Inc.
8 Best Industries for Starting a Business in 2020
By: Sophie Downes and Graham Winfrey
When you're considering starting your own business, one of the first questions to ask yourself is: Does my company fulfill an actual market need? Success as an entrepreneur requires bringing solutions to market, and too many startups today are really just solutions in search of a problem.
For aspiring entrepreneurs, Inc.'s 2020 Best Industries report, a list of the best industries for starting a business, serves as a roadmap for finding the most promising opportunities. Every year, we speak with industry experts and crunch the latest data to identify areas of the economy that are primed for new entrants. Read on to see which sectors are welcoming tomorrow's fastest-growing startups.
Clean Water Services / Gender-Neutral Personal Care / Gun Violence Prevention / Healthier Junk Foods / Next-Wave Logistics / Pet Wearables / Space Technology / Sustainable Consumer Goods
Clean Water Services
No one can afford to ignore the safety of our most precious natural resource: water. Managing and monitoring drinking water quality is a significant opportunity for entrepreneurs who can protect public health by delivering solutions at scale. Companies in this sector are also working on developing new sources of drinkable water.
Why it's growing: The water crisis in Flint, Michigan, has raised awareness about the harmful effects of contaminants, making water filtration an important issue for consumers and enterprises across the U.S.
Barriers to entry: Building systems that connect water testing hardware and software can require significant investment.
The downside: Companies working on clean water initiatives have not been popular investment targets for venture capitalists.
Competition: Xylem and Danaher are public companies with multiple brands in the clean water sector. Zero Mass Water, backed by Bill Gates's billion-dollar Breakthrough Energy Ventures, created a $2,000 solar panel that draws drinkable water out of thin air.
Forecast: Investment in U.S. companies addressing declining water quality has grown 25 percent to $50.7 million in the past five years, according to data and research company PitchBook.
Gender-Neutral Personal Care
Gone are the days when personal-care products were categorized as "beauty" for women and "grooming" for men. A growing group of startups are now making moisturizers, deodorants, shampoos, fragrances, and other products that lead with their ingredient lists and don't target a particular gender.
Why it's growing: Many consumers, especially younger ones, are rejecting traditionally gendered products in favor of nonbinary options. More men are also embracing skin care regimens and following other wellness trends.
Barriers to entry: It's easier than ever to develop a product and start selling it online, says Larissa Jensen, vice president and beauty industry adviser at market research firm NPD Group. Customers are willing to try new things and aren't loyal to established brands. But with so many companies in the industry, you'll have to do more to stand out.
The downside: Distribution can be a challenge. High-end specialty stores that spotlight gender-neutral brands are a growing segment of the market, but have limited reach, while larger cosmetics retailers and department stores remain very gendered. Customer concerns about sustainability and skin-irritating synthetic ingredients are also driving demand for "clean" formulas and eco-friendly packaging, which can be expensive to develop.
Competition: Not only are new "indie" personal-care brands popping up every year, but large consumer-goods companies and luxury brands like Lululemon and Gucci are increasingly offering gender-neutral options as well. Aesop and Deciem (the parent company of skincare brand the Ordinary) are two of the most prominent companies that market their products, including moisturizers and face oils, based on ingredient formulas rather than gender.
Forecast: Market researcher CB Insights named "expanding inclusive beauty" among the industry trends with significant momentum in 2020, and noted that men's and gender-neutral personal-care products are both growing sectors. The pending billion-dollar acquisition of men's shaving startup Harry's and billion-dollar deal for Dollar Shave Club, the latter of which has shifted to gender-neutral marketing, offered early evidence of the industry's growth.
Gun Violence Prevention
In the wake of mass shootings, businesses, schools, and other organizations are investing in security consultants and technology to help them prepare for the unthinkable. Companies in this industry provide employee training and surveillance tools and work with organizations to develop policies to prevent--and, if necessary, respond to--violent incidents.
Why it's growing: There were 417 mass shootings in the U.S. in 2019, according to the nonprofit Gun Violence Archive. In a 2019 survey by the Society of Human Resource Management, nearly half of HR professionals said their organization had experienced a workplace-violence incident, and half of those said an incident had occurred within the past year. These tragedies can happen anywhere, so a wide variety of organizations are turning to outside firms for guidance.
