About that UK digital biz renaissance? Not so fast

Guest Opinion The Gibson Index business database has been surveying UK businesses since 2003. Here, founder Marcus Gibson explains why the Tech City quango’s "Tech Nation" survey touting the success of "digital" Britain is deeply flawed.

The Tech City quango last week claimed to conduct the "first national" survey of the UK’s digital businesses, covering 2,000 companies, according to a report in the Financial Times. The quango’s survey drew on a youthful database firm DueDil, run by US-born, Groton-educated Damian Kimmelman, and it makes a number of questionable methodological assumptions.

Although Kimmelman does not list it as a source, the report appears to be based on the number of new companies being registered at Companies House. This is a dangerous move, and one that is avoided by experienced trend-watchers. Why? Many firms give the address of their accountant or lawyer, or the owner’s home address – not their office address. (The Register is based in London, but its administrative address for Companies House purposes is in Southport).

Secondly, tens of thousands of foreign-born individuals have registered themselves as companies in order to buy UK homes and avoid stamp duty. DueDil’s own survey of immigrant-founded startups a few years ago listed more than 600 new firms in the Reading-Bracknell area started by German nationals – though we couldn’t find any evidence of any dramatic surge in new companies there. It makes geographic surveys hazardous if not impossible.

In addition, no one can tell how many staff these companies actually employ: the vast majority are one-man bands. The task of even defining a "digital" firm at Companies House is problematic, not least because of its continued use of obsolete SIC codes.

Policy-based evidence making

Around 40,000 digital and media students graduate from UK universities each year. Many a spotty youth in his back bedroom has registered himself as a company – but this is most certainly not evidence of a digital boom, as claimed by the Tech Nation report. The survival rates of most micro-SMEs are probably less than three years. Furthermore, many old-style web services firms have changed their names to reflect a wider range of digital media activities to clients – but zero new jobs were created.

The dependence of new company registrations has led the report’s authors to make some schoolboy errors. First and foremost, Bournemouth is famous for its call and contact centres – but it is most certainly not the glowing, bubbling digital hub Tech City claims it to be. The report claims there are “9,350 digital employees” in Great Malvern, a small town in Worcestershire, when the maximum figure is below 3,000, unless you include every council employee who sits in front of a PC. The 12,000 claimed for the city of Hull is, again, illusory. The numbers linked to Sunderland’s Software City, not named in the report, are much more significant.

The report received instant, fulsome praise from David Cameron as certain proof of a burgeoning economy ahead of the election. Joanna Shields’ appointment to a peerage in the House of Lords in 2014 was greeted with incredulity by some observers in the IT industry. Had David Cameron not met any of the many talented British female entrepreneurs in the digital world?

So where are the real, the strongest growth zones in the UK?

Where’s UK plc’s real startup growth?

Our research pinpoints districts such as north Hampshire, where companies including low-cost airline software firm Damarel, and fintech firm Albany Software, recently snapped up by US firm Bottomline Technologies Inc, are based.

Cheltenham-Gloucester is also alive, not least because of its proximity to GCHQ. The Tech City report omits Nottingham and Leicester, amid a yawning digital "desert" on its map that stretches from Cambridge to Sheffield.

Thankfully, Gibson Index datasets stretch back to the days of the DTI in the mid-1990s – and include, for example, all of the high potential companies that won Smart Awards, and are not dependent on any artificial, misleading feed of “new” firms.

Modestly, we can claim to have been the first to have spotted the rise the south Oxfordshire cluster around Sophos plc 15 years ago. More recently, we noted the rapid media and revolution that occurred in Bristol-Bath after 2003 – but only by following the rise of individual companies and networks rather than via Companies House. This occurred partly because Bristol University finally grasped the nettle of innovation and enterprise under its then new vice chancellor, Eric Thomas. In partnership with the SETsquared network it began creating serious, professional spinouts.

Digital er, ... decline

The report claims that digital employment will rise by 5.4 per cent to 2020. In fact, digital employment, however it is defined, is probably static or in decline, owing to the disappearance of many hundreds of website development companies that were solely dependent on the once fat fees of local councils under Labour, or the collapse of games software companies, or from cutbacks at call centres and the rapid rise of automated services in banking and financial services.

The report proudly claims that “Tech City has become one of the UK’s greatest success stories". While the growth of the fintech software sub-sector has been exceptional, in most cases the turnover figures for most Tech City firms – perhaps 400 serious entities in total – are a lot less than the burgeoning food and drink manufacturing sector, many of whose firms are also based in east London.

Next time there is a government-backed digital survey of the UK, it might be best to deploy British-born researchers who really know and understand the complexities and oddities of the SME landscape as well as its trends and capabilities in depth.