High growth is the catch phrase of the moment. Government and businesses are constantly talking about the need for economic growth. What better way for this to be encouraged than for the UK to become a hotbed of innovation which encourages potentially high growth businesses to locate here and, I guess, grow fast?
David Cameron: “We are firmly on the side of the high-growth, highly innovative companies of the future. Don’t doubt our ambition.”
Doug Richards, in a recent Financial Times article: “It is not small business that supports economic growth, but young businesses that grow fast.”
In addition to the rhetoric there have been specific measures to back this up:
The logic is sound
In addition to the inherent logic of supporting high growth businesses at a time when economic growth is essential, research (NESTA research summary: Vital Growth) shows that companies which grow fast bring other benefits. These businesses:
But…. slower growing businesses are as or maybe even more important
The NESTA research shows that of the 221,731 businesses founded in 1998 over two thirds had vanished by 2008 and of the survivors only:
10% employed more than 10 people in 2008 (this is better than average: 95% of all businesses employ less than 10 people)
7% achieved one year of high growth (termed as an increase of employment of 20% or more).
The desirability of promoting and encouraging high growth businesses may be clear but that shouldn’t overshadow the fact that the vast majority of businesses will never be high growth businesses. Nor should it be an excuse for government or others to neglect or overlook other businesses: a business which never achieves high growth but provides sustainable employment and income is a good thing.
As Corporate Finance North West put it in their excellent Guide to earlier stage corporate finance “An important lesson is that there is a grave danger that the unsung hero of economic stability – sustainable local businesses – may be overlooked in favour of the high growth obsession”.
Does anyone know what a high growth business of tomorrow looks like or where it might be located?
In addition to the dangers of focusing on high growth businesses to the detriment of other businesses, there is a fundamental difficulty with this focus: it is not easy to pick which businesses might be capable of growing fast:
We were recently introduced to a family business which had been around for over 20 years and had grown steadily not spectacularly over that period: no external investment, no bank debt, been nowhere near a business incubator or high growth business coach, no fancy intellectual property, no clever technology, may have a website, lots of loyal and hard-working employees. It delivers around £5million of profit each year. The next google? No, but a wonderful thing.
A broader approach
It should be recognised that a narrow focus on supporting businesses, sectors or regions deemed to be capable of high growth is potentially dangerous:
Although it is accepted wisdom that governments aren’t good at picking individual winners, there should be more debate about whether government is any better at picking which sectors, regions or types of businesses are more likely to spawn the high growth businesses of the future.