The Professionalizing Creator Class

In recent years, we at TechNexus have been actively investing in the rise of what we call the “Professionalizing” Creator Class, a segment that has truly exploded during that time — the growth of the podcasting ecosystem, the fragmentation of the online writing market, and the emergence of the “self actualization economy”, among other trends have created significant opportunities for companies building support infrastructure and distribution models to help emerging creators turn their passions into careers.

Representative TechNexus Portfolio Companies

As Andreessen Horowitz’s Li Jin points out in this great analysis of the space, the individuals participating in this trend as solo creators are building an entirely new category of work from the ground up.

Working within the four walls of a company — especially on the creative side of a company — tends to obscure many of the realities of how a business is run and supported and the reason we refer to this segment of the market as “Professionalizing” serves to remind us of this fact.

One of the main promises of the internet has always been the zero marginal cost distribution of ideas but until recently, zero marginal cost also often meant next to zero marginal benefit to the creators.

The lack of professional infrastructure available to support creator led, solo media companies either pushed people back inside the four walls of a company, capping both their creative flexibility and upside, or forced them to try to build their businesses on top of platforms far more incentivized to deliver a network (which, of course, has value) than the tools to help creators capture value from that network.

In both cases, creators were forced into economic structures that handicapped their ability to do their best work and deliver the most value to the people who care about what they have to say, show, and write.

This is changing rapidly across categories. As demand from creators has grown, companies have stepped in to provide solutions that help individuals go from potential to professional, often starting with a toolset before leveling up to provide a more aligned network through which creators can gain targeted distribution and develop real, lasting relationships with their followers.

In a twist on the popular phrase, creators are now seeking out the tools that help them build their own networks and the impact of this transformation remains in its early days.

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If you are building a company adding value to the Professionalizing Creator Class, I’d love to hear from you! Email me at brett@technexus.com or find me on Twitter @brettbivens.

The AirPods Industrial Complex

The Consumerization of the Enterprise is a multi-decade trend that seems to have recently hit a high water mark with Slack’s IPO and high visibility funding rounds for companies that are addressing almost every enterprise job category or workflow with products that are adopted by teams or individuals and which prioritize user experience — productivity, satisfaction, autonomy — above all else.

And while the enterprise stack has been bending towards more user friendly functionality for quite some time as workers became accustomed to interacting with software in their daily lives, the true catalyst for the trend was the proliferation of the iPhone, which caused a blend of the personal and the professional in a way nothing else had before.

But the rise of consumer-like experiences in the enterprise has left one very large and important group behind — the deskless workforce.


The Industrial Opportunity

Historically, technology serving deskless workers — who make up 80% of the global workforce — has been overlooked and underinvested in to a staggering degree, but change seems underway.

IT buyers at large companies are starting to dedicate additional attention and resources to improve the performance of their deskless workforce and, perhaps more importantly, drive higher employee satisfaction to combat the high turnover rates seen in the category (even among high-skilled, high-wage workers).

And while increased attention and intent to spend is a great sign, what has been missing to this point has been a technology platform capable of accelerating the adoption curve for industrial-focused digital tools in the same way the iPhone did for deskbound workers.

Mobile devices, while ubiquitous and easy to adopt, require hands that are often needed on other tasks. Immersive headgear, like Microsoft’s Hololens, perform extremely well for certain tasks but completely overserve 80%+ of the work done on the shop floor, the warehouse, or the aircraft hangar.


Enter: AirPods

AirPods are the hardware wedge that will truly unlock Industrial Consumerization — creating a leapfrog effect for many industrial workers who will now skip desktop and mobile device-centric work paradigms entirely and enter a world of purpose built solutions designed not only for their workflows, but for the physical conditions in which they work.

Of course, this world of AirPod-enabled industrial work does not exist today. To get there, AirPods will need to prove viability as an industrial platform in the same way it is starting to in the consumer space — with use cases and adoption trends that attract developers to build on top of the platform.


The AirPods Industrial App Store

To understand the true potential of AirPods as an industrial developer platform, we need to ask two questions — where and why now?

By “where?“, I mean which industries and job categories are best suited for AirPod-enabled work and do those job categories represent large enough segments from a user number and workflow value perspective?

With ‘why now?“, I am seeking to understand if there are underlying elements within those targeted job categories that make adoption, and the realization of the economic value identified in “where?” a likelihood (in this case, on the timeline of my work which is investing in early stage companies).

