A hypothesis is an educated guess on the answer to the case based on the data and information that you have gathered so far.

 

Every single consulting firm uses a hypothesis-driven approach when working on projects to solve their clients’ business problems. Therefore, you should also use a hypothesis-driven approach when solving your case interviews.

 

Having a hypothesis-driven approach is critical to solving a case efficiently. A hypothesis ensures that you are prioritizing the most important issues or questions. It also helps you proactively lead the direction of the case in candidate-led case interviews.

 

If you can master the practice of developing and refining your hypothesis, you will demonstrate to consulting firms that you have the skills needed to be a successful consultant. You’ll be much more likely to pass your case interviews and receive consulting job offers.

 

In this article, we’ll cover:

• Why you should always use a hypothesis-driven approach in your case interviews

 

• When you should state your hypothesis during a case interview

 

• How specific or broad your hypothesis needs to be

 

• What to do if your hypothesis is wrong

 

• What to do if your hypothesis is right

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Why You Should Always Use a Hypothesis in Case Interviews

 

There are many reasons why you should use a hypothesis in a case interview.

 

A hypothesis helps you focus on relevant issues or questions

 

By having a hypothesis, you have an idea of what questions or issues will be relevant to supporting or rejecting your hypothesis. Therefore, you’ll be spending your time answering questions and conducting analyses that are relevant to getting you closer to solving the case.

 

If a question or analysis does not help you refine your hypothesis, it is likely not relevant to the case. Without a hypothesis, you’ll have a harder time determining what questions or issues are relevant.

 

A hypothesis helps you prioritize your time

 

In a case interview, you won’t have time to answer every question that you can think of. By having a hypothesis, you can focus your time and efforts on answering questions that will help you refine your hypothesis. 

 

This ensures that all of your time is spent on answering the most important questions of the case. Answering questions that have little impact on your hypothesis should be deprioritized.

 

A hypothesis helps you steer the direction of the case

 

With a hypothesis, you’ll always have some kind of idea of what to do next. You can propose answering a question or performing an analysis that would strengthen the support for your hypothesis. You could also propose a next step that would refine your hypothesis and make it more specific.

 

A hypothesis helps you develop your ultimate recommendation

 

Throughout the case, your hypothesis is basically a work in progress version of your recommendation. Once you have gathered enough information to support your hypothesis with data and evidence, your hypothesis becomes your recommendation at the end of the case.

 

By developing a hypothesis early in the case and continuing to refine it, you are getting a head start on developing your recommendation.  

 

Example of a non-hypothesis driven approach

 

Let’s see how much of a difference a hypothesis makes when going through a case interview. We’ll start with an example of a candidate solving a case without a hypothesis.

 

Interviewer: Our client is an airline company that services the United States. They have recently been experiencing a decline in profits. Your task for this case is to identify what is causing the decline in profits and what our client should do to address this issue.

 

Candidate: Has customer demand for travel decreased over this time?

 

Interviewer: This does not seem to be the case. Customer demand for travel has actually slightly increased over this time period.

 

Candidate: That’s interesting. Are there new competitors that have entered the market, thus taking market share from our client?

 

Interviewer: There are no major competitors that have entered the market.

 

Candidate: Have our fuel costs gone up?

 

Interviewer: Prices for fuel have been steady over the past few years.

 

Candidate: Perhaps demand for business travel has declined?

 

Interviewer: Yes, we are seeing a decline in business travelers. Let me share with you this exhibit…

 

Notice how unorganized the candidate’s approach is. It almost feels like the candidate is blindly guessing at what the cause of the decline in profits is. They ask a variety of different questions related to customer demand, competition, fuel costs, and business travel.

 

The candidate was lucky to eventually guess correctly what was causing the decline in profits. However, if business travel was not the answer, who knows how long it would take for the candidate to finally end up going down the right direction in this case.

 

Example of a hypothesis driven approach

 

Let’s look at how differently the case would proceed if the candidate had instead used a hypothesis-driven approach.

 

Interviewer: Our client is an airline company that services the United States. They have recently been experiencing a decline in profits. Your task for this case is to identify what is causing the decline in profits and what our client should do to address this issue.

