The phenomenal increase of scaleups in recent years has seen the UK make great advances in support of high-growth businesses. But what is out there to help the companies at the next stage of development?
One step beyond the all-important startup phase, scaleups represent the next stage in corporate expansion. This critical growth period is an essential time for young companies to avoid plateauing by placing a strong emphasis on performance and long-term, sustainable growth.
Fortunately, there is now a real focus on scaleups and the role they play in the economy, both as employers and enablers of growth. They can be found in every sector across the UK. According to the 2018 Scaleup Index, Leeds, Birmingham and Manchester have the highest concentration of scaleups outside of London, and 2017 saw a record level of investment into these ventures at almost £2.75bn. Tech Nation reports that investment in UK scaleup digital tech firms grew 61% in 2018, ranking the UK fourth after the US, China and India.
As the scaleup economy expands, it’s important to recognise the barriers to growth and create more support for them. Accelerators and incubators are doing this by stepping in to guide through the initial challenges of starting a business and early-stage growth, all the way through to expansion and innovation. Around the globe, office space services and technology are growing rapidly to facilitate agile and on-demand growth.
Supporting High-Growth Firms
No different to a ‘high-growth firm’, a scaleup is a relatively new term used to describe the link between starting and growing a business. Typically, a scaleup will have an average annualised return of at least 20% in the past three years, with at least ten employees at the beginning of those three years. These companies have generally already proven themselves viable, as opposed to startups, which are still in the process of establishing themselves.
This new delineation of a specific type of business recognises its importance to the economy, and sheds light on the unique growing pains experienced by scaleups as they develop from startup to significant player. Scaleup Index reports that the number of visible scaleups in the UK has increased by more than 500 scaling businesses since 2017, and that the sector “added billions of pounds to the economy and is responsible for hundreds of thousands of jobs.”
According to a report by the Scaleup Institute, two core challenges for scaleups include access to markets, including overseas customers, and talent acquisition.
Location, Location, Location
The decision to locate a business in a specific area is often a very significant moment for a scaleup business, as it can define a brand and its ability to attract and retain the best talent.
Often, due to cost restrictions, startups and scaleups choose locations situated far from central or ‘glamorous’ parts of town. This can make attracting talent in the initial growth period very difficult, and also dissuade clients from making regular visits.
John Duckworth, UK and EMEA Managing Director at the Instant Group says, “there are several challenges to overcome when attempting to scale a business and secure suitable, yet affordable workspace in the right location. Scaleup businesses need to be naturally agile and have as much versatility as possible as they scale up or down. Long-term leases and expensively procured conventional solutions can seriously impact growth and hamper scalability. The key is to navigate and leverage a burgeoning supply side of the market and think, ‘what are my choices’, and then secure cost-effective solutions that act as an enabler to scale.
Flexible or virtual workspace is an attractive solution for startups and scaleups, as it allows them to expand and contract at very short notice. This offers them the freedom to enter new markets with reduced risk and without sizeable investment or CAPEX funding.
When these small businesses reach a headcount of 25 and above, there tends to be a narrowing of the workspace options available to them. Unless they are part of the privileged group of companies working with an accelerator or an incubator, there is a significant challenge to secure suitable space.”
Growth in Scaleups Supported by the Flex Market
Interestingly, the biggest growth area of the London flex market over the last two years has been the demand for 20+ desk enquiries, which has increased by 45% year on year since 2016. This size of the requirement is typically representative of corporate demand, particularly scaleup firms looking to evolve beyond the startup phase of growth.
Several flexible workspace providers have started offering products better tailored to this new type of demand, helping firms adapt and grow into custom office space without the initial investment headaches and challenges associated with renting workspace.
This is a trend that we expect to continue into 2020 and beyond, with increasing demand from scaleups and corporates seeking alternatives to traditional office space. The flex market is adapting to the way work is changing, driving a wider appetite for the flexibility, agility and utilisation needs embodied by scaleups.
Getting the Tech Right
Having reliable and robust systems in place that allow a company the ability to expand or “scale up” is crucial. Robust IT systems are incredibly important to any business and are a vital consideration as processes become more complex, and speed is required.
Fortunately, the rise of cloud-based platforms and new tech means the tech problems that many small companies might historically have struggled with are no longer a key concern.
Did You Know? Scaleup investment in tech was 2.5 times higher than expected last year (based on the relative size of the UK economy).
A Scaleup Economy
Much has been made of the need to encourage entrepreneurialism in the UK, and various governments have tried to claim the victory of having recognised the startup economy. But the reality is that not enough in the past was done to foster the development of these companies.
Now, while it is arguably easier than ever before to start your own business, this is not necessarily the case for the next stage of growth. Finding the right space, the best talent, and proximity to clients, are all vital requirements for the scaleup.
The Mayor’s office is offering support for startups and scaleups through initiatives like the London Growth Hub, as well as Brexit business support for SMEs, but is it enough to facilitate the next great leap of growth?
Key Factors to Scaling
- Perfect the Basics
It’s essential to get the fundamentals right before attempting to scale. Ensure all resources can scale and perfect basic processes before introducing new ones.
- Focus on Agility
Speed and agility are critical to any growth strategy, and to juggle the peaks and lows it’s essential to be able to grab opportunities fast. Many scaleups supplement core office space with flexible and coworking spaces on short leases to sample new markets and increase headcount when needed.
- Hire Multi-Skilled Talent
With automation becoming the norm across most businesses, hiring multi-skilled talent is crucial to success. Hiring innovative and creative people is an invaluable investment for long-term growth. A 2018 report found that AI is expected to generate 7.2m jobs in the UK, outstripping those that will be lost as a result of automation.
Scaleups are driving growth and helping to strengthen the UK economy, so it’s important to shift focus to these dynamic companies as their numbers continue to grow.
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