Barriers toBusiness Growth

2018

The City of Expertise Barriers to Business Growth Report 20182 3

There is a huge amount of talent, knowledge, know-how and entrepreneurial spirit within the businesses of St Albans and the surrounding areas. The numbers speak for themselves and justify our ‘City of Expertise’ title.

The City of Expertise Barriers to business growth

Businesses are thriving in St Albans and its district and there is no doubt that we are in an area that is way ahead of much of the UK in terms of our business confidence.

A recent study by the Institute of Directors (IoD) said business leaders’ confidence in the UK’s economy was at its highest since this time last year. It went on to report that across the UK, business optimism had grown from 39% to 47%. Compare this to our recent study which shows that over 80% of our local businesses plan to grow dramatically or moderately in size over the next two years and we can see that we are in an area of high growth and high expectation.

However, growth is not a given and in this survey of over 130 SMEs within St Albans District we can see some very clear areas that are holding our businesses back. Many thanks to all the businesses that took part in the survey, which considers the barriers to growth for different sized businesses, in terms of employee numbers and across different sectors. The chart provides a summary of the top line results.

The first placed barrier to growth is the difficulty in finding and retaining skilled staff, an issue that we do not anticipate will go away quickly. Later in this report we share information about businesses that are adopting different approaches to recruiting and keeping staff.

In second and third places are the effects of political uncertainty on business planning, and regulatory change and red tape. Work space and cost is the forth placed barrier.

The next area of concern surrounds shortages of specific expertise: many businesses have recognised that they need support and assistance with IT, sales, marketing and regulatory challenges. The report goes into much more detail: we hope you find it interesting and useful.

Alastair Woodgate St Albans District Chamber of Commerce President, Director at Rumball Sedgwick

According to Google in St Albans and Harpenden there are;

• Over 30 solicitors/legal practices

• Over 60 financial services businesses

• Over 36 chartered accountancy firms

• Over 10 firms of chartered engineers

• Over 9,375 business enterprises and a high level of self-employment

However, success is never easy and this report sets out to discover the barriers to growth that our businesses are currently experiencing. By understanding the key issues, we are better able to help businesses find solutions and thus continue to build our thriving business community that collectively attracts business and talent to the City of Expertise.

‘City of Expertise’ is the name adopted by a group of professional services firms who work together to promote the quality of advice and skills available in the local business community. They have sponsored this report to highlight the challenges business leaders face and to promote an open debate on how to resolve them.

Research method:A questionnaire was sent out electronically to the businesses of St Albans and District asking a variety of questions relating to the barriers to growth that they are currently experiencing. The survey received 131 responses from businesses across 10 general sectors, evenly split in size between businesses with 1-5, 6-50 and 51+ employees. The top line results are outlined in the following report.

Sources of above data: Google, Office of National Statistics

Technological Limitations

Cash Flow

Lack of Specific Expertise

Workspace Rent and Availability

Regulatory Change and Red Tape

Political Uncertainty

Difficulty in finding and retaining Skilled Staff

Barriers to growth

0 1 2 3 4 5 6■ Score where 1 = Not a a barrier

4.93

4.00

3.87

3.65

3.54

3.17

2.64

The City of Expertise Barriers to Business Growth Report 20184 5

Some top line data from the report

80%

No.154%

25%

60% 10%

Growth ambitions

These are exciting times for businesses in and around St Albans with over 80% of respondents to the survey stating that they plan to grow dramatically or moderately over the next two years. It is even more encouraging to see that only one out of 130 respondents is expecting to downsize and only three businesses are expecting to wind-up or exit the market.

This sense of ambition is reflected across all sizes of business. It is being led by those businesses with 6 – 50 employees, where 88% of the respondents expect dramatic or moderate growth. This compares to 83% of those businesses with 51+ employees and 73% of those with 1 - 5 employees.

Growth in productivityUK productivity has long been an area of concern. According to the Office of National Statistics, the final two quarters of 2017 saw some growth but it has since fallen back again. The UK’s productivity currently lags 35% behind Germany and 30% behind the US.

These official statistics make it particularly pleasing to report that over 57% of St Albans businesses are anticipating growth in productivity of up to or over 10% in the next 12 to 24 months.

53% of respondents report market conditions as the biggest factor in productivity predictions, followed by growth in headcount, staff and key personnel (39%) and skill levels (35%). Technological developments came in fourth position (24%) – more details regarding technology investment and attitude appear later in the report.

Finally, access to finance and cash flow, political uncertainty, and access to markets were all mentioned by a similar number of the respondents (16%).

of our business are expecting dramatic or moderate growth

Difficulty in finding and retaining skilled staff is the barrier to growth

of businesses plan to enter new markets within 2 years

of those businesses considering a move want to stay in St Albans

Just under are expecting up to or over growth in productivity

Professional Services

Business & Financial Services

Marketing, Advertising, Creative

Retail (On & Off-line)

Building/Construction/Property

Hospitality, Entertainment

Care / Charity

Engineering, Manufacturing

Computer/IT Services

Others

What business sector are you in?

