New Venture Lab: Equipping Christian Entrepreneurs

Every entrepreneur likes to catch a wave and ride the crest as long as possible.  As I am fond of saying "a rising tide lifts all boats."  Given that, when you are looking for ideas for a business, look for favorable macro trends - one of our 50 concepts in our Venture Analysis (criteria # 6) for analyzing a business opportunity.

The list below is a list of 18 of the hottest business concepts right now according to Inc. Magazine research.  One word of caution: be sure to establish your evaluation criteria first so make sure that you do not compromise what is most important to you.  Your criteria should include your Spiritual evaluation criteria (building businesses that honor God), which no doubt will eliminate a few of the concepts listed below, such as liquor distribution and Yoga and your business evaluation criteria should include extensive industry analysis (see the Venture Analysis) which will help point out, for example, that developing an iPhone application or a SaaS application will be a far better business opportunity than a Fast-Casual dining restaurant.  Don't forget your personal criteria, your context criteria, etc.  See our latest version of Building a Business From Start to Finish for more on how to think through the process.

Here is the Inc. list, along with my commentary:

Candy

How sweet it is. Even in a recession, candy has been a luxury that many people can still afford. "Chocolate is a comfort food," says Dan Johnson, owner of Choco-Logo in Buffalo, New York, which has seen retail sales rise 30 percent since last year. The confectionery industry, as a whole, grew 3.7 percent during the 52-week period ending April 19, according to the National Confectioners Association, which is pretty good considering so many industries are flat or declining. Historically, experts say, candy is one of the most recession-resistant industries and many of today’s classic brands, including Snickers, Tootsie Pops, and 3 Musketeers, all launched during the darkest days of the Great Depression, between 1930 and 1932.

NVL commentary: does not meet my Spiritual evaluation criteria in that is promotes unhealthy habits and does not create value.  In terms of the Venture Analysis, it fails criteria #2: Organic Growth.  I'm sorry, but 3.7% is not a very exciting growth trend to build into -- that's barely more than our population growth.

iPhone Apps

Apple launched its App Store last summer, creating a whole new burgeoning industry in the process. Sales of apps in the first month topped $30 million, leading Steve Jobs to predict that the marketplace would be worth $1 billion some day. To date, companies have produced more than 30,000 applications, ranging from games such as Tap Tap Revenge to apartment-hunting help to tools for finding out the name of a song; in all, Apple has processed more than a billion downloads. To capitalize on the trend, venture-capital firms such as Kleiner Perkins have begun investing in app producers; the venerable Sand Hill Road firm has earmarked $100 million for the market.

NVL commentary: While some applications would meet my Spirital evaluation criteria, others, such as games, would not.  In terms of the business evaluation criteria, while the Venture Analysis criteria #1: Size of the Addressable Market, is still low, in terms of criteria #2: Organic Growth, this sector is a winner.  With the explosive growth of the main platform -- the iPhone -- and the growth of the industry -- Smart Phones -- this one is truly catching a wave with growth rates that are many, many times higher than the Candy business.

Health-Care Technology

The challenge of streamlining patient care through digitized medical records, e-prescription programs, and online hospital communication, is just now gaining momentum, giving younger companies a chance to make inroads. The federal stimulus bill pledged $19 billion to the development of a health-information tracking system. Based on that level of funding, employment in the field is expected to grow by 18 percent between now and 2016, according to data from the Bureau of Labor Statistics. One up-and-comer: Phreesia, a New York City business that makes electronic patient check-in tablets for doctors offices, recently closed $11.5 million in Series C funding, and has secured $25 million in funding to date.

NVL commentary: While this is a very interesting area (I personally spent a number of months several years ago performing due diligence on a potential investment in a health records management business), I would eliminate this idea for me now because of my personal criteria, and specifically for reasons of context.  One of my critical "context" issues which is non-negotiable is that I do not want to start or invest in any business that puts me on the road.  In my experience, in order for an entrepreneur to develop and sell the next new health records management software or service, you would have to spend several years of your life on the road recruiting, raising capital, partnering, selling, etc. and the cost is just too high for a man that wants to lead and protect his family.  In addition to that, with all of the funding, both private and public, in this area, there is a lot of market "noise" that would make it difficult to gain traction.  This would also score low on a number of the Venture Analysis criteria such as #5: Regulatory Environment, #11: Total Investment, #12: Fixed Asset Investment, #14: Breakeven Timing, and several others.

