Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 6
'Paddle as fast as you can or you're going over the falls!'
"Eat what you kill." This is how we described the culture at Bear Stearns. I think this is part of the reason Bear Stearns no longer exists.
It was a place where individual employees competed with one another, and there was no sense of sharing credit or succeeding and failing together. George and I would talk about leaving the company someday because this mentality was wholly incompatible with our values.
President Harry Truman left a famous saying, "If you don't worry about who gets credit, it's amazing how far you can go." That's how we operated and later a good descriptor of the type of company culture we wanted to have.
But Bear Stearns did have one amazing and talented individual: the late Jerome (Jerry) Kohlberg. George and I looked up to him and learned so much from him. Jerry mentored both of us in the business of buying companies and eventually in starting our own.
Our philosophies on investing in companies diverged significantly from the Bear Stearns mentality. Bear Stearns was a short-term-oriented firm focused on trading stocks and bonds. Our view was we wanted to invest in companies we could hold for 10 years and not just look to make a quick profit. We were thinking, "This is what the company should look like in 10 years' time."
The management team hated what Jerry, George and I were doing. Almost every time I visited a company we had acquired, I was ordered to go back to the office and told, "You should not be spending time on those deals!''
The three of us decided to leave Bear Stearns and become independent in April 1976.
Before we left, we gave Bear Stearns the opportunity to build this business inside of Bear Stearns on a 50-50 basis, equally owned by us and Bear Stearns. Cy Lewis, who was running the company at the time, said, "You are either here doing what we want you to do, or you should leave." We left the room, went back to our office and talked about it. Returning five minutes later, we told him that we were quitting our jobs and starting our own business.
Raymond, my father and George's uncle, was Cy's best friend. After telling my father what we had just done, I warned him that Cy would probably call and say, "This is the worst mistake that Henry and George could possibly make. These two guys have a great future here, and they are crazy to leave Bear Stearns."
That afternoon, my father called me and said Cy had indeed called him. Then I asked my father, "Are you going to back me?" "Of course, I'm going to back you! You are my son,'' he answered.
They did all they could do to hurt us once we decided to leave the company. When I went to open my office door, for instance, a security guard was there to block me from entering the room and collecting my belongings. When I said, "I'm a partner at the firm," the guy said, "I have instructions to keep you out." When I managed to get inside, I found my office had been cleaned out. I immediately called George, who was in California and advised him to go to his office to see whether it had been cleaned out.
They had also called the banks financing our acquisitions and told them not to do business with us. I called several partners at Bear Stearns and asked them, "What is this all about? Why are you treating us this way?" "We don't know anything about it," all of these partners said.
Now we were even more determined. "If that's the way they're going to treat us, we will figure out how to succeed." After that, we never dealt with Bear Stearns again -- until years later when we were approached to invest in it during the financial crisis. There is more than a little irony in that.
I learned a lot from this experience. You can't stifle the entrepreneurial spirit. And thank goodness for that, not because of anything we did but for the broader good of innovation. Imagine where we would be as a society if everyone stopped when told no.
When people leave KKR to start their own businesses, we cannot say to them, "Well, that's stupid, don't do it." Because we did it. We try to talk with them to understand why they want to leave. We have even personally invested in some of those enterprises.
When we left Bear Stearns, George and I were 32. We each had three children and virtually no money. We could not afford to worry about whether it was going to work. We just kept telling ourselves, "Paddle as fast as you can or you're going over the falls!"