Number of high-growth UK companies down 2%

Barclays' sixth Entrepreneurs Index finds fewer British businesses reaching turnover of £2.5m to £100m while proportion of start-ups continues to rise

The number of UK businesses scaling to achieve high-growth status is in decline with the proportion of companies achieving turnover of £2.5m to £100m down 2.2% in the year to March 2014.

The findings, highlighted in the bi-annual Barclays and Business Growth Fund’s Entrepreneurs Index, found the percentage of Britain’s scale-up firms dubbed ‘Gazelles’ (companies with 33% revenue growth over the past three years and 10% year-on-year growth for a minimum of two years) has decreased from 23.2% in March 2013 to 21% in 2014.

The report pointed to several barriers which are stopping firms from scaling up, including access to finance and building leadership capability alongside Sherry Coutu CBE’s research which found that the “most significant reasons companies were unable to grow […] was down to their being unable to find employees with the right skills”.

The proportion of VAT-registered companies was also reported to have decreased, from 41.3% in 2010 to 39.5% in 2014, which indicates an increase in the number of businesses yet to reach the £81,000 tax threshold.

In contrast, the UK’s start-up scene has remained buoyant with Companies House indicating a rise in new UK businesses to 3,139,630 in December 2014, up 3.7% on June 2014, with one in 11 of those aged 18 to 64 either in the process of starting, or already running, a business.

Investments in UK companies have also risen steeply with the number of deals valued at over £200,000 up by 6% on 2013 with the biggest growth in deals in the telecommunications, food, property and pharmaceuticals industries. Deals in internet firms and energy companies saw a 23% and 41% decline respectively.

Barclays’ managing director Richard Phelps, commented on the findings: “The proportion of companies achieving high growth is beginning to show a slight fall, after we saw a plateau in our last index. This demonstrates that despite the improvement in the UK economy, there are still many businesses struggling to make the change from start-up to scale-up.

“Starting a business is clearly not a problem, we’re seeing more start-ups than ever. The bigger problem is why aren’t we seeing more scale-ups than ever before?”

In response to the findings that fewer businesses are reaching the £81,000 VAT threshold, Phelps continued:

“If people are embracing entrepreneurship it can only be a good thing. Ideally we’d want every business to become the next Dyson but let’s embrace the fact that start-ups are growing. We shouldn’t be overly critical of the fact that there are a lot of businesses that aren’t achieving revenues of over £81,000, better that people do that and work for themselves than say  […] a corporation”.

On the question of what more can be done to encourage the growth of scale-ups, Phelps asserted:

“My experience at Barclays is that what start-up businesses really value is mentorship to help them get to the next stage. There are a plethora of entrepreneurs who have failed, lived and then succeeded. Take Silicon Valley – companies there have gone from £5m to £100m, grown valuations from £10m to £80m. [We need] these Silicon Valley examples in the UK so that ‘scale-up’ will no longer be an aspiration but achievable.

“There are a number of companies that have achieved scale-up beyond belief [examples Cambridge Satchel Company, Naked Wines, Ella’s Kitchen] we need more of these amazing stories. Examples of, and access to, scale-up companies [will help start-ups succeed].”

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