When a Hypothesis Isn't Practical

Question:

First of all thank you for all your free material which I find extremely useful.

I have an interview coming up with McKinsey. Upon reading all your material, I have only one question that is really bothering me.

From what I can tell, regardless of the cases we will receive and the frameworks we use, it is best to be hypothesis driven. I fully understand your example regarding the declining profits situation, but I cannot understand how can we be hypothesis driven in a pure strategy case, like a new market entry.

My Response:

Practically speaking, you can't really have a hypothesis at the start of a new market entry case. Generally, as you gather some data and can form a hypothesis - typically in the middle of the case - that then drives the rest of your analysis.

In real life, when we used to work on a new client project of this nature, the first week or two was just gathering some basic facts - market size, growth by product line, customer segment, etc... to just get a lay of the land.

Then we'd usually uncover some interesting info worth exploring further - say an emerging, but underserved, customer need. So we'd form the hypothesis that the client could enter this market by serving that need, and structure out analysis accordingly to figure out if that was likely to be true or not.

I suppose technically you could say my hypothesis is that the client should enter the market - and for that hypothesis to be true, the market would have to be attract, the client would need to have some competitive advantage relevant to customers, competitors must have a weakness the client can exploit... and that would lead you into the business situation framework looking at customers, competitors, client, etc...

When I interviewed I never really stated a hypothesis at the outset. I usually just said, well to determine if entering the market is a good idea, we'd have to look at 4 major areas - and then just segue into the business situation framework.

If I did the customer analysis and saw say a ton of growth in a few segments, new customer needs not yet being met, I may say that my hypothesis is that this looks like an attractive opportunity so far based on customer info, but for this to remain a good opportunity we'd want to see if the company has the capabilities to serve this market and that an opening exists in the competitive landscape, so I'd like to examine those two areas next.

When I interviewed, I wasn't actually familiar with term hypothesis and I don't think I actually ever used that particular phrase. However, I was definitely hypothesis driven, but more implicitly than explicitly. So I would think outloud and say hey, that seems like a good idea so far.... I'd bet that X is true, and would like to get some data to see if that's the case (e.g., a hypothesis and a request for data to validate the hypothesis.)

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