Transitioning from Consulting to Private Equity

This month, Raines International is taking a look at an increasingly popular path for consultants looking to enter industry: transitioning from consulting to Private equity.

We spoke with several executives who transitioned from their consulting firms to the Private equity world, whether joining an Operations team or a Portfolio company, and identified several things consultants should consider when looking to make the move. Read on to see what your options are, how private equity is different from consulting, and what to expect at your new firm.

From Consulting to Private Equity

There are two primary paths for consultants into the Private equity industry: the operations team and a portfolio company (while a small portion of consultants end up working in an Investment Team, firms primarily target individuals with investment banking or Private equity backgrounds for these roles).

Many consultants choose to join an Operations Team at the Private equity level because it allows them to leverage their consulting toolkit to assess and drive operational improvement opportunities within a firm’s portfolio. When comparing consulting to Private equity, Brian Slobodow, an Operating Executive at Golden Gate Capital and A.T. Kearney Alum, explains that Private equity Operations Teams are “like consulting on steroids, and you parachute in and out of different companies.”

In contrast with those hired to Operations Teams, many consultants are hired as executive members of a Portfolio Company.  In this role, individuals are fully embedded in the portfolio companies. As Brian explains, “I get my paycheck directly from the Portfolio Companies themselves – there is some ‘nice-to-have’ additional perks from my affiliation with Golden Gate Capital after that. When asked what I do today, the first thing I tell people is that I am the Chief Operations Officer of a window company.”

Whether you choose to join a Portfolio Company or Operations Team, here are what a few Private equity execs had to say on what to expect when transitioning from consulting to Private Equity:

Increased and more direct impact and influence

According to Adam Fless, a Director in KKR’s Operations Group KKR Capstone and  A.T. Kearney Alum, “the greatest positive of Private equity is seeing and sharing in the success you have created.” Adam describes Private equity execs as “shareholders” in the firm’s portfolio companies, which gives both him and colleagues “an incentive to make these companies successful financially.”

“There is an ‘eat your own cooking’ element to the job,” he explains, “because it demands intellectual honesty in the work you do. Making it look like you delivered value isn’t going to help anybody, including yourself.”

Like Adam, Jeff Kimbell, a former Operating Executive at Silver Lake Partners and current Partner at McKinsey & Company, highlights the difference between serving “clients” at consulting firms and serving “companies” at a Private equity firm. This differing terminology signals an even larger difference in what Private equity firms do and how they do it. “While many management consulting firms will deny it,” he explains, “at the end of the day their product is a recommendation that comes in the form of a PowerPoint presentation. And I’ve done that before. In what I do now, I barely ever use PowerPoint presentations. I’ll get a 6-month project for a company and I have a revenue target – that’s my product.”

Adam and Jeff’s experiences demonstrate how members of Private equity firms are afforded more opportunities to deliver value, taking on the role of shareholders who make direct impacts and influence in the company’s and their firm’s initiatives.

Increased accountability

While Private equity execs often have increased impact on the companies they work with, their shareholder status extends to the overall survival of their firm. Brian explains:

“In consulting, if you fail, the firm as a whole will likely still survive. Even if a project goes disastrously wrong with a client, the firm as a whole will go on its way with other client engagements (unless you have something along the lines of a large lawsuit, and that’s extremely rare).”

This, however, is not the case at a Private equity firm, he explains:

“A private equity firm is a combination of the assets on which you are working, and if you fail, there’s a chance the firm as a whole could fail as well. No matter how rosy a situation is painted for consultants re: private equity, there’s no getting around the fact that you’re generally in very stressful situations – more stressful than what you dealt with in consulting.”

While consultants can look forward to stepping into role where they will have more impact and influence within their projects, many simultaneously experience the stresses that come with the responsibilities of their roles. Therefore, consultants should be aware of the pros and cons of this double-edged sword.

Diversity of experiences, for better or for worse

When discussing the highlights of their Private equity experiences, many execs point to the high degree of variety in initiatives they drove. David Snider, COO/CFO of Compass and a former Associate at Bain Capital, describes how he “really enjoyed [his] experiences in the sense that [he] worked on four deals, which were all very different types of transactions with very bright people.” Like David, Jeff highlights the ability to work with a “variety of companies and business situations–a gun manufacturer, a paper producer, a software company, etc. in situations from bankruptcy to ones with high growth targets” as a crucial positive feature of his transition from consulting.

Brian reminds us, however, that “Private equity is not all high-growth situations, IPOs, and opening up new markets.” Often times, timing will greatly influence whether your expectations become reality. When joining his firm, Brian relayed to us the difficulties of entering the industry in 2007, during the brink of the financial meltdown. While he, like many, look forward to the fruits of working with a company experiencing high-growth, his experience was altered by the fact that “the Private equity industry in general was bursting at the seams.” Despite working during an uncertain time focusing on cost-cutting, he explains how he “did the right thing and stayed on, but it took four full years….to turn it around before [he] was given that second opportunity” for projects involving IPOs, new markets, and high-growth situations. Ultimately, you will sometimes have to “pay it forward” in your first role to really get a chance at the kind of opportunities that excite consultants about the Private equity industry.

Varying Income

There is a general consensus that with a move from consulting to Private Equity comes a guaranteed a significant pay raise. Brian, however, informs us that this is not always that case:

 “I have observed that the economics can be very hot and cold. It’s generally equity-based compensation, so if you end up in the right situation, the returns can be impressive. If you end up in the wrong situation, your equity can be worth nothing. At times, it can be a challenging position, and it can make sense for people in roles like mine to take on additional professional opportunities to up their income.”

As Brian confirms, it is important to taper your expectations on the type of income you will earn from the get-go. Like the types of initiatives you will push forward with your companies, compensation is ultimately determined by time and place.

Whether looking to join an Operations Group or Portfolio Company, there are several key differentiating factors consultants should consider when looking to move to a Private Equity Firm. Our hope is that, with these tips, you can come step in the P.E. world with the right mindset about what you’re going to do and how to navigate the new working environment.