Member Article

North West researchers uncover hidden growth potential in small firms

North West researchers have identified a hidden seam of small business growth that could help drive and sustain UK economic growth and job creation and fill the void left by job losses in the public sector.

The in-depth study - commissioned by Private Sector Partners NW Ltd and undertaken by Manchester Metropolitan University Centre for Enterprise - highlights five ‘invisible forms of growth’ by small businesses. This could inform improved targeting of government policies and business support to develop the potential of small firms.

Much business support for small businesses is currently focused on ‘high growth’ companies employing more than ten people and usually defined by their achievement in increasing turnover or employee numbers by 20% over three years. It is claimed that this exemplary minority of just 6% of all UK firms account for more than 50% of job creation.

The study highlights evidence that the growth potential of these ‘high growth’ firms may be overstated and reflective of fast, rather than sustained growth. It points to an alternative, more nuanced picture - reliant on additional growth indicators to turnover and job creation. This is illustrated by five additional models of growth and types of business, which are:

1. Virtual Organisations, which may have few direct employees, but form alliances and build networks to undertake large projects and increase capacity. This supports a freelance labour market and generates sub-contracted jobs.

2. Small Giants, whose leaders consciously avoid fast growth - focusing instead on building reputation and quality standards. Such businesses create stable employment and quality jobs.

3. Sustainable Businesses, which create long-term stable employment with little job churn.

4. Portfolio Entrepreneurs - involving small business owners diversifying into new or related markets and developing multiple ventures. Many jobs may be created overall, but the individual businesses could remain n the micro category and, hence, not register under traditional measures of high growth.

5. Social Enterprises, where the focus is on making a difference to the community and creating employment for marginalised workers and high quality jobs.

Professor Lynn Martin, Director of Manchester Metropolitan University Centre for Enterprise, said: “The potential of small businesses to support economic growth and stimulate employment is high on the political agenda, so it’s crucial that government policies to underpin small business growth are carefully aligned to deliver the best return on investment. Exceptional ‘high growth’ businesses are only part of the story and there are many other ways of generating new economic activity that do not fit the traditional model.”

Miranda Barker, Director, Benchmark Holdings Plc and Private Sector Partners NW Ltd, said: “Underestimating the importance of a broad range of SME models of mutual support and interdependence, with the potential to boost jobs and sales, would restrict economic success both for the companies and for the country. Government needs to draw on every available resource of drive and expertise to support the re-growth of the economy, and the business support they provide needs to be geared to do just that.”

She continued: “Close to 60% of all private sector workers are employed by our small and medium sized enterprises. Private Sector Partners has always worked to increase government understanding, and tailor the support provided by public sector bodies, for the maximum benefit of SMEs and the economy as a whole.”

The study combined interviews and workshops involving 60 small firms in North West England with a review of published evidence from academic and policy oriented literature. The aim was to listen to the views of small businesses to understand the different ways in which they contribute to the economy.

The report will be sent to politicians and policymakers ahead of the party conferences and it will be presented at the Institute for Small Business and Entrepreneurship (ISBE) Conference this November.

Further information: www.mmucfe.co.uk

This was posted in Bdaily's Members' News section by Manchester Metropolitan University Centre for Enterprise .