The need to help and support medium sized businesses (MSB) is very much at the heart of economic policy making at the moment. The missing component of the great work research institutes, accountants and think tanks have come up with is, just how difficult it is to set up and build one? Having done it with Winning Pitch (and working with a handful of others to do the same) there are so many lessons I would like to share. Here are 10 platforms critical to anyone on a MSB journey:
- Think big – genuine ambition is vital – be clear on your higher purpose.
- Be clear on the business model – a detailed plan to execute and operationalize the strategy to scale is crucial.
- Understand the different funding routes and instruments to fuel growth.
- A high quality senior team is vital, combine this with a great culture and you have the magic dust – values become more important the more staff you recruit.
- Consider the role of NEDs – having someone who has already done it sat round the boardroom table offers many advantages.
- Don’t be too precious about hanging on to your equity – smart people want a share of the value they bring.
- Embed tight operational control and strong performance management – remember it comes down to always having enough cash.
- Establish a clear brand and communicate this with passion – celebrate with fervor what makes you different and why you are the “go to organisation” for what you do.
- Strong internal (in the office) and external (in the market place) leadership is vital.
- Stay one step ahead of your competitors by living in the customer’s world – deliver innovative propositions with an edge.
From a UK business base of 4.8M companies, 99% employ less than 49 staff. So the current stock of mid sized businesses is less than 50,000. We must not only look at helping existing mid sized companies we also need to address how we fill the pipeline – the next generation.
Sustaining growth beyond 50 staff is a massive task – this is why so many entrepreneurs sell out before they burn out. Beyond 50 staff, business help and guidance becomes more sophisticated – PE/VC, NEDs, headhunters, governance, IPO’s, expensive lawyers and financial engineers, corporate finance… trusted support is pivotal to sustained growth. A community of trusted help is vital to the entrepreneurs who are aiming to do something special with their business.
Most people are staggered by the fact that there are only 33,000 companies in the UK employing more than 50 people, they are commonly known as mid sized businesses (MSBs) – this is based on a total business stock of 4.8Million. MSBs produce a staggering 50% of GDP so they are extremely important to the UK economy. For many years the UK has looked to Germany for inspiration, the importance of the “Mittelstand” – highly focused export orientated innovative businesses that employ more than 50 people. They are wealth generators and underpin the economy. UK policy makers lament for more of these MSBs, yet the statistics show that 99% of UK business stock employ less than 49 people
So what is the challenge? Why don’t we have more entrepreneurs going for growth and aiming to bust the 50-employee target? My hypothesis, based solely on anecdote and experience is that starting from scratch and building a business of scale is one of the most difficult jobs on the world. It requires guts, vision, and determination, resilience coupled to a business model that makes commercial sense. As a company grows towards 50 employees, the hurdles become more complex:
- Maintaining sales momentum and ensuring sufficient profitable revenue keeps coming through to fuel growth is demanding
- Funding growth through profits becomes more challenging and often new funding lines need to be explored – PE, VC, IPO.
- Avoiding offers from acquisitive competitors who give founders a clear line of sight to the “beach”– freedom from the day-to-day grind of commerce becomes extremely attractive.
- The profile of the adviser capability changes significantly and very often a new breed of expensive professionals many of which use jargon to justify their fees turn up at the front door. Many of these I would not pay with peanuts and the majority could not run a bath never mind a business. Finding trusted advisers is a big challenge.
- A need to make the transition from entrepreneurial to corporate mindset is vital – the narrative around the boardroom table changes and processes and governance are vital to continued growth.
- The need for NEDs and wisdom from those who have been there and done it becomes a stimulant for the lonely founder.
- Organisational development and culture eats strategy for breakfast, period. Companies that don’t get this right invariably end up managing decline and mob mentality prevails. A unified team all pointing in the same direction is so important.
Public sector policy makers should not underestimate how difficult it is to grow a business to becoming an MSB. Mindset plays an important role as does being part of community of others who have done it; the reality is this network is very small. So what is the solution? We must observe best practice from MSB hot spots – Germany, West Coast of the US, Cambridge and other regions that have nurtured these ambitious companies. Lets hear the founders stories – who did they use for advice? How did they cope with raising finance? Who are their mentors and inspiration? How did they cope with challenges? How did they address uncertainty? Growing an MSB needs those who have done it to share their stories of how they made it. Experiential learning is how entrepreneurs learn best.