Ming Zhao

Ming Zhao



The Hedge Fund Guide to Industry Analysis 100% of hedge funds, VCs, founders & strategy execs do market research. 95% do it wrong. That's why they invest in, build & buy shitty companies. Follow this blueprint from the top 5%: A 9-Step Guide For Analyzing Any Industry ? ?/

1/ Build a market map i.e. top-down hierarchical view of major players (see example below) Why start here? a) there should be plenty literature out already b) just knowing the major names in a space & 1-2 lines about each arms u with the right lingo to talk to experts [step 2]

2/ Start expert outreach in parallel Hire a Fiverr to source, contact & pair schedules with industry experts while u keep researching. No it's not too early in the game. And yes u should absolutely outsource. Here's why: - takes indefinite time - volume game - it's mindless

Though execution of outreach is mindless, the process is strategic: 1. Identify the folks at top + bottom of each org: - t: CEO, CRO, CPO - b: data analyst 2. Scrape Linkedin, FB, etc. for mutuals 3. Ask for intros; if no mutuals, cold-contact where u have highest clout

3/ Craft interview scripts U should formulate different questions for each sub-vertical & each role. (e.g. Ask head of sales about pricing models, customer cohorts, etc. // ask CEO about investor appetite & reception) Example from 2020 when I did a fertility market deep-dive:

4/ Map out the different business models i.e. how each subvertical makes $$ Most biz models are some variation on these core types: - freemium/ loss leader - flat subscription - perpetual license - network middleman / volume-based - reseller / distributor - ads & data capture

5/ Trace the revenue breakdown across the value chain i.e. How is each $1 split up from end-retailer to distributor to supplier? Who gets what & why? [a prelude to competitive analysis -- step 6] Here's an example revenue-trace analysis I did for pharma:

6/ Competitive analysis on each major player As @peterthiel's "Zero to One" notes, monopolies are good; fragmentation is bad [except among clients]. Porter’s 5 Forces is my favorite framework that very simply defines a good monopolistic company based on a 5-step checklist: ?

7/ Conduct TAM analysis per subvertical Only thing VCs love more than talking about TAM is talking about how they hate the "top-down" approach. IMO u need to do both cuz a big delta btw the two can often unearth contrarian opportunities (i.e. current is far from what could be).

8/ Margin analysis Based on Steps 5 & 6 u can guestimate revenues, COGS & operating costs for each subvertical biz: Where gm= gross margin, pm = profit/net margin, generally: ⬆️gm ⬇️pm = good biz model, fat operations ⬇️gm ⬆️pm = bad biz / low bargaining power, lean operations

9/ Quantify market tailwinds vs. headwinds 80% of investors stop after ID'ing the major industry trends. That's like giving up at 1% Instead, 1. quantify head- vs tail- winds on impact to CAGR (compound annual growth rate) 2. conduct worst-, avg-, best- case scenario analyses

End/ Key takeaways on how to learn any industry in-depth: 1. Build up the lingo to talk to experts 2. Hit up experts w/ targeted questions 3. Analyse how revenue breaks down & accrues across a chain 4. Analyse profitability today & sustainability of profitability tomorrow

Here's an "Industry Deep-Dive Template" I made for myself in Jan 2021... I'd just left my startup in cybersecurity and was scouting the market for a new idea to work on. Please share and retweet if you find it useful! ???

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