To illustrate the opportunity for AirPods in industrial settings, we will look at a market I’ve become quite familiar with over the last few years: Aviation Maintenance, Repair, and Overhaul.


AirPods and Airplanes

For the uninitiated, Aviation Maintenance, Repair, and Overhaul (“MRO”) essentially comprises all of the maintenance activities that take place to ensure safety and airworthiness of all aircrafts by international standards — this ranges from lightweight repairs conducted at or near the gate before or after a flight (“line maintenance”) to longer term, more complex work done off site at dedicated hangars and facilities (“heavy maintenance”).

Globally, Aviation MRO is an $82b industry that is growing quickly on the back of increased flight traffic transporting both people and goods. Of course, a very small percentage of that $82b is spent on digital tools and services to empower front line workers — something I expect will change over the next decade as the requirements of workers on the ground will finally be met with a technology platform tailor made to serve their needs.

Taken together, the factors laid out below start to get at both the “where” and the “why now” of the Aviation MRO industry and should help to illustrate just how large the AirPods as an Industrial Platform opportunity can become when scaled out across other categories.

1. Leapfrog Opportunity

Spend a day inside an MRO hangar and you’ll encounter reams of paper for capturing workflow data as well as decades old ERP systems where the information written onto those paper task cards is eventually transferred.

Generally effective, but slow and manual in an industry where the value accrues to the most operationally efficient players and where data accessibility and fidelity is crucial to unlocking that efficiency and complying with the market’s high regulatory burden.

The slow adoption of digital solutions in the industry indicate, at least in part, incompatibility with existing platforms and a lot of economic value left to be captured.

2. High Value Workflows

Turning around an aircraft is a complex, time sensitive, and highly regulated operation that, when not executed to perfection, can be extremely expensive for airlines and maintenance companies.

It is not uncommon for the combination of extra, unforeseen costs related to things like ineffective part forecasting and ordering or poor resource planning to reach well into the hundreds of thousands of dollars — per day.

One IT provider estimates digital documents increase maintenance productivity 5-20%. Another reports that implementing digital task cards has reduced check labor 10-42% and turnaround times 20%.

There is a direct link between time and money in the Aviation MRO market but true widespread adoption of “paperless” solutions is yet to take off thanks, in part, to the lack of a truly aligned “industrial native” hardware platform.

3. Skilled Workforce & “BYOT”

So while the value at stake is large, the next question to ask is one of accessibility. Whether a new product can actually gain distribution into the market in question plays a role in determining developer and investor interest, which in turn impact the rate of platform development.

In Aviation MRO, many technicians already utilize their own tools on the job (and take pride in showing off their toolkit), indicating a culture of bottoms up autonomy in establishing workplace norms.

This autonomy makes sense when you consider the workplace dynamic at play — Aviation Technicians are highly paid with the demand for their services that is expected to significantly outpace supply over the coming years.

So while the days of the individual technician or engineer pulling out a company credit card to pay for a new software tool for their team may still be a ways off, their influence is growing.

4. Health & Happiness

Another way this workforce power dynamic has the potential to come into play to drive faster platform adoption (and helping to answer the “why now”) is in the satisfaction and wellbeing of the workers themselves — user experience is no longer a consumer-only construct and in harsh industrial environments, the idea of what user experience is extends further into the physical world, as the digital tools being employed can and should include a focus on health and physical sustainability.

Today, the aviation industry is second only to metal manufacturing for the highest rates of hearing loss among all professions and, like other industrial industries, the labor shortfall we discussed above is being accelerated by a workforce aging out due to the physical demands of the job.

Current and future features of the AirPods platform, like intelligent noise cancelling and voice-first product interfaces, have the potential to limit the long-term impacts of challenging physical environments while improving situational awareness, creating an overall safer and more sustainable work experience. In theory, this satisfaction will reduce employee turnover and incentivize IT decision makers to invest even more in worker friendly digital tools.

Stats from my first week with AirPods Pro.


The arc of any technology-driven transformation that upends how a significant part of the economy operates is long and comes in phases.

The Consumerization of the Enterprise — which saw its adoption rails laid down first by products like Palm and Blackberry before the emergence and dominance of the iPhone — is now in what we might consider to be the early day of its deployment phase, with a lot of value left to be captured but the core platform on which it will be captured firmly in place.

