A new working paper from Nesta shares eight common mistakes that leaders make when they work to support fast-growing companies. The research in this paper follows a previous Nesta study that found that just 6 percent of businesses in the U.K. created over half of the country’s new jobs. A summary of each mistake and the reasons the authors cite for its failure is below.
Mistake #1: Many policies aim to increase research and development within firms.Why it doesn’t work: High-growth firms (HGFs) tend to use ‘open’ sources of innovation.
Mistake #2: There is a strong emphasis on increasing equity financing, such as venture capital.Why it doesn’t work: Most founders of HGFs wish to preserve their ownership stake. Many publicly funded venture capital funds are also unable to provide support that is similar to what private sector venture funds provide.
Mistake #3: Policies often focus on increasing exports.Why it doesn’t work: HGFs tend to enter new markets in a variety of ways, including joint ventures, acquisitions, and partnerships.
Mistake #4: Public policy concentrates support towards tech companies.Why it doesn’t work: Most HGFs are not in high-tech industries.
Mistake #5: High growth policy focuses on assisting startups.Why it doesn’t work: HGFs tend to be found among existing SMEs, including very old firms.
Mistake #6: Business support is often oriented towards supporting organic growth.Why it doesn’t work: Non-organic growth is critical for HGFs.
Mistake #7: The main policy tools are ‘transactional’ instruments, such as grants and subsidies.Why it doesn’t work: Founders of HGFs prefer relational forms of support above direct financial assistance, especially assistance with strategic guidance.
Mistake #8: Most business support is provided directly by the public sector or through intermediaries.Why it doesn’t work: Founders of HGFs would rather receive advice and guidance from peers in their industry.
To read more about this research, click here.
Contributed by Rhett Morris.