What the world’s richest man can tell us about Omaha – and, no, I’m not talking about Warren Buffett

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Aside from the occasional plague and peasant uprising, Europe during the early 1500’s was an exciting and prosperous place to be. New worlds were being discovered, art and technology flourished in the Renaissance, nations emerged from fiefdoms, and religion was undergoing a massive reformation.

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In spite of growing wealth in the 1500’s, peasants could still prove to be an unruly bunch.

The strongest financier during this period was a German by the name of Jacob Fugger (rhymes with cougar) who hailed from Augsburg, in present day Austria. He transformed his family’s textile business into a massive empire of banking, mining, and trade. Fugger was wealthier than the famous Medici clan who received much more historical attention. As a percentage of GDP, his wealth would dwarf Rockefeller, Gates and Buffett.

Fugger financed the Habsburg dynasty and the expansion of the Holy Roman Empire – an empire that ruled the core of Europe for four hundred years until World War I swept aside Austria-Hungary. He was a shrewd operative who financed the Vatican (indulgences aren’t free, you know), and obtained the ownership of entire villages when debtors defaulted on their loans.

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Fugger did not mince words with the Habsburgs. In one undocumented incident, he threw his gold cap at Maximilain and told him to “Fugg off”.

Greg Steinmetz’s book “The Richest Man Who Ever Lived” is the latest book to revive the legend of Jacob Fugger.     The book is a business biography, but it is also a geographical instruction manual.

The story of Jacob Fugger illuminates the importance of cities in the development of commerce. Augsburg, Rome, Venice, Antwerp, and Mombasa are the supporting cast of characters in the book. The evolution of these cities provides insights into our own urban areas. For me, the book provides a lens through which to look at he challenges faced by Omaha as it tries to surge past 1 million people and reach the second tier of US cities.

Fugger maintained his home in Augsburg, but he located important business centers in Venice and, later, Antwerp. He chose to locate in Venice early in his career because the Venetians were the leaders in big business at the turn of the century. Their fleets traded goods from all over the world and their management skills were second to none. Most importantly, the Venetians mastered the system of accounting. Double-entry book-keeping was a new science, and Fugger used his mastery of accounts to centralize his far-flung empire. Later, Antwerp became popular as shipments from the New World increased. It’s massive port and access to the European heartland drew Fugger.

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Charles V borrowed heavily from Fugger and took it on the chin.

This process of city and regional emergence is on display today as ConAgra considers moving its executives to Chicago. Omaha has a strong infrastructure in place to serve the agricultural industry, but Chicago has what it takes to reach consumers: It has a core group of companies like McDonalds, Kraft, Mondelez, ADM, and Ingredion all sharing resources. Chicago has thousands of well-educated people, young folks who can identify with a growing millenial target market, and dozens of advertising and marketing firms. Chicago, with its high cost of living and pension problems, trumps Omaha when it comes to innovation and sales. Like Silicon Valley, the costs of living are far outweighed by the opportunity to rapidly gain from networks of people. Omaha lacks the talent needed to reach rapidly-evolving consumer tastes.

Omaha also suffers from its peripheral location on the Great Plains.

One of the most fascinating stories in the Fugger biography is the rise of Portugal. Once a European backwater, the Portuguese decided to punch above their weight. They spotted their opportunity in pepper.

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The Portuguese galleon. A badass to be reckoned with. Shut up and dance with me.

Pepper was essential for the bland European diet. Spoiled meat was a frequent entree and it needed a little, ahem, flavor. At the time, the Venetians controlled the pepper trade from India. They had a direct route but it required an overland trans-shipment at Suez. The Portuguese made the bold move of sending ships around the Horn of Africa to the Indian Ocean. While the route was dangerous, it was much faster than the Venetians could manage.

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Augsburg. It’s no Frankfurt, but Pope Leo X said it was “pretty darn good.”

