How to Build an Empire According to Al Micallef
Al Micallef is a serial entrepreneur with an eye for business. After launching his own premium cigar brand, he’s sharing the secrets behind his success and explaining how you can build a business empire of your own.
By Tobacco Business - December 5, 2018
Al Micallef has an innate curiosity for how businesses operate. That curiosity has driven him to invest time and resources in starting and launching new businesses in various industries. In short, the successful Texas businessman is the definition of a serial entrepreneur, with businesses in a wide range of industries, including hospitality, manufacturing and petroleum—in addition to his recent foray into the premium cigar category with the 2017 launch of Micallef Cigars. He knows his fair share about entrepreneurship and how to build a business and has a few lessons to share with those interested in building their own empires.
Foundations of Business
Micallef breaks down every business to three levels. The first is the level that you see as a consumer, the second is what you think you know about the business, and the third is where you really need to be in order to be successful in the business. While you may be familiar with some aspects of a business, every entrepreneur will reach a point in his or her journey where things will deviate from where they expected it to go at the start. That’s why it’s crucial, Micallef says, to surround yourself with talented people from whom you can learn. From his restaurants to Micallef Cigars and everything in between, it has taken a lot of talented people to help build each new venture and for Micallef to build himself a business empire.
In addition to talent, Micallef attributes success to being dedicated and committed to each business. “I think people need to understand that when they take on a business, it’s a way of life. You have to make a big commitment, whether it’s financially or from a time standpoint.”
The last piece of advice he has for others hoping to achieve his level of success is simple, but it may be the most valuable: have fun with whatever you do. Micallef confesses that while there are financial rewards associated with being successful, he has gone into each business for the fun of being successful and out of the curiosity for understanding a new business. Growing up, he struggled in school and had trouble reading. These obstacles, however, never got in the way of his desire to learn about the world around him. Just as he has had to find a way to work around obstacles getting in the way of his businesses’ success, Micallef learned how to work around his own obstacles. He’s always listening to audio books covering a wide range of topics, and he credits having a broad knowledge base for not only helping him personally but enabling him to communicate with other businesspeople and customers.
“I’ve learned that I really enjoy the way you sell cigars. Every afternoon I leave my office and go down and bullshit and smoke with all my buddies. When you’re selling, that’s exactly what you do: You go, you sit down with the owner, talk with the regulars and smoke cigars,” he explains. “If you’re familiar with a lot of stuff, then you’re able to be interested in what people have to say and can contribute to the conversation. I think that’s important.”
Finally, Micallef offers three rules that he believes can help anyone achieve success with whatever their entrepreneurial interests may be: be honest, treat people with dignity and respect, and always keep your word. These are the tenets he lives by and the foundation to any successful business empire.
A New Venture
After experiencing success in multiple business ventures, Micallef decided to try his hand at the premium cigar industry. Time spent in Fort Worth’s Silver Leaf Cigar Lounge piqued his curiosity about different aspects of the tobacco industry. A chance encounter with a Cuban couple on their way to Florida who were stranded in Texas due to car issues eventually led to the first Micallef-branded cigars being created. The couple were Joel and Edel Gomez Sanchez, whose family’s tobacco business was started back in Cuba in 1934 by Pedro F. Gomez. Joel and Edel are Pedro’s grandsons and they’ve kept the family’s tobacco farm and factory going ever since with the help of their mother, Migdalia Sanchez. The couple spent three days with him and others in Texas, and, as they were leaving, Micallef asked if they could make him 1,000 cigars. When he told them the qualities he liked in a cigar, they informed him that after watching him for three days in the lounge, they knew exactly what he liked and would set out to make him something he’d approve of.
Today, Micallef has 12 cigars bearing his name, most recently adding a new, bold line at this year’s International Premium Cigar & Pipe Retailers Association (IPCPR) trade show in Las Vegas. As with his other businesses, Micallef continually looks for ways to continue to fine-tune his product. In the beginning he partnered with the Gomez Sanchez family to help make its cigars. Even after the success he achieved and the high ratings he earned, he decided to change things up by buying his own factory because he wanted to lower the price of some of the company’s cigar products.
