SaaS Rizz: How Gen Z Consumer Shifts are Creating Vertical Opportunities

Disclaimer: No Gen Zs were personally embarrassed in the production of this article ;)

I started reading Mike Maples' newly released Pattern Breakers this week, and was charmed (in a good way) by his breakdown of great startup ideas:

Inflections: external changes that have the potential to significantly alter people's thoughts, emotions, and behaviors
Insights: distinct understanding of how to leverage these inflections to create a future aligned with the company's vision
Founder-future fit: alignment between the founders and their envisioned future, such as the skills, motivations, and networks they possess to drive their vision forward.

When broken down, it supports the old adage:

Emerging consumer trends + new tech + behavior shift = massive opportunity

This sparked my curiosity about how consumer trends driven by Gen Z, the first digitally-native demographic cohort now starting early adulthood, are hidden catalysts for what will propel the next wave of vertical SaaS growth. After all, for this generation, iPhones are their dial-up, and social media is their message board. How can their behaviors change what current and future founders see as future customer needs and pain points they want to solve?

These emerging consumer trends are already changing daily habits, and with the right new tech (think S-curve jumps in AI levels recently shared by OpenAI), it represents a big opportunity for innovation and iteration in vertical SaaS. On the whole, the addressable market sizes for vertical SaaS are largely driven by the byproduct of the services and sectors they are building for. And, the best companies build products based on understanding their core customers, their specific JTBD (jobs to be done) and use cases.

Consumer shifts defining the next decade

What are the top consumer trends that are likely to define the next decade? We all know about the buzz swarming around generative AI, but that's the new tech enabling a new generation of applications much like the Internet did in the 2000s and mobile did in the 2010s. Behavior shifts are predicated on emerging consumer trends, and by understanding these, we see how behavior + AI can fuel a new wave of opportunities in vertical SaaS.

(1) Consumer spending continues to break records despite flat financial optimism. US consumer spending continues to set new records as unemployment remains low and inflation has decelerated [1].

Americans continue to shop til they drop on Prime Day and Black Friday. Gen Zs are surprisingly cautiously optimistic about the economy with >40% optimism rates, the highest across generations [2].

Continued consumer spending correlates with the growth of e-commerce, but it also means an increased demand for specialized payment solutions and higher customer expectations for seamless and secure payment experiences. Businesses in various verticals will seek out more efficient and tailored payment solutions to handle higher transaction volumes and create better customer experiences. A few examples include Spocket, Zitti, and Selfbook.

(2) Rise in personal finance savviness and "loud budgeting." It's a mindset shift that empowers many Gen Zs to confidently take control of their financial future in the post-Great Recession era, despite ongoing inflation and job insecurity. A notable TikTok trend this year is Gen Zs sharing "loud budgeting" content, i.e. telling your friends about how you have to stick to your budget when faced with peer pressure to spend on unwanted items or experiences. The "loud" part is important --- voicing personal spending boundaries and being financially savvy are all part of Gen Z's emphasis on authenticity.

Gen Zs' desire for financial education and freedom represents a shift in valuing personal wealth management and finance tracking. This shift will fuel the growth of companies catering to financial advisors or compensation planners like Savvy, Pave, and Farther.

(3) Normalization of vanity with GLP1 and cosmetic treatments. When Ozempic and other GLP1 inhibitors came out, it seemed like everyone from your roommate to Oprah was asking their doctor for a prescription for this miracle drug for weight loss. In fact, 1 out of every 8 Americans have tried GLP1 drugs and the GLP1 market has grown 4x in the last four years [3]. However, vanity isn't limited to weight loss. The medical spa market has ballooned in recent years as there's now an endless array of facial treatments, body shaping and contouring, hair removal, and scar revision treatments that have cropped up. What's astonishing is that it's driven increasingly by younger generations, particularly Gen Z and Millennials who spend more on appearance than older consumers. Skincare for Gen Zs increased by +19% in the last six months, one of the highest categories in discretionary spending [4].

This creates a stronger demand for the supporting services that underlie this trend --- think of the nutritionists/dietitians who now need to sit alongside pharma interventions, the aestheticians who perform procedures, and the medspas that now handle larger volumes in their businesses. Vertical SaaS such as Moxie, Prospyr Medical, Berry St, and Nourish all play in this space.

(4) Rising calls for sustainability and ethical consumption. Gen Z consumers pride themselves on being well-educated about brands and the verity behind them. In a recent McKinsey survey, nearly 70% of Gen Zs say they try to purchase products from companies they consider ethical, and 80% refuse to buy goods from companies involved in scandals [5]. A Deloitte survey illustrates that 60% of Gen Zs are willing to pay more for sustainable products and services and nearly 70% are actively trying to minimize their impact on the environment [6].

This growing concern about both the environmental and ethical footprint of products and services propels vertical SaaS platforms that provide insights and visibility into where companies source their products and how they procure them. This drives demand for solutions such as Altana, Sylvera, Watershed, and Arch.

(5) Embrace of side hustles and freelance gigs. Work has changed. Four years after the COVID-19 shutdown, office occupancy remains at 50%, and hybrid work is here to stay. Combined with today's inflationary economy making life more expensive, Gen Zs have embraced side hustles --- 55% of Gen Zs have a side hustle and 45% of these hustlers would consider making their side hustle their full-time job [7].

These side hustles can vary from making social media videos to offering design services. Side hustlers need a frictionless tech stack tailored to manage their freelancing jobs, such as Bonsai and Toggl.

Vertical opportunities abound + AI = S curve jump

In the end, as we navigate the landscape shaped by Gen Z's unique quirks and emerging trends, it's clear that these shifts are unlocking new vertical opportunities in SaaS. Gen Z behaviors are not just shaping their world but also transforming how vertical SaaS must innovate and iterate. As these digital natives redefine consumer habits, savvy founders must keep their ears to the ground and their eyes on the trends. After all, in this ever-evolving tech world, it's all about staying ahead of the curve---or in this case, the S-curve when AI advances beyond chatbots to reasoners, agents, innovators, and organizations. These emerging consumer trends hint at the possibilities that open up when a jump inevitably happens and behavior shifts. I'm brainstorming side hustles for when that happens.

Notes

[1] US Bureau of Labor Statistics, https://www.bls.gov/eag/eag.us.htm

[2] McKinsey, The State of the US Consumer 2024, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-state-of-the-us-consumer

[3] KFF Health, The Public's Use and Views of GLP-1 Drugs, https://www.kff.org/health-costs/poll-finding/kff-health-tracking-poll-may-2024-the-publics-use-and-views-of-glp-1-drugs

[4] The New Consumer, Consumer Trends 2024, https://newconsumer.com/trends/consumer-trends-2024/

[5] McKinsey, 'True Gen': Generation Z and its implications for companies, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/true-gen-generation-z-and-its-implications-for-companies

[6] Deloitte, Gen Zs and millennials doing, demanding more around climate change, https://action.deloitte.com/insight/3378/gen-zs-and-millennials-doing-demanding-more-around-climate-change

[7] Lending Tree, https://www.lendingtree.com/debt-consolidation/young-side-hustles-survey/