Plugdin Insights: Understanding the UK scaleup landscape, and helping scaleups grow

Plugdin Insights: Understanding the UK scaleup landscape, and helping scaleups grow

How are scaleups distributed across the UK, and what programmes are in place to help them address their challenges?

By Irene Graham, CEO, and Josh Robson, Head of External Affairs, at The ScaleUp Institute. 

The ScaleUp Insititute was established by the private sector with the mission to make the UK the best place in the world to not just start, but also scale, a business. Its core focus is to turn evidence and data, gathered through research and analysis, into robust practical actions to remove the challenges of scaling businesses when it comes to talent, leadership, markets, finance and infrastructure. 

From the outset, the ScaleUp Institute has built alliances and co-operated with the diverse range of ecosystem players (e.g. corporates, financiers, educators, entrepreneurs, policy makers and local leaders) to break down barriers faced by the UK’s scaling companies in their local communities, so they can seize opportunities of continued growth. It is imperative that the scaleup challenge across the country is grounded in local solutions and services that really make a difference in our scaling community. 

Why scaleups matter 

Scaling companies are the engine of growth for the UK economy. They create high-quality jobs and generate new tax receipts, lead business investment and innovation and drive productivity. Scaleups have the potential to give the UK a competitive advantage for generations to come. It will be scaleups that lead any export drive – they are already twice as likely to be international, hungry to expand further overseas and into new markets. Scaleups are also more likely to be innovative than the typical firm. 

>What challenges do scaleups face? 

There are five key challenges that scaleups face: 

Talent and skills  

Scaleups have consistently highlighted the ability to attract and hire employees with the right skills and experience as the biggest challenge to their future growth. In our 2018 Annual Scaleup Survey, 8 out of 10 singled this out as the most significant barrier. In particular, they identified the key skills for scaleup employees as critical thinking (64 per cent) and a service orientation (44 per cent). Seven out of 10 scaleups with overseas staff say it is vital that they can continue to bring in this talent. 

Access to markets  

Access to markets (either in the UK or abroad) is identified as the second most important hurdle to growth. Selling into both government and large corporates is made more complicated by complex procurement processes (50 per cent), the time needed to win a contract (36 per cent) and the ability to spot relevant contracts up for bid (36 per cent). 

Two thirds of scaleups are involved in international trade, which places them firmly in the vanguard of the UK’s trade ambitions. Among those who currently do not trade internationally, more than a quarter plan to start. Scaleups are already doing business across the world and want to do more in regions such as the Middle East, Australia, Latin America and the Asia-Pacific region. According to the scaleups surveyed, the two key barriers to access international markets are a lack of people experienced at winning overseas sales and the inability to find appropriate overseas partners. 

Leadership capacity 

Building leadership capacity is the third most important issue for scaleups. They want solutions for leadership development delivered at a local level, with local access to mentors and peers who have the experience of growing a business, as well as surrounding universities and business schools. 

Finance and risk capital 

While access to the right combination of finance and risk capital is not seen as the main obstacle to their growth – and about three quarters of scaleups use external finance – 4 out of 10 do not feel they have the right finance in place for their business’s current ambitions. 

Reservations about the use of equity finance remain (i.e. fears of having to ‘give up control’ or a simple lack of knowledge). Scaleups also want easier access to public sector funding for innovation and R&D, general business support, Growth Hubs and Innovate UK. 

Infrastructure 

Having the space to grow consistently remains a growth barrier for scaling businesses. Infrastructure – particularly physical space – is a critical component to get right for our fast-growing companies. Scaleups are seeking greater university support for space and R&D facilities.

"The total number of scaleups in the UK has increased by 3.7 per cent since 2016 and by 35 per cent since 2013."

The scaleup landscape 

The ScaleUp Institute’s analysis of the latest data released by the Office for National Statistics (ONS) in December 2018 showed that there were 36,510 scaleups in the UK in 2017. This data uses the Organisation for Economic Co-operation and Development’s high-growth (scaleup) definition of firms: growing employment numbers and/or turnover by more than 20 per cent a year over a period of three years, with at least 10 employees at the start of the period. The ONS data shows 13,165 scaleups with increasing employment numbers, 30,650 growing their turnover and 7,305 growing both turnover and employment numbers. 

