The economic productivity of Greater Manchester has been impressive in recent years and hit 6.8 per cent between 2014 and 2016, beating stiff competition from London (4.6 per cent) as its fast-growing businesses helped drive the city forward. Here, Luke Hakes, partner at Octopus Ventures, explains the importance of high growth, small businesses to the region.
The UK’s world-class research capabilities have long played a vital role in stimulating the economy and creating start-ups across the nation. They attract ambitious and smart people across different disciplines who are able to share ideas collaboratively using the deep connections and networks universities provide.
In short, they can provide the perfect start-up platform, and have been a hotbed for successful enterprise.
Nowhere are the benefits of having a strong knowledge economy more apparent than in the North West, with universities continuing to provide the steady flow of talent and ideas that form the bedrock of entrepreneurship across the region.
Take Manchester. As a city, it has a strong history of innovation. It was, of course, the centre of the industrial revolution, and through the University, amongst many other world-changing discoveries, it was responsible for the creation of the first modern computer, as well as the contraceptive pill.
More recently, in 2004, the University hosted the work which lead to the isolation of graphene, and where groundbreaking experiments were carried out leading to the creation of an entirely new field of materials (so-called two-dimensional materials). This transformational discovery lead to the £356 million investment in the creation of Graphene City, which aims to drive collaboration between enterprise and education. It has already proven transformative for the region, revitalising public interest in university spinouts and winning plaudits across the globe for its potential to revolutionise a multitude of different sectors.
Similarly, public investment in Salford’s Media City has stimulated the growth of a rapidly evolving digital economy, creating a critical mass of ideas, investment and in turn, one of the UK’s fastest growing media and tech clusters. We all have an intuitive idea that the entrepreneurs and innovators behind these new fast-growing businesses are important, but the latest report from Octopus allows us to clearly quantify their impact, and it’s huge.
More productive than the average business
The Octopus High Growth Small Business Report 2018 found that, despite representing less than 1 per cent of all UK business, these high growth small businesses (HGSBs) create one in every five new jobs, equivalent to more than three thousand each week. The North West is home to 2,018 HGSBs. Not only are they 33 per cent more productive than the average business in the region, they also contribute a mammoth £7bn a year to the economy, and 22 per cent of growth.
The ability of this tiny group of businesses to consistently punch above their weight is all the more remarkable when you consider the barriers they face to growth. The report also reveals that 61 per cent of the North West’s HGSBs said transport was an important constraint to growth, the highest of any region, and compared to only 33 per cent in London. Digital infrastructure, which typically means internet speeds, were also an important concern for 58 per cent of the HGSBs. And on top of this, 89 per cent of HGSBs in the region said they have experienced skills shortages, compared to just 17 per cent of average business.
The potential of HGSBs is clearly huge, but we need to ensure they are given every opportunity to flourish. Improved transport links should be a top priority. This would also allow skills and talent to move between the cities, easing skills shortages.
There is also an important role for the University to play in the HGSB ecosystem. In my role working with the University of Manchester’s Innovation Company, UMI3, I see first-hand the incredible conveyor belt of world-class research that is generated within the University; the challenge is always to take that research and help it to reach its full potential. One way that can happen is by spinning out that research into commercial companies thus creating new HGSBs. Another might be in licensing those technologies to existing HGSBs, providing them with technology and capabilities that they otherwise wouldn’t have, enabling them to innovate and scale even more quickly.
By encouraging HGSBs to work more closely with universities, we can help construct a symbiotic relationship that helps drive a virtuous circle of investment, innovation and commercial and societal success.
The opportunity presented by HGSBs is enormous, and it is all of our interests that the UK sees more-and-more successful-scale-up businesses. We need to continue working closely together so that these companies can soar to even greater heights. Our future as an economy depends on their success.
Luke Hakes is a partner at Octopus Ventures, and chairman of UMI3, the University of Manchester’s Innovation Company.