Not So Lazy & Entitled Millennials : Conor Witt

This is the second installment of Not So Lazy & Entitled Millennial Interview Series.

This one’s very informative and insightful. I interview Conor Witt. He is a consultant working in NYC. We connected on Twitter, naturally.

If you are somewhat interested in fintech, traditional finance, consulting & crypto, you would enjoy this interview.

If none of that interests you, just read through to learn about how Conor views and uses Twitter.

One thing that’s impressive throughout this interview is the level of nuance in most of his answers. He is an extremely curious fellow and a voracious reader. He is really great at distilling insights and raising unasked questions after reading widely on a topic.

I start things off by attacking the industry he works in. And, yes, as the interview progresses, I double down.

Tell us a bit about yourself. What do you do? I’m personally against getting into consulting on a philosophical level. I subscribe to Munger’s view on consultants.

I understand that consulting teaches you teamwork, communication and presentation skills but there are no feedback loops. For the most part, junior consultants aren’t held accountable for their actions and decisions. How would you make a case for consulting to a non-believer like me?

First, thanks for inviting me to do this. I’m a consultant at firm called Capco which focuses exclusively on financial services. I’ll start by saying that I agree with a number of your comments above. Feedback loops are critical, as is an alignment of interests with a shared downside risk.

There are well-documented issues about the lack of both in the consulting industry. Regarding feedback loops, they’re available if you want them. One of the things I’ve found unique relative to some of my peers in traditional finance is that the environment is highly entrepreneurial. That might sound counterintuitive but if you’re interested in something and you take the initiative, there’s seemingly no end to where it can go.

I generally agree about the lack of skin in the game — it’s much tougher to “eat your own cooking” in consulting than at an investment firm. But I think that can change. If I were to guess, going forward I think reputation of a given firm will mean less and an ability to demonstrably show how you can deliver unique value will be prioritized.

And not by overusing buzzwords but by with data and long-term relationships with a shared downside risk. I’ve thought a bit too about how to more effectively align the interests of a consultant and a client. Maybe less of a focus on contractually mandated deadlines and more emphasis on revenue-sharing arrangements based on the long-term success of a specific initiative.

Like a lot of things, it is what you make of it. The learning opportunity is definitely there. It can be a great platform to begin a career. I’ve had the chance to immerse myself in a number of different verticals throughout financial services — asset management, retail banking, enterprise blockchains in capital markets, and life insurance. That was the biggest draw for me upon graduating college.

None of my non-tech friends use Twitter. They dismiss it as a “tech” thing. I disagree, obviously. I often find finance twitter to be more insightful than tech twitter.

It is uncommon for young consultants to be active on Twitter. Tell us how and why you use Twitter. Does it help you in doing your job better in any way?

Couldn’t agree more. Twitter is wildly underused and under-appreciated among my friends and peers in consulting, investment banking, and other more conventional finance jobs.

I definitely didn’t appreciate the value of it at first, but once I started using it more regularly, it became immediately clear. My friends make fun of me for my constant Twitter advocating, but in my opinion it’s an unfair advantage that most people overlook.

I use it for three reasons: (1) to engage with smart people, (2) to learn new things, and (3) to challenge my own ideas. You get the chance to see what the smartest people in the world are thinking on a second by second basis.

There’s an incredibly tight feedback loop because if you say something that’s wrong, more often than not you’ll be challenged. And that’s a good thing. I’m honestly still evolving how I use it but it’s an indispensable resource.

Meeting smart people that you otherwise wouldn’t necessarily get to know is one of the more underrated elements. I probably would have laughed if someone told me that two years ago but it’s true.

You’re a great example. I enjoyed reading your perspectives on a broad array of topics in tech and investing, saw you were based in New York in the summer, we got coffee, and have been in touch since then.

It’s definitely valuable for my day job. Having an ear to the ground on the things happening in the fintech space is critical for my job. Engaging with and following founders, operators, and investors on a daily basis is something I value a lot.

And Twitter is the best outlet I’m aware of to do that. Just as important though is the things that have seemingly no relation to my job. I joke that I have two jobs, one at Capco and one is trying to find time to pursue all of the other things that fascinate me. Again, Twitter is often the starting point.

What differences and similarities do you see in between tech and finance twitter?

In a lot of ways I think they’re the same. People who use it regularly tend to be incredibly curious. Whether it’s tech or finance Twitter, everybody is there to learn.

