Reseller Profile: Notts Landing

The story behind Nottingham dealership Computerland UK?s success would make any soap writer proud. Drew Cullen talks to the lead character

Graham Gilbert is the managing director of Computerland UK, the #20 million Nottingham-based corporate reseller. He is 33 years old and married with two girls aged five and one.

Franchising seemed a good way to get started in business. I was 25 years old and had always wanted to run my own firm.

After graduating in electronic engineering, I spent four years at Hewlett Packard so I thought I knew a bit about selling and a bit about computers. By joining a franchise operation, I hoped to gain instant credibility and help on the business side. But in practice, I had to learn how to run the company very quickly.

In March 1989, I signed up with Computerland, which was actively recruiting in the UK at the time. I set up my business in Nottingham because it was the only significant town without a Computerland franchise within driving distance of my home in Solihull.

Computerland Europe handled distribution out of Luxembourg, and we bought all our product ? with the exception of Compaq ? through our franchisor. We more than made up our royalty fee with the extra discounts from Computerland Europe.

To get started, I needed to raise #250,000. I had very little money of my own ? maybe #20,000, but I was fortunate with the housing boom of the late 1980s. Nat West offered to lend me half the money if I could raise the other half. My house was valued at #155,000 and my mortgage was only #60,000. On that basis, Nat West released the money while I sold the house. I made up the difference by cashing in some HP shares and getting an overdraft.

In the meantime the housing market collapsed, so I only got #105,000 for the house, leaving an unsecured debt of #50,000 with the bank. The bank thought its best bet was to close its eyes and hope for the best, which turned out to be a good decision on its part ? I repaid the loan within a couple of years.

We incorporated the company as Springcase Computing and began trading as Computerland Nottingham in June 1989. We were a bit different from many of the other Computerland franchises in that we never had a shop. We set up in a science park and went for the corporate market right from the beginning.

There were five of us at the start: myself, a trainer, a sales manager, one engineer and a receptionist. The sales manager and the receptionist are still with us, although in different jobs. And the trainer is now my wife.

We bought a list of local businesses and began selling into the neighbourhood. We began at A and kept going until we got an appointment. Selling hard was the name of the game, but we always sold services too. In the early days these revolved around training, installation and maintenance. In our first year we did #650,000 and lost #126,000, against our business plan projections of #648,000 and #100,000 losses. It is the only year we made a loss.

Towards the end of 1990 it became apparent Computerland Leicester was in trouble. It withdrew from the Computerland Network in December 1990 and began trading as Advanced Computer Facilities Management. I anticipated it would go bust and thought it was a good opportunity for us. I borrowed #50,000 from Computerland and set up a branch in the town. It was very brave of them to lend us the money. We had been trading for less than two years, and our only audited accounts had shown a loss.

ACFM went bust within a weeks of us opening ? although we were not the reason. We took on its staff and a good chunk of its business.

In 1990, Computer Group (now part of SHL Systemhouse) bought a Nottingham dealer called CSM. Then it announced that it had set up a Computerland franchise in Nottingham, even though we held the exclusive rights for the city. However, it hadn?t bothered to sign a royalty agreement with Computerland. It thought it could figure that out later.

Computerland Europe gave us its support even though it was nervous about confronting Computer Group, which dominated the Computerland UK network at this point.

Computer Group?s strategy was to grow by acquisition and to have a Computerland franchise in every town. The management was very cheesed off when took on the Nottingham franchise. On the night before we opened, I even received a call from Computer Group offering a deal if we set up under a different name. I refused.

Computer Group?s management were not the sort of people who liked losing, and the company began looking for an opportunity to move against us. But we fought back. We prepared a case for passing off, and Computer Group immediately backed down ? presumably on legal advice that it didn?t have a leg to stand on. It continued trading in Nottingham, but under the Computer Group name. It was a classic turf fight. But looking back, it all seems very silly.

By 1992, it became clear that Computerland Europe?s distribution model was no longer working. The margin spread on product had become too small for the company to earn its keep in distribution.

In 1993, Computer Group withdrew from the Computerland network. Eventually it was bought by SHL Systemhouse. In late 1994, the Wentworth Group (now called Genisys), which had three Computerland outlets, also left. Then in July 1995, P&P bought Computers For Business, which operated three Computerland franchises in Scotland. By October, CFB had parted company with Computerland.

This left Springcase as the sole representative for Computerland in the UK. During this time, Computerland had sold off its US affiliated operations to Merisel, and had reorganised its self-operated business under a new entity called Vanstar. But it continued to keep hold of the Computerland international network.

