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

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The First Policy Paper from Peel Policy Forum http://www.peelpolicyforum.co.uk/policy-papers/

The First Policy Paper from Peel Policy Forum http://www.peelpolicyforum.co.uk/policy-papers/

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

  • Rejuvenate Your Business ProjectEV The Peel Policy ForumSuite 416, 275 Deansgate 83 Ducie StreetManchester WebSite: www.projectev.co.uk ManchesterM3 4EL M1 2JQTelephone: 0303 444 0230 Twitter: @project_ev Telephone: 0780 303 6516Email: shazan@teamrejuvenate.co.uk Email: Administrator@peelpolicyforum.co.uk 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 Page 1
  • SummaryWithin Public Sector Business Sector Support Networks there has been an obsession withhunting 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 thantheir peers) that creates many job opportunities. The problem is that they have provedextremely difficult to track as they develop and expand from young, juvenile, start-up orspin-out firms into adolescent businesses expanding their turnover and headcount as theyventure further into the market jungle. Gazelle hunters argue that if they could only trackthem from their lair then they would bring home more business trophies to hang on the wallof the stock market boardroom.Like the overextended metaphor above what started off as a potentially highly profitableacademic exercise has become a search for a veritable economic Shangri-La with highgrowth companies located over the Zig of the next economic summit or beyond the Zag ofthe next economic valley. Economic panic resulting from seemingly intractable economicdilemmas has promoted a lazy academic approach based on highly caveated methodologicalapproaches which ignore; First, during a recession the process of growth is notunidirectional. In the current economic climate many gazelles are caught in the cross-hairs asthe economic recession continues to find its mark wounding some, badly disabling othersand bringing an unfortunate minority to their knees. Three years growth is now more likelytwo years growth and one year of decline. Some gazelles are now not able to run as fast orjump 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 andadditionally deflated turnover (turnover adjusted for inflation) over a three year period doesnot mean that they are not high growth companies. In the present economic circumstancesan 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 inevitablyface greater barriers to growth than those in other sectors. There will always be businessesthat buck the trend but they are the exception to the rule and generally the consequence ofthe impact of the wider process of creative destruction with lost and displaced business lostelsewhere being won by businesses adopting fundamentally different business models orbeing 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 itreaches a particular level of turnover and number of full time employees. Page 2
  • Fourth, there is a natural ceiling of turnover for businesses of a particular size as measuredby employee numbers and business infrastructure capacity. Businesses can be highperformance and be considered to have maximised their growth potential, plateaued outand be ready for the next phase of development in their development life-stage althoughmeeting the ability to take advantage of the next major business opportunity may requireexternally supported growth in the form of venture capital or equity investment by abusiness angel.This paper will examine the notion that high growth is a function of the life-stage of thedevelopment of a business. It will do this in relation to Merseyside. It seeks to fulfil twoclosely inter-related objectives. The first, is to critically re-examine public sector thinking onhigh growth companies principally to test whether the North West Development Agencygrowth sector based model was a valid one in terms of a one-size fits all approach forMerseyside in general and Liverpool in particular and whether it is possible to identify anyserious 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 methodologicalassumptions about high growth companies that underpinned business economy dataresearch projects I carried out for Business Link North West, then a wholly-ownedsubsidiary of the NWDA, between 2008-2011.The second, is to identify those sectors that will potentially best benefit from a programmeof 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 theconsultancy, Rejuvenate Your Business and supported by advice from partners from thelegal, accountancy, financial and marketing communications sectors to the value of £250,000over a three year period. Located in fully serviced office facilities in the Albert Dock 15selected companies will be situated in a co-working collaborative physical space and workingenvironment where an extensive network of 100 mentors will provide support training andcoaching.Ged MirfinBusiness EconomistPeel Policy ForumPeel Policy Forum Email Address: Ged@peelpolicyforum.co.ukPersonal Email Address: ged@mirfin5064.freeserve.co.uk Page 3
  • IntroductionIn November 2009 I delivered a Paper with colleagues from Business Link North West atthe International Enterprise Promotion Conference in Harrogate on “Data DrivenEvidence-Based Decision-Making”. The paper was an attempt to show that high qualitybusiness data could be used intelligently to identify and deliver business support both tobusinesses that were struggling as a direct consequence of the economic downturn as wellas more importantly the kind of high growth companies that were generating the level ofturnover growth necessary to drive an increase in the level of employment or rather areduction in the level of unemployment.The belief was that public sector agencies could stimulate growth ensuring that highgrowth companies fulfilled their maximum potential. On that basis public sector agencieslike the NWDA drew on gazelle theory. High growth companies, it was argued in a reportpublished by NESTA entitled, “Measuring Business Growth: High-Growth Firms and TheirContribution to employment in the UK” would increase Turnover by between 25% and30% in the next 4 years. The clincher was that some economists believed that 50% of newjobs will be from less than 1% of a region’s company base. Although employee growth, itwas 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 wasadopted, as I engaged in a focus group dialogue with Business Link’s outbound advisorteam. The kind of characteristics high growth Businesses exhibited were some of thefollowing: 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 Page 4
  • Newer businesses do not have SIC CodesThe Failure of SIC CodesEasier said than done then! Utilising SIC (Standard Industry Classification) Codes it wouldhave been virtually impossible. SIC Codes were felt both to be too unsophisticated totarget growth sectors like Digital & Creative or Energy and Environmental TechnologiesServices with sufficient precision. SIC Codes, are used as part of the statutory returns filedat Companies House, often by the company accountant or business registration agent. Theproblem is significantly exacerbated, with regard to some of the big catch-all SIC Codeswhich begin, “Other,” and end in “Not Elsewhere Classified”. Such imprecise SIC Codescover a multitude of sins and, of course, business activities.More problematically the “Business Activity” of a Company changes over time. Oftentherefore SIC Codes quickly come to bear little relationship to what the company does orthe 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 totarget sectors. In the NWDAs case there were six, what were dubbed RES (RegionalEconomic Strategy) Sectors: Advanced Engineering Bio-Medical Business & Professional Services Digital & Creative Industries Energy & Environmental Technologies Services Food & DrinkA seventh catch-all other category was introduced to capture all miscellaneous companiesoutside of retail and wholesale, which were exhibiting growth characteristics. Such anunsophisticated approach was at best unrefined and primitive. At worst it wassymptomatic of the worst kind of forced artificial categorisation. The result was a crudeand naïve overview of the Merseyside economy which ignored many of its subtlecomplexities 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 unableto achieve significant traction. It is not that the business economy data available to them Page 5
  • is scarce (read unavailable), it is that the reports that were placed amongst huge volumesof other paperwork in the skips during the clearing of NWDA Offices in Warringtonbecause the Regional Spatial Strategy was based on a one size fits all strategy aren’tespecially useful to the economic development approach that is currently being pursuedin the sub-regions.Data-Driven Evidence-Based Policy makingA very arrogant form of data analysis was pursued in which decision-makers trusted totheir 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 proveconclusively otherwise or show policymakers they are wrong. The result has been badlyformulated and more poorly applied policy. This works fine in a benign economicenvironment. In a harsher climate when assumptions are being fundamentally challengedit is much more difficult to defend the indefensible and to find a solution when you aresometimes forced to justify not only your very existence but the funding rationale. Thereis thus a need for hard evidence: high quality validated quantitative data. Development ofquantifiable measures & indices to assess policy performance and draw comparisonsacross similar circumstances, geographical boundaries or peer groups through datasegmentation and benchmarking means that “best practice” can be identified & widened. Experience-influenced Evidence-based Experience Aim: Change from Anecdotal & Judgmental to Evidence-based Decision making Opinion-based Evidence-influenced Evidence / Information Page 6
