Looking for boutique consulting firm case interview examples? This Stax case interview example is what you're looking for.
In this case, Stax Director Joel Slater leads a candidate through a private equity-oriented case. The big question for the case is: "Should we or should not invest in a business?"
The case focuses on a PE client interested in investing in a startup that manufactures traffic doors for grocery stores, restaurants, warehouses, and more.
Stax Case Interview: Video
Stax Case Interview: Podcast
Listen on Apple Podcasts or Spotify.
Connect with Stax
- Stax Careers page: The firm is actively hiring!
- Email the Stax team: [email protected]
- More about Stax: Other case interviews, interviews with firm leaders, and more
Resources & Next Steps
- Case Prep Program: 13 spots left for the next cohort
- Free Case Interview Resources: Start here
- Application Deadlines: Everything you need to know
- Free Consultation: Schedule 15min consultation with Eden
Case Exhibits
Stax Case Example Transcription:
Case Prompt
Interviewer: Joel Slater
Great. So one of the pieces of information about me is I'm a lead in our industrials practice and the case we're gonna walk through today is inspired heavily by an actual case that that we've completed. So it's a good example of the kind of work that we do. It's an interesting one, and one I doubt you would have come across before.
But basically, the focus in a private equity-oriented consulting interview is less about coming to a recommendation around "We should go and build 50 more widgets, or we should move this manufacturing plant from here to there. The focus here is "should we or should we not invest in a business?" Just keep that in mind as we step through.
Candidate: Camiel
Okay, sounds good.
Interviewer: Joel Slater
Cool. So I'll read this to you. The focus here is traffic doors. You've got a private equity equity clients come to you with an unusual situation. And they're interested in investing in a startup that plans to manufacture traffic doors. Traffic doors are basically the doors you find at the back of restaurants, grocery stores, warehouses, etc.
They flap the flap doors, they're very mundane things you may not have noticed before, all around you. They are generally sold like it's just one thing to keep in mind. They're generally sold, you know, through distribution to end customers, although the manufacturers have a good sense and keep relationship with those end customers.
And another thing to keep in mind here is that the startups not claiming any particular product advantage over their competitors. They are just saying, Hey, we've got new products, same as everyone else's maybe maybe slightly different, but we think we can I make a case here. Their question is basically one how attractive is the traffic to our market and to should we invest in this particular startup?
Candidate: Camiel
Okay, that is a very interesting case. I'll admit that I've never seen something like this before. But all the more interesting, I suppose. So I'm just gonna run through what you said just to hear if we're on the same line here. So we are looking at traffic doors startup manufacturer, traffic doors, being casual day to day doors that you might find in restaurants, grocery stores, hotels, etc.
The key word is mundane. There's no actual project product advantage for this startup. And they sell them to distribution centers who then sell them to the end customers. And the question for us is, how attractive is the traffic door market? And should this PE firm invest in this startup?
Case Exhibits
Interviewer: Joel Slater
That's right. So what I'm going to do now is step through a few slides with specific questions that build towards, you know, the second part of that, that question there. All right. Sure. Cool. First questions this, how would you think about sizing the traffic door market? What specifically, what variables? Would you think about putting into a team equation? Tam being total addressable market, ie, the available revenue for all the players who are selling it to the market in a given year?
Candidate: Camiel
Okay. So when trying to calculate the TAM for the traffic door market, I'd look at a few variables, I'm going to run you through them, and then actually do the math itself, just to make sure they're not clicking the wrong numbers. So I would start by asking, actually, if this is a domestic market that we're looking at, or an international market, because that does change the scope of it?
Interviewer: Joel Slater
Good question. We're going to do US and don't worry about numbers. Just now I'm going to share a little bit more about that on this next slide. I just want at this point to get your thoughts around. How how generally would you think about sizing if you had numbers, right?
Candidate: Camiel
So starting with the US, I would look at all the businesses that fall under the appropriate target audience, your target market? Like you mentioned, these are hotels, grocery stores, restaurants, then I would look at the average need for each one of these institutions, for traffic doors, right? Do they? Is it a double size is two per two per room is? How many rooms on average? Are there in these establishments? You'd probably have to come up with separate buckets for each category, then you would look at replacement rate.
