High Growth Businesses Its A Life Stage Problem Not A Journey To Shangri La

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Supporting High Growth

Companies: It’s A Life-Stage

Issue Not A Journey to

Shangri-La Author: Ged Mirfin

Business Economist, Peel Policy Forum

Date: Friday 30th November, 2012

Summary Within Public Sector Business Sector Support Networks there has been an obsession with

hunting Gazelles - an American expression coined originally by David Birch to describe small,

fast growing companies (in reference to the fact they can jump higher and run faster than

their peers) that creates many job opportunities. The problem is that they have proved

extremely difficult to track as they develop and expand from young, juvenile, start-up or

spin-out firms into adolescent businesses expanding their turnover and headcount as they

venture further into the market jungle. Gazelle hunters argue that if they could only track

them from their lair then they would bring home more business trophies to hang on the wall

of the stock market boardroom.

Like the overextended metaphor above what started off as a potentially highly profitable

academic exercise has become a search for a veritable economic Shangri-La with high

growth companies located over the Zig of the next economic summit or beyond the Zag of

the next economic valley. Economic panic resulting from seemingly intractable economic

dilemmas has promoted a lazy academic approach based on highly caveated methodological

approaches which ignore; First, during a recession the process of growth is not

unidirectional. In the current economic climate many gazelles are caught in the cross-hairs as

the economic recession continues to find its mark wounding some, badly disabling others

and bringing an unfortunate minority to their knees. Three years growth is now more likely

two years growth and one year of decline. Some gazelles are now not able to run as fast or

jump as high. Just because a business does not conform to the classic definition of a Gazelle,

which is companies that have experienced at least 60% growth in employment and

additionally deflated turnover (turnover adjusted for inflation) over a three year period does

not mean that they are not high growth companies. In the present economic circumstances

an annual growth rate of 10% or even 5% is a more than acceptable rate of return.

Second, during an economic downturn businesses in certain industry sectors will inevitably

face greater barriers to growth than those in other sectors. There will always be businesses

that buck the trend but they are the exception to the rule and generally the consequence of

the impact of the wider process of creative destruction with lost and displaced business lost

elsewhere being won by businesses adopting fundamentally different business models or

being the beneficiaries of new production technologies or technology marketing.

Third, high growth is a function of the life –stage (not chronological age) of a businesses as it

reaches a particular level of turnover and number of full time employees.

Fourth, there is a natural ceiling of turnover for businesses of a particular size as measured

by employee numbers and business infrastructure capacity. Businesses can be high

performance and be considered to have maximised their growth potential, plateaued out

and be ready for the next phase of development in their development life-stage although

meeting the ability to take advantage of the next major business opportunity may require

externally supported growth in the form of venture capital or equity investment by a

business angel.

This paper will examine the notion that high growth is a function of the life-stage of the

development of a business. It will do this in relation to Merseyside. It seeks to fulfil two

closely inter-related objectives. The first, is to critically re-examine public sector thinking on

high growth companies principally to test whether the North West Development Agency

growth sector based model was a valid one in terms of a one-size fits all approach for

Merseyside in general and Liverpool in particular and whether it is possible to identify any

serious omissions in terms of growth promoting business support activity. In doing this I re-

assess the basis on which I formulated and tested some of my own methodological

assumptions about high growth companies that underpinned business economy data

research projects I carried out for Business Link North West, then a wholly-owned

subsidiary of the NWDA, between 2008-2011.

The second, is to identify those sectors that will potentially best benefit from a programme

of accelerated “super growth” support to be provided by Project EV (Enterprise Village).

Project EV is a £2M Private Sector funded scheme backed by ERDF Match Funding led by the

consultancy, Rejuvenate Your Business and supported by advice from partners from the

legal, accountancy, financial and marketing communications sectors to the value of £250,000

over a three year period. Located in fully serviced office facilities in the Albert Dock 15

selected companies will be situated in a co-working collaborative physical space and working

environment where an extensive network of 100 mentors will provide support training and

coaching.

Ged Mirfin

Business Economist

Peel Policy Forum

Peel Policy Forum Email Address: [email protected]

Personal Email Address: [email protected]

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Introduction

In November 2009 I delivered a Paper with colleagues from Business Link North West at

the International Enterprise Promotion Conference in Harrogate on “Data Driven

Evidence-Based Decision-Making”. The paper was an attempt to show that high quality

business data could be used intelligently to identify and deliver business support both to

businesses that were struggling as a direct consequence of the economic downturn as well

as more importantly the kind of high growth companies that were generating the level of

turnover growth necessary to drive an increase in the level of employment or rather a

reduction in the level of unemployment.

The belief was that public sector agencies could stimulate growth ensuring that high

growth companies fulfilled their maximum potential. On that basis public sector agencies

like the NWDA drew on gazelle theory. High growth companies, it was argued in a report

published by NESTA entitled, “Measuring Business Growth: High-Growth Firms and Their

Contribution to employment in the UK” would increase Turnover by between 25% and

30% in the next 4 years. The clincher was that some economists believed that 50% of new

jobs will be from less than 1% of a region’s company base. Although employee growth, it

was argued, would lag behind it was likely to be in the region of 20% per annum.

Finding gazelles, however, was much more problematic. A consultative approach was

adopted, as I engaged in a focus group dialogue with Business Link’s outbound advisor

team. The kind of characteristics high growth Businesses exhibited were some of the

following:

Young (late 20s/early 30s), highly educated business owners

Niche activities or specialised product offerings within older or more traditional

industries

Based on specialist industrial parks & technology centres

Independent businesses

Entrepreneurial

Advanced manufacturing using precision technology

Opposite ends of the commercial risk spectrum 75% Low/25% very high risk

Scientists and/or academics

High technology knowledge–based businesses

Newer businesses do not have SIC Codes

The Failure of SIC Codes

Easier said than done then! Utilising SIC (Standard Industry Classification) Codes it would

have been virtually impossible. SIC Codes were felt both to be too unsophisticated to

target growth sectors like Digital & Creative or Energy and Environmental Technologies

Services with sufficient precision. SIC Codes, are used as part of the statutory returns filed

at Companies House, often by the company accountant or business registration agent. The

problem is significantly exacerbated, with regard to some of the big catch-all SIC Codes

which begin, “Other,” and end in “Not Elsewhere Classified”. Such imprecise SIC Codes

cover a multitude of sins and, of course, business activities.

More problematically the “Business Activity” of a Company changes over time. Often

therefore SIC Codes quickly come to bear little relationship to what the company does or

the sector in which it actually operates.

Unfortunately, lacking more sophisticated business classificatory and mapping systems,

public sector bodies opted for a fairly unsophisticated approach mapping SIC Codes to

target sectors. In the NWDA's case there were six, what were dubbed RES (Regional

Economic Strategy) Sectors:

Advanced Engineering

Bio-Medical

Business & Professional Services

Digital & Creative Industries

Energy & Environmental Technologies Services

Food & Drink

A seventh catch-all other category was introduced to capture all miscellaneous companies outside of retail and wholesale, which were exhibiting growth characteristics. Such an unsophisticated approach was at best unrefined and primitive. At worst it was symptomatic of the worst kind of forced artificial categorisation. The result was a crude and naïve overview of the Merseyside economy which ignored many of its subtle complexities and failed to promote an in-depth understanding of the subtle inter-relationships that existed between the key pillars of that economy.

Coarse imprecise analysis was the ultimate consequence of working with unrefined data. It is hardly surprising therefore that Local Enterprise Partnerships (LEPs) have been unable to achieve significant traction. It is not that the business economy data available to them

is scarce (read unavailable), it is that the reports that were placed amongst huge volumes of other paperwork in the skips during the clearing of NWDA Offices in Warrington because the Regional Spatial Strategy was based on a one size fits all strategy aren’t especially useful to the economic development approach that is currently being pursued in the sub-regions.

Data-Driven Evidence-Based Policy making

A very arrogant form of data analysis was pursued in which decision-makers trusted to their own intuition. There was a tendency to rely on the infallibility of their own “judgemental opinion” because it was simple and convenient. This resulted in a “Traditionally it has always been done that way mentality”. No one was able to prove conclusively otherwise or show policymakers they are wrong. The result has been badly formulated and more poorly applied policy. This works fine in a benign economic environment. In a harsher climate when assumptions are being fundamentally challenged it is much more difficult to defend the indefensible and to find a solution when you are sometimes forced to justify not only your very existence but the funding rationale. There is thus a need for hard evidence: high quality validated quantitative data. Development of quantifiable measures & indices to assess policy performance and draw comparisons across similar circumstances, geographical boundaries or peer groups through data segmentation and benchmarking means that “best practice” can be identified & widened.

Aim: Change

from Anecdotal &

Judgmental to

Evidence-based

Decision making

Experience-influenced Evidence-based

Opinion-based Evidence-influenced

Expe

rience

Evidence / Information

I like to think that the “Data-Driven Evidence-Based Decision-Making” approach based on the Business Performance Index piloted at Business Link North West in which data was used to better understand what was actually going on in the business economy rather than what was assumed to be going on promulgated a culture shift in favour an approach based on the use of high quality validated quantitative data.

