail Steamship Company were granted a larger subsidy by the government, Commodore didn't just give up on steamships and decide to get into railroads. No, he turned their advantage into his own advantage.
Behind the scenes, Commodore struck a deal with his two rival steamship companies that would have them pay him a sum of $672,000 per year - approximately 1% of the entire United States federal budget - for him to keep his ships in port. Think about that for a moment. 75% of the subsidy the government was paying the U.S. Mail Steamship Company and the Pacific Mail Steamship Company to allow them to compete with Commodore was going directly into his pockets! It's not that Commodore wasn't able to compete on the California route, he simply wasn't willing to compete. He surrendered the battle but won the war; he forced his opponents to buy him out instead. That's the second big thing that Commodore did.
And by the way, Commodore didn't just flop when he got into the railroads industry. No, he built a monopoly there as well, which was the primary reason he's still today one of the top five richest people who has ever lived.
So the third lesson we can learn from Cornelius Vanderbilt is the most important; it's one that applies just as equally today as it will tomorrow, one that we've all internalized but need a gentle reminder of from time to time, one that you should seriously consider when you're making your next major business or life move: oftentimes the winning strategy is to not compete at all.
And for that, we owe Commodore a great vote of thanks.