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Growing an Enterprise Economy
- what makes businesses successful?
Professor Mark Hart
NI Economic Conference 20th October2015
Enterprise Research Centre (ERC) Mission
2
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
3
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
4
“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
5
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
6
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
7
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
8
‘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
9
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
11
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
12
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
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