Korsten possessed the temperament to succeed as an entrepreneur in spades, yet as will be shown, he was not necessarily successful in every venture which he tackled. In comparison with his friend Samuel Hudson, he was less dogmatic and more disciplined, but ultimately only marginally more successful.
Samuel Eusebius Hudson was a friend Korsten of long standing who was also an entrepreneur at heart. From his diary one is able compare their management and business styles and divine the flaws in each’s business character.
Main picture: Cradock Place painted by Walford Arbouin Harries in 1870
Hudson provides his acerbic assessment of Korsten’s fallacious grasp of risk-taking as follows: Above all, Korsten comes across as a gambler, forever heedless of the risk he was taking, always lured on by huge profit margins. Deaf to friendly advice that it was time to sell up and take his profits, he could never bring himself to quit until it was too late. I have ventured to say, retire whilst you have something comfortable, for your speculations may, if followed, reduce you to former beggary. He sees it, but cannot give up the idea of further gain.
The Gamtoos Wagendrift as an exemplar
During 1818 Korsten purchased 2100 acres of land at the Wagendrift on the Gamtoos River where the town of Hankey now stands. Korsten’s objective was to convert this area into arable land as well as a livestock farm in order to service the Cape Town market. To manage its development, he employed Samuel Eusebius Hudson who, at the age of 59, possessed no prior farming experience.
Hudson must have soon grasped the magnitude of the undertaking and within six months discussed the impracticability of completing the work without a significant accretion of the workforce. A dire situation had arisen as Korsten had hired ten of the Scottish labourers whom Benjamin Moodie had brought out under indenture. After less than a month, they were disgruntled and aggrieved. No longer were they willing to endure the summer heat during the day and rough ground under their tents as night.
In their discontent and displeasure at unbearable conditions, more than half had already absconded. In a modicum of irrational pique, Korsten dismissed the remainder of the labourers, along with the deserters, who unable to obtain a pass from the landdrost, had trickled and drifted back. As replacements, Korsten brought in Khoikhoi labourers but given the quantum of work, they were inadequate in number.
Irrigation
Water was plentiful but for the land to be cultivatable, it had to be irrigated. To do so, a water channel had to be dug from the river to the fields. Instead of personally inspecting the area to determine such details as the length of the channel, the amount of rock to be removed and the workforce required, Korsten relied upon untrained staff to provide this information culminating in estimates that were overoptimistic.
After almost a year the irrigation system was not yet working. The dam under construction was incomplete but no remedy could be determined. Korsten was at a loss literally and figuratively.
Transport to the market
Worst of all, without first inspecting the mouth of Gamtoos River to determine whether it was suitable and adequate for use as a harbour for sea-going ships, he did nothing. A cursory inspection during November 1818 revealed that like all river mouths on the east coast, all were blocked by sand bars. Having not factored in the additional costs of a two-day trip to Port Elizabeth and the additional costs of a water channel and dam, the project was not only behind schedule but also ahead in costs.
Despite the complications and setbacks, Korsten’s innate inclination was to persevere, typical ostrich approach of head in the sand. Furthermore, at the end of the year Hudson revoked his option to purchase a half-share of the farm and returned to Cradock Place. Despite his intractable position, Korsten was unmoved and perhaps even belligerently intransigent. Despite having spent R$10,000to date, only a cottage and a hut had been built and little more than a garden cultivated.
Intransigence
Edward Hudson notes that “Instead of facing facts and selling up, Korsten decided to give half of the property to his son-in-law, John Damant in the hope that his brother, Captain Thomas Damant could make a success of it. Samuel Hudson correctly predicted that the Damants – gentleman farmers from Norfolk in England – ill-prepared for the rigors of the Eastern Cape – would not long keep possession.”
Even though the farm continued to lose money proliferately, Korsten clung on until December 1821. It was a deepening recession which compelled Korsten to take the ultimate remedial action viz split the property into three lots and dispose of them at the best price possible. The selling price amounting to R$ 25,000 must have meant that Korsten incurred a substantial loss in the transaction. Hudson notes that “Korsten’s stubborn persistence against insuperable odds had cost him dear.”
Korsten’s store at Cradock Place
When Korsten opened store at Cradock, it possessed a natural monopoly as it was mainly supplying the military, locally and in Mauritius. Demand for salted beef was so great that Korsten was compelled to lease additional grazing land in the area. Even locally, Korsten initially held a monopoly as there were no competitors. As competition mounted, so did Korsten’s profitability shrink.
Meanwhile down at Algoa Bay, novel methods of trading were being used. Sailing up from Cape Town in his brig, Findlay would trade directly from is vessel undercutting Korsten at Cradock Place. Harrington also employed a similar ploy.
Merchants pre-1820
In the year or two prior to 1820, Korsten’s competitors were setting up shops in Port Elizabeth. Hudson notes that “In November 1819, Antonio Chiappini [1777-1860] and his brother-in- law Petrus Johannes Heugh [1782-1858] were petitioning for a piece of ground to build a store at Port Elizabeth while other merchants were bringing in goods in their own ships from Cape Town.
Cradock Place’s Profitability
Samuel Eusebius Hudson’s diary reveals the fragility of Cradock Place’s business finances due to perilously high debt levels as well as meat exports operating at a loss. In the period 1821-1822, the extent of Korsten’s book debts were as follows: Store run by Dietz RxD 34,000, store managed by Hickman RxD 24,000, the Damants RxD 24,000 at Wagondrift, houses at Uitenhage RxD 10,000 and sundry book debts RxD 50,000.
