Valuetainment - Trillion Dollar Consulting Industry That Rules The World - The McKinsey, BCG & Bain Influence

00:00:00.000 So did you know the business of Ideas?

00:00:01.640 Yes, Ideas is officially a trillion-dollar industry per year.

00:00:05.440 That means people spend a trillion dollars per year simply for advice.

00:00:10.100 A Tim's Donut and Coffee is the original collab.

00:00:12.560 And now, any classic donut is a dollar when you buy any size original or dark roast coffee.

00:00:16.760 Get a deal on the iconic duo with a Tim's Dollar Donut.

00:00:19.780 Plus tax at participating restaurants for limited time.

00:00:21.780 Terms apply. See app for details.

00:00:23.180 It's time for Tim's.

00:00:25.200 You ever heard of a company called Verizon?

00:00:26.780 Did you know they gave?

00:00:27.900 Not $10 million.

00:00:28.720 Not $20 million.

00:00:29.420 They gave $120 million to McKinsey over two years.

00:00:32.640 You know for what?

00:00:33.400 Purely for consulting and advice.

00:00:35.140 And by the way, they don't even flinch when they're doing it nowadays.

00:00:37.480 And matter of fact, this has become so powerful that Fortune 500 companies,

00:00:40.840 as well as government, like government employees, prime ministers, presidents,

00:00:44.060 are coming from these big consulting firms.

00:00:46.920 Let me give you a list of these names.

00:00:48.480 CEO of Google is a McKinsey alumni.

00:00:50.360 So is COO of Facebook.

00:00:51.920 CEO of Morgan Stanley, Vodafone, Lego, Boeing, Best Buy, Levi.

00:00:55.480 You know who also is a McKinsey alumni?

00:00:56.960 Chelsea Clinton.

00:00:57.900 Let me continue.

00:00:58.500 This is BCG alumni.

00:01:00.120 Ready?

00:01:00.740 Benjamin Netanyahu was a BCG consultant.

00:01:03.760 Bain founder used to be a BCG consultant.

00:01:06.560 John Legend, Grammy award winner, was a BCG consultant.

00:01:09.940 Here's a Bain alumni where they're working at now.

00:01:12.080 Ready?

00:01:12.460 CEO of Nike, American Express YouTube, all Bain alumnis.

00:01:15.820 Mitt Romney used to be at Bain.

00:01:17.560 CEO of Dell, co-founder of Intuit.

00:01:19.600 So you may be asking, Pat, I don't understand where you're going with this.

00:01:22.000 Do you want me to go be a consultant on McKinsey or Bain or BCG?

00:01:24.200 No, what I'm trying to tell you is, it's no longer about the $120 million contract of Verizon with McKinsey.

00:01:29.620 Today, the average person is willing to pay you for your expertise if you become a consultant.

00:01:35.500 Not with McKinsey, with yourself.

00:01:37.640 And we're going to talk about that today.

00:01:38.900 Okay, so if you get value out of this video, give it a thumbs up and subscribe to the channel.

00:01:51.400 Let's get right into it.

00:01:52.360 Let's talk about what many call is the most influential company in the world, McKinsey & Company.

00:01:57.520 So first of all, they have offices in 130 cities in 65 countries.

00:02:01.560 They advise clients like Coca-Cola, Microsoft, Disney, U.S. Department of Energy, FDA, Postal Service, Bill & Melinda Gates Foundation.

00:02:07.900 Since 2008, they have obtained $940 million worth of federal contracts.

00:02:13.020 With the DoD being its top client, received $120 million from Verizon over a two-year period, $13 million from U.S. Steel over a three-year period.

00:02:21.200 Advising senior officials on developing technology for the Air Force and Space Force to evaluating the management of the F-35 program.

00:02:28.240 They've consulted Russian weapons manufacturer, Rostec.

00:02:30.940 They've advised China Communications and the government-owned engineering company responsible for building man-made islands in the South China Sea.

00:02:37.840 In 2016, the same year they were advising China Communications, in 2016, in a year which McKinsey carried 64 contracts for the U.S. government, they also carried 137 contracts for Saudi Arabia.

