By Claire West

A new report launched today by Albion Ventures, one of the largest independent venture capital investors in the UK, reveals that 60% of small to medium sized firms have ambition to grow ‘dramatically’ or ‘moderately’ in the next two years, suggesting they are well placed to play a crucial role in driving the UK’s economic recovery.

However, this figure rises to 86% among company heads who claim to have an optimistic outlook on the UK economy and falls to just 20% among those who claim to be pessimistic (defined by their growth outlook for both the UK economy and their own business). A key conclusion from the inaugural Albion Growth Report (“the report”) is that an optimistic entrepreneurial culture is at least as important to stimulating growth among the UK’s small business community as regulatory intervention and access to finance.

The report, which examines the challenges and opportunities faced by 450 SMEs with a combined turnover of £1.6 billion in growing their business, shows that optimistic business owners are more concerned with reviewing and filling skills gaps, sourcing external advice and aiming for new markets to exploit. By contrast, pessimistic firms are more likely to blame outside factors such as regulation and red tape for their lack of growth and are often unwilling to recognise limitations in their own managerial talent.

In the past year, 90% of pessimistic companies who have applied for finance have done so in order to keep their business going compared to a third (34%) of optimists, who are more likely to develop the business, invest in new equipment and build new products and services.

Despite the continued focus on the lack of bank lending to SMEs, respondents ranked this factor outside their top three concerns, which are red tape, regulation and finding skilled staff. Only 17% of small businesses have attempted to raise finance in the past year, and less than half (40%) of these applications have failed. Of those who attempted to raise finance in the past year, just over a quarter were looking for long term capital while almost a third (32%) wanted working finance to keep the business going.

As the Government considers ways to better direct resources into businesses that are most likely to grow, the report also explores attitudes among small businesses to exchanging equity for outside managerial expertise and investment: at present one in eight (12%) of the SMEs polled are willing to give up equity in exchange for hands-on support rising to 20% of larger firms with a turnover of over £20 million.

Regionally, businesses in the South East (23%) are leading the charge towards the Dragon’s Den style concept of growth through selling equity. The report also found that over five times as many optimistic SME managers were willing to sell part of their business (16%) compared to pessimists (3%).

Patrick Reeve, Managing Partner at Albion Ventures said: “All political parties recognise that the health of the SME sector is crucial to the economy’s growth prospects. At a time when the economy is starting to show signs of recovery it is encouraging that most small businesses feel bullish about the future.

“The apparent dislike for regulation and red tape comes as no shock as in our experience most entrepreneurs prefer to be left to their own devices. But we were surprised that the lack of availability of finance came relatively low on their agenda as this is at stark odds with current political and public perceptions.

“As a venture capital investor that meets with hundreds of entrepreneurs a year it’s clear that having a self-confident and optimistic mindset is crucial to long-term business success. The ability to grow is as much about fostering an optimistic entrepreneurial business culture as regulatory intervention. We see this as an important message for policymakers to consider.”

Cormac Hollingsworth, Director at New City Network comments: “SMEs that are self-aware, outward looking and willing to involve outside experts are best placed to succeed. This chimes with the CBI’s recent report on improving the performance of UK SMEs that recommended focussing on advice support for firms. It is well known that SMEs are, in general, reluctant to give away equity, this report identifies a common trait among those that are willing to do so. The most optimistic firms are also the ones who are most open to offering equity in return for advice.”