The power and challenges of Scale Ups

UK scale up businesses, most between £10m and £40m turnover, are growing at over 20% a year.
Scale up business numbers are doing well, growing by 12% YOY from 31,440 to 35,201 (ONS data 2016).

Whilst scale ups represents just one percent of all UK businesses, only one percent more UK scale up businesses would create an extra 238,000 jobs and add £225bn in GVA (Scaleup Institute report on UK Economic Growth 2014).

Many scale ups are growing at rates of 50% a year and higher, and this creates all manner of challenges to continue further successful growth. Factors like staff recruitment and access to skills, growth funding, local infrastructure and export markets.

There is clearly lots to do to break down the barriers scale ups face. Local and government funded organisations are now aiming to ensure scale ups are a national priority, get them embedded into the local fabric of the communities in which they operate, and deliver scale up business support solutions across both the private and public sector.

Start Ups versus Scale Up Businesses

A start up is often defined by its main challenge, a search for a repeatable and scalable business model. A start up becomes a scale up after it has validated its business model hypothesis, solved all of the many start up challenges, like seed funding and skills for development, and is ready for growth. This stage of growth, often almost exponential growth, is called ‘crossing the growth chasm’, a phrase originating from marketing guru Geoffrey Moore in 1991.

The reason start ups are important to the UK is that without a vibrant start up community it is difficult to get to the point where you have enough companies to then go on to scale up. Every healthy country economy needs a pool of local start ups that naturally lead on to scale ups, as the latter exist on top of a solid start up ‘ecosystem’.

In order to flourish, a scale up business requires a solid pool of established companies interested in providing growth opportunities. The World Economic Forum assesses the expansion challenges affecting these types of business, and stresses the importance of the scale-up phase directly after the start-up phase.

What is a scale up business?

So when does your start up become a scale up? A Scale Up is a company who has an average annual increase in turnover of at least 20% over the past three years, and who has at least ten employees at the start of the period (OECD 2007).

Scale Ups that are visible can be ascertained due to that fact that all UK companies are required to disclose their turnover if two out of the three following conditions are true:

  1. Annual turnover exceeds £10.2m
  2. Business assets exceed £5.1m
  3. More than 50 employees

So defining which UK businesses are scale ups is easy, right? Well unfortunately not. Whilst there are clear criteria for a scale up, based on size, numbers of staff and growth by turnover, not all scale ups are currently visible.

Only if a business has a turnover of just over ten million can it be revealed if they are growing at the defined 20% rate, unless those companies that are smaller also choose to declare their turnover. So there is actually an as yet unknown pool of ‘invisible’ scale ups that may already be growing at a rate of 20% or greater, with less than ten million in turnover, less than 50 staff, or business assets under five million pounds.

UK Government focus on Scale Ups

The 2017 UK Government Industrial Strategy White Paper focused on the value of scale ups and recognised them as part of the overall solution to UK productivity challenges across all industry sectors.

Whilst the white paper took forward areas of recommendations originally made by the ScaleUp Institute via joint reviews, and the background work of the Scaleup Taskforce, it confirmed the critical importance to UK Scale Ups of R&D funding, skills, access to finance and infrastructure. It frames the importance of people, location, business and technology infrastructure and business environment for the future growth of these critical businesses.

Exports are also key for UK government, piloting intensive export growth support for potential scale-ups and ambitious medium sized businesses. This now includes co-investment to access commercial export support services, with each eligible business offered a grant on a 50:50 match funded basis. Local Enterprise Partnership Growth Hubs are also working to ensure scale ups receive easily accessible and ‘joined up’ export and business growth advice.

Why are scale ups so important?

Evidence from a variety of sources shows scale up businesses are across all industry sectors, and that they generate more productive jobs than the average, with around £235,000 of turnover for each business per employee. They also provide employment opportunities for all local people across a varied spectrum, from work experience to apprenticeships, and from graduates to non-executive directorships.

Despite what you might imagine, many successful scale ups are not ‘techie’ businesses. In fact the majority of scale ups are ‘non-tech’, companies that are successfully using technology but usually not creating it themselves.

Many scale ups are also more than 20 years old, with only a third younger than 10 years old. This indicates that many of the UK’s older and more stable companies clearly have the potential for growth, although data shows they are most likely to be growing at a moderate pace of around 20 to 40% per annum.

The UK’s total number of scale up businesses that increased their turnover and/or staff numbers annually by over 20 percent over a three-year period has increased by 12%.

However, when differentiating between types of scale up business, two distinct patterns emerge:

  • An increase in overall scale ups growing by turnover
  • Small decrease in scale ups growing by employees
  • Only 20% are growing against both measures

Local leaders from the public and private sector are continuing to build on existing schemes to help UK scale ups. Many of the original schemes were galvanised by the Scaleup Institute education programme on ‘Driving Economic Growth through ‘scale up ecosystems’, supported by Goldman Sachs’ 10,000 Small Businesses UK and Innovate UK.

