With the amount of European venture capital raised by firms reaching over 2bn in Q2 of 2015 double the amount from the year before it is clear that private equity (PE) and venture capital (VC) is a popular growth method for businesses at seed or second stage.
With more businesses being launched in the UK every year, and with potential investment opportunities at risk, it is vital that firms address any skills shortages, in those acquired firms, to maximise their chances of success and avoid wasted investment.
Recent research canvassing the opinions of UK PE firms, by ThoughtSpark, has revealed IT management and Marketing as the two major skills gap in UK backed firms; both of which are fundamental to business growth.
Business growth has been a hot topic recently and last year accountancy firm EY highlighted skills shortages as a major concern for business expansion, labelling it as a ticking time bomb for the UK economy .
With the economy slowly improving, it is therefore vital that SME growth doesnt get stopped in its tracks and continues to attract investment. With bank credit becoming less available over the last few years, PE and VC is on the rise. Firms that can demonstrate strong skills in all fundamental business areas needed for growth will present themselves as a far more attractive entity to possible investors.
The research
We asked UK PE houses with assets under management of over 2bn to rate core skills in companies they fund on a scale of 1-100 per cent, where 100 per cent is the optimum level of competency.
IT management was rated at just 48 per cent, whilst Marketing was judged at just 44 per cent. In contrast, stronger skills included new product development (71 per cent) and sales (69 per cent). Financial and business management, HR, and service distribution skills all achieved moderate scores above the critical 50 per cent watershed.
Regardless of the industry, buoyant business growth requires strong skills across all core areas (sales, IT, financial management, marketing/PR, product development, HR) to ensure fully functional operations and to de-risk development potential. Any weaknesses will undermine potential growth and may hinder a businesss chances of getting investment in an increasingly competitive market.
Importance of Marketing and IT
Weaknesses in IT management skills in a particularly worrying skills gap, with modern day businesses reliant on their IT capabilities for operational efficiency, customer data management and intelligent sales activity.
In a world where automation and an online presence becomes more and more the norm, ensuring IT capabilities are strong will put businesses in good stead for business development.
Poor Marketing skills mean that business development funds may be misapplied so that an effective pipeline of sales leads is not generated, and market awareness fails to be built. In short, sub-par IT and Marketing skills significantly reduce a businesses ability to go to market, target the right audience with the most effective messages and generate effective sales growth. Misdirected marketing effort and spend is tantamount to flushing money down the drain.
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As sales and product development are fundamental for SMEs to initially get off the ground, it is no surprise that these skills register as strong.
Passionate and knowledgeable business leaders can be instrumental in face-to-face sales pitches and driving start-up growth. This, however, is not scalable, as when the company grows to a level that cannot be sustained by a one-man-band, those skills that are strong will be undermined by weaknesses, such as in Marketing and IT.
Addressing the skills gap
One way to bridge the gap is to acquire experienced and skilled workers in areas of weakness.
However, finding the right people, with relevant experience, is imperative when building a fully-functional business.
Additionally, the hiring process can be long and unreliable, so many firms opt to call on third-party specialists who can deliver immediate results and help shape strategies. Another key aspect is staff retention; retaining your top performers will go a long way to bridging the gap, whilst saving money in the long run.
So for SMEs looking to tap into the rich vein of PE funding that is available, it is vital that they present themselves as strong in all core skill areas. This will ensure they are a much more attractive investment package, and give them a significant, competitive market advantage over rivals; which is essential in the ever-saturated markets of today.
Whether through in-house personnel or third-party specialists, firms need to take a thorough look at their capabilities and ensure all are up-to-scratch.
Paul Lindsell is managing director and founder of ThoughtSpark.
