Part IThe Story
The Bit That Paid for Everything
Howard Robard Hughes Jr. was born in Houston on December 24, 1905, into a family whose fortune rested on a single piece of hardware. His father, Howard Sr., was a restless lawyer turned oil speculator who had drifted through the Texas and Louisiana fields after the Spindletop gusher of 1901. In 1909 he patented a drill bit with two cone-shaped rotating cutters, each studded with steel teeth, that could chew through hard rock that stalled the fishtail bits then in use. With a partner, Walter Sharp, he began manufacturing it, and the business became the Hughes Tool Company.
The design was good, but the business model made the family rich. Hughes Tool generally did not sell its bits. It leased them to drillers for a fee per well and took them back afterward, which kept the technology out of competitors' hands and turned every new well in the world into a recurring source of income. As the oil industry expanded through the 1910s and 1920s, the company held a near-monopoly on the rock bit, and the cash it produced would later finance a Hollywood studio, a string of world aviation records, an airline, a defense contractor, and a Las Vegas hotel empire. For most of his life Howard Hughes Jr. spent that cash faster than any single project could earn it back.
He was an only child, shy, often ill or convinced he was, and closely watched by his mother, Allene Gano Hughes, who worried constantly about his health. He showed an early gift for mechanics, building a radio set and a motorized bicycle as a boy, and his father indulged his interest in machines, including an airplane ride at about fourteen. He attended schools in Texas, Massachusetts, and California, and took some classes at the Rice Institute in Houston, but never earned a degree.
His mother died on March 29, 1922, after surgery, when he was sixteen. His father died of a heart attack on January 14, 1924. Howard Jr. was eighteen, and he had inherited three-quarters of Hughes Tool.
By the Numbers
Howard Hughes in Figures
352 mphLandplane speed record Hughes set in his H-1 racer near Santa Ana, California, on September 13, 1935
~91 hoursDuration of his 1938 round-the-world flight: 3 days, 19 hours, 17 minutes
319 ft 11 inWingspan of the H-4 Hercules flying boat, the widest of any aircraft to fly until Stratolaunch in 2019
26 secondsLength of the H-4's only flight, over Long Beach Harbor on November 2, 1947
78%Approximate share of TWA that Hughes Tool held before lenders forced it into a voting trust in 1960
$546.5MWhat Hughes received when he sold his TWA shares in May 1966
$5.2BPrice General Motors paid the Howard Hughes Medical Institute for Hughes Aircraft in 1985
Taking the Company at Nineteen
The other quarter of Hughes Tool belonged to his grandparents and his uncle Felix Hughes. They expected the teenager to finish school and leave the company in the hands of its managers and his family. Hughes had other ideas. He wanted control, and he wanted it immediately.
Texas law allowed a minor to petition to be declared an adult, and Hughes did so. On December 26, 1924, two days after his nineteenth birthday, a Houston court granted his petition, according to the Texas State Historical Association. He then bought out his relatives' shares, making himself the sole owner of the company. The purchase stretched his finances and soured relations with his uncle, but it left him with something he valued for the rest of his life: nobody else's signature was required.
On June 1, 1925, he married Ella Rice, a member of the Houston family that had founded the Rice Institute. Within months the couple moved to Los Angeles. Hughes had no intention of running a drill-bit factory in Houston, and he found a way to avoid it. He hired Noah Dietrich, a sharp, blunt accountant, to watch the money, and Dietrich became the company's day-to-day financial manager for more than three decades. The tool business kept growing without its owner's attention, and Dietrich kept feeding its profits to whatever Hughes wanted to do next.
This arrangement, an inherited monopoly overseen by a trusted lieutenant while the owner pursued his passions, defined Hughes's career. It gave him a freedom few entrepreneurs have ever had: he could lose money on a film or an airplane for years without facing investors, a board, or a bank. It also meant that nothing forced him to finish anything, hire anyone he disliked, or accept a deadline. Almost every triumph and almost every disaster in the rest of his life can be traced to that freedom.
