3/23/10

Guys -

Enjoy this rather scathing review of banking and consulting from Guy Kawasaki. Your choice to believe or disbelieve.
http://www.nytimes.com/2010/03/21/business/21corne...

Q. Why did you carve out investment banking and consulting?

A. With investment banking, you make a lot of money, and you get a distorted feeling of how wonderful you are. You'll be flying around in corporate jets and you'll be attending board meetings, but you don't really add value.

The issue with consulting is that if you go straight to work for a consultant, you develop this perspective that the hard part is the analysis and the decision. In reality, that's not the hard part. The hard part is implementing the decision, not making it.

So the problem with consulting is you get paid $400 an hour, you do your beautiful charts, you make your PowerPoint presentation, you tell the client what they should do, and you go on to the next project. Meanwhile, you're building up this belief that you're a genius: you know how to analyze; you know how to make a decision; and, worst of all, you know how to implement -- but all without implementing.

You can develop an absolutely incorrect perception of yourself as a great manager when, in fact, you haven't implemented anything. You haven't fired anybody. You haven't introduced a product. You haven't supported a customer. All you've done is make spreadsheets and PowerPoint presentations.

You can also throw venture capital into this pile. Going into venture capital straight out of school is a big mistake because entrepreneurs start sucking up to you and ask you stuff you know nothing about -- like how to run a company.

Jobs for college graduates should make them gain knowledge in at least one of these three areas: how to make something, how to sell something or how to support something.

Comments (43)

Best Response
3/23/10

This guy is clearly an idiot.

The biggest flaw in his argument is that he clearly has absolutely no idea what banking, consulting or VC actually are.

#1- VERY few investment bankers are flying around in corporate jets and attending board of director meetings. And if they are attending BOD meetings, it has less to do with being a banker and more to do with the level of respect given to them as a businessman by their peers. And of those very few, probably a dozen or two, NONE are fresh college graduates... I'd actually be very surprised if any are under 50.

#2- There is a reason they are called STRATEGY consultants and not IMPLEMENTATION consultants. This argument is about as valid as saying you shouldn't go into the dental profession because you learn nothing about the limbic system. You're not supposed to know anything about the limbic system, you're a dentist you fix teeth.

#3- No entrepreneur is sucking up to a 20-something year old VC jizz mopper. They're likely sucking up to the actual decision makers, and if that entrepreneur IS sucking up to the analysts, then it has nothing to do with the kid working in VC as that buffoon entrepreneur is just as likely to start sucking up to the crossing-guard outside the local elementary school for funding.

What Guy Suzuki doesn't understand is that at a junior level, its not what you do with your clients that teaches you in these professions, or any profession really. Its working with your managers and seniors. An investment banker is making markets and creating value. You may think thats a crock of shit. But ask an accountant or a lawyer or a writer how you can take two companies glue them together and make them worth more than they are worth individually... they cant. A senior banker has seen CEO/CFO's and Wall Street BSD's essentially create and destroy value every time the tide comes in and recedes. These are the people you're working with day in and day out and learning from.

Its a similar situation with consulting. Your managers/seniors teach you how to think in a way superior to insiders clouded with all other times of influences. Your firm is hired to come up with a strategy, which likely your seniors are doing, not the kid 6 months out of college. This is what you're learning. The value you add is theoretical, in that its just a plan of action. But the consultants that are worth their weight in donkey semen are the ones that come up with strategies that ARE easily implemented for their clients. Anyone can come up with a great strategy thats impossible to implement, the all-stars are the ones that come up with rock star strategies that seem effortless to implement. Its being able to do the former that not many people are capable of doing, thats why they pay $400+ /hr to people who can. Thats what you're learning.

I read the whole article and there are parts that are good. People are different. Some find success one way and other find it another. And some people don't view themselves as successful while the same person three-notches down from them view themselves as enormously successful. Thats the way it goes.

I agree with him on some points, like the importance of sales...

As for what he believes a college student should look for in a job (obviously a bit egotistical as he seems to believe they should follow his formula since he's been so enormously successful (not!)... so according to him:

1- learn how to make something-- create financial instruments that distributes risk and return profiles of an asset to parties willing to take on such risk according to their appetite... a la CDO's

2- learn how to sell-- sell a security that previously wouldn't have even passed the smell test to boat loads of investors managing pensions and futures of anyone making above the poverty line.

3- learn to support-- learn to support the CDO machine by encouraging more mortgage origination to more borrowers... just keep lending money to anyone with enough fingers to sign the closing documents

So Guy Suzuki says fresh college graduates should originate mortgages, structure them into CDO's and then sell them to investors.

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3/23/10

How to sell something...

Like how to sell consulting or investment banking services?