Barriers to entry: Businesses must make sure the policies they develop are compliant with state and local laws regarding surveillance, weapons possession, and profiling, as well as HR regulations, according to Matthew Doherty, senior vice president of threat and risk management at Hillard Heintze, a risk-management consulting firm. Many founders in this industry have military or law-enforcement backgrounds, but that's not sufficient for a well-rounded operation, Doherty cautions. It's important to find your niche and then hire for the skills you don't have, whether that's technical security experts, intelligence analysts, engineers, or even psychologists. "Don't purport yourself to be an expert on everything," he says.
The downside: Gun violence is a sensitive topic, and it can take time and effort to build relationships with clients. There's also disagreement about best practices in this emerging industry: There is little independent research to show that any particular security measure is effective in reducing gun deaths or injuries, while there is evidence that active-shooter drills can be traumatic. Liability can be an issue, too, if participants are injured during drills or if security firms run afoul of regulations.
Competition: As high-profile shootings spur more conversation about safety measures, expect more existing security consultancies to shift their focus to active-shooter training, and equipment vendors to start pushing products like reinforced doors, panic buttons, and cutting-edge surveillance systems. The Alice Training Institute, founded in 2000 after the Columbine shooting, is the country's most prominent for-profit provider of active-shooter training. Startups have also proliferated in the industry; Tomahawk Strategic Solutions, which runs active-shooter drills and sells equipment to law enforcement, brought in $2.8 million in revenue in 2018.
Forecast: There are few statistics that encompass the entire industry, but market research firm IHS Markit estimates the U.S. market for security equipment and services for educational institutions--things like surveillance cameras, high-security doors, and metal detectors--will grow to $3.2 billion in 2022, from $2.5 billion in 2017. A 2019 Wall Street Journal survey of 800 small businesses found that 35 percent of business owners have taken steps to prevent workplace violence or plan to do so.
Healthier Junk Foods
Healthy diets are all the rage, but Americans still crave chips and cookies. As a result, companies are inventing new kinds of packaged foods made with minimally processed fruits and vegetables, as well as snacks that mimic the taste and texture of popular junk foods but have fewer calories and artificial ingredients.
Why it's growing: Health-conscious consumers are seeking out better-for-you versions of their favorite snacks. Some consumers assume products labeled with terms like "vegan" and "sugar-free" don't taste as good as ones packed with salt, fat, and sugar, so startups are aiming to strike a new balance between indulgence and health.
Barriers to entry: Businesses in this industry face many of the same hurdles as those in any packaged-food sector, including acquiring sufficient startup capital for manufacturing and product development, finding distributors, managing logistics, and meeting FDA and other regulations.
The downside: Competition is fierce for shelf space at national grocery chains like Whole Foods. The biggest snack-food producers, which have a firm foothold in the market and are able to keep their prices down, are increasingly diversifying their offerings with healthier options.
Competition: Aside from the many smaller companies making less-processed healthy snacks like dried fruit and kale chips, startups in this industry will have to take on big brands like General Mills-owned Annie's, whose products include organic alternatives to Cheez-Its and Chex Mix. "Low-calorie products from large brands have grown at a much faster rate than high-calorie products over the past decade," according to IBISWorld. Up-and-coming brands include Peatos, which makes a crunchy Cheetos alternative using pea protein, and Snacklins, which offers a meatless pork rind made with mushrooms, onions, and yuca.
Forecast: In the U.S., snack food production is a growing category that was valued at $43 billion in 2019, according to IBISWorld. Healthier snacks are driving much of that growth, as Millennial consumers boost demand for lower-calorie, organic, and gluten-free options.
Next-Wave Logistics
Third-party logistics companies only recently began crunching data to drive greater efficiencies. The industry's increased reliance on automation has helped create opportunities for software companies that can match shippers with trucks and optimize the movement of freight, among other services.
Why it's growing: Truckers are producing more and more data on driving time, miles driven, and engine performance, which digital freight brokerages can use in conjunction with sophisticated GPS systems. Plus, a 2016 federal law required many commercial vehicles to electronically log data about their operations.
Barriers to entry: Attracting engineers to the comparatively unsexy logistics industry is a significant challenge.
