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Henry Ford Failed Twice Before Ford Motor Company

Before venture capital existed, Henry Ford lost two car companies within three years, then built a third with a coal dealer, a machine shop that supplied the parts and also bought in, and a checking account that nearly hit zero.

Aileen Wright
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Henry Ford Failed Twice Before Ford Motor Company — Aileen Wright
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This post is part of a series on founders who worked before venture capital firms existed. Each post asks one question: which of their moves looks most like what a startup founder does today?

Henry Ford is the obvious name, and the usual story starts with the Model T. This post starts earlier, with the two companies that failed. It covers 1899 to 1914 only. It is not a full biography. One part of Ford’s later record needs a plain statement here: from May 1920 his newspaper, the Dearborn Independent, ran an antisemitic campaign. Ford later issued public apologies during a libel suit that was settled on 16 July 1927.

I checked each fact against a source that I could open, and most of the sources are primary. The two main ones are The Henry Ford museum’s own archive pages and Ford’s 1922 memoir My Life and Work, written with Samuel Crowther. The memoir is a primary source for what Ford wanted people to believe. It is not a reliable source for dates, and a later section shows why.

Timeline of Henry Ford's three companies: the Detroit Automobile Company (1899–1901) and the Henry Ford Company (1901–1902, later Cadillac) crossed out, Ford Motor Company (16 June 1903) highlighted, then the Model T (1908), the moving line (1913) and the five-dollar day (1914), with a small chart of the 1903 checkbook falling from $14,500 to $223.65 before the first car sale

Ford’s first company built cars to order and closed within eighteen months

In 1899 Ford was chief engineer at the Edison Illuminating Company in Detroit. He left that job on 15 August 1899 to become superintendent of a new firm, the Detroit Automobile Company. The company had been formed in July 1899. Its letterhead lists Clarence A. Black as president and Ford as Mechanical Superintendent. Ford was an employee with a title, not the person in charge.

The company made a delivery truck first. The museum says that it built no more than 20 trucks and cars and that the company lasted no more than eighteen months. The museum’s pages give two dates for the end. One page says it went out of business in January 1901. An older museum chronology says it went out of business in November 1900. I could not resolve the difference.

Two decades later, Ford described the problem as one of control. In his account the investors wanted to make to order and to get the largest price possible for each car, and the firm was not a vehicle for realizing my ideas. That is Ford’s view, written after he won. It is still a useful clue. The first company sold a small number of expensive custom vehicles, and the person who designed them had no authority over what to build.

A race win bought Ford a second company, and the investors pushed him out

Ford did not get a second company by showing customers. He got it by winning a race. On 10 October 1901, at the Grosse Pointe track near Detroit, Ford drove his “Sweepstakes” car against Alexander Winton, who was then one of the best-known car makers in the country. After Winton’s car developed mechanical problems, Ford won. The museum says that the victory and resulting publicity encouraged financiers to back Ford’s second firm.

The Henry Ford Company was incorporated on 30 November 1901. A letter from Ford to his friend Milton Bryant, dated 6 January 1902 and written on the new company’s letterhead, shows where Ford’s attention went. He wrote: “My Company will kick about me following racing but they will get the advertising and I expect to make $ where I cant make (cents) at manufacturing.”

The investors did kick. The museum says Ford’s racing put him at odds with the investors of the Henry Ford Company. The chronology says he left on 10 March 1902. The investors kept the factory. The company changed its name to Cadillac under the guidance of Henry Leland. So Ford’s second company did become a successful car maker. It did so without him.

Ford’s memoir rewrites these three years

Ford’s memoir is the source of many popular stories about him, so it is worth checking against the documents above. Three details do not match.

First, the memoir says the Detroit Automobile Company later became the Cadillac Company. The museum’s records show that the Henry Ford Company, his second firm, became Cadillac. The memoir also puts his March 1902 departure inside the story of the first company, so two companies become one.

Second, the memoir says I never thought anything of racing. The 1902 letter to Bryant says that Ford expected racing to pay better than manufacturing.