So how often these doors break down? And does that change based on the institution itself? So between the restaurants and grocery stores and hotels? And and then if so, are there bulk orders, perhaps that you order maybe like 10 for the next like five years? Or is it just you've replaced them as it goes on?
And I would use, I'd say that funnel scope to reach some sort of a final number in terms of the TAM on an annual basis for the US global? So the US traffic door market?
Assessing Market Size
Interviewer: Joel Slater
Great. Awesome. I know, you hit on a few things that are very relevant as we move to the next question here, which is we've gathered some data to help us size it. And my ask to you is we chatted about this a little earlier. Bam, you're welcome to do this in Excel just quickly, given given the compressed timeline here, but basically take a look at this information and tell me what you think as far as the market size.
Candidate: Camiel
Yeah. Okay. So we're seeing here, the average lifespan of a traffic door is seven years. That's good, then the wholesale price for traffic door is $1,200. But that's contrasted with the average retail price for door, which is $1,400. So I can assume here that we have a margin of around $200 for our client, just off the bat there. The grocery store segment amounts for 50% of traffic door sales.
Okay, that's interesting. So the other 50% would likely be the other categories you mentioned, like the restaurants or hotels. And there are around 40,000 grocery stores in the US, okay. On average, each grocery store has four traffic doors. Okay, so based on this data, it seems to me that we're zooming in on just the grocery store segment, if there is a focus for our client there, and the new construction typically accounts for 5% of traffic door sales, so the majority is actually the replacement. That is very interesting as well.
Okay, so with these numbers, I would start by figuring out how big this grocery store segment is, right? So it says this is 40k. I'm just gonna jot down the numbers and then do the actual math in Excel. So that's 50%. So then you could assume that total institutions needing traffic doors or maybe 80k that is an assumption And on, each grocery store has four traffic doors. Okay, so say we take that 80k number, that would be 32,000 traffic doors. And new construction typically accounts for 5% of traffic or sales, right?
So we go back to the start, if the average lifespan of a traffic door is seven years, then they need to be replaced every seven years. So basically, I'm going to divide this, I would divide this number by seven. And then before multiplying that with the $200 margin, I would want to incorporate the 5%. So that's 5%. So the replacement is 95% of traffic door sales. Let's see here.
Which will surprise. Okay, okay, so perhaps I would calculate that number. And then I could multiply it times 1.05. To add on the new construction, for the traffic, the other doors that are being constructed new. Does that all make sense?
Interviewer: Joel Slater
So I think you mentioned you're going to multiply by margin $200. Tell me about that. I think about that. Is that is that the best way to do it?
Need consulting experience?
If you would like to get some experience in consulting, consider joining Strategy Sprint.
Strategy Sprint is a one week virtual consulting project that allows you to serve a real world client, gain consulting experience and skills for your resume, see if consulting is right for you, and overall, just have a blast making an impact on a real-world client.
There are limited spots left for the next cohort - learn more and join.
Candidate: Camiel
Um, I guess? No, because that would be going towards more and more serve a profit analysis for our client. We're just looking at the TAM. Thank you for pointing that out. Okay, so trying to understand the difference, or how I could utilize the difference between wholesale price and the retail price. Given that we are that our client is not selling to the end client, but to the distributors. I would utilize the $1,200. Price for for to calculate a TAM for a client. Does that make sense?
Interviewer: Joel Slater
Yeah. Okay, I didn't read this, but the prompt that says you don't need to use all the information.
Candidate: Camiel
Ah, okay. Perfect. That so it's a red herring. That is interesting. Okay. Right. So I would, instead of using $200, I would do $1,200 In this case. So did $1,200. Divide that by nose a $1200 times 80k, for the total total stores in the needed in needing traffic doors, then do that times for, for traffic doors for grocery store. I am making the assumption here though, that the other 50% of traffic door sales are institutions that also make for traffic doors. So if needed, I can also just just focus on the grocery store segment, and then make a more broad assumption about the other 50% of the sales. And then I would multiply that times 1.05 yo account for new construction.
Interviewer: Joel Slater
Got it? Got it. Okay. And what do you if you map that out? Okay, so you're mapping that out? Let me ask this show. I said not to use all the information. But is that is that all the doors that all the valuable doors being sold in a given year? Or is that the valuable doors over a longer period of time that you're calculating right now?
