What It Takes

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~This page is still under construction~

Author:: [[Stephen Schwarzman]]
Reading Status:: [[Books Read]]
Tags:: #Books #[[Private Equity]]
Key Takeaways::

Do things worth doing when you consider both the best possible outcome and the risk-adjusted likely outcomes

“But I’ve always believed that it’s just as hard to achieve big goals as it is small ones. The only difference is that bigger goals have much more significant consequences. Since you can tackle only one personally defining effort at a time, it’s important to pursue a goal that is truly worthy of the focus it will require to ensure its success.”
Observing my father at Schwarzman’s and all the businesses and entrepreneurs I had advised subsequently, I had reached an important conclusion about starting any business: it’s as hard to start and run a small business as it is to start a big one. You will suffer the same toll financially and psychologically as you bludgeon it into existence. It’s hard to raise the money and to find the right people. So if you’re going to dedicate your life to a business, which is the only way it will ever work, you should choose one with the potential to be huge.

Education is a lifelong discipline, not a short stop along the journey of life

In the final speech I made as student council president, I laid out a philosophy on [[Education]] that has remained remarkably consistent throughout my life: I believe that education is a discipline. The object of this discipline is to learn how to think. Once we have mastered this we can use it to learn a vocation, appreciate art, or read a book. Education simply enables us to appreciate the ever-changing drama fashioned of God’s own hand, life itself. Education continues when we leave the classroom. Our associations with friends, our participation in clubs all increase our store of knowledge. In fact, we never stop learning until we die. My fellow officers and I just hope that you will become aware of the purpose of education and follow its basic tenets, questioning and thinking, for the rest of your life.

There are training grounds and there are arenas. Understand what type of place you're in at different points in your career

We talked in his office for an hour or so. At the end, he said, “Steve, you’re an interesting guy. If you want to work at Lazard, I’ll make you a job offer right here on the spot. But I advise you not to take it.” “Why?” “Because at Lazard, there are two types of people: masters like me and slaves like you would be. I don’t think you’d be happy being a slave. You should go work at Lehman Brothers, let them train you, and then come here to Lazard as a master.” When I flew back to Boston, Ellen asked me how it had gone. “Rohatyn made me a job offer. Then he told me not to take it. It’s crazy down there.” So I went to Lehman to be trained, to sit in the middle of Wall Street with feeds running in from around the world, to be a telephone switchboard. #[[Theory of Masters]]
Painful as it was, Lehman was the school I needed. Like any other craft, finance has to be learned. As Malcolm Gladwell pointed out in his book [[Outliers: The Story of Success]], the Beatles needed to go to Hamburg from 1960 to 1962 to transform themselves from a garage band into the Beatles, and Bill Gates spent hours as a teenager on the computers at the University of Washington close to his house before he could write the software for the first PCs. ^^**Similarly, people who succeed in finance must start with repetitive practice before they can ever hope to achieve mastery. At Lehman, I observed every step of the process and was trained in all details, any one of which, done wrong, can bring everything crashing down.**^^
“I want to work with large companies again,” said Pete. Since leaving Lehman, he had started a small firm that did small deals. “I just want to work with Pete again,” I said. I was thirty-eight, and the money I had made at Lehman had provided for my young family. By now, we had two children, Zibby and Teddy, both healthy and going to great schools. We had an apartment in the city and a house near the beach. Professionally, I had reached a point where I wanted to start my own business. I felt I had learned enough and acquired enough personal and professional resources to make a success of it.

Everyone needs the defining moment in their career where they mess up so massively that it haunts them every time they go to do something

I had prepared the financials, laying out the various options. Eric would be presenting. Compared to the huge teams at investment banks today, banks then were much smaller. There wasn’t the diligence, checking and rechecking of presentations. When we got settled on the plane, I handed my work to Eric. As he turned the first page, his brow began to furrow. He looked at the next page even more quizzically. After the third page he said, “Steve, I think you’ve made an error.” I had gotten one number wrong early on, and it had affected my calculations on about half the pages. “This is a mess,” said Eric. “But we can give the presentation anyhow. Just take out the bad pages, and I can talk my way through the rest of it. It’s okay.” Herman Khan had been outraged because of a typo. Now I had messed up an entire deal book. Eric buried himself behind his newspaper while I tore out the offending pages in all the copies of the presentation. We landed in St. Louis and took a cab to the company, Eric still silent. We sat down at the board meeting, and Eric passed out our booklets. There was some introductory talk. Then he began his presentation. “As you can see from the analysis . . . I think we have a statistical error.” As he spoke, he all but launched himself across the table grabbing our presentation books from the board members. “I can talk you through this without any numbers.” I had been so freaked out by my mistake that instead of tearing out the bad pages, I had torn out the good ones. I could have melted under the table. We left the company, got in the cab, and rode back to the airport. Not a word. Right before they called the plane, Eric turned to me: “If you ever do that to me again, I’m firing you on the spot.”
There are people who come to finance from other professions, from law or the media perhaps, but the best I’ve ever worked with grew up in it. They learned by doing the fundamental analysis. They established strong foundations for their careers by discovering that the smallest things matter and suffering the indignity of their early mistakes.
^^**My early mistakes on Wall Street, the typos and calculation errors, and the embarrassment that followed, had taught me the importance of rigor, eliminating risk, and asking for help.**^^ Today on Wall Street, you can do many of the calculations with a keystroke that we used to have to do by hand. But learning the way I did, I saw the intricate ways in which deals can be structured, the subtleties that must be negotiated. Mastery like that takes experience, endurance, and tolerance for pain. And it yields the greatest rewards.
I got a phone call from the chief investment officer of Presidential Life, which had invested in our fund. He wanted to see me. I took a cab to his office in Nyack, on the Hudson above New York. He asked me to sit down and started screaming at me. Was I a complete incompetent or just stupid? What kind of imbecile would squander his money on something so worthless? How could he have given a dime to someone as inept as I was? As I sat there absorbing the punishment, I knew that he was right. We were losing their money because our analysis was flawed. I was the person who had made the decision. I don’t think I have been as ashamed as that in my life before or since. Even messing up those deal book numbers for Eric Gleacher as a first-year associate at Lehman didn’t compare. I wasn’t capable. I wasn’t competent. I was a disgrace.

