BERR ECONOMICS PAPER NO. 3 – High growth firms in the UK: Lessons from an analysis of comparative UK performance
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BERR ECONOMICS PAPER NO. 3
High growth firms in the UK:
Lessons from an analysis of
comparative UK performance
NOVEMBER 2008
BERR ECONOMICS PAPER NO. 3
High growth firms in the UK:
Lessons from an analysis of
comparative UK performance
NOVEMBER 2008
Contents
List of Tables and Figures
ii
Acknowledgements
iv
Foreword
v
Executive Summary
vi
1
Introduction
1
2
The importance of high growth firms
2.1 What are high growth firms?
2.2 What is the importance of high growth firms in the economy?
4
4
6
3
Number of high growth firms: How the UK performs
3.1 Review of existing evidence
3.2 Static analysis
3.3 Analysis of the ‘Fast Track’ and ‘Inc’ lists
3.4 Analysis of large publicly owned companies
10
10
12
16
19
4
Drivers and barriers to growth
4.1 Review of existing evidence
4.2 Analysis of 100 UK and 100 US high growth firms
4.3 What happens to high growth firms: Where are they now?
25
25
33
47
5
Policy implications
50
References
54
Annex 1: Age and size profile of firms
57
Annex 2: U
se of intellectual property by UK high growth firms:
A report by Mark Rogers and Christian Helmers
61
i
List of Tables and Figures
Tables
Table 1: Number of firms achieving specific growth thresholds
18
Table 2: Large publicly owned high growth firms and gorillas
21
Table 3: SME growth of assets (2001 to 2006) and IP activity (2001)
31
Table 4: SME growth of assets (2001 to 2006) and IP activity (2001)
32
Table 5: SME growth to large firm (2006) and IP activity (2001)
32
Table 6: Sectoral breakdown of UK and US firms
35
Table 7: Type of customers served by UK and US high growth firms
36
Table 8:Number of firms with founders who have previously owned
a business
39
Table 9: Gender of entrepreneurs
41
Table 10: Growth aspirations among UK and US high growth firms
41
Table 11: Use of external equity finance among UK and US high growth firms 42
Table 12: Number of firms reliant on relationships with other businesses
43
Table 13:UK and US 100 fastest growing companies: percentage of
IP-active 2001-2005
44
Table 14:Summary table of the characteristics of 100 UK and 100 US high
growth firms
46
Table 15: Where are they now: Size of top 3 UK firms 1997 – 2007
49
ii
Figures
Figure 1: Percent of high growth firms by country in 2001
11
Figure 2: Number of large and medium sized firms per $1 million GDP
13
Figure 3: Contribution to employment by class size 14
Figure 4: Value added by firm size
15
Figure 5: Age distribution of 100 largest UK and US firms
22
Figure 6: Growth rates achieved by US and UK large firms (2000-2007)
23
Figure 7:Percentage of UK and US firms with turnover of £1 billion in
2007 achieving three consecutive years of turnover growth 24
Figure 8:Regional distribution of UK high growth firms: Number of high
growth firms per £1bn regional GVA
37
Figure 9: Age profile of entrepreneurs at time of founding firm
38
Figure 10: Number of founders 40
Figure 11: Current status of previous top 3 Inc and Fast Track firms
47
Figure 12: Year of establishment
57
Figure 13: Number of employees 58
Figure 14: Turnover in 2006 for US and 206/7 for UK 59
Figure 15:Size of firms by turnover in 2003 for US firms and 2003/4 for
UK firms
60
List of Boxes
Box 1: Selection criteria and methodology for league tables
17
Box 2: Innovation and high growth firms
30
iii
Acknowledgements
The following officials have contributed to this paper:
Heather Dines, James Watson and Mohammed Amir Sadiq who coordinated
the analysis, and: Matt Adey, Michael Clary, Fernando Galindo-Rueda, Karen
Grierson, Michael Hodson, Tim Hogan, Helene Keller, Paula Maratos, Dan
Mawson, James Phipps, David Purdy, Katrina Reid and David Southworth.
BERR is grateful for contributions and comments from:
Professor Mark Rogers
Christian Helmers
Nicolas Owen
Arnoud De Meyer
iv
Foreword
In March of this year, BERR and HM Treasury published a new Enterprise Strategy,
setting out the Government’s vision to make the UK the most enterprising
economy in the world and the best place to start and grow a business. It took
steps to ensure that the regulatory and business environment continues to allow
enterprise to prosper in the UK.
The Government is working to support businesses through the present
economic difficulties and has taken steps to restore the flow of business lending
from banks. However, we also need to ensure that we do not become distracted
from the longer term and ensure that businesses are well placed to benefit from
the upturn.
The Enterprise Strategy set out evidence suggesting that the UK performs well
relative to other European countries in terms of the proportion of high growth
firms, but lags behind the US. The analysis presented here is a welcome addition
to the evidence base in this area.
This economic paper examines the drivers behind high growth by looking
at the characteristics of some of the fastest growing firms in the UK and US.
The findings reinforce the importance of the 2008 Enterprise Strategy’s five
enablers as drivers for growth: Culture, Knowledge and Skills, Access to finance,
Regulatory Framework and Business innovation. Knowledge and skills are found
to be particularly important, as entrepreneurs in high growth firms tend to be
highly educated, skilled and experienced individuals.
This paper also highlights the importance of high growth firms to the economy
both in terms of employment and productivity. If we are to achieve our enterprise
vision, Government needs to learn the lessons from these successful firms and
ensure that they inform policy.
Vicky Pryce
Chief Economic Adviser and Director General, Economics
Department for Business, Enterprise and Regulatory Reform
v
Executive Summary
High growth firms have received a large amount of interest and attention from
commentators and policy makers in recent years. However, despite this interest
there is still a limited understanding of how the UK performs by international
comparison both in terms of the number and characteristics of high growth
firms.
This report seeks to address four key questions:
●●
●●
●●
●●
What are high growth firms and what is their role in the economy?
How does the UK perform compared to other countries in terms of the
number of high growth firms?
What are the drivers and barriers to achieving high growth?
Given the answers to the three questions above, what are the implications for
government policy in the area of business growth?
What are high growth firms and what is their role in the
economy?
●●
●●
●●
The concept of a high growth firm is simple; it is a firm which grows at a rate
which is deemed to be high in comparison to the majority of firms, and as
such, is notable.
In practise there are a number of practical issues when forming a definition
of high growth firms, however there is an OECD consensus that firms which
achieve annual growth rates in turnover or number of employees of over 20%
for three consecutive years should be considered high growth.
High growth firms are found to contribute a disproportionate amount to
employment growth. Estimates vary, but the literature suggests that between
2 to 4% of all firms are responsible for the majority of employment growth.
High growth firms also display higher levels of productivity than average.
This combination of high productivity and employment growth implies that
high growth firms are responsible for a substantial proportion of economic
growth.
How does the UK perform compared to other countries in terms
of the number of high growth firms?
●●
●●
1
vi
The Enterprise Strategy reported evidence that a higher percentage of UK
businesses achieve high growth than European businesses, but that the UK
lags behind the US1.
This report examined the very fastest growing firms. Within this group the
data suggests the UK does not perform significantly worse than the US in
terms of the number of high growth firms.
Hoffman and Junge (2006)

●●
●●
Gorillas (firms which grow very quickly from start-up into large international
organisations) are very rare. The largest firms in the UK and the US are not
gorillas. The average age of the largest 100 firms in both countries is over 100
years. At least half of the firms in both countries can be traced back to origins
prior to 1900.
Very few gorillas were identified which makes comparison difficult; however
it is easier to identify US gorillas than UK gorillas. Despite this, the number
of large firms in the UK is found to be similar to that of the US after adjusting
for the differences in the sizes of the economies. Furthermore, it is shown that
the growth performance of the largest firms in the UK has exceeded their US
counterparts since 2000.
What are the drivers and barriers to achieving high growth?
The characteristics of 100 of the highest growth firms in both the UK and US are
examined and, in combination with a review of existing evidence, the following
drivers and barriers to high growth are identified:
1. Skills and knowledge
Education, experience and management skills are found to be particularly high
amongst founders of high growth firms indicating the importance of skills in
driving high growth. The average high growth entrepreneur is found to be highly
educated holding degree level qualifications and often an MBA qualification. In
addition half of the US entrepreneurs have previously founded a business while
two thirds of the UK entrepreneurs had previously held a position as a company
director.
2. Business Innovation
A large proportion of the high growth firms hold intellectual property and
intangible assets such as trademarks are particularly associated with high
growth.
3. Access to finance
The highest growth UK firms are twice as likely to rely on venture capital as
those in the US. The US highest growth firms are more likely to access business
angel finance then venture capital. Business angels offer a more flexible source
of finance which the US firms perceive to impose less constraints on growth.
vii
High growth firms in the UK: Lessons from an analysis of comparative UK performance
4. Culture
A larger number of ‘serial entrepreneur’ founders are observed in the US
highest growth firms. These individuals have the skills, experience and capital
necessary to start up and manage high growth firms. A greater culture of serial
entrepreneurship in the UK could generate more high growth firms.
5. Networks and relationships
In both the UK and the US we observe that the highest growth firms rely heavily
on building relationships with other firms, either through supply chains or
through formal strategic alliances.
Furthermore we can expect over a third of these firms to become acquired, many
of these by large firms. This is an important option which allows high growth
firms to access finance and support infrastructures which enable further growth.
Therefore one of the necessary conditions for creating and fostering high growth
firms is a vibrant business sector (amongst both SMEs and large firms) with
plenty of networking opportunities
Diversity of high growth firms
Evidence from the UK and US shows that high growth firms are found in a wide
range of sectors and across all regions. However in the UK they are heavily
concentrated in London and the South East.
Women are highly under-represented in the sample; only 7% of UK high growth
firms are founded by women or teams which include women, a similar figure to
the 6% of US firms.
Given the answers to above three questions, what are the
implications for government policy in the area of business
growth?
This report reinforces the importance of the five enterprise enablers which the
Government Enterprise strategy set out in March 2008. This research suggests
that the policy areas which will be crucial to encouraging new high growth firms
are:
●●
●●
●●
●●
viii
Skills: Ensuring that potential entrepreneurs have the skills necessary to
manage high growth firms.
Access to appropriate finance: Strengthening UK business angel capacity
Enterprise culture:
entrepreneurship
building
a
culture
which
Innovation: increasing levels of business innovation
encourages
serial
1. Introduction
AIM AND PURPOSE OF RESEARCH
Business growth is central to improving long term economic performance and
raising living standards and therefore receives significant policy attention from
the UK Government.
Firms which achieve sustained high rates of growth are often seen as a benchmark
and, as such, there is much interest in these firms as academics, policymakers
and business managers alike, seek to unpick the many interlinking factors which
lead to sustained high growth. However, despite this interest there is still a
limited understanding of how the UK performs by international comparison both
in terms of the number and characteristics of high growth firms.
The purpose of this economics paper is to address four key questions:
●●
●●
●●
●●
What are high growth firms and what is their role in the economy?
How does the UK perform compared to other countries in terms of the
number of high growth firms?
What are the drivers and barriers to achieving high growth?
Given the answers to above three questions, what are the implications for
government policy in the area of business growth?
The approach that will be taken to answer these questions is a combination of
reviewing existing literature and data, conducting primary research and drawing
on research BERR have commissioned.
Definition of high growth
In the literature a number of different definitions of high growth are used and in
order to provide a wide review of the existing research we use the term “high
growth” rather loosely to refer to all firms which sustain levels of growth in
turnover or employee numbers which can be considered high by comparison to
the majority of businesses. Where a more specific definition is required we use
the OECD definition, namely that a firm with employment or turnover growth
of greater than 20% per year over a 3 year period is considered to be high
growth2.
High growth firms have often been referred to as ‘gazelles’3 although the term
is now increasingly taken to refer only to young, and usually small, high growth
enterprises. The OECD defines gazelles as “the subset of high-growth enterprises
which are up to five years old”4 . Throughout this paper we will adopt the OECD
definitions for high growth firms and gazelles.
2
3
4
Eurostat – OECD (2007). Firms must have at least 10 employees at the beginning of the three year period.
A term which was coined by Birch (1981)
OECD (2007)
1
High growth firms in the UK: Lessons from an analysis of comparative UK performance
The term ‘gorilla’ has also become popular to refer to the subset of high growth
firms characterised as “new firms which grow very rapidly to become large,
international enterprises”5.
Outline of paper
The paper is structured around the four key questions set out above. Chapter
2 discusses the concept of high growth firms in more detail and reviews the
evidence around the importance of high growth firms and their contribution to
the economy.
Chapter 3 examines how the UK performs in terms of the number of high
growth firms, drawing on a range of existing evidence and data. The majority of
firms start up as micro or small enterprises and therefore the number of medium
and large firms in an economy can provide some indication of firm growth.
Static analysis of the importance of small, medium and large firms to the overall
economy is considered and compared to other countries. The growth rates and
ages of the largest firms in the US and UK are also considered over the period
2000 – 2007 and an attempt is made to identify the number of gorillas among
these.
Chapter 4 turns to the drivers and barriers to high growth. Following a review
of the relevant literature, the characteristics of 100 UK and 100 US high growth
firms are analysed. The US has been chosen as a comparison country as it has
one of the most enterprising and dynamic economies in the world and it is
often stated that US businesses achieve higher business growth than the UK.
Similarities and differences between the two samples are highlighted in order to
compare the drivers and barriers of high growth in the two countries. We also
draw on recent research commissioned by BERR which conducted 39 in depth
qualitative case studies of UK and US high growth firms6.
Finally Chapter 5 considers the policy implications of the research.
Caveats
It should be noted that the methodology of our research is not without
weaknesses. There are two notable weaknesses which should be highlighted
upfront.
Firstly, while static analysis provides some useful indication of whether the UK
has an internationally comparable number of large firms, there are obviously
many factors other than firm growth which determine business demography.
Secondly, comparisons between UK and US high growth firms allows the
identification of common characteristics and key differences, and while these
5
6
2
Owen (2004)
Kingston University (2008)
Introduction
may provide support for the theory that common factors are associated
with high growth, it is not possible to draw firm conclusions about causality.
Furthermore it should be noted that for some of these firms we were unable to
collect information about one or more of the characteristics leading to a number
of unknown variables and comparisons are sometimes made based on a small
sample size.
It is not therefore, the aim of this paper to provide a definitive list of characteristics
which can be used to identify firms with the potential for high growth. This
paper aims to add to the evidence base by identifying common characteristics
of high growth firms and ensuring that the policy framework creates a business
environment which is conducive to generating high growth firms.
An ideal approach to studying high growth firms would be to specify a
definition of high growth firms and seek to identify the population of these
firms within the UK and other countries before collecting comprehensive data
on the characteristics of these firms and comparing these across countries and
against non-high growth firms. In addition it would be useful to examine how
the characteristics vary at different stages of the high growth firm’s life cycle.
However, available data does not easily allow this.
Some researchers have made use of commercial databases in order to identify
the number of high growth firms within different countries (notably Hoffman
and Junge 2006). While this work is a useful addition to the evidence base, data
coverage is often poor and not all high growth firms can be identified. Given
that there are currently no better data sources available, it has not been our aim
to replicate this type of analysis. Instead the aim of this paper is to provide new
and innovative ways of approaching the four key questions set out above whilst
providing an overview of the existing evidence base.
3
2.The importance of high
growth firms
2.1 What are high growth firms?
Concept
The concept of a high growth firm is simple; it is a firm which grows at a rate
which is deemed to be high in comparison to the majority of firms, and as such,
is notable. High growth firms are interesting for this very reason, they stand out
as exceptional. Therefore by definition we would expect only a small minority of
firms to count as high growth.
Issues when defining high growth
There are a number of issues to consider when defining exactly what constitutes
high growth, namely:
●●
●●
●●
Use of thresholds: High growth firms can be defined by taking a specific
number or percentage of the fastest growing firms in an economy or by
defining a threshold of growth above which is considered high growth. The
latter is most useful when comparing the number of high growth firms across
countries as it ensures like for like comparison.
Defining a firm: Firms can be defined at an enterprise level or establishment
level. For many firms, particularly smaller firms, this will amount to the same
definition. However, for firms with subsidiaries or operations in a number of
countries the definition will vary.
Choice of metric: Growth thresholds can be defined based on turnover
growth or employment growth. There is a degree of correlation between the
two, however the number of high growth firms identified tends to be slightly
higher when using turnover data7.
When turnover data is used for international comparisons the data must be
deflated to account for country differences in inflation rates and an appropriate
currency exchange rate must be chosen. Turnover data is more often used as
data is more readily available.
