Member Article

Business clusters: Why small businesses need to take note

How much thought goes into choosing where a business gets set up? Logic says we should take time to consider the pros and cons of a location – its market viability, its travel connections or cost of working and renting. Or, we could make a snap decision based on our gut.

Research says we do the latter. We spoke with 500 SME owners and the majority took no time at all to decide where their business should go. Over a quarter of SME owners knew instantly where they would set up shop, which is no surprise when we consider that many a start-up is simply an employee or two, a registered address on Companies House and a laptop on the dining room table.

Which means that a huge amount of businesses are missing out on discovering business clusters.

What are business clusters? They are the demonstrable result of the benefits of location, where like-minded companies organically gravitate together thanks to shared needs. This concentration of interconnected businesses, suppliers and institutions in a particular field is no secret phenomenon. America has Silicon Valley, home of the tech entrepreneurs. Look into the UK’s industrial past and you’ll find the legacy of Nottingham’s lace makers, and Northampton’s shoe makers. Fast-forward to current day and Hull is home to the leaders in offshore wind, whilst Dundee is the centre of gaming innovation. The results of this? Greater revenue poured into the local economy and skilled workers coming together to drive expertise and innovative cultures.

So surely UK businesses are ear-to-the-ground when it comes to working out where their industry is thriving, and letting that inform their location choice? Our research says this isn’t the case.

Of the SME owners interviewed, over a third had not heard or knew of business clusters. Of those who did know what a business cluster was, 49 per cent said their business was in a business cluster, such as Silicon Roundabout in Old Street, London. The data demonstrates that entrepreneurs across the UK could be missing out on potential business opportunities – be it knowledge sharing, talent recruiting or geographical benefits – because they are settling for convenience.

It might seem hard to beat being able to do business on your doorstep – two-fifths (40 per cent) of SME owners said they chose the location of their business as it was convenient, while over half (51 per cent) said it was where they lived. However, there are some tangible reasons why looking further afield can benefit you, particularly if it puts you into the heart of a business cluster.

Firstly, the value of easy networking can never be overestimated. Speaking from personal experience, setting up a new business takes tenacity, time and dedication. While some business owners shy away from anyone who could be seen as a competitor, there’s no cost-price that can be put on the value of knowledge sharing and peer reviews – something that can save you a lot of time and effort in the long-term. Anything that means less elbow work can elevate you from working hard to working smart.

Additionally, business clusters can help boost growth for a small business. In the early days of a start-up, when money often goes out faster than it comes in, winning new business is imperative. Gravitating towards where your clients are is a logical move that many businesses have succeeded with by executing well. Take the Toyota method – their suppliers have followed this route for years, choosing locations that cluster around the company’s mother factories. With companies and clients in close proximity, a feeling of innovation is created, as when the bright and the best gather together, spectacular results can follow. It’s not by accident that some of the UK’s most prolific science hubs are centred around Oxford, one of our leading universities; the culture and the infrastructure is there for building on.

Finally, talent available in a business cluster is an irresistible draw. Recruiting wisely in a start-up or small business is vital, as poor hires have the potential to cost the business, financially as well as in terms of time and productivity. Being around the skilled, vibrant employees a small business might want can galvanise a company in the race for competition. In our research, over a fifth of SME owners said this would give them a business advantage, and I am inclined to agree. Opus Energy was set up in the telecommunications business cluster of Northampton, and then capitalised on this again when we opened up the newest office in Cardiff. Business clusters can benefit businesses of all sizes, but SMEs in particular can make a fast start with easy access to benefits such as talent, infrastructure and clients.

SME presence in the UK is booming, and quite rightly so, as it’s a fantastic place to do business. For any SME looking to get ahead – whether you’re two weeks in or two years, looking at the benefits that business clusters could bring to your business could help drive the next phase of your growth strategy. Take the time to think about the resources you’d have access to, even if they’re located further away from your home than you’d like. We’ve taken the chance more than once, and the results speak for themselves.

This was posted in Bdaily's Members' News section by Nikki Flanders, Chief Operating Officer, Opus Energy .