  • I like to think that the “Data-Driven Evidence-Based Decision-Making” approach based onthe Business Performance Index piloted at Business Link North West in which data wasused to better understand what was actually going on in the business economy ratherthan what was assumed to be going on promulgated a culture shift in favour an approachbased on the use of high quality validated quantitative data. Data Driven Evidence-Based: Making an Impact Decision Making Based on Intuition, Judgemental Opinion or Data Driven Evidence-based Decision Making Tradition Joined-Up programmes based on highly focussed Disjointed programmes and policy initiatives targeted strategies to address identified need based on documented evidence Budgetary decisions based on prior practice and historic Budget allocations to programmes based on data- priorities informed needs Spending allocations based on volume of voices of special Spending allocations based on market failure gaps interests and eligibility criteria of existing regimes as indicated by the data Detailed reporting on a range of indices to relevant Generic reports to all stakeholders based on historic stakeholders on a regularised basis - weekly, aggregate data inappropriate for policymaking at a a micro- fortnightly, monthly, quarterly, half yearly based on economic level agreed service level agreements Goal setting based on accurate estimates of the Goal-setting by board members, administrators, project financial consequences of proposed policy options managers with special treatment given to pet projects and allowing for prioritisation thus helping to predict the initiatives or the current fads of the day. impact of policy options to stakeholders in a “winners and losers” format Highly focussed report-back and monitoring forums Death by committee: Undue focus on ensuring that money is which ensure that not only is money spent well but spent and that it is seen to be spent also that the impact of spending can be tracked and measuredThe fact that the NWDA took the decision to decommission an incredibly valuable andanalytically powerful strategic data asset, however, indeed suggests not only the adversebut also that the lessons were not learned. Retaining the data assets that existed withinthe RDAs and Business Links would have been extremely beneficial for LEPs, especiallywhen it comes to the bidding process and Green Book predictive analytics which needs tounderpin Regional Growth Fund bids. Sadly key decision-makers, several of whom now siton LEP Boards chose not to make the retention of Strategic Assets a priority and makesuch assets available to LEPs across the UK.In situations like this a more strategic approach planning the transfer of data assets anddata bases to the LEPs to aid them in their very difficult task of addressing the one sizedoes not fit all failure of the RDAs would have been of invaluable help. However, you reapwhat you sow and the scorched earth appearance of the decommissioning of strategicdata 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 itsaw as examples of systematic failure rather than a consideration of retaining theoperationally more efficient bits at a sub-regional county level would have helped. Page 7
  • MethodologyThis paper highlights in its own modest way the value that a joined-up approach based onoverlaying and linking overlapping data classification systems can highly enrich andenhance data analyses of the business economy, especially when it comes to revealing themake-up of key industry sectors, particularly in identifying newly emergent ones likeDigital & Creative Industries and Energy and Environmental Technology Services.An Overlapping ApproachAt Business Link initially I became convinced that the panacea for finding high growthcompanies in Merseyside was to utilise the business classification adopted by Experian -Commercial Mosaic. Commercial Mosaic categorises UK businesses into 13 groups and 50distinct types, based on key variables that influence business behaviour. The CommercialMosaic segmentation system includes demographics – the age of businesses, number ofemployees, turnover and critically the principals’ background. It also includes aclassificatory approach grouping together businesses with shared demographics. Finally itfollows a propensity approach with the broad description of the business classificationindicating likely behaviour, for example, in its purchasing. The Family or Genus Gazelle Commercial Mosaic Commercial Mosaic Features Group Type Directors under 30 & Well Educated Highly productive and skilled work force Mature businesses -64% Employ >100Monumental Monoliths Farsighted High Flyers Large Range Business Activities inc. Food, Manufacturing, Textiles, Recreation, Sport, Luxury Goods – Niche Business Trade Specialist Industrial Centres or Retail Parks Highly specialised type engaged manufacture specialist equipment and precision instruments esp. telecomms & ITSpecialist Suppliers Hi Tech Highlights Medium Sized Businesses Independent Based Specialist Industrial & Technology Parks Newer Independent Businesses High Risk – 30% Chance Failure Wide Range Activities: Specialist Wholesale, & Retail, Business SupportIndependent Entrepreneurs Developing Dynamos Services & Recreation Small Business but with Very High Amounts of Turnover from Highly Skilled & Productive Staff Especially Prevalent in North West New Independent Businesses. One Third 2 to 3 Years Old So New many not have SIC Codes assigned to them High Risk – 346% Chance FailureIndependent Entrepreneurs Wide Range Activities: Specialist Wholesale, & Retail, Business Support Fledgling High Fliers Services & Recreation One Third Grow to Employee Much Larger Nos. of Employees As Specialist Suppliers first move is generally to specialist industrial parks Independent Low Risk High-Tech Businesses Engaged Diverse Range of Activities but esp. R&D and Chemical Processing,Energetic Enterprises Professional Professors Especially Prevalent in Northwest Trading from Specialist Industrial & Technology Centres near Universities & Hospitals New “Knowledge-Based” Businesses Especially Prevalent amongst Digital & Crossover Media, Support Services toEnergetic Enterprises Support Supremos Financial Industry – High Salaries Low Risk Businesses in Areas of High Prosperity. Serviced OfficesThe 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 meto 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 waslooking in places I knew they inhabited. It didn’t lead me to places where I might notexpect to find them but where they also existed in significant numbers. The consequence Page 8
  • was that the bulk of the population of gazelles was found to exist in the high-tech parts ofMerseyside concentrated in colonies on business parks, incubator hubs in university R & Dcentres, specialist manufacturing units and industrial & scientific technology parks. Notsurprisingly these were located in some of the more affluent and prosperous parts ofsuburban Liverpool, St. Helens and the Wirral and less so in Halton and Knowsley. Therewas in other words a concentration on high tech Businesses to the exclusion of moretraditional lower-tech manufacturing & retail businesses in less prosperous and moredeprived areas of Merseyside.Recourse to a wider set of overlapping criteria was required, in order to more accuratelydefine the universe of high growth businesses. An approach based on the use of anoverlapping set of different classification systems, was employed, including: SIC 1992, 2003 & 2007 Yell Codes Thompson Codes Nature of Business DescriptorsIt is the approach that this Paper follows with a much greater emphasis being appliedpreviously to Nature of Business Descriptors: What the business actually does, the productand service it sells and generally to whom. It is by no means a unique approach but it isone that has been much more consistently applied here than previously.Individual Yell and Thompson Codes were selected from a complete list of code setsselected, following detailed scrutiny by NWDA and BLNW sector managers, team leadersand Advisors. Page 9
