🔺#2 - First Principles Thinking, Reddit ideation, VC Secondaries and more...

Hey Riser!

Welcome to another edition of the Rise Collective! This week, we're diving into first principles thinking, using Reddit for ideation, a Medical billing company for sale, the rise in VC secondary buying activity and a members-only platform for restaurants and venues.

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Framework of the week

This week, we explore the concept of First Principles Thinking, a powerful method of problem-solving used by innovators like Elon Musk to challenge assumptions and redefine problems in new ways. Unlike conventional thinking that relies on past knowledge and experiences, First Principles Thinking breaks down complex problems into their most basic, foundational elements. From there, solutions are built up piece by piece—allowing for fresh, often more efficient solutions.

How to Implement First Principles Thinking:

Applying First Principles Thinking involves breaking down complex problems into their most basic, fundamental elements and then reassembling them in a novel way. This method allows you to sidestep conventional thinking and the limitations that come with it, encouraging innovative solutions. Here’s a step-by-step guide on how to apply First Principles Thinking in your projects or problem-solving scenarios:

1. Identify and Challenge Assumptions

Start by pinpointing all the assumptions that underpin your current understanding of the problem or situation. Assumptions are often accepted truths or common practices that aren’t usually questioned. Write these down, and then critically evaluate whether they are necessary or if they are simply a traditional way of thinking.

2. Break Down the Problem into Its Fundamental Principles

Analyze each assumption to see if it can be broken down further into more basic elements or truths. This involves asking questions like “Why?” and “How?” repeatedly until you reach the indivisible truths of the situation—these are your first principles. For example, if you're looking to manufacture a product, instead of starting with existing manufacturing methods, break down the product into its most basic components and materials.

3. Reconstruct from the Ground Up

Using these identified first principles, brainstorm new ways to solve your problem from the ground up. This is where innovation happens—by combining these fundamental truths in new and different ways, you can come up with solutions that were not apparent when working with higher-level assumptions.

4. Iterate Rapidly

As you develop solutions based on first principles, create rapid prototypes or models to test your ideas in the real world. This iterative process helps refine your approach based on feedback and real-world interactions, allowing for practical innovations.

5. Implement and Scale

Once you have a viable solution, focus on implementing it in a small, controlled environment to test its efficacy. If successful, consider scaling the solution while continuously refining it based on ongoing feedback and new information.

Case Study Example: SpaceX's Rocket Design

This can be a combination of text and infographic elements detailing how SpaceX, under the leadership of Elon Musk, applied First Principles Thinking to revolutionize rocket manufacturing:

• Problem Identification: High cost of building rockets

• Traditional Approach: Buying pre-made components at market prices

• First Principles Breakdown: Analyzing the rocket to its fundamental principles, like the raw materials required (aluminum, titanium, etc.) and the cost of those materials

• Innovative Solution: Deciding to manufacture most of the components in-house to cut costs drastically

• Result: Reducing the cost of rockets by a factor that made SpaceX a viable competitor in the space industry.

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Build corner

Using Reddit to find great businesses to build

If you’re a builder looking to “build something that people want”, tracking trends among early adopters is possibly the best way to discover the next up-and-coming product or software solution to build. And for that, Reddit is a goldmine. For example, if you can identify trending subreddits with roughly 10k to 100k members, where there is a balance between growth potential and competition. Focus on understanding the reasons behind these trends and identify the strengths that can serve as your competitive advantage. Engage with these communities to uncover common pain points and the solutions people are seeking. Document any recurring themes you find, as they can lead to valuable insights.

Once you’ve found a problem space you want to work on, you want to identify influential creators in your niche. Tools like Perplexity AI can help you find key influencers while analyzing popular YouTube content will give you a deeper understanding of your target audience. Once you’ve found these influencers and content, paying attention to the comments section can help you gain even more insight into the specific needs and concerns of potential customers.

With this information, you start sketching your startup idea by wireframing and prototyping your product or service using tools like Cursor.

To build a niche audience, you can go back and re-analyze the top-performing content in your niche using Gummy Search.

