Soon after Thomas Edison invented the light bulb in 1879, an opportunity to stake a claim in the electric power industry reached the door of shoemaker Charles Coffin.
Investors from his hometown of Lynn, Mass., were set to buy the promising but financially troubled American Electric Co. in 1883 if Coffin agreed to manage its operations.
Though he knew nothing about electrical engineering, the 40-year-old Coffin seized the opportunity.
And though he would vie against better-established Edison General Electric and Westinghouse, Coffin would lead the renamed Thomson-Houston Electric Co. to the fore.
By 1892, when Edison GE sought to buy Thomson-Houston with the backing of J.P. Morgan, due diligence revealed that Coffin's firm made more money and generated twice the return on capital.
"Instead of buying out Thomson-Houston, Morgan told Coffin (that) Edison G.E. would choose to sell out itself," Robert Silverberg wrote in "Light for the World: Edison and the Power Industry."
Despite Edison's valuable patents, the suitor ended up the junior partner in the merger that created General Electric Co. (GE)
Coffin (1844-1926) became GE's first president, a post he held until 1912, and remained chairman until 1922, building the firm into a generator of technological and managerial prowess. The company's market capitalization rose from $35 million in 1892 to $184 million when he retired.
At The Top
His role in developing technology and corporate leaders led management guru Jim Collins to name Coffin the greatest CEO of all time.
Coffin "oversaw two social innovations of huge significance: America's first research laboratory and the idea of systematic management development," Collins wrote. "While Edison was essentially a genius with a thousand helpers, Coffin created a system of genius that did not depend on him. Like the founders of the U.S., he created the ideology and mechanisms that made his institution one of the world's most enduring and widely emulated."
Coffin joined his uncle's shoe business at age 18 and eventually established his own shoe factory. While shoes might seem an unlikely background for an electric power CEO, Coffin's experience in an industry that was mechanizing served him well, says Bernard Carlson, a University of Virginia professor of science, technology and society. "In a certain sense, he's your classic entrepreneur," Carlson told IBD. "He made things happen. He understood the world wasn't going to be static and that his job was to get a hold of change and make it work for you."
As a shoemaker, Coffin learned that capital-intensive mechanization pushed firms to go after bigger markets. He had built out wholesale and distribution networks.
Thomson-Houston, led on the tech side by Elihu Thomson, originally sold power equipment to individuals and businesses to operate themselves. In 1884, Coffin quickly moved the firm into equipping central generating plants that could achieve economies of scale.
Coffin's experience also gave him insight into his would-be customers: startup companies seeking to bring electricity to their communities. For most, the upfront investment would be prohibitive.
Coffin knew that his customers' problems were his own, and he pioneered a simple solution.
"He offered to sell electrical equipment for part payment in cash and the balance in securities of the local company," John Hammond wrote in "Men and Volts: The Story of General Electric."
Quick Results
Thomson-Houston equipped 28 local power plants in 1884 and 47 in 1885. By the time of their merger early in 1892, Thomson-Houston had equipped 870 central power stations vs. Edison's 375.
T-H's well-schooled sales team — derived partly from the shoe arena — made a difference. "Because of Coffin's organizational ability, the firm enjoyed economies of scope by using the same sales force to sell and install different systems," Carlson wrote in "Innovation as a Social Process: Elihu Thomson and the Rise of General Electric." "It was not until the 1920s that other machinery firms ... diversified their product lines to capitalize on their established distribution networks."
Extra Steps
Competing against two rivals for a contract to provide electric streetcar service in Boston in 1889, only he was willing to guarantee the equipment. The deal went to Thomson-Houston.
Coffin acted decisively to solidify his competitive position.
When Brush Electric Co. charged Thomson-Houston in 1889 with infringing on a patent, Coffin pushed hard to avert a disruptive legal battle.
He dispatched an emissary to Cleveland and offered to buy Brush for $40 per share. Brush countered with $75 per share, or $3 million. Coffin agreed — the very next day.
From 1888 to 1891, Coffin acquired seven competitors, Carlson wrote.
Later, amid the panic of 1893, when the new General Electric appeared in danger of bankruptcy, Coffin moved aggressively to shore up its finances. He arranged a private sale of GE's holdings of local utility securities, which would have been worth little on the open market.
Coffin saw the big picture. Despite all of Thomson-Houston's success, he knew that the status quo in the industry was unacceptable. Patent litigation would keep him from meeting his customers' needs and would restrict the industry's growth.
"It was found that no plant could be constructed and no system installed by either (Thomson-Houston or Edison GE) with any hope of rendering efficient service to the public without infringing the rights of the other company," Hammond wrote.
Coffin saw that consolidation was the logical solution. But he dragged out discussions for a year until the deal favored Thomson-Houston.
After the merger, he struck a cross-licensing agreement with Westinghouse. The pact created a duopoly, giving the two competitors an advantage over smaller firms that had to provide customers guarantees against patent infringements.
Coffin backed his engineers with a research and development lab.
That innovation popped up even as other directors fretted that investor capital should be devoted to the nuts and bolts of business.
Hot Stuff
On his watch, GE's R&D lab made the Curtis steam turbine , which took one-tenth the space of machines it replaced and supercharged power-plant capacity.
"No man exercised his leadership with greater simplicity, greater humility, greater regard for others," Hammond wrote. "He dominated, it is true; but he never domineered. His dominance sprang directly from the confidence which others placed in him."
