“The consumer has never been this strong” was the underlying message from my predictions post in Jan 2017. It may seem that times are still strong but just a few weeks ago the S&P hit an intraday low which was down 20.2% from the peak and in bear market territory. The market bounced back a little but the leading indicators for our economy tell a worrisome story. The housing market has weakened, with geographies such as New York down 20% yoy; The yield curve has inverted, historically occurring 1–3 years before a recession; High beta stocks such as Retail and Tech names have underperformed recently; Retail spending is lackluster; and the political situation in our country is uncertain to say the least.
The macro situation is far from ideal but as Airbnb, Uber, Square, WeWork and Stripe (who were all founded in the depth of the last recession) will show you, when looking at uncertain economic times, therein lies the opportunity.
So, where are the next opportunities?
Our job as investors, is indeed to source, judge and invest in good companies but it is also to be a good board member and thought partner to our CEOs. The below shows both the areas in which I believe are interesting to invest in and also those trends I think are important to think about for later stage companies.
What I am excited about for 2019.
I believe we are only scratching at the surface on influencers and we’re investing heavily around this theme. Whether it be Haus Beauty with Lady Gaga, Goop with Gwyneth Paltrow, Brandable with a different influencer for each CPG brand, or Cameo which allows influencers to monetize their time starting with the video autograph, this is a space my partners at Lightspeed and I believe in.
The celebrity with 100m followers is how we started; Then came the influencer with 1m followers; and now brands are catching onto the long-tail of micro influencers. Going forward I am really excited about the micro micro influencers — those people who may only have hundreds of followers / friends but are the trendsetter in their group of friends and followed by everyone in their school or neighborhood. I believe we will see the rise of ambassador programs in 2019. Glossier once stated 80% of their growth comes from peer-to-peer channels showing the importance of “ambassador” recommendations. Rothy’s (a Lightspeed company) doesn’t have an official ambassador program but it also doesn’t stop women acting as unofficial ambassadors and spreading the word about a product they love wherever they go. We can all be our own version of an influencer in smaller networks and in powerful ways.
A message from Harley “Epic Meal Time” Morenstein | Cameo
Happy New Year — from Brandable’s Super Snack Time influencer, Harley
2. The Future of Cities
Cities of the future will be green, using solar power, with buildings that talk to one another but the largest difference to today will be in transport. The sharing economy in transport has only just begun. Electric scooters, skateboards and bikes have been available for own purchase for years but it was the introduction of the shared version that found real product market fit. The number of young people buying their own car is falling and I expect the same to be seen for bikes, mopeds and scooters as the sharing ecosystem continues to permeate in transport.
We are moving towards a time where no one needs a car and if Uber and Lyft are too expensive an option then other options such as Via may be the answer, where they have analyzed the data of NYC, DC and Chicago trips to allow consumers to ride from just $3.65 a trip. These vehicles will become our time to work, shop, play games and socialize both online and in the vehicle.
3. Cannabis — THC and CBD Becoming Mainstream
As we can see from the performance of the public Canadian cannabis companies, this space is on fire. As it is legalized, especially at a federal level, the costs and prices will come down significantly and entrepreneurs will continue to flock into the space. However, legalization will open it up to become mainstream and demand will significantly increase as was seen in Canada when they started to run out of cannabis just two days after it was legalized.
The products themselves will become commoditized so you need to have a strong brand that customers know, love and trust. The opportunity areas I am most excited about are the marketplaces and brands that will be created within both cannabis strands, THC and CBD. Perhaps your company starts as an offline Retailer (e.g. MedMen), perhaps it starts as an online marketplace (e.g. Eaze, Meadow) or perhaps it’s a brand that consumers love (e.g. a cannabis version of La Croix water or a favorite food but with the ability to relieve your headache, anxiety, PMS and back pain).
4. New Business Models for Media
Building content for an ad revenue business model worked in the last generation of media businesses but no longer. With 72% of ad dollars going to Facebook and Google and 90% of the growth going to those two, it is increasingly difficult for ad revenue businesses to grow.
Instead, it is those who can adapt to new business models that we are excited about. Specifically those using content to a) drive commerce, b) drive a community and c) drive users to pay for a subscription because if the content is that good, then users will be willing to pay for it. I recently wrote about this theme and believe 2019 will see far more successful models like Goop, Glossier & Museum of Ice Cream where content moves to subscription, commerce & experiences.
Within these areas, video is a medium I believe will continue to increase in importance. The depth and breadth of YouTube videos offer the type of subscription that customers would be willing to pay for. The comments drive a community angle and Cheddar (a Lightspeed company) take this community to the next level by enabling users to see the comments on the screen as they are watching. The next generation is growing up watching videos (often the only way their parents are able to keep them quiet) and will see video as their go-to media channel.
