Delivering Policy To Foster And Sustain UK Scaleups

In 2019 the ScaleUp Institute, in our policy summary, made the statement that:

“A maturing scaleup ecosystem must remain robust and agile in the face of such uncertainty. It is our duty as a nation to be prepared for all eventualities and limit long term impacts.”

At that time we were reflecting on the challenges that scaleups perceived lay ahead with Brexit and more general global uncertainty including China / US trade relationships. We knew heading into this decade there would be the need for our scaleups to adapt – but we could not foresee that there would be a global pandemic affecting every area of the country, every sector and every part of the world. 

The UK and global economy is now facing a deeply challenging period. The existential threat of Covid-19 represents an ongoing and significant domestic challenge for businesses, amidst the wider global downturn it has precipitated. This is reflected in unprecedented levels of government intervention globally to stabilise economies. Ongoing Brexit uncertainty also remains a factor. 

As part of the economic response, the maturing scaleup ecosystem has in 2020 evidenced its agility and collaborative nature. It has worked closely together across Government, local areas and the private sector to address the emerging issues facing our scaleups as the pandemic unfolded, and it has robustly continued to provide, through existing initiatives, vital resources and support for scaling businesses. 

As a path forward is charted, fundamentals of scaleup growth must also be recognised as the fundamentals of a sound recovery. Continuing to address the needs of our scaleup economy and enabling scaleups to flourish is the best way to create a fertile ground for local economies to return to growth. 

This means ensuring that, as the Industrial Strategy is refreshed, the Spending Review and Business Support Reviews are undertaken, and a UK Shared Prosperity Fund is considered, it will be imperative for Government policy objectives and incentives to be aligned towards scaleups to ensure they are each pulling in the same direction making the best use of our national resources. 

This is not about new initiatives, it is about better use and alignment between existing programmes with proven impact.

In 2020 we have observed the crystallisation of prior work within the ScaleUp Taskforce and ongoing results from the ScaleUp Institute Driving Economic Growth through Scaleups education programme. As a consequence we are seeing a positive closing of the gap in the leadership demands of our scaling businesses, but as evidenced in our 2020 scaleup survey – as well as analysis of ONS, local drivers, procurement and growth capital – in other areas the scaleup gap is resolutely persistent and in some widening.

As we lay out our policy imperatives for 2021, we must: 

• leverage and build on what works to create, at scale, long term sustainable interventions, deployed at regional level, taking lessons from countries ahead of us in scaleup growth;
• align people and funding resources to our scaleup and growth sectors championing their case;
• and build clusters and hubs – at a local level – connecting our scaleup communities to the talent, finance and markets that they need to propel their growth.

Underpinning all of this remains the ongoing need, whether in the public or private sector, to: segment efficiently; tailor solutions and use data ever more effectively to pinpoint our scaling businesses; to relationship manage and nurture them through their scaleup journeys, linking them much more easily to the private and public resources that are available to support their growth.

If we are to grow our way out of this crisis and past the headwinds and uncertainty of Brexit, a segmented approach to the delivery of programmes tuned to support scaleups will be crucial. This includes needing to ensure those backed by ERDF funding, such as the British Library which the ScaleUp Institute has endorsed for its impact, gets the equivalent backing from UK sources rather than reinventing the wheel. 

Charting a path to recovery

We know from our ongoing work throughout this year, that scaleups continue to be resilient and ambitious businesses, and will be a key tool for driving a long term, sustainable recovery.

They contributed £1 trillion to the UK economy in 2018, accounting for 50% of the total contribution by all SMEs and are 54% more productive than their peers. Further, at the height of the Covid-19 emergency our research showed that almost half those questioned still planned to grow at home and abroad in the coming year. We also know that the top two reasons for scaleups raising money during the Covid-19 lockdown were innovation and job creation – ahead of working capital – making them linchpins of economic activity.

However, whilst the challenges of scaling a business in this country predate the Covid-19 crisis they have undoubtedly been intensified by it. For this reason it is vital that we redouble our work to support these drivers of economic recovery by dialling up what is working today and replicating good practice where we can.

