Colin Charles Agenda

I had no idea about Sam Zell before reading his book (which I only found out via Brad Feld), Am I Being Too Subtle?: Straight Talk From a Business Rebel. He runs Equity Group Investments, and their tagline is: “We identify opportunities others don’t – and invest like others can’t.” Do visit their website, it really is quite interesting. I tremendously enjoyed the book, I highly recommend reading or listening to it.

Here are some notes I made from his book.

• always have a sense of urgency
• trade conformity for authenticity
• be blunt
• culture is king
• read risk – always understand the downside
• listen. There is great value in this because you then know the motivations of folk.
• look for clarity. Drown out the noise. Conventional wisdom tends to be a lot of noise.
• “If you are really good at what you do, you have the freedom to be who you really are”
• His daily routine: workout at 4.45am, then in the office by 6.30am, and stays there till 7pm. And he still does this at age 75!
• Where there is scarcity, price is no object
• There is value in tenacity
• Use simplicity as a strategy
• Strive to be asset rich, cash poor
• Weak economies breed troubled companies
• “Competition is great for you, but I’d rather have a natural monopoly; if I can’t have that I will take an oligopoly”
• Board of Directors tend to have “good resumes whom are often past their prime”
• Board members should be viewed as cheap consultants to the business. Management team should use them regularly.
• Do not depend on people unless you understand their motivations. Listen to know their motivations!
• When people ask Sam Zell what he does? “I am a professional opportunist.” (what a great job title)
• He is always at his best when the scenario around him is at its worst
• We should never get into a phase of “irrational denial” (like if people get cancer, you don’t get treatment, you will die)
• Always make lists. Check them off.
• “Liquidity equals value”
• Find good companies with bad balance sheets
• It is important to have owners, not just managers, in leadership positions
• See micro-opportunities in macro events
• Real estate tends to lag the general economy. So it falls slower than the rest of the economy when there is pain.
• Sam is not pessimistic, but realistic. Go in with eyes wide open.
• In real estate, he tends to assign walk scores. Takes number of steps to public transport. To the nearest Starbucks. Etc. This will tell you value of property.
• “Please God, give us one more oil boom and we promise we won’t screw it up.”
• “Everyday you choose to hold an asset is a day you choose to buy it.” Therefore if you get an offer greater than what you would pay for the asset today, you should sell!
• Calculate risk, know what the downside is. Ask: if all goes wrong, what do I get from this deal?
• “I don’t like auctions unless I am running them.” Bidding wars are something he doesn’t like to participate in.
• Experience – you understand risk only this way. Experience teaches you how to minimise the downside.
• Be an optimist. Focus on what is next. Do not lament on what could have been.
• Emerging markets have built-in demand.
• Global business requires:
  1. good partners
  2. aligned objectives
  3. vision, direction, strategy
• Sam describes himself as the Chairman of everything but the CEO of nothing
• Radius theory of business is the number of people between you and the decision. This will affect your ability to succeed.
• Businesses that delegate too much fail as well.
• Culture can either inspire or stifle innovation/creativity.
• Fast decision making and autonomy is what usually wins out.
• Be ready to pivot
• Spot opportunity early for long term gains.
• He is a voracious consumer of information. Reads 1 book per week. Knows how to get relevant information. Reads 5 newspapers per day and 5 magazines per week.
• “If you lie down with dogs, you wake up with fleas”
• In everything you do, always be thinking of the next deal. Play it straight. You can be successful AND ethical in business. Do you consider their circumstances over your own? Loyalty definitely matters.
• Always be tenacious, optimistic, have drive and conviction.

I recently saw Molly’s Game on a flight. It was so good I ended up getting the audiobook, to see if I missed out on anything. Molly Bloom (her Wikipedia page is a great read) is an entrepreneur. She trained to ski (and had a tough father, and siblings who skied better than her), but due to injury decided it was time to go find herself. From a terrible job as an assistant, she quickly began running poker games for her boss. When her boss decided to cut her off, she became independent and anticipated player’s needs and became an even greater success. Her games even brought in Hollywood celebrities.

When she exited the LA market, she did games in New York. So no stranger to starting from scratch, in an industry that she was already well-versed in. Eventually the law caught up with her, and she had to give up her high life. But with grit, the rebirth seems to have been writing her story, which became a movie that Aaron Sorkin directed.

