Since many of the users already work in the financial services industry or aspire to do so, I thought for this week’s post it might be a fun exercise to see if we can crowd source a business model. We can channel experience into something that might actually fill a void in the various industries represented on this site. As a quick primer, let me provide some poorly researched and frankly anecdotal evidence why this might be a good exercise: there is a retrenchment in PE as LPs are committing less to fewer funds; Wall Street is (still) in the crapper in the news; hedge fund returns (aside from the amazing post earlier this week about top performers) is mediocre at best; ditto for VC returns; investment banks constantly over-hire and over-fire; you’re likely in or recently out of undergrad with no job and/or just lost your job.
Let’s get cracking!
Where to start – let’s say we want to find a void in financial services in general where a genuine need exists and there are few players in the nation to fill the void. This is really the first step in the magic to creating a lasting enterprise of some sort. Where is there a lot of annoyance, pain and need that someone would be willing to pay you to do certain work? Maybe a few primer questions to start for those that are currently gainfully employed in one facet of finance or another:
- What are common tasks that need to get done at crunch time?
- What do your interns do?
- What did you do when you first started?
- What do you currently do that cannot be easily replaced by technology?
- What is a specialized task that’s relatively non-core to your specific role?
The aim of the common thread among the questions above are finding work that just needs to get done and you or an underling is the person doing it but it’s not really a full-time job, just the shit that flows downhill to the lower person on the totem pole. Now here’s where the rubber can meet the road to create something out of thin air that could be useful to a TON of people. What would you yourself pay someone to do for you?
Let’s take a few random examples from a few areas I know only a little about, shall we? Say you’re a PE associate and you’re chasing a deal. You are given the task of prepping the memo to send to senior lenders to line up financing on the mezz and senior side. Is this really something you couldn’t outsource and still get the job done? Eh, maybe. Perhaps you can save many a headache and find someone to do this work for you. What about a hedge fund that hired an intern to comb through a few new industries to come up with some new innovative investment thesis? It’s great if you have an intern but what if you don’t? Are there firms out there that do this on a contractual basis that have the experience to generate solid, actionable deliverables to you?
I think what you can tell I’m getting at is finding something somewhat specialized that is a needed task but not worth hiring someone full time at your firm to do. One of the main points I’m also trying to get across is that it’s just not realistic to raise a PE fund and literally outsource everything from soup to nuts; 1) subscribing to a deal website to send you deals, 2) diligence through big 4 or regional accounting firm, 3) post-transaction integration work to another accounting firm to blend the new acquisition with existing platform then 4) eventually hire yet another group to help prep to sell. Your entire fee structure would go to paying people other than yourself = not sustainable to say the least.
What stones out there are left unturned? Has anyone here thought of this or given it a shot? I have to imagine there are a number of really bright, entrepreneurially-angled people on here that this might even take off into a great discussion and something tangible as the landscape of finance continues to shift beneath our feet and the quest for need/innovation keeps some people afloat and makes others bloody rich.
Maybe I'm misreading this: you want to start a company that performs these processes for a fee - but you don't consider it to be outsourcing?
I just mean not outsourcing everything to where you are doing none of the work. This would be a firm (PE fund, hedge fund, etc.) outsourcing a smaller cyclical piece of the process to NewCo that doesn't require a FTE.
Sounds like you are describing a temp/staffing agency, which already exist. As a start-up, this idea is a mess. The value of the company would come from the talent that you can acquire on staff, and I don't think people with experience are willing to take a price cut from what they are doing to do grunt work. Even if you had a decent group of employees, their experiences vary and the group would be small, therefore the number of jobs you can accept is very limited. Building up a reputation for the company would take years, and I think you would run out of cash trying to market this firm.
Yup, good points but I'm thinking more in the case of when it's not their decision to leave a full time job to work at such an agency. Just wondering if there's a way to corral those with experience in an industry that are currently out of work or looking to leave their current firm and be placed in these temp gigs as a business model. So temp/staffing agency yes but maybe there's something to it if it's a more specialized or defined service/approach than just placing a body in a chair.
Isn't that what unpaid interns are for? I know I'd do that shit for free just to get in the door...
This.
And PE funds are not having troubles fundrasing, just the smalls ones.
True and you can always go to a placement agent as well if that's the case.
Very fair point but think about smaller firms and bringing on an intern (paid or not) there's a training and on-boarding element (can be a big time suck) that you might be able to avoid by hiring someone with experience out of the gate for a month or two - think of it as when firms outsource business development for a buy and build strategy around a platform company rather than doing it themselves or having interns make cold calls.
Updating Excel models for 150K a year and having an Ivy League degree an entrepreneur makes not.
Fail.
Private tech company research. Many institutional investors are making pre-IPO investments in software/internet companies. There is an opportunity to get paid by helping them perform due diligence.
Who would typically do this work? and if outsourced somewhere, are there many companies that have the skillset to do so effectively?
For what it's worth I'm not saying I have a great business idea here. I simply wanted to provide a forum where people can express an idea or thought and get the direct feedback from the very people working in the industry. I am hopeful some people have enough gumption to post something knowing it will initially get some criticism but that can only strengthen the idea. That was the intent of the original post.
Outsourcing is not the answer. If we actually wanted to look into doing something to take care of these processes, we would identity which of the menial tasks that bankers do could be automated, create software to automate those tasks, and then sell it or implement it ourselves to banks. It wouldn't get coffee for you but it could definitely eliminate a good portion of an analyst's job and maybe a good portion of the analysts. Let a computer do the bitch work.
Not trying to be a jerk and point out the obvious as I appreciate the feedback, but I clearly stated in the original post to think of something that cannot be easily replaced by technology.
Every firm should constantly strive for automation and efficiency. However, some things just cannot be automated like relationships with decision makers, among many others.
Sorry, I skimmed your post. Either way though, much of an analyst's job could be automated.
You want to outsource relationships with decision makers? Outsourcing those would only make decision making more complicated.
I realize you were only using that as an example, but if you are using that as an argument that technology won't solve the problem you presented then you shouldn't rule it out because of something that doesn't apply to your situation.
Since the FTC isn't shuttering HLF, let's start a competitor "Monkeylife," just hire a contract manufacturer to slap our private label on protein powder and pills and then pay sales reps a little more than HLF. IPO in a couple of years
I understand. And whether folks except it or not. The current state of the economy will dictate changes in business models.
For example, real estate agents usually command around 6% of a home's sales price. However, much of the business is focused on the broker/owner of the firm taking 20-40% of its agents' commissions. Well some firms are introducing a new model where the broker/owner lets the agents keep their commissions, but takes a small monthly fee and a small per transaction fee which winds up being significantly less the large percentages previously taken. Sounds like shit right? Until you realize that the broker has attracted 300 agents who all pay $50-$100 month, regardless whether they sell anything or not. This doesn't count any money he personally makes or the per transaction fee. The agents are independent contractors who work from home with their own expenses. So no big office to house these people. The firm provides branding, software, and a very small admin staff.
Not saying the OP's model is the best, but firms in every industry are rethinking their deliveries.
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