Private Company Pessimism Grows

A new report on privately held growth companies says they’re uncertain about European and U.S. economies, the fiscal cliff, new financial regulatio...
David RosenbaumAugust 14, 2012

According to Tuesday’s PricewaterhouseCoopers’s Private Company Trendsetter Barometer report, more than a third of companies (38%) surveyed expressed uncertainty about the U.S. economy. Optimism, the report said, declined between the first and second quarters, and pessimism rose.

The report said that while most private companies still expect to grow revenue over the next 12 months, Trendsetter executives lowered their growth forecast for the period from 9.5% to 8.3%.

Ken Esch, a partner with PwC’s private company services practice, blames the euro crisis for much of the uncertainty, and says it doesn’t matter if the companies expressing their concerns are actually doing business in Europe. “Because the global economy is so intertwined,” says Esch, “a lack of demand in Europe is bound to affect a business’s customers. Say you’re in the manufacturing space,” he continues. “You may be in the supply chain for a larger product that’s ultimately shipped overseas. If the consumer in Europe isn’t buying, that will impact your business even if you’re only selling domestically.”

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Esch cited another concern contributing to growth company worries: the so-called 2013 fiscal cliff, when current policies will trigger tax increases piled on top of spending cuts. Most experts believe that situation would drive the country into a recession. Republicans and Democrats are so far at odds over what to do about it, and it doesn’t look as if anything will be settled until after the upcoming November presidential election, if then. “Why would I do anything — invest, hire — until I get a better feel for what I’ll be paying the government or what government contracts will be going away?” Esch asks rhetorically.

In what he describes as “a challenging environment with lots of headwind, both economic and legislative,” Esch believes companies will spend where they can get the most bang for the buck. For Esch, that means investing in technologies that can make sales and marketing more efficient, and in research and development of the sort where “you’re tweaking products and services, trying to be more responsive to the consumer.”

Cloud-computing alternatives are also a focus of growth companies. Start-ups and private-equity-owned companies, says Esch, are just not using on-premise IT.