  • Yell and Thomson CodesUse of Yell and Thomson Codes improves granularity over SIC Codes. Yell and ThomsonCodes are self selected by businesses and reflect how a business visualises itself in termsof the market sectors in which it operates and how it positions itself in terms ofadvertising to its customer base. Yell and Thomson Codes are what businesses use to tellthe world what they’re actually good at!More problematically the activity of a business changes over time as what it actually doesbecomes more transparent. Often SIC Codes quickly come to bear little representation towhat the company does or the sector in which it actually operates. All industry Sectors, incomparison, are represented extremely well in Yell and are very precisely defined. Using Yell Data With SIC – Other Computer Related Activities SIC 2003 Locatio SIC 2003 Description Locations SIC 2003 Description Yellow Pages Classification ns Other computer related activities 4,531 Other computer related activities Unknown 3,032 SIC computer related activities Other 2003 to Yell 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: 4,531An example is given below of the amount of detail that is used to define an IndustrialSector in Yell. Page 10
  • “Internet Web Design & Development”•Web hosting: If you want a website for your customers to visit, thisis a vital internet service. A good web hosting service will ensure thepages of your web site appear quickly and reliably.•Domain name: The part of an email address after the @ sign. Manyinternet service providers enable you to buy your own domain name,so you can have an email (and website) address personalised withyour own or your companys name.•Software development: This is where a computer service companywrites software for you to meet a specific requirement.Some computer service companies will write wholeprograms, while others just write tools to get oneprogram talking to, or sharing data with, another.•e-commerce: Doing business on the internet. Supplyof an e-commerce enabled web site, which allowsvisitors to pay for goods and services.A fast moving sector, meanwhile, requires a quickly adaptable classification – companieschasing 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 sectormix in the UK. When the key to making a sale is either consumers or other businessesbeing 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 printeddirectories to web adverts and listings in on-line directories. The speed to (re)definition ordefinition of new business types or sectors is extremely rapid because it is driven bycommercial imperative and not hindered by lack of academic consensus. ONS would beadvised to bear this point in mind when it comes to the impetus to overhaul andfundamentally overhaul an outdated and outmoded way of classifying new high-tech, highgrowth industries in the new economy. Indeed it might be argued that a central deficiencyof policy making relates to a lack of precision in defining industry sectors and the inabilitytherefore 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 Codesin a very neat and precise way.Nature of Business DescriptorsNature of Business Descriptors, are written by the businesses themselves and detail thekey activity of the business, especially on their web portal. Textual analysis techniqueswere applied to the Business Descriptors creating “single” & “paired” key words from alexicon of commonly appearing key words and phrases. Page 11
  • Identifying the DCI Sector Utilising Overlapping Classifications Flexibility The ability to utilise multiple business classifications from various sources as well as the keyword Yell Class Thomson descriptors provides a breadth of analysis that virtually eliminates businesses for which we Nature of have no classification SIC 1992, 2003 data. The potential size Business of the pot for businesses or 2007 Keyword missed is very small.The greater the overlap between the differing forms of classification, the greaterdependability of being able to identify what a business is really about. It was and is notsimply that Business Activity Descriptors should be regarded as tie-breakers or that anyone of the overlapping classification systems should be regarded as being any moreimportant than the other.Definitional RefinementAccess to a wide variety of classification systems means that it is possible to define sectorsvery precisely and to visualise gaps and overlaps between those sectors. This lessensdependability on SIC Codes considerably improving Sector identification accuracy.Overlaps between different classification systems dramatically increases reliabilityIt is to be accepted that not all Business advertise in Yell and Thomson. Indeed, onaverage, c.40% of businesses, choose not to do so. Either they don’t need to do so oradvertising in directories is not seen as a particularly productive form of marketing or costeffective sales channel strategy often for businesses which are more business to businessand less consumer facing in their approach.In this instance we can rely on either SIC 2007 or Business Activity Descriptors. As you cansee from the graphic below the latter is particularly effective in revealing the activities ofBusiness. Page 12
  • Nature of Business – Other Computer Related When Yell Fails… Activities Yell to Nature of Business SIC 2003 to Yell SIC 2003 Description Yellow Pages Classification Locations Yellow Pages Classification Nature of Business Other computer related activities Unknown 3,032 Unknown 00Bespoke Application Development Other computer related activities Computer Services 933 Unknown 3d and 2d animation for the broadcast tv industry. Other computer related activities Internet Web Design 207 Unknown 3D Visual Design Other computer related activities Computer Training 87 3D visualising, animation and branding for architectural and Other computer related activities Internet Services 75 Unknown construction industries Other computer related activities Computer Networking & Cabling 69 Unknown Accountancy and web-site design services. Computer Aided Design Unknown Accountancy support. Other computer related activities Services 58 Unknown Accounting, auditing, tax consult. Other computer related activities Telecommunication Eqpt 32 Unknown Adult Education Centres Other computer related activities Data Recovery 10 Unknown Advanced Sensor & Control Technologies Other computer related activities Document & Data Destruction 8 Unknown Advertising. Other computer related activities Computer Security 7 Unknown Architectural and design services Other computer related activities Multimedia Services 5 Unknown Architectural, technical consultancy. Other computer related activities Videoconferencing 4 Assett/Process tracking services for businesses serving Other computer related activities Publishers & Publications 2 Unknown Pharmaceutical, logistics, aviation & Manufacturing sectors Other computer related activities Information Services 1 Audio visual installation engineers, commenced on 1 june Other computer related activities Secretarial Services 1 Unknown 2007. Sum: 4,531 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-sectorscan 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 – thereare very few for which we don’t have access to at least one form of classification.Data ValidationSector Definition is the key to accessing meaningful data. Definition however needs to beintuitive. This is particularly the case when you are confronted by businesses that “justdon’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 ofdata contributes to a much more rational and less forced way of building a sectordefinition.Revealing Findings on MerseysideAdopting such an approach starkly revealed a number of findings about the size of theDigital & Creative Sector in Merseyside. Page 13
  • Designers- Sub-Region Advertising & Graphic Internet Web Design Sum: Cheshire & 103 160 263 Warrington Cumbria 36 87 123 Greater 234 365 599 Manchester Greater 105 163 268 Merseyside Lancashire 101 212 313 Sum: 579 987 1,566The first was the worryingly small size of the Graphic and Internet Web Design Communityin Merseyside in comparison to other Sub-Regions of the North West, which placed itbehind Lancashire and only just ahead of Cheshire and Warrington. At the time this raiseda number of interesting questions for the Digital & Creative sector team at Business LinkNorth West, not least: given the size of the central business district in Liverpool – the lackof connectivity between Digital Marketing Agencies and the wider Business Community;the small number of technically proficient brand marketers despite the presence of threemajor universities in the city and two of the largest colleges of higher education in theU.K. (Liverpool & St. Helens) and most critically, the failure of retention of a highlyeducated student population in one of the most culturally vibrant cities in the U.K. Theseare major questions which are particularly pertinent and relevant to the Enterprise VillageProject. It is a fundamental question as to why the Digital & Creative Sector is twice thesize in Manchester than it is in Merseyside. Clearly the presence of national radio and TVstations in Manchester has a lot to answer for in terms of a catalytic effect. Com puter Softw are Sub-Region Developm ent Sum: Cheshire & 130 130 Warrington Cumbria 29 29 Greater 191 191 Manchester Greater 70 70 Merseyside Lancashire 84 84 Sum: 504 504 Page 14
