Sam Zell's Autobiography

1. 0:00 – 3:33

   Zell's Introduction: Entrepreneurs See Opportunity and Go Against the Crowd

   1. DSDavid Senra0:00

      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, 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 I'm gonna 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 gonna read this book and then after be like, "Hey, I wonder what Sam Zell really thought." He tells you in very plain language. I wanna 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. 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 in work clothes. That is a actual... That's an old quote. That came, came from Henry Kaiser. Henry Kaiser was this entrepreneur. Read his biography. Did, uh, did an episode all the way back on founders number 66. But he had built like 100 different companies over his career. He made the majority of his wealth all the way back in the 1940s and 1950s. And one of Kaiser's talking points that he repeated over and over again is that you shouldn't be s- looking at problems as problems. You sh- 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, uh, Henry Kaiser looked. So he says, "A fundamental part of being an entrepreneur aligns with my tendency to walk out of step with the norm. I have a saying." So these sayings he's gonna 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. Another way he puts this is that when everyone is going right, then 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

2. 3:33 – 5:48

   Long-Term Relationships, Reputation, and Work-Life Regret

   1. DSDavid Senra3:33

      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 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. 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, to hold myself to the, 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 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-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, uh, the, the founder of IKEA had the best quote on this ever because he talks about sacrificing. He, 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 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."

3. 5:48 – 10:18

   Business as Fun: The 11th Commandment and Never Retiring

   1. DSDavid Senra5:48

      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 gotta be the money." And they say that because down 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 gonna read my note to you before I read this section, 'cause as I re- 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, um, that I think just hits on the, on, on the ethos of an entrepreneur. He says, "The great thing about entre..." 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. I had the time of my life." And that is exactly what Sam, uh, 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, 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. The end goal isn't to accumulate a lot of toys and then kick back." Now I wanna pause there. He's gonna go on for a little bit longer, but think about what he's saying there. Once you find your life's work, exit 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 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 gonna have. He goes into detail. But he tries to make everything he does fun. "I adopted a philosophy I call the 11th Commandment. Thou shalt not take thyselves too seriously. The Wall Street Journal back in 1985 did a front str- uh, front page story on me and quoted me saying, 'If it ain't fun, we don't do it.'" So the note I left myself there is optimize for irreverence. 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 gonna accept what other people tell me, or t- I'm gonna- not gonna 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 my 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 since the 1960s, long before it was acceptable." Later on in the book [laughs] I laugh, 'cause he literally says... I mean, he's got a giant personality. It jumps off the page, which makes the, the... You'll learn a lot reading the book, but it also makes it fun. But he, like, he's like, "I, I invented business casual." [laughs] 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. Uh, "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, 'cause he says, "People often ask me, 'When are you gonna retire?' And I re- 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 stop 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 AM, and I don't get home from work until 7 at night." Now, here, I'm gonna pause there, 'cause this is, there's still a lot. There's, uh, 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 [laughs] leaving a lot of time for family. 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 4:45. Then I'm off- I'm in, I'm in the office at 6:30 AM, and I don't get home from work until 7 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."

4. 10:18 – 13:54

   Escaping Poland: Zell's Parents and the Refugee Mindset

   1. DSDavid Senra10:18

      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 th- story, this is 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 o- overcoming unbelievable odds and actually surviving. Andy Grove was widely considered 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, to understanding who he was as a person and a- 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 realizing, "We gotta 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 wanna say, like, 14 or 16 siblings are killed in the Holocaust. And I just wanna 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 on the last train. If he did not make this quick decision, there's a good chance that Sam is never born, 'cause his father and mother and his sister die. "His train arrived home at 2:00 PM. 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 4:00 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." 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 saying, "No, no, stay, stay." You take your, 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. 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 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 I left 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 this same conversation 'cause they're f- 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 gotta..." He made this a very similar decision, and he's like, "We gotta get the hell out of there." And he did that with no money, no education, and a wife and a, and a baby boy, which was my father. And so even though our families came from a different area than Sam Zell's fam- family, we completely understand why their parents would do this, where they celebrate the date of their arrival every year.

