Founders - #269 Sam Zell

Starting point is 00:00:00 No one has ever left a meeting with me wondering what I meant. When I say something, it is clear, candid, and often blunt. Am I being too subtle is my punchline when I deliver a message that I consider obvious. I can seem gruff, I know that, and I can be impatient. I have an embedded sense of urgency. What I can't figure out is why so many other people don't have that. But from an early age, I realized that I had a fundamentally different perspective from my peers, and I was willing to trade conformity for authenticity,

Starting point is 00:00:33 even when that meant being an outlier, which it usually did, and even if it meant being on my own. In this book, I share the story of how a restless, curious boy who grew up in Chicago made it to the Forbes 400. I'll describe the risks that paid off and those that didn't, and I'll tell you what I learned in the process. I'll take you inside my world of companies. I'm probably best known for creating several of the largest companies in commercial real estate and for helping establish today's $1 trillion public real estate industry. You could say that I'm an investor or an allocator of capital, but what I really am is an entrepreneur. That is an excerpt from the introduction of the book that

Starting point is 00:01:17 I'm going to talk to you about today, which is Am I Being Too Subtle? Straight Talk from a Business Rebel and is the autobiography of Sam Zell. The introduction of this book is perfectly named because he named it No BS. No one's going to read this book and then after be like, hey, I wonder what Sam Zell really thought. He tells you in very plain language. I want to jump right into the introduction because something that I found really fascinating is how much he preaches the gospel of entrepreneurship, not only for people running their own companies, but also for teaching the people inside of your companies to think like an entrepreneur.

Starting point is 00:01:48 And so he starts out defining what an entrepreneur is to him. In my definition, an entrepreneur is someone who doesn't just see the problems, but also sees the solutions, the opportunities. And what I loved about reading that was that that is not a new perspective. The best way to think about how entrepreneurs look at the world based on what you and I have read in these books is that they see problems that are just opportunities and work clothes. That is an old quote that came from Henry Kaiser. Henry Kaiser was this entrepreneur, read his biography, did an episode all the way back on Founders number 66, but he had built like a hundred different companies over his career. He made the majority of his wealth all the way back in the 1940s and 1950s.

Starting point is 00:02:27 And one of Kaiser's talking points that he repeated over and over again is that you shouldn't be looking at problems as problems. You should see every problem as an opportunity. And based on my reading of Sam Zell's philosophy of company building, I think that's very much in alignment with the way Henry Kaiser looked. So he says, The fundamental part of being an entrepreneur aligns with my tendency to walk out of step with the norm. I have a saying.

Starting point is 00:02:46 So these sayings he's going to repeat over and over again throughout the book. They're widely known. They're called Samisms. And this is the first time he mentions one of them. He says, I have a saying, if everyone is going left, look right. Conventional wisdom is nothing to me but a reference point. And he gives examples throughout the book of multiple decades of this trait working very well for him.

Starting point is 00:03:03 Another way he puts this is that when everyone is going right, that you should look left. So he says, I make a point of shutting out the noise, doing what makes sense to me. I want everyone's opinion because there's tremendous value in being a good listener. But then I determine my own path. And once I form my opinion, I have to trust my perspective enough to act on it. That means putting my own money behind it. My level of commitment is usually high. And I stay with my decision even when everyone else is telling me that I'm wrong, which happens a lot. And another thing I liked about Sam's philosophy is that he's all about long term partnerships. In many cases, he's doing deals and working with people for 20, 30, sometimes 40 years. And so he talks a lot about the importance of having long-term building, long-term relationships. So he says, when you're a repeat player, when your world is your business and your business

Starting point is 00:03:48 is your world, it is all about long-term relationships. In any negotiation, I believe in leaving a little bit on the table. And in any relationship, I believe in sharing the stakes. I've been doing deals with many of the same people for decades because the goal is for us to all come out ahead and many of my employees have been with me for 20 or 30 or more years because if I if I do well they do well these long-term relationships reflect the most important lesson imparted to me by my father he taught me simply how to be he often told me that nothing was more important than a man's honor, than a good name. Reputation is your most important asset.

Starting point is 00:04:28 Everything you do, everything you say is part of the permanent record. Your name reflects your character. No matter how successful I got, I never forgot that lesson. And so I like the fact that he starts with, hey, keep yourself to a high standard, and then immediately goes into the fact that I am imperfect, and I wasn't even able to hold myself to the standard I have. Not that I'm a saint. I've been married three times, and I admit that when I was younger, my career competed

Starting point is 00:04:53 with my role as a husband and father, and my career often won. And I have to bring that to your attention because that is a very common mistake and regret in these books that you and I go through. More often than not, they over-opt optimize for their professional life at the detriment of their personal life. And then they wind up regretting it when they're older. In Sam's case, he changed his perspective on this. But of course, you know, child like the founder of Ikea had the best quote on this ever because he talks about sacrificing. He missed seeing his three sons growing up as he was building Ikea. And he says, childhood does not allow itself to be reconquered. That is the best description of this very common mistake and regret

Starting point is 00:05:30 that a lot of entrepreneurs have. And so Sam says, today I have a better perspective as most of us get over time. The first thing you see when you walk into my office is a screen with scrolling photos of my wife, my kids, and my grandkids. I relish my time with each of them. My life is more balanced now. And then he goes into what motivated him. Why was he drawn to a life of entrepreneurship? And of course, everybody's like, oh, it's got to be the money. And they say that because done at the highest levels, entrepreneurship brings the most financial rewards. But the personality types that stay in the game for as long as Sam has, and he's been in the game for 50 years, usually describe entrepreneurship as a calling and an obsession. And we see that here. In fact, let me read. I'm going to read my note to you before I read this section,

Starting point is 00:06:12 because as I went through Sam Zell's quote, I'm like, man, this sounds a lot like Sam Walton. So all the way back on Founders number 234, when I read Sam Walton's autobiography for the second time, there's just this fantastic quote that I think just hits on the ethos of an entrepreneur. He says, the great thing about entrepreneurship, this is Sam Walton speaking now, the great thing about entrepreneurship is you get to spend your time building something you enjoy. Most people don't get to do this. They're stuck in jobs that they hate.

Starting point is 00:06:38 I had the time of my life. And that is exactly what Sam Zell is about to tell us here. I'm not solely motivated by the accumulation of wealth. There's a line from an old movie called Wheelers and Dealers that says, you don't go wheeling and dealing for the money. You do it for the fun. That's the exact same word that Sam Walton used, right? Money is just a way of keeping the score.

Starting point is 00:06:58 And that's how I see it. I've always been much more drawn to the experience. My life is about testing my limits and having fun in the process. Business is not a battle to be waged. It's a puzzle to be solved. That's a great line. Business is not a battle to be waged. It's a puzzle to be solved.

Starting point is 00:07:14 The end goal isn't to accumulate a lot of toys and then kick back. I want to pause there. He's going to go on for a little bit longer, but think about what he's saying there. Once you find your life's work, extra strategy is death. It's not retirement. The end goal isn't to accumulate a lot of toys and then kick back. He is 75 when he's writing the book. He is 80 today and he is still working. If I'm being intellectually challenged, if I'm doing things I've never done before, if I'm using my creativity and resources to solve problems, if I'm constantly learning, then that is fun. Really

Starting point is 00:07:43 think about that paragraph. That's another way to describe entrepreneurship. I'm being intellectually challenged. I'm doing things I've never done before. I'm using creativity and resources to solve problems and I'm constantly learning. And so yes, he's got a lot of dark periods in his career, just like anybody else is going to have. He goes into detail, but he tries to make everything he does fun. I adopted a philosophy I call the 11th commandment. Thou shall not take thyself too seriously. The Wall Street Journal back in 1985 did a front page story on me and quoted me saying, if it ain't fun, we don't do it. So then I left myself there as optimized for irreverence.

