Test: Neil Shen and Stephen A. Schwarzman on Leadership, Resilience, and Investing Through Uncertainty

On April 24, 2020, Neil Shen, Founding and Managing Partner of HSG, sat down with Stephen A. Schwarzman, Chairman, CEO, and Co-Founder of Blackstone, for a wide-ranging conversation on leadership, decision-making, and navigating complexity in business.

The discussion took place during the early months of the COVID-19 pandemic – a period of deep uncertainty for global markets. Drawing from Schwarzman’s bestselling book What It Takes: Lessons in the Pursuit of Excellence, the two explored how resilient companies and leaders adapt during downturns, why culture often matters more than structure, and where they see long-term opportunity across China and the world.

For founders, investors, and future leaders, their exchange offers practical insights on navigating uncertainty, building lasting organizations, and leading with conviction.

A lightly edited transcript is included below.

Neil Shen: Hi. I’m Neil Shen, steward of Sequoia Capital. I’m excited to be joined by Steve Schwarzman, chairman, CEO, and co-founder of Blackstone, one of the world’s leading investment firms. Steve’s New York Times bestselling book, What It Takes: Lessons in the Pursuit of Excellence, draws from his experience in business, philanthropy, and public service, has just been translated and published in China by CITIC. I look forward to discussing some of the lessons from his book, as well as his views and tips on managing business and investing in the current economic environment.

Stephen Schwarzman: Hi, Neil. How are you?

Neil Shen: Good. Good evening from Hong Kong. Maybe we should start by talking about the general economic landscape. Steve, what should we do to help the global economy regain its growth, and people to regain confidence after this pandemic?

Steve Schwarzman: Well, the situation we are now seeing economically is unprecedented. Countries everywhere in the world have asked their economies to be shut so they can control the spread of the virus. Now it’s time, much like China has controlled the virus, to restart the economies. I think a few things are necessary. The first is people are sometimes scared of going back to work for fear they will catch the virus from someone else. Particularly in the West now, and China may be through this stage, is that what we need is mass testing.

If you know the person to your left and the person to your right does not have a problem, then you know you will not get the virus. I think there’s going to be enormous effort to make sure that testing is dramatically increased. If it is, people will come back to work much faster. Instead of the recovery being very, very slow, you will have a much faster recovery. People will also have much more confidence, and they will be able to go back to their normal life. I think that testing is very important.

Also, because the West is behind China in terms of recovery, that in the West at least, breakthroughs in medicine to treat the disease, and finally a vaccine, which will probably be available in a year to year and a half. For the world itself, if you look out a year to year and a half, people should not be scared at all. They should go back to work. The recovery will not be smooth because not all parts of an economy go to work at exactly the same time with the same success. The more we can accelerate that, the better the world is going to be.

China is already in a different phase. China has done a very strong job with the virus. This morning, US time at least, China reported that its economy, in the first quarter, went down 6.7%. This is the first time in anybody’s records that the Chinese economy has gone down. One should look at that as a bottom and a great opportunity for growth in the future in China.

Neil Shen: A couple of countries are planning to move their production and supply chain back home. What do you think about this? Is this a sign that the world is going against globalization? What’s your take on where the world should be headed?

Steve Schwarzman: I don’t think it’s a globalization statement, per se. I think what happened is that a lot of companies experienced a severe dislocation in terms of its ability to get goods from China in particular because China is the manufacturing capital of the world. I had one CEO – somebody in the fashion business – who said, “100% of my supply comes from China, and I can’t get anything. I’m going to go out of business because I can’t get any merchandise.”

Once you experience that kind of situation, and it doesn’t have to do with government directives, a normal businessperson would say, “I can’t leave myself exposed to any place. Doesn’t matter what the name of the country is. I have to have a more diversified supply chain.” I think that lesson was learned around the world. It didn’t have to be directed at China. It could be other countries that shut its borders, which happened for the first time certainly my lifetime, other than a world war, where you couldn’t get goods from other places. This is the first time.

