Business clusters are thriving but SMEs aren’t taking advantage
New research from Opus Energy has revealed that start-ups and small businesses are opting for convenience over strategy when it comes to location choices. Only a minority of SMEs are taking advantage of government driven initiatives such as business zones or industry-driven business clusters, thereby ignoring the possible collaborative or financial benefits. Furthermore, younger entrepreneurs were found to be the group most open to collaborative working, with older entrepreneurs fearful of the competition.
Small business owners are missing out on the benefits of collaborative working and government-backed schemes due to an inherent fear of competition, new research from Opus Energy has found. Just seven per cent of start-up owners are choosing to start their businesses in business zones or business clusters, where like-minded companies prosper due to shared benefits such as travel links, low premises cost and available talent.
Additionally, just eight per cent are choosing to start their business where they did due to favourable grants or taxes, and just 14 per cent chose their business location due to networking or skill-sharing opportunities.
The data demonstrates that SME owners are prioritising convenience over business performance. When the entrepreneurs were asked why they set up their business where they did, convenience was an overriding factor over strategy. Two-fifths (40 per cent) said they chose the location of their business as it was convenient, while over half (51 per cent) said it was where they lived.
As well as convenience, the data shows that a reliance on the capital remains a strong factor for entrepreneurs’ choice of start-up location. 2016 saw a record-high for businesses being founded, with 650,000 start-ups established during the year. Of these, 205,325 businesses were set up in London, in comparison to just under 10,000 in Manchester or 8,000 in Leeds. However, the competitiveness of other regions is growing, with start-ups on the increase and business clusters helping to drive this transformation.
Of those surveyed, entrepreneurs aged 18-34 were the group most likely to embrace business clusters, seeing the benefits of working in a cluster including networking, skilled workers and close proximity to investors and clients. Seventy-seven per cent of entrepreneurs aged 18-34 agreed that working with likeminded businesses in a similar field would help their business, in terms of productivity, commercially and competitively. This was in stark contrast to just 38 per cent of entrepreneurs aged 35 plus. For those over 45, it dropped to 25 per cent.
When asked about their reluctance to work in a business cluster, reasons included they thought their ideas would be stolen, high employee turnover and fickle clients.
Nikki Flanders, Opus Energy Chief Operating Officer, commented:
“Setting up a business is not a small undertaking, and there are many important decisions to be made before a company is born. Regional initiatives are available to businesses to help them progress – for example, the government’s Regional Growth Fund or business grants from local councils - so it’s worth investigating a range of locations for your start-up, even if they’re not so convenient.
“Opus Energy started in business clusters, both in Northampton and then in Cardiff, to capitalise on the skills available and the results speak for themselves – it’s helped our business to grow extensively, and we’ve benefited from the high-calibre local talent on offer. Choosing not to embrace an opportunity because of fear isn’t strategic, and there are so many factors which can decide a good or bad location. How we run businesses is changing, so the benefits of clusters can’t be dismissed. Talent, networking opportunities and cost savings are there for the taking, if entrepreneurs are brave enough to look farther afield.”
For small business owners, taking longer to decide on a location could make a difference. Over a quarter (27 per cent) of SME owners knew instantly where they wanted to set up their business, while a further 11 per cent had decided within a day. Almost another fifth (18 per cent) had made the decision within a week.
Sarah Haywood, CEO, MedCity, a world-leading hub for life sciences:
“Clusters play a critical role in the development of a knowledge based economy as they provide access to a pool of expertise, innovation and investment. Proximity assists companies to collaborate, share knowledge, and tackle problems together, and increased understanding of competition can foster improved productivity too.
“Within the UK life sciences sector, we have some well-developed regional clusters, such as The Golden Triangle of Cambridge, London and Oxford. The region brings together different components of an effective ecosystem including businesses, leading research institutions and universities, investors, hospitals, talent, well developed support and professional service and patients, to create a world-leading region for research, collaboration and innovation.”
To help entrepreneurs identify relevant business clusters which they could join, Opus Energy has created an interactive map outlining the UK’s most successful business clusters, including key information such as costs, employment rates and average wages. For more information, click here to have a look.