Employment based measures should be made on the basis of number of
full time equivalent employees; however this data is not usually available.
Employment based thresholds may exclude high growth firms which grow
through gains in labour productivity.
7
4
Hoffman and Junge (2006)
The importance of high growth firms
●●
●●
Relative or absolute growth: Absolute growth thresholds are more easily
met by large firms and therefore tend to favour larger firms where as
relative growth thresholds tend to favour smaller firms. Composite measures
which combine absolute and relative growth attempt to adjust these biases.
However, an alternative which is widely used in the literature is a relative
growth threshold in combination with a de minimis initial size threshold to
ensure that the smallest firms are excluded.
Acquisition growth: It must be decided whether to consider only organic
growth or if growth through acquisition should also be included. This
question should be answered depending on the reason for interest in high
growth firms.
In the case of this paper, the interest lies in the policy perspective, that is,
in identifying which factors lead to business success and growth and which
firms contribute the most to the economy and economic growth. Growth
through acquisition may be beneficial to the economy in the case where more
productive firms acquire the resources of less productive firms. However,
these firms are likely to add less to employment growth. Throughout this
paper we include firms which have grown through acquisition unless
otherwise stated.
OECD definition
The OECD proposes the following definition of a high growth firm:
‘All enterprises with average annualised growth in employees or turnover
greater than 20% per annum, over a three year period, and with more than 10
employees in the beginning of the observation period, should be considered as
high growth enterprises.’8
Of which ‘the subset of high-growth enterprises which are up to five years old’
are defined as gazelles.
Gorillas
Unlike the OECD definition for gazelles, there is no widely agreed definition for
gorillas. It is easy to identify firms which have displayed gorilla style growth
such as Google, Vodafone, Intel and Skype. However, it is less clear where to
draw the line in terms of defining a gorilla. The concept suggests that such a firm
must exhibit three key characteristics, namely:
●●
●●
8
The firm must have achieved a high level of growth
The firm must now be large and have grown from start up in a short period
of time.
OECD (2007)
5
High growth firms in the UK: Lessons from an analysis of comparative UK performance
●●
Gorillas are international organisations and so should have subsidiaries in
more than one country.
In this paper gorillas will be defined as high growth organisations (based on the
OECD definition of high growth) that are less than 10 years old, with a physical
presence in at least 3 countries and employing over 500 employees in total.
2.2What is the importance of high growth firms in the
economy?
High growth firms as job creators
High growth firms make a disproportionate contribution to the economy in terms
of employment growth. Indeed Birch9 originally defined the concept of ‘gazelles’
when examining job creation in the United States. He found that just 4% of US
firms create around 60% of all new jobs over the period 1988-9210 . Since then
many researchers have investigated this issue across different countries and
using different data sources. Henrekson and Johansson (2008) provide a useful
survey of the literature, identifying 19 studies, and conclude that “All studies find
gazelles to generate a large share, all or more than all net jobs (in the case where
employment shrinks in non-gazelle firms as a group)”.
Estimates of the importance of high growth firms to employment creation
vary from study to study, largely due to differences in datasets and definitions
of high growth. However, the overall finding remains that high growth firms
are responsible for the majority of employment growth. Data coverage has
improved over time and therefore more recent research is likely to be the most
robust. Research, commissioned by the US Small Business Administration11
made use of the American Corporate Statistical Library (ACSL), a new and fuller
dataset which combines data from public and private sector sources over a 12
year period (principal data sources are Dun & Bradstreet, the Bureau of Labor
Statistics and the Census Bureau). The dataset allows every establishment to be
tracked from birth and while data coverage is high, coverage for firms under 5
years old is limited. The authors state that this does not affect the analysis as
the “high impact firms”, which are found to account for 2 to 3% of firms but
almost all employment growth (over the period 1994 to 2006), are found to be
on average 25 years old.
In comparison, UK studies are based on older and less complete datasets. Most
of the studies assess job creation amongst new firms only or amongst a sample
of small firms. Currently there is no study comparable to that commissioned
by the US Small Business Administration for the UK. The evidence base would
benefit from such a study; however improvements in datasets are essential to
make such analysis possible. The studies that do exist for the UK suggest that
9
10
11
6
Birch (1981)
Birch and Medoff (1994)
Acs et al (2008)
The importance of high growth firms
similar conclusions can be made; a small proportion of firms account for a
majority of employment growth. For example, David Storey has often asserted
that approximately 4% of small firms create approximately half of new jobs in
the group over a decade12.
Similar findings are also found in other countries. For example, OECD research
examined high growth firms across 7 European countries and Canada. The
research concluded that “high growth firms exhibit a much stronger propensity
to generate employment than average firms”, with 10 to 20% of firms contributing
between 50 to 70% of each economy’s gross job gains in most of the countries
examined and just under 90% for Spain13.
High growth firms role in driving productivity
Growing firms and high growth firms in particular, are likely to have above
average productivity levels for the sector that they operate in. Economic growth
theory suggests that it is this higher level of productivity which leads to the
growth of the firm as they compete with, and displace, less productive firms in
the economy.
Data on productivity levels of high growth firms is not widely available and so
there is little research in this area. However, the recent research commissioned
by the US Small Business Administration14 did look at productivity. The study
found that “revenue per employee was greater for high impact firms in total for
all time periods studied and firm size categories”15. Averaging across firm size
categories (1-19 employees, 20-499 and 500+), industries and time periods (19941998, 1998-2002, 2002-2006), high impact firms have 33% higher productivity
levels than low impact.
High growth firms may have a role to play in driving forward innovation, which
itself increases productivity in the economy. Research (which is discussed more
in chapter 4) suggests that firms which demonstrate high growth tend to also
exhibit high levels of innovation.
High growth firms role in driving economic growth
Economic growth is driven by a combination of productivity and employment.
As demonstrated above, there is evidence that high growth firms contribute
disproportionately to both of these and therefore have a large contribution to
12
13
14
15
Storey (1994)
OECD (2002), examined the job creation of the 10 to 20% fastest growing firms across 7 European countries and
Quebec using a composite index measure of growth. Methodology, the population considered and time periods
vary across countries meaning that data is not entirely comparable. The manufacturing sector is included for all
countries and four countries also include the services sector.
Acs et al (2008)
High impact firms are defined as those enterprises whose sales have at least doubled over a four year period
and which have an employment growth quantifier (the product of a firm’s absolute change and percentage
change in employment) of two or more over the period. Revenue per employee is used as an indicator of labour
productivity.
7
High growth firms in the UK: Lessons from an analysis of comparative UK performance
make. Indeed Acs et al16 concluded that “high impact firms contribute to the
majority of overall economic growth”.
However, economic growth is determined by economy wide levels of productivity
and employment, and as such is determined by all firms in the economy.
While high growth firms clearly have a large contribution to make, it does not
necessarily follow that economies with a higher number of high growth firms
will have higher economic growth.
Unsustainable high growth: An undesirable minority of high
growth firms
It should be noted that high growth in itself does not imply that a firm has
high levels of productivity or is beneficial to the economy. Some high growth
firms prove not to be profitable in the long term indicating that they have not
achieved sustainable growth and are not economically sound. These firms are
not beneficial to the economy and indeed create distortions in competition.
The importance of gorillas
The combination of ever improving technology together with globalisation opens
up opportunities for companies across the globe. With greater international
competition and the continued growth of developing economies, notably BRIC
(Brazil, Russia, India and China), there are increasing competitive pressures for
firms in the UK. Businesses need to be flexible, innovative and responsive in
order to take advantage of new opportunities.
The emergence of new gorillas may be seen as an indication that business
opportunities are being seized and that, by creating new world leading firms, the
UK is internationally competitive. It is this logic which has led to a concern that
the UK is not generating enough gorillas.
However, the goal we are aiming for is an internationally competitive economy
where UK firms are able to take advantage of new market opportunities. This is
important due to the implications for economic growth. However, it is largely
inconsequential whether this is achieved by the growth of new gorillas or by
new innovations from existing international organisations. Therefore a lower
level of emerging gorillas would only be a concern if UK firms overall are not
internationally competitive.
16
8
Acs et al (2008)
The importance of high growth firms
Summary of findings: Importance of high growth firms
●●
●●
●●
●●
The concept of a high growth firm is simple; it is a firm which grows at a rate
which is deemed to be high in comparison to the majority of firms, and as
such, is notable.
High growth firms are found to contribute a disproportionate amount to
employment growth. Estimates vary, but the literature suggests that between
2 to 4% of all firms are responsible for the majority of employment growth.
High growth firms also display higher levels of productivity than average.
This combination of high productivity and employment growth implies that
high growth firms are responsible for a substantial proportion of economic
growth.
9
3.Number of high growth
firms: How the UK
performs
3.1 Review of existing evidence
Due to the lack of internationally comparable data, limited research exists into
how the UK performs against other countries in terms of producing high growth
firms. The Office for National Statistics (ONS) is currently working closely with the
OECD to establish internationally comparable country data on high growth firms.
Until such data is available the best method available to identify the number of
high growth firms across countries is to make use of firm level databases. Such
databases contain financial data at the firm level for a number of companies.
Data coverage varies across databases, countries and size of firm.
Hoffman and Junge17 investigated the number of high growth firms across
17 countries over three year periods ending between 1999 and 2001, using
international commercial databases, namely Bureau van Dijk’s ORBIS and
AMADEUS databases. The authors use a definition of high growth which is
comparable to that adopted by the OECD18.
Figure 1 shows the findings of the study. Korea and the US have the highest
percentage firms which achieve high growth. On average the US has twice
as high percentages of high growth firms as the European countries. The UK
also performs well and has the highest percentage among Europe, however
lags around 40% behind the US when turnover measures are considered.
Interestingly, based on employment, the UK appears to outperform the US.
17
18
10
Hoffman and Junge (2006)
The authors define high growth as a growth rate (in either employment or deflated turnover) of at least 60% over
a three year period and at least 20% a year over that period.
Number of high growth firms: How the UK performs
Figure 1: Percent of high growth firms by country in 2001
18
Turnover
Employment
16
14
12
10
8
6
4
2
a
Sw rk
Sw ed
itz en
er
la
nd
N
o
rw
N
et
he ay
rla
nd
s
Ita
ly
Ja
p
Be an
lg
iu
m
Fr
an
ce
Au
st
Po ria
rtu
G gal
er
m
an
y
d
D
en
m
n
Fi
nl
an
ai
K
U
S
U
Sp
Ko
re
a
0
Source: Hoffman and Junge 2006
The authors also consider young high growth firms (those less than 5 years old)
separately. The high performing countries are found to be the same as those for
high growth firms overall, namely Korea, the US and the UK, however Switzerland
also appear to do well on this measure. Again, based on employment, the UK
appears to outperform the US. However, based on turnover the US outperforms
the UK by a large margin.
The authors demonstrate that the results remain robust when adjustments are
made to standardise for industrial composition and when different definitions
for high growth are chosen.
Data weaknesses
It should be noted that there are a number of weaknesses in the data used
and overall data coverage is variable between countries and often poor. This is
particularly noticeable for the US where data is only available for around 2%
of firms.
Data coverage is particularly poor for firms with less than 15 employees. Firms
of this size are less likely to have a legal requirement to file full accounts, and
therefore turnover and employment data is often unavailable for these firms. As a
result (and also to provide a de minimis threshold to overcome the small firm bias
of the growth measure used) the authors focus on medium sized firms with 15 to
200 employees. However, even among firms with more than 20 employees data
11
High growth firms in the UK: Lessons from an analysis of comparative UK performance
coverage is patchy. For example, data coverage of firms in this category within
the manufacturing sector varies from 94% in Norway to just 2% in the US. Despite
this, more than 60% of all existing firms, in the class size 15 to 200 employees, are
covered for European countries except the Netherlands and Portugal.
Alongside the coverage, there are also issues around sample bias. The financial
data within the databases is compiled and reported differently across countries.
It is either compiled at establishment level or firm level and is sometimes
consolidated (across a number of countries of operation) or unconsolidated. The
authors investigated whether these differences may have biased the number of
high growth firms found within each country. It was found that the share of highgrowth young firms for turnover (number of employees) was 12.77 % (6.64) for
consolidated accounts compared to 8.81 % (3.25) for unconsolidated accounts.
The authors acknowledge that variations between countries in the reporting
of consolidated accounts could have a substantial impact on the results. They
note that the US data raises concerns as most of the firm data is consolidated
accounts. This could therefore exaggerate the US performance.
In addition the authors found that the share of high growth firms for listed firms
was significantly higher than those unlisted firms. The US sample data mainly
contains listed firms which may also contribute to an exaggeration of the US
performance.
Summary of findings from review of existing evidence:
●●
●●
●●
Due to the lack of internationally comparable data, limited research exists
into how the UK performs against other countries in terms of producing high
growth firms.
The research which does exist suggests that the UK performs well and has
the highest percentage of high growth firms in Europe, however lags around
40% behind the US.
The authors acknowledge a number of weaknesses in the data in terms of
coverage and possible bias. These issues particularly affect the US data and
may exaggerate the US performance.
3.2 Static analysis
Given the weakness in using firm level databases to identify the number of high
growth firms, it is also worth examining other data sources when investigating
how the UK performs in terms of generating growth and high growth
companies.
The majority of firms start up as micro or small enterprises. Therefore one way
to consider how the UK performs in terms of firm growth is to examine the
number of large firms in the economy. If the UK has few medium and large firms
by international comparison it could indicate that firm growth is low. Similarly,
if medium and large firms contribute less to employment, value added and
12
Number of high growth firms: How the UK performs
productivity than they do in other countries this could indicate that we “don’t
have enough” larger firms19.
Figure 2 shows the number of large and medium sized firms per $1 million of
GDP for each country20. There are between 0.002 and 0.003 large firms per $1
million of GDP and between 0.010 and 0.017 medium sized firms per $1 million
of GDP for the countries we have examined.
Based on this measure the number of medium and large firms in the UK is
comparable to that of other European countries and appears to be average
by European standards (but behind some of our key competitors). Spain and
the US have the highest numbers of medium sized firms for the size of their
economies and the US also has one of the highest number of large firms within
the countries we have examined. The US has just under 5% more large firms per
$1 million of GDP than the UK and 24% more medium sized firms. This suggests
that UK firms may achieve lower growth rates than in the US and that fewer
small firms become medium sized. However, it appears that a similar number of
firms become large (after adjusting for the size of the economies).
Figure 2 Number of large and medium sized firms per $1 million GDP
0.018
Large
Medium
0.016
Number per $1 million GDP
0.014
0.012
0.010
0.008
0.006
0.004
0.002
ce
an
Fr
ly
Ita
d
an
nl
Fi
ed
en
K
Sw
U
s
N
et
he
rla
m
er
G
m
en
D
nd
an
y
k
ar
ria
st
Au
S
U
Sp
a
in
0.000
Data sources: Eurostat, 2004 (non-financial business sector), United States Small Business Administration 2005, World
Bank 2007 and BERR calculations21
19
20
21
There are obviously weaknesses with this approach. Firstly the data refers to stocks rather than flows and secondly
(and most importantly) many factors determine the demography of the business sector.
The number of medium and large firms is often assessed as a percentage of all firms. However, these measures can be
misleading as they are easily distorted by the baseline total number of firms. Countries with large numbers of large firms
could still appear to have relatively few if they have a large stock of SMEs. A more appropriate comparison is to consider
the number of large firms in relation to the size of each country’s economy, which is the indicator we use here.
GDP data is measured in current U.S. dollars using annual, market exchange rates.
13
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 3 shows the relative importance of the firm class sizes in terms of the
contribution that they make to overall employment. In the UK 60% of employment
is in large and medium sized enterprises, which is high by European standards.
However, in the US these firms account for an additional ten percentage points
of employment.
Figure 3: Contribution to employment by class size
100%
90%
80%
Percentage
70%
60%
50%
40%
30%
20%
10%
0%
US
UK
Germany
Micro
France
Small
Sweden Netherlands
Med
Spain
Italy
Large
European data: Eurostat, 2004 (non-financial business sector). US data: United States Small Business Administration
2005
The firm size breakdown of value added is shown in figure 4. On average across
the EU 27, 57.6% of the non-financial business economy’s value added was
generated by SMEs in 2005. Again the UK is an outlier with only 51% value
added from SMEs. This is somewhat surprising as the number of large firms
per $1 million of GDP in the UK is very similar to other European countries.
These statistics suggest that the UK’s large firms contribute a greater amount
to employment and value added than their counterparts in other European
countries or alternatively that UK SMEs contribute less to employment and value
added than their European counterparts22.
