Recruiting, Your career
Private Equity funds need more consultants – This article is written by Quentin, our member who moved from consulting to private equity through Movemeon.
A couple of years ago, Movemeon offered me my first experience in the private equity (‘PE’) world. I joined TowerBrook, a mid-cap private equity firm investing in SMEs in North America and Western Europe, as a Portfolio Group Associate. Having been catapulted as the first junior non-investment banker hire in the firm’s 15-year history has convinced me that the world of private equity governed solely by bankers is certainly over and that strategy consultants will play a greater role in the future.
In my view, there are (at least) 7 reasons why:
1. Financial skills are now widespread in the industry and do not represent a competitive edge anymore.
The days where only a handful of ‘geniuses’ mastered the intricacies of financial leverage are long gone. Every year, thousands of students across the globe graduate in a financial engineering-related subject. As a PE firm, shaping a team solely around those highly specific skills does not suffice any more to create a competitive edge.
2. Conversely, in a world where ‘too much money is chasing too few deals’, operational improvement stretches the field of possibilities. Private equity firms are now holding an all-time high of c. $1,300bn in ‘dry powder’, i.e. committed but non-invested capital – see chart below. As a consequence, the competition for assets is fiercer than ever and tight auction processes have become the rule. The tension between private equity investors’ two main objectives, namely meeting price expectations while delivering satisfactory returns to investors, has subsequently increased. Analysing the target not only from a financial but also from an operational angle is the only way to alleviate this tension.
3. Setting up a portfolio team is however far more easily said than done. There is no perfect model and each private equity firm will have to decide on the best structure and operating model given its overall strategy. Typical questions, to begin with, are: shall we go for a thin portfolio group supported by a network of experts or a fully-fledged team? Shall we only target experienced hires or shall we include more ‘hands-on’ junior profiles? Shall we favour generalist or specialist backgrounds? As returns from successful investments diminish, ‘stress-testing’ the investment thesis from multiple angles becomes increasingly important: The corollary of the previous point is that ‘bad’ investments are relatively more penalising than before. Nowadays, thorough and multi-faceted due diligence is crucial to any investment.
4. Operational improvement strategies are becoming increasingly complex and now have to be handled by specialists. Private equity firms have been implementing basic cost-cutting and cash management techniques since the mid-1980s. However, the share of ‘secondary’ deals (i.e. a PE firm selling to another PE firm) has been steadily increasing and the room for obvious cost reduction measures has significantly shrunk as a result. This trend has led private equity owners to seek more holistic and acute transformation programmes whose implementation requirements often go beyond the traditional investment banker’s skillset.
5. Private equity firms are progressively acknowledging the importance of the ‘voice from the ground’, which consultants are trained to listen to. Private equity owners have realised that the success of an investment is highly correlated with the calibre of its executive team. A rising number of former headhunters and former HR directors have consequently joined PE firms in order to assess the quality of the management team during due diligence and develop the team throughout the investment lifecycle. A single ‘talent manager’, however, cannot cover an entire company portfolio. Strategy consultants can use their ability to develop two-way relationships with their ‘clients’ to act as day-to-day links. Indeed, in a private equity environment, not only can former consultants influence and steer the firm’s strategy but also they can actively listen to the concerns of the management team.
6. Former consultants are best placed to get the most of current consultants.When PE firms hire McKinsey, BCG or Bain, they do not care about slide formatting: they want to see analysis and recommendations. Having been on the other side of the table gives you a unique advantage to ‘skim the fat’ from due diligence reports and to enter more quickly into productive discussions.
7. Running an operating team will become a ‘must-have’ investment criteria for Limited Partners – and for the general public. Jack Welch, former Chairman and CEO of General Electric, was appointed Senior Advisor at PE firm Clayton, Dubilier & Rice (‘CD&R’) in 2001. I am sure that Mr Welch’s wisdom is valuable to CD&R’s management teams, but undoubtedly there is also an element of public relations at stake here. Furthermore, the excesses of private equity have left a bitter taste in the mouth of the general public – millions have read Barbarians at the Gate. Operating partners give a more human face to the private equity industry.
