Higher Growth Businesses, Business Support Intelligence & Action Planning
The development of a higher value added competitive economy ('smart growth') requires smart people, the right accommodation for both people and businesses, and a smart transport and communications infrastructure. It also requires that local businesses are supported to overcome the main barriers to starting a business, and particularly a higher value added / higher growth business.
Smart Growth Analytics has undertaken in-depth research into higher growth businesses, their business support needs, and strategies aimed at increasing the number of higher growth firms at the local level.
What are higher growth firms and what is their role in the economy?
A higher growth firm can be defined as a firm which grows at a certain rate, and on a certain economic growth indicator, which is deemed to be higher in comparison to the majority of firms.
A generally accepted definition of a high growth firm is that of the OECD which suggests that firms which achieve annual growth rates in turnover or number of employees of over 20% for three consecutive years should be considered high growth.
Higher growth firms are found to contribute a disproportionate amount to employment growth. Estimates vary, but the literature suggests that between 2 to 4% of all firms are responsible for the majority of employment growth.
Higher growth firms are found to display higher levels of productivity than average and there is strong supporting evidence that higher growth businesses tend to undertake high levels of innovation - and thus have a role to play in driving forward regional innovation and regional productivity increases.
The combination of higher productivity and employment growth implies that a region's higher growth firms are responsible for a substantial proportion of economic growth.
Drivers and barriers to higher growth
There is some evidence that the following factors are the drivers and barriers of higher growth businesses:
- Sectoral composition
- Founders' motivations
- Education, skills and experience of founders
- Number of founders
- Management style
- Gender of founders
- Awareness and access to finance
- Networks and relationships
- Innovation and R&D
- Starting up and the start-up phase
- Excellent customer service
- Ability to attract a bright and dynamic workforce
- International Trade
- Community, Social and Environmental responsibility
Higher growth business support interventions
How can public sector agencies intervene in company populations to drive up growth performance? In the first instance, higher growth business Intervention should only take place where there is clear evidence of market failure, and only where the 'enabling' pre-conditions for higher growth are in place (suitable land for floorspace development, an adequate labour supply, and an adequate transport and communications infrastructure).
In the case of higher growth business interventions, market failure is mostly driven by imperfect information amongst local businesses, entrepreneurs and potential investors. This failure has increased, and will continue to increase, with trends in globalisation. There are also arguments for intervention based on positive externalities (such as innovation and R&D 'spill-overs') and disadvantage suffered by many SMEs in terms of their relative geographic isolation and their small size.
We have identified eleven separate programme areas which have been used to support higher growth businesses:
- Design and branding
- Quality and standards
- Land and premises
- Transport and communications infrastructure
- Tax incentives and financial support
- Networks and partnerships
- Skills development
- R&D innovation and capacity
- Leadership and management
- University collaboration
- Inward investment support
Land and premises and a supportive Transport infrastructure should be considered as 'enabling' interventions and thus somewhat different from the remaining activities which could be carried out. They are essentially the pre-conditions for business growth. It was found that these enabling interventions may confer low economic benefits in themselves, but allow other activities to take place which then achieve high levels of economic benefit. Working on inward investment, for example, may be a waste of effort if transport enabling work has not been completed.
The remaining interventions can then be considered as follow on activities when all the supply side factors are in place. When these activities are considered it can be seen that the 'game changing' activity which can be carried out by public agencies is the work involved in inward investment for higher growth businesses. But as for existing businesses, programme support would concentrate on such activities as help with Design and branding, Networks and partnerships and R&D and innovation.
The impact and effectiveness of Higher Growth Cluster Development and support is less easy to establish as it normally comprises a good number of these individual support categories into a portfolio of support. However, it is recognised as an important and effective intervention mechanism.
Conclusions and recommendations for higher growth
Programmes should, in the first instance, address the higher Growth Business 'Enablers' and 'Barriers' of finance, business leadership and management skills and business innovation.
Programmes should establish links and form networks with the many existing business finance, business skills and business innovation and R&D programmes and other existing higher growth initiatives and activities.
As well as addressing the three main barriers to higher growth set out above, other specific themes to include in the support offer include internationalisation and international trading and excellent customer service (and Quality and Standards). The promotion of Community, Social and Environmental responsibility and the provision of an attractive workplace are also important.
Enhanced support provision should be provided at the all-important 'Start-Up' Phase of the higher growth business. This should also address the three main barriers. However, opportunities also exist to encourage start-ups to place greater emphasis on growth, perhaps by helping and supporting them to create higher growth plans at start up and/or some time after start up. Programmes should encourage networking amongst groups with higher expectation growth potential and, in the case of individual founders, to encourage them to establish strong and diverse management teams from the outset. Wherever appropriate the Programme should seek to encourage a 'group management style' amongst beneficiaries.
Programme should have a general offer for all existing businesses as higher growth businesses can occur in all industrial sectors. However, an enhanced support offer for 'externally-focused' sectors should be provided, and possibly a 'super-enhanced' offer for externally-focused technology sectors, e.g. those in Biopharma, Electronics, Telecomms, Computer and Information Services, and Scientific Research & Development.
Such work should not duplicate the work of existing Programmes.
Programme should focus upon the potential of the local 'Skills Clusters' - those local sectors / clusters which have the optimal circumstances for higher growth sector integration and cluster development. Skills Clusters are those sectors, in a local area, which possess the three mutually reinforcing elements of Workplace Industrial & Occupational Clusters, Resident Industrial & Occupational Clusters and HE (and FE) Research and Learning Industrial & Occupational Clusters. A formal analysis should be undertaken to identify the local Skills Clusters.
Once the Activity Clusters have been identified, a Higher Growth Cluster Development Strategy should be formulated for each cluster / sector / activity. The Strategy should consider the 3 CSFs which research shows are critical for the development of successful clusters: The presence of functioning networks and partnerships; a strong innovation base with supporting R&D activities where appropriate; and, the existence of a strong skills base.
If you would like to discuss a Higher Growth Businesses, Business Support Intelligence & Action Planning project with us, please contact us on 0845 601 8880 or send us an email through our Contact page.
A list of our recent projects is available on our Sectors page.