 

Candidate: A decline in profits is either due to a decrease in revenues, an increase in costs, or both. Perhaps the client’s costs have gone up. Do we have any information on how costs have changed over this time period?

 

Interviewer: Costs have remained flat during this time period.

 

Candidate: Okay, so an increase in costs is not what is driving a decline in profits. Therefore, the decline in profits is probably driven by a decrease in revenues. Do we have any information on how revenues have changed over this period?

 

Interviewer: Yes, revenues have gone down. What else would you like to know?

 

Candidate: Revenues are driven by quantity of tickets sold and price per ticket. Perhaps our client is selling fewer tickets. Do we have information on this?

 

Interviewer: There are two types of tickets, economy class and business class. Sales of economy tickets have been flat, but sales of business class tickets have gone down.

 

Candidate: I see. It seems that a decline in business class ticket sales is causing a decline in profits. I’d like to understand why business class ticket sales have declined. First, it’d be helpful to know whether this is an industry-wide problem or a company-specific problem. Have competitors also seen a decline in business class ticket sales?

 

Interviewer: Let me share with you this exhibit…

 

Notice that by developing a hypothesis from the beginning, the candidate is able to systematically tackle this case. Instead of blindly asking questions, the candidate methodically asks questions to support or reject their hypothesis.

 

When the candidate’s initial hypothesis that costs have increased was incorrect, the candidate quickly revised their hypothesis and continued testing it.

 

Regardless of whether or not the candidate’s hypothesis was correct, each hypothesis brought the candidate closer to the actual answer.

 

When to State Your Hypothesis in a Case Interview

 

You should try to state your hypothesis as early as you can in a case interview. Typically, candidates state their hypotheses after presenting their case framework to the interviewer and before proposing which area of their framework to start in.

 

Interviewer: Our client, Apple, is looking to enter the gaming computer market. Should they enter?

 

Candidate: Would you mind if I take a moment to develop a structure to tackle this question?

 

Interviewer: Sure, go ahead.

 

Candidate: To determine whether or not Apple should enter the gaming market, there are four areas I’d like to look into. 

 

First, I’d like to look at the gaming computer market attractiveness to see if it is an attractive market to enter. What is the market size and growth rate?

 

Second, I’d like to look into the competitive landscape to determine if Apple would be able to capture meaningful market share. Who are the competitors and how strong are they?

 

Third, I’d like to look at Apple’s capabilities to determine if they could successfully produce and launch a gaming computer product. Does Apple have the manufacturing capabilities and design expertise?

 

Finally, I’d like to look at expected profitability. What are expected revenues and costs from entering this market?

 

My initial thoughts are that Apple should enter the market because it is likely a large, growing market with decent profit margins. However, I need to confirm whether or not this is true. Do we have further information on the market size or growth rate of the gaming computer market?

 

Interviewer: Let me share with you this exhibit…

 

Sometimes, you won’t have enough data or information to even make a hypothesis. In these circumstances, you should first explicitly state to the interviewer that you do not have sufficient information to make a well-informed hypothesis. Then, state what information you would first need to know to develop a reasonable hypothesis.

 

This way, you can demonstrate to the interviewer that you would like to use a hypothesis-driven approach without forcing yourself to make an arbitrary hypothesis.

 

Once you have gathered further information on the case, you should make a hypothesis as early as possible.

 

Interviewer: Our client, Coca-Cola, is looking to launch a new drink product. What type of product should they launch?

 

Candidate: There are many different types of drink products such as soft drinks, teas, coffees, fruit juices, and alcoholic beverages. To better narrow down what type of product Coca-Cola should launch, I’d like to first understand what Coca-Cola’s goals are for launching this product.

 

Interviewer: Coca-Cola is looking to diversify its revenue streams by expanding into drink categories that are growing rapidly that Coca-Cola does not have a presence in.

 

Candidate: I do know that healthy drink beverages is a small, but rapidly growing segment. This could be a potential market. However, to be more thorough, I’d like to look at all of the drink categories that Coca-Cola does not have a presence in and compare each categories’ growth rates, average profit margins, and potential synergies with Coca-Cola’s existing capabilities.

