Scale-ups are the heavy lifters of our economies. These fast-growing firms – defined as those that expand by at least a third in three years1More precisely, are firms with at least 10 employees that grow in employment or turnover at an average annual rate of at least 10% over a 3-year period. – create many times more jobs and new sales than would be expected given their share of the business population.
In OECD countries, scale-ups typically account for the majority of job creation by non-micro SMEs, despite making up less than 20% of the population. They also punch above their weight in terms of innovation, with scalers employing up to 40% more research and development workers than their peers.
Taking different paths
Some scale-ups innovate, bringing new technologies, products, services and business models to market. Others expand through new investment in capital, skills or intangible assets. A third route is reaching new markets through network expansion. They also have very different needs.
Scale-ups are a broad group, encompassing a huge range of company types across a variety of different sectors, from established construction companies to life sciences start-ups.
These businesses often have little in common besides their impressive growth performance. With these contrasting company profiles come vastly different policy needs.
The OECD’s recent work with the Danish Business Authority (DBA) has shed new light on the diversity of scale-ups across Denmark’s key industries. Scale-ups in Denmark’s advanced production sector employed, on average, 89 people in 2019, with an average turnover of DKK 368 million (EUR 49 million). In contrast, the average scale-up in the food and bio resources sector was around half the size, with 48 employees and a turnover of DKK 193 million (EUR 26 million).
There are also marked differences in the age at which firms scale up in different sectors. In advanced production, just 4% of scale-ups were aged less than six years old, compared to a figure of 13% for the food and bio resources sector. The prevalence of scale-ups also varies widely. More than one in twenty advanced production companies in Denmark were scale-ups in 2019, which is four times the share observed in the food and bio-resources sector.
The size of a typical scale-up varies
considerably across sectors
Source: Statistics Denmark, OECD
Differences between sectors the policy needs
The advanced manufacturing sector is characterised by large capital investment requirements and a long road to market, particularly in deeptech and hardtech. It took nearly five years for Tesla Inc (now the world’s largest car manufacturer by market cap) to begin selling its electric cars to customers.
These factors mean that manufacturing start-ups often require patient capital in order to scale. Meanwhile, the origins of many life sciences scale-ups can often be traced to cutting-edge research in academic labs. Taking these discoveries from lab to boardroom is, however, riddled with difficulties including complex IP ownership arrangements and weak ties to finance or industry.
For scale-ups in life sciences, policy support is essential for enabling academics to commercialise their research. In the food sector, scale-ups often require access to testing facilities and support in helping them to navigate the extensive regulatory hurdles associated with, for example, the development of new proteins or cell-based foods.
The diverse characteristics and needs of scale-ups means that governments must tailor policies for scale-ups across different sectors. The OECD’s work with the Danish Business Authority identifies many inspiring policy initiatives that adopt a sector-led approach to scale-up promotion, often delivered by dedicated organisations capable of providing bespoke support.
Cluster management organisations (CMOs) can play an important role in identifying and responding to the specific barriers faced by scale-ups in different sectors, building networks, and brokering collaborative projects. Denmark’s 13 national cluster organisations, each of which is dedicated to a particular sector stronghold or emerging industry, can provide specialised support to start-ups and scale-ups in different sectors.
Mission-driven partnerships that bring together key stakeholders to collaborate in order to achieve a common mission, building on local strengths and opportunities, can create a favourable environment to scale up businesses. An example is Denmark’s Lighthouse Life Science, which was launched in 2022 and is one of eight local business lighthouses in Denmark. The Life Science Lighthouse projects take a starting point in the Capital Region of Denmark, which is internationally recognised for its life science strengths.
This provides a unique opportunity to create a favourable environment for innovative healthcare solutions developed across private companies, the healthcare system, start-ups, research environments, knowledge institutions and public bodies. In the long term, the projects will be broadened to cover all of Denmark, with solutions developed for use in a variety of chronic disease areas.
Public entities can also issue tenders or offer grants for the development of innovative technologies that address a problem or need in a particular area, allowing innovative scale-ups to obtain first customers and supporting them in the demonstration and commercialisation of their products. Denmark’s Technology Development and Demonstration Programmes provide a good example of how government ministries can stimulate innovation and support scale-ups in specialised areas.
Further sector-driven policy approaches being deployed internationally include support for specialised incubators and accelerators and the provision of dedicated testing facilities, piloting facilities and regulatory assistance. The thread that ties these initiatives together is a recognition that the unique characteristics and circumstances of scale-ups in different sectors requires the use of precise and targeted policy instruments that complement broader scale-up policies.
Scaling up policies
Experimentation with scale-up policies is underway in OECD countries, and many lessons will be learned over the coming years as pilot policies are themselves scaled up. Yet if they are to succeed, policy makers must ensure that policy solutions are designed and tested to meet the very different needs of scale-ups in different sectors.
Read more on the OECD Scaling-up project.