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The Rise of the Super-SME

business energy costsAccording to UK fund management firm Octopus Investments there is a new super hero in town, this one though doesn’t wear a cape or a mask and its only super power appears to be recruitment excellence.

A recent report from Octopus has revealed that just 1% of the UKs businesses created a astonishing 68% of all jobs.

These business super heroes have been coined ‘Super-SMEs’ but are also known as the slightly drier moniker “high-growth small businesses” (HGSBs).

An HGSB is defined as a business generating revenues of between £1m and £20m per annum and who have grown in excess of 20% each year over the three-year period to date.

The report found that HGSB’s were creating 5,000 jobs a week, 256,000 a year and had a total working population of 667,000.

Unsurprisingly then HGSB’s have become a much vaunted driver of economic growth in the UK being responsible for 36.2% of gross value added growth in the UK, at an estimated £55bn on revenues of £114bn.

The HGSB’s are in a sustainably healthy state too with just 3% posting losses in their most recent annual accounts and with top line growth at more than 40% year on year.

These sort of metrics are the goal of every SME and equally the government, but the uneven distribution of ‘success’ comes with its issues, with Vince Cable, Business Secretary admitting:

“The government recognises that a small percentage of firms generate a disproportionate amount of innovation and employment growth.”

All told, 30,000 businesses are categorised as HGSBs but this level is rising apace at 18% between 2011 and 2013 against 8% for total business growth.

Simon Rogerson, CEO of Octopus, explained:

“Out of the seven million businesses that exist in the UK today, just 30,000 of these are HGSBs. Yet this tiny universe of companies are punching way above their weight. This report shows they need to be given serious consideration and we need to do everything we can to help them flourish.”

But the interstellar performance associated with the HGSB’s isn’t matched by a balanced regional spread. Instead, and perhaps unsurprisingly, 11,000 of the total HGSBs are located in London and the South East. Whilst that means the majority are not, the highest regional concentration remains in the South with 1 in 25 workers in London doing so in an HGSB.

Whilst HGSBs exist across the business landscape, it is the wholesale and retail industries that make up the single largest element at 16% of the total. Manufacturing comes second at 13%, perhaps a surprise for many who feel the era of the UK as a manufacturing hotbed is a thing of the past. Unsurprisingly given the physical size constraints of their businesses, restaurants and hotels represents the segments with the fewest HGSBs.

The drivers of success make equally interesting reading, according to the business owners themselves:

  • 76% believed that the economic recovery was the main “fuel” behind their spectacular growth
  • Innovation in products and improved customers service drove significant gains
  • Whilst marketing and strong local knowledge were major contributing factors
  • Interestingly, one of the least influential areas for growth for HGSBs was deemed social media

On the flip side, 48% pinpointed the growth and intensity of competition as a barrier to endless multiples of growth as well as:

  • Waning customer demand as markets and products evolve,
  • A dearth of employee talent with 1 in 5 HGSBs suffering as a result,
  • Red tape, and
  • The availability of funding from the banking industry with HGSBs reporting that they are overwhelmingly reliant on their own cash reserves to finance future growth.

Like all super heroes, behind the mask are the same problems all of us face, does that mean we can all be super heroes? No. Does it mean we can all benefit from the influence the few super heroes can bring? Yes indeed. If the Business Secretary takes note and acts on the barriers to growth that even the best businesses face then all UK SMEs can benefit, and new super heroes might just be born.