Sam Zell was riding high in the 1980s. According to his autobiography, the early 1990s were one of his most difficult periods. His partner of twenty years, Bob Lurie, died of cancer in his 40s, which rocked Sam. He was in denial about the severity of the situation until Bob sat him down and told him he needed to prepare for Bob to die. To make matters worse, his second marriage ended in divorce in 1994.

While Sam navigated those challenges, the economy went into a recession. Sam’s companies couldn’t refinance their debt and struggled to make payroll. Sam was on the brink of default and failure.

Listing his companies publicly on the stock market was his only option for raising cash. Sam dove into learning everything about this process and, in 1991, completed his first IPO for a portfolio company. Learning how to run the IPO process would be a valuable skill. During this period, Sam listed seven of his companies for about $2 billion in total.  

Sam recognized he wasn’t the only one struggling. Many companies had too much debt and were desperate to raise capital. In 1990, Sam created a $1 billion fund to invest in distressed companies; he bought ownership stakes at discounted prices.

Sam also spotted a structural change in real estate:

• Easy money from Japan lent to US developers caused overdevelopment
• The savings-and-loan crisis eliminated a key source of lending to real estate
• The Tax Reform Act of 1986 reduced tax benefits for syndicate investors (such as Sam’s father), which reduced the capital these investors allocated to real estate

With most real estate using 80% to 90% borrowed money, Sam recognized that these factors, plus a recession reducing rental demand, would make it impossible for property owners to service their debt loads. This would lead to a real estate crisis worse than the Great Depression.

Sam was right. Commercial real estate lost 50% of its value. Losses were estimated at $80 billion. Between 1989 and 1996, Sam raised four funds for $2.1 billion and went on a buying spree.

In 1992, Morgan Stanley created a new real estate investment trust (REIT) structure called an umbrella partnership real estate investment trust (UPREIT), which allowed property owners to contribute property to REITs listed on the stock market and gain liquidity without triggering a tax event. Property owners could turn illiquid buildings into liquid holdings that generated predictable cash flow (UPREITS must distribute at least 90% of taxable income to shareholders annually). Sam leveraged his decade of taking companies public in 1997 by taking his four real estate funds public as a UPREIT and named it the Equity Office Properties (EOP) Trust.

Ten years later, in 2007, Sam perfectly executed a competitive bidding process between Blackstone Group and Vornado Realty Trust and sold EOP to Blackstone for an eye-popping $39 billion. Sam’s timing was impeccable—the Global Financial Crisis was approaching.

Sam also leveraged his experience investing where populations grew and started investing in real estate in emerging markets. He created Equity International in the late 1990s and began partnering with developers in emerging markets who were great operators. Sam provided the capital and best practices on financial discipline and strategies and helped prepare the developers for public-market investors.

This period was a wild journey full of ups and downs for Sam. But two things stood out to me. Sam had an uncanny ability to recognize macro events and understand how they impacted the supply and demand of real estate and capital available to companies. He masterfully positioned himself to take advantage of these insights before others appreciated them. Sam also did a great job identifying and learning skills that could be helpful in the future. He could have relied on investment bankers to run his IPO processes, but he decided to learn the skill himself because he knew it would be valuable in the future given that public markets are the most constant source of liquidity.

In the next post, I’ll share my takeaways from Sam’s journey.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

In the 1970s, Sam Zell refined his business principles to the following:

• If an opportunity has a large downside and minimal upside, steer clear—and if it has a minimal downside and large upside, go after it
• Make sure you’re getting paid sufficiently for the risk you take
• Never risk what you can’t afford to lose
• Keep it simple: the more steps, the more opportunities to fail

He also refined his thinking on supply and demand:

• Opportunity is embedded in the imbalance between supply and demand
• Both rising demand against flat or diminishing supply and flat demand against shrinking supply create opportunistic imbalances

According to his autobiography, Sam’s refined thinking led him to realize that his thesis of investing in high-growth second- and third-tier cities had run its course. Other investors had recognized the opportunity, so more capital was chasing these properties, increasing prices and reducing returns. By 1973, Sam realized that the supply/demand imbalance in commercial real estate was getting extreme. Easy money had led to more development and too much supply, which Sam predicted would decrease rental rates. At the same time, a recession was beginning, which would reduce demand. In short, supply was increasing rapidly and demand was about to start decreasing.

