Understanding growth in small businesses

BIS RESEARCH PAPER NUMBER 216

Understanding Growth in Small Businesses

MARCH 2015

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Authors: Gordon Allinson, Paul Braidford, Maxine Houston and Ian Stone Durham Business School/St Chad's College

The views and interpretations expressed are the authors' and do not necessarily reflect those of the Department for Business, Innovation and Skills.

Acknowledgments

The authors would like to thank our research partners at BMG research, particularly Steve Lomax and Shadna Hussain for the completion of the telephone survey and their help in arranging interviews. We would also like to thank the 50 assisted businesses who participated in the qualitative interviews. Finally, our thanks also go out to Ian Drummond and Michelle Harrison of the BIS Enterprise Directorate for their assistance and guidance with this project.

Contents

Contents .......................................................................................................................................... 3 Executive Summary ........................................................................................................................ 1

Introduction ................................................................................................................................... 1 Objectives ..................................................................................................................................... 1 Method .......................................................................................................................................... 1 Research Findings ........................................................................................................................ 2

Patterns of growth ..................................................................................................................... 2 Growth Ambition........................................................................................................................ 2 Obstacles to growth .................................................................................................................. 3 Capacity, Market and Vision constraints to growth ................................................................... 3 Mindsets.................................................................................................................................... 6 Myths......................................................................................................................................... 6 Policy Considerations.................................................................................................................... 7 Introduction ..................................................................................................................................... 8 1.1 Background.......................................................................................................................... 8 Obstacles and business solutions............................................................................................. 8 Mindsets.................................................................................................................................... 8 1.2 Aims and objectives ............................................................................................................. 9 1.3 Methodology and achieved sample ................................................................................... 10 Quantitative survey ................................................................................................................. 10 Interviews and focus group discussions.................................................................................. 10 1.4 Structure of the report ........................................................................................................ 11

2 Growth patterns .................................................................................................................... 12 Section summary .................................................................................................................... 12 Employment change 2012-2014 ............................................................................................. 13 Employment change 2009-2014 ............................................................................................. 14

2.1 Employment and sales growth (2012-14) .......................................................................... 15 2.2 Substantive growth ambitions ............................................................................................ 16 2.3 Characteristics of owner/manager and growth .................................................................. 17 3 Obstacles to growth.............................................................................................................. 20

Section summary .................................................................................................................... 20 3.1 Top-level obstacles to business growth ............................................................................. 21 3.2 Reasons for not wanting to grow the business in the next three years.............................. 23 3.3 Specific challenges related to Cashflow ............................................................................ 25 3.4 Specific challenges related to Regulations ........................................................................ 27 3.5 Finance .............................................................................................................................. 28 3.6 Exporting............................................................................................................................ 31 3.7 Innovation .......................................................................................................................... 33 3.8 Management and training .................................................................................................. 36 3.9 Sales .................................................................................................................................. 38 3.10 Market Constraints ......................................................................................................... 39 3.11 Vision constraints ........................................................................................................... 40 3.12 Capacity constraints ....................................................................................................... 43 3.13 Segmenting small businesses into constraint type ......................................................... 45 3.14 Aggregated barriers ........................................................................................................ 45 3.15 Pattern of constraints...................................................................................................... 47

3.16 Relationship between constraints and growth ................................................................ 50 Historic growth (2012-14)........................................................................................................ 50 Anticipated growth................................................................................................................... 51 Wider application..................................................................................................................... 52

4 Qualitative discussions with business owners.................................................................. 54 4.1 Introduction ........................................................................................................................ 54 4.2 General attitude toward growth.......................................................................................... 54 4.3 Planning ............................................................................................................................. 57 4.4 Exporting............................................................................................................................ 61 4.5 Innovation .......................................................................................................................... 62 4.6 Working capital and Investment Finance ........................................................................... 65 4.7 Management ...................................................................................................................... 68 4.7.1 High performance work practices ................................................................................ 68 4.7.2 Consultation ................................................................................................................ 69 4.7.3 Recruitment and people management ........................................................................ 71 4.7.4 Delegation and management structure ....................................................................... 72 4.8 Regulation.......................................................................................................................... 73 4.9 Advice and support ............................................................................................................ 74

5 Conclusions........................................................................................................................... 77 Research Findings ...................................................................................................................... 77 Patterns of growth ................................................................................................................... 77 Growth Ambition...................................................................................................................... 78 Obstacles to growth ................................................................................................................ 78 Capacity, Market and Vision constraints to growth ................................................................. 79

Mindsets.................................................................................................................................. 81 Myths....................................................................................................................................... 81 Policy Considerations.................................................................................................................. 82

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