Starting point is 00:08:16 And keep in mind, we're still in the introduction. He's giving us like his overview of the way he looks at life and philosophy. And he's already, we're a couple pages in, he's already repeating over and over again. He's like, listen, I'm making my own rules. I'm not just going to accept what other people tell me, or I'm not going to act the way other people want me to act. And so he says, one of the biggest raps about me is that I've been known to use profanity. Sometimes our real estate colleagues will make bets on whether or when I'll drop the F-bomb on stage at a conference. I simply do not buy into many of the made up rules of social convention. I think people often get distracted by these superficialities. For example, I've been wearing jeans to work

Starting point is 00:08:49 since the 1960s, long before it was acceptable. Later on the book, I laugh because he literally says, I mean, he's got a giant personality, jumps off the page, which makes the, you'll learn a lot reading the book, but it also makes it fun. But he's like, I invented business casual. And I don't know if that's true. I just think it's funny that he would even say that. So it says, for example, I've been wearing jeans to work since the 1960s, long before it was acceptable. The bottom line is if you're really good at what you do, this is his main point of what this entire paragraph I'm reading to you, which is I think is probably true. The bottom line is if you're really good at what you do, you have the freedom to be who you really are. And I just love founders like this

Starting point is 00:09:25 because he says, people often ask me, when are you going to retire? And I answer, retire from what? I've never worked a day in my life. Everything I've done is because I love doing it, because it was enthralling. I never stopped pushing myself. I'm 75. I work out every morning at 4.45 in the morning and I'm at the office by 6.30 a.m. and I don't get home from work until 7 at night. Now, here I'm going to pause there because there's still a lot. There's two more sentences here that are absolutely fantastic. But he just got done telling us that he's more balanced now, right, with his family life. And look, that doesn't seem like he's leaving a lot of time for family.

Starting point is 00:09:59 So imagine what his schedule was when he said that he was unbalanced, that work won out, you know, the fact that he got married and divorced a bunch of times. But he says, I'm 75. I work out every morning at 445. Then I'm off. I mean, I'm in the office at 630 a.m. and I don't get home from work until seven at night. I have plenty more to do and a lot more to say. Every day is an adventure. Here's my story. Have fun with it. So then he goes into the unbelievable story of his father and mother and his older sister escaping from Poland right before the Holocaust. If you want a great book that is dedicated to this entire story, it's a very similar story. I did it back on episode 159. It's Andy Grove's memoir, Swimming Across. It's a memoir about the first 21 years of his life. There's a lot of stories in there that you could take from like the overcoming unbelievable odds and actually surviving. Andy Grove was widely considered

Starting point is 00:10:50 maybe the best technology CEO of all time, but there's nothing about actual business in that book. But I think understanding why Andy was the way he was is like reading that book is fundamental to understanding who he was as a person and how he approached his career for the last 50 years of his life once he actually gets to america so sam zell's family is jewish his father is seeing all the events that are happening in germany and austria at the time and he's just like we got to get the hell out of there and the rest of his family stays i think between his sam's father and mother i think they they lose I want to say like 14 or 16 siblings are killed in the Holocaust. And I just want to pull out a few highlights here because I think it illustrates how tenuous, like just one decision, the decision by his father changed his entire life. He got out

Starting point is 00:11:36 on the last train. If he did not make this quick decision, there's a good chance that Sam is never born because his father and mother and his sister die. His train arrived home at 2 p.m. It was a 10-minute walk home. And when he got there, he told my mother to pack all that she could carry. They were boarding the 4 o'clock train out that afternoon. He made one last effort to beg the family to leave Poland with them. It felt like a race against time. But again, they refused.

Starting point is 00:12:01 So my parents and sister started out alone on a near two-year odyssey. The Germans invaded Poland the next day at dawn. My father, this is crazy. My father had caught the last train out before the Nazis bombed the railroad tracks. My father, mother, and sister traveled after the train on foot, by bus, by horse-drawn carts, and by cattle train. So think about the independence of mind that you have. You're like, no, I have to leave now. Everybody else, your entire family is saying, no, no, stay, stay.

Starting point is 00:12:32 You take your wife and your baby little girl and you leave. And then this is the result. Most of all the family was murdered. Their parents and all but two of their brothers and sisters. So I was wrong. All of their siblings, 18 children 18 children i gotta repeat that again most of the family was murdered their parents so that would be sam's grandparents all but two of their brothers and sisters and all of their siblings 18 children it took them two years they finally get to america and it says every year for the rest of

Starting point is 00:13:03 their lives they celebrated the date of their arrival with a toast to America. My sister and I grew up keenly aware of how fortunate we were to be in this country. The note of myself there is no one loves America like an exile from a hostile regime loves America. I just had dinner with the twin founders of this company called Lula. They're trying to build like the stripe for insurance. And we just had the same conversation because they're they're sons of Cuban immigrants. My dad, I've told you before, but my grandfather decided when he saw Castro take over Cuba, he's like, we got it. He made this very similar decision.

Starting point is 00:13:37 He's like, we got to get the hell out of there. And he did that with no money, no education and a wife and a baby boy, which was my father. And so even though our families came from a different area than Sam Zell's family, we completely understand why their parents would do this, where they celebrate the date of their arrival every year. So then we get the relationship that Sam had, because Sam was the first one, I'm pretty sure the first one of his family to be born in America. And then he spends a lot of time in the book actually talking about an idea that you and I have spoken about over and over again. And it's the fact that you can always understand the son by the story of his father. That's the story of the father is embedded in the son.

Starting point is 00:14:13 And so Sam just starts to describe what the relationship was like. His father dies in the 1980s. I think he dies in like 1986. So he's describing this many decades later, 30 years after his father died. As a matter of fact, He was very strong-willed and authoritarian, and because I had a strong personality as well, we often clashed. He continually attempted to rein me in, and I always bristled at being told no. Consequently, we had a rather contentious relationship, but the difference was he always respected him. He said, I had an enormous respect for my father, and that respect was absolute. And so Sam talks about the fact that what his father had to survive he didn't provide sam a lot of time to be a kid this may be the reason why sam was able to start

Starting point is 00:14:52 businesses like he builds this like massively successful real estate business when he's still in college in fact he gets to law school and i think the last year of law school if i'm not mistaken he makes the equivalent of like two and a half million dollars or maybe like 1.5 million dollars like his last year of law school and part of million dollars or maybe like 1.5 million dollars like his last year of law school and part of that is because he had to grow up his dad forced him to grow up and i was thinking about this like as i reread my highlights yesterday i was like okay look at it from his dad's perspective imagine being in your late 30s you're you see that the anti-semitism you see that hitler's on the rise, you escape with your wife and your daughter,

Starting point is 00:15:25 you get to America two years later, all of your family is dead. Like, how could you not approach the raising of your family in a very serious manner and saying, hey, there's no time for, there's no time for games. Like, you need to go out and build a set of skills to be able to take care of yourself and survive in this very crazy world. So it says he would tell his, his dad would tell his son, he's like, you don't have time for fun. Like he'd go to like, he's like, Hey dad, I want to go see a basketball game. He's like, his dad said something that was kind of like humorous looking back at it. He's like, you saw one last week. Why did you have to see another one? So it says you have plenty of time in your life for fun. Now you have to focus. You have to achieve. You have to be directed.

Starting point is 00:15:59 You've got to understand that the world is a hard place. This was a typical conversation that I had with my father. And so one of Sam's Samisms is that we suffer from knowing the numbers. And he talks a lot about how like other sloppy like real estate investors and entrepreneurs are and that they're just very undisciplined. And he was like obsessed with understanding risk and understanding what the numbers of his business actually are. And part of this, he thinks that he got from his father or from his parents, because even after his father dies, Sam's rather wealthy. His mom would not let Sam give her like a ride home. He winds up, I think, following her. I forgot how he finds this information, but she was so frugal in the sense that like Sam at this point in his life, you know, had basically unlimited resources. His mom would make it up

Starting point is 00:16:42 excuse that, oh, no, you can't take me home or you can't give me a ride home or you can't pay for a cab or whatever because I got to go to Walgreens. And so he finds out that that's not, she's going to Walgreens because there's a bus stop right in front of Walgreens. Instead of spending $3 on a cab, she would spend 50 cents on the bus ticket.