Candidate: Camiel
Well, so if I if I were to divided by seven, that would be the annual I would say replacement rate for the traffic doors. Because I'm assuming Yes, there is no yeah, that's the only year span mentioned. Yeah.
Interviewer: Joel Slater
Okay, so let's map that out.
Mapping It Out
Candidate: Camiel
So starting here with $1,200. Folks, you can see this I'm doing this in Excel right now. Multiply that by. So you have two options. I can multiply just for the grocery store segment or I can multiply it assuming that the other segment is the same margin, but I can start with just a grocery store segment. Yeah, that's probably a good idea. Okay.
So 40,000 which gives us 4,800,000. Then we are going to multiply that by 4 saw traffic doors which gives us 1.9 2 million, right? Yeah, that's right. And then we're going to do the times 1.5. Not Not 1.5, we're first going to divide that by seven to account for the lifespan. Which gives us a very uneven number two. So that's let's see here. That's around 274k. Correct. And that was more apologies, I think I'm misread the early numbers, the early number would be 19.2.
And now we have 2.7 on annual basis, and that's just for the replacements. So we're going to multiply that times 1.5 1.05. Apologies. Which gives us 2.8 million. And that is then. So 2.8 million is the TAM just for the grocery store traffic doors on annual basis. If you made the assumption that that's half of the market, that would give you a round number of 5.6. Sorry, five, yeah. 5.6 million on average, but 2.8 just for the grocery stores.
Interviewer: Joel Slater
Okay, let's do this one more time. So you got you said 40,000. Yes, times four times four. Right. And then you want to advise 1200? Right. And you got to 192 million? Yes. Got it? And then you multiply by 1.05? You said?
Candidate: Camiel
Yes, no, no, at first I divided by seven because I didn't want to incorporate the new construction into the replacement rate. So as I divided by seven, so that gave me 27 million.
Interviewer: Joel Slater
Got it? You got 27 million. And then you apply, then you apply the point nine five point 1.05. Correct. And that gave me 28.8 million. Got it? 28.8 got it, and then you multiply that by two, to get the full mark. Correct. Right.
Candidate: Camiel
I missed a zero there.
Interviewer: Joel Slater
Got it. Okay, that's where I was confused. Great. Cool. Great. That's, that's, we're gonna get to. I'm gonna move on to the next question here. Now, you know how big the market is $20 million market for grocery, but we say double that 58, something like that for the whole thing. Your startup let's call them target. Basically, the you've done some homework on the market. Let's just look at this exhibit here and have a think what it might imply about why they want to do the startup and what their prospects for succeeding with that startup are? No math. No, just it's just railroad shock here.
Candidate: Camiel
Right. Okay. So we're seeing here that there's basically four major brands in this market that constitute 90% of the total market and 10% rests for the other brand. So that's a pretty consolidated market. Actually, if I was a new entrant, that would scare me a little because it would be tough to fight for a piece of the pie when there's just four players that hold the majority of it.
Now, brand A on top of that, also almost as close to half of that market, so 40% So that seems to be like monopolized market almost for brand A. So if I was a new entrant, you would have to break that market share up for any of these new these these established players in this market. But then, looking at the other graph, we see customer satisfaction. And here, there's some variance where brand B seems to have, let's see what the metrics are being used.
So it's a sample of customers interviewed by your team, okay, with five being highly satisfied and zero being unsatisfied. So that's our y axis and on the x axis, okay, it's, I would say the number of interviews done. Okay. So it's interesting that the sample size I also differ the differences between the brands. So brand B is not only very popular amongst those interviewed, but it's also the most interviewed. So that seems to be more trustworthy than, for example, brand D, who only has 2 interviewees.
So that's telling me that, for example, brand A, or brand C, which are on the lower side might be vulnerable to, to new entrants who could steal some market share there. Whereas brand B seems to be very solid. Now brand E, I believe would belong to the all the other brands. And as poor customer satisfaction compares to the others. But again, this is relative, because all of them are close to five, around four and up. If that makes sense, in my mind, because we're talking about traffic doors, there's not a lot of customer preference, or tailoring, when you talk about traffic doors, it just needs to do what it needs to do, which is open and closed properly.
