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August 20th, 2019

Fast Growing Profitable Small Businesses

A database with financial data galore and recession-proof markets that soar.
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Curious about which startups grow quickly and actually make money? We’ve got you covered. 

More than 400 people have shared key details about their companies for our small business database (share yours here), and we expect to eventually collect data for thousands more. In this week’s newsletter, we’re giving you a sneak peek. 

We’re also covering: 

  1. Recession-proof businesses: With recession warnings on the rise, we highlighted five markets and products that tend to thrive during economic downtimes. 

  2. The beauty tech boom: The next big thing in an industry that saw $303m in startup investments last year? Technology for exhibiting and selling skincare products. 

  3. Electric bikes: Scooters get most of the attention, but ebikes are projected to grow from ~30m units sold annually to ~75m in the coming years.      

If you missed last week’s email, it’s available here. Our most clicked items: Stories about non-alcoholic beer and cold brew. A pitch deck about millennial motels remained popular, too.

Also, the presale for Hustle Con tickets ends Friday. Trends subscribers can get $150 off the two-day pass using the code TRENDS150. 

Now let’s get to it!

-Mark of The Hustle

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1. The small businesses making the most profit and growing the fastest 

We’ve been asking Hustle readers who own small businesses to send us information about their companies, including revenue, growth projections, and more. More than 400 people have responded.

Soon, we hope to have a database with thousands of companies. More importantly, we plan to share that data and analyze it to produce case studies and opportunities. 

For now, we’re giving you a sneak peek. We’ve done a preliminary analysis of the 400+ companies, and here’s some of what we’ve found:

  1. Nearly half of those small business owners needed less than $10k to get started, and 1 in 5 used less than $1k. Most made their money back within the first year.

  2. 17 companies made $1m or more in revenue in their first year, while 6 startups reported profit margins of at least 80% during their first year.

  3. The most profitable industries? Marketing and fashion.

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2. The most recession-proof businesses

At one point last week, the top three stories on the New York Times’ home page hinted of an impending recession: low bond market levels, slow factory growth in China and global stock swoons.

If a recession does hit, here are five products and industries that don’t just withstand recession––they tend to improve during the hard times.

  • Candy: Chocolate and candy sales rose 2-3% from 2008 to 2009, during the last big recession. In the last quarter of 2008, Hershey’s reported a 51% gain in profit compared to the final quarter of 2007. Smaller candy companies thrived, too, with some stores in San Francisco seeing 10% gains during the Great Recession and some in Chicago seeing as much as 80%. Why? Candy is an inexpensive gift, and its sweet, nostalgic taste reminds people of better days. If you’re considering starting a new candy business, keep in mind that giants like Snickers and Three Musketeers debuted in the wake of the Great Depression. 

  • Wine and spirits and other vices: During recessions, investors often discuss “sin industries” as winners. That’s because cigarettes and alcohol are hard to give up, and they help us get through difficult times. Wine and spirits continued to grow at a 2-3% clip from 2008 to 2010. But so far, gambling has been a vice people tend to bypass.

  • Care services for the elderly and others: There are now 49m people over 65 in the US, up from 37m in 2006, and that number is growing. Despite financial setbacks, people don’t skimp too much on their health. Nursing care facilities grew at a 5% rate in the Great Recession and home health care services grew by 12%.

  • Specialty food stores: People go out to eat less often in recessions, but they tend to eat the same quality––or even higher quality––food at home to make up for it. A 2009 Harris poll (albeit one that was funded by Whole Foods) found that a majority of respondents were cooking more at home and that 76% of them would not compromise the quality of their food based on price.

  • Business formal attire: This goes against conventional thinking, given that suits have been losing ground for years as even traditional workplaces go casual. But when employment levels fall, stylists say, managers exert more power over the dress code and revert back to more formal clothing.

3. Beauty is the fastest-growing segment on Youtube. We show you how to cash in.

Beauty YouTube hit 168 billion views in 2018—nearly double the previous year’s—and investors pumped $303m into beauty tech startups in early 2018. Now, brands are investing in tech that lowers the barrier to online skincare purchases.