With Industrial Consumerization, we are truly in the early days as we await the right hardware to reach technical viability and mass consumer platform adoption to light the way of possibility for users, developers, and investors.

My expectation is that AirPods will be that platform and — extrapolating from both my own personal experience with the recent release of AirPods Pro (in short, wow!) and the speed at which the feature set seems to be developing — the days of fully AirPod-equipped industrial workforces are closer than most of us expect.

Resisting the Institutional Imperative

One of the best things about keeping a ton of physical books around the house is the opportunity it creates to connect ideas that are top of mind with concepts you read about years ago with nothing more than a quick glance.

This happened yesterday when I walked past a shelf in my apartment and saw The Warren Buffet Way (a generally watered down recounting of Buffet’s core investment philosophy) after spending the day thinking a lot about retention and the importance of building a product or service that increases value to customer with each incremental interaction — what Bill Gurley called “increasing customer utility” in a great 2003 post — instead of one that gets the fundamentals wrong and gets forced into a never ending cycle of paying more money to acquire marginally worse customer.

Blue Apron’s downfall provides a look at what happens when a company doesn’t figure out how it is going to retain users and is forced onto the vicious treadmill of vanity growth.

The line of thinking I was on throughout the day made me come back to one Buffet idea that I do remember picking up initially from the previously mentioned book — the Institutional Imperative.In Berkshire Hathaway’s 1990 letter to shareholders, Warren Buffett defined the institutional imperative as “the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.”  This discussion was a follow-up to the 1989 letter, which detailed traps within a firm and include:

(1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.

This way of operating — something that many companies in the “CAC is the new rent” economy of the last 5 years fell victim to in verticals like DTC products, consumer subscription, and even enterprise SaaS — has largely given way (out of pure necessity in many cases) to a focus on leveraging retention as the path to growth.

As traditional paths to defensibility become harder to develop and maintain, the only moat that sustains is a company’s ability to consistently deliver an experience that leaves the consumer feeling like they are getting a better deal every time they walk away from an interaction.

It can become easy to lose track of this “value to customer” north star and fall victim to the institutional imperative imposed by the venture capital culture that says the only way to build a massive business is to optimize for 12 month cycles of momentum that help you get to the next fundraise (to hire the next person, open that next geography, or roll out that new product line).

Companies like Calm and Webflow have started to show us that the best companies aren’t opting out of the venture capital track, as many predicted, but are instead taking back control over when and how to use capital as a tool instead of as a signaling mechanism.

Resisting the institutional imperative must happen proactively and must be embedded in the company culture from day 0.

It requires (to repeat myself), a focus on long term customer value from the outset (some examples here and here), a “default alive” approach to revenue and burn, and perhaps most importantly, a personal temperament capable of giving you blinders to the inevitable high-profile fundraises by competitors (and the press fawning that comes with that).

An over-focus on competition what others are doing leads to a lust for activity.

The scarce resource in for today’s emerging startups is the ability to build a “run your own race” culture. Those who do will be able to resist the venture market’s institutional imperative and will stand alone at the finish line.

Assets that do not earn

Investing is an exercise in evaluating how a company’s “intercept” — the current state of internal affairs, collection of assets, and known information about the competitive environment — will influence its future “slope”.

In the early stage market, this becomes especially challenging as there is necessarily limited, incomplete, and outright unknowable information about a company’s intercept upon which to base the evaluation of what shape and grade that slope will take over time.

In more mature companies (think Coca Cola or Salesforce) there, somewhat obviously, tends to be a tighter band around how the slope will trend. With more information available about the company — long term contracts, benchmarks against competitors, established leadership teams — more of the slope is locked in (and priced in) over the next year and beyond.

The earlier in its lifecycle a company is, again somewhat obviously, the less locked in the pitch of the slope is for any period of time into the future. This same framing tends to apply to building products and companies in new markets with few predecessors upon which to accurately contextualize progress.

A company’s journey from new to mature is a journey from hypothetical value to real value. Mature companies are valued on their ability to turn assets into cashflow while emerging companies are valued on what might be called “assets that don’t earn“.

Put differently, mature companies are valued on their accumulated advantage while startups are valued on their accumulating advantage. Another term for the latter is business model leverage.

