The computer repair industry is highly fragmented, with thousands of corner-shop businesses competing against a handful of national chains. But in a saturated market, Danny Gilligan of repair business Gizmo says he is standing out from the crowd by going against industry norms.
“We don’t use subcontractors, which is unusual for the industry, and the main reason why is because of quality of service. You only get that quality when people are committed and engaged, and you get that with full-time employees and not with contractors, who tend to be driven by financial outcomes and not necessarily customer satisfaction.”
Gilligan and partner Brett Chenoweth started Gizmo after working with AAPT. The business offers computer repair services for individuals and large business, with clients including Telstra and Dell.
He says the saturation of the market dissuaded them at first from starting a repair business, but they were able to leverage their relationships with major telcos in order to gain scale and national recognition.
“The challenge with the IT industry is that businesses tend to be tech-centric, with words like “geek” or “nerd”, but we moved around that by gaining credibility with companies such as Dell, Telstra and Harvey Norman, which gives you credibility and promotes your brand at the same time. We can give blue-chips the ability to service their customers in a way they can’t.”
Another key to their success was the decision to offer fixed-price services.
“One of the biggest concerns we’ve found is that people aren’t tech savvy, and they get charged by the hour. So they get anxious, wondering why things are taking so long. With the fixed price, we remove the anxiety, and our retail partners can then sell that. It’s hard to sell a service for “X” per hour, but with a fixed price it’s easy.”
The company operates in each capital city with 140 full-time employees. It recorded $2.65 million revenue during 2007-08, and expects about 200% growth for the 2008-09 year, indicating revenue of $5.3 million.
Despite Gizmo’s success, Gilligan recognises that even getting past the start-up phase is an achievement.
“I think we could identify about 6,000 businesses that operate in our market, and that really shows this industry has no barriers to entry. But it does have a barrier on scale. Out of those 6,000 businesses, 98% have less than five employees and 95% probably have less than two.”
“These days if you know anything about computers, you can set up a website, put a local ad in the paper and you’re a business. But what these businesses find is that once you get beyond five employees, the complexity of scheduling increases, you need to start investing, and then to get an ROI you need to grow quickly, which means more marketing, and it’s hard to grow beyond a certain size. That was a challenge for us too.”
Gilligan says Gizmo survived the initial growth phase by focusing on large corporate clients rather than individuals.
“The industry suffers from chronic undercapitalisation, and it becomes difficult to break out of that. One of the reasons we are so successful is because we are the only offering that services large, high market clients. Many businesses don’t focus there straight away, and so they end up in that struggle to expand in a very saturated market.”
“But then again, look at our market. We’re the largest player but we only control 5% of the market. It’s the quintessential cottage industry, and we’re trying to break out of that by starting a franchising initiative.”
Gilligan says obtaining scale is only one issue that tech companies face when starting up, and warns other businesses to obtain a good amount of investment.
“Access to capital is always a challenge, and anyone who says this is not the case is telling you lies. But we have a good investor group. Additionally, access to staff is always a challenge. Part of our strategy is to brand our vehicles, and all of our techs have a car, which is definitely a work car, but they use it for personal reasons.”
Gilligan also says offering staff benefits of full-time employment was a challenge, as the majority of IT techs operate as sub-contractors so they can work for a large number of smaller businesses. But he says Gizmo avoids this trend.
“There are a lot of benefits to being a sub-contractor. If you’re a highly productive person you can make good money, but you lose the sense of community and continuity of income. You don’t have a career path and there isn’t a lot of investment in training.”
“I just don’t understand what the long-term benefit is of a business using sub-contractors if you want to build a serious presence. I think businesses using subs tend to suffer the reception, if not the reality, that the quality of experience is not as high because there’s no corporate training investment.”
The tech industry has suffered in the downturn, but Gilligan’s relationships with large corporate clients have shielded it from much of the fallout. However, he says the business has still suffered.
“We’ve had very ambitious growth plans and we’re continuing to follow that plan, but some of our initiatives have been delayed because of the downturn. It doesn’t change the opportunity, but rather the timing, and we have to adjust our plans accordingly.”
“We’ve also invested hugely in technology. We’ve built a huge class CRM scheduling and invoicing platform. That allows us to book exact appoint times and manage the productivity of our business, and really that’s what we need to focus on right now in the downturn.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