  • It is not an isolated factor Another Sub-Sector that we looked at in detail at Business LinkNorth West in October 2010 was the Computer Software Development Sector. AgainMerseyside does particularly badly in comparison to Cheshire & Warrington and onceagain Lancashire. The concentration of industrial defence primes in Lancashire may be oneexplanation for this. There is no reason why the Merseyside should compete so badly inrelation to Cheshire & Warrington especially given the size of the financial servicesindustry, the insurance industry in particular.As the above slide on the Computer Games Industry clearly shows Merseyside is againfailing to match its weight in a high profile and highly remunerative sector of theeconomy. Two problems appear to be in play: getting a business established in the firstinstance and then growing it beyond four employees. Again these are issues thatEnterprise Village will seek to address. One fact is particularly stark in relation to theGames Industry. Whereas 68.59% in Cheshire & Warrington of Computer GamesCompanies have grown beyond four Employees; 61.29% in Cumbria; 68.25% in GreaterManchester and 59.38% in Lancashire this figure is only 56% in Merseyside. It is a tellingfigure! Page 15
  • It is also a shame that this research was not taken further. The outputs formed part of aresearch project funded by the NWDA on redefining the Digital & Creative Sector in theNorth West, largely in an attempt to justify the relocation of the BBC to Salford Quays inManchester. In that sense it proved a point which was that the hub of the North West’sDigital & Creative Industries are clearly located within Greater Manchester at the expenseof other North West Sub Regions. That hub, however, was not as large as it is in the SouthWest and Bristol in particular which has the second largest collection of Digital & CreativeFirms outside of London. Unfortunately, Business Link North West and its revolutionaryBusiness Performance Index Business Intelligence System was dismantled prior to thewinding-up of the NDPB – an act this author still regards as one of intellectual vandalismIt’s a Life-Stage ProblemThe role that more precise definition based on access to greatly enhanced and enricheddata sets can bring to understanding high growth sectors, of course forms only part of theissue. Another critical element involves understanding precisely when high growth occurs.The following graphic is taken from a Presentation which was delivered to the ONSRegional 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”. Annual Turnover < £90k £90-£400k £400k - £2,5m £2.5m+ 100 - 250+ 0 0 0 2 50 - 99 0 2 0 7 Headcount Band 10 - 49 11 13 29 6 0- 9 1433 626 598 43What it clearly demonstrates is that only 23.74% of Start-Up Businesses that are 3 yearsold or less with less than 10 Employees generate a turnover of greater than £400K. Only1.59%, generate a turnover in excess of £2.5M.I and my co-Author, Neil Geoghegan, concluded that in terms of the chicken and eggdebate, growth in Turnover preceded growth in the number of employees. Consequently,achieving headcount growth is dependent on achieving an increase in the level ofturnover. Growing an employee base beyond 9 therefore and achieving the status desired Page 16
  • by policy makers as a fully fledged SME is very difficult. Longitudinal analysis of turnoverclearly demonstrated that there was a direct correlation between achieving a turnover ofmore than £1.0m and employing more than 10 Staff. This was very difficult for a businessstart-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 EventWe 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 allowingthe business to recruit a critical echelon of new employees that drives the Businessforward to achieve the levels of growth required to achieve even higher levels of turnoverstill. Deeply imbued with the literature on entrepreneurial behaviour at the time weargued that this is the point where opportunity meets hard work. Furthermore suchevents are not always recognised - they can be planned but more often not they areaccidental – 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 notalways developed. Few fledgling entrepreneurs derive maximum benefit form theopportunities. Many indeed step away from the inherent risk. This is because in order totake advantage of critical events a Business is required to take a risk in terms of fundingexpansion. This requires the sourcing of capital funding in order to break through the glassceiling 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 afocus on capital expenditure to fund next stage growth omits the key driver of businessacceleration. This is why sourcing, applying for and securing funding will be core businesscompetencies and a key service offering of Project EV. Page 17
  • Business AcceleratorsCalling businesses operating in this phase of development Accelerators was deliberate. Iowe the term to Maureen Haldane at Manchester Metroplitan University who firstdeployed the term in relation to achieving different levels of proficiency in the use ofeducational technology in the classroom. I took this concept to show businesses quicklyaccelerate beyond the foundational development stage adding additional functionalitywith greater frequency and facility to the pointy where they begin to grow fasterdeveloping in a more cohesive fashion. The ultimate epitomy of this metaphor we coinedthe Usain Bolt Moment with businesses developing a fluency of performance with Body(Sales & Marketing & Operations) moving in attuned fashion with Mind (BusinessIntelligence & Accounting Systems). Page 18
  • High Growth Companies A 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: Accelerators: Flyers: Young, and usually Fast-expanding Dynamic Sprinters who turn small, high growth SMEs often in new into large rapidly enterprises industries that generate expanding job Young, start-up or spin- large amounts of creators. out firms. Turnover. Do they also Large Mature High “Adolescent” High-Tech generate large numbers Growth Companies. of jobs at the same time? Companies The subset of high- growth enterprises. which are 3 but typically 5 years or older. “Early Start-up phase: “Early Growth Phase: “Exponential Growth Up to 3 Years” 3 to 5 Years” Phase: Years and Older”The position of businesses on the growth curve in the phase between start-up andattaining levels of “high” growth, we argued, is a function of the Life–Stage (notchronological age) of a business in this phase of development, as it reaches a particularlevel of turnover and number of full time employees.At the time the evidence, based on a focus on high-tech businesses, appeared todemonstrate that businesses in this acceleration phase of growth were achieving aturnover level of between £400K and £2.5M. Subsequent research and feedback hasrevealed that such an approach ignores a number of young heavy industrialmanufacturing businesses which can reach much higher levels of turnover because ofeither the base cost of the commodities they manufacture – typically metals or glass orthe size of their production runs – typically plastics or chemicals – is very large. It issensible to widen the criteria for high growth businesses in the accelerated phase ofdevelopment 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 x10the Value of £400K. It also made sense to take a more intuitive approach with regard tothe number of FTEs (Full Time Employees) in order to gain a better appreciation of theContribution Per Employee to the Business. For that reason a Minimum Number of 4 FTEshas been selected. Page 19
  • 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 overallstock of businesses in Merseyside, representing only 2.51% of the total stock of Activebusinesses in Merseyside. This is a far lower stock of potential gazelles that leadingsurveys would have us expect.It is to be noted that 385 of the Businesses have Primary Trading Locations outside ofMerseyside although the business is owned and managed from within the Merseysideregion. This raises some interesting issues about Merseyside business owners deciding tolocate their business outside of Merseyside, which in turn begs some interesting questionsabout the trading environment and business support networks and the strength of supplychains within Merseyside. Page 20
  • In term of Location by Local Authority the findings were also very surprising. The fact thatthe bulk of high growth life stage businesses were concentrated in Liverpool is perhapsunsurprising. The fact that such a large number were located in the older industrialisedparts of Sefton and some of the more deprived parts of the Wirral was. This is a verydifferent picture from the high-tech slanted analysis that was conducted at Business LinkNorth West, dominated by high-tech Locations in Liverpool, St. Helens and the WestWirral.The reason for this is self evident. Especially, if we look at the sector groupings whichconstitute the make-up of the high growth life stage businesses. What I found wasincredibly revealing. It should not have been. But it was. It was because it revealed a morecomplete picture of high growth Merseyside than the NWDA was attempting to present, Isuspect 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 EconomyThe reality of Merseyside’s high growth life stage businesses is that they are dominated bythe Property and Construction Sector. 221 or 22% of Businesses are involved in either theProperty Sector or Construction. Construction for Merseyside more than most regions is afunction of public sector led regeneration. If we further accept that the ProfessionalServices sector which includes Accountants & Solicitors (who make up 22 or 26.51% of thisSector) are dependent for a sizeable percentage of their business on property transactionsthen this puts the scale of this particular sector into further context. Page 21
