Mid-size business is going to be big news over the next few weeks, led by its (widely expected) coverage as a significant plank of Chancellor Osborne's November 29 Growth Review. I was asked (in my capacity as co-founder of M Institute) to present to an audience of policy-makers at the Department of Business, Innovation and Skills (BIS). Here's a note on my presentation.
My presentation focused on some basic truths about medium enterprises (or mid-sized businesses, or MSBs, as they are increasingly being referred to):
- Although medium enterprises are a tiny fraction of the number of businesses in the UK, their contribution to metrics such as share of employment and contribution to profits, etc, are well over 20% of the national economy.
- Despite their strength and contribution, they are an invisible segment of the British economy, with very little attention paid to them, either in the media or by policy-makers. They are often confused as being part of the SME cohort, a completely unhelpful segmentation that should be done away with.
- Being mid-sized is, almost paradoxically, only a little bit about size. Although BIS is using a definition based on revenues around £25m-500m, and the CBI stretches that down to £10m, what makes medium medium is that they are too small to be big and too big to be small. M Institute has for some time pointed to the behavioural characteristics that link medium enterprises together. Focusing on these behavioural characteristics is helpful because they help differentiate small from medium, and medium from large. They also identify the characteristics of good MSBs, something that we need to be able to do in aiding the rump of medium enterprises to "grow up."
- Talking about the rump, although British MSBs feature some very good companies, there is a long tail of under-performing medium enterprises, including a number of family-focused businesses. Anything that improves the performance of this substantial cohort is to be welcomed.
- Medium enterprises, both good and not-so-good, share some common challenges in improving their business performance. They find it tough to attract good talent to their businesses. They struggle to raise growth finance, particularly if they want to hang on to the shares of the business - the British funding landscape is more suited to equity finance than debt instruments for MSBs. And they lack specialist expertise to help them scale the business up, particularly relating to the behavioural issues listed above.
You can check out my presentation here:
So what should policy-makers pay particular attention to when it comes to mid-sized businesses?
I suggest there are three key issues that make up MSB 101 for policy-makers.
National entities
Internationally, governments are learning that mid-sized businesses are national in scale. What do I mean by that? Basically, large enterprises have become so big, they often dwarf whole countries when it comes to economic impact. The ten largest economic entities in the world feature five enterprises and five countries.
The largest of large enterprises are pan-global and cannot be managed by national governments. As a result, they exploit what works for them, at the expense of the nations they take advantage of. When a Goldman Sachs pays a tiny proportion of its revenues as tax, compared to the proportion paid by ordinary enterprises (let alone individuals), we know that these pan-global entities are not contributing to national economies as they should.
Policy-makers should be delighted to know that medium enterprises usually operate within national boundaries. Sure, some of them are world champs at what they do, but they are more likely to be regional champions within the economy. The benefits of what they do stay home. That is a good thing for national performance, and polic-makers should focus on such businesses.
But please don't focus on them to milk them dry - you would be losing the point of earning from growth.
Walled garden
A great danger of the new-found fashion in mid-sized business is that a brand new "walled garden" is constructed, focusing on initiatives that fit in with the current MSB zeitgeist. That would be a huge error. We don't need a walled garden of policy initatives focused on medium enterprise. What we need is for the thinking and understanding around medium enterprise to infiltrate and penetrate every corner of business policy.
So, policy-maker, whatever your focus, ask yourself how your work contributes to removing the problems that mid-sized businesses face when it comes to raising finance, or finding qualified graduates to employ (a big concern for MSBs, by the way) or finding room for them on your ministerial delegations to growth hot-spots in other parts of the world.
Policy-makers have often been encouraged to "think small first." I too drank the Kool-Aid on regulatory impacts on small businesses, when I was part of the Better Regulation Task Force. However, today, I know differently. Most small companies miss the threshold on regulations, or they get their accountants to sort things out, or they just go AWOl when it comes to compliance. Medium enterprise pays the price on regulation, by having to deal with regulation, without having the luxury of special teams to do it, as large enterprises do.
Abolish SME
By clumping small enterprises together with medium enterprises, the SME definition is completely unhelpful at best. Worse, policy-makers end up focusing on the needs of the millions of small companies, rather than the substantially different needs of medium enterprises, which are much more impactful as a cohort.
Now I am guessing that SME is enshrined at a special altar somewhere in Brussels, and it would be highly inconvenient to change a lot of government text about SMEs. That, I am afraid, is your problem. But don't let the breadth of the problem put you off the fundamental truth that SME is wrong, wrong, wrong.
One silver lining: you don't have to throw away the SME acronym altogether, as you can re-use it for Small and Micro Enterprises, a job it does rather better than its current use.
Summary
The biggest single difference that government can make to MSBs is to put them on the map, make them visible, celebrate the best of them. If you do nothing else, please, please do just this. And you can tell the Chancellor it is not even an expensive recommendation...
Note: This blog item has also been published on the M Institute website.
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