5. 13:54 – 17:42

   A Strict Father and the Lessons of Frugality

   1. DSDavid Senra13:54

      So then we get to a relationship that Sam had, 'cause Sam was the first one, I'm pretty sure the first one of his family to be born in America. And then we get... He, 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. And so Sam just st- starts to describe the, 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 s- start businesses. Like he, 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 $2.5 million or maybe like $1.5 million, like his last year of law school, and part of that is because he had to grow up. His, his dad forced him to grow up. And I, I was thinking about this like, uh, as I reread my highlight yesterday. I was like, okay, look at it from his dad's perspective. Imagine being in your late 30s. Your... You see that the antisemitism, you see that Hitler is like on the rise. You escape with your wife and your daughter. 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, 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, he would tell his... His dad would tell his sons, like, "You don't have time for fun." Like he'd go to like, he's like, "Hey, Dad, I wanna 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'd 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. 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, we suffer from knowing the numbers, and he talks a lot about how like s- 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 'cause 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 out 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 an 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, "'cause I gotta go to Walgreens." And so he finds out that that's not... She's going to Walgreens 'cause 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, and in some cases, this is very irrational considering that her son is wealthy and would obviously give her the money f- to have a taxi, right? And then so I just gave you like a summary of the story, but I wanna 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, uh, able to escape was that Sam's dad saw this coming, so he 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, but he was able to sneak about 10... 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.

6. 17:42 – 22:43

   Early Entrepreneurship: Playboy, Hitchhiking, and Student Housing

   1. DSDavid Senra17:42

      Now he talks, it 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..." Uh, uh, just like, um, and he says later on he's not entirely sure that entrepreneurship can be taught. It's most likely an inherent like characteristic and part of your personality. And so he's gonna tell us a story of like the first time he realized, "Hey, I can 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 its debut featuring Marilyn Monroe on the cover." Uh, 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 sub- 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." 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 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, he did even when he was a young person, and it's this very, 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, 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 'cause they thought it would be too dangerous, and he's like, "I wanna see the entire country." He goes and enrolls... I think he's taking, like, a summer class 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 gonna hitchhike across the country." "I was gonna 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 gonna sell his real estate company for 38-- I think it's, like, $38 billion to Blackstone in 2007, 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. 'Who's better than us? We're students. We know what students want, and we'll run the building and maintain it, maintain it and each get a free apartment.'" So w- I've heard him talk in addition to reading the book. I also went and listened to-- He was on this f- There's a fantastic e- episode of Tim Ferriss' podcast, and I listened to a bunch of his videos on YouTube. And he talks about it. He's like, "My real estate career started just by trying to get free r- a free apartment." So that's what he's talking about. "We didn't know how to manage or rent apartments. We had no clue." But this is something... He's about to say this sentence for the first time, [chuckles] and it really is, 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 were 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 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 he just kinda steamrolls from there. "The same landlord built a second student apartment building and gave it to m- 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 he, that is gonna 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. Your l- 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 wanna 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 pro- a, a profession." He would tell him, "If everything goes bad, you need to have a profession that you can fall back on."

7. 22:43 – 30:08

   Law School, Tenacity, and Going Where There's No Competition

   1. DSDavid Senra22:43

      So he g- so Sam goes to law school, and this is what he says about it. He says, "Law school was boring beyond belief. I just wasn't built for the arcane attention to detail and the endless rules and subrules and sub-subrules." The note I left myself here as I got into, now we're, we're, I think we're in the second, second, uh, chapter, is, are, are you noticing a pattern? He needs control over how he spends his time. You're gonna 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 $19,500 with $1,500 down." This is where he build, he buys out, like, an entire block by, one by one. "A couple 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'll 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?" And his pitch was unique. He's like, "Listen, you guys are older families. Maybe you have kids. Maybe your kids have left the h- home. This is all b- th- this neighborhood 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, that we were gonna build student housing and that they could either stay and put up with loud music at night and beer cans over 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 saying, "Hey, can you invite-- can you-- do you wanna invest? First of all, do you wanna 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. 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 vi- 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. And really, I'm skipping over the story, and I just wanna get to the lesson he learned 'cause I think it's very important, and he-- 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, uh, uh, at the time, you know, successful business-- other businessmen and, 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, 4%, 5%. And most of their investments were concentrated in, 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 gonna repeat over and over all. He's like, "Competition is for other people. It is not for me." And this is also where he gets the value of, "Hey, I'm-- when everybody else is going right, I'm 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, okay? 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, okay? 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. Okay? I would build a portfolio of assets in smaller, high-growth markets with a focus on 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 gonna be episode 300 'cause I think instead of reading that book every year like I've t- told you I'm going to do, this is Against the Odds, an autobiography of James Dyson. Still my number one, um, 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 gonna, like, 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. But main theme of Dyson's book, which is very-- 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 he's t- his idea's like, "I'm gonna 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 'cause what happens is after four days, he's like, "Man, I don't wanna do contracts." So the, the guy that owns the law firm's 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, 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, a partner in the office, and they're just-- they can't understand the way he thinks. And he's like, "Oh, I am kinda weird." 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. 'What are you gonna do?' 'Just what I do,' I replied," which is real estate deals at this time. "My orientation towards being an outlier was go-" How many times, how many times has he repeated this? Like, this is extremely poor- important part to understand Sam Zell and what he, uh... You can read between the lines. He's, like, giving, uh, he's giving future generations of entrepreneurs that same advice. Lean into your eccentricities. Be comfortable standing out from the crowd. That in and of itself, the ability to do so, is an advantage, right? "My orientation towards being an outlier was going to define my future. I was going to do what I loved 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."