Data Driven Evidence-Based: Making

an ImpactDecision Making Based on Intuition, Judgemental Opinion or

TraditionData Driven Evidence-based Decision Making

Disjointed programmes and policy initiatives

Joined-Up programmes based on highly focussed

targeted strategies to address identified need based

on documented evidence

Budgetary decisions based on prior practice and historic

priorities

Budget allocations to programmes based on data-

informed needs

Spending allocations based on volume of voices of special

interests and eligibility criteria of existing regimes

Spending allocations based on market failure gaps

as indicated by the data

Generic reports to all stakeholders based on historic

aggregate data inappropriate for policymaking at a a micro-

economic level

Detailed reporting on a range of indices to relevant

stakeholders on a regularised basis - weekly,

fortnightly, monthly, quarterly, half yearly based on

agreed service level agreements

Goal-setting by board members, administrators, project

managers with special treatment given to pet projects and

initiatives or the current fads of the day.

Goal setting based on accurate estimates of the

financial consequences of proposed policy options

allowing for prioritisation thus helping to predict the

impact of policy options to stakeholders in a

“winners and losers” format

Death by committee: Undue focus on ensuring that money is

spent and that it is seen to be spent

Highly focussed report-back and monitoring forums

which ensure that not only is money spent well but

also that the impact of spending can be tracked and

measured

The fact that the NWDA took the decision to decommission an incredibly valuable and analytically powerful strategic data asset, however, indeed suggests not only the adverse but also that the lessons were not learned. Retaining the data assets that existed within the RDAs and Business Links would have been extremely beneficial for LEPs, especially when it comes to the bidding process and Green Book predictive analytics which needs to underpin Regional Growth Fund bids. Sadly key decision-makers, several of whom now sit on LEP Boards chose not to make the retention of Strategic Assets a priority and make such assets available to LEPs across the UK.

In situations like this a more strategic approach planning the transfer of data assets and data bases to the LEPs to aid them in their very difficult task of addressing the one size does not fit all failure of the RDAs would have been of invaluable help. However, you reap what you sow and the scorched earth appearance of the decommissioning of strategic data assets does not reveal public sector agencies in their best operational light. Perhaps, however, a more measured assessment of a Government in a hurry to dismantle what it saw as examples of systematic failure rather than a consideration of retaining the operationally more efficient bits at a sub-regional county level would have helped.

Methodology

This paper highlights in its own modest way the value that a joined-up approach based on overlaying and linking overlapping data classification systems can highly enrich and enhance data analyses of the business economy, especially when it comes to revealing the make-up of key industry sectors, particularly in identifying newly emergent ones like Digital & Creative Industries and Energy and Environmental Technology Services.

An Overlapping Approach

At Business Link initially I became convinced that the panacea for finding high growth companies in Merseyside was to utilise the business classification adopted by Experian - Commercial Mosaic. Commercial Mosaic categorises UK businesses into 13 groups and 50 distinct types, based on key variables that influence business behaviour. The Commercial Mosaic segmentation system includes demographics – the age of businesses, number of employees, turnover and critically the principals’ background. It also includes a classificatory approach grouping together businesses with shared demographics. Finally it follows a propensity approach with the broad description of the business classification indicating likely behaviour, for example, in its purchasing.

The Family or Genus GazelleCommercial Mosaic

Group

Commercial Mosaic

Type

Features

Monumental Monoliths Farsighted High Flyers

Directors under 30 & Well Educated

Highly productive and skilled work force

Mature businesses -64% Employ >100

Large Range Business Activities inc. Food, Manufacturing, Textiles,

Recreation, Sport, Luxury Goods – Niche Business

Trade Specialist Industrial Centres or Retail Parks

Specialist Suppliers Hi Tech Highlights

Highly specialised type engaged manufacture specialist equipment and

precision instruments esp. telecomms & IT

Medium Sized Businesses

Independent

Based Specialist Industrial & Technology Parks

Independent Entrepreneurs Developing Dynamos

Newer Independent Businesses

High Risk – 30% Chance Failure

Wide Range Activities: Specialist Wholesale, & Retail, Business Support

Services & Recreation

Small Business but with Very High Amounts of Turnover from Highly Skilled

& Productive Staff

Especially Prevalent in North West

Independent EntrepreneursFledgling High Fliers

New Independent Businesses. One Third 2 to 3 Years OldSo New many not have SIC Codes assigned to them

High Risk – 346% Chance Failure

Wide Range Activities: Specialist Wholesale, & Retail, Business Support

Services & Recreation

One Third Grow to Employee Much Larger Nos. of Employees

As Specialist Suppliers first move is generally to specialist industrial parks

Energetic Enterprises Professional Professors

Independent Low Risk High-Tech BusinessesEngaged Diverse Range of Activities but esp. R&D and Chemical Processing,

Especially Prevalent in Northwest Trading from Specialist Industrial &

Technology Centres near Universities & Hospitals

Energetic Enterprises Support Supremos

New “Knowledge-Based” Businesses

Especially Prevalent amongst Digital & Crossover Media, Support Services to

Financial Industry – High Salaries

Low Risk Businesses in Areas of High Prosperity. Serviced Offices

The approach, I reasoned, was a useful guide to identifying the typical markings of gazelle-like businesses. The admixture of key demographic and behavioural characteristics got me to the habitat where Gazelles lived quickly. The problem was that it was self-confirmatory. It led me to locations where I would expect to find gazelles because I was looking in places I knew they inhabited. It didn’t lead me to places where I might not expect to find them but where they also existed in significant numbers. The consequence

was that the bulk of the population of gazelles was found to exist in the high-tech parts of Merseyside concentrated in colonies on business parks, incubator hubs in university R & D centres, specialist manufacturing units and industrial & scientific technology parks. Not surprisingly these were located in some of the more affluent and prosperous parts of suburban Liverpool, St. Helens and the Wirral and less so in Halton and Knowsley. There was in other words a concentration on high tech Businesses to the exclusion of more traditional lower-tech manufacturing & retail businesses in less prosperous and more deprived areas of Merseyside.

Recourse to a wider set of overlapping criteria was required, in order to more accurately define the universe of high growth businesses. An approach based on the use of an overlapping set of different classification systems, was employed, including:

SIC 1992, 2003 & 2007

Yell Codes

Thompson Codes

Nature of Business Descriptors

It is the approach that this Paper follows with a much greater emphasis being applied previously to Nature of Business Descriptors: What the business actually does, the product and service it sells and generally to whom. It is by no means a unique approach but it is one that has been much more consistently applied here than previously.

Individual Yell and Thompson Codes were selected from a complete list of code sets selected, following detailed scrutiny by NWDA and BLNW sector managers, team leaders and Advisors.

Yell and Thomson Codes

Use of Yell and Thomson Codes improves granularity over SIC Codes. Yell and Thomson

Codes are self selected by businesses and reflect how a business visualises itself in terms

of the market sectors in which it operates and how it positions itself in terms of

advertising to its customer base. Yell and Thomson Codes are what businesses use to tell

the world what they’re actually good at!

More problematically the activity of a business changes over time as what it actually does

becomes more transparent. Often SIC Codes quickly come to bear little representation to

what the company does or the sector in which it actually operates. All industry Sectors, in

comparison, are represented extremely well in Yell and are very precisely defined.

Using Yell Data With SIC –

Other Computer Related Activities

SIC 2003

SIC 2003 to Yell

SIC 2003 Description Locations

Other computer related activities 4,531

SIC 2003 Description Yellow Pages Classification

Locatio

ns

Other computer related activities Unknown 3,032

Other computer related activities Computer Services 933

Other computer related activities Internet Web Design 207

Other computer related activities Computer Training 87

Other computer related activities Internet Services 75

Other computer related activities Computer Networking & Cabling 69

Other computer related activities Computer Aided Design Services 58

Other computer related activities Telecommunication Eqpt 32

Other computer related activities Data Recovery 10

Other computer related activities Document & Data Destruction 8

Other computer related activities Computer Security 7

Other computer related activities Multimedia Services 5

Other computer related activities Videoconferencing 4

Other computer related activities Publishers & Publications 2

Other computer related activities Information Services 1

Other computer related activities Secretarial Services 1

Sum: 4,531

An example is given below of the amount of detail that is used to define an Industrial

Sector in Yell.

“Internet Web Design &

Development”

•Web hosting: If you want a website for your customers to visit, this

is a vital internet service. A good web hosting service will ensure the

pages of your web site appear quickly and reliably.

•Domain name: The part of an email address after the @ sign. Many

internet service providers enable you to buy your own domain name,

so you can have an email (and website) address personalised with

your own or your company's name.

•Software development: This is where a computer service company

writes software for you to meet a specific requirement.

Some computer service companies will write whole

programs, while others just write tools to get one

program talking to, or sharing data with, another.

•e-commerce: Doing business on the internet. Supply

of an e-commerce enabled web site, which allows

visitors to pay for goods and services.

