3 Tech Growth Strategies For 2021 To Navigate Uncertainty
December 3, 2020
In a normal year, companies would use the final few months to set new goals and plan for the next year. While 2021 strategizing should still tick the usual boxes, the remnants of 2020 may leave businesses struggling to utilize this year’s performance when setting next year’s goals.
The technology industry has seen significant growth that seems likely to continue, bringing exciting possibilities for a new year. However, the general economic recovery has been slow, generating uncertainty for companies who hope to continue their upward trajectory.
It can be difficult to plan your next move when you don’t know what the future holds, but Aprio’s analysts and advisors have assessed the trends and we have a few recommendations on how to power your growth through these uncertain times.
Factor future trends into your growth goals
Software, technology, and e-commerce companies have seen accelerated growth, primarily driven by these companies’ ability to respond flexibly to trends and needs in the economy. Each of these industries experienced an unexpected demand for creative solutions to the challenges created by COVID-19, and they delivered. Advances in telemedicine, remote work, and e-commerce technology solutions have bolstered the American economy when most needed, and that continued need solidifies a very positive outlook for these industries moving into 2021.
How do you maintain growth in an era defined by the unexpected? These companies need to continuously evaluate and align their business goals with future trends, but no one has a crystal ball to predict what those trends will be. Nonetheless, you can utilize certain market factors and patterns to stay on top. Aprio’s analysts recommend focusing on three target trends as you strategize for 2021: market needs, consumer impact, and bank positions.
- Stay focused on market needs. In the COVID-19 era, solutions related to technology, data, and healthcare are exploding, and that trend is likely to stick around. Businesses have the potential to capitalize on the current demand for solutions like AI, IoT, wearables, data analytics, blockchain, and healthcare IT to ensure they stay relevant, innovative, and profitable. If you’re already operating in the software and technology field, focusing on these areas for growth could be a simple pivot with big rewards.
- Empathize with your customer base. Consumers are a leading driver of the economy and represent about 70% of GDP, but consumer activity is still trending down overall. This is an expected result in any economic crisis, and it’s not clear how long it will persist. While businesses in the technology industry have opportunities to gain from the current market demands, an awareness of how your customer base has been affected and that impact on their future buying power is key.
- Factor in banks’ positions. While many consumers may be struggling, banks are surprisingly strong. In fact, most banks were overly conservative at the start of the pandemic, which has resulted in a greater-than-expected lending capacity. Businesses in thriving industries like software, technology, and healthcare IT can capitalize on this unexpected position to help guide further growth.
Weigh the risks and benefits of M&A transactions
The combination of low interest rates and well-capitalized banks willing to lend for transactions signals the perfect environment for a booming M&A market, providing many software and technology companies with an additional avenue for growth. Whether you’re a buyer or seller, there are new benefits and risks to a transaction right now that you should consider as you plan your company’s next move.
- For buyers, M&A can accelerate growth. If your company has assessed some of the technology trends we discussed above and is looking to move into a new sector, a targeted transaction could make that goal a reality in warp speed. Rather than doing the heavy lifting on your own, buying a company that already offers the tech you want/need will allow you to go to market much faster and yield higher returns. With readily available capital, low interest rates, and a targeted market strategy, an M&A transaction could be just what your company needs to propel your growth through this vacillating market.
- For sellers, increasing interest in M&A transactions in the technology sector means it’s a seller’s market. Huge growth in the tech world triggered an IPO boom in 2020, with many large, well-funded and VC-backed tech companies choosing to go public. As these companies go public, the increase in funding will drive interest in buying up earlier-stage companies. Any company with an innovative idea and a proven ability to scale will be a hot commodity for big, public companies looking to expand.
Insider tip: Aprio’s experts say that buyers need to be hyper-aware of their timing to market and their market preparation. If you’re preparing to sell, a smooth transaction will be highly dependent on due diligence. Multiple buyer offers are probable, so take the time to get your financial house in order before you go to market.
For anyone considering an M&A transaction right now, it’s also worth noting the potential impact of the current political climate. Considering the large stimulus packages passed this year and the presidential election, future interest rate hikes are possible, and that could affect the bottom line of any transaction.
However, Aprio’s advisors caution against letting hypothetical tax considerations influence your business decisions too heavily. A knowledgeable tax advisor can help you find creative options for structuring a transaction in a way to offset the impact of potential interest rate changes, leveraging opportunities like dividend recapitalization or partial liquidity events.
Consider new investors
Capital flows into the technology industry signal potential growth tech companies could experience throughout 2021. Tech valuations doubled over the last five years, and that rate has only accelerated since the start of the pandemic; the industry’s resilience and successes throughout the crisis has driven more interest from VCs and PE firms looking to invest.
Additionally, investors are highly motivated to pay up for the recurring revenue growth they think will be associated with tech companies over the coming years. Their expectations are clearly exhibited in the market pricing, which currently stands at 20% annual growth rates for five to ten years.
In other words, investors view the tech industry as such a strong investment right now that they expect to see rapid growth with flawless execution. Innovators in the technology, software, e-commerce, and healthcare IT sectors seem to be fulfilling these expectations as demonstrated by the huge growth experienced in 2020.
With these stats in mind, bringing on new investors could be a realistic way for your technology company to further your growth through innovation in line with current market trends. If a capital raise seems like a potential opportunity for your company, Aprio’s Capital Raise Preparation Services can help make that a reality through financial preparation, presentation coaching, introductions to investors, and personalized guidance.
The bottom line
Despite a tumultuous year for the U.S. and global economy, technology companies have much to look forward to heading into 2021. The outlook for the industry is strong, and the potential to capitalize on that trajectory is limitless. The emergence and solidification of new trends are guiding additional innovation, while an abundance of capital combined with low interest rates makes investment in growth a reality.
If you’re trying to decide what’s next for your technology company, Aprio can help. We’re closely monitoring current economic trends, and our expert advisors have the experience you need to begin weighing your options. Whether you’re evaluating an M&A transaction, considering new investors, or looking for creative tax solutions, we’re ready to help you prepare for what’s next. Connect with your Aprio advisor or schedule a meeting with us.