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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
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How to Measure Anything summary
Douglas W. Hubbard
Finding the Value of "Intangibles" in Business
16 mins
Table of Contents
How to Measure Anything
Summary of 6 key ideas
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Key idea 1 of 6
Estimating with intelligence
Picture yourself at the historic Trinity Test site, the birthplace of the atomic age. Amid the suspenseful countdown to the first atomic bomb detonation in 1945, you notice Enrico Fermi, Nobel laureate in physics, casually tearing a notebook paper into confetti. As the initial shockwave rushes past, he releases the confetti and observes how far the blast scatters it, predicting the yield of the atomic explosion with a margin of error that would make many sophisticated instruments blush. Fermi showed that simple observations, if used in the right way, can have great informative value.
Here’s another example. Imagine Fermi in a classroom, challenging his students to estimate the number of piano tuners in Chicago. Sound like an impossible task? That’s what his students thought too. But Fermi encouraged them to approach the problem by breaking it down into smaller, more manageable questions. How many people live in Chicago? How often do pianos need tuning? How many pianos can a tuner service in a day? By combining these approximations, students could calculate an estimate that was often closer to the actual number than they ever thought possible.
Here’s the good news: you can do this with your business challenges too.
Consider Chuck McKay, a consultant with Wizard of Ads. At one point he was approached by an insurance agent considering the idea of opening a new office in Wichita Falls, Texas. The town was already saturated with insurance carriers and the newcomer wasn't certain about the potential profitability. To tackle this uncertainty, McKay decided to employ Fermi’s method, breaking down the task of estimating market size into a series of manageable questions.
McKay began by identifying the total number of cars in Wichita Falls and the average annual car insurance premium in Texas. By multiplying these figures, he calculated a rough estimate of the gross insurance revenue in town. Considering the average commission rate, he then determined the total commission pool. After finding out the number of existing insurance agencies in town, he divided the total commission by this number to estimate the average annual commission per agency.
However, the declining population and potential market dominance by larger firms suggested the actual revenue per agency could be lower than anticipated. Armed with these insights, McKay advised the insurance agent against the venture.
This real-life example shows how Fermi’s method can effectively tackle seemingly immeasurable business challenges. Next, we’re going to drill deeper into how to break down so-called intangibles into much-more-tangible numbers.
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What is How to Measure Anything about?
How to Measure Anything (2007) challenges the notion that certain things can’t be measured, arguing instead that with the right tools and perspectives, everything is quantifiable. It provides insightful methodologies and real-world examples to guide readers on how to turn seemingly immeasurable concepts into tangible data, ultimately helping to make more informed decisions.
Who should read How to Measure Anything?
- Business executives and entrepreneurs looking to better quantify their company’s intangibles
- Students studying business or economics
- Anyone searching for insights on how to enhance their risk assessment techniques
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