A fast moving sector, meanwhile, requires a quickly adaptable classification – companies

chasing market niches update their Yell and Thomson adverts faster than their SIC codes –

which they update rarely if at all creating a very misleading picture of the industry sector

mix in the UK. When the key to making a sale is either consumers or other businesses

being able to locate a product or service rapidly then precise definition is important,

especially as the emphasis has moved away from listings and adverts placed in printed

directories to web adverts and listings in on-line directories. The speed to (re)definition or

definition of new business types or sectors is extremely rapid because it is driven by

commercial imperative and not hindered by lack of academic consensus. ONS would be

advised to bear this point in mind when it comes to the impetus to overhaul and

fundamentally overhaul an outdated and outmoded way of classifying new high-tech, high

growth industries in the new economy. Indeed it might be argued that a central deficiency

of policy making relates to a lack of precision in defining industry sectors and the inability

therefore to measure the impact of policy with sufficient precision.

Access to Yell and Thomson Codes has allowed us to fill the glaring gaps left by SIC Codes

in a very neat and precise way.

Nature of Business Descriptors

Nature of Business Descriptors, are written by the businesses themselves and detail the key activity of the business, especially on their web portal. Textual analysis techniques were applied to the Business Descriptors creating “single” & “paired” key words from a lexicon of commonly appearing key words and phrases.

Yell Class Thomson

SIC 1992, 2003 or 2007

Nature of Business Keyword

Identifying the DCI Sector Utilising Overlapping Classifications

FlexibilityThe ability to utilise

multiple business classifications from

various sources as well as the keyword

descriptors provides a breadth of analysis that

virtually eliminates businesses for which we

have no classification data. The potential size of the pot for businesses

missed is very small.

The greater the overlap between the differing forms of classification, the greater

dependability of being able to identify what a business is really about. It was and is not

simply that Business Activity Descriptors should be regarded as tie-breakers or that any

one of the overlapping classification systems should be regarded as being any more

important than the other.

Definitional Refinement

Access to a wide variety of classification systems means that it is possible to define sectors

very precisely and to visualise gaps and overlaps between those sectors. This lessens

dependability on SIC Codes considerably improving Sector identification accuracy.

Overlaps between different classification systems dramatically increases reliability

It is to be accepted that not all Business advertise in Yell and Thomson. Indeed, on

average, c.40% of businesses, choose not to do so. Either they don’t need to do so or

advertising in directories is not seen as a particularly productive form of marketing or cost

effective sales channel strategy often for businesses which are more business to business

and less consumer facing in their approach.

In this instance we can rely on either SIC 2007 or Business Activity Descriptors. As you can

see from the graphic below the latter is particularly effective in revealing the activities of

Business.

When Yell Fails…Nature of Business – Other Computer Related

Activities

SIC 2003 to Yell

Yell to Nature

of Business

SIC 2003 Description Yellow Pages Classification Locations

Other computer related activities Unknown 3,032

Other computer related activities Computer Services 933

Other computer related activities Internet Web Design 207

Other computer related activities Computer Training 87

Other computer related activities Internet Services 75

Other computer related activities Computer Networking & Cabling 69

Other computer related activities

Computer Aided Design

Services 58

Other computer related activities Telecommunication Eqpt 32

Other computer related activities Data Recovery 10

Other computer related activities Document & Data Destruction 8

Other computer related activities Computer Security 7

Other computer related activities Multimedia Services 5

Other computer related activities Videoconferencing 4

Other computer related activities Publishers & Publications 2

Other computer related activities Information Services 1

Other computer related activities Secretarial Services 1

Sum: 4,531

Yellow Pages Classification Nature of Business

Unknown 00Bespoke Application Development

Unknown 3d and 2d animation for the broadcast tv industry.

Unknown 3D Visual Design

Unknown

3D visualising, animation and branding for architectural and

construction industries

Unknown Accountancy and web-site design services.

Unknown Accountancy support.

Unknown Accounting, auditing, tax consult.

Unknown Adult Education Centres

Unknown Advanced Sensor & Control Technologies

Unknown Advertising.

Unknown Architectural and design services

Unknown Architectural, technical consultancy.

Unknown

Assett/Process tracking services for businesses serving

Pharmaceutical, logistics, aviation & Manufacturing sectors

Unknown

Audio visual installation engineers, commenced on 1 june 2007.

Unknown Audio-Visual Production & Presentation Services

Unknown Automation and control design, installation and service.

Unknown Automotive service engineers.

Combining different classification systems means that hard to find sectors and sub-sectors

can be focused on providing us with a solution that is the best of all worlds. Quite simply,

it means that we are able know something about the vast majority of businesses – there

are very few for which we don’t have access to at least one form of classification.

Data Validation

Sector Definition is the key to accessing meaningful data. Definition however needs to be

intuitive. This is particularly the case when you are confronted by businesses that “just

don’t fit” and it requires a judgement call to decide whether that business is “in sector” or

“out of sector”? High level validation of data achieved through granular interrogation of

data contributes to a much more rational and less forced way of building a sector

definition.

Revealing Findings on Merseyside

Adopting such an approach starkly revealed a number of findings about the size of the

Digital & Creative Sector in Merseyside.

The first was the worryingly small size of the Graphic and Internet Web Design Community

in Merseyside in comparison to other Sub-Regions of the North West, which placed it

behind Lancashire and only just ahead of Cheshire and Warrington. At the time this raised

a number of interesting questions for the Digital & Creative sector team at Business Link

North West, not least: given the size of the central business district in Liverpool – the lack

of connectivity between Digital Marketing Agencies and the wider Business Community;

the small number of technically proficient brand marketers despite the presence of three

major universities in the city and two of the largest colleges of higher education in the

U.K. (Liverpool & St. Helens) and most critically, the failure of retention of a highly

educated student population in one of the most culturally vibrant cities in the U.K. These

are major questions which are particularly pertinent and relevant to the Enterprise Village

Project. It is a fundamental question as to why the Digital & Creative Sector is twice the

size in Manchester than it is in Merseyside. Clearly the presence of national radio and TV

stations in Manchester has a lot to answer for in terms of a catalytic effect.

Sub-Region Sum:

Cheshire &

Warrington263

Cumbria 123

Greater

Manchester599

Greater

Merseyside268

Lancashire 313

Sum: 1,566

101 212

579 987

36 87

234 365

105 163

Designers-

Advertising & GraphicInternet Web Design

103 160

Computer Software

DevelopmentSum:

130 130

29 29

191 191

70 70

84 84

504 504

Sub-Region

Lancashire

Sum:

Cheshire &

Warrington

Cumbria

Greater

Manchester

Greater

Merseyside

It is not an isolated factor Another Sub-Sector that we looked at in detail at Business Link

North West in October 2010 was the Computer Software Development Sector. Again

Merseyside does particularly badly in comparison to Cheshire & Warrington and once

again Lancashire. The concentration of industrial defence primes in Lancashire may be one

explanation for this. There is no reason why the Merseyside should compete so badly in

relation to Cheshire & Warrington especially given the size of the financial services

industry, the insurance industry in particular.

As the above slide on the Computer Games Industry clearly shows Merseyside is again

failing to match its weight in a high profile and highly remunerative sector of the

economy. Two problems appear to be in play: getting a business established in the first

instance and then growing it beyond four employees. Again these are issues that

Enterprise Village will seek to address. One fact is particularly stark in relation to the

Games Industry. Whereas 68.59% in Cheshire & Warrington of Computer Games

Companies have grown beyond four Employees; 61.29% in Cumbria; 68.25% in Greater

Manchester and 59.38% in Lancashire this figure is only 56% in Merseyside. It is a telling

figure!

It is also a shame that this research was not taken further. The outputs formed part of a

research project funded by the NWDA on redefining the Digital & Creative Sector in the

North West, largely in an attempt to justify the relocation of the BBC to Salford Quays in

Manchester. In that sense it proved a point which was that the hub of the North West’s

Digital & Creative Industries are clearly located within Greater Manchester at the expense

of other North West Sub Regions. That hub, however, was not as large as it is in the South

West and Bristol in particular which has the second largest collection of Digital & Creative

Firms outside of London. Unfortunately, Business Link North West and its revolutionary

Business Performance Index Business Intelligence System was dismantled prior to the

winding-up of the NDPB – an act this author still regards as one of intellectual vandalism

It’s a Life-Stage Problem

The role that more precise definition based on access to greatly enhanced and enriched

data sets can bring to understanding high growth sectors, of course forms only part of the

issue. Another critical element involves understanding precisely when high growth occurs.

The following graphic is taken from a Presentation which was delivered to the ONS

Regional Research Conference on the 21st of June 2010 entitled, “Entrepreneur Mapping:

Tracking Businesses along The Journey from Pre-Start to Start-Up to High Growth”.

< £90k £90-£400k £400k - £2,5m £2.5m+

100 - 250+ 0 0 0 2

50 - 99 0 2 0 7

10 - 49 11 13 29 6

0 - 9 1433 626 598 43

Annual Turnover

Hea

dcou

nt B

and

What it clearly demonstrates is that only 23.74% of Start-Up Businesses that are 3 years

old or less with less than 10 Employees generate a turnover of greater than £400K. Only

1.59%, generate a turnover in excess of £2.5M.

