Power Failure

Chapter One

A Child of
Two Fathers

Ask most people about the origin of the General Electric Company in and around 1892, and you'll hear all about Thomas Alva Edison and his inventions-the carbon filament incandescent lamp, the dynamo, the phonograph, and the motion picture camera. But GE, and its extraordinary success after some initial financial hiccups, was actually more the doing of another restless entrepreneur, Charles Albert Coffin, whose visionary thinking and aggressive acquisitions drove the company forward in its early years. Coffin doesn't get nearly the accolades, or ink, of Edison, but it turned out that Coffin was by far the superior businessman, a gene Edison lacked. In any event, Coffin and Edison started out as competitors in the race to electrify America, but they soon joined forces and both of their powerful DNAs would become entwined in GE.

Born in December 1844, Charles Coffin grew up in Fairfield, Maine, north of Augusta, after his grandfather, a farmer, settled there at a time when the federal government was offering free land to people who would move to uninhabited wilds. Charles's grandfather was a minister of the Society of Friends, also known as the Quakers. After graduating from Bloomfield Academy in 1862, Charles moved to Lynn, Massachusetts, to live with an uncle so that he could attend a "commercial" school in Boston. That uncle was a partner in a shoe manufacturing company, Micajah C. Pratt and Company. When Pratt died in 1862, Coffin's uncle inherited the business and his nephew joined him there. At that time, Lynn was the center of the nation's burgeoning shoe industry, and Pratt's business was an important part of it. The industry was automating rapidly, with sophisticated machines replacing the artisans and craftsmen of an earlier era. Coffin quickly proved himself adept at shoe design. He then moved into sales and proved skilled at that task as well. He started making regular calls in the western United States. It turned out Coffin was a talented businessman. He "must have borne the hallmark of genius from the outset," John Broderick, a former colleague, wrote about Coffin.

In 1873, Pratt's shoe company was renamed Charles A. Coffin and Company for its leading executive. Coffin built a new plant by the railroad station in Lynn in order to snag customers as they were coming off the train, before they could venture farther into town to one of his competitors. The company thrived under Coffin and he soon began to consider other business opportunities. By the 1880s, new inventions like the telephone (1876) and the incandescent lightbulb (1880) were poised to create entirely new industries. There were fortunes to be made in high tech, and one such invention was sitting in Coffin's backyard.

The Lynn Grand Army Post, an armory in Coffin's hometown, was considering lighting its new building with one of the newfangled dynamo systems, a forerunner of the electrical generator. Dynamos were among the first commercially viable ways to generate the electricity used in manufacturing and, eventually, to light people's homes. Silas Barton, a local newspaper owner, and Henry Pevear, a local leather manufacturer, who were tasked with the project, noticed that the building had a rudimentary yet out-of-date six-light dynamo sitting in its basement. The name on the dynamo read "American Electric Co., New Britain, Connecticut."

Barton and Pevear set off for New Britain, where they hoped to meet with Elihu Thomson, a former Philadelphia high school teacher-turned-inventor, who had moved to Connecticut and founded American Electric. Thomson had partnered with Edwin Houston, his former physics teacher from Philadelphia's Central High School. Thomson and Houston together had built a number of electrical contraptions, including induction coils, an arc lamp, and a dynamo. Thomson showed the dynamo to a friend, who then invited a curious cousin to see a demonstration of how it worked. Thomson, then twenty-six, told the cousin he could build a better dynamo, "one that will run any number of lights you want." The cousin responded well to Thomson's idea: "Let's build a four-lighter. I'll stand the expense." Thomson installed his first souped-up dynamo in an all-night bakery. The next one was in a brewery. When the brewery later caught fire, one of the firefighters sent to douse the flames couldn't get over Thomson's dynamo. "What the dickens kind of a light is that?" he said. "You pour water on her and she won't go out."

But as is the case with start-ups (then and now), Thomson and Houston were in need of capital; their initial venture together was in the process of fizzling out. When they came to Lynn to install the armory's new generator, the newspaperman and the leather manufacturer put them together with Coffin to discuss the possibility of Coffin injecting fresh capital into American Electric Co. and moving it from Connecticut to Massachusetts. On February 12, 1883, the newly recapitalized American Electric Co. opened for business in Lynn, Massachusetts, under a new name, the Thomson-Houston Electric Company. Coffin had bought out the inventors' old investors and was now in the process of recapitalizing and retooling their power and lighting company for the future, under his control.