3/23/10
3/23/10

it's a question of expected return. my chances of working at the next google are pretty low, so my expected return on that 50 mil ain't good. but, my mbb pays me pretty damn well for a recent college grad, and I have a 100% chance of continuing to make that salary while i work here.

after i sock away some money, i'm more willing to take a risk. but kawasaki is trying to apply his career path generally across college grads.

Also, what I think is bullshit - someone with an ivy degree who goes and works at P&G, or Abercrombie, or Pepsi, is not highly regarded by the majority of employers, the logic being "well, why the fuck didn't you work at morgan stanley/bcg? must be something wrong with you." for ivies, there's a reason not many people deviate from the path...

3/23/10
3/23/10

This Kawasaki guy is a hypocritical piece of crap.

3/23/10

I've had dinner with Guy Kawasaki. At the very least, he definitely knows what venture capitalists do.

To be fair, I don't think particularly highly of consultants. None of my friends in the field have ever been able to intelligently defend their business. Most openly admit that their only real skills are making PowerPoint slides look pretty. The whole idea of consulting is MASSIVEY egotistical. You go into a company to deal with a problem that 'management' can't handle. Somehow, without ever having worked in the space, you're going to solve their problems. How? Because they're dumb, and you're smart. That's what consultants sell anyway (especially at the junior level).

Now, his comments on banking are a little off-base. How many of us analysts and associates are legitimate jet-setters? I have flown a few places on the company's dime, but they weren't glamorous trips, and I was sent only because no one else wanted to go. The actual business of investment banking for juniors kind of sucks. We all know it. If you're in IBD, you work WAY too much. If you're a trader, you're going to be someone's bitch for a few years (getting coffee and lunch even after you have some real trading responsibilities). In sales, you're not going to have any clients for awhile. You're also going to be getting lunches and coffees. And you're not going to learn much about the business of markets, so you're going to have to be pretty good at selling nothing to advance.

Anyway, I think Kawasaki was being a bit populist here. There is some merit in smart college kids learning to make something, but none of us want to. Where is the incentive? Why should I go work for P&G or Unilever? Are they going to give me any responsibility as a young person? Are they going to pay me so poorly that I have to live like a pauper in a major city? Or worse yet, are they going to take me out of a major city, and place me in some bumble-fuck-nowheresville?

That's why the best college grads generally don't want to work for those companies. No responsibility + bad location + shitty money = bad job...I don't care how you try to sell it.

3/23/10

Haha this guy is a hypocritical idiot. Thank god his garbage website and VC firm adds so much value to make up for us bankers....

In reply to brotherbear
3/23/10
brotherbear:

To be fair, I don't think particularly highly of consultants. None of my friends in the field have ever been able to intelligently defend their business. Most openly admit that their only real skills are making PowerPoint slides look pretty. The whole idea of consulting is MASSIVEY egotistical. You go into a company to deal with a problem that 'management' can't handle. Somehow, without ever having worked in the space, you're going to solve their problems. How? Because they're dumb, and you're smart. That's what consultants sell anyway (especially at the junior level).

This is a well peddled argument against consulting. Always falls down because you can't explain why firms hire consultants.

3/23/10

Guy Kawasaki is a failed VC; anyone in the industry will tell you that directly with few caveats. However he does make some good points. Banking/consulting as your first job does fuck with your head a little bit as he says, and it does have some of the drawbacks listed. However, it's better than the other shitty alternatives. If he had his way, all the smart engineers would go into some shitty start up, fail and then go on to become successful VCs.

The problem is he falls into the trap that most older advice-givers, namely that the game isn't about maximizing every single opportunity, it's about minimizing your risk and getting the most bang for your buck. Even run of the mill bankers and consultants will make great money in great jobs (relatively speaking for the population). However, there are lots of failed engineers who muddle around for years without doing anything meaningful or making any $$$.

3/23/10

Nicely put.

I've been speculating for a while, though, that deep down their hearts investment bankers and consultants actually know all this stuff and still pursue their careers because they secretly(or openly) think that working on spreadsheets and analyzing comps are superior to implementing the real tasks.

3/23/10

My main issue is how full of himself he is. As if anything other than what he's doing and how he got there is not worth it. IMO, he not even successful. Who the hell aspires to be the next Guy Kawasaki? Its one thing to give nuggets of knowledge from his experiences, its another to try to tell people that what they're doing isn't going to get them where he is... its a bit presumptuous.

Second, wtf is he talking about "you should strive to be dispensable?" Thats the shittiest piece of advice I've ever heard. "The greatest compliment is your company running perfectly without you" You're not raising kids where its a source of pride is if they venture out on their own and exceed your accomplishments. Your running a company. If you're not doing it better than anyone else is capable of, than you don't deserve to be there. His own statements about consulting contradict his advice(offering strategy without implementation, i.e. theory without practicality). Since the above stated advice is ENTIRELY too theoretical and not practical at all. No one strives to be dispensable, nor should they. Apple stock dropped when Steve Jobs was sick. Warren Buffet is absolutely indispensable at Berkshire. Henry Kravis at KKR. The legends are indispensable. For Kawasaki to say you should strive to be dispensable is basically telling everyone they should strive to be mildly accomplished.