Ella Rice did not share his enthusiasm for Hollywood or his hours. She filed for divorce in 1929.
Hollywood on the Tool Company's Account
Hughes arrived in Los Angeles knowing nothing about making movies, and his first attempt, a comedy called Swell Hogan, was so bad that he never released it. He learned quickly by hiring well. He financed Two Arabian Knights (1927), a World War I comedy directed by Lewis Milestone, which won Milestone the award for comedy direction at the first Academy Awards. Within a few years of reaching Hollywood, the young Texan was a producer whose films were winning prizes.
Then he began the project that would make him famous and nearly break him. Hell's Angels was an epic about British fighter pilots in the First World War, and Hughes decided the aerial combat should be real. He assembled a fleet of 87 aircraft, one of the largest private air fleets ever assembled, hired dozens of stunt pilots, and filmed dogfights over California for months, waiting for the right clouds to show speed against the sky. Four men died during production: pilots Al Johnson, C.K. Phillips, and Rupert Macalister, and mechanic Phil Jones, who was killed when a bomber failed to pull out of a dive. Hughes himself crashed while flying a stunt his pilots had refused to attempt, and was pulled from the wreck injured.
Midway through production, talking pictures arrived. Hughes decided his silent epic was obsolete, reshot the dramatic scenes with sound, and replaced his Norwegian-accented leading lady with an unknown actress named Jean Harlow. Hell's Angels premiered at Grauman's Chinese Theatre on May 27, 1930. Its cost has been reported variously, from about $2.8 million in actual outlays to nearly $4 million in Hughes's own publicity. It was a popular success that did not earn back its budget for years, which established a pattern: Hughes would spend whatever it took to make something the way he imagined it, and worry about the return later, or never.
He produced Scarface (1932), directed by Howard Hawks, a violent gangster story that he fought censors to release. Later he directed and produced The Outlaw, a Western built around the newcomer Jane Russell. He finished it in 1941 and battled the industry's Production Code office over how much of Russell the camera showed. The film reached a limited audience in 1943 and national release only in 1946. The publicity from the fight made more money than the film's merits could have.
The Fastest Man in the Air
Hollywood was a business to Hughes. Flying was an obsession. He had taken flying lessons in the 1920s, and the air sequences of Hell's Angels had shown him how much he enjoyed solving aeronautical problems. In 1932 he formed the Hughes Aircraft Company as a division of Hughes Tool, at first mainly to modify planes for his own use.
Its first original design was the H-1, a sleek, single-seat racer created with the engineer Richard Palmer and a small team. Every detail served speed. Rivets were flush with the skin. The landing gear retracted fully into the wings. The cockpit was enclosed and faired smoothly into the fuselage. On September 13, 1935, flying near Santa Ana, California, Hughes set a world landplane speed record of about 352 miles per hour. When the fuel ran out he crash-landed in a beet field without serious injury. With a longer wing fitted, he flew the same plane from Los Angeles to Newark on January 19, 1937, in 7 hours, 28 minutes, and 25 seconds, averaging about 322 mph, a transcontinental record. Aviation historians have since credited the H-1's clean design with influencing the fighters that followed it.
The next record was more ambitious and more carefully planned. In July 1938 Hughes and a crew of four flew a twin-engine Lockheed 14 around the Northern Hemisphere, from New York to Paris, Moscow, Siberia, Alaska, and back. They landed at Floyd Bennett Field on July 14, 3 days, 19 hours, and 17 minutes after departure, roughly half the previous record time. The flight was a showcase of preparation: extra fuel tanks, the best available radio and navigation equipment, and planned support at every stop. New York gave Hughes a ticker-tape parade. He received the Collier Trophy for 1938, the Harmon Trophy for 1936 and 1938, and a Congressional Gold Medal authorized in 1939.
