THE STAND is a funny wee place. Anyone unsure of the definition of an intimate venue could do worse than head to the Edinburgh basement that was, in a former life, used by an insurance company for archive storage space.

"When I'm here, I always try to pop down," says veteran performer Arthur Smith, who, resplendent in a blue vest, looks like Sid James's red-neck cousin. "It's almost like being in a front room, and that low ceiling is always good for comedy. It reminds me a bit of The Comedy Store in London in the 1980s - a place where other comics would head even if they weren't on."

In the year that four of the biggest venues within the Fringe have broken away to form the new Edinburgh Comedy Festival, The Stand's reputation as the alternative voice of alternative comedy is even more pronounced. This is a venue that, week in, week out, develops not only local talent, but audiences to lap them up.

Post-smoking ban, the performers either slip out the back to sit on a steep stone staircase that leads to street level or stand next to an old air vent amid stonework that has been wasted by the elements and bleached by the birds. It's the sort of place a corpse might be found in a Rebus novel.

"We used to get shat on," says comedian Simon Munnery wistfully. "Then they put up this lovely sail to protect us ... I've seen pigeons born and die on that step." He's almost certainly joking, but having played here for the past seven years, it's not impossible that he could be telling the truth. Why, then, do comics like Munnery come back year after year?

"It's hard to say why The Stand is better than anywhere else," he says. "There's no one thing. The staff, atmosphere and attitude are all better, and the audience are comically literate too. It's like a football club, only here they change the players every hour. People still turn up to support the team though. You could say it's Team Stand."

Graeme Thomas, who this year performs his first solo routine at The Stand, agrees that the audience's understanding of comedy helps both the atmosphere and the act. "It means you can set up slightly longer gags and they don't get impatient," he says.

The fact that the punters understand the product on offer has not been lost on the organisers either. Here, as with the majority of comedy clubs, heckling is actively discouraged ("Anyone disrupting the show will be asked to leave," reads the ticket unambiguously) and staff are trained to look out for potential troublemakers.

"Our audience tends to be very good at policing itself," says Tommy Sheppard, owner and founder of the only permanent comedy venue in the city. "Much worse than hecklers, though, are people who chatter all the way through, people who think they're in a pub. We actively try to discourage hen and stag parties. If we hear a booking like that, we'll sometimes recommend they go to Jongleurs. There can't be many businesses where people send customers to their opposition."

Sheppard insists, however, that there is no animosity between the UK chain and his own independent company. "If I was being mischievous," he adds, "I'd say they are the supermarket and we are the deli - where people come if they are looking for something special."

Instead, the majority of Sheppard's ire is reserved for the breakaway collaboration - or "cartel", to use his terminology - that is the Edinburgh Comedy Festival. Regardless of the rights or wrongs of their motives (they've been very open about trying to attract high-level sponsorship), the ethos behind the move is certainly very different to the principles on which The Stand was founded.

Sheppard arrived in Scotland from Northern Ireland to study medicine in Aberdeen before changing to sociology and politics after one year, then moving to London for work in the early 1980s. It was during this time, often in venues smaller than his own, that Sheppard was exposed to the burgeoning genre of alternative comedy. Acts like Jo Brand and Julian Clary, combined with his interest in politics, made a big impression on the young man from Coleraine.

In 1993, following eight years as an elected councillor, Sheppard moved back north to Edinburgh with then partner Jane Mackay. Partly because they were "a bit annoyed at Edinburgh being taken over by outsiders during the Festival" and partly because they were generally "disgruntled with the Scottish comedy scene", the pair decided to put on their own night in a pub basement in 1995 "mostly for a laugh" - quite literally. A total of seven people turned up for the grand opening. The till took £22.

Yet despite this inauspicious debut, they persisted, with Mackay often appearing on the bill. Conscious that having the same people performing night after night would quickly grow tiresome, they tried their best to rotate the schedule and encourage new talent where possible. Finally, when gate receipts edged into the hundreds, the pair could afford to pay comics to come up from London, offering them a bed in the spare room and food as part of their fare.

By 1997, having worked as assistant general secretary for Jack McConnell's Labour Party for three years, Sheppard was made redundant, giving him both the time and money to jointly set up Salt 'N' Sauce Promotions. Within a few months, they had picked out The Stand's current York Place location as the venue for their new comedy club.

However, it would be another three years before The Stand started to make a profit and initially Sheppard concedes that a lot of what they were doing was "entirely guesswork". That the business didn't sink within weeks of opening is thanks in part to bar manager Kenny O'Brian, who steered a steady ship as Sheppard and Mackay - experts in promotion, but novices in pint pouring - floundered. O'Brian still works at The Stand and now holds shares in the venue. Mackay, meanwhile, has reliquished her financial interests in the club, leaving Sheppard as director and main shareholder.

Since its troubled birth, The Stand has gone from strength to strength. "I remember celebrating when our mailing list got to 100," says Sheppard. "Now there are over 15,000 on it." Along the way, several famous faces have taken to the small stage. Acerbic Glaswegian Frankie Boyle is a former Stand compere, while Jimmy Carr has also performed to the 160 capacity audience in Stand One.

Sheppard makes a point of seeing every show that will appear on his stages throughout the Fringe run. Occasionally he sees enough of them in preview to know that they'll be fine come the festival; however he has no solid plans for a day off between now and the end of the month.

"It can be wearying," he says. "But I'm not tired of it yet and I do still laugh out loud sometimes. Some of the people who come to review comedy all day must have their heads turned to mince though."

Of the thousands of hours of comedy he has seen in The Stand, some of the most memorable performances were those of tubby monkey-enthusiast and sometime actor Johnny Vegas circa 2001, when he incorporated riding the club's buffer machine into his maniacal act. This year, yet more big names - including Jo Caulfield and Stewart Lee - will arrive to make their Stand debuts.

While staffing levels double in time for the festival (up to eight administrative staff, around 24 workers in total), the increase in traffic coming through the doors seems gargantuan by comparison. With the newly opened Stand Three and Stand Four, the venue now has a total of 64,000 tickets to sell across 747 shows in just 24 days. However, fewer than 500 people can squeeze around the four stages at any one time, and so Sheppard's statement that August will be "a wee bit mental" seems faintly ridiculous. The director turns 50 next year, so does he have any plans to slow down?

"No," he replies smiling. "This is the best job I've ever had and the better this business does, the more people are laughing and having a good time."