There is a common Myth that Profitability cases are easier. Well, for beginners, that’s may make sense, but I would argue that Profitability cases can be really tricky and candidates without good foundation will make about the same level of mistakes regardless of type of cases given.
The profitability case we are about to watch will show that. It’s a very unconventional
Profitability. It started out like a typical one but getting more and more tricky toward the end.
The candidate is fairly good in term of business intuition, but the Tips & Techniques aspect needs a lot of fine tune! Now let’s go ahead and get started!
How are you doing today?
Great! How are you?
I am good. It’s always exciting to do cases. So are you ready for it!
Ok. So your client today is an internet music broadcasting company. For simplicity reason, let’s call them Pandora!
Pandora broadcast music through couple of channels: the website, mobile apps and built-in car radio.
In term of revenue model, Pandora gains case either from selling ads to partners or collecting royalty from listeners for the free-ad version.
Pandora is very large company in terms of market share, but they have been losing money. The company just raised a big amount of cash through IPO.
Investors believe in the company’s future and its stocks is doing well.
However, the management would like to grow with a good foundation.
Pandora has to make profit soon! How would you help your client?
First, may I have some questions to clarify the situation?
Yes, go ahead!
So the client’s business model is to deliver music to customers through three channels: internet website, mobile apps and built-in car radio.
And the client capitalizes by inserting ads while playing music or from the royalty fees from customers?
So vendors or partners, I should say, will pay the company for inserted ads, right?
Sometimes, the amount will be calculated based on the number of displayed ads but sometimes it is calculated as a certain percentage of the revenue that our partners generate through the ads.
Ok I see… And this is a very large company but they aren’t making money? And the CEO wants to at least break-even?
My pitch would sound like this:
“That’s a very interesting problem and I am happy to get the chance to solve it. First of all let me tell you my understanding of the case context and key objectives. Then I would like to ask a few clarifying questions regarding a few terminology and concepts. Both of these are to make sure that I will be solving the right problem.
So here is my understanding of the case: The client is ABC. Here are some DEF facts about the situation we just talked about. And the key case question is XYZ.
Does that correctly and adequately summarize the case?”
Once the interviewer confirms, I would move to the clarification part as follows: “Now I would like to ask a few clarification questions. There are three of them: No 1, … No 2, … and No 3, …”
You may see above pitch as obvious but that’s a perfect example of how you should open any cases. Every details matters. We will point out those details in just a second. But before we do that, it’s actually very helpful if you can go back, listen carefully to the above pitch, and try to point out the great components yourselves. Only after that, go back to this point and learn it all together.
Alright, let’s break down the perfect opening.
First of all, you hear me say: “That’s a very interesting problem and I am happy to get a chance to solve it”. This seems trivial but very beneficial in multiple ways:
1. I bought myself a couple of seconds to calm down and get focused.
2. By nature, we as human unconsciously like those who give us compliments. Nothing better than opening the case with a modest compliment to the interviewer.
And (c) I showed my great attitude towards the case, which the interviewer would assume is the same for real future consulting business problems.
You should do that in your interviews too. Say it and accompany it with the best smile you can give. It shows that you are not afraid of any problems. In fact, you love them and you are always ready for them.
Secondly, I did what I refer to as the “map habit”, which is to always say what you are about to do and then do it. Just like somebody in the car showing the drivers the route before cruising on the road. The driver would love it. This is where I said: “Let me tell you my understanding of the case context and key objectives. Then ABC…”.
Third, right at the beginning of the case, I try to be crystal clear and easy to follow. I don’t let the interviewer confused between playing the case vs. asking clarification questions. I distinguish between the two really carefully. This habit probably doesn’t change the outcome of how the case goes that much, but it certainly significantly changes the impression the interviewer has of me.
Fourth, in playing back the case, each person would have a different way to re-phrase. But there are three buckets to always include:
1. Who is the client
2. The facts regarding the client and the situation and (c) The key question and the objective of the case.
Fifth, after playing the case context and objectives, I pause for a second and ALIGN with the interviewer: “Does it correctly and adequately summarize the case?”. This is a habit that every consulting manager loves for young consultants to do. Nobody wants first-year folks to spend weeks of passion and hard-work building an excel model that the team can’t use. This habit is extensively taught at McKinsey, Bain and BCG, so therefore interviewers would love somebody that exhibits this habit often in case interview.
Lastly, when asking clarification questions, you hear me number them very carefully to create the strong impression that I am very organized and structured. I said I have three clarifying questions. Then I number them as I go through each. No.1, No.2, and No.3.
Sometimes, during interviews it’s hard to know exactly how many items you are going to get. One way is to take timeout often to carefully plan your pitch. If this is not possible in certain situations, you may skip telling how many items you have; but you should definitely still number your question: No.1, No.2; and so on.
Yeah… The company needs to turn that over within 12 months. Otherwise, the CEO worries that the stock price may be hurt.
Ok… So solutions… if any… have to work within… 12 months?
