The startup scene in the UK is thriving. Britain is officially ranked as the most entrepreneurial country in Europe and the Barclays Entrepreneur Index, released this week, showed that the number of active companies in the UK rose by 3.7 per cent in the second half of 2014, marking the second highest rise in the past three years.
However if the last four years were a “golden age” for small firms, then the next four must be about seizing the scale-up opportunity.
Over decades to come, thriving economies will be built not on how many startups emerge, but how many of those businesses they can get to scale – 2015 must be the year the UK shifts gear to accelerate growth.
The UK currently has a high-value, low-volume community of scaling firms. Currently, only 0.4 per cent of UK businesses reach 250 employees or more, but a report commissioned by Octopus Investments and produced by the Centre for Economics and Business Research (Cebr) in 2014 revealed that 68 per cent of employment growth and 36 per cent of economic growth was created by just 1 per cent of UK’s businesses.
Our focus must now be on growing this small sector of our business community. The limited number of high-growth firms is not a result of poor ambition – a recent study by the British Business Bank found that 46 per cent of smaller businesses in the UK are looking to grow in 2015 and this is mirrored by figures gathered from The Supper Club members.
Instead, there is a scale-up gap that must be filled, by offering the support required to transition startups into growth firms. If, as Sherry Coutu suggests, scale-up leaders are “more rare than Olympic athletes”, then we should consider our challenge set. In 2015, we must make sure our business elite have the fuel, stamina and training they need to achieve success.
In May 2014, a survey by Coadec revealed that startup founders still ranked “access to finance” as their number one obstacle and, according the Bank of England figures, net lending from mainstream banks to business is still declining.
Despite this, the funding environment for scaling firms is improving thanks to the continuation of incentive schemes such as SEIS and EIS and the sheer scale of alternative finance options now available.
Peer-to-business lending hit the £1bn mark in 2014 and recent research from the UK Bond Network has shown that 94 per cent of SMEs with over £1.1m in annual revenue would use alternative sources of finance to raise capital.
What’s more – new schemes from the current government, such as Help To Grow, promise to unlock further funds, via the British Business Bank, to help create a British version of Germany’s Mittelstand – a backbone of medium-sized firms across the country.
This continued funding will provide the vital fuel to help our businesses succeed but in 2015 and beyond, we must increase awareness of these schemes and encourage businesses to tap into new sources of funding.
Of course funding is only part of the puzzle. One of the key stumbling blocks for fast-growth firms is lack of stability and sustainability. This year should be the year that start-up firms structure for growth.
Coutu claims that business success should be seen as a marathon, not a sprint, however, having an eye on the finish line is a vital way to ensure sustainability.
There is an ongoing debate on whether British firms sell too soon – this is largely a personal decision about when to de-risk and take money out of the business. However, the real lesson is that whether firms are looking to sell or not, it is vital they are building companies that are structured in a way that makes them attractive to a buyer.
What does this mean? It means a focus on a healthy P&L, strong IP, a committed senior leadership team, that it is defendable from competition and demonstrates healthy margins. The disciplines and measures of success as seen by a potential buyer are indicators of a strong, well-run company and it is never too early to begin this process.
Read more about scaling-up:
- Scaling-up growing firms identified as key driver to economic prosperity
- The inside track on leaving startup to begin scaling-up
- How to master the art of scaling-up your company
Part of this structuring comes with investment in management teams and the ongoing development of the founders themselves.
Figures from the Entrepreneur Index showing a slight dip in the proportion of high-growth firms nationally with around 21 per cent of firms between £2.5m and £100m increasing turnover by at least 33 per cent over the preceding three years.
In The Supper Club, the average growth rate across all of our 350 members was 34 per cent and this was up from 33 per cent in the previous year. Business leaders should take note, that it is those founders that are taking action to invest in their own development, through peer-learning and structured coaching, that are seeing results.
We are certainly seeing more and more successful entrepreneurs reach out to the Club as a means of building on existing success. Sadly those that “don’t have the time” to develop their own and their managements team’s skills most often fail to scale. To take the analogy of the Olympic athlete, it is those who are committing the most to training that are getting the most out.
Despite the potential uncertainty that a general election brings, UK businesses should feel buoyant at favourable conditions and a sustained period of healthy growth. However, if we want to provide real value to the UK economy, it will come down to those firms that seek out scale ambitiously. Let’s make 2015 the year we go for gold.
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