Today, we are the Vanstar affiliate for the UK. Vanstar also has an arrangement with Ingram Micro and Integris, but we do most of the fulfilment work for Vanstar in the UK. Ingram and Integris are appropriate for a small number of accounts, but we are more appropriate for the lion?s share of the business.

I never considered dropping Computerland, even though franchising is dead in the water as far as the corporate computer market is concerned. You need localised markets for franchises to succeed. Training is an example of where it could work. But larger corporates are not tied to geography. They look for full service resellers on a national basis.

But I had never seen anybody ? with the exception of CFB ? prosper by leaving the network. And I always thought we were stronger by being part of the Vanstar story, although I may not have indicated quite how much I felt this when I was negotiating to buy the Computerland UK name. I was concerned that other resellers could potentially sign up as franchises in the UK. And I wanted to ward off this possibility by getting the exclusive rights for Computerland.

But it became clear that Vanstar would never agree to a deal unless we had an office in London. So on 1 August , 1995, we opened a branch in Finsbury Square in the City. London is littered with powerful resellers and there were pessimists who thought we would never break into this market. But I thought London presented an opportunity. And events have proved me right.

We have always grown and except for our first year, we have always been profitable. Our end of year closes next week, and we expect to do #20 million sales and #600,000 net. Last year we did #8.8 million. The results are strong across the board. London has really kicked in this year and made a major contribution to our turnover; we have won some major accounts, and we have increased our business with existing customers. Investment in a new accounting and distribution system based on SQL Server also helped our growth.

I anticipate growth will be strong next year ? although not at quite the same rates. We will concentrate particularly on developing our services business. We are a Microsoft Solutions Partner, a Novell Platinum house and a Lotus authorised reseller. We meet all the qualifications to be an Microsoft ATEC, and we hope to get this accreditation when Microsoft opens its books again in July. Our Remote Support Centre also looks very promising.

Currently 60 per cent of our gross profit comes from service and we are very confident of growth in this area. But 40 per cent of our GP comes from product. The two are complementary ? and we still do a lot of maintenance, installation and training on the back of hardware. The two sides of the business are becoming more discrete ? we are winning consultancy and remote support service business, without necessarily supplying the hardware.

Last year we opened a 27,000 sq ft distribution facility in Nottingham. On the hardware side we are still very focused on the IBM, Compaq and Toshiba. We have never made our own machines or taken on clone machines. Occasionally, we have lost deals to a cheap clone vendor because of price, and this is frustrating.

The first tier seems a bit subdued at the moment, while the Dells and the Gateways are performing very strongly. There has been a lot of fuss recently over Compaq?s plans to set up a direct operation. I have learned not to get too excited about these sort of schemes. I attended a presentation by Joe McNally (Compaq UK chief executive) who made it clear the company was going after the micro-businesses with one to 10 users. This is not our market. And anything that helps Compaq crack this sector and makes it a stronger and better company has to be welcomed by its resellers.

IBM is a sleeping giant, and it has the potential to wake up and take the market by storm. Over the past year, we have seen a resurgence in IBM business, particularly on the Thinkpad side, where it has benefited from Compaq?s weakness in the notebook market. But it is hard to read the company. It is still dealing with a lot of problems dating from the downsizing of the early 90s, when it damaged a lot of relationships with its channel partners, particularly the smaller ones. The concept of the true blue account has drifted away ? Compaq has dominated the server market to the extent of squeezing these old loyalties.

Today, we are Computerland UK. I now own the name outright. We have three offices in Nottingham, and branches in Leicester and London. And in due course we may expand our coverage ? the North and Scotland look attractive. But this is very much in the future.

I am not about to cash up. I will be 34 in August, and I am hardly ready to retire. I am seriously considering an AIM flotation among other options. Currently I own 100 per cent of the business, but I am not wedded to owning everything. A couple of my key staff are already on long-term incentives, and an AIM flotation would unlock the value of the company for more employees.

I have looked at acquisition. If the right business came along, I would buy it, but I have never really seen anything that was particularly attractive.

We have always grown organically and I can see no reason why we should not continue to do so. We come across different resellers according to the size of the account. We are active in the mid-corporate market and we won?t go for anything more than #5 million ? this enables us to concentrate our resources ? but obviously there are very few contracts in the UK that sort of size.

We do not come across the really big resellers very often in the sub-500 PC tenders. The Database and Servo are our local players. In the City, our competitors are different. Computacenter dominates the City and is everywhere.

Obviously it is a tough market, but I can?t believe that the Computacenters and the SCHs, which are bigger than us by an order of magnitude, are too worried by what we do. And I am confident we can fend off the worst the competition can throw at us.