Sam sold his properties and started stashing cash to take advantage of the crash he thought was inevitable. He also launched First Property Management Company to focus on managing distressed properties. Until the market crashed twelve months later and Sam was buying properties at 50% discounts, everyone thought he was insane.

Between 1974 and 1977, Sam used a creative strategy to purchase $4 billion worth of properties with $1 down per property. He borrowed at a roughly 6% fixed interest rate while inflation was 9% or higher—so he was making 3% the second the deals closed. He realized the real money in real estate is made from borrowing at a long-term fixed rate in an inflationary environment, which increases property value and rents and depreciates the value of the loan.

Sam became known as the grave dancer because he bought at deeply discounted prices when others were afraid. But he viewed it as an opportunity to resurrect properties with potential. His low entry price drastically reduced his downside risk and increased his upside potential. This perspective gave him the conviction to bet heavily and be contrarian.

In the 1980s, Sam saw overdevelopment in real estate again but believed the sector had structurally changed. He realized that his business principles and focus on supply and demand could be applied to companies, too, not just real estate. Setting a goal to have 50% of his investments not be in real estate by 1990, he bought distressed companies that had borrowed too much but owned lots of assets like plants and machinery. A weakening economy provided him with ample businesses that fit his criteria and that other investors didn’t want to invest in. He went on a deal spree. In the book, Sam discusses the deals for several public companies he bought entirely or partially.

During this period, Sam also learned that businesses reliant on borrowing benefit from understanding the motivations of their lenders and their methodologies for issuing loans. Doing so led to companies Sam owned offering financing to buyers. At that time, having these loans on their books allowed Sam’s companies to borrow more from banks, which was counterintuitive.

During this period, Sam sharpened his understanding of risk, business, and supply and demand, which led to his transition from real estate investor to investor. When asked what he did for a living, Sam began confidently saying, “I’m a professional opportunist.”

This new outlook would profoundly affect the rest of his career, but first, he’d have to survive some challenging times.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Happy July 4th!

I hope everyone had a safe and happy holiday!

When Sam Zell returned to Chicago, he was rejected by 43 law firms. When he finally landed a job at a small law firm, he lasted four days. Reviewing contract details all day was painful. When he quit to start doing deals again, the firm made him an offer: if he would stay, they’d do his legal work for him and give him a 50% commission on any legal business he brought in.

According to his autobiography, Sam did so well bringing in new business that he made three times as much money as the junior partners. The firm cut his commission to 25%. What he brought to the table wasn’t being valued, so he quit, which was risky given that his wife was pregnant. Sam was 25 and didn’t want to be held back by anyone else’s rules. He wanted to control his own destiny.

He started his own investment firm focused on investing in small, high-growth cities with limited competing capital. Colleges were growing, so he focused on buying apartments in cities with universities. In 1966, he closed his first major deal, a $1 million apartment building, with his father as an investor. Sam predicted it would yield 19% annually, while his father thought it would yield 8%. It ended up generating 20% annually. Sam expanded to Tampa, Orlando, Jacksonville, and Reno.

He tried to develop properties from scratch, but mistakes with Lake Tahoe and Lexington, Kentucky, projects burned Sam. He learned that development was complex and risky. Things outside of your control can change and doom a project between the idea and completion stages. Sam couldn’t stomach that level of risk.

In 1969, Jay Pritzker, part of the family that founded Hyatt Hotel Corporation, tried to hire Sam to scout deals for him. Sam declined, but Jay became a mentor and co-investor with him. Sam’s relationship with Jay elevated his thinking as an investor. Sam learned to understand risk, that most deals depend on one or two things, and that you can organize your thinking to cut to the heart of something complex by breaking it into pieces and creating an outline.

Around 1970, Bob Lurie rejoined Sam in Chicago at the firm, now called Equity Group Investments. Bob complemented Sam and they worked well as partners. Bob stayed in the office, viewed things pessimistically, and focused on details. Sam was Mr. Outside, an optimistic salesman who hated details. They had a team of 10 in the 1970s and encouraged everyone to wear what they wanted, believing that if you dress funny and are great at what you do, you’re eccentric. They wanted to attract eccentric who would do a phenomenal job, not mediocre people who could dress the role. Early on, Bob and Sam reinvested everything in deals and their business, so they were cash poor and ran the company on a shoestring budget.