At thirty-two he was one of the most admired people in the United States, a rich young man who risked his own life to prove what airplanes could do. His own later behavior would make it hard to remember how far he had come by that point: pilot, engineer, and executive were combined in one person who could fund his own experiments and fly them himself.
Buying an Airline
In 1939, at the urging of Jack Frye, the president of Transcontinental & Western Air, Hughes began buying shares in the airline, which later became Trans World Airlines. Frye needed capital and an owner who understood aircraft. Hughes wanted a place to put his ideas into service. Over the following years Hughes Tool built up a stake of about 78 percent, and TWA became the largest single business Hughes ever controlled directly.
His most important contribution came early. Hughes and Frye wanted an airliner that could cross the country faster and higher than anything in service, above much of the weather, with a pressurized cabin. They worked with Lockheed on the specifications for what became the Constellation, and Hughes Tool financed an order for 40 of the planes, worth about $18 million, on the condition that TWA get them first. The Second World War diverted the early Constellations to military use, but on April 17, 1944, Hughes and Frye flew one from Burbank to Washington, D.C., in just under seven hours, a transcontinental record for a transport. After the war the Constellation gave TWA a competitive edge on long routes for years.
In this role Hughes acted as a demanding, technically sophisticated customer, which was one of the most valuable things he did in business. He could specify an airplane in detail, argue with engineers about it, and put money behind the order. His weaknesses as an owner showed too. He meddled in routes, schedules, and purchases, frequently could not be reached, and would delay a decision for months while a problem he found interesting occupied him. Frye was eventually forced out in 1947 after disputes over money and control. For all his foresight on the Constellation, Hughes would later make the airline wait painfully long for its jets.
Crashes and Contracts
The war turned Hughes Aircraft from a hobby into a defense contractor, though not a successful one at first. Hughes had pushed for years to sell the military a high-performance design of his own. His D-2, a twin-engine plane built largely of a molded wood laminate called Duramold, never won a production order and was destroyed in a hangar fire in November 1944.
On November 16, 1942, the shipbuilder Henry J. Kaiser and Hughes won a government contract to build three enormous flying boats, capable of carrying troops and cargo across the Atlantic without exposure to the German submarines then sinking Allied shipping. The contract allowed up to $18 million and called for the first boat within ten months, and because metals were scarce, the planes were to be made of wood. Hughes insisted on overseeing the design himself. The work fell far behind, and Kaiser withdrew. In March 1944 the government reduced the order to a single prototype to be completed by Hughes alone.
Hughes kept flying and kept crashing. On May 17, 1943, he was at the controls of a Sikorsky S-43 amphibian during tests on Lake Mead when it struck the water and sank, killing two of the men aboard. On July 7, 1946, he took off in the prototype XF-11, a twin-boom reconnaissance plane built for the Army Air Forces. On the first flight, a propeller malfunctioned; Hughes tried to reach the Los Angeles Country Club golf course and crashed into houses in Beverly Hills. Hughes suffered a crushed chest, multiple fractures, and severe burns, and doctors did not expect him to live.
He survived, but the treatment left him with a lasting dependence on painkillers, particularly codeine, which lasted for the rest of his life. Biographers have traced part of his later decline to that crash and the drugs that followed it. It also left him with a fresh grievance against the government, which had ordered the XF-11 and was now asking where its wartime money had gone.
The Senate and the Flying Boat
By 1947 the war had ended, the flying boat was unfinished, and Hughes had delivered little to the government in return for its wartime contracts. The Senate War Investigating Committee, led on this matter by Senator Owen Brewster of Maine, opened hearings into his contracts. Hughes, whose reputation for eccentricity was already growing, was expected to make a poor witness.
