Darwin Private Equity recently acquired a majority stake in Euroffice, backing a management buyout of the company.
I’ve been talking to CEO Simon Drakeford about the deal, how the company will use the investment, and how a focus on customer retention has helped Euroffice to grow despite the recent economic situation.
Can you tell me a little about Euroffice and its recent growth?
The company was founded in 1999 by three entrepreneurs, and started trading in 2000. By 2007, we had grown to a business with a £17m turnover.
My background is working with large corporates, I had five years with Orange and 2 with T Mobile, and I joined Euroffice in 2007, and brought in a management team.
Basically we sell office products to small businesses, and use the internet to do this. It’s an unsexy and notoriously difficult sector to market to, but the internet offers a low cost route to market to small businesses, and we use every part of the internet mix to do this.
We’ve sold to 250,000 SMEs, and 80% of our revenue comes from existing customers. We don’t have an offline sales team, we’re 100% pure play.
We had top line growth of 20% last year, and triple digit growth in profits. Our intention is now to increase that growth by targeting international markets.
This is in a sector that hasn’t been growing, and we’re on target for around £30m in turnover this year, which would give us similar growth to lat year – about 17 to 20%.
How many are in the team?
We have 49 staff at the moment: seven are based in Milan, and the rest in the UK. We’re also relatively self-sufficient, with an in-house tech, finance and marketing teams.
We do occasionally deal with agencies and consultants, but we like to keep as much as we can in-house, and this has worked well for us.
What will you do with the investment from Darwin?
Darwin has supported us with a management buyout, while Euroffice founder George Karibian will remain with the compnay as a Non-Executive Chairman.
The desire is to prove that there is still dotcom-style growth to be had in this market.
Further international expansion is the most obvious reason for the investment. We have been successful in Italy so far, with a £3m turnover last year, and the business there is 18 months old.
In 2007 we rebuilt every single part of our technology from the bottom up, with European expansion in mind, so the code and application layer is ready for other markets. France and Germany are the next markets to target, and this will happen soon.
We still want to grow the UK business though, The UK market is worth £1bn and we only have a small portion of that.
I think we’ll continue to see more migration online and, post-recession, there will be greater focus on efficiency in purchasing by SMEs, so we can benefit from this.
How do you target small businesses online?
Online can be a particularly interesting channel for SMEs as they don’t have the purchasing power that larger firms have, so it’s not always worth sending sales teams to pitch to SMEs.
We’re super-efficient on Google, with more than 300,000 keywords optimised for the search engine. We use our own bidding models and APIs for this.
Once we have acquired customers, we have a CRM system which takes our data and cuts it into micro-segments and automatically serves promotions. We have 600 segments depending on the types of customer, and these promotions can be served via email, or when they return to the website.
69% of our revenue comes from customers who have previously purchased from us at least nine times, and it is a focus on retention that is behind our success. We talk about customer acquisition rather than order acquisition, as the true value comes from acquitting and retaining customers.
Our models are built around cost per acquisition and the lifetime value of customers. Google is our main acquisition channel, and the CRM is the retention channel.
We haven’t really used social media much though. Not because we think it has no value, just that it seems to be more of a B2C channel.
Typing Euroffice into Google brings up a lot of results from voucher code sites – is this an important acquisition channel for you?
We do work a lot with the voucher code sites, and this is because the economics stack up, even though we’re not particularly happy with the model.
There is a loyalty points system on Euroffice, and we want to incentivise our own customers without having to use voucher code sites too much. It doesn’t represent a large percentage of our business, it’s under 10%, but it is still cost-effective and generates some sales, and therefore worth using.
One of the reasons for investing in CRM and being able to use customer data is that this is the best source of competitive advantage. If we know what our customers like, then we can target them with products and offers more effectively and keep them coming back to the site.
How often do you update the website? Is it a continuous process?
Every week we make a few changes here and there on the site, small usability enhancements such as reconfiguring pages or changing the design of buttons.
We have larger projects too, such as adding user review sections, adding videos or redesigning the checkout process.
We operate agile development technologies, and one thing that allows us to compete with larger competitors is that we can drop enhancements and code very quickly if changes are needed.
Any plans for a mobile version?
We have been seriously looking at apps recently, but our focus is likely to be on iPads and mobile tablets rather than phones. I’m not sure it is an exciting enough product to shop for on the move, and it’s difficult to replicate the online experience for mobile users.
I think we can do more with tablets though, and I can see small businesses using tablet apps more and more. We have some early designs for tablet apps., and I think people will use them as a compliment to PCs, so they may order their office supplies on the train, or at home.