What that did is it woke up almost every businessperson to at least evaluate what their supply chain is. Now, I think what may happen is rather than remove existing operations, growth may go back to locations that are closer. Different businesspeople say, “I just don’t want to be as concentrated in any one country.”

Neil Shen: Basically, you are suggesting that both the industry as well as the countries all should try to optimize their supply chain and to avoid too much concentration. This is always to the best benefit of the country and the industries.

Steve Schwarzman: Yes, I think so. It will still leave the super competitive countries a lot like China, in an advantaged position. The only question will be how much of the supply chain will they get in the future. Of course, there are countries that have moved manufacturing facilities to China for Chinese consumption. China will come out of this downturn from the virus probably as the strongest-growing country in the world. China has some natural advantages for its own economy as it continues to internalize it.

Neil Shen: Agreed. I think clearly that there’s still a lot of great advantages in the industries that China enjoys.

Steve Schwarzman: In terms of China itself, you’re one of the top experts in the world in terms of looking for investment opportunities there. What do you see in terms of industries that you think would be interesting now in areas of the country? I could learn a little about that.

Neil Shen: Oh, thank you. You guys have also been very active in China. I have been investing in China for the last 15 years and have seen several cycles of ups and downs. Many leading companies came out of such tough times because they became even stronger players in their respective sectors. They took advantage of the dark moments and made many offensive moves to gain more market share. I think it is the same for investors. The current environment actually provides some great opportunities for us to back those long-distance champions in different industries.

If there’s any successful formula for us in the last 10, 15 years in China, it’s because we’ve consistently been ‘long’ on China. I would say now it’s probably time to double down on China in many sectors. I think there are many attractive investment themes in China. Probably the most important ones are around technology and innovation.

Digital technology, as you know, including internet, AI, IoT, are transforming many services and manufacturing industries in China. The recent coronavirus might actually accelerate some of those transformation processes. In China, clearly the public health system will be further strengthened. The healthcare industry will enjoy higher growth, as investment from both the private and public segment will increase. It’s going to include vaccines, innovative drugs, medical devices, hospital services. We are going to see quite some new areas of innovation and growth in the broader healthcare area.

Steve Schwarzman: I was thinking about this myself because I knew I was going to ask you that question. I agree that technology and healthcare are going to be really terrific areas.

Neil Shen: Let’s go back to the book. You talk a lot about core values, culture, et cetera. What are the core values required for successful entrepreneurs? What should entrepreneurs do to deal with the current world, which is obviously increasingly uncertain?

Steve Schwarzman: Well, I think, as you know, from working with entrepreneurs and being one yourself, there are a number of core values. The first is you have to be able to take a lot of setbacks, a lot of pain. You need to be very psychologically strong, emotionally stable, and you need to have enormous amounts of energy because you constantly have setbacks. Secondly, you need to learn and adapt from mistakes. We all make mistakes, but most people may pretend those mistakes didn’t happen. They don’t analyze them. They don’t look at them to figure out what went wrong, so it’ll never go wrong again.

I think that’s the second part of an entrepreneur. The third is to have a worthy dream. Just going out and doing something everyone else is doing is okay, but it’s not sufficient to have a great dream. I think that entrepreneurs need to look at the world and figure out how their talents can be best used to create something that doesn’t exist now, but that other people will want once you point it out to them.

Another core value, core competency, is entrepreneurs typically have to be convincing, that they have to convince customers, they have to convince suppliers, and they have to convince people to join them. It’s very hard for an entrepreneur to be successful just as a single person. They have to have all of these groups form a system. They have to recognize what it takes to deal with other people. All of those, and it’s helpful, in many cases, to have some basic understanding of finance and numbers to make sure they don’t run out of money.

The final thing is fear. Fear is a really good thing because it makes you work harder, but it also helps you avoid areas where things might really go wrong. If you’re scared of failing, you’ll take that fear and adapt it to de-risk types of decisions that you might normally not think so much about and take it and it could go wrong. Those are elements of what makes a terrific entrepreneur.

