How Henry Ford Invested $28K To Create A Billion-Dollar Company

Henry Ford made history as being the founder of one of the biggest American companies starting with $28,000 that would create a billion-dollar business in just 22 years. There are a couple of secrets to Ford’s success that will inspire entrepreneurs and start-ups. 

At the time, an average factory worker’s wage was $2.50 per day and Ford was paying his employees $5 per day. Ford also sold their cars for lower prices with a Model T costing $360 compared to the competition average price of $700 for a car. Ford was able to establish this model despite only having$28,000 to fund his first factory in 1903 and make cars more accessible to people outside of the wealthy elite.

The average annual salary was around $500 while cars were selling at $850 that was only accessible by the wealthy elite and left the common man out. Another issue Ford tackled head-on was pricing as in the early 1900s it was impossible to generate profit by selling cars under $600 and the first Model T was sold for the base price of $825.

Ford’s model paid his workers 100% more while selling cars with prices 50% lower than his competition that turned Ford Motors into a dominating force in the automobile industry. The Model T today is one of the highest sold vehicles in the world with 16.5 million units all credited to Ford’s manufacturing model.

Ford along with Cadillac and 11 other American car companies were competing to capture a small market of elites when Ford realized that catering to this smaller segment that wouldn’t help to scale his company. Ford decided to cater to the lower segments or bottom of the pyramid market such as the average middleclass that will help sell more cars.

Henry Ford decided to build a model that would lower the price of his cars annually starting in 1910 for $950, 1913 for $600, and 1917 for $360. This model helped Ford Motors skyrocket in company sales by4100% that made Ford the most profitable and biggest automobile manufacturer in the world.

Ford implemented a division of labor among workers that was inspired by a book “The Wealth Of Nations” written by Scottish economist, Adam Smith, that inspired the division of labor to create a more efficient system to produce more of a product with each worker focusing on one or two tasks similar to an assembly line. Using this model increased efficiency and the output of cars being manufactured as workers focus more on the single task that takes a shorter amount of time rather than completing a job alone that requires more time and less output.

Manufacturing cars at this time outsourced the making of a part to a highly skilled workshop where skilled workers use to craft every major part of the car, then assembled in the factory. Ford changed this model instead of having one craftsman make an entire engine body, he divided the body into three parts(engine head, gasket, and engine block) making separate machines for each part that with one worker in charge of an entire machine.

Ford also utilized the division of labor into micro processes with one worker responsible for a single task that will work together in a chain to complete faster. Ford created a process to increase efficiency through 84 particular steps that would manufacture more cars faster and cheaper than the competition.

Ford also implemented techniques developed by leading motion and time study expert, Fredrick Taylor, who studied each step of a worker to find a frequency that would lead to more efficiency. Taylor’s biochemical analysis determined the best way to achieve an efficient workflow would contribute to working at a certain measured pace to carry materials in a particular way, drinking water at measured intervals, and taking very frequent but short breaks whether the worker needed it or not.

Ford used this model to offer workers an incentive of up to 60% increase in pay if the workers follow all the labor procedures and achieve the necessary goals. This incentive resulted in a 300% increase in worker productivity and Henry Ford also introduced the five-day workweek as other factories have seven-day work weeks with the goal of having his workers be well-rested, so they perform better on the clock.

The biggest development in Ford’s growing empire was when he offered workers double the pay from $2.50 per day to $5 per day resulting in a flood of new workers. The lucky ones who got the job worked with dedication as they highly valued their opportunity for a high salary for the same amount of work increasing profits and efficiency.

Henry Ford was inspired by his biggest idea for Ford Motors after visiting a meat-packing plant. The meat-packing company has workers stay stationary when the products moved down the line and Ford applied this method to his factory to create one of the first assembly lines.

Ford was having workers move around the cars to complete manufacturing but once he applied a moving assembly line productivity skyrocketed. Previously it took over 12 hours to completely build one car and the moving assembly line only required 93 minutes to completely build one car.

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