Here is an excerpt from our book, Intelligent Fanatics Project: How Great Leaders Build Sustainable Businesses:
Father of Sales and Innovation: John H. Patterson
National Cash Register
“[John Patterson] got the best distribution system, the biggest collection of patents, and the best of everything. He was a fanatic about everything important as the technology developed. I have in my files an early National Cash Register Company report in which Patterson described his methods and objectives. And a well-educated orangutan could see that buying into partnership with Patterson in those early days, given his notions about the cash register business, was a total 100% cinch.”
—Charlie Munger, A Lesson on Elementary, Worldly Wisdom Speech
In this quote, Charlie Munger is likely referring to a statement written by John H. Patterson in the early part of 1888. This was less than three years after Patterson purchased control of National Manufacturing Company, the originator of the cash register. The company, which was formed five years prior to Patterson assuming control, had sold roughly three hundred cash registers up to that point.
Everything was against a business selling cash registers at that time. There was virtually no demand for cash registers. Store owners could not justify the cost of the machine, which in today’s dollars would be roughly $1,000. Patterson’s peers mocked his purchase of such a poor business, yet Patterson had a bold vision of what the cash register market could be, and he knew it would make a significant impact.
Patterson had had a great experience with the cash register. His store in Coalton, Ohio, had immediately turned losses into profits simply by buying and installing a cash register. It is hard to imagine now, but employee theft at retail operations was common, given the primitive form of record keeping in those days. Patterson knew the power of the cash register and needed to help merchants understand its value, too. Would you have come to the same conclusion Charlie Munger had about Patterson early in the history of National Cash Register (NCR)?
So Munger is likely referring to this issue of The Hustler sent to NCR sales agents, from 1888:
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. To my mind, nothing can ever be good enough; I am always dissatisfied; I preach dissatisfaction. I can always see where something might be better; and therefore our business is never at rest—and I never want it to be. The throbbing heart of business is the intense desire to do better. When that desire ceases, the heart stops beating.
Every business which works for the betterment of humanity should be eagerly pressing forward and not waiting to be shoved forward. There are those who say that successful selling depends upon knowing what the public is asking for and then giving it to them. I do not agree with this viewpoint. I do not think that real success is attained by following in the wake of the public.
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.
Every big success, individual or commercial, has followed that rule. The manufacturer who merely caters to his market is never a very big manufacturer. The vital point is: “How far shall I keep ahead of the public?” If one goes too far ahead, the public will lose sight of him. That has been the unhappy fate of many brilliant men. There is only one way that I know to determine the exact lead to be taken, that is by thoroughly knowing the whole market and its trends. We devote a great deal of attention to finding out, not only what the public wants and what it may need, but also just how ready it is to absorb new ideas. We achieve our results: first, by keeping our eyes wide open all the time and putting down all the information that comes to hand; and, second, by never considering that we are marketing a fixed product.
We have made a policy to be just a short distance ahead, for the cash register has always had to make its market. We had to educate our first customers; we have to educate our present-day customer; and our thought has always been to keep just so far ahead that education of the buyer will always be necessary. Thus the market will be peculiarly our own—our customers will feel that we are their natural teachers and leaders.
Look for a moment at the progress. The first machine did nothing more than tally the cash by punching holes in a strip of paper. The proprietor by counting the holes could tell how much cash should be on hand. That was a cumbersome and unsatisfactory machine and it did not do nearly all that it should have done; but it did keep a tally. The big trouble was, however, that the proprietor had to depend upon his own additions to find the total. This brought in the possibility of mistake. The specific problem then was to make the machine keep the tally itself; thus developed the automatic adder.
Instead of counting the pinholes, the proprietor now took off the totals from the 5-cent sales, the 10-cent sales, the 25-cent sales, and so on, and adding these together got the grand total for the day. His possibility of error was reduced to a mistake in adding the divisional totals. But why should not the machine make this addition?
Then we brought out a model that made all the additions. The purpose of the cash register was to safeguard money. Money is not safeguarded without a system of bookkeeping that will provide a final check on the cash.
I have cited the progress of the register only to show that it has never remained stationary and has never, so to speak, merely met the market. There has always been, and always will be, a demand for a machine that will perform a necessary operation better than it can be done by hand. This demand increases as the consumer is educated into the new way; for instance, the farmer is every year more and more receptive to mechanical aids. The first sale of any device is to be considered only a first lesson to the consumer. The big sales are always in the future.
We are always working far ahead. If the suggestions at the tryout demonstrate that the model will be much more valuable with changes or improvements, then send them out again to be tried. And we keep up this process until every mechanical defect has been overcome and the model includes every feasible suggestion.
We take pains to be ready. We cannot know everything; we cannot always be certain that developments of business will follow the lines that we map out. But no matter what the situation, we have something in hand to meet it or adapt to it. We work on the plan: “The secret of success in life is for a man to be ready for opportunity when it comes.”
In 1887, the year before Patterson wrote this, National Cash Register sold 1,995 registers. This was nearly twice its 1886 sales and twenty-five times the number of registers sold in 1885. Many peers questioned whether the saloon market for registers was getting close to saturation. Those peers in Dayton, Ohio, lacked the prescient foresight about the material impact the cash register would have on the world. A cash register company needed to convey to the world the value of the cash register. John H. Patterson had the foresight and the system to teach the world that value. Patterson believed the cash register had a significant, addressable market, and he predicted at least one cash register for every four hundred citizens in a town. He was right.
You can read John Patterson’s story in our book, Intelligent Fanatics Project: How Great Leaders Build Sustainable Businesses. Become a Member and we’ll send you the eBook-Kindle version for Free.
This is a companion discussion topic for the original entry at https://intelligentfanatics.com/father-of-sales-and-innovation-john-h-patterson/