Driving growth through the power of clusters and hubs

The number and range of clusters and infrastructure hubs around the country are now beginning to grow.  Increasingly they are being seen as critical to resolving a number of challenges such as access to talent, markets and finance.  In a series of regional roundtables hosted jointly by the British Business Bank and the ScaleUp Institute participants flagged the importance of hub infrastructures as a catalyst for sharing knowledge with and among partners and creating a meeting point for investors and corporates.

Many of the advantages identified at these round tables chimed with the findings of the Logan Review of Scotland’s technology sector.  This report highlighted the importance of the tipping point in ecosystem development where it is hosting a critical mass of viable ambitious businesses.  At this point, several network effects start to operate to strengthen the ecosystem without further interventions being required.  To take Scotland to that level the Review made a series of recommendations including providing physical co-location environments.

Ecosystem members have realised the power of clusters and recent years have seen the progress of successful clusters or infrastructure hubs around the country. The ScaleUp Institute continues to endorse the work of Alderley Park in Cheshire, Eagle Labs, the Babraham Research Campus in Cambridge, the FCA Sandbox, Natwest’s Entrepreneur Accelerator, and Engine Shed in Bristol. Increasingly, universities are providing or supporting developments in this area such as the Manchester Science Park and the Scale Space in London’s White City supported by Imperial College.

Such clusters or hubs create a clear focal point for high potential startups and scaleups to come together with academia and corporates, providing a flexible accommodation for companies with plans to grow and promoting opportunities to collaborate with others. Fostering such hubs in other localities centred around key industries – both existing and new – would be a valuable contribution to scaleup growth. We encourage those developing new clusters to take learnings from those that do it well.

THE VALUE OF EFFECTIVE CLUSTERS

In reflecting on the UK’s international competitors, the evidence is that those doing scaleup well have made strong efforts to promote cluster development.  In 2020 the ScaleUp Institute, working with Arup, examined why clusters are one of three powerful drivers for scaling.  We found that clustering allows firms to share resources and transfer knowledge while a flexible and active infrastructure provides a practical route for growth businesses to engage with programmes that can help them overcome market, talent and finance challenges.

However, our research also demonstrated that if an over-concentration or saturation does develop in one industry in an area then the growth effects are diminished if it becomes reliant on that one industry. 

The conclusion of this research is that local areas should exploit their sector strengths but ensure they maintain a diversity of sectors. Clusters need to be actively curated, and we believe that local leaders should work together to create Scaleup Hubs – across the key ecosystem actors to foster their scaleup businesses within sectors and geographies. To help them do this, they should be provided with timely data from Government (including HMRC data) to help them to do so.

In this way, these emerging clusters should be fully integrated to wider efforts to tackle the largest challenge that scaleups now report – Access to UK and International Markets.

The development of effective hubs creates a hugely important opportunity that should be fully used as part of opening up Government procurement, fostering greater corporate collaboration, and catalysing better engagement with investors and universities.

The recent SUI/BBB regional roundtables also highlighted how the development of a critical mass of scaleups in particular areas would be valuable to draw in investors from outside the region. This could be achieved by identifying a centralised location in each region to act as a hub for institutional investors. Such hubs meet the need for connectivity within a region, a defined scaleup brand and better joined up referral and signposting activity.

Participants in the roundtables in the East and South East Midlands, the South West and Wales identified successes in other regions and suggested that improvements could be made by creating a region wide cluster scaleup club and hub in order to develop regional cohesion and shared experience.  They noted that there was a need to develop a critical mass, which would then draw in investors from outside the region and that this could be achieved by identifying a centralised location, which would act as a hub for institutional investors.   

Furthermore, they suggested that regions should do better in promoting successful scaleup businesses as a showcase of local achievement, indicating that the regions should make better use of these assets in brand building, promoting successful scaleup businesses as a showcase of local achievement. The example of the Cambridge Cluster Insights in which hubs are mapped provides powerful evidence of this in practice.  Such mapping has been valuable for disseminating information for both scaleup businesses and advisors about what is on offer both nationally and within the region. 

