The habits of highly effective start-ups | Royal Bank of Scotland

The habits of highly effective start ups

A new report focuses on what SMEs are doing right rather than wrong

Start ups and SMEs should monitor cash flow, invest in innovation and commit to learning in order to avoid being among the 55 per cent of new companies that cease trading after five years, according to a new study.

The report, published by the University of Surrey and commissioned by the accountancy firm Kingston Smith, focuses on what SMEs are doing right rather than wrong and has identified a number of common factors that are contributing to small business growth in the UK.

SMEs currently employ 13.7 million people (approximately half the private sector workforce), however only 65 per cent of them are still trading after the first three years of initially starting-up. After five years, fewer than 45 per cent of these businesses survive, which underlines core instabilities in this area of the market.

In order to be in the best position possible, the study advises SMEs to assess their sources of finance and closely monitor their cash flow. This is an important base to build from, however alongside cash flow, companies with a larger number of employees recognised a broader range of other success factors.

By amassing social capital – building a reputation as a well-connected and influential organisation – SMEs can expand their client base and drive business sales. More than 90 per cent of SMEs consider that direct referrals play a big role in the success of their business and larger SMEs also underline the role of social media such as Facebook or Twitter. Having a strong internet presence through search engine optimisation was quoted by 67 per cent of SMEs as an important factor in achieving success.

Innovation is at the heart of entrepreneurship, which is why the study unsurprisingly found that SMEs and startups put a large deal of emphasis on trying to find new ways of doing things. This philosophy accompanies a desire to be informed of all new developments in their sector, which could explain why successful small businesses believe that learning gives them a greater competitive advantage.


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