Every investor has his or her favorite source of advice. Too often, though, investors forget about the very people building the companies they invest in: entrepreneurs.
What do entrepreneurs know about investing? For one, they know the value of customer retention. On average, selling a new customer is five times more expensive than retaining a current one. No wonder research published by Harvard Business School shows that boosting retention by just 5 percent can grow a company’s profits by as much as 95 percent.
What else do entrepreneurs know? They keep tabs on market trends. They’re aware, for example, that consumer spending makes up more than two-thirds of the U.S. economy. On the B2B side, they see companies adopting software services as fast as — and, in many cases, faster — than they can handle.
Entrepreneurs’ Top Picks
So where might most entrepreneurs tell you to invest? The following are business-savvy bets:
1. Streaming video
If Netflix’s dominance of the streaming video market can be boiled down to one thing, it’s that it refused to release shows on a weekly schedule. Why does that matter? Because it allows consumers to binge-watch, which 70 percent of American adults — and 90 percent of Millennials, the largest generation — indulge in.
Although other streaming video services have since caught onto the trend, none have optimized their content offerings for binging the way Netflix has. When consumer data curator InMyArea studied the subject, it found that fewer than one in five states’ favorite shows in 2013 was a Netflix original. Fast forward to last year, and Wyomingites and Alaskans were the only ones for whom a non-Netflix original took the top spot.
2. Business software services
It’s tough to overstate just how heavily the business world is binging on software-as-a-service tools. In about a decade, the average enterprise has gone from using one or two cloud services to using hundreds of them. The SMB market’s story is even more striking. A Techaisle survey estimated SaaS penetration among U.S. SMBs at 94 percent by 2017’s end, up from just 27 percent six years earlier.
What’s the SaaS market’s sweet spot? Look for growth-focused CRM systems, such as Ontraport. After displacing database management systems in 2017 as the world’s largest software market, the CRM sector also became the fastest growing software market the following year. Earlier this year, Entrepreneur magazine named Ontraport as one of its best CRMs for growth due to the SaaS provider’s Projection Mode, which allows users to explore “what if” scenarios using predictive intelligence.
3. Beauty products
There’s a reason Walgreens is binging on beauty products: consumers are as well. In the year preceding October 2018, the market for skincare products grew by 16 percent — twice that of the 12 months prior. Social media and e-commerce have certainly contributed to the trend, but it’s also true that many beauty companies have borrowed engagement techniques from the tech industry.
Take Nu Skin. Like Amazon, Nu Skin offers an automatic delivery model to improve customer retention while ensuring users never run low on their favorite cosmetics. What’s more, Nu Skin has gamified the system by rewarding customers who opt for ADR with discounts. Recognizing that Millennial consumers, in particular, will pay a premium for socially helpful products, it’s also partnered with Nourish the Children, a nonprofit working to end childhood hunger.
4. Fitness memberships
Despite — or perhaps because of — growing obesity rates, Americans are on a fitness kick. Both Planet Fitness and Matrix Fitness reported double-digit percentages of revenue growth in 2018, but neither can compare to the explosive growth that fitness apps have seen in recent years. From 2014 through 2017, health and fitness app usage jumped by 330 percent.
Not all fitness apps are created equal, though. Because app users tend to churn quickly, worry less about download figures and instead look for signs of strong user retention. Gixo founder Selina Tobaccowala discovered through her own research that the people who stick with fitness routines tend to go to classes, which led her to focus her app squarely on live group workouts..
Entrepreneurs may not be oracles of the market, but they know what it takes to grow a company. A hit product, a broad user base, and a strategy for keeping customers around make up most of the battle. They may not be sure signs of success, but they frankly matter more than raw revenue figures or metrics like beta ever could.
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