The Leap 100 September Poll – Climate: Scaling Up
COMPANIES in The Leap 100 have big ambitions. Nearly three-quarters expect to hit annual revenues of £50m or more in the next five years, and a quarter anticipate hitting over £100m. But despite 76 per cent thinking that it has become easier to scale a business in the last few years, achieving fast growth doesn’t come easily. One in four say they find it difficult to hire the talent they need. Visa restrictions, the cost of housing and transport, taxes and a lack of high-quality graduates all inhibit these fast-growth firms. Moreover, once they’ve secured that talent, retaining it can prove difficult. One respondent says the biggest challenge he’s faced is knowing how to deal with “the loyal individuals who get left behind as the company grows and when a new set of skills is required”.
For many, cash flow, and the access to and cost of capital are significant hurdles. Two thirds don’t think high street banks have the capabilities to support scaling firms. But several think that, in spite of having the ability to help scaleups, it’s doubtful whether banks actually have the appetite to do so. “If you are in any way unusual (which often relates to fast growth), they [banks] don’t know where to put you. We sense they prefer widget makers, not innovative or pioneering companies,” commented one respondent. Another, who banks with RBS, said: “it is aware of our growth and hasn’t done anything proactive to suggest how it might support it.”
A whopping 96 per cent of The Leap 100 have turned to non-bank finance in order to support growth. This hasn’t been easy – they’ve had to winkle out alternative options themselves. Giles Brook, founding partner of Bear Nibbles, says: “every bank rolls out the standard overdraft and invoice discounting facilities… perseverance allowed us to discover other facility options which weren’t obvious but ultimately were more suited to our needs.” Steve Folwell, managing director of Lovespace, explains how his company, a multi-award winning business, still struggled to access finance from traditional sources. In 2014, the firm turned to crowdfunding. Exceeding its original target by 167 per cent, this enabled expansion of both its customer offering and warehouse space.
Ed Bussey of Quill points out that the cost of capital in the UK is still far higher than the US and, “while the financing situation here continues to improve markedly from where it was a decade ago, equivalent US businesses can still typically raise more money, faster and at better valuations than their UK counterparts”. This, he adds, means they can scale faster, taking greater gambles and recovering from the mistakes that inevitably happen along the way.
And although 60 per cent of The Leap 100 say that access to office space is not a significant barrier to growth, Danvers Baillieu of Privax sums up a widely-expressed sentiment: “the lack of decent office space in central London is ridiculous. Too many properties are being converted to residential which is highly damaging and perverse, given that businesses are paying a surcharge for Crossrail. This means that landlords are only interested in letting on 10-year leases – very awkward for growing businesses who cannot predict headcount two years out, let alone 10.”
This article first appeared in City A.M. on Thursday 24 September 2015. You can view the full City AM article here.