In 2015, the Scale-Up Institute was established by the private sector to make the UK the best place in the world not just to start, but to scale a business.
In the last three years, it has done a sterling job in ensuring that scale-ups – those firms with average annual growth in employees or turnover greater than 20 per cent per annum over a three year period – have been put at the forefront of key policies being developed by the UK Government.
Their latest annual review is not only an impressive summary of the state of scale-ups in the UK but, more importantly, presents an analysis of the key challenges being faced by such businesses as they look to grow further.
According to the 2017 report, the biggest single challenge faced by scale-ups is access to talent, including the social and technical skills of their workforce, being able to recruit from overseas, or having the talent to win overseas business. This suggests, the issue of skills, and skills development, should be at the forefront of the Welsh Government new economic strategy to be published later this year.
For education providers, it is worth noting that the two key skills required by employees as the firm develops over the next few years are critical thinking (the ability to analyse a situation objectively and make a decision) and service orientation (anticipating, recognising and meeting others’ needs).
Given the impending departure of the UK from the European Union, it is not surprising that another key challenge for future growth is access to UK and international markets, especially through doing business with large corporates and/or Government.
Interestingly, the key barriers in engaging with both these groups is the complex procurement process and the time it takes to win a contract. If Welsh scale-ups are to benefit from the £5 billion of public expenditure on goods and services annually, then there is a real opportunity for the Welsh Government to simplify procedures. At the same time, some of the large Welsh corporates could also do more to ensure that they engage better with local growth companies.
Two thirds of scale-ups are involved in international trade and are looking to pursue more overseas opportunities, and even for those who are not currently trading internationally, 21 per cent plan to start doing so, 18 per cent plan to start exporting and 6 per cent to start importing.
In terms of the key overseas markets being accessed by scale-ups, Europe and North America dominate but there is a clear appetite to move to more diverse markets such as India, Africa and the Middle East, especially after we leave the European Union.
And for policymakers wanting to increase the number of growing firms that are exporting and turn this country into a trading nation, it is worth noting that the two key challenges are the ability to access customers and partners and having the people, skills and connections to win the business. Those two priorities therefore need to be at the forefront of any internationalisation programme for small firms.
Building leadership capacity remains a priority issue for the majority of scale-ups with 65 per cent stating that leadership development was “vital” or “very important” to their business. However, what is of real interest is the finding that the three key factors in supporting this were “recruiting people with experience of growing a business”, “access to a network of peers who have grown a business” and “access to non-executive directors”.
For Welsh initiatives such as the Accelerated Growth Programme which have been established to support the development of scale-ups, a positive finding from the study is the value in having access to a strong local ecosystem, including local sources of knowledge and expertise, to help them develop.
Given their aspirations for growth, it no large shock that scale-ups are likely to be using a range of different types of external finance.
What will be of interest to the new Development Bank of Wales is that whilst access to finance is not perceived as a key issue holding scale-ups back, 40 per cent feel they do not have the right finance in place for their business. Nearly a quarter also stated that finance tends to come with too many terms and conditions which suggests that further simplification in the offer by the new Development Bank may help to develop the market in the future.
In terms of equity finance, around four in ten use or plan to use it as a source of funding although a quarter have reservations, citing lack of control and knowledge as hindering factors, which gives a strong steer towards improving the education and knowledge to firms on this type of critical growth finance.
Therefore, the Scale-Up Institute’s annual review is an important step forward in understanding growth firms and as I have experienced in managing the Wales Fast Growth 50 initiative for nearly two decades, those businesses looking to scale up their operations are critical to the development of the economy.
However, much more still needs to be done to ensure that a greater number of these firms can be developed within the Welsh business community and that the right support and solutions are developed and delivered by both the public and private sectors to achieve this.