There was one small hitch. Unlike with the shoe business, Coffin now found himself leading a business without a market. Broadly speaking, there were few customers for an electrical power company in 1883. It's hard to imagine today, but there were no grids to deliver electricity to homes and businesses; there were few, if any, electric appliances and it was a serious challenge to convince consumers that electric light was preferable to whale oil or candles. What if the whole contraption exploded? Or went up in flames? Out of necessity, the Thomson-Houston sales force became proselytizers, fanning out across the country to share the powerful message of arc lamps and electric light. The company had to teach its engineers how to install and to operate the equipment. At times, it was a hard sell, in the same way that getting people to use the internet was not so easy at first.

This thirst for customers led to the creation of local power and light companies, backed by wealthy investors and supported by local governments eager to provide the new technology to their citizens. "Mr. Coffin and his associates set out to sell electricity," The New York Times reported. "Their main objective was to get electricity to the people. They began establishing power plants in every place possible, where people could make use of it simply by connecting up."

The company eventually moved into a new three-story building on Western Avenue in Lynn. The new building had so much space at first that Pevear, the leather manufacturer, wanted to use some of it to dry his animal skins. But the new electricity business was a big success, nearly immediately. Growth was swift. In 1884, the new venture was supplying electricity to five central stations with 365 arc lamps. A year later, there were thirty-one stations supplying 2,400 arc lamps. Business was booming in part because of a decision to use electricity to power streetcars. The horse-driven commuter systems had to go, and the electric streetcar system that the company built connecting Boston to Lynn, some ten miles away, helped put it on the map by 1888.

Coffin had an interesting approach to raising the capital he needed. Rather than approach friends and family, as was more typical, he preferred to put together a constellation of what he dubbed "men of large means." Some of his earliest investors read like a who's who of Boston Brahmins: Henry L. Higginson, an investment banker and the founder of the Boston Symphony Orchestra; S. Endicott Peabody, a merchant and father of the founder of Groton School (his great-grandfather, Joseph, one of the wealthiest men in America, made his fortune importing pepper from Sumatra); T. Jefferson Coolidge, a great-grandson of Thomas Jefferson; and George F. Gardner, another prominent Boston financier.

Soon enough, Coffin had sold off his family's shoe business to a company in Boston for $300,000 to focus his full energy on the high-risk but potentially lucrative electrical power business. He employed two tactics to fuel Thomson-Houston's growth, both of which would be familiar today-vendor financing and acquisitions. Thomson-Houston did not sell its equipment to the public but instead sold to small, poorly capitalized local electric lighting companies. While adding an element of risk to Coffin's business model-could customers afford to pay?-the strategy also allowed Coffin to achieve greater scale by being a wholesaler of electrical equipment rather than a retailer. But often Coffin's customers struggled financially. That's when Coffin decided that Thomson-Houston would provide what is now known as "vendor financing" to its customers, essentially allowing them to pay for the purchased equipment with a combination of some cash up front plus their debt or equity securities.

He also pursued an aggressive acquisition strategy, sensing that there would soon be a handful of power companies that dominated the industry, and that scale would be key to his company's success. Buying up rivals solved another burgeoning problem for Coffin: patent infringements. He had an ongoing feud of sorts with Charles Brush, the inventor of the new type of lightbulb known as a double carbon arc who had served a patent infringement notice on Coffin. To solve the litigation, Coffin bought Brush's company for more than $3 million. When he wanted to enter the streetcar business, Coffin bought the failed Van Depoele Electric Manufacturing to get its patents, and then, for a stream of royalty payments, the Belgian-born electrical engineer and prolific inventor Charles Van Depoele himself. And in 1888, Coffin bought the majority of Fort Wayne Electric Light Company, which had been selling dynamos in the Midwest and South.

