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.

Creative Compounding

As USV’s Albert Wenger tweeted heading into 2019, there is a lot of pessimism in our public discourse with much of the ire directly or indirectly pointed at technology as both a concept and as an industry.

While there is undoubtedly strong justification for concern and – in many cases – outrage, I am fortunate as an early stage investor to have the opportunity to meet daily with founders tackling high impact problems whose default worldview edges strongly to the side of optimism. This has given me a glance at many things happening in the world of technology that are worth being excited about.

One thing that has me extremely optimistic is the continued level of creative compounding in “offline activities” that has been and will continue to be enabled by the internet — and specifically by some of the social platforms that have been (rightfully) on the receiving end of so much ire.

Another term for this might be the “Digital Bannister Effect”:

My favorite example of this as a sports fan and someone who grew up as an athlete in a world where the internet was just starting to impact how we trained, played, and shared is what I see daily on the Overtime Twitter and Instagram feeds.

For the uninitiated, Overtime is essentially a mobile sports content network focused on high school and college athletes — many of whom already have hundreds of thousands of followers and are smarter than ever about how they build their own brands. Young, digitally native fans flock to the platform to become “early adopters” of these athletes…many of whom have next to zero chance of actually making it to the NBA or even starring at the Division I level.

What is most striking to me about Overtime is how it has become an engine of creativity for young athletes looking to make a name for themselves. The tweet below sums it up.

To bring it back to Wenger — who wrote the highly recommended World After Capital — many things that used to be scarce have now become abundant. In the case of Overtime, young athletes 25 years ago had very limited access to the exploits of top NBA and college players, let alone their peers. They’d be able to watch ESPN to catch a few highlights but the long tail of truly interesting stuff happening in small college and high school gyms across the country was totally under the surface.

Now, players can derive essentially unlimited inspiration for dunks, passes, and celebrations by spending 5 minutes on Instagram. The internet has unlocked the ability to access all of that long tail content, making our attention the scarce resource.

Effectively curating that firehose of information to help users spend their attention in positive ways has become an almost unsolvable challenge for many of the broad-based networks on the internet. As a result, we are starting to see the pendulum swing towards networks of niches and tastemaker-driven communities where masterful curation is a core part of the experience.

Overtime is one of these tastemaker-driven communities that has figured out how to build passion among its base and kickstart a segment of “creators” whose output compounds in quality over time thanks to continued feedback and competition from one another and from the millions of consumers their incredible feats of athleticism reach every day and it is one (of many!) things that has me excited about what technology is enabling us to accomplish.

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.

Podcast discovery isn’t a company, maybe “narrative discovery” should be.

Like Hunter Walk — and millions of other people — I love podcasts…and have for the last decade or so. I even hosted a few episodes of my own podcast back in the 2010/11 time frame.

Also like Hunter, I believe that podcast discovery is pretty broken for both people new to the medium and power users like me. Discovery within podcasts I’ve subscribed to is even an issue for me at this point as many now have a back catalog of nearly a decade.

As an example, I spent my ride to the airport this morning looking through old episodes of the Entrepreneurial Thought Leader Series from Stanford to download for my flight. Although I’ve listened to a number of these episodes over the years, I’ve never gone back through to the beginning to fully catch up on what I missed, nor should I have to.

A halfway decent discovery engine would know that since I subscribe to the ETL series, follow @Ev on Twitter, and have a professional interest in the business of podcasting (via social engagement, email subscriptions, etc.) I would be interested in hearing Ev Williams get interviewed about Odeo in 2005 (!) when podcasting was in its “pre-Geocities” phase.

Instead, I had to scroll back through hundreds of past episodes to find the interview, which I highly recommend.

Podcasts aren’t alone in this. Creative forms of content discovery are in short supply across the web. So while “podcast discovery isn’t a company”, I’ve often wondered if narrative discovery could or should be.

Here’s what I mean.

Today, most of what we consume about a historical period or event is wrapped together in relatively precise formats and generally consumed via a single type of media — think a Michael Lewis book or Dan Carlin’s Hardcore History (to bring it back to podcasts).

And while some larger events have seemingly been analyzed from every angle (financial crises, wars, political campaigns), there remain thousands of alternative storylines within each of those sweeping periods that are under-documented. Sometimes it is due to lack of broad based commercial viability of a story, other times it is a matter of “winners writing history”, and in many cases (especially as we go further back in time) there no longer exists enough information to fully document and convey the happenings within one of these micro-narratives.

That has changed with events unfolding during the internet era, as the amount of long tail of content — blog posts, audio recordings, videos, newspaper articles, social posts, etc. — has truly exploded and the “definitive” account of something can be more personalized than ever.

What I’ve wondered is if there a market for a service that combines web-scale content collection and indexing with human curation to build out personalized event, period, or even concept focused narratives that exist on the spectrum somewhere in between the well polished book or documentary on one side and a random set of Google and Wikipedia searches on the other and are delivered in a multimedia format.

My trip back through the archives of the ETL podcast series prompted a few storylines about the technology industry that I’d love to receive a loosely structured digital dossier — full of videos, interviews, blog posts, and audio recordings — about. A few examples are the history of payments on the Internet, Silicon Valley during the financial crisis, the rise of the Chinese internet in the aughts, and the clean-tech bubble.

There are also themes related to sports, music, health, and travel where I’m not necessarily looking for a singular definitive account, but instead just want to be pointed in the right direction on my “random walk” so I can start connecting my own dots.

As you may be able to tell, I don’t have a fully developed point of view about how this would be productized, what curation would look like, how it would be personalized, or even if there is a viable business model in it.

But given the amount of high quality “dark matter” sitting quietly and under appreciated in blog, podcast, and video archives around the web, it seems like it could be the type of “shadow market” capable of supporting a successful company in the hands of the right team.

Request for Product: “TalkThrough”

I find myself walking by myself a lot — taking my dog out multiple times per day, 40 minute walk to work a couple of times per week — and have increasingly been trying to use those free moments for productive reflection, planning, and thinking about problems I may be trying to tackle either professionally or personally.

What I am yet to find is a handsfree (or mostly handsfree) solution where I can leave my phone in my pocket and “talk through” whatever it is that is on my mind through a set of pre-structured questions that are either recurring (ex. 5 daily questions reflecting on the day before) or ad hoc (ex. as a founder, creating a list of common investor objections that I can vocally bat around with myself).

I’d be able to move through the various questions (and maybe even move to different question sets entirely) only using voice commands (“next question”) and the notes would then be transcribed, indexed, and made available in whatever my personal system of record is (I use Bear App).

There are a lot of things that almost work. Evernote supports transcription pretty well. Companies like Otter.ai have built great voice note taking apps. You can even create workaround with products like VideoAsk from Typeform. And based on this tweet, it does seem like there are people already working on this idea.

Everything I’ve seen still requires a decent amount of tapping on my screen, something I’d prefer to stay away from in moments where I am trying to think deeply on a subject. So this initial application or workflow to may lend itself to being built primarily on top of AirPods.

On Product Hunt, I saw an interesting comment from the creator of Listen App who noted that “podcasts are tapping into the last frontier of human attention: multi-tasking/on-the-go attention (70% are commuting)”.

What I’m looking for is something to tap into that same attention gap for moments where I am looking to “lean forward” (create content, think deeply, etc.) instead of “leaning back”, which I already do plenty of via my addiction to podcasts.

If you are building anything in this space — or even tangentially related — get in touch, I’d love to learn more!

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).