“Why do you work so much in investment banking?”“If you work so much, can’t they just hire twice as many people?”
“How much of your time do you even spend working?”
It’s something I’ve been asked at dinner parties, holiday events, and even by reporters…
But it’s also a question for which I’ve never heard a good answer.
Traditional, Bad Answers
Some answers I’ve heard from other bankers before:
“Well, if we hired twice as many people and only made them work 40 hours per week rather than 80-100, we wouldn’t get the type of people who belong in this industry.”
“You get paid twice as much, so you work twice as much.” [NOTE: “Paid twice as much” is not true these days]
“The work isn’t hard, but everything has to be 100% perfect for the clients we work with… so the last 10% kills you and that’s why you work so much.”
None of these is “wrong,” per se, but they don’t exactly get to the heart of the matter, either.
The Real Reason(s) You Work So Much
Because work demands are unpredictable and division of labour is near-impossible.
You’ve probably heard a lot about the first part – everyone knows how investment banking can ruin your Saturday nights (and the rest of your life) because of demanding clients and unreasonable Associates/VPs/MDs.
But the last part of this always gets overlooked – I myself only realised it when I got to thinking about this question the other day after a reader asked me about it.
Just to recap what you may already know, let’s first look at why exactly work demands are so unpredictable.
The basic reason this happens is that investment banking (along with many other sell-side industries) is a client-service industry catering to huge clients.
Client-Service Industry Catering to Huge Clients
The most important words here are “service” and “huge clients.”
Unlike a normal company that sells products, bankers have to respond to every single request clients have because they’re not selling a product – they’re selling their time and attention.
So if it’s Saturday night at 7 PM and your MD gets a call saying that a board presentation is needed for the next day, you have to do it.
Similar to consulting or law, there’s little leverage because more revenue means more hours and more work.
There are plenty of service-based industries with poor “customer service,” but banking is not one of them – too much money (millions of dollars) is on the line if a single executive gets upset over something.
If banks had a different model – say, earning $50,000 per deal and doing 1,000 of them each year rather than doing 2 deals per year worth $25 million in fees each, this would change.
But that would be far less profitable than what banks actually do, which is why they stick to the “2 deals worth $25 million in fees each” model.
And it’s why they have to do everything their clients ask for.
What makes it worse is that these demands are unpredictable.
When you’re working on an M&A deal, for example, most of the work happens in the beginning when you’re preparing marketing materials and developing financial projections – and then you get busy when the deal is coming to a close. But the middle part usually doesn’t involve as much work.
That’s almost predictable – but the problem is that in the middle of that process, random events, requests, and problems always come up.
You might get an acquisition offer from a buyer who dropped out but then came back to the table at the 11th hour; maybe your client missed its projections and you need to completely revamp your 22-page model; or maybe the CEO is just having a bad day and he wants to see completely unnecessary analysis, just for fun.
Your team will make unpredictable demands as well. Sometimes you’ll get a VP or MD who asks for pointless work all the time – at all hours of the night – and completely overwhelms you.
So the logical solution is to hire more people to handle this unpredictable workload, right? Right?
Division of labour Failures
The problem with “hiring more people” is that it’s very difficult to divide work on one particular project/client among different Analysts or Associates, for 2 distinct reasons: accountability and knowledge.
If a senior banker needs something done, he wants to go to one person who’s in charge of everything – not 2 or 3 who all have something to do with the project.
Similarly, if an Associate needs a model built he only wants to ask 1 Analyst to do it – he doesn’t want to pick between 2 or 3, each of whom claims he/she is too busy with other projects to help out.
Accountability becomes even more of a problem when there are mistakes or changes that need to be made – if there are multiple junior bankers involved, each one is likely to “blame” whatever went wrong on the others.
So it’s important that only 1 Analyst/Associate be responsible for a particular client in the interest of accountability and actually getting things done.
There are cases where multiples junior bankers will be assigned to large or otherwise important deals – but when that happens, they usually work on completely different aspects of the project and it’s so large/important that you can actually divide the work.
The other problem with assigning multiple junior bankers to a single client or deal is that it’s very difficult to keep everyone in the loop.
One Analyst could start modifying a model… and then not tell the other one about it, which would result in confusion at 3 AM when Analyst #2 is trying to update a presentation with the model that Analyst #1 modified 1 day ago but didn’t tell him about.
It also takes time to get up to speed on what has been happening and the existing material you’ve created for a client – deciphering months or years of work is not something that happens in hours or days.
One deal I worked on years ago fell apart within 3 months of starting – but when it came back to life 6 months later because of a new buyer at the table, I was called back in to help out even though I was already pulling all-nighters on other projects.
Because no one else had the knowledge of what was contained in the hundreds of files we had, and we needed to put together a presentation in a day. We didn’t have the time to get someone else up to speed.
It’s the same reason why Jack Bauer always gets called on to go undercover – he has way more experience and training than you, he already knows the arms dealer he’s spying on, and that nuclear bomb is going to go off in FOUR HOURS if he doesn’t extract the necessary information.
You’d just get in the way, and that bomb would go off and take out downtown LA in the meantime.
100 Hours Per Week
Taken together, this means that banks need to hire a fixed number of people based on the economy and how busy they are with clients and deals.
If a bank were to over-hire, a lot of new hires would be sitting around doing nothing much of the time because of the unpredictable demands of clients – and because it’s hard to assign multiple junior bankers to one deal.
And if it were to under-hire, the bankers would just work even longer hours than usual – which banks view as a much better alternative than letting their people sit around twiddling their thumbs.
Even in a Recession?
We’ve been referring to “clients and deals” – but does this same rationale hold true in a recession, when there are relatively few clients and even fewer real deals going on?
Yes – but you can substitute in “pitch books” for “deals” and “marketing work” for “clients.”
The difference is that marketing work – pitch books, random presentations, and answering odd requests from potential clients – only takes a fraction of the time that working on actual deals does.
You’ll finish in a matter of days or weeks rather than months – but that also means that you’re more “expendable” in a recession because no specialised knowledge is required.
It’s more like defusing minor assassination threats rather than nuclear bombs.
With the former, you can rely on the rest of CTU. But with the latter, you need Jack Bauer (or an equally capable banker).
But How Much Do You “Really” Work?
Many of those 100 hours will not be spent on actual work. You’re sitting around a lot of the time, and that’s because of unpredictable demands combined with the difficulty of dividing labour.
For more on this issue, check out the Week in the Life series we did last year to see how much you “work” can vary dramatically by the day and by the hour, even within the same week.
Other Finance Industries
Even though other industries in finance are not “client-service,” many of the same principles apply.
On the buy-side, even if you’re not working around a client’s demands 24/7, you’re still working on specific projects: it’s just that they’re investments and portfolio companies rather than clients.
But the same points about accountability and knowledge hold true: you get very busy at different phases of the investment cycle, and often work banking-like hours – even if you don’t represent clients.
The difference is that it’s not always that bad (at least at smaller firms) – the investors can pick and choose what to potentially invest in, so sometimes your lifestyle improves.
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