Classic

Brain Teasers

A1: How many gas stations are there in the US? (Population question)
I live in a town with a population of 30,000. There are six gas stations serving our town (not really,
but six divides nicely into 30). Therefore, I’ll assume that each gas station serves about 5,000
customers. If the population of the US is 300 million, I’ll just divide 300 million by 5,000 and get
60,000 gas stations in the US. If you tried to answer this question based on households or individuals
you would quickly find yourself mired in numerous and unnecessary calculations.

A2: How many garden hoses were sold in the US last year? (Household question)
The population of the US is 300 million people. The average US household is made up of 3 people, so
we are talking about 100 million households. (You always want to work with 100 million
households in the US and 200 million in Europe.)

I’m going to estimate that 50 percent of the households are either suburban or rural. That makes 50
million households. I’ll also assume that 20 percent of those homes are apartments or condos. That
narrows us down to 40 million houses that most likely use a garden hose. Garden hoses are
relatively inexpensive, so people are likely to have a hose in the front and a hose in the backyard.
That makes 80 million hoses. I want to add in another 10 million hoses, which can be found in
nurseries, zoos, and other outdoor facilities. Most of those businesses have at least two hoses.

We are now up to 90 million garden hoses. Hoses aren’t replaced every year. I’d say that they are
replaced every 3 years unless they are run over by a lawn mower or run into the business end of a
dog’s tooth. So we take 90 million hoses, divide that number by 3 and come up with 30 million
garden hoses sold each year.

A3: How many pairs of boxers are sold in the US each year? (Individual question)
I’m going to start by stating some assumptions. I’m going to assume that the population of the US is
320 million, that the life expectancy is 80 years, and that there are the same number of people in
each age group (i.e., there is the exact same number of 3-year-olds as 73-year-olds). So, if you divide
320 million by 80, you get 4 million people per age group. I will also assume a 50/50 split between
men and women. Children ages 0 - 3 mostly wear diapers, and kids ages 4 - 9 mainly wear jockey
style. So we’ll focus on the ages between 10 and 80. That’s 70 years to cover. I’m going to go out on
a limb here and say that only 10% of females ages 10 - 30 own a pair of boxers and, of that group,
each might buy one pair a year.
So:
(2 million females x 20 years) x 10% = 4 million boxers. Males between the ages of 10 and 20 wear
them as a fashion statement, so I’ll assume that 75% of males wear boxers and that they buy 3 pairs
a year (the economical 3-pack).
Add them all together: 4 million + 45 million + 360 million = 409 million pairs of boxer shorts sold
in the US last year.
So:
(2 million males x 10 years) x 75% = 15 million boxers
15 million boxers x 3 pairs = 45 million boxers.
Of males between the ages of 21 and 80 (round off to 60 years), 50% wear boxers and buy or
receive as birthday or holiday gifts 6 pairs (2 sets of 3-packs) a year.
So:
(2 million males x 60 years) x 50% = 60 million males wearing boxers. 60 million x 6 pairs = 360
million pairs of boxers.

A4: How much does a 747 weigh? (“Who thinks this stuff up?” question)
Your guess is as good as mine. Ask questions, then break down the elements and make assumptions.
Are there passengers on board? No. Any baggage? No. Are the fuel tanks full or empty? Full.
Any food or beverages on board? No. Now, just go ahead and calculate the weight of each part of the
plane.

• 8 full fuel tanks: I’ll assume the plane can fly 6,000 miles and uses 10 gallons to the mile. So that’s
60,000 gallons at 2 pounds a gallon equals 120,000 pounds.
• 18 tires: I’ll assume that the tires weigh 200 pounds each — that’s 3,600 pounds.
• 4 engines: I’ll assume 2,500 pounds each, which adds another 10,000 pounds.
• 2 wings: 200 feet long by 30 feet wide is 6,000 square feet, times a square foot weight of 5 pounds
times 2 wings equals 60,000 pounds.
• Interior: 75 rows of seats times 4 feet per row equals 300 feet. Add on the cockpit, bathrooms, etc.
— let’s say around 400 feet long. I assume that the average weight per foot is 10 pounds, which
equals 4,000 pounds.
• The seats: They number, say, 500 and weigh 10 pounds each, so that’s 5,000 pounds.
• Air in the cabin: It’s captured air so we need to add one ton for the air in the cabin — 2,000
pounds.
• The aluminum exterior: It’s pretty thin and lightweight. If the plane is 400 feet long by 25 feet
high, then about 10,000 exterior square feet at 1 pound per foot equals 10,000 pounds.
• Miscellaneous materials: The tail, overhead bins, carpet, stairs, wiring, and bathroom fixtures
add on, say, another 2,000 pounds.
Now you add up the pieces:
120,000 + 3,600 + 10,000 + 60,000 + 4,000 + 5,000 + 2,000 + 2,000 + 10,000 = 216,000, or round
up to 220,000 pounds, or 110 tons



