Searching for the growing firms

An interesting report released by NESTA in October looks at the patterns of firm growth in the UK from 1997 to 1998 based on the newly available ONS demography database. The headline?

"High-growth companies represent only 6 per cent of all UK firms employing ten or more people, but accounted for more than half the growth in jobs. More specifically, 11,530 highgrowth firms were responsible for 1.3 million out of the increase in 2.4 million new jobs in established businesses employing ten or more people between 2005 and 2008 (54 per cent)."

Based on the work, the policy conclusions drawn are fuzzy at best. While agreeing that it is not possible to know ahead of time which companies are likely to be the high growth stars, the report says that "... whenever feasible, government funded business support should be targeted at businesses that have the potential to grow." It seems like the search for the grail - even though we know we cannot find it we should pursue it.

There are a few other problems with the approach for me. As the definition of high growth is a company that has "... an average employment growth rate exceeding 20 per cent per annum over a three-year period and with ten or more employees at the start of the period ..." it feels slightly circular to then claim that these firms are responsible for the majority of employment growth.

What is most interesting is the patterns of such high growth firms. They are spread over all sectors and over all geographies. It seems there is value everywhere.

Overall, it is good that this report has been produced, but any policy conclusions at this stage should be very carefully drawn, especially as the period of study is leading directly into the credit crisis and the recession. These may not be the patterns we'll see for the next 10 years and more.

F