In September this year three American businessmen published their memoirs. One a financier, one a corporate executive and one an entrepreneur, they added their contribution to the canon that is the business memoir.
You know the genre. Businessman becomes successful, retires, writes about it. It’s an easy genre to critique. Not only are these books born out of selection bias, because who wants to read the memoir of an unsuccessful businessman, but they layer in all the personal biases of the businessman in question. As how-to guides they’re next to useless.
As narratives though, they can be extremely compelling. And each of these businessmen tells a very good story. At one level, the three have a lot in common, being born within ten years of one another on the east coast of America. But they chose quite different paths and followed them in different ways, and their books reflect those differences.
Schwarzman denies that his is a memoir at all. He opens up: “I never wanted to write a memoir… this book is a collection of some of the inflection points that led to who I am today.” He writes about the growth of Blackstone Group, the firm he co-founded in 1985. Now a $62 billion company it has operations all over the world and manages $554 billion of client assets. Unlike the others, he was already a someone before he launched Blackstone. In fact, some of the more interesting anecdotes relate to his time at Lehman Brothers, where he rose to be head of global M&A.
Of the three Schwarzman is the only one I have met, and the chutzpah he exhibits in person comes out on the page. At an investor dinner a few years ago, in between taking calls from his wife, he asserted that no-one round the table ought to be earning less than $X, and if they are, they should have their boss call him. At the time I thought it was billionaire braggadocio, but the book reveals that his audacious streak goes way back. The title of the first chapter is Go Big. He recalls how he persuaded a major R&B vocal group to play at his school’s gym and how, following a rejection from Harvard, he harangued the dean to let him in (unsuccessfully, as it happened – he took his undergraduate degree at Yale). In a foreshadowing of the conversation we would have round the investor dinner table, he describes how he negotiated the starting salary at his first job from the standard $10,000 up to $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.”
One of the best insights in the book comes early. Eventually making it to Harvard to take an MBA, he recalls his first case.
Our first case study involved a scavenger company hunting for sunken treasure. The question before us was how much money to spend diving for gold given the expected value of the gold that might lie buried in a galleon at the bottom of the sea…
“I read the case,” I said. “But it seems to be nonsense. If this is what the class is going to be, it’s basically got no practical application to someone like myself.”
Jay stared at me. “Tell me, Mr. Schwarzman, why would that be?”
“Because this case about expected value is premised on having an infinite number of dives to find the gold. I don’t have an infinite number of dives in my life. When I dive, I have to have a 100 percent probability of finding the gold, because otherwise this whole enterprise can bankrupt me. This case applies to giant corporations that have no practical limit on how many dives they can make. But most people aren’t Exxon. They have limited resources. Personally, I have no resources.”
It’s an idea that still is not widely understood, such is the hold that expected value has in economics. Rory Sutherland touches on it in his book, Alchemy. Simply put, an ensemble perspective is not always the same as a time-series perspective, and yet we frequently use the former as a short-cut for the latter. If the solitary diver goes bankrupt on his fourth attempt, there will be no fifth attempt; if the fourth diver out of ten goes bankrupt the other nine can still make it.
This idea provides the foundation for Schwarzman’s number one rule for investing: “Don’t. Lose. Money.”
While never lacking, Schwarzman’s self-belief builds throughout his career. He writes with a degree of humility yet dwells on a single, token mistake – the buyout in 1989 of Edgcomb, a manufacturer of steel parts for cars, trucks and planes. A collapse in steel prices following the acquisition led to Blackstone investors taking a big loss. “I had succumbed to a good sales pitch… I should have been more wary of my emotions and more scrupulous with the facts.” Schwarzman uses the experience to forge a new culture at the firm in order to mitigate the risk of a recurrence. He concedes, “During my career, I had gotten things more right than wrong, but Edgcomb had shown that I was far from infallible.”
Perhaps this was a turning point, because afterwards almost everything seems to go right. He takes Blackstone public just before the financial crisis, he sees the financial crisis ahead of time, identifies the solution*, and spots recovery opportunities in the aftermath. Later, he gets close to Trump. Although he refuses a position in the Trump administration, he intermediates in the trade negotiations between the US and China. On those it is too early to say whether he gets it right.
Bob Iger’s book begins with the same disclaimer as Schwarzman’s: “This book is not a memoir”. The line cautions that the book does not reflect the entire arc of Iger’s life, and indeed, like Schwarzman’s, it focuses more on the ups than the downs.
The Ride of a Lifetime tells the story of Iger’s rise through the ranks of ABC Television and then Capital Cities and then Disney to become Chairman and CEO of the combined group. As a shareholder of Disney I know how impactful Iger has been in that role. He took over in 2005 with the company in difficulty and via a series of well-choreographed acquisitions turned it into what Rupert Murdoch viewed in 2017 as “the only company that has scale” in the media industry. Today, Disney has a 40% share of the US box office, more than double its nearest rival, and holds five of the top six spots on the list of highest grossing films in 2019 – all of which feeds its global network of theme parks, TV channels and retail.
