What is top of mind for the technology industry in 2021? LBMC’s fourth annual Business Outlook Survey Report addresses this question and offers insight into business trends, challenges, and levels of optimism across seven major industries in the U.S., including technology.

Technology companies made up about 9% of the survey’s 500 respondents, mostly in C-level positions. More than half of the participants represent companies with 15 million plus in revenue. The report provides insight into the business landscape over the last 12 months and expectations for the new year. Specifically, the report focuses on current business challenges, impacts of the pandemic, election sentiment, economic conditions and businesses’ goals for the coming year.

Current Business Challenges

In 2020, COVID-19 was the top challenge among technology companies, followed by developing new products and services. Technology is the only industry studied to rank developing new products and services as a top external challenge. The COVID-19 pandemic completely reprioritized the most immediate challenges of technology companies. While customer preferences were the #1 item last year, the pandemic created new opportunities and new priorities that now make that less of a concern.

How technology companies have endured has had much to do with their stage of lifecycle and their industry vertical. Young tech companies that were not surviving on revenue but fueling growth from capital have kept themselves to task with platform development. More mature firms either survived or thrived by aligning themselves with the altered economy. Businesses whose technologies align well with remote work, e-commerce, and supply chain have obviously been winners.

Impacts of COVID–19

While technology companies struggled with COVID-19, they also had the highest percentage of businesses with a positive impact from the pandemic. Two-thirds of technology companies experienced a negative impact from COVID-19. While that may sound high, only the professional services segment had a lower level of negative impact. When asked about the part of their business that was most impacted by COVID, technology companies’ top three responses were loss of sales/revenue, remote/in-person work and increase in demand for services. When asked which operating assumptions they plan on revisiting as a result of the pandemic, one third responded with remote work/office setup, followed by staffing/recruiting (20.8%).

Business Impacts of COVID in the Technology Industry

Election Sentiment

Technology companies are evenly split when it comes to the expected impact of the 2020 election. 27% of technology companies believe the results of the recent election will have a negative impact on their business. This number is second lowest among all industries in the study. Of those businesses that believe they will be negatively impacted by the election, 100% cited increased taxes and regulations as their chief reason. Another 27% of technology companies believe the result of the recent election will have a positive impact on their business. Those on the positive side believe that the result of election will bring better leadership, improve the COVID-19 response, and deliver greater market stability. This highlights that technology companies are largely comfortable in this market, as it fuels demand for their service offerings. For other industries, the outlook is not so balanced.

Future Outlook/2021 Goals

While technology companies are less optimistic than last year about the regional and U.S. economies, they are more optimistic about the global economy. The top goals of technology companies in 2021 are growing sales, increasing business value, and improving financial performance. 94.3% of technology businesses believe they will achieve revenue growth in 2021, and well over half of companies believe they will attain high growth levels.

In talking with our technology clients during and after the peak of the pandemic outbreak, we noted most were adapting quickly to changes in operating structure and product/service demand. We heard consistent optimism with respect to their individual business outlooks, and many of those businesses experienced noticeable revenue increases.

The tech companies we interact with remain positive as their revenue models and workforces are still largely in place. Any decreased optimism reported in the survey could be rooted in the increased competition for growth capital and customers. These factors may be driving some consolidation within verticals in the near future.

Economic Optimism in Technology

Sales & Profitability Strategies

Technology companies plan to improve their productivity, efficiency, and technology in pursuit of greater profitability in 2021. When it comes to increasing their profitability in 2021, technology companies are most focused on improving productivity and efficiency (64%), followed by upgrading their technology (60%).

In 2021, technology companies primarily plan on selling their products and services (new or existing) to existing markets. The majority (70%) of technology companies plan to develop new products for existing markets, and 67.6% plan to sell existing products to existing markets.

Sales Strategies for Technology

Capital Spend

Unlike all other industries, technology businesses are most inclined to spend their capital budgets on research and development (R&D). In 2021, technology companies plan to increase their capital spend an average of 11.05% over last year. When asked where they plan to increase their capital spend, over one-third (38.2%) plan to spend more on R&D. Technology is the only industry that has R&D in the top three positions. Very few technology businesses (17.6%) plan to spend more on employee training.

A top concern for technology businesses is how to get their product to market faster, so it is no surprise that R&D and marketing rise to the top here. But at the same time, they must keep their costs under control.

Capital Spending in Technology

Mergers & Acquisitions

Technology firms have a greater appetite for M&A than any other industry. Over 44% of technology firms are considering merging with, acquiring, or being acquired by another firm in 2021. Growth-oriented technology firms have an even higher likelihood of participating in a merger or acquisition in 2021.

LBMC has a number of technology clients that are currently involved in buy-side or sell-side transactions consistent with what we have experienced in prior years.

The M&A market for technology has not slowed during the last 12 months and in fact it may have accelerated. Private investors’ appetites for tech firms remains healthy, and tech firms themselves have kept an eye out for opportunities that scale their platforms. The name of the game for tech companies on the sell side is be prepared when the time comes. Having your financials in order and prepared for a diligence process is a real advantage. Tax diligence in particular can be critical, as many tech firms often are shocked to learn of tax exposures in the diligence process that can turn off potential buyers. Some proactive housekeeping now can be critical to monetizing the business later.

Acquiring/Retaining Talent

Technology businesses (especially growth-oriented firms) focused primarily on increasing hires in 2020. Over the past 12 months, half of technology businesses increased their head count. 62.5% of growth technology companies increased their hiring in 2020 while only 25% of no growth firms did the same.

Technology companies plan to increase their hiring in 2021, and many will use flexible and remote work arrangements as their top hiring strategy. Nearly half of technology businesses have made acquiring talent a business priority in 2021. Almost 70% of technology companies plan to increase their hiring in 2021, which is higher than any other industry in the study. When it comes to technology companies’ strategy for acquiring/retaining talent, 40% of these businesses plan to provide flexible or remote work arrangements to employees.

Technology Usage

When managing their own business’ technology, technology companies most often look to add new systems. When it comes to technologies that technology companies plan on investing in during 2021, business intelligence & analytics tops the list, followed by cloud technologies.

Technologies that Technology Companies are Investing in for 2021

Cyber & Data Security

Technology businesses place a higher priority on cybersecurity than any other industry. A little over one in three technology companies plan to prioritize cybersecurity in 2021. Those technology businesses prioritize cybersecurity are most often looking to implement IT assurance and compliance upgrades.

Cybersecurity strategies for Technology Companies

To see more insights from the technology industry, download the LBMC 2021 Business Outlook Survey Report.

About the Business Outlook Survey Report

The report was based on results from the national Business Outlook Survey, where more than 500 business leaders, mostly in C-level positions, reviewed business activity over the past year and provided insight into the business landscape over the next 12 months. More than half of the participants represent companies with $15 million plus in revenue and at least 50 employees. For the first time, this year’s report also surveyed high growth companies – businesses with a growth rate of at least 20%.