Deep Diligence Framework
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A framework for conducting deep diligence on business opportunities, based on Sam Rattner's approach to researching unconventional businesses like vending machines and riverboat casinos.
Core Philosophy
- Look for businesses where value lies in things people don't know about or are too complicated to find
- Focus on opportunities that could be 5x better, not just marginally improved
- Spend time understanding the core business mechanics before dismissing opportunities
Deep Diligence Process
- Initial Research
- Start with basic market research and financials
- Look for unusual patterns or metrics that stand out
- Identify key contracts and relationships that drive the business
- Direct Investigation
- Visit physical locations to understand operations
- Talk to employees and management in person
- Observe actual customer behavior and usage patterns
- Study the local market dynamics and competition
- Contract & Legal Review
- Review all major contracts and obligations
- Understand renewal terms and flexibility
- Look for opportunities to restructure relationships
- Identify constraints and opportunities in existing agreements
- Cost Structure Analysis
- Break down major cost drivers
- Look for opportunities to dramatically reduce costs
- Identify alternative suppliers or approaches
- Calculate potential margin improvements
- Market Validation
- Talk directly to customers
- Understand true customer preferences vs assumptions
- Test hypotheses about potential changes
- Validate willingness to accept modifications
Key Questions to Ask
- How could this be 5x better vs just 10% better?
- What are the biggest cost drivers and can they be dramatically reduced?
- Are there artificial constraints from existing relationships that could be changed?
- What do actual customers care about vs what is assumed?
- Is there a local/regional advantage that could be replicated elsewhere?
Red Flags
- If improvements would only be marginal
- When physical presence requirements limit scalability
- If key relationships can't be modified or improved
- When customer preferences are too entrenched
- If geographic advantages can't be replicated
The goal is to find opportunities where deep understanding reveals potential for dramatic improvement, not just incremental gains.
Sam Parr
Host of MFM and fitness influencer
Sam Parr is a serial entrepreneur and business media pioneer.
In 2016, he founded The Hustle, a business news media company that started in his kitchen with just $12 and grew to eight figures in revenue.
Sam led the charge in making newsletters popular when few believed in their potential.
After four successful years, he sold The Hustle to HubSpot, a publicly traded company. Now operating as HubSpot Media, The Hustle reaches 3 million readers daily, employs a team of nearly 100, and has been the launchpad for dozens of its staff to found their own media companies and newsletters.
Sam remains the host of the popular business podcast, My First Million, and continues to start and sell companies. He also co-founded Hampton, a highly vetted community for entrepreneurs, founders, and CEOs, and teaches people to write better through his platform, Copy That.