by Darren Dahl,
Starting a business is always risky, especially if your business is trying to swim against the larger economic tides. That’s why many savvy entrepreneurs take a broader view of the forces shaping supply and demand before taking the plunge and founding a company. What those broader forces reveal: Now is a great time to get in the game.
The economy is growing again, with gross domestic product up 2.3% compared to 1.7% last year. Interest rates also remain at historic lows, with no sign of significant inflation. There is also plenty of capital to be had, as venture capitalists continue to make deals at a brisk rate. Even the IPO market seems hot these days, especially with Facebook set to debut this week. Add all that up, and you’ve got some pretty favorable business conditions.
This year’s list is the product of old-fashioned reporting, boosted by data and insight supplied by a trio of independent research firms: Sageworks, which performs financial analyses of privately held companies; Plunkett Research, a business intelligence firm that studies trends affecting the world’s most vital industries; and IBISWorld, which provides industry growth figures, five-year revenue projections, employment growth, profit margin averages, and industry competition ratings.
To make the list, industry have to be not only fast-growing but accessible to entrepreneurs. In other words, we excluded growing industries like energy production, nanotechnology, and auto dealers because they are typically too capital-intensive for most start-ups to break into. We also omitted several professions that are growing nicely but require years of additional education or training: law, medicine, and accoutancy, for example.
The list also reflects macro- and micro-level economic drivers that continue to shape the U.S. economy. For example, not only are millions of Baby Boomers now reaching retirement age, some 90 million so-called Millennials or “Gen-Yers” are now entering the workforce—and creating new patterns of consumption and demand, says Jack Plunkett, CEO at Plunkett Research. Those Millennials are one key reason Plunkett is high on the growth prospects for the residential housing market—an industry that was severely hit by the Great Recession. “We are already seeing steady improvements in the existing housing market where unsold inventory is drying up,” says Plunkett, noting that new building permits were up 34.3% in February 2012 over a year ago. “That means we are going to see a significant new demand for housing from this maturing demographic over the next several years.”
Another trend with wide impact is the increasing demand for eco-friendly products and services, says Nikoleta Panteva, a senior analyst with IBISworld. Not only does that boost the residential housing market, where ‘green’ homes and renovations are increasingly in demand, but it also drives business-to-business demand for services such as environmental consulting and water conservation. “There is a definitive shift toward finding ways to make things more efficient and longer-lasting,” says Panteva, who notes that government programs such as Energy Star are also helping drive consumer demand for eco-friendly products.
As the U.S. economy continues its slow recovery, consumer confidence also recovers. That promises to unleash some of the pent-up demand that has built up during the past few years. “Both businesses and consumers are sitting on tons of cash,” says Plunkett. “As their confidence increases, we’ll start seeing some spending sprees, like we’ve been seeing with people replacing their automobiles.” Full service restaurants will be one beneficiary of that swing in spending. “When the stock market goes up like it has, it makes people feel better, which feeds demand for little luxuries like dining out,” says Plunkett. “People are little less likely stay home and eat leftovers while watching TV.” While margins are typically razor-thin in running a restaurant, the barriers of entry are fairly low, especially if you want to start with a trendy new food truck.
Increased discretionary spending is also good news for the pet care industry—particularly pet grooming businesses. “There is a clear trend where more and more people are living alone and delaying having kids,” says Panteva. “People are now spending their money on their pets instead.”
But it’s the mobile and social gaming industry that is projected to show the highest growth over the next five years. Plunkett cautions that low barriers to entry make this market highly competitive, which could make starting a venture here risky business. “It might not be the best industry to start a business in for the entrepreneur who is faint of heart,” he says.
Selling to businesses
It’s not just consumers who are expected to increase their spending — there’s plenty of opportunity to be had selling to businesses, too. And here, no trend is more powerful than the continued burgeoning of information technology throughout the global economy. “There was an expectation that e-commerce would peak several years ago, and that simply hasn’t been the case,” says Plunkett. “A growing number of people and companies have turned to e-commerce as a way to save money and gain efficiencies.”
The growth of the digital economy has also spurred demand not just for IT consulting services, but also for Big Data services. Big Data companies provide sophisticated software tools that mine and analyze the terabytes of information created by each purchase, doctor’s visit, and new ‘friend’ on Facebook. These Big Data firms help other businesses better understand their markets and customers using the data they collect.
Transportation and logistics companies are also expected to be winners over the next five years. “Supply chain management can involve anything from just-in-time sourcing in China to buying a truck and offering a delivery service,” says Plunkett. “It’s all about creating efficiency and saving clients money.”