So that also might add to an extra barrier to new entrants. There's not a lot of room for differentiation here. So if I was a new entrant, I would want to understand maybe why the other brands are receiving lower ratings than brand B. And to understand if there is some way to offer a better product or to differentiate, even though this is not looking too promising.
Assessing Price Risk
Interviewer: Joel Slater
On the left side of the exhibit with the consolidation that you highlighted before, tell me if you are a customer of let's say your ex, you know, Walmart. Are you happy about that situation? Or are you not happy?
Candidate: Camiel
No, no, this probably is not in the favor of customers, because besides their just being four major brands constituting 90% of the market, brand, A, B and C are also owned by the same parent company. So they can drive the price up as much as they like in the situation. And as a customer, you probably suffer a lot.
So that might hint that there is room for competitive pricing that if you were new entrants, and you could manufacture these doors at cheap cost, you could steal significant percentage from these other brands. Yes, but so that that would be an interesting option to look into.
Interviewer: Joel Slater
That's helpful. And, you know, based on the right hand side, how do you feel? Yeah, no, it's just taking this as a sort of a flash, high level sort of data input. How do you feel the brands actually are digesting that potential price risk? What what's their perception that price risk right now?
Candidate: Camiel
So let's see. I think, given the higher customer satisfaction ratings, I don't think that they'd see this as a big threat at all. If if customers were reacting poorly, then that would show on this graph. And that would mean that there is a danger for for competitive pricing. But if customers are happy with their product, then perhaps doesn't even like it doesn't matter to them too much the competitiveness of the price. So that isn't interesting. Remark there that perhaps customers aren't are not price inelastic.
Interviewer: Joel Slater
Possibly. is it also possible that this is a benevolent monopoly that's been maintaining price, not taking it?
Candidate: Camiel
It could be it could be I would be surprised as I've not seen too many benevolent monopolies. But perhaps this is just an industry where the product gets built and gets built. Well, and it's just done by a few companies all owned by the same parent company. And it's not too much of a price war anyway. And that serves the customers, it could very much be like that. Yes.
Assimilating New Information
Interviewer: Joel Slater
Well, moving on to the next question here. The startups founder, has pre existing relationships with several of these large grocery chains. And they claim that these customers have expressed interest in buying doors from them. With the benefit of these relationships, they think they can hit $3 million dollars in sales over the next three years.
You know, starting at zero, essentially, based on the list of top relationships that you know that the founder, the management team has sort of identified that they're coming into the startup with, based on this list below, what's your assessment of that claim that they can hit that $3 million in sales?
Candidate: Camiel
Okay, so I'm seeing your list of management relationships with different grocery store chains. Some names popping out like Target and Trader Joe's. But it's only really adding up to 4k in store total stores. Now, 3 million is not a big number for for an average manufacturing store, if and if the door assumed cost something around like $50 $60, then reaching 3 million would only require you to only produce 200 or 300. On a monthly basis, that is very doable.
In terms of utilizing these these relationships. So in three years, I think that is very doable if these numbers are true, and that the the stores are willing to display the startups products. But that would require breaking up that earlier, or at least relenting a little bit on that earlier monopoly that we saw on the previous graphs
Interviewer: Joel Slater
Prove to me it's possible that they can hit 3 million, just with these accounts.
Candidate: Camiel
Sure. Okay, so in order to prove that 3 million is possible three years, we would have to get some sort of a gauge on on profit margins. So no, it's just this is just raw sales. This is not profit. So I would have to start making some assumptions unless you have data on the price, the average price for the door as well as what what the retail prices within the stores themselves?
Interviewer: Joel Slater
I do. It's the ones you already you already did
Candidate: Camiel
So, we said that $1200 was the wholesale price and the retail price is $1400. So 3 million in three years, we could say here at 1 million per year, but not necessarily because sales do ramp up over time. Let's just break that down real quick in terms of what that looks like, in terms of the amount of doors. So we're going to pop into Excel here.
So in terms of wholesale sales, be 2500 doors in three years. And if we look at the relationships that we have, even if we were to sell one door in every single store with the brand, the chains that we have relationships with we would be well beyond that number. We have begun 4000 So in three years, I think that is that is very feasible.
Clarifying The Case
Interviewer: Joel Slater
How much? So what was the total dollar value annually that these stores are generating? Do you think? How much how many revenue for all participants? Do they do they generate off these 4000 stores? Is it even $3 million?