While he doesn’t believe the FDA truly understands the impact that some of its restrictions will have on businesses and entrepreneurs, he believes the cigar industry will be OK in the end. “We may not be wonderful, but I think we’ll be able to work our way around it, through it and continue to make it successful.”
From FW Inc., Magazine, January 2017
It’s dinnertime on a Thursday at the original Reata restaurant in downtown Alpine overlooking Texas’ Davis Mountains, the place is crowded, and owner Al Micallef is at the bar, having his usual Coke Zero. This is a roundabout spot for a kid who grew up in Detroit; hated school and founded five businesses before he graduated 12th grade; went to work for a rubber products company in his early 20s and ended up owning it; moved to escape Michigan’s high wages; chose Texas because the only radio station he raised on his old crystal set was Wolfman Jack’s; wound up in Weatherford because he stopped at the city’s DQ while en route to see a site in Mineral Wells and the guy in line behind him was Weatherford’s city manager; bought a ranch because he always wanted a ranch; opened Reata because he tired of Alpine's Pizza Hut; and went into horse racing and polo because they were big adventures. And one thing: Al Micallef loves to turn his adventures into businesses.
Dinner’s done and the ribeyes are gone from the gazebo at the rear of the Reata patio, and Micallef’s enjoying a cigar. It’s a $42 premium Micallef Reserva. Last year, Micallef was enjoying another cigar at his downtown Fort Worth hangout, the Silver Leaf Cigar Lounge, when two guys from the Gomez Sanchez family, Nicaraguan cigar makers since 1934, pulled up and broke down outside. They had cigars on them. They met Al. A partnership was born.
It’s hard to imagine that Micallef didn’t grow up in Texas, even though his accent is unmistakably Midwestern. At breakfast on his 20,000-acre CF Ranch the next morning, Micallef runs into an employee's son who’s about to graduate from high school.
“Where are you going to school?” Micallef inquires. “Probably Angelo,” the boy replies. If so, he’ll become one of the more than 250 children of employees who Micallef has put through public college and vocational schools, something he started doing after he began receiving community requests for donations.
“I thought, I love to help people, but why don’t I help the people that help me?” Micallef says later. Even if things have tightened up at some of Micallef’s businesses due to recession, supplier pressure, Obamacare and the like, this is a benefit Micallef has always retained, and it might say something about the loyalty he's built among employees, some of whom have been with him for decades.
Later in the morning, Micallef is ranging across the ranch in a Jeep Wrangler Sport, no doors, no roof, no windshield, to watch a calf castration and branding operation underway. (Queue the Rock Hudson long shot, cloud of dust.) “Yeah,” Micallef, 74, says. “The thing about not having a windshield is sometimes you get to chew on some cow shit.”
First Business: Sand and Ajax Micallef grew up in what he characterizes as a “lower middle-class” family in Michigan. His dad was a parts picker for Ford Motor Co., meaning he picked, packaged, and sent parts to dealers. His mom made custom drapes.
Al Micallef wanted more. “He has an incredibly intense mind,” says Amanda Micallef, 40, one of the three children of Al and Jane Micallef, in business in Los Angeles, having co-founded a digital magazine called Arsenic that has 1.1 million Instagram followers. “He doesn’t just buy a restaurant and pay somebody to run it. When he bought the ranch, he wanted to understand everything about the ranch, even welding the gate.”
Micallef demonstrated as much when he flew to Los Angeles for a tutorial on social media at Arsenic and ended up investing in it. “At the end of the day, he said, ‘What do you need?’” Amanda Micallef says. “We gave him a number. He said, ‘Well, I’ll give you three times that.’ He became our first investor.”
Micallef’s first business was selling a homemade mix of sand and Ajax he marketed as rust cleaner, going door to door with it in his red wagon. “My bike fenders were a little rusty,” he says. “I couldn’t have been more than 6 or 7.”
