The document discusses research from the Enterprise Research Centre (ERC) on small and medium-sized enterprises (SMEs) in the UK. The ERC aims to understand what drives SME productivity and growth to support the UK economy. The research identified three types of firms - those that fail fast, sustain with modest growth, and sustain long-term with strong growth. It also found that leadership and management skills influence SME adoption of best practices and shape business performance. The Goldman Sachs 10,000 Small Businesses programme was shown to increase participating businesses' growth by 10-25% compared to non-participants.

1. Growing an Enterprise Economy
- what makes businesses
successful?
Professor Mark Hart
NI Economic Conference
20th October2015

2. Enterprise Research Centre (ERC)
Mission
2
CHALLENGE:
ERC Mission
How can the UK learn what
drives SME...
• Productivity
• Growth
...to support the UK
economy
? 3 year research agenda
• Creating objective evidence base on small business sector
• Landing pragmatic policy recommendations
• Impact on UK economy through greater SME productivity and growth
ANSWER:
£4.1m from UK and Banks (including LBG)
Consortium of 5 university business schools

3. Translating Research into
Policy
3
Ambition
Leadership & Management
Diversity
Finance
Innovation & exporting
Business demography & productivity
We’ve organised our Research
around six Pillars
We’re aiming at three Themes for Policy
Recommendations
Role for SME sector in economy
• How to sub-segment, and which sub-
segments are important
• What aspiration can the sector deliver
How to focus efforts
• Which SMEs show productivity; growth
• Where have policy actions improved
productivity and growth
Propositions that work
• What support and incentives pay back
• How should these be promoted

4. Changing the way Government
thinks about SMEs
4
“Their insights ... and identification of growth
ambition, leadership capability and leadership
capacity as drivers / enablers of small business
growth encouraged us to focus on mentoring,
coaching and entrepreneurial skills training in our
SME support activities”.
Dan Hodges – Head of Economics and Evidence,
Innovate UK
ERC Impact
Innovate UK revised
their proposition
based on ERC insights
Case Study:
• UK’s growth accelerator – funds and supports innovative
SMEs to accelerate economic growth
• £500m funding source, plus support programmes

5. Focus more on Start-up Quality
5
UK Doesn’t Have a Start-Up Problem UK Has a Growth Potential Problem
•UK reported 500k start-ups in 2014 – around half
are self-employed
•UK has the highest level of self-employment than
at any point in the previous 40 years
UK creates many 0 employee firms
• Limited growth potential & aspiration
UK needs more promising growth firms
• Job creators, and UK prosperity
OECD Average UK
Start-ups since 2007
0
2
4
6
8
10
2008200920102011201220132014
UK France Germany
UK highest level
of new
enterprises than
any OECD
country in Q1
2014
GEM data
shows early-
stage
entrepreneurial
activity in UK
highest in EU

6. Policy stance: focus on those
SMEs driving UK economy
6
Emphasise quality -
potential for UK
economic impact
Differentiate
between small
firms starting out
Nurture future
survivors and
growers
• Survivors
• Growth potential
• Productivity
Three types of firms:
• Stay small, fail early
• Endure, with modest growth
• Endure long, and grow strongly
• We can create more of these
• We can profile them to support them better
Invest in the
higher-
quality firms

7. ∑
0
20
40
60
80
100
1 3 5 7 9 11 13 15
%Surviving
age (years)
Survival to Age 16
Great Diversity of Business
Start-ups
7
Three types of firms:
• 50% ceased by year 3
• 2/3rds ceased by year 5
Fail Fast Sustain Grow
Of survivors, 78% had
<10 employees constant
– c. 60k jobs
Of survivors, 10% (2.5k)
had created 200k net new
jobs – 80 apiece
Year 15
Year 1 1-4 5-9
1-4 57% 15%
5-9 3% 3%
% of survivors by employment Year 15
Year 1 20+
# of
Firms
1-4 92k 1248
5-9 23k 407
10-19 31k 334
20+ 54k 508
All 200k 2497
∑ = 78% of survivors
Invest in the higher-quality firms for UK prosperity

8. ‘Millennial 2000’ study
8
‘Growth Trajectories’ of micro-businesses since start-up shows
that even in early life, the high-growth firms look different to the
rest.
Jobs Sales

