Going full circle

Despite the tough economic conditions, former Tesco CEO 
Sir Terry Leahy is backing UK SMEs. This is not just talk – he’s invested his own money in Blackcircles.com, the online 
tyre retailer. Andrew Geekie spoke to Leahy and Blackcircles’ boss Mike Welch 
to get an exclusive insight into how the deal works

Not long after Mike Welch started innovative online tyre firm Blackcircles.com in the Scottish Borders town of Peebles, he drew up a fantasy list of people he would like 
to have helping him grow the business. At the top of that list was Sir Terry Leahy – a man he had recently read about when Fortune magazine named him European Businessman of the Year.While most people would shy away from approaching Leahy, Welch felt that he had nothing to lose from writing him a letter. “It was a bit like Jim’ll Fix It, 
but for business,” says Welch. “The thing was, the more I read about Terry, the 
more I realised how much he had an appetite for UK business and how he was someone that I could learn a lot from. 
I decided to write him a letter asking if 
I could stop by his office for a cup of tea and half an hour’s chat.”

To Welch’s surprise, just two days later he received a reply inviting him to meet the man at the helm of one of the world’s best-known retailers. “I met with Terry and we got on well – it helped that we’re both from Liverpool – and from that point onwards he made himself accessible 
to me as a mentor.”

Kindred spirits

The magnitude of Welch’s achievement in securing Leahy’s help is obvious when you look at what Sir Terry achieved in more than a decade in charge of Tesco. Leahy is credited with creating Clubcard, Tesco’s reward scheme, introducing Tesco.com and Tesco Direct, and making the UK’s biggest retailer into the third biggest in the world with an ambitious expansion programme overseas.

When Welch and Leahy first met, it was while the latter was at the height of his success in 2006. Despite this, Leahy was happy to offer his services as a mentor after Welch impressed during that first meeting. “Mike put himself in my office to seek advice on how to take his business forward. Normally it’s pretty difficult to get in my office but I was fascinated by this young entrepreneur from Liverpool, like me,” says Leahy. “We have some excellent business talent in the UK and it gives 
me enormous satisfaction helping leaders of young businesses reach their full potential, as it’s these businesses that 
will ultimately deliver a much-needed boost to the wider UK economy.”

With Welch’s drive and Leahy as a mentor, Blackcircles has enjoyed strong growth over the past five years – so much so, that Leahy has been willing to make 
his position at the company formal by investing his own money in the business. Following his retirement from Tesco early last year, Leahy has been keen to return to the business world and has backed a series of young, technology-based companies. “It’s tangibly easier to start a new business online,” explains Leahy. “I’ve also invested in businesses that support the online infrastructure with MetaPack, which does delivery management for e-commerce businesses, and Eagle Eye Solutions, which does mobile phone marketing. So this is a growing area of commerce and the technologies that surround it are attractive.”

Back to business

Leahy’s investment in Blackcircles certainly can’t be seen as any kind of old pals’ act, with the company achieving an impressive growth rate despite tough trading conditions. Welch has already overseen growth of 20-30 per cent in each of the past three years. He is hoping for 50 per cent this year and then to further double the business in 2013.

Leahy is suitably impressed with the firm’s business model: “Blackcircles has looked at the car servicing market and come up with a new model, which is a tremendous combination of very low prices through the internet and great service from the garages.”

While Leahy’s interest in Blackcircles is far from philanthropic, he points out that his role at the business is very different from his previous one at Tesco. “I’m an investor and not on the board, but I am a mentor for Mike,” he explains. “I like business and I’ve started a lot of businesses within Tesco, like Tesco Clubcard and Tesco Express, 
and built up our expansion in a number of countries around the world from scratch, so I know what it’s like to build and grow a business, and what the next steps are for Blackcircles as it develops.”

Open to suggestions

Leahy adds that he can identify with Mike and what he’s doing, and says he can perhaps help him with strategic direction and the important moves needed to build the firm. There are, however, a few parallels with his time at Tesco.“I was often at arm’s length from a lot of the work at Tesco – you have to rely on people and let them run things. So that’s not so different from being an investor in Blackcircles. Mike runs it – it’s his business – and I make the occasional suggestion. He doesn’t have to take it and I’m very happy to make some more if he doesn’t like the ones I’ve come up with the first time.”

This brings a smile to Welch’s face, suggesting that he takes any ‘suggestions’ from a man of Leahy’s experience very seriously indeed. “From a credibility point of view it’s great to have Terry involved 
in the business, but it’s really the level 
of knowledge he brings that is going to benefit Blackcircles,” he says. “It’s awesome having that experience at the end of the phone. I’m very conscious not to waste Terry’s time, or the business’s time, so everything that I look for his insight on is core to our strategy.”

Raising aspirations

Welch believes passionately there are opportunities available to UK firms, even in tough economic times. “It’s easy to get a form of writer’s block when you reach a medium level in business,” he says.

“Often it’s hard to see where the next step should be, and business owners tend to freeze. I would say you need to raise your aspirations and perhaps look at getting some heavyweight advisers on the board. If you have a great business, why can’t you give away a bit of equity in return for the input and investment of a really experienced business leader? [See our succession planning article on page 46.] Having those people around you will help give you the inspiration, advice and reassurance you need to succeed.

“Terry is a really innovative and forward-thinking guy. He can come up with concepts and new ideas that will help take the business in new directions. There will also come a time when, as Blackcircles grows, we will really be able to make use of Terry’s knowledge of big business.”

Rewarding loyalty

Without doubt, one area on which Leahy will be able to advise Welch is building customer loyalty – something Tesco did remarkably successfully during his time at the helm.

“One of the challenges for Blackcircles is that it’s a fast-growing business but it’s still quite small,” says Leahy. “Its number of customer contacts is not huge. However, the broader principles of how you create loyalty with customers apply directly to Blackcircles – making sure you identify who your good customers are and looking after them. Too many businesses spend money chasing promiscuous customers and don’t actually reward loyal custom. That basic principle applies to Blackcircles as much as it does to Tesco.”

Leahy believes that by rewarding good customers, listening carefully to what those customers are telling the business and by constantly looking to improve and innovate, Blackcircles has an excellent opportunity to take on the established car-
servicing brands and high-street fast fits.

“So many people have cars, and it’s one of the biggest expenses we have, yet if you compare the car industry to food, for example, there isn’t anywhere near the strong competitive choice for consumers out there,” says Leahy. “In Blackcircles, it’s good to have a new competitor that is offering a different solution to traditional providers, which has been thought about a different way. That sort of innovative solution is important.”

Nurturing innovation

This raises the question of whether businesses – regardless of their industry – generate innovation and nurture it?“Innovation isn’t always done in a laboratory or in some dark room with hot towels on your head!” says Leahy. “It’s done by simply looking around you and looking at how people’s needs are developing – what direction they are going in and responding to those needs.”

Defining moment

There is no doubting Mike Welch’s drive and enthusiasm, and with Leahy’s backing the business looks likely to thrive. Interestingly, Welch feels that as that happens, he can hopefully redefine himself and how he is perceived.“I think that the word entrepreneur used to conjure up the image of Arthur Daley or Del Boy Trotter, but now it’s almost a fashionable way to describe yourself,” he says. “I see the entrepreneur tag as meaning someone who has taken the opportunity to do something that not many others have or could do.

“Overall, though, I think that your ultimate ambition should be to move on from being seen as an entrepreneur to being a business person. By working with Terry Leahy and learning from how he does things, I hope to be seen as less of an entrepreneur and more of a business person in my own right.”