Business management

Mid-corporates: the ‘hidden champions’ of the UK economy

At the recent NatWest Mid-market Conference in London, speakers debated the barriers faced by the vital but ‘squeezed’ middle and how these might be overcome.

The ‘hidden champions’ of the UK economy

The ‘squeezed middle’ in between the two poles, however, doesn’t get anything like the same level of interest. Yet despite their low profile, mid-market firms form the core of the UK’s economic engine.

Alison Rose, CEO of commercial and private banking at NatWest, illustrated this point at the bank’s recent Mid-market Conference in London: “Mid-corporates are the hidden champions of the UK economy,” she told guests. Consider the figures: collectively these businesses created half a million jobs in 2017 and generated one third of all private sector revenue and jobs, despite only representing 1.5% of all UK businesses. (The mid market is a hard place to find on a map, but the bank’s Mid-market Britain report defined it as businesses with turnovers between £5m and £250m.)

“Much of the debate about the impact of Brexit ignores the fact that without growth in the underlying economy, the UK will struggle,” continued Rose. “So it’s really important to focus on growth – and the ‘hidden middle’ will be more vital to that than many believe.”

And, as businesses develop, they inevitably run into a set of new challenges that test their owners in ways they won’t have experienced in the embryonic stage: the emphasis switches from accelerating to consolidating growth; owner-managers must relinquish absolute control over day-to-day operations; and systems and processes that might work for a start-up may become dangerously stretched.

A range of challenges

Rose’s view – that the mid-market in fact deserves more attention and support – set the tone for a day that focused on issues directly affecting mid-size firms. From technology and the challenges of the skills gap to the path to growth and the ongoing volatility in UK politics, the conference aimed to make sense of what can be a confusing and dynamic environment.

Nothing summed this up perhaps more than the first session, which saw Matthew Goodwin, professor of politics and international relations at the University of Kent, and associate fellow at Chatham House, lay out in stark detail the contradictory and volatile state of the UK’s politics.

The need to balance short-term operational excellence with long-term strategic planning is still crucial. And that means it’s really important for businesses like ours to be open to change

Charlie Bigham
Founder at Charlie Bigham’s

“The uncertainty in the public mood really is a major issue,” he told delegates. “And it’s not just Brexit: consider the rise of Corbynomics, the prospect of a Labour government, increased protectionism and the split in both the major parties, and you can see how the fault lines are growing.”

The overall effect of those trends is now beginning to show up in public opinion, Goodwin explained. “We’re seeing more pessimism, less hope for the future, and an erosion of faith in institutions like government and business.”

Taken on trust

That last point in particular struck a chord with many of those present, as Goodwin highlighted recent research showing that public approval of business was far lower than it stood pre-crisis. In practice that takes a number of forms, from reluctance to accept continued private ownership of public utilities to the growing desire to see executive pay curbed. But Goodwin was clear: these trends aren’t going away.

“17% say capitalism is working well. But one in three people in the UK say our system isn’t working properly and it needs to be fixed. That’s a significant number. The unequivocal support for the way business and the system operates – which we used to take for granted – is now only held by a minority of people.”

So what does this mean for mid-size corporates? In the short term it means that business may have to get used to operating in a higher-tax environment where greater regulation and oversight will become the norm. “Even many pro-market Conservative voters accept that some of the more egregious abuses in the areas of tax and executive pay demand regulation,” Goodwin outlined.

In the longer term, these trends also present businesses with the challenge of convincing their stakeholders that they are engaged in making a profit and investing for future growth, but they also value more than just that.

Scaling up

This was a theme that dominated much of the panel session that got right to the heart of mid-market matters: taking the leap from a start-up to a more mature business. ‘From Founder to CEO’ featured speakers from several businesses that had begun life as small companies but were now fully paid-up members of the mid market.

Irene Graham, CEO of the ScaleUp Institute, illustrated the importance of supporting the UK’s next generation of mid-market businesses. “There are currently around 36,000 scale-ups in the UK – companies growing at 20% per annum,” she said. “And they are the untold success story the UK should be making more of, across all sectors. They have huge growth ambitions and they already add more than £1trn to the UK economy.”

There are around 36,000 scale-ups in the UK – and they are the untold success story the UK should be making more of. They have huge growth ambitions and already add more than £1trn to the UK economy

Irene Graham
CEO at the ScaleUp Institute

Getting there, though, isn’t easy. Whether it was Charlie Bigham getting his eponymous brand of fresh meals into supermarkets or Nathalie Dauriac convincing her clients to go with a new wealth manager, the panellists had all experienced growing pains. For Farouq Sheikh, the co-founder of care group CareTech, the biggest challenge had been to attract and retain good people in an industry with notoriously high rates of employee churn. With this in mind, he turned his focus towards creating a business that was both socially responsible and shared its rewards with staff.

“We decided on a public listing in order to create a system of employee share ownership across the business,” he said. “That meant that employees had a stake in the long-term success of the business. Because if people feel valued and empowered, they really make a difference. So now, our managers and employees are all aligned and the difference shows.” Indeed it does, with CareTech’s churn rate sitting at around 20%, compared with an industry average of 30%.

If the face fits

The issue of cultural fit was echoed by Hyperoptic CFO Ben Bresler, who sits on the senior leadership team of one of the UK’s most innovative and fast-growing telecoms businesses. Even though Hyperoptic is an attractive place for talent, sourcing the right people with the right skills can still be an issue. “We’ve been doubling in size every year, but that’s the challenge – finding the right talent to deliver on the expectations we now face,” he said. “A lot of the things we’re aiming to do have never been done by a growing business; the big giants have led the way, so hiring people from large corporates to a disruptive organisation is a real challenge.”

Organisational psychologist John Amaechi, CEO of consultancy APS and former National Basketball Association player, works with organisations to help them understand the cognitive differences between groups of elite individuals and true, high-performing teams. He applies his experience from professional sport to the corporate world, where true teams only rarely emerge. “A lot of companies say they are supportive of teamwork, but individuals that truly embody that are rare. Finding and retaining them is a crucial part of supporting growth.”

Change is the only constant

The panel were unanimous in their agreement that although they were operating in a time of volatility and disruption, some fundamentals remain the same. “The need to balance short-term operational excellence with long-term strategic planning is still crucial,” said Charlie Bigham. “And that means I think it’s really important for businesses like ours to be open to change.”

And the pace of that change won’t be slowing down any time soon, at least according to Sophie Hackford, formerly of Wired magazine and now a futurist. She outlined her vision of how today’s emerging technologies – in particular artificial intelligence and virtual reality – are set to revolutionise much of our lives.

“One of the biggest opportunities for business will centre around virtual worlds – being able to engage in virtual R&D, or train staff in virtual scenarios. It’ll be much cheaper, much more customisable and much quicker. There really is so much that AI and VR can bring to growing businesses to underpin their development,” she said. “And it’s all just around the corner.”

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