There is no magic formula to encourage high growth businesses

Author

Rachel Bridge

July 22, 2014

While popular belief is that high growth firms are mostly young tech start-ups, in reality they come from a wide range of sectors and can be any age and size

For a business which only launched 18 months ago, big data storage firm Datacentred has already been attracting an impressive amount of interest. In May it secured £4m funding from investors, including venture capitalist Jon Moulton, to build a data centre in Manchester.

Big data – data sets that are too large or complex to process using standard methods – is at the top of investors’ wish lists because it is seen as having the potential for immensely high growth. Being able to collect and analyse the data they generate enables corporates, academic institutions and public sector bodies to be better informed about how their organisation works and so make better decisions.

Datacentred founder Mike Kelly, who previously founded Telecity, a data centre network, says: “It is an extraordinary time because we are seeing techniques which were once the preserve of academic computing experts, with large machines and dedicated resources, move out into the real world. It has changed people’s mindsets. Instead of ignoring the data they have, people are starting to wonder what they could use it for.”

Move over start-ups – the new buzz around Britain’s SME scene is no longer about how many businesses can launch, but how fast they can grow. The OECD classifies high growth firms as those with at least 10 employees that grow their turnover or workforce by at least 20pc a year over a three-year period. Studies suggest there are now 10,000 of them in the UK.

The reason people are so excited by the idea of high growth firms right now is not just because they can generate sales, but because they can create lots of jobs, many of them highly skilled. A survey by Nesta, the charitable organisation which encourages innovation, found just 6pc of firms with 10 or more employees created over half of all new jobs in the UK between 2002 and 2008.

All this talk of potential has led to something of a frenzy as academics, policymakers and investors try to work out how to identify potential high growth firms so they can be targeted and nurtured.

The problem is there is no such thing as a typical high growth firm. While popular belief is that high growth firms are mostly young tech start-ups, in reality they come from a wide range of sectors and can be any age and size.

Indeed, research conducted by Prof Colin Mason and Dr Ross Brown for Nesta found that just 15pc of high growth firms are actually hi tech. What’s more, high growth firms often do not show consistent rapid growth, which means that today’s high flier could be a plodder tomorrow, and vice-versa.

As Brown and Mason say: “It is crucial to bear in mind that high growth is not a ‘characteristic’ of a subset of firms, but rather a ‘state’ that some firms undergo and temporarily experience.”

A far more sensible, and less risky, approach is to focus on encouraging potential high growth sectors rather than individual firms, in the hope the right environment will encourage high fliers to emerge.

This is largely the Government’s approach. It is funding the development of eight key technology sectors – big data is one – where the UK is seen as having the potential to be world leader.

There is still more to be done to create the right environment for non-tech, high growth firms to flourish. Spencer Hyman is co-founder of artisan chocolate firm Cocoarunners.com, which he believes is set for high growth as consumers trade up to better chocolate.

Hyman says: “If the Government wants to do two things to help high growth businesses in the UK, they should provide cheap affordable broadband and they should bring back the highly skilled migrant programme visa. The two biggest issues we have are getting good internet access and getting hold of great talent.”

With so much at stake, it is easy to see why people are so keen to identify and nurture individual high growth firms. But there is no magic formula. Ultimately all we can hope to do is create the right environment for high growth firms to flourish, then leave them to get on with it.

Rachel Bridge is an author, public speaker and journalist specialising in entrepreneurship and SMEs

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