Accumulating advantage is core to the investment philosophy of many top early stage investors— including Keith Rabois who discusses the concept on this great podcast with David Perell of North Star Media — but it remains a challenging concept to fully internalize and identify in real time when evaluating an investment opportunity or thinking through how to create a “rich get richer” virtuous cycle in building a company.

One helpful example to illustrate the idea of accumulating advantage is Netflix and the (painful) journey that public market investor Bill Nygren took to finally understand how to assess the company’s strategy and, by extension, the pitch of its future slope and its valuation.

Fast forward to just a few months ago: One of our young analysts comes into a large room and there are about 20 of us on the investment team that sit around the table. He has written a report on why we should buy Netflix and I’d gone through it…and of course, it’s hard to get out of your mind that you missed buying at it like 5% or 10% of the current price. And the report didn’t really jump out at me.

We go into the room and he starts by saying, “people subscribe to HBO NOW, and they pay $15 a month. They subscribe to Spotify, they pay $15 a month, Sirius XM, $20 a month. Those same people, when they rate the services, they subscribe to say Netflix is more valuable to them. If Netflix, instead of charging $10 a month, charged $15 it would be selling at 13 times earnings.” And it was like the bell went off. That’s that’s a way of thinking about the business value there that I had never thought of — that the willingness of Netflix to sacrifice current income by not charging as much as they could for their product to instead grow their subscriber base 25% a year to a point where the moat has become almost so large that it’s impossible to think of somebody displacing them.

$8 billion a year on programming. That’s almost now two to three times what HBO spends on programming. And because the sub base is growing so rapidly, the cost per subscriber is going to be substantially less for any programming that Netflix considers buying compared to HBO. Now, clearly, that’s a stock most value managers won’t touch. It sells it almost 200 times earnings while the market is at 18 times earnings. It’s just a name they don’t even think about.

I think as value investing has evolved. Most of the interesting opportunities today are coming from these businesses where the P/E ratio does a really poor job of assigning value, the companies that have these unique non-earning assets.

In addition to analogies like this, I’ve also found it helpful to develop a few supporting questions (incomplete and constantly in development) that I ask when trying to understand if a company has a valuable accumulating advantage.

  • Is this company making tradeoffs that its competitors are unwilling or unable to make?
  • Why is the business “easier” now than it was 6 months ago and what will make it easier 6 months from now?
  • What unique bundles is this company built on? (Note: An example here might be a team competing for similar customers with a similarly featured product but gaining an advantage because of a proprietary distribution channel enabled by founder domain expertise and experience. Put differently, what “secrets” is the company founded on?)

A company’s accumulating advantage and its “assets that don’t earn” (yet!) represent the tip of the sphere behind which all the power of all of its resources should be aligned. For any capital allocator — an investor evaluating a company or an executive making decisions from the inside — cutting to the core of what drives a company’s accumulating advantage is crucial to sustaining success.

Building Bolligen Tower

Why Stitch Fix style curation can help make distributed work actually work.

In an era of endless choice, curation reigns supreme.

Almost a decade ago, I tried Trunk Club on the recommendation of a friend and loved the experience. In the years since, the market for trusted personal style support has exploded, highlighted by Stitch Fix who has paired data science with expert human curation to build a publicly traded company worth almost $2b.

There is an powerful “always on” feedback loop to the Stitch Fix experience. With each successful match, the client spends more time in Stitch Fix curated clothing and is constantly generating positive associations with the service — each glance in the mirror or comment from a friend. Pair that client-side feedback loop with the data loops Stitch Fix benefits from by combining client provided preference and size information with merchandise data and the service becomes highly personalized and more successful over time.

This graphic from the company’s S-1 conveys this value loop nicely.

This type of curated experience, enabled by empowering trusted experts with data and technical tools to amplify their impact, has spread effectively to other areas.

Future.fit, who raised its Series A round from Kleiner Perkins, Khosla Ventures, and other top firms is providing a similar experience for health and wellness — giving each member a dedicated trainer who is able to leverage the data and content provided by the user (via videos, chat, and an Apple Watch) along with trainer-facing tools provided by Future to maximize effectiveness.

While both fashion and fitness represent large areas of consumer spend from a time, attention, and money perspecive, many important parts of life remain unimpacted by this form of curated empowerment.