Who you follow really impacts your experience, but I’ve noticed there’s often a more ideological side and a more tangible side when it comes to tech twitter. There are definitely times where tech twitter can resemble politics Twitter, which I similarly try to avoid.

In general what I love about finance twitter is the quality of content and the intellectual honesty. If someone is active on Twitter, odds are they aren’t just there talking their book. They’re vetting theses on a particular company, debating an S-1 or an earnings report, discussing macro trends, and investment philosophies.

Jesse Livermore wrote a blog a while back called “Speculation in a Truth Chamber,” where the focus is on increasing “truthfulness” in the face of motivated cognition, or the tendency to selectively choose what we consume so that it’s aligned with our existing beliefs.

Finance twitter kind of embodies this idea — there’s an inherent openness to be wrong, and a willingness to challenge others when they’re wrong. In my experience it’s all based on a mutual desire to help each other get better.

How does traditional consulting get disrupted? Currently, Deloitte, PwC, KPMG and E&Y offer a bundle of services like advisory, tax, accounting, and audit. And, then, there’s BCG, Bain and Mckinsey that focus more on management consulting.

Do you see startups unbundling them or them becoming increasingly irrelevant as more tech enabled companies grow bigger without any reliance on consulting services?

In general I’m bearish on the consulting industry. Someone framed it nicely to me when I first started that people hire consultants for two reasons: (1) to do things they don’t know how to do and (2) to do things they don’t want to do. That’s an oversimplification, but it’s an easy way to think about it.

There has been a trend away from traditional strategy consulting work, the stuff I wanted to do when I was in college. Even McKinsey, for example, has seen the sources of their revenue change dramatically, away from traditional “strategy consulting” towards risk management, regulatory compliance, and operations. It makes a ton of sense too.

With resources like CB Insights, you don’t need to pay exorbitant daily or hourly rates to learn what your company “should” do. The information is there and it’s increasingly digestible for anyone interested. The issue, as always, is execution.

I do think consultants will continue to persist for that reason. To serve as a third-party manager that helps enact change through a suite of offerings that are way too expensive for a client to keep on the books full-time.

I would bet there’s a similar phenomenon in consulting as there is in private equity. Dan Rasmussen at Verdad Advisors has shed light on the inadequacy of lots of private equity firms to actually add any tangible value to their portfolio companies.

If there were a similar study on the success rate of consulting engagements, my guess is the numbers wouldn’t be as dazzling as one might think. In the future you will need to demonstrably prove to clients that they’re getting what they pay for to succeed as a consulting firm going forward.

You co-authored a long blog post titled Naked Brands : Future of Wealth & Asset Management with our mutual friend David Perell. Can you give us a quick summary of the big idea behind it? Can you apply that framework to other industries?

David deserves a ton of credit for this idea, as the Naked Brands concept was something he created. The main idea is that, irrespective of the active vs. passive debate, you should get what you pay for. Investment products and financial advice are becoming commoditized.

Costs of both are heading in one direction. And the level of skill has never been higher. Technology is arbitraging away a lot of the advantages that used to exist. Our view is that a terrific way to differentiate is through authenticity, investor education, and consistent communication that allows you to generate trust with clients at scale.

Firms like Capital Group and Edelman Financial have storied histories, but it’s much easier to just identify people who resonate with you than brands. Building trust is a sustainable competitive advantage because it compounds.

The ability to regularly engage with specific people is a great way to build that trust. A few great examples of people who have done this well are Barry Ritholtz and his team at Ritholtz Wealth Management, Meb Faber at Cambria Investments, and Patrick O’Shaughnessy at O’Shaughnessy Asset Management.

And I think the idea can definitely be applied to other industries — David has written some great posts applying the concept to other industries. A lot of it is really well aligned with an idea championed by Albert Wenger at USV.

Capital used to be the scarce resource in society, but increasingly we’re in an age defined by a scarcity of attention amidst seemingly endless demand for that attention. So finding a way to capture and retain attention in a way that’s mutually beneficial to everyone involved can be a very defensible moat for a company.

I am going to pull a Thiel now. What one thing do you disagree the most on with your friends and peers?

A lot of my peers think about careers laterally. What do I need to do to get to the next phase? I’ve definitely been guilty of that as well but increasingly I think it’s a bit futile because it limits your options.

The idea of a five year plan is culturally ingrained and a common interview question, but I honestly have no idea where I’ll be in five years. I’m not sure I want to either. I care a lot more about being in an environment where I can learn as much as possible, work with incredible people, and be challenged constantly.

