What is the total number of automobile tires sold in the U.S. each year?
>> This is a straightforward market-sizing question, appropriate for undergraduates and advanced-degree candidates.
Candidate: I’d say about 1 million, give or take.
>> The purpose of this kind of case question is not to hear your final answer, but instead to give your interviewer an opportunity to hear how you think about problems with uncertain or unclear information. This answer neither demonstrates the candidate’s thinking skills— the set of assumptions and analysis that he did to arrive at his number—nor gives the interviewer anywhere to go in terms of follow-up to assess the candidate’s approach to problem-solving. In general, never give the answer to a market-sizing question right out of the gate. A better strategy is to take a moment or two to think about what the interviewer is really asking you. In this case, the interviewer is really asking, “Let me see how you would think through developing an estimate for the number of automobile tires sold each year in the U.S. by telling me about the process and assumptions you’d use to arrive at your estimate.”
Take a moment to think about what is really being asked before plunging into an answer.
Candidate: Well, it’s just four times the number of cars sold in the U.S., plus maybe a few more.
>> Although this offers a small amount of insight into the basic assumptions and thinking that the candidate would use to structure her response, it is not nearly deep or well-thought-out enough to satisfy an interviewer—there isn’t enough specificity to her answer. While you don’t need to arrive at an exact number in your final answer, you do need to provide a decent estimate based on information you have at hand or can deduce from other information you know.
Candidate: All right, this one’s easy! My brother is an industry analyst for cars at Goldman and he told me there are 15 million cars sold each year, so my answer is 60 million. Next question.
>> Never say that a question you’ve been asked is easy. If it were easy, it wouldn’t be asked of you in a case interview. This answer also implies that the candidate believes one data point or piece of information is all that’s required to answer a related—but not perfectly correlated—question. You don’t ever want to give the impression that you respond rashly or without measured consideration to a query; this implies immaturity and thoughtlessness, both of which would be very off-putting to an interviewer seeking humble, intelligent, and thoughtful candidates for a role that will often demand maturity and nuanced problem-solving.
Candidate: That’s an interesting question, considering the various sales channels and the different sources of demand for auto tires in the U.S. Let me start by applying a “bottom up” approach towards estimating the total demand for tires.
>> Good start. The candidate has demonstrated interest in the question and communicated a road map for how he will begin to think out loud about the components of information required to develop a response. Furthermore, the candidate has shown an understanding of both business operations (buzzwords are generally ill advised, but in this case referring to “sales channels” gives the interviewer a sense that the candidate has a basic understanding of operations) and economics (by choosing the demand side of the total market to pursue the market-size estimate, rather than the supply side, which is likely to be more challenging in making good assumptions given the relatively arcane nature of tire manufacturing).
Candidate: To begin, I will draw some parameters around the definition of the automobile-tire market so that I can then define the sources of demand for tires. In this instance, I’ll assume that our market concerns rubber tires for passenger cars and light trucks only. Therefore, I will exclude commercial vehicles, tractors, trailers, and things like RVs for the purposes of my estimate. Is that acceptable, or would you like me to define the market more broadly?
>> Well done in defining the nature and parameters of the problem before diving in. This demonstrates patience and a desire for precision in defining ambiguous problems before thinking about potential solutions. These are valued skills for consultants and general management strategists, who are hired as much for their maturity in managing complex problems as they are for their ability in solving them. Furthermore, the candidate demonstrates comfort, ease, and most important, respect for his interviewer by asking a question that engages the interviewer and lets him help the candidate define the problem more specifically.
Interviewer: Yes, that’s fine. For the purposes of your estimate, just focus on cars and trucks like pickups and SUVs.
Candidate: OK, sounds good. To start, I believe that one source of demand for automobile tires centers on new cars and trucks themselves. Although I don’t know offhand what the total number of passenger cars sold each year is, I’ll develop a rough estimate that I can use to estimate the tire demand for this channel and then move on. I know that there are about 300 million people in the U.S. and that about three-quarters of them are above the driving age; this amounts to about 225 million people. I will further assume that about three-quarters of those who are of legal driving age actually own a car; this is based on personal experience with friends and family members in both rural and urban settings. That leaves about 160 million people in the U.S. who own cars today. Now I’ll assume that people replace their cars on average of once every 10 years—just to keep it simple without knowing the exact numbers. That would give an annual estimated number of about 16 million new cars sold, resulting in 64 million new tires sold for those new cars and trucks alone.
