What It Takes: Lessons in the Pursuit of Excellence

 

The best executives are made, not born. They absorb information, study their own experiences, learn from their mistakes, and evolve.

I had incredible teachers. My parents taught me the values of honesty, common decency, and achievement, and the importance of generosity toward others. My high school track coach, Jack Armstrong, helped me develop a high tolerance for pain and to understand the power of preparation, essential lessons for any entrepreneur.

Today it is the world’s largest manager of alternative assets. Conventional assets are cash, stocks, and bonds. The broad category of “alternatives” includes pretty much everything else. We build, buy, fix, and sell companies and real estate. The companies we invest in employ more than 500,000 people, making Blackstone and its portfolio companies one of the largest US-based employers and one of the largest employers anywhere in the world. We find the best hedge fund managers and give them money to invest. We also lend money to companies and invest in fixed-income securities.

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.

Excellence. 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.

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.

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.

By the time I got to the December holiday, I was ready to drop out. I was bored. Boston was cold. The teaching was mediocre, done mostly by young assistant professors still finding their way in the classroom. Why was I wasting my life here? I was ready to go back to work.

“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.”

I see how a candidate reacts to my attempts to engage. I don’t have a set formula, but in every case, my goal is to get into candidates’ heads to assess how they think, who they are, and whether they are right for Blackstone.

Ask your interviewers what they enjoy most about working for their organization.

Investors are always looking for great investments. The easier you make it for them, the better for everyone.

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.

Having Jack Welch go to work on you was like having your brain connected to a dust-buster sucking out everything you know. I’ve never met anyone like him before or since. He never stopped asking questions—torrential, relentless questions—and he instantly grasped the links between one idea and another, even if they were entirely new to him. He was like Tarzan swinging through the trees at blistering speed, never missing a vine, learning more quickly than I could teach.

Getting to know Jack and watching him in action reinforced my growing belief that the most important asset in business is information. The more you know, the more perspectives you have and the more connections you can make, which allow you to anticipate issues.

An investment banker’s job is to deal with change and often high-stress situations. You suggest an acquisition or a sale of a division, identifying a target purchase or a buyer. You propose that a company borrow more debt to fund expansion or repurchase shares when its stock price is low. How you initiate and manage that change is the measure of your success.

In my relatively short career, I had learned that deals ultimately come down to a few key points that matter most to each side. If you can clear everything else away and focus on these points, you will be an effective negotiator.

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.

One effect of my intense listening is that I can recall events and conversations in detail. It’s as if they are imprinted and stored away in my brain. 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.

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.

Coach Armstrong had taught me the value of persistence, of running those extra miles and making those deposits of hard work, so they were there when I needed a withdrawal.

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.

Early in my career at Lehman, I asked an older banker why it was that banks had to pay more to borrow money than similar-sized industrial companies did. “Financial institutions go broke in a day,” he told me. “It can take years for an industrial company to lose its market position and go bankrupt.”

Pete and I thought of the people we wanted to run these new business areas as “10 out of 10s.” 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.

“When I started my business I couldn’t think of a name. In the end, we just invented one: ‘Sesame Street.’ What a stupid name that is. Now it’s in 180 countries all over the world. If your business fails, nobody will remember your name. If your business succeeds, everyone will know it. So just pick something, get on with it, and hope you succeed enough to be known.”

Ellen’s stepfather came up with the answer. He was the chief rabbi for the Air Force and a Talmudic scholar. He proposed we draw on the English translations of our two names. The German schwarz means black. Pete’s father’s original Greek name was “Petropoulos.” Petros means stone or rock. We could be Blackstone or Blackrock. I preferred Blackstone. Pete was happy to go along.

He picked me up and kept me going. He assured me that when you believe in what you’re doing, overwhelmed or not, you have to keep moving forward, even when the quest feels hopeless.

Pete said that one of my unique qualities is that my “goals are so demanding and dynamic that sometimes it is even hard for me to accept yes for an answer.”

I arrived at the office after the weekend, on the morning of Monday, October 19, with our fund closed and the money committed. That day, the Dow dropped 508 points, the largest one-day percentage drop in stock market history, bigger than the one that triggered the Great Depression.

Since we weren’t yet either the biggest or the best in our business, we had to pick spots where the problems were toughest and we were the only ones offering a way forward.

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.

