by Blaine McCormick and Paul Israel
Thomas Edison is remembered more as an inventive genius than as a businessman. Some may know he was granted more patents by the U.S. Patent and Trademark Office than any other person, 1,093 patents to be exact. Fewer know that he also started over 100 businesses and partnerships, some of which survive to this day. Edison is known around the world for inventing a practical and commercially successful incandescent electric light bulb. However, Edison also invented (or helped invent) entire industries, including the electric, music, motion picture, and battery industries. We will look at how Edison succeeded as an inventor primarily because he was better than his competitors at marshaling the forces and institutions of business.
Myth Versus the Real Thomas Edison
Myths about Edison abound, with one of the most popular being that he was a terrible businessman more likely to hit a “lucky streak” than to intentionally manage the innovation process. Compounding this misconception, the 1940 film Edison, the Man, starring Spencer Tracy, portrayed Edison as uninterested in and confused by the financial side of invention. Nothing could be further from the truth. Edison (see Figure 1) was keenly aware of the economic considerations of his inventions and could even be critical of his contemporaries for ignoring business realities.
Figure 1 . Thomas Edison in 1881 at 34 years of age.
(Photo courtesy of the Edison National Historic Site.)
Edison’s business story began before he was a teenager and extended almost until the day of his death. By the age of 12, he had begun selling newspapers and candy on the Grand Trunk Railroad that connected Detroit to his hometown of Port Huron, Michigan. Apparently discontented with selling other people’s newspapers, he began printing his own publication, The Weekly Herald, and selling it on the train as well. At the same time, he managed a vegetable stand and transported some of the produce to Detroit for resale where it brought a higher price. Edison exhibited such entrepreneurial ability throughout his life, and it proved crucial to his many achievements. We will sift through Edison’s life and highlight a few of the factors that contributed to his business success. Put simply, Edison succeeded more than other inventors of his day primarily because he was a better businessman.
Invention Is a Commercial Process
Edison had little desire to become a “business tycoon” and spend all his time overseeing a sprawling industrial empire. He preferred to remain in the laboratory, and his true business was the innovation of new products, at which he was highly successful. Although he was often involved in key management decisions of the companies established to capitalize on his inventions, Edison saw his role primarily as that of inventor. Furthermore, the roots of his inventive practices can be traced to the time he spent in the emerging telegraph industry.
Edison began studying telegraphy in the autumn of 1862, when he was 15 years old. Within a few years, he had begun working for the Western Union Company and inventing improved telegraph equipment. In 1868, he settled in Boston and began creating a name for himself within the telegraph industry. Edison filed his first telegraph patent in 1869 and by 1871 was referred to as “the best electro-mechanician in the country” by Western Union President William Orton. Over the course of his life, Edison would file only slightly fewer telegraph patents (186 patents) than he filed in the field of recorded sound (199 patents). This is ironic given that few people acknowledge Edison as a major force in the early telegraph industry. In part, this perception arises from Edison’s role as a contract inventor who relied on others to introduce his inventions.
Edison’s life revolved almost solely around the telegraph industry from his introduction to telegraphy in 1862 until he conceived the idea for the electric pen in June 1875. His work in the telegraph industry contributed greatly to his entrepreneurial success in other industries later in his life. Furthermore, Edison’s experience in the telegraph industry gave him a deep well of business experience from which he could draw and which other inventors of his day lacked.
An important moment in Edison’s life accompanied the receipt of his first patent in 1869. The patent was for an electric vote recorder that allowed members of legislative bodies to tally votes using electricity rather than through the slow process of roll call. Edison hoped to get some money for the invention but was firmly rejected on his first sales call to the Massachusetts state legislature. He tried next to sell the invention to the federal government in Washington, DC, but was told, “Young man, that is just what we do not want.” The business-minded Edison had overestimated the importance of speed in the slow world of legislative filibustering. On his way home, Edison resolved never to invent anything that did not have what he called “commercial demand.”
For the most part, this proved to be a highly successful strategy ensuring that Edison’s goal was not just invention but innovation. During the research and development work on a new technology, he paid close attention to ways to lower operating and manufacturing costs and methods of adapting the technology to the needs of users. And once he began commercial introduction of a new technology, Edison devoted a great deal of attention to improving the manufacturing processes to reduce the cost of the new technology. Also, he continued research and development so that he could better adapt his products to the needs of users. Figure 2 shows Edison’s first lamp factory, where he manufactured his incandescent lighting system.