The one thing I will give him is that he's good at selling. I mean he's sold people on his own brand value as some sort of business guru.

In reply to brotherbear
3/23/10
brotherbear:

To be fair, I don't think particularly highly of consultants. None of my friends in the field have ever been able to intelligently defend their business. Most openly admit that their only real skills are making PowerPoint slides look pretty. The whole idea of consulting is MASSIVEY egotistical. You go into a company to deal with a problem that 'management' can't handle. Somehow, without ever having worked in the space, you're going to solve their problems. How? Because they're dumb, and you're smart. That's what consultants sell anyway (especially at the junior level).

Now, his comments on banking are a little off-base.

Dude - when you make arguments like this, you sound like a joke from leveraged sellout. "Oh, consultants are useless, but bankers are hot shit." You don't have to prove anything to me - I don't mind if you went to Harvard, Dartmouth, or some shitty state school in the middle of nowhere, and I certainly don't care whether you work at Goldman or Piper.

If you're going to mount a defense of one profession, don't take the opportunity to knock the other down with a pointless argument - I can speak to many occasions when a firm didn't have the resources and expertise to develop strategies that a consulting team did. They weren't stupid - just confined in their experience to their industry and the tried & true.

I'm not looking to get into a mud-slinging contest with you, because you have legit opinions you've expressed in other posts, but just consider what I said.

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3/23/10

Clients are actually pretty incompetent in many cases in consulting.

In reply to Marcus_Halberstram
3/23/10
Marcus_Halberstram:

My main issue is how full of himself he is. As if anything other than what he's doing and how he got there is not worth it. IMO, he not even successful. Who the hell aspires to be the next Guy Kawasaki? Its one thing to give nuggets of knowledge from his experiences, its another to try to tell people that what they're doing isn't going to get them where he is... its a bit presumptuous.

Second, wtf is he talking about "you should strive to be dispensable?" Thats the shittiest piece of advice I've ever heard. "The greatest compliment is your company running perfectly without you" You're not raising kids where its a source of pride is if they venture out on their own and exceed your accomplishments. Your running a company. If you're not doing it better than anyone else is capable of, than you don't deserve to be there. His own statements about consulting contradict his advice(offering strategy without implementation, i.e. theory without practicality). Since the above stated advice is ENTIRELY too theoretical and not practical at all. No one strives to be dispensable, nor should they. Apple stock dropped when Steve Jobs was sick. Warren Buffet is absolutely indispensable at Berkshire. Henry Kravis at KKR. The legends are indispensable. For Kawasaki to say you should strive to be dispensable is basically telling everyone they should strive to be mildly accomplished.

The one thing I will give him is that he's good at selling. I mean he's sold people on his own brand value as some sort of business guru.

I think you're missing his point. No sane person would agree that it's good to strive to be a dispensable employee, but he is talking about being the head of a new company or organization. If you run it well, structure it well, and pick the right people, then the organization should still be able to survive without you. That means you've built a great organization and you have all these amazing people under you, and you are dispensable in the sense that what you've created is a self-sufficient being that doesn't rely on you anymore in order to survive.

Now if you're an entry-level analyst or being hired by someone for some middle-management position, hell no you don't want to "strive to be dispensable to the organization". In that case, you do want people to think that the organization is much better because of you. But again, if you are a leader in charge of overseeing some project, then a metric of your success is whether the project can survive after you leave onto something better.

Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust.

3/23/10

I understood the point perfectly well. I understand its in a managerial context.

And I stand by my initial statement which is its a shitty piece of advice.

If the value you add is so minimal that hiring a team of specialized intelligent and talented people will usurp your necessity then you yourself are of no value and of no talent. No matter how well Steve Jobs or Henry Kravis structure their organization, no matter how talented their team may be... they are indispensable to their business. Not because they are micro-managing, but because what they bring to the table is truly one of a kind and inimitable. If the contribution you make can be taught and replicated its not a very valuable one. I agree with the idea of hiring people who do certain things better than you. But inherent in that supposition is that you are capable of doing SOMETHING better than ANYONE and EVERYONE else. And you choose people who can do individual things better than you so that you're bogged down by responsibilities extraneous to your phenom talent.

On the other hand if his advice is theoretical, than it flies back into his eye like a loogie in the wind... as his criticism of consulting is that you all you do is strategize and are disconnected with implementation.

Insecure people would rather see the company fail without them than succeed. It's because their ego is so large that the thought of a company succeeding without them is incomprehensible. They would rather see it fail.

