Last year, skiing, villa and tropical holiday website Iglu.com was the first online company to break into full year audited profits. Next month, it is on course to record £1 million in profits after tax, and turnover has doubled every year since it was founded five years ago, and currently stands at £25 million.
The concept for Iglu was born out of a business plan (which went on to win two awards) developed in 1996 at the London Business School (LBS) where founders Richard Downs and Emanuelle Drouet spent two years studying for an MBA. Downs had given up a job as an investment banker at Salomon Brothers, partly to prove that he could set up a business and to free himself from the monthly sanity of a pay cheque.
Iglu was the first business to move into a small incubator set up by LBS to offer short-term accommodation and support for businesses founded by students and alumni.
‘Creating a specialist ski website was the one hundredth idea I looked at that I went with [an internet property rental business was an earlier concept]. I felt the travel component could inspire loyalty and opportunities for repeat business. Winning the awards helped open doors with venture capitalists. They were curious about the internet at the time but had not yet dipped toes into that market,’ grins Downs.
Downs initially funded the business on credit cards and raised £250,000 from friends and family and £50,000 from a seed fund set up by the LBS. He also received money from the Small Firms Loan Guarantee Scheme.
Borrow other people’s reputations
‘My two-year relationship with LBS meant it could derisk some of the funding as there was an element of inherent trust. It also gave us a higher profile with other potential investees. Our passion for skiing holidays together with a web angle gave us an interesting company to talk about, and we learnt to leverage our reputation against others. You have to beg, borrow or steal whatever you can,’ recalls Downs.
Iglu completed a first round fundraising of £3.1 million from GeoCapital Partners in 1999 and other investors (Chris Ingram and Psion’s David Potter). In 2000, the company completed another round of investment from Barclays Ventures, to the tune of £2.7 million.
‘Raise cash when you are strong, and more than you need at the time, without going overboard or giving away too much. [Today Downs and his management team retain thirty per cent of the company]. VCs are always waiting to invest after the month your cash has ebbed away. For me, the challenge was to not get too carried away,’ he comments.
Changing tack paid off
The company originally raised funds with the idea of tapping into European markets, but as Downs explains, recognising that pan-European expansion was not in the company’s interest was a key driver for its growth, although it led to the parting of the ways with Downs’ co-founder, Drouet, who was bought out of the business in 2000.
‘We have stuck to our knitting of specialist holiday focus – we don’t sell multiple flights or cater to the mass market. Most of our competitors are in the business of cutting costs rather than delivering expertise. Two to three of them are now outsourcing their call centres to India which may be acceptable for flights but not for skiing holidays,’ affirms Downs.
This tactic paid off. Today, Iglu boasts repeat business of around 40 per cent, which has enabled it to keep its marketing costs down. It claims to have captured approximately 80 per cent of the UK on-line ski market and ten per cent of the overall market.
‘Our challenge was to not get too carried away. We stayed focused on what we were doing. We made a conscious decision not to chase volume and turnover, but to get the alignment right. We were lucky enough to realise when we needed to secure finance and that we needed to change the business focus and still pay people at the end of the month. This enabled us to be the first company to break through to profitability. Our competitors, such as Lastminute, ebookers and Travelocity have yet to raise their bottom lines from red into black. Iglu achieved profitability 18 months ago,’ enthuses Downs.
Business funding ups and downs
Having launched the business – and raised funds – pre-internet hype was also key.
‘Raising funds was a difficult time – it all hurts from day one, but we didn’t have as much internet hype in our heads as we might have had as we were established early enough. We had to react to that in terms of the funding market – it was relatively cheap, then became expensive and then was virtually non-existent. It helped having gone through the business school route. I’ve seen many companies refusing to do a trade off between capital and an injection of cash but that wasn’t a challenge for me,’ asserts Downs.
A business built on passion
Downs’ faith in his staff is unfailing. He says the strongest motivation behind the company is having 100 people who are passionate about skiing, himself included. The company typically recruits people who have done ski seasons and there is a high number of graduates. The average age of staff is 26. Although the staff turnover is low, some employees take sabbaticals during the summer months, returning in winter when the business is at its busiest.
‘The ski industry is often perceived as a lifestyle business but we are professionals with it. Skiing is a holiday but people are passionate about it. It’s also a sport so you have the added value of coverage in the media. Complaint ratios in travel companies tend to be two to three per cent. Ours is less than 0.1 per cent and I make a point of knowing all our complaints and responding to them. We get more thank yous and compliments than we do complaints and normally it’s the other way round,’ he boasts.
If the name fits…
Since 2000, Iglu has diversified its offering to villas and tropical holidays for mid-net worth individuals.
‘Iglu is not a generic name and doesn’t imply ski so we can extend the brand off it. We were mindful of what to call the company in the first place and I’d like to say that it was foresight that made us choose Iglu. But to be quite honest it was a stroke of luck – a friend came up with it at a dinner party!’ he chuckles.
Although Downs acknowledges that launching a new brand from scratch is always more expensive, he says you can’t live forever and a day on long-term value of customers.
‘Our customers asked us what we did in the summer and we flipped it round to ask them what they like to do then. There is so much competition for ‘flop and drop’ holidays that we looked at doing something different. We looked at similar characteristics of ski holidays. Many of the operators we work with also offer villa holiday programmes in the summer so we were leveraging existing relationships,’ explains Downs.
In 2000, Downs publicly acknowledged floating the business as an option and he maintains that a flotation could still be on the agenda, although he now errs more on the side of a trade sale. Time will tell.