Teams are leaders in the race for growth
Entrepreneurs are the poster people of business but should we be looking to innovative, yet traditional, SMES to fuel real recovery? Rob Stokes investigates
LET’s hear it for the teams rather than lone entrepreneurs who star ted businesses that became high-growth firms (HGFs) without so much as a scintilla of knowledge about IT and DNA.
It is almost two years since researchers examined Scottish HGFs, businesses with average g rowth i n the number of employees or turnover greater than 20% per annum over a three-year period, and with more than 10 employees at the start of the observation period.
HGFs made up 4.1% of businesses in Scotland employing more than 10 staff, found Colin Mason, professor of entrepreneurship at Strathclyde Business School’s Hunter Centre for Entrepreneurship, and Dr Ross Brown, who was then in strategy and economics at development agency Scottish Enterprise, which sponsored the analysis. However, these HGFs made a disproportionate contribution to, and played a critical role in, the growth of the Scottish economy.
Previously, the archetype was bright academic-cum-entrepreneur spins out technology from university, attracts savvy business angels, struggles through the venture capital funding cycle but survives to become a fast grower, then floats or sells the company to reap riches beyond avarice.
The reality is that Scottish HGFs are generally older and
‘OUR RESEARCH FOUND THAT HI-TECH COMPANIES MADE UP A VERY SMALL PROPORTION OF HGFs IN SCOTLAND’
larger than the ‘archetype’; often grow through acquisition after organic growth by the initial company; often suffer growth setbacks soon after periods of rapid organic growth; and frequently come out of existing businesses rather than universities.
Team-based businesses are more likely to grow than those started by single entrepreneurs.
Professor Colin Mason now says: “Often, one person gets the limelight but the others beaver away in the background without often getting the kudos and are equally as important in running the business.”
Examples include AIM-listed Craneware, the Edinburghbased healthcare software firm where CEO Keith Neilson is very much the face. However, co-founder and chief technology officer Gordon Craig plays a vital role as president of the firm’s important USA operations ... where fiscal and regula- tory pressures on hospitals continue to drive interest in its market-leading solutions that help to maximise revenues and cut costs.
Other important characteristics identified as boosting productivity in Scottish HGFs are management’s prior experience; strong vision; motivation to grow; a focus on sales; devolved decision making; business strategy in general and market positioning in particular; owning intellectual property such as brand names and copyright; and careful recruitment and employee empowerment.
The paradigm- shifting conclusions for public policy were that technological innovation per se was not associated with growth, and HGFs did not make extensive use of publicsector business support, although appreciated the relationship when they did.
Distinguishing between manufacturing and services was also problematic, Mason and Brown found. “Services are increasingly embedded within products and play an increasingly pivotal role in the competitiveness of firms. Thus, targeting support at the manufacturing sector alone may not be appropriate,” they said.
They concluded that criteria for support should be as flexible as possible – which sounded like heresy when governments were banging the manufacturing and high-tech drums, and when the solo entrepreneur is the super- hero of our Dragon’s Den, celebrity-obsessed age.
“Most of the HGFs in the study are innovative, but few of t hese i nnovations are an outcome of their own R&D efforts. Even fewer are at the frontiers of science. We therefore need to see innovation as an activity that is often independent of R&D,” Mason and Brown commented at the time.
Most spending on innovation is in business processes or in doing something new with existing t echnologies and processes. Working with customers and end users is important, and innovation springing from recognition of market opportunities stands a better chance of commercial success, the pair reported.
Policy makers, therefore, need to understand that support for innovation is not the same as support for R&D, they urged.
“There may be a case for shifting support from technology (with its emphasis on R&D expenditures) to innovation support focusing on closer enduser engagement,” they suggested. “Newer forms of public support could include subsidised placements f or SMEs and their customers, and funding joint innovation projects between firms and their customers.”
Nearly two years on, Dr Brown, now a lecturer in management at the University of St Andrews, told The Herald: “The policy-making community still very much equates HGFs with hi-tech sectors even though our work showed that hi-tech companies are a very small proportion of HGFs in Scotland. Also, very few university startups grow to any size or significance. Corporate spin-offs are a key source.”
So who should be today’s rolemodel individuals and companies? “HGFs come predominantly from pretty basic sectors,” Dr Brown said.
PULL TOGETHER: strong teams appear to be the real drivers of business success.
John Anderson: “the big opportunity is to take established businesses and get them to start growing”.