BRAINSTORMING: 3-STEP APPROACH (HYPOTHESIS GENERATION QUESTION)

Examples:

Generate hypotheses are not enough -> need to test them; having them in structured format, you often
able to test them in bundles of ideas instead of individual of ideas; and by having them prioritized -> can
start test the ones that make more sense first -> more efficient work instead of testing them randomly

THE 3-STEP APPROACH:

Step 1. Define the structure
• Define specifically
• Structure with MECE issue trees
• Make structure problem-specific => this business has 2 revenue streams: don’t sell services by
quantities -> make more sense if break down into number of customers and ARPC (average
revenue per customer), and then talk about customer acquisitions/retention -> specific to clients’
industry
- In this case, need to figure out what causes decrease in revenue -> reduce the problem to a
metric (Ex2: ideas how can make a better product? -> better is not helpful; can you make it as a
metric -> maybe it’s a B2B industrial product, and a better product is the one that saves clients’
more time and money, maybe it’s a smartphone -> serve more functions or not; maybe a social
media app -> better means make pp use more time during a day => reduce the problem to a
metric; otherwise try to make it more specific)
- In this example case, we have the metric “revenue” -> however, can make it more specific, we
can ask how much has revenue dropped and over how much time, we can also clarify what are
the revenue streams of this Dojo (I ask something like I imagine a Martial Arts business makes
money from monthly subscriptions to the classes and by selling gears, am I right or are there
other revenue streams?) => Revenue dropped 30% in 6 months.
Step 2. Prioritize drivers
Be 80/20 -> How?
• Take context (and number of the cases) into consideration => clues of what you should prioritize
• Think impact (which driver could have a bigger impact)
• Think likelihood/feasibility (ex: which is easier, get more customers than to increase price?)
The example case:
• Contexts:
- This business is in the Martial Arts teaching business
- Revenue has dropped by almost about a third and pretty quickly
• Impact: all 4 drivers except
- Sales of gear which I believe are smaller values of monthly membership ($500/month, 50 or 100
on gear/month) -> of course, assumption
- In terms of likelihood, I’d say monthly membership value probably didn’t drop 30%, unless people
switch to a more value plan => unlikely that customer acquisition has dropped to a level that
brought us 30% revenue decrease because even if we’re doing poorly in the marketing
department, we still have current customers; I’d say that it’s unlikely that we dropped price that
much, it’s unlikely that we do such a bad job in getting new customers that the overall revenue
dropped 30%. But it’s pretty likely that a bunch of our customers has dropped out for some
reasons
Even if we have no data => use logic to derive the answer
• Prioritization is by far the trickest step

Step 3. Generate hypotheses

• Say the obvious -> if don’t mention them, leave the interviewer wondering if you ever thought of it
at all
• Think outside the box
• Stay practical

=> Hypotheses:
ALGEBRAIC STRUCTURE
https://www.craftingcases.com/the-5-ways-to-be-mece-part-3/

• To generate real insight -> go a deeper level and mention a few qualitative issues that drive each
numerical variable of the structure (no need to be MECE)
Ex:
NOTES:
• Cannot be used in purely qualitative cases (Ex: what are the risks…, what would a customer take
into consideration when buying a product…)
• Hardly the best option in long-term, strategic cases (Ex: M&A, market entry, long-term growth
strategy…)

PROCESS STRUCTURE
 • Ex: manufacturing, logistics, maintenance, sales, hiring, etc.
• Specific ex: find reasons why the manufacturing cost of a widget has increased -> break down
into each manufacturing step -> check if the cost has gone up in that step -> if so, examine why

CONCEPTUAL FRAMEWORK STRUCTURE

 • Conceptual frameworks are structures based on categories of concepts (Ex: 3Cs, 4Ps, Porter’s 5
Forces)

Example: should BMW launch Uber-like service in major cities?

