Hold onto your hats, folks, because we're about to take a thrilling ride through the history books! You may have heard of some of the great industrialists of the past, like JD Rockefeller and his behemoth company Standard Oil, or perhaps you're familiar with Henry Flagler, whose name is practically synonymous with the sunshine state of Florida. What about the Harkness family? The story of these two families is so incredible, it'll leave you on the edge of your seat! Get ready to be amazed!
Here we tell the story of some entrepreneurs from Bellevue, Ohio who joined forces with JD Rockefeller to build Standard Oil in 1870. The company was very successful, making the founders (including Rockefeller, Flagler, and Harkness) extremely wealthy, on the level of Elon Musk or Jeff Bezos. We will also share how they quietly gave back to society through philanthropy and development.
The Harknesses and Flaglers who were part of Standard Oil were related - they were either step or half-brothers to each other. While he was a half-brother to both Henry Flagler and Stephen Harkness, Daniel M. Harkness wasn't a Standard Oil founder, however he invested early and ended up benefiting greatly.
The family relationships:
Early Flaglers and Harknesses in Bellevue, Ohio
The first Harkness in the Bellevue area (who actually lived in Milan, Ohio) was Dr. David Harkness. He moved from Fayette, New York to start his medical practice in Milan in late 1820. In Fayette, he had a child, Stephen V. Harkness, with his first wife Martha Cook, who died in 1820. Later, he married Elizabeth Morrison Caldwell and they had a child, Daniel M. Harkness.
When David died in 1825, his widow Elizabeth moved back to New York with Daniel to live with her in-laws. There, she married Isaac Flagler, a Presbyterian minister, and they had a son named Henry Morrison Flagler.
In 1837, Isaac Flagler was assigned to a parish in Toledo, Ohio. Henry was 7, Dan was 15, and Carrie was 10. Dan wanted to stay with his uncle in Bellevue, Ohio, so he moved there to work in their store in Republic, Ohio. The Flaglers only stayed in Toledo for two years and then moved back to Hammondsport, New York. There Henry Flagler went to local schools in upstate New York until eighth grade.
The First Steps
Daniel convinced his half-brother Henry to join him, and Henry went to Ohio at age 14 to work in 1844. He was paid a salary of US$5 per month plus room and board. By 1849, he was promoted to the sales staff and paid $40 per month. Later, he and Daniel started a grain business and distillery with their uncle Lamon in Bellevue, Ohio, and made a small fortune distilling whiskey. During their time in Bellevue, Henry, Daniel, and Stephen often did business with John D. Rockefeller when he was in the grain business.
Where did they live in Bellevue? Click PLAY on the video below to see that.
In 1858, Henry sold his stake in the grain and distillery business and went into the salt business in Saginaw, Michigan with his brother-in-law Barney York. But in 1862, the salt business failed, and Henry first returned to Bellevue before moving to Cleveland, where he shared office space with JD Rockefeller.
Stephen Harkness "Shark Tank" Venture Capitalist
In 1867, Rockefeller needed capital for his new oil business and approached Flagler, who was then made a partner in the newly formed Rockefeller, Andrews & Flagler partnership. Stephen V. Harkness, Flagler's stepbrother, invested $100,000 (equivalent to $1.94 million in 2021) on the condition that Flagler be made a partner. Flagler was in charge of Harkness's interest, and eventually, the partnership grew into the Standard Oil Corporation in 1870.
While many today think of the oil business as gasoline for cars, that was not how the company initially grew. The major component of the business initially was kerosene oil which was used for lighting in homes and later powered engines in mills etc. Kerosene burned cleaner and was cheaper than the prior source, whale oil.
Gasoline was discovered nearly 160 years ago as a byproduct of refining crude oil to make kerosene for lighting and heating. There was no use for gasoline at the time, so it was burned off at the refinery, converted to a gaseous fuel for gas lights, or simply discarded. It wasn't until 1892, with the invention of the automobile, that gasoline was recognized as a valuable fuel. By 1920, 9 million vehicles powered by gasoline were on the road, and service stations selling gasoline were opening around the country.
Standard Dominates
When Standard Oil was formed, the oil business was in disarray. Drilling for oil was boom and bust. So, JD and Flagler focused on refining since it was less reliant on finding oil to take some of the risks out of their business. However, prices still fluctuated wildly and there were hundreds of refiners of various sizes. JD and Henry decided the only way to stabilize prices and grow the business was to be a consolidator. So, they started buying out their competitors. While this is often cited as draconian, they usually offered the proprietors of the companies they bought Standard Oil stock or cash. Many just went for the cash, others took stock too and they became very very wealthy as a result.
Henry focused on the efficiency of Standard Oil operations and started driving discounts with the railroads in return for guaranteed revenue to the railroads. Because of their size, they could pull this off and it was difficult for the smaller refiners to compete. Similar to how Walmart and Amazon do business today. Volume pricing can demand significant discounts.
Ida Tarbell and others in government started driving to bust up the Standard Oil Trust. This was a major scandal of the time. The end result was that the government forced Standard Oil to break up the trust. But sometimes there are both unintended consequences and benefits.
The Trust is Busted and it turned out to be the best thing!
In 1911, Standard Oil was declared an illegal monopoly and had to stop operating. It turns out that the breakup made Rockefeller and the other founders even wealthier because the company was split into 43 separate companies, including Exxon, Chevron, Amoco, and Mobil, all of which the founders owned stock in. They each grew even larger under their own stock and brands and still exist today!
Now that you have the big picture...lets dig in!