Investors Eager to Back Companies With Strong Digital Strategies
Investors, banks, and other financial institutions are offering support to promising startups with strong digital initiatives in place. With the emergence of powerful new and improved technologies, businesses seemingly have more resources than ever to be more efficient. Eninent companies are also taking the step to invest in these growing technologies as part of a grander expansion strategy. These digital transformations are occurring more often, yielding numerous benefits, and impacting the bottom line of companies.
Widespread Adoption of Technologies
The huge adoption of various technologies is highly evident in both tech-related and non-tech companies. Statistics indicate that non-tech companies are going digital faster than ever before. The trend has been spotted in the analysis of annual reports and conference calls from the public, non-tech companies that are engaging in digital activities. A decade ago, businesses were far less likely to use a wide range of technologies in order to execute daily operations. In current times, being able to keep up with competitors means implementing the latest industry technologies as quickly as possible.
The development of these technologies is moving faster than expected, and companies want the benefits of using these technologies before anyone else. Startups with more funding and fewer expenses are far more likely to go digital. On the other hand, companies that are struggling to survive are going digital in order to revive themselves and catch up to their competitors.
Advantages of Going Digital
Many businesses are making the switch to go digital and follow the trend to receive the benefits. Digital firms are far more likely to receive higher valuations making them more desirable to investors. What is also interesting is that the price-to-earnings ratio is also higher for digital businesses. This benefit is commonly seen in companies that openly share their digital activities, and investors take note of their plans to become successful. Companies that do not have a digital plan in place may be seen as less capable in a modern world.
Businesses that achieve higher success early on can heavily impress investors and draw greater financial support and new backers. When a startup achieves higher sales after digital adoption in an industry where other competitors are already digitally inclined, investors bet on the continued success of that company. The valuations of these companies continue to increase by nearly 10% in over two years. Higher valuations give investors the chance to earn more money during trades on businesses that disclose their digital activities.
The reason that investors are able to make lucrative trades based on digital adoption suggests that they know that all managers will not be able to implement their digital plans. Managers must communicate with investors so that they are able to get credit for their digital initiatives as soon as possible.
Another major advantage of switching to digital is that the company can preserve and protect the environment and its resources. Environmentally-conscious companies also receive favorable valuations and favorable attention. Paperless offices are becoming the ultimate goal for many modern business owners who choose sustainable options, and implementation is part of any truly digital plan.
Digital Technologies and Performance
Auto immediate improvement after the adoption of digital technologies is expected, it does not reflect the facts. Numerous studies suggest that simply going digital and using digital technologies does not necessarily mean that the business will receive great results from making the commitment. Although the use of innovative technologies is becoming more widespread, the rate of implementing them properly to achieve the desired performance results is much lower.
However, asset turnover rates do show an increase in efficiency in companies that utilize digital technologies. Reports also indicate that those firms do not experience an overall financial change, and have lower operating margins and sales growth.
Why Are Results Slow?
Many business owners expected stronger results with the adoption of digital technologies, but the most common results indicate the opposite. It takes time for digital technologies to yield positive results. Business owners that do not take the time to implement a digital strategy long enough may never see the fruits of their labor. Firms that are going digital also have competitors that are using similar software. This reduces the overall technical advantage one competitor has over another in an industry with widespread digital adoption.
Having the appropriate resources and tech team to implement technologies is also important for greater performance and sales success. Non-tech companies that go digital with a technology executive in the upper ranks fare better than those that do not, with up to 60% return on assets. Without the right technology team in place, even the best digital plan can fail.
Many industries are transforming to digitally adapt to consumer and investor demands and expectations. Investors will continue to reward digitally-inclined companies that do well in the beginning stages, even if their results may not be proven for the long-term. Although backing a company based on its digital efforts is a risk, investors are still eager to support companies that get it right. Although it may be easier to get a higher evaluation by going digital, a company must produce results to maintain it. Promising companies must carefully monitor digital activities and ensure the correct management team is in place to receive the benefits and maintain high valuations.