There’s no room for negativity in the very tough and noble cause of encouraging and supporting people to start, grow and scale companies. Goodness knows how much we need the rise of entrepreneurship to continue in the face of potential Scottish independence, Brexit and wider EU and global turmoil. But sometimes spin and hyperbole can go too far, and needs to be called out. Especially when this results in Ministerial endorsement at the highest level and is the basis for investment of significant tax-payer’s money.
I am, of course, talking about Entrepreneurial Spark’s “Impact Report 2017” that, as per their hashtag, will #BlowYourMind2017
I’d like to temper these comments by saying that what Entrepreneurial Spark have done in contributing to the UK’s spirit of entrepreneurship is commendable and significant. Mind blowing indeed. But their statement on being “the proven model for accelerating business from start-up to scale-up” is spin and hyperbole gone too far and is anything but mind blowing. It seriously misunderstands the concept of scale-ups and the distinction between innovation-driven enterprises and lifestyle-driven small and medium enterprises. This is a much-studied distinction, by the likes of Fiona Murray at MIT, and has informed and inspired a great deal of the Scottish Government’s “CAN DO” policy.
First of all, any impact report, especially one which is endorsed by the First Minister, should be carried out by an independent economist or analyst. Entrepreneurial Spark say that “Some companies have annual reports. At Entrepreneurial Spark Powered by NatWest we have an impact report”.
In the case of this effectively being an annual report, and as Entrepreneurial Spark’s “impact” and “powerful mix” has resulted in significant use of tax payer’s money, this report should either be audited or there should be an independent economic analysis carried out. I may be wrong and the data published may have been created and audited independently, but I cannot see evidence of this in the report.
Let me try and break-down what my main issue is. Entrepreneurial Spark is being presented and celebrated as a “proven model for accelerating business from start-up to scale-up”, having expertise and a track-record in creating companies that have scaled-up. This has resulted in significant public sector endorsement and investment, such as the announcement of an Entrepreneurial Spark “powered” fintech hub at the RBS offices in Gogarburn, Edinburgh.
Some regard “scale-ups” or “companies of scale” as those with revenues in-excess of £100 million per annum. Scottish Enterprise, rightly so, look earlier in this growth journey and support companies with potential to achieve revenues of £5 million within five years. It is reasonable to expect scale-ups to show a trajectory of growth in staff numbers too. Such as “scale-up” levels demonstrated by SkyScanner (>600 staff), FanDuel (>400 staff), FreeAgent (>100 staff) and those making great progress such as TVSquared with >40 staff.
Entrepreneurial Spark may be on track to help companies achieve these numbers in future years. But it cannot be said with certainty that their model is proven until the numbers are actually delivered.
For fairness, let’s look at two ends of a spectrum and say that a company of scale has a turnover somewhere between £5m and £100m and between 50 and 500 employees.
- An average of 1.8 jobs per company supported by Entrepreneurial Spark is just 3.6% or 0.36% of what you would expect of a scale-up.
- An average of £101,560 turnover per company supported by Entrepreneurial Spark is just 2.03% or 0.1% of what you would expect of a scale-up.
- An average of £87,174 investment per company supported by Entrepreneurial Spark is just 8.7% or 0.08% of what you would expect of a scale-up.
- There is no job creation data at the individual company level in the report, so I acknowledge that there could be Entreprenirual Spark supported companies with greater than 50 employees.
Averages are dangerous things. However, all the case studies presented in Entrepreneurial Spark’s report (and you would assume the best examples were chosen) show a maximum of £450,000 in any single investment (Mobile Pay Systems) and a maximum of £120,000 turnover (Winbox) of any one company. Still far off the £5m-£100m turnover scale.
As I said at the start of this post, negativity is not what our economy and nascent entrepreneurs need. But when significant tax-payer’s funds and the highest-level political endorsement is given to a claim that on the surface just isn’t true, someone has to be the Motley Fool and call it out.
An update to this on 21st February.
In a City of Edinburgh Council Economic Development report (PDF), the scale-up numbers seem even less impressive, even with a longer period of time.
Over three years (2012–2015) the City of Edinburgh Council provided £483,000 in funding to Entrepreneurial Spark. This resulted in 528 jobs created by 196 companies over three years. So an average of 2.7 per company. 1 job better than figures in the 2017 report. However the average turnover (£23,129 per company per annum) and investment (£22,279 per company per annum) is not so good.