Sceptics argued that a new professional club would not attract the 4,000 spectators deemed as the break-even figure whilst supporters argued that Colchester boasted a population higher than seventeen of the then current Football League clubs. Twelve directors formed the Board and they appointed Ted Davis, former Huddersfield goalkeeper and Bath City manager, to be in charge of team affairs. On 14 July 1937 came the public announcement that the new club would be named Colchester United — a week after Davis' Yorkshire contacts enabled the players to be kitted out in the same blue and white strip as his former club.
After opening trial matches on 19 August – 26 August 1937, United's first-ever Layer Road game was against Davis' old team Bath City on Thursday 2 September in the Southern League Midweek Section. United won 6-1 with Reg Smith registering the club's first-ever hat-trick. United's goalkeeper Ronnie Dunn was a proficient musician with his Army unit and to celebrate the occasion he played 'The Post Horn Gallop' on his bugle to welcome the players on to the field. That entrance tune would stay with the club throughout its Layer Road history. The 'gate' was recorded as £250 rather than in terms of numbers. That amount of cash equated to an attendance of approximately 3,500. Two days later an amazing 11,000 witnessed a thrilling 3-3 Layer Road draw with neighbours Ipswich in the Southern League.
Smith, scorer of that first treble, was sold to Wolves for £250 with full-back Cliff Fairchild joining Arsenal for a similar fee. Davis used his entrepreneurial skills to also arrange for those clubs to contest the Colchester Challenge Cup at Layer Road later in the season. Bill Barraclough became United's first sending off when he questioned the referee's parentage in the November fixture with Norwich City Reserves.
The popularity of the new United team finally spelt the end for Colchester Town. The Oysters, in serious financial difficulty, folded in December 1937, having dropped into the six-club Essex Senior League before briefly re-appearing to complete an Essex Senior Cup tie in January 1938 in order to avoid a hefty fine. This enabled United to enter a reserve side into the Eastern Counties League a month later, with their squad now boosted by Town's redundant amateurs.
With the team doing well in the Southern League under the astute guidance of Davis, it was a blow when a severe gale in January 1938 almost destroyed the newly erected corrugated iron and timber Layer Road End. The roof was torn off damaging adjacent properties and Layer Road itself was closed for two days to clear the debris.
In the return match with Ipswich, 8,000 Colcestrians helped set a new Portman Road ground record at 23,890. United had worn an orange and black strip in a Layer Road friendly with Charlton a week earlier in order to acclimatize themselves to the change strip they would wear in Suffolk.
United, finishing mid-table, reached the Southern League Cup Final. A two-legged affair — they lost 2-1 at Yeovil over Easter 1938 but triumphed 3-1 at Layer Road to win the club's first-ever trophy. The Wolves v Arsenal fixture proved a roaring success with 17,584 crammed into Layer Road to witness a 1-0 win for Wolves.
United had adopted the nickname of 'The U's' to distinguish themselves from 'The Oysters' of Town and their prolific strike force of Alec Cheyne (36 goals), Arthur Pritchard (29) and John Hodge (23) had helped the club net 155 times in all first team competitions. Professional football in Colchester had been an overwhelming success. That was also the case in Ipswich as the Suffolk club were elected to the Football League for 1938–39.