The differences between high-growth companies, scale-ups and scale-up potentials
The quest to find and support the next unicorn business has never been greater!
Accelerating growth, particularly of scale-up companies, is on the agenda of every Local Enterprise Partnership in the UK at present. It is suggested that scale-ups account for 2-4 per cent of SMEs but are responsible for the majority of SME growth in the UK (Fintech Times 2016).
However, the boundaries often get blurred when discussing growth and scale-up businesses. It is important to distinguish between high-growth entrepreneurial enterprises, scale-up potential businesses and scale-up businesses.
According to the Organisation for Economic Co-operation and Development (OECD),
“Scale-ups are enterprises with average annualised growth in employees (or in turnover) greater than 20 per cent a year over a three-year period and with 10 or more employees at the beginning of the observation period.”
High growth firms are companies that have successfully brought a new product and or service to market by creating and seizing an opportunity. They are typically owner-manager led, generally maintain careful control over business operations and often put in place lean and flexible organisational structures, with one or a few individuals in top management.
In the early stages of businesses growth, this enables these types of organisation to rapidly grow through swift decision-making and elimination of bureaucratic structures.
We have found, working with SMEs in our Productivity and Innovation Centre, that at five years plus, there is a pivot point where they start to recognise the need to transition from tacit to explicit business knowledge.
This phenomenon emerges when a business’s key knowledge becomes locked in small number of individuals, which then starts to restrict their growth potential. It is then they often start to look to evolve their leadership and management skills in order to become a scale-up potential organisation.
I am constantly asked how we recognise scale-up and scale-up potential businesses. There is a strong argument to be made regarding the link between highly productive organisations and scale-up business capabilities.
We therefore look to see whether an organisation can either:
- Demonstrate 11 key characteristics of a highly productivity business (BEIS Business Productivity Review 2018)
- Can exhibit a significant number of those attributes with the potential to address those missing
- Has demonstrated an awareness of the need to improve specific productivity challenges.
This is not an exhaustive test and there are always exceptions to the rules. But it has proven highly effective in helping us to understand the differences between high growth entrepreneurial enterprises, scale-up potential and scale-up businesses.
Please spend some time to ask yourself, whether or not you exhibit all or some of the following characteristics of a highly productive organisation:
- Greater awareness of your own and relative performance
- Regularly reviewing your performance and practices
- Adopting and using structured management practices (clear targets and KPIs)
- Engaging in peer-to-peer networks
- Establishing effective relationships with your supply chain
- Utilising a wide range of external advice and support (particularly strategic advice)
- Achieving higher levels of employee engagement and job satisfaction
- Having more highly skilled managers and staff
- Providing more training to improve the skills of managers and staff
- Adopting new technology and utilise digital tools to improve efficiency and performance
- Actively engaging in behaviours associated with growth (e.g. export, innovation, strategic decision-making)
By asking yourself these questions, you will start to get a better understanding of where your business is in its growth journey.
Professor Simon Bolton is associate dean of enterprise and employability and professor of innovation at Edge Hill University. Simon is also director of the acclaimed Productivity and Innovation Centre which supports regional SME growth in Lancashire.