What is CredTech ?
by Rory Traynor
Almost every business wants to partner with companies that are growing. Why? Because growing businesses not only demand more of your services but also have a higher chance of spending more in the future; this could be the driving force behind your company's growth.
In the past, predicting which businesses were poised for growth was a guessing game. While some attempts were made, such as measuring a company's venture capital intake, these methods often fell short. They overlooked organic business growth and failed to guarantee substantial expansion—a well-financed but poorly managed company could still stagnate.
This is where our Growth Propensity Score, comes in. At Red Flag Alert, we've developed a tool that accurately identifies businesses likely to experience growth. But it doesn't stop there. Our data intelligence goes beyond, offering insights into who these companies are, where they operate, and their specific industry sectors, among other valuable details.
In this article, we'll delve into why this score is a game-changer, who stands to benefit from its use and the process behind its development.
How our growth propensity score works
Our Growth Propensity Score is a powerful tool designed to provide you with unparalleled insights into the growth potential of businesses.
Each company in our extensive database is assigned a growth propensity score, ranging from 0 to 100. This score serves as a clear indicator of a company's likelihood to experience growth in the upcoming year. The scale is straightforward:
- 0 – signifies that a company is very unlikely to see significant growth in the next year.
- 100 – represents a company that is exceptionally likely to achieve substantial growth within the next financial year.
Defining high-growth companies
Our scoring methodology aligns with the Organisation for Economic Co-operation and Development's (OECD) definition of a high-growth company.
Specifically, we identify high-growth companies as those that achieve an increased turnover by 20% within a single year. In essence, a company that gains a perfect score of 100 is essentially on the cusp of achieving an impressive 20% turnover growth in the forthcoming financial year.
The crucial pass mark - 56
To further simplify the assessment, we've established a pivotal benchmark known as the "pass mark." Companies scoring below 56 on our Growth Propensity Score are considered less likely to experience significant growth.
Conversely, companies that surpass this mark are prime candidates for future growth. This pass mark provides a clear and actionable threshold to guide your strategic decision-making.
Our Growth Propensity Score empowers you with a precise and actionable prediction tool, enabling you to identify high-growth potential companies with confidence and precision. It's a game-changer that streamlines your approach to targeting businesses that are primed for success.
Who uses the growth score, and what for?
Our Growth Propensity Score caters to three primary user groups, each benefiting in distinct ways from this powerful tool.
Sales and marketing teams
Sales and marketing teams are at the forefront of driving revenue and customer acquisition.
Precision targeting for increased revenues
Data driven sales and marketing teams can harness the power of our Growth Propensity Score to revolutionise their targeting strategies. By using this score, they can compile lists of high-growth companies primed for expansion.
This targeted approach ensures that marketing campaigns and sales efforts are directed towards businesses with a high potential for increased spending. This means you can boost revenue as you focus your resources where they matter most.
Refining ideal customer profiles
The Growth Propensity Score isn't just about finding high-growth prospects; it's also a key to refining your ideal customer profiles.
Sales and marketing teams can find common characteristics shared by high-growth companies within the sectors they serve. By analysing these features, they can adapt and fine-tune their ideal customer profiles to better align with the businesses most likely to thrive and invest. This not only optimises resource allocation but also enhances conversion rates.
Aiding marketing agencies
Marketing agencies can reap significant benefits from our Growth Propensity Score. They can identify companies that are genuinely on the rise and, therefore, most likely in need of additional marketing support.
This enables marketing agencies to tailor their services to meet the precise needs of these high-growth businesses, fostering mutually beneficial partnerships and delivering exceptional results.
Private equity firms, venture capital funds and corporate finance houses
Private equity firms, venture capital funds, and corporate finance houses are entrusted with the crucial task of allocating capital wisely for maximum returns.
Evaluating investment prospects
The Growth Propensity Score serves as an indispensable tool for evaluating the growth potential of companies seeking investment. It provides a clear and objective metric to assess whether a prospective business is on the path to substantial expansion.
By leveraging this score, financial entities can make more informed and data-driven investment decisions, mitigating risk and enhancing their chances of backing winners.
Monitoring funded businesses
Beyond initial investments, the Growth Propensity Score remains valuable. Private equity firms, venture capital funds, and corporate finance houses can use it to monitor the progress of businesses they've already funded. This ongoing assessment allows them to stay ahead of potential challenges and identify opportunities for further investment or strategic adjustments.
Optimising portfolio management
Efficient portfolio management is key to achieving superior returns. The Growth Propensity Score plays a pivotal role in this aspect. By continuously assessing the growth potential of each business in its portfolio, these financial institutions can make informed decisions about resource allocation, divestments, and strategic initiatives.
This proactive approach not only minimises risk but also maximizes returns, leading to more successful and profitable portfolios.
