Why the North West is the perfect breeding ground for ‘unicorns’: Experts explain what it takes to become a $1 billion company
In the late 18th Century, the North West was the driving force behind a new era of economic prosperity for the UK. Fast-forward to 2016, and the region is once again proving to be a hotbed for successful businesses - albeit a very different kind to those that blazed a trail during the Industrial Revolution some 250 years ago.
A new wave of so-called ‘unicorn’ companies has emerged across the North West in recent years, adding further weight to suggestions that the supposed ‘North/South Divide’ is narrowing all the time in the UK. In this unique report, Forward Roleexamines unicorn businesses from around the world, and how their numbers are on the rise, not just in Europe and the UK, but more specifically in the North West of England.
With 12 businesses in the region said to be on the verge of achieving unicorn status, this report looks at why the North West - once a lynchpin of the Industrial era - has reinvented itself as a richly fertile breeding ground for cutting-edge digital businesses. You’ll also find expert comment from a host of proud North West business owners and Executives, who have helped to explain in greater detail why this part of the country is earning itself a reputation to rival those of some of the most celebrated technology hubs on the planet.
As the government continues to force through its ‘Northern Powerhouse’ plans - aimed at adding greater balance to the nation’s economy by redressing geographical disparities - the future appears to be bright for the North West. The fact that so many high-profile tech and media organisations have already laid roots here indicates that this is anything but a temporary trend, and its appeal among budding entrepreneurs is growing all the time. Something special is happening…
First things first, what is a unicorn?
The term unicorn, when it is used in the context of business or finance, is relatively new. It was first coined in 2013, by American seed investor Aileen Lee of Cowboy Ventures in a piece entitled ‘Welcome to the Unicorn Club’.
International investment bank GP Bullhound, inspired by Lee, last year conducted an in-depth investigation into European unicorns, entitled ‘European Unicorns: Do They Have Legs?’ The report further defined what it means to be a business unicorn. In order to be considered, a company must meet the following criteria:
● A tech company with “a bias towards internet/software”
● Founded in 2000 or later
● Be worth $1 billion or more if it were to be sold or floated
Unicorns around the world
A report released by Spoke Intelligence and VB Profiles, counted over 208 unicornsacross the world. The United States is considered to be the global capital for unicorns - it is estimated that nearly half of all unicorns around the world reside in the state of California alone.
This isn’t surprising given that southern California is home to Silicon Valley, which houses some of the world’s largest high-tech companies, including Google, Facebook and Apple, as well as thousands of start-ups. And the States shows no signs of slowing down. GP Bullhound found that the US has produced 22 more unicorns since April 2014.
Although the United States is undoubtedly the reigning champion when it comes to the number of unicorns, the rest of the world is hot on its tail. Another economic superpower that is spawning an increasing number of these mythical corporate creatures is China, which is estimated to house more than 30 unicorns.
While China’s contribution comes as no surprise, there’s a new kid on the block, one that, until recently, may have been considered to be out of the running.
GP Bullhound’s report found that although Europe still has a long way to go before it can rival the United States, it is certainly making waves. It found that as of 2015, Europe is now home to 40 unicorns. Over the past two years, the number of start-up companies emerging from Europe has grown substantially, thanks mostly to a boom in investment opportunities, which has led to the sudden increase in unicorns.
Manish Madhvani, Managing Partner of GP Bullhound, said that the sharp rise in European unicorns had taken even them by surprise:
“The trend is quite staggering and it is accelerating. The ambition level is being raised in Europe in terms of technology and entrepreneurship and it has taken a long time.”
As we’ve mentioned above, Europe is hot on the tail of the US and is making quite a name for itself in the start-up community. And within that, the United Kingdom is also emerging as a surprising contender...
The UK: the new land of the unicorns?
Since the year 2000, the UK has produced the highest number of unicorns in Europe; 17. And of the 13 businesses that joined Europe’s unicorn club in the past year, sevenof them are based in the UK, according to GP Bullhound. These include the online fashion store Farfetch and the web payments company Skrill.
Manish Madhvani commented on the rapidly growing number of billion-dollar businesses in the UK:
“The UK has raced ahead as the undisputed home of unicorns in Europe, with London producing the vast majority of Britain’s billion-dollar tech companies. Growth is accelerating because we have created an environment capable of sustaining high levels of investment across a range of tech sectors.”
The UK has really been making quite the name for itself on the European, and international, tech scene. Almost six years ago, David Cameron and Boris Johnson launched Tech City in London, which has really helped to propel the capital into the start-up spotlight, and there have been some impressive steps made.
