The better product struggles to become more popular until they demonstrate it in a store window.

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Dave Young:
Dave Young here with Stephen Semple. And Stephen, it’s back to tool time, huh?

Stephen Semple:
Back to tool time. That’s it.

Dave Young:
We’re going to talk about Milwaukee Tools. So the first thing that came to mind moments ago when you told me what we were going to be talking about, there’s a YouTube channel that I like to watch, and the dude is politically incorrect. I feel embarrassed watching it. He’s Canadian, by the way. And the channel, you’ll find about it’s just AVE.

Stephen Semple:
AVE.

Dave Young:
AVE. And I think originally… It doesn’t matter. It doesn’t matter. But he unboxes power tools. He does a lot of unboxing power tool, and he doesn’t just unbox them, he takes them apart down to basically the screws and the wires.

Stephen Semple:
Wow.

Dave Young:
And he has his own names for things because I think he’s probably ADHD. And so Milwaukee is, “Willfuckyee.” They all have rude names because these days they’re all just as bad as the others. But there’s some empire building to be examined. Right? I think the power tool business felt to the consolidators a decade or two ago.

Stephen Semple:
Oh, they did. Yeah.

Dave Young:
But let’s hear the story of Milwaukee Tools and how they built their empire, even if they ended up being part of Amalgamated Consolidated International Tool Corporation.

Stephen Semple:
Yeah. So Milwaukee Tool was founded in 1924, and today they have like 5,500 employees and are doing like 5 billion dollars a year in sales. And the first company that came along to acquire them was in 1975, basically 50 years after founding, Amstar Sugar Company bought them for $30 million. But if you remember in the seventies, there was this thing where diversification was this big thing all these businesses were doing and they were buying bizarre things. And Milwaukee Tools was one of those ones where a sugar company came along, said, “Oh, we should diversify over there and buy them.”

Dave Young:
In case the bottom falls out of sugar.

Stephen Semple:
Right. But at the end of the day, it sold for 30 million bucks 50 years after founding. So…

Dave Young:
And here we are 50 years later.

Stephen Semple:
Yeah, here we are 50 years later. But the story of Milwaukee Tools actually starts 10 years earlier. It actually starts as AH Peterson Tools. And Arnold Peterson is a baseball player. He’s a pitcher. And look, at that time, baseball was not a full-time career. You only made a few bucks playing baseball. His main job was he was a handyman. So he was using tools every day and he saw the flaws, and he went, “Look, if these tools would be better, it would make the job so much easier.”

So along comes 1914, his baseball career is over, and he starts to design tools, and that’s when he starts the AH Peterson Tool Company. World War I comes along and there’s this immediate spike in manufacturing and the need for tools. And so during the war, Peterson has this nice niche creating custom handmade tools, but they’re not power tools, they’re hand cranked tools and things like that. But he sees success in Black+Decker. So he sees what Black+Decker is doing with power tools and he wants to move into power tools, but he needs capital for research. And in 1918, he gets a call from one of his customers. You’ve heard of this dude. Henry Ford gives him a call and says-

Dave Young:
Henry Ford calls him.

Stephen Semple:
Henry Ford calls him and says he wants to invest in his company. Because at this time, Ford is the largest manufacturer in the world, but Chrysler and GM are starting to nip at his heels, and Ford needs lighter, smaller, cheaper drills.

Dave Young:
Okay.

Stephen Semple:
So he invests in Peterson to make this happen. Peterson looks up Black+Decker. And remember, Black+Decker invented the idea of the trigger on a drill.

Dave Young:
Yeah, yeah.

Stephen Semple:
Right? Which made them famous. And you can go back to episode 63 to learn more about Black+Decker. Another great story of innovation. So Peterson looks at the Black+Decker drill and decides to move the trigger behind the motor, and this allows for a smaller casing, which dramatically drops the weight.

Dave Young:
Okay.

Stephen Semple:
It weighs four pounds, which is half of the Black+Decker drill weight, about the same as today’s drills. He dropped it down to pretty close to the weight of today’s drills. And he secures a patent and he calls the drill the hole shooter.

Dave Young:
The hole shooter.

Stephen Semple:
The hole shooter.

Dave Young:
Because you don’t need a drill, you need a hole. This will…

Stephen Semple:
And we’re going to shoot a bunch of holes for you.

Dave Young:
Shoot one, yeah. We’re not going to use a bit, we’re going to use a bullet.

Stephen Semple:
So he goes after the construction market and he’s selling this drill for about 40, for $42, and that’s about 600 bucks today. Again, a much lower price than Black+Decker. But even though it’s cheaper and it’s lighter, Black+Decker still dominates the market. It’s that classic story, it takes more than building a better mouse trap. So many businesses really remain the world’s best kept secret. We’ve got a better product, so therefore the world should come to our door. And how often does that happen? Hardly ever. Right?

