New technology, old ideas

What a letter from 1855 can teach us about startups today

In 1855, Daniel McCallum wrote a letter to his bosses at the New York & Erie Railroad. McCallum had risen up through the ranks from carpenter, to bridge engineer, to chief of bridges, to regional manager of the Susquehanna division of the railroad. His latest promotion, to general manager of the entire railroad, was a big one.

So he picked up his pen and put his ideas about managing the railroad down on paper. It was the first time we know of that anyone ever did this.

McCallum’s biggest problem was cost-per-mile. As fast as the railroad grew in size, operating costs grew faster. Where the company should have seen productivity improvement (declining cost per mile), it saw the opposite. Communication, coordination, operations, sales — all became more difficult, not less so, as the railroad grew.

For McCallum, a productivity problem was a general management problem. And his ideas about general management marked a turning point in business history.

Fast forward not quite two centuries and many talented people in Silicon Valley are in McCallum’s shoes. They’ve risen rapidly in their careers because they were great at their jobs, because the company was growing like crazy, or both. They are getting shoved into leadership and management roles. And it is the hardest transition many of them have ever faced.

Against all their hopes and dreams, the bigger the company gets, the less well things work. Instead of productivity and happiness, there’s the opposite. These companies often have plenty of financial runway. And they have raw talent that’s the envy of the world. But they grind the gears on general management — burning too much cash, energy, and time setting goals, organizing the work, getting it done, and improving performance. The gears grind, people get frustrated, and the runway gets a lot shorter.

McCallum was at the height of his career, still prototyping how to manage. Remember, there were no business schools or how-to books in 1855. No general manager apprenticeships. McCallum had been taught to engineer and build bridges, not to manage thousands of people across half a continent.

McCallum’s letter outlined five key challenges:

  • How do you get a group of people to work together to common goals?
  • How do you give people the right amount of responsibility?
  • How do you make sure the job gets done?
  • How do you know how things are going?
  • How do you do all this with respect for others?

McCallum designed his railroad’s management structure and operation to answer those questions. He created a custom blend of hard assets, people and technology — for instance, he used the telegraph the way we use email or the internet today — to make the railroad work.

I believe that McCallum added years to the life of the New York & Erie railroad. The railroad had financial capital. It had engines, rail cars, all the physical assets it needed. It had fleets of talented people at every level of the organization. What the railroad needed was great general management to amplify the productivity of the capital + labor combination, to extend the life of the business. Great general management adds runway.

OK so what do we do with this story? Daniel McCallum. Interesting person. Hard problem. Railroads matter.

McCallum accidentally gave us a beautiful scorecard for general managers.

Take a look. Here are McCallum’s five challenges:

  • Group works together on common goals.
  • People have the right amount of responsibility.
  • Team gets the job done.
  • General Manager knows how things are going along the way.
  • People feel respected.

By each, write a score for your team from 1 to 10, with 1 being the worst and 10 being the best.

McCallum’s scorecard is an optimistic one. It’s based on the idea that sometimes you can get better in each of the five areas. So don’t be shy about giving a low score.

Now go back and spend time dissecting the low scores. McCallum took his lowest scoring areas and prototyped improvements. He changed procedures for communication. He changed the organization design. He added some steps and removed others in key process. You can do the same thing.

If you are grinding the gears in your work, the company’s spiritual and financial runway is shorter than it could be. It’s kind of surprising that in the mid-1800s there was a person who struggled with what it meant to be a good general manager. His struggle can save you time and worry. Borrow McCallum’s ideas to put grease on the gears.

Michael Dearing is the founder of the venture capital firm Harrison Metal. He has held numerous executive roles at companies including eBay, Filene’s Basement and the Walt Disney Company.  He most recently served as an associate professor at Stanford University’s d.school.

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