I personally don't give a flying fuck what a company does without me. If I'm not there I have no vested interest in it doing well/poorly other than the alma matter factor. If I worked at GE for 15 years, I would prefer to see it remain a cornerstone of the American and Global economy. I wouldn't want it to befall some accounting fraud or other ill fate. Other than that, I don't care. And its not particular management strategy, its a sentimental emotion.

In reply to bleedblue82
3/23/10
bleedblue82:
brotherbear:

To be fair, I don't think particularly highly of consultants. None of my friends in the field have ever been able to intelligently defend their business. Most openly admit that their only real skills are making PowerPoint slides look pretty. The whole idea of consulting is MASSIVEY egotistical. You go into a company to deal with a problem that 'management' can't handle. Somehow, without ever having worked in the space, you're going to solve their problems. How? Because they're dumb, and you're smart. That's what consultants sell anyway (especially at the junior level).

Now, his comments on banking are a little off-base.

Dude - when you make arguments like this, you sound like a joke from leveraged sellout. "Oh, consultants are useless, but bankers are hot shit." You don't have to prove anything to me - I don't mind if you went to Harvard, Dartmouth, or some shitty state school in the middle of nowhere, and I certainly don't care whether you work at Goldman or Piper.

If you're going to mount a defense of one profession, don't take the opportunity to knock the other down with a pointless argument - I can speak to many occasions when a firm didn't have the resources and expertise to develop strategies that a consulting team did. They weren't stupid - just confined in their experience to their industry and the tried & true.

I'm not looking to get into a mud-slinging contest with you, because you have legit opinions you've expressed in other posts, but just consider what I said.

I have to agree with brotherbear on this one. If you think about it, if consultants are so damn smart and so much more talented than the managers running these businesses, then theoretically all of them should be able to start their own ventures and get ridiculously rich. In my experience this occurrence is extremely rare.

Also, if consultants are business & strategy superstars, capable of doing a substantially better job than management (which their existence depends on), then at least theoretically you would see a larger proportion of former consultants in the C-suite. In reality, this is clearly not the case. Most CEOs, CFOs and COOs have backgrounds in accounting, engineering and investment banking.

In reply to Marcus_Halberstram
3/23/10
Marcus_Halberstram:

An investment banker is making markets and creating value.

You had me up until here.

No investment banker in the history of the universe has ever created value.

In reply to Marcus_Halberstram
3/23/10

*edit double post

3/23/10

Kawasaki's self-righteousness is why he works at garbage technology ventures and missed google as an investment. yes, banking and consulting are not good prep grounds necessarily for entrepreneurship; however judge the individual, not the title or status. He wouldn't have hired a guy like Bezos, who was by background a finance guy to run Amazon based on his flawed logic. Or perhaps he wouldn't have invested in another guy like Peter Thiel, who by background was a hedge fund guy, but started PayPal.

In reply to yung_gekko
3/24/10
yung_gekko:
bleedblue82:
brotherbear:

To be fair, I don't think particularly highly of consultants. None of my friends in the field have ever been able to intelligently defend their business. Most openly admit that their only real skills are making PowerPoint slides look pretty. The whole idea of consulting is MASSIVEY egotistical. You go into a company to deal with a problem that 'management' can't handle. Somehow, without ever having worked in the space, you're going to solve their problems. How? Because they're dumb, and you're smart. That's what consultants sell anyway (especially at the junior level).

Now, his comments on banking are a little off-base.

Dude - when you make arguments like this, you sound like a joke from leveraged sellout. "Oh, consultants are useless, but bankers are hot shit." You don't have to prove anything to me - I don't mind if you went to Harvard, Dartmouth, or some shitty state school in the middle of nowhere, and I certainly don't care whether you work at Goldman or Piper.

If you're going to mount a defense of one profession, don't take the opportunity to knock the other down with a pointless argument - I can speak to many occasions when a firm didn't have the resources and expertise to develop strategies that a consulting team did. They weren't stupid - just confined in their experience to their industry and the tried & true.

I'm not looking to get into a mud-slinging contest with you, because you have legit opinions you've expressed in other posts, but just consider what I said.

I have to agree with brotherbear on this one. If you think about it, if consultants are so damn smart and so much more talented than the managers running these businesses, then theoretically all of them should be able to start their own ventures and get ridiculously rich. In my experience this occurrence is extremely rare.

Also, if consultants are business & strategy superstars, capable of doing a substantially better job than management (which their existence depends on), then at least theoretically you would see a larger proportion of former consultants in the C-suite. In reality, this is clearly not the case. Most CEOs, CFOs and COOs have backgrounds in accounting, engineering and investment banking.

Dear god. Do you know what consulting is about? Or are you quoting a party line you learned during an SA stint?

It's not about being more talented than management. It's about opening up opportunities for bottom line cuts and top line expansion through strategies that management doesn't know about, doesn't consider, or doesn't know how to implement.

