Milton Hershey: building a chocolate empire through perseverance and purpose

Executive overview

Milton Hershey failed twice before founding a successful business, spending 14 years in the confectionery industry before his first real win. He built his empire not by being first, but by copying proven ideas from other markets — Denver caramels brought East, European chocolate production methods brought to America — and then obsessively perfecting mass production until no competitor could match his quality at his price.

The decisive edge was making a luxury good affordable to everyone by solving the mass production problem no one else in America had cracked.

A father who modelled what not to do

• Henry Hershey had grand ambitions and zero follow-through — a thousand schemes, none finished
• He chased oil booms, farming, cough drops; none worked; eventually his wife told neighbors she was a widow
• Milton absorbed two lessons from his father: the cost of giving up, and the cost of chasing fads
• Fanny, Milton's mother, redirected his energy — she spotted candy's profit potential and pushed him toward it at 14

Three businesses before one succeeded

• First business: Philadelphia candy shop, opened near the 1876 centennial exposition; grew fast, then collapsed under competition from hundreds of rivals
• Second attempt: New York, derailed when his father talked him into mass-producing cough drops — they couldn't compete with the 30-year-established Smith Brothers brand
• At 28, broke and embarrassed, he returned home having invested 14 years with nothing to show
• Third attempt: Denver-style caramels — a superior product not yet available in the East; a differentiated product instead of a me-too one
• A single lucky break saved it: a visiting candy retailer placed a large London export order; a junior banker, Frank Brenneman, was so impressed by Hershey's honesty that he personally co-signed a loan to fund it

Building the Lancaster Caramel Company

• Small continuous improvements over five years grew the workforce from 3 (Milton, his mother, his aunt) to over 700
• Branded caramels as "Crystal A" and urged customers to accept no substitutes — learned from the Smith Brothers' trademarking strategy
• Milton travelled constantly to Britain, studying Cadbury and England's low-cost mass chocolate market
• Saw the caramel business as a fad; chocolate as a staple — sold Lancaster Caramel for over $1 million and used the proceeds to start Hershey

Solving the milk chocolate mass-production problem

• Swiss chocolatiers held the knowledge; they weren't sharing it
• Milton set up a secret skunkworks on a farm: his own cows, his own dairy, his own condensing plant, a small production line
• Teams rose at 4:30am and sometimes worked through the night without stopping
• He recruited chocolate makers from Switzerland, Chicago, and the Walter Baker Company in Massachusetts to fill gaps in his knowledge
• Two years of experimentation before a saleable product existed
• Key insight: standardise and simplify — produce a few varieties in massive quantity, price nothing above a nickel
• Result: high quality at the lowest cost; no competitor could match both simultaneously

Hershey, Pennsylvania: the company town

• Directly copied the Cadbury model: factory moved to a rural site, a complete town built around it
• Town was designed as a closed, self-sustaining economy — housing, schools, infrastructure, a country club
• Milton tried to run town services at breakeven; not a profit centre
• In 1912, paid every worker a 20% bonus equal to the dividend paid to investors — profit shared with labour
• Milton described his philosophy as "populism and capitalism" — he called it the Hershey Idea

The school trust: an unusual legacy

• Milton had no biological children; he founded the Milton Hershey School for orphans in 1909
• He transferred the majority of his personal fortune into the Milton Hershey School Trust
• The trust holds a controlling interest in the Hershey Company — dividends fund the school in perpetuity
• By 2005 the trust held ~$5 billion in assets; at time of recording, ~$12 billion
• At its founding, only six universities held larger endowments than the school — richer than Cornell, Columbia, or Penn
• Milton's motivation was personal: he had been the poor, unstable, hungry child he was now rescuing