There is a growing recognition in Britain that while entrepreneurship is thriving, there is a scaleup gap that’s allowing potentially great companies to fail.
Across the UK in 2018, the number of new companies registered rose by 5.7 per cent to over 660,000 – a record high. However, it is well-known that anywhere from half to 90% of startups fail in their first few years. This is the scaleup gap and the UK government, trade bodies, accelerators and business communities are increasingly focused on addressing it.
Between July 2017 and December 2018, Innovate UK ran a Scaleup Pilot Programme, which gave businesses a virtual board of directors whose expertise they could draw on. The government has also conducted a Patient Capital Review to assess the availability of long term capital to UK firms. For the first time last year, scaleups were given a vital role in the government’s newly published Export Strategy, which aims to increase exports as a proportion of UK GDP from 30% to 35%.
This strengthening support from the government and initiatives at the local level from accelerators, trade bodies and business communities are beginning to have an effect. According to the Scaleup Institute’s 2019 report, which draws from the most recent ONS data of 2017, the number of high-growth, scaling businesses in the UK increased to a record 36,510 – a 3.7% increase over the previous year. This means that the economy added 1,300 companies, going through a period of rapid growth.
Making your business one of the growing number of lucky ones requires a few key ingredients, as our experts explain. One of the first things you need to think about when considering expanding is finance – whether and how to access to it.
Michael Palmer, digital marketing manager at trade body Manchester Digital, says that if you’re looking for further cash injections, you need to show that the investments you’ve received so far have been used wisely.
“You have to have a healthy balance book and you have to be able to show that the investment you’ve had so far has been used prudently. That’s really important,” he says.
GC Business Growth Hub is a fully-funded community of specialists dedicated to helping businesses in Greater Manchester realise their ambitions. Growth and startup lead Hilary Centeleghe says that how a company approaches funding is essential to planning growth.
“The Access to Finance team looks at how, and also if, a company needs to expand using finance and if they do, what is the best option? It’s really important for the stability of a company that they don’t overcook it in terms of the finance side,” she advises.
Don’t fear that this new approach means leaving the buzz of the startup scene behind. Award-winning Manchester tech firm DigitalBridge finds that potential funding sources are even more excited about the firm now that it’s got five years under its belt than they did at the beginning, says marketing manager Antonia Lock.
DigitalBridge was well set up to begin with because it was started by CEO David Levine, who had held a number of business roles at tech companies and a degree in computer science, giving him a winning combination of business acumen and tech know-how. But many entrepreneurs find the transition from innovative go-getter to measured strategist a difficult one.
The businesses that succeed, says Centeleghe, are often the ones that manage to hold on to their risk-taking spirit, but add in a dose of realism.
“It’s about that peculiar cross between innovative, strategic, go-getting development and ensuring resilience and stability. We don’t just concentrate on the push forward, we look at cementing what’s good and right in the business too,” she says.
Part of that experience of changing your leadership mindset is also recognising that you don’t need to go it alone.
“The companies that do well are the ones who listen to good advice,” says Manchester Digital’s Palmer. “It’s about turning to people who know what they’re doing.”
Centeleghe strongly agrees; “We ran a survey on some of the startups that we have supported. Within three years, our survival rate is more like 80%, that’s really, really high.
“All the support is the best-kept secret. There are tremendous support agencies – including ours – out there, that will help you look at making yourselves resilient and grow in a sustainable way.”
Without good advice and support, expanding SMEs can run into trouble, says Palmer. You need to make sure that you vet any consultants or advisors you use and verify their experience. The best place to seek advice is from peers and registered trade bodies, incubators, accelerators and growth hubs.
“The ones that do well are the ones who listen to others who have been there,” he says.
“You also have to be very careful about the contracts that you sign. There are a lot of investment deals that take some intellectual property (IP) or look for an advance on their investment at quite an aggressive rate.
“You want to make sure you keep as much equity and as much of the IP as possible and don’t get so squeezed you can’t grow at a steady rate.
In practical terms, preparing your business to grow is about looking at the basics.
“The principle gap for these businesses is that they have great ideas, they’ve gotten some traction, they’ve grown (sometimes by default), but now they’re looking for someone to help them map out their future,” says Centeleghe.
Strategic development of the business plan is part of that, as is coaching to help you pitch your ideas to investors and business banks. You have to be confident in communicating your ideas, not just so that outside interests can understand them, but also so that your own staff have a clear idea of where the business is going.
“You have to really focus in on what it is you’re selling and your key message, make sure everyone is saying the same thing. Internally and externally, that’s really important, that you all know who you are and why you exist,” advises DigitalBridge’s Lock.
You’re used to going it alone, taking on all the responsibility of the business, from keeping the accounts to tackling a key piece of code. But a growing business can’t run this way, you need to find the right talent to support your vision and develop the mindset of a business leader instead of a one-person-band.
If you work to develop talent, by hiring apprentices for example, and take your time to make the right hires, you will be much better positioned to grow and keep scaling up. At the same time, look at your business processes to see what tasks you can outsource, taking advantage of cloud computing services that allow you to scale up and down as you need to.
“Most business owners are working heavily IN the business, but we need them to work ON the business – to adopt that helicopter view of where the business needs to go,” says Centeleghe.
Scaleups like yours give a very welcome boost to the UK economy, according to the Scaleup Institute’s 2018 Survey . They are more productive than other firms and twice as likely to be innovative and exporters than larger firms. They also outperform their peers in good corporate citizenship and most are planning to grow again in 2019 at a potential gain of £1.5bn in turnover and 7,000 new jobs – despite the Brexit effect.
These benefits have spurred industry and government to increase their support for scaleups, but you can’t put it to good use if you don’t seek help. Our experts agree that it’s not always easy to see what support and services are out there, but finding out has to be a top priority, because you don’t want to miss out.
With the right support and talent in place, a strategic expansion plan and a new leadership mindset, your business has the potential to join the growing number of startups becoming successful SMEs. And if you secure the right financing, you can do it all without giving your company or its intellectual property away.