Octopus co-founder Chris Hulatt explains why the UK’s high growth small businesses have a big part to play in terms of economic growth and productivity. This article first appeared in City AM.
The UK has gone from the fastest growing economy in the G7 to the slowest, prompting the chancellor to use the Spring Statement to address our country’s longstanding productivity problems.
Employment may be at record levels, but productivity is stagnant, and has been for the last 10 years. This means UK businesses are taking on new people, but failing to find more efficient ways of working. In turn, living standards will struggle to rise.
Addressing the productivity problem
Too much is said about the productivity problem, not enough about solutions. But what’s missing here is people often overlook the prowess of fast-growing small businesses when it comes to solving this issue.
A report from Octopus found that this select group – which make up just one per cent of all British businesses – are behind 20 per cent of all new jobs in the country, and 22 per cent of the £41 billion that was added to UK GDP in 2016.
Turning over between £1 million and £20 million annually, this is a group that sets an example that less productive businesses need to learn from.
The chancellor alluded to these lessons in the Spring Statement, urging less productive businesses to learn from those that succeed.
These fast growth companies manage to maintain the relentless energy that got the company going in the first place. But they are also flexible and adaptable, responding to the ever-changing business landscape and the opportunities that come with it.
Consultancy firm Bain calls it “business insurgency”, and a 2016 study from Purdue University in the US found that S&P 500 companies which are run by founders who start the company and remain in their roles over the long term are more innovative, generate 31 per cent more patents, and are more likely to make bold investments to renew and adapt the business model.
Zoopla is a good example. When Alex Chesterman launched the business back in 2009, there were 18 other property portals, so investing in the nineteenth company in this sector might have seemed crazy.
It may not have seemed an obvious decision, yet the ambition and experience of the founding team trumped any pragmatism.
In my experience, high growth small businesses have these traits in spades. When a business remembers the core reason it exists, it is less likely to pick up needless bureaucracy.
But we also need to bear in mind that these high growth businesses can compete globally, adding significantly to the UK’s economic prosperity.
Achieving more than 20 per cent annual average growth over a three-year period, these companies are successful because they take measured risk, and write new rules as they go.
If the UK wants to solve its productivity puzzle, other businesses must learn from those that are getting it right.