00:02:49.660 They advised opioid makers, Purdue Pharma, Indopharmaceuticals, Johnson & Johnson, and Mallinckrodt to help them deal with regulators, secure approval for new products, adopt aggressive strategies to increase sales, recommendation that Purdue Pharma turbocharge its sales of Oxycontin, work as a management consulting firm for the opioid industry over a 15-year period.

00:03:07.320 They work with Juul from 2017 to 2019.

00:03:09.740 You know what Juul does?

00:03:10.460 It's that vape company.

00:03:11.460 I'm sure you've heard of Juul.

00:03:12.440 Tobacco companies, insurance, and hospitals.

00:03:14.800 You name it, they've done it all.

00:03:16.120 And by the way, I can tell you the same thing with Bain and BCG.

00:03:18.860 I'm trying to give you a history of how powerful some of these companies are.

00:03:21.380 So when it comes on to consulting companies, they talk about three different types.

00:03:25.080 One is the MBB, you'll hear about.

00:03:27.140 One is M stands for McKinsey & Company, B stands for Bain & Company, and the other B stands for BCG.

00:03:32.300 They're known for being the most prestigious strategy and management consulting firms in the world.

00:03:36.920 Then the big four firms are Deloitte, PwC, EY, and KPMG.

00:03:40.800 These are all the management consulting and accounting services referred to as the big four as they're the largest accounting firms.

00:03:46.520 Of course, accounting is consulting.

00:03:48.400 These guys are more strategy.

00:03:49.960 So for strategy, it's more BCG, McKinsey, and Bain.

00:03:53.020 But since they add accounting, which is part of consulting, these are the guys who are considered the big four.

00:03:57.460 And then you have the boutique consulting firms.

00:03:59.140 You can talk about Oliver Wyman, PA, LEK, Rollenberger.

00:04:02.740 And these guys focus on specialized expertise or geographically localized.

00:04:06.760 The term Tier 2 and Tier 3 and boutique are used for this group.

00:04:11.000 And by the way, I would add two other types of consulting firms to this.

00:04:14.280 One being the types that target companies doing a million dollars per year up to a half a billion dollars per year.

00:04:19.480 These guys are not interested in these companies.

00:04:21.120 They're more interested in the bigger companies, the S&P 500, the Fortune 500 type of companies.

00:04:25.200 And the last type of consulting firm is you.

00:04:26.920 What do I mean by you?

00:04:27.820 What if you have a successful marriage of 32 years?

00:04:30.360 How did you do it?

00:04:31.040 People want to know about that.

00:04:32.060 They're willing to pay for it.

00:04:33.080 What if you run a YouTube channel with 100,000 subs?

00:04:35.160 How many people are stuck at 5,000 or 10,000 subs?

00:04:37.860 They want to learn from you.

00:04:39.060 What if you're an expert at ChatGBT?

00:04:40.480 The other day at a conference I was hosting, I said, raise your hand if you know how to use AI and ChatGBT.

00:04:45.400 Out of 400 people in a room, less than 10 people raised their hands.

00:04:48.440 The other 390, they don't know how to use it.

00:04:50.200 What if you know how to do it?

00:04:51.380 People will ask you, I'm an expert in AI and ChatGBT.

00:04:55.000 What if it's relationship, finance, business, college planning, dating, funnels, equipment to buy?

00:05:00.720 I can go on and on and on.

00:05:02.100 There's also a place for those type of consultants like you.

00:05:06.180 So you may be asking, Pat, how do I take advantage of this?

00:05:08.240 I'm not, I don't know how to start a consulting firm.

00:05:10.160 I totally get it.

00:05:10.980 I'll give you counsel on that at the end.

00:05:12.460 All I'm saying is the consulting industry, the business of ideas is changing.

00:05:16.860 So before I give you that, let's look at how the industry's changed the last 200 years.

00:05:21.260 Industrial revolution in the mid-1800s.

00:05:23.500 During this revolution, scientific management was introduced.

00:05:26.580 Using these techniques, firms increased their operational efficiency by analyzing and optimizing

00:05:31.940 each step of a task.

00:05:33.480 Widely embraced by the U.S. factory managers in the early 20th century as they scrambled

00:05:37.940 for efficiency and required measures to speed up their workers' performance.

00:05:42.220 Then came the management consultancy in the early 1900s, assisting managers in making choices,

00:05:47.460 improving processes, solving problems.