"Adapt of Die" #[[Bifurcation of Investing]]

The third and final way we thought about building our business was to keep challenging ourselves with an open-ended question: Why not? If we came across the right person to scale a business in a great investment class, why not? If we could apply our strengths, our network, and our resources to make that business a success, why not? Other firms, we felt, defined themselves too narrowly, limiting their ability to innovate. They were advisory firms, or investment firms, or credit firms, or real estate firms. Yet they were all pursuing financial opportunity. #[[Bifurcation of Investing]]

How to Run an Investment Team #[[Build a Fund]]

Finance is full of people with charm and flip charts who talk so well and present so quickly you can’t keep up. So you have to stop that show. Decisions are much better made through systems designed to protect businesses and organizations than through individuals. We needed rules to depersonalize our investment process. It could never again rely on one person’s abilities, feelings, and vulnerabilities. We needed to review and tighten our process. #[[Investing 101 2.0]]
We decided to involve all of our senior partners in our discussions of investments. We would never again allow one person single-handedly to green-light a deal. During my career, I had gotten things more right than wrong, but Edgcomb had shown that I was far from infallible. My colleagues had decades of experience. By working together, arguing and applying our collective wisdom to evaluate an investment’s risks, we hoped we could examine our deals more objectively. #[[Collaboration]]
The senior partners would sit on one side of the table and the internal team presenting a deal on the other. Around us would be the junior members of our teams, who were expected to watch, learn, and contribute.
The same small groups of people, who know each other well, go over each investment applying the same rigorous standards. This unified approach to investing has become the backbone of the Blackstone way.
At Blackstone, investment committees are about discussion and discovery, not about getting a deal approved. Because the decision to move forward or not is made together, no one feels pressured to sell a deal just because he or she brought the idea. Similarly, there is no pressure to approve a suboptimal deal as consolation for a deal team’s hard work in sourcing and analyzing the investment in question. If we make an investment and it goes wrong, we all got it wrong, and we are all responsible for fixing it. And when we are right, which is more often the case, we reap the rewards together.
There were many other great aspects to our culture. Every Monday morning, for example, all of our investment teams gathered to talk about their deals and their context, starting at 8:30 a.m. and running until early afternoon. We discussed the global economy, politics, conversations with our investors, media, any issues that might affect the business. Then we went through a list of live deals, sharing our insights and ideas from our different activities around the world. ^^**Everyone could attend.**^^ Those who had something relevant to say were encouraged to say it, whatever their age or rank within the firm. All that mattered was the quality of their thinking. To this day, Monday mornings remain the clearest demonstration of our commitment to transparency, equality, and intellectual integrity.
The number of people now attending our Monday morning meetings made our lawyers nervous. They worried that too many people knew too much. But Tony and I refused to change what we were doing. If we started eliminating people, how would they ever absorb our investment process? Almost everyone else in finance was stovepiped: they could see only what was going on in their own narrow slice of the industry. Our Monday morning meetings allowed people from every part of the firm to see how the specialists in other parts thought and acted, and we’ve never had a breach in confidentiality.
Asset management firms are so dependent on people and personalities that succession often becomes their Achilles’ heel. One generation stays on too long, the next generation gets tired of waiting, and firms lose momentum. Regaining that momentum is always much harder than sustaining it. So if leaders don’t want their organization to tire, they have to start working on succession when their drive, their intellect, and their competitiveness are yet to peak. #[[Build a Fund]] #Succession
You are not alone here, so don’t wear the weight of the world. Every tough decision has been made at Blackstone by someone. What may seem new to you, won’t be new to the institution. Just ask for help. We make decisions as a team, and we own the outcome as a team. That applies just as much to the people running our biggest businesses as it does to our most junior staff.