We’ve entered an era of “ultra personalization,” where technology can do everything from help you pick your own personal perfume to track when you’ve had too much sun, according to our Toronto-based correspondent, Karoun Chahinian.

The beauty industry, which is dominated by a few large companies, has welcomed a wave of upstarts in recent years. Since 2017, more than 70 beauty tech startups have popped up, netting more than $1.7B in sales. 

What’s moving the needle?

Augmented reality and artificial intelligence have changed the game in cosmetic shopping by “decreasing the level of uncertainty or hesitancy women have in buying new products,” Chahinian says.

Among the big changes:

  • Olay’s Skin Advisor app has helped over 5 million women access a personalized skin-care routine by taking a selfie and filling out a quick survey.

  • P&G and L’Oréal have created hydration and sunscreen trackers to let you know whether you’ve had enough water or too much sun exposure.

  • Olay has also launched its Future You simulation, which helps customers see what their skin and face will look like in the future

Where the opportunities are:

  • Create a platform. There’s no single place that caters to the skincare community. Build a site where power users and influencers share tutorials and regimens, or schedule recurring product orders. 

  • Mine the niches. There are an endless number of niches where you can gain a foothold: from personalized fragrances to custom curl creams to the tech that helps deliver them to consumers.

Read more here

4. Signals: Markets and products shaping up for the future

Gender neutral underwear: Victoria’s Secret’s reputation has been sliding lately: Same-store sales have declined for three years, a CEO resigned last year, and its longtime chief marketing officer resigned this month (among other things, he had ties to Jeffrey Epstein). There’s room for smaller companies to grow. New entries that highlight comfort, inclusivity, and diversity are winning out, including a side market for gender neutral underwear. A few startups in this space include Tack, TomboyX and JBC Lingerie. The combined men’s and women’s underwear market is worth about $75B and is expected to grow between 6% and 8%, according to various estimates.  

Testosterone: Testosterone, though its side effects need to be studied, can help men get in shape and cope with depression. But most of the testosterone replacement therapy businesses are (or at least seem!) shady. Mainstream companies that market testosterone the way Hims markets men’s wellness could grow a large following in the coming years. Our CEO Sam Parr has more thoughts about this on Facebook.

5. Opportunities: Markets and products developing now

Virtual exercise classes (WSJ): Gym memberships are trending down (2% growth last year after 6% the year before) in part because more people want to exercise from home while still getting the gym camaraderie. Peloton, a leader in this category that specializes in spin classes, has doubled its membership in the last year, to 500k. But plenty of trendy exercises have room for virtual growth, including barre. Opportunities also exist for producing a platform that allows brick and mortar gyms and workout studios—or even personal trainers and fitness influencers—to expand into the virtual market to serve their existing customers.

Vegan leather (Quartz): Doc Marten, between 2017 and 2019, saw an increase of 279% in vegan leather shoes. But here’s the thing: Nobody has found an ideal way to make faux-leather. Polyurethane and PVC materials used in common faux-leather items are bad for the environment. Eco-friendly material made from substances like agricultural waste is too expensive. The race is on to manufacture a faux-leather that is inexpensive and good for the environment—and to build apparel around it.

6. Electric bike sales are projected to eventually comprise half of total bicycle sales, and the U.S. market is primed for major growth 

It may seem electric scooters are the future. But electric bikes have emerged as a popular transportation option that people actually want to own.

How big will ebikes get? This spring, the European Cyclists’ Federation updated a projection that 50m bikes would be sold in the EU by 2030. Their new estimate? 150m.

And that’s just a starting point. Ed Benjamin, who has studied the ebike market for decades and is founder and senior managing director of eCycle Electric, expects that in the near future 75m electric bikes will be sold worldwide every year. That’s more than double the amount sold yearly now and enough to comprise half of total bicycle sales. 

Opportunities exist for:

  • Building less expensive ebikes with mass market appeal

  • Designing internet-related experiences for high-end bikes

  • Designing electric mopeds and motorcycles.

  • Leading efforts to reimagine cities and commerce for a growing amount of ebike and escooter commuters.

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