UK: Enterprise - Spring 2014

The Vital 6% - What Makes Fast-Growth Businesses Tick?
Last Updated: 29 April 2014
Article by Guy Rigby

THE VITAL 6%

A record-breaking 526,446 businesses were set up in Britain in 2013, according to figures from StartUp Britain, a campaign to boost entrepreneurship – far outstripping the 484,224 businesses recorded in 2012 and 440,600 in 2011.

Standing out from the crowd

Anyone starting a new business should be applauded. Let's face it, it's no walk in the park – particularly not in the early years – and for the majority of entrepreneurs the odds are heavily stacked against them.

Yet as we're all well aware, small businesses are the engine of the UK economy. They employ more people than any other type of organisation – around 14.4m, according to recent figures from the Federation of Small Businesses – with high-growth businesses generating the majority of jobs and having the most profound impact on the economy.

Around 6% (the 'vital 6%') of UK businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002 and 2008, according to research published by NESTA. These high-growth businesses – or 'gazelles' as they are increasingly becoming known – experience average annual growth in turnover of 20% or more over three years, while the Financial Times defines them as generating aggregate growth of at least 33% over three years.

So, the key question is how do you go from being a one-man band or micro-business to a high-growth business success story?

Getting from A to B

Success isn't necessarily about the type of business you're in or where you're based – high-growth businesses are spread across the UK and are represented in almost every industry sector, from consultancy and IT support to manufacturing and retail.

The essential attributes of a high-growth business are based on a number of key factors, some of which are set out below.

1. Vision

Developing a strategy and then working out how to reach your goals isn't easy. It's far more achievable if you have a clear vision of the future. The tactics you use along the way may involve experimentation and change, but your vision should be constant.

2. Strategy

When considering the strategies you need to develop to achieve your goals, starting with researching and gathering knowledge about your market. Talk to as many people as possible to gain insight and understanding before assessing and analysing your current business position. Remember to validate your strategy to ensure commercial viability and prove market demand.

3. Business plan

Putting together the business plan can be an illuminating and inspiring part of building your business. Not only will it make you consider a host of issues that might otherwise slip under the radar, it can also lead to new ideas and, occasionally, that elusive 'eureka moment'.

4. The right people

There is no single more critical asset in a business than its people. Without good people, an entrepreneur can have the best idea in the world and yet be unable to execute it. Sourcing the best talent you can find and then cultivating, motivating and harnessing their potential is one of the most vital ingredients of business success.

5. Brand building

People buy from people, but they also buy from brands that they trust. Businesses can create trust in a number of ways including through product or service excellence, creativity, familiarity or value for money. The goal is to become a 'come to' business, with people seeking you out and making your brand their natural choice.

6. Scalability

A scalable business model will enable you to multiply revenues with little incremental cost. Technology can play a huge part in increasing scalability – not just for tech-focused businesses, but for automating processes, providing access to new markets, cutting operating costs, saving time and improving overall performance – in other words, the tech-enabled business.

7. Funding

Most businesses will start with limited funding. As these businesses develop, they may bootstrap their growth by relying on their own profits and assets. For some, cash constraints or growth opportunities will make it either necessary or desirable to raise additional finance. If this can't be found through borrowing or other non-equity sources then raising external equity may be the only option (See page 6).

This issue of Enterprise looks at various aspects of the business growth story, from the importance of flexibility in a high-growth business strategy, to building a management team, key questions for your finance director, making the most of tax reliefs and preparing for exit.

To read this Briefing in full, please click here.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014.

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