Tuesday 20 October 2015 8:38 pm

Super-SMEs created three times more jobs than the FTSE 100 last year – but they can do better still

Not all businesses in the UK provide the same bang for their buck, and one group in particular punches well above its weight. We call them high-growth small businesses (HGSBs). According to the latest Octopus High Growth Small Business Report, released last night, there are only 22,470 of them across the country – with 6,500 in London alone. But last year, one in every three new jobs in the UK and almost 20 per cent of economic growth was created by HGSBs. One in 25 workers in London are employed by them, yet these businesses represent less than 1 per cent of UK businesses and less than 3 per cent of the total economy.
Our definition of a HGSB is a company with an annual turnover between £1m and £20m, which achieves more than 20 per cent average annual growth in turnover over a three-year period. We have identified the economic value of these extraordinary businesses in our report, finding a clear link between the number of HGSBs and economic growth.
Firms featured in last year’s report now employ one in every 40 workers in the UK, providing 768,000 people with jobs and generating £118bn in turnover during the past year. And although HGSBs make up less than 1 per cent of British businesses, size isn’t everything. Last year they generated 4,500 new jobs every week – three times the number of jobs created by the entire FTSE 100.
But what more can be done to support them? Included in the report is a survey of 500 HGSBs from across the UK, conducted for us by ICM Unlimited. The findings show that, while access to finance continues to hold back HGSBs, there is plenty of room for improvement: four out of five businesses surveyed weren’t making use of government backed funds such as the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCTs). 
This only serves to highlight what the government and the finance industry already knew – that, collectively, there’s more to be done to ensure business owners and entrepreneurs know about and understand alternative sources of funding. Among other recommendations in the report, we suggest targeting Tier 1 Investor visa investments on small businesses and reducing their tax burdens as they are looking to grow. 
We also highlight the potential of HGSBs as a force for regional revival. Looking at the spread of HGSBs across the UK, about three of every five is located outside London and the South East. We make the case for having 25 per cent more of them across every region of the UK in the next five years. These companies could play a huge role in driving regional growth, addressing the North-South divide and rebalancing the economy. The Local Enterprise Partnership (LEP) network is central to our recommendations for regional transformation, through the development of a dedicated “one-stop shop” service for HGSBs in each region, and a requirement that they have strong business representation at the board level.
Finding skills and talent is the most pressing issue according to HGSBs: 64 per cent of respondents agreed that a skilled workforce was a driver of growth for their business. We obviously need to ensure our schools, colleges and universities develop the right skills and talents in the next generation, but in the short term the visa system should respond to the growing demand for talent. 
Beyond this, it should be easier for venture capital firms to act as sponsors for the migrant talent their investee companies need. This would work by creating a talented migrant worker bond, for example, as well as new visas targeting the recruitment of graduates with specific degrees and skills.
It’s time we got behind our HGSBs – especially when you consider that increasing their presence by 25 per cent in every region in the next five years would create £22.5bn in additional turnover and 170,000 new jobs across the country. They’re thriving already, but with the right framework they can become a force for regional revival, rebalancing our national economy, and bringing new prosperity and optimism to every part of the UK.

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