Leading and (Profitably) Growing in 2023
As we begin 2023, there have been many predictions as to the challenges businesses will face in the year ahead.
Aside from the constants for any organization - an uncertain economic climate, staying ahead of the competition, accelerating transformation (digital and otherwise), keeping data and people safe, ensuring a joined-up, positive customer experience, and attracting the right talent - there are now two critical elements that are always at the fore. Profit and growth. During 2022, we saw the shift from ‘growth at all costs’ to EBITDAC and Growth.
Whilst it may seem obvious, the focus for every business and its CEO has to be profit and growth, and not – as has been the case for some years - growth at all costs. The last decade has seen a cadre of software leaders who have never had to deliver a profit, despite creating significant enterprise value. Now that is all changing and finding leaders who can spell EBITDAC and appreciate Free Cash Flow, as well as growth, is the biggest challenge that CEOs of software companies face in 2023.
Public Vs Private
Over the last year we have seen a shift, with many public companies – who in the past may have made little to zero profit, yet were still viewed as growing - being taken into the world of private equity. There are many ‘big names’ such as Lyft, Peloton, and Uber which, largely, failed to make a profit yet remained in business and highly valued due to their future growth potential. Profit was glossed over in favor of looking at success further into the future.
Global stock market declines in the last year have meant that many previously listed companies – particularly in tech - have been purchased in record numbers by PE firms. And, in the past 18 months, IT companies have represented over 50% of the ‘take-private’ deal activity, increasing from around 30% five years ago. In 2022 alone, just some of the familiar names include Anaplan, Citrix, Coupa and Avalara, all of which have de-listed and been bought by private equity firms.
The world of PE is very different…where focus on EBITDAC is the name of the game and both profit AND long-term growth count. And the key to this moving forward? Leadership and talent. As CEOs look to the year ahead – and of course beyond – the combination of leadership and, crucially, the right talent will be the defining factor to drive profit and growth.
Click to read How to win the service game with ERP Gated
All about the Q’s!
For too long, many leaders and companies have built teams based on IQ (intelligence, knowledge, skills and experience) and, to a certain extent, EQ (emotional intelligence, thinking and feeling) and, indeed, a combination of the two.
Fellow South African, Sham Moodliar, CEO of Datanomy Solutions, has long cited the importance of WeQ – which is the ability to collaborate, to focus on the power of teams, and understand shared values. He states that firms which focus on the WeQ and operate from a Shared Value model achieve better and more sustainable growth. As we navigate a more complex world, where companies need to differentiate, balancing all three ‘Qs’ is going to be more important than ever.
Leading and Growing
With this in mind, going into 2023, CEOs need to build leadership teams who have all 3 Qs to meet this new reality, and create a balance fit for the future. It’s important not to over-index on one or the other. Proven successful leaders, and the ones who deliver on both profit and growth, understand the power of IQ, EQ and WeQ combined. This is representative of our world - diverse ways of thinking, bringing different perspectives and styles to the table which, in turn, leads to better results. The biggest challenge is to find the right people, and the right balance.
The pressure to rapidly transform many of these companies to positive EBITDAC is going to create a natural pressure to sacrifice EQ and WeQ and over-index on IQ. I would go so far as to say that any hire who does not demonstrate capability in all three Q’s is a failed leader and it’s only a matter of time before the failure materializes. The PE world tends to over-index and understand the IQ component more and therefore it’s crucial that CEOs in the software world focus on getting the right leaders on their teams for 2023.
Focusing just on IQ, for example, would be a poor choice…it’s not the answer. The solution lies with the notion of building a strong team, the right team, a team which crosses all boundaries, which is balanced in its approach, embraces all 3 Q’s and which will deliver the business results – the growth, and the profit - for 2023, and the future. Locating those individuals may be harder than first thought given the growth valuations of the last decade, and finding the wrong ‘IQ-only’ leaders will be more disastrous than you can imagine…Happy recruiting in 2023!