22
14
Note that the number of SMEs per $1 million of GDP in the UK is average by comparison with other European
countries.
Number of high growth firms: How the UK performs
Figure 4: Value added by firm size
100%
90%
80%
Percentage
70%
60%
50%
40%
30%
20%
10%
0%
UK
France
Micro
Sweden
Small
Spain
Med
Italy
Large
European data: Eurostat, 2004 (non-financial business sector).
When figures 3 and 4 are considered in combination, observations can be made
about the relationship between the class size breakdown of the business sector
and a country’s productivity. Labour productivity is calculated as the ratio of
value added to the number of persons engaged. Large firms in all countries
account for a larger proportion of total value added than employment, indicating
that they have higher than average productivity levels. Conversely, micro sized
enterprises account for larger proportions of employment than value added,
indicating lower productivity.
Therefore, while SMEs have an important role to play in driving productivity
through maintaining a dynamic and innovative economy, large firms tend to
be more productive23. It is this productivity differential between large firms and
SMEs which means that the number of large firms in an economy an important
economic issue.
Summary of findings from static analysis
●●
23
When adjusted to reflect variations in the size of economies, the number of
large firms in the UK is amongst the highest in Europe and comparable to
the US.
This data is for the SME sector overall and masks large variations in the levels of productivity between different
firms and sectors. Economic theory suggests that the most productive small firms will go on to grow into larger
firms and therefore we would expect larger firms to have, on average, higher levels of productivity. Furthermore
economies of scale increase the productivity of larger firms. However, in some sectors small firms may be more
innovative and productive than large firms.
15
High growth firms in the UK: Lessons from an analysis of comparative UK performance
●●
●●
The number of medium sized firms in the UK is average by European standards
and well below the levels in the US. This may suggest that in the UK small
firms experience barriers to growth which prevent them becoming medium
sized. This view is supported by the British Chambers of Commerce24.
The UK’s large firms account for a larger proportion of employment and value
added than their European counterparts. Given that the number of large firms
per $1 million of GDP in the UK is comparable to other European countries,
this suggests that UK large firms are on average larger than their European
counterparts. This suggests that the growth performance of the UK’s large
firms is strong.
3.3 Analysis of the ‘Fast Track’ and ‘Inc’ lists
The review of existing evidence suggested that the UK performs well by
European standards in terms of the number of high growth firms, however lags
behind the US. This section presents BERR analysis which challenges this view
and suggests that the UK produces a comparable number of high growth firms
to the US (after adjusting for differences in the size of the economies).
Data source and methodology
The Inc 5000 is an annual list of the top 5000 fastest growing, privately owned
US companies25. A similar UK list is the Fast Track which lists the top 100 fastest
growing, privately owned UK firms together with the Fast Track Tech which lists
the top 100 technology firms. Box 1 sets out the selection criteria for each of the
lists.
In order to assess how the number of high growth firms compares in the UK and
US, analysis is carried out on the number of these firms achieving set growth
thresholds26.
24
25
26
16
British Chambers of Commerce (2008).
The Inc list was expanded to cover 5000 firms in 2007, prior to this it covered 500 firms.
The firms on both lists are privately owned and so exclude high growth publicly owned firms. Publicly owned firms
are considered in more detail in section 3.4
Number of high growth firms: How the UK performs
Box 1: Selection criteria and methodology for league tables
Inc
●●
US based, privately held and independent (not subsidiaries or divisions of
other companies as of 31st December 2006 although firms can still qualify
if they have been acquired or become public since)
●●
Growth is based on revenue and is measured between 2003 and 2006
●●
Minimum revenue of $200,000 in 2003
●●
Minimum revenue of $2 million in 2006
●●
Founded and generating revenue by the first week of 2003
●●
Companies are ranked by growth in sales over the three year period 2003
to 2006
Fast Track (non technology sector high growth firms)
●●
Registered in the UK, unquoted and independent (non- subsidiary)
●●
Minimum revenue of £250,000 in 2003/4
●●
Minimum revenue of £5m in 2006/7
●●
An increase in revenue from penultimate to latest year, and a forecast of
further revenue growth
●●
Not a technology company
●●
Selected from a database of 1.5m private companies
●●
The final 100 companies are ranked by growth in sales over three years, either
2003 to 2006 or 2004 to 2007, depending on their latest available accounts
Fast Track Tech
●●
Registered in the UK, unquoted and independent (non-subsidiary)
●●
Minimum revenue of £100,000 in 2004/5
●●
Minimum revenue of £3m in 2006/7
●●
●●
●●
Year on year revenue growth from 2005 up to the 2007 forecast (for 2004
base year)
Year on year revenue growth from 2006 up to the 2008 forecast (for 2005
base year)
Technology company (a company whose business growth and success is
dependent on the development of one or more technologies), telecoms or
digital media company
●●
More than 25 trading weeks in the base and final years
●●
Selected from a database of 1.5m private companies
●●
The final 100 companies are ranked by growth in sales over two years, either
2004 to 2006 or 2005 to 2007, depending on their latest available accounts
17
High growth firms in the UK: Lessons from an analysis of comparative UK performance
How the UK and US samples compare
The average annual growth rates for the 200 UK Fast Track and Fast Track Tech
firms ranged from 514% to 51.6% and the top 200 firms on the Inc list have
growth rates varying from 486.1% to 120.2%27. Clearly the bottom of these
ranges for both countries is well above the OECD definition of high growth.
The growth rates of the top 200 Inc firms are, on average, higher than those of
the 200 Fast Track and Fast Track Tech firms. This is not surprising given that the
US is a much larger economy. As discussed in section 3.2 comparisons between
countries should be made after controlling for differences in the sizes of these
economies. The US has a GDP over 5 times larger than that of the UK, it would
not therefore be unreasonable to expect the US to have over 5 times as many
firms achieving a set revenue growth threshold. By taking the fastest growing
200 firms in each country we would expect to have to look to a lower growth
threshold in order to identify 200 UK companies.
Within the Inc 5000 there are 487 firms which achieve growth rates of over 85%.
This compares to 100 Fast Track and Fast Track Tech firms achieving such a
growth rate28 (see Table 1). Similarly, while the 200 Fast Track and Fast Track Tech
firms achieved annual growth rates of 51.6% and over, 1029 US firms achieved
this level of growth, 5.1 times as many. Therefore there is evidence that, once
controlling for differences in GDP, the UK performs comparably to the US in terms
of the number of young privately held and independent high growth firms.
Table 1: Number of firms achieving specific growth thresholds
Growth threshold
100%
85%
75%
52%
70
100
127
200
Number of Inc firms (US)
342
487
605
1029
Number of US firms as a multiple of UK firms
4.89
4.87
4.76
5.15
Number of Fast Track firms (UK)
Source: Fast Track, Inc and BERR analysis
Adjusting for possible biases
The shorter assessment period of the Fast Track Tech list (see box 1) might
cause an upward bias on the number of high growth firms in the UK. However,
conversely, merging the Fast Track Tech and Fast Track lists could cause a
downward bias on the number of high growth firms in the UK and if the list did
not constrain the number of non-technology firms to 100, the fastest growing
200 UK firms would have a higher proportion of non-technology firms and
higher growth rates. In addition the lower turnover thresholds for inclusion in
27
28
18
The top performing UK firms in the sample have achieved higher growth rates than their US counterparts, indeed
three of the UK firms achieved growth rates over 486%. However, all three of these were from the Fast Track Tech
for which average annual growth rates are calculated from just a two year period rather than a three year period of
the Fast Track and Inc lists. Sustaining high growth rates over a three year period is obviously more challenging.
The fastest growing 100 Fast Track and Fast Track Tech firms are comprised of 52 Fast Track firms and 48 Fast Track
Tech firms.
Number of high growth firms: How the UK performs
the Inc list, may cause an upward bias on the number of US firms as it is easier
to achieve high growth rates when starting from a lower baseline.
To control for possible bias resulting from the shorter assessment period for UK
technology firms, these firms are excluded from the samples in both countries
and the top 100 UK firms are again compared to the number of US firms achieving
equivalent annual growth rates. Calculations reveal that there are approximately
5.5 as many US firms, further supporting the view that the UK’s performance is
comparable to the US29.
A note about the European and global markets
Globalisation means that firms are now competing in an increasingly global
market which implies that, for many sectors, demand is not constrained by the
size of domestic markets. Additionally, the European Union market is of a similar
size to the US economy.
These factors suggest that there may be potential for the UK to generate just as
many high growth firms as the US despite the smaller size of the UK economy.
Whilst it more appropriate to make international comparisons after adjusting
for differences in economy size, it should be noted that the size of the economy
need not hamper the number of UK high growth firms.
Summary of findings from analysis of Fast Track and Inc
●●
●●
The UK performs comparably to the US in terms of the number and growth
rates of the fastest growing young privately held and independent high
growth firms.
This result remains after making adjustments for potential biases caused by
differences in the inclusion criteria for technology firms.
3.4 Analysis of large publicly owned companies
The Inc and Fast Track lists identify a variety of high growth firms, across a range
of sectors, locations and ages (just over half of the firms on the lists are less than
5 years old and can therefore be classified as gazelles). However, the lists do not
cover public companies. This is of particular concern as the ‘gorillas’ are found
within this group.
This section therefore examines how the UK performs in terms of the number of
large publicly owned high growth firms.
29
The breakdown between technology and non technology firms was assessed for the top 300 US firms and (given
the stable distribution observed) the proportion has been extrapolated to estimate the number of the 861 firms
achieving growth over 59%. This was compared to the 100 UK non technology firms achieving equivalent growth
rates.
19
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Data and Methodology
Using Bloomberg data, the growth performances of all UK and US firms (by
country of incorporation) with an annual consolidated turnover of over £1 billion
in 2007 have been studied (over the period 2000 to 2007)30. The number of firms
meeting the OECD definition of high growth has been identified and those fitting
the definition of ‘gorilla’ are also identified.
Number of large publicly owned high growth firms
915 US firms (US as country of incorporation) were identified with turnover over
£1 billion in 2007. This compares to 186 UK firms (UK as country of incorporation).
Of these 27 US firms and 5 UK firms met the OECD definition of high growth in
2007. Therefore 5.4 times as many US large high growth firms were identified
than UK firms, suggesting that after accounting for the differences in economy
sizes the UK also performs comparably to the US in terms of the number of
large high growth firms. In addition the percentage of large firms which met the
definition of high growth was 3% in each country.
Of the UK large firms achieving high growth over the period 2004-2007, none
met the definition of gorilla set out in 2.1. While some of the high growth firms
identified meet the criteria regarding international presence and number of
employees, none are young enough to count as gorillas31. The youngest of the
high growth firms is Carphone Warehouse which was established in 1989. Of the
27 US large high growth firms only one meets the definition of gorilla; Google32.
In addition there are 5 high growth firms which would meet the definition of
gorilla if the age restriction is adjusted to include firms which are 15 years old
or younger (Cognizant technology solutions, Netapp, Amazon.com, Western
refining and NII holdings)33.
Similar results are observed when defining high growth over the period 20032006 (see Table 2)
30
31
32
33
20
US turnover figures are converted into GB Pounds through Bloomberg using exchange rates appropriate for the
turnover time period.
Firms such as Vodafone, Intel, Google and Skype were identified in section 2.1 as exhibiting gorilla style growth.
However, many of these firms do not satisfy the tight definition of gorilla that is used here. In some cases this is
because the firm is now too old or because the firm’s turnover growth did not meet the high growth threshold in
the last three years. This does not mean that these firms would not have met the definition of gorilla in previous
years.
Three other of the high growth firms have dates of incorporation post 1997, however further investigation reveals
that these are due to changes in ownership or mergers and these firms cannot therefore be considered gorillas. A
further firm meets the age requirement but fails to meet the definition of gorillas based on international presence
as it is only active in the US and China.
Some readers may be surprised that Microsoft was not identified as a gorilla. This is because Microsoft was
founded in 1975 and also has not maintained annual growth rates of over 20% over the last three years.
Number of high growth firms: How the UK performs
Table 2: Large publicly owned high growth firms and gorillas
UK (2007)
Number of firms with 2007
turnover over £1 billion
Number of firms meeting
definition of high growth
US (2007)
UK (2006)
US (2006)
186
915
186
915
5
27
9
28
Number of US high growth firms
as a multiple of UK firms
5.4
Number of gorillas (based on
definition of less than 10 yrs old)
_
Number of gorillas (based on
definition of less than 15 yrs old)
­_
●●
Google
3.1
_
●●
●●
●●
●●
●●
●●
●●
●●
Google
Cognizant technology
solutions
Netapp
Amazon.com
Western Refining
NII holdings
_
●●
●●
●●
●●
●●
Google
NII holdings
Google
Cognizant technology
solutions
eBay
Yahoo
NII holdings
It is clear that gorillas are very rare and that the US does have more gorillas
than the UK. However, adjusting for economy sizes would allow the US five
times more gorillas than the UK, and with such a small number of gorillas it is
difficult to compare the UK’s performance accurately. There is evidence that the
UK performs well in terms of the number of large high growth firms.
Age distribution of the 100 largest UK and US firms
As an additional method for examining the UK’s performance in generating
gorillas the age distribution of the 100 largest UK and US firms (by turnover) is
examined.
If the US produces a large number of gorillas we would expect a significant
proportion of US large firms to be fairly young organisations, and if the UK fails
to produce gorillas we would not expect to find young firms among the largest
organisations.
Data and methodology
Bloomberg database has been used to identify the largest firms for each
country34. In order to assess the true age of the companies, each organisation
has been traced back to its origins rather than the date of incorporation in order
to avoid distortions caused by changes in legal status, ownership or mergers.
Where firms have merged to form a new company, the age of the oldest merging
parties is taken.
34
Based on country of incorporation
21
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Observed age distribution
Figure 5 shows the age distribution for the largest UK and US firms. Overall the
UK firms are older than their US counterparts; however, in both countries there
are very few firms which were founded in the last 20 to 30 years. Indeed, at least
half of the firms in both countries can be traced back to origins prior to 1900. The
largest firms in the UK and US are not new gorillas35.
Figure 5: Age distribution of 100 largest UK and US firms
50
UK
US
19801990
after
1990
45
Percentage of firms
40
35
30
25
20
15
10
5
0
pre 1800
18001900
19001920
19201940
19401960
19601980
Year started
Source: Fast Track, Inc and BERR analysis
Churn amongst largest firms
Although the largest UK and US firms are on average over 100 years old, it does
not necessarily follow that the largest 100 firms do not change much over time.
The rate of churn within the largest firms has been examined by a number of
researchers over time and a significant difference between the UK and US can
be observed. For example, Hannah (1998) reported that tracing Business Week’s
July 1997 list of the global top 100 industrial corporations36 back to 1912 reveals
that only 23% of the US giants were also in the 1912 top 100 list, whereas 75% of
the UK firms were also in the top 100 firms in 1912. This difference in the churn
of the largest firms may contribute to the greater number of gorillas in the US.
35
36
22
The one UK firm which was established after 1990 is British Energy which was established in 1995. This firm does
not meet the turnover growth rates to qualify as a gorilla.
Manufacturing and mining companies
Number of high growth firms: How the UK performs
Growth achieved by large firms
As previously discussed in chapter 2.2, we should be less concerned with the
number of gorillas than with the overall performance of our international firms.
The growth performances of all UK and US firms with an annual turnover of
over £1 billion in 2007 have been studied for the period 2000-2007. The majority
of firms this size compete internationally which is why we will focus on this
sample. Growth rates are calculated based on turnover data.
Figure 6 shows the cumulative distribution for UK and US large firms’ growth
over the period 2000 to 2007. This shows that the UK firms achieved higher
average growth rates over this period; for example the graph shows that in the
US 50% of all firms achieved an average annual growth rate of less than 5%,
meaning that 50% of firms achieved growth higher than this level. However, in
the UK 50% of firms achieved growth rates over 8%. Indeed, in half of the years
considered the average growth rate for all UK firms was more than double that
achieved in the US. Furthermore, in most years there were considerably fewer
firms experiencing negative growth rates.
Figure 6: Growth rates achieved by US and UK large firms (2000-2007)
120
UK
US
Cumulative percentage of firms
100
80
60
40
20
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Average annual growth rate (2000-2007)
Data source: Bloomberg
Figure 7 indicates that a higher proportion of the UK firms have achieved periods
of sustained growth (maintaining positive growth over a 3 year period). Indeed,
between 2004 and 2007 49% of the UK firms achieved positive growth in every
year, compared to just 37% of the US firms.