As often happens during fecund periods of innovation, two or three players battle it out for supremacy. And as Thomson-Houston grew and became more profitable, it increasingly found itself bumping up against the two industry titans: George Westinghouse, who had received his first patent at the age of nineteen and had the inventor Nikola Tesla on the payroll; and Thomas Edison, who in his lifetime would amass 1,093 U.S. patents. Coffin, who was once described as "a man born to command, yet who never issued orders," would soon find himself in a battle for market supremacy with Edison, while Westinghouse would remain a thorn in his side.

While Thomson-Houston had its genteel Boston backers, Edison had in his corner none other than J. P. Morgan, the titan of American finance and the senior partner of Drexel, Morgan & Co., and Henry Villard, the journalist-turned-railroad magnate. A lawyer who had been representing Edison on patent disputes related to the telegraph introduced Edison to J. P. Morgan to see if he might be interested in backing Edison's efforts to commercialize the incandescent lamp. He was. In 1878, with an investment of $300,000-most of which went to pay for equipment-Morgan, Edison, and small group of other financiers created the Edison Electric Light Company. Edison's immediate challenge was to create a filament for the electric lamp that would not burn up. By October 1879, Edison had the problem solved. In his lab in Menlo Park, New Jersey, a carbonized cotton filament burned for forty consecutive hours.

But of course it wasn't sufficient to create merely an electric light; Edison also needed to convince people of its efficacy and to create a mechanism by which electric current could be transmitted to their homes and businesses, so that the electric light could be used. Edison needed more space for this project. In 1880, he created the Edison Machine Works in New York City, to manufacture generators, and the Edison Lamp Works in nearby Newark, New Jersey, to manufacture lamps. Edison's lamp was little more than a glass bulb with most of the air taken out of it-nearly a vacuum-and endowed with a filament of carbon "for the reception of electric energy in the airless space," according to one description.

Edison's New York City office was at 65 Fifth Avenue. As his personal assistant in New York, Edison hired Samuel Insull, a young Englishman who had worked the previous two years as the secretary to his London agent. Edison and Insull, who would later become the controversial founder of the largest electric utility in Chicago, met for the first time in the back room of 65 Fifth Avenue on March 1, 1881, two weeks after Insull sailed on the SS City of Chester from Liverpool. Edison's office was spare, outfitted with only a few walnut rolltop desks. "Edison received me with great cordiality," Insull later remembered. "I think possibly he was a little disappointed at my being so young a man. I had only just turned 21 and had a very boyish appearance." Insull recalled in some detail what Edison was wearing at their first meeting-a "rather seedy" black diagonal Prince Albert coat, a white shirt "somewhat worse for the wear"-as well as his somewhat portly shape ("although by no means as stout as he has grown in recent years"). "What struck me above everything else was the wonderful intelligence and magnetism of his expression and the extreme brightness of his eyes," Insull said.

They immediately got down to business, including discussions of how much money Edison had in his bank accounts and what securities of European telecom companies were the most salable. Like Coffin, Edison had taken payments from customers in the form of their debt or equity securities. Edison wanted to make sure his incandescent lamp factory had enough money to operate. "He spoke with very great enthusiasm of the work he had before him [regarding] the development of his electric lighting system," Insull continued, "and his one idea seemed to be to raise all the money he possibly could, with the object of pouring it into the manufacturing side of the electric lighting business, and I remember how wonderfully impressed I was with him on this account, as I had just come from a circle of people in London who not only questioned the possibility of the success of Edison's invention, but often expressed doubt as to whether the work he did could be called an invention at all." They continued their conversations until around five in the morning. Instead of feeling exhausted by Edison, Insull seemed exhilarated, "feeling thoroughly imbued with the idea that I had met one of the great master minds of the world." He allowed that he "fell a victim" to Edison's "spell" during that first meeting.

The next day, Insull was off with Edison to Menlo Park, where for the first time he saw Edison's labs and the network of electric lighting he had created in the buildings that comprised his operation. He wrote of the visit that it was "unforgettable" and at ten o'clock at night he was so moved he returned to the Menlo Park railroad station and had the telegraph operator there send messages to his friends in London about the miracle of electric light he had just witnessed. "Menlo Park was naturally the Mecca of those who looked upon Edison as the great inventive hero of the time," Insull recalled years later. "It must always be looked at as the birthplace of the electric light and power industry."