The total number of scaleups in the UK has increased by 3.7 per cent since 2016 and by 35 per cent since 2013. The national annual growth of scaleups between 2013 and 2016 was 9.3 per cent, so while the new data shows encouraging continued growth – with some very positive local trends – there has been a national slowdown of the growth rate momentum. 
The proportion of scaleups in the UK that are scaling their turnover continues to increase, with turnover scaleups now representing 84 per cent of the total figure. This compares to 36 per cent of scaleups scaling their employment and 20 per cent of scaleups scaling both their turnover and employment figures. 

In 2014, more than half (52 per cent) of UK scaleups were scaling their employment numbers, whereas the most recent data shows only 36 per cent. This decline in the proportion of scaleups increasing their employment could result from a lack of available talent and skills, thereby limiting their ability to expand or, alternatively, reflect their desire to primarily increase turnover through greater use of technology or innovative product developments rather than through increasing the number of employees. 

Scaleups employed 3.4 million people in 2017, generating a total turnover of £1.3 trillion for the UK economy and an average turnover per employee of £380,000. This turnover is more than half of the total turnover generated by the total population of small and medium-sized enterprises and represents a year-on-year increase of 34 per cent. This diverges from the recent trend of relatively stable turnover across all scaleups from 2013-2016. 

Based on sectoral data from the ONS, we can see which sectors were responsible for the greatest scaleup growth. Health and social work, the largest sector for scaleups, saw a slight decline in 2016–2017 (following a large increase in 2015–2016). Professional, scientific and technology were the sectors that showed the largest gains. 

"Scaleups continue to be more productive than their peers across almost every sector of the economy."

Scaleups continue to be more productive than their peers across almost every sector of the economy. In the construction and transport sectors, scaleups were more than twice as productive as their peers, and the average productivity premium across all sectors was 42 per cent. 

Looking across the local areas and devolved nations of Scotland, Wales and Northern Ireland, 28 out of the 41 local areas have increased the growth rate relative to their 2013–2016 rate. The 2017 data showed that there were no scaleup ‘cold spots’ (i.e. local areas showing annual growth of less than one scaleup per 100,000 people). However, some regions are only marginally above the threshold, and variation in scaleup growth across the local enterprise partnerships (LEPs) persists. 

The top five LEPs/devolved nations for growth in turnover scaleups were Buckinghamshire Thames Valley; Thames Valley Berkshire; York, North Yorkshire and East Riding of Yorkshire; Cheshire and Warrington; and London. The top five LEPs/devolved nations for growth in employment scaleups were Oxfordshire; Swindon and Wiltshire; Greater Cambridge and Greater Peterborough; Northern Ireland; and Hertfordshire. 

National and International programmes that work 

Scaling companies can benefit from, and are hungry for, appropriate programmes designed to break down the barriers they face. But for many time-poor, fast-growing scaleups, it is difficult to identify which programmes meet their needs and which programmes really work. 

It is a central part of the ScaleUp Institute’s mission to identify what is working well in both national and local programmes, and to share emerging good practice and insights from the UK and abroad. We have a list of endorsed programmes. 

Local growth programmes across the UK<

Although more programmes focussed on scaleups have emerged, considerable local and regional disparities persist. The provision of scaleup support is variable across the country – yet scaleup business leaders primarily value local resources and services. 

The ScaleUp Institute has worked with a number of communities on the evolution of local initiatives to address the needs of scaling businesses. 

Scaling up your business? 

Scaleup companies throughout the country can proactively access support from developing and endorsed programmes delivered by a range of local and national providers. However, it can be difficult to identify which programmes will meet your needs and really work. 

To help with this confusion, the ScaleUp Institute is continuing to monitor and assess the outcomes of different programmes to see which are working well. As such, the ScaleUp Institute has developed a map of the national and regional initiatives that are currently available for scaling businesses. This mapping tool can help businesses search for growth programmes, including those endorsed by the Institute for their proven impact, operating near their local area and focused on specific challenges associated with scaling up. 

This content is taken from the second edition of Yes Business Can from Lloyds Bank and Bank of Scotland – a collection of expert articles from a range of trusted sources offering information and inspiration on starting, growing and exiting a business.

Along with practical guidance on everything from securing funding and investing in intellectual property, to trading overseas and safeguarding mental health in the workplace, the second edition includes new chapters on cyber risk management, women in business and integrating sustainability into your business strategy. 

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