One area that stands out is work — specifically distributed work, where the millions of people who are now spending at least a part of their time away from a co-located office are vastly underequipped to deal with the different emotional and physical requirements posed by working in a remote setup.


Building Bollingen Tower

When Karl Jung, the Swiss psychologist, needed to get deep work done, he would go out to Bollingen Tower, a stone house without electricity or running water he built by the lakeside outside of a small village in the countryside beyond Zurich.

For J.K. Rowling, it was the Balmoral Hotel. And for Mark Twain, it was a physically isolated cabin on the other side of his large property.

This is according to author Cal Newport, who talked about the value specific physical spaces have as enablers of deep work in this great podcast from NPR — but the lessons about the impact of physical space on our effectiveness goes well beyond deep work.

A well-designed co-located office (of which there also seem to be exceedlingly few…but that’s for a different post) offers workers spaces to get all sorts of work done — collaborative space, deep work space, task focused space.

Distributed work takes this to the next level and creates the opportunity for individuals to curate a set of physical environments perfectly tailored to maximize their own effectiveness.

In Stitch Fix terms, it can be like going from shopping at a lowest common denominator department store to having the perfect outfit pressed and ready every day of the week.

Of course, this is not the case.

The current distributed work paradigm assumes that everyone is their own Stitch Fix expert and is able to decide for themselves how they work best — when, where, how they should be working in order to cope with the entirely different set of emotional and physical challenges posed by remote work.

It requires us to be part psychologist, part real estate agent, part architect, and part personal assistant. I’m certainly not all of those things and I’d wager most other people aren’t either.


StitchFix for Distributed Work

One partially valid criticism that the distributed work trend often receives is that there are too many companies focused on the “easy” stuff — building a new collaboration product, for example — and not enough time laying down the difficult infrastructure needed to make it situation for a significant enough number of people.

Designing personalized plans for how we access and utilize physical spaces to make ourselves happier and more productive workers is a foundational piece of the distributed work puzzle that has the potential to accelerate adoption and drive real business value for companies who will be much better equipped to attract and retain talented people.


How might it work?

This is the Stitch Fix client journey as described in a recent investor presentation…

..and this is how they visualize their personalization model.

It is reasonable to think that the journey and model employed in the distributed work context would look similar.

Workers provide a broad set of data points that help their “Distributed Designer” understand their personality, how they like to work, and how different work related habits and environments have helped or hindered them in the past. Also taken into account would be the person’s role at the company. Are they a developer mostly focused in indvidiual work or a sales person who is often on the phone?

That data would then be paired with a local database of partners — coworking spaces, libraries, cafes, parks — to help the worker understand the options available to them. As someone who went through the process of doing this myself after moving to a new city a year or so ago, I can confirm how time consuming it can be.

Another element to this would be recommendations on optimizing a worker’s home office environment since that likely serves as at least a part time workplace for most remote workers.

And to wrap up the experience — similar to Stitch Fix — a worker would have the ability to test out multiple options before selecting a final setup that may include some combination of different spaces around a city that the “Distributed Designer” has a relationship with.

Is the idea VC Scale?

Automattic is, perhaps, the best known company with a 100% distributed work force. According to this source, the company offers a $250 monthly stipend towards co-working space. Basecamp offers its employees a $100 monthly stipend as well as a broader commitment to support employees with the tools and services they need to succeed.

To contrast, Stitch Fix customers spend about $500 during their first 52 weeks on the service (and about $700 over their first two years) and Future Fit charges $150/mo for its service.

If a company were simply serve as a data driven broker between workers and potential places to work, charging a percentage or a one-time fee for each consultation, they might be able to capture something like 10% of the annual spend per employee on remote physical space. At 10,000 workers (basically 10 Automattics), that’s a $1.2m net revenue business if we assume a $100 per month stipend.

If the company were to expand to offer its own spaces similar to how StitchFix now has its own house brands, generate pricing power and desire to increase spend by proving out a major impact on employee happiness and retention, or find its way into other adjacent daily curation and community focused areas the numbers start to get much larger.

There are also a ton of challenges inherent in the model that might make it a non-starter — for example, how could you credibly cover all of the geographies around the world you would need to actually acquire “enterprise” accounts and serve a global customer? Would you quickly obviate the need for your service and cut off recurring revenue opportunities by doing a good job the first time around?