Iger is highly retrospective of his success:
“It would be easy in a book like this to act as if all the success Disney experienced during my tenure is the result of the perfectly executed vision that I had from the beginning, that I knew, for instance, that focusing on three specific core strategies rather than others would lead us to where we are now. But you can only put that story together in retrospect … I had no real idea, though, especially then, where this journey would take me.”
The three core strategies he mentions were honed prior to his interview for the top job nearly fifteen years ago. Summarised simply, they are the creation of high-quality branded content, embracing technology, and going global. He returns to them throughout the book. Not only does he credit them for helping him to guide the company over his tenure, he believes that conveying priorities like these clearly and repeatedly shapes the very culture of a company.
Where the book comes alive is in its account of the megadeals struck by Iger – Pixar in 2006, Marvel in 2009, LucasFilm in 2012 and 21st Century Fox in 2019. He dispenses with the cold strategic and financial rationale I have seen in investor presentations and focuses instead on the human side of the deals, the relationships he develops with his opposite number at the acquired companies.
The friendship he ultimately builds with Steve Jobs of Pixar is especially touching. On becoming CEO of Disney, Iger inherited an acrimonious relationship with Pixar. He reached out to Jobs with a proposal for a partnership unrelated to Pixar that helped to establish trust. By the time the idea arose to buy Pixar, the hostilities had relaxed. That didn’t stop Iger from being nervous though. He tells how he spent the morning building up the courage to call Jobs, finally doing so in the early afternoon. “I didn’t reach him, which was a relief, but as I was driving home from the office at around six-thirty, he returned my call.” Their relationship bloomed, the deal got done and Jobs died six years later. At his funeral Jobs’ wife approached Iger. “I asked him if we could trust you,” Laurene said. “And Steve said, ‘I love that guy.’”
One of the lessons Iger demonstrates is that trust compounds. Jobs vouched for Iger when he was negotiating with Ike Perlmutter over the acquisition of Marvel. Afterwards Perlmutter said that it influenced his decision to sell to Disney. George Lucas, too, saw the merits in the Pixar deal: “If I get around to it, you’re the only call I’ll make,” he tells Iger over breakfast. In the book Iger identifies a thread that runs through the acquisitions of Pixar, Marvel and Lucasfilm: “each deal depended on building trust with a single controlling entity.”
A similarity between Schwarzman and Iger is their propensity to do deals. Schwarzman comes at it from a financial perspective and Iger from a strategic perspective, but they make a common observation that for a value investor can sound anathema: it’s OK to overpay.
Schwarzman writes: “Goldman wanted to bid as low as possible to avoid overpaying. For me, the biggest risk was not offering enough and missing out on a tremendous opportunity… 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.”
When Iger was looking to buy Lucasfilm, he arrived at a valuation of between $3.5 billion and $3.75 billion for the company. The deal was eventually done for $4.05 billion. Similarly, the initial value placed on 21st Century Fox was $52.4 billion. The price eventually paid was $71.3 billion.
Iger has a philosophy on risk that underpins his willingness to push out the boat. It encompasses movie making and doing deals. In response to a TV flop at ABC Entertainment, he tells his cast and crew, “I’d much rather take big risks and sometimes fail than not take risks at all.” On broaching big deals, he writes: “People sometimes shy away from taking big swings because they assess the odds and build a case against trying something before they even take the first step. One of the things I’ve always instinctively felt … is that long shots aren’t usually as long as they seem.”
In short, he’s an optimist. At the time of writing, Disney+, the company’s TV streaming service, has just been launched with subscriber numbers that have exceeded expectations. At least for now, it looks like optimism prevails.
Marc Randoph’s memoir is altogether different. For a start, he’s less well known. He’s the only one of the three I hadn’t heard of. I’m a subscriber to Netflix but had assumed that it was founded single-handedly by Reed Hastings. Turns out Marc Randolph had the idea in conversation with Hastings and became the company’s first CEO (with Hastings as an investor). It’s also a little more authentic, not least as the only one to introduce itself as an actual memoir. (“This book is a memoir,” the author’s note begins.)
It tells the story of Netflix’s emergence from an idea hatched on a commuter drive in 1997 through to its IPO in 2002. Over those five years the company grows from an eight-person start-up to a business with a million customers. It rejects a bid from Amazon in 1998 (for “probably something between $14 million and $16 million”) and in 2000 has an offer to sell to Blockbuster for $50 million rejected: “John Antioco [CEO of Blockbuster] was struggling not to laugh.”