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Your career
There are lots of reasons people leave consulting. When we polled our members, the top 3 were: working unsustainable hours, advising rather than doing and spending too much time travelling away from family & friends. In another poll, we also found out what the dream post-consulting industry.
But when people leave, there are often things they miss. Some go back. For others who decide to move to an industry role, for example, the cons still outweigh the pros (particularly for those who only went into consulting as a means to an end). Here are the things most people seem to mention that they miss the most*
(*please pardon the generalisation. Obviously, there will be plenty of exceptions!)
- The consistently high calibre of colleagues
- The variety of work
- The problem solving – big juicy ones
- The expenses (posh dinners, reward points, taxis & air miles)
- The travel (some are great; just not quite that much!)
So if you’re leaving consulting or know that you’ll leave eventually, take time to appreciate all the things you’re likely to miss when you’re gone!
Related topics:
Recruiting, Your career
One of the great things about consultancy is the breadth of experience and skills you develop. Most consultants will, at some point, work with every function in a company (finance, marketing, sales, technology etc.). As such, they have a huge choice of potential functions in which to ply their trade after consulting. We wanted to look into which functional areas are most exciting for consultants, so we analysed how consultants were behaving on our site (including over 100,000 data points). We were very surprised to see that “strategy” wasn’t top of the popularity index; instead, being replaced by more functional roles. Is it really time for consultants to get a “proper job”?! And if so, what does that mean for employers?
FUNCTIONAL ROLES ARE EVEN MORE POPULAR THAN TRADITIONAL STRATEGY ROLES
Strategy roles are always very popular on movemeon and garner a lot of interest from the top-tier consultants. However, when we looked in detail at which jobs the movemeon community were finding most interesting, we were fascinated to see that strategy wasn’t top of the list: the top 5 most popular functions were all functional roles. In short, responsible for “getting things done” and not strategizing around the right answer. Consultants want an opportunity to have control over a business and see personal impact, even if they can utilise less of their experience from consulting.
Equally as fascinating were the less attractive functions: organisation, analytics, marketing and programme management. With the exception of marketing, these are all areas that don’t have an immediate impact on the bottom line: they are “middle” or “back” office, responsible for influencing other areas of the business.
SOME FUNCTIONAL ROLES ARE BETTER SUITED TO GENERALIST CONSULTANTS THAN OTHERS
Looking into this a bit further, we were interested to see that the ratio of application to views varied dramatically: after reading a job description, candidates were three times more likely to apply for a product management role than an operations role.
The conversion of applications to view can be driven by a number of factors. However, in its simplest terms, it is a good indication of both how qualified the consultant feels they are and how well the role suits their skill set. Whilst there are some other interesting trends to pull out I wanted to focus on two: the very high conversion rate for product management and the very low conversion rate for operations roles.
Product management is a very interesting career given it didn’t exist 15 years ago. We’ve had many discussions with hiring managers around how product management can be a great fit with consultants: the fundamental skills of analysis, insights, strategy and implementation fit very closely with that of a strategy consultant. It’s great to see that consultants applying for these roles agree – and also find them exciting opportunities. There’s a huge demand, and a lack of supply, in this growing area: it might be consultants are well equipped to help fill this skills gap.
The low conversion rate for operations was also a very interesting insight. After some reflection, and further digging, our hypothesis is that this is driven by a lack of specific operational skills required for these roles. Whilst these roles are often attractive at the highest level (hence the very high click through), only consultants with operational expertise are capable of delivering what’s required.
WHAT DOES THIS MEAN FOR HIRING? DEVELOP FUNCTIONAL LEADERSHIP PROGRAMMES
First and foremost, to attract the best talent companies are going to have to ensure they offer roles that really impact the business. In addition to strategy roles, companies will have to develop “leadership programmes” where ex-consultants can start learning about how to really impact a business. We’ve worked with a number of employers to help think about different leadership programmes, from commercial through to operations, and we expect to see many more joining them over the coming years.