23
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 7: Percentage of UK and US firms with turnover of £1 billion in
2007 achieving three consecutive years of turnover growth
60
UK
US
Percengage of firms
50
40
30
20
10
0
00-03
01-04
02-05
03-06
04-07
Source: Bloomberg and BERR analysis
Summary of findings from analysis of large publicly owned
firms
●●
●●
●●
24
While it is easier to identify US gorillas than UK gorillas, there is evidence that
the two countries perform similarly in terms of the incidence of high growth
firms amongst large public firms.
The largest firms in the UK and the US are not gorillas. The average age of
the largest 100 firms in both countries is over 100 years. At least half of the
firms in both countries can be traced back to origins prior to 1900.
The growth performance of the UK’s largest firms has exceeded those of the
US over the last 8 years suggesting that UK large firms are coping well with
increased international competition.
4.Drivers and barriers
to growth
This chapter examines the drivers and barriers to firms achieving high growth.
First a review of the existing evidence will be conducted in order to identify
factors which are widely believed to contribute to growth. These factors are
then used to determine which characteristics to examine within a sample of
100 UK and 100 US high growth firms. The aim of this is to identify whether the
same factors which influence growth generally are also the factors which are
important for high growth. In addition the research will aim to identify any key
differences between the UK and US high growth firms.
This paper has presented evidence which suggests that the UK and US perform
comparably in terms of the number of high growth firms. However, section 3.4
acknowledged that it is easier to identify gorillas in the US than the UK. This
may indicate that young high growth firms in the US are more likely to become
gorillas than their UK counterparts. In this section the differences between the
two countries’ young high growth firms are examined with the aim of identifying
factors which may contribute to a larger number of US gorillas37.
Section 4.3 examines what happens to young high growth firms, with the aim
of assessing the percentage of firms which manage to sustain growth and
identifying barriers to maintaining high growth.
4.1 Review of existing evidence
There is a wealth of economic literature examining the factors which drive firm
growth and the characteristics which are common to the fastest growing firms.
This section summarises this literature, identifying the factors which are widely
agreed to influence firm growth.
Sectoral composition and location
The pattern of sectoral growth within the economy is likely to affect the number
of high growth firms in the economy overall. This is because it is easier to
achieve high growth in a growing sector than in a declining sector. Furthermore,
some sectors exhibit market structures which lend themselves to harbouring a
larger number of firms. If these sectors experience rapid growth due to changes
in consumer demands, then a large number of firms within the sector may
experience high growth. However, in sectors where market structure acts as
a constraint on the number of firms (e.g sectors with barriers to entry such as
37
It should be noted that growth is an unpredictable process and the high growth firms of today may not continue
to grow or even remain at their current size. However, the nature of a gorilla is to grow from start up to a large
international organisation within a very short period of time. Therefore these firms will have achieved high growth
when young and conversely the gorillas of tomorrow will be amongst the young high growth firms of today.
25
High growth firms in the UK: Lessons from an analysis of comparative UK performance
investment in network infrastructure), growth in the sector could be expected to
lead to the creation of fewer high growth firms. Sectors which are particularly
innovative and regularly introduce new products may therefore lend themselves
to creating greater high growth firms.
Due to this there is often a perception that high growth firms are predominantly
found in high-tech sectors and located within technology clusters such as Silicon
Valley or Cambridge. For example, in a review of research on small firm growth,
Davidsson et al (2005) conclude that ‘it has been clearly demonstrated that
rapidly growing firms are more often found in industries and regions that are
more dynamic’. However the authors note that growth firms are also often found
in dynamic growth niches within industries which are stagnant overall.
However, recent research by the US Small Business Administration concluded
that ‘High-impact firms exist in all industries. While some industries have
a higher percentage of these firms, they are not limited to high-technology
industries’ and that ‘the distribution of high-impact firms shows some variation
across regions, but not a lot’38.
Based on the evidence, an examination of a sample of high growth firms
could be expected to reveal high growth firms in all locations and sectors of
an economy, with a higher concentration in more dynamic sectors such as
technology sectors.
Founders’ motivations
The majority of small firms do not grow. The 2006/7 Annual Small Business
Survey (ASBS) found that only 20% of SME employers experienced employment
growth over the year and 40% experienced growth in turnover39.
Indeed many business owners do not have any ambition to grow as they manage
‘lifestyle businesses’ with the primary aim to be independent, self employed and
to generate a comfortable and stable income. Entrepreneurs are a distinct and
small subset of business owners who seek high growth.
The economic literature confirms that high growth firms have high growth
ambitions. Smallbone et al (1995) find that 93% of high growth companies had
been aiming for growth and that 70% had a specific strong growth objective
compared to 32% of all other companies40.
Autio (2005) uses the Global Entrepreneurship Monitor to investigate “high
expectation entrepreneurship” (entrepreneurial firms that expect to achieve
rapid growth in employment size) and finds that the highest adult age population
level participation rate in high-expectation entrepreneurial activity is within the
38
39
40
26
Acs (2008)
www.berr.gov.uk/files/file42727.doc
Smallbone et al (1995)
Drivers and barriers to growth
US with 1.5%41. The UK follows closely behind with 1.4% and both perform
significantly better than Europe where only 0.5% of the adult age population
are involved in high expectation entrepreneurship. This is consistent with other
evidence around how the UK performs in terms of high growth compared to the
US and Europe.
Education, skills and experience of founders
Literature (e.g. Colombo and Grilli)42 acknowledge two routes through which
education, skills and experience can affect performance:
●●
●●
‘Entrepreneurial ability’ – Higher levels of qualifications, skills and experience
(particularly management skills) among founders are widely assumed
to increase the growth potential of firms. More skilled and experienced
individuals are assumed to have a greater ability to successfully manage a
business, seek and take advantage of new business opportunities and cope
with the many and diverse requirements which business owners face.
‘Wealth effects’ – individuals with higher levels of qualifications find it easier
to access finance. This is particular due to the production of higher quality
business plans and partly due to imperfections in the capital market whereby
lenders and investors cannot accurately judge the quality of entrepreneurs.
As a result many will use level of qualifications as an indicator of a manager’s
ability.
Empirical evidence broadly supports the importance of these impacts, although
the findings could be more robust. Six of the empirical studies examined by
Stam and Garnsey (2008) investigated the effect of the educational level of
entrepreneurs on growth performance. Only two of these found a positive
relation, and four found no statistically significant relationship. Similarly, only
one of six studies found a positive relationship between the management
experience of the entrepreneur and the growth performance. Similarly, the effect
of previous business ownership experience and industry specific experience
is found to have a positive effect in some empirical studies and no impact in
others.
Number of founders
The theoretical and empirical literature suggests that firms which are founded
by larger teams achieve higher growth rates43. A larger team of founders is likely
to increase the start up capital of a firm, the management experience and the
managerial resource available. A team of individuals is also more likely to have
a diverse set of skills. These factors are believed to increase the growth potential
of a firm.
41
42
43
Autio (2005)
Colombo and Grilli (2005)
Cooper et al (1994)
27
High growth firms in the UK: Lessons from an analysis of comparative UK performance
In addition firms which are founded by teams may need to achieve larger scales
in order to achieve adequate returns for each of the founders. This may lead to
higher growth aspirations among firms with larger founding teams.
Gender
Studies which have examined the effect of the founder’s gender on growth
performance, find that male founders have a positive impact on growth44.
Women entrepreneurs are also found to have lower growth ambitions than their
male counterparts.
The literature points to differences in work experience, contacts, financial
resource and growth ambitions as the reasons behind the gender gap.
Access to Finance
Awareness of, and access to, appropriate sources and levels of external finance
are critical in determining the investment and innovation performance of
businesses, and the extent to which they realise their full growth potential.
Difficulty in raising finance or accessing inappropriate types of finance can
reduce a firm’s ability to invest in new products or services and to increase
staff numbers. It is therefore obvious that access to finance is a key factor in
determining firm growth.
Access to finance is only a barrier to growth for a small minority of firms45.
However, BERR analysis based on the Annual Small Business Survey shows that
businesses aspiring to grow are both more likely to seek finance and more likely
to experience difficulties compared with those businesses not seeking growth46.
Although by their nature high growth firms can be expected to have overcome
this hurdle.
Firms embarking on a phase of growth have larger financing requirements
than those which do not seek growth. In addition, growth plans are often risky
with delayed returns. These factors mean that equity investments are the most
appropriate type of finance for high growth firms and venture capital in particular
is desirable. The availability of venture capital may therefore be a driving factor
behind the number of high growth firms in an economy.
A review of empirical studies regarding firm growth showed that of the
five studies which examined the impact of start up capital on the growth
performance of firms, three found a positive relationship and two found no
statistically significant relationship47. It should be noted that empirical studies
do not provide evidence of a causal relationship and it cannot be inferred that
44
45
46
47
28
For example Stam and Garnsey (2008)
http://www.berr.gov.uk/files/file38295.pdf
Presented in the 2008 Enterprise Strategy document “Enterprise: Unlocking the UK’s talent”
Stam and Garnsey (2008)
Drivers and barriers to growth
larger start up capital increases the chances of achieving high growth. However,
the positive relationship found in three studies remained after controlling for
characteristics of the founder and does suggest that there is a link between start
up capital and firm growth.
Networks and relationships
Strategic alliances are formal relationships between two or more firms which
enable them to share resources to meet a business need whilst remaining
independent organisations. Firms may use strategic alliances to combine
knowledge to produce new products or services or to share resources or risk in
business projects. There is some evidence that firms which are innovative and
have larger management teams are most likely to form strategic alliances48.
These characteristics are also common to high growth firms implying that high
growth firms are likely to make use of strategic alliances49.
Management style
Littunen and Virtanen (2004) sought to explain the performance of high growth
firms in Finland and found that group management style (where a group is
involved in decision making) was an important factor in high growth firms. This
supports literature which suggests that high growth firms are more likely to be
founded by teams of individuals.
Smallbone et al (1995) similarly found that 73% of high growth firms increased
the number of managers over the period of growth, 59% made structural
changes in the division of management responsibilities and half increased
the time available for management tasks. Indeed these factors were the most
statistically significant differences from non-high growth firms.
Innovation
International research has consistently demonstrated the positive correlation
between R&D investment intensity and company performance measures such
as sales growth in the sectors where R&D is important50.
Furthermore, high growth firms tend to be innovative and inhabit niche areas.
In particular their main product or service is differentiated from others in the
market51.
48
49
50
51
Eisenhardt and Schoonhoven (1996)
Again it should be noted that an association between high growth firms and strategic alliances does not provide
evidence of a causal relationship and it is not clear whether strategic alliances increase growth performance or
whether high growth firms are more likely to seek strategic alliance opportunities.
http://www.berr.gov.uk/dius/innovation/randd/why-invest-in-randd/page10549.html , Leonard (1971), Morbey (1988),
Kashani, Miller & Clayton (2000).
Littunen and Virtanen (2004)
29
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Box 2 below examines evidence of the link between innovation and high growth
firms.
Box 2: Innovation and high growth firms
Research commissioned by BERR building on Rogers et al (2007) ‘The
association between the use of IP by UK SMEs in 2001 and subsequent
performance in 2002 to 2004’ provides evidence of the association between IP
activity and the growth of firms. Table 3 below shows the growth performance
of SMEs by category of IP activity. Asset growth has been used to calculate
growth rates as total assets are the most common financial variable available
in the FAME database (a database containing financial data on UK businesses)
on which the analysis relies. The analysis was repeated for turnover growth, the
reduced availability of data made statistical comparison more difficult; however
the results were similar (full analysis and tables can be found in Annex 3).
Firms have been split into four growth categories and by construction 25%
of total SMEs are classified into each of the four categories. The first growth
quartile (strongly negative growth) includes all firms with asset growth below
-5.5% over the period 2001 to 2006. Negative growth is defined as asset
growth below 0% but higher than -5.5% over the same period; firms with
growth between 0 and 10.1% are classified Positive and all firms with growth
rates above 10.1% are classified high growth.
The IP activity of firms has been observed and for each type of IP activity the
proportion of firms in each growth category has been assessed. If IP activity
and growth performance are unrelated 25% of SMEs should be observed in
each growth category regardless of whether the firms are IP active or non
active. Table 3 shows the proportion of firms in each growth quartile by
IP activity category. The percentage of non IP active firms in each growth
category is approximately 25% mirroring the distribution of the SME sector
overall. The IP active firms however, do not follow this distribution. Of the
2,561 IP active SMEs over 30% are found in the high growth quartile, meaning
that they are over-represented in this group. This difference proves to be
statistically significant.
52
30
This box reports on one specific study into the relationship between innovation activity and high growth firms In
particular and does not constitute an extensive review of the literature.
Drivers and barriers to growth
Table 3 SME growth of assets (2001 to 2006) and IP activity (2001)
Percentage of firms in each growth category
Strongly
negative
growth
Negative
growth
Positive
growth
High growth
Total number
of firms in IP
category
Non IP active firms
24.98 %
25.18 %
24.98 %
24.85 %
100 %
94,189
IP active
25.54 %
18.35 %
25.69 %
30.42 %
100 %
2,561
UK TM Active
23.01 %
17.22 %
26.22 %
33.55 %
100 %
1,556
Com TM active
30.58 %
17.68 %
22.12 %
29.68 %
100 %
556
UK patent active
25.54 %
23.20 %
27.40 %
23.78 %
100 %
513
EPO active
31.09 %
19.05 %
22.97 %
26.89 %
100 %
357
Source: Rogers (2008).
Classifying the IP active firms further into types of IP activity reveals that firms
most likely to be categorised as high growth are those with UK trademarks.
The proportion of these firms which are categorised as belonging to the high
growth quartile is 34%.
All types of IP active firms are under-represented in the ‘negative growth’ group
and over represented in the highest growth quartiles. However community
trade marks and EPO active firms are also over-represented in the ‘strongly
negative growth’ performance category, perhaps reflecting the risky nature of
innovation activity.
Firms with UK patents do not have a statistically significant different distribution
from non IP active firms.
Table 4 shows the IP activity of UK SMEs by three growth categories including
the OECD definition of high growth (based on asset growth rather than
turnover). If there were no association between growth performance and IP
activity we would expect the distribution observed amongst the non IP active
firms to be replicated across all categories of IP activity. Table 4 shows the
distribution of firms between the three growth categories for various types of
IP activity.
31
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Again there is a statistically significant difference in the number of IP active
firms which classify as high growth. Trademarks are once more found to be
the type of IP most associated with high growth.
Table 4 SME growth of assets (2001 to 2006) and IP activity (2001)
Negative growth
Growth between
0 and 20%
Growth above
20%
Total
Non IP active
50.30 %
35.45 %
14.25 %
100 %
94189
IP active
44.05 %
37.21 %
18.74 %
100 %
2561
UK TM active
40.42 %
38.43 %
21.14 %
100 %
1556
Com TM active
48.38 %
31.83 %
19.78 %
100 %
556
UK patent active
48.73 %
38.40 %
12.87 %
100 %
513
EPO active
50.42 %
35.29 %
14.29 %
100 %
357
Source: Rogers 2008 “High growth firms in the UK: Links to intellectual property activity and comparison of fast
growing US and UK firms”
The data also allows identification of firms which grew from SMEs to large
firms over the period 2001 to 2006. Table 5 shows that all forms of IP activity
are associated with a higher percentage of firms becoming large. However
this difference is not statistically significant for patent active firms.
Table 5 SME growth to large firm (2006) and IP activity (2001)
Became large
Non IP active
8.04 %
IP active
10.58 %
UK TM active
11.44 %
Com TM active
11.69 %
UK patent active
EPO active
8.58 %
10.64 %
Source: Rogers 2008 “High growth firms in the UK: Links to intellectual property activity and comparison of fast
growing US and UK firms”
Overall, there is evidence that IP active firms are more likely to be high growth
than non IP active firms, suggesting that innovation is an important factor in
achieving high growth. The data suggests that innovation in terms of intangible
assets such as trademarks is particularly important for high growth.
32
Drivers and barriers to growth
4.2 Analysis of 100 UK and 100 US high growth firms
Data and Methodology
In order to examine whether the drivers of growth identified by the literature are
also important in driving high growth, this section examines the characteristics
of high growth firms. The differences between the characteristics of UK and US
high growth firms are highlighted.
This section draws on findings from three sources, namely:
1.
BERR analysis:
A sample of 100 UK and 100 US high growth firms are examined. These firms
are the top 100 firms on the 2007 Inc 5000 and 2007 Fast Track lists. The Fast
Track and Fast Track Tech lists were dovetailed and the top 100 taken as the UK
sample53. Further information about the Fast Track and Inc lists can be found in
section 3.3 and in Box 1.