Checklist for Entrepreneurs:

1. Identify Trending Subreddits:

   • Use Gummy Search to find subreddits with 10k-100k members.

   • Consider the reasons behind the trend ("why now").

   • Identify your competitive advantage.

   • Track growth trends regularly.

2. Explore Subreddit Discussions:

   • Add relevant subreddits to Gummy Search "audience."

   • Analyze patterns in "pain and anger" discussions.

   • Review advice and solution requests.

   • Note recurring themes.

3. Identify and Analyze Niche Creators:

   • Use Perplexity AI to find influential creators.

   • Explore popular YouTube videos in the niche.

   • Study comments for audience insights.

   • Analyze 20-25 videos for further understanding.

   • Utilize vidIQ’s extension to identify common questions.

4. Develop and Prototype Your Idea:

   • Sketch your product or service based on insights.

   • Prototype using Framer.

   • Choose a name that represents your idea.

5. Build a Niche Audience:

   • Use Gummy Search’s "top content" feature for guidance.

   • Analyze successful community content.

   • Explore AI tools for content preferences.

   • Keep a notes file for content ideas and inspiration.

See 100+ ideas in our startup ideas library (🔒 members only)

Buy corner

Source: Broker
Type: Service
Industry: Medical Billing
Asking Price: $3,900,000

EBITDA: $800,000
EBITDA Multiple: 4.87x
Deal Summary: I’m generally a big fan of medical billing companies as they provide an important service that is basically always in demand. This business has its own distinctive niche (ambulance operators), with loyal, long-standing client base and clients in eight states (which suggests there’s a lot of room for expansion. There’s a team of 18 in place and, according to the seller, no prior experience needed to take over. So this could be a great opportunity to take over a steady cash-flowing turnkey business.

Deal Memo and access (🔒 members only) - get a detailed breakdown of how I would analyze this deal, how I would add more value and get in touch with the broken on the deal.

Invest corner

Venture-backed company secondaries are heating up
While traditional VC focused on acquiring new shares in startups, there’s been a growing trend of funds being raised to invest primarily in existing shares. These shares are bought directly from startup employees and early investors looking to liquidate some of their holdings. This approach is gaining traction as the secondary market grows, fueled by a slowdown in public listings and takeovers, which traditionally provided an exit for shareholders.

Investors in the secondary market can often acquire these shares at a substantial discount—typically about 30% below the company’s current valuation, and at a 70% to 80% discount compared to the peak prices paid during the low-interest, pandemic-fueled boom.

G Squared, one such firm, recently raised $1.1 billion for its latest fund, positioning itself to capitalize on the increasing demand for this strategy. By maintaining a "concentrated" portfolio, G Squared has managed to deliver impressive returns, boasting a Distributed to Paid-In Capital (DPI) ratio of approximately 2x over its typical five-to-seven-year investment horizon. This means they’ve effectively doubled the cash returned to investors compared to their initial outlay.

With this market heating up, you can participate as well with one of these two platforms (only available to accredited investors):

Lifestyle corner

Spotlight tool of the week - Dorsia

Since becoming a member in May 2023, I've experienced firsthand the expansive growth and enhanced offerings of Dorsia, a members-only platform that grants exclusive access to the most sought-after dining spots, cultural events, and unique experiences worldwide. In just four months, the scope of cities and the caliber of restaurant bookings available have grown remarkably. This summer, Dorsia swiftly expanded into seasonal favorites like Ibiza, St. Tropez, Cannes, and the Amalfi Coast, and also facilitated entry to special events in places like Miami and Monaco.

Access through Dorsia does come at a premium. Participating venues offer guaranteed, often short-term reservations—including possible same-day bookings—at hard-to-reserve spots, in exchange for a pre-payment that may range from $200 to $600 per person. This model ensures exclusive access for members to some of the most coveted locations around the globe.

Interested in joining Dorsia? Send me a reply, and I’ll be happy to nominate you for membership, opening the door to a world of exclusive experiences.

From around the web:

• Foregoing $500k in monthly cash flow for a $26M exit

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