Beer, Wine, and Liquor Wholesale

Even as consumers cut back on their consumption of premium alcoholic beverages, sales of booze at lower price points have risen significantly over the last year. As a result, beer, wine, and liquor wholesaler profits have grown 18 percent and sales have grown 5 percent over the past year, according to Sageworks. And the Distilled Spirits Council estimates exports of U.S. distilled spirits grew by 8 percent last year, to $1.1 billion, led by robust demand for American whiskeys.

NVL commentary: No go.  This would not honor God in that it could cause a brother or sister to stumble and does not add value.

Software as a Service (SaaS)

Although software spending is expected to increase just 5 percent through 2013, the software-as-a-service niche is forecast to expand by nearly 20 percent annually over the same period, as companies continue to see the benefits of on-demand, flexible applications, according to Gartner, a market-research firm. The industry is expected to produce $8 billion in sales by the end of this year and $16 billion by the end of 2013. The office suites categories will lead the pack this year, increasing 376 percent to $512 million.

NVL commentary: A terrific space to be in.  Unbelievable Organic Growth (#2), Recurring Revenue (#50), Repeatable (#23), Scalable (#22), etc., etc.  One of my absolute favorite business models.  There are several Venture Analysis criteria to pay special attention to such as #11: Total Investment, #12 Fixed Asset Investment, #26: Concept Risk and #27: Development Timeframe, among others.

Home Health Care

Perhaps the sector likely to benefit the most from the aging baby boomer generation is the home health-care industry. An increasingly popular alternative to nursing homes, home health-care services tend to offer patients lower costs while affording them the dignity of being able to remain in their homes. Industry employment is expected to increase 4.5 percent annually through 2016, the third-highest rate of growth recorded by any industry, according to the Bureau of Labor Statistics. The industry has spawned dozens of promising niches, including companies that specialize in cognitive-fitness computer programs, which help exercise the mind. Total revenue for companies in the cognitive-fitness market topped $265 million in revenue in 2008, up from $100 million in 2005, according to the market research firm SharpBrains. Total sales are expected to hit $2 billion by 2015, the firm estimates.

NVL commentary: Not a bad space, but not the best either.  Far lower growth than many ideas here and very labor intensive (#28), not very repeatable (#23), nor scalable (#22).  But it is a good way to serve your fellow man and you can build a very God-honoring business around this that involves your family.

Yoga Products and Services

Amid a recession, are we getting more in tune with our inner spirit? Perhaps. Americans spent $5.7 billion on yoga products, equipment, and clothing in 2008--87 percent more than they did in 2004, according to a study from Yoga Journal. Nearly 14 million Americans say a doctor or therapist has recommended yoga to them. And as the industry continues to expand, there is ample room for new products. One promising opportunity: creating appealing men's yoga apparel.

NVL commentary: Not a God-honoring concept in that Yoga is nothing more than Eastern mystic religion -- complete with its incomprehsible chantings and calling upon pagan gods -- combined with a wee bit of exercise.

Fast-Casual Dining

This year might be the worst ever for the food-service industry as a whole, but the emerging fast-casual segment -- which falls between fast food and full-serve restaurants -- continues to shine. Sales for the top 100 fast-casual restaurant chains grew by nearly 11 percent in 2008, to $16.7 billion, according to Technomic, a Chicago-based restaurant industry research and consulting firm. Panera Bread led the segment with $2.6 billion in sales in 2008, representing 16 percent growth, while Chipotle Mexican Grill totaled $1.3 billion in revenue, good for a nearly 21 percent growth. For those without the capital to start a restaurant, food industry watchers are seeing a growing trend in food trucks, with those that offer one type of food -- tacos, waffles, and even Korean barbecue -- all the rage on the streets of major cities.

