“Competitive advantage doesn’t go to the nations that focus on creating companies, it goes to nations that focus on scaling companies”
– Sherry Coutu CBE
Defining scaling companies
Scaling is achievable by any type of business; of any age, size and industry sector.
While there are several analytical methods and criteria that can be applied to identify whether a business is ‘scaling-up’, a scale-up is generally defined as an enterprise that has achieved a 20% average annual growth in employees or turnover over three years.
Becoming a scale-up nation
Scaling-up is about business owners having ambition to grow their company and actively pursuing that ambition by taking actions which positively affect growth. Successful scale-up leaders are those that actively seek business multipliers – interventions that have the potential to either multiply revenues and/or multiply the valuation of the company.
Many businesses grow without successfully scaling. For example, in a professional services business, every time a certain number of new clients come on board the company will need to employ another account manager to service the clients. By adding costs at the same rate as they add revenue, they are growing, but they are not scaling. Scaling up a business means increasing revenue without increasing operating costs at the same rate – profits should be increasing faster than costs.
Verne Harnish of the Gazelles has identified the four pillars required to scale up a business as:
- Having the right strategy
- Finding and keeping the right people
- Executing the strategy successfully
- Managing the cash
Effective business planning will make the scale-up dream far more achievable. Business owners need to know where they want to go with a business and put a solid plan in place to get there. A great deal of consideration needs to be given to capacity and scalability as well as ensuring that sufficient cash is available to facilitate growth.
An effective business strategy and documented business plan will help to ensure that a business is robust enough that it can scale effectively, and a focus on long-term growth and scalability, rather than short-term profit will help make that dream a reality.
Boosting our competitive advantage
Sherry Coutu CBE argues that we need scaling businesses for competitive advantage. Here’s the evidence – The Scaleup Institute reports that scale-up businesses contribute more to economic growth than either large corporates or start-ups. They have the potential to deliver up to 150,000 additional jobs and contribute as much as £225bn towards UK GDP by 2034.
In the North East LEP area alone, there are currently over 200 scale up businesses, employing 36,000 people and generating a combined turnover of £5bn (Scale-up Institute). What’s more, we know there’s the capability in the region to lift these figures even further.
At NEL, we’ve supported the growth of hundreds of businesses over the years, many of them scale-ups. If you’re a business owner actively pursuing ambitions to grow, there’s lots of support available – from mentors to networking events to fully funded business support programmes, you’ll find all the information you need at the North East Growth Hub.
Alternatively, why not come along to the Newcastle Scaleup Summit at the Live Theatre on Thursday 23rd November 2017 to learn how to take your business to the next level.