He was a formidable one. He came to Washington in August 1947 and fought back in public. He accused Brewster of having suggested the inquiry would end if TWA agreed to a merger with Pan American Airways, the carrier Brewster was widely seen as favoring; Brewster denied it. Hughes defended the flying boat as an honest attempt at something no one had built before, admitted he was slow because he could not tolerate imperfect work, and stated that he had put millions of his own money into it. Press coverage of the hearings was largely sympathetic to him, and the committee produced no damaging result.
— Howard Hughes, testimony to the Senate War Investigating Committee, 1947I put the sweat of my life into this thing. I have my reputation all rolled up in it and I have stated several times that if it's a failure, I'll probably leave this country and never come back. And I mean it.
A few months later he answered his critics more directly. The H-4 Hercules, which the press called the "Spruce Goose" although it was made mostly of birch, had a wingspan of 319 feet 11 inches, eight engines, and a hull the size of a small ship. Its total cost ran to about $23 million. On November 2, 1947, with 36 people aboard, Hughes took it out for what reporters were told would be a taxi test in Long Beach Harbor. He lifted it about 70 feet off the water and flew it for roughly a mile, at about 135 miles per hour, in a flight lasting around 26 seconds, before setting it down.
The plane never flew again. Hughes kept it in a climate-controlled hangar, with a crew maintaining it, until his death. It is now displayed at the Evergreen Aviation & Space Museum in McMinnville, Oregon. The flight saved his reputation, but spending years and money to preserve a plane that had no mission was a sign that his attachment to his own projects could outlast any business reason for them.
The Studio and the Scientists
In 1948 Hughes bought control of RKO Radio Pictures, one of Hollywood's major studios, for about $8.825 million. It was the worst of his big investments. He took an intense interest in details, such as a starlet's costume or a scene's lighting, while production schedules slipped and employees left. Output collapsed during his years in charge, and the studio became a byword for dysfunction. By 1954 he had paid about $24 million to take nearly complete ownership, and in 1955 he sold RKO to the General Tire and Rubber Company for $25 million. The sale price roughly matched what he had paid, but the studio had been badly diminished in his hands.
At the same time a much more valuable business was growing almost without him. After the war, Hughes Aircraft moved into military electronics, and two brilliant scientists, Simon Ramo and Dean Wooldridge, built a research and engineering group that developed radar and fire-control systems for Air Force interceptors, along with the Falcon air-to-air missile. By the early 1950s, Hughes Aircraft was one of the most important electronics suppliers to the Air Force, with thousands of employees in Culver City.
Its engineers could not stand its owner. Hughes rarely visited, but he interfered through Dietrich and a small group of loyal managers whom the scientists considered unqualified, and he would not delegate real authority. In September 1953 Ramo and Wooldridge resigned and founded the Ramo-Wooldridge Corporation, which later became TRW. Many senior engineers were prepared to follow them. Air Force Secretary Harold Talbott met with Hughes and warned that the government would not rely on a company managed this way, telling him to fix it or face the loss of his contracts.
Hughes's response was unusual. In 1953 he created the Howard Hughes Medical Institute and transferred Hughes Aircraft to it, so that the defense contractor's profits would support medical research. The arrangement also had clear tax advantages and kept the company out of any competitor's hands. In 1954 a professional manager, Lawrence "Pat" Hyland, took charge of the company's operations, and under Hyland it flourished for decades as a leader in satellites and missile electronics. When the institute sold Hughes Aircraft to General Motors in 1985, it received $5.2 billion and became one of the largest private supporters of biomedical research in the world. The most enduring thing Hughes created came from finally being made to step aside.
Losing TWA to the Jet Age
The same pattern cost him his airline. In the mid-1950s the airlines were ordering jets. Rivals like American Airlines and Pan American placed early orders for the Boeing 707, while Hughes, who controlled TWA's aircraft purchases, hesitated. He considered designs of his own, flirted with Convair, and delayed choosing. When he committed, the orders were big: by the late 1950s Hughes Tool had signed about $400 million in contracts for 707s and Convair jets, and it did not have the cash to pay for them.
