Growing an Enterprise Economy

- what makes businesses successful?

Professor Mark Hart

NI Economic Conference 20th October2015

Enterprise Research Centre (ERC) Mission

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CHALLENGE:

ERC Mission

How can the UK learn what drives SME...

• Productivity

• Growth

...to support the UK economy

? 3 year research agenda

• Creating objective evidence base on small business sector • Landing pragmatic policy recommendations • Impact on UK economy through greater SME productivity and growth

ANSWER:

£4.1m from UK and Banks (including LBG)

Consortium of 5 university business schools

Translating Research into Policy

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Ambition

Leadership & Management

Diversity

Finance

Innovation & exporting

Business demography & productivity

We’ve organised our Research around six Pillars

We’re aiming at three Themes for Policy Recommendations

Role for SME sector in economy • How to sub-segment, and which sub-

segments are important

• What aspiration can the sector deliver

How to focus efforts • Which SMEs show productivity; growth

• Where have policy actions improved productivity and growth

Propositions that work • What support and incentives pay back

• How should these be promoted

Changing the way Government thinks about SMEs

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“Their insights ... and identification of growth ambition, leadership capability and leadership capacity as drivers / enablers of small business growth encouraged us to focus on mentoring, coaching and entrepreneurial skills training in our SME support activities”. Dan Hodges – Head of Economics and Evidence, Innovate UK

ERC Impact

Innovate UK revised their proposition

based on ERC insights

Case Study:

• UK’s growth accelerator – funds and supports innovative SMEs to accelerate economic growth

• £500m funding source, plus support programmes

Focus more on Start-up Quality

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UK Doesn’t Have a Start-Up Problem UK Has a Growth Potential Problem

•UK reported 500k start-ups in 2014 – around half are self-employed

•UK has the highest level of self-employment than at any point in the previous 40 years

UK creates many 0 employee firms • Limited growth potential & aspiration

UK needs more promising growth firms • Job creators, and UK prosperity

OECD Average UK

Start-ups since 2007

02468

10

2008200920102011201220132014

UK France Germany

UK highest level of new enterprises than any OECD country in Q1 2014

GEM data shows early-stage entrepreneurial activity in UK highest in EU

Policy stance: focus on those SMEs driving UK economy

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Emphasise quality - potential for UK

economic impact

Differentiate between small

firms starting out

Nurture future survivors and

growers

• Survivors • Growth potential • Productivity

Three types of firms: • Stay small, fail early • Endure, with modest growth • Endure long, and grow strongly

• We can create more of these • We can profile them to support them better

Invest in the higher-quality firms

∑

0

20

40

60

80

100

1 3 5 7 9 11 13 15

% S

urvi

ving

age (years)

Survival to Age 16

Great Diversity of Business Start-ups

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Three types of firms:

• 50% ceased by year 3 • 2/3rds ceased by year 5

Fail Fast Sustain Grow

Of survivors, 78% had <10 employees constant – c. 60k jobs

Of survivors, 10% (2.5k) had created 200k net new jobs – 80 apiece

Year 15 Year 1 1-4 5-9

1-4 57% 15% 5-9 3% 3%

% of survivors by employment Year 15

Year 1 20+ # of

Firms 1-4 92k 1248 5-9 23k 407

10-19 31k 334 20+ 54k 508 All 200k 2497

∑ = 78% of survivors

Invest in the higher-quality firms for UK prosperity

‘Millennial 2000’ study

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‘Growth Trajectories’ of micro-businesses since start-up shows that even in early life, the high-growth firms look different to the

rest.

Jobs Sales

Key Messages

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UK’s challenge is start-up quality, not volume

Survival and Growth are key drivers

Firms fall into three very diverse profiles

Firm trajectory is predictable

UK spawns many 0 employee start-ups, but higher-potential firms dominate UK economic impact

Economic impact depends on survival and growth of start-ups

• Fail fast • Sustain • Grow

Future trajectory can be better profiled early in lifecycle, creating opportunity to better support the most promising

Firms value capability-building support

Offering firms capability building support appears to increase likelihood of success

Firms can be seen of three distinct types, and these have massively different contribution to UK economy

Growth Metrics

• Proportion of fast-growing firms (jobs) in the business population (2011-14)

• Proportion of surviving start-ups that reach £1m T/O

(2011-14) • Proportion of existing £1-2m T/O businesses which

grow to £3m T/O (2011-14)

Firm Survival and Growth – English LEPs

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Start-up Survival Rates Fast-Growing Firms

• London • Oxfordshire • Leicestershire • Northamptonshire • Thames Valley

Top 5

• Worcestershire • Lincolnshire • New Anglia • Cheshire • Cumbria

Bottom 5

• Cornwall & Isles.. • Buckinghamshire • Swindon & Wiltshire • West of England • Thames Valley

Top 5

• Black Country • Tees Valley • Birmingham • Humber • Liverpool

Bottom 5

Scaling – English LEPs

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Initial Scaling (Start-ups to £1m)

Stepping Up (£1-2m to £3m+)

• Thames Valley • London • Tees Valley • Enterprise M3 • Birmingham

Top 5

• York, North Yorkshire.. • Solent • Heart of the South West • Cornwall & Isles.. • Cumbria

Bottom 5

• London • Birmingham • North Eastern • Leeds • Greater Cambridge & ..

Top 5

• York, North Yorkshire.. • West of England • The Marches • Swindon & Wiltshire • Cumbria

Bottom 5

Northern Ireland?

• Volume of Start-ups – poor • Overall number of Fast-Growing Firms (OECD

definition) – poor • Scaling from £1-2m to £3m plus – poor • But…… Initial Scaling (£1m in 3 years after

start-up) – Belfast & South and West – very good

The ‘Arc of innovation’

• Taking these different indicators

together we can describe an ‘arc of innovation’

• Why does this matter? Because innovation is strongly linked to exporting and growth?

• We should – perhaps - worry what this says about rebalancing . And, what are the implications for policy both local and national.

• Promoting collaboration seems obvious at local levels and perhaps targeting support from Innovate UK?

Scaling Businesses – the Leadership & Management Challenge

L&M Skills in SMEs

• Growth ambitions of SMEs matter to productivity growth

• But ……weak leadership and entrepreneurial skills has been identified as a key barrier to growth

• Affects Growth Disposition and Mindsets

Building the Evidence • ERC commissioned by BIS to undertake research

involving 2,500 English SMEs - Invest NI funded a sample of 300 supported SMEs within the study.

• Key questions:

– How do L&M skills influence the adoption of best practice and,

– how they may shape business performance

• Research report, 'Leadership and management skills in small and medium sized businesses' is available on ERC website

Key Findings

• Many SME founders face challenges in expanding their leadership to incorporate a CEO and Management Team.

• Many SMEs are found not to employ management

best practice and as a result their growth is constrained.

• The evidence indicates that this weakness can have a

negative effect on turnover, productivity and employment growth.

Goldman Sachs 10,000 Small Businesses Programme

Programme Impact

• Control group analysis designed to identify programme impact.

• 10KSB UK programme increases participating businesses’ growth by between 10% and 25%, relative to what their growth would have been without the programme.

• This boost to growth comes on top of the relatively high growth that the participating businesses were already experiencing.

Contact us:

If you would like any more information about the ERC and any of its activities please contact Professor Mark Hart (mark.hart@aston.ac.uk)

More details about the activities of the ERC and our latest events can be

found at: www.enterpriseresearch.ac.uk