Being Brave Enough To Make Smart Guesses

Enrico Fermi, Nobel Prize Winner, Physics (1938)

For the past few months I’ve been researching the music industry as a colleague and myself are toying with some ideas we have in that area. Neither of us have worked professionally in that industry although between us we have alot of experience as ‘users’.

It’s an interesting area as there’s alot of really good free stuff provided by volunteers that sits alongside that from the conventional commercial players.

One aspect of what we’re doing is coming up with a viable business model as well as (importantly) doing the research that supports it.

As with the hi-tech businesses I’m more used to, getting good research data is often quite hard and guesstimates are required. The problem is that quite often, in the absence of market data, random and highly ambitious guesses are made or, even worse, the whole area is dismissed as unimportant via ‘that’ll sort itself out’.

So when I read Seth Godin’s post today on ‘How to make money online‘ it rang quite a few bells as well as giving me a wake-up call! He also referred to his previous publication, The Bootstrapper’s Bible.

Reading this through, I came across these extracts that discuss ‘smart guesses’:

When I interview people for jobs, I always ask, “How many gas stations do you think there are in the United States?” Not because I care how many gas stations there are, but because it gives me an insight into how people solve problems.

The vast majority of people who answer this question (Iʼve asked it more than 1,000 times over the years) start their answer with, “Letʼs see…there are 50 states.” They then go on to analyze their town, figure out how many gas stations there are, and multiply from there.

While this is better than some approaches, it is a ridiculous way to answer the question or to plan a business. North Dakota is not like Michigan! And your life, your neighborhood, your friends, and your needs are not like everyone elseʼs. The best way to answer the question is to start with a scalable metric — either cars (how many cars lead to how many stations) or, surprisingly, how many big gas companies there are. Either one will get you to a quick and defensible analysis.
….

Remember when I said I like to ask people how many gas stations they think there are in the United States? Well, the worst answer (and the main reason I ask) is, “I donʼt know.”

My response is, “I know you donʼt know. I want you to make a smart guess.”

Nine times out of ten, people refuse, in one way or another, to guess. They donʼt want to be wrong.

Most people hate to be wrong. They hate to make a statement (or, even worse, to write something down) and then be proved wrong. They donʼt like to buy the wrong car, vote for the wrong candidate, wear the wrong shoes.

Instead of starting the business that makes stuff for people just like you, do some real re-search. Go to the library. Donʼt invent something that requires you to have a handle on the purchasing habits, the psychographics, and the changing demographics of the whole country. Instead, find a thriving industry and emulate and improve on the market leader. Sheʼs already done your homework for you.

If you’ve read this far, you might be wondering why there’s a photo of a physicist who won a prize in the 1930s at the top of the post. The reason is that Fermi had an exceptional ability to make (very) smart guesses and consequently this area has become known as asking Fermi Questions (or solving Fermi Problems). These are associated with the back-of-the-envelope calculations which are probably much better known. It’s a fascinating area and it’s surprising it’s not used more, especially in business. It’ll obviously be ‘sloppier’ but that’s not the point, as above.

In case you’re interested, there’s a fairly recent book on the subject – Guesstimation: Solving the World’s Problems on the Back of a Cocktail Napkin.

Picture credit: here.

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