Starting point is 00:16:59 And in some cases, this is very irrational considering that her son is wealthy and would obviously give her the money to have a taxi, right? And then, so I just gave you like a summary of the story but i want to hit you with his punchline because i think this is the best takeaway and he says a refugee never forgets and part of the background to that story also is the fact that the only way they were able to escape was that sam's dad saw this coming so he was was able to get money out of Poland and deposit it. I forgot where the money went. I can't remember if it went to London or Palestine at the time.

Starting point is 00:17:29 But he was able to sneak about the equivalent of like $10,000 today out of the country in advance of him escaping. And if he didn't do that, there was a good chance that they wouldn't have never made it to America. So that's what he's talking about, like being careful, like watching your costs. And a refugee never forgets. Now he goes back to his childhood and he tells us his first, like, he's like, I've always thought like an entrepreneur. I don't just like, and he says later on, he's not entirely sure that entrepreneurship could be taught. It's most likely an inherent, like characteristic and part of your personality.

Starting point is 00:17:56 And so he's going to tell us a story of like the first time you realize, Hey, I could buy something for a dollar or I think 50 cents and then sell it for more money later on. So he says, this was my first entrepreneurial adventure. It was 1953 and a provocative new magazine called Playboy had just made his debut featuring Marilyn Monroe on the cover. The magazine sold for 50 cents and I bought a copy. So he's doing this in Chicago, but he's growing up. I think he's in Highland Park. He's like in a suburb of Chicago. So he goes back and he's like, I can buy something in the city that is not available in the suburbs. And because it is scarce in the suburbs, I can charge more.

Starting point is 00:18:31 So he goes back, shows it to his friends. And he says, I showed it to my friends. One of them offered to buy it. Three bucks, I said. After that, I started a little magazine import business and in the process learned a lasting business lesson. When there is scarcity, price is no object. This basic tenet of

Starting point is 00:18:45 supply and demand would later become a governing principle of my investment philosophy. Let's fast forward to high school and we see he opened up the introduction of the book talking about being comfortable standing out, being comfortable being an outlier, being comfortable going left when other people are going right. This is something that he did even when he was a young person and this is already a pronounced trait when he's in high school. I discovered that fitting in just wasn't important to me. I was more comfortable standing apart than I was in searching for a common denominator with others. I could embrace my tendency to go against conventional wisdom.

Starting point is 00:19:16 And it would later end up defining my career. And that embracing the fact that he was a misfit. I mean, look at the subtitle of the book. Straight Talk from a Business Rebel. I've also seen it published under the subtitle of The Adventures of a Business Maverick. He's wearing that as a badge. And so he tells a quick story about doing something that he could not tell his parents about because they thought it would be too dangerous. And he's like, I want to see the entire country. He goes and enrolls. I think he's taking like a summer class

Starting point is 00:19:40 at UCLA. He's like, well, I don't know how to get there. Let's just hitchhike. So him and his friend decide, hey, we're just going to hitchhike across the country. I was going to use the extra two weeks to hitchhike across the country. I don't know if it was rebellion, but I didn't want my parents to worry. So I never told them about the trip. I do know that it was a two week adventure that it was too that was too good to pass up. So while he's in college, this is how he accidentally enters into the real estate industry. And from this point in the story to where we are in modern day is about 50 years where Sam builds. He's regarded essentially as like one of the most successful real estate professionals of his time. He's going to sell his real estate company for 38, I think it's like $38 billion to Blackstone in 2007.

Starting point is 00:20:20 And his education in this industry starts right here. One day in the middle of my junior year, I was at a friend's apartment and he mentioned that his landlord had just bought the house next door. They were gonna knock down both houses to build a 15 unit student housing apartment. I'm pretty sure this is in Ann Arbor, Michigan. Let's pitch them to manage it, I said.

Starting point is 00:20:35 Who's better than us? We're students, we know what students want and we'll run the building and maintain it and each get a free apartment. So I've heard him talk in addition to reading the book. I also went and listened to, he was on this this there's a fantastic episode of tim ferris's podcast and i listened to a bunch of his videos on youtube and he talks about it's like my real estate career started just by trying to get free a free apartment so that's what he's talking about

Starting point is 00:20:56 we didn't know how to manage or rent apartments we had no clue but this is something he's about to say the sentence for the first time it It really is like part of his operating system. It says, it just never occurred to me that I couldn't do it. That's how you know you're born to be an entrepreneur. The desire to take risks, to test my limits and to ask why not was just part of my DNA. And I do not think that I've changed that much since then. He goes into much more detail in the book, but essentially he did a good job with this first opportunity. You and I have talked about this all the time. Just focus on being, you have one opportunity right in front of your face. Do that the best you can, and it will unlock

Starting point is 00:21:31 opportunities you cannot possibly predict going down the road. So he does a good job with the one, then he gets a second one, then a third one, and just kind of steamrolls from there. The same landlord built a second student apartment building and gave it to us to manage as well, and then he gave us a third. So in addition to managing all these student apartments, he gets a summer job where he has to be a door-to-door salesperson. And this is extremely important because he thinks this is foundational to the success that is going to happen later on in his life. And so he says, if you've never sold anything through cold calls or without appointments, it may be hard to imagine, but I can promise you that it is humbling. Most responses are no. You will build up a tolerance for rejection.

Starting point is 00:22:09 You learn to keep asking and find ways to get a conversation going. While I was unaware of it at the time, my real compensation for that job was not money. I was learning about and getting comfortable with rejection. And as I would later realize, indifference to rejection is a fundamental part of being an entrepreneur. That is a great line. So I want to read it again. Indifference to rejection is a fundamental part of being an entrepreneur. So he graduates. Then his dad is like, listen, I know you're into real estate, but you have to have a profession. He would tell him if everything goes bad, you need to have a profession that you can fall back on. So he, so Sam goes to law school and this is what he says about it.

Starting point is 00:22:48 He says, law school was boring beyond belief. I just wasn't built for the arcane attention to detail and the endless rules and sub-rules and sub-sub-rules. The note I left myself here as I got into, now I think we're in the second chapter, is are you noticing a pattern? He needs control over how he spends his time you're going to see another pattern in this real estate deal he does so while he's in law school he's buying up he still has this idea for doing student housing so he's like i bought my first building during my second year of law school i bought it for nineteen thousand five hundred dollars with fifteen hundred dollars down this is where he

Starting point is 00:23:21 built he buys out like an entire block by one by one a couple months of months later, I bought another building next door and then I bought the house that was in between them. I had some money saved from my various ventures and I was able to bootstrap my way into these early deals with a combination of my own savings and then bank loans. I was 23. I didn't know anything about financing. And here is what I mean about you see patterns over and over again in this book. But it never crossed my mind that I might be too young to start an investment business or that I couldn't do it. And so once these first three transactions works, he's like, well, can we buy the whole block?

Starting point is 00:23:52 And his pitch was unique. He's like, listen, you guys are older families. Maybe you have kids. Maybe your kids have left the home. This is all, this neighborhood journey is changing. It's going to be a bunch of drunk college kids. You don't want that around your house, right? And so it says, as I explained to the homeowners that we were going to build student housing and that they can either stay and put up a loud music at night and beer cans over

Starting point is 00:24:11 the lawn, or they could move to the other side of Ann Arbor. It worked. I kept buying houses and eventually acquired one full block of land. This project eventually grows bigger and gets more sophisticated. So then he goes to his dad and saying, hey, can you invite, can you, do you want to invest? First of all, do you want to invest with me? And can you introduce me to other people? And this was more about like their relationship, like the unspoken part of their relationship, being able to invite my father to participate in this investment and his willingness to do so were big confidence builders for me. Like any kid, I wanted my father's approval and knowing that he viewed me as a legitimate businessman, even though he's only 23, right, was a milestone for me.

Starting point is 00:24:48 He was a gruff guy, stoic in an old world way. He would never say that he thought I had done well. So I learned to appreciate the small signs that I had his blessing. And so since his idea was like, let me buy these individual plots and then I can put them together and they'll be more valuable in time. He had to overcome like if there was one holdout out of 10 or 15, that's a big problem. And so one person, one of these deals just takes a long time to actually get him out of there. But Sam's relentless.