According to figures from Oxford Economics, London’s digital technology sector has grown by 46% since the initiative was launched, and there are now almost 200,000 people employed there, 17% more than in 2010.
There are many well-known companies that started in the capital that are now worth more than $1 billion: Zoopla, Rightmove, ASOS, JustEat, and Wonga, to name but a few. But there is a chance that London may not be the unicorn capital of the UK for much longer.
Unicorns in the North
It’s not just the capital that has been experiencing significant growth on the business front. Looking away from London, which has long been the first port of call for budding entrepreneurs and young professionals looking to forge a strong career in any sector, cities such as Manchester, Liverpool, Leeds and Sheffield are seriously starting to close the gap.
The past few years have seen a number of well-known businesses migrate out of London and plant new roots in northern cities. The BBC moving its headquarters to MediaCityUK in Salford in 2011 was undoubtedly a milestone moment. ITV followed suit shortly afterwards and Google now has a base in Manchester, the first in the UK to be located outside of London. Many well-known names across the world had their beginnings in the North. Boohoo.com, despite recently temporarily dropping out of the unicorn club due to a decline in turnover, has always been based in Manchester, and hair product manufacturer GHD lives in the city of Leeds.
“We definitely need to learn from the cluster effect created by the BBC moving to Salford, and how that boosted the creative industries.”
- David Grimes (MPD Group)
So the North should certainly not be underestimated when it comes to producing great businesses that can get themselves up and running, particularly when it boasts names such as online white goods retailer AO.com (themselves a member of the unicorn club).
If the North is to build on this momentum, there needs to be greater collaboration between existing businesses, schools, universities and the local councils.
David Grimes, from Manchester-based MPD Group, discussed the importance of working together to deliver successful Northern businesses in the future:
“The common themes seem to be joined-up thinking between the public and private sectors, academia and business, plus strong leadership. Schools need coding to be part of their curriculum from primary school onwards, Manchester University needs to become known as the best place in the country to study maths and computer science.
“Tech companies need to offer ways to help graduates become even more commercially ‘ready to work’, councils need to create ready-made campuses for tech companies, plus provide the housing and transport that will attract top talent and the business community needs to build agile networks of start-ups, fast-growth businesses and enterprise-level firms, with support from investors.”
Increased collaboration between schools and start-up companies? Programs to encourage graduates to stay in the North? More investment? That sounds like a job for the Northern Powerhouse.
What is the Northern Powerhouse?
The Northern Powerhouse is a term that has been around for a number of years now. It is an initiative started by the coalition government and continued by the Conservative government after they won the majority vote in 2015. It was designed to address the growing imbalance between the North and South and to inject more life into the local economies that exist outside of London.
Is the North viable for start-ups?
As the Northern Powerhouse is more of a concept that an actual ‘thing’, many have commented that it won’t be easy to measure its success.
The evidence would certainly seem to suggest that the North is indeed a legitimate breeding ground for burgeoning corporations. In its report, GP Bullhound identified what they called “foals”, 12 of them in fact, which it believed were strong contenders for unicorn status in the future. All of these 12 are based in the North West of England!
These potential billion dollar businesses are…
- Blue Prism
- GB Group
- The Hut Group
- NCC Group
- On The Beach
Each one of these “foals” is projected to reach $1 billion in value soon. Having been started after the year 2000, it’s an impressive feat for any of them, and shows that the North is well on its way to becoming a thriving hub for up-and-coming unicorns.
But what makes the North West such a great place for potential unicorns to settle down?
Transport - As part of their plans for the Northern Powerhouse, the government announced the construction of HS2, a high-speed rail service that would connect London, Birmingham and a host of Northern cities including Leeds, Sheffield and Manchester.
This will be accompanied by HS3, which is expected to dramatically slash journey times across the North - it is thought that Manchester to Leeds will be travelable in just 30 minutes. Improvements such as these bode extremely well for the development of Northern cities. By cutting travel times between the major cities, start-up owners will find it easier than ever to conduct business, which can only lead to growth.
Richard Mercer, co-founder of Parcel2Go.com (one of the foals!), believes that improved transportation will be key to attracting more people:
“Improved transportation will be fundamental to the Northern Powerhouse plan, and key to any budding business. The improvement of commuter journeys between the key Northern cities of Liverpool, Leeds and Sheffield into Manchester will give start-ups much better access to talent pools across the region.”