Local authorities and local enterprise partnerships (LEPs)
The Public sector already utilise the growth score, Local authorities and Local Enterprise Partnerships (LEPs) play a pivotal role in nurturing the economic well-being of their regions.
Local economic insights
Understanding the local economy is a fundamental task for these entities, and the Growth Propensity Score is their key to unlocking crucial insights.
By leveraging this score, they gain a comprehensive understanding of which sectors or specific areas within their jurisdiction are most likely to experience substantial growth. This knowledge is invaluable as it guides their efforts to allocate resources effectively and stimulate economic development where it's needed most.
Strategic allocation of resources
Armed with insights from the Growth Propensity Score, local authorities and LEPs can make data-driven decisions about allocating additional funding or support to businesses within high-growth sectors or areas. This strategic investment not only benefits individual companies but can have a ripple effect throughout the local economy.
Supporting these businesses often leads to increased job opportunities, enhanced innovation, and greater economic activity, ultimately benefitting nearby industries that collaborate or provide services to these high-growth companies.
Spurring regional economic growth
The Growth Propensity Score is a powerful catalyst for regional economic growth. By identifying and nurturing businesses with the potential for significant expansion, local authorities and LEPs contribute to the overall prosperity of their communities. For example in the Yorkshire economy.
As these businesses thrive, they create a positive domino effect that energizes the entire region, bolstering employment, attracting talent, and fostering a vibrant business ecosystem.
How we created the growth propensity score
The development of our groundbreaking Growth Propensity Score was no small feat. It required data analysis, refinement, and insight extraction to create a tool that accurately predicts future growth. Here's a step-by-step account of how we achieved this:
1. Building a comprehensive database
We initiated our journey by constructing a comprehensive database of company data, spanning four years of financial accounts for each business. This extended timeframe allowed us to capture a holistic view of a company's financial performance, mitigating any short-term fluctuations, including those brought about by external factors like the pandemic.
2. Data cleansing for precision
Data accuracy is paramount. We cleansed the data to ensure its reliability and accuracy. This step was crucial in laying the foundation for precise analysis and insights.
3. Segmentation for targeted analysis
To differentiate between high-growth companies and others, we segmented the businesses within our database. This categorisation enabled us to focus our analysis on discerning the common characteristics that set these two groups apart.
4. Identifying differentiating features
Our data analysis journey was marked by the identification of key characteristics that differentiated high-growth companies from the rest. These insights formed the basis for our scoring model.
5. Scorecard creation based on total assets
We divided the companies into six distinct scorecards, grouping them based on their current total assets. This strategic division allowed us to tailor our scoring criteria to the unique attributes of each group.
6. Refinement for statistical significance
To ensure accuracy, we carefully identified which characteristics would differentiate each scorecard. We retained only those scoring factors that were statistically significant and distinct, removing any that did not meet these stringent criteria.
7. Establishing pass marks
For each scorecard, we established pass marks. This step laid the groundwork for calculating the standardized pass mark of 56, providing a clear benchmark for assessing growth potential.
8. Crafting informative score bands
With the standardised pass mark in place, we formulated distinct score bands that categorize companies based on their Growth Propensity Score. These bands include "Most likely to grow," "Likely to grow," "Unlikely to grow," and "Least likely to grow," offering users a clear understanding of a company's growth potential.
Our Growth Propensity Score is the culmination of this rigorous and data-driven process, designed to empower businesses with a reliable tool for making strategic decisions, targeting high-growth prospects, and achieving remarkable success in a dynamic business landscape.
Testing our model
In our comprehensive testing of the Growth Propensity Score here at Red Flag Alert, we've examined a vast dataset of 648,282 companies. The results we've uncovered are compelling and serve as a testament to the efficacy of our model.
During our analysis, we made a noteworthy observation:
- Companies that received a score of 0 showed no indication of having increased their turnover by 20%.
- Conversely, every company that received a perfect score of 100 demonstrated a remarkable 20% or higher increase in turnover.
These findings provide strong evidence that our scoring system offers an exceptional level of certainty. This is a key differentiator, as it outperforms the scores provided by many of our competitors.
Want to try Red Flag Alert for free?
Get ready to revolutionize the way your organisation targets high-growth companies with the Red Flag Alert Growth Propensity Score.
Discover how we can help your business – we provide:
- Records on over 15 million UK companies and over 350 million international companies
- Detailed and easy-to-understand company reports that contain a full picture of a company’s financial situation.
- Proprietary growth score
- Fully downloadable reports
- Fully customisable monitoring system that gives real-time alerts on up to 89 different events, so you are always up-to-date and informed.
- Search function with over 100 filters that make prospecting bespoke to your needs.
Accurately identifying high-growth companies is now a reality with Red Flag Alert. Start a free trial of our platform and see how we can help your business grow.