00:05:49.460 New kinds of manufacturing sparked growth and increased requirements companies' traditional

00:05:52.980 capabilities in 1914.

00:05:55.020 Booz Allen Hamilton was founded and became the first management consultancy to engage with

00:05:59.280 government and industry.

00:06:00.720 If you want to know who worked at Booz Allen, maybe you know John McAfee from McAfee Antivirus

00:06:04.280 or Snowden.

00:06:05.160 Both of them used to work at Booz Allen.

00:06:06.800 Then came demand for financial advice after the Great Depression of the 1920s.

00:06:10.920 Following the Great Financial Crisis of 1929, the Glass-Steagall Banking Act in 1933

00:06:15.500 separated commercial banking from investment banking and created the need for a new strategy

00:06:20.400 in banking.

00:06:21.400 This new law triggered rapid growth in demand for expert advice in banking, finance, management

00:06:26.620 strategy, and organization, which boosted the consulting industry.

00:06:30.060 McKinsey & Company, founded in 1926, was one of the first consulting firms to specialize

00:06:34.940 in both accounting and strategy.

00:06:37.280 Do you notice how the industry of advice and ideas was evolving?

00:06:40.220 Like people are asking for new advice, just like it is today, how they may need your advice.

00:06:44.880 Then came strategy revolution.

00:06:46.400 This is in the 60s and 70s.

00:06:47.820 The post-World War II prosperity in America created an environment where little attention

00:06:51.880 was given to finding a competitive edge in business.

00:06:54.540 Between 1948 and 1973, there was very little international competition in business.

00:06:58.660 Dow Jones bull market through 50s and 60s crashed during the 70s and took 25 years to recover.

00:07:04.000 This is when the strategy revolution began.

00:07:06.140 The recession and the oil shock of the 70s created the need for strategic consulting services.

00:07:11.620 So you may say, Pat, at a downturn?

00:07:13.420 Yes.

00:07:13.760 Why?

00:07:14.140 Okay, take a look at the Dow Jones real quick here.

00:07:16.040 If you look at the chart, you look at 1960-something when it peaked, right?

00:07:19.280 Look what happened the next 20 years, how it drops.

00:07:21.800 What happens when a company peaks?

00:07:23.320 People become cocky.

00:07:24.400 They become arrogant.

00:07:25.300 They know it all.

00:07:25.980 They no longer ask for advice.

00:07:27.120 They no longer hire anybody.

00:07:28.140 Oh, we know what we're doing.

00:07:29.260 We don't need your help.

00:07:29.980 And it takes 25 years for the Dow to recover because finally people came to their senses.

00:07:35.660 We need help.

00:07:37.320 We need different people's POV to change our business.

00:07:41.260 I remember clearly, I can give you five examples of counsel I got that revolutionized our company.

00:07:47.940 I remember one time sitting down with a guy in New York about EBITDA.

00:07:50.520 I'm building an insurance company.

00:07:51.800 He says, Pat, you can have a company doing $10 million a year,

00:07:54.580 and this company could be worth seven times EBITDA.

00:07:56.900 Let's just say $70 million.

00:07:57.860 But that another company here is doing $10 million a year,

00:08:01.040 but they're a tech-enabled company.

00:08:02.620 They're worth 15 times.

00:08:03.820 I said, let me get this straight.

00:08:05.200 Both companies are profiting $10 million.

00:08:07.140 Yes.

00:08:07.940 One will only get seven times.

00:08:09.680 The other one will get 15 times.

00:08:10.860 Yes.

00:08:11.340 Why?

00:08:11.960 Because this is tech-enabled, and the company that buys it are not just buying the EBITDA.

00:08:16.500 They're also buying the technology.

00:08:18.440 Immediately, we went and spent $3 to $5 million investing in the technology,

00:08:22.060 and we ended up selling around 15 times EBITDA just because of this one advice.

00:08:27.300 What do you think that one advice was worth to me?

00:08:30.280 Priceless.

00:08:31.040 That's the whole idea where people become cocky and do no longer ask for advice.

00:08:34.700 All of a sudden, they experience a plateau in their business or a downfall.

00:08:38.200 And this is when ideas started coming up like different philosophies by a legendary guy in

00:08:42.080 consulting, Bruce Henderson from BCG.

