Stock-outs at 'Create Music Inc'

Hi,

What company are you targeting? Consulting or private equity?

In consulting interviews you may have two types of due diligence cases:

1. Commercial due-diligence of the target company
2. Synergies calculation of two merging companies

1. For commercial DD you can use the following structure:

Market

• Size
• Growth rates
• Profitability
• Segments
• Distribution channels

Competition

• Market shares of competitors and their segments (see the next point)
• Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
• Unit economics of the players (Margins, relative cost position)
• Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

• Unit economics (Margins, costs) in current or target markets
• Brand
• Product mix
• Key capabilities

Feasibility of exit:

• Exit multiples
• Exit time
• Existence of buyers

2. For Synergies Calculation you can use the following structure:

1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
4. Total synergies potential in $, adjusted by risk (probability of failure)

In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:

• Find the relevant information in P&L and Balance sheet
• Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
• Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Hi Aditya,

I would suggest you the following points to start the structure:

1. Identify the main revenue streams of the client
2. Understand which revenue stream has an abnormal cost compared to the others
3. For that area, divide in fix and variable costs. Identify which particular cost is out of control
4. Try to understand what is the reason for the particular increase in cost: usually it is something related to either (i) suppliers/industry; (ii) competitors; (iii) mistake of our own company

Once reached this point, you may have two possible evolutions for this case.

Option 1: you understand you have to decrease the overall costs in absolute terms. In this case the next step would be:

• Identify how to correct the cost. You could decrease the cost mainly (i) decreasing the cost of each unit or (ii) decreasing the number of unit of that particular cost

Option 2: either directly point 4 or after exploring Option 1, you understand you have to solve an efficiency problem of the client. In this case the next step would be:

• Understand what is creating the inefficiency: (i) labour; (ii) technology; (iii) a structural increase in demand
• Find the proper solution for that inefficiency: (i) increase the efficiency of labour (eg more incentives or training); (ii) increase the efficiency of technology (new investment); (iii) cover the structural increase in demand (eg: increase supply)

Hope this helps,

Francesco

Hi Christoph,

as your background is a bit unusual for strategy firms, I would say there are two major ways for you to break into strategy consulting (not necessarily mutually exclusive):

1. Do an MBA at a school which is a target one for the firms you are interested in
2. Start an in-depth networking process with current consultant of your target companies, trying to obtain a referral in order to be invited for an interview

Of course, it could also be useful to check on LinkedIn whether there have been alumni of your current company who managed to break into one of your target companies, and if so, which particular path they followed.

For more information on the referral process, you can check the following link:

https://www.preplounge.com/en/consulting-forum/open-house-at-bcg-311

Hope this helps,

Francesco

Hi,

For market sizing questions the following 3 aspects are important:

• State your approach: Which approach would you take? For example top-down approach, bottom-up approach, demand side, supply side etc.
• Sensitivity check: What are the parameters that significantly influence your result?
• Sense check: Conduct another approach, or even a third approach (often not necessary, but state this because you would do this in a real case!) and triangulate around your results

In general – and I am sure you know that – the result of your approach is much less important than you approach! Hence, use the opportunity to show that you can see the bigger picture but also consider the details and that you are structured in your approach.

Also: Do communicate with your interviewer!

Now, how could you structure your approach using a demand side framework?

• Start with the population of LA. Assume 8m inhabitants. Ask for a better number and use it if nothing else is provided.
• Assume a life expectance of 80 years and assume a uniform population distribution. Given these assumptions, there would be 1m people per 10 year age bucket (do use numbers that are easy to work with, especially in situations under stress)
• Assume bike penetrations (percentage of population that would use a bike):
  • Age bucket 11-20: 5% --> 1m x 5% = 50k bikers
  • Age bucket: 21-30: 10% --> 1m x 10% = 100k biker
  • Age bucket 31-40: 5% --> 1m x 5% = 50k bikers
  • Hence, there are 200k “would-be” bikers in total.
  • Comment: For simplicity, assume 0% for the other age buckets. Ask the interviewer if you should be more specific – if so, make assumptions for the other age buckets as well.
• Assume that for each age bucket (note: simplification!), 80% of those who would use a bike own their own bike and 20% do not own a bike. Hence:
  • 200k “would-be” bikers x 20% = 40k bikers that do not own a bike
• Assume that for each age bucket (note again: simplification!), 50% of those bikers who do not own their own bike would indeed pay for renting a bike. Hence:
  • 40k bikers without own bike x 50% = 20k bikers who do not own their own bike but are willing to pay for renting a bike
• Assume that all of these bikers are served with an average capacity utilization of 20% (do ask for a better number!). Hence:
  • 20k bikers who do not own their own bike but are willing to pay for renting a bike x 20% = 4k rental bikes

Now, in reality you would (and so you should do in an interview) sensitivity and sense check your numbers! In a sensitivity check, you would discuss with the interviewer what you think are the parameters that drove your result, e.g. is it realistic that there are no bikers aged 41-50 that would rent bikes? Probably not, so state again, that this is just a simplification. In a sense check, you would conduct a totally other approach, e.g. a supply side approach or try to get reference numbers from public registers, insurance registers etc.

Remember that the result is much less important than your approach! The interviewer wants to see that you think in a structured way about problems and he wants to be confident that you can easily replicate these results! Therefore, it is important that you communicate with your interviewer and let him participate in your approach. If you are given the problem, take 10 minutes without talking with the interviewer and then state the correct number you will not pass the interview.

I have more market sizing cases available and am happy to coach.

Hope this helps.

Best regards

Hi Anonymous!

Corporate Development at BCG is more of a superordinate term for their Corporate Finance Practice! So, compared to Corporate Strategy/Portfolio Mgmt, what you will find here are way more technical value driver analyses, capital market diagnostics, and recommendations around their concept of Total Shareholder Return (TSR) (which is conceptually a bit different from McKinsey's measure TRS btw!)

Let me know if you need more clarification!

Cheers, Sidi