Is your next-door SME scaling up?

Selling coal to Newcastle is perhaps no longer the idiom it once was, but some remain as relevant today as always, or perhaps not. Selling American cuisine in Italy for example probably won’t appear at the top of your list of business ideas. However, in 1997, Fabrizio Fasulo Holthausen and Stefano Sgarella did just that, and successfully, recognising that “no niche is too small if it is yours” (‘Seth Godin’), when they created Fine Food Group, a small Italian business specialised in Mexican and American cuisine.  Their business first reached maturity and then the company entered a phase of rapid growth. Between 2015 and 2017, the number of employees grew from 21 to 38 and the sales increased from around 18 million to 27 million euros.

A “fine” success story and a typical scaler

The success story of Fine Food Group isn’t that of a glitzy high-tech start-up typically featured in business magazines and investment blogs. The new OECD report Understanding Firm Growth: Helping SMEs Scale Up shows that its storyis nonetheless more representative of a typical scaler – a firm with at least 10 employees that grows by at least 33% within three years – than that of a high-tech start-up.

OECD analysis shows that these “next door” SMEs account for the majority of new jobs in the economy. Between 2015-17, scalers accounted for close to 15% of all SMEs with at least 10 employees in Finland, Italy, Portugal, the Slovak Republic and Spain. Over the same period,they contributed 47% (Italy) to 69% (Finland) of additional jobs created by all growing SMEs with at least 10 employees. Indeed, the Fine Food Group is just one of 16 000 Italian scalers that created more than 427 000 jobs.

Critically, and again challenging the common perception, the typical scaler is not a new company but one that operates for several years before scaling up. The Fine Food Group, for example, scaled up in its second decade of activity. Indeed, evidence from the OECD shows that about three-quarters of scalers are mature SMEs that started operating at least six years before the beginning of their high-growth phase. Despite young SMEs having a higher propensity to scale, only one in five SMEs is a young firm, thus they represent a minority of all scalers.

The sector in which the Fine Food Group operates also makes it a typical scaler. Import and delivery of food is classed as a “less-knowledge-intensive service”. Many SMEs belong to this group – around 40% across the five countries studied in the report– and provide consumer type services  such as retail trade, repair of motor vehicles, transportation and accommodation. Given their large weight in the economy, SMEs in “less-knowledge intensive services” also account for the majority of scalers. As is the case for mature firms, their larger number compensates for their lower probability to scale up. SMEs providing “knowledge‑intensive services” such information and communication activies or legal and accounting activities have the highest probability to scale up (up to 23% in Finland). But as with young firms, “knowledge‑intensive services” only account for between 9% and 20% of SMEs across the five countries, and thus represent a small share of scalers overall.

What can the Fine Food Group teach policy makers?

Across OECD countries, policies that support SMEs to scale up often target a small subset of SMEs such as recent start‑ups that enter their initial growth phase. Sometimes targeting is implicit and support is blended with other policies, such as innovation, entrepreneurship or equity finance policies. In practice, this means that the small group of young and high-tech businesses that have a high propensity to scale up are those with best access to support measures. However, these policies may have little impact on businesses like the Fine Food Group, which may not formally invest in innovation and may privilege debt finance over equity. Scale-up policies should also target this larger group of SMEs.

The evidence suggests that interventions tailored to their specific needs are effective, such as promoting management training for SMEs leaders or avoiding sharp discontinuities in the regulatory burden on firms when they reach a given size. Noting that Italian diners occasionally crave tacos with guacamole instead of truffle risotto, some future or potential scalers may require broader policy support from governments than that currently available to them.

The majority of scalers are older firms that have operated for more than 10 years

Share of employment scalers in all scalers by age category
Note: Employment scalers are firms with 10 employees or more that grow in employment by at least 10% per year. The sample includes scalers that end their first 3-year scaling period between 2011 and 2015 in Finland, 2004 to 2015 in Italy, 2013 to 2014 in Portugal and 2006 to 2015 in Spain.
Source: OECD (2021). Understanding Firm Growth: Helping SMEs Scale Up. OECD Studies on SMEs and Entrepreneurship, OECD Publishing, Paris, https://doi.org/10.1787/fc60b04c-en.
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Economist at | Website

Carlo is an Economist at the Economic Analysis, Data and Statistics Division of the OECD Centre for SMEs, Regions, and Cities. His areas of expertise are micro-data analysis, business dynamics, innovation, regional and urban economics, and policy evaluation. Carlo first joined the OECD in 2011 and also held positions at the Central Bank of Italy and at Laterite, a fast-growing research company operating in East Africa. He authored several highly cited academic publications and OECD working papers. Carlo holds a PhD from the London School of Economics and Political Science, UK, and graduate and undergraduate degrees in Economics for the Ca’ Foscari University of Venice, Italy.

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Junior Economist at | Website

Lenka Wildnerova is a junior economist at the Economic Analysis, Data and Statistics Division of the OECD Centre for SMEs, Regions, and Cities. Her work focuses on the analysis of firm performance using firm and employee data. She holds a PhD degree from Universite Paris-Saclay in international economics.