After the failure of salt market, Flagler found oil
(Continued from last week)
With the end of the war, the salt market collapsed. Supplies became excessive and prices fell, hurting all producers. Flagler was especially hard hit because his firm was so large. What was more, salt producers began to form alliances and consolidate as they struggled to remain solvent. Flagler went bankrupt in the chaos and returned to Bellevue in 1866 in financial ruin.
Flagler’s bitter salt experience taught him that unrestrained competition could lead to financial ruin. Controlling competition on the other hand, actually could benefit an industry. Flagler would not let unrestrained competition impede him again.
Following his Saginaw debacle, Flagler and Mary moved to Cleveland, where he renewed his acquaintance with Rockefeller. By then, Rockefeller was no longer devoted to the grain business but to oil.
In the early 1860s, Rockefeller (who like Flagler, had bought his way out of military service) went into business with Samuel Andrews, an immigrant Englishman with a profitable method for refining kerosene from petroleum. The two opened their first refinery in 1865 and had plans to open a second but lacked financial backing. Flagler suggested Rockefeller talk to Stephen Harkness — by this time a banker — who agreed to invest $100,000.
Stephen Harkness’ investment came with the condition he remain a silent partner in the venture and that Henry have complete control over his investment. Thus, the oil refining partnership of Rockefeller, Andrews and Flagler was formed.
Flagler’s first job was to negotiate railroad rates, of vital importance to refiners because they varied from railroad to railroad and from shipper to shipper. The refiner with the lowest transportation rates could have a decisive edge over his competitors.
Flagler’s negotiating style was to deal first with one and then another railroad, secretly playing one against the other to win the most favorable rates. The oil company’s growing prestige and popularity among investors proved useful in winning favorable rates. As an added inducement and as a punishment if things didn’t go his way, Flagler could shift his business away from the railroads to the lake steamers and canal boats, whose lower rates made up for their longer delivery times.
Flagler also showed considerable genius when it came to promoting his company’s growth. His biggest hurdle was to attract new sources of money. The Rockefeller, Andrews and Flagler partnership worked well but only up to a point. To attract new money, more partners were needed. But new partners meant control over the firm eventually would be lost.
In late 1869, Flagler found the solution. Rockefeller, Andrews and Flagler would incorporate and issue stock, which could be sold to new investors.
“I wish I had the brains to think of it,” Rockefeller said years later about the incorporation, at the time a bold and innovative business move. “It was Henry M. Flagler,” he added.
On Jan. 10, 1870, eight days after Flagler’s 40th birthday, the Standard Oil Company of Ohio was incorporated. Rockefeller was elected president, Flagler its secretary and treasurer.
By that time Henry and Mary seemed well assured of a comfortable future. The couple had wed in 1853, when Mary was 20 and Henry was 23 and already on his way to becoming prosperous through his Harkness family ties.
After their marriage, the couple lived in Bellevue where a daughter, Jennie Louise, was born in March 1855. Three years later, Mary gave birth to a second daughter, Carrie, who died in 1861. In 1870, the same year of Standard Oil’s incorporation, a son Harry (who went on to found the New York Philharmonic) was born.
By the time of Harry’s birth, the Flaglers had a Euclid Avenue address and lived among Cleveland’s other millionaire industrialists.
(To be continued next week)
Bellevue Historian Bill Oddo writes a weekly column for The Bellevue Gazette.