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These companies are the lifeblood of the UK economy

27 March 2018


One of the most exciting, and scary, things about starting your own business is that you never really know where that initial idea will ultimately take you. In the beginning, there’s no guarantee of success, and the fear of failing can be very difficult to shake off. It’s why good judgement – knowing when to compromise and when to stick to your guns – is such an important quality, not just for founders but owners of businesses of all sizes.

But if you were to ask me about the type of businesses that get me feeling really enthusiastic and optimistic about the future, it’s those we call ‘high growth small businesses’. To run a business that can exhibit consistently high growth, on a year-after-year basis, is truly impressive. I don’t think many small company founders start out with the goal of achieving high growth, and it’s no guarantee of long-term success, but it’s certainly the clear proof you need that you’re doing the right things and that you’ve hit on a successful formula. That kind of validation really makes all the difference.

Supporting fast-growing businesses

Which is why at Octopus we value small businesses, and the entrepreneurs who build them, so highly. We’ve been hugely privileged to have worked with a number of fantastic entrepreneurs down the years, many of whom have gone on to build exceptional businesses. And the more we worked with them, the more we wanted to share their ambitions and their frustrations, and to shine the spotlight on an area of the UK economy that we felt wasn’t getting the recognition it deserved.

Championing high growth small businesses

So back in 2014, we decided it was time to start measuring the contribution that high growth small businesses make. In partnership with the Centre for Economics and Business Research (Cebr) we commissioned the first High Growth Small Business Report. And when the raw data came back, we were glad we did. Because in terms of their economic contribution, these companies are little short of phenomenal.

Here’s a statistic that deserves a bit of attention. Today there are more than 5.6 million companies operating in the UK, but out of these, just over 22,000 can be classed as high growth small businesses. It’s these bold few that are accounting for 20% of employment growth in the UK. That’s more than 3,000 new jobs created by high growth small businesses every single week. To say that this group of companies – making up less than 1% of the UK economy – punches above its weight is a huge understatement.

Breadth and diversity

If you thought these companies were all tech-driven start-ups, you’d be wrong. These are companies operating in a broad range of different sectors, from manufacturing to retail, support services, education, even oil and gas. And you can find high growth small businesses companies up and down the UK, not just in London. In fact, 65% of them are located outside London and the South East. But wherever these businesses are found, they make a valuable contribution to their local communities. And the success of these companies breeds further success, creating an entrepreneurial ecosystem that delivers jobs and local prosperity.

What do high growth small businesses need?

It’s no great surprise that this year’s report has a particular emphasis on skills. It’s by far the biggest area of concern for high growth small businesses. In fact, 90% of the companies we spoke to told us they faced some form of skills shortage. There are a number of reasons for this. First, the UK collectively hasn’t done enough of a job of promoting technical skills compared to other companies. We risk being left behind if this situation isn’t corrected.

Acquiring talent

Second, as high growth small businesses begin to scale up, they look around and see the areas where they desperately need additional resource. When you’re starting out, as I know from personal experience, you’re willing to turn your hand to whatever function the business needs you to fill. As the business starts to seriously grow, it makes absolutely no commercial sense to keep operating in the same way. You need to hire the right people, with the right experience and skill-sets, to occupy the roles that you once did yourself.

And this is why the can-do attitude and willingness to get things done shown by high growth small businesses is so important. It’s no surprise that they lead the way when it comes to training their staff, with 84% of them having funded or arranged formal training for staff over the past 12 months, against a national average of 66%. So, we should do everything we can to make this training readily available, because working for a successful small business can be a hugely rewarding experience in itself.

Digital infrastructure

Third, many small businesses rely on being quicker, smarter and more agile than the competition. They can’t do this without digital infrastructure that allows them to keep costs down and maintain their competitive edge over their larger, slower rivals. It’s therefore no surprise that one out of every three businesses we surveyed suggested that digital infrastructure was a constraint on the growth of their business.

Leaving the European Union

And finally, as we prepare to leave the European Union, uncertainty is having an impact – not only in finding the right people to fill roles, but also asking hard questions of whether these employees have a long-term future in the UK. Which is why the report makes recommendations that explore some of the options open to Government and other policymakers as we start preparing for the future.

Meeting the future head-on

Perhaps what is most encouraging about this year’s report is the level of optimism shown by the owners of these high growth small businesses. A stunning 74% told us that they feel more confident or have the same level of confidence in their economic prospects over the next 12 months as they did this time last year. This shows me that the owners of high growth small businesses have optimism, bravery and resilience in abundance. We may not be able to predict the future, but we know we’re going to absolutely need more of those qualities in the years ahead.

Here at Octopus we’re one of the most active investors in high growth small businesses. It’s a privileged position to be in. We get to work with some of the most UK’s innovative companies and dynamic entrepreneurs. People like Caroline Plumb of Fluidly and Tania Boler of Elvie, both of which have lent their support to our 2018 campaign, and give an insight into what life is like as a high growth small business. It’s incredible to see the contribution made by just 22,000 companies like Fluidly and Elvie. But just think what could be achieved if there were 200,000 high growth small businesses across the UK? We think that’s a target that everyone who reads the report will want to get behind.

Download the 2018 High Growth Small Business Report