For years, we have been investing in companies that help this drive to digital. These companies are telling us they are having more conversations with new customers than ever before.
So what do we look for when we invest in this area? We much prefer B2B technology that is critical to organisations and is hard to switch away from. We require our companies to be profitable and have long-term contracts with their customers. They should have products which are already built, and can be packaged to sell to new customers with minimal extra configuration. Often they are replacing spreadsheets or legacy technology – the benefits are usually clear often with a quick payback. They should face minimal constraints to expanding across borders.
Due to the high marginal profitability from extra revenue we expect this drive to digital to lead to a substantial increase in profitability from taking on new customers or through greater spend from existing customers.
There are risks though and we expect that this profitability increase may be masked until 2021 or perhaps 2022. In 2021, customer churn will likely be higher than normal, bad debts also increasing and completing sales to new customers may be more difficult in lockdown.
However, as new businesses emerge in 2021, digital will be at the forefront of their strategies. We sense that sales pipelines are building strongly in the companies that we follow and we believe the growth opportunity is significant.