Stephen Schwarzman, Blackstone Group: Lessons in the Pursuit of Excellence (Part II)

Stephen Schwarzman, Blackstone Group: Lessons in the Pursuit of Excellence (Part II)

He reflects a variation of the theme of “go big, or go home. Schwarzman states, “If you’re going to commit yourself to something, it’s as easy to do something big as it is to do something small. Both will consume your time and energy, so make sure your fantasy is worthy of your pursuit, with rewards commensurate to your effort.” [25]

What is his view on negotiations? “A lot of people fail because they start from a position of self-interest. What’s in this for me? They will never get to do the most interesting and rewarding work. Listening closely and watching the way people talk puts me much closer to answering the question I’m always asking myself, which is: How can I help? If I can help someone and become a friend to their situation, everything else follows.” [77] Further, “And the best way to get what you want is to figure out what’s on the mind of the person who can give it to you.” [182]

Schwarzman doesn’t shy away from discussing mistakes and failure. He waxes philosophical: “My early mistakes on Wall Street….had taught me the importance of rigor, eliminating risk, and asking for help.” [87] Failures are opportunities to learn. “Failures are often the best teachers in any organization. You must not bury your failures but talk about them openly and analyze what went wrong so you can learn new rules for decision making. Failures can be enormous gifts, catalysts that change the course of any organization and make it successful in the future.” [149-150] “The final change we made to depersonalize and derisk our investment process was to encourage a greater sense of collective responsibility.” [153]

He discusses some specific cases where he wishes he could do a reset. He gives the example of a fellow who worked with him named Larry Fink. Larry wanted more, despite an agreement. “I believed that once you signed something, you stuck to it, but in retrospect, I should have put the contract aside and accommodated Larry’s request.” [172] “Selling that business was a heroic mistake, and I own it.” [172] “I stood my ground…Instead, I should have recognized that when a situation changes and a business is doing extremely well, somethings you have to make accommodations.” [173] Another example is regarding Mike Bloomberg, erstwhile mayor of New York. Mike Bloomberg was looking for a long-term investor. “It was a huge miss, which I never forgot. Our $100 million investment would have ultimately grown to over $8 billion.” [281]

Where to focus your energy? “If something’s easy, there will always be plenty of people willing to help solve it. But find a real mess, and there is no one around. If you can clean it up, you will find yourself in rare company. People with tough problems will seek you out and pay you handsomely to solve them.” [109]

Timing is important and seizing the moment. Schwarzman recounts that “I had come to understand that success is about taking advantage of those rare moments of opportunity that you can’t predict but come to you provided you’re alert and open to major changes.” [113] “A few times in every investor’s life, an immense opportunity appears.” [140] A valuable life lesson generally, no doubt.

If your business involves selling, persistence is the key. “You’ve got to sell your vision over and over again. Most people don’t like change, and you have to overwhelm them with your argument, and some charm. If you believe in what you’re selling and they say no, you have to presume that they don’t fully understand, so you give them another opportunity.” [113]

“To be successful you have to put yourself in situations and places where you have no right being in. You shake your head and learn from your own stupidity. But through sheer will, you wear the world down, and it gives you what you want.” [133]

What about risk-taking? Schwarzman also emphasizes that his #1 Rule is don’t lose money! “At Blackstone, the decision to invest is all about disciplined, dispassionate, and robust risk assessment.” [157]

The financial crisis of 2008-09 created challenges. He explains that in the midst of the financial crisis and the government and treasury, led by Hank Paulson, Head of Treasury, were trying to figure out what to do. They called on his help. Paulson later thanked him. “What an amazing thing, I thought. I have been helpful here.” [260] During the global financial crisis, the stock price fell from $31 at the time of the IPO to a low of $3.55 in Feb 2009. [263] They had prepared well, however, with $27 billion in “dry powder to invest” [263]

Blackstone avoided and benefited from the housing crisis. “Our real estate team saw an opportunity to consolidate and professionalize the sector.” [275] “Within a few months, we were buying $125 million worth of homes every week.” [276] [they ended up owning 50,000 homes]

He confirms some things we know about networking and connecting, but likely not practiced enough. “Life is long, and helping people when they need it often comes back to you in ways you least expect it. You never forget the friends who came to your aid in tough situations.” [265] The reality is that most people when they see a train wreck look the other way. When there is a contentious situation, they back off. When there is a price to friendship, few people pay it.