NVL commentary: I would pass on this.  Restaurants are one of the worst industries to start a business in for a number of reasons, but this would even get past my personal evaluation criteria in that it would take me away from home and family.  On the business evaluation criteria in the Venture Analysis, this scores low on at least half of the dimensions.

Green Construction

The construction industry may be in a slump, but companies that specialize in green building are bucking the trend. The overall green building market is expected to more than double from $49 billion today to approximately $140 billion by 2013, according to a report from McGraw-Hill. A growing consumer awareness of the advantages of sustainable homes and buildings, along with the increased government focus on environmental initiatives, will only bring more opportunities in this arena. Businesses that position themselves as both eco-friendly and affordable stand to benefit even more.

NVL commentary: I would fine-tune this by focusing on "greening" existing homes and businesses to help them cut energy costs and save money.  With the credit markets being what they are, more and more homeowners will stay in their current homes and upgrade or enhance, rather than buy a new home.  Anything that helps owners save money right now will win.  Add that to the green trend, and this is a winner.  The business model here will not be nearly as powerful as an iPhone or SaaS application, but it will do well on the Venture Analysis scoring.

Niche Consulting

In terms of overall job growth, the nation's fastest-growing industry is niche business consulting; it’s workforce is expected to increase by 5.9 percent through 2016. Corporate layoffs have spawned a wave of professionals who are trying to repurpose their skills in the consulting realm. While the competition is fierce in this space, the barriers to entry are low, and the industry as a whole is seeing a shift as clients drop big corporate consultancies in favor of smaller, more specialized firms. Particularly in demand right now: consultants who can help companies to save money, minimize financial losses, and do public relations damage control.

NVL commentary: This is fine if you have a lot of very specific expertise that is in demand, such as financial restructuring consulting.  Overall, though, this is still a highly competitive industry with slower growth and more likely than not, you will be on the road a ton at the client site.  This scores well on the dimensions of Total Investment (#11) and Fixed Asset Investment (#12), but poorly on several other dimensions such as Organic Growth (#2), Competitor Concentration (#7), Customer Concentration (#36), In-Market Timing (#37), Decision Making Unit Accessibility (#39), Substitutes (#40), Sales Cycle (#44)and Customer Acquisition Cost (#45).

Education Technology

The education-technology industry has been gaining momentum for years and the $650 million allocated to it in the recently-passed federal stimulus bill should only accelerate the transformation inside U.S. schools and school districts. Companies such as Promethean USA, eInstruction, and Luidia have already capitalized on growing demand, carving out market share in the emergent interactive-whiteboard industry. Then there’s Schoolwires, a company in State College, Pennsylvania, that designs content management systems for school districts. The business plans to increase its workforce 60 percent this year. Don Knezek, CEO of the International Society for Technology in Education, says when it comes to technology in classrooms, the U.S. is still an "emerging market."

NVL commentary: I view this as a niche market within the overall IT sector that encompasses hardware, network infrastructure and software.  While this niche is not growing gangbusters as other niches such as the iPhone niche, this is an attractive market.  I recently spent some serious cycles evaluating an investment in a company that builds and hosts network infrastructure for secondary schools.  I love the long-term, recurring, contractual revenue aspects of the business.  Those kinds of business model features score well on Price Point (#41), Customer Life (#46), Customer Switching Costs (#47), Cross-Sell (#48), Sales Frequency (#49) and Relationship Type (#50).

Temporary Staffing Firms

At a time when many companies are reducing their headcount, now might seem like a funny time to start a staffing firm. But some agencies, particularly those that specialize in filling part-time positions, are doing well. This sector -- the largest within employment services -- "should continue to generate the most new jobs in this industry," according to a government estimate. Those agencies that position themselves to take advantage of changes in the workforce by specializing in locating positions that offer flexible schedules, for example, are well-positioned to succeed.

NVL commentary: This is a good area to focus, given the economy.  Employers are much more willing to hire temporary labor than they are full-time labor.  Yet, this is not nearly as high growth as other opportunities.  To be successful here, entrepreneurs will need a deep, deep network of people that are looking to be placed and a deep, deep network of company contacts that are looking for temporary staff.  This is not for the faint of heart and will require years of effort to grow a sizeable venture, but I've seen these types of business models do very well.  To improve the overall business model, focus on skill sets that usually require longer placements (#46), try to cross-sell additional staff into current clients (#48) and deepen customer relationships (#50).