I and my co-Author, Neil Geoghegan, concluded that in terms of the chicken and egg

debate, growth in Turnover preceded growth in the number of employees. Consequently,

achieving headcount growth is dependent on achieving an increase in the level of

turnover. Growing an employee base beyond 9 therefore and achieving the status desired

by policy makers as a fully fledged SME is very difficult. Longitudinal analysis of turnover

clearly demonstrated that there was a direct correlation between achieving a turnover of

more than £1.0m and employing more than 10 Staff. This was very difficult for a business

start-up to achieve in 3 to 5 Years. Only 47 out of 2770 Start-Up Businesses we analysed

(or 1.7%) actually achieved this.

The Critical Business Event

We further concluded that in the business history of high growth companies it was a

“Critical Business Event” which preceded an increase in turnover beyond £400K allowing

the business to recruit a critical echelon of new employees that drives the Business

forward to achieve the levels of growth required to achieve even higher levels of turnover

still. Deeply imbued with the literature on entrepreneurial behaviour at the time we

argued that this is the point where opportunity meets hard work. Furthermore such

events are not always recognised - they can be planned but more often not they are

accidental – the concatenation of a series of fortunate events: what we dubbed, in jest,

the Lemony Snicket Moment! The problem is that even when recognised they are not

always developed. Few fledgling entrepreneurs derive maximum benefit form the

opportunities. Many indeed step away from the inherent risk. This is because in order to

take advantage of critical events a Business is required to take a risk in terms of funding

expansion. This requires the sourcing of capital funding in order to break through the glass

ceiling and reach the next plateau in the life stage of business development.

This is why growth hubs which focus purely on the mechanics of actually doing business:

legal advice, tax, Vat, accounting, sales & marketing, training & skills, export without a

focus on capital expenditure to fund next stage growth omits the key driver of business

acceleration. This is why sourcing, applying for and securing funding will be core business

competencies and a key service offering of Project EV.

Business Accelerators

Calling businesses operating in this phase of development Accelerators was deliberate. I

owe the term to Maureen Haldane at Manchester Metroplitan University who first

deployed the term in relation to achieving different levels of proficiency in the use of

educational technology in the classroom. I took this concept to show businesses quickly

accelerate beyond the foundational development stage adding additional functionality

with greater frequency and facility to the pointy where they begin to grow faster

developing in a more cohesive fashion. The ultimate epitomy of this metaphor we coined

the Usain Bolt Moment with businesses developing a fluency of performance with Body

(Sales & Marketing & Operations) moving in attuned fashion with Mind (Business

Intelligence & Accounting Systems).

High Growth CompaniesA gazelle company is an American expression for small, fast growing companies (in reference to the fact they can jump higher and run faster than their peers), that creates many job opportunities. Fast growing firms ("gazelles")

are defined as companies that have experienced at least 60% growth in employment and turnover (turnover adjusted for inflation) over a 3 year period.

Sprinters:

Young, and usually small, high growth

enterprisesYoung, start-up or spin-

out firms.“Adolescent” High-Tech

Companies.

Accelerators:

Fast-expanding Dynamic SMEs often in new

industries that generate large amounts of

Turnover. Do they also generate large numbers

of jobs at the same time?The subset of high-growth enterprises.

which are 3 but typically 5 years or older.

Flyers:

Sprinters who turn into large rapidly

expanding job creators.

Large Mature High Growth

Companies

“Early Start-up phase: Up to 3 Years”

“Early Growth Phase:3 to 5 Years”

“Exponential Growth Phase:

Years and Older”

The position of businesses on the growth curve in the phase between start-up and

attaining levels of “high” growth, we argued, is a function of the Life–Stage (not

chronological age) of a business in this phase of development, as it reaches a particular

level of turnover and number of full time employees.

At the time the evidence, based on a focus on high-tech businesses, appeared to

demonstrate that businesses in this acceleration phase of growth were achieving a

turnover level of between £400K and £2.5M. Subsequent research and feedback has

revealed that such an approach ignores a number of young heavy industrial

manufacturing businesses which can reach much higher levels of turnover because of

either the base cost of the commodities they manufacture – typically metals or glass or

the size of their production runs – typically plastics or chemicals – is very large. It is

sensible to widen the criteria for high growth businesses in the accelerated phase of

development to those businesses achieving a turnover Level of between £400K and £4M.

This seemed to make sense in terms of multiples of turnover with £4M representing x10

the Value of £400K. It also made sense to take a more intuitive approach with regard to

the number of FTEs (Full Time Employees) in order to gain a better appreciation of the

Contribution Per Employee to the Business. For that reason a Minimum Number of 4 FTEs

has been selected.

High Growth Life-Stage Businesses in Merseyside

Total Active Trading Businesses in Merseyside (40,476)

Turnover between £400K and £4M & At Least 3 Years A/Cs (4,043)

At Least 4 FTEs (1,402)

Primary Trading Location in Merseyside(1,017)

The stock of high growth life stage businesses is actually quite small in terms of the overall

stock of businesses in Merseyside, representing only 2.51% of the total stock of Active

businesses in Merseyside. This is a far lower stock of potential gazelles that leading

surveys would have us expect.

It is to be noted that 385 of the Businesses have Primary Trading Locations outside of

Merseyside although the business is owned and managed from within the Merseyside

region. This raises some interesting issues about Merseyside business owners deciding to

locate their business outside of Merseyside, which in turn begs some interesting questions

about the trading environment and business support networks and the strength of supply

chains within Merseyside.

In term of Location by Local Authority the findings were also very surprising. The fact that

the bulk of high growth life stage businesses were concentrated in Liverpool is perhaps

unsurprising. The fact that such a large number were located in the older industrialised

parts of Sefton and some of the more deprived parts of the Wirral was. This is a very

different picture from the high-tech slanted analysis that was conducted at Business Link

North West, dominated by high-tech Locations in Liverpool, St. Helens and the West

Wirral.

The reason for this is self evident. Especially, if we look at the sector groupings which

constitute the make-up of the high growth life stage businesses. What I found was

incredibly revealing. It should not have been. But it was. It was because it revealed a more

complete picture of high growth Merseyside than the NWDA was attempting to present, I

suspect because the picture it represented was one very different from that of the high-

tech vision it was trying to sell to foreign direct investors.

Property & Construction – The Lynch Pin of the Economy

The reality of Merseyside’s high growth life stage businesses is that they are dominated by

the Property and Construction Sector. 221 or 22% of Businesses are involved in either the

Property Sector or Construction. Construction for Merseyside more than most regions is a

function of public sector led regeneration. If we further accept that the Professional

Services sector which includes Accountants & Solicitors (who make up 22 or 26.51% of this

Sector) are dependent for a sizeable percentage of their business on property transactions

then this puts the scale of this particular sector into further context.

Next in terms of importance come what I would call the Public Sector Economy in

Merseyside. With one of the highest numbers and overall percentage of Public Sector

employed workers in the UK this should not perhaps be surprising. The number of high

growth life stage businesses in this cohort however is.

Sector Count %

Property 114 11.21%

Advanced Manufacturing 92 9.04%

Professional Services 78 7.67%

Construction 73 7.18%

Health & NHS 65 6.39%

Consumer Retail 63 6.19%

Charitable 62 6.09%

Public Sector Funded 56 5.50%

Visitor Economy 56 5.50%

Other Miscellaneous 52 5.11%

Transport 45 4.42%

Other Manufacturing 39 3.83%

Education & Vocational Training 31 3.05%

Energy & Environmental Technology Services 31 3.05%

Care 30 2.95%

Wholesalers, Merchants, Stockists & Suppliers 27 2.65%

Food & Drink 24 2.36%

Shipping 22 2.16%

Agriculture, Horticulture & Animal Rearing 16 1.57%

Digital 14 1.38%

Distributors & Added Value Re-Sellers 12 1.18%

Automotive 10 0.98%

Bio Medical 5 0.52%

Total 1017 100.00%

Public Sector Funded Business

244 Businesses or circa One in Four (23.98%) of Merseyside’s high growth life stage

businesses form part of the dense network of directly and indirectly funded Public Sector

support related activities. These include: Health and the NHS (including G.P. Practices,

Pharmacies, Dentists, Miscellaneous Healthcare Practitioners and Hospices), Care

(including Nursing Homes, Care Agencies and Nurseries). Safe to say that Health and Social

Care are big business in Liverpool as befits a de-industrialising region beset by the legacy

of chronic healthcare problems of a former industrialised workforce and the long-term

unemployed. A whole high growth Industry has grown up to service the needs of this

community, which, with a gradually ageing population, is hardly likely to get any smaller.

Other Public Sector dominated support businesses which are worthy of note are the

Charitable Sector which is the beneficiary of large, albeit shrinking, amounts of public

sector funding in Merseyside with a huge number of Charities and Charitable Trusts being

located in the Sub-Region. This may be the consequence of the location of specialist legal

and financial services which supports this sector. Equally it is clear that religious and civic

trusts which used to play an important role in the life of Liverpool and surrounding towns

still have a powerful legacy. It is to be applauded also that all three major football clubs

across the City of Liverpool promote Football in the Community Programmes which are all

growing in terms of attracting financial support and direct employees beyond the coterie

of publicity hungry players.

