As angels, we’re always on the hunt for one thing: the next breakout startup.
I am, you are, and so is everyone else out there who wants to claim a few of the pallets of money being printed in Silicon Valley.
So how do you get your edge?
Simple – by knowing which industries and verticals are about to blow.
Hey there, I’m Jeff Bishop, co-founder of RagingBull and The Boardroom. I’ve built my name as one of the top options traders (and teacher of traders) in the world.
But, the truth is, I’ve amassed the majority of my wealth over the past decade as an angel investor. There’s a completely untapped market out there that only just opened up for ordinary people, and you deserve to get in on it. That’s why I co-founded The Boardroom and the Angel Insights newsletter.
That’s also why I’m so excited to introduce you to the subject of this newsletter today. This is the first in our Emerging Industry series of articles, which highlight and break down certain industries, niches, and verticals that are ripe for successful startups.
Ten years ago, if you had the foresight to be investing in cannabis or crypto, you would have made a fortune. You could have just shotgun-blasted capital into these sectors willy-nilly and still come out on top. I promise one of those startups would have delivered you unbelievable returns.
Well, cannabis stocks are crashing at the moment (so it goes), but new technologies, buying behaviors, and social developments are constantly opening up new opportunities for hyper-growth business.
That’s exactly what we’re looking at in our Emerging Industry series. So let’s dig in:
Today, I want to highlight a vertical with some very seasonal appeal.
Walk outside or drive around your community and you’ll notice traffic picking up.
Last minute shoppers are scrambling to finalize their gifts…
But despite the boost in traffic to brick-and-mortar stores there is a trend that no one can deny—the rise of subscription-based companies.
No, I’m talking Netflix, Spotify, or even Disney+… I’m talking about PRODUCT SUBSCRIPTIONS.
I’m referring to companies like Dollar Shave Club, Scentbird, and Threadbest, which grew an average of 18.1%, versus a 3.6% average for both the S&P 500 and U.S. retail sales between 2012 and 2018.
Average subscriber growth for startups like these reached 14% in 2018, up from 11.7% in 2017, and we believe this growing trend will continue as 2019 comes to a close.
That’s why we think this vertical will be fertile ground for a number of new and exciting startups in 2020 and beyond.
Now, if you want to learn more about product subscription companies, you’re in luck, because I just put together this mini-tutorial.
Make sure to play extra close attention to the red flags, because it could mean the difference between getting in a sweet deal or locking yourself in a money pit.
Defining “Subscription Product Companies”
Startup subscription companies have an advantage because they are able to sell directly to consumers. This allows them to cut out middlemen and conveniently deliver high quality products at affordable prices.
These companies box up products like toothpaste, clothes, shampoo, sex toys, dog treats, grooming products for both humans and their pets, coffee, tea, lifestyle products for women in their 50’s and motor oil for their brothers, sending them directly to customers on a subscription basis.
Subscriptions are an increasingly common way to buy products and services online. Although streaming-media subscriptions have been popular for some time, shoppers are now also turning to subscriptions for consumer goods.
A Rapidly Growing Space
Research indicates over the past year, 15% of online shoppers have subscribed to an e-commerce service.
According to the warehouse management company Snapfulfil, there are now 3,500 subscription product companies, an increase of 40% from the year before, with 47% of these startups only being only a year old.
The subscription e-commerce market has grown by more than 100% per year, five years running. The largest of these retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011.
Clearly these subscription startups have now become industry disruptors.
This presents a huge opportunity for potential investors because they’re still capitalizing on growth and capturing market-share, whereas many other companies are fighting to keep that share they gained years ago.
Let’s take a look at one of the most successful subscription companies, Dollar Shave Club. I’ll help navigate you through the ways they were able to succeed in the hyper-competitive space of male grooming.
What Makes a Subscription Company Thrive?
A lot of angel investors really like product subscriptions because well, who doesn’t want a low-cost, high quality product mailed right to their doorstop? But, to achieve liftoff, these companies face a bumpy road of both manufacturing and marketing hurdles. Here are some tips to help you know what to look for based on the granddaddy of the space, Dollar Shave Club.
Relationship > Product
Dollar Shave Club’s success has been fueled by its inventive strategy for building business value with its customers. Of course, hundreds of companies have had the thought of producing men’s grooming products, including razors, and selling them alongside Schick and Gillette in retail stores across the country. Dollar Shave Club has succeeded in part, because they realized there was more value in developing direct relationships with the customers they serve.
Dollar Shave Club knew that the ‘automatic revenue’ of the subscription model would increase their value and in turn, also increase their ability to raise funding.
The Club placed high value on these direct relationships and in an effort to form the initial relationship with its customers, they kept the cost of entry-level memberships very low. Their basic package, including razor and blades, was just one dollar for the first month at launch.
It Offers a Real Solution
Dollar Shave Club believed that name brand razors sold in drug and retail stores cost too much. Consumers agreed. They were willing to sign up with a subscription service, which limits their buying options, because they were able to get such a sweetheart deal on price. They identified the pain point that existing manufacturers were exploiting and modeled their business to be the solution to that problem.
But to actually get customers to say, “Alright, bill me for your razor blades every month,” DSC had to make their service as transparent and customer-friendly as possible. That means no contracts, no hidden fees, or as they say “no BS.” If a subscriber wanted to pay just $1 for a new razor, they have that liberty. That means customer retention and engagement where key to the company’s survival.
So how did they do it?
It Engages With the Culture
Part of what makes Dollar Shave Club successful is their ability to turn customers into more than mere consumers, but into members of a community. The company has positioned itself as a lifestyle club for men that provides grooming products at a cheaper price and also helps men live smarter and more successful lives. They sell the feeling of being included in the group.
Unlike some other big brands, Dollar Shave Club makes what is otherwise a mundane act of purchase a razor blade into something their customers actually look forward to. And what do happy people who just got something new they love, do? They share it on social media, of course.
These excited customers help create further business opportunities for DSC with their social engagement. For example, when members share a photo of their monthly Dollar Shave Club box on Instagram or Facebook, DSC reposts their favorite posts, and rewards those lucky members with a free t-shirt.
The product subscription startups that are most successful are those that create visibility with their customers, meeting them where they are. Social media, Etsy, Reddit, festivals, concerts, trade shows, and sporting events are just a few of the arenas in which successful startups have been able to connect with their audience.
Dollar Shave Club’s strategy was clear from day one. They were not simply offering a convenient product, they were enhancing their customers lives. They placed more value on the long-term relationship with customers than they did on earning more money on each new membership. They understood that the lifetime value of a member can be worth much more.
They invested in their brand, marketing themselves on social media (and beyond) as smart and stylish, yet playful. And when customers join this club, they’re not just signing on for cost effective razors and blades, they’re purchasing the monthly “delight” that comes along with it opening the box.
With their social marketing savvy and lifestyle focus, Dollar Shave Club set the tone for an entire industry. And the market they pioneered is even more open now that the consumer is more comfortable with subscription-based products.
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