Scaling up to get out

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17 November 2015 | 0

Billy MacInnesWe’re accustomed to seeing many of Ireland’s young people emigrating to make a living in places like Australia, Canada, the US and the UK, but it would appear that many companies in this country’s tech sector face similar pressures.

The recent Bank Of Ireland Technology Sector Insights 2015 Report, produced in conjunction with Trinity College, found that in a sector with 1,100 businesses spread across software, infrastructure, e-commerce and digital marketing, only 24% could survive by generating 80-100% of their sales in Ireland. This despite the fact that 85% of businesses sell domestically.

The report found that more than 70% of companies are ‘export-focused’. Nearly half generate 20-40% of their revenues from outside Ireland, 19% get 40-60% of their revenues from other countries and another 19% make as much as 60-80% of revenues externally. A significant 11% generate 80-100% of sales outside Ireland.

The biggest overall external source of revenue is the US, followed by EMEA, the UK and the Rest of the World. The report found that for many businesses the domestic market ‘was used to gain initial references’. Just like so many of Ireland’s young people, its tech companies have to look abroad to make a living.

The report provided encouraging news that growth was improving in the tech sector with 71% reporting they had grown revenue in 2014, compared to 58% in 2013. Many identified revenue growth as their priority in 2016.

For 26% the primary source of revenue was contract, 18% reported it was subscription, 15% licence, 14% hybrid, 13% one-off payment, 8% managed services and a mere 2% were dependent on Freemium.

Irish tech companies are also putting a strong emphasis on investing in sales and marketing in 2016 with 49% citing it as their main area of investment, compared to 30% identifying technical staff as their primary focus and 22% making R&D their investment priority. The top challenge for businesses was gaining more customers (29%), followed by accessing capital (23%).

The report found the sector was dominated by companies with revenues of less than €2.5 million (35% make less than €250,000) but just over a quarter have revenues of more than €2.5 million. In EBITDA (earnings before interest, taxes, depreciation and amoritisation) terms, 71% had less than €250,000 and 23% were in the €250,000 to €2.5 million bracket. The majority of companies identified generating high profits each year as their primary and secondary priorities, although a significant number are looking to be bought out, either within five years or after five years.

In an interesting aside, 38% revealed that they did not use social media or did not find it beneficial for generating sales. Of those that did, the most effective platform for sales generation was LinkedIn.

The report also found that core running costs for companies in the tech sector were falling by as much as 30% per year as a “result of increased usage of cloud and open source software”. While that’s an impressive statistic in its own right, it should also serve a wider purpose as a powerful argument for tech companies to use when making the case for cloud and open source to their customers. Wherever they may be.

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