In the 1970s, Sam and Bob met a brilliant dealmaker named Arthur Cohen, and they learned a valuable lesson from Cohen’s struggles. Cohen acquired an offshore mutual fund that offered daily redemptions to investors, but it held real estate, which couldn’t be sold quickly. When the market turned sour, the combination of long-term assets and daily investor redemptions put pressure on Cohen to raise cash quickly. Sam and Bob took advantage of Cohen’s predicament and bought several of his properties at attractive prices because they could decide and close quickly.

Things were going well for Sam until 1976. Then, partners at a law firm he used to craft tax-advantageous deals were indicted. One partner, Sam’s brother-in-law, was convicted. Sam was indicted, too, but the case was dropped. The stain of an indictment on his record would follow him for years. Sam learned how important reputation is when people began to question his.

Sam was in control of his own destiny, but being in control didn’t mean things were always smooth. Sam learned painful lessons, most notably how to understand and minimize deal and reputational risk. A focus on risk would play a critical role throughout his career, but especially in the next phase of his journey, a period when Sam was known as the Grave Dancer.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Sam Zell passed away last year. The week he died, I researched him and learned that he was known as the real estate investor and deal maker who sold Equity Office REIT to Blackstone in 2007 for $39 billion. I purchased his autobiography. After having read the biographies of Summer Redstone and Wayne Huizenga, I wanted to learn more about deal-making entrepreneurs. I began reading Zell’s autobiography Am I Being Too Subtle?: Straight Talk from a Business Rebel.

Sam grew up in an upper-middle-class family in Chicago, but his home environment reflected his parents’ experiences. They escaped Poland on the last train before the Nazis invaded later that night and spent the next twenty-one months trying to get to the United States. They arrived in May 1941, and Sam was born a few months later.

Sam's parents were disciplined and made hard work and high achievement their priorities. Sam’s father couldn’t find a job in his field, so he reestablished himself as a jewelry entrepreneur. With this work, he provided Sam and his siblings’ upper-middle-class lifestyle and set an example for Sam.

At age 12, Sam bought Playboy magazines during trips to downtown Chicago and sold them in the conservative suburbs. He learned that for scarce items, price is no object. Capitalizing on supply-and-demand imbalances would be the central theme throughout his career.

By the time Sam left for college, a commitment to learning, an understanding of how to apply his learnings to real life, and a desire to challenge conventional wisdom were instilled in him.

During a summer break, Sam hitchhiked across the country for two weeks and learned a valuable lesson: you learn the most about people when you see them in their natural environment, so get out and see people; don’t have them come to you. He did door-to-door sales one summer but eventually found his calling. He pitched a real estate developer to let him and classmate Bob Lurie manage his building. This led to contracts to manage two other buildings.

Sam went to law school to please his parents but hated the attention to detail it required. During his second year in 1965, he used his money from property management to buy his first building for $19,500. He also bought the building next door and a large single-family house, which he converted into four apartment units. He was 23 years old.

Sam and Bob landed a large property-management contract, making them relevant market players. They started getting inbound deal flow, which resulted in an opportunity to buy a dozen adjected homes. They structured the $20,000 deals as individual purchases with $1,000 down and deferred closing, partnering with Sam’s dad to raise the equity portion of the deal. The elder Zell drove a hard bargain, demanding a 50/50 partnership.

They assembled the largest block of land held by one owner and sold it for a profit to an apartment complex developer. The entire process taught Sam valuable lessons:

• Tenacity – Always assume there’s a way to overcome any obstacle, and focus on finding it.
• Listening – The heart of any negotiation is listening. Listen to figure out what’s important to the other party.
• Scale – Scale has exponential value. The aggregate site was more valuable than the individual parcels.

This successful deal led to Sam learning about his father’s other real estate deals and to the two of them doing deals together.

In 1966, Sam graduated from law school. He was 25 with $250,000 in the bank and had made $150,000 that year. He’d built a solid financial foundation for himself and his wife. He was ready to leave Ann Arbor, Michigan, and move back to Chicago and start his law career.

Sam’s parents and their journey to the United States significantly affected Sam. His parents instilled in him a curiosity, dogged work ethic, and ability to think for himself. Sam honed these traits in school in a small market, but they were about to propel him to another level when he deployed them in a big city.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Current Project: Reading books about entrepreneurs and sharing what I learned from them via blog posts and audio podcasts

Mission: Create a library of wisdom from notable entrepreneurs that current entrepreneurs can leverage to increase their chances of success

What I struggled with:

• Missing a post – Friday, I didn’t do a great job of managing my time and didn’t publish an audio podcast. It was recorded but not fully edited in time. I caught up over the weekend, so I’m back on track.  