Starting point is 00:25:14 And really, I'm skipping over the story and I just want to get to the lesson he learned because I think it's very, very important. And he's something he repeats over and over again. I remember this event so clearly because it was at this point in my career that I fully realized the value of tenacity. I just had to assume that there was a way through any obstacle and then I would find it. This, and this is why I'm reading this to you, this sentence in particular, this is perhaps my most fundamental principle of entrepreneurship and to success in general the value of tenacity and so one thing i skipped over that i need to explain to you now is like at the time you know

Starting point is 00:25:52 successful business other businessmen and things like that would take the money that their businesses produce and they would invest in real estate and they were looking for like returns of like four percent five percent and most of their investments were concentrated in big developed cities. The idea that Sam built his early career on was going where there was no competition. And this is something that he's going to repeat over and over. He's like, competition is for other people. It is not for me. And this is also where he gets the value of, hey, when everybody else is going right, I'm

Starting point is 00:26:20 going left. When everybody else is going left, I'm going right. The cost of construction in these cities where he's doing these deals, the cost of construction was significantly less in smaller cities. And even more important, there was no competition. There was no real capital looking for assets in these smaller markets where he's doing this. Without competition, I could set the price and the market. This was my first real investment thesis. If I could replicate what I was doing in Ann Arbor in other markets, I could realize some serious upside. I would build a portfolio of assets in smaller, high-growth markets with a focus on university towns. That is the very foundation, the first idea of this business empire that's going to grow and morph and change over the next several decades into something that he can sell for $38 billion. I would build a portfolio of assets in smaller high growth markets with a focus on

Starting point is 00:27:09 university towns. That all seems logical in hindsight today, but back then nobody was doing it. And then he compares the returns. He's like, we weren't getting 4% or 6%. We were getting 20%, 25%, 18%, 30% of returns. As James Dyson says, episode 200, if you haven't listened to it, and it's going to be episode 300. Because I think instead of reading that book every year, like I've told you I'm going to do, this is against the odds, an autobiography of James Dyson's still my number one recommendation for autobiographies. If you can only read one autobiography of an entrepreneur, that's the one I'd make it. I think I'm just going to like every 100 episodes. So I did it on 200 for the second time. I'll do it on episode 300, episode 400, and so on and so forth.

Starting point is 00:27:47 But main theme of Dyson's book, which is really what's happening in Sam's life when he's a young person in law school, is difference for the sake of it. That is where all the outsized returns are. And we're seeing that exactly in a young Sam Zell's life. So he tries to get a job as an attorney and his idea is like, I'm going to be an attorney and do deals on the side. He goes through 43 rejections, finally gets hired, lasts four days. I'm skipping through that because what happens is after four days, like, man, I don't want to do contracts. So the guy that owns the law firm is

Starting point is 00:28:18 like, hey, why don't you just do your real estate deals? We'll co-invest with you and then we'll do the legal work. And so he does that for a little bit, but then he's making so much more money than even other people that other people in the law office are getting jealous. And this is where he's just like, man, I'm just going out on my own. This is ridiculous. And the reason I'm reading this paragraph to you is because even today, when there is some kind of like entrepreneurship industry per se, it's still a very weird thing to do, but you know that it's what you're meant to do because it never felt weird to you. And so Sam is relating this conversation between a partner in the office and they're just they can't understand the way he thinks. And he's like, oh, I am kind of weird.

Starting point is 00:28:54 So he says the conversation was a revelation. Until then, I hadn't recognized that my career was so radically different from the mainstream. I had thought I was just off center. I hadn't realized that it was on a completely different road. But that partner's perspective jarred me into an epiphany. I have to leave this law firm. I remember coming home after I quit. And my wife, the first wife at this time, was pregnant. You quit, she asked, alarmed.

Starting point is 00:29:17 What are you going to do? Just what I do, I replied. Which is real estate deals at this time. My orientation towards being an outlier was good. How many times, how many times has repeated this like this is extremely important part to understand sam zell and what he had you can read between the lines he's like giving he's giving future generations of entrepreneurs that same advice lean into your eccentricities be comfortable standing out from the crowd that in and itself, the ability to do so is an

Starting point is 00:29:45 advantage, right? My orientation towards being an outlier was going to define my future. I was going to do what I love doing and I wasn't going to be encumbered by anyone else's rules. So I left and opened my business in a spare office at my brother-in-law's law firm. That was the precursor to the investment firm that I still run today. So this is when he goes into one of the most important relationships that he ever has. And there's this extremely famous and wealthy family in Chicago that still exists to this day, but I think goes back multiple generations. I'm going to go to Google to figure out how to pronounce it. I think it's Pritzker. I don't know if you can hear that. It's Pritzker. Pritzker.

Starting point is 00:30:27 And the point of the story is that he's going to turn down a job offer from an extremely famous entrepreneur. And he says, everyone knew the Pritzkers. They were one of the most prominent business families in Chicago, and they had started the Hyatt Hotel chain. Jay Pritzker, which is going to be his partner, one of his partners and like basically his mentor. He talks, I mean, even many years, I heard Sam talking.

Starting point is 00:30:48 I think Jay died like 20 or 30 years ago. He still talks about all the lessons that he learned from Jay. Jay Pritzker was legendary in the investment world. He had built and now controlled a staggering empire. And so Jay is looking for a young person that knows law and that is interested in real estate. And Sam fits all these bills. So he's introduced he's like hey go talk to this guy and sam didn't understand why he should do that because

Starting point is 00:31:10 it's like i'm not for hire there's no way in hell i'm working for anybody else so it says the idea of meeting jay pritzer was intriguing to me but i already knew i didn't want to work for anyone but his friend convinces him just go meet him and it'll be worth your time the next morning i went over to see jay i got there at nine in the morning and i did not leave until 4 30 that afternoon and so jay is trying to recruit him he's's like, listen, come here. We have a lot of resources. You can do deals and you'll end up owning 5%. And Sam's like, that's ridiculous. Like, why would I ever accept 5%? But they got along. So it says I stayed and kept talking. Truth is Jay and I instantly clicked. I was having fun, even though I knew I wouldn't take the job.

Starting point is 00:31:42 Finally, at the end of the day, I said, Jay Jay I'm not going to work for you or anybody else but why don't we do a deal together and he said fine that was a really smart idea that Sam did because Jay winds up being he says Jay was like new risk better than anybody else and he just learned how like even at that level like how fast they make decisions how there's just he calls it no bullshit I think at one point he comes to Jay in a bad situation like I need 50 million dollars and by this time they'd done a couple of deals together and Jay just trusted him. So I think that also echoes why Sam talked about, Hey, you really need to be optimizing, leave money on the table, optimizing for these return relationships that last for 10, 20, 30 years, because then it just helps you go faster later in life because

Starting point is 00:32:21 you have this shared like web of trust. The meeting with Jay was the beginning of the most influential relationships of my career. Jay was the smartest financial guy I ever met. So the first deal that they do together is somewhere in Lake Tahoe. This is really important because he wasn't sure at this point in his career, like what part of the real estate chain do I want to be in? He's like, oh, maybe I'll be a developer. So he tries to do a development deal. He's like, oh, this is terrible. I'm never doing this again. As a result, I was cured of any inclination to become a developer. I think that to stay in that business, most developers must get 50% of their returns from real cash flow and the other 50% from the intangible benefit of seeing their phallic

Starting point is 00:32:56 symbols rise out of the ground. Sam was hilarious. I hope you buy the book. The book's pretty easy to read, too. You can read it in a weekend. It's just hilarious. But that idea is like, oh, you're only getting 50% of your return from actual money and 50% of the intangible benefit of seeing their phallic symbols rise out of the ground.

