Relocate to Scotland

With its dwindling North Sea reserves and national GDP contracting faster than the UK’s, Scotland looks set for a rough ride. Encouragingly, the entrepreneurs living and working there have a different take on the situation. Marc Barber reports 

Gareth Williams has seen his online flights service Skyscanner go from strength to strength since moving from London to Edinburgh in 2004.

‘We had our best ever month in January,’ he says. ‘Although we are definitely seeing an effect on search volumes, as we would have expected to have achieved a greater record in January if the wider economy hadn’t turned. But we still had a record month in relation to site visits and revenue.’

The company didn’t start hiring employees until it moved north of the border (Williams set the company up with friends in 2002). ‘There is a really good, strong tech community up here,’ he comments, adding that today there are 40 employees and turnover is around £5 million.

At the tail end of 2007, Skyscanner received £2.5 million from a venture capital firm, which has allowed the company to develop its infrastructure and, says Williams, ‘recruit some great people with commercial and marketing experience for the business’.

Upwards and onwards

Brian McVey, director of operational management at Scottish Enterprise, a government agency to help ambitious management teams, says around £30 million is spent a year on direct support for companies. On top of that, there are a number of investment funds, run alongside VCs and angels, which provide an additional £30 million of backing.

Of the 250,000 small to medium-sized enterprises in Scotland, around 10,000 are seen by Scottish Enterprise as growth companies. These are operating in the ‘priority sectors’ of tourism, textiles, energy, digital markets, life sciences, financial services (maybe less so now) and aerospace, defence and marine, and are striving to grow by 25 to 35 per cent a year.

McVey explains that Scottish Enterprise will identify and approach companies that it thinks have high growth potential. ‘For an account-managed company, support is based around an agreed action plan. That could focus on a range of areas, from identifying new export markets to improving production processes. It works best when done on a partnership basis, and that will involve both time and money [from both parties].’

Frank Cooper has seen the benefits of such a scheme with his company, Cooper Software. It is currently receiving 20 days of sales and marketing experience, which is to be delivered over a 12–month period. ‘We work through a scorecard, so every quarter we go back and see our areas of improvement.’

Cooper says the practical sharing of knowledge has had a positive impact on the company. ‘We have been learning how we can position ourselves. This means analysing the market and building a sales and marketing campaign,’ he says. The company is about to launch a new product in the UK and Cooper has no doubts that Scottish Enterprise’s Commercial Breakthrough Service (CBS) has been instrumental in winning new business.

Mark Ramsay, the founder of accounting specialist Infoplex, has found the ‘CBS programme useful because it is hands-on and proactive’. Like Cooper, he says the company has benefited from being able to take a strategic view of how it can promote its products. ‘The scheme gave us two experts in sales and marketing on a semi-hands-on basis. Typically, we tended to be a bit too focused on the techie stuff before, as opposed to matters like branding.’

New dawn

Calum Paterson heads up Scottish Equity Partners, which has around £300 million of funds under management and a portfolio of 40 companies (not limited to Scotland). He observes that although ‘every sector is definitely subdued at the moment, the market is by no means moribund’.

For growing companies with the ‘right proposition’, he says funding continues to be available. ‘In terms of exits, there is no doubt these will be more difficult to achieve in the current climate. We don’t see any pick up in IPOs in the near future, but we are hopeful that there will be a recovery in trade sales.’

He refers to MTEM as a good example of what a fast-growth venture in Scotland can achieve. A small energy services spin-out (see chart, bottom) from Edinburgh University, it was backed by SEP, Energy Ventures and HitecVision (each holding a stake of 22 per cent). MTEM was sold for $275 million in 2007 to the Norwegian group Petroleum Geo-Services. The exit saw the four founder members pick up about $24 million in cash and $18 million in shares for their 18 per cent stake.

Plan ahead

Evidently, priorities have shifted as businesses seek to beat the recession. Scottish Enterprise’s McVey says ‘there is a huge amount of uncertainty out there and we are focusing to look beyond the recovery. The companies that tend to do better in these circumstances are the ones that think about what they do when the market recovers. The danger is to be passive. Unlike previous recessions, a good company can be hit just as easily as a weak one.’

At Cooper Software, it’s been a case of adapting as IT budgets shrink rapidly. ‘We’re having to innovate to see how we can deliver our service in a slightly different way,’ says Cooper. In practice, this has meant addressing one particular client need as opposed to trying to sell a broad-based project or service.

For Williams at Skyscanner, the aim is to build a company that shows ‘every single flight with the speed and ease of use of Google’. Presently based by Leith Harbour in Edinburgh, he says: ‘The prices are cheaper here and definitely a lot cheaper than in London; we might look to move to the centre of town so it is easy for people to get to and from the office. I think prices will be coming down quite a bit.’

In terms of prices, in Edinburgh, the cost of renting a serviced office is on average £350 per person per month, compared to £250 to £300 in Glasgow. That said, private and corporate wealth adviser Towry Law has recently opened an office in Glasgow and is paying a handsome sum for the location.

‘It was quite a costly deal to do,’ says Andy Cowen, head of private clients at the firm. ‘We had been looking for business premises for some time, but we needed to be centrally located in the city as there is a lot of good business going on there.’

The challenges for businesses in Scotland shouldn’t be airbrushed out. In the third quarter of 2008-09, there were 166 compulsory liquidations, compared with 122 for the equivalent period in 2007-08. That figure will only rise.

With a focus on renewable energy to offset the dwindling North Sea reserves (still expected to generate revenue of more than £50 billion over the next five years), and encouraging activity in the life sciences and digital technology sectors, there are definite positives for Scotland’s businesses, both large and small.

‘Two years down the line, we would like to have doubled or tripled our turnover, but it’s going to be difficult given how unpredictable the economy is at the moment,’ says Infoplex’s Ramsay.

Marc Barber

Raven Connelly

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.