Direct Public Sector funded businesses (wholly owned subsidiaries or Public Private

Partnerships - Companies Limited by Guarantee). These include Community and

Regeneration Investment Vehicles, Social Enterprises and Community Interest Companies

and what I have dubbed Big Society Businesses – Public Sector Funded Charities which are

filling social services provision vacated by the public sector, local government in

particular. One may also wish to include the raft of indirectly funded business support

consultancies which are best located within the Professional Services grouping. I found 13

such businesses – primarily former-Public Sector employees who have set up as

consultants in he same space they used to occupy as direct public sector funded business

support agencies.

Education and Training and in particular businesses offering Specialist Vocational (NVQ)

Training to up-skill the working population also occur in high volumes. Training is a major

growth industry. It seems somewhat ironic to report this but I have seen examples in the

Hotel and Hospitality Industry where it is possible to establish a direct correlation

between the level of NVQ Qualifications of staff and an increase in the level of turnover of

a business and its performance in terms of increased levels of customer satisfaction. The

free school movement and the vibrancy of the independent school sector against a

backdrop of underperformance and negative public perception in more affluent areas of

Merseyside, especially he Wirral has increased the performance of some small private

schools.

What this indicates is that the private sector segment of Merseyside’s high growth life

stage businesses outside of the Property and Construction Sectors is nor only much

smaller than one might expect (586 Companies) but the balance between the remaining

identified sectors represents a very clear demarcation between a low-tech manufacturing

base, a high-tech brave new dawn which includes Digital Businesses and Advanced

Manufacturing companies utilising high-tech and precision manufacturing processes as

well as of course a Consumer Retail and Visitor Economy. The point to note is the silo

nature of the Merseyside economy and the limited interconnections between key sectors.

How Do We Help Advanced manufacturing in an Accelerator Project?

Within the high-tech silo the largest segment of businesses is the group which is

constituted of Advanced Manufacturers and Digital Businesses. Advanced Manufacturing

businesses form by far and away the largest segment accounting for almost 1 in 10 of

Merseyside’s high growth life stage businesses. It is safe to say that this is a sector which

received an awful lot of support from the NWDA. Made up principally (c. 70%) of

Manufacturers of Metal Products, Machine Tools and Precision Manufactured Metal Parts

(Widgits) as well as Manufacturers of Precision Technology and Scientific Devices and

Instruments it is a Sector which is incredibly difficult to help in terms of an industrial

intervention strategy not least because a large part of its market is export driven.

Accompanying the Manufacturing Sector is an extended supply chain of distributors &

added value re-Sellers.

There is room in an Accelerator Project to assist businesses in this sector with developing

an industrial Sales & Marketing and Business Development Strategy with one eye clearly

on overseas marketplaces but with an appreciation that the manufacturing plant for such

businesses will have to be located elsewhere/offsite.

The Digital Economy

The amount of Digital businesses at the high growth stage of development is by

comparison disappointingly small. This is a function of three mutually exclusive factors.

The first is that Digital Businesses are still lifestyle Businesses. Knowledge Workers often

choose to work in digital industries because of it is a lifestyle choice. By this I mean that

the culture and working environment are very different from more regimented office

environments. The second is that there is a natural turnover ceiling for Digital and

Creative Industries businesses. Quite simply there are very few very large Digital

Marketing Agencies in Merseyside in particular and the marketplace in general. They are

the exception rather than the rule. Digital or Online businesses tend to be agile and very

fleet of foot working out of serviced office locations utilising cloud based hosted server

technologies. The third is that they tend not to employ large amounts of people. A typical

Digital business will employ no more than 5 to 6 people at the most. Salaries will be large

because of the specialist nature of the work involved, so large in some cases that a good

Digital Consultancy can be extremely choosy about who it works with – working with a

small niche client list working on highly remunerated projects often for only part of the

year.

The City Centre Economy

Another important area of high growth life stage businesses in Merseyside is the City

Attraction Economy encompassing Consumer Retail (retail outlets with shop frontage),

the Visitor Economy (encompassing Boutique Hotels, Pubs & Pub Companies,

Entertainment Venues and more recently Golf Clubs), Food & Drink (Restaurants and

Specialist Food Stores). This encompasses 143 or 14.05% of all the Businesses identified.

Although the Mersey Partnership, which has recently morphed into the Merseyside LEP,

recognised the importance of the Visitor Economy, for the NWDA it was a sector denied

effective support., it not being understood that Consumers are the one of the primary

drivers of economic development and urban inner city regeneration. The Consumer Retail

sector in this instance covers a very wide range of outlets indeed with Clothing Stores,

Jewellers and Watch Shops, Sporting Goods Stores, DIY Outlets and Electrical Appliance

Stores being the most frequently occurring. The Portias' Model of the family friendly

pedestrian attractive high street shows that there is still life in the City Centre as a Retail

Centre. For an Accelerator Project like EV the key will be in demonstrating the unique

possibilities that a new approach to experiential shopping can bring.

Transport & Shipping

Other sectors of note include Transport – small Road Haulage Companies, Local Bus

Companies and Large Taxi Operators another Sector virtually ignored by the NWDA

despite being a fundamental inter-connecter in the local economy moving goods, services

and people between key locations along main thoroughfares and arteries. A similar albeit

much more important and more valuable sector as far as Liverpool City Council is

concerned is Shipping. The Mersey Partnership recognised the importance of the

SuperPort some time ago. Here a small number of Companies provide highly remunerative

administration, logistics, import/export and repair functions.

Energy & Environmental Technologies Services

The final Sector I wish to draw your attention to is the Energy and Environmental

Technologies Service sector. This is a very new and growing sector. If we adopted the

NWDA definition this Sector would be half its size because of the exclusion of Recycling

businesses, a growing area of the Merseyside economy because of the ability to recycle

high quality re-usable materials particularly different forms of polymers and elastamers.

Recycling, unless it involved high grade Polymers and/or the recovery of poisonous metals

such as Nickel, Lead, Cadmium and Zinc under EU regulations was not regarded as an

activity being fore-square in the EETS sector because it was not high-tech being seen as a

low-tech manually intensive form of business reliant on a largely untrained workforce

involved in environmental recovery, clean-up and waste disposal operations.

Core Activities Industries

Renewable Energy

HydroWave and TidalBiomassWindGeothermal

Energy

Power generation (conventional Oil, Gas, Coal) Nuclear Power GenerationNuclear Power DecommissioningPower generation from wasteCombined Heat PowerFuel Cells

Environmental

Air Pollution ControlEnvironmental ConsultancyEnvironmental Monitoring, Instrumentation & ControlMarine Pollution ControlNoise & Vibration Control

Energy Transmission

Distribution & storage of energy (electricity & hydrocarbons) Distribution of energy Switchgear DC/AC Conversion

Lighting Low Energy LightingLighting design & innovation

Emerging Energy & Environmental Sub Sectors

Alternative Fuel VehiclesAlternative Fuels

Production of HydrogenExtraction of Coal, Oil, Gas, Biomass Insulation & energy conservationHeat ExchangersTrade in energy resources

Land RemediationWaste ManagementWater Supply & Waste Water TreatmentRecovery & RecyclingEnergy EfficiencyTrade in recovered materials

TransformersSmart gridsSmart metering

Solar photovoltaic

Solar thermal

LEDsDisposal & recycling of lighting units

Energy Efficient Building TechnologiesAlternative Energy Sources.

Current definitions used to identify EETS Businesses are too broad and insufficiently complex and detailed in nature to identify the new specialist Environmentally Focussed Green Technology Businesses that are emerging. Some EETS Businesses are so “New” that they do not have SIC Codes to describe them. Interestingly, only Environmental Consultants were distinctly recognised in SIC 2007 as Environmental Businesses.

A large and growing number of businesses that are currently classified as operating within this sector are effectively re-inventing themselves as Environmental Businesses in order to take advantage of niche market opportunities but also to differentiate themselves from their competitors via a green product or service offering. This re-invention is not simply an attempt by companies to redefine how it sees itself and is seen by others but is also evidenced by market and product re-positioning and more significantly fundamental changes to business and manufacturing processes.

Blocked Sectors

Another key issue relates to Blocked Sectors. A key question that I posed myself in this piece of research was how many businesses has experienced a reversal in their fortunes over the last three years, as the recession has begun to bight.

In the current economic climate many gazelles are caught in the cross-hairs as the economic recession continues to find its mark wounding some, badly disabling others and bringing an unfortunate minority to their knees. Three years growth is now more likely

two years growth and one year of decline. Some gazelles are now not able to run as fast or jump as high.

Sector Count

Charitable 34

Visitor Economy 13

Construction 10

Property 6

Public Sector Funded 4

Consumer Retail 3

Care 3

Shipping 2

Digital 2

Wholesalers, Merchants, Stockists & Suppliers 2

Professional Services 2

Education & Vocational Training 2

Health & NHS 2

Transport 1

Energy & Environmental Technology Services 1

Advanced Manufacturing 1

Bio-Medical 1

Other Miscellaneous 1

Other Manufacturing 1

Total 91

A survey of the turnover figures (both Actual and Derived) from the Trading, Profit and Loss Accounts of the 1,017 high growth life stage businesses reveals that 91 experienced a reversal of 20% or more over a two year period, severely affecting their Profit Margin. 20% was selected as a benchmark figure because it represents a dip in turnover beyond simple business profitability consolidation. This represents 8.95% of the total stock of business in this key growth phase of their Life-Stage.

