“They weren’t financial guys,” Graham said. “They had their own language: ‘cash cows,’ ‘experience curves,’ ‘market definition and market segmentation,’ ‘relative competitive performance.’ ”
Consultant-speak.
(The Boston Globe)
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Still, they were ambitious. They were the stars of Bain & Co., a consulting machine that guided companies on strategy and operations. They charged their clients healthy fees but grew frustrated watching clients heed their advice to generate profits that were many times what they paid Bain.
So, they figured, why not become their own clients? The consulting partners at Bain & Co. would pool their money, as well as money from wealthy investors and institutions such as universities and pension funds, to buy struggling companies or invest in new ones. They would apply their management acumen to retool companies to maximize profits. Then they would reap the rewards. It was a new field: private equity.
“Most of the people in the venture-capital and private-equity world had finance backgrounds, they had come from banks, and they did a good job finding opportunities and doing financial restructuring,” White said, “but very few people had operating backgrounds to help improve the companies.”
Steven N. Kaplan, a professor at the University of Chicago who studies the private-equity industry, said Bain Capital was a pioneer because it was the first firm to apply “strategic insight that the financial engineers didn’t have.”
“That turned out to be absolutely correct, because everybody else today does what they started doing 20 to 25 years ago,” Kaplan added.
Bill Bain tapped Romney, one of his firm’s top consultants, to lead the new venture. Six years earlier, Romney was a prize recruit; Graham flew to Florida to urge Romney’s father, George, a former Michigan governor and presidential candidate, to let Romney join Bain. Now, they were trying to persuade Romney to leave his comfortable consulting perch to start something new.
“We knew he was a high-profile guy,” Graham continued. “He could do anything he wanted to, and we wanted to keep him, frankly. We offered him this job, and I was half-surprised he took it.”
Romney did not want to risk his position or reputation at Bain & Co. with what he considered an experiment, so he privately negotiated a sort of golden parachute with Bill Bain. If Bain Capital failed, Romney was guaranteed to return to his former consulting job and receive his old salary — plus any raises he had missed.
With his escape hatch in place, Romney was in, and he began a year-long study of the business and assembled a team of fellow Bain consultants to join him. His senior partner would be T. Coleman Andrews III, whom Romney had hired as a young associate at the consulting firm five years earlier. Like Romney, Andrews came from a prominent political family; his grandfather, T. Coleman Andrews of Virginia, ran for president in 1956 on the States’ Rights ticket.
Romney chose Eric A. Kriss, a bookish Californian who had recently made partner, to help run the venture-capital arm of the new company. And he picked White, a charismatic son of a machinist who grew up in working-class Woburn, Mass., and was the first in his family to graduate from college, to handle the private-equity side. A trio of younger consultants — Joshua Bekenstein, Fraser Bullock and Rehnert — rounded out the team.
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