As the Fast Growth 50 initiative has shown in Wales for the last 24 years, a small number of high growth businesses make a disproportionate impact on wealth and job creation every year.
The wider impact of such ‘scale-up’ businesses - which grow at more than 20% per annum - is demonstrated by the latest report from the Scaleup Institute which was published earlier this month.
Despite the Covid pandemic, the data presented in the report showed that there were 33,955 scale-ups in the UK generating £1.2 trillion to the economy and employing 3 million people, mainly in higher quality jobs than for the average business.
Incredibly, these firms generate 50% of the turnover of all small to medium-sized enterprises (SMEs) despite employing less than 0.6% of the SME population, which reinforces the findings of other studies of this phenomenon over the last fifty years.
Given that there seems to be a general perception that high growth firms are associated with technology-based sectors, the report shows yet again that such businesses are to be found in all parts of the economy, with the majority being in non-technology sectors.
In fact, more than 50% of the overall turnover of scale-up firms in the UK is generated by only six sectors namely arts and creative industries, business administration and support services, construction, information and communications technology, professional scientific and technical services, and wholesale industries.
They are more productive than other firms, generating an average of £373,000 turnover per employee with wholesale and retail scale-ups outperforming other businesses in their sector by 200%.
The study also shows that half of all scale-ups are involved in international trade in a range of markets across the world.
And despite being in a range of sectors, scaleups are more innovative, with eight in ten having introduced or improved a product, service, or process in the last three years.
As a result, it is not surprising to find that grants to scaleups from Innovate UK have reached £318m which, in turn, have leveraged a further £4.5bn of private sector money, demonstrating the massive potential of high growth businesses in developing the knowledge-based sectors of the future.
Scale-ups are also diverse with 40% having at least one female director and half describe themselves as being a social business, operating in the green economy or meeting environmental, social, and governance (ESG) goals.
Three quarters are also offering opportunities to young people through work experience, internships, or apprenticeships (with the latter at twice the rate of your typical firm).
Scale-ups are therefore not only generating jobs and prosperity but are also better businesses. Given the UK Government’s continued commitment to levelling up, the question is whether high growth firms are to be found in all parts the UK?
The answer is yes although if we examine the overall distribution of scale-up firms per 100,000 population between 2013 and 2020, they are more concentrated in the more prosperous areas of the UK including London, Thames Valley, Oxfordshire, and Cambridge.
In contrast, two of the poorest parts in the UK namely Wales and the north east of England have the lowest proportion of high growth firms.
With 1,200 businesses, Wales accounts for only 3.5% of the total number of scale-ups in the UK which is lower than would be expected by business population.
Further examination of the data for the three devolved nations of the UK also indicates a slowdown in scaleup growth across the board.
For example, whilst the overall UK average increased by 8.5 scale-ups per 100,000 population between 2013- 2020, Wales experienced only a slight increase of 7.9 scale-ups per 100,000 population.
In contrast, Scotland increased by 9.4 scale-ups per 100,000 population and Northern Ireland by 15 scale-ups per 100,000 population over this period.
The slight decline in scale-ups across the UK is also mirrored by evidence that the numbers of potential growth businesses that have grown between 15-19.99% (ie just outside the definition of a scaleup firm) in the past three years has also gone down.
For example, whilst there were 16,890 businesses in this category employing 1.9 million people and generating £592bn in turnover in 2018, this had fallen to slightly to 16,700 which, in turn, were employing 1.4m people and generating £410bn in turnover.
If we examine this by geography, then Wales is also struggling with this issue with the pipeline of new scaling businesses being lower than for the average for the UK.
This is worrying as the data suggests a clear relationship between having a strong pipeline of potential high growth firms and the development of scale-ups within any locality.
To conclude, this important report from the Scaleup Institute demonstrates the incredible impact that high growth firms have on employment and economic growth and again dispels some of the myths around where high growth firms are to be found in the economy.
We know that we have some amazing fast-growing firms across Wales as the Fast Growth 50 has demonstrated since 1999 and, in generating £200m of turnover and 1000 new jobs per year between 2019 and 2021, they have made a massive impact on the nation.
However, the data suggests that there is a weaker pipeline of potential high growth firms coming through into the Welsh economy and more must be done to encourage businesses to grow further, an area we will examine in more detail in next week’s column.
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