Hot Startups

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WWW.IBISWORLD.COM Special Report June 2011 1

5 Hot Start-Up Sectors

www.ibisworld.com | 1-800-330-3772 | [email protected]

5 Hot Start-Up SectorsBy Lindsay Holloway

Special ReportJune 2011

Most people know that small businessesare the backbone of the US economy.Small businesses are the creators ofmost new jobs and the employers ofabout half of the nations private-sector

work force. The leaders behind thesecompanies are also responsible formany of the innovations Americansknow today.

Despite their signicant contributions

to the economy, the recession took a bighit on small businesses. According toresearch by the Small Business

Administration, in the rst three quartersof 2009, small businesses (those withfewer than 500 employees) accounted fornearly 60.0% of net job losses. Over the

year, 60,800 lled for bankruptcy.However, by the third quarter of

2009, the National Bureau of EconomicResearch recorded signs of economicrecovery and that entrepreneurs wereagain looking ahead toward new start-up and business growth opportunities.That optimism continues to grow today.Fortunately, some industries, from the

well-known to the obscure, are boomingwith prospects for start-ups. Byanalyzing revenue gures, growthtrends and protability levels of morethan 700 industries, IBISWorldidentied ve sectors that have start-up

potential. From drywall contractors todatamining consultants, the industriesin these sectors are well-positioned forthe next ve years.

Education and Employment

Naturally, as the economy recovers,people will return to the work force.

While this trend is forecast to happenduring the next ve years, with the

national unemployment rate falling 3.5percentage points, the number of jobless

Americans is expected to remain highover the next year. Not only will peoplestill be looking for jobs, but students willlikely prolong or expand their studiesuntil the job market strengthens andunemployed individuals will look toimprove their chances of obtaining a job.Those anticipated trends mean

Americans will look to the providers ofdifferent skills training, educational andcertication courses.

During the recession, the Testing andEducational Support industry(IBISWorld report 61171) did especially

well as high school graduates continuedon to college and laid-off employees went

back to school. In fact, IBISWorldestimates that industry revenue grew atan average annual rate of 6.2% to $15.4

billion over the ve years to 2011. This

Our experts identify the top industries with big growth potential and

characteristics t for the entrepreneurial-minded

Many industries,from the

well-known tothe obscure, are

booming withprospects for

start-ups


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level of growth is forecast to continueover the next ve years, with revenueincreasing 5.5% per year on average to$19.1 billion in 2016.

Clearly the industry is in its growthphase, but thats not the only reason its agood one for start-ups. Barriers to entryare generally low, and like the overalleducation sector, the industry has a lowlevel of capital intensity and start-upcosts because of its high labor intensity.

Wages make up about 34.0% ofoperational costs as a share of revenue.

Additionally, industry concentration andregulation are low.

Because of these low barriers,however, a medium level of competitionexists. So setting yourself apart isessential, said IBISWorld industryanalyst Kevin Culbert. You need toconsider which professions are growingand which are peaking. If a downstreammarket is drying up, there isnt going to

be demand for its relative testing course.He referenced the reduced number ofstudents that took the LSAT this year,compared to immediately following therecession when people made more moneyright out of law school.

A focus on downstream markets isimportant for the other education andemployment industries where start-upopportunities exist. Trade and TechnicalSchools (61151), Business Coaching

(61143) and Employment RecruitingAgencies (56131) are all industries withgrowth dependent on downstreammarkets. These industries also have low

barriers to entry, low start-up costs and,thus, moderate competition. Niche

businesses are a great way to set yourselfapart from the herd, Culbert said,suggesting an IT or medical stafng rmas an example. If a niche downstreamindustry is growing, you can be sure that

its stafng counterpart will be too.

Internet and Technology

While reduced consumer spendingduring the recession slowed down mosteconomic activity, many internet andtech industries managed to continuegrowing (albeit at a slower rate than inprior years). Since 1999, the number of

broadband internet connections hasskyrocketed, jumping 50.0% in some

years. From 2005 to 2010, the numbergrew 22.4% per year on average. Also, asfast as companies pump out innovativegadgets and the next must-havetechnologies, consumers eat them up,especially as price points steadily drop.