Let’s say you paid $100,000 for a house by putting down 40 percent in cash and borrowing 60 percent. If you sold the house immediately for $120,000, your profit would be $20,000, or 50 percent of the $40,000 in cash you initially put down. Alternatively, if you paid for the same house by putting down only $20,000 in cash and borrowing the remaining $80,000, then the return on your original $20,000 investment would double to 100 percent. Taking on debt, assuming you can pay it back, can substantially increase your return on equity.

This means you could be investing at the bottom with no return for some period of time. This happened to investors who started purchasing Houston office buildings in 1983 after oil prices collapsed and the market hit bottom. Ten years later, in 1993, these investors were still waiting for prices to recover. 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.

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.

If I had detailed questions, I would call the most junior person, the one working the spreadsheets and closest to the numbers. If I had done that on Edgcomb, I might have heard from the analyst who hated the deal. Breaking through the hierarchy would allow me to get to know the junior people at the firm and get a different read. The risk may not be obvious on paper, but it came through in the analysts’ tone of voice when I asked them, “Just walk me through this deal from your perspective.” You could hear if they liked it or felt anxious.

As we have added new businesses to Blackstone and ventured into new markets, we apply this same process to all our investment decisions. Everyone contributes to the discussion. Risk is systematically broken down and understood. Debate is full and robust. 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.

People often smile whenever they hear my number one rule for investing: Don’t. Lose. Money.

Everyone around the table, from the most junior to the most senior person, is expected to have an opinion and participate. No one person, or subset of people, dominates the conversation or holds the power for approval. It’s team ball.

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.

For our 2018 class of junior investment analysts, we received 14,906 applications for 86 spots. Our acceptance rate is 0.6 percent, much lower by far than the most selective universities in the world. If I had to apply for a job at my own firm today, I seriously doubt I’d be hired.

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.

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.

Blackstone, Larry, and his team ended up selling its stake in Blackstone Financial Management to PNC, a medium-sized bank in Pittsburgh. The only humor in it all came from the process of renaming the firm once it was owned by PNC. It could not be called Blackstone anymore. Larry thought there might be a way of retaining some institutional connection through a new name. He suggested Black Pebble or BlackRock. Black Pebble sounded puny to me. We settled on BlackRock.

It’s extraordinary to think of what Blackstone and BlackRock have become. Two firms, hailing distance from each other in midtown Manhattan, starting with a few people in the same office. I often imagine what we might have been together.

Instead, I should have recognized that when a situation changes and a business is doing extremely well, sometimes you have to make accommodations.

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.

In real estate, guys who had been in the business forever told me that it was normal to make a high bid to get the deal, then slash it at the closing. That didn’t work for me. We were going to do our real estate deals to the same standard we demanded in our private equity business: the same analytical rigor, the same discipline, the same level of trust. We might lose some deals in the short term. But in the long run, we would maintain our reputation as a firm that meant what it said.

“So what’s your suggestion?” said Hank. “Take the $700 billion and put it into the banks as either equity or preferred stock with warrants. That will give the banks stability.” With stability, banks would be able to attract many times what the Treasury gave them in terms of new deposits. Those deposits could be used to make profitable loans to restart the economy. The government would make money on the equity investment and banks would have what they needed to weather the crisis and start investing. Leveraged 12:1, the banks’ equity would mean $8 or $9 trillion—a huge amount of firepower.

Hank, Ben, and Tim Geithner, president of the New York Federal Reserve, were a few steps ahead of me. They had already discussed the idea of injecting equity into the banks and even proposed it to President Bush, but they were concerned about creating any unintentional pressure to nationalize the banks. What they eventually developed was an innovative, and ultimately profitable, way to recapitalize seven hundred US banks, including both healthy and weak ones. Hank’s conversations with people like me, in the marketplace, were a way for him to think through such a complex issue. “One more thing,” I said. “It’s terrible that people are calling TARP a ‘bailout.’ ” Hank and Treasury never used the term themselves, but it was being widely used by politicians and the media. “You’re not bailing anybody out. You’re lending them money, which is going to be repaid. It’s just a bridge loan where the taxpayers are going to get all their money back, with interest and probably with a big profit when the banks recover. Describing it as a bailout is going to create a PR nightmare. It’s going to be completely misunderstood.”

