Business as usual is private companies’ biggest threat

More risks but more opportunities for reward have private company leaders feeling optimistic about their prospects for the year ahead, according to research among more than 700 private company CEOs as part of PwC’s 18th Annual Global CEO Survey.

Nearly 60% of private company leaders say they face more threats to revenue growth today than they did three years ago, yet a similar number believe there are now more growth opportunities than there were before.

Andries Brink, PwC National Private Company Services Leader, cautions: “Disrupt or be disrupted? This is the choice private company leaders recognise they must make to thrive in this riskier but potentially more rewarding world. Sticking to business as usual, in what continues to be a challenging global economy, will put private companies at a distinct disadvantage. Those CEOs who choose to change are feeling confident about the future.

“A greater innovation focus combined with robust resilience measures will help companies better weather the shocks that could derail their growth plans. Private company CEOs see a whole range of threats that are beyond their control. But through adaptability and rethinking risk they can increase their companies’ competitive capabilities to cope better in this era of unprecedented change.”

The report found that over half of private company CEOs (54%) think it is likely organisations will increasingly compete in new sectors other than their own; with nearly a third (31%) saying their company entered a new industry during the past three years.

Family run firms are having more success at diversifying than many of their private company peers, with 38% having entered a new industry in the past few years, compared to a quarter of private equity and owner-managed firms.

“Changing the way you’ve always done business is hard, but it doesn’t require superhuman powers. The trick for private companies is to harness the unique qualities that make them different from conventional public firms, namely the ownership structure which allows decisions to be made for a longer-term pay-off.

“Private companies have the freedom to make investment decisions that can pay-back in a generation’s time. And because private companies are typically more personal, with more involved owners, they can build strong and lasting relationships with clients, employees and suppliers. We call this model for owner-led businesses the ‘patient capital’ advantage – it’s a resource many public companies struggle to find,” says Brink.

According to the report, around three-quarters of private company leaders are most concerned about over-regulation, national debt, increasing tax burdens, skills shortages and geopolitical uncertainty. Changes in industry regulation, customer behaviours and the competitive environment are seen as the trends most likely to disrupt their industry.

“Private companies have a wide range of concerns on their mind, but on the upside there are signs CEOs recognise that key global megatrends, such as digital change and shifts in global economic power will create as many opportunities as risks for pioneering firms in the coming years,” says Brink.

PwC’s 2014 Family Business Survey confirms the view that the rapid pace of technology is seen as a blessing as much as a challenge. A high 76% of family firms in South Africa (79% globally) identified digital technology as one of the top five global trends most likely to transform their business over the next five years.

Overall, this year’s survey of private company CEOs found 38% of business leaders are confident their company’s revenues will grow over the next 12 months, with this feeling of optimism rising even higher to 46% over the next three years.

Private company CEOs were significantly more confident about their own companies’ growth prospects than they were the strength of the global economy: 37% expect the global economy to improve, while more than twice as many as last year think it will worsen at 18%.

Brink concludes: “Despite feelings of uncertainty about the global economy, private company leaders feel confident about adapting to this new world order of fast change by finding new ways to create value and grow. Anything but business as usual is the only way private companies will succeed.”