Realistically, not all of them are going to make it. So what are the actual odds of striking it big and achieving business success in today’s challenging market?
The Federation of Small Businesses (FSB) is the UK’s largest campaigning pressure group promoting and protecting the interests of small business owners and the self-employed. Their 2015 report showed that there were 5.4 million private sector businesses at the start of the year.
A record number at the time, this was an increase of 146,000 over the previous year. They also found that SMEs accounted for 99.3% of all private sector businesses at the start of 2015, as opposed to big business. The combined income of these businesses was an impressive £1.8 trillion.
Interestingly, according to the same source, 76% of these businesses do not employ anyone aside from the owner. To break down the numbers, there were 3.3 million sole proprietorships (62%), 1.6 million companies (30%), and 436,000 ordinary partnerships (8%). The FSB also found that there had been a sustained growth in the total business population, with an increase of 55% since 2000.
There is no question that there are a lot more businesses in competition with each other and far more people working for themselves than ever before. These figures are confirmed by the annual report of the Department for Business, Innovation & Skills, where even more in-depth statistics are available.
With so many more people setting up their own businesses or becoming sole traders, you’d imagine that this was an indication that the UK business market was strong. Well, unfortunately nine in ten start-ups fail. According to an infographic created by PokerStars, 100 million start-ups launch each year globally, but only 500,000 of them will be proven successful. They also report that the odds of a new business being accepted for funding is 1/20 (a 3-5% acceptance rate) and that 1/200 (93%) of the accepted companies will eventually fail.
Now, we can’t blame all this on the economy – most new business owners will admit that they have made mistakes that have caused their downfall. However, the economy certainly doesn’t help. The new Budget was recently announced, but according to a survey by MarketInvoice that we reported on, only 1 out of 3 UK SMEs thought that the 2016 budget would be good for business. That’s just 35% of what we already know is a substantial market.
There seems to be a general pessimism about the future on the part of business owners. In particular, there was little support for the creation of the Small Business Commissioner role, which has been designed to resolve disputes and give advice. 18% of entrepreneurs taking part in the survey said that clamping down on late payments would make a difference and 17% suggested a bigger drop in corporation tax for businesses who are only making a minimum profit.
However, where the priorities of the survey respondents lie can be found in forcing banks to make low interest loans more freely available to businesses and to create a single tax that covers VAT, corporation and national insurance.
So, we have established that the UK is a hub for new business, but unfortunately it doesn’t necessarily mean that all these new companies are going to strike it big – so who is?
Each year, the London Stock Exchange releases a report that lists the top 1000 companies to inspire Britain. It acknowledges and celebrates some of the fastest-growing and innovative SMEs of the year. As well as identifying these top 1000 companies, it also looks at opportunities and challenges facing SMEs and trends that will shape the future of the UK economy.
At a glance, the 1000 companies that make up the list have grown by 50% from 2011 to 2015. The sectors where these businesses belong, indicating industries that are doing well, are: engineering and construction with 105, manufacturing with 104, food and drink with 74, financial services with 70, wholesale with 57, retail with 56, IT with 55, employment services with 53, motor vehicles with 52 and professional services with 41 different companies.
Of course, these companies come from all over the UK but there are specific regions which have seen the most success: In first place, predictably is London with 217. Then the South East with 148, North West with 101 and East Midlands with 87 out of the 1000 inspiring ventures.
40 of the companies have made the list three years in a row. Their total revenue has gone from £718 million to £2.23 billion – a combined revenue growth of 211%. And it’s really these trailblazers that the London Stock Exchange wants to celebrate.
The London Stock Exchange make a point that it is important to recognise the “gazelles” – that’s what the scale-ups who have a dramatic impact on the UK economy are called. 3,000 scale-up medium-sized businesses contributed £59 billion to the UK economy between 2010 and 2013, effectively making the crucial difference between recession and recovery. In the LSE’s opinion, properly supported small companies can experience growth to both employment and revenue. To put in in the report’s own words, “we want to shine a light on what we know to be true: that these companies are the engine of the UK economy.”
If 2015 was the year of the start-up then according to the London Stock Exchange, 2016 should be the year of the scale-up. Our reliance on using debt to finance growth needs to stop, and instead small companies looking to grow need to unleash the power of equity finance where people seek investment to grow through alternative means such as crowdfunding, peer-to-peer and other private platforms.
So, what does this mean for the 40% of young people who want to start their own business? What are the odds of them succeeding? Well, pretty slim if you just look at the numbers. However, the UK is a strong market for new business, and entrepreneurs who are willing to be innovative, find new ways to reach their goals and work hard, can certainly make it, as these 1000 bright examples show.
Image: nickletosell.com
