Steve Schwarzman’s climb to the pinnacle of the financial services world began with a startup — and a realization. “The most important thing about a new business is figuring out what you're doing before you're doing it,” the co-founder and CEO of Blackstone recently told a group of Stanford Graduate School of Business students. “In other words, why does anyone need you?”
Clearly, Schwarzman figured it out. When he and Peter Peterson left Lehman Brothers in 1985, private equity was new and risky, and the pair needed to invest their own money to start the new venture. When they took Blackstone public 12 years later, it was the first time a U.S. private equity firm had launched an IPO. In 2012, Blackstone owned “all or part of 74 companies that employ 700,000 people and generate $117 billion in annual revenue,” according to the New York Times.
Here are eight lessons Schwarzman says he learned about entrepreneurship, hiring, and managing during his four decades in financial services, and which he shared during a View From the Top talk in November.
When you’re hiring, don’t settle.
When Blackstone created a network of affiliated companies early on, it was relatively easy to find great executives to run them because the financial services sector was consolidating, says Schwarzman. “If you're a 10, God bless you. You'll be wildly successful. If you attract 10s, they always make it rain if you need rain,’’ he says. A 10 knows how to sense problems, design solutions, and do new things.
“A nine is great at executing. They come up with good strategies, but not great strategies. A firm full of nines, that's a winning firm,” he says. “Eights, they just do stuff that you tell them. And sevens and below, I don't know what they are since we don't tolerate them,” he says.
Rejection hurts — so get used to it.
When Schwarzman and Peterson debuted their first private equity offering, they sent out 488 prospectuses and received just 32 positive responses. The poor showing was a shock, says Schwarzman. “Entrepreneurs need an ability to take rejection. Believe in your basic plan, but be adaptable and keep going.”
Never be complacent.
Entrepreneurs sweat the details when their companies are new. Fear of failure, says Schwarzman, keeps them awake — and that’s a good thing. But they often lose their vision and edge when their companies are performing well.
“Somebody's always trying to do better, and if it's at your expense, then you're just a victim. And it’s your job not to be a victim.”
Measure your words.
“When you’re a CEO,” says Schwarzman, “people listen to you way more than you'd think, and they amplify everything that you say, so you have to be exceptionally careful about what you say.”
Don’t praise employees unless they deserve it.
“People look for your approbation. You can't give praise unless it's deserved, but if it's deserved, you have to be really generous doing that because people respond to it, and it's important,” says Schwarzman.
People are more important than time.
It’s often too easy for executives to treat employees like chess pieces that can be moved around at will, says Schwarzman. “It could take two years to do something that you know should happen in 10 minutes, but if you did it [in 10 minutes] you'd break so much glass throughout the organization that you'd threaten the institution, or you'd threaten core people,” he says. “You have to give people dignity, but you have to accomplish your objectives, so time is something that you give up sometimes to do that.”
Articulate the core values of your business.
“You can never stop doing that. You can never do that enough. Everybody has to know what you stand for.” When that doesn’t happen, organizations lose their soul, says Schwarzman.
Make it safe to be critical.
Schwarzman still recalls the fury of an investor who felt burned by a bad investment sold to him by Blackstone. “I had never been screamed at before, and nobody in my house had ever raised their voice, and here's this person screaming for … it felt like an hour. It was five minutes, completely out of control. I almost wanted to cry, actually, because he was right.”
For Schwarzman, the lesson of that painful encounter was clear: He needed to set up procedures that would allow people in the firm to critique investment ideas, even if they originated with the boss. “You have to set up an environment where people feel secure that an act of criticism is not personal.”