8. 30:08 – 37:42

   Jay Pritzker: Trust and Finding the One Key Variable

   1. DSDavid Senra30:08

      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 it goes back multiple generations. I'm gonna s- 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 Pr- Pr- Pritzker ... Pritzker And the point of the story is that he's gonna 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 Chicag- 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, I heard Sam talking. I think Jay died, like, 20 or 30 years ago. He still talks about all the lessons that he learned, uh, 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 he'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 Pritzker was intriguing to me, but I already knew I didn't wanna 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 9:00 in the morning, and I did not leave until 4:30 that afternoon." And so Jay's trying to recruit him. He'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. Finally, at the end of the day, I said, 'Jay, I'm not gonna 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, knew risk better than anybody else, and he just learned how, like, even at that, that level, like, how fast they make decisions, how there's just... He calls it no bullshit. I think at one point he, he comes to Jay in a bad situation. He's like, "I need $50 million." And by this time they'd done a couple 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, that last for 10, 20, 30 years because then it just helps you go faster later in life because 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 wanna be in? He's like, "Oh, maybe I'll be a developer." So he tries to do a development deal, and 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 symbols rise out of the ground." Sam was hilarious. If you... I hope you buy the book. [chuckles] The book's pretty easy to read too. You can read it in a weekend. It's just hilarious. Uh, but that idea's 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, rise out of the ground. "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..." Or excuse me, "You cannot make a good deal with bad people." And so Jay tru- Jay developed a trust with Sam that allowed him to work quickly, and you see it, it manifest in stuff like this. "'Listen,' I said, 'we closed this deal, 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, 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, I'm, um, 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's, 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 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 gonna be one important variable, and he learned that from Jay. Where he'd be describing a deal to Jay, he's like, "Okay, 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 gonna be proven true. And if we fail that one assumption, then the whole deal falls apart." That's one example that he used. "Jay's level of intellectual, in- intellectual rigor really applied to me, and I immediately latched onto the understanding that it could cut right to the heart of something complex 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 r- constant reminder that there is usually just a handful of variables. I remember I did that three-part, um, series on Larry Ellison. It's Founders, uh, 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 gotta talk about." He's 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." 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 wanna 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 th- this is the pros and the cons, and what are we gonna do?" And so he goes and seeks advice from Lew Wasserman. Lew Wasserman is, like, they consider he's, like, the most powerful and influential person in Hollywood. He was, like, a Hollywood mogul 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 then R- and Lew gets... In fact, it's... The reason I'm gonna read this paragraph to you from Johnny's biography is 'cause it's almost exactly what Sam Zell's learning from, from Jay Pritzker. It's like, what's the most important variable? Focus on that. And so it says, "Like most oracles, Wasserman 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." 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 f- this just f- it blew my mind. Johnny's salary was set at $25 million a year. For that, he worked one hour a night from 11:30 PM to 12:30 AM, 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 study 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.

9. 37:42 – 42:09

   Zeckendorf's Sum-of-the-Parts Strategy and Partner Bob Lurie

   1. DSDavid Senra37:42

      "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 very, very long subtitle [laughs] . "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, 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? "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 gonna, I'm gonna buy... Wh- while I'm talking to you right now, I am buying this book, Zeckendorf's book. Um, that's how I like... When, when I hear, like, a book recommendation, or in this case, when y- you... Normally a lot of the book rec- recommendations come from you. But whenever I receive them, in, in this case, this guy, we have Sam Zell 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, 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. So I just ordered it while I'm recording the podcast. This book was first published May 6th, 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 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 into business, or ex- uh, you walk in the office, and it's like bright cov- colors everywhere. He doesn't allow office doors to be shut. And this is where I started laughing 'cause he says he invented business casual. "We abandoned all pretense and established a casual dref- 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 'cause they kept pumping all their cash flow back into the business. And part of th- their ability to do that is b- that Bob was extremely resourceful. He watched all the costs. This is a fantastic paragraph for you. Uh, "Bob watched every single nickel in our business. Bob was constantly on the lookout for anything that could be reused. He'd 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 [laughs] ordinary was occurring. 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, and I should reread it and re-record another podcast on it. It's called "The Invisible Billionaire" by Daniel Ludwig. Very hard-to-find book. But it's, uh, episode 68 of Founders, and he was very much like Bob, uh, through his entire gigantic organization, where I remember one time in the book, he's, like, uh, 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 FedEx existed at this point in history. But they're, like, FedExing [laughs] the paperwork. And Daniel is just going ape shit because they included the paperwork. And I think he said something like-- Or the paperclip in there. He's like, "We don't send ironmongery..." He used this weird word I had to look up [laughs] which I didn't know what the definition was. He's like, "We don't send ironmongery by mail, or by air." [laughs] 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 [laughs] . 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 them out and is like, "Oh, here," hands it back, and then just walks out the door when the conversation's finished. I just love that.

