After-sales a cast-iron guarantee

After-sales a cast-iron guarantee

Computers still form a vibrant retail sector, but so too does the bit we don’t see, the warranties and service contracts business, as Peter Baber discovers from the enterprising Chris Brooks.

Alors monsieur, un moment, s’il vous plaît. Just imagine you are a well-established IT reseller in la belle France, mais vous avez un problème with your account with Hewlett Packard. You ring the contact number – mais oui, it is a Paris number.

The person at the other end picks up the phone, and you imagine him or her in La Defense, looking down the Champs Elysée, with the Eiffel Tower, Notre Dame also in view, oh la la. You do, don’t you? Mais non, monsieur, vous n’avez pas raison.

It may be a Paris phone number you are ringing, but the person you are speaking to – while they are speaking perfect French – is sitting in a nondescript block in an office park in Skipton in Yorkshire. Zut alors! Encore les anglais! That’s just one striking example of the inroads that Integrated Results, a marketing agency in Skipton, has made to the point where it is punching way above its £10m turnover. Founded by Chris Brooks ten years ago, the agency still has only 34 members of staff.

Yet it is already managing a crucial services sales channel for HP (or Hewlett-Packard, the world’s biggest computer manufacturer) for distributors and resellers across the whole of the UK – and in France for the past two years, and the Netherlands for the past six months. The company was admittedly given a considerable boost some four years ago when Christophe Bouquet, HP’s worldwide vice-president for the services channel, announced that he viewed it as a best practice model that the rest of Europe should follow.

That’s one of the main reasons why the company has since taken over the French and Dutch markets, with other possibilities in the pipeline. But Brooks is very clear on why warranties and service contracts are now so crucial.

“People will probably kill me for saying this,” he says, “but pretty much all computers are the same. The big manufacturers buy their components largely from the same factories. So what is the point of differentiation, and where can I take cost out? The easiest place to save costs is to strip out the standard warranty. That is why over the past few years you have seen warranties on laptops, desk-top models and even servers move from three years to one. All that service element was moved tohit a price point. So now, at the point where you buy, you can add service back in.” The trouble for HP was that, even though service contracts offer resellers a much higher margin than products themselves, many resellers were either reluctant to spend time selling such contracts, or just plain couldn’t.

“The area is slightly complex,” says Brooks, “and it requires a little bit of knowledge to sell it comfortably, so some of the guys just weren’t doing that.” Seven years ago HP asked Integrated Results to put together an integrated programme of communications and support to help more resellers to sell service contracts. When this proved successful, this work was extended to include managing the sale of HP’s Carepack, a post-warranty service contract that allows customers to extend their warranty by an extra 12 months.

“We started all this in March 2005,” says Brooks, “and in the first month we brought in slightly less than £50,000 in sales. We now do between £300,000 and £350,000. We have got much better at what we do.” He thinks the success of this operation – now hived off into a subsidiary company called Support Warehouse – is down to very sophisticated data mining and continually improving the company’s in-house IT system to make sales easier. But it’s clear there has been some well-thought out diplomacy as well.

The process of selling the Carepack services had to be carefully managed, for example, so as not to annoy those resellers who had taken selling such products to heart. The ongoing success of this work has now seen the company move into being a distributor for HP, through its subsidiary TSD, launched in November last year.

TSD, which focuses only on really high value customers, has already become an HP service contract specialist (SCS) provider. Brooks claims that’s an accreditation that only four other companies in the UK have – and all of them are offshoots of multibillion pound multinational IT companies. For a £10m, single-site Yorkshire firm, it’s quite an achievement “It was a really interesting departure for HP as well,” says Brooks, “but they liked the idea that we were an organisation totally focused on services and wouldn’t be distracted by major hardware issues.

“We reckon the services contract business in the UK is probably worth about £40m,” he says, “and it would be good if we can get a nice slice of that.” He hopes Support Warehouse can soon take over more overseas operations, particularly in Eastern Europe.

“We could certainly manage Poland from here,” he says, “and we could probably manage Russia from here as well.” That’s one of the reasons why the company is in the process of changing banks to HSBC, which has a high street presence in all of those countries, rather than just a partner bank. The cost of transferring money between such partner banks in the past, says Brooks, has been a burden. But isn’t there an underlying problem with all this success, in the shape of too much reliance on HP? Brooks insists that they do plenty of work for others. They have run a similar sales support service for Trend Micro, a security software company, and they also do occasional projects for the likes of Xerox and Apple. Nevertheless, HP does account for around 80% of Integrated Results’ work. Surely he must be concerned at having so many eggs in one basket? After all, many companies start worrying when one client takes up more than a third of their turnover. Brooks, however, seems strangely unconcerned.