He launched his next business when his uncle gave him an 8-millimeter movie projector. Micallef had three movies, including a Hopalong Cassidy classic, and he threw parties at his home where kids could throw darts at balloons. “After about four weekends, the mothers of the neighborhood called my mother and said I was taking their kids’ allowances, so I had to get out of that business,” he says.
Because he was in Catholic school, Micallef got out of school for the summer two weeks ahead of the public school kids. So he set up lemonade stands in the neighborhood and hired other kids to work for him. Then later in high school, while working at a grocery store, Micallef came up with an idea to set up a dance club in a vacant space next door for friends. He and a partner sold cokes and potato chips and charged 50 cents cover on weekends, bringing in a D.J.
“I had a financial kind of guy who was a partner,” Micallef says. “He was what you would call a geek today.”
Micallef recalls he and his partner made $30,000 profit a year. “My father took me to a priest,” Micallef says, recalling his father never made more than $5,000 in a year. “I made that kind of money; he thought I was in a racket.”
Next, Micallef ran a Christmas tree lot, using the grocer’s parking lot. After a while, the puzzled store owner asked Micallef how he was pricing the trees. “I said, ‘By the price of the car,’” Micallef recalls. “If it’s a guy in a Cadillac, it’s a $15-$20 tree. If it’s a little family in a Ford, it would be a $3 tree.”
Micallef says he viewed opportunities differently, not knowing how to read until he was a teenager, when he taught himself. “I go to see the Marfa Lights; I think, why no popcorn and lemonade?” he says. “That’s my immediate thought process when I see something.”
One Word: Rubber Once out of high school, Micallef kept looking for ways to make money. When construction picked up in his neighborhood, he made deals with builders to lock up their houses at day's end and used that to start a heavy cleaning business.
Micallef tried college classes, but it didn’t stick. “Not even close,” he says, although he later attended TCU’s Ranch Management program and a mini-MBA at Harvard University. His best friend’s parents owned a company called Detroit Silicone Rubber Co. that was in trouble, Micallef says, and they recruited him at age 25. “I started running a department,” he says. “It didn’t take very long; I ended up taking the whole plant over.”
The “people side was easy,” he says. “The tendency was to treat workers like slaves. That’s not how I’d like to be treated.” With managers leaving, “my first duty was to walk around and ask everybody who was the smartest. Then I’d turn around and say to that person, ‘You’re the supervisor.’ I did that in every department.”
In 1971, three years later, K&M Plastics bought Detroit Silicone. The company was renamed Jamak, Inc., and the new owners promoted him to vice president and G.M. and offered 20 percent of the company for $5,000. “I can’t imagine I had it,” Micallef says. “But somehow, I got it.”
The partners set out to move the company from Michigan. Micallef focused on Texas. “When I was a little kid, I built a crystal set, and the only station I could get was Del Rio, Texas. I always thought I lived in Texas.”
Serendipity intervened. En route to Mineral Wells to look at a site, he stopped at the Dairy Queen in Weatherford and struck up a conversation with the man behind him, who turned out to be Weatherford’s city manager. “Weatherford built the plant for me, and I leased it from them,” he says.
Micallef even figured out how to make money on the move, making a number of roundtrips. Emptying his truck in Weatherford, Micallef reloaded with watermelons and sold them in Detroit.
“It’s all in the gut,” Mike Micallef, 42, another of the Micallef children – all grew up in Fort Worth – and an ex-hedge fund manager who returned to the city to help run Reata and the family’s other businesses, says of his dad. “I’m more of a numbers guy, but to him, it’s a gut feeling. You really do see how a couple of products with margin can change your profitability.”
A few years after its move to Weatherford, Jamak was ready to expand. But the city declined Jamak’s proposal, Al Micallef says. So to make a point, “the next payroll, I paid it in $2 bills. I covered the city in $2 bills. The next council meeting, they approved it.”
Micallef soon came to own 100 percent of the company, first buying one of three partners out. Two others died, but the partners had put in place buy-sell agreements that protected them from being in business with a partner’s heirs in event of a death. Micallef bought those stakes.
