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TRENDSETTER BAROMETER:
FAST GROWTH COMPANIES REGAINING THEIR STRIDE
Service
and Technology Companies Faring Best
PricewaterhouseCoopers’
“Trendsetter Barometer” interviewed CEOs of 392 privately
held product and service companies identified in the media as the
fastest growing U.S. businesses over the last 5 years. The surveyed
companies range in size from approximately $5 million to $150 million
in revenue/sales.
Back to the future! Revenue growth targets for America’s “Trendsetter”
companies are at their highest—and worries about market demand
at their lowest—in more than three years. Disproportionate
new hiring and capital investments are planned by the fastest growers—suggesting
that if others can achieve a threshold level of growth, more new
jobs and greater investments will follow.
New Growth in Revenues, Jobs, and Investments Expected
CEOs of the nation’s fastest growing private companies are
aiming higher. In the first quarter they upped their projected corporate
revenue growth for the next 12 months to an average of 20.2 percent,
from 19.6 percent in the prior quarter. This is the first time their
growth target has exceeded 20 percent since fourth quarter, 2000.
- Service businesses
expect 22 percent stronger growth than product sector companies—22.0
percent, versus 18.1 percent, respectively.
- Technology
companies anticipate 14 percent higher growth than non-techs—
21.5 percent, versus 18.8 percent.
More of these
same “Trendsetter” CEOs are planning workforce expansion
over the same time horizon: 76 percent, up from 72 percent in the
prior quarter. Anticipated is a net hiring increase of 8.1 percent,
up from 7.1 percent estimated in the prior quarter.
Service and technology companies again show brighter prospects:
- 81 percent
of service businesses expect to expand their workforce, versus
70 percent of product companies. And, overall, service businesses
are projecting job growth averaging 10.3 percent over the next
12 months; product companies anticipate an increase of 5.8 percent.
- 81 percent
of technology companies plan to add new workers, versus 71 percent
of non-techs. Overall, technology companies project net workforce
growth averaging 8.3 percent, versus 7.9 percent for non-techs.
There is a solid
connection between job growth and revenue growth. Surveyed companies
planning to add workers expect revenue gains averaging 22.5 percent
over the next 12 months, versus 13.0 percent for those seeing no
workforce expansion.
Plans for major new investments of capital are also on the rise
for the next 12 months, but less so. Currently, 42 percent are planning
new investments, up from 41 percent in the prior quarter. Spending
is expected to average 11.4 percent of revenues, up from 11.0 percent.
- Similar patterns
of investing are planned by service and product sector companies.
- However,
44 percent of technology businesses are planning major new investments,
versus only 39 percent of non-techs. Investments by technology
companies are expected to average 13.6 percent of revenues, versus
8.6 percent for non-techs.
As with hiring,
there is a strong link between planned investments and revenue growth.
Those expecting to make major new investments project 23.5 percent
revenue growth over the next 12 months, compared to 17.8 percent
for those without investment plans.
“Trendsetter” companies are budgeting increased spending
in four key areas: new product development, cited by 43 percent;
information technology, 42 percent; sales promotion, 39 percent;
and advertising, 32 percent.
“It’s encouraging to see this trifecta of expected growth
in revenues, jobs and investments,” said Paul Weaver, PricewaterhouseCoopers’
global technology industry leader. “The business climate for
these companies appears to be much improved, and producing some
positive momentum. Viewed separately, service businesses may have
a more upbeat view than product sector companies because of their
inherently greater business flexibility—not having to navigate
through as many complex capacity, overhead, inventory, export and
energy issues. Also, technology companies may see a special advantage
in accelerated depreciation allowances, designed to encourage businesses
to go forward with capital spending projects this year, rather than
wait.”
Lack of Demand Still A Concern, But Lessening
Despite “Trendsetter” CEOs’ increased revenue targets,
hiring plans, and expected new investments, many still see potential
roadblocks in their path over the next 12 months. Over half of those
surveyed (52 percent) remain concerned about weak market demand—more
of a worry among service companies, 58 percent, than product businesses,
48 percent. Concern was comparable among technology and non-tech
companies.
Other worries include legislative and regulatory pressures, a distant
second in importance, cited by 32 percent; profitability (30 percent);
lack of skilled, trained workers (29 percent); and pressure for
increased wages (27 percent).
“Hopefully we have finally passed the point where CEO skittishness
is thwarting the recovery,” said Weaver. “Although a bare
majority remains concerned about softening demand, this is the smallest
number since the fourth quarter of 2000.”
What A Difference A Year Makes!
A comparison of key survey findings from 1Q04 with 1Q03 reveals
a greatly improved business climate:
| |
1Q03 |
1Q04 |
| View
of U.S. economy as growing |
24%
|
81% |
| Optimistic
about U.S. economy |
41% |
81% |
| Optimistic
about world economy |
31% |
70% |
| Expected
U.S. economy growth |
1.8% |
3.5% |
| Expected
industry sector growth |
4.8% |
7.4% |
| Company
revenue growth target |
16.6% |
20.2% |
| Potential
Barriers |
|
|
| Weak
market demand |
77%
|
52% |
Decreasing
profitability
|
35% |
30% |
Plan
major new investments
|
39%
|
42% |
| Rate
of new investments |
11.4% |
11.4% |
| Expect
new hiring |
69%
|
76% |
| Rate
of new hiring |
8.1%
|
8.1% |
“The strong
linkage between accelerated revenue growth and new hiring and investments
is a hopeful sign,” said Weaver. “It suggests that if
a certain level of growth can be achieved, additional new jobs and
investments will follow.”
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Enlarge
PricewaterhouseCoopers’ “Trendsetter Barometer”
is developed and compiled with assistance from the opinion and economic
research firm of BSI Global Research, Inc. PricewaterhouseCoopers
(www.pwc.com) provides industry-focused
assurance, tax and advisory services for public and private clients.
More than 120,000 people in 139 countries connect their thinking,
experience and solutions to build public trust and enhance value
for clients and their stakeholders. “PricewaterhouseCoopers"
refers to the network of member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent
legal entity. PwC Southern California contact: Irene Valverde, Marketing
Manager, 213.217.3883, irene.valverde@us.pwc.com
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