Starting point is 00:33:12 Otherwise, I cannot see the reward. My takeaway was a whole new respect for simplicity. That's something he repeats over and over again, too. Development required multiple steps, and every step meant one more chance for something to go wrong. And then he goes right into another lesson that he learned from jay he's like you just bet on the person you bet you cannot make a bad deal with you should you cannot make a good deal with bad people and so jay trot jay developed a trust with sam allowed him to work quickly and you see it manifests in stuff like this listen i said I said, we closed this deal,

Starting point is 00:33:45 but I just realized we never drew up a formal partnership agreement between the two of us, Jay. And Jay's response was, yeah, yeah. He said, not really interested. That was indicative of Jay. Trust was one of his abiding principles. He'd always bet a lot more on the person than on the deal. Once Jay decided that I was honest and smart, he was on board. He never called me to check in on things. He never questioned where we were in our investment. He continues. He just, this entire chapter, if you buy the book, I'm in the chapter called My Own Rules. I think it's important to read this because it's really what I find fascinating is just how many of these ideas that he got from a older, more experienced entrepreneur that he used for the rest of his

Starting point is 00:34:23 life that he talks about many decades after Jay dies. And it's this idea, it's like, listen, you might have seven things, eight things, nine different variables in whatever you're working on, but really you can always identify there's going to be one important variable. And he learned that from Jay where he'd be describing a deal to Jay. He's like, Hey, we got seven, you know, 12 steps here. And Jay's like, actually the only step that's important is seven, step seven. Like if we can rent this commercial office space, then everything else, all of our assumptions are going to be proven true. And if we failed that one assumption, then the whole deal falls apart. That's one example that he used. Jay's level of intellectual rigor really applied to me. And I immediately latched onto the understanding that it could cut right to the heart of something complex

Starting point is 00:35:00 if I broke the problem into pieces. It was a matter of organizing my thinking. It was a discipline, meaning it is an actual skill that you can learn. And really, for me, that was one of the most important parts of the book. It's just this constant reminder that there is usually just a handful of variables. I remember I did that three-part series on Larry Ellison. It's Founders episode 124, 126, and 127. And that was his belief too, where his, his assistant or his partners would be like, Hey, there's a thousand things we got to talk about. I was like, no, there's four. There's like the handful of really important things that I know that, that, that require my attention. And I'm going to ignore everything else, even if people get upset at me for that.

Starting point is 00:35:39 And then I was reminded how important this principle was in a past highlight uh when i did the the um the biography of johnny carson back on episode 183 johnny carson at this point in his career he's like am i gonna am i going to leave at there's you know i think there's only like three or four channels on tv at the time and it's like do i want to leave nbc for abc or it could be vice versa but whatever like am i going to leave the channel i'm on for another channel and so Johnny and his team are going through and they're like okay let's make a list of this is the pros and the cons and what are we going to do and so he goes and seeks advice from Lou Wasserman Lou Wasserman is like they consider he's like the most powerful and influential person in Hollywood he was like a Hollywood mogul

Starting point is 00:36:17 for like four decades and so Johnny goes to see him lays out all these things like I don't know what to do and in right and Lou gets the reason i'm going to read this paragraph to you from johnny's biography is because it's almost exactly what sam's l is learning from from jay pritzker it's like what's the most important variable focus on that and so it says like most oracles washerman gave an opinion that was simple and sensible it is not prudent he replied to ask people to change their nightly viewing habits once they are used to turning into a given channel, they find it hard to make the move, no matter how good an alternative is being provided elsewhere. That's the end of his quote. This is what Johnny says. Was that it? All of our thinking and talking and arguing and agonizing came down to the belief that Americans won't change the dial.

Starting point is 00:37:00 And so as a result, Johnny stays put. And this is the deal. He gets one of the most lucrative deals ever offered to a single individual in the history of television. Let me read this to you. This just blew my mind. Johnny's salary was set at $25 million a year. For that, he worked one hour a night from 1130 p.m. to 1230 a.m. three nights a week, 37 weeks a year. He had 15 weeks off. So he is getting $25 million a year to work one hour a night, three nights a week, 37 weeks a year. Okay, so let's go back to Sam Zell's autobiography. Sam, just like everybody else that we studied on the podcast, read biographies, learned from biographies and autobiographies of the great people that came before him, exactly what you and I are doing at this moment. Around the same time, I was spending a lot of time with Jay. I read the book, Zeckendorf, the autobiography of the man who played a real life game of Monopoly and won the largest real estate empire in history. That is a

Starting point is 00:37:51 very, very long subtitle. It reinforced the approach of viewing the whole through its individual pieces, but for different purposes. William Zeckendorf was perhaps one of the greatest real estate developers of the modern era. And so this one idea he picks up from this book changes the trajectory of Sam's career. His autobiography is packed with colorful stories, but what fascinated me most was his strategy. Zeckendorf viewed assets as a sum of parts, so he could increase the value of the whole. Various parts were more valuable to different buyers. So Zeckendorf would maximize the value of his holdings overall, in effect, making one plus one equal three. He calculated, this is the main punchline of what he learned from him, okay?

Starting point is 00:38:30 He calculated everything separately. The building's title, the building's land, the leases, the individual mortgages. I thought this was brilliant. I adopted the approach both inside and later outside of the real estate industry. And I just realized I'm going to buy, while I'm talking to you right now, I am buying this book, Zachendorf's book. That's how I like, when I hear like a book recommendation, or in this case, when you normally, a lot of book recommendations come from you.

Starting point is 00:39:03 But whenever I receive them, and in this case, this guy, we have Sam Sayles saying, hey, I read this book. I got a great idea. I made a ton of money from this idea. Like, it's a no-brainer. My point is, like, I don't think it's smart to deliberate on the purchasing of books. What's cool is I'm looking at the page now. It's already bought.

Starting point is 00:39:15 So I just ordered it while I'm recording the podcast. This book was first published May 6, 1971. So now he talks about the building of his real estate empire. He does a bunch of deals with different people, but he only had one, like, true partner, and this guy named Bob named Bob Lurie who unfortunately dies I think he's in his 40s when he dies from an aggressive form of cancer but he really talks about that they had different personalities but they had the same passion it says Bob and I both saw business as a puzzle to be solved and we both had an insatiable intellectual curiosity and so this rebel and maverick nature applies to the way they build their business they have you walk in the business or you walk in the office and it's like bright colors everywhere. He doesn't allow office doors to be shut. And this is where I started laughing because he says he

Starting point is 00:39:53 invented business casual. We have been at all pretense and established a casual dress office policy, which, believe me, was unheard of in the rigid world of finance in the 1970s. We invented business casual. Our thinking was that if you dress funny and you're great at what you do, you're eccentric. But if you dress funny and you're just okay at what you do, you're a schmuck. We were determined to show everyone that we could excel without conforming. In the early days, they were asset rich and cash poor because they kept pumping all their cash flow back into the business. And part of their ability to do that is that Bob was extremely resourceful.

Starting point is 00:40:27 He watched all the costs. This is a fantastic paragraph for you. Bob watched every single nickel in our business. Bob was constantly on the lookout for anything that could be reused. He used to walk into somebody's office and while talking, would casually rummage through the person's trash can. He'd take out stacks of paper that still had paperclips on them, all while continuing his conversation as though nothing out of the ordinary was occurring.

Starting point is 00:40:49 Bob would pull off those paperclips, or Bob would just pull those paperclips off and hand them back to the employee, conclude the conversation, and walk out. And so when I read that, I immediately thought of this hilarious story I did all the way back. One of my favorite books, I should reread it and rerecord another podcast on it. It's called The Invisible Billionaire by Daniel Ludwig. Very hard to find book, but it's episode 68 of Founders. And he was very much like Bob. There's an entire gigantic organization where I remember one time in the book, he's like admonishing an employee because they put paperclips, like there's documents that had to be signed for this massive deal, if I remember correctly. And they're like FedExing it or whatever way that you could get it back then i don't even know if

Starting point is 00:41:27 fedex existed at this point in history but they're like fedexing the paperwork and daniel is just going ape shit because they included the paperwork and i think he said something like or the paper clip in there he's like we don't send iron mongery i use this weird word i had to look up which i didn't know what the definition was it's like we don't send iron mongery. I used this weird word I had to look up, which I didn't know what the definition was. It's like, we don't send ironmongery by mail or by air. It was just hilarious. And it's really memorable writing too, because I could just see Bob like in my mind's eye when I'm reading this, I just see Bob like having this conversation. So imagine sitting in your office, your boss comes in, he starts rummaging through your trash can and he just doesn't even admonish you. He just like pulls him out.