Case in Point Frames (The Ivy Case System)

1, Enter a new market:
--why?
-- How is the industry doing? Whether entering makes good business sence?
Profit? Consumer trends? Competitors? Barries to entry? Risk? Product
differentiation, promising segement
---What is our competencies?
-- If we enter, how? ( start new brand, joint-venture, franchise, acquisition---pros
/cons—cost-benefit analysis)

Logic: 1)Determine why/
2)determine current (how big is the mkt/growth/ consumer segments/tech role/
competitor responses
& future status of this mkt
3)how


Market Entry---
1, Is it realist to enter this market?
To assess, first, mkt size: to calculate the potential mkt size, see whether we could sell
ours products.
Then, barriers? Regulations? Tariff? Mkt too small?

After we enter, how to play the game?
OEM(定点生产)： original equipment manufacture), 富士康
For suppliers, if we could not be primary supplier, how about secondary supplier, which
makes less profit.

2, Industry Analysis
-is it growing? At what rate？
-- main players and their shares
---recent major changes? –new tech, new regulation, new players?
-- consumer trend
---Profitability—margins?

--SUPPLIERS
-- FUTURE (substitutes?)

3, M & A
---why?
Due diligence
---How is the target doing? In good shape?
How is the industry? Target compared with industry?
---How much to pay?
---Exit

4, Develop New Product
--why?
--How is the industry overall? (see No.2)
--How does our product differentiate with other products in the mkt?
--Who are our main competitors and their shares?
--Is there any cannibalization in our own product line?
--R&D cost?
--How we mkt this product?

In a logical order:
Step 1- think about the product: specialty/ patent/substitutes
Step 2- think about our market strategy: affects on exiting product line/cannibalizing/
competitors & shares/barriers to entry
Step 3- think about the consumers: who/how to reach/ retain
Step 4- think about financing: how to fund/afford debt?(interest rate, economy)

5. Pricing Strategy
Step 1: look product: specialty/substitute-price/ R&D cost/ growth cycle of the industry
Step 2: pricing (4 ways)
--- competitive analysis : similar products’ price and cost/substitute
--- cost-based pricing: how much to produce/deliver/educate consumer?
---price-based costing: how much mkt willing to pay?
--- company objective: client’ motive—for profit(higher p) –for mkt share(lower p)
Step 3: supply & demand (draw PQSD graph/our price effect on equilibrium)

6. Growth Strategy
Step1: determine direction: grow a product/division/company?
Step 2: growth of the industry— our rate vs. industry/ our price vs. competitor/ which
segment is most promising ?/can we fund growth?
Step 3: Choose growth strategy (6 ways)
--- increase sales
---increase distribution channel
--- increase product line
--- diversify products and services
--- invest a major mkt compaign
--- acquisition (a competitor/ a company in different industry)

7. Starting a new business
Step1: whether entering the mkt make good business sense?
---industry analysis (competitors & shares/ our product specialty/ barriers):
Step2: once determined to significant barriers, take a VC view)
---management ( who/key competencies)
---our product(special/tech/disadvantages) & mkt strategy
---consumers (who/ how to approach/ possible online?/retain?)
---distribution channels and financing( fund/fund allocation/debt)

8. Competitive Response
Step1: Competitive analysis
--- What is their product compared with us? (difference/ changes)
---Any other competitors picks up mkt share?
Responses:
Acquire the competitor / or another player in the same mkt
Merge with the competitor- create advantage/powerful
Copy the competitor
Increase our product & profile with mkt campaign/ PR
My thoughts: control cost/ earn loyalty-similar/ Better- improve our product?

9. Increase Sales
--- sales forces training?
--- mkt campaign & promotion
--- reach more consumers( by region, more distribution channel; by methods e.g. online)
--- more products to meet demand trend?

