Amid the gloom of the past 18 months, one sector of the U.K. economy could reasonably have been expected to prove more resilient. Many technology sector businesses should have been in a better position to confront challenges such as the move to remote working. And the sector was well-placed to benefit from the imperative for accelerated digital transformation across the rest of the economy.
The good news, shows new research, is that many U.K. technology companies do appear to have weathered the storm, growing strongly over the past two years and making significant increases to headcount. But that picture is far from universal, with some technology companies stagnating or even shrinking during the crisis.
Figures compiled by Beauhurst, the market research analyst that specializes in tracking high-growth young businesses, and the recruitment specialist Spinks show the average technology startup in the U.K. increased its headcount by 28% between 2019 and 2021. Larger, more mature scale-up technology companies increased staffing by an average of 11%.
However, these figures are potentially misleading. Beauhurst and Spinks also reveal that 56% of startups and 37% of scale-ups have not grown or have even contracted in size. In other words, most of the growth in headcount has come from a smaller cohort of technology businesses that have accelerated rapidly.
Henry Whorwood, head of research and consultancy at Beauhurst, points out that startups and scale-ups face different challenges when it comes to recruitment.
“Finding and securing both senior and junior hires for a company that is just starting out, pioneering new-to-market technology, and taking a high degree of risk can be trialling,” he says. “Alternatively, the test for scale-ups is making the recruitment process scalable, maintaining and developing an outstanding company culture during a period of marked growth.”
In that context, startups considering hiring over the past 18 months may have decided to be more risk-averse given the challenging environment. Scale-ups may have questioned their scalability and consistency during the uncertainty.
Some sectors and regions have seen more confidence than others. Among startups, businesses in the challenger bank, quantum computing, open-source, and legaltech sub-sectors have reported faster growing headcount rates. Startups in London and Scotland have grown particularly quickly.
As for scale-ups, London and Scotland have also led the way, with businesses in areas including artificial intelligence, fintech and big data reporting particularly strong recruitment.
What does all this tell us about the state of the U.K.’s technology sector? Well, we know that investment in technology companies has continued over the past 12 months—including record investment by some measures during the first quarter of the year—and it is now clear that headcount has continued to rise at many businesses too. This, after all, is precisely why many companies raise funding.
Equally, however, it would be a mistake to assume that all technology businesses have come through the pandemic unscathed. The data is patchy to say the least—many of these firms are not growing at all, or even contracting. Further support for the sector is going to be vital.
One final thought. Beauhurst and Spinks have also crunched the numbers on gender diversity in the technology sector—an area where there has been persistent criticism of businesses’ failure to recruit more women.
The bad news here is that the picture does not seem to be improving. According to the research, 57% of technology startups have no women in the C-suite or among their heads of departments. Just 15% of startups have women in more than half of their decision-making roles; among scale-ups, the figure is only 5%. Plenty more work to do here.