Constant reinvention and perseverance. Those are my takeaways from both the book and the movie. I recommend watching the movie, then deciding if you are still interested before getting to the book/audiobook.

I think it’s really important to write ideas everyday. In fact, it’s a new year – if you don’t already have a notebook and pen, get one. I personally rely on Evernote, a notebook (lately, I’m starting to think I might like the Evernote Moleskine notebooks – I’ve started with the Moleskine Evernote Business Notebook for meetings) and a pen. 

When you are set, don’t forget to read James Altucher: FAQ on how to become an Idea Machine. I particularly like the following:

I have an Idea. How do I get money for it?
You don’t. You have to implement it. You have to have other people who like it. You have to get money from customers who like it. You have to build up so that it can support yourself.

For my first business, I started it, got customers, got employees, had an office, and then, 18 months into it, I quit my fulltime job, and went to my startup fulltime.

That’s how business works in the real world.
We live in an entitled world now where people think ideas are enough now to get funding and make billions.

Go old school. Deliver proven value to others, charge money for it, get testimonials about how good your product is, and then you’ve widened the horizon of your decisions. That’s the path to success.

I just read this in Bloomberg Businessweek: Silicon Valley Hears Echoes of 1999. Key takeaway:

IPOs were priced at a median of 30 times sales in 2000, compared with 5.2 times last year, the data show. MarketWatch traded at 46 times 1999 sales on its first day, while Rocket Fuel’s valuation was 7.6 times 2013 revenue.

The average age of companies also went up for IPOs – from 6 years to 12 years. That said, the valuation’s have become saner.

For further reading, how do you value a business by Fred Wilson: 

I learned in business school that the multiple of earnings one should pay for a business is roughly the inverse of interest rates. The reason for that is if you buy a business that makes $10mm a year and pay $100mm for it, then you are effectively getting a yield on your investment of 10% (annual earnings/purchase price). This math is terribly simplistic but fine for the purposes of this post. If interest rates are 5% instead of 10%, then you would pay $200mm for the business ($10mm/$200mm = 5%). So the math here is interest rates = annual earnings/purchase price. Again this is very simplistic because it does not deal with the important questions of what interest rate you use, how you deal with earnings that are growing or declining, and a host of other issues. But at the end of the day, this math [annual earnings/purchase price = yield] is fundamental and everything about asset values, capital markets, and valuations stems from it.

I think things are different now. That said, downturns are cyclical. 

No rules in this game | Derek Sivers: “Gurus will say what you can’t do or must do. They mean well, but they’re wrong.

For every rule they tell you, there’s an exception. They are just telling you their specific past, not your specific future.

There are no rules in this game. You change them as you go.”

(Via Derek Sivers.)

Derek is talking specifically about the music industry. I think this applies to more than just the music industry. This is sage advice that applies to any industry.

Remember, be open to advice, but be influenced by none.

I read with great zeal the article about Y Combinator in the NYT titled: Silicon Valley’s Start-Up Machine. I think there are a few important takeaways, especially with people trying to build this kind of thing elsewhere.

1. People take the $100,000 at a 7% stake because of the whole experience. Advice from seasoned entrepreneurs (like pitch improvements, etc.). The importance of the network they bring (which is hugely underestimated by many clones). Dumb money remains dumb.
2. “The general public doesn’t understand start-ups at all,” Buchheit said. “They’re mystified how a company with no revenue can be worth a billion dollars. It’s because of this power law: If a company has a 1 percent chance of being a hundred-billion-dollar company, then it’s worth about a billion dollars. That kind of thing doesn’t happen in your normal life experience. If I get a cup of tea, it’s a cup of tea – there isn’t a chance that it’s actually made out of solid gold. But that’s how this works.” – direct quote from Paul Buchheit
3. “One of the reasons,” he said, “is because there’s nothing else to invest in. If you have money, there’s nothing to put it in. Bonds return nothing. And the stock market – what public company do you feel reasonably assured is going to go up at historical norms of 8 percent a year? It could all just fall apart. . . .” If, on the other hand, you discover the next Google, you can increase your investment by “a thousand X.”

Nothing else to invest in. Interest rates in the USA are low. In Malaysia (or Singapore), you have property as an investment that should return more than 8% per annum. Refer to my old post about the startup ecosystem in Malaysia.

Its nice to see lots of funds and accelerators pop up, but without the experience, the lack of vision, and other investment vehicles that return sufficiently, I’m not sure how even the angel incentives help.