“Growth in Every Postcode”: A Scale-Up Target Measures the Wrong Thing
If the promise of “good growth in every postcode” is going to mean anything, it has to start with the small and micro businesses.
On Monday, Andy Burnham walked through the door of Number 10 as Britain’s new Prime Minister, promising “good growth in every postcode.” It’s exactly the pledge that small and micro businesses longed to hear. However, it needs to be nurtured, or it will get nodded along to and then quietly forgotten. The question underlying the pledge has to be the right one.
Delivering on the promise depends on what counts as evidence that it is working.
The current default, which has attracted the attention of ministers, tracking and celebrating the number of “scale-ups”, or High-Growth Firms as defined by the OECD, is the wrong measure. It rewards a small group of firms already in mid-growth-spurt, tells ministers nothing about the much larger population of business owners whose ambition to grow is real but unrealised, and offers no way of knowing whether policy is actually reaching the postcodes the Prime Minister has pledged to reach.
The question we’ve all been asking business owners for years tends to be the wrong one. When we at the Enterprise Research Centre (ERC) catch-up with businesses we’ve worked with in the past, across a range of business growth programmes, we eventually get to the question we really need the answer to: “How’s it going – still growing?”[1]
But that question often assumes growth is linear; that businesses, once they embark upon the growth journey, continue to do so year after year forever. That’s not how it works. It’s not how it’s ever worked.
Two numbers that change how we think about growth
We in the ERC have spent years tracking what happens to UK small businesses and what do we find? Fewer than 15% of all firms manage to grow every year, several years running, and this has been shrinking over the last 20 years!
Here’s the number that matters more, though: around a third of all businesses have a growth spurt at some point: a burst of expansion, then a plateau, sometimes a dip, sometimes another burst after that.
Put the two numbers together and you get the real picture: there’s no such thing as a “high-growth business.” There are only businesses having a growth episode, that at any one moment may be categorised as a “high-growth firm”, by those who measure such things.
The spurt, the plateau, the pause, the next spurt; that’s not a business losing its way. That’s just what growth looks like, for almost everyone who’s ever done it. Today’s high-growth firms are simply not those of tomorrow. To assert that we need to increase the number of high-growth firms (i.e., scale-ups) from the current number year-on year, is to totally misunderstand the reality for all small business owners.
This is why we in the ERC have been arguing against the use of the OECD High-Growth Firm (HGF) metric as a target against which to measure policies designed to support business growth. It is a distraction and misdirects policy discussions and interventions. It has been very visible in various policy announcements since July 2024 and now, with our new Government, which is promising to support small and micro businesses, we have the opportunity for a significant reset.
There are many groups of firms that are capable of generating rapid growth and the ERC has identified many of them but one group in particular always gets overlooked: those micro-enterprises employing fewer than 5 people, who have demonstrated the ability to generate tens of thousands of jobs and millions in revenues over the medium to long-term. Similarly, a recent ERC blog by my colleagues Kevin Mole and Vicki Belt highlighted the importance of the ‘everyday economy’ and argued that improving ‘average firms’ matters for the UK’s economic future.
Let’s unravel the reality of business growth a little more.
‘It’s messy but logical’: what the growth journey looks like in reality
If growth really comes in episodes, then at any moment businesses are cycling through episodes of active scaling, deliberate pauses between episodes, periods where owners choose to park growth by design, and periods where ambition itself may have faded for a variety of reasons, such as those recently in play in the UK: war in Europe, war in the Middle East, cost of doing business, poor payment practices and the difficulties in hiring people and obtaining finance.
We must recognise this and understand that very different policy responses are required and this should be reflected in the detail of business support. Ignoring this matters, because it can lead to the mistake policymakers often make; and it’s the first mistake the new Burnham government can avoid, right from Day 1.
Yes, government-backed SME lending has more than doubled in recent months, and new guarantee facilities run to ten-year terms; long enough to span a spurt, a plateau and the next spurt. For the first time, the finance plumbing matches how businesses grow. Mr Burnham’s own devolution agenda, and the proposed “Number 10 North” office, also create a natural opening to rebalance growth support away from London and the South East, and hopefully, not just to the 11 Mayoral Authorities in England. The postcodes of the ‘shadowlands’ also need to be in the mix.
Burnham’s first 100 days
Much support designed to encourage business growth gets built around whichever firms happen to be mid-spurt right now, which quietly favours certain places and certain sectors over others: usually London and the South East. Meanwhile, nobody’s tracking the much bigger group: the roughly seven in ten business owners who say they want to grow.
The real problem we are facing in the UK is that we’re not translating ambition into performance. You can’t fix a problem you’re not measuring. If the promise of “good growth in every postcode” is going to mean anything, this is where it has to start.
So, as Burnham’s team gathers in Number 10 this week, and with Jonathan Reynolds now back at the helm, and driving the Small Business Plan, albeit with an expanded brief in DBIST, we would urge that watching how businesses move between the four states should be the leitmotif for a more realistic strategy for small business growth: support the plateau; protect the ambition.
The growth episodes will look after themselves, but we need to stop counting ‘scale-ups’ as a measure of a ‘successful’ policy outcome. This misreads the evidence, concentrates support on firms that already have momentum on their side, and gives ministers no visibility of the much larger group whose ambition is quietly eroding: the group with the most headroom to respond to policy and create that ‘growth in every postcode’.
Professor Mark Hart, Deputy Director, Enterprise Research Centre
Please note that the views expressed in this blog belong to the individual bloggers and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group
