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The secrets of scaling up

2 December 2015

The UK's fast-growth, medium-sized businesses made a difference between recession and recovery. Sharing experiences will be vital to encourage more firms to join their ranks.

The UK’s MSBs make up just 2 per cent of firms, but they are responsible for one in six jobs and generate nearly a quarter of private sector revenue. And those posting the fastest growth of more than 20 per cent a year, for three years in a row – the scale-ups – proved to be the difference between recession and recovery for the wider economy between 2010 and 2013.

According to Life in the Fast Lane, a new report from the CBI, in partnership with Lloyds Bank and Experian, these scale-ups contributed £59bn in those three years. But shouldn’t there be more than 3,000 companies adding to this achievement?

“When it comes to scaling-up – there are no rules about who is included,” said Carolyn Fairbairn in her first speech as CBI director-general at the MSB Summit. “Scale-ups include firms of all ages, all sectors and all regions.

“Reading the media you can sometimes be tempted to think that all this growth is coming from high tech, that London is the epicentre, and that only young businesses grow. Not true. We found that seven in ten scale-ups are located outside London – from tech companies in Cambridge, to manufacturers in the Midlands and gaming industry in Dundee.”

She added that the right policy environment was needed to grow the ranks of these high achievers – highlighting skills, exports, tax, regulation, innovation and infrastructure. But she said that it also required learning from the successes and mistakes of those already achieving such growth.

With additional words of encouragement from chief executive of Lloyds Banking Group Antonio Horta-Osório and shadow secretary for business, innovation and skills Angela Eagle, the Summit aimed to explore the challenges faced by the medium-sized firms. Practical break-out sessions on exports, global economic trends (and their impact on business), access to both finance and talent, and how to get on with social media. But the emphasis was on networking and sharing experiences.

Innovation in a family firm

Sir Michael Bibby, managing director of the Bibby Line Group, spoke about balancing the long-term thinking family businesses are typically known for and risk.

He said that the Bibby Line Group had had to adapt to changing market needs in order to survive and grow. He explained that the business would have struggled if it hadn't diversified throughout the 1980 and 1990s – and that, more recently, it had prioritised opportunities in financial services over international growth.

That was a strategy that had paid off, he added.

But he said that although access to finance and risk were tougher challenges for family firms, their long-termism appealed to banks. It can also be easier to trust and empower employees, and take faster decisions – as long as the government provides enough clarity, he said.

"Avoiding a blame culture" was his key tip for encouraging ideas and making risk easier to manage. 

Solve a problem

Swiftkey, a predictive touch keyboard app which launched in 2010 and used on 250 million phones worldwide, featured on one of the panel sessions. Its founder, Jon Reynolds, left the civil service to set it up – in response to one of his own frustrations.

And he said finding a problem that’s worth solving was the key to scaling-up. “It’s not a question of ambition, but of having the right product to reach a global audience,” he said.

Yet his story also showed the importance of tenacity and company culture. “You might get turned down 49 times out of 50, but be single-minded to win that multi-million pound contract,” he said.

Swiftkey had made the decision to be global from day one, but it still took 18 months of flights backwards and forwards to Asia and the US as they tried to attract the interest of the 20 major mobile customers who could hold the key to success.

And although it won that particular battle of endurance, Swiftkey continues to prioritise research and development to stay ahead of major competitors, such as Apple and Google. About 100 of its 150 employees remain focused on the technology, and 17 have PhDs.

“But doubling growth every year puts strain on internal culture,” said Reynolds, arguing that this was one of the most important things that a scale-up could invest in.

And speaking optimistically about the UK tech scene – both now and in future decades – he added that it was just as important to surround yourself with people that have had the experience of growing a business before.

The importance of being clueless

That said, Sahar Hashemi, co-founder of Coffee Republic, emphasised the importance of being clueless – or not being overly constrained by the rules of the industry – when she and her brother Bobby (a lawyer and a banker) bought US style coffee over to the UK.

The first coffee shop was a disaster, she said, but they stuck at it because they believed in it – and angel money helped them grow the business, which they ramped up before Starbucks arrived to challenge them.

But she explained that what they didn’t realise was the start-up culture was a mindset, not a phase. They sold out when they thought they’d grown to a size where process needed to replace passion.

“But grown-up business doesn't mean end of creativity and innovation,” she said, arguing that businesses should act smaller as they got bigger in order to keep the entrepreneurial spirit alive.

Her brother Bobby Hashemi explained how he was now applying the lessons he’d learnt through their Coffee Republic story to his new venture, Pizza Union.

“Don't rush growth,” he said. “Don't worry about first-mover advantage in retail – Apple didn't invent the music player.”

By focusing on quality rather than quantity – and what you are good at and what your customers want – he believed high-growth firms were less likely to roll-out mistakes.

He added: “Growth is the perfect environment to engage and excite your team. It means new opportunities for them, not just for the business. But hire for attitude and energy, not only what’s on their CV.”

People problems

And judging by a poll of the MSBs present at the event, finding the right talent was the biggest challenge many businesses of this size faced. Bringing in new talent was an issue for 36 per cent of them, while developing the leadership or management team was difficult for 29 per cent. In comparison, only 10 per cent said they expected their growth over the next three year to be limited by access to finance, and only 8 per cent were similarly concerned by difficulties accessing new global markets.

“Companies of all sizes are facing acute skill shortages,” said the CBI’s Fairbairn. “We need to solve this problem.”