I see… Can I have a minute to gather my thoughts?
Sure! Go ahead.
Though this is not very common as not every interviewer is that generous in giving out data. But this is a habit management consultants have to have every day when talking to experts, clients, or key stakeholders. The key is to get the most data and insights out of every interview and this is the type of open-ended question every consultant asks several times a day.
To show of this habit in a case interview is very good!
Candidate: …(about 70 seconds later)…
Ok. So clearly that the objective here is to have a break-even net income within 12 months. My plan is to look at the revenue and the cost. Compare that with historical data and data (if available) from the competitors. Based on comparisons, I can draw conclusions as to why the company is losing money and propose solutions to turn over the company net loss. Does that sound like a fair approach to you?
There are three things I would like you to pay attention to:
First, it took the candidate up to 72 seconds to “gather his thoughts”. This is a little too long in a case interview. I intentionally leave the 72 seconds of silence in the recording so you get an idea of how long that is in real situations. But it’s worth-noting here is not only that. While in some very complicated and weird cases, it’s ok to take that long to really think and gather ideas. In this case, the approach as proposed by the candidate is very simple. For this very approach, I think no more than 15 to 20 seconds should be used.
No.2, with that said, I have told I really like the fact that this candidate exhibits the “map” habit. Before going straight to the approach he draws the overall approach first.
No.3. You also see here that the candidate tried to align the approach with me by asking my thoughts on it. As I just said on the previous comment, this is a great habit to have. Not only does it help reduce chance of going into the wrong direction in case interviews, but it also creates a good impression. Consulting interviewers love people doing it often!
Interviewer: Fair enough
Candidate: Thanks! So can I have information on the company’s revenue, any data on the revenue?
Here we see a not really bad response that for sure could be much better. The candidate was going into the first branch of the analysis which is Revenue. I would fix this in 3 aspects:
First, even though we just talked about the overall approach, it’s still better to briefly set up the issue tree first then clearly note that you are going into one branch.
Second, this is not a must, but I always try to make my hypothesis as explicitly clear as possible. Here the candidate just implicitly made a hypothesis that the problem is on the revenue side. The best way to show our hypothesis-driven mindset is to explicitly say it.
Third, you hear this a ton of times in our End-to-End program but I am going to repeat it again and again. It is better to show the habit of aligning here too. Don’t just go into revenue, before doing that, give the interviewer a chance to agree or to actually guide you to Cost.
So, summarizing the above insights, my pitch would sound something like this:
“So as we just discussed, a profit problem is either caused by revenue or by cost. Unless you would like to go into cost first, let’s hypothesize that the problem is on revenue side. I would like to look deeper into Revenue. Do we have any data on the revenue?”
And while saying this, you should literally draw an issue tree and point to each as you speak.
Interviewer: Yes. The 2013 revenue was $425 million. The year before was $275 million.
Candidate: …(silent 2 seconds)… And do we have any data on the revenue of competitors?
There is an interesting case interview tip I want to point out here. Notice how the candidate responds after receiving two data points from me. He went straight into the next question without at least acknowledging the data received and also without briefly analyzing it.
I am glad that the candidate makes this mistakes… well, not glad for him but for the greater audience of this program. I would like to introduce to you the perfect habit of what you should react and do every time you have any piece of data during case interviews. So three things you need to do:
Step 1: Say … that’s an interesting piece of data. This helps the interviewer acknowledge that you have received and understand the data. This also buys you a little time. And furthermore, it’s always a good thing to give out modest compliments to the interviewer.
Step 2: Describe the data, how it looks, is there any special noteworthy trend? In this case, we should point out that revenue actually grew by more than 50%.
Also notice here that I immediately quantified the difference in specific quantitative measurement (in this case, percentage). Saying revenue went up is good, but it’s great to be able to say revenue went up by more than 50%.
Step 3: Link the trend identified back to the original case question and the hypothesis you have. Does it prove, disprove, or open up new investigation to really test the hypothesis? In this case, this data piece actually opened up new investigating areas to test the hypothesis that the bottleneck is within revenue.
My sample pitch for this step 3 would sound like this: “It’s interesting that revenue went up quite a bit. However, to be able to fully reject our hypothesis on the revenue, I would like to compare our revenue to that of the competitors as well.”
Then only at this point, after going through 3 steps above, I ask for the competitors’ revenue like the candidate did.
Notice here that I ended up asking the same question the candidate did. This shows that the candidate does have a good intuition and thought process. It’s just that he did all of these implicitly on his head.
In consulting case interview, it’s always good to do everything as explicitly as possible.
Not only is it easier to follow but it helps show your great thought process.
Ok… Does it mean the other companies are losing money as well?
Well yes. Most of our competitors are losing money. Some break even.
Interesting! Probably it’s an industry-wide problem, and as the market leader, we have got to solve it first.
…(silent for 4 seconds)…
Ok. I will stick to the approach. I will dig… I will go deeper into revenue then.