Fixing Jamak Jamak had $3 million in annual sales when Micallef came to work for it, he recalls. Today, the company, which specializes in silicone rubber solutions with products like gaskets, seals, and tubing, does about $20 million in sales from continuing operations, down from a peak $30 million, Micallef said. Those figures don't count sales from one operation the company sold, Micallef said.
Jamak has been buffeted by big changes in its industry and outside. “Margins shrank from pressure, dramatically, from suppliers,” one reason gross sales are off their peak, he says. And impact from Obamacare raised health premium.
Micallef had retired from day-to-day management before returning fulltime in 2012 after being away more than 10 years. He started to become more active in 2008 after recession hit.
“When I came back, I had excess inventory, too many managed disciplines that were unnecessary,” he says. “Professional managers in many cases cannot manage costs in a downturn. It’s not their money. It’s easier not to face the reality of what has to be done. When things are good, everybody’s a hero.”
Micallef pared personnel. Today, Jamak has 240-250 employees, down from 300. He also moved some production offshore, to places like China with a partner there. Jamak does about 70 percent of manufacturing in the United States today, compared to 100 percent when Obama took office, he says. “Obama forced me to automate,” Micallef says.
Micallef also decided to get rid of the $18 million in debt he had accumulated from his enterprises, including expanding manufacturing, investing in ranches since the early-1990s, and “doing all the things” like playing polo and indulging other hobbies, Micallef says.
A big chunk of the debt came from a $6-$8 million haircut Jamak took in resolving claims that resulted from a faulty part provided by a supplier. The supplier was unable to participate in paying the claims, so Jamak shouldered them. “It would have been much easier for me to bankrupt the company than to pay off the obligations,” Micallef says. “We paid off the obligations.”
Micallef, who began buying ranchland in the mid-1990s and built to 156,000 acres, started selling in 2009 to cash in on high prices and eliminate the debt.
Today, Micallef has a remaining 20,000 acres, all around Alpine, and he estimates he had a $5 million basis in the $18 million worth of ranchland he sold. “I wrote a check, and I hunkered down and rode out the recession,” says Micallef, who today remains debt-free.
Where Rubber Meats the Rode If Micallef says he remained away from Jamak for too long, it was because he was making money at his other enterprises.
Micallef opened the Alpine Reata in 1995 in an old house. A year later, he was talked into opening a second Reata at the top of the Bank One Tower in downtown Fort Worth, after a bank executive visited Micallef at the ranch to talk him into it. “I said, ‘I’m not in the restaurant business; I just wanted a place to eat,’” Micallef says.
But he invited the executive, a friend, to stay at the ranch and eat at Reata for a week. The executive stayed; Micallef relented. “We got a really good deal,” Micallef says, declining to specify terms. The restaurant was almost immediately profitable.
Reata opened two restaurants in Southern California that didn’t survive. Its Fort Worth restaurant was destroyed when a tornado hit the building in 2000, but Reata reopened in 2002 in the former Caravan of Dreams downtown, launching a lucrative catering business in the interim, in part, to keep his people on. “He didn’t want to lay anybody off,” Amanda Micallef says. Al Micallef estimates the Reata Fort Worth operation does about $12 million in annual sales today, one quarter from catering. The restaurant is considering opening a second location in Fort Worth.
Micallef’s first major foray into ranching occurred when he and partners bought ranches and 20,000 head of sheep in Utah and Wyoming more than 25 years ago. “We had genetics in our boars that would throw triplets every time,” Micallef says. The problem: “A lot of the breeds we had could not feed and raise three babies. The advantage we had disappeared. We sold off everything.”
A short time later, Micallef threw in again, this time buying 10,000 acres in Alpine, a base that grew to 156,000 acres.
The remaining ranch property is branded CF Ranch. Today, it’s running about 500 head of cattle, off the 14,000-15,000 peak from 15 years ago, before Micallef downsized the operation during a sustained drop in prices. Cattle prices are more than double what they were 10 years ago. “We could be extremely profitable if we had as many head as we did,” he says.
