Franchising takes firm into the wide Blue yonder

KEY POINTS

Original company founded in 1997

Name changed to expand client base

Turnover expected to exceed 1.2m

KEY QUOTE

"In the background we had been developing our service management and technical help desk services. More and more companies were getting us to manage their problems as opposed to just bringing them in to solve them" - IAN FRASER founder of IT services company Blue.

STORY IN FULL FRANCHISING has a slightly eccentric image in this country. Usually confined to the fast-food market, running a franchise is not always seen as the same as running a "real" business, and many people are wary of American-style control from the top.

But it can be an ideal business model for companies wanting to reach niche markets, says Ian Fraser, founder of IT services company Blue.

Blue has assumed various incarnations as Mr Fraser has developed it over the years, its most recent being as an IT services company with franchisees working under its name for small businesses.

Blue was founded in 1997 as Intelligent Technical Services, with the aim of providing subcontracted services to IT companies.

"I set it up with one employee, Alastair Currie, a good buddy who I had worked with for a while," Mr Fraser says. "We saw there was a chance of good business in subcontracting services into IT companies, or ‘body shopping’, providing extra resource for corporate IT services."

The company took off, growing to a business with 24 staff within two years.

"That was predominantly because the market was so buoyant, and because we were very flexible; people contacted us knowing they could book us for the next day, rather than planning a month ahead," he says.

The classic IT start-up sets up in a garage, but it’s a bit cold in Scotland for that. Instead, Mr Fraser started ITS in his spare room. Before long, though, the company became too big, and "we bought our first office in 1998, in Huntingdon Place at the top of Leith Walk", Mr Fraser says.

By about 2000, ITS had a turnover of 600,000 a year. But Mr Fraser wasn’t comfortable with the way it was developing, and talked to the Chamber of Commerce, which conducted a business review for him.

"They concluded that the business was ‘over-engineered’. We had too much process and procedure in place, which lead to heavy overheads. They said that if we wanted to remain profitable, we should either grow or cut those overheads."

The Chamber of Commerce also pointed out that, with only six or seven main clients, the business was at risk.

"So, we decided we had to put a plan together," Mr Fraser says.

He was helped by a programme that the Royal Bank of Scotland was running for small businesses at the time. Called "Break Free", it aimed to help small business clients, Mr Fraser says.

"They selected 80 or 90 ‘high-growth opportunity’ companies and part-sponsored two trips to Boston where we would go for a week. We took part in seminars on things like finance, building a company, marketing, and so on. It was a fantastic initiative," he says.

Mr Fraser returned from the first of those courses feeling inspired, and with a new outlook on the company.

"I knew that I needed to change the name - ITS was just too dull - and I wanted to target the SME [small to medium-sized enterprise] market to expand our client base," he says.

The freshly named Blue went through a 30,000 rebranding exercise, working with an Edinburgh design agency to come up with a new logo.

The name had come up during brainstorming sessions with consultants on the Boston course, and just seemed right, Mr Fraser says. A launch at the Blue Bar Cafe saw the company off to a new start.

"That was three years ago. In the background we had been developing our service management and technical help desk services. More and more companies were getting us to manage their problems as opposed to just bringing them in to solve them," he says.

The rebranding might have worked, but Blue’s first attempt at entering the SME market wasn’t a great success.

"The SME market is difficult. The cost of selling into it compared to the amount we made from each deal was hard to reconcile. We did get some clients but it soon became clear that we didn’t have the financial model right. So, in 2001, we revisited that and looked at new ways of doing things," he says.

Blue’s competition in the SME market was independent contractors. "They have lower overheads, and it’s their own business, so they’re prepared to work all hours. Commercially costed labour just can’t compete," Mr Fraser says.

On the other hand, customers told Blue that when they used independent contractors, they found that the service management element was missing; they said they often had no back-up if things went wrong, and documentation was an issue.

"So we put the two together and saw that the ideal was to allow IT professionals to stay in ownership of their businesses, but with our back-up. There’s a compelling argument there for both customers and contractors," Mr Fraser says.

And so the franchise plan was born. "We wanted to do things right, and there is some suspicion of the franchise model, so we engaged a consultant from the British Franchise Association, Euan Fraser, to help us out," he says.

Together they researched the market for a year, and worked towards accreditation from the BFA and ISO9000.

"We wanted to address the credibility issue, as we recognise that we’re not a global name. We felt it was worth having those ‘badges’ to reassure people," Mr Fraser says.

Only three pilot franchise projects have been set up so far, and only one of those has really been successful, but the company is learning how to make the model work, Mr Fraser says.

Trials with franchises in Aberdeen and in Perth, Australia, haven’t worked particularly well, he says.

In the first instance the problem was a case of a poor "fit" in terms of the people involved. "Getting the right people can be hard," Mr Fraser says.

While it might seem ambitious, the Australian venture was more successful but was ultimately let down by the difficulty of offering proper support to such a remote team.

Longer term, Blue would like to set up a service centre in Australia to provide support to franchisees, "but we have to consolidate in the UK first, and we’ll revisit it in 2005", Mr Fraser says. "It’s the old problem for privately funded organisations - you need to keep generating profits before you have the funds for more speculative projects."

One of the three franchises, however, has been very successful. Barry Clough and Stuart Crozier work out of Blue’s offices, in a suite set aside for franchises, and have about 40 customers.

"They’ve hit around 130 per cent of target for this year, and they’re even doing some work for us, with our own customers," Mr Fraser says. He hopes to replicate that success soon with other IT specialists, and is keen to hear from any interested contractors.

Blue is now a flourishing business, based in Rosyth but due to move to custom-built premises in Pitreavie Business Park, Dunfermline, in November.

It has 30 staff and this year’s turnover is set to exceed 1.2 million. Mr Fraser says any potential franchisees can become part of a successful business as it grows.