Since the ScaleUp Institute began working on its mission in 2015 we have seen positive and increasing evidence that scaleups are now forming a clear part of national and local policy. 

The collective and collaborative work that has been catalysed means scaleups are now being recognised ever more as a vital and distinct part of the UK economy and critical to ensuring the UK is internationally competitive. The word ‘scaleup’ has become part and parcel of business and economic language. Policy makers have recognised the role ambitious fast-growing businesses intrinsically play in the generation of economic value. An effective ecosystem to support their needs and overcome their challenges has been fast evolving. Last year we highlighted that this ecosystem had begun to mature, this year we are seeing it stress tested as businesses learn to cope, to innovate, and to pivot in the face of significant economic challenge.

The ecosystem that now exists is a collective effort, with good work from across the public and private sector laying some key foundations. 

However, complacency is not an option. Our analysis of the most recent official data available showed that even before Covid-19 the total number of scaleups fell slightly in 2018, driven by an 11% drop in the number scaling by turnover. With Covid-19 creating a cliff edge of consumer demand in Q2 2020 UK businesses will have been tested further. The headwinds from Brexit also remain a concern for scaleup businesses with three-fifths thinking that Brexit will have a negative impact on their business. Yet, in a challenging business environment, firms that have already scaled continue to be robust and lead the pack in terms of growth confidence. Policies aimed at encouraging a growth mindset have never been more important.

Our 2020 ScaleUp Business Survey which captured responses across September and October 2020 shows that 8 out of 10 expect to grow next year (7 in 10 by turnover and 2 in 3 employment). Of these 5 out of 10 expect to grow their turnover at more than 20% and 1 in 10 beyond 50%.

We also know that, despite the fact that three-fifths felt Covid-19 would have a negative impact on their business, scaleups have kept adapting, innovating, pivoting, and evolving with 70% making some permanent changes to their business model.

The survey also emphasises the crucial importance of Markets Access to businesses with a growth mindset. This is now seen as the number one issue for scaleups, followed by access to talent. This has been a growing trend over a number of years, which has been exacerbated through the cyclical challenges of the Covid-19 crisis, but which also has fundamental structural issues as explored in our Future of Growth Capital report.¹

Indeed, alongside these results of the survey, we have recently published pre-Covid-19 research of detailed regression analysis looking at the key drivers of local growth. This found that access to high quality talent, the existence of well curated clusters or hubs, and the availability of appropriate growth capital (equity, rather than traditional debt) are the most important drivers of growth in a local area.

Ensuring that these are front and centre of the UK’s plan for recovery will be critical if the seeds for future sustainable growth are to be planted now.

Our maturing scaleup ecosystem must remain robust and agile in the face of such challenges. This must involve maintaining and building on existing programmes as well as continuing to drive the development of new programmes to meet the needs of scaling and scaleup businesses where gaps remain.

We have many of the tools and institutions in place but coordination, renewed focus, and the alignment of wider policy toward growth – in a way that makes sense for scaleups themselves – is necessary if these efforts are to be fully realised. 

To forge a clear path forward, maintaining scaleup confidence and making the most of the growth opportunities that the UK has domestically and on the international stage, will be key. 

Throughout this chapter we reflect upon current developments and the steps necessary to achieve meaningful policy advancement for scaleup businesses in relation to the core scaleup challenges of Talent, Market Access, Leadership, Finance and Infrastructure.

SUMMARY

In 2020 the world has faced an unprecedented challenge. The Covid-19 emergency has posed an immense threat to all countries’ health, wellbeing and economies. The danger is that the ecosystem that has matured to support scaling businesses is put under massive pressure and business support starts to pivot to all regardless of growth potential. As the UK starts on the path of post-lockdown recovery a focus on growth is not a luxury, it is a necessity. Uncertainty, both national and global, must not cause us to deviate from this path towards becoming the best place in the world to grow a business.