How to Achieve a Net Worth of $100+ Million USD Without Working 80-90 Hour Workweeks: An Interview with Richard Koch

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Richard KochIf you’re reading this site, there’s a good chance that you wouldn’t mind being worth at least $100 million USD one day.

And while you’re willing to work hard to get there, you’ve probably also realized that working investment banking hours for the next 20-30 years is unsustainable.

If that’s you, then today’s interview with Richard Koch is right up your alley (yes, that’s a link to his Wikipedia entry).

This is unlike any other interview on the site – even those with senior bankers – because it’s with someone who has had a successful 40+ year track record in business.

Among other things, he:

  • Worked at BCG and Bain, became a Partner at Bain, and then founded L.E.K. Consulting, which later grew to 1,000+ consultants.
  • Wrote over 20 books on business, personal success, and philosophy, including The 80/20 Principle, which sold over 1 million copies.
  • Became a successful investor and returned between 5x and 53x his capital in numerous private equity investments.

So it’s safe to say he’s accomplished many of your own goals.

We chat with him about all of that, his advice to recent graduates and current students just starting out, and what it takes to start your own firm and become a successful investor:

Management Consulting: Got Transferable Skills?

Q: We already know about your background from everything written about you in the press and online.

How and why did you choose to start out in management consulting?

A: I got involved in management consulting because it was a hot area; I didn’t know anything about it at the time.

I was an MBA student at the Wharton School of the University of Pennsylvania, and consulting was a completely new area to me.

Bruce Henderson in 1964 was really the first person to say that consulting could use people who were analytical, intelligent, raw, young and inexperienced – in some cases, those with no experience at all – in business.

So I went into consulting without any reservations because it seemed lucrative and interesting.

Q: Was it actually useful? In other words, do you think starting out in management consulting helped with your later accomplishments?

A: What I learned from consulting is exactly what I’ve been teaching: knowledge is great, but principles are better.

Principles are ideas that enable you to sort the knowledge, help you analyze it, and get to essence of the matter as simple and quickly as possible.

To date, I think only the 3 principles below are important in business and life:

1)   80/20 Principle – In any field at all, personal or business, only 20% of efforts we exert produce 80% of the outcome. Most of what we do does not produce results.

2)   Star Principle – BCG’s growth share matrix. Only invest in businesses that are in high growth niches / markets, and that are leaders in those markets.

Only invest in businesses that are growing very quickly, particularly in the early stages.

Sometimes it is difficult to tell if a niche is viable, so growth is all you have to go on.

When I invested in Betfair, all I knew about the company was that it was tiny and loss-making, but growing at 60-80% a month.

I knew that if the growth continued, the company could make a lot of money; it was also a leader in a niche it had invented – the electronic market for betting.

3)   Strength of Weak Links – I wrote about this in my book Superconnect: Harnessing the Power of Networks and the Strength of Weak Links. This idea was invented by a sociologist called Mark Granovetter, a professor at Stanford University, in the early 1970s.

Instead of your close circle, it is people you don’t know really well who can help you achieve your goals. For example, college friends whom you haven’t kept in touch with, your sister’s gardener, or anyone you happen to have some sort of connection with.

The problem with our friends and family is that they want to help, but they don’t have much more information than we do.

And if you want more information, which is the source of creativity, you’ll have to talk to people not like you – people with different educational backgrounds, nationality, political and/or social views. This applies even when you’re looking for a job.

These principles apply to your career and your personal life. I’ve used them in all my investments, which is part of the reason why I amassed ~$250 million in PE and VC stakes: I had a hit rate of 50% (due to the Star Principle), whereas others had a hit rate of 5% or 10%.

It’s a matter of putting yourself in a position where you can actually apply everything above.

Finance and Consulting: Still the Best Places to Start Out?

Q: Many of our readers want to start their careers in finance or consulting.

Do you still think those industries are good places to start your career?

Or if you have an idea for your own company, should you start it right out of undergrad or business school without taking a full-time job elsewhere first?

A: It depends. If you are one of the small minority of people who knows exactly what you want to do, then just go and do it, particularly if it is different and something no one else has ever done before.

