Annotations (12)
“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
DUR_ENDURING
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
DUR_ENDURING
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
DUR_ENDURING
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
Frameworks (2)
Counter-Cyclical Talent Acquisition
How to Recruit from Undervalued Talent Pools
A framework for identifying and recruiting high-potential talent from adjacent industries where competition for that talent is low and the individuals are frustrated by the limitations of their current environment. The framework inverts conventional recruiting by targeting consultants who are risk-averse by nature but seeking impact, rather than investment bankers who are already in the target industry.
Components
- Identify Adjacent Industry with Similar Core Skills
- Target Frustrated High Performers Seeking Impact
- Offer Path to Outcome Realization
- Compete Where Others Aren't Looking
Prerequisites
- Clear understanding of what frustrates talent in adjacent industry
- Cultural readiness to onboard non-traditional backgrounds
- Training infrastructure to fill skill gaps
Success Indicators
- Lower cost per hire than industry average
- Higher retention rates
- Distinct cultural profile versus competitors
Failure Modes
- Cultural clash with existing team
- Skill gaps prove larger than anticipated
- Recruits discover constraint wasn't what they thought
Team-Based Investment Underwriting
How to Structure Deal Teams for Knowledge Creation
An alternative to the traditional 'deal quarterback' model where a senior partner leads and junior team members execute. This framework empowers junior team members to generate proprietary insights through direct work, while senior partners provide judgment and pattern recognition overlay. The key innovation is making junior voices essential to the investment decision, not just supporting data gatherers.
Components
- Assign Diligence Internally, Not to Third Parties
- Make Junior Voices Mandatory in Decision
- Senior Team Provides Judgment Overlay
- Structure Dual Deal Partners for Built-In Debate
- Measure Success on Team Feedback, Not Just Returns
Prerequisites
- Senior team willing to cede some decision authority
- Junior team capable of independent analysis
- Investment committee structured for debate not presentation
Success Indicators
- Junior team retention improves
- Proprietary insights differentiate deals
- Team feedback scores rise
Failure Modes
- Junior team not ready for responsibility
- Senior team pays lip service but controls all decisions
- Process becomes too slow
Mental Models (4)
Incentive Alignment
EconomicsThe principle that compensation structures shape behavior and organizational outcomes. When incentives are misaligned (eat-what-you-kill in a collaborative culture), individuals optimize for personal gain at the expense of collective success. When aligned (distributed economics, long-term track record rewards), individuals naturally collaborate because their personal success depends on collective success.
In Practice: Multiple references to compensation philosophy
Demonstrated by Leg-jdr-001
Multiple Perspectives Reduce Blind Spots
Decision MakingA single perspective, no matter how expert, has blind spots. Requiring multiple viewpoints, each with different incentives or backgrounds, exposes assumptions and challenges mental models. The decision quality improves not because the group is smarter, but because the collision of perspectives forces examination of what would otherwise remain unquestioned.
In Practice: Two deal partners plus portfolio partner on every deal; junior team voices required in decision; senior team provides judgment overlay but in dialogue not dictation
Demonstrated by Leg-jdr-001
Compounding
MathematicsSmall advantages when repeated consistently over long periods create exponential rather than linear growth.
In Practice: 35-year careers; 20-25 year tenures; continuous accumulation of expertise
Demonstrated by Leg-jdr-001
Fat Tails and Black Swans
Probability & StatisticsExtreme events that fall far outside normal probability distributions have disproportionate impact.
In Practice: Bought all cyclical businesses in 2006-2007 assuming operational capabilities could manage through any cycle
Demonstrated by Leg-jdr-001
Connective Tissue (1)
Crossing the Icy River
The metaphor of 'getting across the icy river' captures the perilous journey through a crisis where the path forward is uncertain, the footing is unstable, and a single misstep can be catastrophic. In the GFC context, this meant portfolio companies marked down to 0.65x were barely surviving. The firms that made it across weren't the ones with the best strategy, but those with the operational muscle to stabilize each step, keep moving forward despite the danger, and ultimately reach the other side. The metaphor emphasizes patience, operational focus, and willingness to do unglamorous survival work rather than strategic repositioning.
Used to describe how 250 Bain Capital employees (2/3 of the firm) worked inside portfolio companies during the GFC to rescue cyclical businesses that had been marked down to 0.65x, ultimately achieving 2x returns on the fund
Key Figures (1)
Mitt Romney
4 mentionsFounder, Bain Capital
Mitt Romney was one of Bain and Company's most successful consultants who founded Bain Capital in 1984.
- Romney wanted to find a path and lane for himself
Key People (2)
Mitt Romney
(1947–)Founder of Bain Capital, former Governor of Massachusetts
Bill Bain
(1937–2018)Founder of Bain and Company
Concepts (2)
leverage / levered
CL_FINANCIALUse of debt financing in acquisition; 85/15 means 85% debt, 15% equity in capital structure
marked down
CL_FINANCIALReduction in reported value of an investment on the books
Synthesis
Synthesis
Migrated from Scholia