Steve Schwarzman's Blackstone model: steady fees plus lumpy profits
Richard C. Wilson calls Steve Schwarzman's book his number one favorite billionaire book. He has listened to it twice. In his Billionaire Insights talk he pulls out how Blackstone was built, and why the design made the firm both steadier and smarter.
Two divisions that feed each other
Richard explains that Blackstone started with an M&A advisory division that brought in steady fees. It added a buyout division that brought in large profits at uneven times. The fees kept the lights on. The buyout wins created the jumps. Each side also taught the other something about the market.
Recruit the best person and make them a partner
Richard describes how Blackstone added divisions such as commodities. It would recruit someone who had run that desk at a big bank for years. That person would get a 50/50 partnership and no cap on what they could earn. Richard compares the approach to Richard Branson's.
Information moves between divisions
In Richard's example, the commodities team sees shipping costs triple overnight. The buyout team uses that to negotiate a price adjustment in a railroad deal. Richard calls it an octopus model. More arms meant more ways to earn and better information than competitors, which helped in shocks such as COVID.
One elephant, not many rabbits
Richard says Schwarzman would tell new people they would want to chase many rabbits while he wanted to go after a big elephant. Richard ties that to focus for family and private investors.
In Richard's words
"Next one here, this is actually my number one favorite one. I've listened to it twice on Audible." (Richard C. Wilson, Billionaire Insights talk)
"And by doing both, they would inform each other and create a steady business model that would have jumps and profitability." (Billionaire Insights talk)
"And I want to go after a big elephant." (Billionaire Insights talk)
"He expected excellence from everyone around him." (Billionaire Insights talk)
How to use this
- Pair a steady revenue line with a lumpy one. Advisory fees with deal profits is one version.
- Make your divisions share what they see. One team's market data can change another team's negotiation.
- To enter a new area, recruit the proven operator and give them real ownership.
- Before adding a new line, ask if it is an elephant or another rabbit.
Questions and answers
How did Blackstone combine steady and lumpy income?
As Richard C. Wilson describes it, Blackstone paired an M&A advisory business that earned consistent fees with a buyout business that earned large profits at uneven times. Together they made the firm steadier and better informed.
What is the octopus model Richard mentions?
It is Richard's name for a firm with several divisions whose information helps one another. In his example, commodities data on shipping costs helps the buyout team negotiate a railroad deal.
Which Schwarzman book is Richard talking about?
He means the book subtitled Lessons in the Pursuit of Excellence, which he calls his favorite billionaire book.