Neil Shen: I think these are very good suggestions on the traits. I find it interesting that when you are looking at US entrepreneurs and Chinese entrepreneurs, the very top ones, they share many similarities in terms of their entrepreneurial traits.

Steve Schwarzman: I enjoy being with all the Chinese great entrepreneurs. In fact, other than the language, which is different, but many of them know English as well. The American ones don’t know Chinese, but we don’t know many languages at all other than English, that the similarities are really overwhelming.

Neil Shen: What’s your suggestion to them? Now we’re getting into a world with so much uncertainty compared with before. Any specific suggestion for those entrepreneurs?

Steve Schwarzman: Sure. Well, I’ve been through a lot of downturns, probably five or six in my life. They’re all scary at the time. This is so extreme that you have to look at this and say, “Okay, humans were not meant to be hiding in their houses. They are social creatures. They are going to come out of their houses, and they will want to go back to work.” Since we know that is going to happen, and we know that the virus has a life of maybe a year and a half, maximum, and in the meanwhile, the medical people and drugs are going to get better and better, so in effect, we know there’s going to be a movement of people back into the workplace.

We know, with pretty good certainty, that once that starts, economies are going to get better all over the world. It’s important to not have an emotional response to this, but to look at it and say, “What’s going to come back first? What’s going to come back last? What’s going to change and not go back?” There’ll be much more on the internet, people meeting virtually, just like you and I are. That’s going to hurt maybe travel, but it’s going to help technology.

What that does for an entrepreneur is you have to have a view of what the new world’s going to be, where the demand’s going to be, where you can get capital to do something in the areas that are going to be good. Then, when you think through something that’s terrific, you just go there and you go there with 100% to 120% total commitment, and you’ll be successful, and other people will be frozen. It’s the predisposition to action when you see major trends that are going to be happening. If you put yourself in front of that major trend, odds are you’re going to be successful. Most people will be scared and do nothing.

Neil Shen: You mention in your book that corporate culture is more important than management. Can you elaborate on this philosophy, and how does Blackstone’s culture differentiate from others, and what have you been doing to build this very unique culture?

Steve Schwarzman: Well, what you learn is that no one person, no matter how good they are, can do what everybody does. You can’t control what everybody does other than by teaching them good values, teaching them what you believe so that they can keep the core of what you believe and do it themselves. At Blackstone, we have a variety of things that just have to happen. If we’re hiring people, we have to hire very smart people. We have to have people who are honest and have high integrity.

We believe in high levels of cooperation. I believe in the zero-defect culture. What that means is you can make mistakes in judgment, but you can’t make mistakes in your work. It always has to be accurate. Anything that leaves your desk, that goes to someone else, has to be perfect. I believe – and we teach everyone – that groups can make better decisions than just one person.

That decision should be made based on intensive analysis, laying out all the risk factors in any decision, and then assembling a group of six to eight very smart people and having them analyze that information in an open way. We have a culture where no one is an observer. If you’re in the room, you must talk and you must tell people what you think, not what somebody else thinks.

I don’t believe in what I call—and I hope this can translate—a paid audiences of people in a business. If you are at a table, you’re there to make a contribution. You are not there to watch other people intellectually work. We have these very vigorous debates. It’s part of the culture. It happens on every decision, but it’s not personal because in most organizations, if you say something that disagrees with someone else, then the first person is in effect viewed as attacking the other person. That doesn’t work well, so people are reluctant to say the truth.

We’ve created an environment where you have to tell the truth and what you think, and it’s impersonal. Once everybody knows every meeting is going to work like that, then you have the benefit of everyone’s intelligence, which is very important. We also have other core values, which is helping society so that people have a chance to help their organizations out outside of the business.