Third, the memoir says that after his “999” racer won, a week after the race I formed the Ford Motor Company. The museum chronology places the 999’s win over Winton in 1902 and the incorporation of Ford Motor Company on 16 June 1903. The gap was months, not a week.

None of these errors changes the outline. Ford failed twice and then succeeded. But they show how a founder’s own story gets smoother with time: two failures become one, and a gap of months becomes a week.

The third company was funded by a coal dealer, and its supplier became a stockholder

Ford’s third partner was Alexander Malcomson, a Detroit coal merchant. Malcomson financed some of Ford’s early ventures, including the 999 racer, and in 1902 signed a partnership with Ford under the name Ford & Malcomson.

When Ford Motor Company was formed, the museum’s record of the Articles of Association of 16 June 1903 lists twelve stockholders and 1,000 shares:

StockholderSharesWho they were, according to The Henry Ford
Henry Ford255The engineer
Alexander Malcomson255Coal merchant
John S. Gray105Malcomson’s uncle, president of the German-American Bank
John F. Dodge50Machine shop owner, supplier
Horace E. Dodge50Machine shop owner, supplier
Albert Strelow50Contractor who rented Ford and Malcomson a shop
Vernon Fry50Malcomson’s cousin
Charles H. Bennett50President of Daisy Air Rifle
John Anderson50Malcomson’s lawyer
Horace Rackham50Anderson’s law partner
James Couzens25Clerk in Malcomson’s office
Charles Woodall10Malcomson’s bookkeeper

Source: The Henry Ford, stockholder research guide. The 1919 Michigan Supreme Court opinion in Dodge v. Ford Motor Co. says that Couzens subscribed for 50 shares. The museum says part of his 25 shares represented his sister, Rosetta Couzens’, investment of $100. I give the museum’s figure in the table and note the difference.

This list has no professional investors. It has a merchant, his relatives, his employees, his lawyer, his landlord, a local manufacturer, and two suppliers. John and Horace Dodge ran a machine shop that Ford contracted to supply chassis, transmissions, and axles in early 1903. They became stockholders in the company that was their customer. Popular accounts give exact terms for the Dodge contract, such as the number of chassis and the price per unit. I did not find a primary source for those terms, so I left them out.

The amount of cash is not clear. The articles of association, as the 1919 court opinion quotes them, fix the capital stock at $150,000 and say that $100,000 was subscribed and paid in, $49,000 in cash and $51,000 in other property. Ford’s memoir says that the total amount subscribed in cash was about twenty-eight thousand dollars. I give both figures. I do not know which one describes the money that actually arrived.

The company’s first checkbook shows how thin the money was. The account started with $14,500 on June 26, 1903. It sank to $223.65 by July 10 after 60 checks. On 15 July, the company sold its first car for $850, and the balance grew after that.

The Model T was one product with a falling price

Ford began building the Model T on 1 October 1908. In the 1908–1909 season the company still sold other models, but in Ford’s account the Model T swept them right out. The company sold 10,607 cars that season, and the touring car cost $850.

Then Ford cut the product line. In 1909 he announced one morning, without any previous warning, that the company would build only the Model T. In the same passage he wrote the line that people still quote: “Any customer can have a car painted any colour that he wants so long as it is black.” The source of that sentence is Ford’s own book, so it is not a misattribution. But it is a 1922 memory of a 1909 remark, not a record made in 1909.

Ford also said how he set prices. He based them on an estimate of what the largest possible number of people will want to pay, not on demand or on competitors. His own table shows the result for the touring car:

SeasonTouring car priceCars produced
1909–10$95018,664
1910–11$78034,528
1911–12$69078,440
1912–13$600168,220
1913–14$550248,307
1914–15$490308,213
1915–16$440533,921
1916–17$360785,432

Source: My Life and Work, chapter X. These are Ford’s figures, published by Ford.

