Gottlieb Daimler: Invention Alone Sells Nothing

Why Gottlieb Daimler is worth a look today

Many technical businesses in the Mittelstand are proud of their engineering and struggle with sales. They have a better product than the competition and wonder why others sell more. Gottlieb Daimler is an early and instructive example of this tension. His engine was one of the most important inventions of his time. Others did the business with it first.

This portrait pursues one question: What can be learned from Gottlieb Daimler's path about why an invention alone does not make a successful company? It relies only on publicly documented information, above all the Living Museum Online of the German Historical Museum, the company's history, and economic history research.

To answer it, we first present the stages of his life, then the thinking model of the entrepreneur according to Schumpeter. After that we weigh two readings and ask what owners can learn from them.

The stages: from gunsmith to engine builder

Gottlieb Daimler was born in Schorndorf on 17 March 1834. He began an apprenticeship as a gunsmith in 1848, passed his journeyman's examination in 1852, and studied mechanical engineering at the Polytechnic School in Stuttgart from 1857 to 1859. On study trips between 1860 and 1862 he got to know workshops in Paris, Leeds, Manchester, and Coventry (LeMO, German Historical Museum).

1. 1865: Reutlingen

   Daimler takes over the engineering workshop of the Bruderhaus, a charitable institution in Reutlingen. There his lifelong collaboration with Wilhelm Maybach begins.

2. 1872: Deutz

   Daimler becomes head of the workshops at the Gasmotorenfabrik Deutz, run by Nikolaus Otto. There Maybach brings Otto's engine to series production.

3. 1882: Cannstatt

   After a falling-out with Otto, Daimler leaves Deutz, and Maybach follows him. He sets up an experimental workshop in Cannstatt.

4. 1883 to 1886: patents and vehicles

   In 1883 Daimler receives the patent for a small four-stroke engine with hot-tube ignition. In 1885 Maybach builds the Reitwagen under his direction, probably the world's first motorcycle. From 1886 a motor vehicle is developed, shown at the Paris World Exhibition in 1889.

5. 1890: Daimler-Motoren-Gesellschaft

   To secure the business, Daimler founds the Daimler-Motoren-Gesellschaft with Max Duttenhofer and Wilhelm Lorenz and holds one third of the shares.

6. 1894 to 1900: dispute and return

   After conflicts with his fellow shareholders, Daimler leaves for a time. With the support of a British entrepreneur he returns in 1895. He dies in Cannstatt on 6 March 1900.

The sources differ on the details of the dispute. According to British accounts, the entrepreneur Frederick Simms offered to buy licence rights on condition that Daimler and Maybach return to the company (Grace's Guide). According to another account, Daimler became a member of the supervisory board on 1 November 1895. In 1926 the Daimler-Motoren-Gesellschaft merged with Benz & Cie. to form Daimler-Benz AG.

The thinking model: the entrepreneur according to Schumpeter

In his 1911 “Theory of Economic Development,” the economist Joseph Schumpeter made a distinction that the portrait of Werner von Siemens on this site uses in detail. An inventor produces something new. An entrepreneur in Schumpeter's sense is someone who carries out new combinations: a new product, a new method, a new market, a new source of supply, or a new organization. According to Schumpeter, an invention is economically irrelevant as long as nobody carries it through in the market.

With Siemens it could be shown that he combined both roles in one person. With Daimler the picture is more mixed. He was an outstanding engineer and a persistent developer. Carrying it through in the market, meaning sales, financing, and organization, lay largely with others: with his financial backers, with French licensees, with a British investor, and with a dealer.

An everyday analogy: having a good recipe does not mean owning a restaurant. That takes premises, staff, prices, guests. Sometimes the inventor of the recipe cooks best, and someone else runs the restaurant.

An invention nobody buys is a patent. A company only begins with the first customer.

Where the car industry really arose

The economic historian James M. Laux (1963) examined why France in particular became the first home of the car industry, although the decisive engines were developed in Germany. His figures are clear. In 1893 Peugeot was already in its fourth year of car manufacturing and had built 61 gasoline cars by the end of the year. Panhard et Levassor began in 1891 and built its 90th car in 1893. Carl Benz had built 69 vehicles by 1893, but almost all of them were tricycles.

