There is huge attention at the moment on scaling business. Scaling is part of a national focus on making the business community more innovative, more competitive, more productive. Professor Laura Galloway from Edinburgh Business School, Heriot-Watt University shares her insight with BQ.
The Scale-Up Institute, the private sector body that works with government and the public sector to encourage and support scale-up, calculates that firms that have scaled have cumulatively contributed £1.3 trillion in turnover and employ 3.4 million people. Success is not consistent, however, and some areas of the UK are enjoying more success than others: Terry Murden reports in Daily Business in March this year, for example, that scale-up rates in Scotland have “plummeted”. Perhaps this relates to variation in economic conditions and types of businesses in different areas. Perhaps it relates to the ways in which support and encouragement is provided. Perhaps both. I might be so bold as to suggest that perhaps low scale-up rates might even reflect a lack of engagement with scale-up. Let me explain.
Staying with Scotland as an example, there are some excellent things happening on the supply side in terms of scaling business. The Scottish Government’s Can Do Strategy fits well with the scale-up agenda, and some really pioneering programmes are available. The 18 month Scale-Up Programme provided by the Hunter Foundation, Entrepreneurial Scotland and Scotland CanDo is world class. However, it is targeted at and available for those firms that are turning over £1million and employing 10+ people. Similarly, the 4 day Scotland CanDo Scale programme seeks to engage those firms that have at least a £250k turnover. While observable improvement in participating firms’ fortunes is excellent news for all of us, could we also be missing a trick with the wider business population.
Let me put this in context. UK Government data confirms that 96 per cent of all firms have 0-9 employees; 75 per cent have none beyond the owner. While there’s no denying any growth in this sector is likely to represent very modest contribution at individual levels, that is a lot of business. And they’re not lacking in ambitions: to return to the Scottish example, while the number of non-employing firms decreased for the first time in years, during 2017-2018 the number of employing firms rose by nearly a thousand, and it is not unreasonable to infer from this that at least some of the smallest businesses out there must be growing. However, the notion of scale-up in the circumstances of most firms is unrealistic. First, the target is unattainable for many since capacity commensurate with 20 per cent increases is not possible with no or few employees or low levels of capital. Second, as we know from research, many business owners do not exhibit classic ‘entrepreneurial’ (aka economic) ambitions or strategies, instead remaining small or pursuing only limited growth on purpose for a variety of social and personal reasons. At a policy and support supply level, since these many firms are least likely to reap substantial economic returns via scaling, the strategy is largely to ignore them and let them get on with it. Here, in my opinion, is where the problem (and the opportunity) lies.
To explain the effects of ignoring the vast majority of businesses in favour of the few with the highest potential, I refer to established knowledge about leadership and motivation. It is well known that people are motivated to increase their efforts and performance when they believe their contribution is useful and valued. Excellent leadership is also demonstrably associated with engaging and aligning individuals’ interests and ambitions with strategic goals, and fostering a sense of collective investment in these goals.
In my job and role as an entrepreneurship educator and researcher at Edinburgh Business School, I have the privilege of working with students from all over the world. I am also consistently engaging with people who have firms, particularly via MBA teaching, in the EBS Incubator and, of course, research. These firms are almost always sole traders or micro-firms, started by people passionate about what they do and keen to make a living from it. And they are all almost always looking for ways of developing and, yes, growing their firms, but in a managed and moderate way, commensurate with their ambitions for income, lifestyle and work-life balance.
Amongst these owner-managers there is often a sense of frustration that the spotlight is always on the few ‘high-achievers’ or ‘high-potentials’ rather than the many. Elsewhere, some of these sole and micro owner-managers even express a perception of themselves as inconsequential. But this is so absolutely not the case. Collectively, these 96 per cent of firms are contributing a third of private sector employment and a fifth of turnover. These are not a sideshow.
Imagine if we could inspire these firms to scale by just a few per cent; imagine if we could have mechanisms in place that supported them to do this. These might include access to mid-level amounts of capital, training for the purposes of achieving the goals of the individual (rather than the support agent), and engagement through mentoring, again with the goals of the individual as the focus. Most important though, the first step would be a celebration of these many firms, from both public and private sectors, to acknowledge their contribution, to express pride in the massive achievement of creating (at least their own) jobs, and to say thank you. Leadership wisdom has established the enormous effects on performance where contribution is acknowledged, development takes account of individuals’ ambitions and goals, and value is clearly attributed to effort. If inspiring and inclusive leadership and motivation are the distinguishing features of the best performing firms, imagine what we could achieve if we applied it across the full breadth of the business sector.