Starting point is 00:42:05 It's like, oh, here, hands back and then just walks out the door when the conversation's finished. I just love that. So Sam Zell's nickname is the Grave Dancer. And the reason he's called the Grave Dancer is because he accumulated a lot of assets when their price was depressed by like some kind of financial crisis. And this is the first time he talks about that. He says, between 1974 and 1977, we bought roughly $4 billion in assets with a dollar down and a hope certificate. I didn't know what a hope certificate was

Starting point is 00:42:32 before reading this book. And it says, hope certificates were primarily used during downturns. They would allow a seller that was reluctant to unload an asset at a depressed price the opportunity to participate in the potential post-sale appreciation. And so he gives an overview of what he was thinking at this point

Starting point is 00:42:50 in his career. He says, the 1970s could have been a disaster for us. They were for many in real estate. Instead, they were a great ride. Our firm ended the decade with an enormous, diverse portfolio, some of which would later seed two of the largest REITs in the industry. REITs are real estate investment trusts. Some people say Sam Zell invented the REIT. He says he was not the inventor. He's just the one, I think he says, it's like, I'm just the one that made REITs dance. And the way he would describe what a REIT is to an outsider is it's liquid real estate.

Starting point is 00:43:21 There's a lot more detail in the book on that. Years later, people would ask me, how did you know when and what to buy? But all I did was basically create a massive arbitrage. This is the grave dancing strategy he's using between 1974 and 1977. That's what he's describing. But all I did was create a massive arbitrage, a fixed rate instrument in an inflationary environment. I essentially took on $4 billion of non-recourse debt at an average interest rate of 6% in an environment with inflation of 9% or higher. That means I was already making 3% returns

Starting point is 00:43:54 the second the deal closed without doing a thing to the assets. And so there's several times throughout his career where he writes these like marquee articles or pieces explaining his philosophy. And usually his philosophy at the time is completely counter to whatever else is occurring in his industry. He says, I ended my 1986 article called The Grave Dancer with an important warning. Grave dancing is an art that has many potential benefits, but one must be careful while prancing around not to fall into the open pit and join the cadaver.

Starting point is 00:44:25 There is often a thin line between the dancer and the danced upon. And so as he continues to build up his real estate business, he realizes, hey, a lot of the principles that I'm learning to experience and learning from more experienced people like Jay Pritzer and all my other partners, it's like they can apply not just to real estate. And so that's where he starts buying into and in some cases, grave dancing into other industries. And it came from just this question that he's asking himself, if we've been as successful in real estate as we have been, aren't we really just good businessmen? And if we're good businessmen, then why couldn't the same principles that apply to buying real estate apply to buying anything else? So then he talks about some

Starting point is 00:45:01 of the ideas he has between acquiring or buying into or investing into other companies. And I really want to pull this out because it's really fundamental understanding his distaste. He hates competition. He says, frankly, there's no substitute for limited competition. You can be a genius, but if there's a lot of competition, it will not matter. I've spent my career trying to avoid its destructive consequences. Competition skews people's assessments. As buyers get competitive, the demand for assets inflate pricing, often beyond reasoning.

Starting point is 00:45:34 Later on, I got to finish the sentence, but later on he talks about, he's like, I hate auctions unless I'm the one doing the auction. So he says, competition skews people's assessments. As buyers get competitive, the demand for assets inflates pricing, often beyond reason. I jokingly tell people that competition is great for you. Me, I'd rather have a natural monopoly. And if I can't get that, I will take an oligopoly. And so one thing he looked for when he's buying into other companies is just poorly run companies that did not have control. He's like, I don't think you can.

Starting point is 00:46:04 It's realistic to think, hey, you know, they're doing this amount of sales and I'm just going to go in there and, you know, 5x sales. But it's always these poorly run companies. You can always make returns by getting rid of expenses. And this story, this paragraph I'm about to read to you is if you listen to last week's podcast with John on John Malone, he does. He had the exact same thing happen. He actually threatened to throw the manager of one of his subsidiaries out of a window for behavior like this. Throughout the 1970s, it was a giant and flamboyant company known for its corporate excess. So this is a company he's buying into. The management threw lavish parties, filled the drinking fountains at headquarters with

Starting point is 00:46:40 Perrier, installed Persian rugs in executive offices, and gave massive bonuses to senior executives. Even while the company was struggling, it sent its stale staff on a 1.5 million Caribbean cruise. So that's what they were doing in 1970s. The company's called Intel, or not Intel, it's Intel without the N. So ITEL, or I think ITEL. So that's what ITEL was doing in 1970s. In 1981, ITEL was one of the largest bankruptcies in the history of the country. The reason I just point that out is like, hey, they're a giant and flamboyant company known for corporate excess. They throw lavish parties. They fill their drinking fountains at the headquarters with Perrier. They're installing

Starting point is 00:47:19 Persian rugs. Let me ask you a question. Is having a Persian rug in an executive office doing anything for your customer? So then why does it exist? It's ridiculous. And then gives massive bonuses and has a huge travel budget, even though they're not doing well financially. And the reason I included that is because really the note that popped to my mind when I got to that section, I said, every single entrepreneur that you and I have studied on the podcast would mollywop mediocre business managers like this. And the world of business, surprisingly, is full of mediocre business managers that do stuff like this. That is insane. Why are you putting Perrier in drinking fountains? Why are you buying Persian rugs for your office? It should not be surprising that six years later, that company is bankrupt. And so that leads to

Starting point is 00:48:03 one of his main points, that redundancies are much more predictable and transparent than theoretical opportunities to add value. My focus is always on the downside. Overly optimistic assumptions lead to the graveyard of corporate acquisitions. So my interpretation of what he's telling you and I, at that point, most companies are poorly run. If you buy one, focus on cutting waste as opposed to thinking that you can quickly grow revenue. And so even though he's working all the time he's definitely a workaholic he takes these he's traveling the world and he takes breaks to do these they sound really fun motorcycle trips and so he lands in Nepal and him and his group pull over and this is what they were doing we were enjoying the sunny day drinking wine and eating sandwiches when an old woman carrying a

Starting point is 00:48:43 shopping bag down the nearest mountain walked towards us it was filled with high quality cannabis and she offered to sell it to us for ten dollars it sounds like him and his friends are smoking weed so we bought it and shared it enthusiastically with our new friends at some point the guy i was sitting next to turned to me and asked so what do you do i replied this is while i'm reading this whole section to you i'm a professional opportunist And that has been my response to that question ever since. What do you do for a living? I'm a professional opportunist. And then we move on to a devastating part of his life because not only does he have his biggest financial challenge in the company in the early 1990s, but this is when his partner dies. Bob and I had been partners for

Starting point is 00:49:20 about 20 years. Bob was only 46 in 1987 when he was diagnosed with advanced colon cancer. He did not tell anyone, even me, for a long time. As he explained to his wife, I'm not going to be able to stand it if people mourn me before I'm gone. When Bob got sick, I went into irrational denial. We talked two or three times a day, but I didn't see him, so he stopped coming to the office. And so this is going on for like two years, and then Bob finally shows up, and him like he can't be in denial anymore a couple months uh Sam can't be in denial Bob wasn't in denial the whole time a couple a couple months after Bob had stopped coming in he walked

Starting point is 00:49:53 into my office I was dumbstruck by his appearance at how frail he was to me this is the absolute worst way to die and then not only like to be on to be an actual person suffering from cancer but then to see i went through this with my mom back in uh 2015 2016 and 2017 she had metastatic breast cancer that went everywhere all over her body and i think there's actually an important lesson there that i was way too late for me to learn is so i we me and her had been in a fight and so i hadn't talked to her for six months and then we found the family found out that she she had cancer advanced cancer so I go to visit her remember I wasted six she's only gonna survive two years less I think a little less than two years from the point of the story

Starting point is 00:50:35 I'm telling you right now and I go to visit her and I see her and I burst out crying because she had literally shrunk the cancer was in her bones everybody else in my family lives in the same city so they would see her all the time. And so they didn't notice it. But because I hadn't seen her in so long, I'd immediately noticed that she had literally got shorter. And she was young. She was in her late 50s at this time. And the reason I bring this up is because I'm so disappointed with myself.