Notes::

“But I’ve always believed that it’s just as hard to achieve big goals as it is small ones. The only difference is that bigger goals have much more significant consequences. Since you can tackle only one personally defining effort at a time, it’s important to pursue a goal that is truly worthy of the focus it will require to ensure its success.”
“Every entrepreneur knows the feeling: that moment of despair when the only thing you are aware of is the giant gap between where you find yourself and the life and business you imagine. Once you succeed, people see only the success. If you fail, they see only the failure. Rarely do they see the turning points that could have taken you in a completely different direction. But it’s at these inflection points that the most important lessons in business and life are learned.” #Failure
“The best executives are made, not born. They absorb information, study their own experiences, learn from their mistakes, and evolve.” #Learning
In college, I studied hard, pursued adventure, and initiated projects to improve our community. I learned to listen to people, pay attention to what they want and need even when they don’t say it, and be fearless when it comes to tackling difficult problems.
Finance proved to be the means for me to learn about the world, form relationships, tackle significant challenges, and channel my ambition. It also allowed me to refine my ability to simplify complex problems by focusing on only the two or three issues that will determine the outcome.
Blackstone is a remarkable success because of our culture. We believe in meritocracy and excellence, openness and integrity. And we work hard to hire only people who share those beliefs. We are fixated on managing risk and never losing money. We are strong believers in innovation and growth — constantly asking questions in order to anticipate events so that we can evolve and change before we are forced to. There are no patents in finance. A good business with high profits today can be a poor business with low profits tomorrow. Because of competition and disruption, if all you rely on is a single line of business, your organization may not survive. We have assembled an extraordinary team at Blackstone, driven by a common mission to be the best in the world at whatever we choose to do. With a benchmark like that, it’s always easy to measure where we stand. #Culture
Whether it’s building a first-of-its-kind student and cultural center on Yale’s campus, or establishing a college to make MIT the first artificial intelligence–enabled university in the world, or designing an initiative at Oxford to redefine the study of the humanities for the twenty-first century, the projects I work on these days focus on applying resources to change paradigms in a way that will have an impact on lives, not just the bottom line.
When people ask me how I succeed, my basic answer is always the same: I see a unique opportunity, and I go for it with everything I have. And I never give up.
Today, I understand. You can learn to be a manager. You can even learn to be a leader. But you can’t learn to be an [[entrepreneur]].
If you want something badly enough, you can find a way. You can create it out of nothing. And before you know it, there it is. But wanting something isn’t enough. If you’re going to pursue difficult goals, you’re inevitably going to fall short sometimes. It’s one of the costs of ambition.
In the final speech I made as student council president, I laid out a philosophy on [[Education]] that has remained remarkably consistent throughout my life: I believe that education is a discipline. The object of this discipline is to learn how to think. Once we have mastered this we can use it to learn a vocation, appreciate art, or read a book. Education simply enables us to appreciate the ever-changing drama fashioned of God’s own hand, life itself. Education continues when we leave the classroom. Our associations with friends, our participation in clubs all increase our store of knowledge. In fact, we never stop learning until we die. My fellow officers and I just hope that you will become aware of the purpose of education and follow its basic tenets, questioning and thinking, for the rest of your life.
“Mr. Schwarzman, I want to talk to you about your papers.” “There’s really nothing to talk about,” I said. “Why is that?” “I had nothing to say, and I said it poorly.” “My God, you’re not stupid. I couldn’t have put it any better myself. So I have to teach you how to write, and after that, I’ll teach you how to think. Because you can’t learn both at the same time, I’ll give you the answers to the next several essays and we’ll concentrate on the writing. Then we’ll concentrate on thinking.”
Shortly before I graduated, I was asked in a job interview what I wanted to be. I didn’t have a conventional answer. “I want to be a telephone switchboard,” I told my interviewer, “taking in information from countless feeds, sorting it, and sending it back out into the world.” #[[Information Hoarder vs. Producer]]
After we had spoken for a few minutes about the possibility of my going into politics, Harriman said, “Young man, are you independently wealthy?” “No, sir. I’m not.” “Well,” he said, “that will make a great difference in your life. I advise you, if you have any interest in politics whatsoever, to go out and make as much money as you can. That will give you independence if you ever decide you want to go into politics. If my father wasn’t E. H. Harriman of the Union Pacific Railroad, you wouldn’t be sitting here talking to me today.”
I had gone to see Harriman for advice on what to do with my life. He had told me I could do anything to which I set my mind. At some point in life, we have to figure out who we are, he said. The sooner we do it the better, so we can pursue the opportunities that are right for us, not some false dream created by others. But if I was going to turn my worthy fantasies into reality, to become a telephone switchboard filled with inputs, I’d need money.
“Tell me,” said Bill, “why do you want to work at DLJ?” “Frankly, I don’t know much about what DLJ does,” I said. “But it seems you’ve got all these amazing young people working here. So I want to do whatever they’re doing.” Bill smiled and said, “That’s as good a reason as any.”
Even today, say the word Genesco and I can feel moisture trickle down my back, the fear that at any point someone will walk in, ask me a question, and expose me as a fraud. Here was a world in which huge amounts of money were at stake, yet no one even bothered to train new people. They assumed we were smart enough to figure it out. That seemed like a crazy approach to me.
One evening, I invited a woman out for a date. When I picked her up, she was wearing a mink coat. At dinner, I kept staring at the menu while she ordered, hoping she didn’t realize that I could afford an appetizer and dessert only for her, not both of us. I had just enough money afterward to drop her off in a cab. After we said good-bye, I walked home fifty blocks wondering when my life would change.
