Member Article

How can we stimulate the growth of scale-ups in the North East?

Here in the North East, we’re often told that we punch above our weight. As a relatively small region, our propensity for innovation, production and entrepreneurship is truly commendable. However, as many leaders in the region’s business community will quickly tell you, there’s still much more to be achieved.

Whilst the North East is well known for its advanced manufacturing heritage, its growing digital influence and its bustling startup scene, a sleeping giant exists. Scale-ups.

Scale-ups, or high growth small businesses, are defined as companies which employ more than ten staff and are growing revenues or employee numbers at more than 20% per annum, over a three year period.

Such firms, out of the 5.5 million businesses operating in the country, are the greatest drivers of economic output and UK GDP, creating as many as 4,500 jobs per week.

Unfortunately, they’re few and far between. Of the 11, 575 scale-ups existing in the nation, only 420 are based in the North East.

Research from Deloitte and Nesta shows that if we can help to create just 1% more scale-ups, it could add 150,000 new jobs by 2034 and £225bn to British GDP.

The North East LEP has a target of increasing the number of scale-ups in the region to 630 by 2024, a 50% increase which would create approximately 6,000 additional jobs.

Achieving ambition

In a recent North East roundtable event, held in partnership between Bdaily and the LEP, we gathered industry leaders to explore the barriers existing to achieving scale-up growth in the region.

The 2014 Scaleup Report, put together by entrepreneur and subject authority Sherri Coutu, identified five key themes which significantly hinder scale-up growth.

1. Talent and Skills
2. Leadership Capacity
3. Access to Markets
4. Access to Finance
5. Infrastructure

Applying such themes to our roundtable, we discussed the importance of each area in relation to the North East, a conversation provoking much debate and intrigue.

The issue of leadership sparked widespread response from attendees, with a general consensus believing the region needs more leaders to step into the fray and rally support to help ignite a high growth agenda.

Whilst nobody denied that leaders exist in the region, many believed that as a region we don’t shout enough about ourselves and our successes.

Perhaps part of the region’s cultural identity, this seems an inescapable truth whenever such discussions are held in regards to the North East. We’re humble folk by and large, indeed a noble trait, although a potential barrier in raising collective aspiration.

Of the 420 scale-up businesses identified in the region, 65% have stopped growing whilst 10% have ceased trading. Commonly, many scale-ups generate between one and two million pounds and then plateau, with few going passed the £3m mark.

Of course generating such figures is commendable although an argument exists that, generally speaking, people from the region are quite content to reach these milestones. They’re coveted in fact. Therefore, wanting to achieve growth beyond these figures can, in many cases, seem unnecessary. An aspirational barrier exists, meaning that for many firms to breakthrough into the high growth bracket they’d have to be open to assuming an element of risk.

Looking at other staple challenges, access to talent and acquiring the right skills to meet business needs is a rather synonymous trait when it comes to growing companies in the North East. Yet here lies a point of interest. Many scale-up businesses don’t come from industries requiring the most highly skilled workers. For example, 60% of those from the region hail from service sector backgrounds such as cleaning or waste management companies. Conversely, in booming sectors such as digital, the skills shortage is a more prevalent problem.

An important point made during the discussion was that a lot of businesses stay local in the North East and further access to markets would act as a key to unlocking more custom. This related, again, to the region being more visible as both an exporter and an attractive hub for inward investment.

The event ended with a look to the future, i.e. how do we practically approach overcoming barriers? At the root of any action, it was agreed, must be built on mindset. Creating an entrepreneurial ecosystem that encourages innovation, collaboration and high growth.

Perhaps it will only be after the manifestation of such a mindset will we be able to coordinate increased sales, capture more talent and create more vociferous leaders. Dare I say it North East, we must exercise the mind before the movement of our bodies can ensue.