Are fast-growth companies losing their faith?

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By: Wise Marketer Staff |

Posted on October 28, 2002

The optimism of the CEOs of America's fastest growing companies is faltering, according to the PricewaterhouseCoopers Trendsetter Barometer. And, in the light of the recent slowness of economic recovery, fewer than last year see the US economy as growing, with weak demand being seen as the biggest barrier to growth.

Nearly 75% of the CEOs surveyed still see weak market demand as a barrier to growth and, without a near-term surge in business to encourage them, they are planning only limited new investments and hiring. If business spending does not pick up, the long-awaited recovery could be further drawn out.

Loss of faith
According to the survey, the CEOs seem to be losing faith in their beliefs: A year ago, only 10% saw the US economy as growing. By the second quarter, this had increased to 45% - still less than a majority - but in the third quarter the number had tumbled back to 24%. A year ago, 40% were optimistic about the economy's prospects over the next 12 months. This steadily increased to 73% in the second quarter but has since fallen back to 53%.

"Compared to the weak conditions of a year ago, today's situation looks like an improvement," commented Steve Hamm, managing partner of middle market advisory services for PricewaterhouseCoopers. "But, benchmarked to the second quarter, the view is troublesome. It's like these businesses have been struggling to climb out of a ditch and are now faced with another steep wall to scale."

International growth
If there's a bright spot for revenue growth, it's located outside the US, according to PricewaterhouseCoopers. The 40% of 'Trendsetter' companies with international sales are projecting a more rapid pace than their US-only peers: 14% faster growth for the calendar year 2002, and 22% faster over the next 12 months. Overall, they are expecting a 20.3% revenue contribution from abroad, representing an improvement of one-half point compared to the prior quarter.

But, Hamm points out, there also seems to be a dark side to that good news, in that there appears to be a slight softening on the international front. Over the past quarter, only 28% reported an increase in international sales, down from 35% in the previous period. Overall, 16% reported a decrease in international sales (up from 13%).

Interestingly, only 42% of international marketers are currently optimistic about the direction of the world economy over the next 12 months, down from 60% in the prior quarter.

Growth barriers
In terms of threats to fast growing companies, the CEOs' views have remained consistent over the past 12 months. A year ago, 74% cited weak market demand as a potential barrier to growth, and in the third quarter (as in the prior quarter) that number has held at a steady 73%. Following a lack of demand, the CEOs are also worried about decreasing margins (33%), followed closely by lack of capital for investment (almost 33%).

"These business leaders have an ongoing concern about weak demand," said Hamm. "In uncertain times, they know that the natural tendency is for consumers to sit on their wallets."

Future hope
Despite their worries, however, the CEOs' latest revenue growth projection for the calendar year 2002 remains steady, at 12.7%. And their estimate for the next 12 months has crept up to 16.9% (from 14.9%). This latest twelve month target represents a general consensus, backed almost equally by product sector businesses (forecasting 17.0% growth), service companies (16.8%), technology companies (18.1%) and non-technology companies (15.6%).

"It is encouraging to see that these companies are sticking with their latest estimate for 2002," said Hamm. "And, by increasing the twelve month estimate, each is exhibiting a degree of confidence that their own company still has the ability to outperform the economy."

The Trendsetter Barometer interviewed the CEOs of 402 product and service companies identified in the media as the fastest growing US businesses over the past five years. Their companies ranged in size from US$5 million to US$100 million in annual revenue.

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