0 5 10 20 30 15 25 35

How do you expect your company’s productivity to change over the next 12/24 months?

0 10% 30%20% 40%

Grow by up to 10%

Grow more than 10%

Remain the same

Fall by less than 10%

Fall by more than 10%

What are your growth ambitions in the next two years?

0 10% 30% 50% 70%20% 40% 60%

Grow moderately

Grow dramatically

Stay the same size

Downsize

Wind-up/exit the market

Size of your company

0 10% 30% 50% 70%20% 40% 60%

1-5 employees

11-50

6-10

51+

80+% of local businesses anticipate dramatic to moderate

growth within 2 years

The City of Expertise Barriers to Business Growth Report 20186 7

Recruitment & retention practicesDifficulty in finding and retaining skilled staff

To find out how local businesses are addressing their recruitment issues we asked exactly what they planned to do differently in order to recruit skilled staff.

There were some interesting responses. Whilst the majority of businesses had no plans to change their recruitment processes, there were a significant number that were adopting new approaches.

Nearly 10% of the businesses that responded were going to go further afield to attract the best talent. Over 6% plan to be more flexible in terms of the age and qualifications of potential recruits and over 5% planned to use more temporary workers. As might be expected, it was the smaller, more nimble businesses that were leading the way in terms of flexibility in recruitment strategy.

However, it was the ‘other’ options that proved to be most interesting and innovative.

One business said that it was “combining all” of the strategies suggested in our questionnaire and generating other alternative steps to address their staffing shortages.

A number mentioned using freelancers and consultants to solve specific problems. One business simply said it was changing the job requirements: it will hire the most talented candidates, then adapt and train them once it has the right calibre of team.

When it comes to retention, over 46% of our businesses are planning to increase spending on skills development. Over 35% are adopting more flexible working hours and just under 30% are going to encourage remote working where possible.

Increasing spending on personal development and staff perks were also on the list of actions but, understandably, offering sabbaticals was not really an option for most businesses.

Growth ambitions come with many challenges. St Albans is an area that has high levels of employment and our businesses are growing faster than those in many other parts of the country. As such, our need to recruit quality skilled staff is high. There is little wonder that the key barrier to growth for all our businesses is finding and retaining key personnel.

Across the board, regardless of the size of the business, it is people that are helping to drive success, and it is also the lack of appropriately skilled people that is holding it back.

The bigger the company, the more likely it is to be increasing headcount either significantly or slightly. The 51+ employee businesses are most likely at 78%, the 6 - 50 cohort second with 72%, and finally, the 1 - 5 employee businesses at 49%.

Recruiting the right staff is an issue across all the business sectors. Whilst the professional services sector has the biggest recruitment problem, with 20% of businesses citing staff recruitment and retention as their biggest issue, the other sectors are not far behind. 19% of the construction and engineering companies and 19% of the sales and marketing respondents are also experiencing difficulties. In addition, 17% of the hospitality businesses are experiencing recruiting difficulties.

% by sector having difficulty finding and retaining skilled staff

ProfessionalServices

Construction& Engineering

Sales &Marketing

HospitalityBusiness

20.5

19.5

18.5

17.5

16.5

15.5

20

19

18

17

16

“It’s very hard to persuade graduates to work in St Albans rather than London!”

“Inability to recruit is the single impediment to growth. We pay well

above the minimum wage per hour. We just cannot recruit.”

“It’s purely staff attraction - if St Albans could raise its profile as a great place to live and work with easy access in to London in the evenings ……… it would

help a lot”

Regarding staff retention, which of the following initiatives, if any, would you consider implementing over the next 12-24 months? Select up to 3 that apply.

0 10% 30% 50% 60%20% 40%

More secure contracts

Increasing flexible working hours

Implementing remote working where possible

Increasing staff perks

Giving staff a stake in the company

Allowing staff sabbaticals

Increasing spending on skills development

Increasing spending on personal development

Don’t know

20% of local businesses are finding recruitment and retention their

biggest barrierto growth

The City of Expertise Barriers to Business Growth Report 20188 9

Property shortages and location plans Market conditions and growth through new markets

Commercial property availability and price is a controversial subject in and around St Albans. It is an issue that was mentioned at every stage in the planning of this research.

Though it crops up more than any other subject in discussions, it came only fourth out of eight possible barriers to growth. This may be a reflection of the fact that there are lateral solutions to local property issues – such as employing more remote workers or relocating elsewhere. Many businesses don’t envisage moving, but even so, they are still considering what their options may be.

The challenges of property, restricted and expensive parking, and poor public transport services were all mentioned in the results, but this didn’t stop over 47% of the businesses who are moving, or may move, preferring to move into or stay within St Albans rather than go further afield.

Market conditions was the single biggest driver of productivity predictions stated by respondents, though each cohort is feeling the effects of different drivers.

Market conditions featured as the top reason for the 1 - 5 employee cohort, followed by access to new markets and then, in joint third place, access to finance & cash flow and staff.

