Welcome to London Stock Exchange Groups 1000 Companies to Inspire Britain: a landmark report that identifies some of the UKs most exciting and dynamic small and medium-sized enterprises.
When we began this project six months ago, our aim was to bring to life what we knew instinctively to be true: that these companies are the lifeblood of the UK economy.
The term SME describes a very broad church of businesses, from the high-street greengrocer to the high-tech manufacturer and exporter. Within this group of more than 4.5 million UK companies there is an exciting subset of fast-growing, dynamic businesses. These "gazelle" companies, as the CBI calls them, or the "vital six per cent", as think-tank Nesta describes them, are of exceptional importance to UK economic growth and job creation.
Our own research, and that of many other organisations, has shown that it is almost exclusively these companies that have generated new, net job creation in the UK since the financial crisis. The public sector has shrunk and while large-caps are recovering, their hiring has not. Gazelle companies, post-2007, are proving to be the lifeblood of the UK economy.
Celebrating the success of these SMEs is a shockingly under-reported story and we are determined to change that. Our report, 1000 Companies to Inspire Britain, seeks, for the first time, to identify 1,000 of the most exciting small and medium-sized companies in the UK.
More needs to be done to raise awareness of the importance of these businesses. More needs to be done to nurture, support and encourage these companies, many of which are poised to be the blue chips of tomorrow. That support comes in many forms: from cutting red tape, to media promotion and providing access to appropriate finance. Given our role in the economy, we have a natural focus on funding and are committed to playing our part.
Without doubt, many SMEs find accessing long-term, supportive financing difficult. More than half of Britains SMEs resort to credit cards to fund their business. The same percentage use bank debt to finance their growth. Just three per cent of entrepreneurs in the UK make use of equity finance. The US picture is the polar opposite, with only 18 per cent using bank debt to fund their development. While bank finance from lenders such as HSBC, which is a key sponsor of this report, is crucial to many SMEs, we need to make the whole ecosystem work better and encourage the use of, and access to, equity finance. The UK needs a more diversified funding environment for its entrepreneurs and ambitious, fast-growing companies and not just through the public markets.
Capital should come from business angels, venture capitalists and private equity firms, creating a funding ladder that encompasses, but is not solely reliant on, bank finance. This will allow fast-growing companies the time and opportunity to invest in their development and not their interest payments.
"In this report, we have focused on metrics beyond short-term revenue and profit growth"
Progress is being made and the UK Government deserves praise for the steps it has taken, such as changes to the Enterprise Investment Scheme and Venture Capital Trust schemes. It has also allowed AIM shares to be held in ISAs, launched programmes such as Tech Citys Future Fifty initiative, and is abolishing stamp duty on small-cap shares from 2014. We are also supportive of the Governments backing of employee share schemes, empowering people to invest in the companies they work for.
But there is more to do and we have asked the Government to take further steps to ensure appropriate regulation not only for SMEs, but also for the wider financial community. 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. While interesting, it is not necessarily a reflection of the wider SME community. Our selection criteria not only require companies to have shown growing revenue in at least three of the past four years, but also to have outperformed their sector peers. And not just in terms of revenue, but either by growth in employee numbers, work space occupied or number of filed patents. We are looking for the innovators of tomorrow.
We have also made the very deliberate decision not to rank the 1,000 companies; not least because such a list is out of date the moment it is published. Also, it is easily skewed by the time period chosen or the choice of financial benchmark, and it has an inbuilt bias towards industries that are on the up at the time the research is carried out.
"The range of companies across the UK reflects the local hubs or expertise, skills and talent that we have in this country"
The design of our research, produced by specialists Growth Intelligence (itself a start-up), attempts to mitigate these biases. The result is a list of companies that have not only performed strongly since 2009 an exceptionally challenging period but have also consistently outperformed their sector peers. This is a community of UK businesses that is richer and more varied than, we believe, has ever been identified in any other exercise of this type.
The list of businesses reveals that the UK is a diverse economy, with companies from more than 100 sectors ranging from architecture and automotive, to venture capital and wine. Encouragingly, these companies come from every UK region. A full searchable database can be found online atwww.1000companies.com/
The front half of this publication contains 10 sections looking at some of the companies and industries in more detail. Weve also profiled businesses that fall under themes such as creative, eco-friendly or innovative; the latter highlighting companies that have filed the most patents. Our section on CEOs under 40 looks at some of the most inspiring young business leaders, while the online retail section, for example, reveals a group of successful companies growing in an industry that simply didnt exist just 15 years ago.
105 tech companies are on the list
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. However, even a cursory glance at the list of companies reveals the geographical spread and variety of businesses. Greater London accounts for 267 companies of the 1,000, with the remainder spread more evenly across the country than one might imagine. Indeed, South East England and North West England are separated by just 18 companies. The range of companies across the UK reflects the local hubs or expertise, skills and talent that we have in this country. Some 22 sectors are represented in North West England, 30 in Scotland and 39 in South West England.
The research happily dispels certain myths about the British economy: manufacturing, for example, accounts for almost a fifth of the companies within the index. And the UKs burgeoning technology sector is in rude health: an impressive 105 small and medium-sized tech companies make our list, ranging from app and game designers, to data centre and high-end hardware designers.
Our supporters
I want to thank our sponsors: Capita Asset Services, Cenkos, HSBC Global Connections, Octopus Investments and Workspace for making this publication possible. Im particularly heartened, given the nature of this endeavour, that we have been supported by companies that work with SMEs at every stage of their funding and development process: from Workspace, which provides the space and community for young companies to thrive in, to the early-stage venture capital backing provided by Octopus Investments; and from Cenkos and Capita, firms that help businesses access capital and succeed as public entities, to HSBC which works alongside businesses at every stage of their development in the UK and overseas.
Businesses from more than 100 UK sectors have made the list
I also want to thank our media partner and supporter, 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. The papers "Good News Britain" campaign has been an important reminder amid often-gloomy media coverage that British companies and entrepreneurs are forging ahead and competing on the world stage.
I also want to thank our expert contributors: Tech City; the Society of Motor Manufacturers and Traders; the Institute of Mechanical Engineering; the British Bankers Association; the British Venture Capital Association; the UK Business Angels Association; and the Federation of Small Businesses. Their contribution to this publication is testament to their deep understanding of the need to support, encourage and fight for the future of UK SMEs.
We hope you enjoy the report and we encourage you to explore the database of inspiring companies that we have identified. The list is not exhaustive, but it shines a light on some of the UKs most vibrant companies. While the UK is not back to full economic strength, these 1,000 companies are proof of all that the country has to offer.
We hope you feel inspired.
Xavier Rolet, CEO, London Stock Exchange Group