The critical element from junior staff is analytical ability - the ability to assemble a large set of data and draw reasonable conclusions from the composite picture. How, exactly, is that a lesser skill set than "creating value" through creating shitty instruments with no compliance tools, no risk management, and only rudimentary mark-to-market bullshit models to value them?

Oh, that's an unfair argument. Junior staff wasn't responsible for that - they just provided the ANALYTICAL BACKBONE for the bank.

Feel free to disagree, but bring some facts with you rather than some ridiculous argument about how the c-suite should be full of ex-consultants. What about bankers - are they all BSDs or Masters of the Universe at PE shops? You may not be one, but you sound like some college senior justifying his/her choice to pick IBD over consulting.

What Kawasaki fundamentally misses across this article is that consulting and banking give you an incredible analytical toolbox that lets you decompose problems calmly - under great stress, late at night, and insanely caffeinated. I would dare someone to find a kid who goes to a startup that learns half of those tools. And no matter what we tell our little geniuses, you gotta know how to use powerpoint and excel because only .00001% of the population is lucky enough to come up with Facebook. The rest of you schmucks are going to need to figure out how the hell to convey your ideas in a way that makes your investors do anything except doubt you have any skill.

In reply to surferdude867
3/24/10
surferdude867:
Marcus_Halberstram:

An investment banker is making markets and creating value.

You had me up until here.

No investment banker in the history of the universe has ever created value.

If you're making markets, that in and of itself is creating value.

3/24/10

Bleedblue

Unfortunately, you pitch about "why consulting" failed to address any of my notions of the profession's lack of value add. I've worked with consultants on the sell side and buy side, and have yet to see any actually executable results from the analysis that they do.

I'll admit, from a summary point of view, their observations provide some good context. But in terms of strategies to actually create shareholder value, this concept has been non-existent. Just high fees and nice powerpoints.

At least if you pay i-bankers, they can go out and raise you cash, which is something that is quite difficult to do without them. This is tangible value.

3/24/10

I agree with him that implementing an idea is more difficult. You have to consider all the players and sometime do some serious compromising. If you don't have enough resources, you can never implement an idea however sound it seems to be.

In reply to Marcus_Halberstram
3/24/10
Marcus_Halberstram:
surferdude867:
Marcus_Halberstram:

An investment banker is making markets and creating value.

You had me up until here.

No investment banker in the history of the universe has ever created value.

If you're making markets, that in and of itself is creating value.

Sorry but no.

To quote Mergers and Inquisitions:

At the junior level, no banker or consultant "creates value" and they rarely even "add value." Senior bankers who negotiate on their clients' behalf can sometimes "add value" by getting the buyer to pay more, but even that is rare.

Both banks and consulting firms are in the business of giving advice: advice on what to do financially and what to do operationally. Companies actually "create value."

In reply to eiffeltowered
3/24/10
eiffeltowered:

Kawasaki's self-righteousness is why he works at garbage technology ventures and missed google as an investment. yes, banking and consulting are not good prep grounds necessarily for entrepreneurship; however judge the individual, not the title or status. He wouldn't have hired a guy like Bezos, who was by background a finance guy to run Amazon based on his flawed logic. Or perhaps he wouldn't have invested in another guy like Peter Thiel, who by background was a hedge fund guy, but started PayPal.

Peter Thiel did PayPal before Clarium Capital. Jeff Bezos was a legit engineering talent, graduating from Princeton I believe before working at DE Shaw for a few years. Neither of those guys can be considered reasonably close to the typical banker/consultant analyst profile.

3/24/10

Neither consultants nor bankers create value. Both are paid simply to provide advice, which is a service. I could understand the ego's and arguments on this thread if you weren't paid and like Lloyd said you are doing gods work, but that's not reality. Bankers and consultants are paid for their service, thus only adding value for their own firm. The real people who add value are the entrepreneurs and businesses.

In reply to non-target
3/24/10
non-target:

Neither consultants nor bankers create value. Both are paid simply to provide advice, which is a service. I could understand the ego's and arguments on this thread if you weren't paid and like Lloyd said you are doing gods work, but that's not reality. Bankers and consultants are paid for their service, thus only adding value for their own firm. The real people who add value are the entrepreneurs and businesses.

Do you know what "value" means?

In reply to ideating
3/24/10
ideating][quote=non-target:

Do you know what "value" means?

The problem with this whole debate is that nobody fundamentally understands what "value" means.

If we're talking purely about the price of a company or business unit, then both bankers and consultants have the potential to increase value - bankers more directly during a sale and consultants indirectly through strategy implementation. If we're talking about value to the overall economy (usually measured in goods or services produced), then it's hard to argue for bankers and consultants as value-creators. Maybe you could say that there is some efficiency piece that both add in their respective ways, which could effect the goods or services produced by the advisee companies, but that's about it. All these are second-level value adds though. If you take the product produced directly by the banker or consultant, they do very little. Take, for example, the advice not heeded from a banker and the strategy ignored made by a a consultant - these have zero value in any sense. The only way either of these jobs creates value is through implementation, and even then it depends on your definition of value.