00:08:44.000 The growth share metrics, which was helping companies evaluate where and how to allocate

00:08:47.780 cash among their business units or the experience curve.

00:08:51.040 This models the evolution of cost with the number of units produced for the first time,

00:08:54.420 could use your volume to predict cost.

00:08:56.240 By knowing your cost, you could price appropriately.

00:08:58.260 The old-school pricing method was to price the new product high to recoup investment.

00:09:02.020 The problem with that was that it allowed competitors to capture market share.

00:09:05.320 So in other words, what he's trying to say is instead of trying to make it as profitable

00:09:07.800 as possible with your product, go sell it at a price point that can get such a big market

00:09:12.020 share of that product that your competitors can no longer compete with you.

00:09:15.460 And by the way, he did this with a couple of companies.

00:09:17.140 One of them being Texas Instruments Calculator.

00:09:18.980 You've heard of TI before.

00:09:20.020 In 1950, TI was a leading electronics manufacturer and its biggest customer was DOD, Department

00:09:24.860 of Defense.

00:09:25.640 So even though they were doing good getting these types of accounts, they wanted to expand

00:09:28.480 customer base.

00:09:29.280 And when looking for products that incorporated integrated circuits and could be sold in consumer

00:09:33.920 markets rather than just DOD, they decided on personal calculators.

00:09:37.680 So they invented the personal calculator in 1967, which was small and portable.

00:09:41.580 This was a big deal because at the time, the previous calculator just a year prior to that was 55

00:09:46.260 pounds and it cost $2,500 to buy.

00:09:48.740 The average person cannot spend $2,500 in 1966 to buy a calculator.

00:09:54.060 And they decided to price the calculator at $500 a piece, thinking they were being competitive

00:09:57.900 compared to the $2,500.

00:09:59.460 So then Texas Instruments hires BCG and they made a bold suggestion based on their assessment.

00:10:04.340 Instead of selling it for $500 a calculator, they said you should sell it for $10 a calculator.

00:10:09.340 Can you imagine the look on their faces?

00:10:10.660 Wait a minute.

00:10:11.180 These guys are selling for $2,500.

00:10:12.880 We're doing $500.

00:10:13.900 Why would we go all the way down to $10?

00:10:16.400 Have you lost your mind?

00:10:17.240 They said, no, here's why we suggest you do this.

00:10:20.000 So eventually, TI trusts them.

00:10:21.380 You know what happens to TI?

00:10:22.360 In 1971, they sell 3 million calculators.

00:10:24.860 73, 17 million.

00:10:26.700 74, 28 million.

00:10:28.380 75, 45 million.

00:10:30.020 Can you imagine you're selling 45 million calculators in 1975?

00:10:33.240 Who is the other calculator company you can even think about?

00:10:35.760 Can you think of?

00:10:36.320 I know you're going to say, well, I use my smartphone.

00:10:37.980 I get it.

00:10:38.680 But back then, name another calculator company.

00:10:40.840 You can't.

00:10:41.720 They dominated the marketplace.

00:10:43.500 So what ends up happening?

00:10:44.760 J. Fred Busey, who drove this initiative, ended up getting promoted to the company president

00:10:48.740 in 76, NCO in 84.

00:10:51.540 Today, Texas Instruments has a market cap of, ready, $162 billion.

00:10:56.460 And many of you watching this, you probably don't even know who TI is.

00:10:59.480 Some of you who do, you're probably above 35 years old.

00:11:02.160 So what's the point?

00:11:03.280 One idea turned them into a Fortune 500 company.

00:11:06.680 This is why a trillion dollars is spent every year on ideas.

00:11:11.120 And these companies realize they're one great idea away from an explosion.

00:11:14.960 Another case study with BCG is Black & Decker.

00:11:17.220 Here's what Black & Decker did when they hired BCG.

00:11:19.760 So these guys were stuck with a 20% market share in the 1950s for power tools.

00:11:23.620 They hired BCG.

00:11:24.500 BCG identifies that Black & Decker sales increased when they lowered their prices.

00:11:28.940 Black & Decker was hesitant to do this because they were concerned with recovering its investment.

00:11:33.380 For example, when Black & Decker was selling ladders for $30, they sold 50,000 ladders that year.

