June/July 2005 | Volume 56, Issue 3
A Fortune in Other People’s Back Yards
No economy in history has produced as many fortunes as the American economy has. Many of them came from the country’s great industries, such as railroads (Cornelius Vanderbilt), automobiles (Henry Ford), and computers (Bill Gates). Others came from real estate (John Jacob Astor) and Hollywood (Steven Spielberg), and still others from banking (J. P. Morgan) and the stock market (Charles Merrill). Surprisingly few have come from passive investments, though Warren Buffett’s altogether impressive $43 billion fortune did.
Many others, however, have come from bright but, in the scale of things, minor ideas. Bette Nesmith Graham was a secretary who was tired of having to retype letters whenever she made a mistake. So in 1951 she whipped up a batch of what would come to be called Liquid Paper. In 1979 she sold the company she founded to Gillette for $47.5 million plus royalties. (Actually, come to think of it, she had a second bright idea: selling the company just as the computer, where mistakes are undone with a key click, was about to send the typewriter to the Smithsonian.) Or consider a man named Horace Hagedorn, who died this year at the age of 89. He made a fortune from other people’s back yards.
The back yard was, to a surprising extent, an invention of the postwar era of the late 1940s. Before the war the country was largely divided between those who lived in rural areas and small towns and those who lived in cities. The balance had been shifting toward the cities throughout the nation’s history. In 1800 about 85 percent of the population lived on farms; the 1920 census recorded more than 50 percent of the population living in cities for the first time.
After the Second World War, however, a new trend in the distribution of the country’s population began, leading to profound change in a remarkably short period of time. The GI Bill helped finance not only college educations but also suburban housing. It guaranteed mortgages up to $2,000 or 50 percent of the mortgage, whichever was less. Banks, protected against default, were happy to offer mortgages with no money down, and entrepreneurs like William Levitt began building housing to meet the exploding new market. “The market was there,” Levitt remembered years later, “and the government was providing financing. How could we lose?”
He didn’t. Levitt acquired 7.3 square miles of what had been largely potato fields in New York’s Nassau County, on Long Island, and there he industrialized home building, using the automobile factory as his model. In a factory, of course, the automobiles move along the assembly line while the workers stand still. Houses can’t move, so Levitt had the workers move, each group doing a specific task and then moving on to do it again at the next house.
In four years he built close to 17,500 “units,” two-bedroom houses with a living room, a kitchen, a bathroom, and an attic that could be converted into two more bedrooms and a second bathroom. Each house cost $7,990 and sat on a plot 60 by 100 feet, a little over an eighth of an acre. Similar communities sprang up around other American cities, and more and more people left for the new suburbs. Within a few decades the suburbs would be the linchpin of American politics.
Many of the new suburban families pouring out of lower-middle-class urban neighborhoods hadn’t controlled a patch of ground in generations. The mysteries of cultivation were profound to them. And none were more profound than those surrounding fertilizer.
Fertilizer has a long history in the annals of husbandry. The knowledge that spreading manure improves the yield of fields probably dates to the early days of agriculture in the ancient Middle East. One is tempted to speculate that it was discovered because farmers, trying to get rid of the stuff, spread it on their fields and were pleasantly surprised by the results. By the fourth century B.C. the Greek writer Xenophon had noted that “there is nothing so good as manure.”
Such accidental discoveries characterized agriculture for several thousand years. The Romans knew that crop rotation, adding lime to acid soils, and growing legumes such as peas and beans gave greater yields, but they didn’t know why. Neither did the Indians who greeted the first European settlers of New England know why burying a fish in each corn hill made the corn grow better.
With the scientific revolution in the seventeenth century came rigorous inquiry into what, exactly, makes plants grow. Jan Baptiste van Helmont (1577-1644), a Flemish chemist and physician, carried out an experiment in which he put 200 pounds of virgin soil into a pot and planted a 5-pound willow sapling in it. He watered the willow only with rainwater while carefully shielding the pot from dust and other contaminants. At the end of five years the willow weighed 169 pounds 3 ounces, yet Helmont could account for all the soil except for 2 ounces. Ascribing the lost soil to experimental error, he concluded that water was the only nutrient the plant required. He was wrong of course. Those 2 ounces were full of such vital nutrients as nitrogen, phosphorus, and potassium, along with many trace elements.
By the middle of the twentieth century science had a pretty good idea of what plants needed. But the millions of city dwellers transplanted to the suburbs didn’t have a convenient way to apply these nutrients to the plants in their new back yards. The fertilizer business was geared to farmers and market gardeners. It was largely a wholesale business.
That’s when destiny walked into Horace Hagedorn’s office in midtown Manhattan. Hagedorn had been born in Manhattan in 1915, the son of a real estate speculator, and had gone to the University of Pennsylvania, where he earned a degree in business. Working at an advertising agency in New York after the Second World War, he met the well-known advertising man Martin Small, who is credited with inventing roll-on deodorant. Small, Hagedorn remembered, offered to tell him in five words how to make a million dollars: “Find a need and fill it.”
“Martin,” Hagedorn replied, “that’s six words.”
“So I lie a little,” answered Small.
Hagedorn recalled the advice when Otto Stern came to see him in 1950. Stern, a German immigrant, owned a nursery in upstate New York and wanted to buy advertising time on a New York radio program. He had come to Hagedorn’s office because his thick German accent made it difficult for him to be understood on the phone.
Stern sold many plants by mail order, and he complained to Hagedorn that they often arrived in poor shape. Hagedorn and Stern hit on the idea of including a little packet of fertilizer with each order to help revive the plants. There was no fertilizer available in convenient form, so they hired a Rutgers University professor and orchid expert named O. Wesley Davidson to develop one.
The necessary active ingredients were well known—indeed the government requires that they be listed on fertilizer packaging—but making them into something that could be easily dissolved in water and applied directly to plants took a little chemistry. Hagedorn believed this fertilizer had much larger commercial possibilities than merely helping revive plants that had been put in the mail. He sensed a need in the new suburbs for an all-purpose, easy-to-use fertilizer available in small quantities, and he decided to fill it. In 1951 he and Stern each put up $2,000 to buy an ad in the New York Herald Tribune offering the new fertilizer. In days orders totaling $22,000 rolled in, and the two men were on their way. Within four years the company’s annual sales exceeded $500,000, and Hagedorn left the advertising business to devote all his time to fertilizer.
In his new career he stuck to what he understood best, marketing and advertising. The company contracted with other companies to manufacture, package, and distribute the product. This “virtual company” proved to be a winning business model, to put it mildly. In the mid-1980s Hagedorn bought out Otto Stern, and in 1995 he merged his operation with the Scotts Company, the largest gardenproducts firm in the country. The Hagedorn family ended up with 42 percent of the stock in the new company, and James Hagedorn, Horace’s son, is now chairman and CEO of Scotts.
But for all Horace Hagedorn’s talents as an advertising and marketing man, it was his wife, Peggy, who came up with the name for the little blue-green crystals that made them so rich: Miracle-Gro.