These initial programmes did set multiple scale up projects in motion, working to develop tailored initiatives for scale up business leaders. In turn this led to inclusion of scale ups in local Strategic Economic Plans through local authorities and the 38 Local Enterprise Partnerships (LEPs) in England set up by the Department for Business Innovation and Skills (BIS), as well as the three national LEPs in Scotland, Wales and Northern Ireland.

What scale up businesses want

Scale Ups have indicated that, to continue to grow successfully, they need solutions to five common challenges:

  1. Access to talent and skills – finding and recruiting the employees to hire who have the skills they need
  2. Access to new markets – new UK customers and navigating the best ways to access export markets
  3. Leadership capacity – improving the breadth, knowledge and skills of the key people in the business
  4. Finance – accessing the right type and combination of affordable finance to help effective growth
  5. Infrastructure – including premises, space, warehousing and local and technology infrastructure

Many ambitious scale up leaders want to scale more and where they need most help is on talent, access to markets and leadership. People with the right skills remain their top priority, and access to talent the greatest hindrance.

Whether they are recruiting new employees, tapping into the experience of business mentors or Non-Executive Director, who have successfully grown businesses, people are top of mind of scale up leaders to continue to deliver rapid year-on-year growth. This includes building out leadership capacity and seeking the skills needed to expand their global aspirations, including finding international talent.

Not surprisingly, scale up business leaders most value locally-rooted resources to foster their growth, with local solutions tailored to their needs and peer-to-peer networks and events where they can meet their counterparts.

They also see the importance of and seek easier access and deep connections with local educations and university research facilities, collaboration partners, local authorities, other businesses and government agencies.

The importance of financial support is also key. Scale up companies receiving equity investment are more likely to grow their turnover faster, Basically, the more equity investment they receive, the faster they grow. The majority of scale ups that have received finance raised less than £5m. It is an obvious conclusion that if investors had deeper pockets to give the companies more investment, this would enable scale ups to grow faster.

Key scale up challenges

Over half of the Scale Up businesses in a Scaleup Institute 2017 survey perceived no relevant support existing for them, a situation that needs to be remedied urgently. While scale up business leaders did recognise that there are national Government initiatives, they said that they were not always immediately visible, and they want these initiatives delivered locally, in a manner much easier to navigate and access as and when they are required.

There is a great deal of education required at government, local authority, LEP, county Chamber and local business level. An integrated local scale up ecosystem needs to be created and fostered, a support structure regarded as ‘match fit’ for scaling businesses at every stage of their growth journey.

Part of the challenge is showing local businesses that their challenges are already well understood, and improving awareness of immediate solutions that are available to help their growth. This will require good scale up business case studies and success stories and local events and networking groups, to highlight well-evidenced, impactful programmes and practices from which scale up business owners and leaders can learn, emulate and improve.

Also, without a coordinated database of Scale Up businesses and key leadership contacts within them, the resources these businesses require may simply not get to where they are needed most. Broad advertising to them may help, but one to one contact with scale up business owners and leaders is likely to have the greatest long term impact.

Many organisations are already contacting scale ups directly to offer their help and support, by mail, email, phone and through various social media channels. However, there are now multiple data handling considerations to consider in a direct contact approach, including storage and broadcast of personal data. All of these data issues will need managing very carefully, in order to avoid falling foul of UK data protection and new EU GDPR legislation.

Conclusions

Better knowledge of what scale ups really need is urgently required. This includes local scale up business research, analysis, policy and data, ultimately to make sure that the limited funds available to scale ups are used in the best way possible to their current challenges and future expansion.

Scale ups are twice as likely as their peers to be centres of innovation in the UK, but research shows they are keen to see better access to R&D innovation funding and growth finance options delivered locally, along with access to the infrastructure that supports their innovation drive. Better local access to staff, new customer and export markets and improvement in leadership skills also remain critical components to future UK scale up business success.

Local businesses that meet the Scale Up definition and criteria should recognise that there are resources, skills and advice available to them now, to help them expand and grow further. LEPs all get a share of UK government funding to generate business growth, allocated through competitive bidding. These funds, as well as LEP staff, local growth hubs and local growth partners can help scale up businesses in all sectors to achieve their full growth potential.

  • Find your local LEP and growth Hub – click here

GET Consultants is holding a series of Scale Up Labs to help High Growth Small Businesses to transform and grow and avoid some of the pitfalls and barriers to long term and efficient growth.  Click for details

Get the most out of business consultants

There are many benefits to parachuting in an external consultant, from helping your business grow, to raising funds, to helping you reach new markets or retain valuable clients. Andrew Kerry-Bedell looks at the best way to bring in a business specialist to help you with a particular discipline such as strategy, sales, marketing, branding or to raise finance.