This is, of course, very back of the envelope and just to illustrate at a high level that there is probably a business of some sort to be built around the concept.


Backing Bien-Être

As someone has now spent around half of my career in remote work settings or in companies with distributed teams, I have first hand experience with the challenges of finding the right physical environment for success and managing one’s own productivity (and that of a team) without the benefit of in-person context and feedback loops.

Collaboration and communication tools help some of this and products like Alan in France and Catch in the US are tackling some of the very difficult administrative challenges standing in the way of the broader adoption of more flexible and distributed companies.

As an investor focused largely on what I call the “wellness driven consumer“, I would love to see more companies built to serve the emotional, psychological, and physical needs of the millions of people who have or will soon be faced with adjusting to work outside of the traditional office setting.


The At-Home Fitness Roll-up

In an email exchange the other day, a friend and fellow investor in early stage fitness and sports companies made the comment that the at-home fitness market may be hitting the peak of its “Uber for X” curve — meaning, tons of company formation and an (over)abundance of capital riding a wave of enthusiasm because of the success of one or two key companies (in the case of fitness, Peloton).

As with the Uber for X market trajectory, the idea is that derivative ideas will either fail to take off (Uber for Car Washes…), or if they are attractive enough, be partially eaten up by the bigger players (on demand food delivery, for example).

With the news of Tonal’s Series C funding round *, led by L Catterton, we are starting to see early indications of another parallel between the respective markets pioneered by Uber and Peloton: The Roll-Up.


Roll-ups — or what Bain has called the “Buy and Build” strategy — have become very prominent in traditional private equity and have been employed to extreme success in the SaaS world by firms like Vista and Constellation Software.

via Bain’s 2019 Private Equity Report

The strategy tends to work well when the group of companies being brought together are similar enough that they can benefit from shared, scaled out fixed “infrastructure” across core business functions but are different enough (end customer demographics, positioning/brand, geography, etc.) that they don’t encroach too aggressively on one another.

Recently, the strategy has made its way into the boutique fitness market thanks to Xponential Fitness and, per Heartcore’s Max Niederhofer could have a place in the DTC / DNVB world as well.

Anthony Geisler, CEO of Xponential Fitness, recently explained how this plays itself out in boutique fitness:

The model used to maximise the potential of each brand is actually a very simple one, Geisler maintains. “There are three simple components to all these businesses: the programming, the marketing and advertising, and the sales ‒ closing ratios, sales platforms, sales training. Once those three components are optimised, all we do is continue to deliver a great product and continue to charge for that product. That’s really the business we’re in across all modalities.”

The intersection of these two areas — boutique fitness and direct to consumer — is where the Peloton for X market sits and is why firms like L Catterton seem to be exploring the opportunity to roll up the category, initially with large minority investments in growth stage ventures.

This walk before you run approach seems to mirror the process that led TPG to initially create Xponential Fitness as a standalone company.

While it seems that Peloton has hit escape velocity towards an IPO — and per Pitchbook, L Catterton hasn’t participated in Peloton funding rounds since 2015 — other companies that L Catterton has backed (like Tonal and Hydrow) or that are currently even earlier in their life cycle stand to benefit from the type of shared infrastructure that could be enabled with a roll-up strategy while being left to innovate and provide an elevated customer experience in areas of core differentiation.

These companies are unique in different ways — novel training systems and content, passionate communities, and intelligence related to programming and recommendations are a few areas where these companies can differentiate — but all share similar “fixed” elements of the business that are required to compete in the market long term and which, if left to each company to execute on themselves, can be very capital intensive and require a different skillset. A few example areas:

  • Manufacturing
  • Global Distribution
  • Physical Retail
  • Real Estate
  • Marketing / Advertising

To date, only Peloton has gone down the path of owning all of these functional areas in-house although they’ve only just begun to expand internationally and are in the early days of creating their in-person, boutique training experience.

Building out a centralized platform to go after this opportunity would not come cheap — Peloton is not yet there on $1b in capital raised — and with their first-mover advantage, it is possible they’ve been able to grow more efficiently than those coming after them.

via Pitchbook

A firm like L Catterton certainly has the access to capital needed to go after this opportunity and thanks to the breadth of its current operations, possesses the expertise to call on to build out this platform. And with the scale, growth, and untapped potential of the global fitness market, I’d be surprised if others weren’t considering an aggressive play here as well.