To adapt well to weird cases, need to know which specifics does your specific case require
DRILL: HOW TO INCREASE PUBLIC BIKES UTILIZATION
RATES?
Services people use; could be a private sector as well

Step 1. Structure the problem

• Define utilization rates as the # of hours per day an average bike is in use => maximum is 24
hours (Ex: if average is 10 hours/day -> I’ll try to increase to 12 hours/day). Of course, we could
do that by reducing the number of bikes in the system or increasing the usage, but taking the
bikes off the system might not be beneficial => Structure in a different way
• Try to increase usage by increasing perceived value or by reducing hassle/friction; 1 thing that I
didn’t explore here is a third bucket which could be how to put these bikes in places that make
more sense (maybe a few stations are not being used at all, are not being used a lot)
• Increase perceived value
How to increase actual value?
- Improve the bicycles (under equipment or maintenance) -> so we can change these bikes
to better bikes with more gears, more comfortable, faster, more maintenance, better
maintenance
- Have better parking stations -> in places better lit, more convenient, estatic, more parking
stations so they’re always close to the origin and destination
- Better or more roads/lanes -> biking routes/lanes
How to improve perception?
- Advertising benefits -> maybe health benefits, faster to move through cities; maybe
cheaper to use these bikes than to use their own bikes
- Improve PR -> maybe the media’s not talking about the system -> show the population
how to do it (maybe have celebrities using it, instagram, things like that…)

• Reduce friction: there are 3 sources of friction in my opinion

How to reduce sign-up friction?
- Online (less friction) vs. offline (go out somewhere and fill out some forms)
- Sign-up steps (fill somes, tax info, citizen info) -> the less steps, the better
- Sign-up problems -> we don’t want as few as possible; if there’s none -> no problem
How to improve bike pick-up interfaces?
- Simplify bike pick-up process
 - Reduce stuff needed (smartphones, cards, etc.) -> I’m guessing that when you get to a
bike station, you’ll need something to prove that you’re a user (maybe a smartphone app,
cards, citizen ID…) -> perhaps you can reduce that with fingerprints or IDK, the less steps
we need, the more easily the citizens can pick up this bike
- Reduce errors: so maybe when people go get the bike’s errors, preventing them from
getting the bikes -> not only make them not pick the bike, but also make them not trust the
system so they’ll figure out some other ways to move around; if the system is error-free,
people can really trust it and use it whenever they want
How to reduce walking distances?
- (Similar to increasing value with more stations)
- Putting stations in strategic locations -> those are the places where most people need
transport

• Have better bike distribution

- If there are some stations where no one is using them -> closing them down
- I’m guessing that some routes are used more sometimes during the day (i.e., residential areas,
commercial areas; bikes moving from RA to CA in the morning and CA to RA in the afternoon) =>
so maybe we can have some vehicles take the bikes from comm areas to residential areas in the
morning so people can use it more and they basically rearrange the bikes to where of the main is
during a certain times of the day -> one way to distribute the bikes better
- IDK if it makes sense to do that because maybe having the trucks doing that is more expensive
for more fixed costs standpoint than having more bikes -> we need to do cost-benefit analysis to
do that

INSIGHTS:
• How did I structure this? -> use 5 ways to be MECE
• Here, how to increase perceived value or reduce friction? => If you’re not using a product or
service, one way to think about it is “is it offering a value?” Yes or no. If not -> then that’s why I’m
 not using it and if it is offering a value, then it’s probably due to a friction => small conceptual
framework
• Perceived value = perception + actual value -> semantic breakdown
- (Similar: Sustainable competitive advantage = competitive + sustainable)
• Hassle/friction -> breakdown using a process type of structure: sign-up -> walk to the station ->
pick up the bike (interface)
DRILL: HOW TO REDUCE THE CANADIAN-AMERICAN
BORDER CONSUMPTION LEAKAGE?
Public sector case

Define drop consumption leakage as $ spent in the US by Canadians on quick, across the border,
shopping trips -> hard to quantify but easy in conceptual