Businesses usually bringing in specialists because they don’t have the time or suitable expertise in-house, a common issue for many small organisations. And a consultant can add value quickly, identifying barriers to business growth and enabling you to improve your customer awareness, financial stability and market competitiveness.

By hiring externally, companies can also instantly gain specific skills for certain projects, get an outsider’s perspective without an emotional investment to the business, and augment a business team to give them more resources for time-dependent tasks.

It is obviously important to understand what consultants are, what they do and how they achieve what you want from them. Think of any consultant as an expert in their field, usually focusing on a narrow set of specialties that they excel in deploying across a wide variety of market sectors. For example, A marketing consultant will be able to apply their skills to implement suitable solutions regardless of the industry or challenges faced by their client, whereas a finance consultant will be able to look at a business and map out a strategy to improve working capital and future funding.

The challenge for business owners is ensuring that they are utilising the resources of a consultant to the fullest and not putting any barriers in their way that might impede their potential success. There are four key factors to consider before investing in an external consultant.

Tell it how it is

For consultants to fully understand how your business ticks, they must have full visibility of the entire company. This includes the good and bad, financial issues, internal staff issues and everything in between. It is all too common for businesses to try to hide these negative aspects from external parties, but giving them this knowledge will help your consultants understand the landscape in which they are operating in, which will be critical for them to be successful.

Establish targets

Both parties should know what results are expected and being evaluated and nothing should be taken for granted. This discussion should be had before a plan of action is created, and ideally in advance of any longer term support contracts being signed. Without a joint understanding of the metrics used to measure expected success, one party may be under the impression that a project is going well, while the other might be woefully disappointed.

Discuss non-disclosure and intellectual property

It is a good idea to discuss what information is confidential within any documents or collateral shared, as well as who owns the intellectual property rights for any content created. Having this agreement at the beginning of the relationship avoids future misunderstandings. If in doubt, make sure you both sign a suitable contract and mutually acceptable Non Disclosure Agreement.

Explore challenges rather than setting objectives

Consultants are specialists who, by nature, will seek the best solution to the challenge laid out in front of them. By outlining the challenges faced by the business, the consultant can explore the causes and outline the best solutions, enabling the business to set objectives alongside any relevant staff of stakeholders. In the field of marketing, this could be a business hiring a consultant to improve the customer awareness, benefits and competitiveness of a product or service, rather than exploring the challenge of driving more traffic to the website, or taking a step back further to attract more sales leads.

Conclusions

By giving external consultants the ability to fully deploy their skills against a challenge, instead of assuming a solution and finding someone to deploy it, creative solutions can be found and companies can get a valuable new viewpoint on the obstacles they are facing, as well as the best options to solve them, helping to aid future growth.

UK SMB growth potential

GET Consultants looks at why the manufacturing and technical sectors in the UK have capacity for growth, and what these business types can do to offset any risks to their future survival. He also looks at how we might rebalance the economy to unlock the potential of some of the fastest growing smaller companies in the UK.

The 2016 Coast to Capital report identified that there are specific barriers that are concerning for the scale-up and growth of UK medium sized businesses in two key sectors.

The reasons for business growth limitations fall into the three ‘C’s

  • Customers – both online and offline sales and marketing to create and retain local UK and overseas buyers
  • Capacity – capability to grow including staff, factories, office space, warehousing and overseas premises
  • Cash – easy access to finance at affordable interest rates to ensure growth when it is required

Creative and technical sector

Growth potential is around products, particularly technical innovation, ‘big data’, and increased interconnectivity that can create new products and services, both to consumers and in the supply chain. The second key area for growth is skills where increasing technology and creative expertise in technical and managerial positions are required, and they are increasingly merging. These skills are needed to drive the innovations that will create future new opportunities, and to exploit these opportunities and, in turn, manage business operations more effectively.

Key barriers to growth:

  • Lack of revenues for re-investment for scale-up and growth
  • Lack of ‘move-on’ premises that companies can grow into
  • Excessive workloads and intense competition for staff
  • Lack of staff training in technical and managerial skills
  • Lack of business visibility or profile

Advanced manufacturing and engineering sector

Globalisation is one of the key drivers for this sector, with increasing competition from countries such as China and Brazil as they move up the value chain and more research and development is conducted internationally. It is also increasing opportunities for companies to outsource their production, which in turn is increasing demand for supply chain management skills.

There are 3,400 Advanced Manufacturing and Engineering businesses in the Coast to Capital region, accounting for 4.4% of total businesses. This sector accounts for 4.3% of employment, around 33,000 people, with 12% growth in AME businesses between 2010 and 2014, around 2% slower than in the South East.