Trend Following in Consumer Wellness

9 key ways the world of the wellness-driven consumer is evolving.

We are living through a transformational cultural unbundling of consumer preferences driven by the rise of the wellness-driven consumer. The wellness-driven consumer is more informed and more principled than ever before and is increasingly seeking to engage with products and activities that integrate and elevate the experiences of work, health, and community.

Photo by Plush Design Studio on Unsplash

This shift has — and will continue to have — a profound shift on the global economy and on the way early stage companies are built and funded.

It is also such a dynamic, organic space crossing so many different industries and demographic boundaries that trying to understand it from a top down perspective with too many preconceived categorizations is nearly impossible.

Instead, I’ve tried to take more of a bottoms us “trend following” approach…deeply understanding a few key catalysts (people, behaviors, companies, etc.) that are driving an outsize change around how, what, and where consumers are engaging with wellness-centered lifestyles and hoping that those guide me towards more interesting people to work with and companies to invest in.

Here are 9 of the major waves I’ve been following closely.


1. Wellness Education at Scale

A day before Lambda School announced its large Series B funding round, I wrote about building the “Lambda School for Personal Wellness”, based on the idea that improved wellness has a strong impact on one’s long term earnings potential. While the tie between better health and career success is clear, I believe the impact of quality education and behavioral change at scale would blow us away in terms of it ability to drive increased collective productivity and, as a result, collective quality of life.

Within the wellness world, there are many forms an educator at scale could take but my guess is that companies will find success by bundling the product elements that have made so many digital fitness and wellness communities sticky and successful with an aligned business model that allows for scale beyond the 1% to close the massive impact gap that exists in the market today.


2. The Digitally Native Holding Company

Companies that own the relationship with their audiences by developing effective “audience loops” — scalable ways to engage customers via direct conversation and real-time demand identification that drives nimble distribution — have the potential to grow faster than ever from single product companies to Digitally Native Holding Companies capable of delivering a wide range of products and experiences to a core set of customers.

This is true for both digital and physical product companies and my expectation is that we will see a faster pace of new product development and vertical integration from early stage companies that find product market fit with a targeted customer segment as they prioritize selling new products to that core segment over scaling a single product to new consumer groups.


3. BIG Subscription

While the section above is mainly about startups expanding their product suites early in the company lifecycle to capture a bigger share of wallet, Lululemon seems to be taking a similar approach — going deeper with its core customers through a subscription model test after years of outward expansion to capture a broader set of demographic segments.

howardlindzon made the very interesting prediction that Lululemon or Nikewill buy Peloton during 2019.

I think that is entirely possible but believe that the M&A aggressiveness Lululemon shows will be largely dependent on the success (or failure) of their subscription experiment as they roll it out to a broader audience.

If the subscription model has legs, it will be a strong indication that Lululemon’s ownership of the customer is strong enough that they can push through the product they want on their terms — without having to resort to an 11-figure M&A deal — and may even spur them to build out their own digital products.

If the subscription model is less successful, they’ll be forced into a more defensive position as it will indicate less of a stranglehold on the customer wallet.

Companies like Nike, Adidas, and others across the apparel, equipment, and wellness facility markets will take a similar approach…test out new business models and customer engagement strategies, then resort to aggressive M&A if those don’t work to buy direct customer interaction points if (more likely when) those fail.


4. Substance-Backed Influencers

In The Atlantic, Taylor Lorenz wrote a piece about the Wild West that the influencer market has become…especially in categories where those influencers are paid per post and let brands dictate their work.

On the other hand, many wellness-related influencers have done an incredible job of “leveraging followers as low-cost distribution to launch their own products and services” (as Brianne Kimmel put it in our Twitter discussion). People like Kayla Itsines (Sweat With Kayla) and Andy Puddicome (Headspace) are examples at the high end of the market.

There is also an exciting long-tail, micro-influencer opportunity to help coaches, instructors, and trainers “scale their time” by providing them tools to engage, grow, and monetize their client-base and gain control over their business and the impact of companies building in this space will continue to grow in 2019.


5. Boutique Fitness 2.0

The boutique fitness segment has experienced massive growth over the last decade and with the maturity of the market we are starting to see significant consolidation — both with the studios themselves being rolled up by players like Xponential Fitness and the increasing speed of M&A on the “picks and shovels” side of the market with the recent Mindbody acquisition by Vista and ABC Financial’s acquisition of Brazilian market leader Evolution W12.