Accounting Services

It may not be considered a "sexy" industry, but small and independent firms that help companies manage cash flow by keeping on top of accounts receivables are increasingly in demand -- especially during a time when customers will do anything they can to avoid paying bills. Accounting work is a function that companies routinely outsource, especially when they are seeking to cut costs during a recession, which opens up opportunities for start-ups. Profit margins can be especially high for solo entrepreneurs or those who run their businesses from home. According to recent data from Sageworks, private accounting firms have seen a 20.9 percent growth in profit over the last 12 months.

NVL commentary:  Very similar to Temporary Staffing Firms in terms of why this is a good focus.  Entrepreneurs with an accounting degree or a CPA credential should be able to create a nice lifestyle business by growing a client base while working from home.  It is difficult to create significant value with this business model without scaling up the company by adding employees, which carries its own downsides.  There are only so many billable hours in a day and lone-wolf entrepreneurs can easily burn out in this business model as it can be little more than owning a job.  Look for ways to create automated, niche accouting services that provide you more leverage (#28).

Repair Services

Call it a sign of the times, but companies that provide repair services, ranging from the home-improvement sector to the auto industry, are seeing an uptick in revenue as more people opt to fix their existing possessions, rather than to buy new. Business is up 2.4 percent at auto repair shops and 4.6 for electricians and plumbers in the past year, according to statistics compiled by Sageworks. Other lucrative sectors include shoe repair shops, many of which have seen business more than double since the start of the recession, as well as personal electronics repair shops. The repair business is also hospitable for fledgling ventures: businesses can often be run from home and sustained on the founder’s knowhow and sweat equity.

NVL commentary: I agree that this is a good sector to focus on in a rough economy.  (See this post for more on why the repair sector is doing well.)  Many of the same issues of the Accounting Services apply here.  It is hard as a solo, owner-operator to sell and deliver and bill at a high enough utilization to deliver significant earnings or to grow significant value, but it can pay the bills.

Self Improvement

If ever there were a time in which people are searching for self-improvement, it's now. Americans spend more than $11 billion each year on self-improvement products and services, including motivational-speaker seminars, networking and wealth-building instructional DVDs, and spiritual guidance books, according to Marketdata Enterprises, a Tampa-based research firm. Over the next three years, while many industries contract, self-help is expected to grow 6.2 percent annually.

NVL commentary: The organic growth (#2) is not stellar, but this sector is doing well in a down economy.  I would be careful here not to offer any service that doesn't honor God.  Many motivational and self-help materials are merely tripe that tell clients to tap their inner "self", (read "god"), by tapping "the power within", etc.  Steer clear of anything that is not Biblically-grounded.  Stay with services to help clients learn to become more and more Christ-like in all we do and improve their character such as self-discipline, diligence, etc. as pointed out in the principles, patterns and precepts of scripture.  Much of this industry would not make it past my Spiritual screening process.

Energy

The energy industry is full of start-up opportunities, so it's no surprise that it was the fastest-growing category among privately-held companies on the 2008 Inc. 500 | 5000 list -- with a median four-year growth rate of 287.5 percent among 79 companies on the list. These companies run the gamut from dealing in solar energy to alternative fuels. Due to growing consumer demand to save on energy costs, companies that install efficient lighting systems or cut down on heating costs by installing solar panels are well positioned for future growth. In addition, economic stimulus funds for energy projects nationwide amount to $43 billion, creating opportunities for entrepreneurs with a scientific background to break into areas such as biofuel and wind power.

NVL commentary: I love this industry and I have spent considerable time looking at deals here and even personally evaluating different alternative energy options for my own farm.  I would recommend a strategy that combines (1) an energy audit, (2) "greening" of a home or business, and (3) the installation of alternative energy platforms.  I love businesses where customers pay you to find out how to sell them additional services (#48).  This is also a truly value-added space to spend your time where you can be a good steward -- not in the "carbon footprint" or "save the whales" kind of way -- but in a sustainable, viable, cost-savings, high-efficiency kind of way.