What It Takes: Lessons in the Pursuit of Excellence

by Stephen A. Schwarzman

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

But what I lacked in basic economics, I made up for with my ability to see patterns and develop new solutions and paradigms, and with the sheer will to turn my ideas into reality. 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.

For me, the greatest rewards in life have come from creating something new, unexpected, and impactful. I am constantly in pursuit of 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. 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.

After we talked a bit, he said, “Why don’t you go around and see some of my partners?” I did, but when I got back to Bill’s office at the end of the day, I told him they seemed uninterested in me. “Listen,” he said laughing, “I’ll give you a call in two or three days.” He came through with an offer of a job. The starting salary was $10,000 a year. “That is absolutely terrific,” I said. “But there’s only one problem.” “What’s that?” “I need $10,500.” “I’m sorry,” he said. “What do you mean?” “I need $10,500 because I heard there’s another person graduating from Yale who’s making $10,000, and I want to be the highest-paid person in my class.” “I don’t care,” said Bill. “I shouldn’t be paying you anything at all. It’s $10,000!” “Then I won’t take the job.” “You won’t take the job?” “No. I need $10,500. It’s not a big deal to you, but it’s a really big deal to me.” Donaldson started laughing. “You’ve got to be kidding.” “No,” I said, “I’m not kidding.” “Let me think about it.” Two days later he called back. “Okay. $10,500.” And with that I entered the securities business.

When I began my career, I was like most other ambitious young people: I believed success was achieved in a straight line. As a baby boomer, I had grown up seeing only growth and opportunity. Success seemed a given. But working through the economic ups and downs of the 1970s and early 1980s, I had come to understand that success is about taking advantage of those rare moments of opportunity that you can’t predict but come to you provided you’re alert and open to major changes.

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. After many discussions, Pete, in his own way, gave in. “If you feel that strongly, I’ll sign on for it.”

Exhausted, on our last day in Dhahran, floating around in the hotel pool, I started telling Ken how successful we would be. I laid it all out for him. To be successful you have to put yourself in situations and places you have no right being in. You shake your head and learn from your own stupidity. But through sheer will, you wear the world down, and it gives you what you want.

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.

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.

We were determined not to give up, even without Joe. A few times in every investor’s life, an immense opportunity appears. I asked Ken Whitney to find me someone else to develop our real estate business. We needed a 10 to build a great new business. As I worked through a list of names, checking references, I spoke to a man in Chicago, John Schreiber, whom Ken had identified as a reference. We talked for a while about the candidate he was supposed to be recommending. (He wasn’t enthusiastic but was too polite to say so.) And the longer we talked, the more I was intrigued. In the 1980s, John had worked for JMB, a real estate investment firm in Chicago, which had been an active and aggressive buyer. Over the previous decade, he had bought more real estate than anyone else in America. He had seen the collapse coming and told JMB to sell everything. They told him he was crazy and paid him out so he could leave. Then came “the thousand year earthquake” that proved him right. “So why don’t you come and work with us?” I said. He had worked so hard in the 1980s, he told me. He had eight kids and his family wanted to see more of him. “You built the largest real estate firm in America and had eight kids? When did you ever get to see your wife?” “Obviously I found the time,” said John. I kept pressing, and eventually he promised to give us twenty hours a week. He said he’d hire a couple of younger guys and mentor them for us, and use his connections to open some doors. We’d see how it...

Timing the bottom of a cycle isn’t easy, and it’s often a bad idea to try in any case. The reason is that it typically takes a year or two for an economy to really emerge from a recession. Even when a market starts turning around, it still takes time for asset values to recover. 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.

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.

By the time the professor stopped talking and passed the microphone to me, I had decided these students needed a reality check. 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. If you pass these three tests, you will have a business with the potential to be big, that offers something unique, and is hitting the market at the right time. Then you have to be ready for the pain. No entrepreneur anticipates or wants pain, but pain is the reality of starting something new. It is unavoidable. Real companies don’t just happen. Raising money and recruiting good people is very hard. Even when you are small, though, and your resources most constrained, finding the right people is the most important thing you can do. You typically won’t have access to the best, who are working elsewhere at much higher compensation levels. You have to make do with the people you get. That mean...