Step1: Increase Sales does not mean increase profit!!!
How are we compared with competitors &their shares and price & their mkt
&product development?/ compared with industry?
Step 2: Increasing sales strategy (4ways)
---Increase volume: getting more consumers/ more distribution channel/ mkt
---increase price
--- increase amount of each sale: consumer buy more
--- create seasonal balance : sell flowers in spring, pumpkins in autumn

10. Reducing Costs
---current cost structure/
--- identify the outline cost & why
--- Benchmark the competitors
--- Any labor saving tech
Cost Structure: fixed/variable/overheads
Internal: raw materials, suppliers, labor(union wages), economy of scale,
External: rent/ shipping& delivery / economy/ interest rate/ gov. regulations
Link: 21 ways to cut cost (labor/ production/ finance)

11. Improving Bottom line- Profits
P = E (R-C) M
E: economy, M: mkt or industry ---Always look the external factors first!!!

Step 1: Use P=E(R-C)M, start with external: whether its industry wide problem or us?
Step 2: R & C
R--What are the main rev streams & % and how they change (why) overtime? Know trends!
C—cost structure/change over time/ Any outlined? Why/ Benchmark with competitors
Step 3: Whether you want to pump up the volume
--expand to new areas/ increase sales force/ mkt/reduce price/ costumer services


12. Turnarounds
Step 1: Gather info on company--- what’s failing: product, management, bad econ
Step 2: Info on industry--- competitors facing same prob?
Other facts: can we access capital? Public or private held?
Step 3: actions
--- get info: review products/services/employees/ finance (high debt)
--- Determine short-term & long-term company goals
--- Reassure clients, suppliers, distributors
--- Prioritize goal and get small success ASAP






Universal Frameworks
1. Porter’s Five Forces:
Competitive analysis in an industry
1, The threat of new potential entrants
2, Intensity of existing rival among current competitors
3, Pressure from substitutes
4, Bargain power of buyers
5, Bargain power of suppliers

2. 4 Cs
Marketing
Company ----- Internal ( Financial analysis/ Value chain/ KeySuccessFactors)
Overlapped with 7 S
----- External
General Trends: 6 factors
supplydemand/politics/demographics/technology/ socio-culture/macroeconomics
Industry Analysis : Porters 5 forces
Consumer
Competition
Collaboration


3. 4 Ps
Marketing
Product/ Promotion/Price/Place


4. Value Chain Analysis
Internal analysis of a company

Raw materials---Operations (labour/tech/capital utilization/ cycle)- Delivery
(warehouse and distribution channels) – Marketing & Sales (Costumer Acquisition) –
Service (Costumer Retention)

5. Seven S
A company’s organizational components

6. Barriers to enter a market
capital requirements/ access to distribution channels/ proprietary tech / policy

7. 21 ways to cut cost
Labor:
Production:
Finance:

8. SPSG
market segmentation & Size/Profitablity/Share/Growth



Universal if Scenarios

1, Sales
--- if S is flat, profit taking header: always start with R until understands R before
investigate C
--- if S is flat, mkt share constant: industry’s S flat, competitors may face same
--- if S is declining: 1)Mkt is mature? / Not meeting overall demand? 2) Substitutes?
--- if S and mkt share are increasing but P decrease: 1) Mkt overall shrinking? 2) Price
dropping? 3) Cost too high? 4)Not due to cost, then product mix or margins

2, Profits
--- if P declines due to Rev. drop: focus on Marketing & distribution issues
--- if P declines due to cost rising: focus on Operational & Financial issues (COGS, labour,
rent, mkting)
--- if P declines, but Rev up: change in cost?/additional expense?/ price low?/product
mix/ consumer need

Whenever asked about P&L strategy, write: 1)revenue based strategy 2)cost based strategy



3, Product
--- P is in emerging stage: focus on R&D, competition, pricing
--- P is in growth: focus on mkting & competition
--- P is in mature: focus on manufacturing, costs, competition
--- P is in decline: define niche mkt, competitors play, exit strategy

4, Pricing
lower price – volume rise----beyond full capacity--- cost shoot up/employee overtime—
profit suffer
Prices are stable when 3 conditions are met:
Same growth rate for competitors/ price is of equal value/ price are paralleling cost
Price war is detrimental


Concepts:
Distributor:
How do they make money?
- buy low price products from manufacturers, sell a mark-up price to retailers;
- Services: provide, distribute, storage,

