Positioning private businesses for success in 2024

In the past year, we’ve asked hundreds of private company executives about opportunities and risks to their businesses – both now and in the near future. What we heard was a mix of optimism and anticipation. In 2024, private and mid-sized companies will likely continue to address margin pressures and persistent inflation. As industry convergence accelerates, many companies said they will look for new opportunities for growth outside their respective sectors. And nearly all leaders whom we surveyed said they are on the artificial intelligence (AI) adoption curve, though many are having trouble finding the right talent to take their digital ambitions to the next level.

Leading a private company amid the headwinds of talent shortages and competing needs for capital requires discipline in the short term—and strategic focus for long-term stability. Here’s what we foresee in 2024.

Strategic priorities focused on tech

• Stronger governance and technology frameworks. Respondents in our 2023 mid-market technology survey believe cybersecurity and regulatory compliance should be a prime topic on their board's agenda. The potential risks and opportunities around AI remain important but secondary in comparison to cybersecurity and regulatory compliance.? ?
• Bigger bets, bigger returns. Survey respondents from larger private companies were increasing their technology spending by more than 20% compared to the previous year. And the leaders who were spending the highest share (over 5%) of total revenue on technology said the priority areas of focus for 2024 would be cybersecurity, business growth, and operational efficiencies.
• Skill-based hiring. Competition for talent remains heightened. In the same survey, more business leaders said they plan to shift away from degree-based hiring and place greater emphasis on using talent and skills from ecosystem partners and service providers to develop tech talent.

Financial risks

• Capital constraints. In a separate survey that included private company C-Suite leaders, board members and business owners, 88% of respondents said they were facing issues accessing capital, and that it’s becoming more difficult especially for smaller companies looking to grow. Leaders from businesses with less than $200 million in annual revenue were twice as likely than those generating more than $200 million to experience difficulty raising capital. While the Federal Reserve could provide some relief during 2024 by cutting interest rates, which tends to improve access to credit, that will be highly dependent on the broader economic conditions.
• Declining valuations. Nearly half (48%) of private company leaders surveyed regarding their capital investment needs say their business valuation declined and they ranked external factors like inflation (87%), rising interest rates (85%), and talent shortages (85%) as high risks to their organizations. Plus, 91% of the executives who saw their company’s valuation decline indicated that their business was strongly considering being acquired in the near-to-midterm, suggesting a potential acceleration of acquisition activity in 2024.

Restricted cash flow is impacting companies looking to hire. When we asked private company leaders about their talent needs, just over half (52%) of the respondents said their organization’s growth will be constrained without hiring new talent. Even more of them (60%) said cash flow is limiting their ability to make new hires.? Accordingly, we expect organizations with more significant capital constraints to prioritize reskilling their existing talent to fill their most urgent business needs – increasing productivity and investing in technology.

Opportunities

• Convergence picks up speed. More than two-thirds of respondents (70%) in our mid-market tech survey believe their business has an asset that could potentially be monetized outside of their sector. This trend may continue as companies allocate more capital into technology solutions.?
• AI amps up productivity. In the same survey, technology, media, and telecommunications companies, and life sciences and health care organizations were the most likely businesses to have active AI solutions and may apply them in new areas.
• Cultivating customer trust. A sustained and maturing focus on data security could allow private companies to improve customer trust and confidence.

Opportunities and challenges converge

Thriving in uncertainty has been the standing order for private companies for some time. In 2024, the list of challenges for many of these companies might include readying the organization for an acquisition. Many others may need to prepare for the ethical challenges that exist around AI, including data privacy and intellectual property. We also anticipate that companies will come up with creative ways to address chronic talent challenges – by rewriting the playbook on hiring new people while adjusting their talent models to reskill existing employees. All of this will take place as cyber threats grow more complex, demanding agility when it comes to defending against them. As these opportunities and challenges converge, private companies should consider drawing on the lessons learned from the challenges of the past few years. Good thing there’s no shortage of those.

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