I am pleased to share with you this report that shows if we take action now to focus on ‘scale-ups’, we will secure significant growth in jobs, taxes and wealth, and the competitive advantage of Britain for generations to come.
This report explains how a boost of just one per cent to our scale-up population should drive an additional 238,000 jobs and £38 billion to gVA within three years. In the medium-term, assuming we address the skills-gap, we stand to benefit by £96 billion per annum and in the long-run, if we close the scale-up gap, then we stand to gain 150,000 net jobs and £225 billion additional gVA by 2034. this report sets out a clear plan of action to close the scale-up gap. the plan centres on using data already collected by government to provide a platform that enables both public and private sector organisations to work together to improve the community of which they are a part.
Britain is a Great place to start a business.
With the supportive government policies, industry structure, geographic placement and talent supply we enjoy in the UK, we are in the position to create unrivalled national competitive advantage by increasing the proportion of companies that ‘scale-up’.
A ‘scale-up’ is an enterprise with average annualised growth in employees or turnover greater than 20 per cent per annum over a three year period, and with more than 10 employees at the beginning of the observation period.
This competitive advantage will be rewarded by economic growth per capita. the responsibility to become ‘a scale-up nation’ – to create an environment (ecosystem) where a greater number of companies reach global scale – rests with all of us who have an interest in supporting economic growth. rather than look only to the US for inspiration, this report examines successful collaborations between business and government that have taken place over the past 20 years in 20 other countries and recommends actions that we can take now. Individually and collectively, businesses, educators and policymakers can co-create a future that is bright for our children and their children: a place where both scale-ups and start-ups flourish, with plenty of jobs and growing gVA per capita.
Commentators have observed that to nurture and raise a single child into a successful human being takes much longer and is a more complex and arduous process for society than to introduce an additional child into the world.2
Similarly, mariana mazzucato of the University of Sussex argues:
“What I believe should be emphasised is not start-ups or entrepreneurs in and of themselves, but the innovation ecosystems within which they operate and which they depend on if they are to become what does matter: high-growth innovative firms (of any size) within that system.”3
Getting our ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs. Abundant evidence from countries around the world shows that collaborative initiatives can ‘super-charge’ an economy to increase the ability of companies to scale-up and to make superior contributions to the economy.
The UK economy may be growing faster than any other g8 nation, but recent data show that we lag behind the US and other leading economies in the extent to which our companies scale. this is the ‘scale-up gap’. our promising companies struggle to grow domestically and expand internationally and are taken over by larger – often foreign – firms at a significant discount to their potential. this is a major issue because scale-up companies are crucial to national competitive advantage in that they drive economic growth, job creation, and productivity in the longer term.
With the release of up-to-date data that the government already holds, some minor adjustments to policy, more training for key individuals and minimal adjustment in funding and resource levels, it is possible to close the scale-up gap and secure the competitive advantage of the UK for generations to come.
In growing from 10 to 100 employees, to 500, 1,000 and so on, companies have specific requirements for capital, management, skills and organisational processes. this can lead to ‘growing pains’ that can be easily and effectively addressed (‘treated’, to continue with the medical analogy). government can help identify (‘diagnose’) those likely to be suffering from these ‘growing pains’, which can then be ‘treated’ by stakeholders in the ecosystem so that the company overcomes the ‘growing pain’ and system as a whole benefits.
The following factors, in order of importance, are the key reasons why companies are unable to scale in the UK. Companies have issues:
- Finding employees to hire who have the skills they need
- Building their leadership capability
- Accessing customers in other markets / home market
- Accessing the right combination of finance
- Navigating infrastructure
Our analysis of 20 other countries that have focused on developing their ecosystems to foster scale-ups shows these five barriers can only be overcome through coordinated efforts between stakeholders at a local level.4
Reaching a minimum standard of support across all five challenges is necessary for growth: in isolation, each is likely to be insufficient to generate additional growth. It is not feasible to ascribe specific economic benefits to each of the five, but there is some consensus that holistic co-ordination, talent and leadership capacity are the three most important drivers of success in the long term.
It is in our national economic interest to help local scale-up companies to overcome their challenges. this report investigates the potential boost to the UK economy if we could enable as many small companies to grow large by the implementation of support mechanisms as has been achieved in 20 other countries.
The UK needs a more evidence-based debate on where growth comes from and the impact that growth-enhancing investments can have over time. Like many other investors, I make sure that I have a portfolio of short-, medium- and long-term investments. Similarly, as a country we need to consider the impact of the UK’s portfolio of growth-enhancing policies and initiatives — both public and private.
In bringing this publication together, I owe a real debt to Mark Hart, Dan Isenberg, Tamara Rajah, Alastair Reed, Janet Coyle, Antony Walker, Charlotte Holloway, Cat Townsend, Nick Harrison and Mark Fisher. In addition, it would not have been possible without the support of the Steering Committee, the Information Economy Council, techUK, BIS, the Cabinet office, Deloitte, RBS, Nesta, Yougov, ERC, Babson College, London & Partners, Brunswick, McKinsey, Google, Yougov, and Korn Ferry for their enthusiasm and support for this project. I am grateful to many other people who have inspired my thinking and contributed to the ideas in this report, from business, academia, politics and beyond. This is a long list and it would be invidious to name some without naming all.
This independent report was commissioned by BIS through the Information Economy Council in march 2014.
I look forward to taking this agenda forward with colleagues and seeing what we achieve together.
Sherry Coutu CBE
17 November 2014