While world is focused on start-ups, supporting scale-ups would create a bigger economic impact

by Nitin Dahad

Over the years, governments have looked to emulate the success of Silicon Valley in California, USA, in their own countries, and in that process, many places around the world have encouraged and now have thriving start-up and entrepreneur ecosystems.  The importance of entrepreneurship became even more significant after the industry downturns of 2000 and 2008 – and particularly in recent times of austerity when governments have been looking to the private sector to stimulate economic growth and to create more jobs.

The growth of entrepreneurship is evident from the release of the 2015 Global Entrepreneurship Index (GEI) this week to coincide with Global Entrepreneurship Week. It shows that entrepreneurship is on the rise around the world but that there is much room for growth. The GEI, measuring the entrepreneurial ecosystems in 130 countries—from Albania to Zambia—measures global entrepreneurial capacity at 52 percent. “There is a rapidly growing demand from start-up communities and policymakers alike to help new firms start and scale,” said Jonathan Ortmans, president of the Global Entrepreneurship Network. “This index identifies each country’s unique challenges and serves as a compass for prescribing the most effective interventions.”

GEDI map

The 254-page report provides a detailed look at the entrepreneurial ecosystem of nations by combining individual data such as opportunity recognition and risk perception with institutional components like the depth of capital markets, globalization and spending on research and development. The United States tops the list of countries, followed by Canada, Australia, United Kingdom, Sweden, Denmark, Iceland, Taiwan, Switzerland and Singapore.

Start-up is great, but scaling up makes more impact

The real ambition when governments started looking at creating their own Silicon Valley like ecosystems was to create another Google or Apple in their own countries – I recall being at the launch of the Tech City marketing campaign in November 2010 in London, UK, when the British Prime Minister had talked of the UK’s desire to create the next Facebook.

So more than starting up a business, the ability to scale up is where the real value lies. A new report issued this week in the UK takes this exact debate to the next level. Start-ups may be the fashion right now, but how many are actually succeeding? The report, entitled ‘The Scale-up Report on UK Economic Growth’, highlights a strategy to secure greater economic growth by supporting businesses in the UK in their ambition to scale-up more quickly – with better targeting of support to those companies that are already growing fast, since they are the ones that are more likely to be the next Google.

Published by serial entrepreneur and investor, Sherry Coutu, the new report suggests that we should be focusing more on scale-ups rather than just start-ups. It argues that closing this “scale-up gap” is the single most effective thing that leaders in government, business and academia can do to drive economic growth. It also provides 30 simple case studies for leaders of local communities to drive the growth and prosperity of their communities.

This report explains how a boost of just one per cent to the scale-up population should drive an additional 238,000 jobs and £38 billion to gVA (gross value add) within three years. In the medium-term, assuming issues like the skills-gap are addressed, the UK stands to benefit by UK£96 billion per annum; and in the long-run if scale-up gap is closed, then the country stands to gain 150,000 net jobs and £225 billion additional gVA by 2034.  The report sets out a clear plan of action to close the scale-up gap, focusing on using data already collected by government to provide a platform that enables both public and private sector organizations to work together to improve the community of which they are a part.

Closing this scale-up gap could bring a significant benefit to the UK in terms of jobs and wealth creation. Sherry Coutu comments, “Britain’s start-up community is flying. The next stage of creating wealth, prosperity and jobs will come from focusing on scale-ups. We have the chance to identify and support the companies that are already creating new jobs and help them further drive the UK economy.”

She adds, “People often ask if the UK could be home to the next global success story, like a Google or Facebook. The answer is yes, and there are plenty of great initiatives already showing we can do it. But we need to be more effective at identifying the companies that have the greatest potential, and making sure they can find the most talented people and serve more customers, in more countries, more easily. Focusing on closing the ‘scale-up gap’ to the US and other countries is the next natural step that will help Britain create a string of world leaders.”

The report’s findings are based on an analysis of 50 scale-up programmes piloted in 20 different countries. The research also involved interviews with the CEOs of more than 200 scale-ups in the UK. The report identifies five important issues hindering scale-up leaders:

  1. Talent shortages
  2. Leadership capacity building
  3. Accessing customers in home markets and overseas
  4. Accessing the right combination of finance
  5. Navigating real-estate moves more easily

All these issues are easily addressed using simple, proven techniques that are already being deployed in many places. The report makes 12 recommendations for action. Some are directed to central government, which holds the data, and some are directed towards local government and community stakeholders, who will directly benefit from supporting their local champions.

Coutu says that getting an ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs. She says that abundant evidence from countries around the world shows that collaborative initiatives can ‘super-charge’ an economy to increase the ability of companies to scale-up and to make superior contributions to the economy.

As we have seen, everyone now talks about start-ups – they are being created in huge numbers. The latest Global Entrepreneurship Index also proves that the world is now adept at producing start-ups and encouraging start-up ecosystems. However, as the comprehensive report from the Sherry Coutu has illustrated, if the goal is to produce large successful companies like Google, Apple and Facebook, then the debate needs to shift its focus to more support for those with the potential to scale-up.

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