Government must think fast and big to make Britain a tech haven

September 21, 2012

The Prime Minister says he wants the UK to be the best place in the world to start, run and grow a high-tech company. As a strategy for rebalancing the economy, this makes a lot of sense. The internet is where the growth is. It accounts for a greater share of UK GDP than in any other G20 country, and businesses that take advantage of the web grow three times as fast as their offline peers. More fundamentally, technology is reshaping the economy. One by one, industries are being transformed or disrupted, as software, data and the internet surge into every corner of our world.

To date, the US (and California and New York in particular) have had a lead in launching transformational digital businesses. Powerful first-mover advantage means that this is unlikely to change in the near term. Nevertheless, the UK is in a strong position. We have a long tradition of design and innovation. After the US, we have more world-leading universities than any other country. Most importantly, the UK is a great place to live – and is therefore an attractive base for smart people with ideas.

There is a real buzz around the UK internet and technology start-up scene. Beyond the Tech City cluster in east London, great things are afoot up and down the country – with spin-out clusters in Edinburgh, Southampton, Newcastle and Cambridge to name just a few. For start-ups to make a lasting impact, however, they must be able to scale up. Two bottlenecks stand out: access to finance and access to skills.

Take finance. To scale a business effectively, the ability to access external finance remains critical. There must be a healthy blend of capital on offer for growing businesses – across debt and equity, and with enough sources to see firms through every stage of the funding ladder.

Yesterday’s announcement of a new route to the UK IPO market for high-growth companies is long overdue. The US IPO market has given the world giants like Microsoft, Apple, Google and Amazon – joined more recently by Facebook, LinkedIn and Groupon. The pattern of exits in Europe has been dominated by trade sales, punctuated by firms emigrating to the Nasdaq. The proposed changes to the rules on free float, eligibility and reporting requirements should make the UK an attractive listing destination, and encourage UK and European businesses to make the UK their global base.

Ensuring that growing businesses can find the right staff must be the other priority for policymakers. Digital businesses can’t run without smart, talented people. We have to get better at teaching kids how to create software, rather than just use it, and put more emphasis on science and the creative disciplines that provide a foundation for working in the digital economy. And we need to get more of our brightest young people to consider working for, or co-founding, a start-up when they leave university. In the short term we have to make it easier for start-ups that are struggling to complete their teams to bring in highly-skilled employees from overseas.

We also need more flexibility for management teams and top employees. The most successful start-ups are those that are able to pivot rapidly when circumstances change – and doing this right will often mean benching some team members or bringing new faces in. More freedom for employers to hire and fire should go alongside more freedom for employees to break contracts to work for competitors, or to start their own businesses. This may sound tough but it works. Labour market flexibility and the rapid cross-pollination of ideas are key parts of the success story in California.

In research published today, we analyse the success factors for high-impact digital entrepreneurship. Our recommendations are designed to stimulate economic growth and make the UK the first choice for launching a digital start-up. In our view, government is on the right track, but needs to act more like the high-impact digital entrepreneurs it wants to promote. It must pivot as required to stay ahead of other countries, focusing aggressively on measures that will help start-ups to scale up. It must also build an attractive environment for investors to back innovative digital businesses all the way from inception to IPO.

The UK has the potential to launch world-beating digital enterprises. There is an opportunity to excel – but only if we think big and act fast.

This article originally appeared on City A.M.’s website

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