Attention to these market-driven issues enabled Edison to successfully innovate new technologies and establish highly successful companies in the phonograph, motion picture, cement, and storage battery industries. His only notable failure was an effort to refine low-grade iron ore, on which he spent millions of dollars of his own money. Yet, Edison could absorb the cost of this failure because he was highly successful in other endeavors. And in each instance, Edison relied on highly competent managers to oversee these businesses.
Figure 2 . Edison established his first lamp factory near his laboratory in Menlo Park, New Jersey, so that he could refine the manufacturing process and improve the lamps as he moved to commercial introduction of his lighting system. (Photo courtesy of the Edison National Historic Site.)
Superior Understanding of the Patent and Legal System
Edison filed his first patent application in 1868 at the age of 21. Furthermore, he filed well over 100 patents prior to achieving international fame with the invention of the phonograph in 1878. These ten years of patent activity in the telegraph industry taught Edison how to navigate the patent and legal system in America. By the time he invented the phonograph and the practical incandescent electric light bulb, Edison was better prepared than his competitors to capture the gains associated with his new inventions.
Figure 3 shows Edison’s U.S. patents by execution date. Readers will note that although he invented the practical electric light bulb in 1879, there’s a spike in patent activity in the four years that follow. Other spikes occur during his telegraphy years in the early 1870s and again in the late 1880s and early 1890s. Rather than remaining flat, Edison’s patent activity experienced peaks and valleys depending on his efforts to improve the commercial viability of an invention. One of his basic strategies is captured in this statement about some of his electrical patents. Edison noted, “The patents I am now taking are more valuable than those already taken. Those already taken were to secure if possible the science of the thing. Those I am now taking are commercial.”
Figure 3 . Edison’s U.S. patents by execution date.
Edison learned very early during his work in the telegraph industry that there’s more than one way to solve a problem. Working as a contract inventor for competing companies, Edison found it necessary to take some care in juggling both his own interests and the interests of those paying for his inventive work. Yet, working on multiple projects also stimulated him. This became a hallmark of his inventive style, as ideas and devices from one experiment or design influenced another. In Edison’s words, if he reached a dead end on one project, he would “just put it aside and go at something else; and the first thing I know the very idea I wanted will come to me. Then I drop the other and go back to it and work it out.”
In fact, Edison frequently used experiments in one direction to suggest ideas for other lines of research and often drew on elements of one technology to improve another. Sometimes, he did no more than note ideas that emerged from such explorations in his notebooks or patent caveats, but at other times they became the basis for a new research project. A related characteristic was Edison’s tendency to conceive seemingly endless variations in the design for a particular device. His early notebooks often contain the statement “I do not wish to confine myself to any particular device.” These words represented not only a legalistic phrase associated with the patent system but also corresponded to Edison’s pattern of sketching numerous alternative solutions to a particular problem.
Edison’s sophisticated understanding of the patent system grew out of his experience as a contract inventor in the telegraph industry. As an inventor for the Gold and Stock Telegraph Company, Edison learned from its president, Marshall Lefferts, that by acquiring all of the key patents on printing telegraph technology, the company was able to control the field of market reporting. Soon after Edison told William Orton, president of Western Union, that he could readily invent around the patented system of duplex telegraphy (for sending two messages simultaneously over a single wire) that the company had recently put on its lines. Boasting that “the business of making a duplex [w]as a very trifling affair,” Edison showed Orton a variety of alternative designs. Edison was hired to invent duplexes “as an insurance against other parties using them.” Edison’s work on duplexes led to his most important telegraph invention, the quadruplex telegraph, which enabled four messages to be sent simultaneously over one wire.
Superior Exploitation of Capital Markets
It was previously mentioned that Edison had much greater resources for research and development than any other inventor of his time. He had established his name as a telegraph inventor, and this earned him access to financial support from Western Union financiers such as J.P. Morgan and William Vanderbilt and company officials such as Norvin Green. Green was also the first president of the Edison Electric Light Company, which was established to support Edison’s work. Among those who established the company were directors of Western Union and partners in Morgan’s firm. These men were willing to back Edison’s venture in electric lighting because of his previous work for Western Union and due to his enhanced reputation as an inventive “wizard” following his invention of the phonograph. Edison’s reputation was a product of both his creative technical feats and his facility for self-promotion.