00:11:38.720 But when Black & Decker lowered the price from $30 to 1995, they sold 600,000 ladders that year.

00:11:45.220 That's 12 times the amount at $30.

00:11:48.320 So what's the difference between the two?

00:11:49.900 That's $1.5 million of sales versus $12 million in sales.

00:11:53.620 Lower prices kept competitors away.

00:11:55.540 They used market research to see how low competitors could price their products before going bust.

00:12:00.040 And here's what happened to their revenue.

00:12:01.720 1964, $100 million.

00:12:03.420 $69, $200 million.

00:12:05.040 $74, $500 million.

00:12:06.640 And if they weren't to get that advice from BCG, they may still be small.

00:12:10.320 And more importantly, they may have had three, four, five other competitors taking market share away from them.

00:12:15.980 I'll give you another case study, a complete different story.

00:12:17.960 This is Bausch & Lomb, who's a lens company.

00:12:19.840 They hired Bain.

00:12:20.540 But before they hired Bain, let me kind of give you an idea where they were at.

00:12:23.480 So these guys are selling eyeglasses, cameras, military equipment.

00:12:26.220 Pioneered the creation of soft contact lenses in the 60s.

00:12:29.500 And by the 70s, they held 50% of the market for soft lenses and was responsible for about two-thirds of revenue.

00:12:35.380 They started facing increased competition from companies like Johnson & Johnson, who were introducing new products like extended-used soft lenses.

00:12:42.840 Bain spotted Bausch & Lomb for being vulnerable and went to work.

00:12:45.720 They conducted market research like a spy network.

00:12:48.120 They studied a manufacturing plant of a competitor by watching a BBC tape of the Queen touring the factory, blew up images of every piece of equipment, and reverse-engineered the factory to do a competitive cost analysis, finding out exactly what the Bausch & Lomb price needed to be, spoke with all types of eye doctors for research three months.

00:13:06.160 The final report from Bain & Company to Bausch & Lomb was that they were under serious threat from these new lens manufacturers, and they made the following recommendations.

00:13:14.160 There were three ways to manufacture lenses, and they recommended getting into all of them.

00:13:17.620 Bausch & Lomb had an advantage of marketing and distribution power from its prior success.

00:13:21.760 They started to acquire manufacturers for these two types of lenses they were not making and then underpriced to new companies.

00:13:27.940 Also recommended getting into high-end lens solutions, which could be sold at a premium.

00:13:32.280 And by the way, this has been one of the most successful displays of consulting.

00:13:35.020 They ended up capturing 60% of the market for new fits, 50% competitive cost advantage, and eventually they achieved market dominance.

00:13:41.920 And by the way, the power here goes to Bain, because Bain is watching all these different companies saying, listen, you guys are struggling.

00:13:47.080 You're under a lot of threat.

00:13:48.380 You don't know it.

00:13:48.960 Let us show you the case study.

00:13:49.920 Here's what you're going through.

00:13:50.800 We can help you.

00:13:51.860 This is what we suggest you do.

00:13:53.040 If you hire us, can you imagine how this worked out?

00:13:55.600 And then now these guys are sitting there saying, man, great idea, because we got the lower market share,

00:14:00.880 and then we also got the most expensive lenses in our dominating marketplace.

00:14:05.020 Kudos to Bain.

00:14:05.900 Next came IT consulting and the big four.

00:14:08.220 This is 80s and 90s.

00:14:09.480 Models like the experience curve and growth metrics were eventually exposed.

00:14:12.580 It became clear that a specialized approach was needed on a case-by-case basis.

00:14:16.860 Simultaneously, the need for IT guidance and knowledge expanded at an exponential rate.

00:14:20.760 Due to antitrust concerns, computer companies were prohibited from selling their expertise,

00:14:24.740 created the opportunity for independent vendors to offer IT consulting services.

00:14:29.020 The big four quickly expanded their services from accounting and auditing to include consulting.

00:14:33.840 They occupied the IT consulting niche market, and by the mid-90s,

00:14:37.560 that surpassed the majority of the other consulting firms in size,

00:14:40.840 IT consulting is the largest and fastest-growing segment of management consulting

00:14:44.520 with only operational excellence coming close.

00:14:47.200 Then came the specializer in the 2000s.

