AFTER a couple of years heading the IT department at the spread-betting firm
IG, Ricky Thomas felt burnt out and decided to quit. He was on holiday when
he spotted a business opportunity.
“I had no plans and was sitting on the beach in Costa Rica reading the paper
when I saw an article about a change to the law,” he said. “It forbade vets
from forcing customers to buy pet medication from them. They would have to
give a prescription that customers could use anywhere.
“I had a dog and it was costing me a small fortune in medication and I thought
it might be a good market to get into.”
On his return to Britain, Thomas decided to see if he could sell prescription
pet medicines online. Things were not straightforward, however. He needed
vets to help him but did not get any replies from several advertisements.
Finally he found two vets to join him and he started the business in June
2006. The first months of trading did not go as planned. Soon after launch
he came under fire from vets who complained (to no avail) to their
regulatory body.
Anxious competitors were not his only problem. Four months after launch,
Thomas feared he might have to close the business. Although sales were
growing rapidly, so were losses, and cash flow soon became a problem.
Start-up capital of only £15,000 plus the fact that he was not winning
large-enough discounts from suppliers stretched cash flow. Competition from
other websites, which were also cashing in on the change to the law, meant
he had to sell some product lines at a loss to keep attracting new business.
That summer Thomas got married to his fiancée, Diane. On the first day of the
honeymoon Thomas had to stay in their hotel room using his laptop to answer
customer queries and keep up with the work.
“It did not take much to destabilise the business and we had to cut the
honeymoon short, which did not go down very well with my wife. We came back
after three days. I underestimated how much money was needed to start the
business and I hadn’t expected such strong competition so soon.
“In the first four months we had lost £80,000. I began thinking I would have
to fold the business and the pressure was huge for the whole of the first
year.”
Thomas persevered. “I was working from 8am to 11pm solid. Even when we started
taking on more staff there were always new problems to solve. I made a lot
of mistakes. Not getting good accounting advice early on was a big mistake.
We did our cash-flow forecasting badly, we were owed money, we had not
registered for Vat, which meant we had to go back and change all the product
transactions. I could go on. We did so much wrong.”
By January 2007 a focus on making more profitable sales was bearing fruit and
the business had made a profit of £17,000 on sales of £480,000. “It wasn’t
much but it was a miracle all the same. I had been obsessed with growth and
was too relaxed about profits. The last three months of that year made all
the difference.”
Better analysis of sales-conversion rates and work with online affiliates,
such as price-comparison sites, which took a commission, quickly improved
growth rates, said Thomas. “A lot of people out there are prepared to sell
your product for you. It meant we could stop acquiring new customers by cost
per click and start paying by cost per acquisition, which made a huge
difference.”
In its second year of trading, sales climbed to £2.2m and this year PetMeds is
on target to reach £4.4m – sales were £400,000 in July. The firm should turn
over more than £8m next year, said Thomas.
He plans to use the online trading expertise he has developed for a new
venture, called Thechemist.co.uk. It will target the human prescribed
medicine market.
“Perhaps the biggest lesson I’ve learnt is to get proper advice,” said Thomas.
“Getting the right people with the right skills in to free up your time is
so important. The temptation to do everything yourself is strong but it’s a
false economy. Our accountant paid for himself very quickly in terms of
finding grants and the work he has done with our suppliers.
“Get a third party to go over your plans and criticise them, too. Although I
had written a business plan, I did not look at it and I did not have a
system developed. We are much more automated these days. We can grow by a
huge amount now without recruiting too many more people.”
Thomas, who is 29, has had offers to buy the business but said he enjoyed the
experience of growing it too much.
“You can’t beat being at the top of the tree, seeing the business grow as a
result of your actions and getting feedback from happy customers.”
That's a really encouraging story to hear. You were very brave to keep it all going when you were £80,000 in the red! I'm also glad affiliate marketing has helped turn things around. It sounds like you could write a book of your experiences as a guide to other would-be entrepreneurs.
Tom, Bristol, England