“Because we’re like farmers,” I said. Zhu had spent time on farms growing up with his family and later as a political exile. “When we buy companies and real estate, it’s like planting crops. You put seeds in the ground, you water, and the seeds start growing, but you can’t see the crop yet. Then they grow very high, and it will be a great crop, and you will be very, very happy.”

Of the 13 million rental homes, most belonged to individuals or small real estate businesses.

We started buying in the West and moved east, city by city, from Seattle to Las Vegas, to Chicago, down to Orlando. Local courthouses published lists for their upcoming foreclosure auctions, and our acquisition teams went street by street to look at the homes for sale. They couldn’t go inside, so they drove by, looking at neighborhoods and studying school districts. They would decide how many homes they wanted to buy and show up on the courthouse steps for the auction with a cashier’s check. The deals would close in a couple of days. Within a few months, we were buying $125 million worth of homes every week. The next step was renovation. We put to work over ten thousand builders, painters, electricians, carpenters, plumbers, HVAC installers, and landscapers, many of whom had been left unemployed by the recession. We spent around twenty-five thousand dollars fixing up each home. The final piece was a sales and service organization to rent out and maintain the homes. We called the company Invitation Homes, which ended up owning over fifty thousand homes, making it the largest residential property owner in the United States and a huge employer at a critical time for the US economy. Our public pension fund investors liked the faith we showed in the resilience of the US economy at a moment when others were scared. We went into neighborhoods where homes were abandoned and lawns overgrown. Once we fixed up the houses and leased them out to families, we saw these neighborhoods come back to life, their social fabric restored.

Back in the early days of Blackstone, my friend Steve Fenster (with the two left wingtips) had arranged a meeting for me with an up-and-coming entrepreneur named Mike Bloomberg. Mike was looking for money for his young financial data company. I knew it was going to be a big success, but it wasn’t the right fit for us at the time. We had promised our investors we would return their money in five to seven years. Mike said he would never sell his company. He wanted a partner for life, and we were his first choice. It was a huge miss, which I never forgot. Our $100 million investment would have ultimately grown to over $8 billion. I had always hoped that one day, we would have the flexibility at Blackstone to invest in entrepreneurs like Mike and in opportunities that didn’t fit the traditional private equity model. Tactical Opportunities, as we would call our new fund, was my long-sought answer.

We applied our usual three tests for a new line of business. It must have the potential to be hugely rewarding for investors. It must add to Blackstone’s intellectual capital. And it must have a 10 in charge of it.

I have always been aware of the profound influence that education has had on my life. Without moving to the high-quality Abington school system in Pennsylvania, I would never have been able to qualify for Yale or Harvard Business School, which subsequently opened many important possibilities for me. It’s because of this that I am passionate about providing the same type of life-changing opportunities to as many people as possible.

A study by the Federal Reserve had found that nearly half the country was living paycheck to paycheck, unable to write an emergency check for $400.

Asset management firms are so dependent on people and personalities that succession often becomes their Achilles’ heel.

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.

It is so important that people understand how much you appreciate them and that you make them feel good about themselves. That self-confidence is the basis for great performance.

The few blocks around MIT, a concentration of public and private labs, start-ups, and corporate research centers, are known as the most innovative square mile in the world. Yet Rafael told me that while 40 percent of MIT’s students took courses in computer science, only 7 percent of MIT’s faculty specialized in the subject. The situation was the same, or worse, across the American university landscape. Everyone understood the need for greater investment in computer science, but hardly anyone was doing much about it. The US talent pool in the fields of science, technology, engineering, and math was outstanding but did not have adequate resources to maximize their full potential.

I have long believed that education is the passport to a better life.

We have been able to turn $400,000 of start-up capital in 1985 into over $500 billion of assets under management in 2019—a growth rate of about 50 percent a year since we started. The scale of our business today is incredible—we own approximately two hundred companies, employing over 500,000 people, with combined revenues of over $100 billion, over $250 billion in real estate, as well as market-leading activities in leveraged credit, hedge funds, and other business lines. We have earned the trust and confidence of almost every major institutional investor who invests in our asset class, the reward for a powerful global brand, a duty of care, and delivering compelling and consistent investment performance for over thirty years.

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.

Failures, I want them to know, can teach us more than any success. 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.

