Werner von Siemens: Inventor, Seller, Entrepreneur

Why a look at Werner von Siemens is worthwhile today

In Germany there is a lot of talk about inventions and little about what comes after. Many small businesses have good technical solutions and struggle to sell them. Werner von Siemens is an example of how the two belong together. He was an engineer and inventor, but his company grew because he won orders, opened up markets abroad, and bound people to him.

This portrait pursues one question: What can be learned from Werner von Siemens's path about how an invention becomes a lasting company? It relies only on publicly documented information, above all the Neue Deutsche Biographie, the company's own account, and the biography by the historian Wilfried Feldenkirchen. I first trace the stages, then introduce a thinking model, weigh two readings of his success, and derive conclusions for owners.

The stages: from artillery officer to global entrepreneur

Werner Siemens was born on December 13, 1816, in Lenthe near Hanover, one of fourteen children of a tenant farming family (Deutsche Biographie; Walz 1995). The family could not afford university. In 1835 he joined the Prussian artillery and received a technical education at the Artillery and Engineering School in Berlin. After his parents died, he took on responsibility for his younger siblings early, a role that, according to Feldenkirchen, he never laid down.

1. 1842: the first patent

   Siemens receives a Prussian patent for a process of galvanic gilding. His brother William markets it in England from 1843 and stays there.

2. 1847: the founding

   After working on an improved pointer telegraph, he founds the Telegraphen-Bauanstalt von Siemens & Halske in Berlin with Johann Georg Halske in October 1847.

3. 1848: the first large state order

   The company builds the telegraph line between Berlin and Frankfurt am Main. In 1849 Siemens leaves military service.

4. 1850s: Russia and business abroad

   After cooperation with the Prussian telegraph administration ends in 1851, the firm wins the order for the Russian telegraph network. His brother Carl runs the business in St. Petersburg.

5. 1866: the dynamo-electric principle

   Siemens describes the principle that makes it possible to generate electricity on a large scale. Other inventors reached similar results at the same time.

6. 1879: the electric railway

   At the Berlin Trade Exhibition, the company demonstrates an electric railway. Siemens coins the German term Elektrotechnik, electrical engineering.

7. 1888 to 1892: nobility, retirement, death

   In 1888 Emperor Friedrich III raises him to the nobility. In 1890 he officially withdraws from the firm; in 1892 his memoirs appear. He dies on December 6, 1892, in Charlottenburg.

The partners separated at the end of 1867. Halske retired into private life at almost 54, but his name remained part of the company name until 1966 (Siemens AG). Politically, Siemens was a member of the Prussian state parliament for the liberal German Progress Party from 1862 to 1866, and in 1887 he supported the founding of the Physikalisch-Technische Reichsanstalt, the imperial institute of physics and technology (Deutsche Biographie).

The thinking model: the entrepreneur according to Schumpeter

In his 1911 "Theory of Economic Development," the economist Joseph Schumpeter made a distinction that helps in understanding Siemens. 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.

Siemens himself formulated this idea in 1865, decades before Schumpeter: "Ideas in and of themselves have only very little value. The value of an invention lies in its practical execution." (quoted from Siemens AG, own translation)

The classification is mine, not a statement by Schumpeter about Siemens. But it shows where his strength lay. Of the five kinds of new combinations, at least four are documented in his case. An invention alone would not have produced a global company.

An invention is a promise. A company only comes into being when someone makes sure it is kept.

The seller: state orders and markets abroad

Siemens did not sell to end customers but to states, railway companies, and large clients. According to Feldenkirchen, the firm built Europe's first major telegraph line between Berlin and Frankfurt, the line between Moscow and St. Petersburg, a telegraph connection between London and Calcutta, and a cable between Ireland and the United States (Walz 1995). Such orders required more than technology: negotiations with governments, trust in the ability to deliver, and staying power.