Research was conducted to identify key characteristics about each of the firms
and their founders, based on the factors which were identified in section 4.1:
●●
Sectoral composition and location
●●
Education, skills and experience of the founder
●●
Number of founders
●●
Gender of founders
●●
Use of finance
●●
Networks and relationships
●●
Management style
●●
Innovation
2.
Kingston University research
BERR commissioned Kingston University (2008) to undertake a comparative
study investigating the drivers of high growth firms. The study is based on
interviews with owners of 21 UK and 18 US high growth firms.
The businesses were identified using the Dun and Bradstreet and FAME
databases. The two databases were searched, using the criteria listed below, to
identify a sampling frame from which UK and US sample businesses could be
drawn. Letters were sent to named potential respondents believed to be owners,
partners or directors. Selected firms were screened in a telephone call to ensure
53
Of the top UK 100, 52 are from the Fast Track list and 48 from the Fast Track Tech list.
33
High growth firms in the UK: Lessons from an analysis of comparative UK performance
the selection criteria were met. Sample businesses each satisfied the following
criteria:
●●
●●
●●
●●
●●
●●
3.
Independence – businesses were not part of, or owned by, large companies;
Growth performance – businesses had achieved 60% or higher real turnover
growth over the previous three years (met the OECD definition of high growth).
As such relative measures of growth are easier for smaller firms to achieve,
steps were taken to include larger, small and medium-sized businesses within
the sample
Employment size – The businesses employed 3-250 people
Business sector – businesses operating in the following sectors (information
technology, financial services, business and professional services, electronics,
engineering and architecture)
Location – businesses located in South East England and within the I- 128
highway around Boston, Massachusetts
Business age – businesses were at least three years old to meet the sales
growth criteria. The UK businesses ranged from 3 to 17 years old, averaging
7 years. The US businesses ranged from 4 to 47 years old, averaging
17 years.
Oxford University research
The third source that this section draws on is research commissioned by BERR
and undertaken by academics at Oxford University (Rogers and Helmers 2008)
examining the intellectual property activity of high growth firms, including the
top 100 Inc and Fast Track firms.
This research can be found in Annex 2 of this report.
When material is drawn from the Kingston University or Oxford University
research this is clearly stated. Otherwise the analysis presented is drawn from
BERR research.
The sample of UK and US high growth firms: Distribution of firm
size and age
The firms identified in both countries are young with over half established in or
after the year 2002. The US firms tend to be smaller than their UK counterparts at
the beginning of the assessment period (in terms of turnover). This is largely due
to differences in the inclusion criteria between the Inc and Fast Track (see Box 1).
However, by the end of the assessment period, the US firms are larger than the
UK firms both in terms of turnover and employee numbers. This is because the
top 100 US firms have higher average growth rates than the top 100 UK firms (as
there are approximately 5 times more US firms for each growth level).
34
Drivers and barriers to growth
Further information about the size and age profiles of the firms can be found in
Annex 1.
Sectoral composition
The literature suggests that high growth firms exist in all sectors of the economy
but are more heavily concentrated in dynamic sectors and this is observed in our
UK and US samples. Table 6 shows that the sectoral composition of the UK and
US samples are broadly similar, although firms are more heavily concentrated
in IT services, health and business services in the US sample and more heavily
concentrated in the telecommunications, media and retail sectors in the UK
sample.
One striking difference between the two countries is the importance of
Government services in the US which accounts for 10% of the high growth firms.
This sector is absent from the UK sample, although this is a little misleading
as a number of the UK firms have won government contracts. While supplying
the government has undoubtedly contributed to the success of these UK firms,
government contracts only form part of the firms’ business and as such the firms
are not classified as belonging to the government services sector.
Table 6: Sectoral breakdown of UK and US firms
UK
US
Business and recruitment services
20
25
Telecommunications
15
7
IT services
14
19
Finance
9
7
Leisure and media
9
4
Retail
7
1
Engineering and manufacturing
6
4
Construction
4
5
Food and drink
4
1
Health
3
7
Consumer goods
3
1
Energy
1
4
Education
1
2
Government services
0
7
Other
4
6
Source: Inc, Fast Track and BERR analysis
Of the seven US government services sector firms, five operate within the area
of defence. The scale of defence spending in the US was over nine times that
35
High growth firms in the UK: Lessons from an analysis of comparative UK performance
of the UK in 2007, amounting to over $500bn54. In addition, in recent years US
spending on defence has been rising at a higher rate than in the UK. The increase
in US defence spending between 2006 and 2007 amounted to 60% of the entire
2007 UK defence spending. Once the scale of this sector is put into context it is
not surprising that changes in technologies and priorities in the area of defence
create large opportunities for US high growth firms.
Customers served
The high growth firms which attract the most publicity are large consumer
facing organisations such as Google. However, analysis of the 100 UK and 100
US high growth firms shows that for both countries the majority of the firms are
business to business (B2B) facing. This is more pronounced in the UK sample
where 69% of firms were B2B versus 62% of the US firms. More of the US firms
are Business to Government facing, as already discussed.
Table 7: Type of customers served by UK and US high growth firms
UK
US
Business to Business (B2B)
69
62
Business to Consumer (B2C)
18
13
B2B and B2C
13
19
0
6
Business to Government
Source: Inc, Fast Track and BERR analysis
Location
High growth firms are found in all regions of the UK and across the US. Of
the UK sample 57% of firms are located in London or the South East. Figure 8
shows the distribution of high growth firms across the UK scaled by regional
GVA in order to make a more meaningful comparison. Even after controlling
for differences in the sizes of the regional economies, the map shows that the
performance of London and the South East greatly exceeds that of other regions
(London and the South East regions account for 33% of the UK’s GVA but 57% of
the UK’s high growth firms).
In the US, 20% of high growth firms are located in California with the remaining
80% fairly evenly spread across 29 states.
54
36
Data source: Stockholm International Peace Research Institute
Drivers and barriers to growth
Figure 8: Regional distribution of UK high growth firms: Number of
high growth firms per £1bn regional GVA
No of firms per £1bn GVA
less than 0.025
0.025 – 0.05
0.05 – 0.1
0.1 – 0.15
more than 0.15
Data source: Inc and Fast Track lists and BERR analysis
Age of founders
In both countries the highest numbers of entrepreneurs are found in the 30
to 34 age group at the time of founding the business. However this is more
pronounced in the UK where there are fewer younger founders (under the age of
25) and founders in their 40s. The age profile of the US entrepreneurs was much
more evenly spread by comparison, with a greater number of founders in their
20s and 40s. In both countries there were few founders over the age 50.
37
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 9: Age profile of entrepreneurs at time of founding firm
35
UK
US
30
Percentage of firms
25
20
15
10
5
0
Under 20 20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65+
Age
Source: Inc, Fast Track and BERR analysis
Education, skills and experience of entrepreneurs
In both countries the founders of the high growth firms are highly educated.
However, the entrepreneurs behind the US firms are more highly educated
than their UK counterparts with 72 of the 100 US founding individuals or teams
having at least one person with a degree qualification compared to 54 for the
UK. Similarly, 29 of the UK firms have one or more founders with a masters
level degree (including MBA qualifications) compared to 39 in US55. By way of
comparison, 24% of the overall UK population hold degree level qualifications
and 7% hold post degree level qualifications.
55
For a number of firms we have been unable to confirm if the founder has a degree, masters degree or MBA
qualification. In these cases we have assumed that they do not and as a result the figures here may be
underestimations. However, the BERR commissioned Kingston University research also found that owners in the
US were more likely to hold degree, masters degree and MBA level qualifications (most of the masters degrees
found in the US sample were an MBA). The exact numbers are presented below
Business Owners’ Highest Level of Educational Qualifications
UK
US
PhD/doctorate
3
1
Masters degree
4
10
10
7
Vocational qualifications (City and Guilds, NVQ3)
1
0
A levels
3
0
O level/GCSE
0
0
No qualifications
0
0
21
18
Degree
ALL
38
Source: “Growth Challenges for Small and Medium-sized Enterprises: A UK-US Comparative Study”
Drivers and barriers to growth
Table 8: Number of firms with founders who have previously owned a
business
Founder has:
US
UK
An undergraduate degree
72
54
A masters degree
39
29
Previously owned a business
49
34
Never previously owned a business
34
55
Unknown whether founder has previously owned a business
17
11
Source: Inc, Fast Track and BERR analysis
The US entrepreneurs were also more likely to have previously owned a
business, with 49% of founders previously owning a business, compared to
34% of UK founders. However, 66% of the UK firms had at least one founder
who had previously been a director of a company. Therefore in both countries
the entrepreneurs were highly skilled in business management. Indeed many of
the founders were found to be serial entrepreneurs having previously founded
successful businesses before selling them and starting a new venture. This was
particularly noticeable in the US sample and may go some way to explaining the
lower use of venture capital among the US firms. Founders who had previously
founded a business were less likely to use venture capital, presumably due to
access to large personal finance.
Number of founders and management style
Of the Inc and Fast Track firms, it was found that US firms were most likely to
have been founded by one individual, whereas in the UK firms were most likely
to be set up by two individuals. For both countries around 20% of firms were set
up by teams of three or more individuals. This finding is surprising in two ways.
Firstly the literature suggests growth is associated with firms founded by teams
rather than individuals. However the majority of firms in the US sample (which
consists of firms with higher growth rates than the UK sample) are founded by
individuals. Secondly, there is no obvious reason why we would expect such a
stark difference between the two countries.
39
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 10: Number of founders
UK
US
0%
20%
1
2
40%
3
60%
4
5+
80%
100%
Teams of unknown size
Source: Inc, Fast Track and BERR research
The larger proportion of individual founders in the US may reflect the greater
number of serial entrepreneurs in the US sample. These individuals have gained
enough experience and capital to be able to start up independently. However
the difference may also reflect greater risk aversion in the UK. By setting up
business in teams the individual risk is lessened.
Firms founded by teams may benefit from a more diverse set of skills and
experience within the management of the company and the additional managerial
resource. However, even where there is only one founder, firms can also achieve
this through the early building of a strong and diverse management team.
An examination of the management structure of the UK and US firms reveals
that the US firms tend to have larger management teams and are more likely
to have a formal management board and executive team. This finding should
however been considered in the context that the US firms are larger.
The founders behind the US firms are also found to be more experienced and
highly qualified than their UK counterparts and this may also affect both the
choice to start a business alone and the growth potential of that firm.
Gender
In both the UK and US samples, women entrepreneurs are behind only a small
proportion of firms. In the UK only 2% of firms were founded by women only
40
Drivers and barriers to growth
and 5% founded by mixed teams. In the US 3% were entirely female founded
and 3% by mixed teams. By comparison 54% of all businesses in the UK are
entirely male led, while 46% are lead by mixed teams, with 13% of all businesses
majority-led by women56.
Table 9: Gender of entrepreneurs
UK
US
93
94
Female
2
3
Mixed team
5
3
Male
Source: Inc, Fast Track and BERR analysis
Owners’ motivations
The research carried out on the Inc and Fast Track high growth firms does not
allow an analysis of the owner’s motivations or aspirations for growth.
However, the qualitative research carried out by Kingston University did examine
the growth ambitions of the 21 UK and 18 US firms. This research found that
US owners were more likely to have growth plans at start up than the UK firms.
However, several of the UK owners adopted growth plans sometime after
start up.
Table 10 shows that US firms were also more likely to achieve or exceed their
growth ambitions.
Table 10: Growth aspirations among UK and US high growth firms
Growth Aspirations and Growth Performance
UK
US
Growth performance as planned
1
4
Growth performance slower than planned
7
6
Growth performance faster than planned
4
7
No specific growth plan at start-up
9
1
21
18
ALL
Notes: Refers to respondents’ aspirations for growth at the time they founded (or joined) the business.
Source: Kingston University (2008)
The owners’ motivations for starting the business were similar across the two
countries. Motivations varied from lifestyle reasons such as dissatisfaction with
previous employment and desire for self employment through to identification
of new market opportunities and the desire to create spin off firms after previous
employers had rejected ideas for new products or services.
56
Data source: ASBS (2006/7)
41
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Methods of finance
Limited data is available regarding the methods of finance used by the firms;
however we found that at least 14% of UK firms in our sample had accessed
venture capital compared to only 7% of US firms in our sample57.
This sizeable difference is interesting. The US firms have achieved higher growth
rates than those among the UK sample (due to the selection methodology used)
and it is hypothesised that these firms are more likely to become gorillas.
Therefore the literature would suggest that the US firms are more likely to have
made use of external equity finance in order to finance growth.
The snapshot picture which our analysis provides does not allow further
examination of the reasons behind this difference. However, the Kingston
University research conducted qualitative analysis into the characteristics of
a small sample of UK and US high growth firms58. This research examined
21 London based UK high growth firms and 18 US Massachusetts based high
growth firms which were identified as fulfilling the OECD definition of high
growth59.
The study found a similar pattern to that observed in the sample of 100 UK
and US firms; the US firms were less likely to have taken on external equity
finance.
Table 11: Use of external equity finance among UK and US high
growth firms
Use of External Equity
UK
US
External equity
13
6
8
12
21
18
No external equity
ALL
Source: Kingston University (2008)
It should be noted that in both the BERR analysis of the Inc and Fast Track firms,
and the Kingston University research, the US firms tend to be older than the UK
firms which could affect external financing needs.
The qualitative nature of the Kingston University research enabled more in depth
exploration of the differences in use of external equity finance and revealed that
the US firms which had not sought equity finance stated that they were either
self financed, financed from cash flow or relied on bank finance. This implies that
the US firms had greater personal wealth at the start up phase.
57
58
59
42
Research by Inc also found that 7.6% of respondents from the Inc 5000 survey had used venture capital as start up
capital. http://images.inc.com/magazine/20070901/inc-5000-the-companies.pdf
Kingston University (2008)
Using Dun and Bradstreet and FAME databases
Drivers and barriers to growth
The US firms were more likely to have obtained, or be seeking business angel
finance than venture capital finance. The reasons behind this were that angel
finance was perceived as providing greater flexibility, patience for returns
and valuable business advice. In comparison, venture capitalists seek earlier
returns. In one case venture capital finance had led to a delay in growth plans
as the owners had to re-finance the firms in order to repay the venture capital
investment. However, technology companies in the UK were more likely to
favour venture capital and view it as crucial to growth.
Overall the research implies that there are significant differences in the finance
choices of the firms in the UK and US, in particular in terms of the use of venture
capital. This appears to be driven by greater access to personal wealth among
the US entrepreneurs60 and by a greater desire for business angel finance among
the US founders.
Networks and relationships
Given the high proportion of business to business facing firms among the two
samples, many of the high growth firms in the UK and US are reliant on other
firms as a customer. In addition there are other ways in which the firms were
found to rely on the business sector and some of these are shown in Table 12.
Table 12: Number of firms reliant on relationships with other
businesses61.
UK
US
5
6
Make use of a formal strategic alliance (a formal relationship
between two or more firms to meet a business need while
remaining independent organisations)
14
23
Resell a product produced by another firm or supply services which directly
complement/relate to products of other firms (e.g. Oracle consultancy services)
12
10
9
10
40
49
Use other firms as a retail channel
Relies on a small number of large business customers
Total
Source: Inc, Fast Track and BERR analysis
In the UK 40% of the firms rely on others compared to 49% of the US firms.
Strategic alliances were often used to combine expertise to produce new products
or to access the marketing and sales channels of other firms. For example
Investigo, number 10 on the Fast Track list, established a strategic alliance with
Fetter Logic in order to develop joint sales efforts and share marketing and
60
61
This view is supported by further analysis of the characteristics of the entrepreneurs behind the 100 UK and US
firms. The US entrepreneurs are more likely to have previously owned a business and have access to large start up
capital as a result of the sale of previous businesses.
For some firms information about links to other businesses was not available. Therefore the proportions presented
in this table should be considered as minimum proportions.
43
High growth firms in the UK: Lessons from an analysis of comparative UK performance
support mechanisms. Such relationships allow small firms to lessen the burden
of developing sales and marketing infrastructures.
With nearly half of the UK and US firms relying on some form of relationships
with other businesses, it is clear that one of the necessary conditions for creating
and fostering high growth firms is a vibrant business sector (both SMEs and
large firms) with plenty of networking opportunities.
Innovation
Research commissioned by BERR and carried out by Oxford University allowed
the names of the 100 UK Fast Track companies to be matched to the data in
the Oxford Firm Level Intellectual Property (OFLIP) database, which enables an
analysis of the Intellectual property (IP) activity of these firms. Any IP activity
by these firms during the period 2001 to 2005 is recorded in OFLIP. IP activity
of the 100 US Inc companies was identified using data from the US Patent
and Trademark Office BIB:PAT and BIB: Trademark databases. Table 13 below
summarises the proportions of firms that had some form of IP activity.
