How can businesses successfully “scale up” today, growing against a backdrop of digital disruption and political and economic upheaval?
That was the subject of law firm Bird & Bird’s Advance Series Event: Nurturing Innovation in the UK, held in association with The Telegraph, the CBI and the ScaleUp Institute.
Speaking to a packed auditorium of business leaders at Bird & Bird’s London offices, the CBI’s director of innovation and digital, Felicity Burch, said that while disruption creates challenges for businesses it also presents huge opportunities for new products, services and business models. “Disruption should not be a barrier to scaling up, it should be a driver,” she said.
For businesses that are growing quickly, having an ambitious mindset and a clear sense of purpose are essential for success, she claimed. The UK currently has 36,510 scale-ups employing 3.4 million people and adding £1.3 trillion to the UK economy annually, according to the ScaleUp Institute.
Far from being exclusively London-based, scale-ups exist right across the UK and are not just technology companies. However, while the UK ranks third in the world when it comes to start-ups, it is just 13th for scale-ups – defined by the Organisation for Economic Co-operation and Development (OECD) as businesses with an annualised growth of 20pc in the past three years in either turnover or employees.
There are several reasons why UK businesses struggle to scale up – much more so than start up – according to the ScaleUp Institute’s research. These include finding employees with the right talent, getting leaders in place with suitable levels of experience, accessing markets and accessing finance.
There needs to be a much better distribution of capital across the country, in particular access to long-term patient capital, Irene Graham, CEO of the ScaleUp Institute said. This is a key challenge the British Business Bank is focused on addressing.
Indeed, for Anne Boden, who founded Starling Bank in 2014, getting finance proved very difficult. “Unfortunately there was no money for starting a bank because no one had ever done it before,” said Boden.
However, Starling Bank – which launched in 2017 – is now scaling up successfully, increasing its customer base by more than 450pc in the past 12 months. It has recently raised £75 million (including £60 million Series C funding) and received a £100 million grant as part of an RBS fund to boost banking competition.
So how do businesses make the transition from start-up to scale-up? According to the CBI’s Burch, there are three factors which determine whether businesses “scale or fail”. These are good leadership, the desire to innovate and the recruitment of talent.
“Businesses that innovate grow twice as quickly in employment and sales as those that don’t. Innovation is critical for boosting productivity,” she said.
The ScaleUp Institute’s Graham agreed that innovation is vitally important, and one of the key traits of scaling businesses is their innovation and internationalisation. She stressed that companies can’t do it in isolation. “There is a need for collaboration across the scale-up community which means corporates, financiers, educators and government acting together to support our scaling firms,” she said.
For Starling Bank’s Anne Boden the UK provides a perfect combination of technology skills, a progressive regulator and great talent. However, people in the UK are “reticent in blowing their own trumpets” compared with peers in other countries.
According to Boden, London became a hotbed of fintech innovation following the first PSD (Payment Services Directive) in 2009 when traditional banks were failing to innovate and keep up with changes in user behaviour. “They were refurbishing branches but the only difference in their strategies was the colour of the carpets,” she said.
Like Starling Bank, what3words – an innovative global addressing system which divides the world into a grid of 3m by 3m squares, giving each a unique three-word grid reference – has been able to scale up its business rapidly since launch in 2013, and now employs more than 100 staff across sites in the UK, USA, Mongolia, Saudi Arabia and South Africa.
Not only is its solution used by emergency services in the UK, it’s now being installed as a standard in the head units of selected Mercedes Benz cars, and also lists Ford, Cabify, Lonely Planet and Airbnb as partners. According to Camilla Taylor, CFO at what3words, the scale-up journey has been supercharged, with its achievements and of course, its challenges.
“That’s not a reflection on the UK, which is a marvellous place to innovate. It’s just a very involved and intense process to scale up anywhere in the world,” she said. Taylor also explained how, inevitably, fundraising activities can take time away from key people involved in growing the business, which must be factored in.
Embracing technology and committing to change is essential even for businesses that, on the face of it, have nothing to do with such development. For online grocery store Ocado, now the world’s largest dedicated online grocery retailer, innovation and disruption is at the heart of everything it does. Not only has it built its own software, it’s also started to build hardware – robots that it plans to use to disrupt other sectors.
According to the company’s CTO, Paul Clarke, companies need to “embrace uncertainty” and “break rules” to grow in an era of digital disruption. “Playing King Canute and trying to turn back the technological tide won’t end well.”