3/24/10

Either way, Kawasaki touches on a relevant issue that Michael Lewis has been pushing recently.

Wall street, generally speaking, has been destroying value over the last decade through the misallocation of capital. The securitization bankers took money from investors and allocated it to unproductive housing assets.

The finance industry should be dependent on the economy. Through this tremendous misallocation of capital, the roles reversed and the economy was being driven by the financial industry, which created a massive problem in the end.

Bankers were paid for their expertise in allocating capital. They really dropped the ball over the last decade and continued to make an obscene amount of money. (Obviously this only applies to the traders and bankers involved in securitization, CDOs, etc., and not M&A types and other non-related functions)

The major issue from a HR perspective is that Wall street continues to draw the best and brightest. No matter how these kids justify it, everyone is only in it for the money. At the end of the day, we don't really care if we add value. We just want to get paid (myself included).

3/24/10

Well shit, M&I is run by a 25 year old ex-banker, so it must be true. (nothing against Bryan, I've asked him for ihs opinion from time to time)

We're not talking about Jr Bankers, we're talking abotu Bankers in general. And we're not talking about consultants (in this context) at all.

Bankers are market makers (maybe not in the old school way anymore but still serve the same role). Thats a widely accepted definition of what bankers do. GE wants to sell a business unit, but they're not in the business of selling business units, so they have no idea where to find a buyer. SABIC wants to buy a business unit, but they're not in the business of buying business units, so they have no idea where to find that business unit for sale. Banker & Co. happens to be in the business of exclusively buying and selling businesses. Enter Banker & Co, connect the two parties, reach mutually agreeable terms. GE gets rid of what they want to get rid of. SABIC gets what they are looking for.

Market makers make a significant contribution to the efficiency of the markets. And efficient markets allow participants to realize more value as compared to the same participants in a less efficient market. Thats a widely accepted principle. Lets not get into a are markets efficient or not debate. We're talking about degrees of efficiency here, so more efficient vs. less efficient.

Its a pretty simply concept. You can PM if you want to discuss further, I don't feel like completely sidetracking an otherwise good thread with a meaningless debate.

In reply to yung_gekko
3/24/10
yung_gekko:

Unfortunately, you pitch about "why consulting" failed to address any of my notions of the profession's lack of value add. I've worked with consultants on the sell side and buy side, and have yet to see any actually executable results from the analysis that they do.

I'll admit, from a summary point of view, their observations provide some good context. But in terms of strategies to actually create shareholder value, this concept has been non-existent. Just high fees and nice powerpoints.

If it was as simple as this why would CEOs hire consultants. High fees? Ever heard of supply and demand?

I'm aware of numerous projects where the strategies proposed by consultants have been headline-making and industry-shaping. I think you should understand that when a firm announces a high-profile strategy, they don't follow up by saying, "yeah, and oh, McKinsey told us to do this."

3/24/10

^--- exactly.

If there is no value being added, why don't they do M&A deals themselves and pay a third party to do a fairness opinion for ass-covering's sake and save several hundreds of millions of dollars in fees?

From the limited consulting application I've seen its one of the following:
- a manager shaking things up in one of their business units without having to play the bad guy... as in tell everyone they're not doing things right and point out all their flaws
- a management team trying to sidestep accountability and get an 'expert' consultant to come up with and analysis and solution to the business. If its right, then congrats for being so open to criticism and change and if its wrong then it couldn't have been avoided... even the experts were fooled
- a management team trying to justify a decision they've already made by paying someone to formulate their own view, which just happens to support their decision, not because of a conflict of interest but rather because they are such an astute leader their decision was right to begin wiht... now they've got the facts to back it up. You often see this in M&A deals where a company comes up with their own synergy estimates, then hires a strategy consultant to do the same, and they almost always say management's synergy expectations are very conservative and realistic

Deals on the other hand cannot be done with out the bankers.

3/24/10

he really sounds like someone who got dinged by banks and consulting firms when he was young.

all kidding aside, i disagree with him because i honest do not believe that most people walk away from 2-3 years of working at M/B/B or GS/MS thinking that they're experts at implementation or that they're great managers. in fact, many people leave banking and consulting specifically because they want to get more operational experiences to add to their skill set. i respect guy kawasaki for what he's accomplished, but all-encompassing generalizations like these certainly detract from his credibility.

also, no consultant coming out of college gets paid $400 per hour. even the consulting firms bill rate for a first year is generally less than $250.

In reply to Marcus_Halberstram
3/24/10
Marcus_Halberstram:

^--- exactly.