For those businesses with 6 - 50 employees, market conditions were also in first place, with staff and key personnel and skill levels coming in joint second place as the reasons for anticipated growth.

In contrast, for the larger companies with 51+ employees, staff and key personnel is the top reason behind their productivity expectations, followed by technological developments. For these more established businesses, market conditions came in as their third reason.

New marketsOur local businesses placed political uncertainty and regulatory change and red tape as the second and third placed barriers to business growth, but this is not restricting growth strategies.

54% of our businesses plan to enter new markets in the next two years and 30% of these are aiming for new domestic markets. However, more of our businesses plan to expand into other new markets (14%) versus only 10% planning to enter new EU markets.

As might be expected the smaller businesses with 1 – 5 employees are leading the way in terms of domestic growth (28%) and the larger companies with 51+ employees are heading further afield with 21% planning to look beyond the EU.

Is your business looking to move within the next 12 months?

0 10% 30% 70%50% 90%20% 40% 80%60% 100%

Yes, we need more space

Yes, we want to save costs

Yes, we have no choice

No / Maybe

Are you planning to enter new markets in the next two years? Please tick all that apply.

0 10% 30% 70%50% 90%20% 40% 80%60% 100%

Yes, new domestic

Yes, new markets within the EU

Yes, other new markets

No

“Rates and property rents are always up year-on-year never down”

“Office space with parking nearby is crucial to business growth in

St Albans”

“I would love to move my business back to St Albans, but rent is a

big issue”

Employees 1-51. Market conditions2. Access to new markets3. Cash Flow / People & Skills

Employees 6-501. Market conditions2. Staff / key personnel2. Skill levels

Employees 51+1. Staff / key personnel2. Technological developments3. Market conditions

■ Move outside Herts 9%■ Move within Herts but outside St Albans 24%■ Move to the outskirts of St Albans 20%■ Move within St Albans 47%

Action in place to stem the loss of commercial space:

A collaborative approach between the District Chamber of Commerce and St Albans City &

District Council has resulted in the removal of permitted development rights in nine areas of

the District. From 22 March 2018 local planning powers will control changes of use from

commercial to residential use.

54% of businessesplan to enter

new marketswithin 2 years

The City of Expertise Barriers to Business Growth Report 201810 11

Finance and investment Skill shortages

Raising financeCash flow was a long way down the list of barriers to business growth. Nearly 60% of the businesses surveyed have not tried to raise finance recently and have no plans to do so in the future.

It is also the sign of a growth environment that, for the 25% of our businesses that have successfully raised finance and the further 17% that intend to do so in the next 12 months, the key intention is to use the funds to develop the business. This is followed by investment in property or premises and products and services.

Investing in technology Though investing in technology comes quite low in the uses for external funding, 40% of our businesses are planning to increase their technology investment year on year. And there are some skills lacking in this area that need to be addressed (see p.11).

However, St Albans businesses are recognising the need to invest in technology and, although nearly 40% see technology as an essential but costly investment, similar numbers (36%) see technology as core to their growth.

One of the biggest challenges of a growing business is recognising where knowledge gaps exist. Fortunately for St Albans, we have a wealth of skills, experience and expertise within our professional advisory firms that can support the growth ambitions of the businesses in our areas and beyond.

We are called ‘The City of Expertise’ for a reason!

IT, sales & marketing and regulatory issues top the list areas in which businesses most need support. Business planning, HR and financial management follow these first three.

For businesses with 1 – 5 employees, their biggest skills gap lies in sales & marketing. This is followed by regulatory support and IT, then business planning and financial management.

As businesses move into the mid-size of 6 – 50 employees, regulatory support and HR push sales & marketing and IT into joint second place, then once again comes business planning and financial management.

For the largest of our companies with 50+ employees, IT support is the area where skills are most needed. Regulatory support, sales & marketing are in joint second position, with business planning in third place.

If you tried to raise finance, what did you intend to use the funding for?

0 10% 30% 50%20% 40% 60%

Keep the business going

Develop the business

Invest in new products and/or services and/or equipment

Recruit new staff

Invest in R&D

Invest in technology

New/additional premises

Relieve pressure from existing providers of finance

Do you feel your company lacks expertise or skills in any of the following areas? Select up to 3 that apply

0 10% 30%20% 40%

Regulatory issues - new rules & regs, intellectual property protection, contracts

Sales & Marketing

Financial Management (cash management)

IT/new technology eg social media, big data

Human Resources & Corporate Social Responsibility

Business Planning

Other (please specify)

Answer choicesTechnology is driving our business forward, investment is at the core of our growth strategyTechnology is an essential but costly aspect of doing business todayTechnology is moving too fast for SMEs like us to keep up – we will let others make the mistakes and we will followTechnology is not an important element in our business

Responses36%

39% 7%

18%

Top 3 Business Skills Shortages

1. IT2. Sales & marketing

3. Regulatory issues

Promoting professional services in St Albans and Harpenden

www.cityofexpertise.com

This report has been commissioned by the partners of the City of Expertise