Purpose-driven UK social scaleups face similar challenges to other fast-growing businesses – including talent, leadership and infrastructure – but face a greater challenge on access to finance, the ScaleUp Institute says this week in its respected annual review.
Social scaleups – impactful organisations growing by 20% a year or more for three years – face similar challenges on talent and skills to scaleups in the wider economy, but face “a greater challenge” than their peers on access to finance.
The institute, founded by investor and philanthropist Sherry Coutu (pictured) and led by Irene Graham, aims “to help the UK to become the best place in the world to grow a business as well as start one, and enable our existing high-growth businesses to scale up even further”.
Evidence shows that scaleups are pivotal to UK economic growth. Coutu formed the institute after finding that just a 1% growth in the number of scaleups could add 238,000 UK jobs and £38bn in gross value.
In a dedicated section of the review, the institute says social businesses “account for a large and growing portion of the UK business sector, comprising a range of enterprises focused on responding to complex and challenging community, environmental and broader societal concerns”.
Working with Barclays, the institute says it “has been looking more intensively at this under-researched sector of the economy”.
“Social businesses are not always perceived to be high growth but there are many that are actively scaling,” it says. “Not only are they growing their revenues and employee numbers rapidly, they are making profits which are then being reinvested to further their social goals and increase their reach.
“They are not necessarily just operating within their local communities but are active players on a national and international scale. These social scaleups are driven by ambitious leaders and are delivering innovative solutions.”
The institute says its research “demonstrates that social scaleups face a number of challenges to their growth”, with talent and skills “their principal issue, reflecting the concerns of the wider scaleup population”.
But, it continues, “access to finance is seen to be a greater challenge to social scaleups than for their fast-growing peers in other sectors of the economy”.
The institute expects to publish its detailed findings on social scaleups this winter and expects to discuss their characteristics and challenges, to “help to break down the barriers to their scaling up and the social impact of their activities”.
It promises that the report will “shed light upon this diverse group, whose scaleup ambitions are not always recognised” and will explore in more detail their challenges in access to finance and provide insights to the finance community, policymakers and ecosystem to act upon.
In the main findings of the review, the institute says nine in 10 UK scaleups anticipate rapid growth in 2019, despite expectations that Brexit will have an overwhelmingly negative effect.
Confidence from already-growing businesses may not shock, but it is a bullish conclusion from UK business pre Brexit.
The institute’s survey of 514 scaleup businesses found six in 10 (62%) expecting more than 20% turnover growth in the next year, with four out of 10 (41%) expecting more than 20% growth in their employee count. Two in 10 (18%) expect turnover to grow by more than 50%, with one in 10 expecting that growth in employee numbers.
The survey found these 514 generating £6bn in turnover, with an average turnover of £187,000 per employee.
The report finds scaleup leaders to be ”good corporate citizens”, with 64% offering opportunities to young people, through work experience (51%), apprenticeships (38%) or internships (44%).
Scaleup leaders say their top challenges are: access to talent; access to markets; building leadership capacity; finance and risk capital; and infrastructure. But they say access to markets is significantly on the rise.
The review says the total number of UK scaleups rose from 31,440 in 2015 to 35,210 in 2016, a growth of 12%. It says scaleups are “much more productive” across almost every sector of the economy – averaging £275,000 turnover per employee.
Just 4% of visible scaleups have at least one female founder, says the review. But it says that £414m has been invested in total into female-founded scaleups since 2011. The top investor is Eight Roads Ventures, which contributed to five deals worth £121m.
The review includes case studies on talent from Freeformers, Founders4Schools, Google Digital Garage, LifeSkills, created with Barclays; and Teach First: Careers Leader Programme.
Writing in the review, Coutu says: “As the UK faces an increasingly competitive and uncertain economic outlook, the need for communities to be able to drive their economic growth remains mission-critical. There has never been a more important time to focus on scaling businesses.
“The evidence is clear – for the UK economy, scaling companies are the engine of growth: creating high-quality jobs and new tax receipts; leading business investment and innovation; and providing an important answer to the UK’s great productivity puzzle.”
She added that the “2018 review demonstrates that we are making good progress, but that there is still much more to be achieved.”
Annual ScaleUp Review – recommendations include
- a ‘scaleup visa’ to be made available in communities where there are 100+ scaleup companies to enable scaleup leaders to recruit the staff they need
- funding for local communities to continue to be tied to the effective deployment of initiatives that close the scaleup gap
- all local communities to appoint a scaleup champion and develop a relationship management structure for scaleup businesses
- public bodies use the institute’s new visible scaleup public procurement index to further improve their understanding and reporting on the procurement involving UK scaleups
- Department for Education, local enterprise partnerships and the Careers & Enterprise Company should use their convening and promotional power to ensure that students at schools, colleges and universities come into contact with business leaders and that APIs to the national pupils database
- government and industry to ensure progress is made closing the finance gap for scaleups by continuing the work to implement the patient capital review.