Now he is about to expand into a new sector, offering motorists cheaper servicing of their vehicles.
The founder and managing director of Blackcircles has entered into a partnership with Unipart, the motor components distributor, to offer servicing and MOTs via the network of nearly 1,000 independent garages through which his business al-ready fits tyres. Customers order their tyres on the Internet or by phone, then drive to a garage where they will have been delivered for fitting.
A lively Liverpudlian, who claims his company sells tyres for about 40% less than high street outlets and motor dealers, Welch believes he will be able to offer servicing for 50% less than most dealers charge.
In an open-necked shirt, Welch has an intense but jocular manner as he recounts his entrepreneurial experiences at his headquarters in Peebles, where accommodation and labour are much cheaper than in Edinburgh, although only 20 miles south of the Scottish capital.
The strategy from the start has been “a ‘motoring for less’ proposition,” he says, “trying to take tough areas of the marketplace and re-engineering how the supply chain operates, how stock is distributed, to really give us cost savings – and therefore a retail price saving for customers.”
Welch spotted his first commercial opportunity when he left school at 16 to become a tyre fitter at a Nissan dealership in Liverpool. Realising the profits that could be made from supplying high-performance tyres, he set up a mail order business with a £500 grant from The Prince’s Trust, using a room in his parents’ house in Liverpool and a mobile phone.
Although not from a business background, he had an instinctive grasp of commercial principles: “I was the kid in the playground who sold copied CDs and tapes. I like to trade, and to sell – always to generate cash.”
The mail order venture was successful, but operating with so little financial backing proved frustrating. Welch was only 21 when he was headhunted by Kwik-Fit, the entrepreneurial Edinburgh-based tyre-fitting chain founded by Sir Tom Farmer, to become its new business and e-commerce manager. He quit to start Blackcircles after being told by a director that he would have to wait about 30 years to achieve his ambition of becoming chief executive of the company.
Welch is backed by four private investors whom he approached for funding on the basis of their backgrounds – which included retailing, law and accountancy. He owns 50% of Blackcircles, the rest belonging to the four investors.
He speaks fondly of Sir Tom, whom he dubs “the king of tyres,” but a more important mentor has been Graeme Bissett, former finance director of Kwik-Fit, who is chairman of Blackcircles.
The company, which employs 35 people, last year made a “small profit” on turnover of £11m. But Welch expects sales to jump to about £17m this year, and predicts that “this year will be good for our bottom line.”
He believes the recession could benefit his business, and says sales in the first quarter have been 80% ahead of the same period last year. Customers are price-conscious and have started trading down: “We are seeing new customers coming from the high street to us,” he says. “That’s probably where half of that 80% growth is coming from – customers looking for value.”
He is confident he has the people and information technology systems to cope with the coming challenges, and is building new premises: “We are crammed now, so we are on the verge of being considered a local sweatshop unless we do something about it.”
Since 2006, Welch estimates, his company has cut its acquisition costs per customer from about £12 to 12p. This has been achieved by forming partnerships and affiliations with lots of bigger brands, such as Tesco, the AA and Barclaycard. Welch says he won such alliances by being a nuisance: “Lots of phone calls and e-mails – some of these deals have taken four or five years. But as our model and profile have developed, we have become a more compelling proposition. Everyone is now very concerned to bring value to the customer – we are well positioned for that.”
He is well aware of the dangers for smaller companies of dealing with big organisations. “You’ve got to be careful that you are not so thrilled to land a big name that you give away all your margin. But that is where Graeme Bissett’s advice is so useful.
“Two years ago, we communicated with 400,000 potential customers through partnerships. Last year it was 4m and this year it will be 22m . . . the more communications with potential customers, the more sales we make, and the lower our cost per acquisition is – and therefore we can invest it back in price,” says Welch.
He is aiming for a 10%share of the U.K. tyres market, worth about £1.3bn annually. The company has also expanded into France, Germany, the Netherlands and Belgium – they currently contribute about 10% of overall sales. He initially concentrated on mail order overseas, but intends to scale up to his U.K. Internet model, with commercial partners.
But Welch, who had once hoped to reach £100m of sales by 2010, admits that building the business has proved tougher than expected. “Where we are at the December 2008 year-end, I would have hoped we would have been in December 2005. But the reality of this market is that it is tough. Margins are tight, prices fluctuate – there are no consistencies in tyre retail. Did I underestimate the difficulties? Probably not – maybe I was just very enthusiastic, and experience gives you a bit more realism,” he says.
“The point is, it is just going to take a bit longer. Blackcircles as a proposition is sound – the climate we are operating in right now will just magnify the benefit for customers, and we will increase market share. But recession doesn’t mean we will change the way we operate – we will just be doing the same thing, just more of it.”
While emphasising that competitiveness on price is the company’s main focus, Welch says it also gains from forging a close relationship with customers, who are polled regularly for their views. “That is why we are confident that the servicing business will be a success, because customers have told us that is what we should be doing next,” he says. “We have been bombarded by customers for the past three years, asking: ‘Can we not book an MOT or a service through you?’ So we know there is the demand, and we know with the price-saving, there is going to be a take-up of the service.”
An early start adds punch to the working day’s wheels and deals.
A fitness fanatic, Michael Welch gets up at 5:30 a.m. in Edinburgh so he can spend an hour doing boxing training at the gym before the 35-minute drive to Peebles in his BMW.
“Most of the time, when I’m in the office, it is just meetings. The [personal assistant] thing is brand new for me, so I’m finding I look at my calendar in the morning and you just can’t see any white spaces.
“But it is a good use of my time, and it makes sure the guys are well-briefed. I have a habit of wanting things done yesterday, and at least this gives people a bit of a heads-up. I’m not a big one for meetings, they should last no more than 30 minutes.
“But I spend most days out of the office. When traveling, I take the train so I can do e-mails and have time to think. I’ve got a BlackBerry and my laptop has got a little aerial on it – I like to be connected.
“I go to bed as early as I can – I probably average 11 p.m.” (Tire Review/Akron)