Noah Dietrich, who had run Hughes's finances for more than thirty years, resigned in May 1957 after a dispute with Hughes. His departure took away the one executive who understood the whole empire and could tell Hughes no. TWA's finances and its jet deliveries were both in trouble.
In December 1960 a group of lenders led by the Equitable Life Assurance Society and the Metropolitan Life Insurance Company agreed to provide about $165 million to finance the jets, on one condition: Hughes had to place his TWA stock in a voting trust controlled by the lenders for ten years. He agreed, and lost control of the airline. The new management sued him in 1961, accusing him of harming TWA through his control of its aircraft purchases. Hughes refused to appear for a deposition, and the court entered a large default judgment against him, which the U.S. Supreme Court overturned in 1973.
In the meantime, jets were transforming the airline industry, and the value of Hughes's shares rose with it. In May 1966, rather than wait for the voting trust to expire, he sold his 6,584,937 TWA shares in a public offering and received $546.5 million. He had lost the airline because he could not decide and could not share control, and he walked away with half a billion dollars anyway. As with RKO, the market ended up rescuing him from the consequences of his own management.
The Desert Inn
By then Hughes had nearly disappeared from public view. He had married the actress Jean Peters in 1957, and around the same period spent months shut in a Hollywood screening room, a sign of the obsessive-compulsive behavior and fear of germs that would dominate his later life. He communicated mainly by phone and by handwritten memos, and a small group of aides, many of them members of the Church of Jesus Christ of Latter-day Saints recruited through his executive Bill Gay, controlled access to him. His outside dealings were handled by Robert Maheu, a former FBI agent who ran his Nevada interests without ever meeting him face to face.
On November 24, 1966, Thanksgiving Day, Hughes arrived in Las Vegas by private train and was carried into the top floor of the Desert Inn. When the hotel's managers asked him to leave to make room for high-rolling guests over New Year's, he bought the hotel instead. The purchase closed in March 1967 for about $13.2 million. He then acquired the Sands, the Frontier, the Castaways, the Landmark, and the Silver Slipper, along with the local television station KLAS-TV, the North Las Vegas airport, and large amounts of land. In all he spent roughly $300 million in Nevada. His attempt to buy the Stardust in 1968 was blocked by the Justice Department's antitrust division, which concluded that he already controlled too much of the Strip.
Hughes had specific ideas about the kind of city he wanted to own, and he put them in writing.
— Howard Hughes, memo to Robert Maheu, 1967, quoted in Michael Drosnin, Citizen HughesI like to think of Las Vegas in terms of well-dressed man in a dinner jacket, and a furred female getting out of an expensive car. I think that is what the people expect here -- to rub shoulders with V.I.P.'s and stars.
His impact on Las Vegas outlasted him. Nevada's gaming regulators required casino owners to appear before them for licensing, and Hughes would not appear before anyone. The state accommodated him, and the legislature soon passed laws in 1967 and 1969 making it easier for corporations to own casinos. Those laws helped open the Strip to public companies and mainstream capital, and to operators such as Kirk Kerkorian, whose International Hotel opened in 1969. Hughes, a recluse who rarely left his penthouse, had helped make Las Vegas respectable for Wall Street.
He also fought battles from his penthouse that no business interest explained. He waged a long campaign against underground nuclear testing at the Nevada Test Site, and his memos fixated on the quality of the local water. He almost never left the darkened suite.
The Last Flight
On the night before Thanksgiving in 1970, Hughes was carried out of the Desert Inn and flown to the Bahamas. Maheu was fired in a bitter struggle for control of the Nevada operations. For the remaining years of his life, Hughes moved between hotel suites in the Bahamas, Nicaragua, Canada, London, and Mexico, surrounded by his aides, with the windows covered. He and Jean Peters divorced in 1971.