The downside: Compared with the $86.5 billion overall freight brokerage market, the market for bolt-on software is small: Supply-chain consultancy Armstrong & Associates estimates it at $3.2 billion.
Competition: FourKites, Project 44, and MacroPoint allow shippers, brokers, and carriers to track products in transit, while HubTran and Triumph Pay focus on automating freight brokers' back offices. Uber Freight and Convoy are also large players in third-party logistics.
Forecast: U.S. freight industry revenue is expected to increase 54 percent to $1.6 trillion by 2030, while overall freight tonnage is expected to grow 26 percent to $20.6 billion, according to the American Trucking Associations.
Pet Wearables
Health and wellness monitoring devices are not just for humans. Growing awareness about pets' physical and mental health is driving demand for wellness data on animals, while GPS tracking devices are becoming increasingly popular.
Why it's growing: U.S. pet care spending in 2018 reached a record high of $72.6 billion, according to the American Pet Products Association.
Barriers to entry: Since it's still a nascent industry, the barriers to entry are low relative to many other consumer electronics categories.
The downside: Wearables represent just a small segment of the overall pet care category. Other products competing for consumers' dollars include beds, collars, leashes, toys, travel items, clothing and other accessories.
Competition: Whistle and FitBark focus on dog health and location trackers, while Garmin and Motorola offer a variety of products that aid in dog tracking and training.
Forecast: The global pet wearables market is expected to grow to $1.7 billion in 2024 from $703 million in 2019, according to data from research firm MarketsandMarkets.
Space Technology
America's private space industry is booming thanks to the declining costs of sending rockets to space and the increasing availability of launch vehicles. Advances in commercial electronics have enabled even hobbyists and high-school students to build small satellites that have reached orbit. While the U.S. government is one of the world's largest procurers of satellite data, Earth imagery taken by satellites will soon be in high demand from farmers, first responders, and scientists.
Why it's growing: The rise of companies like SpaceX and Blue Origin have helped bring the number of global rocket launches to around 100 per year, while demand has grown for increasingly high-resolution satellite imagery.
Barriers to entry: While launch prices but are coming down, hitching a ride on any rocket remains an expensive proposition.
The downside: Launch failure is a significant risk for every launch vehicle, regardless of past performance.
Competition: U.S. companies focusing on Earth-imaging satellites include Capella Space, Planet Labs, and Spire. Among the international competitors are Italy's e-GEOS and Japan's Synspective.
Forecast: Venture capital investment in space technology companies has grown to $2.27 billion in 2019 from $2.6 million in 2011, according to market data provider PitchBook.
Sustainable Consumer Goods
It's not just plastic straws: A wave of high-tech startups and innovative consumer-goods brands are developing reusable, recyclable, and compostable alternatives for a range of household products.
Why it's growing: The escalating climate crisis has prompted a growing consensus that consumers need to end their reliance on plastic. Many U.S. cities and a few states have issued bans or taxes on single-use plastic bags with largely positive effects, and customers are interested in companies that offer either plant-based alternatives to plastic items that are less polluting, or reusable products to help cut down on materials altogether.
Barriers to entry: The amount of technical expertise required is a major hurdle. Like other big-picture issues related to the changing climate, the sustainability problem can't be solved cheaply or quickly--though, since plastic has so many uses, there are many entry points into the market.
The downside: Persuading customers who aren't already eco-conscious to choose a pricier item over a cheaper, more convenient one can be difficult. Some biodegradable alternatives also require significant resources and carbon emissions to produce, don't break down as quickly as advertised, and can contribute to pollution if not disposed of properly.
Competition: Startups helping consumers cut down on plastic include Abeego, which makes a beeswax-coated alternative to plastic cling wrap; Stasher, which makes heat-resistant, dishwasher-safe silicone storage bags; and Truman's, which sells cleaning products in the form of concentrates you mix with water in refillable containers. E6PR makes compostable, turtle-friendly six-pack rings for beer producers, while startups like BioCellection and Kiverdi are developing ways to break down plastic waste and recycle it into new materials.
Forecast: Bioplastics (made from renewable materials like corn) are a $486 million industry in the U.S. with an annualized revenue growth rate of 2.1 percent between 2014 and 2019, according to market research firm IBISWorld. CB Insights also named the movement away from single-use plastic among its trends to watch in 2020 in the CPG industry.