These usage trends are the drivingforces behind the expanding internetand tech sectors, which are pushing

businesses, retailers and advertisers toadapt. Businesses can operate and reachtheir customers more efciently,

Education and employment

Industries

Annualized Revenue

Growth 2011-16

(%)

Life Cycle

Stage

Barriers to

Entry

Capital

Intensity Competition

Business Coaching 5.3 Growth Low Low Medium

Employment & Recruiting

Agencies4.9 Mature Low Low High

Financial Planning & Advice 5.1 Mature Medium Low High

Test Development &

Education Support Services5.2 Growth Medium Low Medium

Trade & Technical Schools 3.8 Growth Low Low Low

SOURCE: WWW.IBISWORLD.COM


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retailers can pass on discounts to theirshoppers and advertisers can get agreater return on investment.

There is enormous growth potential inthe web and tech sectors, said IBISWorldindustry analyst Casey Thormahlen,pointing out two opposite paths ofopportunity: a highly innovative start-upthat has a big idea and sufcient capital,or a start-up that services these growingsectors (which generally has lower

barriers to entry and start-up costs). Forexample, because so many businesses and

households have moved online, the needfor IT services and experts is high. Assuch, IBISWorld projects the ITConsulting industry (IBISWorld report54151) to grow an average of 3.0% per

year to $275.2 billion in 2016. Otherinternet and tech service companies withstart-up potential include: logistics andorder fulllment, online lead generation,datamining consulting and onlinepayment processing.

Increasing numbers of internet usersand shoppers are supporting the OnlineDating (81299a) and E-Commerce andOnline Auctions (45411a) industries, withrevenue growth of 2.8% per year and9.4% per year on average, respectively.Like the education and employmentsectors, Thormahlen said the opportunityis in the niches; current examples includeSeniorMatch.com, a dating site for peopleaged 50 and older, and art and crafte-tailer Etsy.com.

GreenGlobal warming and humans impact onthe environment have been top of mindfor a lot of consumers and businessesover the past decade, especiallyfollowing Al Gores related lm andcampaign in 2006. As awareness of andconcern for environmental issues grow,shoppers are demanding more locallygrown food, retailers are selling moresustainable products and businesses areimplementing more eco-friendlypractices. As such, the green vein runs

through many of IBISWorlds morethan 700 industries.

In the consumer products sector,many new companies with eco-friendlyproducts have surfaced, while existingcompanies have altered current productlines or launched new ones. Examplesrun the gamut, from householdcleaning sprays to cotton T-shirts tocereal packaging.

The solar and wind power generationindustries are in line with and have

beneted from the green movement.Revenue for related industries hasgrown signicantly over the past ve

yearsSolar Panel Manufacturing(IBISWorld report 33441c) revenue

jumped an average 34.8% per year.Although the astronomical growth ofthese industries makes them greatcandidates for business, IBISWorldindustry analyst Justin Molavi warns oftheir signicant capital requirements,

Internet and technology

Industries

Annualized Revenue

Growth 2011-16

(%)

Life Cycle

Stage

Barriers to

Entry

Capital


IT Consulting 3.0 Mature Low Low High

E-Commerce & Online Auctions 9.4 Growth Low Medium High

Online Dating 2.8 Growth Medium Low High

Freight Packing & Logistics

Services3.0 Mature Low Medium Medium



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making them better opportunities forentrepreneurs or small businesses with

access to substantial start-up funds.Also, overall barriers to entry are high.Where a small business could tap intothe popularity of renewable energies

would be consulting or installationservices, such as installing solar panelson homes and businesses.

In addition, as organizations andindividuals strive to lower their carbonfootprints, the demand for experts andconsultants who can identify and helpexecute ways is growing. Newlegislation to curb emissions and the

recent BP oil spill have also stimulateddemand for these businesses over thepast ve years. The EnergyIndependence and Security Act and theEnergy Policy Act aim to increase theproduction of renewable fuels; raiseinvestment in the sustainability ofproducts, buildings and vehicles; andpromote research on renewabletechnologies and US energy security.

As such, the high demand for expertinsight will push revenue for theEnvironmental Consulting industry(54162) up 9.4% per year to$30.0 billion by 2016.

The Remediation and EnvironmentalCleanup Services industry (56291), whichcleans up contaminated sites, performs

wastewater treatment and disposes ofhazardous materials, is forecast to growas well, with revenue increasing 4.8% per

year to $22.9 billion by 2016.

