In the fast-paced world of product development, where time is of the essence, decision-makers often find themselves in situations that demand quick yet informed choices. This is where the art of guestimation comes into play, offering a valuable tool for Product Managers (PMs) to make rapid assessments and drive innovation. My strategy professor used to call it Back of tissue analysis . In this blog post, we’ll explore guestimation and how it can help PMs in new product development or feature enhancements.
What is Guestimation?
Guestimation is a method of making educated guesses or rough estimations when faced with incomplete or time-sensitive data. It allows PMs to make quick, informed decisions based on limited information, helping them steer product development or take a strategic decision in the right direction.
Two Approaches: Supply Side and Demand Side Analysis
To effectively use guestimation, PMs can employ two main approaches: supply side and demand side analysis.
Supply Side Analysis: In this approach, PMs focus on understanding the available resources, technology, and constraints. They estimate what can be produced or developed based on these factors. For example, if you’re planning to launch a new feature, you’d consider factors like your development team’s capacity, available technology stack, and the time required to implement the feature.
Demand Side Analysis: This approach involves assessing the market and user demand for a product or feature. PMs need to estimate how much value or demand the new product or feature might generate. This could involve looking at user surveys, analyzing market trends, and projecting potential customer adoption rates.
Steps to Effective Guestimation
To harness the power of guestimation effectively, PMs should follow a structured approach:
Ask the Right Questions: Start by asking the right questions and clarifying any unclear terms or assumptions. A precise understanding of the problem at hand is essential.
Break it Down with MECE: Apply the McKinsey MECE (Mutually Exclusive, Collectively Exhaustive) principle to break down the problem into smaller, manageable pieces. This ensures that you’re considering all relevant factors without redundancy.
Leverage Background Knowledge: Use your background knowledge and well-known facts to make educated guesses. This might involve drawing from past experiences, industry knowledge, or market insights.
Calculate the Estimations: With the groundwork laid, calculate your estimations. Be transparent about your assumptions and the margin of error associated with your guestimate.
Example
Suppose you have to estimate the total ice cream consumption by people in Delhi every month.
Let’s apply the framework outlined earlier to estimate this. Please note that this is a rough estimate, and the actual numbers may vary. Certainly, let’s apply the framework outlined earlier to estimate the total ice cream consumption by people in Delhi every month. 1. Ask the Right Questions:
- What is the population of Delhi?
- What is the average frequency of ice cream consumption per person in a month?
- What portion of the population consumes ice cream regularly?
- Do you want to consider summer and winter demand separately?
2. Break it Down with MECE:
Population of Delhi: Delhi’s population is around 31 million.
Average Frequency of Ice Cream Consumption: On average, let’s assume that a person in Delhi consumes ice cream about twice a month. This is a rough estimate based on general ice cream consumption habits. I am not taking seasonal variations, cultural factors, or specific demographic data into account. You can do that as well.
Portion of the Population Consuming Ice Cream: To estimate the portion of the population that consumes ice cream, we’ll assume that 60% of the population enjoys ice cream occasionally. This is a reasonable guestimate considering varying preferences and dietary habits.
3. Leverage Background Knowledge:
Now, let’s calculate the estimations:
Total ice cream consumption in Delhi per month = (Population of Delhi) x (Average Frequency of Ice Cream Consumption per Person) x (Portion of the Population Consuming Ice Cream)
Total ice cream consumption in Delhi per month = (31 million) x (2 times/month) x (60%)
Calculations:
= 31,000,000 x 2 x 0.60 = 37,200,000
Estimation: Delhi residents consume approximately 37.2 million ice creams per month.
Please keep in mind that this is a simplified guestimate and does not take into account seasonal variations, cultural factors, or specific demographic data. Actual ice cream consumption in Delhi may vary from this estimate. For precise market data, market research or surveys would be necessary.
How Guestimation Benefits PMs
Guestimation can be a game-changer for PMs in several ways:
Quick Decision-Making: In fast-moving industries, waiting for comprehensive data can result in missed opportunities. Guestimation allows PMs to make timely decisions, keeping projects on track.
Risk Mitigation: By breaking down complex problems into smaller pieces and analyzing both supply and demand factors, PMs can identify and mitigate risks more effectively. Supply side and demand side numbers should compliment each other (they might not be exactly same, but close to each other).
Innovation: Guestimation encourages PMs to think creatively and explore new ideas without the fear of extensive resource commitment.
What to do with Guestimates?
For starters, guestimates gives you a rough idea about the TAM (Total Addressable Market) of your product or service. You need to now narrow down to your SAM (Serviceable Addressable Market) and then finally calculate the SOM (Serviceable Obtainable Market). This would give you a rough but realistic estimate of customers that you can actually reach.
In the dynamic world of product management, mastering the art of guestimation is a valuable skill. It empowers PMs to make informed decisions quickly. By following a structured approach and leveraging their background knowledge, PMs can harness the power of guestimation to drive successful new product development and feature enhancements. So, the next time you find yourself at a crossroads in product management, don’t hesitate to embrace the art of guestimation—it might just lead you to the next big breakthrough in your industry.
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