25 RULES FOR WORK AND LIFE

1. It’s as easy to do something big as it is to do something small, so reach for a fantasy worthy of your pursuit, with rewards commensurate to your effort.
2. The best executives are made, not born. They never stop learning. Study the people and organizations in your life that have had enormous success. They offer a free course from the real world to help you improve.
3. Write or call the people you admire, and ask for advice or a meeting. You never know who will be willing to meet with you. You may end up learning something important or form a connection you can leverage for the rest of your life. Meeting people early in life creates an unusual bond.
4. There is nothing more interesting to people than their own problems. Think about what others are dealing with, and try to come up with ideas to help them. Almost anyone, however senior or important, is receptive to new ideas provided they are thoughtful.
5. Every business is a closed, integrated system with a set of distinct but interrelated parts. Great managers understand how each part works on its own and in relation to all the others.
6. Information is the most important asset in business. The more you know, the more perspectives you have, and the more likely you are to spot patterns and anomalies before your competition. So always be open to new inputs, whether they are people, experiences, or knowledge.
7. When you’re young, only take a job that provides you with a steep learning curve and strong training. First jobs are foundational. Don’t take a job just because it seems prestigious.
8. When presenting yourself, remember that impressions matter. The whole picture has to be right. Others will be watching for all sorts of clues and cues that tell who you are. Be on time. Be authentic. Be prepared.
9. No one person, however smart, can solve every problem. But an army of smart people talking openly with one another will.
10. People in a tough spot often focus on their own problems, when the answer usually lies in fixing someone else’s.
11. Believe in something greater than yourself and your personal needs. It can be your company, your country, or a duty for service. Any challenge you tackle that is inspired by your beliefs and core values will be worth it, regardless of whether you succeed or fail.
12. Never deviate from your sense of right and wrong. Your integrity must be unquestionable. It is easy to do what’s right when you don’t have to write a check or suffer any consequences. It’s harder when you have to give something up. Always do what you say you will, and never mislead anyone for your own advantage.
13. Be bold. Successful entrepreneurs, managers, and individuals have the confidence and courage to act when the moment seems right. They accept risk when others are cautious and take action when everyone else is frozen, but they do so smartly. This trait is the mark of a leader.
14. Never get complacent. Nothing is forever. Whether it is an individual or a business, your competition will defeat you if you are not constantly seeking ways to reinvent and improve yourself. Organizations, especially, are more fragile than you think.
15. Sales rarely get made on the first pitch. Just because you believe in something doesn’t mean everyone else will. You need to be able to sell your vision with conviction over and over again. Most people don’t like change, so you need to be able to convince them why they should accept it. Don’t be afraid to ask for what you want.
16. If you see a huge, transformative opportunity, don’t worry that no one else is pursuing it. You might be seeing something others don’t. The harder the problem is, the more limited the competition, and the greater the reward for whomever can solve it.
17. Success comes down to rare moments of opportunity. Be open, alert, and ready to seize them. Gather the right people and resources; then commit. If you’re not prepared to apply that kind of effort, either the opportunity isn’t as compelling as you think or you are not the right person to pursue it.
18. Time wounds all deals, sometimes even fatally. Often the longer you wait, the more surprises await you. In tough negotiations especially, keep everyone at the table long enough to reach an agreement.
19. Don’t lose money!!! Objectively assess the risks of every opportunity.
20. Make decisions when you are ready, not under pressure. Others will always push you to make a decision for their own purposes, internal politics, or some other external need. But you can almost always say, “I need a little more time to think about this. I’ll get back to you.” This tactic is very effective at defusing even the most difficult and uncomfortable situations.
21. Worrying is an active, liberating activity. If channeled appropriately, it allows you to articulate the downside in any situation and drives you to take action to avoid it.
22. Failure is the best teacher in an organization. Talk about failures openly and objectively. Analyze what went wrong. You will learn new rules for decision making and organizational behavior. If evaluated well, failures have the potential to change the course of any organization and make it more successful in the future.
23. Hire 10s whenever you can. They are proactive about sensing problems, designing solutions, and taking a business in new directions. They also attract and hire other 10s. You can always build something around a 10.
24. Be there for the people you know to be good, even when everyone else is walking away. Anyone can end up in a tough situation. A random act of kindness in someone’s time of need can change the course of a life and create an unexpected friendship or loyalty.
25. Everyone has dreams. Do what you can to help others achieve theirs.