What I learned:

• I researched entrepreneurs who’ve successfully built businesses by sharing “knowledge” about entrepreneurship on various content-distribution platforms. I didn’t assess whether what they’re sharing is of value; rather, I focused on their visible platform metrics and made some assumptions. The likely size of the businesses they’ve built is shocking. I thought about it from a market perspective. People are actively seeking to fill their knowledge gaps around entrepreneurship, and that demand is growing rapidly. From the outside, the space looks unattractive and unsophisticated. I saw this as a sign that the market is in its relatively early stages and growing quickly but that savvy entrepreneurs are capitalizing on these characteristics.
• Creating a set of questions to answer before I start reading a book was helpful. As I read, I can note passages that help answer the questions. It also helped with distillation. I still have work to refine the questions, but this feels directionally accurate.
• Atlanta has a large community of content-creator entrepreneurs, and events are focused on this community.
• Content-creator entrepreneurs struggle to manage their growth and add structure so their businesses can continue growing.
• I need to start looking for ways to reduce my editing time, maybe by being more concise when I record and/or finding an editor who can help.  

Those are my struggles and learnings from the week!

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

Current Personal Project: Reading Books about Entrepreneurs and Sharing What I Learned from Them via Blog Posts and Audio Podcasts

Metrics (since 4/1/24):

• Total audio recordings published: 71 (+8)
• Total blog posts published: 91 (+7)
• Average recording: roughly 14 minutes (+2) for a biography or autobiography

What I completed this week (link to last week’s commitments):

• Read the autobiography of Sam Zell
• Had four additional feedback sessions: I exceeded my target by one
• Compiled and sorted feedback from sessions completed the week of 6/17/24
• Drafted questions I want to answer for every book I read

Content:

• Audio content changes: I lengthened each recording by two minutes and tested increasing my energy level by using lots of hand motions as I record

What I’ll do next week (holiday week):

• Read one biography or autobiography
• Write seven blog posts and record seven audio posts
• Compile feedback from sessions completed the week of 6/23/24 and identify insights
• Attend podcasting conference
• Start reading one of the books about storytelling that I purchased

Asks:

• No asks this week

Week two hundred twenty-two was another week of learning. Looking forward to next week!

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

I finished reading about James Dyson’s journey. When his autobiography was published in 2003, James was 56 or so. Since then, James has continued building Dyson. As of this post, he’s 77 and appears to be still involved in Dyson, although he’s no longer CEO.

What Was James’s Starting Position in Life?

An entrepreneur’s early years often have a lifelong impact on them, and that was true of James. His father’s death when he was nine scarred him deeply. He didn’t have a father figure who could share knowledge with him. James felt like he had to figure things out on his own, so he learned to educate himself. He became a voracious learner, and he believes anyone can become an expert on any topic in six months.

His father’s passing also instilled in him a belief that he shouldn’t waste time doing things he doesn’t want to do. He learned to say no to things like medical school and leaned into things he was passionate about, like art, despite not having a clear path to where that passion would take him. In his early years, he believed that following his convictions would lead him to where he was supposed to be.

Two yardsticks that I use to evaluate entrepreneurs are distance traveled and personal velocity. James went further than most people will in a lifetime despite starting at a disadvantage. And his personal velocity, or the rate at which he moved toward personal goals, was exceptionally high and certainly increased his distance traveled.

How Did James Become Successful?

James’s wife, Deirdre, is a big reason he was successful. She supported him during the decade-plus when he traveled the world and the family was on the edge of financial ruin. When he was on the verge of quitting during the Amway lawsuit, Deirdre talked him off the ledge just in time for him to get a lucky break.

James is one of the most disciplined and focused entrepreneurs I’ve read about. For example, his ability to work for over 1,000 days straight, by himself, on a single product is a superhuman level of discipline, focus, and perseverance. He was clear on what he wanted and laser-focused on consistently taking small daily actions toward that goal. This led to his creating the technology that would be the foundation of his company. He moved a mountain by chipping away at it, one stone at a time, every day for years.

James was persistent but not stubborn. He knew he could build a big company around vacuums, but he was flexible on how he did it. His strategies evolved. For example, he started by licensing his technology but slowly moved to manufacturing his vacuum and selling directly to consumers as he encountered obstacles with license partners. He was rational in his decision-making. When he made a mistake, he acknowledged it and refocused his persistence on the correct actions instead of doubling down on his mistakes.