Starting point is 00:50:58 Let's say she had 24 months to live, right? The previous six months we hadn't talked. So she had 30 months left to live. We didn't know at that time i wasted 20 of the time that she had left on this earth being a dick and letting an argument get me from stopping to talk like stop talking to her and the worst part is i don't even remember what the hell we were arguing over because Because I couldn't swallow my pride. Because I couldn't see it through her perspective. Because I was just being, there's no other way to describe it.

Starting point is 00:51:29 I was being a dick. I missed out on the last 20% of her life. And then from there, the rest of the 80% she had left was unbelievably heartbreaking. Because they literally, you see somebody that gave birth to you. Somebody raised you. Slowly their body whittles away and they die. And there's nothing I can do about it. That's a mistake I can never get back.

Starting point is 00:51:51 So I'm telling you, in case you're in a position where your parents or somebody you love is still around, it's just not worth it. It's like, I don't even remember what the fight was about. That's heartbreaking. And so when Sam is talking about it in this book, I know exactly what he's talking about. That's heartbreaking. And so when Sam is talking about in this book, I know exactly what he's talking about. You see, so it's like you were shocked at how different and the physical manifestation of what cancer makes people look like. It's just, it's one of the cruel things that life has to offer. Something I'll never, ever, ever understand. I was dumbstruck by his

Starting point is 00:52:21 appearance at how frail he was. And he said, we had to talk. He looked at me straight in the eye and said, Sam, you have to understand I'm going to die and I'm going to die soon. It was the first time I had really faced the truth. I was devastated. I think he dies like six months after this. His death coincided with the most challenging time in our business to date. Just weeks later, the economy tipped into a full-blown recession. There was no refinancing for highly leveraged asset owners, which is exactly what Sam is at this point. We were rich in assets but starved for cash, and we had an insatiable need for capital that dominated my waking hours. There were weeks when our billion-dollar company was scrambling to scrape up enough money to make payroll. I didn't know it then, but this phrase in my career or this phase, excuse me, this phase of my career was the genesis of a mantra that I would repeat regularly for decades to come.

Starting point is 00:53:15 Liquidity equals value. And that's something Sam would repeat over and over again. He even talked about it later on in like the technological, like the technology.com bubble in the late 90s, where people were sam it took you you know multiple decades to become a billionaire you must be frustrated that these people become billionaires you know in a few months or in a year and he has a great line he's like yeah he has he says call me when that actually turns into cash in the bank i don't care what your valuation is what is the cash that you actually have it's his point and this is where he realizes like to get the capital I need, I have to go

Starting point is 00:53:49 to the public markets. He winds up taking a couple of companies that he had been like investors in and actually taking them public through an IPO. He talks about the fact that he had never done an IPO before. He had to figure out like learn this process and he does it over and over again. And he gets the idea where he says that I think it was like 1993, early 1990s, that there was no such thing as like institutional investors in real estate, that they had to invent something. They had to invent a REIT as a way to draw in institutional capital. And I think as far back in like the late 80s, he thought if there was a way to make real estate liquid, that it'd be a trillion dollar industry. And I'm pretty sure, if I'm not mistaken, he actually is on public record. He actually wrote it and published that. And two decades later, winds up hitting almost a trillion dollars. Or maybe I think it might be over a

Starting point is 00:54:37 trillion now. So the reason I bring that to your attention is because understanding the IPO process of private companies influences his thinking on building all these REITs later on. And so in addition to his business struggling at this time, one of his closest friends and best partner ever dies. He also goes through his second divorce and he's like, I'm having personal failures too. But then he starts to learn more about himself. And this is his realization over the years i had just resolved that someone who had the responsibilities i had and whose goals required such an enormous amount of attention simply had to make a trade so he's saying i made a trade

Starting point is 00:55:14 for my work over my personal life it caused the dissolution of two marriages and at this point he is 53 years old so then he goes into what it's like trying to raise a lot of money at this point, he is 53 years old. So then he goes into what it's like trying to raise a lot of money at this point in history. Like, how is his message being received? I guess is the way to think about this. And so he lays it out for us here. He says, imagine the scene. I'd walk in the door and announce we're about to have the worst real estate debacle in history. And the guy would look at me and say, what do you mean? We're at 12% this year in real estate, 12% return, I think. I had to get him to come to grips with what was really going on before I could even start to talk about the opportunity. I had to show him the vacancy rates and related metrics and prove to him that all the conditions were aligned for an epic fall. And then I had to assure

Starting point is 00:55:53 him that we were going to make money, lots of it, by picking up the pieces. Sure enough, over the next few years, in the early 1990s, the devastation became increasingly apparent. Most private real estate was leveraged at 80 to 90 percent, and with falling occupancies and rents, debt service became unsustainable. Many of the big real estate players that had dominated the industry for decades had lost their shirts. It was called the worst real estate crisis since the Great Depression. And this is this punchline here. It did not matter how smart you were if you didn't have staying power, if you were not able to hang on to your assets. That kind of echoes Warren Buffett's quote that to win, you must first survive. And so he goes more into like his role that he's playing in this field. I mentioned this quote earlier. I did not invent the modern REIT industry, but I helped make it dance. My goal was to secure the industry as an independent

Starting point is 00:56:45 asset class with its own allocation among institutional investors. It took a lot of lobbying and preaching in front of my peers, pension funds, insurance companies, banks, and politicians. The idea that real estate could graduate into the upper class of corporate America was absurd at the time, but by force of will, I knew we could get there. And so this part's a little confusing to me because he says, hey, in 1992, it's actually Morgan Stanley that created this first structure. It was called an up-REIT. So the word, or the acronym REIT, and then put up in front of it. But I wanted to read this part to you because it's important because he's saying why, like, why did he want to start doing this? And so he says, he goes through like stuff I don't

Starting point is 00:57:21 understand. And then he kind of breaks it down for something that I can understand, hopefully, and I can read to you. In other words, the up-rate established a methodology for large holders of real estate to create liquidity without triggering a taxable event. So this is the why he wanted to do this. As long as the holders didn't sell their shares, the structure allowed the majority of major private real estate holders to incorporate their portfolios into the public sector. And he compares this invention like being an oil boom for private real estate holders like himself. Okay. And the reason I'm going to read this to you, because this is fantastic and something I've

Starting point is 00:57:54 noticed over and over again, do not be surprised if your best idea comes after decades and decades of experience. I see this all over and over again, whether it's Enzo Ferrari, Sam Walton, even Steve Jobs, their best idea came after decades of experience. I see this all over and over again, where there's Enzo Ferrari, Sam Walton, even Steve Jobs. Their best idea came after decades of experience. We see the exact same thing happening in Sam Zell's life. By the time of the first modern REIT in 1993, I had the advantage of having spent the last decade schooling myself in the public markets for our corporate companies. I was very familiar with what worked on Wall Street and what was expected of great companies. And I knew the real estate industry was starting with a reputational deficit. I said our latest entry into the public markets reminded me of a bumper sticker I once saw in Houston, Texas in 1984 that said,

Starting point is 00:58:35 please God, give us one more oil boom and we promise we won't screw it up. And this sentence is just unbelievable. We ended up growing the industry from $7 billion in the early 1990s to over a trillion dollars by 2016. The simple genius of public REITs is that they turn brick and mortar into transparent and predictable liquid assets. So now I have to get to what Sam Zell is most well-known for. I'm sure people within his industry knew who he was, but a vast majority of people, when you say Sam Zell, they're like, oh, that's the guy that sold his company for almost $40 billion. And the reason he sold is because he said he received a godfather offer.