  • Next in terms of importance come what I would call the Public Sector Economy inMerseyside. With one of the highest numbers and overall percentage of Public Sectoremployed workers in the UK this should not perhaps be surprising. The number of highgrowth 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 Business244 Businesses or circa One in Four (23.98%) of Merseyside’s high growth life stagebusinesses form part of the dense network of directly and indirectly funded Public Sectorsupport 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 SocialCare are big business in Liverpool as befits a de-industrialising region beset by the legacyof chronic healthcare problems of a former industrialised workforce and the long-termunemployed. A whole high growth Industry has grown up to service the needs of thiscommunity, which, with a gradually ageing population, is hardly likely to get any smaller. Page 22
  • Other Public Sector dominated support businesses which are worthy of note are theCharitable Sector which is the beneficiary of large, albeit shrinking, amounts of publicsector funding in Merseyside with a huge number of Charities and Charitable Trusts beinglocated in the Sub-Region. This may be the consequence of the location of specialist legaland financial services which supports this sector. Equally it is clear that religious and civictrusts which used to play an important role in the life of Liverpool and surrounding townsstill have a powerful legacy. It is to be applauded also that all three major football clubsacross the City of Liverpool promote Football in the Community Programmes which are allgrowing in terms of attracting financial support and direct employees beyond the coterieof publicity hungry players.Direct Public Sector funded businesses (wholly owned subsidiaries or Public PrivatePartnerships - Companies Limited by Guarantee). These include Community andRegeneration Investment Vehicles, Social Enterprises and Community Interest Companiesand what I have dubbed Big Society Businesses – Public Sector Funded Charities which arefilling social services provision vacated by the public sector, local government inparticular. One may also wish to include the raft of indirectly funded business supportconsultancies which are best located within the Professional Services grouping. I found 13such businesses – primarily former-Public Sector employees who have set up asconsultants in he same space they used to occupy as direct public sector funded businesssupport 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 majorgrowth industry. It seems somewhat ironic to report this but I have seen examples in theHotel and Hospitality Industry where it is possible to establish a direct correlationbetween the level of NVQ Qualifications of staff and an increase in the level of turnover ofa business and its performance in terms of increased levels of customer satisfaction. Thefree school movement and the vibrancy of the independent school sector against abackdrop of underperformance and negative public perception in more affluent areas ofMerseyside, especially he Wirral has increased the performance of some small privateschools.What this indicates is that the private sector segment of Merseyside’s high growth lifestage businesses outside of the Property and Construction Sectors is nor only muchsmaller than one might expect (586 Companies) but the balance between the remainingidentified sectors represents a very clear demarcation between a low-tech manufacturingbase, a high-tech brave new dawn which includes Digital Businesses and AdvancedManufacturing companies utilising high-tech and precision manufacturing processes aswell as of course a Consumer Retail and Visitor Economy. The point to note is the silonature of the Merseyside economy and the limited interconnections between key sectors. Page 23
  • How Do We Help Advanced manufacturing in an Accelerator Project?Within the high-tech silo the largest segment of businesses is the group which isconstituted of Advanced Manufacturers and Digital Businesses. Advanced Manufacturingbusinesses form by far and away the largest segment accounting for almost 1 in 10 ofMerseyside’s high growth life stage businesses. It is safe to say that this is a sector whichreceived an awful lot of support from the NWDA. Made up principally (c. 70%) ofManufacturers of Metal Products, Machine Tools and Precision Manufactured Metal Parts(Widgits) as well as Manufacturers of Precision Technology and Scientific Devices andInstruments it is a Sector which is incredibly difficult to help in terms of an industrialintervention 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 developingan industrial Sales & Marketing and Business Development Strategy with one eye clearlyon overseas marketplaces but with an appreciation that the manufacturing plant for suchbusinesses will have to be located elsewhere/offsite.The Digital EconomyThe amount of Digital businesses at the high growth stage of development is bycomparison disappointingly small. This is a function of three mutually exclusive factors.The first is that Digital Businesses are still lifestyle Businesses. Knowledge Workers oftenchoose to work in digital industries because of it is a lifestyle choice. By this I mean thatthe culture and working environment are very different from more regimented officeenvironments. The second is that there is a natural turnover ceiling for Digital andCreative Industries businesses. Quite simply there are very few very large DigitalMarketing Agencies in Merseyside in particular and the marketplace in general. They arethe exception rather than the rule. Digital or Online businesses tend to be agile and veryfleet of foot working out of serviced office locations utilising cloud based hosted servertechnologies. The third is that they tend not to employ large amounts of people. A typicalDigital business will employ no more than 5 to 6 people at the most. Salaries will be largebecause of the specialist nature of the work involved, so large in some cases that a goodDigital Consultancy can be extremely choosy about who it works with – working with asmall niche client list working on highly remunerated projects often for only part of theyear. Page 24
  • The City Centre EconomyAnother important area of high growth life stage businesses in Merseyside is the CityAttraction 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 andSpecialist 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 deniedeffective support., it not being understood that Consumers are the one of the primarydrivers of economic development and urban inner city regeneration. The Consumer Retailsector 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 ApplianceStores being the most frequently occurring. The Portias Model of the family friendlypedestrian attractive high street shows that there is still life in the City Centre as a RetailCentre. For an Accelerator Project like EV the key will be in demonstrating the uniquepossibilities that a new approach to experiential shopping can bring.Transport & ShippingOther sectors of note include Transport – small Road Haulage Companies, Local BusCompanies and Large Taxi Operators another Sector virtually ignored by the NWDAdespite being a fundamental inter-connecter in the local economy moving goods, servicesand people between key locations along main thoroughfares and arteries. A similar albeitmuch more important and more valuable sector as far as Liverpool City Council isconcerned is Shipping. The Mersey Partnership recognised the importance of theSuperPort some time ago. Here a small number of Companies provide highly remunerativeadministration, logistics, import/export and repair functions.Energy & Environmental Technologies ServicesThe final Sector I wish to draw your attention to is the Energy and EnvironmentalTechnologies Service sector. This is a very new and growing sector. If we adopted theNWDA definition this Sector would be half its size because of the exclusion of Recyclingbusinesses, a growing area of the Merseyside economy because of the ability to recyclehigh quality re-usable materials particularly different forms of polymers and elastamers.Recycling, unless it involved high grade Polymers and/or the recovery of poisonous metalssuch as Nickel, Lead, Cadmium and Zinc under EU regulations was not regarded as anactivity being fore-square in the EETS sector because it was not high-tech being seen as alow-tech manually intensive form of business reliant on a largely untrained workforceinvolved in environmental recovery, clean-up and waste disposal operations. Page 25