10. 42:09 – 49:10

    The Grave Dancer: Arbitrage, REITs, and Avoiding Competition

    1. DSDavid Senra42:09

       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, uh, assets when their price was de- 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 before reading this book. And it says, "Hope certificates were prominently used during downturns. Uh, they would a- allow a seller that was reluctant to unload at-- 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, uh, 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, 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. There's a lot more detail in the book on that. "Years later, people would, would ask me, 'How did you know when and what to buy?' But all I did was basically create a massive arbitrage." A f-- this is the, the grave dancing strategy he's using between 1974 and 1977. That's what he's describing, okay? But, "All I did, uh, 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 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. Says, "I ended my 1986 article called 'The Grave Dancer, 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. 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 through experience and learning from more experienced people like Jay Pritzer and all of 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 of the ideas he has between acquiring or buying into or investing into other companies, and I really wanna pull this out because it's really fundamental to understanding his, 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." Later on... I gotta 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... It's realistic to think, 'Hey, you know, they're doing this amount of sales, and I'm just gonna 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 listened 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 Perrier, installed Persian rugs in executive offices, and gave massive bonuses to senior executives. Even while the company was struggling, it sent its sales 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-it's Intel without the N. So Itel? Or I think Itel. In-- So that's what they were, 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, A, they're a giant and flamboyant company, uh, known for corporate excess. They throw lavish parties. They fill their drinking found-fountains at the hou- at the headquarters with Perrier. They're installing 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, a huge travel, uh, a, a 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 mollywhop 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 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, he's traveling the world, and he takes breaks to do these, they sound really fun, um, 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 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 $10." 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 why 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."

11. 49:10 – 55:31

    Bob's Death, the Early-1990s Crisis, and 'Liquidity Equals Value'

    1. DSDavid Senra49:10

       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, in the early 1990s, but this is when his partner dies. "Bob and I had been partners for 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 it hits him, like he can't be in denial anymore. A couple month-- Uh, Sam can't be in denial. Bob was in a denial the whole time. "A couple, a couple months after Bob had stopped coming in, he walked 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, uh, to, to be on the, to be the 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... It 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 f- she had cancer, advanced cancer. So I go to visit her. Remember, I wasted six... She only, she's only gonna survive two years. Less, l- I think a little less than two years from the point of the story 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. Let's say she had 24 months to live, right? The previous six months we hadn't talked, so that's, 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, 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 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. I was being a dick. I lo- missed out on the last 20% of her life. And then from there, then the rest of the 80% she had left was unbelievably heartbreaking because they literally... You, you see somebody that gave birth to you, somebody that raised you, slowly widdle, their body whittles away and they die. And there's nothing I can do about it. Like I can't... That's, that's a mistake I can never get back. 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 the, how... I don't even remember what the fight was about. That's heartbreaking. And so when Sam is talking about, in this book, I know exactly what he's talking about. You see some- It's like you are shocked at how different... And the, the physical manifestation of what cancer makes people look like is just, it's one of the cruelest things that life has to offer. Something I'll never, ever, ever understand. "I was dumbstruck by his 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 financing for high... no, no refinancing for highly leveraged asset owners," which is exactly what Sam is at this point, okay? "We were rich in assets but starved for cash, and in the... 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 in my career was the gener- genesis of a mantra that I would repeat regularly for decades to come. Liquidity equals value." And that's something Sam would repeat over and over again. He even talked about it later on in like the dot, the technological, uh, like the technology dot-com b- uh, bubble in the late '90s where people were like, "Sam, it took you, you know, multiple decades to become a billionaire. You must be frustrated that these people are bil- uh, become billionaires, you know, in a few months or in a year." And he has a great line. He's like, "Yeah," T- he, uh, he says, "Call me when that actually t-turns into cash in the bank. I don't care what your valuation is. What is the cash that you actually have?" is his point. And this is where he realizes, like, "To get the capital I need, I have to go to the public markets." He winds up taking a couple p- companies that he had been in, 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 w-where he says that, I think it was like 1993, 19-- uh, early 1990s, that there was no such thing as, uh, like institutional investors in real estate, that they had to invent something. They had to invent a REIT as a way to draw in, uh, institutional capital. And I think as far back in like the late '80s, he thought if there was a way to make, uh, real estate liquid, that it'd be a trillion-dollar industry. And I'm pretty sure, if I'm not mistaken, he actually, uh, is on like public record, like 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 trillion now. So the reason I bring that to your attention is because like understanding the IPO process of re- like private companies influences his thinking on building all these REITs later on. And so in addition to his business struggling at this time, his, one of his closest friends and, 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 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 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,