If there is no value being added, why don't they do M&A deals themselves and pay a third party to do a fairness opinion for ass-covering's sake and save several hundreds of millions of dollars in fees?

From the limited consulting application I've seen its one of the following:
- a manager shaking things up in one of their business units without having to play the bad guy... as in tell everyone they're not doing things right and point out all their flaws
- a management team trying to sidestep accountability and get an 'expert' consultant to come up with and analysis and solution to the business. If its right, then congrats for being so open to criticism and change and if its wrong then it couldn't have been avoided... even the experts were fooled
- a management team trying to justify a decision they've already made by paying someone to formulate their own view, which just happens to support their decision, not because of a conflict of interest but rather because they are such an astute leader their decision was right to begin wiht... now they've got the facts to back it up. You often see this in M&A deals where a company comes up with their own synergy estimates, then hires a strategy consultant to do the same, and they almost always say management's synergy expectations are very conservative and realistic

Deals on the other hand cannot be done with out the bankers.

Yup, that's pretty spot on. We augement the Management in whatever way we can. A lot of times, we act as a third-party consultants brought in to offer a fresh look at how things are done. A lot of the analysis could have been done by management, but it helps when "experts" draw the same conclusion and recommend solutions to increase "efficency". Is it value added? I like to think so. But, regardless I do like my job for the most part and make decent pay. It's interesting at the end of day to me.

At the end of the day. Most of us choose consulting precisley to side-step the "advice" offered by Guy of grinding it out for a few years. I've done F500 internships, it isn't all that great being entry level. All those companies have "leadership rotation programs" like GE, Disney, etc. to entice (target) entry level graduates to their companies. You get a to try out different roles for 6 months, and at the end of 2 years, you'll be assigned a group. No one really want to grind it out for 4-5 years these days in an one-dimesional repitive entry level role if they can help it.

I am pssoibly looking to go into F500 in a management role after B-school and another few years either in consulting or maybe banking. But, why would I want to grind it out as an entry level for 15-20 years when I can short-cut it via consulting/banking and then B-school?

Regardless, all professional services jobs do not really add "value" in the physical product sense. Bankers, Consultant, Accountant, etc. Accountants for the most part are auditors. They essentially "review" other people's accounting practices and make sure it's accurate and legal. What value is this? At the end of the day, Guy brings up interesting points, but in this article is full of hot air.

-----------------------------------------------------------------
Hug It Out

In reply to PorcineAviation
3/24/10

The best reason (or at least, in an ideal world, the truest reason) to hire a consultant is because they will help you solve a problem. And most firms have that in mind.

However, there are NUMEROUS other reasons why a management team will hire a consultant that have NOTHING to do with the real contribution made by the external advisor. I think anyone with at least the slightest amount of business experience and risk realizes this.

For starters, there's responsibility risk. You can't get fired for implementing McKinsey's recommendation. If the disaster was your own idea, well you better start polishing your CV.

Secondly, there's deviation of accountability. Plenty of managers bring in a consultant who will prepare a study that justifies their division's poor performance.

Third, there are budgetary concerns. Division managers are given budgets by group finance and senior management: if they don't use up the budget, they run the risk of letting management think that they didn't need the budget, and will see it cut next year. They will often spend the excess on a consultant, rather than risk losing it.

If you can't visualize this, you probably need to work longer.

3/24/10

I think that there has been a reading comprehension breakdown.

First, he has not criticized Sales & Trading, so the person who said he was wrong for not understanding the value in someone selling CDOs is engaged in a straw hat. He is specifically talking about investment banking.

Second, the person who said it's "strategy consulting" - do a word search on Google and compare "management consulting" and "strategy consulting", and their correlation to MBB. This is about management.

Third, he is not criticizing the role played by investment banking and management consulting play in the economy. Okay, he is actually kind of critical of investment banking - he is unsure that they add value. But more importantly, he is saying that young graduates who enter these fields emerge (if they ever do) with a distorted understanding of what makes businesses function. They come to believe that it is the computation that is adding and demonstrating value; he is saying that three more skills are much more important in BUSINESS: the ability to originate and consummate a transaction, the ability to assimilate a new product into an existing business and bring profitability to fruition, and the ability to handle people.

He is not criticizing the function served by analysts; he acknowledges it implicitly by hiring people to do it. They are executing a commoditized service and they are paid accordingly. They cannot help him with the three skills he has identified as more important: they are merely a support function.

Anyone who is a good banker or a consultant already knows this. Again, this is distinct from sales and trading. The execution-focused professional (whether he is a consultant or a banker) ALWAYS hits a glass ceiling; this glass ceiling is ALWAYS lower than that of an ORIGINATOR. The value you add, both to your firm and to your client, is your ability to engage with a client, align your interests with his, convince him of that, and perform a service that furthers his interests. Of course, your client could be a female. That is how you add value to your client's business, and that is how you bring revenue to your own. Your army of drone analysts doing spreadsheets and writing presentations is ENTIRELY EXPENDABLE AND REPLACEABLE. They are tools, much like your computers, your pens, your desks, and your phones. If one's not working, it's a momentary annoyance, but it's fairly easily dealt with.

