[THREAD] Something that most people in tech don't realize is McKinsey is a mega🦄 hiding in plain sight.

I worked there for 3 years and saw 10 acquisitions that put McKinsey on pace to shatter $100M+ ARR.

Here's how they did it 👇👇👇
Over the last century, McKinsey has been the iconic brand in management consulting. Engaged by the C-Suite for top tier strategy work, McKinsey has built a behemoth of a business. A few highlights:

- $10B+ in revenue
- 80%+ of the F500 as clients
- <1% of applicants get hired
But like every company, McKinsey isn’t impervious to disruption.

"Pure strategy" work is now only ~10% of McKinsey's portfolio (down 7x over the last 30 years) and clients are pushing for more value based billing.

Implication: Clients want tangible, measurable results.
McKinsey had 2 options when staring at disruption in the face:

(A) Go upstream and flee to work that will be last touched by disruption (e.g. highly specialized)


(B) Leverage its strength, lean into the disruption and accelerate it industry wide.

They chose Option 2.
So how did they pull that off?

3 Tiered Approach: Build, Buy or Partner.

McKinsey does all 3, but its M&A activity is the secret sauce.

Over the last 5 years, McK acquired 10+ companies and created McKinsey Solutions - the business unit that’s going to drive $100M+ ARR.
McKinsey has a really specific acquisition type - it either acquires a company that aligns with a vertical or a horizontal.

Vertical: Solves for a problem widely observed in an industry

Horizontal: Solves for a problem widely observed across a function
These acquisitions are natural evolutions of how McKinsey works.

(A) Observe: Identify clear patterns across 1000+ clients

(B) Partner: Find software that fits into the consulting solution workstream

(C) Acquire: Buy the software company and own the SaaS revenue
Why do it this way? 2 reasons.

Defense - Derisk the deal. By the time an M&A offer is on the table, the two companies know how to work with each other.

Offense - Accelerate out the gates. Post acquisition, its a hard press to roll this out across every relevant client.
The latest example of this is Orpheus, a procurement spend analytics product.

This sentence from the deal announcement is key:

“The combination of McK consultant expertise and Orpheus market-leading software will help create the future of digital procurement.”
Before McKinsey, Orpheus had been around for 15 years. They did ok, but now they can win. Why?

(a) Better distribution - Access to C-Suite rolodex

(b) Stickier relationship - Hard to unbundle Orpheus / McK

(c) Pricing power - Packaged in a larger $1M+ engagement
Let’s do the math

If Orpheus charges $100K for the software and gets 100 clients, they’re at $10M ARR.

Multiply this across 10 companies McK acquired in the last 5 years and you’re looking at a $100M ARR software portfolio.

(This is super conservative)
McKinsey is growing fast and is best positioned to pull this off.

But how? Isn’t consulting a totally different business model than software?

Yes, but McKinsey consulting margins are 70%+. The business prints cash allowing it to invest unlike other services firms.
The software play is a gamechanger for McKinsey.

Software is now at the core of the relationship. It creates a stickiness that allows McKinsey to hang around.

Every client problem that comes up, McKinsey is in position to solve.

It’s whack a mole on steroids.
It wouldn’t surprise me if McKinsey builds a $25B+ software portfolio over the next 10 years. There’s a very quiet (but massive) value transformation story playing out.

Stay tuned. It’s only the second inning.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Romeen Sheth

Romeen Sheth Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @RomeenSheth

18 Feb
0/ The Dippin’ Dots ice cream turnaround was wild:

1988: Founded
2011: Bankrupt
2012: An oil tycoon buys it for $12M
2019: $330M+ in revenue

The kicker? The next decade will be driven by its plant-based meat and cryogenics storage businesses. Not ice cream.

Let's dig in.
1/ Dippin' Dots was started by Curt Jones, a microbiologist with a background in cryogenics.

Curt started with feed for farm animals, but quickly moved to ice cream. He started the business in 1988 and grew it to 170 retail locations and 10,000+ small customers.
2/ Dippin' Dots grew successfully to a $40M business by 2007 but got wrecked by the financial crisis.

Customers were no longer willing to pay a premium for "ice cream of the future."

The business was saddled with debt and fell into default when Regions Bank called the loan.
Read 16 tweets
10 Feb
Over the last 10 years, I’ve made tons of mistakes, had some lucky breaks and a few big wins.

When you're starting out there's so much stuff that nobody tells you. Here are the top 20 lessons I learned the hard way that I would've loved to know when kicking off my career:
1/ Everything boils down to AMA

A: Ability - do you have the skills to pull it off?
M: Motivation - do you have the desire to pull it off?
A: Attitude - do you have the headspace to pull it off?

Strive for situations where each of these 3 are firing on all cylinders.
2/ People don’t have short attention spans, they have short consideration spans

If you want to meet someone, work with them and/or get their help, you need to figure out "the hook." Busy people get thousands of inbound emails, DMs and phone calls.

Focus on standing out.
Read 22 tweets
8 Feb
The demand for @nba_topshot is insane.

In the past 30 days, they’ve generated $30M of sales and are on pace to be the fastest growing marketplace ever.

We're witnessing the first inning of digital collectibles (DC).

Here's the 101 on DC and why it'll break the internet:
1/ To understand digital collectibles and why they’re so powerful, we need to break down 2 questions: (1) “what is something worth” and (2) “what is a store of value”
2/ What is something worth?

Valuing something is more art than science.

There are all sorts of quant methods you can use (e.g. discounted cash flow, comparables, precedent transactions) but "worth" always boils down to a simple question:

What is someone willing to pay?
Read 16 tweets
5 Feb
I went deep with Jonathan Hsu, Co-Founder of Tribe Capital this week. He debunked a lot of the conventional thinking in startups and we talked about developing edge:

10 Lessons on data science, venture capital, startups and investing:

1/ Units of time are the new currency

While businesses were valued for the dividends they paid out, the “impenetrable” moats that let companies spit off excess cash are dwindling.

A moat today is a buffer that helps a company get ahead of the next innovation cycle.
2/ To create a defensible business today, your product needs to be a utility.

You have to build something that solves a user pain, and then scale until it’s so fundamental that it becomes a feature of other products.

This is even more true for apps with 100M+ users.
Read 11 tweets
2 Feb
0/ This week on the pod I chatted with @hnshah about his “billion dollar mistake” - finding lightning in a bottle and letting it slip away.

We disagreed at times, but he came with punchy hard earned lessons that I appreciated - painful and applicable.

These were my favorite:
1/ Optimizing your startup for speed is the only way to keep your head above the water.

The key to optimizing your startup for speed? Learn how to make rapid—but thoughtful—decisions.
2/ The trick to better decision-making is to be strategic about your decision making

Here’s how to do it:

- Break down a decision into a series of questions
- Use the questions to challenge assumptions & learn
- Validate what you’ve learned by running lightweight experiments
Read 12 tweets
1 Feb
India is on the verge of a once-in-a-generation explosion in edtech.

I've invested in 2 co's that are growing like wildfire and want to do more. Let's talk if you're building in this space.

Here's what's going on and why you should pay attention now, if you weren't before:
1/ There are 5 factors that are simultaneously driving the rapid rise of edtech in India.

- Favorable demographics
- At scale internet adoption
- Deteriorating incumbent quality
- Declining budget / capacity
- Cultural relevance

Let's talk about how all 5 are interconnected.
2/ The quantum of "digital first" Indians that will need to be educated is like nothing the world has ever seen.

India has:

- 500M+ people under 25
- 125M+ English speakers
- 250M+ people that will be added to its population over the next 40 years (est. peak is 1.6B)
Read 14 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!