THE VITAL 6%

By Guy Rigby

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.

VIEW FROM THE TOP

Enterprise chats to some of the country's most successful entrepreneurs to find out about their business journeys and how they would like to be remembered.

Malcolm Bell,
founder and CEO of Zaggora

Tell us a bit about Zaggora.

My wife and I set up the business. We manufacture activewear clothing that you wear while exercising to boost physical performance and encourage weight loss.

What's the secret of your success?

My wife spent several years researching the product. She approached quite a few suppliers and tested around 20 prototypes to find the right fabric. In the end the product was very simple – as most products usually are – but she managed to package it into a more comfortable, easy-to-wear, flexible creation. So, while it's not a new product, she redefined it.

As well as research, social media has been very important to the business. We realised that we could sell our clothing online to a global marketplace and promote it using social media. It's also enabled us to keep track of what our customers are saying about us and ensure that we don't take them for granted.

What's next for the business?

We were able to create a customer base in the US quite early on. It's a huge market for us and it makes sense to put an office on the ground to match the logistics facilities we have in San Francisco and New Jersey. The office will also allow us to have dedicated social media listeners and customer services teams who can cater for the market on a day-today basis.

What would you like your legacy to be?

Knowing that I created something new, different and interesting, which is ultimately going to improve people's lives.

Kenton Fine,
founder and chairman of Servest

Tell us a bit about Servest.

I moved to the UK after selling a waste management operation in South Africa. I wanted to stay in the services sector because it was familiar – we had always enjoyed contractual revenue flows and leverage. Rather than start from scratch though, I wanted to start by acquiring smaller businesses and backing people who were in the same position that I'd been in a few years earlier – adding vision, strategy and capital.

What's the secret of your success?

I'm very big on focus, patience and taking a long-term view – unless of course you plan to sit on a beach at a certain age and do nothing, in which case, that's a different story! I think it's a journey – about taking people with you on that journey. It's about creating a successful business where colleagues and employees can grow, as well as benefiting the wider community.

Of course, you need to be in the right industry in the first place. If you're not and you realise you're not going to make any money out of it, then it's better just to cut your losses and get out.

What's next for the business?

It's a work in progress; we haven't finished the story yet. We would like to double in size over the next five years (the company has revenues of around £400m worldwide). We're pretty convinced we'll do it – we're displaying growth rates of around 15%, primarily organic – but we need to be alert as anything can happen, markets can change.

What would you like your legacy to be?

I'd like to be remembered for having integrity. You need to be tough but fair. I'd also like the business to have a positive impact in the economies and environments in which it's operated for many years.

Stuart Miller,
co-founder and CEO of ByBox

Tell us a bit about ByBox.

We set up ByBox in 2000, when we teamed up with locker manufacturer Logibag. One of the biggest challenges we were facing was that in order to offer a sensible locker-based delivery network we had to be national – there was no midpoint. National infrastructures don't lend themselves to start-ups on the grounds of cost and demand, but we were very fortunate to get involved with Hays at a time when they were breaking up the group. All of a sudden we inherited thousands of mechanical lockers, a customer base to die for and had to get our heads around becoming national. You couldn't have baked that into any business plan.

What's the secret of your success?

I don't think there's a single blueprint for success; everyone has their own journey. All successful start-ups need three people: an accountant, a dreamer and a son-of-a-b****.

I definitely dream about where we can get to and what that journey will look like, but dreaming isn't enough – you've got to be able to execute as well. I see people who are healthily sceptical and I think it's those people that we need to get on side, as they'll be fairly grounded.

What's next for the business?

Well, my role at a macro level is to set and agree the strategy, agree the direction of travel that we should be pursuing and make sure that we have the right people on board to get us there – unblocking whatever is in their way.

What would you like your legacy to be?

I'd like my legacy to be the principle that has been proven many times before – that if you give more than you take then good things will happen.

Rod Banner,
former chairman and founder of Banner Corporation

Tell us a bit about Banner Corporation.