This is not applicable to sales and trading, where both the broker and the trader's function (and his learning) is directly visible. The junior broker, in particular, is learning how to sell. The junior trader, in particular, is learning how to manage his emotions - which is the stuff that can't be taught in textbooks, and therefore, commoditized.

Any junior bankers or consultants who believe otherwise are just deluding themselves. They are doing exactly what Kawasaki is warning against: the wrong experiences and the wrong rewards have given young folk the wrong impression of what their real utility is in the business world. He isn't criticizing the fields themselves (well, he's more forgiving of consulting than banking), but he doesn't have an explicit comment about the dealmakers in this business, which in my mind are the ones who truly add value. He is saying that junior staff extract the wrong lessons.

Come on, anyone who has worked for even a little bit, especially in this recession, has realized. To any banker or consultant: did you EVER see an executor of work survive the culling over an ORIGINATOR OF BUSINESS of equal rank and responsibilities? Companies are really clear on who is a luxury and who is actually indispensable to the business. GDP is a measurement of economic activity: the fee income from selling a bond, an ice cream or a dildo are all contributing more than linking cells in Excel for a pitchbook or a forecast. Certainly there is usefulness to the latter activities, but they are merely support functions for the true front office: the men and women who go out and win business.

The error he makes is simply by generalizing; as others have quite correctly said, disaffected analysts from banking and consulting often choose to join the industry because they've realized they're lacking in hands-on experience. But again, I would like to ask any of you who have worked in advisory businesses (more consulting than banking, because I think banks are more aggressive in establishing a cut-off line between associates and VPs): how many people do you remember railing about how they're not supposed to sell, because they're "experts", not salesmen? These are the people who fail to understand what business is about.

Again, he is not saying the INDUSTRIES don't add value. Everyone here who has defended the value-added is essentially defending the VP/ED/MD/Partner who has landed the engagement, and is offering the strategic advice supporting their client. The analysis provided by junior staff is useful, yes, but these young ones are much easier to replace than the MD is.

Kalice, he is right about the fee. I work for a boutique and you probably don't even know my niche field exists, and my first year my charge-out rate was $350 per hour. I work very closely with bankers across the financing, M&A and PE spectrum, and I see what they're useful for. But I think there's a lot of truth in Kawasaki's comments; I think that the provocative delivery is more a matter of style for him (he was, if I remember correctly, the guy who wrote that he abdicated his highly academic biological father for an adopted commercial father).

In reply to jtbbdxbnycmad
3/24/10
jtbbdxbnycmad:

(he was, if I remember correctly, the guy who wrote that he abdicated his highly academic biological father for an adopted commercial father).

Dude. You were doing so well up to that point.

Guy Kawasaki is a Silicon Valley venture capitalist who helped launch the Apple Macintosh in 1984.

Robert Kiyosaki is the snake oil salesman behind the Rich Dad Poor Dad scam, who allegedly turned his back on his biological father because he was a financial embarrassment.

In reply to Edmundo Braverman
3/25/10

Haha, Edmundo Braverman, the factual identity of the author is the part I'll most gladly take the pain of being wrong about. I was much more interested in the arguments he was putting forth.

Thanks for the correction!

Glad that you found all the prior reasoning agreeable.

3/25/10

This thread is ridiculous.

Both consultants and bankers add economic value. It doesn't mean you wont spend half or more of your junior years doing completely useless bullshit that hardly contributes to intelligent decision making.

It's curious to me that people on this board seem to think consultant value-add is vague bullshit while banker value add is solid. Consultants often suggest/ implement strategies that result in millions added to the bottom line (value). Bankers (more often than consultants) sometimes annihilate value in huge chunks.

Think of the massive stupid idea M & A and LBO deals executed and financed by bankers over the last few decades. Yes, I know its not the banks fault if someone comes to them with a bad deal, but bankers themselves too often pitch bad M & A deals -based only on the numbers and not sound strategic reasoning - in the hope of generating M & A fees.

I believe bankers perform a valuable service, and on balance add tremendous value through performing financial transactions. I just think the broad based consultant bashing from you banker types is a bit ridic given the facts outlined in the above paragraph.

Also, this shit from Kawasaki is complete crap. Most of the people I know in entry level jobs anywhere are making power points or doing other menial labor - most of which does not require anything close to the skill of intelligence of junior consultants or bankers. Does he realize what percentage of people ever work in a startup, not to talk of starting there?

Does he realize most entry - level jobs are dumb shit, and actually remain dumb shit as you climb the ladder all the way to the top?

In reply to dazedmonk
3/25/10

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4/11/10

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