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Budget should focus on high growth SMEs

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With the budget expected to tackle the “enemies of enterprise”, a new report published this week (21 March) by The Work Foundation urges the government to focus its enterprise policy on small to medium sized ‘high growth firms’ - companies likely to be a major source of jobs and growth during the recovery.

The report argues that the budget must include measures to provide focused, intensive support for a small number of firms, rather than ineffective support for a large number. Support needs to target the leadership of firms and provide training, mentoring and coaching for entrepreneurs. The Coalition must also demonstrate its stated commitment to significantly reform a financial system which often fails to provide the capital so essential for high growth firms to thrive.

Ready, Steady, Grow? How the government can support the development of more high growth firms outlines what the government must do ensure the success of so-called high growth firms. With David Cameron stating that “the small, high growth firms are responsible for half of new job creation”, there is now a consensus that these firms are crucial to recovery. However, little has been said about what should be done to help them grow. Drawing on interviews with entrepreneurs from current and potential high growth firms, the report sets out to address this major policy gap.

Charles Levy, co-author of the report said, “While there has been much talk about the importance of high growth firms, not enough has been said about how best to support them. Although the Coalition has introduced new initiatives and set removal of barriers as a key part of its growth strategy, this process must be accelerated and deepened. It particularly needs to focus on high growth SMEs, both start-ups and the long established, as evidence suggests they are more vulnerable to market failure than larger firms. It is especially important to target the marginal firms which, with government help, could become high growth firms in the future.

Co-author Neil Lee added, “The government needs to move from tokenistic support for a large number of firms and focus on the small minority that will actually create the jobs we need to tackle unemployment.

“The budget is an opportunity to rationalise the current mess of business support schemes. Ineffective, national-led schemes such as Enterprise Zones and the National Insurance holidays for SMEs are unlikely to create many new jobs. The government needs to focus on policies with a greater chance of success. These should focus on the leadership of existing firms – such as the proposed Business Coaching for Growth scheme.”

The report highlights that many of the requirements of growing firms - including skills, accommodation and transport links - are controlled at a local level. Firms also face locally specific barriers relating to planning, skills and access to finance which must be understood and quickly addressed as they arise. The capacity of local agencies is therefore critical over the next decade. The new Local Enterprise Partnerships will be well positioned to play a vital role in supporting high growth firms in their area.

The researchers found that entrepreneurs can struggle when faced with rapid growth, and this can provide an important obstacle to firms achieving their potential. With an adaptable, skilled management team these firms can succeed and drive the economic recovery. The government must intervene to ensure that entrepreneurs have access to the skills and high quality advice they need.

The report specifically suggests the creation of a Local Enterprise Leadership Fund to develop local business leadership. This would provide a single pot for Local Enterprise Partnerships, Chambers of Commerce and management schools to provide leadership education, coaching and mentoring services for potential high growth firms.

The report welcomes the government’s commitment to introduce a new Business Coaching for Growth Scheme. It outlines suggestions for the future development of the scheme, including working with existing corporate networks and fostering the role of UK universities to harness the expertise of high quality management schools.

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