Innovation of a nation

All founders take a leap of faith built on their confidence that they will reach the other side. Peter Arnold looked at 1,500 high-growth UK start-ups for his new book, Innovation of a Nation. Here is a little about what he found out.

Starting a venture can feel precipitous. With hindsight it is sometimes hard to remember that successful ventures were initially just a twinkle in their founder’s eyes; but of course at the outset they suffered from the fear and uncertainty that prevents many a success from materialising.

During lockdown I contacted founders of high growth start-ups to find out what they did to grow their businesses; these very successful thriving businesses might very easily never have succeeded. Their insights proved highly revealing.

Founders are more likely to be successful if they start their businesses with a couple of friends. Of course all successful ventures have teams of leaders working well together, but in many cases founders of high growth start-ups had been friends a long time prior to their start-up (the friendships seemed to go beyond the normal transactional friendships between colleagues you often find at work).

The reason that teams are important in founding start-ups is that while invention is often a solitary and competitive activity, innovation and entrepreneurship are almost always team efforts. When you have a bad day, and want to give up, it is useful to have someone who is having a good day, to keep you going forward.

Groups have multiple perspectives, they tend to scrutinize more, find better ways to move forward, and end up making better decisions. Also, if you all share the ambition, it is harder to walk away. Investors seek teams for these and for many other reasons.

Perhaps the hardest thing for any of us to do is to find a group of individuals that will honestly buy into a combined vision for a start-up. That’s another reason why starting the idea with a small group is so important. Scratch the surface of any start-up turning to high growth and you will find a team dynamic at the core.

“Find a group of people who challenge and inspire you, spend a lot of time with them, and it will change your life forever.”― Amy Poehler

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If you aspire to be a founder of an innovative high growth start-up, it may help to know what the average or a typical growth chart may look like. What can you expect? How long does it take to reach £1m in revenue, or ten employees? What is the average start-up investment? How long do most founders last in their businesses before they are bought? How many go on to IPO or sale, and how long does that take?

If you are in government, you may like to know that this unique and small group of high growth start-ups contribute significantly to our GDP through employment and profitability. You may like to know what previous government policy has done to stimulate these new start-ups, and you may like to be reassured that more will come to fuel growth across our nation.

If you invest, you may want to know how the founders of these businesses create their ventures and how they contribute to the Innovation of a Nation.

To grow a start-up from nothing to £5m sales in five years is a tough challenge. In any given year across our nation, we might get 10 to 40 start-ups that achieve that growth in their first five years of life (from 600,000 start-ups launched here every year). The nation’s entrepreneurs are better at this than anyone else, and in this regard we compare favourably to other countries.

Studied from 1990 to 2019 for the book, these start-ups are like a barometer for the state of innovation. Insights from 1500 high growth start-ups measure:-

Innovation themes and trends,
The state of market sectors,
Forces of competition,
The buying desires and habits of citizens,
Responses to legislation, taxes, and government initiatives, and
Start-up contribution to GDP (this is the growth sector in our economy adding most value and new jobs).

Just as you might discern historical climate conditions by looking at the rings in a section across a tree stump, these high growth start-ups are indicators of enterprise responding to every change in the economic climate.

Innovation of a Nation provides hundreds of examples of innovative start-ups surrounded by commentary and some helpful exercises that may help future entrepreneurs with their plans to form the next high growth start-ups.

To create such rapid sales growth founders of these start-ups investigate a curious customer need, a bit like a sleuth hunting for clues surrounding a crime scene. Rather than starting with the obvious product or service as might be expected they watch the customer until hidden needs are revealed and then these start-ups search the world for the best way to solve the problem profiting the start-up and the customer.

As a celebration of entrepreneurship, this study of thousands of the top start-ups across the nation plucks out the common elements; learnable commonalities that drive the growth in high growth start-ups and it illustrates them with memorable examples. The book could not come at a more apt moment following Brexit and Covid, and the author hopes it will educate and provide hope for future prosperity.

The top 60 companies in this group produce more sales than four million companies registered at Companies House; and they do this within five years of launch. Two or three of these companies every year go on to generate £1b in sales within two decades, and over twenty of them from every year group go on to create £100m within a decade. Companies like ARM, B&M, Clipper, Brewdog, Innocent, Markit, Money Supermarket, Naked Wines, Fevertree, Moonpig, Carphone Warehouse, Software Warehouse, Travelex, Pets At Home, provide laudable examples of high growth start-ups. With hindsight it is sometimes hard to remember that these ventures were initially just a twinkle in their founder’s eyes; but of course at the outset they suffered from the fear and uncertainty that prevents many a success from materializing. These founders overcame that doubt and many challenges and should be celebrated as an important engine of our Nation’s prosperity.

The influence of politics and pandemics on enterprise will not elude anyone reading this book in the aftermath of Brexit or COVID-19, whatever their views. The impact of party leanings on the birth-rate of new start-ups is untrackable because often the challenges surpass political positioning, and the timeframes for company growth often exceed the party-political manoeuvres. Evidently central government decisions affect start-ups almost more than they intend, and often their enterprise-intended initiatives (direct funding) have far less effect than their unintended consequences. Few companies attributed success to government funding or support. On the other hand start-ups benefited from government policy changes, filling gaps opened through environmental grants, school meals, electric vehicles, telecom auctions, health and safety, vouchers for childcare, help to buy etc.

What hope then from this survey? Previous downturns have resulted in more high growth start-ups being created, not fewer. Redundancies and unemployment accelerate innovation. Change creates opportunities for fast-moving start-ups; change that is harder for large organisations to exploit. Also, those ventures that will exploit openings created by change are already in motion. Like evolutionary pressures on coronavirus, economic environment exerts a force that these ventures are clearly able to exploit.

Peter Arnold is a Director at CSL and a Visiting Professor of Enterprise at Northumbria University.

All proceeds from Innovation of a Nation will be donated for charitable purposes. You can read a preview and buy a copy at this link.

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