  • Core Activities Industries Hydro Solar photovoltaic Wave and Tidal Solar thermalRenewable Energy Biomass Wind Geothermal Power generation (conventional Oil, Gas, Coal) Production of Hydrogen Nuclear Power Generation Extraction of Coal, Oil, Gas, Biomass Nuclear Power Decommissioning Insulation & energy conservationEnergy Power generation from waste Heat Exchangers Combined Heat Power Trade in energy resources Fuel Cells Air Pollution Control Land Remediation Environmental Consultancy Waste Management Environmental Monitoring, Instrumentation & Water Supply & Waste Water TreatmentEnvironmental Control Recovery & Recycling Marine Pollution Control Energy Efficiency Noise & Vibration Control Trade in recovered materials Distribution & storage of energy (electricity Transformers & hydrocarbons) Smart gridsEnergy Transmission Distribution of energy Smart metering Switchgear DC/AC Conversion Low Energy Lighting LEDsLighting Lighting design & innovation Disposal & recycling of lighting units Alternative Fuel Vehicles Energy Efficient Building TechnologiesEmerging Energy & Environmental Alternative Energy Sources. Alternative FuelsSub SectorsCurrent definitions used to identify EETS Businesses are too broad and insufficientlycomplex and detailed in nature to identify the new specialist Environmentally FocussedGreen Technology Businesses that are emerging. Some EETS Businesses are so “New” thatthey do not have SIC Codes to describe them. Interestingly, only EnvironmentalConsultants were distinctly recognised in SIC 2007 as Environmental Businesses.A large and growing number of businesses that are currently classified as operating withinthis sector are effectively re-inventing themselves as Environmental Businesses in order totake advantage of niche market opportunities but also to differentiate themselves fromtheir competitors via a green product or service offering. This re-invention is not simply anattempt by companies to redefine how it sees itself and is seen by others but is alsoevidenced by market and product re-positioning and more significantly fundamentalchanges to business and manufacturing processes.Blocked SectorsAnother key issue relates to Blocked Sectors. A key question that I posed myself in thispiece of research was how many businesses has experienced a reversal in their fortunesover 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 theeconomic recession continues to find its mark wounding some, badly disabling others andbringing an unfortunate minority to their knees. Three years growth is now more likely Page 26
  • two years growth and one year of decline. Some gazelles are now not able to run as fastor 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 91A survey of the turnover figures (both Actual and Derived) from the Trading, Profit andLoss Accounts of the 1,017 high growth life stage businesses reveals that 91 experienced areversal 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 beyondsimple business profitability consolidation. This represents 8.95% of the total stock ofbusiness in this key growth phase of their Life-Stage.The sectors are starkly revealing. It should come as no surprise that the Charity Sector isunder pressure. The fact that half of Charities have seen a severe reversal in their turnoverwill come as somewhat of a shock as both consumers, businesses and public sector bodieshave reduced their contribution to charitable institutions. Nor should it be a surprise thatthe Visitor Economy is under pressure as a direct consequence of shrinking disposableincome. Boutique Hotels, Expensive Restaurants, Pubs, Entertainment Venues and EventsManagement Companies have all suffered.That Construction and Property Companies were the first to suffer from the effects of therecession, in particular businesses specialising in corporate property and the building ofcommercial units, is confirmation of the effect of the economic downturn on this sector. Page 27
  • The fact that this is impact 1 in 10 Care Home providers should however be cause foranxious thought. As is the fact that 1 in 20 high growth life stage Consumer Retailbusinesses 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 offurther reductions in occupancy on secondary and tertiary high streets.The ultimate purpose of this paper is to identify those sectors that will potentially bestbenefit from a programme of accelerated “super growth” support to be provided byProject EV (Enterprise Village) – those that I have dubbed Enterprise Village Ready.Enterprise Village Ready BusinessesThe aim of the Growth Accelerator Programme is designed to increase the number ofsmall businesses that achieve rapid growth. It will help small businesses with potentialand overcome barriers to growth. The Growth Accelerator Programme provides highgrowth potential small businesses with the know-how and ability to achieve sustainablegrowth. 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 Page 28
  • Commercialising innovation effectively Developing leadership and management capabilityThe Growth Accelerator Programme also connects clients with trusted sources of businessadvice locally. For example, UK Trade & Investment, business incubators and specialistprofessional services firms, as well as investor and business networks.Typically a Growth Accelerator or Growth Hub as physical space or location will offer acomprehensive programme designed to provide Business professionals at all levels thetools, theory, and proven best practices to take their business forward. The centre pieceof a Growth Accelerator Programme is a growth plan, which begins with a comprehensivediagnostic review based on information about a business and goals. The analysis takesinto account factors, including your current business model, marketing programs, keymarket segments, service delivery model, investment planning, product mix, and use ofavailable technology.For that reason we are not necessarily looking at businesses that have already enteredinto the “Take-Off” Phase of their business life-stage and are already some way down thetrack. Instead we are looking at those that have left the blocks, have pushed on past thefirst 10 metres of track and are just about to hit their stride. I believe that the SprintingMetaphor is an instructive one, not least because it guides us towards looking forbusinesses where their business model is not as set and the Growth Acceleration advicewill 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 ourAccelerator sample. Clearly the gap that separates the one or two man consultancy orsmall trading establishment or manufacturing unit is marked. The added financial value Page 29
  • derived from a small business from the previous take-home pay of Directors can be verysmall. Total additionality in terms of turnover after wages have been deducted may be nomore than £100,000. A large part of this will be eaten up in overheads and other businessdevelopment costs. This is the reason why an Accelerator Programme can have a majorimpact on business performance but at the same time it is why an Accelerator Programmerequires proof of performance or business concept.For that reason a turnover figure of a minimum of £250K demonstrating both the intentand capability of the business owners was selected. It was also felt necessary to work witha maximum turnover figure 25% above the minimum set in the analysis for theAccelerator 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 aBusiness has reached a turnover level of £400K they enter a new phase of in the life-stageof the business generating the necessary cash to recruit new staff and acquire newtechnology 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%SprintersAs we can see from the Table below the Table below what I have dubbed Sprinters have avery different look and feel from the Accelerators I identified earlier in this paper. SmallConstruction and Consumer Retail businesses occur in twice the proportion and are fourtimes more common than when we were looking at bigger Accelerator businesses. Whatthis tells us is that the Merseyside Economy is built to a very large degree on Constructionand Retail. We can, at least, take confidence that Merseyside is still very much a Region ofBuilders and Shop Keepers. The question is: how does an Accelerator Programme help aConstruction and Retail business grow? The problem for me is an extremely pertinent one.The bulk of Business Mentors and Advisors come from the Professional ServicesCommunity. Shaking hands with people who get their hands dirty all day or charmcustomers to part with hard earned disposable income they can’t really afford to spend isvery different from introducing technically skilled knowledge workers into networks ofdigital economy businesses requiring highly specialised services.The Glass Ceiling EffectWhat is also clear is that the trends that were prominent for Businesses at theAcceleration stage are much more highly visible in the Sprinting stage. The “glass” ceilings Page 30
  • that they naturally seem to encounter: outgrowing premises, cash-flow issues, lack ofadequate capitalization, production and work volume capacity result in them reaching aceiling in turnover which they are unable to break through without a commitment togrowing 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 Digitalbusinesses 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% Page 31