The first engines of these French manufacturers came partly from Daimler's design. According to Grace's Guide, the first Daimler engine was completed at the Panhard works in December 1889, and two more went to Peugeot. So Daimler primarily sold not cars but engines and rights. Others built the car as a product for customers first.

Laux names several reasons for the French lead. In the 1890s France had the best road network in the world. Paris had always been a market for luxuries and novelties for wealthy buyers from all over the world. And in Britain, until 1896, laws limiting motor vehicles to four miles per hour and requiring a man with a warning flag to walk ahead held back any development. According to Laux, the value of French car production in 1901 was 10.2 million dollars, that of German production under 1.4 million.

Partners, financial backers, and a dealer

Founding the Daimler-Motoren-Gesellschaft in 1890 was meant to put the business on a broader footing. Daimler held one third, the backers Duttenhofer and Lorenz the rest. According to several accounts, the shareholders soon fell out over the company's direction. Maybach left the company, and Daimler left for a time in 1894. Without the two engineers, according to British accounts, the company got into difficulties.

The way out came from outside. Frederick Simms, who held the British rights to Daimler's engines, made an offer for further licence rights conditional on Daimler and Maybach returning. By the end of 1895 both were back in the company. The exact amount of the offer is given differently in the sources.

Four years later a second impulse came from outside, this time from a customer. In 1899 the businessman Emil Jellinek suggested that Maybach build a racing car for the company. It was named after Jellinek's daughter Mercedes (LeMO). A buyer who resold the cars himself thus shaped the name under which the brand became known. Daimler died in March 1900 and did not live to see the success of these vehicles.

For today's shareholders this story is instructive. The conflicts arose between the technical founder and the financial backers, over questions that had not been settled beforehand. What shareholders should settle early is described in the article What Shareholders Should Settle Early, and how disputes are resolved in Conflicts Between Shareholders.

Two readings: failed merchant or shrewd licensor?

The first reading sees Daimler as a brilliant engineer who was not very fortunate as a businessman. The car industry arose in France, his own company fell into dispute, and it was rescued by a British investor and a dealer. In this reading, Daimler shows what happens when an invention is not followed by an entrepreneur.

The second reading sees Daimler's approach as a deliberate choice. He sold engines and rights to manufacturers in France and Britain, making his technology known in several countries at once. For a small business without its own sales network, this was a way of spreading quickly without selling in every market itself. In this reading, the fact that his engines ran in other people's cars was not failure but a business model.

I consider both readings partly right, but the first more revealing. The licences spread Daimler's technology; that is undisputed. But the business with the product customers paid most for was done by the licensees. And his own company did not survive its crisis on its own strength. The pattern suggests that carrying it through in the market, in Schumpeter's sense, was not Daimler's strength. How another Württemberg engineer of this era built his company on quality and closeness to customers is shown in the portrait of Robert Bosch.

What owners in the Mittelstand can learn

Three conclusions can be drawn from the portrait that apply to businesses today.

• Take the market as seriously as the technology: Check how much time and money goes into development and how much into sales and customer contact. France won the first car industry not with better technology, but with better conditions for selling.
• Choose partners deliberately: Licences and sales partners can open up a market faster. But they can also take it over. Decide what stays with your own business. How such partnerships are managed is described in Setting Up Sales Partnerships.
• Listen to customers who resell: Emil Jellinek was customer and dealer at once and shaped both product and name. Dealers and major customers often know the market better than the manufacturer.

For owners who sell themselves, the portrait contains an additional reminder. Whoever knows the technology best is not automatically the best salesperson, but at the start they are often the most credible. The article Founder-Led Sales describes why the owner sells best at first and when they should hand over sales.

Conclusion: what does Gottlieb Daimler's path teach?

The question at the start was
can be learned from Gottlieb Daimler's path about why an invention alone does not make a successful company. The answer shows in Laux's figures. The high-speed engine came from Cannstatt; the first cars in significant numbers came from France. His own company fell into dispute and needed outside help, and the name of the later brand was introduced by a dealer.

Schumpeter's distinction makes the pattern understandable. Daimler was a first-rate inventor. Carrying it through in the market lay largely with others. For an owner today this does not mean developing less. It means planning the path to the customer with the same care as the product, because an invention alone sells nothing.