One good example of Edison’s talent for exploiting capital markets occurred during the invention of the practical electric light. Contrary to popular perception, Edison was not the first person to have a working electric light bulb. In fact, historians have documented the fact that more than 20 people preceded Edison with a working electric light bulb, some being his contemporaries. Edison began experimenting with electric light in August 1878, long after competitors like Joseph Swan, Moses Farmer, and William Sawyer (to name a few) began their work.
So what enabled Edison to start later, yet leapfrog his competitors to become known as the inventor of the electric light bulb? One explanation is that Edison was better positioned to exploit the capital markets at the time. First, Edison had a solid understanding of the entire system of electricity that was necessary to support an electric light bulb. His work in the telegraph industry greatly contributed to his understanding of various electrical apparatus and electrical systems. Second, Edison was fresh from the invention of the phonograph the previous year, a time at which the New York Daily Graphic dubbed him the “Wizard of Menlo Park,” as shown in Figure 4. He had toured the country, met President Rutherford B. Hayes, and received overwhelming amounts of press for his admittedly unprecedented invention.
Figure 4 . Following the introduction of the phonograph, Edison was dubbed the “Wizard of Menlo Park” in July 1878 by New York Daily Graphic reporter William Croffut.
Finally, Edison possessed better facilities than anybody else and was supported by a team of workers ready to tackle the invention of the practical electric light bulb and the development of a comprehensive electric power system. No other inventor had anything approaching the scope of Edison’s well-equipped Menlo Park lab, shown in Figure 5, and no other business leader in the country had a more experienced team of inventors. These three things, knowledge, reputation, and facilities, allowed Edison to corner the existing capital market for research and development funds for the electric light bulb. Records indicate that Edison received about US$130,000 of venture capital in the two and a half years of active research and development between September 1878 and March 1881. None of his competitors received anything remotely close to this amount. Using these funds, Edison purchased new equipment for his laboratory, built a new and larger experimental machine shop, and added a combined office and library building that he stocked with books and journals that had previously been beyond his means to purchase. Given that many of his competitors were self-financed, relatively unknown in comparison, and poorly equipped, it’s no wonder that Edison outmaneuvered them.
Figure 5 . With funds from the Edison Electric Light Company, Edison expanded the original Menlo Park laboratory (center) by adding a larger machine shop (rear) and a library-office. This painting also depicts the experimental electric railroad (right) that he was working on as part of his plan to sell power as well as light. (Photo courtesy of the Edison National Historic Site.)
A recent poll of business historians published in Business History Review ranked Edison fifth in a list of the ten greatest entrepreneurs and business people in American history. In this poll, Edison’s name appeared with giants of enterprise such as Henry Ford, Bill Gates, Sam Walton, and Alfred Sloan. A broad range of historians clearly consider Edison’s business story to have merit, as he not only placed in the top five but trailed only Henry Ford and John D. Rockefeller in the number of first place votes received.
Scholars and historians have most likely condemned Edison to business ignominy for the act of creating vast amounts of wealth and letting much of it slip through his fingers. Although there is some truth to this observation, it would be shortsighted to continue this trend as it focuses entirely on what Edison failed to do (i.e., capture wealth) and almost completely ignores his many business successes. Continuing to view Edison as the great American inventor who paid no attention to business conforms more to the conventions of Hollywood than the historical record. As columnist Allen Barra warned (with a nod to George Santayana), “Those who do not study history are forced to get it from Hollywood.”
For Further Reading
P. Israel, Edison: A Life of Invention. New York: Wiley, 1998.
A. Millard, Edison and the Business of Innovation. Baltimore, MD: Johns Hopkins, 1990.
B. McCormick, At Work with Thomas Edison. Irvine, CA: Entrepreneur, 2001
The Papers of Thomas A. Edison (vol. 1-5). Baltimore, MD: Johns Hopkins [Online]. Available: http://edison.rutgers.edu
Submitted by Dick Reiman, Historian
Copyright 2005 IEEE. Reprinted with permission from the IEEE publication, “IEEE Power & Energy Magazine” Vol. 3, No.1, January/February 2005.
March 4th, 2005