What Kind of Entrepreneur Is James?

James is a founder. He focuses on a problem and creates the best solution he can to solve it. He’s customer focused, not investor focused. He determines how to create the most value for the people who purchase his products.

James didn’t go straight to being a founder. Before founding Dyson on his own, he was an inventor. An employee of Jeremy Fry’s company. A cofounder of Dyson-Kirk with his brother-in-law. And a cofounder of Air Power Vacuum Company with Jeremy Fry. James wanted to reap the maximum reward for his efforts, and being a founder made that possible. This is likely why he still owns 100% of Dyson.

What Did I Learn from James’s Journey?

Licensing is a capital-efficient business model that I don’t have experience with. Licenses were a good way for James to generate recurring cash flows, which he used to hire his team and build out his manufacturing and direct-to-consumer operations. But licensing has downsides. Getting the details of contracts right, aligning the incentives, and dealing only with reputable partners are crucial considerations. If you get these wrong, you may never see a cent.

Vacuum cleaners aren’t a sexy market, but they’re a large one because lots of people use them every day. The autobiography didn’t say the market was growing, contrary to what I often see when companies have outsize success. But because he made a product that was ten times better than the competition, he was able to grab market share from competitors. Significantly improving products or services people use daily is a path to a big business, but the product can’t be comparable to the competition. In a market that isn’t growing, it must be an order of magnitude better.

The outsize impact on James’s products of editorial reviews in magazines and newspapers caught my attention. I knew reviews were powerful; it’s why products from unknown brands can be top sellers on Amazon. James appears to have figured this out earlier than most consumer-product companies. He also figured out that anything an ad can accomplish, true journalism can do better.

James says when you make something, sell it yourself. James doesn’t believe marketing agencies have the time or desire to learn about your product in depth. They’re best at applying their all-purpose skill to selling more of what already exists, not innovative things.

I’m bad at marketing, so seeing that he mastered this area is encouraging and gives me hope that I can too.

James is an amazing founder. His autobiography is a detailed account of his struggles. Anyone frustrated or thinking about giving up can benefit from learning about his journey.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

With licensing revenue from the United States and Japan, James Dyson wanted to crack the UK and prove all the early naysayers in his home country wrong. His autobiography says he signed a deal in early 1991 with Vax, receiving £75,000 upfront. But Vax strung James along and never began production. James had made a critical error in the agreement: he didn’t set a trigger date for the minimum royalties. If Vax had never produced the vacuum, they wouldn’t have owed him anything and he couldn’t have licensed the product in the UK to anyone else. They parted ways after settling a lawsuit.

James designed a new “tank vacuum cleaner” for UK consumers to distract himself from the legal drama. However, £45,000 in legal fees to negotiate a contract with a tooling partner triggered self-doubt and thoughts of giving up on the vacuum altogether. James talked to his wife about dropping the Amway lawsuit and giving up. But then his lawyer called. The Amway suit was settled. Amway would pay James a license fee on each vacuum sold in United States.

James was back in the game. He raised £600,000 from Lloyds Bank after putting up his homes as collateral. Working with a team of four out of his house, he finished the design for the Dyson Dual Cyclone, aka DC-01, in May 1992. He was 31 when he had the idea in 1978; by this time, he was 45. It took fourteen long years for him to have his own product.

James forwent future £60,000 annual license payments from his Japanese partner and negotiated a lump payment of £750,000. This partially covered the £900,000 he needed to pay for DC-01 tooling. He incorporated Dyson Appliances and hired several small Italian companies to build molds for parts. He hired Philips Plastics to produce plastic parts and assemble the DC-01, and the first unit was produced in January 1993.

Business was brisk, especially with catalog companies. Orders were rolling in until Philips Plastics tried to strongarm James. It raised parts prices by 32% and retroactively back-billed months of old orders. James sued Philips and was forced to halt production. Eventually, the court ordered Philips to release molds so James could contract with other companies to produce his parts. This experience forced him to start Dyson’s first assembly facility. By July 1993, James was producing his own products.

Dyson began selling five times better than other brands and benefited from strong word-of-mouth growth. It became the best-selling vacuum in the UK.

James next shifted his focus to proper marketing and learned valuable lessons. For one thing, he learned to despise outside agencies. And he learned that with a new consumer product, you can’t sell more than one message at a time or you lose the customer's belief. He also learned that he had to establish, with zero doubt, that his product overcame a problem that his competitors all had.

