Winning hands

Published 24 August 2011 13:07, Updated 25 August 2011 11:12

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Expect fierce competition among the best and fastest-growing private companies in the coming year. Three out of four businesses are upbeat about growth in the next three years, according to this year’s survey by BRW ANZ Private Business Research.

But most of those companies (75 per cent) intend to win market share at the expense of competitors by improving sales of their existing products, according to the survey of 568 businesses with revenue of at least $10 million.

Companies that falter in their strategy can expect to be gobbled up by their rivals as the appetite for mergers and acquisitions has risen sharply. Of the companies surveyed, 24 per cent are considering a merger or acquisition this year, up from 16 per cent last year.

This year’s survey of private businesses, together with BRW’s conversations with the winners of the BRW ANZ Private Business Awards across nine categories, provide a deep insight into the struggles and strategies of the best and biggest of the privately owned companies – a group of businesses that is often overlooked by the media and governments alike.

The survey reveals a community of active leaders, determined to play the winning moves in an economy that is challenging all the rule books. There are also some worrying weaknesses.

Leaders say finding, keeping and developing staff is their biggest headache. The trend to a tightening labour market is caused by the ageing workforce, slower migration and a patchy economy resulting from the resources boom. Of companies with more than $40 million in revenue, 36 per cent put staff issues as their top concern, while 40 per cent of companies with revenue under $40 million worry most about this issue.

One of the cheapest strategies is to find, nurture and reward in-house talent, the secret of which is revealed in the accompanying feature story “Stars burn bright”, about how the best performers in two of our winning businesses are rising to the top.

West Australian companies are the most optimistic, perhaps not surprisingly. On a scale of one to seven, (one being very negative and seven very positive), WA businesses ranked Australia’s economic performance of the next three years at 5.3. Other states were not far behind: Queensland and Victoria ranked 4.9, NSW 4.85 and South Australia 4.7.

Still, it’s not all rosy in WA, as revealed in our vivid on-the-ground feature story, “Big dreams in a city on the edge”. Resources companies in WA (and Queensland) are pinching staff from across the nation with their get-rich-quick salaries, while Perth companies in other sectors are facing the same struggle to keep talent as companies in other states; the patchwork economy in action.

Interestingly, West Australian companies are the most worried about finding staff (44 per cent), while Victorian companies are the least worried (31 per cent).

The optimism pales when participants consider the next 12 months. Even so, economic performance, terms of trade and business investment rank more than four across the states, with one exception: SA is less optimistic (3.92) about business investment.

Consumer spending is a bigger worry in all states bar WA (4.22), ranking in the threes. The high Australian dollar is causing similar worries.

A look at the manufacturing sector says it all. Few companies from any sector could absorb a 25 per cent swing in their profit margin but that is what exporting manufacturers have faced with the dollar’s moves in recent years.

And yet there are survivors, and they candidly discuss how they buck the trends in our investigation into the sector, “The global challenge facing manufacturing”.

Retailers are also under intense pressure from the dollar. Not only are consumers finding cheaper products, they are changing their buying patterns. As we explore in “Fit to survive”, there are winners from that transformation.

For many business leaders, retirement is looming. This is clear from a significant trend this year among leaders and founders who are looking for a retirement opportunity in the next five years. Only one in 10 expects to exit in the coming year but that number jumps dramatically – to five out of 10 – in a five-year time frame.

Given this, it is astonishing to find that more than half have no formal succession plan.

Opportunities to exit are also getting competitive. Selling to a rival is the preferred method for companies with under $40 million turnover (30 per cent), while those over $40 million ideally want to sell to the company’s management (22 per cent).

Not many want private equity (19 per cent and 7 per cent respectively) but few realise that private equity offers a way to achieve a better return from a trade sale, a management buyout, or a listing on the Australian Securities Exchange. That is why we have explored private equity, especially how to get the best deal, in the feature “Resilience in the private sector”.

There are plenty of questions arising for business leaders in the data from this year’s survey. Those that answer them first and act fastest will be those that thrive.

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