Driving growth through the power of clusters and hubs

Hubs and Clusters are one of the central three drivers of scaleup growth at a local level. They act as a nexus, connecting businesses with talent, finance and wider solutions that enable them to overcome the barriers they identify to growing their businesses.

It is a very welcome development that in recent years there has been a growth of clusters and hubs around the UK, creating a nurturing environment in which to develop scaleup businesses. For these clusters to be effective, they need to be providing flexible accommodation for companies with plans to grow and promoting opportunities to collaborate with others, as well as crowding in academia, investors and corporates. This is particularly powerful when accompanied with the implementation of proactive Relationship Management, and peer to peer networks.

These findings have been echoed in other reports, such as the Logan Review of Scotland’s technology sector, which identified the importance of the tipping point in ecosystem development, where it is hosting a critical mass of viable ambitious businesses.  

A recent Unlocking Growth report from Barclays Eagles Labs and Beauhurst explores the importance of public and private sector partnerships in creating strong local ecosystems, in which businesses can start and scale successfully. It highlights how universities, accelerator programmes and business incubators, coupled with investment sources such as angel or private equity investors, are the key to generating growth.

Although the report reveals the top cities for the number of high-growth businesses outside of London are Edinburgh, Manchester and Leeds, the writers insist geography should not hold back the development of such environments. “They’re something that can be created and nurtured and there’s a role for collaborative local government intervention here.” 

The ScaleUp Institute has been pleased to endorse the work Alderley Park in Cheshire, Eagle Labs, the Babraham Research Campus in Cambridge, the FCA Sandbox, Natwest’s Entrepreneur Accelerator, and Engine Shed in Bristol. We also welcome the increasing number of universities that 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. We are also seeing important work being undertaken in the Stevenage BioScience Catalyst. These clusters provide mentoring, connections and work to actively foster an ecosystem built around collaborations. 

With the evidence supporting cluster success, it is good to hear of additional hubs and clusters being created. Barclays Digital Innovation and Security Hub will add to the growing network of Eagle Labs business incubator spaces that supports 28 ecosystems across the UK, providing mentoring and networking opportunities, business support, and a regular programme of events, both in person and virtually during the pandemic. To date, Eagle Labs have supported nearly 4,000 businesses, which combined, have secured 614 equity deals since 2011, raising on average £1.45m each equity fundraising round.

The Science and Technology Facilities Council (STFC) has announced plans to support the growth and success of digital businesses across the north-west with the creation of a new Digital Tech Cluster located close to STFC’s Daresbury Laboratory. The cluster aims to support the growth of 400 digital tech companies over the next 10 years and lead to the creation of 1,000 high-value jobs over the same period. 

Charnwood Molecular and Charnwood Campus on the outskirts of Loughborough have opened new lab space to accelerate growth in the global pharmaceutical and biotechnology markets. The biochemistry facilities, housing more than 150 scientists, will be used to drive life-saving medicinal discoveries in the future following a £3.4m investment from Leicester and Leicestershire Enterprise Partnership in partnership with Charnwood Borough Council. 

The development of an effective cluster is driven by a combination of actors working collaboratively to harness resources that foster local scaleup opportunities. These actors include local government, investors, entrepreneurs, corporates and anchor institutions like universities. In this respect, the Levelling Up White Paper and its deployment can play a major role in the expansion of clusters around the UK. The White Paper includes the expansion of Institutes of Technology and the establishment of a new National Academy; the expansion of regional investment funds; and the development of three new Innovation Accelerators in Glasgow, West Midlands and Greater Manchester. These accelerators will be informed by a partnership approach between universities and industry that underpins Sheffield’s Advanced Manufacturing Research Centre.  

THE VALUE OF EFFECTIVE CLUSTERS

Another characteristic of the UK’s international competitors that are most effective in developing scaleups is that they have made strong efforts to promote cluster development.  Leading examples are Denmark and the United States, but it is also the case in Scotland which has won top ranking in Management Today’s Best Cities list. The Financial Times has commented that hopes are rising that Scotland’s capital city is on the road to becoming a world-class self-sustaining global tech hub.  

One note of caution to add, however, is that our research into drivers also demonstrated that if an over-concentration or saturation does develop in one industry in an area then the growth effects are diminished. Therefore we advise local areas to exploit their sector strengths, but ensure they maintain a sector diversity. 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).

In this way, these emerging clusters should be fully integrated into wider efforts to tackle the largest challenge that scaleups now report – Access to UK and International Markets – and crowd in talent and investment to support scaleups as they grow..

We believe that a clear mapping programme of clusters, looking carefully at how each of the attributes associated with the different locations will provide a valuable showcase to attract investment opportunities, retain talent, and create a stronger roadmap for businesses themselves looking at what they need next in order to help them to grow.

RESEARCH AND DEVELOPMENT

Infrastructure programmes that grow with businesses help scaleups grow with confidence, and help to build a mutually supportive ecosystem. This also helps to build critical mass in wider services which scaleups need as businesses mature, talent can be recycled, and investors become more familiar with the services on offer.

The Babraham Research Campus has done exactly this, and economic impact analysis shows 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. 

Similarly, the FCA Sandbox continues to create a regulatory safe space to allow companies to innovate. 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. As Relationship Management services are developed, and high growth teams are brought in, it is important to ensure that businesses, who have benefited from initiatives such as the FCA sandbox, and wider initiatives in other sectors, are fast tracked to other services, which will help them to cornerstone their growth, such as procurement opportunities leadership development and be provided with the right information to gain additional talent both from domestic sources – such as universities – and through initiatives such as the Scaleup Visa.

THE FRONTLINE ROLE OF GROWTH HUBS 

With their strong focus on local economies and local action we recommend that Government continues to invest adequately in Growth Hubs. During the pandemic, Growth Hubs had a key role in the dissemination of critical information to businesses, and with the predicted economic downturn having a trusted and recognisable source of information for businesses locally, particularly those scaleups driving growth within specific areas will be important.

We have observed that adjustments to the way that funding is apportioned has potentially weakened the link between the detailed business understanding that had been developed in LEP and Growth Hub Structures. This should be rebuilt and strengthened, either their Combined Authorities, Mayoral Offices, or through existing LEPs structures to ensure that there is a clear route for businesses looking at their next stage of growth.

Providing a stable funding stream for support services for scaleups at a local level, better enables private sector players to plan their own interventions, and lean in to further service offerings for businesses, something ever more critical with a tighter funding environment envisaged over coming years.

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, but to be effective, Growth Hubs need to be well resourced, and their teams well trained to provide relevant guidance and support to scaleup leaders.

SUMMARY

Clusters and Hubs continue to emerge across the country. This is very welcome as they are one of the most critical drivers to scaleup growth. As these sites develop, it is important they learn from some of the most successful to be most effective in supporting growing businesses, and it is positive that many of these emerging structures are building in peer to peer networks, mentoring and collaboration.

It is critical that wider business support services also remain on offer: local leadership from Mayors, LEPs and Combined Authorities will be critical if we are to enable scaleups and those companies in the pipeline to grow effectively. This means helping to develop local identities, and ensuring that key services with impact remain available for businesses as new funding streams are deployed.

We will continue to monitor the way that both existing and new developments deliver in the coming year and meet the most recent challenges identified by scaleups in our 2022 survey.