Table 13 UK and US 100 fastest growing companies: percentage of
IP-active 2001-2005
UK firms
(20012005)
UK
Patent
EPO
Patent
Patent
%
%
%
3
3
5
US firms
(20012005)
UK Trade
Mark
Community
Trade Mark
Trade
Mark
%
%
%
34
10
37
US
patents
7
US
trademark
38
Source: Rogers, Oxford University (2008)
Over the period 2001-2005, 38 of the UK sample had one or more type of IP; of
these 37 had a UK or Community trade mark. Only 5% of the firms held a patent.
In comparison 41% of the US firms had one or more type of IP, of these 38% held
trade marks and 7% applied for patents.
This suggests that the use of IP is very similar in the US and UK samples and that
in both cases trademarks are more prevalent than patents. The higher proportion
of firms using trademarks rather than patents has previously been noted among
higher growth SMEs (Rogers et al 2007 also see box 2). Our findings of the IP
activity of the Inc and Fast Track firms further supports this link and suggests
that investment in intangible assets such as brand names and trade marks are
particularly associated with high growth firms.
44
Drivers and barriers to growth
Summary of findings from analysis of 100 UK and 100 US high
growth firms
●●
●●
●●
●●
●●
●●
High growth firms tend to be founded by highly educated and experienced
entrepreneurs who start up their high growth business in their early 30s
following a period of management experience either in the labour market or
within a firm that they had previously founded. The vast majority of founders
are male.
The US founders were more likely to have degree and post degree level
qualifications and the number of founders with MBAs was found to be
particularly high. In addition the US founders were more likely to have
previously owned a business leading to higher levels of management
experience among the US entrepreneurs.
US firms were more likely to be founded by individuals rather than teams,
indeed 60% of the US firms were founded by one individual. This is likely
to be linked to the large number of serial entrepreneurs in the US sample.
These individuals are more likely to have the personal finance, experience
and confidence to set up business alone.
Innovation is an important factor in many high growth firms and just under
40% of firms in each country hold registered trade marks indicating that
investment in intangible assets is important for high growth firms.
High growth firms are found to rely heavily on other businesses in a number
of ways and around two thirds of the businesses are business to business
facing. Strategic alliances are also common.
US firms were found to be less likely to use venture capital than their UK
counterparts. This is likely to be related to the finding that just under half
of all the US founders had previously owned a business and therefore had
access to larger personal finances.
Table 14 below summarises the key characteristics of the UK and US high growth
firms and their founders.
45
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Table 14: Summary table of the characteristics of 100 UK and 100 US
high growth firms
UK (%)
US (%)
68
18
13
62
13
19
6
Average age of founders:
Under 20
20-24
25-29
30-34
35-39
40-49
50+
1
5
17
31
26
12
8
1
15
15
22
15
26
6
Number of founders:
1
2
3
4
5+
Teams of unknown size
36
41
16
5
0
2
60
22
7
4
2
4
Gender of founders:
Male
Female
Mixed team
93
2
5
Education of entrepreneur(s):
Degree
Masters degree
54
29
72
39
Previous experience of entrepreneur(s):
Previously owned business
Never previously owned a business
Unknown
Previously been a director of a business
34
55
11
66
49
34
17
Methods of finance:
Venture capital
14
7
Customers served:
Business
Consumer
Business and Consumer
Government
Use of innovation (2001-2005):
UK patent
EPO patent
US patent
Patent (total)
UK Trademark
Community trademark
US trademark
Trademark (total)
46
94
3
3
3
3
5
34
10
37
7
7
38
38
Drivers and barriers to growth
4.3 What happens to high growth firms: Where are they now?
As section 3.4 showed, gorillas are incredibly rare. The vast majority of high
growth firms do not therefore maintain growth to become large international
organisations. This section examines what does happen to young high growth
firms and what the barriers to maintaining high growth are.
Data and methodology
Firms which reached the top three positions on the Fast Track and Inc lists over
the period 1997-2007 were researched to investigate what had happened to them
following their period of high growth. These samples allow the examination of
both the past and current position of a total of 64 high growth firms in the UK
and US across a 10 year time frame62.
For the UK firms, the FAME database (database containing financial data on UK
firms) has been used to collect information about the turnover performance of
the firms following their appearance on the Fast Track. Data was available for 27
of the UK firms.
Current status of firms
Figure 11: Current status of previous top 3 Inc and Fast Track firms.
70
UK
US
Percengage of samples
60
50
40
30
20
10
0
Acquired
Going concern
Liquidated
Source: BERR analysis
62
For the UK the Fast Track and Fast Track Tech lists were combined and the overall top three firms examined. There
were two UK firms which appeared in the top 3 for two years and as a result only 31 UK firms were identified
compared to 33 in the US.
47
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 11 shows the current status of the firms examined for the UK and US.
Very few of the firms have since been liquidated, especially in the UK. A large
proportion of the firms have been acquired since the period of high growth and
many of these have been acquired by large international firms such as Nokia,
Philips electronics and GlaxoSmithKline. Of the firms which have not been
acquired or liquidated many have acquired other businesses and continue to
grow. Some of the firms have since grown into large well known organisations
such as Optical Express.
The high incidence of acquisition is fairly similar across the two countries. In
some cases this may be an opportunity for the founders to sell their business
and realise the profits they have made. However, in a large number of cases the
firms which were acquired continued to operate with the original founding team
retaining senior management positions. In these cases it appears that acquisition
by a large organisation is used by the founders as a method of sourcing further
growth finance and gaining access to the networks and infrastructure which
large firms offer, suggesting that these areas are barriers to high growth firms
maintaining growth alone. It also reinforces the conclusions in section 4.2 that
high growth firms rely heavily on interaction with other firms. This opportunity
to join a large organisation may be particularly important for UK high growth
firms as these firms have a smaller domestic market which makes exporting
more important in achieving further growth.
The large number of acquisitions also provides some explanation of why gorillas are
so rare. A large proportion of the firms which demonstrate the potential to become
gorillas are acquired by firms which are already large international organisations.
Subsequent growth performance of UK high growth firms
It is well documented that growth is not linear and periods of high growth do not
necessarily imply that firms will continue to grow63. The growth performance of
the UK firms has been examined following their appearance on the Fast Track in
order to examine how many continued to grow.
The results reveal that the majority of the firms have continued to grow rapidly;
58% of the firms maintained an average annual turnover growth of over 20%
since appearing on the Fast Track. However, growth performances have been
unpredictable and variable over time and 62% have experienced at least one
year of decline.
As a further indicator of growth performance, the firm size composition of the
sample of firms has been assessed at the time of appearing on the Fast Track
list and again based on the latest available financial information. For firms which
have been acquired this was the year prior to acquisition, for all other firms this
is the size in 2007. The results, presented in Table 14, show that at the time of
63
48
Garnsey et al. (2006)
Drivers and barriers to growth
appearing on the list the majority of the firms were medium sized enterprises64,
while the majority are now large organisations (or had become large firms by
the time their were acquired).
Table 15: Where are they now: Size of top 3 UK firms 1997 – 200765
Large
Medium
Small
Total number of firms
Firm size at time of
appearing on Fast Track
list
Current firm size (or size
before acquisition)
5
13
14
7
8
7
27
27
Overall the growth performance of the firms following their appearance on the
Fast Track has been strong. However, over a third of the firms become acquired
and it is unclear to what extent this is due to the preferences of the entrepreneur
and to what extent this is due to barriers to growth such as lack of finance and
difficulties in building a large international structure.
64
65
The definitions used are based on employee numbers and turnover figures (where the number of employees was
unavailable). Small firms employ less than 50 people and have an annual turnover below £5.6m. Medium sized
enterprises employ between 50 to 250 employees and have turnover under £22.8m. Large firms employ over 250
employees or have turnovers in excess of £22.8m
Turnover data was only available for 27 of the firms
49
5. Policy implications
Section 2 of this document set out evidence that high growth firms contribute a
disproportionate amount to employment growth and have higher than average
productivity levels. This combination of high productivity and employment
growth implies that high growth firms are responsible for a substantial
proportion of economic growth. Section 3 provided some evidence that, by
international comparison, the UK performs fairly well in terms of the number of
high growth firms. However, given the large contribution that these firms make
to the economy there is a benefit to encouraging more high growth firms and
addressing market failures which prevent firms from achieving high growth.
The firms which have been examined in sections 4.2 and 4.3 have achieved
high growth. Barriers to achieving high growth may have prevented other firms
from achieving their full potential and so from appearing within this sample. It
is impossible to calculate how many firms fall within this category. However, the
market failures which lead to barriers to firm growth are well documented.
Market failures and the role for government
Rationale for government policy intervention must be based on market failures.
There are a number of market failures which provide justification for policy
response to support high growth firms.
High growth businesses are a key driver of economic growth not just because
they grow themselves and generate significant employment growth, but also
because their dynamism stimulates competition and innovation throughout the
economy as a whole. High growth businesses exert the greatest competitive
threat to other businesses, and are particularly likely to provide a stimulus to
productivity growth amongst rival businesses. High growth firms therefore
generate benefits for the whole economy which extend more widely than the
profits realised by the entrepreneur and investors66.
Survey evidence shows that many firms have growth aspirations but fail to
realise these due to barriers and market failures. In particular the barriers to
growth are lack of access to finance, a lack of skills and an under-investment in
innovation.
Market failures in the finance market are caused by information asymmetries
between finance providers and those seeking finance. Lenders and investors
often lack adequate information to asses the quality of a business proposal
and equally those seeking finance often find it difficult to prove the quality to
investors and lenders. As a result the supply of finance may be constrained for
some potentially high growth firms. Lenders and investors adopt strategies
to mitigate risk, such as requiring collateral for loans or significant personal
66
50
http://www.berr.gov.uk/files/file38301.pdf
Policy implications
investment in projects to demonstrate commitment. These cause further barriers
to accessing financing for many.
An underinvestment in skills, particularly in business management can result from
entrepreneurs and business owners’ undervaluation of education and training
as individuals find it difficult to assess the value and benefits of training.
In the case of innovation, the firm undertaking the innovation activity often
cannot appropriate all of the benefit from that investment and there are ‘spillover effects’ which benefit other firms and the wider economy. This market
failure can lead to an under investment in innovation and R&D.
These market failures could justify policy intervention where these interventions
are subjected to a full cost benefit analysis.
The Enterprise Strategy
In March 2008 the Government launched a new Enterprise Strategy. The
Strategy’s central vision is to make the UK the most enterprising economy in the
world and the best place to start and grow a business. It is designed to unlock
the nation’s entrepreneurial talents; boost enterprise skills and knowledge; help
new and existing business get funding to start up and grow; and ease the burden
of regulation – particularly on small firms which feel its impacts most.
The strategy set out a new framework of five enablers which will inform and
structure the Government’s enterprise policy in the next few years:
●●
●●
●●
●●
●●
A culture of enterprise – where everyone with entrepreneurial talent –
irrespective of age, gender, race or social background – is inspired and not
afraid to take up the challenge of turning their ideas into wealth.
Knowledge and skills – a lifelong journey for enterprise education, starting
in our primary schools, continuing in our universities and embedded in the
workplace, equipping employees and owners with the tools to unlock their
entrepreneurial talent.
Access to finance – ensuring that our entrepreneurs and small business
owners have the knowledge, skills and opportunity to access the finance they
need to make their enterprising ideas a reality.
Regulatory framework – keeping legislation to a minimum, reducing the
burdens of regulation, inspection and enforcement without removing
essential protections, and clearly communicating any changes.
Business innovation – ensuring that UK business is in position to capitalise
on global trends, by helping them develop and successfully commercialise
innovative products, process and services.
51
High growth firms in the UK: Lessons from an analysis of comparative UK performance
The findings of this report reinforce the importance of these five enablers and
suggest that the following policy areas are particularly important for high growth
firms:
A culture of enterprise
A larger number of ‘serial entrepreneur’ founders are observed in US high
growth firms. These individuals have previously started and managed successful
businesses and have developed the skills and experience necessary to manage
high growth firms. A greater culture of serial entrepreneurship in the UK could
generate more high growth firms.
Knowledge and skills
High growth entrepreneurs have been found to be highly skilled, experienced
and well educated individuals. Supporting individuals to develop and improve
skills and business experience will be important to increase the number of high
growth firms in the UK.
Women entrepreneurs are particularly under-represented amongst high growth
firms and increasing knowledge and skills for enterprise amongst women will be
particularly important in order to re-address this balance. The enterprise strategy
announced that the Government will be working with Regional Development
Agencies to pilot women’s business centres. The results of this pilot will provide
greater information about the impact that this has on business growth.
Access to finance
This research has demonstrated the particular importance of venture capital and
business angel finance for high growth firms.
The Enterprise strategy set out the Government’s plans to:
●●
●●
Strengthen capacity in the UK’s business angel sector by working with the
British Business Angels Association.
Launch a third round of Enterprise Capital Funds offering venture capital to
more businesses.
Regulatory framework
This research suggests that compared to the US, the UK business and regulatory
environment does not seem to have held back the very fastest growing
businesses.
52
Policy implications
It is essential to ensure that the UK maintains one of the best business
environments in the world for starting and growing a business. A vibrant and
flexible business sector is essential for high growth firms as these firms heavily
rely on other businesses to act as customers, suppliers and strategic partners.
Business Innovation
Innovation is strongly associated with high growth firms. The Government’s
Innovation Strategy set out a number of policy areas which are expected to
support and increase levels of business innovation. In turn these can be expected
to generate high growth firms.
53
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56
Annex 1: Age and size
profile of firms
This Annex sets out information about the size and age profiles of the 100 UK
and 100 US high growth firms which are examined in section 4 of the main
paper.
The age profile of the UK and US firms is similar, however due to the difference
in inclusion criteria (see Box 1) none of the US firms were established in 2004
and very few were established in 2003. In both countries approximately half of
the firms were established in, or after, the year 2002. The majority of the high
growth firms identified are young ‘gazelles’67. Only around 10% of the firms were
over ten years old (9% in the US and 13% in the UK).
Figure 12: Year of establishment
50
UK
US
45
Percengage of samples
40
35
30
25
20
15
10
5
04
03
20
02
20
20
01
20
00
99
20
98
19
19
97
19
96
95
19
94
19
93
19
19
92
19
91
0
19
0
99
-1
98
19
80
-1
00
19
Pr
e
19
00
0
Year
Data source: Inc 5000, Fast Track and BERR analysis
Turnover and number of employees
There is a marked difference in the number of employees in the UK and US
firms, with a much higher proportion of large firms in the US sample (figure 13).
Only 1 of the 100 UK firms employed more than 200 people compared to 18 of
the US firms.
67
High growth firms under the age of 5 years.
57
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 13: Number of employees
45
UK
US
40
Percentage of firms
35
30
25
20
15
10
5
0
Under 10
10-19
20-49
50-99
100-199
200+
Number of employees
Data source: Inc 5000, Fast Track and BERR analysis
The US firms also tend to have higher levels of turnover by 2006. Figure 15
shows the turnover distribution for the UK and US firms. The graph is truncated
and does not show three outliers in the US sample with 2006 turnovers of
£174m, £338m and £600m. There are a number of similarities in the turnover
distributions, 54% of the US firms have turnovers under £10m compared with
57% in the UK. However, a larger proportion of the US sample are in the tail end
of the distribution, and while 98% of the UK sample has annual turnover of less
than £40m in 2006/7, only 87% of firms in the US were in this category.
58
Age and size profile of firms
Figure 14: Turnover in 2006 for US and 206/7 for UK
45
UK
US
40
Percengage of firms
35
30
25
20
15
10
5
0m
to
£9
0m
£8
0m
to
£8
0m
0m
£7
0m
to
£6
£6
0m
to
to
£5
£7
0m
0m
£5
0m
£4
0m
to
£4
0m
£3
0m
to
£3
0m
0m
£2
£1
0m
to
£2
0m
£1
to
m
£5
un
de
r£
5m
0
Turnover
Data source: Inc 5000, Fast Track and BERR analysis
Applying a definition of large firms as more than 250 employees or an annual
turnover of greater than £22.8m, we find that there are 9 large firms in the
UK sample and 28 in the US by 2006/7. However, due to the lower minimum
turnover threshold on the Inc list (see Box 1), the US sample of firms had lower
levels of turnover in 2003 (figure 15). The change in the turnover distributions
between 2003 and 2006 and the difference in the proportion of large firms reflect
the higher growth rates within the US sample.