Cable Company:
Make money by subscription fees for their exclusive channels.
Competitors: other cables firms & local TV stations (normally free)

Auto Service Chain:
Major service they provide: of-the-shelf car parts & garage mechanical service

Yellow Pages:
Make money by: advertisement, listing fee, page sales

After-Market:
Merchandise: any market where consumers buy one product are likely to buy a related
follow on product
Automobile: the non-factory parts of the vehicles, like accessories and upgrades

WACC :
Weighted Average Cost of Capital
WACC = equity/(equity+debt)*required return on equity + debt/(equity+debt)*required return on
debt *(1-tax rate)
The return on Investment should higher than WACC to make a profit

Optical fiber(光纤):
Nealy a commodity : so consumer buy not by brand, price is in line with competition

Consumer Packaged Goods (CPG):
A range of household products: soaps, pet care, snacks suck as P&G, Uniliver
Product mix and brand management are critical to CPGs

Experience Curve
Generally the production of any good or service shows the experience curve effect. Each
time cumulative volume doubles, value added costs (including administration, marketing,
distribution, and manufacturing) fall by a constant percentage. Learning curve, or learning
effect.
Confusion with “Economics of Scale”

Price elasticity of Demand
The responsiveness of the quantity of a good to the change of price

ISP (Internet Service Provider)




Skills & Manners:

1, Drive the case yourself (Confident & Relax)
 Be in charge—set the plan---ask questions---make assertions—synthesize conclusions

2, Choosing unlimited frameworks (open all doors)

3, Presenting Properly (no shaking, timidity)

4, Build a Logic path (use logic tree, CTC Chp.4)

5, Consistently end the case with strong conclusion and still have 5-10 min left

6, Data driven (not let experience overwhelmed the facts)


7. Process Elimination: whatever does not make sense in the framework, u give it up, at the
same time you need to explain to the interviewer about the elimination and reason.

The less the interviewee thinks the case as a game or puzzle, and the more the interviewee
imagine the case as a real business challenge that (s)he might face as a manager or
consultant, the better off (s)he will be.

8. Never provide a conclusion without data support



Presenting a Case

Beginning:

Example of excellent beginning:
1) Since we’re focusing on profit, I’d naturally like to understand what’s happening with
your client in the areas of revenue and costs. My hunch is that competitors in this industry
tend to differentiate more on price and less on costs so I’d like to start with revenue. I
would also like to talk a little more about the industry barriers and competitor landscape.
To get started do you have any information on total sales for the last couple of years?”

2) Given that Firm X has experienced a decline in profitability, I am going to begin my
evaluation by investigating the various elements that make up profit, namely revenues and
costs (framework). Since you mentioned that Firm X has seen its product mix change over
the past year, I will begin by analyzing the firm’s revenues, focusing first on pricing
(prioritization). It could be that a decline in Firm X.s average price is causing its profits to
suffer (hypothesis). If that turns out not to be the case, then I will look at changes in the
company’s cost structure.

Framework Application:

For instance, it is a very bad idea to say, I’m going to use the 4 Cs framework for this case.
Instead, the candidate should say something to the effect of:
In order to understand whether or not the acquisition of Firm B by Firm A is a good idea, I’m
going to examine Firms A and B in terms of their competencies and cost structures (Company),
get a sense of the existing players in the market (Competitors and Collaborators), and
understand who they sell to (Customers). Uncovering this information will help me to
determine whether or not enough strategic synergies exist between Firm A and B to justify an
acquisition.

Kellog’s 5 Step Case Approach

Step 1: case presentation and clarifying questions
Listening carefully,
Ask clarifying questions,
Write down thoughts after permission, normally less than 1 min

Step 2: Framework development, Issue prioritization and Hypothesis formation
Your initial framework should be a broad sketch, not a detailed blueprint, of how you
intend to go about solving the case problem. The details of your analysis should evolve
interactively with the interviewer as you progress through the interview.

Given that your interview time is limited, it is important to prioritize the issues you will
investigate in the case.

Based on the information you have received, and the framework you have developed, you
should formulate an initial hypothesis about the case problem you are evaluating. In the
parlance of case interviews, a hypothesis is what you believe to be the central issue of the
case, or the solution to it.

