The corporate life cycle: growth

Our series on business evolution turns its attention to the growing company

Every business starts with an idea, but not all ideas are good ones. Those which are will eventually move beyond the startup phase, and develop into a viable concern. Growth at this stage is often rapid and unpredictable and it can be difficult for the entrepreneur whose idea set the business's wheels in motion to keep up. The workforce needs to expand, output needs to increase, profit margins need to be improved; at this stage more than any other, a good business brain is essential.

What is a growing business?

In short, a growing business is a business that's growing. Beyond this rather obvious definition, businesses in this category tend to fall into two groups - though there can be an overlap between the two: those which are having to grow in order to meet demand from external factors (for instance, consumer demand) and those which are growing due to internal factors (such as a desire to introduce a new product).

The most common external factor driving a business to grow is a need to satisfy a wider consumer base. This is especially common in product-based businesses, where an initial batch of products has generated a wider level of interest. Entrepreneurs in this position must improve their production line, either by outsourcing elements or hiring new people.

Increased production will also have a knock-on effect on other areas of the business such as marketing and distribution. Until now, the entrepreneur may have been able to handle his startup with minimal help beyond assistance from a few friends or family members but this is the stage where the business needs to professionalise and expand the workforce.

Growth driven by internal factors is largely due to the ambition of the entrepreneur. Sensing a viable business within their fledgling startup, the entrepreneur drives the expansion themselves. Typically this either involves doing what they've done before but on a larger scale, or introducing a new business line - the latter obviously being a far riskier proposition.

Why do investors like them?

Unlike startups, growing businesses have demonstrated an ability to succeed, if only on a small scale. An entrepreneur's commitment to growing their business shows investors that they are in it for the long haul and there is an improved chance of them getting a return on their investment. However, the element of risk remains: grow too quickly or not enough and the business's wheels could quickly come off.

Growing businesses in the UK

In total, an estimated 4.5 million UK companies are categorised as small and medium enterprises (SMEs), and a recent report by the London Stock Exchange highlighted 1,000 of the best-performing, spread across 97 industries. With an average revenue growth of 79 per cent and an average revenue of £37.1 million, the impact these 1,000 growing businesses are having on their local economy is sizeable.

However, growing businesses within the UK are facing significant hurdles as they grow. Many entrepreneurs find it difficult to secure financing in order to grow their business, with over half of Britain's SMEs relying upon credit cards and bank debt. While angel investors and venture capitalists are out there, the UK funding environment seemingly makes it difficult for entrepreneurs to get the support they need.

Case study: The Tab

The Tab is an online national student newspaper known for its fun, racy content and national scoops.

It's fair to say 2013 was a good year for online student tabloid The Tab. Now based at 35 universities (a number that increases all the time), the site had a record 1.3 million unique users in November. Even the Guardian, who previously dismissed the site as "neither funny nor clever", is paying attention, interviewing co-founder Jack Rivlin recently for a feature in their media blog.

"It shows we're doing something right if even the Guardian is taking note of us," remarks George Marangos-Gilks, who started The Tab alongside Jack and fellow Cambridge student Taymoor Atighetchi - now a consultant at Bain - at university in 2009. Given The Tab's long-term goal of establishing themselves at every university in the UK, it's soon going to be impossible to not take notice of them.

"Cambridge University hated us"

Although The Tab has been in existence since mid-2009, it only became an actual business as recently as 2012, when £200,000 was raised from a group of private investors to establish the brand beyond Cambridge. Before then, The Tab was merely an independent student publication aiming to inform and entertain readers.

"We were working for the printed newspaper in Cambridge and were pretty unimpressed," says George. "None of our friends found the paper engaging because the editorial content was quite weak. We decided to launch an alternative that would be fun, slightly gossipy and get people talking."

This focus on fun, titillating content earned the paper its fair share of criticism, particularly when it ran a Page 3-aping "Tab Totty" feature as a publicity stunt. "The university hated it and gave us absolutely no support," says George. "Though they've now embraced us, they still get annoyed with some of the stuff we do. We had a piece recently about Prince William studying land economy which wasn't exactly complimentary and that riled them a lot."

"We're the voice of 18-24-year-olds"

The Tab's success, both in Cambridge and at other universities, has been largely due to a hyper-local focus. While other student publications devote column inches to national and global news stories, Tab journalists are instructed to focus on the stories developing on their own campus.

"Local will always be our focus, as it means you write things people care about," explains George. "If there is a Tab at your university, it becomes a major part of student life. It ultimately becomes the voice of students in your town or city."

Finding a way to monetise that ability to engage with students is The Tab's biggest business challenge. Currently, the primary source of income is online advertising. "There's been some innovative new advertising formats released recently which are starting to produce fairly good returns," says George.

"We've also considered advertorials (articles sponsored by advertisers) which would fit our reader and be useful. As we have the eyeballs, there are a lot of opportunities there. It's just a matter of resources."

"Our biggest mistake was printing 200,000 flyers"

Considering neither George nor Jack had any business experience prior to The Tab, the growth rate of the company has been remarkable. "After the first few months, we realised it had grown ahead of us and that we were playing catch-up," says George. "We're still growing too quickly but that's a good thing!"

Given the speed of growth, it's hardly surprising that it's not always been plain sailing. "After we received our initial investment, we paid a very artistic design agency to redesign the website," says George. "What they produced though was overly complicated. We should have stood up to them more and insisted on the things we wanted."

"We also made the mistake of printing 200,000 flyers last summer. In the end we barely distributed any of them; they're all sitting in my gran's garage at the moment! It taught us to try things in small batches initially rather than diving in head-first."

Those boxes of unused flyers may act as a cautionary tale now, but with The Tab continuing to rapidly expand they may yet have a purpose. As well as establishing the publication at every university in the UK, George has ambitions to take the company further afield: "Once we have a stable model in the UK, we can begin to look to other Anglophile countries to see if it will work there."

Watch your backs America, the English are coming...