One of the most exciting chapters in the book is the siege of Mombasa in present day Kenya. Only a few cannon blasts allowed the Portuguese to take over the trade hub. From there, it was a direct route to India. The galleons returned to Portugal loaded with pepper. They reaped a fortune from the trade. Fugger, as their investor, took his handsome share as well. Steinmetz argues that the loss of the pepper trade is what directly led to the demise of the Venetians.

The story illuminates the role of trading hubs and transportation centers to the growth of an economy. It seems fairly obvious, but it is remarkable that a city or region can grow exponentially without having a local industry. Singapore and Hong Kong are certainly modern examples of this phenomenon. Closer to home, Louisville and Memphis show how modern transport hubs have emerged in the jet travel era as the hosts of UPS and FedEx respectively.

“I’ve already bought my Cubs season tickets. Last one to leave Omaha, turn out the lights.”
– ConAgra Executive O. Redenbacher

Omaha may have lost it’s stockyards, but it remains an important commodities trader with firms like Scoular and Gavilon. Trucking is big here. But at the periphery, Omaha will probably never emerge as a transportation and market hub. Alas, it does not have a fleet of galleons to lay siege to The Loop.

Remaining a lower tier City is not all bad. Cost of living does matter when it comes to location selections. Nice people and good education systems do add value. By all accounts, Augsburg remains a pretty nice place to live even though the banking capital of Germany moved to Frankfurt centuries ago.

Your executive job is going to be automated. Start reading. Be a game changer.

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From The Economist, Schumpeter column, September 5, 2014:

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Senior managers will have to rethink their roles dramatically if they are not to become latter-day Luddites. They will have to hand some of their functions to intelligent machines, which will always be better at data analysis than humans, and some to the heads of business units, who will be in a better position to make use of the crunched data. Executives will increasingly focus on the two things that humans can still do better than machines—motivating the troops and producing game-changing thoughts. Mr McAfee says, “I’ve never seen a piece of technology that could negotiate effectively. Or motivate and lead a team.” Tom Peters, a veteran American management guru, reckons the best leaders of the future will spend half their time reading books.

Mulally Projects US vehicle sales to recover to pre-recession levels. Announces retirement.

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It raises my eyebrows when the CEO of Ford projects smooth highways ahead for the automobile industry and also announces his retirement at the end of 2014. Its like the uneasy feeling that rises in the esophagus as you sign those papers at the dealer… What if that sweet looking Mustang you just bought suddenly turns into a Pinto as you drive off the lot?

Going out on top is a skillful and lucky feat. Johnny Carson and Jerry Seinfeld did it right. Overstaying your welcome carries risks. Maybe Steve Ballmer should have retired after the Xbox. I doubt the French would have bothered to investigate Lance Armstrong if he won a couple of Tours de France. But Seven? Frenchmen are already irritable, why piss in their Perrier? Certainly Joe Paterno overstayed his welcome.

Mr. Mulally steered Ford through the minefield of America’s financial crisis and deserves to go out on top. At 68, he’s certainly put in the miles. Unlike GM and Chrysler, Ford never filed for bankruptcy. Profits have been strong at the legendary automaker.

Mullaly seems like a great guy. Any time I’ve heard him interviewed he sounds sharp and optimistic. He doesn’t sound like a muppet like John Chambers who can announce mass layoffs amid rising profits with a smile on his face (another guy who needs to exit stage left). Mulally sounds sincere. Good for him.

But Mulally’s biggest achievement could be the funding of Ford’s massive pension liabilities. Just a few years ago, the auto maker was short on pension obligations by over $15 billon, now analysts project parity will be achieved in 2014.

Every municipality in the US should take notes on Ford’s survival and pension fund repairs. It’s unlikely that many Cities and States will go out on top like Alan Mulally. Illinois will be somewhere between Joan Rivers and Lindsay Lohan. Meanwhile, Philadelphia is heading past Larry Holmes and heading towards a Brett Favre-like denouement.

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