The business abroad rested on a particular sales model. Feldenkirchen calls it the family principle. Werner ran the house from Berlin, his brother William built up the business in England, his brother Carl the one in Russia. By the time of his retirement in 1890, the company had branches in the United States, Russia, Great Britain, Austria-Hungary, and at several points in Asia (Walz 1995).

An everyday analogy: a family business in which each sibling runs their own shop in a different town needs no elaborate control system, because the trust comes from the family. That works as long as the family sticks together and the shops do not grow too large. For owners today, the lesson is that sales in new markets succeed best through people you trust. How to set up such partnerships today without family ties is described in the guide Setting up sales partnerships.

The employer: early benefits for the workforce

Siemens & Halske introduced benefits for its employees that were unusual at the time. According to the Neue Deutsche Biographie, there was a bonus for the workforce from 1866 and from 1872 a pension, widows', and orphans' fund, more than a decade before state social insurance was created in Germany.

Kastl and Moore (2010) examined why the company introduced these benefits. They name profit sharing, annual bonuses, a pension fund, shorter working hours, and an annual party as components. For the most expensive part, the pension fund, they conclude that it increased productivity and discouraged strikes. By their estimate, the company's gains from it were at least as high as the costs.

The title of their paper speaks of the wily welfare capitalist. That names the two readings on offer here: care out of conviction or shrewd calculation. The sources do not allow the two to be separated, and they need not be. For owners, the more important finding is that benefits for the workforce can pay off if they keep people. What that looks like in small businesses today is shown in the guide Employee retention in a small business.

Two readings: inventive genius or organization?

What was the basis of Siemens's success? Two readings are put forward publicly.

The first reading sees the core in inventive genius. The list of his technical achievements is long: improvements to the telegraph, the insulation of underground lines, a method for laying submarine cables, a resistance standard that became known as the Siemens unit, and the dynamo-electric principle. Without these inventions there would have been nothing to sell.

The second reading sees the core in organization. Others made many of his inventions at the same time. The dynamo-electric principle was described almost simultaneously by several inventors. What distinguished Siemens & Halske from others were the state orders, the brothers' network abroad, the loyalty of the workforce, and the ability to translate technology into projects a client could buy.

I consider the second reading the more revealing one, without disputing the first. Siemens himself placed the value of execution above that of the idea. And the fact that others made similar inventions at the same time but built no comparable company suggests that organization tipped the balance. That is an assessment, not an established finding.

What owners of mid-sized businesses can learn from this

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

• Execution before idea: a technical solution is only worth something once someone buys it. Check how much time in your business goes into development and how much into sales and execution. How little-known world market leaders combine technology with closeness to customers is described in the article Hidden Champions.
• Trust as a sales channel: Siemens opened new markets through people he trusted. Anyone entering new regions today needs partners with similar trust, even without family ties.
• Do the math on loyalty: benefits for the workforce can pay off if they reduce turnover and conflict. That holds for a pension fund in the 19th century as much as for development opportunities today.

The family principle has a downside Siemens himself did not live to see. A company built on brothers, sons, and relatives faces the question of what happens when the family no longer provides the right people. The article Running a family business describes how to separate family and business cleanly. A comparison with other portraits in this series is revealing: Nixdorf Computer AG was merged into Siemens Nixdorf Informationssysteme AG in 1990, as the article Heinz Nixdorf shows, and the article Robert Bosch describes another founder who made quality and wages his hallmark.

Conclusion: what does Werner von Siemens's path teach?

The opening question was
can be learned from Werner von Siemens's path about how an invention becomes a lasting company. The answer lies in the combination of three roles. Siemens invented, but he also sold, to states and across borders, and he built an organization that bound people, from his brothers in London and St. Petersburg to the workforce in Berlin. In Schumpeter's sense he was less an inventor than an entrepreneur, because he carried out new combinations.

For an owner today, one exercise is enough: write down how much time you spent last month improving your offering and how much selling it. In 1865 Siemens noted where the value lies. The distribution of your own hours shows whether you agree with him.