Scale-up the North East
Neil Warwick, EU and Competition partner at commercial law firm Square One Law, outlines the importance of scale-ups to the future of the North East economy, especially as we enter such a period of political and economic uncertainty.
Whilst there is some dispute about the exact definition of what a scale-up company is, the most common working definition is a business which has grown, or is capable of growing, by 20% year on year for a three year period.
This exponential growth is achieved by being more agile and capable of adapting to changing market conditions and the impact of scale-ups on the economy is significant as they grow faster, pay more taxes, employ more people and often act as market disputers, catalysing others to try and imitate their innovation and growth.
Some cynics believe that ‘scale-up’ is the latest jargon to replace ‘gazelles’, which in turn replaced ‘hyper-growth’ companies. Some ultra-cynics even suggest that government reinvents the same term every three or four years simply to create new initiatives but the term scale-ups is not just a new form of terminology.
Growth in the ‘tiger economies’ of the Far East was driven almost exclusively by scale-ups and multinational conglomerate Coca Cola is now turning to scale-ups to innovate its brand.
A variety of different research and initiatives, including Strathclyde University’s GAP scheme, have shown that scale-up businesses are incredibly important for the economy, particularly when the economy consists predominantly of small and medium sized enterprises (SMEs). According to Sherry Coutu CBE, author of the Scaleup Report and founder of the Scaleup Institute, a body which has the ear of government, if just one percent of companies scaled up it would add £100bn to the economy. The ScaleUp Institute is a private sectorled organisation that is focused on closing the ‘scaleup gap’ by creating a supportive public and private sector ecosystem that enables scaleup companies to fulfil their potential.
Within the North East, SMEs account for approximately 98% of all business stock, employing approximately 70% of the workforce and studies indicate that there are currently about 400 scale-up businesses in the North East. If this number was doubled, the output of the Strategic Economic Plan could easily be met.
For at least 20 years there has been a requirement for within the region for economic regeneration activity to be more business-led and less the initiative of central or local government. Given the uncertainty of Brexit, of a hung parliament, devolution negotiations and threats of dissolution of the United Kingdom via a second referendum in Scotland, it is safe to say there has rarely been a more uncertain economic climate, making the need to identify and help potential scale-ups a priority for the Local Enterprise Partnerships in the North.
However, it is only recently that we have really seen some great initiatives being been generated by the business community for the business community and supported by Local Enterprise Partnerships, such as the Scale-Up Programme, which will be launched by RTC (North), the Experience Bank, which will promote the use of non-executive directors to help companies scale-up, the Gatsby Good Careers Benchmarks, which has now been adopted as a national standard for career development in schools, and the North East Property Fund, which was recently launched by FW Capital to assist smaller property developers tackle the housing shortage. The Entrepreneurs’ Forum is also leading the scale-up agenda, which was a key discussion point at its recent annual conference, and it has also established a ‘Scale-up Academy’ to support growing businesses with advice, mentorship and guidance.
The appetite the North East business community has shown for the concept of scale-ups means that they could be a regional competitive advantage, which will act as a driver for exceptional growth. These businesses should be encouraged and supported where possible to ensure to supports the North East’s ambition to deliver a sustainable economy, which continues to generate new employment.