We treat everyone in the business as if they’re family. I view the business as if it’s a small business. Right now, our parent company employs about 3,000 people, and we employ over 500,000 people through other businesses and assets that we own. I try and make sure that our senior management group, on Monday, is on video with everyone in each of our individual business logs because if you’re going to transmit your values and what you were thinking about the world, you can’t just send out an email. You have to be in person.

Video has transformed the way to manage businesses. If all of your people, for example, in private equity and after private equity meets, our real estate business meets, and then our credit business, then our tactical opportunities business, all day four of us sit in the same room and the equivalent of 250 to 300 professionals meet with us for each of those businesses.

We go over everything in the world that’s happening so that every person knows everything. Even if you’re 23 years old, you know as much as the senior person in the entire business. We try and treat everyone as if they’re the most important person in the business. It’s a very American type of style. Very horizontal, not vertical. What happens is when you take very talented people and treat them as if they are extremely important, then they will do almost anything for the benefit of the business because they think like you.

That style of constructing an organization is exceptionally powerful. Each one of those people, when they’re in a situation alone, will reflect your values. You don’t have to tell them what to say. They will know what to say.

Neil Shen: That’s a very, very unique culture. Clearly, it’s not easy for a large organization like yours for every everyone to feel they are a family member. It’s a very, very powerful culture. You did mention talent a couple of times, and that you want to hire the best team members and talent. In the book, you talk about building a winning firm with people who score 9s, but also those who are 10s—individuals who can take the business in new directions without needing to be told. How do you know if someone is a perfect 10? How do you evaluate talent?

Steve Schwarzman: Well, you’re a 10. How would I know that you’re a 10? One way I would know is that for people who are older than 40 years old, they are their reputation. What I see doesn’t matter much. If everyone who knows you says you’re amazing, what I’ve learned in life is you are amazing.

Neil Shen: Thank you.

Steve Schwarzman: When people are younger, it is harder to judge them because they aren’t fully formed yet. I’ve interviewed huge numbers of people over my life. I’ve been in business over 50 years, and it’s one of the parts I enjoy the most. I enjoy it because when a person comes in, it’s hard to know what’s going to happen. It’s an adventure. It’s not like the normal part of your day.

Usually, I get a resume or a CV, you might call it. Usually, at least in the West, particularly with younger people, they have their background, and then at the bottom, they have something that says “Interests.” Either they’ve climbed Mount Everest or they’re the best swimmer, they’ve won a silver medal in the Olympics, or they are the number 1 chess champion in the United States under the age of 4. Some funny thing.

What I’ve learned is they put that there so you’ll ask them about it. I always ask them about it because that’s my way of being friendly since they’ve asked me to do that. Then that conversation goes someplace. I’ll take it wherever it goes. Sometimes I’ll walk in a room and have done something very interesting, like this video that’ll be all over China. I’ll say to the next person who sees me, “Geez, I just did the most amazing thing. I was just talking to maybe 100,000,000 people in China. How interesting.”

If they don’t respond, that’s odd, because this is not an everyday thing that somebody would do. I learned, if they don’t respond at all, that means they don’t have a lot of curiosity. I’m looking for people who are mentally alive, they’re smart, they’re flexible, they’re curious. If you start talking about something that they don’t know and don’t have a background, they’ll either try and play along and make a mess or they’ll say, “I have absolutely no background in that area. Here’s what I could say, but this isn’t an area where I’ll be very good.” I’m looking for people who are stable under pressure. It’s very easy to be self-possessed when there’s no pressure on you.

You can figure that out just because the interview setting is tension-producing for them, not for me. I try and figure out how they’re doing under that pressure. Do they enjoy it? Do they come alive, or after you ask them some things, do you see them sitting further back in their chair, symbolically trying to get away from you? If that’s the case, there’s no hope. I imagine that this person is already working at the firm, at Blackstone. Would I want to see this person again? Are they showing me something that maybe I don’t know, a different way of looking at something where I’m not an expert? What happens is you can very quickly figure out how good somebody is.

