Samuel Insull: how one of America's greatest industrialists died broke

Executive overview

Sam Insull built the modern electric utility industry, turning electricity from a luxury into a universal necessity. He was to electricity what Rockefeller was to oil — yet unlike Rockefeller, he died penniless after a 53-year career.

The mechanism of his destruction was leverage. Borrowing became a deep-rooted habit from the start, and when the Great Depression hit, he doubled down instead of retreating — spending $200 million in new debt in a single year.

The core insight: no amount of brilliant operating decisions can survive a single catastrophic use of leverage.

Early life and character

• Born in England to an impractical, idealistic father; Sam inherited the imagination but replaced laziness with relentless energy
• Described as having "near demonic energy" — woke abruptly each morning bursting to work, gained momentum through the day, worked 16-hour days from age 14 into his 70s
• Relaxation was a learned act of will; his body always told him to keep going
• Read voraciously and retained almost everything — could race through large quantities of material and extract core principles instantly
• Adopted lifelong maxims from self-help books: "time is money," "things are simply done or not done," "survival of the fittest"
• Supported his family from age 14; started as an office boy, taught himself stenography, then bookkeeping — each skill acquired to become more valuable

Building relationships through service

• Got his first influential connection by becoming a nighttime stenographer for Thomas Bowles, editor of Vanity Fair — working 8pm–midnight then transcribing notes by 4am before his day job
• Key principle: provide excessively hard work and valuable service first; do not ask for anything
• Bowles exposed him to the highest levels of business, politics, and finance, and made him comfortable around powerful people
• Learned that "opportunity handled well leads to more opportunity"

Getting to Edison

• At 19, discovered Thomas Edison through an article and read everything he could find about him
• Got fired through no fault of his own; landed a job with Edison's European representative by chance
• Read every scrap of paper in the office about Edison's business affairs until he knew more about them than the senior partner
• Volunteered to work weekends without pay for Edison's chief engineer Edward Johnson
• Wrote unsolicited weekly letters summarising Edison's European business while waiting for an opening — those letters became his best recommendation
• Boarded a boat to New York without knowing his job title or salary, driven by a total inability to imagine his own failure: "caution, like relaxation, was unnatural to him"

Working for Edison

• Arrived in New York and started work the same night; spent the night cataloguing Edison's European telephone securities and had a full liquidation plan by 4am
• His mandate: systematise the business around Edison without attempting to systematise Edison himself
• Edison's working style — no fixed schedule, worked on whatever interested him, minimal sleep during intense invention sprints — required someone to build a complete operating layer around it
• Within four years had met virtually every important figure in the electric business, accumulated deep knowledge of urban politics, manufacturing, selling, finance, and credit

Building the electric industry

• Took over Chicago Edison at age ~31 — a company one-fiftieth the size of GE — because it offered the chance to build something without limits
• Told the board he would make Chicago Edison bigger than GE; nobody but him found that funny
• Borrowed $250,000 from Marshall Field to buy stock in the company on day one
• First two moves: buy the second-largest competitor, then the largest
• Always paid more than companies were worth when acquiring — "money may not buy friends, but it will keep many a man from becoming an enemy"
• Within six years the company was 10 times its original size, paying consistent quarterly dividends throughout financial panics

The operating principles

• Expand constantly: raise new capital, plough profits back, borrow every possible dollar
• Treat workers generously — not from sentiment, but because "discontent breeds stoppages, and stoppages are inefficient"
• Spread fixed costs as thinly as possible by diversifying operations to keep plants busy at all times
• Sell at the lowest price possible; lower prices bring greater volumes, which lower unit costs and yield greater profits
• Vertically integrate: bought electrical equipment manufacturers so competitors had to buy from him during downturns
• Coinvented the open-ended mortgage by reframing a rejected $100 million bond request as "a mortgage with no limit" — the board accepted, and he ultimately issued $500 million under it

Mass production and public relations

• Described his approach as "massing production" — a phrase his publishers shortened to "mass production," which historians later mistakenly attributed to Henry Ford
• Invented the concept of government-regulated utility monopoly — not to charge more, but to build the broadest possible customer base and spread fixed costs
• His thinking was inverted from peers: competitors wanted monopoly to raise prices; Insull wanted it to lower them
• Used rate cuts as public relations — every voluntary price reduction generated press coverage and goodwill
• Published a free magazine (Electric City) distributed by the tens of thousands across Chicago
• Trained employees in public relations; established one of the first full PR departments in existence
• Rule: first, produce the best possible service at the lowest rates. Second, educate the public on what goes into delivering that service — what is routine to the provider is fascinating to the customer

The fatal flaw: leverage

• "Never pay cash when you could give a note" — borrowing became a deep-rooted habit from his earliest career
• His companies operated like governments: perpetually refinancing debt with no intention of repaying principal
• In the late 1920s, bankers actively begged him to borrow more — one said at a party, "just set up a new corporation and we'll wire you another $21 million"
• Personal fortune grew from ~$5 million in 1927 to $150 million in 1929
• By mid-1932 it had fallen to zero and below — "too broke to be bankrupt"

The collapse

• Insull had not accumulated enough stock to prevent a hostile takeover; created two investment holding companies to maintain control
• Those holding companies were leveraged against falling stock prices — each market drop forced more collateral posting
• Ten days after the 1929 crash, he proceeded with opening the Civic Opera House and launched an $80 million natural gas pipeline from Texas to Chicago
• In 1930 alone, his companies spent $200 million on capital investment — mostly debt
• Borrowed a further $56–63 million secured against his holding company portfolios to buy out corporate raider Cyrus Eaton
• "He took his leverage too high and the structure of the leverage was a problem" — John Malone, describing Ted Turner; applies exactly here
• When England left the gold standard in September 1931, short sellers spread rumours Insull was dying; his three companies lost $150 million in value in a week
• By mid-December 1931 every share in both investment trusts was in the hands of bank creditors
• June 6, 1932: dictated resignations from 60-odd corporations all day. Statement to press: "Well, gentlemen, here I am, after 40 years, a man without a job"

The end

• Fled to Europe; extradited from Greece; tried multiple times; acquitted of all charges — no fraud was proven
• His own account: "I have erred, but my greatest error was in underestimating the effect of the financial panic on American securities"
• Died of a heart attack in a Paris subway on July 16, 1938; body unidentified for several hours
• Official police statement: he had nothing in his pockets

Key lessons

• Leverage is addictive: "once having profited from its wonders, very few people retreat to more conservative practices" — Buffett
• Any series of positive numbers evaporates when multiplied by a single zero
• Smart people go broke three ways: liquor, ladies, and leverage — Munger. Insull never drank and was faithful to one wife his entire life
• Learning from the mistakes of others is itself a form of leverage
• Understanding the potential of your industry better than anyone else is a reason to stay focused, not to diversify