  • Digital SprintersWhat it shows is that Digital businesses at this stage of development are still very much ofa life-style choice. Only 6.40% of Digital Marketing and On-line businesses in Merseysidegenerate a turnover in excess of £400K p.a. The conclusion that one must draw from this isthat the Digital Marketing will generate a large number of jobs but they will be dispersedacross a very large number of companies the majority of which employ only a very smallnumber of people but which provide good lifestyles for the well paid individuals that workin this highly skilled industry. The barriers to entry are low but as a consequence of theattractive nature of the industry it is very competitive. More importantly, it is verydifficult to achieve significant traction designing policies to encourage the Growth ofDigital Creative Industries because of the dispersed nature of employment in the industry.I cheekily suggested in a presentation to the North West Creative & Media IndustriesAGM, entitled, “Revealing the North West’s Creative & Media Industries – the hiddensector: A Methodological Approach”, that Creative & Media industries were the NorthWest’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 inworking within the Digital space. There are hundreds of Job Titles which contain the termDigital 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 aDigital Strategist, but what is a Digital Strategist? And what do they do in their day to dayrole?Using LinkedIn’s Advance People Search Function I took a sample of 50 individuals whoself-describe themselves or their Marketing Role as that of a Digital Strategist. Thefollowing 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 Page 32
  • 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: 1According to Wikipedia, “digital strategy is the process of specifying an organizationsvision, goals, opportunities and initiatives in order to maximize the business benefits ofdigital initiatives to the organization. These can range from an enterprise focus, whichconsiders the broader opportunities and risks that digital potentially creates (e.g., changesin the publishing industry) and often includes customer intelligence, collaboration, newproduct/market exploration, sales and service optimization, enterprise technology Page 33
  • architectures and processes, innovation and governance; to more marketing andcustomer-focused efforts such as web sites, mobile, eCommerce, social, site and searchengine optimization, and advertising.”Digital media consists of things like digital text, digital images, digital audio, digital videoand other digital content that can be created, referred to and distributed using computersand over the internet. A strategist is a person who is skilled in designing and planning thenecessary actions to achieve a major or overall aim. So, a digital media strategist issomeone who is skilled in designing and planning the necessary actions to create, refer toand distribute digital content over the internet.This position is based on a unique set of technological knowledge. A digital strategymanager collaborates with all marketing, business development, and organizationalmanagement teams.This position focuses specifically on a business’s digital brand by leading, building andmaintaining their presence in the digital world. They are accountable for driving theprioritization of the technology infrastructure for digital advertising continuity across allmulti-media platforms. They manage all related IT departments and functions as a conduitbetween digital presence and all advertising and/or marketing activities, strategizing theirspecific marketing needs incorporating the digital technology structure.But what do they actually do? A detailed analysis of the skill-sets of self-defined DigitalStrategists reveals a far more complex picture. Digital Strategy is a spectrum of activitywhich brings into play the full range of digital assets and communications tools of abusiness, not all of which will be web-based, from web site building and maintenance viaPPC/SEO and Google Analytics at one extreme to more sophisticated forms of SocialMedia Interaction, Online Communities and Viral Communication at the other.The results are particularly revealing in terms of the top skills frequencies of DigitalStrategists. When placed in aggregated categories it is possible to ascertain the emergingshape 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 Page 34
  • 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: 55Web 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: 89Digital Technologies Mobile Marketing: 11 eCommerce: 8 eCRM/Web Lead Capture: 7 CRM/Database Management: 4 Page 35
  • Emerging Technologies Application/Innovation: 2 Digital Marketing Research: 1 Total: 33Clearly, what stands out from this is that Digital Strategy is based on the evolution out ofestablished forms of web-site and web marketing. The main areas for development arethe exploitable possibilities of Web 2.0 and optimized Web Marketing and Cross-OverMedia. There are also a whole series of Digital Technologists who have established secondand alternative career paths in digital marketing. These are important individuals who canbring valuable technical know-how to businesses who wish to exploit the potentiality ofcross-over media digital platforms.The most current area and the space which everyone seems to be ploughing effort into ata rate of knots is Social Media.The Key Question that this poses is: Is there a misnomer and a misunderstanding aboutwhat a Digital Strategist actually is?The digression is an extremely circuitous one but what it starkly reveals is that the numberof Digital Strategists able to offer the range of services necessary to deliver optimizedWeb Marketing to big multinationals and PLCs is extremely small indeed. Theseindividuals reside in big well known Marketing Agencies who have huge resources at theirdisposal. These people seek roles in big agencies because who they are and theiremployment history in working with and for big business. In the Digital Marketing spaceyou do not get the opportunity to work with big companies unless you have worked withbig companies and that only tends to happen if you work for a big agency. DigitalTechnicians meanwhile are finding well paid sinecures in the same Agencies because ofthe highly technical skill sets: why would they want to set up by themselves unless theyhad an extremely niche offering, which generally only happens if they have had theopportunity to work for a big agency previously.The same turnover ceiling effect visible in the Digital Marketing Agency space can also beseen amongst small firms of Undertakers and Funeral Directors. This may seem a highlyunusual thing to say, however on deeper consideration it made perfect sense. TheTurnover Ceiling of such firms appears to be c.£500Removal FirmsIt is also true of Removal Firms. A small Removal Firm with 2 Removal Vans, a Couple ofDrivers and Removal Staff will be limited physically, both in logistical terms and physicallyby the number of removals it can carry out during any one week. That does not includethe costs of running a Road Haulage business including escalating fuel costs andmaintaining high levels of insurance cover for both vehicles and personal effects. Thatlevel of turnover ceiling is close to £500K. The benefits of volume pricing to meet key Page 36
  • overhead costs will be unavailable to a business that is restricted in terms of growth byunavailability of working capital, which in turn is a risk to the owners of the business. Theowners are currently spending so much of their time helping to run the business they donot have either the time currently or inclination to transform themselves from a WorkerOwner to a Full Time Manager running a larger fleet of Removal Vans with larger numbersof Employees on the Pay Roll.Funeral DirectorsThe same is true of small firms of Undertakers or Funeral Directors. There are heavy fixedcosts in running a Funeral Parlour or Home/Morticians/Chapel of Rest and in maintaininga high-end fleet of funeral cars. Given that funerals take place during restricted hours ofthe day and that the funeral service generally takes place locally there is a restriction onthe number of funerals that can be serviced per week, probably no more than 3 a day or 7to 10 per week which will be a mixture of budget and more specialist funeral services withall the frills and add-ons that this encompasses. My language here is probably deeplyinappropriate for the solemn nature of the service offered but again the turnover ceiling isin the region of £500K.The conclusion that I have drawn from all of this is that you have to be established to havea Growth Plan that will stand up to due diligence inspection.Sprinters Worth FollowingOther sub-sectors in this group of Sprinters that are particularly worthy of note are VisitorEconomy Businesses and Wholesalers which are much more numerous amongst theSprinters Group than they are amongst the Accelerators. A whole series of Businesseshave sprung up: Pubs, Hotels & Inns, Guest Houses, Function Rooms & banqueting Suites,High-End Bed & Breakfast Establishments, Bars & Wine Bars, Health Spas & Resorts whichare dependent for their success on the continued vibrancy of Merseyside to attractVisitors. If Advanced Manufacturing is the skilled future spinal chord of the Merseysideeconomy then the Visitor Economy and the supply chain network that has grown up tosupply this is the unskilled fibre and muscle of the Economy which should not beforgotten. The challenge of any Accelerator Project is how to service the needs of such agroup of Businesses in terms of plugging them into key visitor attractions and large stagemanaged events.What is apparent is that there are a very large number of small scale Specialist NicheManufacturers and a veritable army of Consultants and Business Advisers that exist withinthis tier of Sprinter Businesses. The future for many of these will undoubtedly be growthbeyond servicing local supply chains and contacts via winning new contracts with largerprime businesses in the supply chain or merger and consolidation with other businessesoperating in the same space. An Accelerator Hub clearly has a role to play here. Page 37