They have had discussions about working for another big vendor – it is the kind of subject that gets raised at their quarterly strategy meetings with their advisers Grant Thornton – but Brooks has his doubts.

“There is nothing in the contract that says we can’t have a conflicted client,” he says, “but I would be uncomfortable with that idea. Such a move changes our focus, our dedication and the commitment to finding the best solution to our client. As it is, within the HP basket we are dealing with six or seven entities inside HP, all of which are independent. So if we lost the UK account, we wouldn’t necessarily lose France or Holland.” It would be different, he thinks, if Integrated Results had stayed as a marketing agency only – which is what he intended the company to be when he started it. In marketing, he says, you are lucky if you manage to stay with a major client for three years. But the move into managing selling, he says, has made the relationship much more sticky. And that is mainly because of the way both he and commercial director Adrian Corns chose to run the business from the start – without any retainers.

“Adey and I were never very comfortable with the idea of retainers,” he says. “Once you are paid a retainer, your next focus is to try and get another retainer from another big company, and then it becomes a matter of deciding how little you can get away with and still get paid a retainer. We have always put a performance-related element into everything we do. If we are successful in this we stand to win.

If we are not successful we will come back to see if the approach can be modified, and if not we will walk away.” He admits that approach is more uncomfortable for them as a business. But it also means they get to know much more about their client’s business because they have to.

“Because we have skin in the game,” he says, “we go back to our clients and say, ‘This one’s not working’. If you were on a retainer you wouldn’t stop. So we end up getting associated with stuff that is successful.” He knew this approach was working when several years ago one client, a brusque South African, told him: “You know what I like about you guys? We don’t have to pay your school fees. You already know our industry and our channel so well.”And it’s true, says Brooks.

“The £10m speaks for itself,” he says. “It would be quite tough for someone to pick that up straight away, particularly when we have made very sure that HP understands all systems are bespoke.” There again, being nonchalant about something that would give other business owners sleepless nights isn’t the only thing that marks out Brooks and Integrated Results. Every customer, for example, is initially contacted by snail mail. Why? Because in-house research has confirmed that nowadays such letters are four times more likely to generate a response than an email, which can so easily fall victim to spam filters. These letters are also franked by an oldfashioned franking machine. Again, Brooks says his own research has led him to believe that customers are more likely to disregard anything that comes in a pre-paid envelope. He has also built up a healthy sideline in doing admin tasks that other larger companies chose not to do. One example is filling in HP product registration forms; a fiddly job, and one which resellers initially cited as a reason for not selling service contracts. HP itself wouldn’t take on the work, partly because of the employment costs of doing so, but Brooks was happy to oblige.

But this, he says, is also a vivid illustration of why he is glad he is not in a publicly listed company with investors breathing down his neck. “Like all publicly quoted companies, HP is obsessed with ratios,” he says. “They are always wanting to know, ‘What’s my profitability per head?’ And then: ‘Let’s reduce heads to make the ratio higher.’ I am not concerned about whether it’s a 15% margin or 1% margin, all I want to know is how many pound notes do I make. HP can’t take heads on to do this kind of admin work, because it dilutes profitability per head. But I will take it on, and if I can charge HP twice what it’s costing me, super.” For a similar reason, he has never been inclined to invite private equity in, even if it would accelerate the company’s growth by at least two years.

“We could move much faster,” he says. “But then we would be having board meetings talking about ratios, and do I want to exit bigger or quicker? That’s not what it’s about. It would affect our culture, and most of all the above and beyond way we manage our clients.” So is there an exit planned? Yes, he and Corns are putting together a management team, and he thinks the next two years will see considerable merger activity in his market. Someone who does not have the kind of accreditation Integrated Results has might see them as an interesting target. But he insists he is not a “typical businessman” in the way he thinks about this.

“If I was I would be talking to you about private equity and so on, and how do we get £750,000 and give nothing away? But Adey and I are clear: if we exit it will be about comfortable early retirement, not yachts and Ferraris. What a massive privilege that would be, to stop work before I’m 60 and still have a couple of nice holidays every year. With other people almost the first thing is lease a Porsche.” As it happens, Brooks is a bit of a petrolhead himself. He drives as Jaguar XF as his work car and also has a Lotus which he has souped up to take part in hill climb racing. But perhaps we can allow him that as his hobby. He says pulling cars apart “taxes your brain in a different way” and is relaxing. Just the thing you need when you own a small company with so much to live up to.