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It is no coincidence that the two energy pioneers featured here both began their careers in the 19th century. The industry changes only slowly. The industrial revolution that began in the 18th century was fuelled by coal, which still supplies 30 per cent of the world’s energy today. The latest genuinely new energy source, nuclear power, was first deployed commercially in the 1950s.
That is not to say that innovation in energy is impossible. The industry has provided the technological advance that has arguably had a greater global impact than any other in the past decade: the commercial extraction of shale oil and gas.
Energy companies continue to make remarkable progress, for example in the relentless decline in the costs of solar and wind power, but truly radical innovations have been scarce.
To be a pioneer in the energy business, you need to tackle the problem of scale. Larger plants are generally more efficient, and the gap between successful experiments and success on a commercial scale can be vast.
As Alex Trembath, senior analyst at the Breakthrough Institute, an environmental think-tank, puts it: “It is hard to make the transition to a new energy economy in a laboratory. You need to make your discoveries work in the marketplace.”
Upfront capital requirements can be huge and energy technologies generally fit together in systems. Any innovation must either work within an existing system, or replace it entirely. The classic example is electric vehicles. Crude oil is converted into personal mobility through a complex system of extraction and refining, fuel distribution and retail, and the manufacture and servicing of vehicles with internal combustion engines. To change that model, you need not only a new type of car, but a network of charging stations.
Would-be pioneers face the challenge of effective existing technology. Fossil fuels continue to dominate the world’s energy system because they are convenient to handle, store and use. Were it not for their adverse consequences in terms of pollution, the world would probably not be looking for alternatives.
There is also the question of safety. If entrepreneurship is all about risk taking, the energy industry is all about risk avoidance. As they manage combustible and volatile hydrocarbons, high voltages and toxic or radioactive materials, energy companies can cause catastrophic accidents if they are not absolutely rigorous about safety.
Reliability is another critical issue. People need their cars to start in the morning and their lights to come on when they flick a switch, and they will swiftly reject any innovation that cannot guarantee those services.
As Daniel Yergin, energy historian and vice-chairman of IHS, the research company, puts it: “You don’t just try something.”
It is significant that the greatest energy pioneer of the 21st century so far worked within all these constraints. George Mitchell, the father of the US shale revolution, searched for years for ways to extract gas from rocks where it did not flow at commercially viable rates. Although the challenges involved in extracting shale gas defeated many others, he found his first success in the early 2000s.
Mitchell, who died in 2013, was smart in not trying to overcome any of the fundamental problems of innovation in energy. He was working to produce a fossil fuel that would fit into an existing infrastructure. His team did “just try something”: using a mixture of water, sand and chemicals pumped into a well at high pressure to crack the rock and release the gas. Hydraulic fracturing, or fracking, made the shale revolution possible.
Mitchell did not stick around to build the business, but sold to Devon Energy, an Oklahoma-based rival, for $3.5bn including debt in 2001.
From a shareholder’s perspective he might have sold too soon, given that the US shale industry is now making billions of dollars in revenue every month. Controlling as much of the shale business as John D Rockefeller did of the US oil industry in the 19th century would put your fortune into the hundreds of billions.
However, Devon made critical additional progress with the technology, including the use of horizontal drilling. It seems clear that if Mitchell had not sold, the growth of the US shale industry would not have been as rapid as it was.
In popular memory, Thomas Edison is known as a great inventor, the creator of electric light, the phonograph and moving pictures.
As a business pioneer, however, his significance lies in structures and processes, not products. His greatest contribution was not so much what he did as the way he did it.
All of Edison’s best-known inventions, including the incandescent electric lightbulb, benefited from the discoveries of others who came before and after him. Often similar ideas were being worked on by many different people around the world.
What was unique about Edison was his ability to develop, adapt and commercialise ideas and protect them with patents, and his vision of an organisation dedicated to taking scientific advances and turning them into viable products.
Edison’s laboratory at Menlo Park, New Jersey, was the first real research and development facility in a form that we would recognise today.
His Pearl Street power plant in New York, opened in 1882, was not the world’s first, but it was the first to have a workable business model.
“Edison understood how no one else did that he needed to develop an entire electricity system to make electric light practical,” says Paul Israel, a biographer of the inventor and the director of the vast archive of his papers at Rutgers University, New Jersey.
“What he did was commercial strategy. That is a really crucial thing, and it is much harder than what was going on in the lab.”
Edison had his first real successes improving telegraph equipment, and opened Menlo Park in 1876. The breakthrough that made him famous was primitive sound recording with the phonograph in 1877, and his first lightbulbs went on sale in 1880. It was an extraordinary rate of progress.
In the years that followed, Edison’s knack for success deserted him. He mistakenly backed direct current against the alternating current systems being developed by his competitors, including George Westinghouse and Nikola Tesla.
In 1892, JPMorgan, Edison’s leading backer, arranged the merger of the Edison General Electric Company with rival Thomson-Houston to form General Electric, and Edison became marginalised. He sold his stake in GE and walked away to pursue other inventions, with uneven results.
“He was very good as an innovator and an R&D entrepreneur,” Israel says. “He was not so good as the industry matured and the market changed.”
Nevertheless, he deserves his reputation as a business pioneer, above all for his innovation of the practice of innovation itself.
John D Rockefeller
The most glamorous figures in the oil business have always been the wildcatters: the explorers who venture into territories and drill wells without knowing what they are going to find, triumph or disaster hanging on their skill and luck.
However, one of the most successful oil men in history took a different route. John D Rockefeller looked down on the wildcatters, and left nothing to luck if he could help it. His fortune — the largest the US has ever seen, relative to the size of its economy — was built through the unglamorous virtues of consistency, discipline and organisation, and by a strategy of suppression of competition.
In the years after the first production of crude from a well in western Pennsylvania in 1859, oil was a chaotic, ramshackle business. Daniel Yergin, vice-chairman of IHS, the research company, and a historian of energy, says that although Rockefeller saw the vast potential, he was also instinctively suspicious of the industry.
“It was a very anarchic industry, and he really disliked disorder,” Yergin says.
“It went from boom to bust; prices were going up and down; fortunes were made and lost. He fashioned out of that a modern refining industry.”
Like a handful of other great industrial pioneers, he created not just a product or a company, but a way to make a business work.
Rockefeller began his career as a book-keeper with a trading company in Cleveland, and later in life would extol the virtues of his training in accounts. He branched out first with his own trading company, and then, in the 1860s, into oil refining, followed by the formation of Standard Oil in 1870.
The “standard” referred to the product, kerosene used for lamps, which performed better and was safer if it had a consistent quality. It also described the company, which was run as a rigorous, methodical organisation.
Standard Oil quickly became the dominant force in its field. Yergin describes in his book The Prize how Rockefeller led a series of deals to buy up rival refiners, sometimes competing aggressively against them to persuade them to sell. He was helped by good relations with the railways that transported the oil.
The group he created, organised not as a single company but as a network owned by a trust, controlled about 90 per cent of US refining capacity. That level of market power attracted political attacks, and in 1911 Standard Oil was forced to break up.
Its successors include ExxonMobil, Chevron and ConocoPhillips, the largest American oil companies, and the US operations of BP. Their industry-leading positions today, 145 years after Standard was founded, are testimony to Rockefeller’s genius and enduring influence.
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This article has been amended to carry the correct picture of John D Rockefeller Sr. A previous version displayed a picture of John D Rockefeller Jr.
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