The sectors are starkly revealing. It should come as no surprise that the Charity Sector is under pressure. The fact that half of Charities have seen a severe reversal in their turnover will come as somewhat of a shock as both consumers, businesses and public sector bodies have reduced their contribution to charitable institutions. Nor should it be a surprise that the Visitor Economy is under pressure as a direct consequence of shrinking disposable income. Boutique Hotels, Expensive Restaurants, Pubs, Entertainment Venues and Events Management Companies have all suffered.

That Construction and Property Companies were the first to suffer from the effects of the recession, in particular businesses specialising in corporate property and the building of commercial units, is confirmation of the effect of the economic downturn on this sector.

The fact that this is impact 1 in 10 Care Home providers should however be cause for anxious thought. As is the fact that 1 in 20 high growth life stage Consumer Retail

businesses are experiencing severe reverses is bad news for the high street in Merseyside

Sector % of Sector Under Pressure

Charitable 54.84%

Visitor Economy 23.14%

Construction 13.99%

Property 5.26%

Public Sector Funded 7.14%

Consumer Retail 4.76%

Care 10.00%

Shipping 9.09%

Digital 14.29%

Wholesalers, Merchants, Stockists & Suppliers 7.41%

Professional Services 2.56%

Education & Vocational Training 6.45%

Health & NHS 3.10%

Transport 2.22%

Energy & Environmental Technology Services 3.23%

Advanced Manufacturing 1.09%

Bio-Medical 20.00%

Other Miscellaneous 1.92%

Other Manufacturing 2.56%

Total Average: 10.16%

and, of course further bad news for the corporate property industry with the threat of further reductions in occupancy on secondary and tertiary high streets.

The ultimate purpose of this paper is to identify those sectors that will potentially best benefit from a programme of accelerated “super growth” support to be provided by Project EV (Enterprise Village) – those that I have dubbed Enterprise Village Ready.

Enterprise Village Ready Businesses

The aim of the Growth Accelerator Programme is designed to increase the number of

small businesses that achieve rapid growth. It will help small businesses with potential

and overcome barriers to growth. The Growth Accelerator Programme provides high

growth potential small businesses with the know-how and ability to achieve sustainable

growth. Proven business experts work with business leaders to tackle issues such as:

Developing and delivering a tailored growth strategy

Becoming investment ready and securing finance

Commercialising innovation effectively

Developing leadership and management capability

The Growth Accelerator Programme also connects clients with trusted sources of business

advice locally. For example, UK Trade & Investment, business incubators and specialist

professional services firms, as well as investor and business networks.

Typically a Growth Accelerator or Growth Hub as physical space or location will offer a comprehensive programme designed to provide Business professionals at all levels the tools, theory, and proven best practices to take their business forward. The centre piece of a Growth Accelerator Programme is a growth plan, which begins with a comprehensive diagnostic review based on information about a business and goals. The analysis takes into account factors, including your current business model, marketing programs, key market segments, service delivery model, investment planning, product mix, and use of available technology.

For that reason we are not necessarily looking at businesses that have already entered into the “Take-Off” Phase of their business life-stage and are already some way down the track. Instead we are looking at those that have left the blocks, have pushed on past the first 10 metres of track and are just about to hit their stride. I believe that the Sprinting Metaphor is an instructive one, not least because it guides us towards looking for businesses where their business model is not as set and the Growth Acceleration advice will better shove and shape them in the right direction.

High Growth Early Life-Stage Businesses in Merseyside

Total Active Trading Businesses in Merseyside (40,476)

Turnover between £250K and £500K & At Least 3 Years A/Cs (4,678)

At Least 3 FTEs (1,622)

Primary Trading Location in Merseyside(1,177)

What we discover is that the volumes are higher but not that much higher than in our Accelerator sample. Clearly the gap that separates the one or two man consultancy or small trading establishment or manufacturing unit is marked. The added financial value

derived from a small business from the previous take-home pay of Directors can be very small. Total additionality in terms of turnover after wages have been deducted may be no more than £100,000. A large part of this will be eaten up in overheads and other business development costs. This is the reason why an Accelerator Programme can have a major impact on business performance but at the same time it is why an Accelerator Programme requires proof of performance or business concept.

For that reason a turnover figure of a minimum of £250K demonstrating both the intent and capability of the business owners was selected. It was also felt necessary to work with a maximum turnover figure 25% above the minimum set in the analysis for the Accelerator businesses segment. As we can see from the Table below the period between £350K and £400K is critical in the life-stage of a business. It demonstrates that once a Business has reached a turnover level of £400K they enter a new phase of in the life-stage of the business generating the necessary cash to recruit new staff and acquire new technology to improve the speed and volume of business performance.

Turnover Band %

£250 to 300K 30.53%

£300 to 350K 29.47%

£350 to 400K 10.53%

£400 to 450K 14.21%

£450 to 500K 15.26%

Sprinters

As we can see from the Table below the Table below what I have dubbed Sprinters have a very different look and feel from the Accelerators I identified earlier in this paper. Small Construction and Consumer Retail businesses occur in twice the proportion and are four times more common than when we were looking at bigger Accelerator businesses. What this tells us is that the Merseyside Economy is built to a very large degree on Construction and Retail. We can, at least, take confidence that Merseyside is still very much a Region of Builders and Shop Keepers. The question is: how does an Accelerator Programme help a Construction and Retail business grow? The problem for me is an extremely pertinent one. The bulk of Business Mentors and Advisors come from the Professional Services Community. Shaking hands with people who get their hands dirty all day or charm customers to part with hard earned disposable income they can’t really afford to spend is very different from introducing technically skilled knowledge workers into networks of digital economy businesses requiring highly specialised services.

The Glass Ceiling Effect

What is also clear is that the trends that were prominent for Businesses at the Acceleration stage are much more highly visible in the Sprinting stage. The “glass” ceilings

that they naturally seem to encounter: outgrowing premises, cash-flow issues, lack of adequate capitalization, production and work volume capacity result in them reaching a ceiling in turnover which they are unable to break through without a commitment to growing the business backed by hard cash.

Sector Count %

Construction 233 13.11%

Consumer Retail 231 13.00%

Other Miscellaneous 188 10.58%

Visitor Economy 158 8.89%

Professional Services 154 8.67%

Digital 121 6.81%

Property 112 6.30%

Wholesalers, Merchants, Stockists & Suppliers 112 6.30%

Advanced Manufacturing 95 5.35%

Automotive 80 4.50%

Other Manufacturing 79 4.45%

Health & NHS 65 3.66%

Transport 50 2.81%

Education & Vocational Training 23 1.29%

Agriculture, Horticulture & Animal Rearing 22 1.24%

Food & Drink 20 1.13%

Energy & Environmental Technology Services 17 0.96%

Shipping 10 0.56%

Care 3 0.17%

Distributors & Added Value Re-Sellers 3 0.17%

Bio Medical 1 0.06%

Charitable 0 0.00%

Public Sector Funded 0 0.00%

Total 1777 100.00%

The trend is familiar across a number of Sectors. I focussed previously on Digital businesses within the marketing and design space. The Table below is highly instructive.

Turnover Count %

Unclassified 122 5.31%

£1 to <90k 1497 65.20%

£90k to <400k 530 23.08%

£400k to <1m 108 4.70%

£1m to <2.5m 27 1.18%

£2.5m to <5m 8 0.35%

£5m to <10m 1 0.04%

£10m to <40m 2 0.09%

£40m+ 1 0.04%

Total 2296 100.00%

Digital Sprinters

What it shows is that Digital businesses at this stage of development are still very much of

a life-style choice. Only 6.40% of Digital Marketing and On-line businesses in Merseyside generate a turnover in excess of £400K p.a. The conclusion that one must draw from this is that the Digital Marketing will generate a large number of jobs but they will be dispersed across a very large number of companies the majority of which employ only a very small number of people but which provide good lifestyles for the well paid individuals that work in this highly skilled industry. The barriers to entry are low but as a consequence of the attractive nature of the industry it is very competitive. More importantly, it is very difficult to achieve significant traction designing policies to encourage the Growth of Digital Creative Industries because of the dispersed nature of employment in the industry. I cheekily suggested in a presentation to the North West Creative & Media Industries AGM, entitled, “Revealing the North West’s Creative & Media Industries – the hidden sector: A Methodological Approach”, that Creative & Media industries were the North West’s hidden sector. The web might be becoming all pervasive through the impact of on-line retail and e-commerce but no-one knows how many people are really employed in working within the Digital space. There are hundreds of Job Titles which contain the term Digital but the phrase covers a multitude of sins.

I have taken as an example the role of Digital Strategist. A lot of people call themselves a

Digital Strategist, but what is a Digital Strategist? And what do they do in their day to day

role?

