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High Growth Businesses

High-growth firms are defined by the OECD as those with ten or more employees that have recorded average annual growth rates of 20 % or more (in employment or sales) over a three-year period. Another similar measure, used by Eurostat, sets the threshold growth rate at 10 %.

The past 20 years have seen a myriad of global, economic, political and social uncertainties affect the UK. They include the bursting of the dotcom bubble, the 2008 financial crisis and most recently, Britain’s decision to leave the EU. Yet, these macro challenges have not interrupted the growth of several high growth companies in the UK. SMEs make up 99.9% of all businesses, at least 24% of them employ one or more other staff, with five percent classed as high-growth.

In the UK, all sectors have a share of their high growth businesses, with a total of 12,000 across all regions of the country. In fact, the North East has the highest proportion of high-growth enterprises of all regions, relative to the total number of businesses. Although, high-growth enterprises are also concentrated in London and the South East, taking into account the size of the local adult and business populations reduces the degree of concentration.

Using the higher threshold of 20 per cent, the UK had 12,495 high-growth enterprises in 2013, equivalent to just over 5 per cent of the business population with more than 10 employees, and just 0.2 per cent of the total business population (ONS 2015a and BEIS 2016a). Utilising the lower growth threshold, the UK had 23,685 high-growth enterprises in 2013, employing 2.6 million people. Separating this out into the economy’s three main sector categories – production, services and construction –suggests that high-growth businesses are relatively well-distributed across types of economic activity: 13 per cent of businesses in production are high-growth, 12 per cent of services businesses and 11 per cent of construction firms (OECD 2016).

Some major factors that have surfaced as key indication of growth potential includes;

Technology Innovation: The UK has seen the highest tech investments Europe-wide, mainly because of the London weighting. London attracted a total of £13.8bn in tech investment over the last 5 years until Dec 2017, greater than Paris, Berlin and Amsterdam combined.

Business Model Scalability: The recent growth of "soft tech" sectors, namely FinTech, Media & Entertainment and Internet-based businesses, is due in part to the scalability of the business models they adopt. There are no physical goods or easily utilised remote interaction means this model of business enjoys easy growth.

Revenue Model: With the arrival of high speed internet and cloud computing, SaaS-based business models emerged and were keenly adopted. This shift to paying for ongoing access with a "landlord" model is typified by software giant Adobe’s shift from a product to a service-based model in 2012 and the subsequent surge in its stock price.

Balancing Growth and Profitability: The swing from profitability to growth is a common factor in high growth companies. This may hinder dividend payments and all other returns however, long term it proves to be a successful risk.

Strong Company Culture: An overwhelming 99% of respondents in high-growth companies cite the importance of company culture and employee engagement. This bears making note of, as the information era means businesses are being scrutinised more and more. A strong brand is built on these softer qualities so to speak and high growth companies agree.

Export Efforts: The ECI Partners Culture Growth Survey 2017 report found that about 72% of growth companies want to export versus a national average of 11%. Continental Europe (53%), North America (52%) and Asia (40%) were the top countries for target expansion. This thirst for an international market is a major determinant for growth-aspiring businesses.

Let us know what you think and you can contact our consultants on 0203 637 6365 to dicuss your business growth options.
 

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