We are also starting to get indications that increasing competition from digital players and direct competitors may be slowing some of the growth for market leaders like Soul Cycle.

There are a ton of directions in-person fitness experiences could go — Outdoor is one angle I’ve seen pick up pace, “Talent Platforms” not focused on any one activity type are another. Experiences that stretch beyond the four walls of a facility — wellness-driven travel, for example — is another exciting area. The multi-functional trend which incorporates wellness with work and social life (We Work, The Wing, etc.) should also spawn vertical focused entrants capable of picking off new adjacent segments over time.

Life Time Fitness’ CEO Bahram Akradi recently participated in an interesting interview with Tech Crunch which indicates that forward-thinking incumbents won’t cede ground and may have some built in advantages when it comes to building spaces that allow customers to live a more fully integrated life centered around wellness.


6. Legacy Experience Embedding

While Life Time Fitness, which occupies a slightly higher end of the market, has remained profitable over the years and is still experiencing double digit top line growth, the middle of the gym operator market has fallen out.

The gym operator market has very direct parallels to the retail market where discussion about the implications of Amazon and accelerating Ecommerce growth have been ongoing for at least a decade.

In the same way we have massively overbuilt retail space in the United States, we also have far too many underutilized gym and wellness spaces and there is an opportunity for taste-makers and community builders to scale their impact outside of city centers and into suburban and rural areas seeking in person community that is sorely lacking.

The model here would be similar to what b8ta has done with Lowe’s or…given that the instructors themselves are often the product that gets customers hooked and keeps them coming back, maybe there are some learnings to be drawn from the way a company like Faire has scaled its impact on Main St. America in such a short period of time.


7 . Internationalization

In my recent post about “Investing in Bien-Être”, I wrote that global distribution platforms, converging consumer tastes, more efficient business models, and emerging technologies are breaking down many of the geographic barriers to building passionate communities and as a result companies are being built and scaled around the world to capture value from this dynamic market.

This is a trend that will surely continue with content-related companies support different languages or cultures from the outset and a new group of companies springing up to support companies looking to go global with physical products or digital experiences.

Given my role as an investor based in Paris aiming to help companies make the Europe to USA jump (and vice versa), I’m particularly interested in this trend and will be following closely.


8. Stress and Sleep

Two books — Why We Sleep and The Upside of Stress — seemed to capture the attention of many influential technologists over the past year, which has driven a lot of conversation (within a niche community of investors and founders) around the opportunity for companies to improve our relationship to sleep and stress. I’m fascinated by the interaction of all of these core behaviors — sleep, exercise, proper nutrition, mental health, etc. — and am always trying to figure out (for myself and at scale) which are most impactful as a starting point for better health.

On that topic, my friend David Vandegrift made a great point…

…although the fact that we’ve yet to see the “Headspace for Sleep” makes me think we’ll see a lot of company formation here in the coming years.

One prediction I will make here is that we will see a lot of companies in upcoming YCombinator classes tackling these areas 🙂


9. The Digital Practice

Today, 64% of Americans want to lower healthcare costs but 80% don’t meet minimum exercise requirements. This inactivity costs the US economy nearly $30b per year in medical expenses and lost productivity. Globally, the figure is a staggering $70b. Similar figures can be pulled for nutrition, sleep, and other parts of the wellness puzzle.

It is clear that the traditional health care system is inadequate…that’s not a controversial insight to anyone.

This inadequacy is starting to be met more and more by entrepreneurs building “digital practices” that, while often still loosely tied to the existing system, are building experiences that will allow them to scale their impact beyond the limitations of the current paradigm.

Mental health seems to be the place many founders are starting but I’m also very interested in digital practices that leverage other behaviors or solutions (maybe around nutrition, fitness, relationships) as their keystone pivot point and grow from there.


Those are 9 of the major things I’ll be following closely over the coming months and believe will make significant impact on the way wellness-driven consumers live their lives…there are many more I’ve missed here to be sure.

If there is anything you’re working on or seeing that aligns with these 9 areas or that I missed and should be keeping an eye on, let me know on Twitter, in the comments, or via email (brett [at] technexus.com).