All entrepreneurs want to see their businesses grow but when something happens to trigger an episode of hyper growth, it creates new, and sometimes, insurmountable challenges. Many businesses in this seemingly happy situation run into difficulties and can struggle to meet demand, manage logistics, deal with follow-on business or even finance their growing operations.
Hyper growth is defined as 20% growth over a three-year period, either in turnover or staff numbers, in a business with more than 10 employees1. Although often short-lived, this can be a make or break period for any business and forward planning is essential, says Stephen Roper, Professor of Enterprise at Warwick Business School and Director of the Enterprise Research Centre.
It is hard to define the factors that cause a company to achieve hyper growth, Roper says. “Many people would say that the incidence of these episodes of high growth is almost inexplicable, and largely random. It could be a new contract from a serendipitous contact, which leads to new business. It could be some sort of technological breakthrough, which leads to the development of a new product or service. Or indeed some sort of marketing innovation, which leads to the same sort of thing.”
Among those to find themselves with an urgent need to manage such rapid growth were Alex Moore and his wife Saiphin, who began selling Thai food from a market stall in London’s Brick Lane in 2006. They quickly opened another two stalls and then a restaurant, called Rosa’s Thai Cafe, which was frequented by actress Keira Knightley and voted one of the top 25 restaurants to eat at in London by Time Out.
By 2008, Rosa’s Thai Cafe was turning over about £600,000 a year, with all the profits being ploughed back into the business. But Moore and Saiphin realised there was an opportunity to scale up, and in 2010, using funds from the sale of a property, they opened a second restaurant and then a third. It wasn’t long before investors began to show an interest in the business.
Sceptical, Moore turned instead to the government’s now-defunct Growth Accelerator Scheme. “We had a consultant in to help with the finances, and a consultant to come in and help manage our growth. We merged the three restaurants into one company, changed all the bank accounts, got all the previous shareholders’ agreements and sorted everything cleanly and tidily, and then we put together a plan to grow. And this is where things started to get quite interesting for us.”
Taking on a little more bank debt in 2012, the Moores opened a fourth restaurant and came up with a brand for the business and a plan for further expansion. They then went on to raise more money through the Angel Investment Network, and used that funding to open several more sites. Now, in 2017, Rosa’s Thai Cafe is riding the wave of a period of hyper growth.
“We’re right slap bang in the middle of our biggest growth spurt,” Moore says. “We’ve now got 10 sites, and we’re turning over about £11.5 million in revenues. Our margins on that are 17%. We owe the bank £1 million, but we’ve got £1 million in the bank.”
Roper says: “It proves hugely difficult for small firms to sustain high growth but those that engage in business planning tend to do better over the long term. It’s about taking a medium-term strategic view, once you realise that you’re rising – stepping back and taking a reflective view of the business. We talk about this distinction between working in the business, and working on the business. But that’s often a very difficult thing to do if you’re working hell for leather trying to get a product or service out of the door and to customers.
“What we see in the data is that when firms experience these high growth episodes, their growth tends to very much tail off after three or four years, and reverts to the norm,” he says. “It proves hugely difficult for small firms to sustain high growth.”
Hyper growth can get you to where you want to be quickly but the dangers are very real. Without a plan entrepreneurs can soon find they have lost control and are unable to service customers properly. Only careful planning can keep you in business once growth accelerates to breakneck speed.
Please note that the Angel Investment Network is unlikely to be the first option for raising finance.
1 GrowthAccelerator Hyper Growth Report 2014