Tiny IT firms generating £77,000 per head

Programming and consultancy companies specialising in IT are among the UK’s top ten fastest-growing sectors of micro-business in terms of employment, a report shows.

Such ICT firms are also inside the Top 20 (they are ranked 15^th) for their ability to create revenue growth, found the Royal Society for the encouragements of Arts, Manufactures & Commerce (RSA).

According to the RSA’s analysis of business population estimates for the past four years, the average revenue per employee of an IT micro-business is £77,000.  

Although this is lower than the average revenue per employee in the IT sector as a whole (£151,000), it means tech micro-firms turnover more per head than legal and accounting micro-businesses do per head (£65,000).    

The report adds that technology itself is a “key factor” behind the increasing viability of all the UK’s five million micro-businesses (up from 3.4m in 2000), who currently represent a third of private sector employment.

Evidencing its claim about technology, the RSA pointed out that the price of high quality computing, storage and internet bandwidth has plummeted, bringing down the cost of setting up and doing business.

Helping enterprising types further is the “diminishing running costs” of a business, partly thanks to ‘plug and play’ models in communications ("Skype"), advertising ("Google") and contracts and hiring ("PeoplePerHour").

It is also thanks to the capability of the internet (without which one in three micro-businesses say they would not have launched), to “open up global markets to fledgling business-owners.” Examples cited in the report include Etsy, Airbnb, JustPark, Zopa and Uber.

Increasingly sophisticated machinery and transport are the other tech factors which RSA identifies as bringing about the ‘second age of small’ businesses, but there are ‘non-tech’ factors too such as better education/awareness to ‘go it alone’ and government policies.

However not everyone has regarded the rise of one-man bands and their micro-businesses as “a good thing,” and the society appears to be sympathetic to this stance.

“We began this report by asking whether micro-businesses are a drain on the UK economy as many perceive them to be. On the surface, the answer is yes.

“A cursory analysis of the data reveals that small businesses are on average less productive, produce fewer innovations, and do not create the high-paying jobs that large businesses often can.”

But “a more nuanced picture” emerges upon closer examination, showing such small traders to have relatively high levels of productivity in some of the fastest-growing industries.

The RSA adds: “On innovation, too, micro businesses perform better than some believe. They may invest less in conventional R&D, but evidence suggests they are well-placed to engage in ‘intangible’ innovation – the creation of new concepts, experiences and designs”.

With this in mind, policy-makers and other groups should not “fret over their rise” but, instead, should find the answers to how micro-businesses can “scale up” in a “business spectrum where oligopolies are becoming more commonplace.”

The RSA offers some answers of its own – among them; increase access to finance, address certain ‘psychological factors’ that keep small firms small, and explore the ‘acquire-hire’ trend – defined as where large firms buy out smaller ones for their talent.

“In 2014 alone Google reportedly acquired 29 smaller tech companies,” the RSA explained. “More research is needed to understand the positive and negative implications of this phenomenon.”

Quite apart from such talent acquisition, micro-businesses actually need financial support with talent development, believes the Association of Independent Professionals and the Self-Employed (IPSE).

Reflecting on the RSA report, IPSE’s chief executive Chris Bryce said: “Developing new skills is… often trickier than it should be for those running their own business. This is because of the way the tax system treats training for the self-employed.

“Making training for new skills tax-deductible would provide a real boost to those entrepreneurial individuals looking to grow their business and help the self-employed boost the UK’s productivity levels.”