His business affairs continued without him. In 1970 he bought the regional carrier Air West and renamed it Hughes Airwest. In January 1972, after the writer Clifford Irving announced an authorized "autobiography" of Hughes, Hughes held a telephone news conference with a group of reporters to call the book a fraud; Irving later admitted the hoax and went to prison. In December 1972 the oil-tool division that had started everything was sold in a public offering for about $150 million, and Hughes's remaining holdings were reorganized as the Summa Corporation. Later that month an earthquake struck Managua, Nicaragua, where he was living, and he moved on. In 1974 Summa lent its name as cover for the Glomar Explorer, a ship publicly described as a deep-sea mining venture that was actually built for the CIA to recover a sunken Soviet submarine.
Howard Hughes died on April 5, 1976, aboard a plane flying him from Acapulco to Houston for medical treatment. He weighed about 90 pounds. The cause of death was kidney failure, and an autopsy found evidence of long-term drug use. He was buried in Houston's Glenwood Cemetery beside his parents.
He left no valid will. A document known as the "Mormon Will," which named a Utah gas station attendant, Melvin Dummar, as a beneficiary, was ruled a forgery by a Nevada jury in 1978. After years of litigation, an estate worth roughly $2 billion or more was divided in 1983 among 22 cousins. Summa's vast Las Vegas landholdings became the planned community of Summerlin, named for his grandmother, and the company eventually became part of the Howard Hughes Corporation.
Hughes's career was an argument about what unchecked capital can do. His inherited monopoly let him set speed records, back an airliner that pushed the industry forward, and create an institution that became one of the most important funders of medical research. The same independence let him wreck a studio, lose an airline, and spend his last decade shut in a dark room issuing memos. The businesses that thrived under his name mostly did so after someone else was put in charge.
Part IIThe Playbook
Hughes is an unusual subject for a playbook, because his record contains as many warnings as models. The principles below come from what worked for him, in the design shop, on record flights, as an aircraft customer, and in Las Vegas, and from the lessons his failures teach just as clearly. Where a principle is drawn from a failure, the text says so.
The principles
- 1.Own the recurring revenue, not just the product.
- 2.Buy control when control is cheap.
- 3.Hire the specialist before you learn the trade.
- 4.Engineer the record, then fly it yourself.
- 5.Be the customer who writes the specification.
- 6.Turn a public attack into a public stage.
- 7.Put a professional in charge of what you cannot run.
- 8.Give away control before it is taken.
- 9.Decide on the market's clock, not your own.
- 10.Keep one person who can tell you no.
- 11.Buy the asset when the seller wants you gone.
Principle 1
Own the recurring revenue, not just the product.
The two-cone bit was a clever invention, but inventions get copied. Hughes Tool's decision to lease its bits per well, instead of selling them outright, turned a one-time sale into a stream of income tied to the growth of the entire oil industry, and kept the hardware out of competitors' workshops.
That stream funded everything Hughes did for half a century. It let him absorb the losses of Hell's Angels, RKO, and the flying boat without outside investors. Few founders have had so much patience available, and all of it came from a pricing structure, not from the product alone.
Tactic: Look for ways to charge for your product each time it is used or renewed, rather than once, and design the terms so that the customer's growth becomes your growth.
Principle 2
Buy control when control is cheap.
At nineteen, Hughes went to court to be declared an adult and then bought out his relatives' quarter of the tool company. He paid when the company's future was uncertain and its heir was an untested teenager, which is exactly when minority holders are most willing to sell.
The purchase gave him complete ownership of the business that would finance his life. He never again had to answer to relatives or shareholders about how he spent its cash. That freedom later became a problem, but the purchase itself was one of the best deals he ever made.
Tactic: If you will eventually want full control of a business, buy out the other owners when uncertainty is highest and their confidence in you is lowest, not after you have proved them wrong.
Principle 3
Hire the specialist before you learn the trade.
