Are we creating too many technology companies? A look at Scottish IT and Telecoms companies

Introduction
Company Connecting works continually to ensure that the data it holds on IT and Telecoms companies is relevant and up to date. This means Company Connecting constantly adds new companies and checks periodically for dissolved and dormant companies. Our registered users also continue to review and update their company details. 
 
In its recent research Company Connecting noticed a surge in the creation of IT and Telecoms companies in the Companies House data, combined with a high level of dissolved companies, and a corresponding reduction in the % of ‘real’ companies i.e. those which have a website rather than contractor companies.
 
The number of companies created is used as an economic indicator by the Government, but it is not clear which factors are applied to check the relevance of these companies. The “Increase the number of businesses” indicator (http://www.gov.scot/About/Performance/scotPerforms/indicator/businesses ) is a measure of the number of VAT/PAYE registered private sector enterprises. However, in the areas of IT and Telecoms, this is likely to include many contractor companies who will be VAT registered. The number of IT and Telecoms created has grown considerably year on year, with a marked increase from 2015 to 2017. The Company Connecting research shows that although the number of companies created has grown considerably, that the % of these which are ‘real’ companies has dropped – so the value of the “number of business indicator” is questionable. 
 
The sections below outline the historic and recent research carried out by Company Connecting.
 
Investigating the reality of Scottish Technology companies
Company Connecting was launched to provide detailed information on IT companies. This was because of research carried out by the founder of Company Connecting, Janice Grant Shaw, who discovered that it was impossible to get a list of ‘real’ tech companies i.e. those working in IT, telecoms and IT related areas such as Artificial Intelligence data etc.  Searching Google provided a skewed view as any search depended on the quality of a company’s website. Business Gateway and Scottish Enterprise provided lists of companies, but these were based on SIC codes  taken directly from Companies House which meant that the list included only a small % of real companies. 
 
Technology needs are increasing across all sectors, businesses and organisation which means that information on IT and Telecoms companies, the available skills, the sectors they service, company size etc. are essential for business and economic growth. Company Connecting was launched to:
 
  • Develop a method to research and categorise IT and Telecoms companies
  • Provide the information on IT and Telecoms companies
  • Enable greater collaboration
  • Help to raise the profile of tech companies 
  • Connect businesses with the tech and skills needed to maintain and grow their business
The original research checked almost Scottish 9,000 companies of which 25% were identified as ‘real’ companies. These were categorised according to several factors e.g. size, location, skills, sectors, focus, etc. and the information was augmented by the companies registering with Company Connecting and updating their company information. (Registered users can explore anonymised company information via the Company Connecting search www.companyconnecting.com)
 
Company Connecting has researched 90% of the Scottish IT and Telecoms companies. It has also researched companies in other areas of the UK e.g. North East England, Cambridgeshire etc. (See https://companyconnecting.com/news/map-uk-it-and-telecoms-companies-comp... for a map of the IT and Telecom companies on Company Connecting). This article concentrates on the research into the Scottish Companies.
 
Overview of Scottish Technology Companies formed since 2000
In our continuing research into new companies, Company Connecting identified a considerable increase in the number of IT and Telecoms companies formed since 2000. The graph below provides an overview of the companies.
In our continuing research into new companies, Company Connecting identified a considerable increase in the number of IT and Telecoms companies formed since 2000. The graph below provides and overview of the companies.
 
  • The “created”  companies are those companies registered with Companies House with SIC codes appropriate for IT and Telecoms companies.
  • The “real” companies are the companies Company Connecting has identified as an actual company, with a web presence.
  • The %  is the % of “real” companies identified by Company Connecting from the Companies House data.
It is clear from the graph that the number of IT and Telecoms companies registered with Companies House is growing rapidly. However, the % of ‘real’ companies has dropped considerably, as has the actual number of ‘real’  companies formed per year. 
 
This will be partly due, to some of the companies being at too early a stage (particularly those formed in 2017) i.e. in startup mode and not fully launched.  Nevertheless, it seems there is a definite trend of an increase in the number of companies and a corresponding reduction in “real” companies
 
Research into recently formed Scottish Technology companies
We decided to take a closer look at the companies formed between October 2014 and June 2017 inclusive. We identified 4050 companies in Companies House, and we researched 2425  of those companies.  
 
The pie chart below provides details of the status of these companies. Only 11% were ‘real’, 29% were either dissolved or dormant, and 59% were classified as ‘other’ i.e. no information, freelancer etc.
Company Connecting looks at the companies formed between October 2014 and June 2017 inclusive. We identified 4050 companies in Companies House, and we researched 2425  of those companies.   The pie chart below provides details of the status of the
 
Company Connecting investigated the companies classified as ‘other’ in more detail. We were able to identify 29% of the companies as probable vehicles for contractors. This figure is likely to be higher, but any further research will require considerable effort. We could find no further information on 57% (812) of the companies, and the remainder of the classifications can be seen in the pie chart below.
 
We investigated the companies classified as ‘other’ in more details. We were able to identify 29% of the companies as probably vehicles for contractors. This figure is likely to be higher, but any further research will require considerable effort. We coul
 
Are we creating too many Companies?
There are undoubtedly many different answers and perspectives to the original question “Are we creating too many companies?”  The views of the Company Connecting team are:
  • Government and other organisations should be cautious of using the SIC Code classification in any statistical reports or comments on the growth of technology companies. As can be seen from the graphs above the use of raw stats from Companies House is likely to be misleading.
  • It would make life much easier if there was a SIC code classification for companies which are purely vehicles for contractors. We would then have a better view of ‘real’ companies 
  • The high rate of recently dissolved and dormant companies indicates that perhaps it is too easy to create a company.
  • Is part of the reason for the high number of companies because we are moving towards a ‘gig’ economy – see the comments on the LinkedIn  post, posing the same question https://www.linkedin.com/feed/update/urn:li:activity:6404268122974535680
What do you think? We would be delighted to get feedback. You can contact us via the comments section on this article or via the contact details below.
 
Next week Company Connecting will publish an article and infographic with information on the size, skills etc. of recently formed companies.
 
[1] SIC Code: Standard Industrial Classification used by Companies House to describe the nature of company’s business
[2] We noticed during our research that certain SIC codes had a very low % of real companies. So we carried out a ‘triage’ system, and concentrated our research on those companies most likely to have ‘real’ companies

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"Are we creating too many technology companies? A look at Scottish IT and Telecoms companies"First published on Company Connecting May 2018

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