By the time I interview people now, the fact they know how to do their work well, somebody else has figured out. People just don’t come in and see me. Usually, in our system, they’ve met 15 or 20 other people before they get to me. My judgment, at this stage in my career, is their potential to be great. If I see someone, which I did about nine months ago to start one of our new areas in growth equity, just an extraordinary person, and I was supposed to see him for a half an hour, I just couldn’t stop talking to him.

After an hour and a half, I said, “Look, I haven’t checked with anybody else. Everybody thinks you’re great. You’re hired. You’re amazing. I can’t wait to be working with you.” Now, that doesn’t happen that often, because people who are 10s are pretty rare. Hiring people and knowing what their capability and potential is, is one of the things that makes a great organization, as you would know, because that’s what you do for a living. You interview people constantly to try and figure out whether the idea they have – and their drive talent, intelligence, and flexibility – will get you to something great.

Sometimes, if you have a great person in the venture business and their idea seems great, but the world changes, that one investment might not be as good, but they’ll be successful doing something else a second time, because basically, they’re enormous pieces of talent.

Neil Shen: That’s a very good suggestion, that business leaders should be talking to potential candidates. Obviously, the very reason you can make those decisions and make those calls when you interview them is because you come from a long history of successful investment. Let’s get into that part of our conversation now. In the book, you mentioned that one of your guiding business principles is to never lose money. Can you elaborate on that? Are there any other investment principles you’d like to share with the audience, with the younger generation especially?

Steve Schwarzman: Yes, sure. “Don’t lose money” is like this famous saying used by doctors: “Do no harm.” Investors hate it when you lose money. If you don’t make so much on some things, it’s okay. That’s just a mistake. If you lose their money, they get astonishingly angry at you, and they’ll almost never give you more money. You have to be very careful when you make a decision. That doesn’t mean you don’t take risk, but when you make any decision, you have to believe that you’re not taking risk.

The reason you would believe that in that you were stupid in the first place, that you just feel like believing that, or you’ve done the work to show where things can go wrong, and you’ve discussed it and planned to take those things that obviously can hurt any new business, any new organization, any new investment, and you’ve engineered those out. I think it’s important that investments are not balanced. That the chance of losing money is equal to the chance of making money is a ridiculous approach in my view.

Even if it’s a lot of money, and I’m not in the venture business like you are, where people do that all the time, and sometimes they do astonishingly well. What I’ve learned is when you’re handling large amounts of money—we have over $500 billion of money, that’s a huge amount of money for private investments, the biggest in the world actually at Blackstone, with no other company close to our size—that our responsibility is always doing a great job for people and using the process I talked about earlier where we openly debate the basic assumptions of everything. That enables us, for the most part, to avoid loss.

Before the financial crisis that we now have—and we’ll see how we all come out of that—from our last 700 investments, we only had had one bankruptcy, one catastrophic loss. That’s a pretty amazing record when you buy a lot of things and you borrow a lot of money for each one, and to only have one that collapsed out of 700 shows that you can do that.

Neil Shen: Absolutely. I guess every single one of those 700 [investments] had some embedded downside risk, but somehow you analyzed it and you managed it. That’s an amazing number and record. Other than ‘never lose money,’ do you have any other investment principles, if you had to pick one, to share with the audience?

Steve Schwarzman: Yes. Go into industries that have growth. If you’re investing in something where that whole field is doing well, and it’s going to do better in the future than it is the day you invest in it, that kind of field, you will find your way to success. If you’re investing in something that you think is quite cheap, but has very little growth, then when something goes wrong, you don’t have a way to fight your way to success. That would be the other thing that I would say.

For example, Neil, in the real estate business, we sold our large shopping centers and malls when we saw the internet coming in. In the Western world, that was a very smart thing to not own those. We took the money and new money and bought warehouses. Now, why did we buy warehouses? Because all the internet sellers, whether they’re the Alibabas or JDs, doesn’t matter, they all need warehouse space for their goods to ship them to customers. Warehouses throughout the world ended up being the best asset class in real estate. We were the largest purchaser of warehouses in the world over the last 10 years.

