The problem of moving from small to big

5 Nov, 2012

Starting a new venture is hard enough. But going from a small start-up to a much larger enterprise is even more difficult.

Growth is an issue because it is the fast-growing, young companies that create most of the benefits of entrepreneurship for society. This was the revelation of David Birch, who as a professor at MIT in 1979 coined the term "gazelles" to describe the fast-growing smaller businesses that create most of the new jobs in developed economies.

In the UK, the government is backing gazelle farms such as Growth Accelerator, a programme to provide mentoring support to ambitious start-ups with the potential to grow. The Business Growth Fund, a £2.5bn pot of investment capital supplied by the banking industry, aims to nurture this kind of growth through a similar model to that used by the venture capital industry, but with longer-term support.

Gerard Burke has advised hundreds of owner managers who have wanted to turn their companies into larger operations, firstly at Cranfield University's Business Growth Programme and then through his own venture Your Business, Your Future at Cass Business School.

The single most important factor in the growth of any business is the ambition of the founder, according to Burke. "There are about 4.8m businesses in the UK," he notes. "Of these, about 4m are one person – freelancers and self-employed people. In the vast majority of these cases, that one person had no intention or ambition to grow the business when they started it."

In some cases, individuals are so good at what they do that they get too much work for themselves to deliver alone and so take on other people, building a business almost by accident, Burke says. Occasionally, these businesses continue to thrive and grow, creating even more jobs. Such businesses tend to be "slow burners", achieving their growth over a period of years or even decades.

As a result, growth is often difficult and tends to happen in "lumps" at specific times in the overall life of the business, rather than consistently, according to Burke. There's often a surge of growth quite early on, taking it up to about 10 people, then a plateau, followed by another surge, another plateau and so on.

One of the problems is knowing which way to grow. Paul Ephremsen, chief executive of experiential marketing business iD Experiential, has found an original way of overcoming this problem by setting up new ventures within his company and seeing if they fly.

Ten years ago, he and fellow founder Paul Soanes set up Brandspace to organise promotional stands or short-term retail space in areas with high foot traffic such as airports. Soanes ran the business, and iD lent the venture £20,000. In the end Brandspace borrowed £300,000, but five years ago iD sold Brandspace for £5.5m.

Not everything has worked out. Five years ago iD formed a joint venture with a Dutch company called Say Cheese, which sent its Say Cheese girls to events with a camera and a strap-on printer to take pictures of people that they could then buy in a branded frame. Smartphones killed that business model.

However, Ephremsen has had more successes than failures. Last year, iD doubled its turnover to £12m and now employs 60 people.

World First is the UK's fastest-growing foreign exchange company, employing more than 100 people eight years after it was founded in a basement. In September it opened a new office in the US.

Jonathan Quin, the company's co-founder and managing director, has a few suggestions about why his business has been able to grow quickly. Firstly, he aims to develop the broadest range of innovative products on the market.

"Wherever possible we keep things in house, especially technology," he says. "This allows you to scale up without relying on outside systems that may or may not work the way you want them to."

He also emphasises the need to be flexible. "Plan to 80 per cent and then just run with it," he says. "Fix things along the way and don't always aim for perfection upfront."

Gritit was created seven years ago as the first business to focus exclusively on gritting and clearing snow from the roads. It has a very different business model to many companies, providing its services to customers for half of the year and spending the other six months planning.

This does require some "pretty nifty" cash management, according to Jason Petsch, Gritit's co-founder and commercial director. However, this has not prevented the business from growing to a turnover just shy of £10m.

Petsch notes that there have been multiple pain points around the £1m, £3m and £7.5m turnover marks. At each of these stages, the business has required investment, according to Petsch.

Search Laboratory, a Yorkshire-based search engine marketing consultancy, has in seven years grown its headcount to 130 staff, its turnover to £6.5m and expanded operations to 18 countries. In the past year turnover has doubled, according to new business director John Readman.

An important factor is structuring the business for growth, Readman adds.

One of Search Laboratory's first employees was an operations director whose remit included designing tailor-made processes, an organisational structure and training programmes specifically to support rapid growth, he notes.

Inspiring others is key . "Create a vision for the future of the business that will inspire other people to help you bring it about," Burke explains. "And then tell everyone your vision."

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