Scaling-up Britain’s start-ups

Fewer than one per cent of the companies registered in Britain since 2012 have scaled-up. Chris Maule, CEO of UK Bond Network, explain why this gap exists and what can be done about it.

Fewer than one per cent of the companies registered in Britain since 2012 have scaled-up. Chris Maule, CEO of UK Bond Network, explain why this gap exists and what can be done about it

We tend to think that starting a business is the hardest part. But while it’s no doubt difficult, ‘scaling-up’ – where a company’s average annualised growth in employees or turnover is greater than 20 per cent per annum over a three-year period – is the biggest challenge that many CEOs and MDs face.

Proving what many business owners know, new research from Oxford’s Saïd and Cambridge’s Judge business schools indicates that fewer than one per cent of the companies registered in Britain since 2012 have scaled-up. But why are British companies struggling to make this transition and what more can be done to help them?

A high stakes issue

Over the last five years, the UK has been made notable steps forward when it comes to new business start-ups where the number of these is now not only well above the European average but also surpasses the US. Despite this success, we are less able to create the mid-sized, high-growth, companies of the future. However, it is these businesses that we really need. Britain’s mid-sized businesses (MSBs) have been championed by economists and politicians for playing a critical role in driving the UK out of recession. In fact, Sajid Javid, the Business Secretary has said that “mid-sized businesses have done more than most” to haul the UK “back from the brink”.

What’s more, in a 2014 report by Sherry Coutu, Chair of the Scale-up Institute, analysis from Deloitte, the professional services firm, and Nesta, the innovation foundation, showed that if we can create just one per cent more scale-ups in the UK, we will add 150,000 net new jobs by 2034 and contribute an additional £225 billion towards GDP. With such obvious benefits, it’s clear that start-ups need to scale-up and achieve mid-market status if they’re to support and drive our economy in the way that we need.

So what’s the problem?

The new report from Oxford and Cambridge business schools highlights a number of key problems including leadership skills and business mentoring but notes that access to capital and debt and equity finance as the crucial problem. Highlighting the problem, between 2010 and 2014, 40 per cent more early stage businesses in the US received venture capital funding than in the UK, which has given many US businesses a competitive advantage in global markets.

Compounding this problem is that while there are a number of government policies to support start-ups, there are relatively few to support their growth beyond this stage. To help address this point, the Chancellor George Osborne, in the last Budget announced that the first loans under the government’s Help to Grow programme will be available from spring 2016 and will support at least £200 million of lending for companies looking for between £500,000 and £2m of funding. However, at the minimum allowance of £500,000, this programme will only help finance a maximum of 400 businesses – a rather insignificant number compared to the UK’s 32,000 MSBs.

A possible solution

But it’s not all doom and gloom. The growth of fintech and alternative finance in the UK is providing British businesses with a much-needed life line – helping them access the funding needed to achieve scale-up status. Earlier this year, a report by Nesta showed that the altfi industry grew to £3.2 billion in 2015, an 84per cent increase compared to 1.74 billion in 2014. Of this, some £2.2 billion of business funding was raised for approximately 20,000 UK SMEs.  

Alternative finance is helping to democratise funding and is providing crucial capital at an important time. British businesses today are navigating an increasingly difficult business landscape, with the national living wage and pensions auto-enrolment providing additional drags on their growth. If we want our start-ups to scale-up, the government should to do more to work with altfi providers and drive greater awareness of the industry amongst the businesses that are needed to fuel our economy, create jobs and drive future success.

Chris Maule is the CEO of UK Bond Network.

See also: 5 steps to preparing your company to scale-up

Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.