After a few weeks, I concluded that Harvard Business School was teaching only one idea, disguised as different courses. The lesson was that everything in business relates to everything else. For a business to succeed, each part has to work on its own and with all the other parts. It’s a closed, integrated system, organized by managers. #[[Systems Thinking]] #[[Investing 101 2.0 Wiki]]
“You’ve got teachers who can’t teach, students who can’t learn, and an outmoded curriculum. And the administration is extremely ineffective.” I gave him examples of each and proposed solutions. #Education
It was obvious to me, I told him, why HBS was going downhill. “I told you what’s going on. I even suggested how you might solve it. And you have no interest whatsoever,” I said. “I’m really sorry I stopped in to try to help you.” “I think that’ll be enough,” said Fouraker. He took my argument as an affront. I didn’t think I was smarter than the dean, but I did have a different perspective from down in the trenches of student life. Despite the school’s shortcomings, I had come to care about Harvard Business School. Through her job, Ellen had formed a similarly dim view of the teaching and the caliber of the students, which also informed my suggestions for the dean. My only mistake was to think he might value my honesty. But he didn’t even want a conversation. #[[Spirit of Humility]]
As long as you can be honest and rational and are able to explain yourself, there is no reason to feel uncomfortable. No one person, however smart, can solve every problem. But an army of smart people talking candidly with one another will. #[[Radical Candor]]
The chairman, Frederick Ehrman, was wearing a very un–Wall Street cowboy belt with a big silver buckle and told us we would be interviewed in pairs: two interviewees rotating through pairs of partners in forty-five-minute sessions through the day. This pairing strategy, I thought, could end in disaster, with two interviewees dueling to outshine each other. If I were my most super competitive self through nine interviews, we’d end the day with blood on the carpet, so I figured the best approach was to be generous and friendly with my partner, a woman my own age. It turned out I was right: the firm rejected the people who fought and competed during their interviews. Those who cooperated received offers. #Collaboration
Those early encounters and friendships have a way of reappearing throughout your life.
We talked in his office for an hour or so. At the end, he said, “Steve, you’re an interesting guy. If you want to work at Lazard, I’ll make you a job offer right here on the spot. But I advise you not to take it.” “Why?” “Because at Lazard, there are two types of people: masters like me and slaves like you would be. I don’t think you’d be happy being a slave. You should go work at Lehman Brothers, let them train you, and then come here to Lazard as a master.” When I flew back to Boston, Ellen asked me how it had gone. “Rohatyn made me a job offer. Then he told me not to take it. It’s crazy down there.” So I went to Lehman to be trained, to sit in the middle of Wall Street with feeds running in from around the world, to be a telephone switchboard. #[[Theory of Masters]]
Being a strong and accurate assessor of talent is perhaps one of the most critical skills required of any entrepreneur. #Talent
In reality, this is all an exercise in evaluating their ability to deal with uncertainty. Finance, and investing especially, is a dynamic world in which you must adjust to new information, people, and situations quickly. If a candidate doesn’t demonstrate the ability to connect, engage, pivot, and change course within the bounds of a conversation, chances are that person won’t fare well at Blackstone. #[[Investing 101 2.0]]
“Let’s start this meeting over, Mr. Schwarzman. You say, ‘Mr. Putnam, you’re the treasurer of Harvard University, and I’m starting the largest — what will be the largest — student loan lending business in the United States, and I’ve got you down for $ 20 million.’ Now, say that.” I said it. By the end of my university pitches, I had raised the better part of the $100 million, the money that founded Sallie Mae. Putnam gave me a lesson in raising money that would stay with me throughout my career as I raised fund after fund at Blackstone. ^^**Investors are always looking for great investments. The easier you make it for them, the better for everyone.**^^ #Fundraising
I had prepared the financials, laying out the various options. Eric would be presenting. Compared to the huge teams at investment banks today, banks then were much smaller. There wasn’t the diligence, checking and rechecking of presentations. When we got settled on the plane, I handed my work to Eric. As he turned the first page, his brow began to furrow. He looked at the next page even more quizzically. After the third page he said, “Steve, I think you’ve made an error.” I had gotten one number wrong early on, and it had affected my calculations on about half the pages. “This is a mess,” said Eric. “But we can give the presentation anyhow. Just take out the bad pages, and I can talk my way through the rest of it. It’s okay.” Herman Khan had been outraged because of a typo. Now I had messed up an entire deal book. Eric buried himself behind his newspaper while I tore out the offending pages in all the copies of the presentation. We landed in St. Louis and took a cab to the company, Eric still silent. We sat down at the board meeting, and Eric passed out our booklets. There was some introductory talk. Then he began his presentation. “As you can see from the analysis . . . I think we have a statistical error.” As he spoke, he all but launched himself across the table grabbing our presentation books from the board members. “I can talk you through this without any numbers.” I had been so freaked out by my mistake that instead of tearing out the bad pages, I had torn out the good ones. I could have melted under the table. We left the company, got in the cab, and rode back to the airport. Not a word. Right before they called the plane, Eric turned to me: “If you ever do that to me again, I’m firing you on the spot.”
Painful as it was, Lehman was the school I needed. Like any other craft, finance has to be learned. As Malcolm Gladwell pointed out in his book [[Outliers: The Story of Success]], the Beatles needed to go to Hamburg from 1960 to 1962 to transform themselves from a garage band into the Beatles, and Bill Gates spent hours as a teenager on the computers at the University of Washington close to his house before he could write the software for the first PCs. ^^**Similarly, people who succeed in finance must start with repetitive practice before they can ever hope to achieve mastery. At Lehman, I observed every step of the process and was trained in all details, any one of which, done wrong, can bring everything crashing down.**^^
There are people who come to finance from other professions, from law or the media perhaps, but the best I’ve ever worked with grew up in it. They learned by doing the fundamental analysis. They established strong foundations for their careers by discovering that the smallest things matter and suffering the indignity of their early mistakes.