00:14:49.060 This was more about strategic management, information technology, human resource consulting,

00:14:53.000 digital management consulting, meaning you could specific, go to,

00:14:56.220 I want to know how to recruit better people.

00:14:57.660 Boom, I want to know how to retain better people.

00:14:59.280 Boom, I want to know how to create better culture.

00:15:00.840 It was whatever the specific niche was, this came next in the 2000s.

00:15:04.140 And by the way, you keep hearing about the evolution,

00:15:06.120 the current evolution of consulting is how you can predict the future.

00:15:10.440 Matter of fact, McKinsey & Company just bought a company,

00:15:12.440 I think it's 2015 or something, called Quantum Black.

00:15:15.260 Quantum Black is an AI that helps harness the power of hybrid intelligence

00:15:19.120 to create unimagined opportunities in a constantly changing world.

00:15:23.020 So what can you and I take away from this whole history of what happened with consulting firms?

00:15:26.740 How does that apply to you and I?

00:15:27.880 It's very simple.

00:15:28.520 We all fall in one of two categories.

00:15:30.040 You're either giving advice or you're getting advice.

00:15:32.360 Some people's advice is worth more.

00:15:35.140 Some people's advice is worth less.

00:15:37.000 For you and I, I have spent millions of dollars getting advice.

00:15:41.700 Legal, accounting, finance, business, strategy.

00:15:45.060 Cannot tell you endless amount of money I've spent here.

00:15:47.280 Also on this side, people ask me for advice.

00:15:49.300 For some of you watching, it's like,

00:15:50.500 well, you want me to ask people for money for advice

00:15:52.600 or you want me to pay money for somebody for advice?

00:15:54.520 Yes, it happens all the time.

00:15:56.100 Do you remember how many years ago you and I didn't feel comfortable saying,

00:15:58.600 I'm never going to post a picture of my family on Instagram or Facebook?

00:16:01.260 This is crazy.

00:16:02.040 You did it.

00:16:02.900 I'm never going to post my location where I'm at.

00:16:05.020 You did it.

00:16:05.720 There's a lot of things that we didn't do before.

00:16:07.460 So today, what would happen if you got the right advice on marriage?

00:16:10.300 We just had a friend that went through a divorce.

00:16:12.740 His wife got $2.5 million from him.

00:16:15.400 He's only worth $5 million.

00:16:16.760 Some of me say, but that's a lot of money. 0.98

00:16:18.260 He's been busting his ass for 30 years to get to that number as a business owner. 0.97

00:16:21.160 If he would have spent $5,000 on an upshot agreement, it would have been $2.5 million. 0.99

00:16:25.800 But he didn't pay for that advice.

00:16:27.580 Not paying for that advice costs him millions.

00:16:30.200 This is normal and personal and business and content creation.

00:16:33.660 So now if you're watching the same path, I love it.

00:16:35.620 I want to be able to ask people for advice, but I can't afford this kind of money.

00:16:38.260 These guys are charging millions of dollars.

00:16:39.800 And I feel like I can bring some advice to others, but what do I do this?

00:16:42.260 I don't know how to ask for credit card, calendar scheduling.

00:16:44.620 No problem.

00:16:45.300 There's an app for that called Minect.

00:16:47.020 Minect is, do you have a minute to connect?

00:16:49.520 Let's Minect.

00:16:50.020 Think about Minect is only fans for experts and consultants.

00:16:53.640 You can go to this app, look for expertise of people that have, and ask them questions.

00:16:57.640 This guy's $10 a question, $20 a question.

00:17:00.000 You can do it through text or video, or you can do FaceTime with them all in the app.

00:17:04.020 And if you become an expert, you can decide your price point.

00:17:06.920 You can create your profile.

00:17:08.260 You can share it with your social media and email list that you may have.

00:17:11.080 And people will come here and pay you for advice.

00:17:14.420 So if you got value out of this video, give it a thumbs up and subscribe to the channel.

00:17:17.300 And if you want to start Minecting, whether it's asking others for advice or giving advice,

00:17:21.980 download the app right here.

00:17:23.600 Take care, everybody.

00:17:24.320 Bye-bye, bye-bye.

Valuetainment - October 04, 2023

Trillion Dollar Consulting Industry That Rules The World - The McKinsey, BCG & Bain Influence

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