Channel checks: the five steps, and the one everyone skips

To conduct effective channel checks, here’s a breakdown of the five steps and the common pitfalls:

The Five Steps for Channel Checks

1. Define the Thesis Question

   • Start with a clear, falsifiable question tied to a specific timeframe or event.
   • Example: "Will Company X miss Q4 2026 revenue expectations in enterprise?"
   • Avoid vague questions like "How's business?"

2. Map the Supply Chain

   • Identify key players: distributors, vendors, retailers, channel partners, integrators, and churned accounts.
   • Understand the flow of goods and services to pinpoint where insights can be gathered.

3. Source Experts

   • Find individuals with direct access to relevant products, competitors, and customers.
   • This could include suppliers, VARs (Value-Added Resellers), or even former employees.

4. Run Structured Interviews

   • Use consistent questions across all calls to ensure comparability.
   • Ask directionally specific questions like: "Are orders up or down 10-20% year over year?"
   • Push for details on volumes, lead times, churn, funnel conversion, discounting, and payment terms.

5. Convert Insights into Actionable Outputs

   • Translate findings into model changes, scenario weights, and a written report.
   • Tag each call as bullish, neutral, or bearish by metric and timeframe.
   • Cross-check findings with trade data, reviews, job openings, scraped pricing, and on-the-ground visits.

The Step Most People Skip

• Defining a Falsifiable Question
  • This is the foundation of a good channel check. Without a clear, testable question, the process lacks focus and actionable outcomes.

What a Real Signal Looks Like

• Examples of Actionable Data Points:
  • A component supplier reporting a 30% Q2 2025 order decline contradicting bullish guidance.
  • A VAR revealing 40%+ discounts in late 2026 to hit new-logo targets, indicating revenue-quality issues rather than strong demand.

Synthesis Over Vibes

• Tag every call with a clear stance (bullish, neutral, bearish) and corroborate findings with external data sources like trade data or pricing trends.
• Maintain detailed logs for every call, including date, expert type, company connection, limitations, and key numbers. If you can’t justify a model change with documented evidence, it’s not a valid change.

Compliance Guidelines

• What’s Legal:
  • Asking about observed market behavior, e.g., "Are customers more price-sensitive this year?"
• What’s Off-Limits:
  • Probing for undisclosed bookings, unannounced contracts, or internal pipeline reports.
• Always keep logs, consent, and scripts to ensure compliance.

Practical Starting Point

• Conduct 5-10 calls before a known catalyst.
• Diversify calls by region, vertical, and account size rather than overloading one segment.
• Consider who runs the checks: an unbiased analyst may provide a clearer read than someone already invested in the name.
  
  Sources: Long term, concentrated, deep fundamental investing, Finishing 1st Year as HF Analyst - Ask Anything, Finishing 1st Year as HF Analyst - Ask Anything, Q&A: HF Analyst @ $5bn+ Fund - Breaking In and Transition to Risk-Taking Role, On the Job With Simple As… My Research Process