Henry Goldman and the founding of Goldman Sachs

Executive overview

Marcus Goldman, a German-Jewish immigrant, built a commercial paper business in 1869 New York — no qualifications required, just hustle and pattern recognition. His son Henry, initially dismissed as deficient due to poor eyesight, turned a listening superpower into a career-defining edge.

Henry's greatest contribution was seeing that family-owned retailers — ignored by established Wall Street houses as too low-status — needed capital to expand. He partnered with Lehman Brothers to underwrite their IPOs, seeding the firm's fortune.

The core insight: the best opportunities are often hiding where your competitors aren't looking, because they don't think it's prestigious enough.

Marcus Goldman: immigrant origins and first moves

• Arrived in Philadelphia with nothing; spent three years peddling textiles 14 hours a day, seven days a week — and wrote home calling it good fortune
• Spotted immigrants flooding off boats as an untapped market for cheap clothing; borrowed $5 to buy a sewing machine and opened a tailor shop
• Recognised New York replacing Philadelphia as the commercial centre; sold up and relocated
• Started M. Goldman Banker in 1869 — buying promissory notes (commercial paper) at a discount in the morning, selling to banks in the afternoon
• No qualifications or special training were required to enter banking at the time

Henry Goldman: the underestimated son

• Poor eyesight meant he was seen as incapable; his mother coddled him, Harvard was cut short, and his own father passed him over for partnership in favour of a son-in-law
• Became a travelling salesman for years, crossing the country by rail — developed acute observation and listening skills that became his defining advantage
• Finally admitted to the firm as a junior partner in 1885, at age 33, after a decade of waiting
• Used every slight as fuel; had fire in his belly and a deep need to prove people wrong
• Personal motto: "Money is always in fashion"

The Goldman–Sachs partnership and its fractures

• Marcus and Joseph Sachs had been friends since Bavaria; their families intermarried, then went into business together — an arrangement that eventually imploded
• Sam Sachs (senior partner) and Henry were polar opposites: Sam was deferential, risk-averse, socially ambitious; Henry was creative, stubborn, a risk-taker
• All partners' assets were locked inside the firm; no withdrawals without a formal petition to senior partners
• The feud was permanent: after Henry's forced departure, neither family exchanged a word for almost a hundred years; Henry chose his cemetery plot with his back turned to the Sachs family

The IPO strategy that built Goldman Sachs

• Henry observed that family-owned businesses across retail and manufacturing were expanding rapidly and needed Wall Street capital — an opportunity the established houses dismissed as beneath them
• Sealed a handshake deal with Philip Lehman: Goldman would bring the clients, Lehman the money, profits split 50-50; it lasted over 20 years
• First underwriting: United Cigar Company, raising $20 million to build factories and expand its sales force
• Followed by Woolworth's, Studebaker (first automobile manufacturer to go public), and 114 new issues in total
• Woolworth had opened his first fixed-price ten-cent store in 1879; Goldman took the chain public in 1912, by which point it was one of the hottest commercial phenomena of the century
• Studebaker went from making wheelbarrows for gold-rush miners to wagons to electric vehicles to gasoline cars — Goldman underwrote their public offering throughout

The 1907 panic and the lesson on survival

• A decade of small investors shifting from bonds to stocks fed speculation; Knickerbocker Trust secretly used depositors' funds to corner the copper market
• When the scheme collapsed, Knickerbocker's funds were wiped out in 48 hours; its president shot himself
• Henry's read: the greatest entrepreneurs optimise for survival; keeping a fortress of cash is not conservative — it is the prerequisite for staying in the game
• Goldman Sachs itself later nearly collapsed through a separate leveraged vehicle (the Goldman Sachs Trading Corporation) during the Depression — Henry's view: "They had relied on the decisions of others, which I myself would never have done"

Forced out over World War One

• Henry's deep love of Germany led him to publicly support Germany after 1914, while Goldman's London partners Kleinworts — and the British government — were on the other side
• Kleinworts were called before the Ministry of Blockade, shown intercepted cables linking Goldman to German business, and withdrew from the partnership
• The firm was threatened with blacklisting in the City of London; Henry's partners and his own sisters urged him to stop
• Henry resigned in 1917 after 35 years, framing it as a voluntary retirement; Walter Sachs, who knew the debt the firm owed Henry, called him "the original genius in Goldman Sachs who made the first great imaginative contribution to the growth of the firm"
• Henry and Samuel Sachs never spoke again

The final years

• Henry spent his last two decades investing his own money, travelling the world despite near-total blindness, and mentoring — including Sydney Weinberg, who rose from janitor's assistant to senior partner and trusted advisor to presidents
• His greatest regret, shared with his wife near the end: an inability to express approval to his children, to overlook their minor mistakes, to say "I love you"
• He died mid-conversation with his wife, his head dropping to his chest