New opportunities
As Korsten discerned new business opportunities, he instinctively grasped them. The first in early 1819 was the decision by the Cape Colony’s administration to station a large number of troops on the Zuurveld. The ever-hopeful Korsten rapidly submitted a tender to supply them with flour. By March 1819, Korsten had doubled his milling capacity. The order lasted only several months. Harsh reality dawned when a repeat order was not forthcoming.
Whale oil
The other opportunity that arose in 1819 was the sky-high price of whale-oil. The profit margins attracted many to enter the whaling industry including Korsten who justified his entry into an unknown industry by believing that if others could succeed in the whale-oil business why couldn’t he? Factors such as skill, equipment and experience were seemingly ignored in his business plan.
Within a month, he had engaged whalers and harpooners and by June had built vats for boiling he blubber. The realities of whaling were exponentially more difficult that Korsten could imagine. By the conclusion of the whaling season in September 1819, Korsten was operating at a loss with expenses exceeding the sparse income from the trivial catches, but Korsten would not concede defeat.
Hudson notes that although the following season’s catch was more promising, labour shortages and management problems were now a limiting factor that was preventing the enterprise from achieving its full potential. ……. Worse still Korsten’s concentration on whaling caused him to hold on too long to the ownership of Cradock Place.
The credit bubble
When the bubble finally burst, the rapidity with which it does, instantly overwhelms the participants in the situation. In no small measure Korsten was the author of his own demise. Fixated on the whaling business, Korsten spared little management time on the greater threat to his business empire, Cradock Place. Korsten’s ubiquitous solution to each emerging problem was to issue a Promissory Note. The final one which proved to disastrous was to lease the store at Cradock Place and sell the stock to Samuel against Promissory Notes which were unlikely ever to be repaid by Korsten
The proverbial straw
For Frederick Korsten, due to repeated failures and the underlying weaknesses of his businesses, any extraneous event which weakened market confidence would induce an implosion of the businesses. The first such event was a series of losses relating to his shipping fleet. At best, navigation along the coast in sailing ships was extremely treacherous. Already in early 1818, Hudson noted that Mr Korsten has ever been unfortunate with ships. I believe that he has already lost five. Three more sinkings occurred within three years literally sinking the company with them, was the loss of the schooner, the Uitenhage Packet, in August 1819 together with the loss of its cargo. The consequence of its loss was more serious as Korsten then lacked a means of exporting his whale oil.
The second vessel to be destroyed was the Theodosia, a recent acquisition, when it caught fire in February 1820, two days prior to her being insured, resulting in a total loss of RxD 50,000. The penultimate blow to Korsten was inflicted when the Constantia sailing from Cape Town en route to Port Elizabeth was mysteriously lost. The loss was especially grievous as its cargo was uninsured and its intended recipients were Van Buuren and Hudson, the current operators of the store at Cradock Place.
A letter received by Korsten in July 1821 from his agent in London can be rated as the ultimate straw which decimated Korsten. This letter informed Korsten that due to an oversupply of whale oil, the price had crashed. Exacerbating the situation was the anticipated arrival of four thousand tonnes from the southern whale fisheries.
The credit bubble bursts
The economy of the Eastern Cape stood on precarious and increasingly fragile legs. Amid a shortage of hard cash, the local economy operated on a basis of loans, debts and promissory notes. By the end of 1821, overextended credit by Korsten compounded that fragility. When one party was unable to meet the terms of the credit extended, it would have a ripple effect as the debtor was unable to collect the cash required to meet their obligations. The store at Cradock Place, the original hypermarket of that era, was shuttered with its bankrupt operators Hudson and Van Buuren owing Korsten a total of RxD 42,000 as well as saddling him with further debts to suppliers in Cape Town. Consequently, Hudson noted in his diary in January 1822 that Korsten was so poor that he did not even have a dollar in the house.
Missed opportunities
To what can one attribute Korsten’s inability to throw in his hand at an appropriate time instead of compounding his losses with a gamblers lack of judgement. Cradock Place was a prime example where he should had cut his losses years earlier instead of gambling on a resurgent winning streak?
It was not just a gambling instinct that compelled him to proceed but it was also domestic issues which compelled him to remain in business. Huson refers to these issues as follows: On the one hand, developments within the Hoets family were jeopardising Korsten’s financial standing by threatening his wife’s prospects of sharing in her father’s wealth. On the other hand, the numerous relatives that Korsten and his son-in-law brought in from Europe in 1820 to assist in developing his enterprises were proving to be a liability.”
Hudson’s assessment
From the vignettes above one is able to make an informed assessment of Korsten’s business acumen. Overarching the assessment is Korsten’s gambler’s instinct but to obtain a more nuanced assessment let us draw on Samuel Hudson’s view as expounded in his diary.
Overall Hudson recognised in his friend all the eager opportunism that an entrepreneur needed to succeed in this unstable dangerous environment. Far from being blind to Korsten’s faults. however, he saw Korsten as proud, obstinate and at time obstinate: His eager thirst for gain makes him bite with avidity at every bait, and very frequently he finds himself hooked in a way which he cannot without difficulty get rid of. I am sorry to say an overgrown pride usurps the place of reason and carries him far from the mark he wishes to arrive at.
His pride and ostentation creates in him a horde of enemies who will ever thwart him in his schemes. A steady humble course would answer his purposes much better. He says himself he is a hot-headed obstinate fellow. And what a person says, there may be some truth in it. Mr Korsten is gloomy and seems much out of temper. It is a thing so common that it passes off disregarded. Mr Korsten’s mind is so changeable that it never continues the same for six months.
Above all, Korsten comes across as a gambler forever heedless of the risks he was taking, always lured on by huge profit margins. Deaf to friendly advice that it was time to sell up and take his profits, he could never bring himself to quit until it was too late.
Source
The Decline and Fall of Frederick Korsten by Edward Hudson