Low productivity and a misdirected focus on the needs of start-up companies are suppressing growth in small and medium size businesses, according to Xero UK managing director Gary Turner.
“All the government support and press coverage talk about start-ups. We are doing a great job with start ups - there’s one every minute,” Turner said. “But once you get beyond that, the support vanishes. You don’t get help with things like getting funding and leadership as you grow beyond 30 employees.”
Turner revealed that he had first-hand experience of the phenomenon, having taken Xero’s UK operation from three people to 150 during the past seven years. “Xero is what we call a ‘scale up’. It’s really hard to grow like that; to hire people and build a management team - but that doesn’t get spoken about much.”
In early phase start-ups, the people that join are often “Swiss Army knife” employees, who can do lots of things quite well. But they may not be with you when you get to 150, when you need people who can do one thing really well, Turner said.
Another blind spot is productivity, where the UK ranked seventh in terms of GDP per worker within the G8 countries. “The US is almost 40% more productive than the UK, and France, Italy and Germany are all ahead of us,” said Turner.
One of the main stumbling blocks is technology, he added. “Small businesses don’t use much technology. Excel is still the most popular accounting application.”
The software business case
To back his case, Turner cited research showing that while 60% of small businesses fall by the wayside within the first five years, those that invest in financial management software are more than twice as likely to survive.
The same study of British and American start-ups found that 58% of businesses that survived for five years used software to manage their finances compared to 14% of firms that failed.
Nearly six out of 10 (59%) businesses that concentrated on selling services survived for five years, while twice as many businesses that focused on selling products failed - 41% compared to 19% survivors.
With funding still an issue on both sides of the Atlantic, British businesses were more savvy than their US counterparts about alternative methods of finance. While two-thirds of UK firms were aware of crowdfunding, only 5% had actually tried going down that route.
The volume of research coming out of Xero on the small business marketplace reflects the company’s increased focus in recent years on catering directly for business customers rather than relying on accountancy firms to roll cloud application out to their clients.
Based on a combination of user data and market research conducted among 1,500 businesses by Colmar Brunton last winter, Xero is making a point of addressing some of the weak spots that prevent businesses from scaling up.
“People are pretty lousy at paying bills”, said Turner. “Only 9% pay bills on time. That has a massive impact on cash flow. They can’t hire if most of the time they’re trying to collect cash.”
Technology such as payments integration can help change the picture, he continued: “A customer could raise an invoice on their smartphone rather than waiting for a week before they have the time to sit down and issue it. We’re giving them tools to get ahead of that cash flow problem.”
According to figures quoted by Xero CEO Rod Drury, when companies do move their payment systems online, they are paid “on average 10 days faster.”
Just to make sure readers didn’t miss the point, Drury added, “If people have a number of add-ons connected [to their business software], they’re more profitable, because they’re using systems to drive opportunities and business. The data’s clear. If you’re not on cloud accounting, you aren’t making as much money.”
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