FAST GROWTH 50 2012

Today, the 14th annual list of the fastest growing firms in Wales is launched.

At a time when the Welsh economy badly needs a boost, the firms featured in this year’s Fast Growth 50 supplement demonstrate, yet again, the entrepreneurial and innovative potential that exists within our business community.

And despite trading within an economy that has been struggling to grow since the recession, this year’s list shows a record increase in turnover, demonstrating that even within difficult economic times, Welsh business can be competitive in an increasingly turbulent global environment.

Thanks to their wealth and employment creating potential, such high impact firms are now becoming the focus of policymakers around the World. And whilst entrepreneurship remains a key goal for developing local economies, there is an appreciation that as many firms will never grow beyond providing a local service and therefore there needs to be an increasing focus on those businesses that have the potential to grow further and create jobs.

National and regional governments around the World are now realising that focusing on high growth businesses, or so-called ‘gazelles’, can give them more “bang for their bucks” in ensuring that public sector business support is targeted towards those that can create jobs in the economy.

In fact, we can see that the impact of a small group of high growth firms can be tremendous within a small economy such as Wales. Since 1999, 440 firms have appeared on the fourteen lists published in the Western Mail. These have created over 22,000 jobs and generate over £12 billion of additional turnover annually into the Welsh economy, much of which is spent on local goods and services.

The 2012 Fast Growth 50 list is the most successful to date, generating a turnover of over £3billion and creating over 3000 jobs.

This is, in part, due to one of Wales’ most successful businesses, Admiral Group PLC, which appears on the list for the second year in succession, doubling its turnover between 2009 and 2011. In fact, larger firms with a turnover of greater than £20 million make up 20 per cent of this year’s list, demonstrating that growth is not only limited to smaller businesses.

Yet, even if Admiral is excluded, the performance of the other forty-nine is an incredible achievement, generating over £815 million in sales in 2011 at an average growth rate of 86%, and generating an additional £377 million for the economy during the period 2009-2011. These firms also created approximately 2000 jobs,  far higher than the number generated by inward investment into Wales during the same period

In terms of location, Cardiff remains the main centre for fast growth firms, with thirteen businesses being based in the capital city, the same as 2011. Other urban centres are also magnets for growing firms including Bridgend (six firms), Swansea (five firms), Newport (four firms) and Wrexham (three firms). The other stand-out town in Wales is the area around Welshpool in Powys, which has three significant manufacturing firms that are showing considerable growth.

This year, North Wales has only six companies, although their collective growth is considerably higher than the Welsh average. Two  counties - Anglesey, Conwy - have no fast growth businesses within their boundaries for the fourth year in a row. They are joined as Fast Growth 50 free zones in 2012 by Blaenau Gwent, Carmarthenshire, Ceredigion, Denbighshire, and Merthyr Tydfil.

As in 2011, the average age of the growth company in Wales is twelve years old, suggesting yet again that it takes time for such businesses to establish themselves in their marketplaces. The oldest business this year is Wynnstay PLC, which was established in 1918, whilst there are thirteen fast growth start-ups (five years old or less).

There are twenty seven businesses that appear for the first time on the Fast Growth 50 list whilst four companies – Kids@Play, Professional Driver Services, Smart Solutions and Trojan Electronics - return for a third time in succession. In fact, this is the second time that Trojan has made it a “hat trick”, having appeared ion the fast growth 50 lists in 2005, 2006 and 2007.

Two businesses have demonstrated four years of continuous growth, both of which made their debuts on the list in 2009. Machynlleth based Dulas had a turnover of £21.5 million in 2011, whilst Biotec Services International has grown to sales of £9.2 million over the same period.

Finally, congratulations to Glyndwr Innovations for becoming the fastest growing firm in wales in 2012.

Universities are often criticised for not engaging properly with business so the success of this university company from Wrexham is great news for the Welsh economy.

One can only hope that their success will spur on other higher education institutions to follow in their footsteps over the next few years.

LESSONS FROM THE FASTEST GROWING FIRMS IN THE USA

On Wednesday, the Wales Fast Growth 50 initiative, which was started fourteen years ago to recognise the best of Welsh indigenous business, will again showcase companies that are making a real difference within their sectors and, more importantly at this time of economic difficulties, are creating jobs within their local communities.

In fact, the fifty Welsh firms featuring on this year’s list, despite being only an average of twelve years old, will have collectively created nearly 10,000 jobs since they were started, which is an incredible achievement.

When the Fast Growth 50 project was launched back in 1999, its inspiration was a similar, but far larger, initiative since 1982 run by Inc magazine.

Indeed, the Inc 500, which identifies the 500 fastest growing firms in America, is a truly inspirational list that not only demonstrates incredible entrepreneurial feats within the World’s largest economy, but also gives clear pointers as to how future business practice is developing in key sectors.

The 2012 Inc 500 list was released earlier this month and the data for the companies featured is fascinating for those of us studying the characteristics of fast growing firms.

Whilst, the overall turnover of all Inc 500 firms in 2011 was $15.8 billion and they employed a total of 46,609 people, the median annual revenue of $8.9 million is relatively modest, as is the median employment of 36 employees (which is similar for this year’s Wales fast growth 50 firms).

More relevant is information on how the companies have achieved fast growth, especially in terms of accessing funding that, at least in the UK, is of major concern to many small businesses.

The surprising finding from Inc is that external funding is not as important to growth as expected - 77 per cent of the founders of the five hundred fastest growing businesses in the USA set up using only their own personal savings, with two thirds needing less than $100,000 to get started.

And whilst 34 per cent stated that access to external capital has been essential for growth, 42 per cent have not utilised external funding in developing their business. In fact, three quarters of companies have financed their growth over the past three years largely through cash flow from operations.

This seems to fly in the face of the popular belief that successful companies require external capital to fuel their growth. This is an important lesson for many entrepreneurs in that, contrary to popular belief, self-funding does not equal slower growth.

Whilst external capital does play a part in a number of growing firms, it can also have its problems such as ownership dilution, loss of control, and management team distraction. In fact, the entrepreneurs questioned for Inc magazine consider the biggest obstacle to growth is not finding money but actually finding good people to help the business grow, which is a vital lesson for governments in supporting businesses to expand.

Whilst entrepreneurship is increasingly seen as a young person’s game, those businesses in the USA that achieve substantial growth are managed by entrepreneurs who are overwhelmingly middle-aged white males, although they had, on average, started their first business at the age of 27.

But despite the fact that the majority of these founders are above the age of 45, they saw themselves as innovators who love launching companies and developing products. Also, unlike many entrepreneurs in the UK, they are very hands on with social media with a third directly involved in writing their companies’ tweets and Facebook updates.

The sectoral make up of the fastest growing firms in the USA also has important lessons for governments that are still tending to follow a “picking winners” policy. Rather than the high technology sectors beloved of policymakers, the fifty fastest growing firms in the USA are overwhelmingly located in traditional sectors such as advertising and marketing, consumer products and services, government services and financial services.

As various research studies continue to show that a small number of businesses create a disproportionate percentage of jobs in the economy, there are lessons to be learnt from such firms.

Given this, I urge anyone with a real passion for entrepreneurship and growth to read the stories behind such performances, regardless of whether the companies are found in the Inc500 or the Wales Fast Growth 50.