Sam Zell: From Risk-Taking Entrepreneur to Success in Business

Zell's Journey to Success

Author Sam Zell shares his entrepreneurial journey and his unconventional approach to business. He emphasizes the importance of seeing opportunities in anomalies or trends that catch his attention and not conforming to conventional wisdom.

Building Relationships and Running a Moral Company

Zell believes in building long-term relationships and running his company with a moral compass. He values trust, commitment, and maintaining a good reputation.

Investment Experiences and Taking Risks

Zell shares three specific investment experiences, highlighting his ability to see opportunities others may overlook and his willingness to take risks in pursuit of financial success.

Escape from Poland during World War II

The author's parents escape Poland to avoid anti-Semitism and danger

The author's parents, both from Jewish families, escaped Poland due to growing anti-Semitism and the increasing danger for Jews.

The risks taken by the author's father to transfer money out of Poland

The author's father took risks to transfer money out of Poland and establish a broader economic base outside of the country, including making a clandestine deposit in Tel Aviv.

Traveling through multiple countries before reaching the United States

The author's family traveled through several countries, including Lithuania and Japan, before finally reaching the United States.

A sense of gratitude for opportunities and freedom found in America

Despite their struggles and the loss of many family members in the Holocaust, the author's parents instilled in him a sense of gratitude for the opportunities and freedom they found in America.

From Managing Student Housing to Audacity and Entrepreneurial Spirit

Zell started his career by managing student housing apartments during college.

Despite not being passionate about academics, Zell was motivated to make his parents proud and prove himself by pursuing a career in the business world.

He started by managing student housing apartments while in college, using his knowledge of what students wanted to attract tenants.

He was motivated to succeed by not wanting to disappoint his parents and the benchmark set by his sisters' academic success.

Zell's willingness to take risks and think outside the box led him to success in real estate, including acquiring a whole block of land in Ann Arbor and selling it for a profit.

Zell values personal freedom and finds it through activities like riding motorcycles.

He also emphasizes the importance of paying attention to people's environments and being confident in the face of rejection.

Zell started his career by managing student housing apartments during college.

He developed his negotiation skills and learned the importance of seeing people in their own environments.

From Rejection to Success: Sam Zell's Journey as a Dealmaker

Zell Overcomes Rejection and Discovers His Passion

Sam Zell's legal career initially faced rejection due to his emphasis on business experience rather than legal education. Charles Kaufman of Vedder, Price, Kaufman in Chicago advised Zell to focus on being a dealmaker rather than continuing with a law career. Zell found a job at a small law firm but quickly realized he wasn't suited for legal work and wanted to focus on deals.

Seizing Opportunities and Building Success

Zell convinced his boss to let him bring in deals and split the commission, and he quickly became successful at bringing in new business. He focused on buying apartment properties in university towns, targeting cities with low taxes and utilities costs. Eventually, Zell partnered with Jay Pritzker and learned from his mentor about looking at deals and understanding risk.

Integrity and Resilience: Lessons from Challenges

Zell faced an indictment related to a deal that was deemed illegal, but he maintained his integrity and honesty throughout the process. He emphasizes the importance of partnerships and finding partners who have mutual trust and shared risks. Zell also shares an anecdote about dealing with an abusive lawyer and how he stood his ground and demanded an apology and fee waiver.

Sam Zell's Investment Philosophy and Successful Examples

Sam Zell's Investment Philosophy

Zell believes that the basics of business are straightforward and largely about risk. He looks for opportunities in imbalances between supply and demand, emphasizing the importance of aligning interests and being an engaged owner.

Successful Examples

• Acquisition of distressed real estate assets in the 1970s
• Use of NOLs to acquire and grow companies like Anixter
• Complex deal with GE Capital Railcar Services

Reflections and Challenges in the Early 1990s

Zell's denial about Bob's illness

Zell admits that when Bob got sick, he went into denial and assumed that Bob would get well. He focused on covering the bases at work without going to see Bob. This denial was shattered when Bob visited Zell's office and confronted him with the truth of his impending death. This was a devastating moment for Zell and marked a turning point in facing the reality of Bob's illness.

Zell's approach to navigating challenges

Zell relied on making lists and focusing on liquidity to navigate the challenges that his business faced in the early 1990s. He divided his goals into smaller tasks and focused on accomplishing them one by one. His main priority was cash, as the business was starved for it. To address this, Zell turned to the capital markets and embarked on his first IPO with Vigoro, a fertilizer company. This marked the beginning of Zell's learning process about fundraising and IPOs, which would become integral to his success in the coming years.