Wall Street and business are small worlds. If you start at a great school or a big firm, crossing paths with the best people of your generation, you’ll keep running into them. Many of the friends I made at Yale, Harvard Business School, the Army Reserves, and in those early years on Wall Street have remained my friends. The trust and familiarity of those early relationships have enriched my life in ways I could never have predicted. #Networking
Another trick I had learned for managing stress was to take a moment to slow myself down. People were always happy to let me have that extra moment. It even seemed to reassure them. They would be even more eager to hear what I had to say once I was ready. So I took a moment and then began. #[[Public Speaking]]
She went on: “Mr. Schwarzman says he approaches problems by asking himself, ‘What would I want if I were in their shoes?’ That, he says, is what gives him his rapport with people. Still a student of behavior, he listens hard to what people say, believing that things that are said are said for a reason. This art of listening gives him an unusually high gift of recall.” #Listening #Conversation
[[Listening]] to people seemed obvious. But it evidently marked me out on Wall Street. I didn’t just try selling whatever it was I had to sell. I listened. I waited to hear what people wanted, what was on their mind, then set about making it happen. I rarely take notes in meetings. I just pay very close attention to what the other person is saying and the way he or she is saying it. If I can, I try to find some point of connection, an area of common ground, a shared interest or experience that turns a professional encounter into a more personal one. It sounds like common sense, but apparently in practice, it’s relatively rare.
There is nothing more interesting to people than their own problems. If you can find out what they are and come up with solutions, they will want to talk to you no matter their rank or status. The harder the problem and the scarcer the solution, the more valuable your advice is. It’s in those situations, where everyone is walking away with averted eyes, that the field clears and the greatest opportunity awaits. #Conversation
^^**My early mistakes on Wall Street, the typos and calculation errors, and the embarrassment that followed, had taught me the importance of rigor, eliminating risk, and asking for help.**^^ Today on Wall Street, you can do many of the calculations with a keystroke that we used to have to do by hand. But learning the way I did, I saw the intricate ways in which deals can be structured, the subtleties that must be negotiated. Mastery like that takes experience, endurance, and tolerance for pain. And it yields the greatest rewards.
“I want to work with large companies again,” said Pete. Since leaving Lehman, he had started a small firm that did small deals. “I just want to work with Pete again,” I said. I was thirty-eight, and the money I had made at Lehman had provided for my young family. By now, we had two children, Zibby and Teddy, both healthy and going to great schools. We had an apartment in the city and a house near the beach. Professionally, I had reached a point where I wanted to start my own business. I felt I had learned enough and acquired enough personal and professional resources to make a success of it.
Observing my father at Schwarzman’s and all the businesses and entrepreneurs I had advised subsequently, I had reached an important conclusion about starting any business: it’s as hard to start and run a small business as it is to start a big one. You will suffer the same toll financially and psychologically as you bludgeon it into existence. It’s hard to raise the money and to find the right people. So if you’re going to dedicate your life to a business, which is the only way it will ever work, you should choose one with the potential to be huge.
The third and final way we thought about building our business was to keep challenging ourselves with an open-ended question: Why not? If we came across the right person to scale a business in a great investment class, why not? If we could apply our strengths, our network, and our resources to make that business a success, why not? Other firms, we felt, defined themselves too narrowly, limiting their ability to innovate. They were advisory firms, or investment firms, or credit firms, or real estate firms. Yet they were all pursuing financial opportunity. #[[Bifurcation of Investing]]
We had both been judging talent long enough to know a 10 when we saw one. Eights just do the stuff you tell them. Nines are great at executing and developing good strategies. You can build a winning firm with 9s. But people who are 10s sense problems, design solutions, and take the business in new directions without being told to do so. Tens always make it rain. #Hiring
As an investment banker and later as an investor, I found that the harder the problem, the more limited the competition. 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. You will earn a reputation for doing what others cannot. #Competition
Pete was still apprehensive. “Why would somebody give us money when we’ve never done anything?” he asked. “Because it’s us. And because it’s a moment.” #Fundraising
As a salesman, I’d learned you can’t just pitch once and be done. Just because you believe in something doesn’t guarantee anyone else will. 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. #Sales #Fundraising
People in a tough spot will often focus on their own problems when the answer may lie in fixing someone else’s.
From the start of Blackstone, Pete and I had agreed that we would never do hostile deals. We believed that businesses were made up of people who deserved to be treated with respect. If all you did as an acquirer was slash costs and take out money until a business collapsed, you would be hurting employees, families, and their communities. Your reputation would suffer, and decent investors would be scared off. But if you invested in improving the companies you bought, not only would their employees benefit from working for a stronger company, but your reputation would be enhanced and you would earn much higher long-term returns “ #[[Long Term Thinking]]
You often find this difference between different types of investors. Some will tell you that all the value is in driving down the price you pay as low as possible. These investors revel in the transaction itself, in playing with the deal terms, in beating up their opponent at the negotiating table. That has always seemed short term to me. What that thinking ignores is all the value you can realize once you own an asset: the improvements you can make, the refinancing you can do to improve your returns, the timing of your sale to make the most of a rising market. If you waste all your energy and goodwill in pursuit of the lowest possible purchase price and end up losing the asset to a higher bidder, all that future value goes away. Sometimes it’s best to pay what you have to pay and focus on what you can then do as an owner. The returns to successful ownership will often be much higher than the returns on winning a one-off battle over price. #[[Long Term Thinking]]
Here are my simple rules for identifying market tops and bottoms:

