Business success can be off the scale

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Scale-up businesses don’t always flaunt their ambition, but they are doggedly driving growth

What is a scale-up business?

The Organisation of Economic Co-Operation and Development (OECD), describes a scale-up as an enterprise with average annual growth in employees or turnover greater than 20 per cent over a three-year period, and with more than 10 employees at the beginning of the period. It excludes charities and social enterprises.

Definition:

This feature uses a wider definition now used by a number of organisations, including Beauhurst, a leading source of information on ambitious British companies. Our definition is: companies that have shown a 10 per cent growth in employee count or annual turnover over a three-year period, as well as those that have grown turnover by 20 per cent. This allows us to introduce you to some of the region’s most exciting scale-ups which haven’t yet had their share of the limelight.

Why does an established business suddenly accelerate? Perhaps one of its products suddenly gains traction, or the market catches up with the company’s vision. Maybe a new management team spots an opportunity. Or it can be just luck.

Henry Whorwood, Head of Research and Consultancy at Beauhurst, a leading source of information on ambitious British companies, thinks what unites scaleups is that the people running them, young or old, experienced or not, have that entrepreneurial mindset.

“High-tech scale-ups are generally run by younger people, but not all. Perhaps someone senior in an established business has seen an opportunity and is willing to take the financial risk.” For those without deep pockets, investors are willing to back scale-ups in some sectors more than others. Beauhurst highlights investor interest in ambitious university spin-outs. “Science and technology spin-out businesses, and the intellectual property usually associated with them, are of real interest to venture capital and private equity investment companies,” added Henry.

“And given the current macroeconomic climate, this makes sense. The companies with solid IP have the best chance of weathering the storm.”

Over the last couple of years, there has been an increasing amount of money available to scale-up companies.

“Just a few years ago a company wanting to raise £50 million had no one to talk to,” said Henry. “Now there are a number of avenues they can explore – and it’s not all about private equity or venture capital. Bank debt has more of a role than before.”

Success needs courage, ambition, instinct and time to look ahead

An established business seeking to scale up has the advantage of at least some systems and procedures in place to support its ambition.

But a small scale-up business won’t always have that luxury. A very young company may have hit on a fantastic idea early in its existence and must ride the wave to take advantage of the opportunities, or lose them forever.

So how can they help themselves to succeed? Dale Williams, Partner at Cheltenham law firm BPE, says they need courage, ambition and instinct, and at least one person in the business with the time to look ahead.

“Some will panic and draw back, but the really entrepreneurial will go hell for leather and take the risk. They’ll often have people like me urging caution – which is what we’re here for, but those most likely to succeed will have a natural understanding of their market. The decision will come down to their risk appetite.”

Dale says it’s all about having the right people – agreeing with Simon Calver’s remarks below. It’s also about not having the wrong ones.

“For instance, the very bright person whose idea helped them spin out a business from their university may well not be the right person to make that company commercial.

“Senior employees who find change a threat could also be a challenge for ambitious businesses.”

Lessons from LOVEFilM to Mothercare …

Simon Calver is Head of Investments at the Business Growth Fund (BGF), the independent investment company backed by the UK’s biggest banks.

Best known for his seven-year tenure as Chief Executive at LOVEFiLM, which sold to Amazon in 2011 for a reported £200 million, he become CEO of Mothercare plc, kickstarting the troubled retailer’s turnaround plan and driving its international expansion.

Simon grew up in Gloucester and earned his first wages while at school, selling matchday programmes for Gloucester Rugby. He joined BGF last year to lead the Fund’s investment into scale-ups.

How does a business scale-up?

“A company must have the right leadership skills at all management levels. It’s about investing in talent within the business, sharing knowledge across the company and directing the passion that you get in the start-up phase. “Put in structure. A small business will usually be driven by the founder.

But as it grows, the founder must learn to delegate. “Strategic prioritisation is essential. Where do you want your business to go next? Have you got new products? Do you want new customers or is overseas expansion your goal?

“Focus becomes very important. Ambitious businesses often want to do everything. They can’t. Decide how you want to grow, then focus on that. Don’t be afraid to say no to opportunities if they don’t fit your vision. Build flexibility and adaptability into your plans.

“Balancing business priorities is essential. Look after the customers you’ve got while going out and getting new ones.

“Development capital will usually be essential, for example, to help manage cashflow as you hire new people ahead of the growth curve, or to make capital investments. But money alone won’t help a scale-up succeed unless it’s got the right management structure, trained its people properly, developed a realistic growth strategy and put in place the systems and procedures to support that ambition.

“Re-evaluate your progress and ambitions on a quarterly basis. Be honest about what’s working and what isn’t and do something about what isn’t.”

Simon quickly learned from his mistakes. LOVEFiLM was a little later to streaming films than it could have been, having first invested in digital downloads. It soon caught up and by the time it sold to Amazon, the service had reached two million subscribers and become the leading online DVD rental and streaming service in the UK and Europe. LOVEFiLM’s technology remains the foundation on which Amazon Prime Video operates today.