If you think of Bill Gates, Steve Jobs, or thousands of successful people, they chose their own goals from early on and dropped out of the conventional “path.”

If you don’t yet have an idea or a particular “calling,” then finance/consulting are great areas to be in. However, try to work in areas that are as broad as possible and that are based on principles rather than detailed knowledge.

I feel a bit sorry for students starting out today – when I graduated, the world wasn’t quite so specialized.

In my 20s, there were only about 300 strategy consultants in the entire world, and they focused more on applying principles rather than detailed knowledge.

The problem with consulting firms these days, including the firms I worked at, is that they have turned into huge consulting “hyper markets.” As a result, you get pigeonholed working for specialized firms.

You don’t really use principles there; instead, you end up re-selling details/knowledge before it becomes general knowledge that is useless within 6 months. And that’s not a good way to make money or to lead an interesting life.

Q: You’ve written a lot about the 80/20 principle, but many of our readers are juniors in finance or consulting, where long hours are the norm (or at least, where they’ve been the norm until very recently).

How can they apply the 80/20 principle to advance into higher positions and improve their lives at the same time?

A: There are two ways to do this:

1)   Take a long-term view – You’re in a crappy job and you work 60-80+ hours per week. The way to get out is to become autonomous.

You can progressively increase your freedom by doing what your boss wants you to do as effectively as possible; all they care about are the deliverables, so if you figure out a more efficient way to get the same or better results, use it.

2)   Emulate people around you who are the best at doing things quickly. If you’re at a firm, choose the person who works the least and is the most successful.

At Bain, for example, I knew a Frenchman, Olivier Roux, who was used to working 9-5, and who joined Bain expecting to follow the same schedule.

While he raised eyebrows at that time, he was hyper-efficient – he didn’t procrastinate or waste time on breaks. As a result, he was incredibly successful and worked less than everyone else there.

If they don’t work very long hours, why should you?

Q: You’ve been quoted as saying that you can succeed by joining a fast-growing company, and that if the company is going places, then you’ll be going places as well.

Does this also apply to the fields our readers might be interested in?

For example, is a banker who worked at Goldman Sachs better served by going to a fast-growing start-up fund rather than KKR or Blackstone?

A: I would say so, yes. Sure, if you’re lucky enough to get a job at one of those places, start out there – but don’t stick around for the long-term.

Learn everything you can within 1-2 years and leave.

It astonishes me that people don’t do this – in a lot of cases, they do well, they’re told that they have bright futures at the firm, and the “you might become a Partner” carrot is dangled in front of them.

But it takes a very, very long time to reach that level these days since finance and consulting are more mature industries – so I would still recommend leaving and joining a high-growth company instead.

By leaving, you increase your network and your links to “different worlds.”

One of the amazing things about Silicon Valley is that engineers change jobs every 2 years. This is where the 3rd principle (Weak Links) comes in: the more people in different worlds and firms you can retain links with, the more network and knowledge you build.

So I highly recommend joining a firm that’s growing quickly; pay or prestige don’t matter in the early stages.

There’s nothing like fast growth to develop you as a human being and a professional.

I was effectively fired by BCG after 4 years of working there, which was too long to wait – it was no longer a high-growth company by then.

And then when I joined Bain, the company was growing at 40-50% a year.

With their business formula, they sold more and more work and they had a real shortage of qualified staff, which made it easier to become an “overnight success” there.

The best part is that it was the environment more than me.

It was a high-growth firm, so people were learning as they were going along – they weren’t waiting for promotions or waiting for “permission” to do things.

How to Start Your Own Consulting Firm When McKinsey, Bain, and BCG Already Exist

Q: When you started L.E.K. Consulting, McKinsey, Bain, and BCG had all already existed for many years.

What made you think it would be successful, and why were you confident that it would be able to carve out a segment of the market for itself?

A: At the time, we – the 3 of us who founded the company and who had worked at Bain – thought that being successful at Bain would make this new venture work.

So we tried to copy the “Bain formula” and win clients the same way they did.

Since Bain did not advise clients’ competitors as a matter of policy, we simply looked at their client list and approached each client’s competitors.

