Training Grounds – Bain Capital

“We hire from consultants who are risk averse. They probably went into consulting because they didn't want to take the kinds of risk that one would take in an investment business. And the rest of the industry was hiring from investment banks, which are about getting fees for transactions, not for making returns on investment. So it's probably the worst possible place to hire from. We hire 75% from consulting firms and 25% from investment banks.”— John Connaughton

Leadership & Management · Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

Hired consultants seeking impact, not bankers chasing fees

“We were a team-based structure. The nature of what we were looking to do was to create underwriting with our own insights. We didn't rely on a lot of outside parties so the ability as a junior person to really be close to the work that you were doing that were going to create the insights that was the underlying investment hypothesis. That was pretty different than the industry which really had a deal quarterback and a deal processing engine and then they outsourced all their diligence.”— John Connaughton

Leadership & Management · Operations & Execution · Strategy & Decision Making

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Junior voices matter: internal insights beat outsourced diligence

“The GFC was the biblical recession that none of us had ever seen before. We learned that macro and cycles are to be things that you can be humbled by very quickly. We invested very quickly in the '05 to '07 period. We bought almost all cyclical businesses in '06 and '07. Part of the reason we did that is because we thought that was the only way to get a good value because we could live through a cycle. We were completely wrong at least in the first couple of years. But we operated.”— John Connaughton

Operations & Execution · Strategy & Decision Making · Economics & Markets

DUR_CONTEXTUAL

Overconfidence in cycle resilience; saved by deep operating muscle

“The benefit of buying low and repositioning a business and selling at a higher multiple. The benefit of taking something that's losing some money and making a lot of money and then multiplying that times that multiple with little leverage, it's a pretty attractive model. We bought Accuride, levered 85/15 or 90/10 and had 5 million of investment and we made 25 times our money. That's because we turned the business around. Not because it was just financial engineering.”— John Connaughton

Business & Entrepreneurship · Operations & Execution · Economics & Markets

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25x return: operational turnaround, not financial engineering

“We're trying to find asymmetric upside 15 to 20 shots on goal where we can not just generate a good return, it may not be 25 times like it was in the beginning, it may not be 10 times like it was 20 years ago, but it can be three to five and sometimes 10. That idea of slugging percentage of not just being a firm that accepts a modest to good return, but actually a good to exceptional return, and then trying to do that as high as number of times you can in a fund, that's the DNA.”— John Connaughton

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Asymmetric upside: pay highest price, create inflection, capture 3-10x

“The founder oriented models generally the ones that didn't survive more than a generation. For us it was like how are we going to keep the talent that we have and give them a lane and give them the opportunity? It starts with being flatter. Not having such a disproportionate amount of economics go to single person but actually distributing it. This notion of partnership was a very different choice than the founder models that started.”— John Connaughton

Leadership & Management · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Founder models fail; flat partnership retains talent across generations

“When we got to a size around the GFC time period working too much in collaboration committee structures and consensus driven leadership committees, those things were recognized as not healthy for the business. We created more alignment around sets of accountabilities among individuals or maybe a couple individuals and empowerment as well of certain individuals to drive more decision-making, more accountability for a more nimble partnership.”— John Connaughton

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Scale killed consensus; empowered individuals replaced committees

“Mitt left in 1999 to run the Olympics. The group got together and really reaffirmed that we want to be a partnership. We wanted to create a form of governance that allowed for the broad number of partners that remained to elect the group that could lead, but they would be accountable to the broad partnership for that leadership.”— John Connaughton

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Elected leadership accountable to full partnership: democracy plus execution

“We always had two deal partners and more recently we also have a portfolio partner on every transaction. That ability to be working with each other, being a devil's advocate, creating a team-based real discussion about do we want to do this deal? That's very different than the industry which is very individual based, a single person having point of view, living and dying by their own individual point of view as opposed to a collective team effort.”— John Connaughton

Strategy & Decision Making · Leadership & Management

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Two deal partners plus portfolio partner: three perspectives

“Bain & Company was started on a very different premise as a consulting firm versus McKinsey and BCG. Those firms were talking about big ideas they sold to multiple clients in one industry, whereas Bain wanted to do one client in one industry and then partner with them over a long period of time. They looked at their metric for success as what was the equity value of the clients they advised, so the light bulb went off in '84: If we're doing this for clients, why not put our money where our mouth...”— John Connaughton

Business & Entrepreneurship · Strategy & Decision Making · Economics & Markets

DUR_ENDURING

Origin: advise on value creation, then invest

“Part of the trick in our business is you can find ways to address people's success by giving them a lot of variable economics. We've seen a lot of firms do that where they eat what you kill. But doesn't work in our culture. Our culture is about the long-term arc of impact and track record that you have, but also how you've been able to collaborate and work with the rest of the firm. So that puts a lot of pressure on a reward system that has more nuance to it than just purely eat what you kill.”— John Connaughton

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Reject eat-what-you-kill; reward long-term collaboration

“We were the first ones to really start recruiting right out of college or certainly right after a couple of years in their first job. Getting people in early to really get the mentorship and training from people more experienced over a long career. I've been here for 35 years. There are those in the senior team who have been here for 25 or 20. The original founders, same thing. So it takes a long time in this business to develop expertise and relationships.”— John Connaughton

Leadership & Management · Operations & Execution

DUR_ENDURING

Hire early, train long; expertise compounds over 20-35 years