How Britain’s fast-growth startups are helping build the economy
Startups are the future of the British business landscape – we’ve known this for a long time. But in fact, some of the fastest-growing ones – the High Growth Small Businesses (or HGSBs) – are having an impact proportionally bigger than even major corporations.
“Raising our economy’s productivity depends on supporting the growth of new and existing businesses,” says Sajid Javid, Secretary of State for Business, Innovation and Skills. “Government provides access to finance, making it easier to start a business and building a strong enterprise culture.”
HGSBs (defined as companies achieving more than 20% annual growth in turnover over a three-year period, and with an annual turnover between £1 million and £20 million) make up less than 1% of the firms registered in the UK, but they’ve been creating approximately 4,500 jobs every week – three times the number of jobs created by the entire FTSE in the same period. So, how can we unleash the power of HGSB’s to help regenerate areas of the UK that are lagging behind?
Octopus Investments is one of the most active investors in HGSBs in the UK, so they see first-hand the impact that the growth of such businesses has on the economy. Together with the Centre for Economics and Business Research (CEBR) they’ve put together a report studying the impact of these high-growth startups. Here are the key points for startups.
They’re not just in London
At Virgin StartUp, we’re committed to helping businesses start up all over the UK. And the report reveals that there are HGSBs everywhere. In fact, almost three in five HGSBs are outside London and the South East, showing that these businesses have an impact everywhere.
HGSBs are attracted to economically strong area…but have more impact in regions with less growth
There’s still some way to go, however. HCSBs are drawn to high-performing regions, and areas that are lagging behind tend to be economically weaker – the North East has 600 HGSBs, for example, compared to London’s 6500.
But London is less dependent on these businesses, where as HGSBs are a lifeline for job creation and growth in the North East, Wales, and Northern Ireland. High growth businesses create confidence, demand for services and infrastructure, and draw in similar businesses in these regions. The study shoes that if the North of England had 25% more HGSBs last year, there would have been 20,000 more jobs created – something which would have made a significant impact on the region.
Things HGSBs need to succeed
So what are the reasons behind the smaller numbers of HGSBs being created outside London?
One is funding. Difficulties accessing finance is a big problem for many startups, and a worrying 75% of HGSBs said this was a significant barrier to their growth. Businesses like this tend to rely on debt rather than equity finance, and crowdfunding is also becoming really important.
Another crucial one is talent, which has a huge impact on where these businesses situate themselves. If there’s not a workforce available for the business, there’s little point in locating there – that’s where London excels, with its abundance of skilled workers.
Digital connectivity is another factor where the UK is lagging behind in specific areas. 58% businesses attributed their growth to innovation, and many cited inadequate broadband speeds as a major problem.
It’s not just digital connectivity that’s an issue – good transport links are also really important, especially in the context of driving regional growth, in order to connect the areas that aren’t doing so well with the ones that are thriving.
So, what’s next - and how can we do better?
The report shows that while HGSBs are having an amazing impact on the economy, this impact can be pushed even further if it’s used as a force to regenerate specific areas, narrowing the gap between London and the rest of the UK even further. And the benefits? If there were 25% more HGSBs in every region, it would create approximately £22.5 billion in additional turnover, and an incredible 170k new jobs across the UK. There’s no time for complacency – but there are things that can be done. Here’s what the report suggests.
Better support across regions
There is support out there for businesses, but make it easier to access through integrating business services with local authorities through the use of the Local Enterprise Partnership (LEP) network. Devolved to each region, the unique needs of each part of the UK can be met.
Better connection – digital and physical
Accelerating broadband speeds, providing free WiFi on public transport, and investing in transport infrastructure to regional hubs all need to be priorities if projects such as the Northern Powerhouse are going to reach their full potential.
Connect companies with the finance they need
The profiles of various financing schemes need to be raised – such as the Angel CoFund, the British Business Bank, Seed Enterprise Investment Schemes, and (of course) government-backed startup loans, such as ours. It can be overwhelming and time-consuming to discover and wade through these – so accessibility needs to be better.
Tax incentives are also a way to channel money to HGSBs. This exists already, but more needs to be done to encourage both individuals and corporates to take the risk on startups. And, for the HGSBs themselves, deferring corporation tax and lessening their tax burdens would be a welcome relief.
Improve access to international talent
To make it easier for overseas talent to come here there could be new visas to help recruit workers with skills such as coding, or businesses could sponsor migrant talent.
It’s amazing to see the impact that HGSBs have had on our economy so far, and testament to the power of startups to drive growth. Now it’s time to concentrate on seeing all UK regions benefit from this.