Archive for the ‘Business Review’ Category

BlackStar shining brightly

Sunday, March 5th, 2000

Gone are the days when people working in IT were referred to as nerds or anoraks. The sort of person who retreated from human contact to immerse himself in the machinations of mice, keyboards and hard drives.

To work in the virtual world of IT has become one of the most desirable professions around with high wages and companies clamouring for young, skilled workers.

Once it was the jet-set who were considered cool – in the new millennium it will be the Net Set who possess cachet and a big bank balance. Indeed, the world’s six wealthiest people are all information barons, with Microsoft founder Bill Gates at the helm.

Following his example, increasing numbers of young people in Northern Ireland are deciding to set up their own IT companies – perhaps it will only be a matter of time before the Province is able to boast the next Mr Gates.

Belfast-based on-line video store company BlackStar (www.blackstar.co.uk) has become a worldwide success story.

Founded in January 1998, BlackStar’s meteoric rise has seen it become one of the largest on-line retailer of videos and DVDs in the UK with customers in over 120 countries and over 80 full-time staff.

All day-to-day operations, from programming to graphic design and order fulfillment, are carried out in-house from the companies offices and a warehouse on the Ravenhill Road, Belfast. A London office handles all sales and marketing activities.

In January it was announced that the company plans a stock market flotation before the end of the year in a move which could see it valued at more than £200 million. Ryanair chairman David Bonderman is one of the main shareholders in the company, which is chaired by former A&L Goodbody boss James Osborne.

It is planning to carry out the initial public offering on the London and Nasdaq markets, but may also consider a Dublin listing.

BlackStar is the brainchild of chief executive Darryl Collins whose background is in film production.

“I saw the opportunity created by the growth of the Internet and the clear potential for retail demonstrated by the growth of companies like CDNow, Music Boulevard (now owned by CDNow!) and Amazon,” he says.

Another partner in the company, Tony Bowden, chief operating officer, set up the first internet company in the Province, NIWeb, which has gone through several hands and is now owned by Anderson Advertising and renamed The Internet Business.

Tony also has a very keen interest in films and, according to Darryl, probably has one of the biggest video collections in Ireland!

“Tony and I decided to set up an office together which would monitor and research internet developments. We had no clear plan, but we wanted to do something! We also realised that the missing link, so to speak, was a lack of sales and marketing know-how in-house.

“Having come from a TV commercials background, I had developed a very good close working relationship with Jeremy Glover, who was working at McCann Erickson advertising in Belfast, and naturally turned to him for advice. He quickly saw the scale of the opportunity and elected to join us as marketing director.”

Darryl adds: “We figured that it had to bring in cash to be able to ‘prove’ that the concept worked. When we looked at the different areas, we quickly worked out that selling videos and DVDs presented a unique opportunity.

“There was no American competition – video is in the NTSC format in the US as opposed to PAL in the UK and most of Europe – there was little High Street competition – most retailers hold around 5 percent of what is on release in the UK – and no significant on-line competition. So we just got on with it.”

So having come up with the idea they put the site together in a week and launched it. Their idea was to get customers to help shape how it worked by encouraging feedback, not to have it fully functioning with everything in place from day one.

In many ways this has been a core strength to how we work – 23 months of tweaking and improving is very hard to catch from a standing start!”

However, Darryl concedes that in the beginning it wasn’t all plain sailing.

“There is an innate conservatism in financial and professional circles in Northern Ireland, so most people we talked to either didn’t know about computers, hadn’t heard about the internet, did not know that ecommerce was possible or did not know anything about our ‘real’ business of retailing entertainment products. It was a tall order to find someone in Belfast with money or resources in 1996.

“We quickly realised that Northern Ireland-based professionals and high-net-worth individuals would only really get it when it was too late, so we started to look for finance closer to home – from family and friends and from further away, London and Dublin.

“Because we were the first Internet retailer to approach various local Government agencies we had a lot of explaining and persuading to do. We evidently failed to communicate the scale of the opportunity, and they failed to recognize our ability to execute a dynamic plan. To this day, we have not received a penny in public funding.”

He says one of the key problems which will be faced by many businesses doing things on the Internet is the difficulty in predicting growth and thereby sales.

We knew we were on to something, but creating a three to five year plan for a business that has never been possible before the Internet, was impossible. There were no precedents. No ‘rules of thumb’. No way to judge what the company, business or market would be like in 12 months time.

“Although we had fast growing revenues, we also had very few assets or cash on our balance sheet until we raised venture capital funding. Banks don’t like that! Whilst we ‘knew’ our efforts were creating long-term value for shareholders, much of that was intangible and hard to quantify. When we need overdraft facilities, local banks behaved true to form – they wanted security for every penny. If it were not for the foresight and confidence of one local bank, we might not have got over that particular hurdle.”

Another obstacle which the company encountered was finding an appropriate office.

“How do you find flexible space, with room to grow at reasonable rates in Belfast. Most developers are looking for a 5-10 year commitment. Having grown from three people in March 1998 to over 80 today, every option we looked at presented a problem in the future. We would either have to pay for space we didn’t initially need or end up out-growing a space and having to move with an ongoing liability.”

BlackStar has no significant high street competition as full-range video retailers in the UK high street music stores stock a limited range of 2,000 to 3,000 video titles, whilst BlackStar has a product line of around 50,000 video and DVD titles.

The company has consistently experienced orders growth of between 30-60 percent per month.

According to Darryl BlackStar thrives on competition. “We believe that competition brings the best out of companies like BlackStar and customers tend to benefit from that competition. However, we have many key advantages. For instance we sell 100 percent of what is currently on release in the UK, including the 95 percent that is not available in a Virgin or HMV. We are also open 24 hours a day 365 days a year. And we deliver to your door free, worldwide.”

BlackStar is a shining example of a local company with a global outlook. Its three founders have stuck to their guns and, it would appear that for BlackStar the sky really is the limit.

Commenting on where he sees the company going over the next five years, Darryl says: “Bigger and better! If, as people say, the Internet works on doggy years, then your 5 years is really 35 years at Internet speed… I can’t possibly comprehend, let along articulate, what might happen by then…”