Last week, the Global Innovation Index ranked the UK second behind only Switzerland when it comes to promoting long-term output prospects, improved productivity, and job growth. This is a landmark achievement on a number of fronts and a good indicator in terms of the talent, ambition and bravery of business owners throughout the country.
But, for all the associated accolades, coming second in a global league table poses an interesting question. Do we continue to do what we have been doing or, do we change, review the situation and aim for number one next year?
It is not too dissimilar a question faced by the thousands of start-ups and SMEs that have put us in this position in the first place. To scale or not to scale? Much like reaching Everest base camp, getting to where we are now is a considerable and hugely impressive achievement and, in the context of things, it is also a comparatively comfortable place to stay. However, it’s not the end of the journey. Not by a long way.
Growing a micro-business into a business with a turnover in the millions is a complex task. You must create new demand and satisfy it while simultaneously scaling up the processes of your business to cope with additional pressures. However, the rewards are well documented. A quick look at the values of UK businesses such as Just Eat or Farfetch will tell you all you need to know. This doesn’t even take into account the wider benefits felt by the economy at large.
The Scale-up Report on UK Economic Growth, which based its findings on an analysis of 50 scale-up programmes piloted in 20 different countries predicted that ‘scale-up’ companies could ‘contribute a million new jobs and an additional £1 trillion to UK economic growth by 2034’. Not bad going.
The report, compiled by Sherry Coutu CBE, non-executive director of the London Stock Exchange found that, while the UK boasts a host of successful businesses and starts more companies per capita than the US, its main stumbling block to growing a global tech empire is the country’s current inability to ‘scale up’ these start-ups into larger companies. This means that the UK still possesses relatively fewer large companies in comparison to the US and other nations.
Coutu argued that in order to drive the economy and bump start-ups into bigger companies, ‘we need to be more effective at identifying the companies that have the greatest potential, and making sure they can find the most talented people and serve more customers, in more countries, more easily’.
So, we have established that scaling is key, but it is far more complex that just ‘getting bigger’. Scale at a speed beyond your company’s capabilities and you can end up in too deep before you realise. Scale too slowly and you risk losing momentum and vital opportunities. The path is far from well mapped.
The evolution of start-ups
A study from Deloitte and THNK provided an insightful picture of the evolution of start-ups globally, revealing that becoming the next Facebook or Airbnb is a daunting task and one that beats all the odds in the marketplace. According to the dataset, 50 per cent of new enterprises fail before their fifth year of revenue, the authors reflecting that ‘creating even a small from scratch business is a real accomplishment’ (proof therein that achieving second place is no mean feat). In actual fact, start-ups that take-off in terms of potential and growth, constitute a very small share of the start-up landscape; only one out of 200 surviving new enterprises will become a scale-up.
This is even more pronounced in the UK. Research from the Department for Business Skills and Innovations found that only 16 per cent of start-ups have high-growth ambitions and even smaller percentage actually achieve the growth required to scale. Rather they rely on friends and family support or personal finance. Clearly, this is an issue when startups and SMEs, even well-funded ones, need to spend big and spend smart. Most companies have multiple ‘engines’ such as sales, marketing, production, and customer support so when it comes to scaling, you need money, and a lot of it. Usually from one of two options, either a massive war chest or investment from another source. In the absence of having oodles of cash lying around, deciding how you fund growth, where the money comes from and how you invest it are absolutely critical to taking your business from where it is now, to where you want it to be.
This is key because there are a myriad of financing options out there and you need to pick the right one for your business and your goals. Do you need long-term investment with supporting guidance from experienced business mentors or would a well-publicised crowdfunding campaign be the vessel you need to simultaneously raise both funds and brand awareness? If you don’t know the difference between peer to peer lending or business angels then you need to learn, fast, as there is every chance your decision here will make or break your attempts to scale your business.
Shop around; there are many options. There is never a ‘one-size-fits-all’ funding source, and what has worked for your competitors may not work for you. That is why we set-up the Business Funding Show, which is backed by some of the UK’s most celebrated entrepreneurs like Richard Reed (Innocent), people who have successfully scaled businesses and contributed to the UK’s ‘scale-up economy’.
Ultimately, there are many aspects SMEs need to consider when looking to scale but, in the interests of keeping it simple, I would urge businesses looking to scale to focus on the following three principles:
Hire well. Focus on doing this right, rather than quick. Don’t rush into hiring someone to fill a gap when they are not the right fit. Take your time and get the best people who buy into your vision.
Spend well. When scaling, every area of the business demands attention. Make every pound invested work as hard as possible.
Plan well. Understand what you are trying to achieve, have a vision of how you are going to achieve it and execute it well.
I hope that in 12 months time we are looking at the Global Innovation Index basking in a first place position, moving the debate on as to how we stay there. The only way do that that is to scale, and the only way to scale is to invest, innovate and improve.
Good luck Britain.
Arina Osiannaya is director of the Business Funding Show.
Further reading on scaling up