Candidate: Camiel
I see I see. Okay, so this is a profit question then in terms of counting back the or using the retail price. Minus the wholesale price.
Interviewer: Joel Slater
Oh, and don't worry about profit. I don't think profitability needs to factor into this one. Just pure purely revenue. Okay. They could they could our startup reached $3 million in revenue off the back of these 4000 stores out of the 40 that we know are out there.
Candidate: Camiel
I'm sorry, could you repeat that question?
Interviewer: Joel Slater
Do we think that the how many dollars in revenue would these 4000 stores generate for the market and, therefore, present TAM that we can go after how much TAM essentially is embedded in these 4000 stores knowing that we have a tam for the 40,000 stores already?
Candidate: Camiel
Ah, okay. I see. Okay. So you said for the 40,000 stores, that was around a number of 288 million. So that would be 28 million. Sorry, even said 28 million. So that would be a number of the 2.8 million just for the 4000 stores. So that is slightly below that 3 million target. But that is on a yearly basis. So 2.8 times three, gets you a little under 9 million. So in that case, within three years, we are well beyond that sales target.
Interviewer: Joel Slater
This is just a language thing of the way. This is phrase $3 million dollars in sales, it's meant to be like an annual number. So essentially, you know, $0 1 year, we hit $2 million in sales the next year, $3 million in sales, if there's something like that, right. And, you know, so you're saying there's $2.7 million in annual revenue baked into the stores, we want to hit 3, what do we do? Is this, is that feasible? You know, and let's say it's, let's say they can go beyond these, obviously, these four accounts to reach the $3 billion.
Candidate: Camiel
Yeah, we're not far under. But it would, I don't, I don't I'm not always trustful of the strength of these, these relationships in the sense that the stores would every year, be willing to sell a certain amount of doors and channel all that those sales back to our clients. So on top of not not being able to hit that target number, just with these stores.
The strength of the relationship is I would say, I would pull that into question. So it'd be feasible if again, if there was some sort of a differentiating factor? And are we offer somehow a cheaper initial wholesale price than the other competitors. But again, we didn't we didn't see it's in seemed like price, competitiveness mattered. So I would be doubtful that we'd be able to reach that 3 million per year.
Driving Toward A Recommendation
Interviewer: Joel Slater
Got it? And that precedes the last question I have, which is based on what you learned, what do you think about this opportunity? And what other questions haven't we covered that you'd want to investigate before rendering an opinion here on whether you know, they should fund this investment?
Candidate: Camiel
Yes, so I, based on the data that we have now would not invest in this business. And I don't think this is an attractive market to pursue. Based off of, I would say, three major areas that we've seen one, it's a very consolidated market, for companies all owned by two or three companies, all owned by the same parent company, two price competitiveness doesn't seem to matter too much based off of the customer satisfaction that we saw, which was relatively high.
And so there's no room for potential new price entrants. And now three, the if all things go well, and we can sell our doors in the stores with relationships that we have, we would still not hit those that 3 million every year. So it's looking like this is a shaky investment. And in order to further investigate the opportunity, I would want to see what these relationships are built on. So what is what is a trust based relationship mean? In terms of just like numbers and sales?
And to I would want to look at ways our door could be in some sort of way competitive or differentiated, is there a way that we can, in any shape or form be provided something different than what our competitors are now providing? And again, this is traffic doors, so I'm doubtful. So those are those would be the follow ups I would look into.
Real Life Pivot
Interviewer: Joel Slater
Great. Clients come to you with an investment idea. They don't like to be told they're stupid. They want they want to, if they thought it was a good idea, they kind of telling them now I don't like it. It's bad idea. If you had to offer them sort of an olive branch here and say there is you know, what would what could do what could you offer them in meet in ways of there is a path to make this an attractive investment?
Are there other things that that you could try to prove out here to say, well, it doesn't work with in the context of these four accounts, but maybe it works, if you believe some other things? What are the things like what might you want it? What might you have to believe, to make it work?
Candidate: Camiel
You'd have to believe that we could build out these relationships with more stores and in an actual contractual agreement, in terms of sales. And you could possibly look into the idea that we could that this startup would get acquired pretty quickly if this is a consolidated market by the parent company. And that would be attractive to the investors.