5. Gaming Across Platforms
AR and voice-first gaming are two areas within games I’m also excited about.
The AR market is predicted to be $133BN by 2021 and I believe those who are building both the games and the underlying toolkit will have a unique and differentiated product. Illumix was my first investment in this space and their first two games are set to launch in 2019.
Gaming has always been a key use case for every consumer platform and we are starting to see this in voice. Early use cases in voice were news and music with the odd “Alexa, tell me a joke” but voice platforms are now starting to see compelling games being built. Alexa and Google Home were rolled into the home as a trojan horse being rolled through the gates but we believe they will be used for far more than playing music and gaming is a logical next step. Discovery remains an issue so we wait for the voice equivalent of the App Store to emerge but in the mean time, there are now 100m Alexia devices in the home so this is a space we will hear more from.
6. The Message Behind True Brands
It’s no secret that Gen Z and Millennials shop differently. They care far more about what a brand stands for, where it is positioned and what impact it has on society. The reason Rothy’s and AllBirds resonate so strongly with consumers (other than the incredible comfort and machine washability!) is the fact they are sustainable and good for the environment. Rothy’s are made from plastic recycled bottles and every box tells you how many have been recycled. That is a message that matters.
We have already seen many D2C brands explode onto our credit card statements but I believe the ones that have the staying power will be those that stand for something. This is especially true for younger consumers who care far more about the environment, causes and charities than older generations.
7. Be Everywhere the Customer Is
It’s not just online and offline, it’s much more than that. It’s being everywhere the customer is and selling to them where they are.
For example, Cotopaxi started D2C and realized that their customer was spending their time running marathons and doing adventure courses so they started their own, Questival. The smart thing about Questival is that people buy Cotopaxi D2C to attend and then they can also buy more gear once there. The definition of being where your customer is — even if it’s down a ditch.
Another good example, for a different type of customer, is Goop (a Lightspeed company). They know that their customer is not always online. They know that they spend their summers in the Hamptons and their winters skiing in Aspen so they launched pop-up shops in those luxurious locations. They know their customer is curious and a trendsetter so they launched their Health Summit, In Goop Health, to both drive the community, commerce and content exactly where the customer wanted to be.
8. Know Yourself and Your Health… and Gamify It
The mainstreaming of quantified self is a key trend for 2019. Our body is a machine and the nervous system, gut and brain are more closely intertwined than we realize. Monitoring our steps with a Fitbit is one thing but what about monitoring our anxiety/anger levels with a hitbit, focus levels with a gritbit or microbiome with a shitbit.
In Europe, people still ask “what is a coach” and “what is anxiety” (both of which I was asked last week) but the US is realizing the importance of identifying IBS, anxiety and everything else in-between. We are starting to pay attention to our health and spend our own dollars on preventative medicine. At home testing, meditation, therapists & fitness apps are just the start.
Health and fitness in our home are on the rise with fitness apps such as Sweat with Kayla and Aaptiv but customer retention in all areas of fitness is poor. Social and gamification is one way to improve it. Peloton lead the way in at home IoT fitness but there is now Tonal, Mirror, Pilates Wheel and more. The psychology behind spending $2k on a Peloton bike may guilt customers into using it but the 90%+ retention after a year shows the power of gamification, a fun product experience and a strong community angle.
9. IRL Experiences
Whether it be due to data concerns, time spent online, less time with loved ones (or Apple pushing the feature for us to now see how long we spend on our phone) there is a rising technology pushback. Young people say they want less dependency on social media and technology overall and more IRL experiences.
2018 was the year of Museum of Ice Cream (and rose, candy, color, pizza and eggs) as people flock to novelty, fun and the chance to hang with their friends in person. The desire, and one could argue ‘need’, of these IRL experiences is only just beginning.
LVMH recently bought the Belmond hotel chain, for $3.2bn, as they realize the next generation cares far more about experiences than physical goods. Experiential luxury is the new form of luxury.
10. Expansion for DNVBs
With current digitally native vertical brands (DNVBs), I continue to discuss the opportunities to expand in physical stores and internationally.
In the early days of pop-up shops and permanent retail locations, with brands such as Bonobos, many thought of retail expansion as a cost neutral marketing channel. Well, it can now be thought of as a profitable marketing channel given many brands find their stores break even in just 12 months. The store attracts customers, drives word of mouth and also has a halo impact on the online sales in that geography. To test retail expansion in a smaller way, the new versions of a department store are worth checking out with B8ta and Neighborhood Goods.
I believe 2019 will be the year we see far more international expansion from DNVBs. Several companies started to dip their toe into the water in 2018 and learned a great deal. 2019 will see them diving in having now tested the water. If your company is interested in testing international expansion in a smaller way, I recommend working with a company such as Flow, who offer a brand of any size the option to sell internationally.
Happy New Year!
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