59
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Figure 15: Size of firms by turnover in 2003 for US firms and 2003/4
for UK firms
45
UK
US
40
Percengage of firms
35
30
25
20
15
10
5
60
m
Ab
ov
e
£5
5m
£2
m
-£
m
£1
Turnover
-£
2m
1m
-£
m
.5
£0
-£
m
.2
£0
un
de
r£
0.
0.
5m
2m
0
Annex 2: Use of intellectual
property by UK high
growth firms: A report by
Mark Rogers and Christian
Helmers
Introduction
There is some discussion about whether the UK falls behind the US in terms
of producing high growth companies. Ministers have asked that the Think
Tank in the Department for Business, Enterprise and Regulatory Reform (BERR)
investigate this in further detail. In turn, we were asked by the Think Tank to
update some of the tables in Rogers et al (2007a) to provide further evidence on
this issue. The results from this update are reported in section 3. The Think Tank
also provided us with a list of the 100 fastest growing UK and US firms and we
were asked to assess their intellectual property (IP) activity. The results from this
analysis are reported in section 4.
Background
This report uses data in the Oxford Firm Level Intellectual Property (OFLIP)
database. The IP data used for the construction of the OFLIP database comes
from three different sources: the UK IP Office, Marquesa Ltd. and the European
Patent Office (EPO) ESPACE Bulletin. Data on UK patent publications were
supplied by the UK IP Office. Marquesa Ltd supplied data on UK trade mark
publications and Community (OHIM) marks registered.
The IP data were matched to Bureau van Dijk’s FAME data, which contains full
coverage of all UK registered firms. Although the FAME data contains details of
all registered companies, the database does not contain full financial data on all
of these. The main reasons for this are: (1) small companies in the UK only need
to report a summary balance sheet with shareholder funds and total assets, (2)
many firms on FAME are recently incorporated and there is a delay of 18 or more
months before the first set of accounts is filed. This is the reason for using total
assets in some of the growth tables below (i.e. it has higher coverage of firms
than turnover).
61
High growth firms in the UK: Lessons from an analysis of comparative UK performance
More details of the FAME and IP data that are in OFLIP, as well as details of the
matching process, can be found in Rogers et al (2007b). The US patent and trade
mark data reported in section 4 come from the US Patent and Trademark Office
BIB:PAT and BIB: Trademark databases (April 2008 edition).
The analysis below defines small and medium sized enterprises (SMEs) based
on the European Union definition using three criteria of employment, turnover
and assets. Since total assets are the most common financial variable in the
FAME database, we define an initial SME group using this variable. According
to the EU, an SME must have total assets greater than Euro 2 million and less
than or equal to Euro 43 million. (Euros are converted to £s at the rate of 1.49).
We then consider firms that have employment data (only around 3% of FAME
firms report employment). Any firm that has employment greater than or equal
to 250 is reclassified as a ‘large’ firm. In addition, any firm whose total asset
value is less than Euro 2 million but has employment greater than or equal to
10 is reclassified as an SME. The SME definition then produces the definitions
of micro firms (e.g. less than Euro 2 million in assets) and large firms (e.g. more
than Euro 43 million in assets).
High growth firms in the UK
The basic objective of this section is to understand how IP activity may be
associated with growth. It is important to stress that the section looks at
associations and cannot prove causality.
SME growth defined by assets
An initial way of understanding the growth outcomes is to group firms into
poor, weak, solid and high growth categories. This is done on the basis of the
quartiles of the full distribution of all SMEs. For example, for growth of assets
over 2001 to 2006, the 25th percentile is -5.5% hence all firms with growth below
this are categorized as “poor”. The 50th percentile (the median) is at 0.0%, hence
any SME with growth above -5.5% and below 0.0% is called a “weak” growth
SME. SMEs above the median but below the 75th percentile (10.1%) are “solid”,
with “high” growth firms obtaining the highest growth rates (above 10.1%). All
growth rates are in real terms (i.e. assets have been deflated by the consumer
price index).
Some results are shown in Table 1. The first column shows the percentages in
each growth group for the non-IP active SMEs. Since these dominate the data,
the percentages are close to 25% (i.e. by construction around 25% of SMEs lie
in each growth group). The Appendix reproduces each table with the absolute
numbers of SMEs (there are 96,936 SMEs represented in the table in 2001).
62
Use of intellectual property by UK high growth firms
The second column shows the percentages of IP active SMEs that are in each
growth group (there are 2,531 IP active SMEs, or 2.7%). For example, for IP active
SMEs, 30.4% are in the high growth group. (The tables in the Appendix show
that this is 779 SMEs.) This means that IP active SMEs are over represented in
this group. This does not prove any causation between IP activity and growth
performance – many other factors are at work – but this finding could be
consistent with a causal link. Looking at the percentages in other growth groups,
we can see that the weak growth group is under represented. The row at the
bottom of the table provides a test of whether the pattern seen is statistically
different from the non-IP active SMEs. The P-value of 0.000 suggests that it is.
The remaining columns in the table break IP activity into its four components.
The results indicated that UK trademarks are driving the over representation in
the high growth group, although Community trademarks are also important. UK
patentees have a similar distribution to non-IP active SMEs (and the statistical
test indicates the differences are not significant). EPO patentees tend to be over
represented in the poor growth group.
Table 1 SME growth of assets (2001 to 2006) and IP activity (2001)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
24.98
25.54
23.01
30.58
25.54
31.09
Weak growth (2nd qtr)
25.18
18.35
17.22
17.63
23.20
19.05
Solid growth (3rd qtr)
24.98
25.69
26.22
22.12
27.40
22.97
High growth (4th qtr)
24.85
30.42
33.55
29.68
23.78
26.89
0.000
0.000
0.000
0.510
0.009
Chi2 Test (P-value)
Note: Table shows the percentages of SMEs in each of the four growth groups: poor, weak, solid and high. If there
were no association between the column header and the growth groups, we would expect 25.0 in all growth groups.
Deviations from this suggest growth and IP are not independent. A Chi2 test confirms that each of the IP types, except
for UK patenting firms, have a significantly different distribution (at 1%) to non-IP active firms.
Table 2 shows growth groups defined in a different way. Here, in order to
coincide with a standard definition of high growth firms, we create a category of
SMEs that grew faster than 20% per annum (over the period 2001 to 2006). The
non-IP active SMEs show that 16.65% of firms achieved this higher growth rate.
The two trademark categories show significantly larger percentages than this.
The patent categories are close to this number. The patent categories also show
that more patentees end up in the negative growth group.
63
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Table 2 SME growth of assets (2001 to 2006) and IP activity (2001)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
50.30
44.05
40.42
48.38
48.73
50.42
0 < Growth < 20%
35.45
37.21
38.43
31.83
38.40
35.29
20% < Growth
14.25
18.74
21.14
19.78
12.87
14.29
0.000
0.000
0.001
0.326
0.994
Chi2 Test (P-value)
Note: Table shows the percentages of SMEs in each of the three growth groups: negative growth, 0 < Growth < 20%,
and 20% < Growth. If there were no association between the column header and the growth groups, we would expect
the same share as in the Non-IP active column across all other columns. Deviations from this suggest growth and IP
are not independent. A Chi2 test confirms that each of the IP types, except for UK and EPO patenting firms, have a
significantly different distribution (at 1%) to non-IP active firms.
SME transition to large firms
The data also allow us to track which SMEs became large firms by 2006. The
criteria for becoming a large firm is based initially on assets, but then we use
turnover and employment data to correct this initial definition (since turnover
and employment are often available for large firms and are the more common
way of defining a large firm). This means that the table below is only produced
in this section.
Table 3 below, therefore, only has two outcome categories: ‘not become
large’ and ‘become large’. The table shows that all IP categories have higher
percentages of SMEs becoming large firms, although the differences are not
statistically significant for UK or EPO patents. For non-IP active SMEs the
absolute number of SMEs becoming large is 7,587, while for IP active it is 271.
Table A3 in appendix shows all absolute values.
Table 3 SME growth to large firm (2006) and IP activity (2001)
Growth quartile
Not become large
Become large
Chi2 Test (P-value)
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
91.96
89.42
88.56
88.31
91.42
89.36
8.04
10.58
11.44
11.69
8.58
10.64
0.000
0.000
0.002
0.695
0.078
Note: Table shows the percentages of SMEs that have become large firms between 2001 and 2005. If there were no
association between the column header and the growth groups, we would expect the same share as in the Non-IP
active column across all other columns. Deviations from this suggest growth and IP are not independent. A Chi2 test
confirms that each of the IP types, except for UK patenting firms, have a significantly different distribution (at 10%) to
non-IP active firms.
64
Use of intellectual property by UK high growth firms
SME growth defined by turnover
This section reproduces the analysis in section 3.1 but this time uses growth in
turnover, rather than growth in assets. Turnover data is available for fewer SMEs
that asset data but, in many ways, represents a more standard measure of firm
growth. Again, growth rates are in real terms. The drawback of using turnover
data is that the sample is biased towards larger firms. (Table A4 in Appendix
shows the number of SMEs now being considered is 29,074 compared to 96,936
for assets).
We do not comment directly on each table but, even with the lower sample
size, the general pattern of results is similar to the tables above based on asset
growth.
Table 4 SME growth of turnover (2001 to 2006) and IP activity (2001)
Growth quartile
Non-IP
Active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
25.05
23.93
22.21
25.00
22.53
28.27
Weak growth (2nd qtr)
25.12
22.51
22.21
21.13
23.72
23.56
Solid growth (3rd qtr)
25.02
24.61
25.06
21.73
31.23
20.94
High growth (4th qtr)
24.81
28.95
30.52
32.14
22.53
27.23
0.005
0.002
0.015
0.146
0.452
Chi2 Test (P-value)
Note: Table shows the percentages of SMEs in each of the four growth groups: poor, weak, solid and high. If there
were no association between the column header and the growth groups, we would expect 25.0 in all growth groups.
Deviations from this suggest growth and IP are not independent. A Chi2 test confirms that each of the IP types, except
for UK and EPO patenting firms, have a significantly different distribution (at 5%) to non-IP active firms.
Table 5 SME growth of turnover (2001 to 2006) and IP activity (2001)
Growth quartile
Non-IP
Active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
39.84
37.25
34.24
37.80
38.34
45.55
0 < Growth < 20%
42.70
40.76
42.43
36.61
45.45
34.03
20% < Growth
17.46
21.99
23.33
25.60
16.21
20.42
0.000
0.000
0.000
0.633
0.055
Chi2 Test (P-value)
Note: Table shows the percentages of SMEs in each of the three growth groups: negative growth, 0 < Growth < 20%,
and 20% < Growth. If there were no association between the column header and the growth groups, we would expect
the same share as in the Non-IP active column across all other columns. Deviations from this suggest growth and
IP are not independent. A Chi2 test confirms that each of the IP except for UK patenting firms, have a significantly
different distribution (at 10%) to non-IP active firms.
65
High growth firms in the UK: Lessons from an analysis of comparative UK performance
SME and micro firm growth (defined by assets)
This section alters the cohort of firms under analysis by combining micro and
SMEs. This raises the number of firms considered in 2001 to 578,655 (see Table
A6). Since asset data is reported by micro and SME firms we only consider asset
growth (in other words, if we used turnover growth over the period 2001 to 2006
the numbers of micro firms actually in the analysis would be very low and cause
a biased view).
The results of an analysis of micro and SME growth over the 2001 to 2006 period
are shown in Tables 6, 7 and 8. The corresponding tables with the absolute
numbers of firms are in the Appendix as Tables A6, A7 and A8. The results show
a similar pattern of results to the above tables that just considered SME growth
rates.
Table 6 Micro firm and SME growth of assets (2001 to 2006) and IP
activity (2001)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
24.99
25.66
23.82
30.22
24.40
31.77
Weak growth (2nd qtr)
24.97
19.22
17.57
19.72
25.88
20.75
Solid growth (3rd qtr)
25.07
26.83
27.54
23.69
28.51
24.96
High growth (4th qtr)
24.97
28.29
31.07
26.37
21.21
22.53
0.000
0.000
0.000
0.022
0.000
Chi2 Test (P-value)
Note: Table shows the percentages of Micro firms and SMEs in each of the four growth groups: poor, weak, solid and
high. If there were no association between the column header and the growth groups, we would expect 25.0 in all
growth groups. Deviations from this suggest growth and IP are not independent. A Chi2 test confirms that each of the
IP types have a significantly different distribution (at 5%) to non-IP active firms.
Table 7 Micro firm and SME growth of assets (2001 to 2006) and IP
activity (2001)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
47.17
42.01
38.88
47.14
45.95
49.11
0 < Growth < 20%
31.18
32.64
32.99
28.70
35.92
31.12
20% < Growth
21.65
25.35
28.14
24.15
18.13
19.77
0.000
0.000
0.128
0.003
0.459
Chi2 Test (P-value)
Note: Table shows the percentages of Micro firms and SMEs in each of the three growth groups: negative growth, 0
< Growth < 20%, and 20% < Growth. If there were no association between the column header and the growth groups,
we would expect the same share as in the Non-IP active column across all other columns. Deviations from this suggest
growth and IP are not independent. A Chi2 test confirms that each of the IP types, except for Community trade marking
and EPO patenting firms, have a significantly different distribution (at 5%) to non-IP active firms.
66
Use of intellectual property by UK high growth firms
Table 8 Micro firm and SME growth (assets) to large firm and IP
activity (2001)
Growth quartile
Non-IP
active
Not become large
Become large
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
Active
98.13
94.32
94.20
92.07
94.64
93.52
1.87
5.68
5.80
7.93
5.36
6.48
0.000
0.000
0.000
0.000
0.000
Chi2 Test (P-value)
Note: Table shows the percentages of Micro firms and SMEs that have become large firms between 2001 and 2005.
If there were no association between the column header and the growth groups, we would expect the same share as
in the Non-IP active column across all other columns. Deviations from this suggest growth and IP are not independent.
A Chi2 test confirms that each of the IP types have a significantly different distribution (at 1%) to non-IP active firms.
The 100 Fastest Growing UK and US firms
BERR supplied us with the names of the 100 fastest growing UK companies.
We then matched the UK companies to the OFLIP data base, which allows an
analysis of the IP activity of these firms. All of these firms were found in the
FAME database hence any IP activity by these firms during the period 2001 to
2005 will be recorded in OFLIP. Table A1 contains all the companies that had
some form of patent or trade mark activity (either in UK or in Europe). Table 9
below summarises the proportions of firms that had some form of IP activity.
Over the 2001-2005 period, three out of the 100 firms (3%) had one or more UK
patents and three firms had one or more EPO patents (3%). Overall, five of the
100 firms were involved in patenting (i.e. one firm – Powerlase – had both a UK
and EPO patent).
For trade marking, Table 9 shows that the numbers of firms are much higher,
for example, 34 firms over the period 2001-2005 had one or more UK trade
marks. Community trade marks were used by 10 firms in the period, yielding
an overall trade mark usage rate of 37%. The much greater proportions of firms
using trademarks, rather than patents, is a common feature (see Rogers et al,
2007a,b).
Table 9 UK 100 fastest growing companies: percentage of IP-active
2001-2005
UK Patent
EPO Patent
Patent
UK TM
CTM
Trade Mark
%
%
%
%
%
%
2001-2005
3
3
5
34
10
37
2001
1
2
3
5
1
6
2002
0
2
2
5
2
6
2003
0
1
1
13
2
14
2004
1
0
1
9
5
12
2005
1
0
1
13
6
18
67
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Table 10 shows the mean numbers of patents and trade marks for the 100 fastest
growing UK firms. The average is calculated across all firms that used some
form of IP in the year(s) shown. As can be seen, the mean number of patents is
very low. A glance at the full table in the Appendix shows that normally there are
only 1 or 2 patents per firm and very few firms patent. The mean number of UK
trade marks is much higher at 2.5, reflecting both the fact that more firms trade
mark and that a few firms have 10 or more trade marks in the period.
Table 10 UK fastest growing companies: mean IP for IP-active
companies 2001-2005
UK Patent
EPO Patent
Patent
UK TM
CTM
Trade Mark
2001-2005
0.079
0.263
0.342
2.526
0.868
3.395
2001
0.026
0.079
0.105
0.211
0.053
0.263
2002
0
0.132
0.132
0.289
0.079
0.368
2003
0
0.053
0.053
0.658
0.105
0.763
2004
0.026
0
0.026
0.5
0.316
0.816
2005
0.026
0
0.026
0.868
0.316
1.184
Note: The means are calculated using the total number of IP active firms – whether patent or trademark – in the year(s)
concerned.
