What I Learned About Business From the Richest Man Who Ever Lived
The leader of the Protestant Revolution, the Emperor, and the richest man to ever live walk into a room. This isn’t the start to a bad joke. This is the famous Diet of Worms.
April 18, 1521, Martin Luther faces Emperor Charles the V in the Heylshof Garden to defend the infamous 95 Theses. Few people noticed the quiet banker in the room, simply known as “Jakob the Rich.” Jakob is a common merchant who will become the richest person who’s ever lived. Jakob will go on to accumulate a personal net worth equivalent to 2% of Europe’s GDP at the time.
Jakob’s net worth is basically Bill Gates + Warren Buffet + Jeff Bezos combined — then doubled.
Who the was Jakob the Rich? Why was he at Martin Luther’s trial? How did he get so damn rich? Well, he was a data-hungry banker looking after his investment.
Over the previous 16 years, Jakob had been lending the Catholic Church money — and the Pope had racked up an enormous debt. In order to pay off those debts, the Church launched a campaign for people to pay to have themselves and their deceased family members absolved of all sins.
For the low low price of a month’s worth of food you can free you and your uncle from a life of burning in the eternal flames of Hell.
These “indulgences” were a central complaint of Luther’s 95 thesis, so it’s no surprise the Jakob was at the trial, ensuring his return on investment was not going to be interrupted by some monk nailing complaints to a door.
Jakob the Rich (a.k.a. Jakob Fugger) was a ruthless businessman with unmatched foresight and a risk tolerance that would put Wall Street to shame. He built his empire by lending money at a time when it was considered unchristian to profit from banking. One critical piece of Jakob’s ascent to power was that he learned double-entry accounting as a teenager.
You read that right.
Innovative accounting practices lead to a common man having enough power to treat the Catholic Church and the powerful Habsburg family like a deadbeat friend who kept “forgetting” their wallet every time they went out for drinks.
What makes this innovation so impressive?
Value is such a ubiquitous concept for us now. We all understand the idea of market cap and hear about valuations constantly. But the idea of a single “value” for a business is not inherent — it had to be invented. Jakob was a banker and a lender. In the 1500s you didn’t necessarily lend coins for future repayment of coins. Often you were lending for future production on another commodity such as a percentage of production from a diamond mine, a certain amount of wool from a sheep herder, wheat from a farmer, or discounts on labor.
Try to imagine this world and really put yourself in the shoes of some baron in Austria: You have a vague idea of how things are going for your family’s estate. One of your farms has a bad year, but you still got that sheep herder who owes you — so no need to worry. In many ways, I assume this is how Larry and Sergei think about Alphabet.
Imagine a world class poker player gambling without knowing how many chips he actually had.
That’s pretty much the pre-Fugger world. But Jakob was not tolerant of this ambiguous calculation of value. Jakob wanted to know how the Empire of Fugger was performing every day. He wanted to know the performance of his banks in Paris, his mine in Salzburg, his debts from the Habsburgs, the value of the franc vs. the florian, and so on. He needed a method to translate all commodities and different currencies into a combined single value so he could watch the health of his business. Also, by understanding the true value of his business he understood how much he could gamble.
Jakob’s innovation in single finance accounting allowed for two game-changing aspects to his business.
- A single number to constantly pursue increasing. He was committed to increasing his own net worth.
- A single number gave him the ability to properly assess the potential risk and reward of different opportunities.
The ability to record a single number and have a robust accounting practice allowed for another incredible consumer facing advantage: The ability to deposit money in one spot and pick it up in another.
Speedy Communication
Jakob lived pre-instant communication. To truly understand the value of his business at any given time he needed more than just a method to translate furs to future earnings. He needed a network that allowed him to get info from his European empire quickly and concisely.
Travel was difficult in Jakob’s time, the roads were filled with bandits, and the countryside would not be quite like traveling down the highway.
Let’s go back to our imaginary lives as Austrian Barons. You’re in your castle at the edge of Zurich, your friend in Paris writes you a letter that you must come visit him in Versailles so you write back “sure buddy I haven’t seen you in awhile and I’ve been itching to check out this hall of mirrors everyone is talking about.” You know you need to bring the king a gift of gold because you’re about to party in his castle for a few days but you don’t want to bring lots of cash along the bandit-strewn road. So you go to bank of Fugger, deposit some coins, and tell him you will pick it up in Paris. Obviously Fugger is not going to send that gold down the road. Instead he just dispatches someone from his vast network to deliver the message that Baron von Whoever is going to be picking up some gold.
This was almost unthinkable pre-Fugger. Without the ability to communicate instantly, this process requires standardized account and verification processes. In Fugger’s quest to build a system that allowed for checking the health of his business, he needed an agile and reliable network of communication and reporting.
His quest to better understand the health of his business lead to a better business.
The Best Customer Solution Wins
There were other lenders at the time and Fugger didn’t even improve the ability to deposit and take out money in a different location until his empire was already gigantic. Fugger didn’t necessarily offer better rates. In fact, his fees were brutal. Fugger was not a particularly charming or charismatic CEO, he was not well liked, and he was not famous. Yet he got to the point where he controlled 2% of all Europe’s GDP. Just for context, the European Union’s current GDP is $18.95 trillion — 2% is 379,000,000,000.
When we think about the heroes of business, the relentless product people like Steve Jobs and Elon Musk, the logistical masterminds like Jeff Bezos and Michael Dell, the robber barons of vertical integration like Dale Carnegie and Cornelius Vanderbilt, let’s consider adding the original data junky: Jakob the Rich.
The man built an empire on one simple question: How much is my business worth?