Business Lessons From “Am I Being too Subtle”
The more I learn about Sam Zell, the more I wish that he was my uncle. He's a down to earth billionaire that you can learn a few things from. Some of the business lessons that I took from his book are below. Get it Here to read it for yourself.
1. Anytime you don't sell, you buy.
First is the opportunity cost of not working on another project. Second, when holding an asset, ask yourself if you'd buy that asset at its current price. If not, sell and deploy your resources elsewhere. There's no sense in holding on to an overpriced asset and spending time on it.
2. If everyone goes left, look right.
Sam didn't say go right, but make sure you at least look. A good example of this is the current unicorn hunting in technology companies. Everyone wants to be a part of or fund the next billion dollar company. It's over inflating valuations and becoming a very crowded space in terms of competition. That's the left.
The right is a small and growing group of private equity firms that are buying up low tech blue collar industries. They're able to do this because there's no interest or competition for those companies. They're consolidating some industries which will allow them to control the supply. Once supply is controlled, so is the price of the product.
3. Getting to the root of something complex
It's a little more complicated than writing an outline for a paper, but it's the same concept. Somewhere between 5th grade and adulthood, people forget how to do this. Some of the best minds I've met do this religiously.
When looking at anything complex, break it in to 2 parts and then 4. Keep going until it's in it's simplest pieces. Now structure those pieces into an outline of some sort. The root of anything complex should now be obvious to you.
4. an asset's value is the sum of its parts
When the parts are combined with parts from other assets, that's when value creation happens.
I recently saw a real estate investor that understood this perfectly. Two identical properties sat next to each other. Each one worth $500,000. One was for sale for $500,000. The other wasn't for sale. He offered $1,000,000 for the one that wasn't for sale and closed at the same time for the $500,000 property.
What did he know that the sellers didn't? He knew that combining the buildings could create more use for the property and thus increase the value of the building to close to $2.5M.
5. Life is about managing risk.
If you have a big downside and a small upside, run the other way. If you have a big upside and small downside, do the deal. The real legwork comes into play when there's a big upside and a big potential downside.
6. Opportunity is embedded in the imbalance between supply and demand
Supply and demand still matters and that seems to be forgotten by many of today's businessmen. Opportunity is found in “shrinking supply and flat demand” or “flat supply and growing demand”. This is where price action occurs. Ever wonder why your plumber makes more than most teachers?