The Best Industries to invest in 2016
There are 28 million small businesses in the country, and they provide most of America’s jobs and sales. According to the Small Business Administration, large companies have cut four million jobs since 1990, while small businesses have created eight million. Most small businesses want to become big businesses, so a new dog-walking service is probably not going to turn into the next Uber (though you never know! Dream big!).
The old saying that time is everything in business is not complete. When you are going to start a new successful company, one other primary ingredient is identifying a new, untapped market opportunity. Breaking into new industry is tough, but certain sectors are particularly ripe for new business.
General look at the best industries for investing is based on analysis of entrepreneurs, venture capitalists, and industry fields, plus reams of the latest research on hot niche sectors. While it’s still early days for most of these fields, the first-movers are already well on their way to proving long-term viability.
Drones are breaking as a new powerful industry. The commercial drone market is predicted to grow from around $550 million in 2014 to over $1 billion by 2022, according to Grand View Research. Drones remain imperfect, so disrupting the industry with better machines, operating systems, hybrid power supplies and pilots could provide opportunities. And speaking of Uber (I was, earlier), a drone company we profiled last year called Skycatch leases out drones and pilots on demand, and it’s just been named one of Fast Company’s most innovative companies.
Legal marijuana has become big business in the U.S. since Colorado licensed vendors to sell recreational cannabis at the beginning of 2014. While this is a new industry, the first companies growing and distributing marijuana and related products are seeing very strong demand. Revenue for medical marijuana growers has risen 16 percent per year since 2009, reaching roughly $2 billion in 2014, according to IBISWorld.
All marijuana businesses, whether growing in-house, selling other companies’ products, or manufacturing edibles, must comply with strict legal and regulatory hurdles, such as having a system that traces all products back to their original plants. Recreational marijuana businesses must also obtain a license.
Recreational marijuana is legal in only four U.S. states (Colorado, Washington, Alaska, and Oregon) and most banks still won’t take money from “cannabusinesses,” though credit unions are in the process of receiving federal approval to accept cash deposits and provide other banking services. U.S. tax law also bars any business involved with marijuana, which is categorized as a Schedule I drug under federal law, from taking deductions for the costs of doing business. This can take the effective tax rate for marijuana businesses to more than 60 percent.
More than 500 companies launched in Colorado alone last year, including growers, dispensaries, and tech firms providing enterprise software for marijuana retailers.
Colorado’s retail marijuana market generated $350 million in revenue in 2014 and is projected to grow 20 percent, to $420 million, this year. Colorado Governor John Hickenlooper also predicts that combined sales from recreational and medical cannabis will reach $1 billion by 2015.
The “green” house is hot. Environmentally friendly building practices and supplies are becoming a natural part of the American construction industry. The U.S. Green Building Council estimates about 1 in 4 new homes is being built with at least some green building practices. The numbers are similar in the hotel space. The organization — whose mission is to promote environmentally sound building — says “green construction is outpacing that of traditional construction and is poised to create more than 3.3 million U.S. jobs and $190.3 billion in labor earnings by 2018.”
The trillion-dollar U.S. food industry represents a gargantuan market, but only a very small percentage of food sales comes through e-commerce. That’s expected to change in the next five to 10 years. Why? People are increasingly comfortable buying things online, and the infrastructure exists to distribute food with an e-commerce model. Companies in this space are also developing new, innovative ways of selling and distributing food online, including the use of subscription services.
Foodie culture has exploded in the U.S. thanks to the rise of celebrity chefs and food-focused TV shows, blogs, and other media. Consumers’ growing awareness that buying food online can be more convenient than shopping at grocery stores is also helping drive this sector, as is the desire for healthier specialty food, which can be easier to find online than in local stores.
Consumers have been slow to accept the e-commerce model for food compared with virtually every other retail market.
Experience in both food services and logistics, as well as website construction.
The $500 million startup Blue Apron is a major player in the field, delivering more than a million meals per month, while Amazon Fresh and Instacart represent competition for new grocery-focused startups.
Food and beverage e-commerce revenue grew to an estimated $6.8 billion in 2014 from $4.3 billion in 2011, according to market research company eMarketer. The industry is expected to reach $9.4 billion by next year.
A fresh crop of startups is in the process of revolutionizing agriculture by creating software that makes its processes more efficient. Farmers today are up to their ears in digital data, and there is a huge opportunity to turn that information into useful software and financial products–a fact that precision agriculture systems and services companies and venture capitalists have begun to wake up to.
The venture capital community recently began piling into agriculture after identifying the opportunity to bring significant innovation to agriculture. The industry also attracted significant attention last November when Monsanto purchased farm tech startup the Climate Corporation for $930 million.
Startups will need deep knowledge of the agricultural sector as well as strong web software development and data science skills.
Hot farm tech startups to pay attention to include Solum, Blue River Technology, Farmeron, and Edyn.
The rapidly changing technology in agriculture represents a significant hurdle for companies looking to break into the sector.
The precision agriculture systems and services industry grew revenues at an annualized rate of 5.3 percent over the five years to 2014, to $1.5 billion, and is expected to grow at an annualized rate of 7 percent, to $2 billion, during the five-year period ending 2019, according to IBISWorld.
The U.S. birth rate is finally on the rise again, and millennials want to make sure their children are superior. Chemical-free diapers, gluten-free baby food, gender-free toys … all that free isn’t free. Just ask Jessica Alba, whose Honest Co. is trying to recover from a Wall Street Journal report claiming her wildly successful company hasn’t exactly been honest about every ingredient. The company disputes those charges. In the meantime, database portal Statista predicts the global baby products market could grow to $67 billion next year.
Parenting magazine estimates parents spend almost $50 a week just on diapers, baby food and formula (if you don’t breastfeed), or about $2,500 a year. Figure out a better way to build a diaper — or replace the diaper — and parents will beat a path to your business door. Replace the diaper? Do you think Thomas Edison set out to build a better candle? No, he wanted to replace it.
Yoga and Pilates
Yoga and Pilates studios have been around for decades, but the industry has grown a great deal recently thanks in part to the rising number of health-conscious Americans. During the next five years, the number of yoga and Pilates studios in the U.S. is expected to grow at an annualized rate of 3.7 percent, to a total of 30,415. Including the sale of related products, yoga is estimated to be a $10 billion-plus industry.
According to data from a Yoga Journal study, 20 million Americans participated in yoga in 2012, up from roughly 15.8 million in 2008. Separate data from the Sports & Fitness Industry Association shows that yoga participation grew 4.5 percent in 2013. Today, nearly 45 percent of Americans say they are interested in trying yoga.
While yoga and Pilates businesses can hire contracted instructors and part-time employees, real estate costs associated with opening brick-and-mortar studios represent a significant barrier to entry.
Fitness taxes have led many yoga studios to add a tax to membership fees, which could dissuade customers with limited income. According to the International Health, Racquet & Sportsclub Association, 25 states tax health club memberships, including yoga memberships, and more states are expected to add this tax during the next five years.
Competition is growing from both traditional yoga studios as well as websites offering on-demand yoga services. Health and fitness clubs are also adding yoga classes as a part of their monthly memberships.