McKinsey once got an important guesstimate horribly wrong.

McKinsey once got an important guesstimate horribly wrong.

In 1980, AT&T was dominating the landline phones market. But there was a growing buzz about the cell phone, and they weren’t sure if it made sense to invest in it. The market needed to be large enough.

So they asked McKinsey to estimate the number of cell phone users by the year 2000.

After probably a few months of number crunching, McKinsey estimated that there would be 900,000 cell phone subscribers. And advised AT&T to stay away from the fad.

AT&T agreed, and thanked them with a few million dollars.

By 2000, there were 109 million cell phone users - 120x of what McK estimated.

McK consultants did what most humans would do - extrapolate the numbers based on current evidence. At the time, the mobile phone weighed 12 pounds, lasted just 2-3 calls on a charge, and data costs were exorbitant. It was a rich person’s toy.

But in technology, things become cheaper and faster at a rate that defies any intuitive foresight. Since the '70s, the power of a microchip has increased 17 billion times, and costs have shrunk by a similar magnitude!

If you ever sit for a McKinsey interview and do badly at a guesstimate, remind them of AT&T.