So he’s got a sales guy, Al Seabert, who comes up with a brilliant way to get attention and demonstrate how much better the product is. Here’s what he understood. Here’s what Al understood. It’s not about educating the consumer, it’s about demonstrating in an entertaining manner the superiority of the product. So here’s what he decides to do, and he leverages the sexist mindset of the day. Remember this is the early 1900s. He sets up a demonstration in the storefronts of hardware stores where he’s got a wall and he randomly selects women who are passing by and gives them the drill to drill holes.

Dave Young:
Okay.

Stephen Semple:
Which shows how easy it is. If a woman can do this, if a random woman can do this, a burley, well-trained man certainly can.

Dave Young:
I love it and hate it at the same time, but yes.

Stephen Semple:
And I get it. I love it and hate it at the same time as well, but the campaign works.

Dave Young:
Yeah.

Stephen Semple:
The campaign totally works. And in 1920, the economy takes off and home building takes off, and Milwaukee Tools takes off. Portland event happens in 1924. In 1924, the factory burns, and arson is suspected, but there was never any charges laid. And Patterson can either face bankruptcy and try to rebuild, or walk away. And he decides to walk, and Al Seabert, the sales guy who came up with that demonstration, decides to buy the company, but he has to restart from scratch. He rebuilds the plant. He needs to expand to compete. When he does the rebuild, he changes the name to the Milwaukee Tool Company. But without Peterson to innovate, he decides to keep making the hole shooter, as well as going back to the roots of the company, which is looking at other designs and improving upon them. And they induce the electric saw and the sander. And then in 1975, sell to Amstar for $30 million.

But there’s some real interesting lessons here. And to me, the one is, and this is a cautionary thing I want to tell, we get businesses coming to us all the time who have got this superior product and they’re frustrated, right? “Well, mine is cheaper and faster and lighter and easier to operate. The world should be beating a path to my door. If I just could educate the consumer, people would see it.” And what we know as marketers, that never works. The educating of the consumer never works. And what was brilliant with Milwaukee was this really interesting demonstration that they created, that very clearly spoke to the superiority of the product in an entertaining manner. You’re walking past a hardware store, you’re not expecting to see a woman drilling holes in a wall, especially given the time that this was occurring. And also, think about in the time that was occurring, the woman would be in a dress with a hat and gloves. It would be a very eye-catching demonstration.

Dave Young:
Yeah. I googled what the Milwaukee hole shooter of 1924 looks like, and yeah, they put the trigger back behind the motor. I can see the benefit of that. If you’ve ever used a power drill where you have to apply some force, the handle’s not the place to do it. Right?

Stephen Semple:
Right.

Dave Young:
You’ve got to get your weight, your other hand on the back of that drill behind the bit, and that’s where they put the handle. It makes sense. No wonder it was easy to use

Stephen Semple:
And drop the weight. Drop the weight.

Dave Young:
Yeah.

Stephen Semple:
You add then that you now also have something that’s half the weight and done in that way. But here’s something I do have to apologize to the Milwaukee Tool Company. The picture we used, so when we did the Black+Decker episode, if you go to the website, there’s a little thumbnail picture. It’s of a woman using a drill and oops, that was probably a Milwaukee drill. I think we pulled a picture from Milwaukee rather than Black+Decker.

Dave Young:
That’s funny.

Stephen Semple:
My apologies.

Dave Young:
It seems like that innovation has gone away now. You don’t see any drills that are really like that anymore. They’ve all kind of been copycats.

Stephen Semple:
Well, when the emphasis becomes, let’s make something cheaper, let’s make something cheaper, let’s make something cheaper, you do lose innovation. And no, there hasn’t been probably anything much new in the drill business for a long time. Look, we saw that in the vacuum cleaning business until Dyson came along and said, “There’s got to be a better way to make a vacuum cleaner.” But that also means you have to commit yourself to making something that is more expensive and being comfortable with that, because better’s more expensive, and right now there’s a big emphasis in the consumer power tool business about making it cheaper.

Dave Young:
You got to hand it to them for the innovation in the day, cut the weight, make it easier to use, and the company took off when people were looking for more tools, building more things. America was growing. Yeah.

Stephen Semple:
And yet another business that Henry Ford had a little touch in. It’s amazing how many things he touched around that time. It was really quite incredible.

Dave Young:
Quite a phone call to get, right? “Henry Ford’s on the phone. Do you want to take it?” “Oh, all right.”

Stephen Semple:
Yes. Suddenly you’re not busy.

Dave Young:
“Henry Ford again?” Yeah.

Great episode. Thank you, Stephen.

Stephen Semple:
All right, thanks, David.

Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big, fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to questions at theempirebuilderspodcast.com

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