The moving line and the five-dollar day solved a production problem and then a labour problem

The moving assembly line started small. The museum chronology says that Ford’s first assembly line, producing magneto generators, begins operating on April 1, 1913. Ford’s own figures for that first line: one worker used to assemble a flywheel magneto in about 20 minutes. Split into 29 operations on a moving line, the time fell to 13 minutes 10 seconds, and later to five minutes. For the chassis, the best stationary time was 12 hours 28 minutes. A rope-and-windlass trial cut it to 5 hours 50 minutes, and the raised line of early 1914 cut down the labour time per chassis to one hour thirty-three minutes.

The new work was faster, and workers did not stay. Two pages from The Henry Ford give the 1913 labour turnover rate as 370 percent and 380 percent.

On 5 January 1914, Henry Ford and James Couzens, by then vice president, announced that the company would pay five dollars a day. The museum gives the old rate as $2.30 a day on one page and $2.34 for a nine-hour day on another. The new pay was five dollars for an eight-hour day. It was not a plain raise. The museum calls it a profit sharing plan, and Ford called it a kind of profit-sharing plan in which workers had to meet “certain conditions” to get the full amount. The museum says Ford acted probably in response to the urging of James Couzens, the former clerk from Malcomson’s office.

The 1919 lawsuit shows the founder–investor conflict in plain words

Ford soon wanted control. He wrote that he owned 25 1/2 per cent at the start and thought that a minority stake would work, but “I very shortly found I had to have control.” Malcomson sold his 255 shares to Ford in 1906.

The Dodge brothers kept their shares, and in 1916 they sued. In the court record Ford is quoted as saying: “My ambition is to employ still more men … To do this, we are putting the greatest share of our profits back into the business.” The Michigan Supreme Court answered in 1919: “A business corporation is organized and carried on primarily for the profit of the stockholders.” The two suppliers who became stockholders in 1903 had become the minority shareholders who forced the dividend question.

”A faster horse” is not a Ford quote

The best-known Ford line about customers is this one: “If I had asked my customers what they wanted they would have said a faster horse.” The Henry Ford says the line has never been satisfactorily traced to Henry Ford and that it only begins to appear in the early 21st century. Quote Investigator has not yet located compelling evidence that Henry Ford is responsible. The earliest Ford-linked version it found is from a 1999 issue of The Cruise Industry News Quarterly, in which a speaker imagined that if Ford had asked people, they’d probably tell him what they really wanted was a faster horse.

The quote is usually cited to argue that asking customers is useless. The documented record is more mixed. Ford’s first company built what its investors could sell at the highest price, and it failed. For the Model T, Ford set prices by what the largest number of people could pay, and sales rose as the price fell. He refused to add models, but he did not ignore what buyers could afford.

In today’s terms, Ford’s years from 1899 to 1914 look like a familiar startup path

This section is my interpretation, not a sourced claim.

  • The Detroit Automobile Company looks like a company that started selling before it had a product people wanted. It built custom work at high prices. The person who built the product had no say in what the product was.
  • The 1901 race was a demo. It did not prove the car was good for customers. It proved that Ford could build something that worked in public, and that was enough for investors.
  • The Henry Ford Company was a founder–investor mismatch. The investors wanted a car business. The founder wanted to race. The investors kept the company.
  • Ford Motor Company’s first round was an angel round from one merchant’s network, plus a supplier who became an owner: the Dodge brothers supplied the parts and held 10 per cent of the shares. The checkbook from June to July 1903 is a runway chart.
  • The Model T was a narrow product with a price set by the size of the market Ford wanted, not by cost-plus. Each price cut came with more volume.
  • The five-dollar day was a retention fix after a process change made the work worse for the people who did it.

For people who build developer tools or sell domain names today, two points carry over. A demo can raise money, but it does not tell you who will pay. And the people who supply your parts, your infrastructure, or your first distribution can become owners, with interests that later diverge from yours.

What the records do not settle

  • The exact end date of the Detroit Automobile Company: November 1900 or January 1901.
  • How much cash Ford Motor Company actually received in 1903: the articles say $49,000; Ford said about $28,000; the first bank deposit was $14,500.
  • The terms of the 1903 Dodge contract, and whether the Dodge brothers paid for their shares in cash or in parts. I found no primary source that I could open.
  • The date on which the Henry Ford Company took the Cadillac name.

References

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