Betting on BT
Article Date: Dec 01 2004At a pivotal, cash-strapped moment in its history, internet services provider izR took the risk of investing £100,000 in a pioneering technology and committing to a daunting five-year contract with supplier BT. It proved to be the smartest move it ever made.
Internet service providers (ISPs) have been synonymous with the words ‘market consolidation’ in recent years. But one such business, izR, believes its independence is here to stay, and says it owes its survival and success to taking a risk with innovative technology.
It was launched in 2000 by founder Sam Scoggins, technical and operations director Uwe Nitsche and business development director Alistair Banks. It bought out the user base of two failed ISPs to speed its development. Both Banks and Nitsche have invested in the business, while izR also secured money from the Small Firms Loan Guarantee Scheme. Marketing director Stuart Shearing joined the board in 2002.
The group is one of the few ISPs to have in excess of three years rollout experience of a technology called multi-protocol label switching. Turnover in the first year was just under half a million, but by March this year, it had grown to just under £2 million and the company posted profits before tax just shy of £35,000.
Risk is our friend
‘It’s about being innovative and watching what the competition is and isn’t doing. We were heavily in debt as a business and had to go beyond the borders of what an ISP would do. It was a classic scenario of making weaknesses our strengths. For example, we are a small company and we are not based in London, so we made a big deal about being in Southampton by canvassing local companies,’ claims Shearing.
Its strategy was to offer both local area network as well as wide area network access services. IzR also claims to have been one of the first companies to buy into the MPLS system (by working together with the technology supplier, British Telecom). At the time of this decision, the company had a turnover of £440,000. Choosing to go the MPLS route involved an investment of £100,000 and a commitment to a five-year contract with BT, with penalty clauses for any cancellations.
‘It nearly put us under but we had a single focus and we had to hit it. We made the investment into MPLS towards the end of our first financial year, and by year three it was the most profitable part of our business. Without that gamble we would have been just another ISP. We can’t understate how important MPLS is – we made that choice because we believed we were backing the next big thing,’ acknowledges Shearing.
He adds that it can be frustrating working with companies like BT. ‘Large corporates are paranoid about staff making a decision so no one decides anything – even getting a quote can be hard work!’
Reputation at stake
To date, MPLS solutions are izR’s most popular services. Its main competition is not other ISPs, but more the established corporates such as the telecoms giants and other commercial behemoths such as Energis.
‘We are a cross between a systems integrator and an ISP. In a way, we took a backwards approach – we took projects on, got involved in the hardware side of them and from there grew our data and voice convergence products. Much to our surprise, we can now walk into the likes of Saab, Carlsberg and Bernard Matthews and get taken seriously. We are up against the likes of BT and Energis and still win the business,’ chuckles Shearing.
The reputation of ISPs is also an issue that izR has had to combat. As Nitsche points out, the sheer number of ISPs that have called in the receivers over the past few years has meant reassuring nervous clients.
‘We’ve always been lucky in getting high profile clients though. We’re proud of our customer base – we didn’t do any advertising apart from ringing IT managers,’ claims Shearing.
Sacrificing salaries
But it wasn’t just about taking a gamble with technology – izR’s people have been key to the growth of the business. For the first two months, the directors forfeited salaries, and at one point, all staff took a 50 per cent pay cut for three months. Shearing believes that these decisions have only helped to fortify the company.
‘One of the reasons we got through the first 18 months with bugger all cash is because we gave our employees a share in the business. Without that being in place, I’m not sure we would have weathered it out,’ he adds.
This bold approach has been extended to other parts of the operation, such as staff recruitment. As Shearing explains, ‘sales people are expensive, so we got an in-house marketing team. I don’t believe in using an agency.’
IzR also hit upon the idea of recruiting technology students to help out when staff were thin on the ground (due to holidays and sickness).
‘We wanted someone who knew about computers, but who could be supervised by someone more experienced within the company. When we did interviews, it turned out there were many candidates who wanted more than a short-term placement,’ recalls Nitsche.
Public markets beckon
The entrepreneur’s holy grail of a flotation on AIM or OFEX beckons as the company seeks to raise further funds for expansion.
Going public is preferable because ‘we’ve already seen so many ISP fallouts and we are a different proposition because we are not so reliant on that side of the business at the moment. Moreover, all the company’s senior managers have previously been involved with venture capitalists and lost control of their destiny – we are loathe to go down that route,’ acknowledges Nitsche.