Residential and Commercial

Construction

Residential construction came to ascreeching halt in the wake of thesubprime mortgage crisis and housing

bubble burst, with commercial buildingconstruction taking the hit shortly after.Still, after ve years of decline,contractors in both industries areprojected to experience substantialgrowth. Housing demand is expected toimprove given stronger consumercondence, higher growth in disposableincome, subsiding fears about buyinginto a falling market and sustained low

interest rates. Similar improvements inthe commercial markets are expected ascorporate spending and employment

begin to recover from recessionarylows. As such, IBISWorld estimates the

value of residential construction willrise 12.5% annually in the ve years to2016 and the value of private non-residential construction will increaseabout 13.0% per year.

As the number of construction projectsincreases, so too will the need forcontractors, which is where the start-upopportunities lie. This growth will createdemand for specialty contractors andservices that are subcontracted by largerresidential and commercial contractors,said IBISWorld industry analyst KathleenRipley; examples include drywall andglass contractors or architectural and

building inspection services. Thesespecialty or subcontractor industries

Green

Industries

Annualized Revenue

Growth 2011-16

(%)

Life Cycle

Stage

Barriers to

Entry

Capital


Environmental Consulting 9.4 Growth Low Low Medium

Remediation & Environmental

Cleanup Services4.8 Mature High Low High



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generally have very little barriers toentry, with typically limited licenserequirements and low capital costs.Most of these industries are laborintensive and contractors can leaseequipment on a per-project basis.

Over the ve years to 2016, IBISWorldestimates Home Builders industry(IBISWorld report 23321) revenue willgrow 16.0% per year to $394.1 billion.

The Glass and Glazing Contractors(23592) and Real Estate AssetManagement and Consulting (53139)industries are forecast to each grow 6.8%per year, to about $11.1 billion and $54.9

billion, respectively.

Health

Healthcare reform may be shakingthings up, but some related industriesare beneting from it. One in particularis Alternative Healthcare Providers(IBISWorld report 62139b). Thelandmark 2010 Patient Protection and

Affordable Health Care Act includesseveral provisions that supportalternative healthcare, with the goal ofeducating Americans about preventivecare. The bill includes plans forcommunity wellness programs and aprovision that prohibits exclusion oflicensed alternative healthcare

providers, such as acupuncturists,masseuses and yoga instructors.

[The reform] is a major step towardrecognition of the industry at the nationallevel, said IBISWorld industry analystSophia Snyder, which will be aided byincreasingly favorable attitudes and

beliefs toward its services. She expectsthe aging population, mounting incidenceof disability and rising disposable income

to signicantly contribute to revenuegrowth over the coming years. By 2016,the Alternative Healthcare Providersindustrys revenue is forecast to reach$14.4 billion, representing averageannual growth of 4.3%.

Other industries that will be affectedby healthcare reform and that offerstart-up opportunities include HomeCare Providers (62161), Elderly andDisabled Services (62412) and PhysicalTherapists (62134).

As hospital stays get shorter and thegovernment increases restrictions onhome-care services while reducingrelated funds, nutritional, social,companion and skilled nursing services

will increasingly be based out of thehome. In line with growing demand,Home Care Providers industry revenue

will grow an estimated 5.5% per year to$95.3 billion over the next ve years.

Residential and commercial construction

Industries

Annualized Revenue

Growth 2011-16

(%)

Life Cycle

Stage

Barriers to

Entry

Capital


Home Builders 16.0 Mature Low Low High

Glass & Glazing Contractors 6.8 Mature Low Low High

Real Estate Asset

Management & Consulting6.8 Mature Low Low Medium

Drywall Contractors 6.7 Mature Low Low High

Real Estate Appraisal 5.2 Mature Low Low Medium

Building Inspection Services 5.6 Mature Medium Low Medium

Architectural Services 4.8 Mature Low Low Medium



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Elderly and Disabled Services willgrow at a similar rate of 6.2% per yearto $38.0 billion as the US populationages and disposable incomes grow asthe economy recovers. Snyder also said

that data shows how important thesetypes of services are to the elderly. Theyare more aware of the benets, sostart-ups can provide that benet fortheir customers.

Health

Industries

Annualized Revenue

Growth 2011-16

(%)

Life Cycle

Stage

Barriers to

Entry

Capital


Alternative Healthcare Providers 4.3 Growth Low Low Medium

Home Care Providers 5.5 Growth Low Low High

Elderly & Disabled Services 6.2 Growth Low Low Low

Physical Therapists 4.8 Growth Low Low High


About IBISWorld Inc.

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For more information, visit

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VP, Public RelationsIBISWorld

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[email protected]

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