RESEARCH AND DEVELOPMENT

Infrastructure programmes that grow with businesses and enable R&D are powerful tools to build effective clusters. The most recent review of the Babraham Research Campus’ economic impact showed that companies estimated being located on the Campus had on average accelerated their fundraising by three months and increased the amount of funds raised to date by 10%.  Furthermore, the number of employees is estimated to be around 20% larger than it otherwise may have been due to the Campus location. 

We have previously identified the Engine Shed as an endorsed programme, and we are seeing new innovations there too: they have now partnered with Geovation, the innovation arm of the Ordnance Survey to provide network members access to the quality location and property data, technical expertise and guidance in how to access a range of potential markets sectors. In October 2021, Engine Shed announced a new fintech accelerator programme which will launch in 2022. This will bring together funders, mentors and aim to provide development opportunities for businesses, including Access to Market.

Similarly, the FCA Sandbox continues to create a regulatory safe space to allow companies to innovate. This year this has been expanded – during the pandemic – to include a digital sandbox pilot1 to provide enhanced support for the innovative firms tackling the challenges posed by Covid-19, including by the increased use by all businesses and individuals of online infrastructure and the resulting risk / rise in fraudulent payments.

As we have highlighted elsewhere, routes to market from these initiatives are key: businesses that have been part of sandbox initiatives need to be connected to broader procurement opportunities, and directly engaged with to support their growth. 

GROWTH HUBS ARE NOW FRONTLINE SERVICES

With their strong focus on local economies and local action we recommend that Government continue to invest adequately in Growth Hubs and ensure local strategic economic plans or industrial strategies have a clear focus on what the area will do to foster scaling businesses. During the Covid-19 pandemic Growth Hubs responded effectively to the needs of the businesses in their areas, building on the knowledge that they had built up about their business populations. The most successful Growth Hubs play an important role in building trusted relationships with local businesses, acting as the local nexus to national initiatives as well as signposting them to appropriate private sector offerings. 

To be effective, Growth Hubs need to be well resourced, and their teams well trained to provide relevant guidance and support to scaleup leaders. A series of local Growth Boards should also be considered to create stronger local ecosystem connections between different organisations and institutions that are intrinsically involved in the delivery of services to scaleups but do not necessarily have line of sight between each other or with local and national government.

Over the past six years there has also been the development of many public and private programmes at a local level,  including those that have pivoted to meet the challenge of Covid-19 or been created specifically. Many have drawn upon the training courses which the ScaleUp Institute provided to LEPs and Growth Hubs in 2016 and in 2018. These saw more than 30 LEP and Growth Hubs participate in a residential training course – supported by Goldman Sachs Foundation and 10,000 Small Businesses UK and Innovate UK. The result has been solid steps in all areas to establish focused action around their local scaleup community. This course has led to the development of local initiatives such as: Inspire Elite, a peer-to-peer scaleup network in Wiltshire; scaleup account managers emerging in Bristol, Cambridge, Liverpool, Greater Manchester, and the North East; including a leadership academy for fast growing businesses set up in the North East in a collaboration between the universities and the entrepreneur community.

The challenges that emerged during the pandemic served to underline how  important it is for local plans to retain a clear segmentation and recognition of the needs of scaleup businesses. These local strategies will play an important part of delivering a national plan, and the ability to engage effectively with the scaleup businesses that are driving growth and job creation in a particular area will be key.

SUMMARY

Infrastructure spaces that are flexible and support well-curated clusters are critical to local, and by extension, scaleup growth. As further sites develop it is important they learn from some of the most successful so that services can be best delivered to businesses that are looking to grow sustainably and quickly.

We have seen significant progress in infrastructure development and we will continue to monitor the way that both existing and new programmes deliver in 2022. We hope that both existing and new infrastructure programmes and clusters can respond to the wider challenges now being highlighted by scaleups – particularly in relation to accessing UK talent.