After you have developed your analytical framework, prioritized potential solution paths,
and formulated your initial hypothesis, the next step is to articulate them to the
interviewer

Step 3: Articulation
Demonstrate structural, logical and thoughtful process, with beginnings in Examples

e.g. Given that Firm X has experienced a decline in profitability, I am going to begin my evaluation by
investigating the various elements that make up profit, namely revenues and costs (framework). Since
you mentioned that Firm X has seen its product mix change over the past year, I will begin by
analyzing the firm’s revenues, focusing first on pricing (prioritization). It could be that a decline in
Firm X.s average price is causing its profits to suffer (hypothesis). If that turns out not to be the case,
then I will look at changes in the company’s cost structure.

Having articulated your framework and initial hypothesis, you are ready to move into the
analysis phase, which should be the bulk of the interview.

Graph, verbalize and illustrate calculation to interviewer, do not leave them wondering.
When doing calculations, tell the interviewer everything that you.re doing.

Step 4: Ask questions, Gather info and test hypothesis

If the initial hypo is wrong, use a transferring paragraph to move on to the next hypo

e.g. Based on what I.ve learned so far, it appears as though Firm X.s product mix and revenues are not
the most important cause of its declining profitability. So now I’ll move on to investigate the firm’s
costs (transition to next branch of the framework). You mentioned that Firm X recently signed a new
agreement with its unions, so I’ll start by examining its labor costs. It could be that an unfavorable
union contract has inflated the firm’s labor expenses and negatively impacted its profits (new
hypothesis).

Step 5: Summary and Recommendation
Try not to recap the path of analysis that you have just performed. Instead, draw on key
facts to give a clear answer to the central question of the case.
For example, I do not recommend that the firm enter the market, given that the industry in
question is characterized by low barriers to entry, intense rivalry, and significant supplier
power.

You might also add next steps or additional considerations, as appropriate, to make your
analysis more balanced and thorough.
For example, based on the discussion that we had today, I would not recommend at this point
that the firm enter the market. However, I would also want to know more about the
regulatory trends in the market, and about the industry’s distribution channel mix, before
making a final decision in a real situation.

Always communicate with the interviewer about your though process!!
Rather than saying: Could you tell me about the company’s products? A better approach is to
say:
I know that product mix can often affect profitability. I’d like to explore this issue with respect
to Company A. I’d like to know, for instance, what products the company offers and if this has
changed over the last few years.

Notes:
Many interviewees divide their paper into three sections. In the first section, they note facts
about the situation (both those given in the initial situation explanation as well as facts
uncovered through questions). In section two, analysis is performed, and in section three
key findings/conclusions are noted (this section is especially helpful when the candidate is
asked to sum up at the close of the case). Note: this does not have to all occur on the same
page. feel free to use multiple sheets of paper; the clearer your actions are to the
interviewer, the better.

Questions for Interviewer:
Questions you ask should strike a balance between showing you are informed and showing
you would like more information.
• What project are you working on now, what are you doing and what do you find
interesting about that?
• What has the highlight and low-point been for you so far?
• How much choice do people have as to what projects they work on or who they work with?
• Can you give me some representative example of recent projects that are typical of what I
can expect to be staffed on? What exactly would my role be?
• What is the training and professional development program?
• How much time should I expect to spend at the client / in the office?



Common Case Processing Problems
1, getting “stuck”
NEVER GIVE UP in diving into the answers, just keep repositioning towards the goal!!
To avoid:
1). Make sure understand client’s problem and desired outcome
2). Try the next most direct new path
3). Go back step by step, or return to framework
4). Don’t be silent, verbalize your thoughts, always!!

2, Run math
No matter how easy it is, better to have an equation on paper—remove doubt of feeler

3, Estimate Questions/ Brain Teaser


Kellog’s 2 Frequent Case Types


1. Industry Analysis
Usually evaluate the industry structure or desirability

---What is the industry structure (competitive, oligopoly, monopoly)
---What is the relevant market conditions ( SPSG- size/profitability/shares/growth)


2. Profit Improvement
p = Revenues - Costs = [(Price - Variable costs) x Quantity] - Fixed costs
Breakeven quantity = FC/(Price - Variable cost)





 Numbers:
World population: 7 billion
China: 1.3 billion
U.S.: 300 million
India: 1.2 billion
Canada: 30 million
Europe: 700 million
NYC: 8 million



Philosophy:
Passion is beyond interest.
You are not sure its destiny if you don’t try the alternatives
Nothing is impossible- just more of a challenge




Good luck, every one.