As companies look to scale, today’s fast growing Irish technology companies are in a radically different position from those in the prior decade. In recent years the ability to source talent, set up new operations and sell to customers online means companies can be global from day one. However, this has now changed to a situation where you have to be global on day one. Whilst many of these early stage companies may not yet be profitable, they are achieving sizeable valuations, albeit these are grounded in more reality than their forebears. Whilst that could in one respect mean that it is easier to scale the next great technology, will the relentless pace of technological change mean they sell before the valuation hits the inflexion point of big to mega?
The US and the Far East will, by virtue of size, continue to be significant players in the world of technology, the nature of new entrants means that they can locate anywhere. For some time, Ireland has been home to the European headquarters of many large technology companies. The entrepreneurial nature of Irish business means that the start-up scene has become vibrant in recent years. Perhaps more importantly, the fact that both of these populations inhabit the country side by side is the greatest opportunity. Could the next billion-dollar technology company be borne out of a collaboration between the David and Goliath of the sector? The rise of technology companies such as Realex and Bitbuzz signal there is no shortage of scalable business ideas in the sector.
“Depending on their level of business maturity, the challenge for tech companies is slightly different, but the principle remains the same: grow or die”
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After their initial taste of success, tech companies are invariably hungry for more. But frequently there is only so much room to grow in the local market. Moving into new areas quickly becomes an imperative, especially if they are based outside the US. And, if they don’t move fast enough, someone else might copy their idea. As they look to new markets, tech companies have several approaches open to them. They can sell direct to overseas customers from their home market, work with established intermediaries or partners with local knowledge, or relocate the business altogether. Selling direct may appear more lucrative at first, but it saddles the company with local compliance, licensing and auditing issues, which could be handled more effectively by a local partner. For others, opening a presence on the ground may seem the best option, but there are several different ways of doing it.
Rapidly scaling ops and teams
Depending on their level of business maturity, the challenge for tech companies is slightly different, but the principle remains the same: grow or die. To be the next billion-dollar technology brand, CEOs need to figure out how to scale and normalise faster than their rivals – without compromising the DNA of the business. Tech companies that have passed the first stage of rapid growth must constantly innovate and scale new products and divisions, otherwise their rivals will pass them by. More mature businesses must also make their operations more efficient as they recover from rapid expansion and seek to make their businesses more profitable. Early-stage start-ups must scale fast simply to survive – research suggests that just one in 10 companies growing at 20% per annum survive more than a few years.
Talent bottleneck
For many growing tech businesses, the biggest obstacle is a shortage of talent. In the US alone, demand for software developers is expected to grow by 20% per annum to 2022. This shortage is not just driven by the tech sector – all sectors are looking for digital skills. In the UK, Australia and India, tech companies are struggling to recruit talent with backgrounds in Science, Technology, Engineering and Mathematics (STEM) subjects – despite government efforts to boost such knowledge. And it is not just standard issue STEM skills at a premium: there is growing demand for ‘smart creatives’, who combine bold ideas with technological and commercial knowledge. New, multifaceted roles are also in high demand. Today’s cloud technology specialists are expected to be part technology broker, part cloud integration specialist and part user experience designer. Making matters worse, there is often significant external pressure to speed up recruitment.
Raising growth capital
Ongoing access to finance is a key issue for high-growth businesses. Those that lack financial firepower may find growth constrained. Others may encounter problems with cash flow during day-to-day operations. At the same time, the funding landscape has changed drastically since the financial crisis of 2008, and continues to evolve.
The emphasis on start-up funding often comes at the expense of robust financing options for larger, rapidly scaling companies, where financing options are often far more limited. In India, for example, while deal values in the technology sector totalled $11.5 billion in 2014 according to Grant Thornton’s research, early-stage businesses attracted the lion’s share of this investment.
On average, it took investors around seven years to ‘cash out’ on the current crop of non-private unicorns in the US. Despite this, there is still high investor appetite for early-stage companies, which represents a stark challenge for more mature enterprises in search of capital to help them grow. This difficulty is particularly acute outside the US. In North America, investors tend to feel more comfortable with uncertainty. Elsewhere, they are more likely to worry about execution risks – these are significantly amplified during the scaling-up process. The net result is that both start-up businesses and well-established businesses find plenty of support. Companies in the strata in-between face a funding gap.
Getting ahead
When several world-leading tech companies made front-page news for their tax affairs in 2013, nobody in the business world was left in any doubt – tax matters more than ever to today’s ambitious companies.
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