Key barriers to growth:

  • Difficulty for companies and managers to keep track of the rapid pace of technological change
  • Issues with providing staff training, both in identifying the best type of training and the cost of undertaking it
  • Shortage of strategic and supply chain management, production / process control and quality assurance skills
  • Gaining access to overseas contacts and markets and navigating overseas environments and regulations
  • Lack of strategic management to navigate and respond to rapid change and turn threats into opportunities

Conclusion

Every medium sized business sector needs a strategy for growth. Both of these two critical UK business sectors have scope to survive and thrive in a global economy, but having a strategic plan to do this has become essential.

Staff skills, both recruitment and training, have become critical, especially in areas like new technology. But business strategy for growth is paramount too. A good business strategy needs to have a clear focus and need not even be that big, just have the key detail of how you are going to forge your own future in the next five years.

GET Consultants is holding a series of Scale Up Labs to help High Growth Small Businesses to transform and grow and avoid some of the pitfalls and barriers to long term and efficient growth.  Click for details

Is Britain really still great for business?

GET Consultants looks at the prospects for High Growth Small Businesses (HGSBs) and what might happen at Brexit point, barriers for growth for HGSBs, and what these businesses can do to offset risks to their future survival.

There’s a commonly held maxim that only one in five small businesses set up in Britain will survive five years, but the truth is a lot more complicated than that. It really does depend on how big you are already, what sector you’re operating in, where in the UK you are doing business and the plans you have to survive, transform and grow.

High Growth Small Businesses (HGSBs)

Octopus has produced three HGSB reports over the last few years, highlighting the importance of these businesses to the UK economy. HGSBs have more than 20% annual average growth over a three-year period and an annual turnover of between £1 million and £20 million. Whilst they make up less than 4% of the UK’s total GVA (Gross Value Added), HGSBs made a far more significant contribution, accounting for 22% of Britain’s overall growth between 2005 and 2006.

HGSB contribution to the UK economy:

  • They see value in training, with 84% funding training for at least one member of staff over the last 12 months
  • Only 1% of UK businesses, yet account for 3% of UK total jobs in 2016 (22,074 out of 5.6 million companies)
  • HGSBs created an average of just over 3,030 new jobs every week, around 20% of the jobs created in the UK
  • 74% of HGSBs surveyed feel confident in their economic prospects over the next year versus last year

What will Brexit mean for HGSBs?

There is a constant battle for a share of consumer revenue and profit from HGSB companies that deliver products and services, with the evolution of new technology changing the business landscape ever faster. Whilst business finance, trade deals, skilled labour and resources are the fighting ground of European and global politicians, they are also the lifeblood of most businesses which require access to all of these to grow and transform for future success.

The biggest challenge post Brexit is likely to be a skills shortage. Almost two thirds of HGSBs surveyed by Octopus consider finding talent and skills shortages to be an important or very important constraint on their business growth.

41% of HGSBs surveyed also consider skills shortages to be the policy area where UK Government action could make the biggest difference for their businesses. 90% of HGSBs say that they face some form of skills shortages. This is even more remarkable when placed in the context of the UK average of just 17% of companies that say they have a skills gaps or skill shortages vacancies. This means that, whatever deal the government delivers for the UK outside of the EU, sufficient skills and resources for continued growth will be paramount.

Barriers to growth – the need for change in business thinking

The 2016 Coast to Capital report, on businesses in the triangle from Chichester to Newhaven to Croydon, identified specific barriers that are concerning for the scale-up and growth of UK medium sized businesses in key sectors.

The reasons for business growth limitations fall into broad categories of three ‘C’s

  • Customers – both online and offline sales and marketing to create new local UK and overseas buyers
  • Capacity – Room to grow including factories, office space, warehousing and overseas premises
  • Cash – easy access to the type of finance at affordable interest rates to ensure growth when it is required

Based on the 2018 Octopus report one in three of HGSB companies there are also growth barriers outside of Brexit, customers, capacity and finance, issues that are specifically related to infrastructure of a range of types.

  • One in three HGSBs considers digital infrastructure to be a primary constraint on their business growth
  • 53% of HGSBs in London say poor transport links with other regions is a hindrance to their business and something that the Government could do more to alleviate.
  • 69% of HGSBs consider the UK Government’s Digital Communications infrastructure programme (as described in the Industrial Strategy Green Paper) to be “important” or “very important” to their business.

Conclusion

Every medium sized business needs a strategy for growth. Simply subsisting is no longer an option – just look at what is happening to the UK high street as consumers move to even more online purchasing.

Every business owner owes their staff the time and energy and focus to work out how they can best grow, thrive and survive. And that means sometimes getting out of the day-to-day office environment and regular comfort zone and confronting some of the toughest challenges that face British business – future skills, effective use of technology, new customers and finance.

GET Consultants is holding a series of Scale Up Labs to help High Growth Small Businesses to transform and grow and avoid some of the pitfalls and barriers to long term and efficient growth.  Click for details