About the report

  • Xavier Rolet, CEO, London Stock Exchange Group

    “We need to continue to build an ecosystem that provides the right type of funding for companies at each stage of their journey"

LSEG foreword

Welcome to the third edition of London Stock Exchange Group’s 1,000 Companies to Inspire Britain: a landmark report identifying the UK’s most exciting and dynamic small and medium-sized enterprises (SMEs).

When we first launched this project in late 2013, we said our desire was to shine a light on what we knew to be true: that these companies are the engine of the UK economy. Their effect too is to create, in the words of economist Nicolas Naseem Taleb, author of The Black Swan, an ‘anti-fragile’ SME economy: more robust, more flexible and less prone to boom and bust.

In this new report, we highlight 1,000 of the fastest-growing SMEs up and down the country. Our selection criteria (see p125 for full details) require companies to have shown not just growing revenue over the past four years, but also to have outperformed their sector peers.

Our unique methodology, devised by DueDil (itself a leading high-growth technology SME), reveals once again a community of UK businesses richer and more varied than we believe ever identified in any other exercise of this type.

We want particularly to shine a light on the companies variously identified as ‘gazelles’, ‘the vital 6%’ or ‘scale-ups,’ which have a remarkably disproportionate impact on UK national economic output. As the CBI recently confirmed, 3,000 scale-up medium-sized businesses contributed £59bn to the UK economy between 2010 and 2013, effectively making the crucial difference between recession and recovery. To put it another way, just a 1% increase in the number of high-growth businesses would create 230,000 new jobs and add £38bn or 2% to UK GDP. 

Those figures impress for two reasons: firstly, successful small companies, properly supported, can grow both employment and revenue at exceptional organic rates. The 1,000 companies highlighted in our report are growing at an average of 50% a year. Secondly, because high growth companies’ success tends to be based on innovation, rather than the strict cost control typical of large cap, the jobs they create are usually higher skilled and higher paid.

“We want to shine a light on what we know to be true: that these companies are the engine of the UK economy”

The consequence of their growth is apparent nationwide. Not just from more, higher quality jobs but in higher tax receipts, helping to fund public services and infrastructure spending. The success of our high growth businesses is tangibly and inextricably tied to the success of the country.

Over 600,000 new companies were created in the UK last year (a new record), demonstrating that the UK remains one of the best places in the world to launch a company. Thanks to determined initiatives like Tech City and Med City, programmes backed by local, regional and central government, the continuous work of industry associations and, most of all, the tireless efforts of hundreds of thousands of business owners up and down the country – we are in the grip of an entrepreneurial revolution.

Inside the report

In our third report, we see some interesting trends emerging. Our report shows more high-growth firms coming from outside London, with 8% fewer companies coming from London compared with last year. There are 25% more companies represented from Wales and Northern Ireland this year and in terms of revenue, Scottish companies are the fastest growing, enjoying over 80% annual revenue growth.

Sector diversity too is revealing and squashes any notion that the UK is a country that no longer has a manufacturing industry. Almost a quarter of the 1,000 companies operate in manufacturing, construction and engineering, and many within that group are working at the very cutting edge of their industries. Continually strong UK sectors such as IT, telecommunications and the creative industries remain exceptionally well represented.

Naturally, the constraints of time and space have meant we have not been able to tell 1,000 stories. However, the full index is at the back of this book and a searchable database can be found online at www.1000companies.com. 

The right finance for growth

Now we need to make sure these entrepreneurs have the tools they need to grow and create jobs. If 2015 was the year of the start-up, 2016 must be the year of the scale-up.

Historically, as a society, we have been obsessed with using debt to finance growth. Debt is a short-term fix that does not encourage long-term growth. It may be a suitable funding tool for established blue chip multi-nationals, but it is not designed to help innovative companies who need capital to grow and invest.

Any small company in receipt of a bank loan must prioritise managing that debt, or risk default, instead of using all its financial and human capital to invest, innovate and expand.

And, as has been made painfully clear all too often, too much debt always ultimately leads to disastrous consequences for the wider economy – with people subsequently suffering from fewer jobs and lower wages.

Instead, we need to unleash the power of equity finance where people seek investment to grow their business – either through individual investors, on the public markets  or through crowdfunding, peer-to-peer and other private platforms – in return for a stake in that business. 

This type of long-term finance allows companies the time, space and freedom to innovate, invest, grow and create jobs and the economic benefits are clear: figures for the last year available show companies that raised equity capital on London Stock Exchange’s growth stock market, AIM, to fund their growth, created 731,000 jobs, paid £2.3bn in tax and contributed £25bn to UK GDP.

  • 50% – The annual growth of the 1,000 companies highlighted in this report

And, the government deserves a lot of credit for recognising the need to back innovative, high-growth firms by recalibrating our tax system to give equity a fair chance. The effects of abolishing stamp duty on AIM shares in the last Parliament was immediate and resounding. Overnight, £4.4bn worth of investment moved into high-growth companies, helping them grow, invest  and employ more.

We need to continue to build an ecosystem that provides the right type of funding for companies at each stage of their journey so that, together, we can drive our own prosperity. For example, our pioneering ELITE programme brings together ambitious, entrepreneurial businesses and their leaders with the best advice, support and education the UK has to offer. I’m delighted that many of our UK ELITE companies have made the 1,000 companies list and I urge you to find out more about how the programme is helping successful British businesses (see ELITE chapter).

A healthy funding environment is a diverse one, with companies able to choose the right form of finance for each stage of their development.

Our supporters

I want to thank our sponsors: Business Growth Fund and Cenkos, whose continued support has made this publication possible. Both have a strong commitment to work with SMEs at key stages of their funding and development process.

I also want to thank our media partner, The Daily Telegraph, which is a committed champion of entrepreneurs and the vital role these 1,000 companies, and those like them, play within the UK economy.

Our thanks also goes to the ‘who’s who’ of expert contributors: BBA, BCC, BVCA, CBI, the Engineering Employers Federation, FSB, the Institute of Mechanical Engineers, IOD, QCA, the Scale-Up Institute, Tech City and UKTI for their insights and support of the SME community.

I’d like to extend my personal gratitude to the Cabinet Ministers and senior politicians who have given this report their support: Rt Hon George Osborne MP, Chancellor of the Exchequer and First Secretary of State, Angela Eagle MP, Shadow First Secretary of State and Shadow Secretary of State for Business, Innovation and Skills and John Swinney MSP, Deputy First Minister and Cabinet Secretary for Finance, Constitution and Economy.

Their contribution to this publication is testament to their deep understanding 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 at its best when ambitious entrepreneurs and companies are given the space and support to thrive. These 1,000 companies are the vanguard of a new, anti-fragile British economy. We hope you are inspired.

Xavier Rolet, CEO, London Stock Exchange Group