With Brexit pushing forth many economic reforms and the Coronavirus Pandemic dropping additional strain against economies worldwide, several challenges arose for British scale-ups.
These jumpers have been an integral part of the British economy, and they contributed an impressive GBP 1.1 trillion to the United Kingdom economy in 2019 alone. Furthermore, they are leading the export drives because they are twice as likely to become international corporations, hungry to expand globally and to new markets.
That said, these ambitious organizations can be quite resource-heavy. However, these trying times have stressed the existing challenges for scale-ups.
Access to Local and International Markets, Procurement, and Corporate Relationships
According to Scaleup Institute, market access is what the scale-up business owners think is the most important problem. Locally, a complex procurement process is a hindrance against corporations trying to sell their goods to the government or large corporations. Additionally, finding relevant contracts is difficult for businesses, thus forcing their hand to take contracts more expensive than what they’re worth because of scarcity. Another problem is the long waiting time to win contracts, slowing down their progress.
The already arduous process of getting local markets to open up is expedited because the closest foreign markets are also out of the equation. Because of Brexit, the European Union’s markets have locked out the British financial sector until further notice. As of May 2021, there is no sign that Brussels would reinstate the country’s access to the economic bloc. Additionally, the French government seeks to delay cooperation agreements between the EU and UK because the latter violated fishing area commitments.
Access To Long-term Growth Capital
UK scale-ups face a deficit of up to 15 billion pounds of funding this year. This is because the pandemic has halted investment ventures worldwide.
London companies fare much better than their counterparts since investors are wary of the economic repercussions of COVID-19. According to The Future of Capital Growth, scale-ups based in London had already gained around 25% of their investment needs last year, but companies in other regions have totaled at less than 5%.
Growth capital fundraising in the AIM stock exchange—an exchange focused on smaller businesses looking to scale—fell at an alarming rate of 45% last year due to the investors’ fear fueled by the pandemic uncertainties.
According to the Strategic Growth for Enterprise, a team of coaches helping owners increase the value of their businesses, these factors combine and create a situation where businesses that aim to scale are either slowed down by the lack of funding or become unable to weather the storm and capitulate. To top it all off, 50% of Britain’s scale-ups will raise their finances this year despite the current deficit in investor funding.
The Scaleup Institute has addressed this issue by establishing fourteen scale-up peer networks all over the UK in collaboration with Innovate UK. This peer network system aims to connect 200 businesspeople and bounce their ideas off each other. This network would also allow the flow of capital to be run much more smoothly by allowing companies to help each other.
Shortage Of Skilled Talent
Before the COVID-19 spurred lockdowns, there had already been a decline in skilled British talent. Surveys done early last year revealed that 23% of companies failed to attract the talent they needed in 2019. By 2020, the talent shortage has more than doubled since it reached its lowest point in 2010. This issue affects scale-ups much more than established corporations since they constantly need expanding, thus, requiring a higher hiring rate.
Skilled trades like welding and electrical work topped the lists of in-demand jobs with healthcare, management, and teaching not far behind them.
Things got worse during the pandemic as companies needed to lay off some of their workers because of the coronavirus lockdowns. However, the hiring rates have now reached all-time highs because of the restrictions gradually easing up. This, in turn, causes a scarcity of workforce which drives up wages as companies try to take the best workers for themselves.
For example, the wages for drivers have shot up 20% because of the effects of Brexit and the slowdown of training.
To counteract this growing problem, the director of ManpowerGroup—Chris Gray—has reportedly advised entrepreneurs to not only look for talent but breed them internally. High wages are no longer the best strategy to filling up a company’s ranks. Instead, they must now stretch their standards and train less skilled individuals until they match company standards. Essentially, he tells employers to lower their ‘standards’ and provide a learning environment for rookies.
As mentioned earlier, the solution also addresses another relevant problem for scale-ups — leadership workshops. Said answer also requires new employees to learn how to manage projects. If companies only hire already established individuals, then staff shortages are inevitable.
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