About the report
Xavier Rolet, CEO, London Stock Exchange Group
“The 1,000 companies highlighted in our report have, on average, more than doubled their revenue in the past four years”
Welcome to the second edition of London Stock Exchange Group’s 1000 Companies to Inspire Britain, a landmark report identifying the UK’s most exciting and dynamic small and medium-sized businesses.
When we first launched this project in late 2013, our aim was to bring to life what we knew instinctively to be true, that these companies are the driving force behind the UK economy.
The term SME describes a very broad church of businesses, from the sole trader to the high-end manufacturer, and to discuss them all as a homogeneous group makes little sense. Indeed, there are more than four million SMEs in the UK. Within that number is a subset of exciting and promising companies of exceptional importance to UK economic growth and job creation.
The success of these companies, variously identified as ‘gazelles’, ‘the magic 6%’ or ‘scale-ups’, has a remarkably disproportionate effect on our national economic output. The Scale-Up Report, published last year by Sherry Coutu, found that boosting this ‘sector’ by just 1% would create as many as 230,000 new jobs and add £38bn to UK GDP.
“We need to build an ecosystem that promotes the right type of funding”
Those figures are impressively high for two reasons. First, successful small companies, properly supported, can grow both employment and revenue at exceptional organic rates. The 1,000 companies highlighted in our report have, on average, more than doubled their revenue in the last four years, and the top 500 have more than tripled theirs. Second, because high-growth companies’ success tends to be based on innovation rather than the strict cost control typical of large caps, the jobs they create are usually more highly skilled and more highly paid.
The knock-on effect of their growth is thus felt around the country. Not just from more employment but also from the benefits of higher tax receipts, helping to fund public, social and infrastructure spending. The success of our SMEs is inextricably linked to the success of the UK, and we should be aspiring to continue promoting them.
As this report demonstrates, the UK is already home to thousands of inspiring smaller companies. The country remains one of the easiest and best places in which to launch a company and, last year, more than 500,000 new start-ups were registered in Britain.
1/4 of the 1,000 companies operate in manufacturing, construction and engineering
That phenomenal number is thanks, in part, to a determined, widespread focus to make it easier for UK entrepreneurs and young companies. Initiatives such as Tech City and Med City; local programmes supported by regional and central government; the tireless work of industry associations; and private sector-backed initiatives, have all helped to create a new wave of ambitious, companies with genuine entrepreneurial zeal.
The real challenge is the next step: making sure that the best start-ups have the environment and the support they need to scale up and make the transition from start-up to mature business, from million-pound-starlets to billion-pound-superstars. This isn’t easy and, as The Scale-Up Report noted, competitive advantage doesn’t go to the nations that focus on creating companies, it goes to those that focus on scaling companies.
“The problem lies in a 50-year-long fixation on debt as the solution to every company’s financial issues”
At London Stock Exchange Group, when considering this issue, our natural focus is finance, particularly risk finance. It’s an area in which the UK still lags behind and a clear area for improvement.
In part, the problem lies in a 50-year-long fixation on debt as the solution to every company’s financial issues. The UK needs a healthy, proactive commercial banking industry, and we are delighted that an outstanding organisation like Lloyds is supporting the project.
We must stop seeing bank lending as a panacea, however. In many ways, banks have been dealt an impossible hand – they face enormous pressure to increase lending, while remaining subject to tough and increasingly complex new rules on regulatory capital and leverage ratios. The solution is to build a wider and deeper pool of risk capital that includes all types of funding, including private equity, public equity, venture capital money, crowd sourcing and business-angel investment. They can sit alongside debt as a funding tool, enriching our financing landscape. A healthy funding environment is a diverse one, with companies able to choose the right form of finance for each stage of their development.
Progress is being made and the UK Government deserves praise for the steps it has taken. These include changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes, allowing AIM shares to be held in ISAs, programmes such as Tech City’s Future Fifty initiative, and the abolition of stamp duty on small-cap shares. We are also supportive of the Government’s backing of employee share schemes empowering people to invest in the companies they work for. But there is more to do. We need to build an ecosystem that promotes the right type of funding for companies at each stage of their journey so that, together, we can drive our own prosperity.
Inside the report
In this report, we have not attempted to emulate other rankings of fast-growing SMEs. Instead, we have expanded the number of companies beyond the normal 100 or so, to 1,000, and focused on metrics beyond short-term revenue and profit growth. Often, analysis of SME performance does a good job of ranking companies that are operating in industries at the top of the cycle. Interesting, but not necessarily reflecting the wider economy. Our selection criteria require companies to have shown not just growing revenue in at least three out of the last four years, but also to have outperformed their sector peers. Our unique methodology, devised by DueDil (itself an SME), reveals a community of UK businesses richer and more varied than we believe has ever been identified in any other exercise of this type.
In this – our second report – we see some interesting trends emerging one year further on from the financial crisis. Certainly a recovery being built on jobs: 50 recruitment firms made the list, a 100% increase on the previous year.
“The sector diversity in 2015 is revealing too and should swiftly dispel the notion that the UK is a country that no longer makes anything”
And a recovery not limited to London either, with more than 75% of the 1,000 companies drawn from outside the capital. Fascinatingly, Scotland, Northern Ireland and Wales boosted their weighting by 30% from last year.
The sector diversity in 2015 is revealing too and should swiftly dispel the notion that the UK is a country that no longer makes anything. Exactly a quarter of the 1,000 companies operate in manufacturing, construction and engineering, and many within that group work at the very cutting edge of their industries. Continually strong UK sectors such as IT and telecommunications remain very well represented and within financial services this year, we see the emergence of several new challenger banks. Our nation’s changing tastes and hobbies are also revealed – three Mexican restaurants make the list for the first time, as does a high-end cycling clothing manufacturer.
Naturally, the constraints of time and space have meant we have not been able to tell 1,000 stories or explore all the trends and dynamics that the research has uncovered. A searchable database can be found online at www.1000companies.com
I want to thank our sponsors: Lloyds Bank, Business Growth Fund and Cenkos. Together, they have made this publication possible. I’m also particularly pleased, given the nature of this project, that we have been supported by companies which work with SMEs at every stage of their funding and development process.
I also want to thank our media partner and supporter, The Telegraph, which is a committed champion of entrepreneurs and the vital role that these 1,000 companies, and those like them, play within the UK economy.
More than three-quarters of the 1,000 companies hail from outside the capital
Our thanks also go to the who’s who of expert contributors: British Bankers’ Association, British Private Equity and Venture Capital Association, Confederation of British Industry, City & Guilds, Institute of Directors, Quoted Companies Alliance, Tech City and UK Trade & Investment, as well as the Cabinet Ministers and senior politicians who have given this report their support: the Rt. Hon. George Osborne MP, the Rt. Hon. Vince Cable MP and Chuka Umunna MP. Their contribution to this publication is testament to the deep understanding, across all of the UK’s major political parties, of the need to support, encourage and fight for the future of the UK’s SMEs.
I hope you enjoy the report and I encourage you to explore the database of inspiring companies we have identified. The UK is getting back to full fighting economic strength and these 1,000 companies and stories are proof of all that the country has to offer. We hope you are inspired.
Xavier Rolet, CEO, London Stock Exchange Group