Leading Indicators in Fast Markets

In rapidly changing markets, find the new demand pockets—not the legacy incumbents

Brendan Foody
Why experts writing AI evals is creating the fastest-growing companies in history

Leading Indicators in Fast Markets

"The most important thing is looking at the leading indicators in fast-moving markets... What matters a ton is actually figuring out what are the new markets, the new pockets of demand that are changing very quickly." - Brendan Foody

What It Is

In fast-moving markets, the biggest opportunities aren't with established players in legacy segments—they're in emerging demand pockets where wealthy customers will pay whatever it takes to solve a new problem. This framework shifts strategic focus from competing in existing markets to identifying and dominating the new markets that are forming.

Brendan used this to pivot Mercor from a general hiring platform to an AI training data marketplace, identifying that AI labs were willing to "spend whatever it takes to improve model capabilities"—a new demand pocket that legacy players weren't positioned to serve.

How It Works

Legacy Market Thinking:

  • Focus on the "why now" of product capabilities (we can automate X)
  • Compete with established incumbents
  • Optimize for existing customer needs
  • Risk: fighting over shrinking or stagnant pools

Leading Indicator Thinking:

  • Focus on the "why now" of market dynamics (demand is shifting to Y)
  • Find the new pockets where demand is emerging rapidly
  • Identify the flagship customers in the new market
  • Optimize everything around serving them perfectly

Key signals of a leading indicator opportunity:

  1. Willingness to pay is extremely high - "The wealthiest companies in the world are willing to spend whatever it takes"
  2. Existing players are sleeping - "The incumbents were resting on their laurels"
  3. New capabilities enable new needs - Technology shifts create new customer requirements
  4. The market is forming, not formed - You can shape it rather than compete in it

How to Apply It

  1. Separate product innovation from market innovation

    • Product: "We can now do X better"
    • Market: "Demand for Y is emerging and unmet"
    • Both matter, but market timing often matters more

  2. Look for forced product-market fit signals

    • "If it's difficult to sell, if it's extremely difficult to sell the marginal customer, you're not going to be able to grow a huge business"
    • Find customers that are "surprisingly easy to sell into"

  3. Identify the flagship customers in emerging markets

    • Who has the budget and urgency in the new space?
    • How can you "optimize everything around" serving them?

  4. Balance conviction and openness

    • "Be stubborn with respect to your thesis around how the world will change"
    • "Be very open-minded with respect to exactly what form that takes"

  5. Watch for incumbent complacency

    • When legacy players underserve emerging needs
    • When market transitions require different capabilities than incumbents have

When to Use It

  • Evaluating startup ideas or pivots
  • Deciding where to focus a new product or business line
  • Assessing market timing for a venture
  • Understanding why competitors might be vulnerable
  • Finding growth opportunities in transforming industries

Source

  • Guest: Brendan Foody
  • Episode: "Why experts writing AI evals is creating the fastest-growing companies in history"
  • Key Discussion: (00:39:20) - Core tenets including leading indicators
  • Additional Context: (00:43:57) - The pull insight and forced PMF
  • YouTube: Watch on YouTube

Related Frameworks

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