Following yesterday's post about what happened in the French tech / VC scene in 2019, here's a "prediction" post about I think will happen in 2020.
Prediction posts may seem arrogant. ‘Who’s that muppet who thinks he can predict what’s gonna happen this year?’ is a rightful thought.
The goal is mostly to (i) force myself to structure my own thoughts and stand by them, and improve mental models and (ii) to generate deep and fruitful discussions with people.
As I write these things, two big trends seem to underpin these 10 predictions: making tech beneficial to agents that used to be left behind and being more thoughtful in company building. Hence, there appears to be a sense of sustainability in more of these predictions… let’s hope so.
So here we go, let’s take the leap!
1. More and more startups will target non-tech SMBs as customers
2019 was the year when a lot of startups selling software and/or service to other tech startups started blossoming, helped by record VC money amounts invested which created new cash-rich customers, and a high level of tech-savviness. This created a lot of companies in the finance, HR and productivity spaces.
However, as concerns grow around the macroeconomic situations and as founders and investors alike start to realize that tech startups as a customer group might be too niche to create a large business, more and more startups will target the good ol’ traditional business as a customer.
I’m particularly excited by (i) B2B marketplaces in all sorts of sectors reshaping the supply chain process, à la Rekki and by (ii) software tools digitizing core business activities for these SMBs (as opposed to productivity, which they might be less sensitive to).
2. Extra attention will be paid to non-trivial distribution channels
As a result of this new customer segment, new strategies will be deployed to reach these SMBs, but also consumers. As the money poured into venture-backed businesses went massively to the online advertising duopoly formed by Google and Facebook, performance marketing will be increasingly tough for most businesses, which have been pretty effective for tech-savvy startups.
Successful direct outbound sales playbooks (à la Doctolib) will be replicated as a first step to reach non-tech SMBs, creating more heavily-staffed teams and additional managerial challenges for startup founders and C-levels.
As a second step, founders will get extra creative (and investors will get more demanding) around new distribution strategies, including non-trivial partnerships, product-led growth initiatives, and controversial PR initiatives aimed at strengthening word-of-mouth.
As a product lover, I’m particularly excited about product-led growth initiatives that make the product both a product and a distribution vector. Usual techniques like watermarking, referral programs or social media sharing are now pretty common, however, so new kind of organic growth triggers will appear.
3. A new social network platform will emerge
Facebook fatigue will be even stronger in 2020 among part of the population, and this time it will go beyond the Facebook -> Insta dumping. FB’s messaging apps failed to innovate, and Instagram and TikTok alike will increasingly become influencer-led Media x Shopping destination apps, failing to recreate a social graph around meaningful relations, while Snap’s editorial choices and core mechanic around ephemerality will prevent it to get non-millennials back.
As a result, a new mobile-only social network platform will emerge in 2020.
I’m particularly excited about platforms that would gather people (i) in a trustful environment and (ii) around activities that people can do together, which I think will go through some gaming or conversation-starting social content and (iii) be centered around meaningful interactions with a limited number of people as opposed to wide and shallow exposure to a lot of likes / followers / comments.
4. The average European consumer will pay >€50 p.m. of digital subscriptions
As this new social platform will not follow the rules of traditional volume-based, ad-financed social media, new ways to monetize will be increasingly important.
As mobile carriers in the 1990s, ISPs in the 2000s and Netflix/Spotify in the 2010s evangelized users to the very business-friendly subscription business model, this model will continue to rise and most startups selling a product that used to be transactional will try to shift to subscription based.
I expect gaming to come first (see Google’s, Apple’s and Snap’s initiatives in that field), but would be very curious to see founders applying this model to less obvious topics such as live entertainment, food or fitness.
5. More and more startups will target the 99%
Similarly to B2B startups tackling other tech-startups which are both early adopters and easier to reach through online channels, many B2C startups chose to tackle high-income, forward-thinking urban customers with products offering a mix of extreme convenience and sleek, pastel-colored design.