Because it looks like this market is not, it's very stable in the sense that it's so consolidated. So that will give a pretty quick turnaround in terms of the investment. That is, what you that isn't a route to pursue.
Feedback
Interviewer: Joel Slater
Great. Okay. Well, I think I think we're all done here. That was a really good job coming out. That's yeah, fantastic running through that, you know, a couple of things for me. One, you were very structured in your thinking throughout, you can you can feel it, I liked how you were, you know, repeating things very clearly, I could hear where your thoughts were, that made it very easy for me to interpret, you know, the strength of your thinking.
I like how you were very regimented at the end, this is why we should do it for these reasons, pulling back on some things from from before. I think that, from a math perspective, obviously got caught a few places, as I said at the beginning, I'm concerned about, you know, personally less concerned about the, you know, numeracy things, you know, we have Excel, et cetera. What I'm concerned about is that you kind of see the data and you know how to fit it together.
You did one small error, when you have something like you're trying to get 95% of market and you're trying to grow it up to 100, you should take that number and divide by 95% not multiply by 1.05. It's almost meaningless. But it's a silly little math thing. You know, I think that in future for you, for someone like this, definitely is going to crowd here. So it's not maybe a normal situation.
But definitely feel free to take a little bit more time to really think through the step by step process and like, just look at the variables on a page as you think about multiplying them together. But obviously, you know, you arrive the right answer the first and I this is why I want to give you the checks, I thought you did the math, right. But then I heard you say 2.8 million instead of 28. So that's why I wanted to go back with you on that.
Candidate: Camiel
Excel doesn't automatically sort the zeros, or at least I don't have that like, currently the default function, which I felt silly counting the zeros. So I kind of immediately assumed what I saw. But I saw that wrong. So that was unfortunate.
Interviewer: Joel Slater
That's alright, we should put you on the spot here with Excel. And, you know, your point on you know, 1200 versus 1400. That when you think about this type of a market, I guess just for everyone's benefit, you know, generally there's going to be a couple of stages, you've got the $1,200 sale value to the distributor, the distributor, then sells it buys it for $1200 sells it for $1400.
But $200 is the distributors margin, we don't know actually what the margin of the startup was on the 1200, they may have put $1 into making it they may have put $1,199 into making they may have lost money on it. We don't know. But you know that when we think about sizing something for a manufacturer, it's good for you to think about, well, what's the right revenue basis to do it on? Is it the value the price that the door? That is it the the price that the end customer sees? Or is it the price that the intermediary sees who is buying from the manufacturer on his behalf you're trying to size?
And then I guess last thing is I thought, you know, again, very creative, just thinking around the edges. I like your skepticism of, you know, those relationships, I think it's really healthy, you know, attitude to have about, you know, when somebody comes to you with a projection, it's like, you know, can you do that and you know, those relationships that's strong.
As you think about one thing I you know, on the last point, what else could you do? You know, with this type of a, of a situation, what else could they do beyond the 3 million? Well, that's only temporary We only know about 10% of the market, right? You know, we they have strong relationships with them, maybe they could get 10% Those doors, maybe they get 90% of those doors, we don't know.
But we also don't know that they can't get the, you know, at least a chunk of the rest, you know. So another way to look at it is to say 3 million bucks out of a $60 million market is, you know, 5%, Is that doable? You know, 5%? You know, maybe over the course of five years, could they do that? And so that's the kind of question we kind of run into. Right?
Candidate: Camiel
That makes sense. Cool.
Interviewer: Joel Slater
Cool, and clear feedback for from, from you on this? How did? How did this compare to other things you've done?
Candidate: Camiel
Yeah, I felt good. I do like the private equity angle to it. Because it's like a hard yes or no, should we invest in this. There's some that doesn't end too often in a gray area. It felt silly to get caught into in these math errors, or the zeros. And I think this case felt very conversational, which I appreciated.
But it also meant that I maybe didn't take the time where I could have taken time to just like, jot down some notes. I was I was writing as we went along. But again, I I think I leaned more so to the side of keeping the conversation going, then structuring my thoughts, and in hindsight, I would do that differently. But overall, I think I'm happy with how it went.
Interviewer: Joel Slater
Great.