Recruiting, Your career
Did you know McKinsey, BCG, and Bain alumni were paid 40% more at Director level than other consulting alumni?. Are you paid fairly?
Consulting is often a way to start a bright career in other industries: it is the perfect training ground for brilliant new graduates with top academic profiles. You work with some of the most capable people in business. The skills you develop are highly sought-after in the job market.
However, due to the high pressure on performance and the gruelling working hours, many people leave consulting after a few years. Often, they’re in search of other career paths where they can put their hard-earned skills to practice.
Which are the best career paths for alumni? Based on over 20,000 applications made on the movemeon platform, these are the top industries ex-consultants move to.
BIG CORPORATES
Big corporates are always looking for alumni. Experience in consulting will usually translate into you entering the company at a higher level compared with other people with your years of professional, but not consulting experience. The most typical function for consulting alumni is obviously strategy. But according to our analysis of people hired through Movemeon, we can see that there are also other interesting functions for an ex-consultant, such as operations and product management.
START-UPS
The world of start-ups is an interesting realm for consulting alumni. Compared to consulting firms, they have a very different environment and approach to work. But the skills acquired in years of projects, data analysis and problem-solving make consultants perfect candidates for founding new start-ups or managing existing ones. This article offers some useful information for consultants that want to start a career in a start-up.
FREELANCE OR BOUTIQUE CONSULTING
After working for years in a consulting firm, even die-hard consultants, the ones who love every aspect of consultancy, might need a bit of a breather. They might also simply wish to be the commanders of their fortune. This is, indeed, a prime reason why a lot of them decide to open their own boutique consulting firms or work as freelancers.
PRIVATE EQUITY OR VENTURE CAPITAL
Many consultants develop very strong financial skills during their years in consultancy. These skills prepare them very well and make them very sought after, by financially-minded institutions like private equity or venture capital firms. Consultants’ financial skills, matched with their strong strategic outlook and consulting ‘toolbox’, make these bright individuals the perfect candidates for PE & VC funds.
Take a look at our most recent article: Which pays best, staying in consulting or leaving?
Your career
If you are thinking about making a transition into corporate strategy, Robert’s observation might be of interest. He found there are four core skills teams and individuals are missing on the client side. You can click here to have a look at his experiences.
What do ex-consultants miss the most about consulting? Okay, that is after the travel and fine dining, the free snacks, and the 80-hour work week?
It’s strong analytical and consultative problem-solving skills in their corporate work teams.
For the past five years, we’ve surveyed former consultants from BCG, Bain, McKinsey and several regional firms, seeking to better understand how their new corporate employer focuses on and builds competencies that are otherwise essential tools in the consulting kitbag.
Ex-consultants — and more than 400 have been surveyed — consistently say four core skills are missing in the teams and individuals they encounter once they move to the client side:
- Adopting a “hypothesis-driven” approach (i.e. developing a position on the likely answer early and designing work plan to prove or disprove week 1 answer)
- Prioritizing (i.e. making appropriate “80-20” judgments to avoid boiling the ocean)
- Defining strategic problems up front (e.g. identifying scope criteria for success implementation barriers, etc.)
- Structuring analysis (i.e. identifying key issues and drivers)
These skill gaps, in fact, often impede the performance of direct reports and teams.
However, the biggest surprise is not that skill gaps exist, but in how they are addressed. The short answer is: They are not.
When we ask “How does your organization currently support development of these skills?”, the majority of ex-consultants tell us that it falls to them to teach and coach the skills.
So, despite the increase in support for corporate universities and external training, the ex-consultant faces a significant demand on their time to build and mentor skills that they took for granted among their consulting teammates.
As a consultant making the move onto the client side and seeking to build a top-performing team, recognize that critical skills that you’ve been used to having may be lacking in your new colleagues. Understand that part of your new role will be getting your teams up to your speed.
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