  • Property Firms and Advanced Manufacturing Businesses occur just as frequently in theSprinters group as they do in the Accelerator Group – their problems are largely related toscalability and their position within the supply chain. This is particularly true for thoseAdvanced Manufacturing businesses that are spin-outs and/or the product of KnowledgeTransfer 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 largerbusinesses within the supply chain.One thing is noticeable and there much fewer Public Sector Funded and orientedbusinesses within this Sprinters Group. Small Training and especially Vocational TrainingProviders proliferate as do small Scale Health Providers and small IndependentPharmacies. There are, however far fewer Care Homes within this echelon, largelybecause of the budgets required for the running of Care Homes. Also to be noted is thefact that a number of small scale Recycling and Waste Disposal Companies andEnvironmental Consultancies sit within this Group. Another challenge is the sizeablevolume of Second hand Car Sales Forecourts, Garages and Vehicle Repair Shops that sitwithin this Group. The question to be asked is would an Accelerator Programme be able tobenefit businesses of this nature? And, would it want to benefit them?Sprinter LocationsThe location of Sprinter Businesses is equally fascinating.What is really noticeable is the position of Liverpool as a Local Authority is far lessdominant with a much higher percentage being located in Sefton and the Wirral. Page 38
  • Town Count LIVERPOOL 790 SOUTHPORT 229 WIRRAL 222 ST. HELENS 158 BIRKENHEAD 92 WALLASEY 74 PRESCOT 55 PRENTON 43 BOOTLE 39 NEWTON-LE- WILLOWS 35Although the vast majority of the Businesses are still located within the city boundaries ofthe City of Liverpool, the Sprinting phase of high growth is by no means a city centrephenomenon. Growth Acceleration therefore has a duty to consider the merits ofrelocating a Sprinting business to a City Centre location and the benefits that this willbring and of course whether there will be a displacement effect in the local economy as aconsequence.The Age Profile of SprintersPerhaps more interesting still is the Age Profile of Businesses at the Sprinting Stage oftheir Development Cycle. Page 39
  • 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 formativestages of development) are less than 5 Years old. There is thus a partial correlationbetween Business Life-Stage Development and Chronological Age. It does not always holdtrue however. 38.60% of Businesses within this Group have been in existence for 7 Yearsor more. 27.57% are more than 10 Years Old. Clearly, the impact of the phenomenon ofgrowth ceilings requires further investigation. As I found in My Presentation on“Entrepreneur Mapping”, there are a large number of potential high growth businessesthat have been in existence for some time. The mark of an entrepreneur therefore ispersistence. Success does not necessarily come immediately. It is why Business Plans arelikely to have more potential if they come from those who have reached a natural glassceiling in turnover and have been butting their heads against it for quite someconsiderable time. Page 40
  • Perhaps the most fascinating is the profile of the Directors who run Sprintingbusinesses.The gender split reveals far more Female Directors and business owners thanone 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 thepotential of Female Entrepreneurship in order to grow the Merseyside Economy is asubject that requires further investigation.More exciting still is the Age of the Directors. We can see from the Table below that justunder 15% of Directors of Sprinter businesses in Merseyside are aged under 40 Years ofAge. More work needs to be done on this aspect of the analysis, not least because weneed to establish why it is that such a small percentage of individuals aged under 40 setup and become Directors of their own businesses in Merseyside. Of course some of thismay have to do with the absence of information on the Directors concerned and theremay be a sizeable volume of young adults who have set up and running their ownbusiness in Merseyside. An interesting observation however is suggestive thatEntrepreneurialism is a phenomenon which is much more strongly correlated with Ageand 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% Page 41
  • ConclusionPrimitive Data categorisation has led to a misinformed view of Sub-Regional economies inthe North West. The solution is Data-Driven Evidenced-Based Policy-Making based on theuse of high quality validated data . Unfortunately poor data mapping techniques have led topoor economic policy making in general which has led to a distorted view of the Merseysideeconomy in particular.Gazelle theory meanwhile has led to an over-statement of the importance of high-techbusiness to the exclusion of high-growth businesses in other areas of the economy located inless favoured administrative geographies. This has resulted in the possibilities relating tolow-tech but still high-performing sectors of the Merseyside economy being either ignoredor inadequately supported through policy. This is because the sectors concerned werepoorly understood.The central deficiency of policy making relates to a lack of precision in defining industrysectors and thus an inability to measure the impact of policy in sufficient depth or detail. Anumber of key findings in relation to New Emerging Sectors like Digital & Creative Industriesand Energy and Environmental Technology Services were revealed on Merseyside utilisingan approach based on the use of Overlapping Business Classification Systems and DefinitionsMethodologies as part of the Business Performance Index Business Intelligence DataWarehouse Systems developed at Business Link North West, which have subsequently beenbuilt on and further developed here focussing on an approach based on Business ActivityDescriptors.This Paper explores the notion that only a small percentage of businesses become fullyfledged SMEs able to grow their turnover beyond £400K and their headcount beyond 4 FullTime Employees. The principle reason for this is hat there is a natural ceiling to growth as aconsequence of reaching a glass ceiling caused by the operational and infrastructure limitsof the business being reached and lack of available capital resources or a risk aversion totake advantage of critical events as they present themselves to business owners. Theselimits to growth can be overcome by participation in an Accelerator Programme.The Paper makes a distinction between Accelerator businesses which have leaped beyondthe critical £400K turnover threshold and are beginning to accelerate down the businessdevelopment track and Sprinters which have only gone down the first few yards of track andmay have been there for some time.The Paper makes a further claim that a quarter of the stock of Accelerator Businesses in Page 42
  • 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 growthbusinesses are the ultimate beneficiaries of Regeneration and Economic Developmentinitiatives in the Construction and Property Development sectors which has a knock-oneffect benefitting the Professional Services community in turn.The Paper goes on to argue that we should not underestimate the strength of the Advancedmanufacturing and Consumer Retail Sectors, a high percentage of which are located outsideof high-tech locations in Central Liverpool in some of the older industrial manufacturingareas and more economically deprived parts of Merseyside.The Paper examines why the Digital and Creative Industries Sector in Merseyside is notlarger than it is in comparison to other Sub-Regions of the North West and offers somereasons for why this might be the case.The Paper also assesses the concept of Blocked Sectors identifying those businesses at aparticular stage in their development life-stage and offers an explanation as to why thismight be the case and the impact that this might be having.Finally the Paper focuses on Enterprise Village Ready businesses examining closely themake-up of the Sprinters, business with a turnover between £250 and £500K and 3 Full TimeEmployees.It identifies the importance of small scale high-tech niche Manufacturing and City Centrebusinesses to this group examining through 3 Case Studies of a Digital Marketing Agency, aRemoval Firm and a Funeral Directors some of the issues relating to growth ceilings andwhether they can be overcome.Finally, some thoughts are offered relating to the location and geographic location ofSprinter businesses and the Gender and Age of the Directors of those businesses suggestingsome avenues for further research. Page 43
  • AcknowledgementsI am extremely grateful to Shazan Qureshi, Director of Success at The Rejuvenate Groupwho 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 ofCups of Tea, a sympathetic ear, supportive advice and chocolate buttons. Page 44