1. Market tops are relatively easy to recognize. Buyers generally become overconfident and almost always believe “this time is different.” It’s usually not.
2. There’s always a surplus of relatively cheap debt capital to finance acquisitions and investments in a hot market. In some cases, lenders won’t even charge cash interest, and they often relax or suspend typical loan restrictions as well. Leverage levels escalate compared to historical averages, with borrowing sometimes reaching as high as ten times or more compared to equity. Buyers will start accepting overoptimistic accounting adjustments and financial forecasts to justify taking on high levels of debt. Unfortunately most of these forecasts tend not to materialize once the economy starts decelerating or declining.
3. Another indicator that a market is peaking is the number of people you know who start getting rich. The number of investors claiming outperformance grows with the market. Loose credit conditions and a rising tide can make it easy for individuals without any particular strategy or process to make money “accidentally.” But making money in strong markets can be short-lived. ^^**Smart investors perform well through a combination of self-discipline and sound risk assessment, even when market conditions reverse.**^^

The way to avoid this type of situation is to invest only when values have recovered at least 10 percent from their lows. Asset values tend to increase as economies gain momentum. It’s better to give up the first 10 to 15 percent of a market recovery to ensure that you are buying at the right time.
I called Edgcomb’s champion and chief critic into my office to debate the investment, so I could hear them argue it out face-to-face and then make a decision. I sat there and listened to their pitches as if I were King Solomon. I thought the younger man got the better of it. He had worked with Edgcomb for years. He had an insider’s knowledge and could answer all the questions. Stockman was analyzing the deal as an outsider. He had a strong argument but didn’t have the same level of information. We thought we understood steel after our success with Transtar, the transportation business we had bought from USX. And somehow we thought we could now predict the commodity cycle, so I decided to go ahead. We made the offer, gathered money from investors, and closed the deal. And right on cue, a few months after we closed, steel prices began to nosedive. Edgcomb’s inventory was now worth less than they had paid for it and dropping in value every day. The profits we anticipated, which were to pay our borrowing costs, never materialized. We couldn’t make our debt payments. Edgcomb was imploding, just as David Stockman predicted it would. #debate
I got a phone call from the chief investment officer of Presidential Life, which had invested in our fund. He wanted to see me. I took a cab to his office in Nyack, on the Hudson above New York. He asked me to sit down and started screaming at me. Was I a complete incompetent or just stupid? What kind of imbecile would squander his money on something so worthless? How could he have given a dime to someone as inept as I was? As I sat there absorbing the punishment, I knew that he was right. We were losing their money because our analysis was flawed. I was the person who had made the decision. I don’t think I have been as ashamed as that in my life before or since. Even messing up those deal book numbers for Eric Gleacher as a first-year associate at Lehman didn’t compare. I wasn’t capable. I wasn’t competent. I was a disgrace.
We then examined our decision making. For all our entrepreneurial strengths, our drive, our ambition, our skills, and our work ethic, we still weren’t building Blackstone into a great organization. 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. Edgcomb’s failure showed that the change had to start with me and my approach to investing and evaluating potential investments. #Failure #[[Spirit of Humility]]
Finance is full of people with charm and flip charts who talk so well and present so quickly you can’t keep up. So you have to stop that show. Decisions are much better made through systems designed to protect businesses and organizations than through individuals. We needed rules to depersonalize our investment process. It could never again rely on one person’s abilities, feelings, and vulnerabilities. We needed to review and tighten our process. #[[Investing 101 2.0]]
We decided to involve all of our senior partners in our discussions of investments. We would never again allow one person single-handedly to green-light a deal. During my career, I had gotten things more right than wrong, but Edgcomb had shown that I was far from infallible. My colleagues had decades of experience. By working together, arguing and applying our collective wisdom to evaluate an investment’s risks, we hoped we could examine our deals more objectively. #[[Collaboration]]
The senior partners would sit on one side of the table and the internal team presenting a deal on the other. Around us would be the junior members of our teams, who were expected to watch, learn, and contribute.
[[Psychology]] would be one of my strengths as an investor. I didn’t need to remember each number in an analysis. I could watch and hear the people who knew the specifics and tell how they felt from their posture or tone of voice.
The same small groups of people, who know each other well, go over each investment applying the same rigorous standards. This unified approach to investing has become the backbone of the Blackstone way.
For all that was going on at Blackstone in its early years, the rest of my life didn’t stop. Ellen and I divorced in 1991, but we continued to raise our children, Zibby and Teddy, together.

