Updated: Nov 30, 2018
Entrepreneurs ask me for advice on how to scale up businesses ranging from startups to a heritage brand under new management that was founded in the 1700s. Scaleups need to focus on key growth factors such as strategy, people, execution and financing, but growth also requires a supportive environment in which they can flourish. The UK has a unique opportunity to build on its entrepreneurial foundations and history of innovation to provide such an environment; not just to start businesses, but to turn growth ambitions into reality. The 2014 ScaleUp Report highlighted that the UK’s future economic success depends upon it. The report also highlighted gaps in talent and skills, leadership, finance, market access and infrastructure that need to be bridged.
The size of the prize is apparent as are the steps that need to be taken by those policymakers and national and local governments are reasonably clear for the UK to climb from languishing at 13th place to top of the world in the global rankings for scaleups.
This week the ScaleUp Institute, a not-for-profit organisation that collaborates with policymakers, the private sector and educational establishments to establish the UK as the world’s most fertile ground for growth businesses, released the Annual ScaleUp Review 2018. This provides a progress update and new data, including tracking data on the UK’s private and listed scaleups.
The good news for the UK economy and its entrepreneurs is that the number of UK scaleups is scaling up. Last year, the ScaleUp Institute partnered with Beauhurst to produce the UK’s first ever Index of ‘visible’ scaleups - privately held companies that both meet the OECD definition of a high-growth firm and file full accounts at Companies House. There were 3,856. This year, the number has increased to 4,420 - that’s a 15 per cent hike. On top of that, there are a further 245 scaleups who are listed on AIM.
The number of these visible scaleups is an essential national growth barometer. It is a particular segment of the UK's landscape which is adding billions of pounds to the economy and is responsible for hundreds of thousands of jobs.
Let’s be clear: scaleups are not just found in “tech” or growing from a low revenue base. These companies come from every sector of the economy - they are particularly well represented in professional services, industrials and leisure & entertainment.
Being a scaleup is not just about a period of flash-in-the-pan growth, either. GH Financials, which provides bespoke global clearing solutions has qualified as a scaleup by turnover growth for a remarkable nine years. Access to new markets, finance and talent can fuel ambition.
Nor are all scaleups young and hip: in fact, many of the visible scaleups are more than 20 years old. The fastest growth rates tend to be found among companies that are between ten to 15-years-old. Even 320-year-old businesses can scale - as Ede & Ravenscroft, a formal clothes manufacturer and the maker of my graduation gown, proves.
Nor are they confined to London and the south-east. They are in every region of the UK. Ranked by their population density of visible scaleups, Westminster, the City of London and Camden were the leading trio. It’s encouraging to see Leeds, Birmingham, Manchester, Bristol and Cheshire East all feature in the top ten. Alliance Manchester Business School, my alma mater, is offering its internationally-recognised talent, skills and knowledge to support scaleups in a peer-to-peer initiative. In my experience, there is often nothing more effective than putting scaleup leaders in the same room so that they can share experiences, network and establish mutually beneficial relationships. The ScaleUp Annual Review included a recommendation that all local communities appoint a scaleup champion to develop and manage relationships between scaleup businesses. Scaleups in the North generated revenues of £96bn (9.6%) and employed 698,000 (20%) people compared to £1tr and 3.6m across the UK.
Access to finance is key to growth. The higher the turnover growth rate, the more likely a scaleup will have used equity financing than its peers. The more equity investment a company receives, the more likely it will be growing its turnover annually by more than 100 per cent. The use of equity finance is also correlated with higher employee growth rates of up to 100 per cent. Interestingly, AIM-listed visible scaleups generally show higher turnover growth rates than their non-listed peers. However recent research by British Business Bank found that 70% of SME would rather accept slower growth than raise external finance, although this fell to 55% for medium-sized businesses (50–249 employees). 45% of UK SMEs do not want to sell shares in their company. Attitudes to external finance need to change, and this will happen through a better understanding of financing options and structures.
Investor interest in scaleups is increasing - and the pool of investors is getting bigger. There was a record level of investment in scaleups in 2017 amounting to almost £2.75bn. The biggest investor (measured by number of investments) is BGF with 72 equity deals. New names have appeared in our investor rankings of top investors in visible scaleups: these include crowdfunding platform Crowdcube, global VC firm Eight Roads Ventures and private equity house Livingbridge. The ongoing provision of capital to venture capital funds and the regional funds by British Business Bank will be crucial if we are to ensure the depth of capital across the country matches scaleup ambition. The establishment of British Patient Capital will make a further £2.5bn available to venture and growth capital funds as well as co-investment alongside portfolio funds.
Another important player is the national innovation agency, Innovate UK, which gave 345 grants totalling £74m to visible scaleups throughout the UK.
But while there is much good news, there is much work still to be done. Although four out of ten scaleups may have a female C-suite member, only four per cent have a female founder. There is more to do to connect capital with ambition.
The research provides valuable insights into the UK business landscape for scaleups. We increasingly know who they are, where they are, and what they do. We also know what issues they face and what their attitudes are to growth and finance. Given this clarity and understanding of just how vital they are to our future – scaleups now form part of a Ministerial portfolio – we should double down on all efforts to support them, listen to them, celebrate them, buy from them and invest in them. These are our nation's growth heroes.
© Piers Linney 2018
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Piers Linney is an entrepreneur and investor with a professional background in the City in both law and investment banking at Credit Suisse. He is known as a champion of entrepreneurship and SMEs is best known as a former investor on BBC’s Dragons’ Den (Shark Tank in the US). Piers has broad experience of the financial and operational challenges that face SME businesses as a founder, adviser, director and investor. Piers has founded several technology and communication businesses and has won a range of entrepreneurship awards. He sat on the Cabinet Office SME Panel and the Board of TechUK, and is a Trustee of Nesta, the UK’s leading innovation charity. Piers is a Non-Executive Director of the government-owned British Business Bank, which has facilitated £12 billion of finance to unlock capital for UK growth businesses, and which also operates StartUp Loans and the British Patient Capital (£2.5 billion).