Hughes arrived in Hollywood with money and no experience. His first film, made largely on his own instincts, was unreleasable. His second, directed by Lewis Milestone, won an Academy Award. He learned the film business by paying people who already knew it, including Milestone and Howard Hawks, and by watching them work.
In aviation, he did the same with engineers like Richard Palmer on the H-1, and at Hughes Aircraft with Simon Ramo and Dean Wooldridge. His best periods came when he hired the best people and let them do what he could not.
Tactic: When you enter an unfamiliar field, make your first hire someone with a proven track record in it, and give that person enough authority that you can learn from their decisions instead of overruling them.
Principle 4
Engineer the record, then fly it yourself.
The H-1 set its records because every design decision, from flush rivets to retractable gear, served one goal. The 1938 round-the-world flight succeeded because Hughes prepared for it methodically, with extra fuel capacity, advanced radio and navigation equipment, and support arranged at every stop. The heroics people saw were built on engineering work they did not see.
Flying the planes himself added credibility no press release could buy. The public trusted the results because the owner had risked his own life to achieve them.
Tactic: Before a high-visibility launch or demonstration, list every way it could fail and remove each one in advance. Then show up in person and put your own name on the outcome.
Principle 5
Be the customer who writes the specification.
Hughes's most important contribution to commercial aviation was as a buyer. He and Jack Frye told Lockheed what TWA needed in a long-range, high-altitude, pressurized airliner, then backed the specification with an order for 40 planes. The Constellation that resulted gave TWA an advantage for years.
A demanding customer who understands the technology and commits money early can shape a supplier's product around its own needs. Rivals get the product later, or on worse terms.
Tactic: For your most important supplier relationship, write a detailed specification of what you need that no one currently offers, and be prepared to commit volume in exchange for being first.
Principle 6
Turn a public attack into a public stage.
The 1947 Senate hearings were supposed to embarrass Hughes. Instead, he turned them into a contest between a daring private builder and a senator he accused of acting on behalf of a rival airline. He answered questions directly, defended his work, and put his personal reputation on the line.
He then took the flying boat into the air, which silenced much of the criticism more effectively than any testimony could. The hearings ended with his public standing higher than before.
Tactic: When you face public scrutiny, answer it yourself, in public, with specifics, and follow up with visible proof that you delivered what you promised.
Principle 7
Put a professional in charge of what you cannot run.
This principle comes from Hughes's failures. Ramo and Wooldridge built Hughes Aircraft into a vital defense supplier, then left because the owner would not let them run it. The Air Force threatened to pull its business. Only after Pat Hyland took over the company's operations did Hughes Aircraft become a lasting success.
RKO had no Hyland, and it declined steadily under Hughes's personal control. The difference between his best and worst businesses was often whether a competent manager had real authority.
Tactic: Identify the part of your business where your involvement slows things down most, and hand it to a manager with full authority, a clear mandate, and a written promise that you will not interfere.
Principle 8
Give away control before it is taken.
Faced with the loss of his Air Force contracts, Hughes transferred Hughes Aircraft to a newly created medical institute. The move satisfied the government, kept the company intact, and eventually produced one of the world's largest funders of biomedical research, which sold the company for $5.2 billion.
With TWA, he waited until lenders forced him into a voting trust, and he lost control on their terms. The contrast is clear: giving up control voluntarily let Hughes set the terms, while having it taken meant he did not.
Tactic: If a lender, regulator, or major customer is signaling that your control of a business has become a problem, propose your own governance change before they impose one.
Principle 9
Decide on the market's clock, not your own.
This principle also comes from failure. When the jet age began, American and Pan Am ordered early. Hughes deliberated, explored alternatives, and committed late with orders he could not finance. TWA fell behind, and the financing crisis cost him the airline.
The brilliance that made the Constellation a success turned into a liability when it produced endless deliberation. Competitors do not wait for a perfectionist to finish thinking.
Tactic: For every major decision, set a deadline based on when competitors or customers will force the issue, and commit by that date with the best information you have.