Cost of living - The wages may be smaller in the North compared to the South (the average in Manchester is approximately £476 per week compared to £870 in the City of London), but the cost of living in the North is significantly cheaper. Everything from weekly food shops and petrol to houses and commercial property costs less in the North, so whether you’re looking for a new job or thinking of starting a business, the North should certainly be a strong contender on this basis alone.
Talent pools - Although this rings true for all Northern cities, there is no denying that the North West in particular is home to some tremendous universities, which every year educate thousands of talented graduates. The Greater Manchester area itself is home to four institutes of higher education, whilst Liverpool houses three. In between, there are renowned academic institutes such as UCLAN and Edge Hill; affording start-ups plenty of choice when searching for new talent to drive their business forward.
Different industries - The North is far more varied than you may have originally thought. Manchester is renowned for media and digital; Liverpool for creative; advanced manufacturing in Sheffield, energy development in Hull; and law in Leeds. Each region and city has its own specialty, and while many may see this as an increased amount of competition, it merely provides more openings to find your perfect niche.
As we have demonstrated, the amenities are there, making the North a more attractive place to live. But still, graduates are being drawn to a post-university life in the capital. Effectively, the success of unicorns in the North West is largely dependent on the success of the Northern Powerhouse. And the success of the Northern Powerhouse primarily depends on one thing: young workers staying to work for these would-be unicorns.
When asked for his thoughts on how the Northern Powerhouse will positively influence the amount of unicorns in the North West, David Grimes said a lot is hinging on its success…
“This really depends on what the vision for the Northern Powerhouse is and how it will play out – a lot of the initial proposals have already been watered down so we’re slightly sceptical that it will amount to much practical change. The new Greater Manchester Combined Authority has more chance of influencing some of the factors that will affect the rise of future unicorns, namely transport and housing. The theory is that the Northern Powerhouse project will attract investment in science and innovation, which would certainly be welcome and ought to have a positive influence but it’s very early days yet.”
According to figures from the Office for National Statistics, more than 66,300 people in their 20s moved out of Northern England in 2013, whilst only 42,500 moved in.
The report concluded that, unless this shift in workers was addressed and rebalanced, then the government’s Northern Powerhouse plans could be scuppered.
Jon Turton, Partner at KPMG in Leeds, said he believed that the loss of young graduates to the capital would be disastrous to the Northern Powerhouse:
“This is the biggest issue facing the Northern Powerhouse. How do you attract and retain people in their 20s and 30s? You cannot rebalance the economy unless you rebalance the population.”
So what can start-ups be doing to entice young and ambitious people to stay up North?
David Grimes (MPD Group) says that the North needs to step out of London’s shadow:
“I would try and ride the wave of people being priced out of London and looking for a better quality of life. To attract the best talent, they need to believe that the North West is not inferior in terms of quality of companies and meaningful roles. The North West needs to lose the provincial chip on its shoulder and think of itself as a global region in its own right, not a second-best London.
“North West companies should continue to promote their employer brands, build innovative products that attract investors and invest in good governance and leadership. A few more industry summits, expos, etc. in the region might help open a few eyes. Promoting the region effectively should also be a KPI for the new Mayor of Greater Manchester.”
Katy Lomax, Chief Marketing Officer at Zuto (another aspiring unicorn) says that businesses need to do more to inspire…
“If you’re going to find the right candidates to make your business fly, it’s about offering far more than competitive salaries and flexible working arrangements. You’ve got to tell them your story, share with them your vision and show them the impact they can have, not just for your business but the wider industry that you operate in. Solving problems and being able to disrupt a marketplace is exciting - the right candidates will see this from the outset so it’s important that you show a candidate not only how they can be rewarded but what they can achieve.
“Foal companies have a rapid trajectory and for a potential employee this provides an abundance of fresh and exciting challenges. The outtakes are: a great working environment, excellent career development and an impressive set of achievements for your CV.
“These foal businesses have one thing in common; they have a desire to find a better way to do things and understand that collaborating and sharing ideas is key to growth. There’s an overlying feeling of bravery here and I think this gutsy attitude is a breeding ground to success.”
Steve Thompson, Managing Director of Forward Role, believes that lack of internal talent limits business growth…
“what makes these high growth organisations stand out from the crowd is their approach to hiring the brightest talent in the market to drive their business. We’ve worked with AO.com and many of the brands in this report on strategies to reach, recruit and retain talent to the region from across the UK that is crucial to the growth of their business.”
“In the tech and digital space, where good candidates are in short supply, not being able to attract the best talent can limit growth. The businesses who are winning the battle for talent have a multi-channel, ‘always on’ approach to recruitment and a corporate vision that potential candidates can really connect with.