What we did is we looked at where the growth was going to be, where society was changing, got out of things that we thought weren’t going to work, and made huge commitments to things we did.

Neil Shen: Yes, it’s a lot better to be in a growth industry and enjoy the tailwinds instead of meeting the headwinds. Many young people in China are reading your book not only for investment advice, but also for advice on their career and life. If you could only offer one suggestion to them, what would that be?

Steve Schwarzman: I think one of the suggestions, particularly for younger people, is go into something that you love. What you find in life is that if you find something where you are a natural fit, your interests and your capabilities fit a certain type of activity, you could be really great at doing that.

One funny example in our country is that we had a basketball player named Michael Jordan, who was probably the best basketball player who ever played, and a remarkable athlete. His father died, and he became very depressed. He quit basketball, and he tried to play another sport called baseball. Michael Jordan was a terrible baseball player. Here was the best person in a sport who went into another sport and was mediocre. How is that possible? They’re both athletic.

After a year and a half, he decided to go back and play basketball. I was at his second game. He hadn’t played in almost two years, and he scored 40 points in his second game, which is an exceptionally high score, because he was gifted. Each of us have something we like that we’re better at than other things. If you stick to where you have a gift, you’ll find that you’ll have a more successful life, you’ll be happier, and you’ll probably be much more successful.

I think I’d like to ask you what your number one career advice is for people, given the disruption in the economy today in China.

Neil Shen: I would say whether there’s a disruption or not, I think the same law actually applies. And you have said that so well. I think you need to be enthusiastic about your job and your career, and something you truly love. In addition, I think you can choose an industry where there’s a lot of exciting development. Not only in the short term, but also in the medium to longer term. I think I would advise young college graduates to look at those criteria because those are much more important than just compensation.

For young entrepreneurs that just started a company, it’s not an easy time. I would suggest to them that they focus on survival during this very special period of time. I think the most important thing is to attend to your cash flows, because that’s the only way that you can make sure the company will survive. Then also, like any startups, focus on product.

I think the crisis will be over [soon]. If you have a truly differential product, you can come out as someone who is much younger in the sector. I just feel like you need to be resilient in a market like this because many great companies actually have been built during special periods of time like this.

Steve Schwarzman: I told our younger people that they’re actually quite lucky to be involved in our industry, which is the investment industry, at this stage of a really huge economic dislocation, because they’re going to learn to never trust anything that somebody tells them about what the future’s going to be. As you said, make sure you have enough cash and cash flow so you don’t get in trouble.

When young people start, they look at the world, they look at models they build, and expectations, and they don’t always plan for everything going wrong. When I started—I first started in 1969, then I went to business school and came back and started again in 1972 at Lehman Brothers—there was no equity increase for 10 years in the United States. I learned equities don’t go up automatically, and if they do, it’s a gift and it may be temporary. My whole career, because I learned in a bad time, is to not believe what everybody tells me. Always assume it can go wrong, always protect the business.

Neil Shen: Prepare for the rainy days.

Steve Schwarzman: Right. What happens is the young people now who are starting out and other people who have businesses will learn discipline and what academics would call risk control in a way that will benefit them for the next 10, 20, or 30 years of their careers. Even though it’s tougher times now, they have to look at it as an educational time where they will learn rules that will help make them success.

Neil Shen: Great. It was so enjoyable talking to you. We are running more or less to the time, but I hope that you can actually come back to China soon so that you can physically see the audience who will be become big fans of your book.

Steve Schwarzman: Well, I’d like to come back soon. I have the Schwarzman Scholars Program at Tsinghua University, and right now, everybody is scattered around the world. From the foreign students’ perspective, everybody would like to come back. We all need to be safe, and that’s the job of our governments to help provide that safe environment, but it’ll be great to come back as soon as I can.

Neil Shen: Great. Thank you so much for your time and stay safe.