• Reducing prices
- Reducing taxes -> for short-term (but in long-term, be more competitive) and because Canada is
a welfare state in some extent, we may not want to reduce G revenue so we might need to shift
these taxes to other types of taxes (i.e., property taxes, financial transaction taxes, or income
taxes) but not consumption taxes because if consumption goods are more expensive, then we’re
not going to collect these taxes anyway, we’re just gonna send them to the US which is not ideal
either
 • Improving shopping experience: assortment, product quality, store quality, etc. -> we can’t work
on these things directly as a government so I don’t think it makes a lot of sense
• Making it more expensive: impose tariffs/limits to spend; control current limits better. So I assume
that Canadians have certain dollar amount that they can spend abroad/in the US per trip or per
citizen and we can raise this tariff -> maybe we have this limit but no one really follows them, the
border’s not really caring too much
• Making it more time consuming: artificially increase border crossing times. I’m guessing people
go to the US because it is cheap and convenient -> easy to do, maybe once a week, or once a
month, or evn buy groceries. If they’re buying stuffs recurrently and frequently, we can increase
the border crossing time, either to everyone which wouldn’t be ideal or to people who have
shopped for stuffs, maybe have agents search their cars to go through, fill out forms, stuffs like
that -> not the best solution but they could work

NOTE: Context matters. I’m not an American or Canadian -> interviewer won’t expect much
DRILL: MERGER SYNERGIES IN TELCOM SECTOR

How do you know if this is a brainstorming question? => list of things (hypotheses or ideas); in this case,
a list of synergies between telco companies
Define merger synergies as profit difference from combined company vs. sum of separated companies
Ex: company A with profit of 10 mil, company profit 15, combined is 25. Anything that will profit after the
merger or due to the merger extra than 25 is the synergy
For financial people, precise definition of merger synergies is the value difference from combined vs. sum
of separated companies -> regarding valuation; but because profits are a good proxi for the valuation,
especially because these are the same companies in the same industry then let’s do profit because it’s
easier.

• Most costs in telecom spaces are fixed; if breakdown into fixed and variable costs, there wouldn’t
be a lot of variable costs => do by direct and indirect costs to separate costs in this industry
• Prioritize cost cuz there are many fixed costs in this industry

• Direct costs synergy

Infrastructure -> mainly cables, antenna, satellites
I imagine this co-company serve at least some of the same areas so there are some geographical
overlap and if there is geographical overlap, let’s say we have cables to CDs and the other company
also has this cable. Now we could, if there is excess capacity combining these cables, we could divest
some of this infrastructure because now we have the same company with double infrastructure, same
with antennas, mobile network -> can sell some of them. Now IDK if we actually sell them, I hope we
can, and IDK if there is excess capacity; if there’s not, then this is not a synergy, unfortunately. But if
there is excess capacity and we can sell it, there’s some synergies here; either by selling it and if we
can’t sell it, there are still synergies because we want to reinvest once these assets depreciate.
Maintenance -> imagine you have a tower with 2 antennas and there are some maintenance in those,
probably periodic so you have to send the guys once a month there to do maintenance, and nowadays
there are 2 guys going to the same tower, the same antenna location because one is from each
company. Perhaps in the future, once we merge, we can send the same guy to save cost of the trip.
For the cables, for the fixed infrastructure, we have to dig holes, and the cables are probably in the
same place so if we combine the maintenance of those, we can get some synergies here as well. I
assume they don’t outsource maintenance to other companies. If they do outsource maintenance, this
company is probably doing this bundling of maintenance already, but then if they do we can try to
negotiate to lower the price with that company because we dominate so much of the market now.
Installation -> new customers from each telco are gonna need some installation services for the fixed
infrastructure. And here, I think the main driver is, have less churn rate so less customers leaving each
company. Why? Because, say, company A and company B; nowadays, some customers leave
company A to go to company B or leave company B to go to company A, and of course, can also leave
to company C, D… other competitors but every customer that leaves each company to go to the other
company now are the same company, they’re not going to leave them anymore -> less churn rate ->
which cost less installation events per dollar of revenue

