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Friday, December 1, 2017

Friday Feature Book Review: The King of Capital: Blackstone' s Rise to Power ブラックストーンのストーリー : デビッド・キャリー ジョン・モリス & 土方奈美

Blackstone is a name that means money and success. They run over US$30 billion is assets today, and this book does not disappoint in explaining how it got to that peak of power. However, like the tip of an iceberg, the image on the surface masks a harsh reality. It did not come quickly or easily, and rarely does. Billionaires like its founder Steve Schwarzman, are self-made, know how to work hard and take risks. It is ultimately pure and simple. The full background story is what the book explains very well. You get an authentic sense of the hard struggles and hurdles any new firm needs to overcome. Blackstone was no exception and paid its hard fought dues like many others. Nobody got rich by just "showing up" at the right time with the right product. The early days clearly were not easy or silky smooth.

This is not just about one founder, or one firm. In many ways, it explains the full picture of how LBO deals, and the billions in profits made from them, have grown over the last 40 years. If you wondered how the whole industry started, this is a great place to begin. We find out that private equity guru Steve Schwarzman, did not even study finance at Yale, but an arts degree! He started at DLJ and found that despite a lack of financial background, he had talent and was a quick study. 

After 3 years, he went for an MBA at Harvard, and then he perfected this talent for finance at Lehman Brothers, before starting Blackstone. Being an entrepreneur is not all about having a "big idea" one day to start a firm either, there was a logical clear process. One thing you learn about the head of Blackstone, is that he always tries to minimize risks, and follows a process. He takes calculated risks, and never just "throws the dice". We learn there is nothing he hates more than losing money. The most interesting aspect about Steve though is his creative side for finance. 

To close the most difficult deals he often needed to come up with "outside the box" style solutions. What you learn the most is that standard operating procedures with various LBO and M&A deals, grew faster because of Steve's efforts. Do you want to sell more junk bonds to finance the debt? OK, then offer bondholders reset caps, in case the bonds fall in value to ease their sale. Do you want to figure out the true price of real buyers? OK, then set up a blind sealed bid auction for takeovers. These are just two of the many LBO industry innovations that Steve came up with, the market did not. The market has grown to make them now standard. Most are basic procedures now, but in Blackstone's early days, were often new and innovative at the time.

If you can see KKR founder Henry Kravis, as the Bill Gates of corporate finance, Steve seems more like a Steve Jobs. He seems nicer too, highly innovative and different in type. Both of these titans are driven and very successful, but for different reasons. Blackstone as a firm was built a certain way, and it was built properly with a lot of innovation. The drive needed to be very successful in the business takes a lot of time and total persistence. High energy, financial creativity over new product types, and a bit of luck are also key. 


The Top 3 Takeaways from this book that really impact any reader are:

1) Surprisingly, there is never a best time to start a business. No matter when you start, the beginning can take time before gaining any traction, even years.
2) Motivation seems to be a very strong motivator for many entrepreneurial actions to achieve wealth goals. The higher the motivation, the longer the time possible needed to achieve any ambitious goals.
3) Boot strapping startups with your own funds is fine, but success is not instant. When you pitch to borrow funds from financial institutions, it is never quick. Even for Blackstone, the early days of capital raising was long and difficult.

This is no overnight success story. There are no signs of champagne on day one. In the beginning, it was hand to mouth for 2 years and a difficult early road. Like many who spin out on their own, there is comfort in size and a reputation that clients prefer. Personal loyalty can be forgotten when a deal needs to be signed with a new firm. Major clients prefer an established name. When Blackstone started out, there was no welcome with open arms. New entrepreneurs learn this reality the hard way, and Steve was no different. He survived, built the firm into an industry legend, and lived long enough to enjoy the rewards. This book is Highly Recommended!

Please visit us for our Friday Feature Review where TMJ Partners will review books, movies, services and anything else with a financial theme. Follow us now for our free weekly updates, just click hereThank you for reading and learning more about how money is made in finance!

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