CHICAGO—Thousands came out to an early-morning meeting yesterday at the Urban Land Institute's Fall Meeting to hear legendary investor Sam Zell explain what it takes to be an entrepreneur. Interviewed by Randall K. Rowe, the chairman of Green Courte Partners, LLC, Zell, the founder of Equity Group Investments and chairman of Equity International, delved into his background and early business experiences and how these helped shape a storied career.

Zell never forgets that he comes from an immigrant family, and that their journey to America was a harrowing one. His parents lived near the German-Polish border until 1939. However, his father, a merchant, understood the peril, and took the family on an 18-month voyage to America by way of Japan just as World War II spread across the globe. They arrived in May 1941 and their son Sam was born in September. Few of their friends or relatives who remained behind would survive the war.

Zell also can't forget that the family might not have made it without the help of a Japanese diplomat in Lithuania who gave out travel documents to Jewish refugees. Of his father, Zell said “he believed [American] streets were paved with gold.”

And although he was reminiscing about his family's past, Zell also took the opportunity to speak about the place immigrants play in American life. “American strength has come from the fact that we have welcomed people from all over the world.” He believes we should do whatever we can for immigrants “who would excel in this environment.”

Rowe asked Zell when he decided to be an entrepreneur. Zell replied that since the age of ten he knew he was different. Partly that was the result of growing up in an immigrant household, but it went deeper than that. “For some reason, I was not capable of going right when others went right.”

At the age of twelve, he commuted to the city from Highland Park to attend school, and noticed that the magazines sold out of Chicago's El stations were different from the ones in the suburbs. One was called Playboy and he bought it for 50 cents. “I thought it was a terrific magazine,” he said. But the young Zell also had a friend, and “I sold it to him for three bucks; that's when I learned about margins.”

It's a small story, Zell admitted, but he still marvels that at the age of 12 he became an importer of somewhat illicit magazines into the suburbs, and believes the episode helped him realize he could accomplish anything. “I never knew what I couldn't do.”

Zell's father also taught him many lessons about doing deals. He was fond of telling his son about a well-funded customer in Minnesota who would buy up a lot of his product, but was savvy enough to bargain aggressively. “At the end of the day,” his father had said, “I would get a big order; that's the good news,” since it allowed him to eat. “But I had no margins, so I couldn't sleep.” However, that customer was eventually balanced by others who bought less, but with better margins. The lesson? “You don't want to enter into a transaction where you can't sleep or eat.”

Zell eventually went to the University of Michigan, both as an undergraduate and for a law degree. “Law school was a horrendous bore,” he noted. “And I think that's an understatement. I only practiced law for four days.” However, he still credits law school for teaching him how to think. In fact, throughout a decades-long real estate career, that training in law usually helped him cut better deals. “In the legalistic society that we live in,” the study of law is “an enormous asset.”

But perhaps the key to Zell's whole career is his willingness to accept risk. Many people find it difficult to steel themselves into taking risks, he believes. “Risk is all about what happens when you don't do well.” But Zell does not advise people to simply take leaps into the unknown. Instead, he counsels them to work hard at understanding and defining the downside of a potential deal.

About 20 years ago, for example, he was buying a business with assets in California, and sent a team out there not just to evaluate it, but to “attack the business as though we were liquidating it.” Looked at from that angle, they found it was worth about $50 million less than Zell was paying. Still, “I knew what the downside was; was I willing to accept a $50 million loss?” He was willing, but soon after the purchase, the state's economy went into a tailspin caused by riots, earthquakes, and the catastrophic decline in aerospace jobs. “To say it was a shit-storm would be an understatement. After all that, we lost $50 million.”

“It didn't work; that's unfortunate,” said Zell. However, he still considers the whole episode a “huge success,” if only because he understood the peril but made the leap anyway.

And the people who can do that are the ones he wants to hire. “I don't need anybody with a 180 [IQ].” He does need employees who have the smarts to understand the business, but they also need to be hungry. “It's those driven people who make the difference.”

Instant Insights /

Zell: Driven People Make the Difference

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