Micallef has worked to exploit most of the potential revenue streams from the ranches. It’s dividing CF’s 11,000-acre Sierra La Rana ranch in Alpine into small ranches of 10-150 acres. Of the original 108 lots, 49 are left. “I paid $2 million for it,” Micallef says. “Over 30 years, it could be a $150 million asset for my family.”
CF Ranch also sells water from its underground aquifers, runs hunts and photo safaris, rents the property for film, TV, and print work, and special events like weddings, and raises and sells koi and desert plants. The property, which has populations of elk, mule deer, Barbary Sheep, antelope, javelina, feral pigs, and one reluctant buffalo that’s eluded hunters for years, has a modest amount of for-rent lodging.
Micallef won't drill on the property, nestled among the Davis ranges. “I’m against exploration,” Micallef says. “There’s limestone and oil and gas for sure. But there’s this overburden of igneous rock that inhibits the 3D seismic. When you’re drilling, you’re purely wildcatting.”
If the family’s business portfolio seems like a mish-mash, Mike Micallef says the businesses bear similarities. “If you’re making a part or a recipe, it’s all the same thing,” he says. “The breakeven on cattle or a recipe, it’s the same thing.” Sarah Micallef, the youngest of the Micallef children at 38 and representative of the cigar business in Southwest Texas, says “innovation and new product” is part of what’s connected the businesses and passions.
“I struggled with school; he comes up with problem-solving intuitively,” she says.
CF Ranch still bears the traces of some other Micallef hobbies-turned-businesses, like the barns he built for thoroughbreds, the polo fields, and shooting range. Micallef has converted a building into a museum for his artifacts, which show off his other pursuits, like auto racing, sailing, and flying. His love of flying – he’s still a licensed airplane and helicopter pilot, even though he’s sold off his planes – led to a side business called Flight Services.
Various businesses and hobbies sucked in the Micallef family at different times. “The whole family would get immersed, and suddenly we were off on this new adventure,” says Amanda Micallef, who played polo with her brother and dad.
Once, her dad raced a Ford Bronco from Cartagena to Buenos Aires, only to end up in the hospital five days with a stomach ulcer he got from popping too many aspirin. Micallef got into horses as a business to use the ranch more effectively. He bought and sold yearlings and raced horses, winning the industry’s NATC annual race considered the Kentucky Derby for two-year-olds. “I lost a substantial amount of money in that business,” Micallef says. “I left about $5 million in that area. It wasn’t as bad as it sounds.” Correcting himself, he adds, “well, that’s not true. That’s not true.”
If polo was a money-suck, Micallef says he covered that by going into farms at the same time. “We made a lot of money buying and selling farms,” he says. “I covered the costs of polo.”
Staying Young Micallef thinks his unexpected cigar business can surge. Micallef, who lives in Southwest Fort Worth with his wife, a few steps from their son's home, starts the day in Weatherford but is usually at Silver Leaf by midafternoon.
“I’m 74,” he says. “It’s not a smart thing to start a business of this magnitude at this point in your life. This is a 10-year project to do it right.”
An employee he recruited to help run the business is in Nicaragua, learning from the Gomez Sanchez operation. Micallef has two-thirds of the business. “Staying active mentally and physically creates longevity,” Micallef says. “I think this could be a $20 million cigar business in the next five to eight years.”
Micallef has set the family business up for the future. The family’s holdings, upon their parents’ deaths, would go into a trust to be managed by Mike Micallef.
Al Micallef gets invitations occasionally to speak to students. Lessons he tells them he's learned: “I let enthusiasm and curiosity rule my decisions rather than good solid business practices. And a lesson I still haven’t really learned is how to say no.”
On this visit to Alpine, Micallef, at the Fort Davis Drug Store for a burger at lunch, runs into a former employee who helped introduce Micallef to an investment opportunity he’s been in for years: a group exploring in the Phillippines for a huge gold cache supposedly hidden by the Japanese during World War II.
Micallef admits to no regrets. “I was watching TV with a really attractive girl, and I fell asleep,” he'll joke if asked this question. “Honestly, I don’t have any regrets.”