UK scale-ups growing in size but less are being created

The number of scale-up companies in the UK has declined in the past year, although the size of the average scale-up business has increased, according to new research from the ScaleUp Institute.

These findings come from the ScaleUp Annual Review 2023, which provides an overview of the UK’s scale-up sector. According to the review, the number of scale-up businesses – defined by the Institute as having grown their sales or employment by more than 20% a year for the past three years – has fallen to 28,410, down from 33,955, over the past year.

The ScaleUp Institute, a not-for-profit company focused on making the UK the best place to scale up a business, attributes the decline to the pandemic, geopolitics, and supply chain issues.

Average turnover for a scale-up business in 2023, the report found, was £46.8m, up from £34.3m in 2020. 10,161 companies now have a turnover of at least £10.2m and/or asset threshold of at least £5.1m, a 164% increase since 2017.

UK scale-ups generate £1.3trn in revenues, 58% of the UK SME economy, despite representing just 0.5% of businesses. There are 5.58 million SMEs in the UK, generating £2.3trn in turnover, according to the Institute.

However, The Scale of the Opportunity report from challenger bank OakNorth and cross-party think tank Social Market Foundation (SMF) offers an alternative view. It found that despite scale-ups representing just 1% of UK SMEs, they account for 22% of all SME turnover (£497bn), as well as 8% of all SME employment.

Regional disparities

The ScaleUp Institute’s annual review looked at the number of scale-ups emerging on a regional level, revealing some significant disparities.

London had the highest proportion (14%) of scale-up businesses growing by more than 60%. Approximately 7-9% of scale-ups in all other regions experienced this level of growth.

Just 17 of the 41 local areas covered by the annual review have seen the number of scale-up businesses increase between 2013-2021 too, with York and North Yorkshire, and London seeing the most significant rise.

At the other end of the scale, several regions in the Midlands appear to be struggling to create new scale-ups, with the biggest drop in scale-up companies coming from the Black Country, followed by Coventry and Warwickshire, and Worcestershire.

The Scale of the Opportunity report reveals further disparities. It found that 38% of scale-up employees work in the capital and the South East, whilst 20% are located across the North East, North West, and Yorkshire & the Humber.

John Asthana Gibson, researcher at Social Market Foundation said our inability to scale the many high-potential businesses that have started here and ensure that they are spread throughout the country is holding the entire economy back.

“But there is no silver bullet to the situation. Both the UK’s business infrastructure and culture need to change to improve scale-up growth and spread clusters of high-growth companies more evenly around the country,” he added.

Breaking down scale-up companies by sector, the ScaleUp Institute’s Annual Review found that over a third operate in either wholesale & retail; professional, scientific & technical; and information & communications.

In contrast, the OakNorth/SMF report found that more than 17% operate in the health and social care sector, followed by professional services (13%), wholesale and retail (12%), and administrative and support services (11%). Interestingly, just 2% of scale-up businesses are in the real estate sector.

Looking forward

There is growing concern amongst scale-up founders. In an annual survey of 306 scale-up CEOs, the ScaleUp Institute revealed that 58% worry if the UK will be a good location for a business in a few years’ time, up from 50% in 2022. However, nine in ten scale-ups are expecting to grow in 2024, with one in four expecting at least 50% growth in turnover or employment.

Irene Graham OBE, CEO of the ScaleUp Institute, says that there is greater recognition of scale-ups and their need for tailored and segmented support. “However,” she continues, “persistent barriers to their growth remain in their ability to access markets – both at home and abroad – access to talent, to growth capital and the infrastructure space to enable their scaling.”

“We need to redouble our efforts to smooth the way to procurement, collaboration, planning and export opportunities. The measures being taken to unlock institutional capital are welcome but must be implemented at pace, and we must ensure that this capital reaches our scale-ups across the UK.”