John Roberts, founder at AO.com calls his staff the business’ ‘ultimate differentiator’ and they are a business that realised early that to fight for the best people in the digital and tech space, you need to create a culture that engages staff and makes external talent want to be part of it.”
How to become a unicorn
The thought of setting up a business with the goal of it being worth more than $1 billion in just a few years’ time will seem like a daunting task to even the most ambitious entrepreneurial minds out there. But did you know that, on average, it takes just eight years to achieve unicorn status? To put that into some perspective, Pinterest was started only six years ago, and is now thought to be worth $11 billion. So the feat, whilst certainly scary, is clearly achievable.
So what does it actually take to build a unicorn? An idea? Yes of course. Investment? Naturally. But let’s dig into some of the research conducted by GP Bullhound to see what they say is the perfect formula for becoming a unicorn and, we’ll hear some thoughts from business experts who have the real-life experience of running an organisation in the North West.
Choose your sector wisely
The first finding was rather predictable: the biggest sectors, and those with the strongest chance of achieving unicorn status, were eCommerce, Software and Marketplace. Each of these sectors took up 20% of the total number of unicorns in Europe. However, don’t be put off - the fastest growing area was Fintech, so if you’re looking to hit the all-important $1 billion mark, you could have just found your market!
Age is just a number
More than 58% of European unicorns were founded by entrepreneurs in their 30s or, more specifically, by entrepreneurs aged between 35 and 40 years old. Now, this isn’t a hard and fast rule. So if you have a fantastic idea in your 20s that meets a demand, have the funds (and at least potential to access them) and a great team around you, then by all means, chase that unicorn!
But growing your business from the ground up to being worth more than $1 billion is about so much more than that. You could meet all the criteria above, theoretically tick all of the boxes that you need to, and you still may not reach the coveted goal of unicorn status. So what do our experts suggest?
Find your niche
If there’s one thing that all unicorns across the world have in common, it’s that they identify a need and meet a demand that wasn’t being catered for. Take Uber for example, now considered to be a ‘decacorn’ (valued at more than $10 billion) which filled the gap in the market for a quick and easy way to order taxis. Another example is Airbnb, which allows homeowners to rent out their spare rooms and entire dwellings to holiday goers at their own price.
So while it is important to choose your sector wisely, and as we’ve mentioned, some have more success in becoming unicorns than others, don’t discount an idea simply because it doesn’t lie in the Fintech category!
David Grimes gives a few of his pearls of wisdom for unicorn-hopefuls:
“Spot the market need before the market itself. Learn the art of attracting investment. Employ top people before you can really afford them. Be smart with your PR. Be prepared to work very, very hard. And never be afraid of failure.”
Build your team, and trust them!
Any business worth its salt is built on good people who love the business, are 100% invested in it and will do anything to see it reach its goals. In the early stages of your business, these will be your founding members. So if, at your first ever board meeting, your vision is to achieve unicorn status, keep that alive and never ever forget it. Ensure that every single one of your founding members and any staff that join you are committed to that goal. Lean on them for support and no doubt you’ll achieve it.
Katy Lomax believes that the people around you are the key to business success:
“Trust your gut and build a team of people around you who both buy into your company’s culture and have a shared desire to change things. I’d also recommend celebrating success as it happens. It’s important to take stock of every milestone and remind your workforce of what an incredibly exciting journey you’re on… at every opportunity!
“Companies that grow quickly have brave and inspirational people at the helm, who spend a lot of time talking and being seen by their workforce. Seeing passion from a senior executive is incredibly motivational and makes the people around you want to achieve good things.”
According to GP Bullhound, three unicorns are born every single year. And, there is no reason why your business couldn’t be joining the ranks in as little as a decade. Or even less if you have a killer idea, a dedicated team, the ability to craft the perfect investment pitch and, it goes without saying, a little bit of luck.
You’ve heard what the experts have to say and one thing’s for certain; those who have their sights set on becoming a unicorn should certainly not feel restricted to the London area, simply because that’s where everyone else goes or they believe that’s where the biggest opportunities are.
Amazing things are happening outside of the capital and should not be ignored. With all of the buzz surrounding the Northern Powerhouse, there is little doubt that the North is the place to be for budding businesses of all shapes and sizes.
Forward Role Recruitment work with a number of North West unicorns including AO.com and Boohoo.com, and half the foals in the GB Bullhound list; including the likes of Missguided, Response Tap and Parcel2Go.com.