Understanding small business dynamics is central to our work at the Enterprise Research Centre and once a year we gather at the Shard in London with 150 researchers, stakeholders, policy makers and small business owners to discuss and debate the state of the small business community. The sixth of these events was held at the end of June and while some of the recent movements in the data on small business growth and entrepreneurship have disappointed, the debate on what the future holds and how policy must respond certainly did not.

This was my first event as Deputy Director at the Centre, so here are a few takeaways from me in case you missed it.

 Small business statistics have been trending down

ERC’s annual State of Small Business Britain report  has the full round up of our latest research and small business facts and figures. The headlines, however, should be seen as a potential early warning signal of choppy waters ahead:

–          Small business confidence has declined consistently since the Brexit vote

–          … and this year we have seen a slight fall in levels of entrepreneurial activity with falling business births and rising death rates.

–          The challenging climate is evident among established firms too, with a sharp fall in the proportion trading profitably.

–          The proportion of high-growth firms (OECD definition) is stagnant – but there are stark differences between manufacturing and services and across regions.

–          Positive labour market trends are evident in small businesses with net jobs growth supported by expanding firms, but there has been an uptick in job losses in contracting firms.

–          Despite more discussion on productivity, the proportion of firms increasing it isn’t budging.

 Small businesses are agile, but everyday can bring a learning opportunity

The challenge to small businesses from the uncertainty created by Brexit was evident both in discussion and our analysis of the Longitudinal Small Business Survey (2018), which showed nearly three in ten small businesses regard Brexit as a challenge to business success.

Nevertheless, the LSBS also shows that companies have ambition to grow and in some fantastic presentations (available here) it was clear that across diverse sectors such as creative industries and automotive manufacturing there is not only an appetite to grow across UK business, there are some big opportunities on the horizon that small businesses can exploit – if they put in place the right strategies.

Some of the key learning points that emerged for me fell into three categories:

–          There must be a constant focus on developing the right leadership and management capabilities. Skills requirements evolve as companies grow and with shifting economic conditions. Formal learning and networking with others can bring additional value to companies in responding to change and building resilient strategies for the future.

–          Innovation is key, but this needn’t be about large scale product reinvention, digitisation and process improvement can improve productivity and drive greater efficiency in supply chains. The fourth industrial revolution also means businesses need to think about ‘repositioning themselves in entirely new value chains’.

–          Policy makers must continue to focus on making support more accessible. Government, for example, is getting on the front foot in response to more rapid technological change, but support programmes must be streamlined and access to funding should not slow down innovation or tech adoption.  

Strong role of places in supporting small business growth and productivity

With that last point in mind, there was a strong outbreak of agreement on the importance of places in support of business growth and productivity. The government’s industrial strategy at the national level is prioritising action in ‘horizontal policies’, (e.g. innovation and skills), as well as taking a strategic look at building partnerships with industry to tackle future grand challenges, such as an ageing society and clean growth.

Local areas also have a positive story to tell as they have built up knowledge and expertise of key sectors in their patch and bodies such as LEPs and Growth Hubs have facilitated strong collaborations across local businesses and support organisations. But it was clear that the process of devolution has not year matured and is still uneven across England.

We will no doubt return to the discussion around how places can go further to build the right business environment in support of small business growth and stimulating strong clusters of activity as debate on the next spending review heats up.

Up next

ERC’s up-coming research programme will be looking to answer questions such as ‘How do local productivity differences emerge?’ and ‘Who are the UK’s leading productivity businesses and are they influencing others?’ You can continue to engage with us as we debate these issues @ERC_UK.

 Lee Hopley


Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of
the Enterprise Research Centre, its Funders or Advisory Group.