Markets by Grant | Journey to the Center of the Consumer

After a brief hiatus, I’d like to welcome you back to Markets by Grant. You haven’t missed me, but here I am. Today, I’ve decided to go all-out with an introduction to a thesis of mine. As you read, you may find yourself asking, “where’s the data, Grant?” My response to that question would be to relax and submit yourself to the gentle flow of the narrative; this piece serves as a high-level exposition to deep dives I’ll publish in my next few issues (ie: Part 1 of 3). If you have a problem with that, you know where to find me. Anyway, let’s begin…

The nice and not-so-nice thing about entrepreneurial capitalism is that it doesn’t share our sensitivities, taboos, and comfort levels. If it can be monetized, it will eventually be monetized; the sometimes-slow process of consumer acceptance is the only constraint. It makes sense, then, that consumer tech trends have started with the most comfortable and social parts of our lives. And it also makes sense, then, that this is only the beginning.

Let’s use the consumer’s “Personal Operating System” as a framework. Simply put, we use tech to run some parts of our lives, but not all.

The parts where we’ve readily adopted tech to help us manage things have largely been the parts of our lives which touch the light. Namely, I’m talking about The Five F’s: Friends, Fashion, Food, Fitness, Finances (© Me, 2021 (not comprehensive, but hey, they all start with F)).

Drawn toward these lighter aspects of our social lives and daily routines, we’ve seen consumer startups prefer “Happy Markets” — with the belief that products in serious or highly personal parts of our lives face an additional hurdle of having to turn frowns upside down.

This is not without validity: it’s tough to deliver a delightful customer experience in a subject matter area with negative affect — and therefore tough to drive stickiness, activity, and a favorable LTV:CAC. In many cases, this has been true: pavlovian conditioning drives consumers to gravitate toward experiences they enjoy and limit engagement with the unpleasant to necessity.

Still, necessities remain necessary — and although challenging, successful consumer tech startups have won consumer trust in their ability to alleviate especially touchy pain points, or align with the more complex personal aspects of human life which drive deeper fulfillment.

Meanwhile, the “Happy Markets”, like the Five F’s, have become crowded and competitive, which changes the overall market entry calculus for consumer tech startups: these days, entering the unplumbed depths of the consumer’s private life may be just as favorable as fighting tooth and nail in the light.

That’s the directional gist of my argument. Consumer tech innovation starts with areas of our daily lives we gladly keep in the light — and slowly penetrates in towards the highly personal corners of our lives. These shadows are a next frontier for consumer tech innovation.

Now that we’ve gotten the high level academic stuff out of the way, we can drill down into what exactly I’m talking about. Consumer healthtech is an example of this trend coming to the fore:

Among today’s trends in healthtech, two particular markets stand out:

• Behavioral Health started with meditation and sleep apps, evolved to “find a therapist” platforms, to tailormade therapy telehealth solutions, to online psychology/psychiatry practices, to digital therapeutics, to diagnosis-specific digital solutions for indications like addiction, trauma, Bipolar Disorder, end-of-life, etc.
• FemTech and SexTech have also seen strong growth — from humble origins of “find and OBGYN” platforms, to online OBGYN practices, to online birth control/ovulation cycle solutions, to managed care journeys for pregnancy, to post-partum managed care, to sexual intimacy care. Men’s health has kept pace with this direction as well — notably including Hims’ pioneering mass-market attack on hair loss and sexual dysfunction.

No, my run-on sentences are’t sequential or mutually exclusive, but I do believe they’re illustrative and directional: it’s clear that these markets, like so many others, have started off fairly horizontal and have since become highly verticalized. And yes, verticalization is a natural evolution of any market growing crowded, as individual businesses seek to refine their value propositions and fortify their territories. But beyond verticalization alone, it’s clear that these already delicate business focuses have increasingly targeted the more personal, closely-held aspects of our lives — and they’re doing it because it’s working.

I would argue that this trend is in some ways driving the continued growth in consumer healthtech. Visualizing the data, on one hand, we can appreciate the acceleration of deal velocity — evidence of significant traction in these very delicate consumer markets. New deals completed is a leading indicator of funds deployed, suggesting a strong pipeline of future growth as well.

Visualizing the data another way, we can appreciate this magnitude versus a baseline. With few exceptions, these verticals have consistently outpaced and outgrown the overall market in terms of deals completed.

So what’s my argument? That these aren’t just coincidentally hot markets, but that these two exemplar spaces are early movers into the greenfield of the consumer’s personal life — and that this trend is a disproportionate contributor to their growth.

Alright.

Taking a step back, that’s an example of my thesis playing out, but these aren’t the market applications I want to highlight. Why? Because health is at the core of a consumer’s private life, but it isn’t really at the core of a consumer’s closely held identity, values, or raison d’etre. In other words, I need to be healthy to stay on this earth, but I’m not on this earth to be healthy. Harkening back to my arguments about conditioning, as a startup targeting the consumer’s personal life, I want to align myself with a deeply positive emotion: fulfillment or relief. Healthtech can relieve, satisfy, protect, and support, but can it fulfill?

Family and faith fulfill, and they are significantly under-addressed by consumer tech. I’d like to propose that these two spaces, family and faith, are critical frontiers of tech’s slow bleed into the consumer’s personal life. With this in mind, let’s pause and pivot:

Traditional economic views on consumer behavior give us the concentric circles framework (shoutout Sigmund Freud). The argument is that a consumer’s behavior is influenced by their own desires, their family/community, and their broader societal values.

However, in today’s consumer startup context, we know that consumer tech companies have to go “through” the consumer to access these parts of her life. They’ve got to get their foot in the door, walk inside, meet your parents, and say grace before they can join your family for Sunday dinner. Instead of concentric circles, we’re looking at the encapsulated venn, with consumer startups reaching family and faith deep within the consumer’s private life:

And this encapsulated venn diagram is scale-consistent with overall market size. There’s relatively little capital flowing into consumer tech for the family and religious parts of our identities: the “Family Operating System” and the “Faith Operating System” (more on that later).

These bubbles are highly personal, and therefore actively guarded by the individual. There’s a discomfort that consumer tech seeking to automate and monetize these aspects of our lives would be violating, inauthentic, or even unethical. But this explains the past, not the future — and if other trends in healthtech, fintech, and social are any indication, Family and Faith may be the next stages for westward (or rather, inward) expansion.

That’s enough for today! My next pieces will be deep dive market analyses into each of these spaces (FamTech and FaithTech). Until then, feel free to roast me in the comments section.

— G

*Charts built off of custom queries of Pitchbook classified data