Tables 11 and 12 show the same statistics for the 100 fastest growing US firms.
Seven of these firms applied for a patent in the period 2001 to 2005. Table 12 also
shows that the mean number of patents was also higher than for the UK 100. This
was largely due to the presence of Genoptix (a biotechnology company), which
had a total of 24 patents in the 2001 to 2005 period. Overall, the US 100 firms
appear to be more patent active that the UK 100 firms, although the difference is
small (7% vs. 5%) and, of course, the sample size is also small.
There were 38 out of the US 100 firms that trade marked (compared to 37 of
the UK 100 firms). In contrast to patenting, the mean number of UK trade marks
for the UK 100 is higher than that for the US 100. Overall though, there is little
difference between the US 100 and the UK 100 in terms of trademarking
Table 11 US fastest growing companies: percentage of IP-active
2001‑2005
US Patent
US Trade Mark
%
%
2001-2005
7
38
2001
0
6
2002
1
11
2003
2
11
2004
5
18
2005
5
19
68
Use of intellectual property by UK high growth firms
Table 12 US 100 fastest growing companies: mean IP for IP-active
companies 2001-2005
US Patent
2001-2005
US Trade Mark
0.951
1.439
2001
0
1.833
2002
0.750
1.5
2003
0.462
1.615
2004
0.250
0.946
2005
0.161
0.952
Note: The means are calculated using the total number of IP active firms – whether patent or trademark – in the year(s)
concerned.
Conclusion
This short report considered the growth outcomes of UK SMEs and micro firms.
For example, of the SMEs in 2001 around 8% of these became large firms by
2006. In general, SMEs and micros that trade mark have higher growth rates
than non-IP active firms. For patenting SMEs the picture is more complex. For
UK patentees, the distribution of growth rates for patentees is not statistically
different from non-IP active firms. EPO patentees tend to be over represented
in the poor growth quartile but also in the high growth quartile. This said, if a
firm has either UK or EPO patents in 2001 it is more likely to be a large firm by
2006.
69
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Appendix
Table A1 SME growth of assets (2001 to 2006) and IP activity (2001)
(Numbers)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
23,579
654
358
170
131
111
Weak growth (2nd qtr)
23,579
470
268
98
119
68
Solid growth (3rd qtr)
23,576
658
408
123
141
82
High growth (4th qtr)
23,455
779
522
165
122
96
0.000
0.000
0.000
0.510
0.009
Chi2 Test (P-value)
Table A2 SME growth of assets (2001 to 2006) and IP activity (2001)
(Numbers)
Growth quartile
Non-IP
Active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
47,471
1,128
629
269
250
180
0 < Growth < 20%
33,453
953
598
177
197
126
20% < Growth
13,450
480
329
110
66
51
0.000
0.000
0.001
0.326
0.994
Chi2 Test (P-value)
Table A3 SME growth to large firm (2006) and IP activity (2001)
(Numbers)
Growth quartile
Not become large
Become large
Non-IP
Active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
86,787
2,290
1,378
491
469
319
7,587
271
178
65
44
38
0.000
0.000
0.002
0.695
0.078
Chi2 Test (P-value)
Table A4 SME growth of turnover (2001 to 2006) and IP activity
(2001) (Numbers)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
6,948
320
179
84
57
54
Weak growth (2nd qtr)
6,968
301
179
71
60
45
Solid growth (3rd qtr)
6,939
329
202
73
79
40
High growth (4th qtr)
6,882
387
246
108
57
52
0.005
0.002
0.015
0.146
0.452
Chi2 Test (P-value)
70
Use of intellectual property by UK high growth firms
Table A5 SME growth of turnover (2001 to 2006) and IP activity
(2001) (Numbers)
Growth quartile
Non-IP
Active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
11,050
498
276
127
97
87
0 < Growth < 20%
11,844
545
342
123
115
65
4,843
294
188
86
41
39
0.000
0.000
0.000
0.633
0.055
20% < Growth
Chi2 Test (P-value)
Table A6 Micro firm and SME growth of assets (2001 to 2006) and IP
activity (2001) (Numbers)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Poor growth (1st qtr)
143,348
1,315
805
259
214
196
Weak growth (2nd qtr)
143,306
985
594
169
227
128
Solid growth (3rd qtr)
143,661
1,375
931
203
250
154
High growth (4th qtr)
143,215
1,450
1,050
226
186
139
0.000
0.000
0.000
0.022
0.001
Chi2 Test (P-value)
Table A7 Micro firm and SME growth of assets (2001 to 2006) and IP
activity (2001) (Numbers)
Growth quartile
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
active
Negative Growth
270,424
2,153
1,314
404
403
303
0 < Growth < 20%
178,818
1,673
1,115
246
315
192
20% < Growth
124,177
1,299
951
207
159
122
0.000
0.000
0.128
0.003
0.459
Chi2 Test (P-value)
Table A8 Micro firm and SME growth (assets) to large firm and IP
activity (2001) (Numbers)
Growth quartile
Not become large
Become large
Chi2 Test (P-value)
Non-IP
active
IP active
UK TM
Active
Com TM
active
UK patent
active
EPO
Active
562,819
4,834
3,184
789
830
577
10,711
291
196
68
47
40
0.000
0.000
0.000
0.000
0.000
71
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Table A9: Total IP (2001-2005) for 100 fastest growing UK firms*
Name
Affliate Window
Registered
No.
UK
Patent
EPO
Patent
UK TM
CTM
4010229
0
0
3
2
NI045303
0
0
1
0
Apatech
4170515
0
0
0
12
Apertio
4435975
0
0
2
0
Arrk
3574335
0
0
1
0
Betgenius
4062777
1
0
1
0
Bluefish communications
5142610
0
0
2
0
Chess
2797895
0
0
1
0
Codian
4616240
1
0
2
2
Contractor umbrella/(part of SJD accountancy)
4324081
0
0
1
0
Distribution Technology
4741529
0
0
1
0
Elliott Thomas
4420717
0
0
1
0
Exasoft
2802725
0
0
2
0
Feel good drinks
4228546
0
0
15
0
Gamesys
4042931
0
0
4
0
Inforsense
3877407
0
0
4
0
IPI
4657026
0
0
7
0
King.com
4534247
0
0
0
2
Lovefilm
4392195
0
0
2
4
Maximus
4118933
0
0
1
0
Mint Financial Services
4500273
0
0
1
0
Neoss
4120053
0
4
4
2
OB10
3958038
0
1
0
0
Oceanteam 2000
3792868
0
0
1
0
Oriel Securities
4373759
0
0
1
0
Paladin Group
3899759
0
0
1
0
PIPC
2700535
0
0
2
0
Pitch entertainment
4062067
0
0
4
0
Powerlase
3982225
1
5
0
2
Premium appliance brands
4336523
0
0
17
2
Red tray
3117187
0
0
2
0
SC223430
0
0
1
0
Thunderhead
4303041
0
0
2
2
Tideway systems
4598072
0
0
1
0
Timico
4841830
0
0
1
0
Vtesse networks
3900836
0
0
5
3
Worldstores
3909772
0
0
1
0
XLN telecom
3902543
0
0
1
0
AJ Power
Rocela
Note: * the list of 100 fastest growing UK firms was supplied by BERR. EPO = European Patent Office. UK TM = UK
trade mark publication. CTM = Community trade mark registration.
72
Use of intellectual property by UK high growth firms
Table A10: Breakdown of UK patents and trade marks by year for 100
fastest growing UK firms*
Name
Registered
No.
UK Patent
UK TM
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
4010229
0
0
0
0
0
0
0
0
3
0
NI045303
0
0
0
0
0
0
0
1
0
0
Apatech
4170515
0
0
0
0
0
0
0
0
0
0
Apertio
4435975
0
0
0
0
0
0
1
0
0
1
Arrk
3574335
0
0
0
0
0
0
0
1
0
0
Betgenius
4062777
1
0
0
0
0
1
0
0
0
0
Bluefish communications
5142610
0
0
0
0
0
0
0
0
0
2
Chess
2797895
0
0
0
0
0
0
0
0
1
0
Codian
4616240
1
0
0
0
1
0
0
0
0
2
Contractor umbrella/(part
of SJD accountancy)
4324081
0
0
0
0
0
0
0
1
0
0
Distribution Technology
4741529
0
0
0
0
0
0
0
1
0
0
Elliott Thomas
4420717
0
0
0
0
0
0
0
1
0
0
Exasoft
2802725
0
0
0
0
0
1
0
0
1
0
Feel good drinks
4228546
0
0
0
0
0
0
4
0
5
6
Gamesys
4042931
0
0
0
0
0
0
0
0
0
4
Inforsense
3877407
0
0
0
0
0
0
0
4
0
0
IPI
4657026
0
0
0
0
0
0
0
0
0
7
King.com
4534247
0
0
0
0
0
0
0
0
0
0
Lovefilm
4392195
0
0
0
0
0
0
0
2
0
0
Maximus
4118933
0
0
0
0
0
0
0
0
0
1
Mint Financial Services
4500273
0
0
0
0
0
0
0
1
0
0
Neoss
4120053
0
4
4
0
0
0
0
4
0
0
OB10
3958038
0
1
1
0
0
0
0
0
0
0
Oceanteam 2000
3792868
0
0
0
0
0
0
0
0
0
1
Oriel Securities
4373759
0
0
0
0
0
0
0
0
1
0
Paladin Group
3899759
0
0
0
0
0
0
0
1
0
0
PIPC
2700535
0
0
0
0
0
2
0
0
0
0
Pitch entertainment
4062067
0
0
0
0
0
1
0
2
0
1
Powerlase
3982225
1
5
5
1
0
0
0
0
0
0
Premium appliance brands
4336523
0
0
0
0
0
0
3
5
5
4
Red tray
3117187
0
0
0
0
0
0
0
0
0
2
SC223430
0
0
0
0
0
0
0
1
0
0
Thunderhead
4303041
0
0
0
0
0
0
1
0
1
0
Tideway systems
4598072
0
0
0
0
0
0
0
0
1
0
Timico
4841830
0
0
0
0
0
0
0
0
0
1
Vtesse networks
3900836
0
0
0
0
0
3
2
0
0
0
Worldstores
3909772
0
0
0
0
0
0
0
0
0
1
XLN telecom
3902543
0
0
0
0
0
0
0
0
1
0
Affliate Window
AJ Power
Rocela
Note: * the list of 100 fastest growing UK firms was supplied by BERR
73
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Table A11: Breakdown of EPO patents and Community trade marks by
year for 100 fastest growing UK firms*
Name
Registered
No.
EPO Patent
CTM
2001
2002
2003
2004
2005
2001
2002
2003
2004
2005
4010229
0
0
0
0
0
0
0
0
0
2
NI045303
0
0
0
0
0
0
0
0
0
0
Apatech
4170515
0
0
0
0
0
2
2
0
4
4
Apertio
4435975
0
0
0
0
0
0
0
0
0
0
Arrk
3574335
0
0
0
0
0
0
0
0
0
0
Betgenius
4062777
0
0
0
0
0
0
0
0
0
0
Bluefish communications
5142610
0
0
0
0
0
0
0
0
0
0
Chess
2797895
0
0
0
0
0
0
0
0
0
0
Codian
4616240
0
0
0
0
0
0
0
0
0
2
Contractor umbrella/(part
of SJD accountancy)
4324081
0
0
0
0
0
0
0
0
0
0
Distribution Technology
4741529
0
0
0
0
0
0
0
0
0
0
Elliott Thomas
4420717
0
0
0
0
0
0
0
0
0
0
Exasoft
2802725
0
0
0
0
0
0
0
0
0
0
Feel good drinks
4228546
0
0
0
0
0
0
0
0
0
0
Gamesys
4042931
0
0
0
0
0
0
0
0
0
0
Inforsense
3877407
0
0
0
0
0
0
0
0
0
0
IPI
4657026
0
0
0
0
0
0
0
0
0
0
King.com
4534247
0
0
0
0
0
0
0
0
1
1
Lovefilm
4392195
0
0
0
0
0
0
0
0
3
1
Maximus
4118933
0
0
0
0
0
0
0
0
0
0
Mint Financial Services
4500273
0
0
0
0
0
0
0
0
0
0
Neoss
4120053
0
2
2
0
0
0
0
2
0
0
OB10
3958038
1
0
0
0
0
0
0
0
0
0
Oceanteam 2000
3792868
0
0
0
0
0
0
0
0
0
0
Oriel Securities
4373759
0
0
0
0
0
0
0
0
0
0
Paladin Group
3899759
0
0
0
0
0
0
0
0
0
0
PIPC
2700535
0
0
0
0
0
0
0
0
0
0
Pitch entertainment
4062067
0
0
0
0
0
0
0
0
0
0
Powerlase
3982225
2
3
0
0
0
0
0
0
0
2
Premium appliance brands
4336523
0
0
0
0
0
0
0
0
2
0
Red tray
3117187
0
0
0
0
0
0
0
0
0
0
SC223430
0
0
0
0
0
0
0
0
0
0
Thunderhead
4303041
0
0
0
0
0
0
0
0
2
0
Tideway systems
4598072
0
0
0
0
0
0
0
0
0
0
Timico
4841830
0
0
0
0
0
0
0
0
0
0
Vtesse networks
3900836
0
0
0
0
0
0
1
2
0
0
Worldstores
3909772
0
0
0
0
0
0
0
0
0
0
XLN telecom
3902543
0
0
0
0
0
0
0
0
0
0
Affliate Window
AJ Power
Rocela
Note: * the list of 100 fastest growing UK firms was supplied by BERR. EPO = European Patent Office. CTM =
Community trade mark registration.
74
Use of intellectual property by UK high growth firms
Table A12: Breakdown of US patents and trademarks for 100 fastest
growing US companies*
US patents
100 Fastest US companies
2001
2002
2003
2004
US trademarks
2005
Total
2001
2002
2003
2004
2005
Total
Company Name
Genoptix, Inc
9
5
Eyeonics, Inc
8
2
2
3
24
1
4
5
Spadac Inc
Succeed Corporation
4
Netalog, Inc.
Right Media Inc.
Glu mobile Inc
4
1
1
2
6
3
2
3
1
8
1
2
3
Topcoder, Inc.
1
Ethertronics, Inc.
2
3
5
6
2
2
1
17
7
6
26
12
6
2
4
6
15
5
13
9
1
1
1
2
4
Bridgepoint Education, Inc
1
2
3
3
4
Vizio, Inc.
Gotvmail Communications,
LLC
1
Santur Corporation
1
Zorch International, Inc.
1
1
2
1
1
Bryco Funding, Inc
1
Taxstream, LLC
1
Mx Logic Inc
Massage Envy Limited, LLC
Eset, LLC
4
2
3
1
2
2
3
1
Cedar Point
Communications, Inc.
1
1
1
1
5
3
3
6
1
Hospital Partners of
America, Inc.
2
2
Bill ME Later, Inc.
1
Credant Technologies, Inc.
4
1
4
Turning Technologies, LLC
5
5
Eclinicalworks LLC
1
1
Accolo, Inc.
1
1
Ideal Innovations Inc
1
1
National Patient Services
Corp.
1
1
Atlantic Pro-Nutrients, Inc.
2
Airvana, Inc.
2
1
1
Acceller, Inc.
2
2
Stallion Oilfield Services
1
1
RAC Holding Corporation
1
1
Wpromote Inc
1
1
Big Fish Games, Inc.
4
4
Funmobility, Inc.
2
2
Law Crossing
2
Your-Best-Rate Financial,
L.L.C.
Alliance Plastics
1
3
1
1
1
Higher One, Inc.
Sonicbids Corporation
2
3
1
1
Notes. * the list of 100 fastest growing US companies was supplied by BERR. Only IP active firms are shown.
75
High growth firms in the UK: Lessons from an analysis of comparative UK performance
Bibliography
Rogers, M., C. Helmers and C. Greenhalgh (2007a). “An analysis of the
characteristics of small and medium enterprises that use intellectual property”.
Report for UK Intellectual Property Office, http://users.ox.ac.uk/~manc0346/
research.html.
Rogers, M., C. Greenhalgh and C. Helmers (2007b). “The association between
the use of IP by UK SMEs in 2001 and subsequent performance in 2002 to 2004”.
Report for UK Intellectual Property Office, http://users.ox.ac.uk/~manc0346/
research.html.
76
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BERR ECONOMICS PAPER NO. 3
High growth firms in the UK:
Lessons from an analysis of
comparative UK performance
NOVEMBER 2008