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One of the most frequent narratives I encounter in achievement-minded college seniors is a (very reasonable) plan to spend several years advancing professionally and getting trained (and paid) by an investment bank or consulting firm or law firm.Then, the thought process goes, one can set out to do something else with some exposure and experience under one’s belt. This mindset is reinforced by the intense recruitment culture at many schools.
I subscribed to a version of this mindset when I graduated from Brown back in the day. In my case, I went to law school thinking I’d practice law for a few years (and pay down my law school debt) before lining up another opportunity. I wound up working at the firm for less than six months before leaving to co-found a start-up.
My sense is that there are plusses and minuses to ‘the Plan.’ There are some immensely constructive things to be said about spending 2 – 3 years in professional services after graduating from college:
1. Training. Professional service firms are designed to train large groups of recruits annually, and they do so very successfully. You will emerge with a set of skills that can be applied in other contexts (e.g., Excel modelling if you’re a financial analyst, PowerPoint if you’re a consultant, editing if you’re a lawyer). You also often develop domain expertise (e.g. you’ll work in a particular industry and so you become conversant with the firms in that field, etc.).
2. High-level work product. If you spend time at a bank/consulting firm/law firm, you will become excellent at producing world-class work. Every model/report/presentation/contract needs to be sophisticated, professional, and error-free, in large part because that’s one of the core value propositions of your organisation. The people above you will push you to become more rigorous and disciplined, and your work product will improve across the board as a result.
3. Socialized professionally. After a couple of years in a professional setting you’ll get used to dressing presentably, preparing for meetings, speaking appropriately, showing up on time, writing professional correspondence, etc. You can speak corporate. You also become accustomed to working very long hours. These attributes are transferable to and helpful in many other contexts.
4. Learn how large organisations work. If you work for a top professional service provider that is hired by big companies, you will grow to understand how successful corporations make decisions, organise themselves, adopt policies and procedures, purchase from suppliers, etc. You will also learn to be process-driven, which is necessary for most large organisations to function properly.*
5. Confidence. If you spend a couple of years at a big-name firm, it gives you an acute sense of the sort of people that populate and succeed in these environments. They’re your friends and colleagues (and you, for as long as you’re there). Emerging from a firm gives you a sense that you’ve worked among some of the best in a field, and that you’re as capable as anyone else.
6. Credentialing. Similarly, your experience at a big firm is a great signal to prospective employers and partners. It will give you a source of credibility with clients, investors, and anyone else you deal with for the rest of your career.
7. Network. You will almost always leave a professional services environment with a few noteworthy friends and relationships. These contacts can prove to be extremely valuable both personally and professionally.
8. Motivation (sometimes). Some people who come out of these firms are ideally motivated and hungry. They’ve seen the other side, and now they want to accomplish something and make a mark. They’re not afraid to work hard, and they’re determined to achieve something significant outside of their old context.
It’s a pretty impressive list, to be sure. It’s no wonder that so many recent graduates find these options so compelling. So what are the drawbacks, if any? After going to law school, practicing law briefly, working in start-ups for over a decade, running a GMAT prep company for 5+ years, and seeing any number of personal career paths play out, here are some potential considerations:
1. Different Process/Output. In professional service environments, the output is almost always analytical (e.g., a set of valuations for a company, a series of cost-cutting recommendations). Sometimes, an analysis can take months to generate, with a half-dozen people working on it for hundreds of hours. In the start-up setting and in most companies, the output is action-oriented. You need to be getting things done and making decisions, often with limited information. You need to hire people, devise and improve a product, get customers and drum up business, market yourself and the company, learn how to manage and lead a team (when they’re not all either analysts or support staff), allocate scarce resources, etc.
For most companies, the value is in the execution. You pick a path and find out if you’re right in real-time, and then change approaches accordingly. Mistakes are acceptable if they’re the result of moving forward. You develop judgment and instincts around execution that are very different than what is sometimes jokingly called ‘analysis paralysis.’ It’s the difference between examining a company and operating it.
2. Switching Costs. Much has been made about how companies struggle to innovate and challenge themselves if they have a business that is successful. People function the same way. If you’re a young professional making $100k producing spreadsheets/analyses/recommendations, it’s extraordinarily difficult to then switch to doing something else where you’re starting from scratch. I’ve seen many people leave to try their hand in another arena (e.g., writing, starting a business, etc.) and get discouraged with their lack of pay or quick success, particularly when they’re competing with people who have been engaged in the new activity for years.