Zell's success in investments

Despite the challenges of the early 1990s, Zell achieved success in various investments. One notable example is Jacor, a radio station owner with a bad balance sheet. Zell and his team negotiated a complex restructuring, which enabled Jacor to reorganize its portfolio and grow through acquisitions. A major turning point for Jacor came with the passing of the Telecommunications Act, which lifted the restriction on the number of radio stations a company could own. Zell seized this opportunity and instructed Jacor to buy as many stations as possible, leading to significant growth and eventually selling the company to Clear Channel for a substantial return.

The 1980s Real Estate Collapse and Zell's Predictions

The 1987 stock market crash and ignored warnings

In the 1980s, Zell predicted a collapse in the real estate industry due to the 1987 stock market crash and structural changes within the industry that were largely ignored. He wrote an article titled 'From Cassandra, With Love' to present a dire warning, but it was disregarded.

Contributing factors to the collapse

The collapse was influenced by the savings and loan crisis and tax reforms that impacted real estate. These factors, combined with the stock market crash, eventually led to massive losses in the industry.

Struggle and success in raising capital

Zell faced challenges in raising capital for an opportunity fund. However, through personal determination and involvement, he eventually raised $400 million, which played a crucial role in his future success.

Failed attempt to acquire Rockefeller Center

Zell recounts his unsuccessful bid to acquire Rockefeller Center, which was a significant endeavor during that time.

Transformation of Manufactured Home Communities and Equity Residential

Zell highlights the success and transformation of Manufactured Home Communities and Equity Residential. By recognizing the potential of manufactured home communities and adapting to growing trends in the rental market, both companies achieved significant growth and success.

Establishing the modern REIT industry and skepticism towards dot-com bubble

Zell played a role in establishing the modern REIT industry, emphasizing transparency, predictability, and accountability. He also expressed skepticism towards the dot-com bubble in the late 1990s, further showcasing his insightful and cautious approach to investments.

Timing, Valuation, and the Sale of Equity Office Properties

Timing is everything

Zell sold Equity Office at the peak of the market before a global real estate market collapse.

A unique valuation approach

Zell valued the company based on replacement cost rather than rents or comparable prices. He believed Equity Office was undervalued by Wall Street.

Blackstone's bid and auction hopes

Blackstone Group made a bid for Equity Office, which Zell saw as a floor for an auction. He hoped that other bidders, such as Vornado Realty, would enter the fray and drive up the price.

Choosing Blackstone over Vornado

Vornado Realty also made a bid, but Zell ultimately accepted Blackstone's offer of $55.50 a share. Zell considered the certainty of a cash deal and the ability for Blackstone to quickly close the transaction as advantages over Vornado's bid.

The Importance of Risk Assessment and Simplicity in Deal-Making

Risk is Necessary for Above-Average Returns

Sam Zell emphasizes the importance of risk-taking for achieving above-average returns.

Calculating Potential Downside is Crucial

Zell highlights the significance of considering the worst-case scenarios and potential downside before making deals.

The Success Story of Carter Hawley Hale

Zell shares how his accurate risk analysis made the investment in CHH successful, despite challenges.

Unforeseen Events Impact Risk Assessments

Zell discusses how unforeseen events like September 11 attacks and the Great Recession can blindside even careful risk assessments.

The Simplicity of Goals and Execution

Zell believes that simplicity in setting goals and executing plans increases the chances of success.

Analyzing Worst-Case Scenarios

Zell emphasizes the importance of analyzing worst-case scenarios as part of risk assessment.

CHH Investment: Success Despite Loss

Despite a 20% loss, Zell considers the CHH investment a success due to accurate risk analysis.

September 11 Impacts American Hawaii Cruises

The September 11 attacks negatively impacted Zell's investment in American Hawaii Cruises due to a halt in leisure air travel.

Challenges Faced by Tribune Company

The Tribune Company deal faced challenges from the Great Recession and declining revenues in the newspaper industry, ultimately leading to bankruptcy.

Zell's Risk Assessment Approach

Zell believes his approach to risk assessment and decision-making is key to his success.

Insights on International Investing

Zell's Interest in International Investing

Zell's interest in international investing is sparked by the opening of retail stores in Mongolia by luxury brands like Louis Vuitton, and the country's development of lucrative mining projects.

The Power of Globalization

He believes that globalization provides more opportunity than threat, and sees interconnectedness as a driving force in the world.

Investing in Emerging Markets

Zell invests in emerging markets such as Mexico, Brazil, Colombia, India, and China, recognizing their demographic growth and potential for demand.

The Value of Partnerships

He emphasizes the importance of strong personal relationships and partners in foreign markets for success.

Experiences in Venezuela and China

Zell shares experiences from Venezuela, where he had a great local partner, and China, where his partner cut off communication, highlighting the role of partners in navigating international markets.

Investment Opportunities and Scale

Zell believes that countries on the verge of investment-grade rating offer stability and investment opportunities, and highlights the importance of scale for liquidity and optionality in emerging markets.