9. Key Messages
9
UK’s challenge is start-up
quality, not volume
Survival and Growth are key
drivers
Firms fall into three very
diverse profiles
Firm trajectory is
predictable
UK spawns many 0 employee start-ups, but higher-
potential firms dominate UK economic impact
Economic impact depends on survival and growth of
start-ups
• Fail fast
• Sustain
• Grow
Future trajectory can be better profiled early in lifecycle,
creating opportunity to better support the most promising
Firms value capability-
building support
Offering firms capability building support appears
to increase likelihood of success
Firms can be seen of three distinct types,
and these have massively different
contribution to UK economy

10. Growth Metrics
• Proportion of fast-growing firms (jobs) in the
business population (2011-14)
• Proportion of surviving start-ups that reach £1m T/O
(2011-14)
• Proportion of existing £1-2m T/O businesses which
grow to £3m T/O (2011-14)

11. Firm Survival and Growth –
English LEPs
11
Start-up
Survival Rates
Fast-Growing Firms
• London
• Oxfordshire
• Leicestershire
• Northamptonshire
• Thames Valley
Top 5
• Worcestershire
• Lincolnshire
• New Anglia
• Cheshire
• Cumbria
Bottom 5
• Cornwall & Isles..
• Buckinghamshire
• Swindon & Wiltshire
• West of England
• Thames Valley
Top 5
• Black Country
• Tees Valley
• Birmingham
• Humber
• Liverpool
Bottom 5

12. Scaling – English LEPs
12
Initial Scaling
(Start-ups to £1m)
Stepping Up
(£1-2m to £3m+)
• Thames Valley
• London
• Tees Valley
• Enterprise M3
• Birmingham
Top 5
• York, North Yorkshire..
• Solent
• Heart of the South West
• Cornwall & Isles..
• Cumbria
Bottom 5
• London
• Birmingham
• North Eastern
• Leeds
• Greater Cambridge & ..
Top 5
• York, North Yorkshire..
• West of England
• The Marches
• Swindon & Wiltshire
• Cumbria
Bottom 5

13. Northern Ireland?
• Volume of Start-ups – poor
• Overall number of Fast-Growing Firms (OECD
definition) – poor
• Scaling from £1-2m to £3m plus – poor
• But…… Initial Scaling (£1m in 3 years after
start-up) – Belfast & South and West – very
good

14. The ‘Arc of innovation’
• Taking these different indicators
together we can describe an ‘arc of
innovation’
• Why does this matter? Because
innovation is strongly linked to
exporting and growth?
• We should – perhaps - worry what
this says about rebalancing . And,
what are the implications for
policy both local and national.
• Promoting collaboration seems
obvious at local levels and perhaps
targeting support from Innovate
UK?

15. Scaling Businesses – the Leadership
& Management Challenge

16. L&M Skills in SMEs
• Growth ambitions of SMEs matter to
productivity growth
• But ……weak leadership and entrepreneurial
skills has been identified as a key barrier to
growth
• Affects Growth Disposition and Mindsets

17. Building the Evidence
• ERC commissioned by BIS to undertake research
involving 2,500 English SMEs - Invest NI funded a
sample of 300 supported SMEs within the study.
• Key questions:
– How do L&M skills influence the adoption of best practice
and,
– how they may shape business performance
• Research report, 'Leadership and management skills in
small and medium sized businesses' is available on ERC
website

18. Key Findings
• Many SME founders face challenges in expanding
their leadership to incorporate a CEO and
Management Team.
• Many SMEs are found not to employ management
best practice and as a result their growth is
constrained.
• The evidence indicates that this weakness can have a
negative effect on turnover, productivity and
employment growth.

19. Goldman Sachs 10,000 Small
Businesses Programme

20. Programme Impact
• Control group analysis designed to identify
programme impact.
• 10KSB UK programme increases participating
businesses’ growth by between 10% and 25%,
relative to what their growth would have been
without the programme.
• This boost to growth comes on top of the relatively
high growth that the participating businesses were
already experiencing.

21. Contact us:
If you would like any more information about the ERC and any of its activities
please contact Professor Mark Hart (mark.hart@aston.ac.uk)
More details about the activities of the ERC and our latest events can be
found at:
www.enterpriseresearch.ac.uk