These insights resulted in his famous “Say Goodbye to the Bag” campaign, and the company's growth exploded. It went from £3.5 million in revenue in 1993 to £85 million in 1996 and was named the fastest-growing manufacturing company in the UK.

James had this idea in 1978 and didn’t get clear signs of success until 1993; that’s fifteen years. His company wasn’t a breakout financial success or recognized as a leader in manufacturing until eighteen years after his initial idea. James persevered for over a decade and now owns 100% of Dyson and employs over 14,000 people (per Wikipedia).

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!

James Dyson was in a difficult spot when his board of directors fired him from his company in 1979. Luckily, he’d already been thinking about a new idea.

According to his autobiography, powder-coating dust at Kirk-Dyson was a problem. He learned that sawmills used cyclones to capture and extract sawdust, so he decided to build a thirty-foot cyclone at Kirk-Dyson for his powder-coating operation.

Around this time, he realized that vacuum cleaner bag designs limited suction because dust clogged the bag pores. As he built the Kirk-Dyson cyclone, he realized that a cyclone could solve his vacuum issue too. He created a cardboard cyclone using his old vacuum, and it worked. He had the first bagless vacuum.

He tried to persuade the Kirk-Dyson board to pursue the cyclone vacuum idea, but they refused. After being fired, he raised £25k from Jeremy Fry, used his savings, and took out a loan to launch his new company: Air Power Vacuum Cleaner Company.

Working in his home garage, James made 5,127 prototypes over three years, one painstaking change at a time. By 1982, he was frustrated, demoralized, depressed, and running out of money. He decided to license the Cyclone instead of selling it himself.

In 1982 and 1983, he talked to every manufacturer and was rejected. Eventually, Jeremy Fry’s company signed a licensing deal for £20,000 and a 5% royalty. It produced 500 units and learned a lot, but then it lost interest and sold its license.

Trying to feed his family, James was a one-man band on a mission to license the Cyclone. After three years, in 1984, he hadn’t made a penny and was going broke.

Amway Corporation reached out and they struck a licensing deal, but not before switching terms on James at the last minute. In May 1984, James signed off on the deal and got a £100,000 check. His relief was short-lived. By September, Amway was accusing him of fraud and misrepresentation. Jeremy, who was nearing retirement, didn’t want to be involved anymore. In 1985, they settled, and James repaid the £100,000. James was depressed and deeply in debt with a family to feed, but he was free from the Amway license and able to sell in the United States again.

James was in despair and questioning his own sanity for pursuing this project when Apex Inc., of Japan called after reading about James in a magazine. He struck a deal to license his design for sale in Japan, receiving £35,000 up front, a £25,000 design fee for completed drawings, and a 10% royalty with a £60,000 minimum annual payment. He lived in Japan for six weeks at a time for a year to launch the Cyclone.

The Cyclone does well, is priced at £1,200, and reaches £12 million in annual sales. But because Apex sells to wholesalers and because of how the royalty is calculated, James never sees more than £60,000 a year from the deal. He learned a valuable lesson: too many middlemen between the consumer and the manufacturer cut into his royalty payments and diminish his ability to control pricing. Everyone got rich from the deal except him.

In 1986, he met the CEO of Iona, a Canadian company. By November, they were ready to sign a licensing deal to sell in the United States to consumers when they learned that Amway had released a cyclone vacuum in the U.S. Amway had ripped off his design. James sued, claiming “misappropriation of confidential information,” and Iona pushed to renegotiate but paid James’s legal bills out of his royalties. Iona and James went head to head a bit more in a minor lawsuit but eventually settled, agreeing to split the legal costs and winnings from the lawsuit and continue working together.

In late 1990, S.C. Johnson called, and they struck a worldwide licensing deal to sell to businesses, paying James £120,000 upfront. He was selling through three licensing partners and digging himself out of debt. But he was still paying £300,000 a year for three years to lawyers to fight Amway.

James had the idea for the cyclone vacuum in 1979. It took three years and 5,127 prototypes before he had a working version in 1982. It took seven years before his first sale happened in Japan in 1986. It took almost twelve years before he had enough licensing revenue to work himself out of debt. All the while, he was emotionally strained, crisscrossing the globe, and fighting shady partners in court. But he was learning lessons from each negative experience and persevering.

His battles weren’t over, but after over a decade, things were slowly starting to turn the corner.

Prefer listening? Catch audio versions of these blog posts, with more context added, on Apple Podcasts here or Spotify here!