12. 55:31 – 59:03

    Making REITs Dance: Staying Power and Late-Career Ideas

    1. DSDavid Senra55:31

       "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 him that we were gonna 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%, 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 his punchline here. "It did not matter how smart you were if you didn't have staying power, if you were not able to hang onto your assets." That kinda echoes Warren Buffett's, uh, 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 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 'cause he says, hey, in 1992 it's actually Morgan Stanley that created this first structure. It was called an upREIT. So the word re- or the, 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 wanna start doing this? And so he says ... And he goes through like stuff I don't understand, and then he kinda breaks it down for something that I can understand hopefully and I can read to you. "In other words, the upREIT 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 gonna read this to you, 'cause this is fantastic and something I've 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. 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 ex- what was expected of great companies. And I knew the real estate industry was starting to ... or 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, '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."

13. 59:03 – 1:02:39

    Selling Equity Office to Blackstone: The Godfather Offer

    1. DSDavid Senra59:03

       So now I have to get to what Sam Zell is most well-known for. I'm sure people in hi- 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 almost ... that sold his company for almost $40 billion." And the reason he sold is because he said he received a Godfather offer. That's obviously from one of my favorite movies where it's like, "Hey, I'll, 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 busines- 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 would play out." So he says, "Equity Office was the largest REIT in the country. We had spent a decade acquiring an irreplaceable collection of over 500 of the best office buildings in every major market in the US. It was my baby. Truth is, had I, 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. 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 s- 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 ..." My ... What he st- what he thought at the time. 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 gonna 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, 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, uh, division. So he sends out this, this float of an offer, 40 to 42 a share. They're like, "No, it's, you know, it's still insufficient." 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 47.50." 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 have always believed that ev-" 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 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 gonna 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 bi- that a big deal generates. It's intoxicating. The air crackles with the energy of anticipation. 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. Or I guess put 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 I had nurtured from its infancy, I had moved on. Once the deal was done, it was over for me. I had no remorse. I didn't think about it anymore."

14. 1:02:39 – 1:08:08

    Zell's Closing Advice: Time, Optimism, Culture, and Making a Difference

    1. DSDavid Senra1:02:39

       And so he's got a bunch of other deals and companies he goes into detail in the book. I just wanna pull out a couple other things that are 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 o- 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 hells, time is way more important when you have less of it. And as a byproduct of him being 67 as opposed to like 37 or 47, he's got-- he knows he's got less time. Then he's got some good advice for other entrepreneurs. "As an entrepreneur, I am nature-- 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've 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." 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 lot, a large part of that is like how the internet enables like these truly global world 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 wanna 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 fully understand the various ways the incran- 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, to around what you're, uh, what you're good at and what you actually like to enjoy. He says, "I'm a ch- I often say I'm chairman of everything 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 be- in between the lines, he's really encouraging you to think about like the culture you're building and the company you're building. And I think what I'm, what I learned, and I, 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. And they ha- 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 you, why did you come back?' 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 it 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 I, there is an inherent entrepreneurial gene, albeit it's stronger in some than others." That's my guess too, that there's an, there's an inhate, inherent entrepreneurial gene. 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. He reads like five newspapers a day, three magazines a week, uh, reads a book. And he says this part was kinda funny. Uh, and I've experienced this myself. "I go through about one book a week. I usually remember nothing about them unless all of the 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. 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. If you buy the book using the link that's in the show notes on your podcast player, or by going to founderspodca- podcast.com, you'll be supporting the podcast at the same time. If you wanna remember more of what you read and you wanna use the app that I use to store all my highlights and all my notes, and really the app I use to, to help make the podcast, you can... It's called Readwise. You can get two months free by going to readwise.io/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

Episode duration: 1:08:09