 

Interviewer: Let me share with you this exhibit…

 

Candidate: From looking at this exhibit, it seems that low-calorie alcoholic beverages is the fastest grown segment with the highest margins. There is a reasonable level of production synergies Coca-Cola can take advantage. This seems like an attractive product to launch. 

 

To confirm my hypothesis, I’d like to see whether Coca-Cola could capture meaningful market share by looking at the competitive landscape. How many competitors are there and how much market share do they each have?

 

Interviewer: Let me share with you this exhibit…

 

How Specific Your Case Interview Hypothesis Needs to Be

 

In general, your hypotheses near the beginning of the case will be broad while your hypotheses near the end of the case will be more specific. This makes sense because your hypothesis becomes more and more refined and focused as the case goes on.

 

Each time that you test your hypothesis, you should be getting slightly closer to the answer. In each of the previous two examples, notice how the hypothesis gets much more specific as the case progresses.

 

For example, if you are dealing with a profitability case, the following hypotheses would be too specific to state as your first hypothesis:
 

• The decline in profits could be driven by the recent trade embargo between the United States and China

 

• The decline in profits could be driven by a new competitor that has entered the market that is taking market share from our client by charging lower prices

 

• The decline in profits could be driven by an increase in costs due to rising foreign currency exchange rates

 

These are specific hypotheses that are more appropriate near the end of the case interview if the information and data suggests these possibilities.

 

Conversely, the following hypotheses would be too broad to state near the end of the case interview:
 

• The decline in profits is due to a decline in revenue

 

• The decline in profits is due to an increase in costs

 

These are broad hypotheses that should have been used near the beginning of the case interview as a starting point to narrow down the answer.

 

What to Do if Your Case Interview Hypothesis is Wrong

 

If your hypothesis is completely wrong, do not worry. This is not a reflection of your case interview capabilities or skills. Even the best case interview candidates will get their initial hypothesis wrong about 50% of the time.

 

If your hypothesis is wrong, you will need to develop another hypothesis. Most likely, the direction of the case that you are going down is going to be a dead end. Therefore, you need to be flexible and adaptable in developing a new hypothesis and picking a new direction of the case to pursue.

 

Here is an example of what this might look like: 

 

Candidate: I think the decline in profits could be driven by a decrease in revenue. Do we have further information on how revenues have changed over the past few years?

 

Interviewer: Revenues have remained flat.

 

Candidate: Okay, then a decline in revenue is not the driver behind the decline in profits. Therefore, I’d like to shift my focus onto costs. If revenue has been flat, costs must have gone up, which is why profits have gone down. Do we have a breakdown of our client’s costs and how they’ve changed over the past few years?

 

Interviewer: Let me share with you this exhibit…

 

What to Do if Your Case Interview Hypothesis is Right 

 

If your hypothesis is right, know that you have made a significant step towards solving the case. However, the case does not end just because your hypothesis is correct. The next step is to refine your hypothesis by making it more specific.

 

Remember, at the end of the case interview, you want to recommend a specific course of action that the client should take.

 

Your initial hypothesis will likely be a fairly broad statement. Even if your hypothesis is correct, you may not have an idea of a specific course of action the client should take. Therefore, spend the time to hone in on the exact answer.

 

Here is an example of what this might look like:

 

Candidate: I think the decline in profits could be driven by a decrease in revenue. Do we have further information on how revenues have changed over the past few years?

 

Interviewer: Revenues have decreased by 30% over the past few years.

 

Candidate: Okay, then this means that a decline in revenue is a driver behind the decline in profits. I’d like to identify if there is a particular component of revenue that is responsible. Do we have a breakdown of revenue by some kind of meaningful segmentation?

 

 Interviewer: Yes, if we break down revenue by country, we see that revenue in China has declined significantly.

 

Candidate: Okay, I think we have found the primary driver for the decline in profits. A decline in revenue in China is causing the decline in profits. I’d like to understand why this is happening by looking at customer needs in China, recent competitor moves, and market trends that may be impacting sales.

 

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