It’s easy to come up with a startup idea. It’s really hard to then build a company that will achieve even moderate success. In 2019, the failure rate for startup businesses was around 90% according to Investopedia. So how do you hedge your bet and take out some of the unknowns that most startups have and build a successful company? You focus on industries that have a Compound Annual Growth Rate (CAGR) of more than 4%. Sounds fairly simple. Why is CAGR important? Because it means people are steadily buying the product or service on a consistent basis over time and pandemics or recessions don’t stop the growth. That’s amazing. You want to start a company with a higher potential for success? Review the following three industries of tea, craft beer and dog food to learn more.
Twenty-three years ago, we invited an entrepreneur to speak at San Diego State University to students in the entrepreneurship program. He was really struggling with his startup and we thought he could give students the “how hard entrepreneurship really is” talk. At the time we had told him, even though he was experiencing some obstacles, he had picked the right industry, it was the right time and it was going to be all about product quality, distribution and brand. The market was there and would grow substantially over the next 20 years. It did and so did his company. He was the co-founder of Stone Brewing, now a $500 million craft beer brewing company. According to IbisWorld in a report from April, 2020, the beer industry will continue on its annual trajectory of 4.4% annual growth fueled especially by craft beer through at least 2029.
The same is true for dog food. Ten years ago, industry analysts forecast that the rise of dog ownership, and dogs becoming a “family member,” in the USA was going to drive the emergence of organic dog food which would shift and grow the entire category. Dog food might be even more remarkable since it has had an CAGR of at least 4% for the past 50 years and a 4.5% CAGR forecast from Grand View Research for 2019 – 2025. Paying attention to trends in a continually growing industry can give an entrepreneur an early indication that the industry will not only continue to grow but what niche categories might emerge to take industry market share.
Tea is another one of those continually growing industries. It is now the second most beverage consumed by the global marketplace, behind only water. According to Allied Market Research, the global tea market size was valued at $55 billion in 2019, and is projected to reach $68 billion by 2027, registering a CAGR of 6.6% from 2020 to 2027. To better understand this industry, and to learn more from an early entrepreneur in this marketplace, I reached out to Joshua Kaiser who founded Rishi Tea in 1997.
Joshua is not from a long line of family entrepreneurs, did not study entrepreneurship in college nor hang out with startup founders. What he did do was to combine his passions for travel, world cultures, global culinary traditions, and the curious study of tea and botanicals into a business. Following post-college travels, he landed back in the USA and was stumped by the lack of quality teas. A growing interest among Americans in the origin driven nuances of coffee and wine led Joshua to believe that the time was ripe to introduce true quality teas to the American market.
And so, in 1997, he began his journey, which continues today, to bring heathy teas to consumers. He did not look to marketing to launch his company but to developing great tea products. It’s why, in the first 18 months of starting his company, he visited several regions in Asia, met with small growers, and learned the effect of certain botanicals in cultivated regional teas. Over time, he learned the entrepreneurial business side of tea with product development, distribution, brand development, packaging and so on. But it really helped that he fueled his passion in a $55 billion industry with a CAGR of 4-5%. As Rishi Tea grew and developed even more innovative tea products, he grew right along with the industry. He did not have to create demand. He did have to craft a line of high-quality teas and convince buyers, distributors and ultimately consumers, that Rishi teas are some of the world’s best teas.
I asked Joshua what advice he would give to budding entrepreneurs looking to start a company with respect to a large industry. “My advice to aspiring business pioneers and entrepreneurs is to never dumb it down and always strive to smarten “it” up for your customers. Don’t enter the race to the bottom with your competitor’s in a large industry by cutting prices and using mimicry, “says Kaiser.
Here is his advice to entrepreneurs today looking back over his journey:
- In a large industry, pick a niche or category where you can be the leader with quality products or service.
- Elevate the industry from a customer point of view and you will stand out amongst the crowd of competitors.
- Build your brand in a niche with potential for sustainable growth within a large industry.
- Stay focused on your passion and your strategy and resonate with the consumer. Make your product or service better than the industry standard or don’t make it.
- Founders that meet success don’t do everything themselves and don’t micro-manage.
- Build a team of strong players and individuals that are smarter and better than you.
So, if you want to create a startup or grow a small business, and you want to hedge your success, pick an industry with a CAGR of more than 4%. Then, investigate the customer trends and focus on a growing niche in that industry. The growth will allow you to leverage the constant demand while building a startup brand that has a higher chance of long-term success. Looking forward, keep your eye on these three emerging industries that are seeing strong growth rates into the foreseeable future: home health care services, outpatient healthcare services and ecommerce.