As this target group appears to be both niche and saturated, I expect (and hope) more and more startups will tackle “the 99%”. I believe several social movements in Europe, including the “gilets jaunes” in France, as well as the recent success of companies like Wish, Vinted or the Facebook marketplace shed light on how successful ‘mainstream’ businesses can be.
I am very excited about this trend because I believe it will also favor entrepreneurs with less privileged socioeconomic background, who can have a more original insight
6. Values-driven consumption will continue to rise
With the division between a Greta Thunberg’s and a Donald Trump’s view of the world being a key topic in 2019, I believe consumers will use their spending as a way to express their values even more in 2020.
I expect consumers to be even more concerned and inquisitive with businesses around selling and promoting green, sustainable and healthy products.
As a result, I expect new ideas and companies to emerge in the area of travel (with the increasing number of people who refuse to get on a plane), food (more fun and diverse plant-based food, less meat and processed foods) but also fashion and entertainment
7. More DNVBs will emerge, less will get VC funding
Speaking of values, many direct-to-consumer brands choose to position themselves around strong values to capture a group of customers.
As direct-to-consumer playbooks started to get widely known in 2019 spread by role models like Hims or Care/of, and as getting a direct-to-consumer brand off the ground became easier and easier (set up a Shopify website, buy and repackage an often off-the-shelf product), more direct-to-consumer products will emerge and tackle small niches with a more nuanced brand universe.
However, as investors start to notice the lack of defensibility that most of these businesses show and the subsequent proliferation of companies bidding against each other in marketing (see mattresses-in-a-box, menstrual panties or erectile dysfunction pills) and given that growth often plateaus after the initial niche has been saturated, I expect the VC appetite for D2C brands to be lower in 2020. These businesses can be great bootstrapped businesses with amazing outcomes for the founders, employees and customers.
Nevertheless, I’m very bullish on brands that (i) have a true product edge (ii) have distribution edge, possibly through an existing engaged community and (iii) target non-saturated groups of customers.
8. The Blitzscaling model will run out of fashion…
2019 was the year the scaling model behind Uber or worse, WeWork, and the kingmaking strategy of their backer Softbank Vision Fund started to show their limits.
Subsidizing exponential growth at the expense of healthy unit economics with equity has been the path chosen by many low-tech, execution-driven businesses believing all markets were ‘winner-takes-all’ markets. Uber’s so-so IPO performance and WeWork drama have shown that this model can not only be terrible for employees (whose options become worthless), society (it’s a machine that’s by design not optimized for efficiency of resources) but also the investors themselves (with Softbank’s performance).
Hence, I believe a more human, resource-conscious approach to growing a business will prevail in 2020, and Blitzscaling will no longer be considered as the only way to go for more businesses. VC money, which is the main fuel of this engine, will as a result no longer be the only way to finance startups and I suspect debt and revenue-based investment models to develop.
9. … but will still be widely used for some businesses, creating new breeds of ‘Unicorns’
However, I think this model is still very effective for some businesses when it is executed with more foresight and less hubris.
As even more money will seek to be invested in few opportunities, I suspect the time between funding rounds to decrease even further than it did in 2019 in the ‘very best’ (read: hottest) companies, vastly driven by the fact US tier 1 VCs will want to quickly build local presence in Europe by buying their way into identified success stories.
10. More startups will tackle heavily regulated topics
Finally, as many low-tech businesses have become more and more competitive due to lower setup costs and greater availability of capital, and as the time to market for deeper tech companies (think blockchain, quantum, AR/VR, some ML applications), I expect more founders to turn to more heavily-regulated businesses as a way to build a differentiated and defensible business.
In France for example, a second startup became regulated as an insurance company (Seyna, after Alan in 2016), while there was no new insurance company since 1986.
I believe entrepreneurs will take on more regulated businesses in the fields of healthcare, finance, insurance, but maybe also some professional services, special transportation, etc. But also maybe stuff that is beyond regulation for now, think illicit drugs, for example.
Thinking about these topics was really enjoyable for me, I hope reading it was too. I’ll surely be wrong about most of these, but I think setting out thoughts clearly and sharing them for comments is both fun and useful!