Starting point is 00:59:18 That's obviously from one of my favorite movies, where it's like, hey, I'll give him an offer he can't refuse. Timing is everything. That's another thing that he says over and over again in the book. Timing is everything. That's just a trite phrase until you actually find yourself in a situation where you've closed the biggest transaction in history on the cusp of a catastrophic collapse in the global real estate market. But perfect timing is revealed only in hindsight. So when I completed the $39 billion sale of Equity Office, that's his company, in early 2007, I didn't yet know how the story So he says, Truth is, had I kept the company private, I probably would have never considered selling. But when I took it public, I assumed a fiduciary responsibility to shareholders.

Starting point is 01:00:08 In exchange for their capital, I made a commitment to give them the best return on their investment. That was my primary obligation, and nothing stood before that. Over the years, he gets a bunch of different offers. They keep going higher and higher and higher. Blackstone called us informally with an offer of $40 to $42 a share. We told Blackstone the bid was insufficient. Still, we were a little bit surprised to have such a robust offer. Suddenly, I realized that my big, what he thought at the time.

Starting point is 01:00:33 So he says, suddenly, I realized that my too big to sell company might sell after all. He thought like he had built a business so big, like there's no acquirers, like no one's going to spend $40 billion on an acquisition. And then he's realizing, oh, wait, they actually might do that. And what's crazy at the time is the guy doing this deal for Blackstone, his name is John Gray. At the time, he was 36 years old. So he's the 36-year-old head of Blackstone's real estate division. So he sends out this float of an offer, 40 to 42 a share.

Starting point is 01:01:02 Like, no, it still ends efficient. So it says serious and detail-oriented, gray didn't overlook even a stray remark when richard this is somebody working with sam told him that our board had decided against selling the company gray asked under what circumstances that decision might change recalling what i often told him richard says sam says it has to be a godfather offer it has to be an offer that's too good to refuse. So they come back. Now they're saying, okay, we'll do 4750. And Sam's like, well, now we have to listen. Blackstone's offer is well north of what we knew the value of our real estate was then. I've always believed that this is a really important point because he repeats this over and over again on how to value your assets, or at least his opinion on how you should value

Starting point is 01:01:41 your assets. I had always believed that every day you choose to hold an asset, you're also choosing to buy it. Would I buy our building at the price Blackstone was quoting? Nope. And why does he say that? Because this is going to wind up being the biggest deal in real estate history. So once the Blackstone bid comes out, there's another deal by or another offer by this company called Vornado. And this is Sam's response to what's happening. He says the game was on. If you do deals for a living like he does, you know the energy that a big deal generates. It's intoxicating. The air crackles with the energy of anticipation.

Starting point is 01:02:11 You're bouncing on your toes all day, every day. It is quite simply really, really fun. Blackstone winds up winning the deal. And this was actually pretty surprising. And I guess it gives insight into Sam that he's really about deals and not companies. I guess to put it another way, his love is for the deal, not for any particular company. So it says, as for the attachment I felt for the company had nurtured from its infancy, I had moved on. Once the deal was done, it was over for me. I had no remorse.

Starting point is 01:02:37 I didn't think about it anymore. And so he's got a bunch of other deals and companies. He goes into detail on the book. I just want to pull out a couple other things. They're just really, to me, pieces of advice on life and building a business. He says, time is much more important to me at this stage than money. I am highly judicious about where I put my time. At this point that he's writing, he is 67 at this time in the story. So, of course, I think that's something that we should work on trying to make time obviously way more important than money, even when you're younger. But it sure as hell is time is way more important when you have less of

Starting point is 01:03:07 it. And as a byproduct of him being 67, as opposed to like 37 or 47, he knows he's got less time. Then he's got some good advice for other entrepreneurs. As an entrepreneur, I am by nature an optimist. The word failure is not in my lexicon. I don't spend a lot of time lamenting on what could have been done. My mental set is that my head doesn't turn the other way around. I am always compelled towards what is next. Another piece of advice, he's quoting this one of his favorite poems. Does our fate lie in the stars or in ourselves? I believe it is in the latter.

Starting point is 01:03:40 I think this is just good advice for life. When I read or hear about a place in the world that intrigues me, I go there. I've always been that way. And then he goes into detail how the world now, like world markets, he was trying to do like international investments, you know, decades ago. It's very difficult. He just talks about like how interconnected. Like we have truly world markets today as opposed to like what he had when he was growing up and really a large part of that is like how the internet enables like these truly global world

Starting point is 01:04:10 markets and he says i don't think we've even begun to understand the various ways that interconnection and interdependency will evolve over the next couple of decades and i definitely see that from my vantage point in fact um one of my friends has a synonymous account on Twitter. It's called Mostly Borrowed Ideas. And I was able to get to know him through the podcast. And he sent me a message the other day that was fascinating. He says, David, I just want to let you know that your podcast reached many of my Bangladeshi friends. That's where he's from. Most of whom discovered it even before I shared it with them. So you're definitely reaching all the nooks and crannies of the world. So I like that idea. I don't even think we you're definitely reaching all the nooks and crannies of the world. So I like that idea.

Starting point is 01:04:46 I don't even think we would understand the various ways the interconnection and interdependency will evolve over the next couple of decades. He also talks about really understanding who you are and what your skill set is and making sure you're designing a business to around what you're good at and what you actually like to enjoy. He says, I often say I'm chairman of everything

Starting point is 01:05:02 and the CEO of nothing. I stick to what I'm good at, vision, direction, strategy. That is where I add the most value. I pick great people to run my businesses. I do not involve myself in the day-to-day management, but I stay close to those who do. And then I think if you read in between the lines, he's really encouraging you to think about the culture you're building and the company you're building. And I think what I learned, and I feel this way myself, but what I'm learning from this paragraph in this book is that people really, really dislike formality and bureaucracy.

Starting point is 01:05:31 And they sure as hell don't like the slow movement that accompanies formality and bureaucracy. And here's an example of that. One of the few senior managers who ever voluntarily left my company ended up coming back. He left after 20 years for a job that paid more money and gave him more power. So when he returned, I was curious to know why. I don't understand, I said. You were earning twice as much money. You had a much higher position. Why did you come back?

Starting point is 01:05:56 He said, it's really simple. When I was here, if I had a problem, I walked down to your office and asked a question and you'd answer it. I had instant access. In my new company, every issue involved writing memos to half a dozen people. And by the time we got to the end, all creativity had been stifled. You could hardly remember the idea you started with. Fast decision-making and autonomy had become like oxygen to him. Just two great quotes about entrepreneurship. I'm often asked, can entrepreneurship be taught or is it innate? My answer is that there is an inherent entrepreneurial gene, albeit it's stronger in some than others. That's my guess, too, that there's an inherent entrepreneurial gene.

Starting point is 01:06:31 And then another great line, critical thinking is the hallmark of an entrepreneur. I'm often asked what I want my legacy to be. My best answer is he made a difference. He also talks that he just consumes way more information than most people who reads like five newspapers a day, three magazines a week, reads a book. And he says this part was kind of funny. And I've experienced this myself. I go through about one book a week. I usually remember nothing about them unless all of a sudden something becomes relevant. It's just amazing how we have to constantly remind ourselves about what we read. This part made me laugh out loud. I suffer from being very competitive and that is not limited to things I can do well. And then I may have saved the best for last.

Starting point is 01:07:10 And he says, let me leave you with this. An entrepreneur is consumed with making the most out of what he already has. He is all in. An entrepreneur is always looking for new opportunity. He is always reaching. This isn't a dress rehearsal. I try to live full throttle. I believe I was put on this earth to make a difference. And to do that, I have to test my limits. Go for greatness. And that is where I'll leave it. Highly recommend buying the book.

Starting point is 01:07:36 If you buy the book using the link that's in the show notes on your podcast player, or by going to founderspodcast.com, you'll be supporting the podcast at the same time. If you want to remember more of what you read read and you want to use the app that I use to store all my highlights and all my notes and really the app I use to help make the podcast, it's called ReadWise. You can get two months free

Starting point is 01:07:55 by going to readwise.io forward slash founders. That link, of course, will be in the show notes and available at founderspodcast.com like everything else. That is 269 books down, 1,000 to go, and I'll talk to you again soon.

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Founders - #269 Sam Zell

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