Banner Corporation is a technology marketing group. When I started the business it was just me and one other person. I then began hiring 'grown up', senior people and quickly realised that either I had to give them a chunk of the organisation or a significant salary. If you pay people at the top end of the scale, you'll get the best people you can find and they won't be looking for a new job. I never understood why business owners ever tried anything different.

What's the secret of your success?

People are important. I know there are some people who would have accused me of being a meddler from time to time, but I soon realised that there wasn't much point in meddling. Either you get involved and you manage something or you hire people who are bright enough to do the job well.

So, my definition of success would be teaming up with good people with whom you can overcome the challenges you're facing – and enjoying the process!

What's next for the business?

Having sold Banner Corporation, I'm doing various things. Some angel investing, an events business called Forgather and most recently I'm cooking up a new offering in the marketing space called 3la.com. My core principles and beliefs have helped me throughout – finding people, partnerships and opportunities.

What would you like your legacy to be?

Going back to the concept of success, I think it's largely defined by what you leave behind – and it's not monetary. I think memories, the way people think of you, the fun they've had with you and being excited about what it is that you're doing every day.

THE SEVEN STAGES OF FUNDING

by Guy Rigby

Guy Rigby looks at where (and when) to go to get funding for your business.

Businesses will normally have access to a variety of funding options. The trick is learning to combine these to create financial stability and to maximise shareholder returns. Some entrepreneurs are reluctant to give away equity in their business – fearing loss of control and preferring to hold onto as much of their shareholding as possible. Many realise, however, that giving away equity in exchange for both investment and expertise can make good business sense – after all, 30% of something is better than 100% of nothing! If you're looking for growth funding, here are some potential financing options worth considering.

Friends and family

Many businesses start with funding from the '3Fs' – also known as friends, family or 'fools'. The latter may sound a bit harsh but might include the less sophisticated investor willing to take a risk on a new business idea. The 3Fs will almost always be the cheapest and easiest route to gaining early stage funding, with easy equity terms or loans made on a low interest or even interest-free basis.

Accelerators and incubators

Accelerators and incubators, as the names suggest, are focused on helping start-ups grow their business quickly. As well as shared office space, these organisations will normally offer strategic business advice and mentoring services. The slight distinction between them is usually when it comes to funding. Accelerators will typically take growth businesses from concept to product, providing them with early stage funding and mentoring in return for equity. Incubators, on the other hand, will provide guidance on accessing financing but rarely fund you directly.

Business angels

Angel investors tend to dominate the lower or early stage end of the private equity market – usually investing from £10,000 to £100,000 of their own money, but sometimes much more. In return for their investment – and often their professional know-how and expertise – they'll almost certainly be looking for shares in the business. Business angels will often demand less formal terms than institutional investors and can be incentivised through beneficial tax reliefs. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) schemes are making this type of investment increasingly popular.

Angel networks and investor clubs

There is a plethora of angel networks and investor clubs. These typically bring together groups of business angels, with varying degrees of formality.

Venture capital

Venture capital is normally provided to early stage businesses with high-growth potential – usually after the business has been established but before it has achieved scale. Venture capital investments are therefore high risk, but carry the potential for high rewards. If you're looking to grow fast and boldly, and need a significant cash injection – smaller venture capital firms will rarely want to invest less than £500,000 – this might be the way to go, although smaller investments are increasingly being made in the technology area.

Private equity

Private equity is focused on more mature, established businesses, with private equity investors sometimes taking control of the business or providing growth capital in exchange for a minority interest. Private equity is often used for expansion, including 'rollout' and 'buy-and-build' strategies.

Corporates

Corporate venturing involves a larger company providing finance and resources to a smaller business in return for equity. This route can make growing businesses appear more robust and scalable, giving them instant credibility. It can also offer the flexibility of a small business combined with the resources and connections of a larger organisation. This concept of 'David' collaborating with 'Goliath' is gaining increasing traction.

In today's environment, this article wouldn't be complete without mentioning crowdfunding, a new phenomenon enabled by the internet and social media. Crowdfunding can enable businesses to raise money from the general public, who can invest small sums by way of equity, or loan, or in exchange for benefits in the form of goods and services. Some of these providers are listed in our Enterprise Directory on page 15.

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