Guesstimates are my favorite challenge! They provide a delightful escape from the routine of lectures (though I must confess, I occasionally worked on them during class) 🤫.
Mastering guesstimates took me about a week, and even now, I sometimes make errors. My biggest mistake has often been choosing the wrong approach framework.
In the realm of guesstimates, the journey matters more than the destination. I frequently debated between using a top-down, bottom-up approach, or another method entirely.
Through extensive reading and practice, I’ve gained a better understanding (although there’s always more to learn 🤣).
Let’s Begin!
Before we dive in, remember: It’s about the approach, not the exact number. Focus on the process, and aim for a reasonable estimate.
Tips & Tricks
- Averages: Use the geometric mean for guesstimates, as it handles growth and shrinkage better (similar to interest rates).
- Fractions: To estimate activity duration, consider the average time spent - if students spend 10% of their time reading, approximately 10% are reading at any given moment (assuming similar schedules).
- Proxies: Use a related metric to estimate a challenging one. For instance, estimate "cars on the road" by "people commuting to work."
- Simplicity: Round numbers and use percentages. Guesstimates are about the process, not perfection.
Building Your Approach
- Top-Down (Start Broad, Then Refine):
- Broad: Begin with a large market or category (e.g., total population).
- Segment: Break it down using relevant filters (e.g., location, income).
- Refine: Apply filters step-by-step to reach a specific answer.
- Example: Estimating daily mobile phone sales in India.
- Start: Total population of India.
- Segment: Rural vs. Urban population.
- Refine: Income groups within each segment.
- Further Refine Smartphone penetration, replacement cycle, etc.
- Bottom-Up (Start Specific, Then Scale Up):
- Specific: Focus on a smaller unit (e.g., customer, product).
- Data: Use data points like average purchase value or customer count.
- Scale Up: Multiply by relevant factors to reach the final estimate.
- Example: Estimating daily revenue of a chole bhature stall.
- Specific: Average revenue per customer.
- Data: Number of customers per day.
- Scale Up: Consider peak vs. non-peak hours and adjust customer count.
Choosing the Right Approach:
- Top-down: Ideal for broad market estimates, requiring good market knowledge.
- Bottom-up: Best for detailed estimates needing data on smaller units.
Starting with the Case
- Demand Side (Most Common): Focus on the consumers (population).
- Example: Estimating market size for a new fitness app.
- Supply Side: Focus on the seller's perspective (metrics).
- Example: Estimating the production capacity of a toy factory.
- Unconventional: Use creative metrics for unique problems.
- Example: Estimating the number of pigeons in a city (area-based approach).
Remember:
Don’t be rigid with these categories. Most guesstimates combine elements from both approaches and consider factors from different perspectives.
Bonus Tip:
Assumptions are inherent in guesstimates. Be clear about your assumptions and explain your reasoning!
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But…
Solving guesstimates without proper knowledge about the relevant data can be very tedious. So, let’s dive into the crucial data we should be aware of while solving guesstimates in the upcoming blogs.
Be sure to solve along with me and point out any mistakes you notice in my solutions!
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Guesstimate Cheat Sheet
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