Stephen A. Schwarzman, chairman, CEO, co-founder and largest shareholder of Blackstone, the large, highly successful NYC-based investment firm, wrote the highly acclaimed book What It Takes. It alternates between business insights and “war stories.” However, my review will emphasize the business considerations, as they bear more value to us business readers.
Born in 1947 in Abington, outside of Philadelphia, Schwarzman went to Yale and then Harvard Business School. After a brief job stint at Donaldson, Lufkin and Jenrette (DLJ) in 1969, he enlisted in the army in 1970. His formative years as an investment banker were with Lehman Brothers from 1972 to 1985, where he met Pete Peterson, another Wall Street legend, with whom he founded Blackstone in 1985. The new firm got its name from a combination of “black” from Schwarzman and “stone” from Peterson.
Blackstone went on to experience a truly unique success story, from which Schwarzman extracted seven main lessons, which he shares in this book:
1) On Entrepreneurship
Schwarzman sees three tests to identify good entrepreneurs:
Their business idea must be big enough to be worth it (i.e., it must have a sufficient upside).
The business idea must be truly unique. In particular, the potential customers must whole-heartedly declare, “I need this!”
The timing must be right—neither too early nor too late.
Entrepreneurs also need to put in an extraordinary amount of work–blood, sweat and tears! They might even need to be somewhat paranoid. Furthermore, finding good people to join the team is also critical because it increases the likelihood that the firm might then grow from a scrappy start-up to a well-managed growth firm.
2) On Investing through Ups and Downs
Understanding the relevant business cycle underlying a particular business is important. A successful investment will greatly depend upon where the business is in this business cycle, as it will impact when to invest (get in) and when to exit (get out). In that regard, Schwarzman provides a few simple rules for recognizing the tops and bottoms of cycles. When approaching the top of a cycle:
Many actors tend to become overconfident.
A lot of capital is available, typically cheaply.
Many people get rich fast (the growth of the “nouveau riche”).
Identifying the bottom of a cycle is relatively harder. Therefore, Schwarzman’s approach is to invest only when an asset’s value has somewhat recovered from its trough, such as by a 10% appreciation. But when it comes to getting in, a flock mentality must be resisted—if such a groundswell movement to invest is taking place, then it may be too late!
3) Develop an Investment Process
The trivial idea is to never lose money. How Schwarzman operationalizes the steps to doing so is interesting:
Create a framework to assess the key risks.
Ensure all members on Blackstone’s investment committee actively participate in assessing every project emotionlessly. Junior and senior committee members have equal say!
Ensure all investment committee members act as if they are owners of the firm in this joint assessment process.
Align the incentives among all members of the investment committee—in the case of success, all get a fair share.
Have committee members learn and accumulate experience when it comes to assessing projects.
4) Finding New Talents: Interviewing
To attract highly motivated talents, Schwarzman highly emphasizes an orderly interview process and evaluates interviewees on their success in eight areas:
Being on time.
Being authentic.
Being prepared.
Being candid.
Being confident.
Being cautious.
Not discussing potentially divisive issues (politics, values, etc.) unless asked.
Mentioning people the interviewee knows and respects only if he or she likes them. This might actually reveal the candidate’s tastes—selective name-dropping is okay!
One interview comes to mind involving a job applicant being interviewed by a leading food company’s top executive. The senior executive was Latin American and always impeccably dressed in a dark suit. The young applicant forgot his bag with his dark suit on the train. (Typical job interview anxiety!) Thus, he had to show up informally dressed, in blue jeans and a T-shirt. But he was able to send an email to this effect immediately before the interview. He did not speak Spanish but had memorized two opening sentences in Spanish, saying good morning and asking if the rest of the interview could be conducted in English. The senior executive agreed to this, of course. In the end, the young applicant got the job. He indeed followed Schwartzman’s advice and was authentic, prepared, candid and confident!
5) A Healthy Corporate Culture
The corporate culture in many high-performing Wall Street firms is regrettably rather egocentric; while everyone might be expected to fully contribute to a firm’s success, they may get away with being highly self-serving when it comes to this and work in fully their own way. Schwarzman warns that this tendency must not be allowed to be taken too far. A corporate culture must have a team aspect—a “we, we, we” dimension, as we see in Blackstone’s investment committee’s operations. Here are four ameliorating principles for dampening “me, me, me” tendencies:
No back-biting or bullying.
Avoid excessive individual greed. Schwarzman alleges that greed had become a dominant driving factor at Lehman Brothers and eventually contributed to his departure from the firm.
Be willing to change behavior in light of new information. Prestige should be avoided, and open-mindedness should be encouraged.
It is OK to ask for help! What matters in the end is a clear commitment to push for excellence and to have the integrity to try to make this happen. Asking for help is not a weakness.
6) Stress Management
Deal-making typically causes a lot of stress for the key actors. Schwarzman must have had his fair share of this stress, although it is amazing to read about how smoothly he executed a wide variety of deals, some of which were very complex. This feat in itself is truly impressive! Schwarzman’s recommendations for handling stress are:
Practice slow breathing.
Lower your shoulders.
Slow down.
7) Focus on the True Essentials
A leader and his/her team might have many factors on which to focus, but only a few factors are truly critical. These are the “make or break” factors, and a good leader should have the ability to identify and solely focus on them. Such a leader should try to avoid the “fine print” in the pile of paperwork associated with any given deal; a good leader will thus be able to focus on what is truly essential. a less experienced leader might work just as hard as an experienced one but focus on too many non-essential factors. This may sometimes be due to more than a lack of competence or experience—it may be a lack of leadership talent or due to escapism.
Concluding Observations
Schwarzman has written a truly remarkable book demonstrating that professional excellence comes with a much broader set of commitments than just narrow professional work tasks. A keen political interest (i.e., in China) and idealistic commitments (to education) made Schwarzman a much more well-rounded individual. As Mark Carney, the governor of the Bank of England, said, “This story literally has all what it takes: the anecdotes, the insights, and most of all, the values to guide the next generation of entrepreneurs.”
Comments