Principle 10
Keep one person who can tell you no.
For more than thirty years, Noah Dietrich managed Hughes's money and was one of the few people who would argue with him. After Dietrich resigned in 1957, the empire lost its financial discipline just as the TWA jet orders came due. Hughes became increasingly isolated, and by the Las Vegas years he was surrounded by aides who controlled access to him and rarely challenged him.
An owner with no board and no shareholders needs at least one person with the standing to disagree. When Hughes lost his, his decisions became steadily worse.
Tactic: Name one person, inside or outside your organization, whose job includes telling you when you are wrong, and protect that relationship even when their advice is unwelcome.
Principle 11
Buy the asset when the seller wants you gone.
When the Desert Inn's managers asked Hughes to leave, he bought the hotel. The sellers wanted a resolution more than they wanted the highest possible price, and he became a major Las Vegas owner almost by accident. The purchases that followed made him the largest casino owner in Nevada, until antitrust enforcers stopped him.
Deals often arise from friction. A seller eager to end a dispute, an awkward partnership, or a problem customer may accept terms that would never be available in a normal negotiation.
Tactic: When a counterparty wants you out of their way, ask what it would cost to buy them out instead, and be ready to make an offer on the spot.
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Part IIIMaxims
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A monopoly buys time, not judgment. The tool company's cash let Hughes survive his mistakes, but it could not keep him from making them.
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Speed records are won in the drafting room. The H-1 and the 1938 flight looked daring, but the courage rested on meticulous engineering.
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A prototype that never goes into production is an expensive trophy. The flying boat vindicated Hughes for one afternoon and then sat in a hangar for decades.
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Money cannot replace a working organization. RKO shows that unlimited funding can still produce a failing business when no one has authority but the owner.
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The best scientists leave when the owner will not listen. Ramo and Wooldridge built something valuable and then took their talents elsewhere.
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Market growth can hide terrible management. Hughes lost TWA and still made half a billion dollars, because the jet age raised the value of the stock.
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Isolation compounds error. The fewer people who could reach Hughes, the less anyone corrected him.
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Regulators adapt to money. Nevada changed its gaming laws partly to accommodate an owner who would not appear, and in doing so opened the Strip to corporations.
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Legacies depend on structure. The medical institute and the Summerlin development outlived Hughes because they were set up to run without him.
In Their Own Words
I want to be remembered as the man who flew faster than anyone else, who built the biggest airplane, and who made the best motion pictures.— Howard Hughes
I'm not a paranoid deranged millionaire. Goddamit, I'm a billionaire.— Howard Hughes
Every man has his price, or a guy like me couldn't exist.— Howard Hughes
I have a feeling there is just about one more good flight left in my system.— Howard Hughes
Money can't buy happiness, but it can buy you the kind of misery you prefer.— Howard Hughes
The way of success is the way of continuous pursuit of knowledge.— Howard Hughes
I intend to be the greatest golfer in the world, the finest film producer in Hollywood, the greatest pilot in the world, and the richest man in the world.— Howard Hughes
Play by the rules, but be ferocious.— Howard Hughes
I am by nature a perfectionist, and I seem to have trouble allowing anything to go out before I think it is really perfect.— Howard Hughes
We don't have a monopoly. We have a patent.— Howard Hughes
I want to live longer than my father, and I want to live longer than my grandfather, and I want to live longer than my great-grandfather.— Howard Hughes
I have never been a social person. I have never been what you might call a mixer. And I have never been able to adjust myself to the idea of having to work with other people.— Howard Hughes
I want to be alone. I want to be left alone.— Howard Hughes
The only thing you have to know is how to trust your own unconscious, and that takes nerve—you have to be willing to go out on a limb and trust your instincts, even when everyone else is telling you you're wrong.— Howard Hughes
Further reading
- Hughes: The Private Diaries, Memos and Letters by Richard Hack