Using LinkedIn’s Advance People Search Function I took a sample of 50 individuals who

self-describe themselves or their Marketing Role as that of a Digital Strategist. The

following is a breakdown of their Job Titles:

Digital Strategist: 11 + Senior Digital Strategist: 1 + Digital Strategy Director: 1 +

Social & Digital Strategist: 1

Digital Marketing: 3

Digital Consultant: 2

Digital Marketing Consultant: 2

ERecruitment: 2

Media Planner: 2 + Media Planner/Digital Strategist: 1

Brand/Digital Strategist: 1

Client Services Director: 1

Creative & Digital Strategist: 1

Digital Account Director: 1

Digital Account Manager: 1

Digital Director: 1

Digital Marketing Manager: 1

Digital Marketing Strategist: 1

Digital Process Analyst: 1

Digital Social Media Expert: 1

Digital Leader: 1

E-Commerce: 1

Global Head of On-line: 1

Innovation Director: 1

Interactive Advertising: 1

Interactive Communications Manager: 1

Lead Creative Strategist: 1

Mobile Marketing: 1

On-line Editor/Digital Manager: 1

On-line Marketing Strategist: 1

Search Consultant: 1

Social Media Analyst: 1

Social Media Consultant: 1

Social Media Strategist: 1

According to Wikipedia, “digital strategy is the process of specifying an organization's vision, goals, opportunities and initiatives in order to maximize the business benefits of digital initiatives to the organization. These can range from an enterprise focus, which considers the broader opportunities and risks that digital potentially creates (e.g., changes in the publishing industry) and often includes customer intelligence, collaboration, new product/market exploration, sales and service optimization, enterprise technology

architectures and processes, innovation and governance; to more marketing and customer-focused efforts such as web sites, mobile, eCommerce, social, site and search engine optimization, and advertising.” Digital media consists of things like digital text, digital images, digital audio, digital video and other digital content that can be created, referred to and distributed using computers and over the internet. A strategist is a person who is skilled in designing and planning the necessary actions to achieve a major or overall aim. So, a digital media strategist is someone who is skilled in designing and planning the necessary actions to create, refer to and distribute digital content over the internet. This position is based on a unique set of technological knowledge. A digital strategy manager collaborates with all marketing, business development, and organizational management teams. This position focuses specifically on a business’s digital brand by leading, building and maintaining their presence in the digital world. They are accountable for driving the prioritization of the technology infrastructure for digital advertising continuity across all multi-media platforms. They manage all related IT departments and functions as a conduit between digital presence and all advertising and/or marketing activities, strategizing their specific marketing needs incorporating the digital technology structure. But what do they actually do? A detailed analysis of the skill-sets of self-defined Digital Strategists reveals a far more complex picture. Digital Strategy is a spectrum of activity which brings into play the full range of digital assets and communications tools of a business, not all of which will be web-based, from web site building and maintenance via PPC/SEO and Google Analytics at one extreme to more sophisticated forms of Social Media Interaction, Online Communities and Viral Communication at the other. The results are particularly revealing in terms of the top skills frequencies of Digital Strategists. When placed in aggregated categories it is possible to ascertain the emerging shape of the Digital Strategy Arena: Social Media

Social Media/Facebook/Social Media Optimization: 24

Social Media Marketing: 12

Buzz Monitoring/Social Media Tracking/Reporting/Social Media Audit/Social Trending: 7

On line Community/Social Network/Social Media Network Management/Social Networks: 6

Blogging/Word Press: 6

Affiliate Marketing: 3

Loyalty Marketing: 1

Total: 59

Traditional Web Marketing

SEO: 10

On-line Advertising: 9

PPC: 9

Web Analytics/Web Tracking: 9

Email Marketing: 7

Graphic Design: 4

Web Copy: 4

Online Media Planning: 2

Web Marketing: 1

Total: 55 Web 2.0 Optimized Web Marketing

Content/Content Management/CMS: 15

On-line P.R/Reputation Management.: 12

SEM (Search Engine Monetization)/Micropayments/mCommerce/mPayments/mobile payments: 10

Web Design: 8

User Experience/Web Usability: 7

Web-Site Build/On-line Management/HTML Error Checking: 7

Viral Video/Video: 7

Information Architecture/Design/Web Platform: 6

Interactivity/Interactive On-line Games: 4

Brand Activation: 2

Web-Site Management: 2

Web 2.0: 2

Extranets: 1

Interactive TV: 1

Intranets: 1

Micro-Sites: 1

On-line Publishing: 1

Photography/Images for Web: 1

Web-Link Building: 1

Total: 89 Digital Technologies

Mobile Marketing: 11

eCommerce: 8

eCRM/Web Lead Capture: 7

CRM/Database Management: 4

Emerging Technologies Application/Innovation: 2

Digital Marketing Research: 1

Total: 33 Clearly, what stands out from this is that Digital Strategy is based on the evolution out of established forms of web-site and web marketing. The main areas for development are the exploitable possibilities of Web 2.0 and optimized Web Marketing and Cross-Over Media. There are also a whole series of Digital Technologists who have established second and alternative career paths in digital marketing. These are important individuals who can bring valuable technical know-how to businesses who wish to exploit the potentiality of cross-over media digital platforms. The most current area and the space which everyone seems to be ploughing effort into at a rate of knots is Social Media.

The Key Question that this poses is: Is there a misnomer and a misunderstanding about what a Digital Strategist actually is?

The digression is an extremely circuitous one but what it starkly reveals is that the number of Digital Strategists able to offer the range of services necessary to deliver optimized Web Marketing to big multinationals and PLCs is extremely small indeed. These individuals reside in big well known Marketing Agencies who have huge resources at their disposal. These people seek roles in big agencies because who they are and their employment history in working with and for big business. In the Digital Marketing space you do not get the opportunity to work with big companies unless you have worked with big companies and that only tends to happen if you work for a big agency. Digital Technicians meanwhile are finding well paid sinecures in the same Agencies because of the highly technical skill sets: why would they want to set up by themselves unless they had an extremely niche offering, which generally only happens if they have had the opportunity to work for a big agency previously.

The same turnover ceiling effect visible in the Digital Marketing Agency space can also be seen amongst small firms of Undertakers and Funeral Directors. This may seem a highly unusual thing to say, however on deeper consideration it made perfect sense. The Turnover Ceiling of such firms appears to be c.£500

Removal Firms

It is also true of Removal Firms. A small Removal Firm with 2 Removal Vans, a Couple of Drivers and Removal Staff will be limited physically, both in logistical terms and physically by the number of removals it can carry out during any one week. That does not include the costs of running a Road Haulage business including escalating fuel costs and maintaining high levels of insurance cover for both vehicles and personal effects. That level of turnover ceiling is close to £500K. The benefits of volume pricing to meet key

overhead costs will be unavailable to a business that is restricted in terms of growth by unavailability of working capital, which in turn is a risk to the owners of the business. The owners are currently spending so much of their time helping to run the business they do not have either the time currently or inclination to transform themselves from a Worker Owner to a Full Time Manager running a larger fleet of Removal Vans with larger numbers of Employees on the Pay Roll.

Funeral Directors

The same is true of small firms of Undertakers or Funeral Directors. There are heavy fixed costs in running a Funeral Parlour or Home/Morticians/Chapel of Rest and in maintaining a high-end fleet of funeral cars. Given that funerals take place during restricted hours of the day and that the funeral service generally takes place locally there is a restriction on the number of funerals that can be serviced per week, probably no more than 3 a day or 7 to 10 per week which will be a mixture of budget and more specialist funeral services with all the frills and add-ons that this encompasses. My language here is probably deeply inappropriate for the solemn nature of the service offered but again the turnover ceiling is in the region of £500K.

The conclusion that I have drawn from all of this is that you have to be established to have a Growth Plan that will stand up to due diligence inspection.

Sprinters Worth Following

Other sub-sectors in this group of Sprinters that are particularly worthy of note are Visitor Economy Businesses and Wholesalers which are much more numerous amongst the Sprinters Group than they are amongst the Accelerators. A whole series of Businesses have sprung up: Pubs, Hotels & Inns, Guest Houses, Function Rooms & banqueting Suites, High-End Bed & Breakfast Establishments, Bars & Wine Bars, Health Spas & Resorts which are dependent for their success on the continued vibrancy of Merseyside to attract Visitors. If Advanced Manufacturing is the skilled future spinal chord of the Merseyside economy then the Visitor Economy and the supply chain network that has grown up to supply this is the unskilled fibre and muscle of the Economy which should not be forgotten. The challenge of any Accelerator Project is how to service the needs of such a group of Businesses in terms of plugging them into key visitor attractions and large stage managed events.

What is apparent is that there are a very large number of small scale Specialist Niche Manufacturers and a veritable army of Consultants and Business Advisers that exist within this tier of Sprinter Businesses. The future for many of these will undoubtedly be growth beyond servicing local supply chains and contacts via winning new contracts with larger prime businesses in the supply chain or merger and consolidation with other businesses operating in the same space. An Accelerator Hub clearly has a role to play here.

Property Firms and Advanced Manufacturing Businesses occur just as frequently in the Sprinters group as they do in the Accelerator Group – their problems are largely related to scalability and their position within the supply chain. This is particularly true for those Advanced Manufacturing businesses that are spin-outs and/or the product of Knowledge Transfer Projects with universities currently sitting in Incubator Units or on Science Parks. Here the ultimate value will lie in IP and the value of their product offering to larger businesses within the supply chain.

