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Stanford GSB | Mr. Startup Guy
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Executive Q&A: Blackstone CEO Steve Schwarzman

Blackstone Group LP Chief Executive Officer Stephen Schwarzman Exclusive Interview

In an interview with Harvard Business School, you described your first 12 weeks at the school as “stultifying.” You were actually considering dropping out until one of your professors wrote you a six-page letter that motivated you to stay. Let’s pay it forward. What pieces of advice would you give to first or second year MBA students to help them make the most of their experience?

Actually, the letter was sent to me by a fellow named Dick Jenrette, who was part of a firm called Donaldson, Lufkin & Jenrette. And Dick wrote that the exact same experience had happened to him when he went to Harvard Business School. He was going to drop out in December and transfer to the economics school so he could get a Ph.D.

I went to business school at a very curious time. It was during the Vietnam War and business was extremely out of favor. Most of the smart kids went to law school [or] medical school and didn’t go to business school. So it happened to be an odd time in history. Business schools now are not like that at all. They get amazing students. And the classroom discussions are frankly exciting. I go up on occasion and participate in class. One of my nieces goes to Harvard Business School; she’s quite smart and she finds it unbelievably stimulating. So whatever stultification that I felt was a given time in history. I don’t believe that is the case now at all.

[As far as getting the most out of business school], I think you have to read the cases. You have to prepare. And I think it’s an interesting time because you can experiment with how you look at the world; how you express yourself; and how you marshall an argument. To do it, you have to be prepared.

When MBAs start at a firm like Blackstone, they really aren’t a decision-maker. While they work in teams and contribute ideas and expertise, they don’t make the final choices. In your experience as both the leader and a follower (during your early career), what works in influencing decisions where you don’t have the final say? 

We believe in a horizontal organizational structure with a lifetime learning emphasis. Nobody here is all-knowing and all-powerful intellectually. We come to group decisions based on the analysis and every person on the team is empowered to give their views. The longer you do something, the more context you typically have for judgment. If you’re in your first few months, [with] the technical things, it would be beyond belief that you would have decision-making authority because you don’t have the experience or context to make those types of decisions.

With the way we manage our business, you’re an integral part of a team that’s working to present something, including both the upside as well as its risk, to give another group of people, who will discuss this particular situation, enough context so that the team itself, working with whatever group the team interacts with, can come to a collective decision of what one should do. Because everyone is equally smart, they just don’t have equal experience – everyone has a chance to express themselves to the extent that they feel strongly about something or if they think an analysis is missing something, they should definitely speak up. In fact, we call on them and force them to speak up. So we’re not in the business [where] younger people should be spoken to, they shouldn’t speak themselves. Everybody is a potential decision-maker and it’s important that people feel empowered – because they are.

Last year at Harvard, you talked about how the biggest mistakes you’ve seen people make in their careers is starting their firm after two to three years on the job. You’ve probably heard the joke that becoming an entrepreneur is like becoming a parent – There is no right time and you just do it. From your experience, what are some tell tale signs (or even benchmarks you must achieve) to know that you’re ready to start your own company?  

It depends very much on the type of industry and what the consequences of failure are. If you’re in the tech business, people tend to be successful relatively young. The consequences of failure in technology aren’t necessarily what they are in other parts of the business world. Technology is moving so quickly; there’s so much venture capital; and there are so many potential logical extensions of technology that if you take a logical risk and it doesn’t work out, then there are a number of people who participated in that happening and some of them are quite successful on the venture capital side. If they pick wrong, it’s either because you managed it wrong or the whole concept of what you were doing was sort of a wrong part of the evolutionary tree – it went down the wrong branch. That happens. It doesn’t stop people from getting funded again. So that’s more of an experimental young people’s business.

If you look at something like my industry, which is finance, which is very much an apprentice business, it takes a while to develop the skills and perspective to know what you should be doing when. The biggest mistakes that I’ve seen is when someone has some technical ability and, after a few years, decides to go off to build their own business when they’ve never really been responsible for anything, not managerially or any other way. They get confronted by the real world that doesn’t want to back people like that or [face a] market situation or change that they’ve never seen before and [are] unfamiliar or [have] an overestimation of a group success compared to their success.

Typically, when you embark on that endeavor and fail, you very seldom get back on the track in the institution that provides you with the shelter or the continual learning. You’ve gone out, you’ve failed. And failing isn’t like getting a D on a paper. Failing is losing other people’s money. And most people are quite unforgiving about you losing their money when you told them you were highly capable and competent and it turns out you’re not. So you can only fail very infrequently in finance to keep your reputation. There is a higher bar to knowing you are doing. And typically, the biggest successes are people who do things that other people aren’t doing. In your first two or three years, you don’t even know what everyone else is doing. How would you?

So the reason I mention that talk at Harvard is that I’ve seen this with very smart younger people whose careers have typically been ruined by going out too early. If you want to start your own business, you typically need access to capital, so you have to know people who can give you significant amounts of money. You have to have credibility in that area. You have to be extremely good, at the top of your group for sure, in terms of whatever aspect of finance that you’re in. You have to be an independent person, who can deal with the isolation and the difficulties of being on your own. And you have to have an unremitting and desperate desire to be successful at all costs – other than compromising your ethical standards. You have to have supercharged energy and be prepared to go through a period when things are very, very harsh. That’s typically is not someone who’s an associate. They’re not even emotionally up to that kind of journey. Some of them don’t know that – and they wipe out.