“No other success can compensate for failure in the home.” [[David O. McKay]]

When I stepped into his office for the first time, I made it clear that I wasn’t there for therapy. I just couldn’t make my mind up about divorce. He asked me what was holding me up. Four fears, I told him: the fear of losing my relationship with my children, the prospect of signing away half of what I had worked so hard to make, the fear of losing half my friends, and terror at having to date again.
People often smile whenever they hear my number one rule for investing: Don’t. Lose. Money. I never understand the smirks, because it is just that simple. #[[Investing 101 2.0]]
We train our professionals to distill every individual investment opportunity down to ^^**the two or three major variables that will define the success of our investment case and create value.**^^
At Blackstone, investment committees are about discussion and discovery, not about getting a deal approved. Because the decision to move forward or not is made together, no one feels pressured to sell a deal just because he or she brought the idea. Similarly, there is no pressure to approve a suboptimal deal as consolation for a deal team’s hard work in sourcing and analyzing the investment in question. If we make an investment and it goes wrong, we all got it wrong, and we are all responsible for fixing it. And when we are right, which is more often the case, we reap the rewards together.
To ensure my message got through, I defined excellence in narrow, practical terms: It meant 100 percent on everything. No mistakes. That is different from school or college, where you can get an A with 95 percent. At Blackstone, that 5 percent of underperformance can mean a massive loss for our investors. It is a lot of pressure, but I suggested two ways to relieve it. The first was [[Focus]]. If you ever felt overwhelmed by work, I said, pass on some of your work to others. It might not feel natural. High achievers tend to want to volunteer for more responsibility, not give up some of what they have taken on. But all that anyone higher up in the firm cares about is that the work is done well. There is nothing heroic or commendable about taking on too much and then screwing it up. Far better to focus on what you can do, do it well, and share the rest. The second way to maximize your chances of achieving excellence was to ask for help when needed. Blackstone is full of people who have worked on a lot of deals. If you are spending all night trying to solve a problem, chances are there is someone a few offices away with more experience who could solve it in far less time. Don’t waste your time trying to reinvent the wheel, I advised. There were plenty of wheels all around you, ready-made, just waiting for you to spin them faster, further, and in new directions. #[[Spirit of Humility]]
^^**It was the one thing they taught at Harvard Business School: everything in business is connected.**^^ We would see opportunities and markets in unusual and different ways from our competitors. Our perspective would broaden and deepen. The more feeds we had running into the firm, the more we’d know, the smarter we’d be, and the better the people who’d want to work with us. #[[Investing 101 2.0 Wiki]]
They thought they were supposed to be interviewing me, but instead I had interviewed them. My objective, I told Ken, had been to learn. I wasn’t trying to persuade anyone I was right for the job. It was the same way I thought about interviews at Blackstone. If both sides could be easy, open, and direct with each other, the fit, or lack of it, would become apparent.
There were many other great aspects to our culture. Every Monday morning, for example, all of our investment teams gathered to talk about their deals and their context, starting at 8:30 a.m. and running until early afternoon. We discussed the global economy, politics, conversations with our investors, media, any issues that might affect the business. Then we went through a list of live deals, sharing our insights and ideas from our different activities around the world. ^^**Everyone could attend.**^^ Those who had something relevant to say were encouraged to say it, whatever their age or rank within the firm. All that mattered was the quality of their thinking. To this day, Monday mornings remain the clearest demonstration of our commitment to transparency, equality, and intellectual integrity.
The number of people now attending our Monday morning meetings made our lawyers nervous. They worried that too many people knew too much. But Tony and I refused to change what we were doing. If we started eliminating people, how would they ever absorb our investment process? Almost everyone else in finance was stovepiped: they could see only what was going on in their own narrow slice of the industry. Our Monday morning meetings allowed people from every part of the firm to see how the specialists in other parts thought and acted, and we’ve never had a breach in confidentiality.
If you are going to start a business, I told them, I believe it has to pass three basic tests.

First, your idea has to be big enough to justify devoting your life to it. Make sure it has the potential to be huge.
Second, it should be unique. When people see what you are offering, they should say to themselves, “My gosh, I need this. I’ve been waiting for this. This really appeals to me.” Without that “aha!” you are wasting your time.
Third, your timing must be right. The world actually doesn’t like pioneers, so if you are too early, your risk of failure is high. The market you are targeting should be lifting off with enough momentum to help make you successful.