One thing is noticeable and there much fewer Public Sector Funded and oriented businesses within this Sprinters Group. Small Training and especially Vocational Training Providers proliferate as do small Scale Health Providers and small Independent Pharmacies. There are, however far fewer Care Homes within this echelon, largely because of the budgets required for the running of Care Homes. Also to be noted is the fact that a number of small scale Recycling and Waste Disposal Companies and Environmental Consultancies sit within this Group. Another challenge is the sizeable volume of Second hand Car Sales Forecourts, Garages and Vehicle Repair Shops that sit within this Group. The question to be asked is would an Accelerator Programme be able to benefit businesses of this nature? And, would it want to benefit them?

Sprinter Locations

The location of Sprinter Businesses is equally fascinating.

What is really noticeable is the position of Liverpool as a Local Authority is far less dominant with a much higher percentage being located in Sefton and the Wirral.

Town Count

LIVERPOOL 790

SOUTHPORT 229

WIRRAL 222

ST. HELENS 158

BIRKENHEAD 92

WALLASEY 74

PRESCOT 55

PRENTON 43

BOOTLE 39

NEWTON-LE-WILLOWS 35

Although the vast majority of the Businesses are still located within the city boundaries of the City of Liverpool, the Sprinting phase of high growth is by no means a city centre phenomenon. Growth Acceleration therefore has a duty to consider the merits of relocating a Sprinting business to a City Centre location and the benefits that this will bring and of course whether there will be a displacement effect in the local economy as a consequence.

The Age Profile of Sprinters

Perhaps more interesting still is the Age Profile of Businesses at the Sprinting Stage of their Development Cycle.

Companies Count %

1mth - 11mths 47 2.67%

1yr - 1yr 11mths 120 6.82%

2yrs - 2yrs 11mths 93 5.29%

3yrs - 4yrs 11mths 177 10.06%

5yrs - 6yrs 11mths 132 7.50%

7yrs - 9yrs 11mths 194 11.03%

10yrs - 13yrs 11mths 126 7.16%

14yrs - 19yrs 11mths 113 6.42%

20yrs - 30yrs 11mths 136 7.73%

31yrs + 110 6.25%

Unknown 511 29.05%

Total 1759 100.00%

What we discover is that c. 50% (including Unknowns – those in the very early formative stages of development) are less than 5 Years old. There is thus a partial correlation between Business Life-Stage Development and Chronological Age. It does not always hold true however. 38.60% of Businesses within this Group have been in existence for 7 Years or more. 27.57% are more than 10 Years Old. Clearly, the impact of the phenomenon of growth ceilings requires further investigation. As I found in My Presentation on “Entrepreneur Mapping”, there are a large number of potential high growth businesses that have been in existence for some time. The mark of an entrepreneur therefore is persistence. Success does not necessarily come immediately. It is why Business Plans are likely to have more potential if they come from those who have reached a natural glass ceiling in turnover and have been butting their heads against it for quite some considerable time.

Perhaps the most fascinating is the profile of the Directors who run Sprinting businesses.The gender split reveals far more Female Directors and business owners than one would expect.

Gender Count %

Female 546 29.01%

Male 1,336 70.99%

Total 1,882 100.00%

Merseyside therefore has a large number of Female Entrepreneurs. Exploiting the potential of Female Entrepreneurship in order to grow the Merseyside Economy is a subject that requires further investigation.

More exciting still is the Age of the Directors. We can see from the Table below that just under 15% of Directors of Sprinter businesses in Merseyside are aged under 40 Years of Age. More work needs to be done on this aspect of the analysis, not least because we need to establish why it is that such a small percentage of individuals aged under 40 set up and become Directors of their own businesses in Merseyside. Of course some of this may have to do with the absence of information on the Directors concerned and there may be a sizeable volume of young adults who have set up and running their own business in Merseyside. An interesting observation however is suggestive that Entrepreneurialism is a phenomenon which is much more strongly correlated with Age and Experience.

Range Male % Female % Total %

Unknown 602 45.06% 259 47.35% 861 45.72%

<20 2 0.15% 0 0.00% 2 0.11%

>20 to 25 18 1.35% 1 0.18% 19 1.01%

>25 to 30 26 1.95% 13 2.38% 39 2.07%

>30 to 35 77 5.76% 22 4.02% 99 5.26%

>35 to 40 75 5.61% 44 8.04% 119 6.32%

>40 to 45 114 8.53% 38 6.95% 152 8.07%

>45 to 50 107 8.01% 45 8.23% 152 8.07%

>50 to 55 114 8.53% 43 7.86% 157 8.34%

>55 to 60 81 6.06% 35 6.40% 116 6.16%

>60 to 65 55 4.12% 21 3.84% 76 4.04%

>65 to 70 34 2.54% 14 2.56% 48 2.55%

>70 to 75 13 0.97% 3 0.55% 16 0.85%

>75 to 80 12 0.90% 4 0.73% 16 0.85%

>80 to 85 5 0.37% 3 0.55% 8 0.42%

>85 to 90 1 0.07% 1 0.18% 2 0.11%

<90 to 95 0 0.00% 1 0.18% 1 0.05%

Total 1336 100.00% 547 100.00% 1883 100.00%

Conclusion Primitive Data categorisation has led to a misinformed view of Sub-Regional economies in

the North West. The solution is Data-Driven Evidenced-Based Policy-Making based on the

use of high quality validated data . Unfortunately poor data mapping techniques have led to

poor economic policy making in general which has led to a distorted view of the Merseyside

economy in particular.

Gazelle theory meanwhile has led to an over-statement of the importance of high-tech

business to the exclusion of high-growth businesses in other areas of the economy located in

less favoured administrative geographies. This has resulted in the possibilities relating to

low-tech but still high-performing sectors of the Merseyside economy being either ignored

or inadequately supported through policy. This is because the sectors concerned were

poorly understood.

The central deficiency of policy making relates to a lack of precision in defining industry

sectors and thus an inability to measure the impact of policy in sufficient depth or detail. A

number of key findings in relation to New Emerging Sectors like Digital & Creative Industries

and Energy and Environmental Technology Services were revealed on Merseyside utilising

an approach based on the use of Overlapping Business Classification Systems and Definitions

Methodologies as part of the Business Performance Index Business Intelligence Data

Warehouse Systems developed at Business Link North West, which have subsequently been

built on and further developed here focussing on an approach based on Business Activity

Descriptors.

This Paper explores the notion that only a small percentage of businesses become fully

fledged SMEs able to grow their turnover beyond £400K and their headcount beyond 4 Full

Time Employees. The principle reason for this is hat there is a natural ceiling to growth as a

consequence of reaching a glass ceiling caused by the operational and infrastructure limits

of the business being reached and lack of available capital resources or a risk aversion to

take advantage of critical events as they present themselves to business owners. These

limits to growth can be overcome by participation in an Accelerator Programme.

The Paper makes a distinction between Accelerator businesses which have leaped beyond

the critical £400K turnover threshold and are beginning to accelerate down the business

development track and Sprinters which have only gone down the first few yards of track and

may have been there for some time.

The Paper makes a further claim that a quarter of the stock of Accelerator Businesses in

Merseyside are the beneficiaries of huge amounts of Public Sector Support and Funding.

The Paper makes the further claim that a sizeable percentage of Merseyside’s high growth

businesses are the ultimate beneficiaries of Regeneration and Economic Development

initiatives in the Construction and Property Development sectors which has a knock-on

effect benefitting the Professional Services community in turn.

The Paper goes on to argue that we should not underestimate the strength of the Advanced

manufacturing and Consumer Retail Sectors, a high percentage of which are located outside

of high-tech locations in Central Liverpool in some of the older industrial manufacturing

areas and more economically deprived parts of Merseyside.

The Paper examines why the Digital and Creative Industries Sector in Merseyside is not

larger than it is in comparison to other Sub-Regions of the North West and offers some

reasons for why this might be the case.

The Paper also assesses the concept of Blocked Sectors identifying those businesses at a

particular stage in their development life-stage and offers an explanation as to why this

might be the case and the impact that this might be having.

Finally the Paper focuses on Enterprise Village Ready businesses examining closely the

make-up of the Sprinters, business with a turnover between £250 and £500K and 3 Full Time

Employees.

It identifies the importance of small scale high-tech niche Manufacturing and City Centre

businesses to this group examining through 3 Case Studies of a Digital Marketing Agency, a

Removal Firm and a Funeral Directors some of the issues relating to growth ceilings and

whether they can be overcome.

Finally, some thoughts are offered relating to the location and geographic location of

Sprinter businesses and the Gender and Age of the Directors of those businesses suggesting

some avenues for further research.

Acknowledgements

I am extremely grateful to Shazan Qureshi, Director of Success at The Rejuvenate Group who funded this Research Project and who saw value in it when others didn’t.

Orange Peel Consulting Limited who provided me with access to Data, a steady supply of Cups of Tea, a sympathetic ear, supportive advice and chocolate buttons.

High Growth Businesses Its A Life Stage Problem Not A Journey To Shangri La

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