The sales pitch was simple: “You can’t hire Bain, but you can hire L.E.K.”

But this was completely wrong – just copying Bain’s formula was not convincing and didn’t work well in the long-term.

We ended up carving out an entirely different niche and focusing on M&A analysis for both public and private companies, acting more like a bank than a traditional pure-play consulting firm (in some ways).

And then we moved into doing similar analysis for private equity firms, which were still relatively new in the 1980s and which no one else was catering to back then. We offered “strategic due diligence,” whereas most other places focused on financial due diligence.

So it was similar to any other start-up: we broke away from an existing firm, tried to copy what they did and apply it differently, found it didn’t work, and kept trying different approaches until we found an untapped niche: consulting for M&A and private equity.

Looking back on it, though, simply getting started – wrong as we were – was essential.

You can’t sit around and waffle back and forth about whether your idea will work. Just get out there and do it, adapt, and experiment until you find what does work.

Q: You’ve also started a number of other ventures after founding L.E.K.

How do you make these new ventures successful without being personally involved in all of them?

A: I do the same thing that many investors and founders do: I find successful entrepreneurs who are smarter than me, have similar views, and who have more time but less money than me.

I might hire someone to look after my company in exchange for a percentage ownership in it – so I might invest a certain amount and get 15% ownership, and he would also get 15% ownership for a much smaller investment.

But then he would also spend 5-10% of his time supervising the management team at the company.

Meanwhile, I would remove myself completely and delegate responsibilities to him.

Q: What do you look for when hiring managers, or when choosing business partners for your new ventures?

A: I look for rebels and people who are iconoclastic, particularly those with an unconventional background.

I want people who are not going to come up with everyone else’s answers; people who are consciously different and confident with the rationale behind their thinking.

Q: Do you have any other career advice that may be useful for our readers?

A: Three things to note:

1)   Become Yourself: Many people say you should “be yourself.” I say you should become yourself. When you’re in your 20s or 30s, you rarely know who you are.

There’s always an untapped area of potential and the question is: “Who you can become?” The person you should become should be whatever you can uniquely do and enjoy.

What is it that you can do better than others, or that they can’t do at all? You also have to enjoy it, and it needs to be useful to others.

2)   Take your time and discover who you are, particularly when you’re young.

When I was younger, I thought it was a race against time to become a manager at BCG or a VP in consulting. Like a lot of people, I just assumed I had to climb the ladder in the shortest amount of time possible.

But it’s not a race. If you look at people who reach high levels, they didn’t necessarily get there because they did what everyone else wanted them to do; they focused on finding their unique niche and getting results rather than following a predetermined path.

3)  Be Unconventional – Be a rebel. If everyone is going to a firm that is specialized, go into firm that is not very specialized.

What’s conventional now is joining the mega firms, so you have to ask yourself, “If everyone else is doing it, is it really such a good idea for the long-term?”

Q: Lastly, do you have any advice for readers on how to tackle their fear of uncertainty and the peer pressure against taking the unconventional path?

A: You have to decide if you are a genius or a sheep; it’s cumulative.

If you behave like a sheep, you will go “baa baa!” all the time.

If you behave like a genius, you will become one.

Q: Great! Thanks for your time.

A: My pleasure.

What Next?

For more information and golden nuggets from Richard, follow him on Twitter @RichardKoch8020 and read his weekly blog posts on www.richardkoch.net.

About the Author

has worked in institutional sales, private banking, and investment banking in Hong Kong. When she's not working, she enjoys kiteboarding at exotic beaches, jumping off planes and bridges, and shark-diving.

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25 Comments to “How to Achieve a Net Worth of $100+ Million USD Without Working 80-90 Hour Workweeks: An Interview with Richard Koch”

Comments

  1. says

    Great read, awesome interview. Interesting thought joining a rapidly growing firm over taking a safe bet at a larger place. I’d imagine learning as much as possible is key, as is surrounding yourself with others more knowledgable than you. Thanks for the interview!