3. Difficulty Identifying Opportunities. Contrary to popular belief, exciting companies are not generally reaching out to banking analysts/junior consultants/corporate lawyers with great opportunities. Start-ups, for example, often hire out of personal networks and people who are actively engaged in the start-up community. Headhunters are eager to place you at another investment bank/consulting firm/law firm, but they’re virtually always industry-specific (it’d be a tougher sell for them to try and help people switch, plus the commission would be smaller). This is exacerbated by the fact that, for many professionals, this is the first time they’ve had to engage in a conventional job search (most were recruited directly out of school). Many of them struggle. Sometimes people will find a promising opportunity, but often they grope unsuccessfully. Many wind up giving up and applying to business school.
4. Narrowed Focus and Competency. Professional service providers often become very good at their particular discipline at the expense of other capacities. The skills developed in finance/consulting/law are valuable in certain contexts, but most businesses revolve around some other central activity (e.g. retail, energy, tech, entertainment/media, etc.). Many professionals become specialised in certain types of roles (e.g., the number-cruncher/analyst/lawyer) and don’t have the chance to develop in ways that would make them more central to building or driving a business.
5. Value Creation vs. Optimization. By the time a company can hire an investment bank or consulting firm, it generally has already reached a certain stage of development. You’re seeing mature organisations that are trying to do a deal (buy another company, go public, etc.) or optimise. Consequently, your exposure is well past the stages where much of the value gets created. You have limited exposure to what makes small organisations grow and succeed, as well as minimal experience executing with limited resources.
6. Commitment/time-frame. The nature of professional services is that you’re typically working on a deal or a client engagement that lasts a brief period and then ends. You’re used to relationships measured in weeks or months (or even days, in the trading context). You’re also used to colleagues coming and going very quickly (e.g., the attrition rate at one top-tier consulting firm is 30% a year, one reason they’re always hiring). Companies, in contrast, typically rely upon long-term relationships to function well. They require a significant commitment, where the time frame is measured in years, not weeks or months. Turnover is detrimental to developing a good management team. Building up the value of one’s equity and relationships takes time.
7. Relationship with Work. As a professional service provider who is changing clients or transactions every period, it’s hard to become emotionally invested in your work. It’s like trying to care about a car you know you’re renting. Your clients are themselves big companies, and your interaction with them will often be limited to the occasional meeting with a senior executive or a manager. You’re there as a transaction cost because someone wants to get something done. You’re grease on a wheel. Your main motivation is to avoid looking bad to your superiors who may not expect you to stick around long-term because they’ve seen so many young people come and go.
8. Appetite for Risk. One’s appetite for risk generally diminishes as you get older. This can become even more pronounced in a professional setting. You spend your working life in nice offices around well-compensated people. You often have support staff from Day one. The only people you interact with work at large public companies. Your expenses creep upward over time – you get used to nice things. Your interpersonal obligations mount. As you adapt to your role and circumstance, taking a risk professionally becomes more and more of an abstraction.
In my view, professional services have become conflated with ‘business’ when really they’re a narrow subset/category of businesses. College seniors would often benefit from figuring out what their long-term aspirations are and then try to pursue them directly. In particular, going to banking or consulting to learn how to start or run a business is not ideal. It’s like trying to learn how to become a chef by going to a company that sells things to restaurants.
One of our goals with Venture for America is to introduce some of the benefits of professional services environments (e.g. training, strong work product, socialisation, credentialing, network, etc.) while enabling some of our best and brightest to take risks and become action-oriented builders from the beginning of their careers. At a minimum, they’ll have 2 years of seeing how early-stage businesses perform from the ground floor. Entrepreneurship is something you get better at over time, and an early start can make a big difference.
I also hope that Venture for America can represent part of a more genuine range of choices for our talented young people to start their careers and develop professionally. What they do should be more than a function of which organisations and industries have the highest levels of resources to recruit.
- *Professor Gregg Fairbrothers, Director of the Dartmouth Entrepreneurial Network, made this observation and shared it with me. Great guy – Dartmouth students are lucky to have him.
- **The Innovator’s Dilemma by Clayton Christensen spells this out in complete and compelling detail.
- *** The average post-MBA job tenure is less than two years, and the same types of firms recruit the second time around.