I strongly believe that prioritizing non-negotiable facets of a job are more important than identifying a singular destination.

Personal finance tools have never been more accessible. Yet, the younger demographic lacks financial literacy. Over the years, I have been seeing reports that say 35–45% of Americans wouldn’t have enough savings to meet an unexpected expense of $400-$1000.

That is crazy. People get into this debt trap by paying for expenses using credit. It’s an endless cycle. What are your thoughts on the fintech landscape in general and the educational divide?

One of the challenges with consumer fintech is that there seems to be a trend towards commoditization. How can you substantially differentiate one product from another? How can you acquire customers in an economically practical way? And then how do you keep them coming back?

There’s an inherent reliance on incumbent financial institutions — and we’ve seen the narrative change from “disrupt the banks” in 2014–2015 to a focus on partnerships and M&A activity. I initially became obsessed with fintech through marketplace lending. A lot of that has failed to live up to expectations.

That being said, I still am really intrigued by the use of alternative data to more effectively price risk and identify eligible borrowers, both for consumers and small businesses.

Clarity Money is the best personal financial management tool I know of. Ironically there in talks of being acquired by Goldman.

One of the unfortunate things about financial literacy is that people often don’t care about it until they have to. Something comes up unexpectedly and it’s a game of catch up.

As I mentioned earlier, I do love what apps like Clarity Money and Albert are doing. Having a complete financial picture with all of your accounts integrated is really valuable. Financial literacy training definitely needs to begin earlier though.

Fintech startups have been aggressively unbundling Big Banks for past 6–8 years now from all angles. What do you think is missing today in terms of innovation within a specific financial sub-sector or better companies in an existing market?

It seems like there are lots of good ideas that are really hard to execute because of the complexity of the financial services landscape.

I’ve spent the last few months in the weeds on the asset management industry, both in the US and in Europe. It surprises me that there aren’t more on solutions to supplement traditional asset managers.

One way to do that is by helping portfolio managers deliver more alpha, but that’s an incredibly difficult problem to solve with any consistency.

But there is room for supplementary tools and resources to provide institutional-level analytics on products, client segmentation, and market data to modernize the way asset managers interact with retail clients.

More robust investor education seems like another under-explored area. As investment products become more commoditized and fees continue to fall, asset management firms will need to find other sources of revenue.

Which fintech companies do you think have the greatest potential?

I think the companies with the most extensive sets of customer data will be the ones that continue to thrive. Square is an easy example. Their pivot into Square Capital and POS lending make so much sense. They have insane amounts of data about merchants and customers.

They serve as the backbone of many small businesses. And their ability to continue to offer supplementary services keeps their customers happy. They have an extensive developer ecosystem, too. I understand the question marks about Jack Dorsey splitting time but in general I’m a huge fan of that company.

While many alternative lenders have been unable to demonstrate superior underwriting through the use of “alternative data,” Square has such an advantage because they have access to every detail about an individual merchant, as well as end customers.

Affirm is another company I love. They’ve received a ton of well-deserved publicity but there’s a clear alignment of interest between Affirm, Partners, and borrowers. The store-branded credit card business is the complete opposite — highly opaque and borderline predatory.

I like Plaid a lot, too. They’re the connection between fintech companies and incumbent financial institutions. I think as the interdependence of banks and startups will continue to grow. Serving as the bridge between the two through a suite of APIs makes that process incredibly simple.

There has been a wave of startups offering both general and vertical lending products. I think two crucial factors that play a role in how successful they become are the underwriting technique using data and access to capital through financing mechanisms like deposits, VC money, debt etc. What’s your take on this sub-sector in fintech?

I’ve found it fascinating, but so far it’s been a bit of a let down in terms of a growth standpoint. 2014–2016 were an exciting two years for alternative lenders, but the growth wasn’t really sustainable.

It wasn’t particularly profitable growth either because of the consistently high customer acquisition costs. And unlike a SaaS business model where there’s some recurring revenue that minimizes churn to an extent, consumer loans are an independent transaction.

Regardless of the quality of the UI/UX or the favorability of the terms on your interest rate, you’re likely going to shop the market again in the event that you need to take out another loan or refinance. I wrote a post about this a while ago and I don’t think much has really changed since I published it.

The original hope was pure peer-to-peer transactions. I’m not sure any startups employ a purely peer-to-peer model because it’s not sustainable. There was a transition towards a balance sheet model, but since all of these firms are borrowing capital from third parties (venture debt, traditional debt investments, etc), the cost of capital is so much more expensive.

