Written by Oliver Pawle.

When looking at the UK’s business environment, we rank well globally for entrepreneurship. In the 2013 EY survey, the UK ranked second behind the US, and in the 2018 Imperial College report the UK ranked fourth behind the US, Canada, and Switzerland.

The rate of small business formation in the UK is excellent with over 400,000 new businesses started every year. There were 27,000 scale-ups[1] in 2013 and 31,000 in 2015. Of these, 60% were in London and the South East and around 60% in financial services/technology.

This is good, but looking more closely at the entrepreneurship environment there are still some challenges that the UK needs to face up to.

Why strive to improve further? Because entrepreneurs improve economies and people’s lives by creating jobs, developing new solutions to problems, creating technology that improves efficiency, and exchanging ideas globally.

So, the key, from and economy standpoint, is how to ensure that small to medium enterprises (SMEs) scale to large companies. The key challenges we shall address below.

Talent and skills

A lack of skills is the biggest challenge. There is a major shortage of developers, engineers, and cyber specialists. Government and business need to build capacity in the UK’s education system from primary through to tertiary education to fill this gap. Meanwhile, Britain needs to attract highly talented immigrants from the rest of the world in order to drive forward with its entrepreneurial agenda.

Access to markets

SMEs need easier access to large corporates and government to scale up. This helps supply them with the necessary cornerstone customers, on the one hand, and new export markets on the other. But with complex and lengthy procurement procedures, lack of language skills, or knowledge of the networks, it is hard for SMEs to enter these markets. BEIS and the Foreign Office are investing significantly in support SMEs to move in to new markets, but this still does not match the support that competitors, like France and Germany, provide to their SME population.

Leadership capacity

Scale-ups particularly need support with leadership, management skills, and mentoring services. There are positive developments in this area. There is growth in peer-to-peer networks – local clubs established through services like Meetup.com for example – and training programmes such as the Goldman Sachs 10,000 Programme or the Stock Exchange Elite Programme. Traction is growing elsewhere too; the Business Growth Fund has built up a network of 3,000 advisers and NEDs to support their investee companies.

Finance

Access to finance is a challenge in the current climate. Lending banks have a lower risk appetite and have cut down their funding to SMEs, which are traditionally seen as risky investments. In recent survey, 40% of scale-ups felt they did not have enough funding. The alternative is to source funding from venture capital firms, and in exchange for investment they require some control, and entrepreneurs are reluctant to relinquish their ideas. However, the government can be strongly commended on the EIS and SEIS tax schemes which have spawned a dramatic increase in the business angel community to help fun growing businesses.

Infrastructure

Despite the rapid development of business parks and clusters, which is a positive step, the infrastructure gap is very concerning. Britain does not have high-speed internet comparable to other European countries, let alone in London; our transport connectivity is poor and not improving as fast as it needs to; office space at reasonable prices is an issue for rapidly growing companies. However, local enterprise partnerships (LEPs) do an excellent job in support SMEs and Scale-Ups. They now number 38 up and down the country.

Conclusion

So there are five key takeaways. Firstly, the UK needs a partnership between the government and business to build the skills capability  for the modern world of technology. Secondly, we need greater availability of capital for riskier investments. Thirdly, there is a necessity to involve large corporates in the entrepreneurship ecosystem as they create opportunity for SMEs through their procurement policies. Fourth, SMEs require management help to convert leading innovation into scalable business. And fifth, the government needs to address the infrastructure gap, because without this growth will be hindered.

Oliver Pawle is the Founder of the New Entrepreneurs Foundation incorporating the Centre for Entrepreneurs. He is also the London based Chairman of Korn Ferry Board Services Practice, Prior to this he was vice chairman of the investment banking division at UBS.

[1] The definition of a scale-up is a company that is growing by 20% a year by employees and turnover.