2020 was a year like no other: “lockdowns” and the sudden, mass adoption of work-from-home upended the office as many knew it. For fortunate consumers, stimulus checks and more time at home bred new and unique spending. While 2021 has graciously ushered in vaccine distribution, Americans can still expect several more months of limited contact. The “New Normal” changed the landscape for Seed and Series-A companies significantly, and here are three trends I’m watching.
1. The Shift to “All Things Digital” Means Consumers Demand ROI for Their Time
Owing to the pandemic mantra of “Stay Home”, consumers able to do so experienced an upside: hours spent commuting to work were traded in for outdoor exercise; virtual health visits alleviated time spent in waiting rooms; and E-commerce made many retail inconveniences an afterthought. Consumers dissected the mundane tasks eating up their free time and now demand more ROI for each moment.
Exercising at home or outdoors was the only option for many, as gyms were closed. Capital markets took note with transactions like Lululemon’s $500M acquisition of Mirror. While large-scale home equipment is saturated with both incumbents and newer players like Peloton, the market for products that enhance consumers’ workout experiences remains fragmented. Startups that have a clear path to acquire, retain, and monetize large customer segments will be successful.
E-Commerce is the choice for commodities. Not necessary to see, feel, or smell a product before buying? Then it’s not worth a trip to the store. While incumbents may appear to rule the category, there’s still plenty of room for fragmentation: startups can peel off customers by competing on product scarcity, innovation in customer experience, or by capitalizing on the “Walmart Effect,” wherein customers churn out from bigger players due to ethical concerns.
Who didn’t visit a health provider virtually in 2020? Consumers have warmed to Telehealth, and upwards of 90% of medical inquiries can be resolved via phone or video. Expect Telehealth and supporting consumer digital products to heat up as a segment of VC funding.
2. Recreation Redefined: Consumers Want Fresh CPGs, Media, and Entertainment
Consumers’ newly-emboldened approach to free time means a resurgence in recreation products.
Seltzer is the new beer; Cannabis is the new wine. Wellness-minded millennials expect to “have it all” in their adult beverages: products that are low-cal, with natural and grown-up flavor profiles, made in a “Session-style” (to use a beer term), meaning each unit contains a reasonably low amount of the active ingredient. Seltzer is everywhere and there are several big-player brands, but no clear winners with older demographics. Meanwhile, Cannabis sales grew to $17.9B in 2020, a 67% YoY increase, and a subcategory of high-quality Cannabis products is positioned to grab market share from mid-range wines. Federal red tape keeps the industry fragmented nationally, but that holding pattern creates a unique upside: historic lack of liquidity in the industry means many Cannabis startups have been forced to take a surgical approach to growth. Teams that would have received significant investment years ago are just now stepping up to the plate; that management experience may decrease operational risk, compared to that of nascent startups in well-funded industries.
Bite-sized media is up for grabs: incumbents hold on to traditional TV show and movie formats, but Youtube and TikTok have validated short-format media. And while they currently dominate the Gen-Z and late-Millennial segments, those customers readily adopt fresh platforms when offered new value and features. Add that to the tremendous room for adoption amongst the over-40 demographic, and there’s ample opportunity for startups to compete.
Brick & Mortars will return in highly-experiential formats: E-commerce isn’t going anywhere (remember consumers want ultra-ROI on their time), but that doesn’t mean consumers don’t value out-of-home experiences. Enter Experiential Retail: small-footprint retail experiences that are more marketing than distribution. With most US metros boasting a buyer’s market for commercial real estate, digitally-native, customer-first brands will be well-positioned to leverage Brick & Mortar for marketing and growth, as well longer-term product diversification.
3. Solutions for Remote and Mixed-Office Teams
An opportunity in No-Code and Low-Code products, especially for SMEs: with teams split between work and home, there’s an urgent need to bridge the gap left by office mainstays. SMEs are a notoriously tough segment for B2B startups, and I’m watching for those that can strike a balance between high-value customer perception and pricing that doesn’t necessitate an in-person sales process.
Employee Engagement products are becoming a category of their own, with an urgent focus on decreasing “Zoom Fatigue” and fostering authentic connections amongst mixed-office teams. Remote work has become the expectation, rather than a perk, of workplaces looking to attract in-demand talent. To go above and beyond, companies need to alleviate the pain points of remote work. Enterprise products are notoriously clunky in this category, so scrappy startups with a great product, and traction within a specific B2B customer segment, will be well-positioned to be acquired as features to legacy systems.
Leah Madden is the founder and managing director of Greenprint Growth Partners, offering growth strategy and financial consulting services to startups and venture capital portfolios.