How Rockefeller built his trillion-dollar oil empires

Vibhavari Madki

Aug 26, 2020 — 5 min read

How many wealthiest Businessmen or tech giants are living today? There are plenty of them who have worked their path through to the billionaire. But the only name topping the chart died almost a century ago. The businessman who continues to rank as one of the richest men in modern times built a trillion-dollar oil empire. This is the story of John Davidson Rockefeller(1839-1937).

He is still one of the great figures of Wall Street, reviled as a villain, applauded as an innovator, but universally recognized as one of the most powerful men in history.

Early Stage of Rockefeller

John was a smart individual since childhood. He got his hands into a lot of tasks, including raising turkeys and doing chores for neighbors, to make any money for his survival.

He received an unusually good education for his time till the age of 16 and then found a job as an assistant bookkeeper at a company called Hewitt & Tuttle, but he left that position in order to form a business partnership with oil driller Maurice Clark, that would later become Rockefeller, Andrews & Flagler, a company that focused on oil refineries rather than drilling.

Frustrated with the low wage rate at the Bookstore, he decided not to invest his more time into the job and get some higher paying work. He then managed to secure a loan and started selling food products, such as grain and meat.

The business boomed and John made some serious money. He was far from a millionaire though, but he didn’t do too bad for an inexperienced teenager. He was only 18, but the banks, impressed with his commercial acumen, were ready to loan him more money.

Standard Oil

In 1865, Rockefeller had borrowed some money to buy some of his partners and take control of the refinery. Over the course of the next few years, he acquired new partners and expanded his business in the growing oil industry. In 1870, Rockefeller formed the Standard Oil Company of Ohio, along with his younger brother, and a group of other men. John Rockefeller was himself the president and largest shareholder.

Rockefeller's Oil Monopoly

In 1859, the first oil well in the United States was discovered. And so there began the oil rush and rise in demand. A lot of passionate entrepreneurs, including Rockefeller, rolled up their sleeves and prepared to grab their slice of the pie.

When a bunch of determined, ruthless, pioneering entrepreneurs see an opportunity, they don’t show any mercy to their competitors. These people are relentless and won’t settle for anything but the first spot.

John Rockefeller not only sold refined crude oil but he also squeezed profits from byproducts like paraffin wax, tar, and naphtha. He didn’t buy wooden barrels from other businesses, he bought a forest and used his own wood to produce barrels to store oil.

The revenue kept coming and Rockefeller made all the small competitors surrender to his authority. Rockefeller incorporated his company as the Standard Oil Company in 1870.

But there was one thing that was still bothering him. There were four more competitors left and Rockefeller, who was raised in a crowded household and earned 50 cents a day, wasn’t a big fan of sharing.

Rockefeller's Standard Oil gained a state of monopoly in the oil industry by buying rival refineries and developing companies for distributing and marketing its products around the globe. In 1882, various companies were combined into the Standard Oil Trust, which would control some 90% of the nation’s refineries and pipelines.

By 1890, his company, Standard Oil, was gaining major profits, which he used to buy out competitors. While Rockefeller's offers were usually readily accepted, he had ways of persuading holdouts.

He bought up all the oil barrels to cause a shortage that crippled smaller companies. Orchestrating price wars between wholly-owned subsidiaries, forcing holdouts to sell at losses. Also, Secretly bribing legislators.

Limiting the number of trains available for shipment by leveraging his close relationship with the railroad companies. Purchasing all of the equipment and the equipment suppliers, then refusing to sell replacement parts to holdouts.

Rockefeller's Journey to Trillion Dollar Empire

Standard Oil Trust

After his failure to reorganize the rail industry, Rockefeller decided to restructure his sprawling empire. He and his partners innovated a first of its kind trust, where they swapped their individual holdings for shares in the trust. Rockefeller now wielded centralized control and veto power on all of the corporate boards within his conglomerate. The immediate benefits included even lower costs, lower kerosene prices, and standardization across the industry. Rockefeller's company now had the assets and wealth to build pipelines and other infrastructure, on a scale that was previously unthinkable.

Standard Oil also employed chemists who developed ways of increasing the types and quality of combustible fuels and created methods of converting waste into usable substances. The petroleum coming out of the ground was being refined into various products, such as diesel fuel, varnish, and hair gel. As the new products became cheaper to produce, the company increased its global economy of scale.

Standard Oil had its hands in many ancillary industries, such as iron, copper, steel and coal, but it also grew its presence in more unexpected areas, such as general stores. Rockefeller wisely forced shops to carry his products alone, where he was able to draw on the empire’s war chest to slash prices, thereby driving non-compliant shop owners out of business. Standard Oil likewise bought up newspapers to promote its version of events. It also owned its own boats, railroad cars, and warehouses, while manufacturing its own sulfuric acid.

Rockefeller's later life

After retiring in 1896, Rockefeller channeled his energies towards philanthropic deeds, donating millions of dollars in the latter years of his life. With his son's help, he created the Rockefeller Foundation, to carry on his work after he died. His business practices and charities have nonetheless benefited millions of people.