• Indirect costs
Sales (salespeople to B2B businesses, hire telco services and retail stores for regular customers)
- Retail stores: there are synergies in geographical store overlap so think of a mall (this mall
have retail stores for both companies and likely next to each other for competing. Now once we
merge, we can shut down some of these stores because some of them are there because
there are demands but some of them are there just because they need to be close to
competitors nowadays and after the merger, you just need 1 store per shopping location or
premium location, not 2 of them)
Marketing
- Increase in bargaining power with ad placement so if we’re gonna to buy ads on TV or on
magazines or on social media now buying twice as many ads so we can pay less -> just
hypothesis
- Because we’re merging, we’re gonna have less competition -> might be able to get away with
doing less markering, less advertising
Call centers
Increase efficiency because of scale and also the increased bargaining power call centers which I think
is limited because there are a lot of labor costs. But I think the main things here if we do have less
churn rate (mentioned in installation part), then we’re also have to make less calls because everytime a
customer leaves 1 telco to another, the first sales gonna probably call them to try to do customer
retention and the other telco has probably call them to offer a new plan and to do customer acquisition
=> so we’re probably gonna save on those costs on call centers if we merge
Administrative, personnel, executives, all the people in corporate might double after the merger -> not
specific to telco sector -> not list here though
 • More customers
- By combining the 2 companies -> better coverage might increase market share (suppose 1 of
these companies is really strong in city X, and the other is really strong in city Y in terms of
coverage and the certain customer once covered in both city X and Y maybe because they have
families in both city, maybe because it’s a corporate customer that has businesses in those 2
cities. So nowadays, perhaps it’s hard for them to choose between these 2 companies because 1
is strong in 1, and the other is strong in the other one, and there’s a third competitor which is
strong in both cities so they have chosen the other competitor which they don’t like really much
but it’s still the only one that has good coverage in these 2 cities. Once you merge, you have
coverage in both cities -> obvious option for them

• Higher average spending per customer

- Increased pricing power: comes due to reduced competition. Suppose company A and company
B are the highest quality, or the highest coverage, or the better company in whatever metrics the
customers care -> they compete nowadays. Once we are merged, we leave the customers no
option so we can raise prices.
- Cross-sales from different product types: if one company has certain product types and the other
company has other product types, we can sell each company’s products to the other company’s
customers once we merge

I think the most important is cost synergies, specifically the one related to reduced churn rates, so the call
centers and the installation because if churn rate really reduces once we merge, if there are a lot of
customers leaving company A to company B and company B to company A, we eliminate all the costs
related to those switches.

SOME SIDE NOTES:

The synergies -> value of the combined company > value of isolated company
The difference between profit and value is 3 things:
• Value concerns cash flow, not profit, which in the long run kinda the same but not exactly. Also
you need to take into account leverage and risks for the value which are not accounted on the
profit
• Value is the sum of all cash flows in the future while profit looks at the present
So, there are some differences but from value creating perspective; it’s almost the same not from the
financial perspective but consulting looks a lot into value creation. So If these two companies become
more profitable, we can call those synergies.
DRILL: MCDONALD’S ORDER CUSTOMIZATION RISKS

The most relevant risks is orders take longer to be prepared and the impact of that in the waiting time in
lines because part of McDonald’s proposition and fast food in general is taking is short period of time to
eat your meal. If you have long lines and especially if your competitors don’t then you’re in a pretty bad
position there -> most important risk here. So unless we can figure out that the impact of this on waiting
time in line is very short or we can find other alternatives like assembly line optimization to make order
customization possible without increasing lines and waiting time then this is what we should be concerned
about the most.
NOTES: the structured used here is the matrix structure
X-axis: things could happen because of order customization
Y-axis: how they would manifest and how they would be a problem to us
Customer satisfaction and costs here are revenue – costs structure just a lot more customized. Given the
order customization change, the only driver of revenue that would be affected is customer satisfaction.