Last week’s column examined the latest data on scale-up businesses namely those that grow by more than 20% annually. It showed that despite their disproportionate contribution to wealth creation and employment, there had been a recent slowdown in the number of these firms being created every year.
Given this, what could and should be done to not only encourage more fast-growing firms across the UK, but also to further develop those that are already expanding their operations quickly?
The answer to that question can be found from a recent survey of 338 scale-ups by the Scaleup Institute (an organisation that champions the cause of such businesses across the UK) which found that the three main barriers to future growth are access to markets, access to talent and, as would be expected, access to finance.
As we have seen with the Wales Fast Growth 50, the majority of scale-ups are focused on sales to other businesses, with only a quarter selling directly to customers. Their clients include government and large corporates, and they trade not only within the UK but also internationally.
Given the current global economic environment, it is expected that access to markets is the most vital factor for growth by nine out of the ten scale-ups. Within the UK market, large corporates are the main customer for business-to-business scale-ups with 56% selling to them directly and a further 28% within their supply chains.
Interestingly, only 39% are selling to national or local government although scale-ups want to triple their sales to the public sector in the future. The main barrier to achieving this seems to be the complex nature of procurement which includes long lead times between the bid and the contract award.
As a result, the simplification and streamlining of procurement processes, as well as the opportunity to get better access to key decision makers in government, is top of the list for scale-ups in improving this situation.
For those firms selling directly to consumers, the biggest challenges are related to achieving brand recognition, especially when competing with bigger firms, as well as identifying and targeting new customers, choosing the right channels, and distributing their products.
Previous research studies have demonstrated the link between exporting and scale-ups, and this is no different with half of those surveyed involved in international markets and perceiving this presence to be key to further growth.
As well as uncertainty due to the war in Ukraine, key issues in ensuring more exporting includes finding local support, a lack of people with the right skills to make overseas sales and gaining access to customers in foreign markets. Scale-ups also believe that the best way to deal with these challenges is through enhanced trade missions, providing the right introductions to buyers, and working more closely with government bodies such as the Department for International Trade.
As this column has discussed regularly during the last few years, access to talent and skills is a key concern for many businesses, and scale-ups are no different with 72% stating it is critical to further growth.
Given the variety in the sectoral mix of high growth firms, their demand is for a wide range of skills, including social skills, management skills and technical skills. In particular, they are keen to employ individuals with the ability to work effectively with and manage others, as well as those who can demonstrate resilience and flexibility.
Eight out of ten scale-ups are experiencing difficulties in finding the right people in their current workforce with a certain skillset, especially in the use of digital technology especially digital marketing and data analytics. This demonstrates yet again the importance of developing increased digital skills provision for individuals and businesses.
As a result, they are increasing investment in training and education to reskill their current employees, predominantly through in-house training or off-the-shelf online courses. Unexpectedly, the study showed that only a small minority utilise universities for formal learning and development.
Given that external funding is the fuel to boost growth in many businesses, access to finance remains a key challenge for scaleups, especially as 82% are already using one source of external capital to fund growth. Interestingly, and as has been pointed out repeatedly over the last decade, there remain concerns over the availability of capital with the perception, rightly or wrongly, that the majority of funding resides in London and the south east of England.
Given this, the regional funds that being developed by the British Business Bank (including £130m for Wales) cannot be rolled out soon enough although given the perceived demand, there may be questions over whether this will be enough to boost scale-ups across the UK. One positive sign is the finding that six out of ten scale-up are using business angels and venture capital when using equity funding, showing the growing importance of these type of funders to scale-ups.
Therefore, there are several common challenges faced by scale-ups across the UK. However, the question is how best to tackle these properly so that the barriers to these firms growing further can be reduced and greater wealth and prosperity can be generated, especially in less prosperous areas.
One way of addressing this within Wales would be to bring all the key stakeholders supporting scale-ups to collaborate and help develop a coherent and co-operative approach to adressing access to markets, talent, and funding.
Fortunately, there have already been some initial meetings organised by the Scale-Up Institute to discuss the potential for a “Scale-Up Wales” initiative. However, there now needs to be more impetus to drive this forward and, more importantly, ensure that it is not only access to finance that is addressed as would be expected but that vital issues identified by scale-up firms including supporting internationalisation, gaining access to government procurement, and ensuring better skills development are also given priority.
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