So incumbents like Goldman have such an advantage when they launch something like Marcus. They also have an existing customer base, a reputable brand, and the ability to cross-sell products that marketplace lenders can’t offer. Companies like SoFi and MoneyLion are trying to compete by offering a broad range of services.

I hope they’re able to do it but it’s hard enough to scale one vertical of a business like consumer loans, let alone a checking account, wealth management offering, and life insurance. The task to upend banks, who aren’t nearly asleep at the wheel as they’re made out to be, seems daunting.

Let’s switch gears to crypto now. I know you have been learning a lot about the impact of blockchain on traditional finance. One of the most interesting pieces of the decentralization puzzle is the tokenization of traditional assets (equity, real estate etc.).

People pushing for it claim that doing so would mean bigger investor base, higher (or instant) liquidity, faster settlement times, fractional ownership, and would help us to go from a world where we basically took the traditional ownership contracts and put them online to a world where we will have native digital contracts for IRL assets. In simple words, if I don’t have enough money to buy a share of Berkshire Hathaway or a piece of real estate, I buy half or one fourth of the share or real estate.

I have a bunch of questions regarding this concept. Is greater liquidity necessarily a “good” thing? Do we want retail investors to buy pieces of whatever they want? Do we really want capital allocation decisions to shift from professional investors to everyday people?

How would property rights work if a bunch of people own an asset in varying proportions? Is illiquidity desirable in a lot of cases? Hundreds of much smarter people than you and I are working on these questions. I do want to get your thoughts on this topic.

I’ve thought a lot about this and you obviously have too. I’m still evolving my views but frankly a lot of this talk of traditional asset tokenization seems like it’s a hammer looking for a nail.

I recognize the benefits of frictionless exchange and market-driven valuation, but when I look at this I mostly think of the negatives. I also have found this to be a topic that is only discussed in a positive light. The drawbacks seem completely under-explored.

A few that come to mind for me are the follow:

  • Applying an untested strategy as a panacea (i.e. “tokenize the world”) is problematic to me
  • This has been described as “VC economics with public market liquidity.” I have a lot of respect for the people who wrote that, but it sounds like an contradictory statement to me. One of the primary drivers of VC economics is the lockup and inability to sell on a whim. In markets that are increasingly efficient and flooded with capital, long-term time horizons are one of the few edges that still exists.
  • People are generally bad investors. The impulse of an investor, whether they’re retail or institutional, is often wrong. Illiquidity is a behavioral hedge against making bad decisions, because you inherently can’t make them on a whim. Morgan Housel wrote one of my favorite blog posts on this called the Shallow Benefits of Deep Liquidity.
  • Regarding the allocation decisions shifting to retail investors, I don’t really think that’s a good thing. Professionals struggle to effectively allocate capital and generate above-market returns. Introducing more market participants is a red flag for me.
  • One of the benefits of “alternative asset classes,” or the things that should allegedly be tokenize is their value in the diversification of a broader portfolio. A real estate asset has a different risk/return profile than a share of $APPL. By allowing everything to be tokenized and thus trade in the secondary markets, how do those return profiles change? By increasing demand to an asset class that can’t support the trading volume, you inherently change the risk/return profile. You also change that asset’s correlation (or lack thereof) relative to other asset classes.

That said, there are a few really interesting projects going on right now (Harbor, Templum, Polymath) that are working to bring compliance to tokenization in what has been a completely unregulated space. I do recognize some of the benefits, but thus far they seem to be overblown to me.

Besides the crypto space, what are you currently exploring ?

I’ve been interested in the use of alternative data to inform decision making. Whether it’s pricing insurance risk, due diligence in public market investing, or underwriting consumer and small business loans, this area has captured a lot of my attention.

What blogs would you recommend for a student looking to get into finance?

There are so many great resources out there. And they’re all free. It’s kind of hard to believe that we have access to thoughts and ideas of the smartest people in every facet of finance. A few of my favorites are below:

My list of must-reads is admittedly a long one but these are great places to start.

I ll end the interview with this last question. Who are 2–3 interesting, young people in tech I should connect with, follow on Twitter and possibly interview?

There are so many good ones but a few that I would recommend are Jake Cahan, Larry Sukernik, and Arjun Balaji.

I hope you found it interesting and learned a few things. I could have easily asked him a dozen more questions. But, they say our attention spans are shortening. Maybe I ll have a follow up interview sometime in the future.startup

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