When [[Phil Knight]] was building [[Nike]], he hired other distance runners to work with him because he knew that whatever they lacked in terms of business knowledge, they made up for in stamina. They would never give up. They would take the pain and make it to the end of the race despite the difficulties.
As a decent person you think your role is to coax the bad ones along, to find workarounds. As employees, these are 6s and 7s out of 10. If you keep them, you will end up with a dysfunctional company, where you do all the work, staying up all night with the few people who can make it happen. You have two options: either run a middling company going nowhere or clear out the mediocrity you created so you can grow. If you are ambitious, you have to fill your company with 9s and 10s, and give them the difficult tasks to do. #Hiring
Entrepreneurs often prefer to trust their instincts rather than the more orderly systems that professional managers use. Entrepreneurs often resist any limits placed on those instincts and the energy that brought their company into existence. But eventually it is those limits that create the foundation for the next phase of growth.
Changing your behavior in the face of changing information is always hard. But when people are doing well, they don’t want to change. They choose to ignore the discordant notes and the tunes you are hearing. They feel threatened by bad news and dread the uncertainty of change and the hard work it demands. This tendency makes them passive and rigid at the very moment they should be most active and flexible. #[[Self-Criticism]]
I insisted we adopt the same approach we used for all of our investments. Start with an idea. Discuss it, criticize it, and question it. And only when we were as certain as we could possibly be, make a decision. #[[Self-Criticism]]
Many people make the mistake of thinking the moments when markets collapse are the moments of highest risk. They are the opposite.
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.
At Blackstone, we had our own challenges. Our young people, in particular, were scared. Every year, we have off-sites for each of our lines of business, and Tony was invited to cheer them up, to tell them everything would be fine. But that’s not Tony’s style. Instead, he told them how lucky they were to have this historical meltdown to learn from right at the beginning of their careers. If they were smart, they would learn from it and apply the lessons over their entire professional lives. ^^**Success breeds arrogance and complacency, he said. You only learn from your mistakes and when the worst happens.**^^ #Failure
These low-asset valuations were just marks. They would come back. We invest based on a thesis. If we still believed it, we just had to keep working and be patient. If the financial system collapsed, we would all be finished. As long as it survived, so would we. #[[Investing Themes]]
It was a curious request, but as an entrepreneur, I’ve learned that finance is a simple business. When somebody asks you for something new, the odds that he or she is the only person on the planet at that point of time who would find that of interest is zero. When you get one of those inquiries, it’s potentially a huge opportunity. Those who are asking don’t know that. They are just looking at their own needs. But if those needs make sense and you create the right product to fit those needs, you can roll it out more broadly and your competitors will be left wondering how you figured it out. #[[Opportunity Canvasing]]
I looked at the minister of [[Culture]]. His expression was impassive. I asked him why he seemed so unruffled by the whole thing. “In China, we aspire for greatness,” he told me. “If it does not happen the first time, we simply continue until we achieve greatness.” #[[perserverence]]
After a week, I had an initial roster for the president’s Strategic and Policy Forum, including Jack Welch, the former CEO of GE; Jamie Dimon of JPMorgan Chase; Larry Fink of BlackRock; Mary Barra of General Motors; Toby Cosgrove of the Cleveland Clinic; Bob Iger of Walt Disney; Doug McMillon of Walmart; Jim McNerney of Boeing; Ginni Rometty of IBM; Elon Musk of Tesla; Indra Nooyi of Pepsi; Bayo Ogunlesi of Global Infrastructure Partners; Paul Atkins of Patomak Global Partners; Dan Yergin of Cambridge Energy Research Associates; Rich Lesser of the Boston Consulting Group; Kevin Warsh of Stanford University and the Hoover Institution; and Mark Weinberger of Ernst & Young. It was an all-star team, covering a broad span of the US economy.
Asset management firms are so dependent on people and personalities that succession often becomes their Achilles’ heel. One generation stays on too long, the next generation gets tired of waiting, and firms lose momentum. Regaining that momentum is always much harder than sustaining it. So if leaders don’t want their organization to tire, they have to start working on succession when their drive, their intellect, and their competitiveness are yet to peak. #[[Build a Fund]] #Succession
She began by asking me about how we maintain the spirit of entrepreneurship at Blackstone. The trick, I told her, was finding fantastic people and giving them the chance to be the best at what they do. ^^**We keep our edge by reinventing everything we do to make it better.**^^ #[[Investing 101 2.0]]
You are not alone here, so don’t wear the weight of the world. Every tough decision has been made at Blackstone by someone. What may seem new to you, won’t be new to the institution. Just ask for help. We make decisions as a team, and we own the outcome as a team. That applies just as much to the people running our biggest businesses as it does to our most junior staff.
The members of our management committee have been at Blackstone for eighteen years on average, and the average tenure of our senior managing directors is ten years. Such longevity is rare in the financial industry. These long-serving leaders haven’t just built our business, they have built our culture and they are going to be its most reliable guardians in the future. #Culture
MIT would create a new college, its first since 1951, dedicated to the study of artificial intelligence and computing and connected to every other school at the university. The university would double the number of its computer scientists by creating fifty new faculty positions, half in computer science, half joint appointments with the other schools at MIT. This new college would enable every professor, researcher, and student to learn, practice, and speak the language of AI, regardless of whether they were students of engineering, urban studies, political science, or philosophy. They would become, as Rafael put it, the “bilinguals of the future,” fluent in both AI and their own academic discipline, scientific or not.
“Regardless of how you begin your careers, it is important to realize that your life will not necessarily move in a straight line. You have to recognize that the world is an unpredictable place. Sometimes even gifted people such as yourselves will get knocked back on their heels. It is inevitable that you will confront many difficulties and hardships during your lives. When you face setbacks, you have to dig down and move yourself forward. The resilience you exhibit in the face of adversity — rather than the adversity itself — will be what defines you as a person.” #[[Lilly pads of your career]]
“Devote your time and energy to the things you enjoy. Excellence follows enthusiasm, and doing anything solely for prestige rarely leads to success. If you have passion for pursuing your dreams; if you persevere; and if you are committed to helping others, you will have a full and consequential life and always have a chance at greatness. And the benefit of your enormous gifts will accrue to yourself, the people you love, and to society at large.” #Passions