Since then, of course, the business has really taken off. Today it serves 158 million customers and has a market value of $130 billion. But Randolph has long since checked out. He explains in the book how, in 2003, he “slowly realized that although I loved the company, I no longer loved working there”. He’s a purist start-up guy. Unlike Schwarzman who always wanted to Go Big from the day he established Blackstone as a two-person start-up, Randolph is happiest getting his hands deep in “newly hatched dreams for which no one had yet discovered a repeatable scaleable business model”.
And although he didn’t have to, he also sold his shares. At the time of the IPO they were worth $12.6 million. Today, they’d be worth a quarter of a billion. Although not on a par with Ronald Wayne, the third founder of Apple who sold his 10% share in the company for $800, that’s a pretty sizeable opportunity loss. Yet Randolph does not reveal in the book how it makes him feel. Nor does he give away too much about his inner feelings towards Hastings. He describes how Hastings ousted him as CEO in 1999 and contrived to wrestle his stock options from him. And he describes how the well-rehearsed ‘founder myth’ – that Hastings had the idea for Netflix after ringing up a $40 late fee on his Apollo 13 rental at Blockbuster – is not strictly true; indeed, it pretty much airbrushes him out of the founding of the company. Yet he remains magnanimous and regards Hastings a good friend.
Perhaps it is the passage of time that allows Randolph to be so gracious – the book was written sixteen years after he left the company. Or maybe he just doesn’t care. Compared with the other two memoirs under review, this one dwells a lot more on family. Randolph remains married to the same woman and references her and his children frequently. He talks about how he and his wife would “sit on our deck with a glass of wine and imagine an alternate life somewhere else. I’d work as a mail carrier in a tiny town in northwest Montana, she’d homeschool the kids, and we’d cook dinner together at 5:00 when I had finished my route.” This “wistful yearning for a slower, simpler life – for getting off the treadmill” is not an emotion commonly cited in business memoirs. But it highlights the sacrifices that their authors have to make.
The biggest insight in the book concerns the nature of ideas. Early on Randolph remarks, “The truth is that for every good idea, there are a thousand bad ones. And sometimes it can be hard to tell the difference.” He argues:
“The best ideas rarely come on a mountaintop in a flash of lightning. They don’t even come to you on the side of a mountain, when you’re stuck in traffic behind a sand truck. They make themselves apparent more slowly, gradually, over weeks and months. And in fact, when you finally have one, you might not realize it for a long time.”
This becomes apparent later on when Netflix completely overhauls its business model to offer a subscription service. It is a revolutionary approach that with hindsight looks like a brilliant idea, but which Randolph suggests “was the result of years of work, thousands of hours of brainstorms, dire finances, and an impatient CEO … it wasn’t something that we thought our way toward.”
Although his outlook is quite different from those of the other two, all three inevitably share some traits.
They are all highly focused. Randolph coins the term ‘Canada Principle’ to capture the idea that choices need to be made (read the book to understand the reference). He lists dropping DVD sales, dropping à la carte rentals and dropping many members of the original team as difficult decisions that needed to be made in order to focus. Iger too extolls the benefits of focus implicit in his three-pronged strategy, after having whittled it down from many more.
They are all problem solvers. In one sense that’s what business is, but Randolph identifies problem solving as the thing he loves most. Schwarzman found his niche as an M&A banker solving hard problems that nobody else would touch.
They all have an entrepreneurial mindset. Randolph and Schwarzman started their own businesses, but even Iger talks about acting like an insurgent. It is this philosophy that enables him to embrace technology rather than fear it.
Finally, they all understand the importance of scale. Schwarzman always wanted to Go Big: “If you’re going to dedicate your life to a business, which is the only way it will ever work, you should choose one with the potential to be huge.” The other two go a level deeper. Iger sees scale from the demand side. He quotes one of his old bosses, who wrote a note: “Avoid getting into the business of manufacturing trombone oil. You may become the greatest trombone-oil manufacturer in the world, but in the end, the world only consumes a few quarts of trombone oil a year!”. And Randolph sees it from the supply side. In an early conversation with Hastings, he is told: “You want to sell something where the effort it takes to sell a dozen is identical to the effort it takes to sell just one.”
All three achieved scale in their work and their books provide a window on the process they undertook to get there. The critique stands – like most business memoirs these are sanitised versions of history. But a peek inside the room on big deals and major decisions makes compelling reading, and these books deliver.
- What It Takes: Lessons in the Pursuit of Excellence, Stephen Schwarzman, Chairman and CEO of Blackstone Group
- The Ride of a Lifetime: Lessons in Creative Leadership, Robert Iger, Chairman and CEO of Disney
- That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea, Marc Randolph, co-founder of Netflix
* Footnote: On a call with Hank Paulson, Schwarzman suggests that the US Treasury use the $700 billion of funds authorised by Congress to support the financial system by buying bank equity rather than troubled assets.