>> The candidate has used a combination of personal knowledge about cars and some round-number estimates using population and demographics to whittle down the new cars element of this market-sizing problem to a manageable and reasonable number. Although there may be some inaccurate assumptions in the logic chain the candidate presents here, by speaking his way through the chain with the interviewer, the candidate shows his ability to extrapolate in a reasonable manner using known information to arrive at an estimate when little information was initially available. Using personal experience, like that involving how many friends and family own cars, is OK so long as the candidate doesn’t take it too far— which he hasn’t. Furthermore, the candidate has driven to a reasonable component of the estimate without taking forever to do so—enough time to think about the logic chain rationally and completely, but not too much time to be burdensome and unnecessary for this estimation exercise.
Candidate: Now that I’ve estimated the number of tires demanded for new cars and trucks, I’ll move on to estimating the number demanded for used cars and trucks currently on the road. I just came up with an estimate of 160 million people who own cars. For the sake of consistency, I’ll use this same figure for the estimated number of used cars on the road.
Keeping track of your assumptions is crucial.
You may need to return to them later.
>> Good job. Realizing that another component of the estimate relies on a piece of information that had previously been estimated, the candidate acknowledges that he has thought this out and takes a consistent number for the next demand estimate. In doing so, the candidate is being clear on his progress toward an answer and has demonstrated the ability to return to prior thinking to reassess and reuse relevant data when appropriate.
Candidate: Now I need to estimate the average number of years it takes for a driver to wear the tires out on his or her car. I believe I remember from commercials that tires are rated with an average of 60,000-to-80,000-mile warranties. If we assume that an average driver covers about 15,000 miles per year that means each car needs its tires replaced about once every four years. This means about 40 million cars require new tires to replace old worn-out ones each year—approximately 160 million additional new tires for used cars.
Communication skills are as much a part of the market-sizing interview as the assumptions and answers you deliver.
>> The candidate is doing well with one of the rules of market-sizing questions: using nice round numbers that are easy to divide and multiply into other round numbers. This not only will ease and speed up his estimation efforts, it will let him focus on the assumptions he is making—and communicating those assumptions as he works his way through the answer—rather than on the actual mathematics. You are not being hired for your ability to do cube roots and multiply seven-digit numbers in your head. You are being hired to think creatively and logically with uncertain information at hand. Therefore, using round numbers will help you focus on what’s important in a market-sizing interview: your thinking, not your math. That said, there is no shame in pulling out a pencil and paper if your case question starts to involve so many numbers or assumptions for a particular estimate that you need to write a few down to keep your thinking straight. Interviewers do not deduct points for candidates who assist their thinking by writing— unless of course all you do is write and you fail to share your progress and thinking at every step with your interviewer. Communication skills are as much a part of the market-sizing interview as are the assumptions and answers you deliver.
Candidate: So, we have what I believe are the two major sources of demand for new auto tires estimated. These add up to 224 million new tires per year.
Interviewer: Have you thought of any other potential sources of demand for new tires? I can think of a few myself. Can you come up with a few more?
>> The interviewer is trying to put the candidate on the ropes. Her question suggests that the interviewer has a particular answer or idea that she wants the candidate to figure out. Don’t get flustered if the interviewer takes this tactic at the midpoint in a case interview you believe has been going well. Sometimes it’s simply a way to assess how a candidate will react under stress. Take a moment, then calmly proceed to develop a more detailed and refined answer. Your interviewer will let you know when you are approaching a sufficient estimate, just as she will let you know that a longer and more detailed estimate is expected.
Candidate: One additional source of demand I haven’t addressed yet is flat tires and damaged single tires, both of which need to be replaced on a one-off basis. Would it be helpful to develop an estimate for these tire sales to add to the estimate I’ve developed so far?
>> Good job. The candidate demonstrates here that he is able to think about special circumstances, which would add to the market sizing. Although these lesser-order sources of demand or supply in market-sizing questions sometimes do not add materially to the estimated number, it’s useful to acknowledge that you consider them and ask the interviewer if she’d like you to augment your estimate with deeper thinking.
Interviewer: That’s all right. I believe that you’ve covered the two largest sources of demand for new auto tires each year, so I think we can settle on 224 million as your estimated annual sales number. I trust you could get a more refined estimate by adding more, smaller sources of new tire demand if we kept pursuing it. We’re close enough with what you’ve given me thus far, so let’s move on. Well done.
>> By simply acknowledging the candidate’s ability to go deeper, without actually asking him to do the additional estimating and thinking required, the interviewer demonstrates that she was indeed simply trying to gauge what the candidate’s reaction would be to a little pressure or stress in the midst of problem-solving.
While a little unsettling to a candidate whose confidence may be growing as he moves smoothly through a case, this is by no means out of the ordinary. The candidate did a great job addressing the challenge—and the interviewer acknowledged this by concluding the case in order to use the remaining time in the interview for other problems and discussions. This is a sign that the candidate has done well and has satisfied the interviewer’s desire to witness and understand the candidate’s logical thinking skills. Well done.