New research reveals new tier of businesses poised for growth

17/11/11

One in ten UK businesses has the potential to join the elite 'Vital 7%' of the UK's fastest growing firms, yet feel hampered from playing their full part in driving economic growth by poor access to finance, competition and regulation, according to new research funded by NESTA and conducted by the Work Foundation.

Data and survey results from 4,877 small and medium sized businesses were analysed to understand the characteristics of firms, their growth rates and their perceived barriers to success. It was discovered that 1 in 10 of these UK firms (13%) has very similar characteristics to the small but vital group of 'high-growth firms' that generate the lion's share of new jobs in the UK - characteristics such as ambition to grow, innovation performance, ownership structure, size and sector. Yet despite the similarities, this 10% of firms are currently struggling to match up in terms of growth.

The research shows that although these 'potential high-growth firms' have the desire to grow, many see poor access to finance  - whether short term cash flow or longer term finance - as the main obstacle to success (16%), higher than firms that were unlikely to become high-growth (13%). 

Competition was cited as the most important barrier to growth for 14% of potential high-growth firms - more than high-growth firms (9.2%) and firms that were unlikely to become high-growth (12%).

Regulation was also perceived as a critical factor in hampering growth for both the high-growth firms and the potential high-growth firms identified by the research. 11% of high-growth firms reported regulation as the most important obstacle they faced, followed by 10% of non-high-growth firms. 

Geoff Mulgan, Chief Executive of NESTA, says: 'We know a small number of high-growth businesses are vital to economic growth. Now we can begin to see the barriers that fast-growing firms, and firms with the potential to grow fast, face in today's economy. Creating the right conditions for these businesses could make all the difference to our chances of creating plenty of new jobs in the years ahead.'

The research coincides with the annual Silicon Valley Comes to the UK event which has been supported by NESTA since its inception four years ago. Today's research is part of a series of work overseen by NESTA to better understand the UK's high performing businesses and the conditions needed to allow them to flourish. NESTA has previously identified the significant contribution that high-growth firms make to job growth, reporting that just 7% of firms with more than ten employees were responsible for over half of all new jobs created and that these firms are more resilient than others during a recession.

NESTA is currently conducting research into alternative forms of finance for small businesses as a means to understanding how to unlock one of the major barriers to growth they face. The Beyond the Banks programme aims to set out a series of practical recommendations for new ways for small businesses to secure finance and will be published in the run up to the Chancellor's Autumn Statement. For further information visit www.nesta.org.uk

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This data is taken from 'Free to grow? Assessing the obstacles faced by actual and potential high growth firms', conducted by the Work Foundation and funded by NESTA. To download the full report, visit www.nesta.org.uk

For further information please contact Jan Singleton jan.singleton@nesta.org.uk/ 020 7438 2606

About NESTA

NESTA is the UK's foremost independent expert on how innovation can solve some of the country's major economic and social challenges. Its work is enabled by an endowment, funded by the National Lottery, and it operates at no cost to the taxpayer. 

NESTA is a world leader in its field and carries out its work through a blend of experimental programmes, analytical research and investment in early-stage companies. www.nesta.org.uk   

About SVC2UK 

This research coincides with Silicon Valley comes to the UK (SVC2UK) which is supported by NESTA. SVC2UK is an annual programme which welcomes pioneers of the most disruptive consumer internet and green technologies to the UK. The entrepreneurs will meet their UK and European counterparts to look at collaborating on business ventures. They will lead classes at universities examining cutting-edge technologies and business models, and they will meet with policymakers to look at how to expand the UK's innovation capacity.   SVC2UK has grown into an eagerly anticipated event, with thousands of students and entrepreneurs benefiting from the collective expertise of the group. The programme is organised by Co-Chairs Sherry Coutu and Reid Hoffman, the Executive Committee and Partnering Organisations.
http://www.svc2uk.com/

'Vital Growth: The importance of high-growth businesses to the recovery', March 2011. NESTA.

'Free to grow? Assessing the obstacles faced by actual and potential high growth firms' has been conducted by the Work Foundation and funded by NESTA.  This paper uses the Small Business Survey 2010 and the Annual Small Business Survey 2007/8 to investigate these issues. First, it identifies a cohort of "high growth firms" that expect 20% employment growth per annum over a two-year period is identified. Next, propensity score matching was used to identify a second group of firms who are similar to the first in their activities and business structure, but have failed to achieve high growth. Two waves of the data set, for 2007/2008 and for the 2010 survey, were amalgamated, giving a full sample of 4,877 firms. The data contains information on the characteristics of firms, activities such as innovation and exporting, their recent growth rates and the barriers they perceive to their success.

The OECD definition of a high-growth company is one with 10 or more employees which experience employment growth averaging 20% or more per year over a three year period. This definition has been used by NESTA in all of its analysis of high-growth firms. Due to data availability for this research, it was necessary to use a slightly different definition which defines high-growth firms as those with ten or more employees at the beginning of the period expecting annual growth of over 20% over a two-year period.

 'Vital Growth: The importance of high-growth businesses to the recovery', March 2011. NESTA.