Viewpoint: Former Management Consultants as Startup CEOs

Venture capitalists are filled with biases, whether we openly admit it or not. Frankly, it doesn’t do us a lot of good to admit our biases, as one of the main goals of any VC is to maximize quality deal flow. If a firm were to confess they’re averse to investing in husband and wife teams (which many are), it doesn’t see FanDuel or Buddy Media. Or would never invest in a team with a non-technical founder (which many won’t), then it would never see Pinterest or Groupon. The fact of the matter is we want to see every deal possible, as there’s really no such thing as NEVER in VC. Yet, in our small circles and certainly after a few cocktails at a networking event where our FOMO is on full display, the “I would never” topic tends to arise.

More than a couple of times lately, I’ve heard a bias targeted at former management consultants. It usually goes something like, I met this interesting company today, but the founder is a former consultant — followed by an incoherent groan. When pushed, most will respond with some form of, they’re robots, not nimble, no vision, elitists, etc. While most stereotypes have some merit, this is one I couldn’t disagree with more.

At KEC we have backed four companies where the CEO was a management consultant (specifically at a big 3 — Bain, McKinsey, BCG) prior to becoming a founder. Three of those companies are amongst our top performers and the fourth is having some success, but has required the founders to really grind and display the scrappiness necessary to allow time for product/market fit and a repeatable sales cycle to materialize (strike off robots, nimble and elitists).

VCs (and others) will tell you that there are three things that matter when building a startup — product, product, and product. The reality in the early stages is ‘survival’ should be slotted in after the first ‘product’. Once you raise money, your job as a founder/CEO is to get the company to the appropriate milestones to be able to raise more money (or become a self-sustaining business). Yes, you need a product that people want, but you also can’t run out of money before you’ve proven that demand. As a founder, if you don’t know the metrics and milestones necessary to get to your next round and aren’t maniacally managing cash and expectations to allow for you to hit them, then your chances of success are greatly diminished. In my experience, the consultants never lose sight of any of this. Most of them could stay at a big 3, make $1m+ per year before they’re 40 and live a comfortable life. They choose not to because they’re unfulfilled and see a market opportunity, just like any other founder. By definition they are all high achievers and intellectually capable, otherwise they would not have been recruited by the top firms. Finally they’ve seen the problems that large companies have and all of their inefficiencies and have at least had to think about and opine on how to improve them. Group these points together and it provides them with a knowledge set that gives them a leg up on their ability to lead and manage a team. Every VC has invested in a company where it acknowledges internally that if the company is successful, it will have to bring in a “real” CEO to scale it. While we always convince ourselves this will be a smooth transition, it’s often not. Having a Founder/CEO that can (and wants to) go the distance is a huge positive and I don’t have any doubt this is the case with each of the four CEOs mentioned.

I’m sure there are examples to the contrary that are causing my peers to cringe each time the word consultant is mentioned and I’m not claiming that four companies should be deemed statistically significant. However, for me, the CEO being a former management consultant gets a check in the positive column.