Black Circles: Michael Welch
Michael Welch's tyre firm got his big name rivals into a spin while he was barely into his 20s. He tells us how he did it
Those wishing to debate whether entrepreneurial talent is born or manufactured may wish to examine the breakneck speed of Michael Welch's ascent. It's clear that just being another employee was never an option for the Black Circles founder, even at an early age.
“I was the kid in school who would buy a compilation CD and copy it onto blank tapes and sell them,” he says. “I was a trader – there was no motivation to do it, I just did it for the money and the buzz of the sell.”
Welch decided to leave school at 16; “I wanted to get out of the education system, it didn't really agree with me,” he recalls. After scouring the papers for a job, an apprentice tyre fitter's job caught his eye. Almost immediately, his entrepreneurial instincts kicked in.
“I had a minor responsibility within the company, but it was obvious that these guys were buying for x price and selling for y, and the bit in the middle was quite substantial,” Welch explains. “More importantly, the customers didn't quibble. There was no negotiation over price, so it was obvious there was money in it.
“I decided I would have a go myself. The bigger the tyres, the more margin there was to be made, so I thought why not start a mail order, high performance specialist tyre business, which is what I did.”
Welch, who was only just 18, got a £500 grant from the Prince's Trust and started selling tyres via motoring magazines such as Max Power and Redline. However, he admits that he knew nothing about running a business at the time and needed help with basics such as finance management.
After taking a college course to plug his knowledge gaps, Welch worked for a year under Sir Tom Farmer, founder of tyre giants Kwik-Fit, gaining invaluable experience. He credits this time for setting the foundations for Black Circles.
“Kwik-Fit are the biggest tyre retailers in the world, they are market leaders,” Welch says. “It was my chance to see not what they do right, but what they do wrong, where their weak spots are and how their business model and proposition could be improved.
“It became clear very quickly that the market leaders, such as Kwik-Fit, weren't doing the best job possible.
“I wanted to be the chief executive of Kwik-Fit, but I was 20, there was no way that was ever going to happen. So I built my own Kwik-Fit.”
Black Circles, which is now four years old, allows customers to order tyres on the internet and get them fitted within a day at one of its affiliated garages. The low-cost, speedy service has proved a stunning success for Welch, with sales ballooning from £50,000 in the first year to a projected £7 million in 2005.
However, these rewards have only come with painstaking work and sometimes painful boardroom clashes. The introduction of a “challenging” shareholder to Welch's then-fledgling business nearly sunk the enterprise before it got off the ground. He admits that naivety nearly cost him dear.
“It turned into a nightmare,” he says. “My business was being wrestled away from me. For the first year, I spent my time building the business and fighting the shareholder. It was dirty play. And it became a priority to buy him out and replace him with a team of investors, which I did.”
Learning from his bitter experience, Liverpudlian Welch assembled a team that complimented his skills and compensated for his lack of legal and accountancy knowledge.
Welch is clearly an instinctive entrepreneur – a keen spotter of the smallest gap in the market, backed up with the energy and enthusiasm needed to exploit opportunities. But, unsurprisingly, there wasn't a lack of problems confronting an entrepreneur in his early 20s looking to take on the tyre industry – least of all in raising finance.
“It was a challenge,” Welch admits. “When I left Kwik-Fit, I had a month's wages, which got me trading. I was well supported by the local enterprise council, who gave me a short-term free period within the lease of the office and some basic funding.
“Myself and an investor started in an office, with me in the corner on an old desk that we picked up by the bin outside.
“Slowly but surely, we started to build the network and get the sales through the door. We took on our first member of staff within six months and then it was pretty rapid growth from then on. But it was a very lonely period.”
Welch has certainly crammed a substantial entrepreneurial career into a short time frame. Despite his obvious determination, he realises that his lack of years is seen as a disadvantage by some.
“People seem to relate age to experience, which is quite a misconception,” he says. “If you have the will and put the work in, you are inevitably going to get much further much younger.
“Bank managers, lawyers and accountants aren't qualified to judge purely on age, but unfortunately they do. I mention those three professions in particular because they are the ones you come up against. It's problem in other people's eyes, not mine.”
In order to provide quick tyre fitting – Black Circles aims to give wheels a new coating in eight hours, compared to the industry-standard 48 – Welch needed to sign up reliable garages. He undertook the meticulous task of approaching and checking fitters across the country. He now has a network of 978 bolt-on franchisees.
“We knew how to target,” he says. “Within the first year, we had 60 or 70 stores recruited. In the second year, we needed profit coverage and vetting, so we bought in some networking people to populate the UK in a formulaic manner, according to demographics. We'd already done the data and knew where the core penetration would be.
“We concentrated on those areas first and then painstakingly recruited the garages and made sure they kept up their service level.”
Black Circle's 17-strong call centre contacts every single customer, with scores sought for the job and the experience. Welch can then can see who is or isn't performing and act accordingly, with area representatives discussing problems with garages or handing out rewards.
“It's a costly and painstaking process, but the upside is the retention of our existing customers and the attraction of new ones,” he explains.”
“We've now got a very stable ship, we've spent time on the basics. It's all clichéd stuff, but we look at making sure the customers are getting the right service, even if it's to the detriment of the speed of business growth.
“I would question how many people spend enough time make sure their core proposition is right, rather than getting distracted by growing the business quickly. It's not all about that.
“Wal-Mart was a relative slow burner, but it does all the basics right. Do that and the growth comes.”
Welch clearly has lofty ambitions for Black Circles. Asked if he wishes to rival Kwik-Fit, he almost bristles at the suggestion that he wouldn't want to do so.
“I wouldn't be doing this unless I thought we could (take on Kwik-Fit),” he insists. “I'm not here to run a small to medium sized business, I'm here to create the next big thing in the industry. The UK tyre industry is worth £1 billion – we're going to concentrate on increasing our market share and maybe taking the business into Europe.”
Welch is keen to point out the role of Scottish Enterprise (Black Circles is based in Peebles, in the Borders) in helping him to start up, comparing the government agency favourably with its English counterpart. He feels it's important that entrepreneurs seek as much advice as possible.
“The younger you are, the less of a risk there is, so if you're going to do it, do it as young as possible,” he advises. “But if you are dealing with venture capitalists, investors or banks, make sure you seek the right advice from government agencies. Get a good accountant and lawyer around you and consume as much information as quickly as possible.”
It became clear very quickly that the market leaders, such as Kwik-Fit, weren't doing the best job possible