By the time we became a public company, the market’s nerves were beginning to fray. In February 2007, Freddie Mac announced that it was no longer buying subprime loans, the mortgages given to less creditworthy borrowers who had pumped up the housing market. Mortgage lenders that specialized in subprime lending were increasingly in trouble. Their problems would eventually infect the entire credit market. Several weeks later, I got a call from Jimmy Cayne, the CEO of Bear Stearns. He needed help. Two of his hedge funds were in trouble, and he wanted an outside opinion. I sent over a couple of our people who understood these funds. They returned with troubling news. The first fund had bought only securities collateralized by subprime mortgages. These weren’t publicly traded, so it was hard to determine their value. As people started defaulting on their mortgages in increasing numbers, you could assume these securities would plummet in price and no one would buy them. Yet under the terms of the fund, investors could withdraw their money once a month. You couldn’t make this up: an opaque and fast-depreciating fund that was still promising monthly liquidity to investors. The second fund was the same as the first one, but with leverage: if the first fund was broke, the second was astonishingly broke. I called Jimmy and told him the funds were going to blow up and there wouldn’t be any equity for investors. I advised him to take the hit and write the investors a check to cover the...

Across the United States, house prices fell sharply. In the worst-hit areas, like Southern California, Phoenix, Atlanta, and Florida, new home construction all but stopped. Millions of Americans were now looking to rent instead of buy their homes. Historically, mom-and-pop operations dominated the business of buying, fixing, and renting out houses in America. Of the 13 million rental homes, most belonged to individuals or small real estate businesses. Many landlords were absentee and didn’t maintain their properties to the standard of a professionally run apartment complex. Our real estate team saw an opportunity to consolidate and professionalize the sector. Were we the right people to try this? Blackstone did huge, multibillion-dollar real estate deals, the biggest in the industry, for hotel chains, office complexes, and warehouses. Why would we consider the small-time buy-to-let business? Our banks weren’t convinced and wouldn’t lend to us. Sam Zell, who knows more about real estate than anyone else, told us, “No way.” But Jon Gray and his team were insistent. The basic math of the opportunity seemed straightforward—and unprecedented. Here was the biggest asset class in the world, in our home market, trading at historic lows, and the whole world was frozen. It was the right point in the cycle and exactly the kind of moment for investors like us. I’d seen something similar in the early 1990s, when we had made our first investments with Joe Robert: a real estate market di...

Starting in 2013, Tony had begun to involve Jon Gray in the management discussions involving the entire firm. Jon had grown up in Chicago, where his father ran a small auto parts maker and his mother a catering company. He went to public school and was an enthusiastic basketball player—so enthusiastic, in fact, that during one season in high school, he sat on the bench while his team went 1–23. It was a lesson in commitment, humility, and having a sense of humor. He had joined us from the University of Pennsylvania in 1992, where he had received one bachelor’s degree in English and one in finance from Wharton. During his final year, he received his offer to join Blackstone and also met his future wife, Mindy, in a class on romantic poetry. He has been with both of us ever since. Jon’s character and values, forged out of his middle-class, midwestern upbringing, were obvious to us early in his career. Once, when he was still a junior analyst, he had waded into a fierce argument between senior partners over the fees we had to pay our lawyers and brokers on a particular deal. He asked, “Why are we trying to beat these guys up? We work with them all the time, and chances are we’re going to work with them a lot more in years to come. Why not treat them well?” That Wall Street had always worked this way in the past didn’t mean it had to continue. Jon was thinking long term, about his own relationships and the reputation of the firm. He loved the personalities in real estate and t...

I respected him for balancing the various interests. That’s exactly how you want someone to be thinking in a seat of power.

“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.”

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 job...