Fast-growing Companies Find a Sweet Spot Among the 'Wealthy' Middle Class
April 4, 2008
While bankers are increasingly going after the richest of the rich, Bay Area entrepreneurs are seeing an opportunity among the more modestly wealthy.
That's modest, relatively speaking, in that it refers to those that have amassed between $1 million and $10 million, including a primary residence.
Wags have dubbed these the middle-class millionaires, reflecting the class' growing wealth even as they continue to embrace middle-class values that generally focus on family, career and their self-made success.
Bay Area entrepreneurs are tapping into this millionaire set with a range of goods and services that appeal to a desire for health and safety, time-saving strategies and coaching and tutoring for themselves and their college-bound offspring.
Some of the Bay Area's fastest growing startups are catering to these middle-class millionaires in urban centers across the country. The region's fastest-growing private company, based on San Francisco Business Times research, is WineCommune, an Oakland wine retailer and software maker. The Bay Area's fifth fastest-growing private company is San Francisco-based Vinfolio, an online retailer and wine-collector service.
XOJet, which comes in as the Bay Area's second fastest growing company, provides private jet service and chartering of aircraft, an increasingly popular way for the wealthy to access pricey luxuries effectively. The company says the charter service is especially popular with those who have net worths around $10 million, giving them access to aircraft without the effort and cost of ownership. A round-trip flight for up to eight passengers from San Francisco to, say, Sun Valley, Idaho, would cost $21,000 with XOJet.
Similar access without ownership helps drive Club Sportiva's growth. The San Francisco company lets members drive more than 20 upscale vehicle makes, including Bentley, Ferrari, Lamborghini, Lotus, Porsche and Jaguar. Club Sportiva's annual fee for a regular membership ranges from $3,500 to $11,500. Elite memberships, with more services, start at $18,000 a year, with some paying as much as $32,000.
Founder and President Torbin Fuller, a former Ford executive, said he saw the opportunity for such a business when he experienced the travails of owning a classic Ferrari. It only took him three months to pack his bags and move from Detroit to San Francisco, where his business partner was based. The two provided the startup capital, along with a loan guaranteed from the U.S. Small Business Administration.
"The Bay Area is very affluent and there are several driving destinations within an hour's drive," Fuller said.
Wealth managers capitalize
And then there are the wealth managers catering to this cadre. Oakland-based Bell Investment Advisors and Salient Wealth Management are among the region's fastest-growing private companies.
Middle-class millionaires also favor the natural and organic trend, giving a potential boost to several fast-growing food companies in the Bay Area such as Numi Tea in Oakland, Multiple Organics in San Rafael and Elena's Food Specialties, an organic food company in South San Francisco.
The proliferation of wealth has increased steadily over the past five years, although the pace of growth slowed last year as the nation slipped into a credit crisis last summer. The number of millionaire households nationwide rose to 15.7 million last year while the number of households with at least $5 million in net worth jumped to 1.16 million, according to Spectrem Group, a research firm whose figures exclude primary residences in calculating wealth.
Another study of the wealthy tried to determine the value of potential referrals for companies reaching out to the nation's wealthiest. That study found that typically the richest among us hold their cards close to their vest. By contrast, Russ Alan Prince and Lewis Schiff, authors of the new book "The Middle Class Millionaire," found that the $1 million to $10 million crowd often crow about their success with financial advisers, retailers and service providers.
This segment of the nation's wealthy is well represented in the Bay Area, which is home to 168,000 millionaires. Of those, 11,600 are sitting on at least $5 million, according to figures from Wells Fargo.
Tear down phenomenon
Prince and Schiff point to teardowns -- the sometimes controversial practice of demolishing houses in established neighborhoods to put up larger homes -- as one way for these rich folks to live in houses with all the latest amenities while tapping into walkable, established communities.
Teardowns.com offers a virtual map of where middle-class millionaires congregate. All five Bay Area counties are featured on the site. Other hotspots for teardowns -- and for middle-class millionaires -- include Los Angeles, New York, Dallas and Washington, D.C.
Bay Area startups tapping into this segment include concierge medical services, which provide services of a primary doctor offering special attention to patients getting regular check-ups and assistance managing chronic diseases. San Francisco-based Metropolitan Medical Group is taking concierge medicine to an ever broader portion of the middle class with its $99 annual membership fee for seeing a doctor, plus insurance reimbursement and co-pays. More costly concierge services sometimes charge as much as $25,000 annually for membership.
Metropolitan offers doctor access via email, web and phone as well as same-day appointments -- a big improvement over medical practices requiring appontments to be made weeks or months in advance.
"As a group of physicians, we got tired of practicing medicine in a broken system," the company touts on its web site.
Time equals money
Concierge medicine touts the time it saves patients in seeing their doctors as well as making more efficient use of the health-care system.
"Time is one of the middle-class millionaire's most valuable assets," Schiff, the author, said.
Saving time is another key selling point for another San Francisco startup. Steve Collins, president of Marvel Maids, actually more of a restart, overhauled his San Francisco cleaning service three years ago to cater to professionals and busy moms -- often one and the same -- who wanted to feel more secure in knowing who was coming into their homes for the weekly cleaning. Marvel Maids runs complete background investigations on new hires that include criminal, drug and credit checks. Collins also cut employee turnover dramatically by offering medical and dental benefits, setting his company apart in the residential cleaning business.
For that, clients pay about $120 weekly for cleaning a one-bedroom condo in downtown San Francisco to almost $1,000 for cleaning a 10,000-square-foot home.
Members of the middle-class millionaire crowd are often enthusiastic investors in their children's education. Tutoring services and coaching for college applications and related admissions tests score high on their list of priorities.
Mill Valley-based Sage Educators, run by the husband-and-wife team of William and Jaime Heaps, is tapping into parents' desire -- and ability to pay for -- customized tutoring and test-preperation.
The entrepreneurs don't have detailed demographic data on the parents of their charges, but Jaime Heaps said some of the parents are among Marin County's "young and 'retired.'"