    • M&I - Nicole says

      Marco, yes great attitude to have. And I do agree with Richard, especially given this environment. The risk you think you’re taking may not be that risky at all. And learning as much as possible, especially at start of career, is key for long term success…

  2. PD says

    Excellent read, you guys should do more of these, high profile guy/girl, with focus on advice and insights rather than nitty-gritty details

  3. lseactuary says

    Great post – loved every word! I’m also wondering what he (or you) would consider ‘high growth’ companies at the moment? Startups?

    • says

      Thanks! Yes, some startups, but they don’t have to be tech-focused… there’s a ton of innovation going on in the finance space, with P2P lending, virtual currencies, even real estate. Plus, any new consulting/finance firms starting up with a different approach can potentially be high-growth as well (see places like Qatalyst Partners, Andreessen Horowitz, etc.)

      • M&I - Nicole says

        Yes, Richard’s book the Star Principle talks about the criteria he looks for in startups. And I think considering working for high growth companies is a wise choice.

  4. IB says

    I read that it is near impossible to get a job in private equity straight out of undergraduate. I maybe want to go into private equity.
    I have a chance to do a placement in a PE firm BUT it is quite new and relatively unknown. Is their any point if it just starting out? or will any PE experience at undergraduate help me stand out loads?

  5. Marco says

    I love the article and the insights here. I’ve read superconnect and 80/20 principle prior to this and I’m glad to see Richard Koch sharing his insight.

    My only complaint is that the title really does the article and the insights here a great disservice. His responses are a fantastic road map to personal and professional success while the current title sounds like link-bait.

    • says

      Thanks for your feedback. Yes, I agree the headline maybe went a bit too far this time (sometimes it’s hard to tell during editing), but to be fair, many of the headlines for other articles on the site could be considered link-bait in some way.

      • Marco says

        This is what I love about your site. Direct response, no side stepping, no getting hurt emotionally, just good old fashion respond and move on. Keep up the great work Brian!

  6. JD says

    Amazing read. I understand the core purpose of M&I is helping people join banking, or finance more broadly, but there is infinite value in thoughts like these that focus on high-level principles that crush the perception of “path to XYZ”. Those paths sort of exist in the early stages, and it makes sense to want to see the world that way, but when you hear out guys like Koch and many like him, it doesn’t help you get where you should be. Unsurprisingly this is coming from a BB IBD analyst, but just wanted to say thanks. Here’s to more from veterans that can put the current world in perspective!

    • M&I - Nicole says

      Awesome. Thanks for your comment and I’m glad that you enjoyed the article. Stay tuned for more!

  7. BBQ Shape says

    Brian, you continue to raise the bar. I don’t know how you got an interview with this guy, but it’s great. I agree with everything he writes above and I always think to myself that there’s gotta be ways to innovate and create your own environment and deliverables without doing what everyone else thinks they should be doing.

    Outstanding is all I have to say. It’s good to know there are other rebels out there and I’m not just crazy.

    • M&I - Nicole says

      Well, as we’ve always preached (and we practice what we preach) persistence is key when it comes to networking. I’m glad you find the article useful. Check out Richard’s blog for more informative articles – he’s got some great insights there.

  8. Banker to Tech says

    Great read! As a former investment banker (4 yrs) who then jumped ship for a tech start-up, the messaging resonated with me. Company hyper-growth certainly creates a lot of opportunity for personal growth. For all current finance folks reading this article, my view is that the larger challenge is finding an attractive opportunity at a growth company.

    This typically requires taking a compensation cut (ouch!) and also developing a functional expertise (ie sales, marketing, or finance). In my search, I found that the finance roles on the corporate side are not that interesting and are typically Financial Planning and / or treasury roles. Corp Dev / Strategy roles are available but only at mature companies. Securing a sales / marketing role (which is ultimately more interesting) can be tough as I was required to take a lower-level role to learn the ropes. So, to all of those 1st and 2nd year bankers who are disillusioned with finance, make that switch before it gets too costly!

  9. Jack says

    Hi,

    I know this part is touched upon in the interview, but what do you think Richard Koch thinks about joining a tech startup these days straight out of college vs. joining an investment bank or consulting firm? It seems like in his day the best place to join out of undergrad is IB but now the market has changed and it seems like it has been replaced by tech startups.

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