Potential of Latin America

Latin America is identified as a region with significant investment opportunities, particularly due to the creation of the Mercado Integrado Latinoamericano (MILA).

Value of Immersion and Relationships

Zell emphasizes the value of immersing oneself in different cultures and building long-term relationships, as well as the insights gained from such experiences.

Key Examples:

• Zell's investment in a Venezuelan company
• Zell's investment in a Chinese home builder
• Creation of the Cross Border Xpress (CBX) pedestrian bridge

These examples highlight the importance of knowledgeable partners, the risks of investing in command economies, and the potential for infrastructure projects to accelerate commerce.

The Importance of Culture, Meritocracy, and Collaboration in the Workplace

Culture is a key factor in the success of a company.

The text discusses the importance of culture in the workplace and the role it plays in the success of a company. It highlights the idea that culture can either inspire ideas or stifle them and emphasizes the importance of creating a meritocracy where individuals are measured based on what they produce.

A meritocracy focuses on measuring individuals based on their productivity.

The text discusses the concept of a meritocracy and how it eliminates superficial markers, allowing individuals to be measured solely based on their productivity. This creates a level playing field where everyone has an equal opportunity to showcase their abilities.

Transparency and open communication are essential in the workplace.

The text also stresses the importance of transparency and open communication in the workplace. It discusses the hiring process and how finding talented individuals who fit the organization is more important than fitting someone into a predefined job description.

Hiring individuals who fit the organization is more important than fitting them into a job description.

The text mentions the importance of aligned interests and the power of collaboration within a company. It highlights the author's unique hiring process, where job descriptions are not established upfront. Instead, the author finds talented individuals who fit the organization and then looks for ways to utilize their skills.

Aligned interests and collaboration lead to a more successful company.

This approach ensures that the right people are in the right roles and fosters a sense of autonomy, responsibility, and collaboration among employees. The text also emphasizes the importance of creating an environment where people feel comfortable expressing their opinions.

The importance of creating an environment where people feel comfortable expressing their opinions.

The author's hiring process involves finding talented people and then finding ways to use them. The author prefers drive, energy, attitude, judgment, conviction, and passion over high IQ. Effective decision-making and autonomy within the company are also highlighted as crucial factors for success. Additionally, the author's treasure hunts turned treasured events serve as a metaphor for their approach to business.

Key Points on Entrepreneurship

The Essence of Entrepreneurship

Entrepreneurship is about how you think, looking for opportunities to improve and taking risks.

The Role of Immigrants

Immigrants played a significant role in building the US as entrepreneurs.

Entrepreneurship Across Fields

Entrepreneurship exists in every field, not limited to tech start-ups.

Motivation Beyond Money

Successful entrepreneurs are driven by passion and motivation, not just financial gain.

The Importance of Sales Skills

Selling ideas to others and their own team is crucial for entrepreneurs.

The Role of Education

Education can help students develop their entrepreneurial tendencies.

Economic Growth and Job Creation

Entrepreneurial education is vital for economic growth and job creation.

The Need for Active Pursuit

Opportunities for entrepreneurs are always available, but require proactive action and calculated risks.

Philanthropy and Giving Back

Philanthropy is an important aspect of entrepreneurship, achieved through investment in education, arts, and other causes.

Examples:

Example 1: The author promoted entrepreneurial education by sponsoring a contest for course syllabus creation. Example 2: Risk was taught in a course to expose students to entrepreneurship decision-making. Example 3: Entrepreneurship programs and accelerators at Northwestern and IDC Herzliya have produced successful companies and raised millions.

Striving for Greatness and Making a Difference

Phil Jackson Praises Michael Jordan

Highlighting his ability to make others better.

Driving Growth and Progress

Sam Zell sees making a difference as driving growth and progress.

Being a Frontline Player

Zell views himself as a frontline player who can spot opportunities and adapt.

Industry Agnosticism and Opportunity

He believes in being industry agnostic and taking advantage of opportunities.

Keeping it Simple

Zell stresses the importance of keeping things simple and focusing on fundamental truths.

Problem-Solving and Simple Solutions

He appreciates problem-solving and finding simple solutions.

Valuing a Macro Perspective

Zell values a macro perspective, questioning broader events and their implications.

Importance of Gathering Information

He emphasizes the importance of gathering information and being a good listener.

Being the Lead Dog

Zell encourages being the lead dog and controlling the 'scenery' in every industry.

Doing the Right Thing

He believes in doing the right thing, even if it means passing up profitable opportunities.

Investment in Adams Respiratory

Zell's investment in Adams Respiratory resulted in the successful launch of Mucinex.

Loyalty to Jay Pritzker

Zell recalls a time when Jay Pritzker provided him with much-needed funding.

Ducks as a Reminder

Zell shares his affinity for ducks and how they remind him to find joy in the simple things.