by Kate Pritchard - Thursday, 30th August 2007

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If you thought you were obsessed with your mobile phone, you should meet Roger Butterworth. “I’ve got about a hundred of them at home,” he admits, before pulling out his Ubiquio 501 smartphone and checking his emails.

He’s the ideal person to run an online gadgets store. His Manchester-based firm Expansys, which sells wireless technology, including PDAs, mobiles and MP3 players over the internet, has witnessed meteoric growth over the past four years.

Its sales have leapt an incredible 391 per cent a year, from £301,000 in 2002 to £35.7m. No other company in the Hot 100 even comes close.

Butterworth joined the company in August 2000 when it was just two years old. He’d been working for Horizon, an IT distributor and one of Expansys’ suppliers, for five years, running its UK branch office.

When Horizon went public, Butterworth made £200,000 from his share options. Instead of splashing out on a villa in Spain, a flashy car or paying off his mortgage, he decided to buy a business.

He picked Expansys. “I wanted to do something entrepreneurial with the money. Expansys’ business model looked good, it had long-term prospects and real scaleability. So I bought a 50 per cent stake for £150,000.”

His timing was spot-on. The original internet boom had just collapsed: “A lot of people had ridden the dotcom wave and then made a spectacular mess of it. That left the market open for people who were interested in running real businesses rather than
‘get rich quick’ operations.”

It also meant he could pick up dotcom victim 21store â“ a larger UK rival which had burned through £10m of investors’ cash â“ for a bargain price in 2001.

“21store was twice our size. It was turning over £2m when we were turning over £1m â“ but we picked it up for just £250,000,” says Butterworth as he steals another glance at his smartphone.

“We scraped around for the money: I put in my remaining £50,000, we borrowed £100,000 from the Royal Bank of Scotland, and we begged, stole and borrowed the rest from friends and family. That’s absolutely the best way to fund an acquisition. After all, you don’t want to let your mum down.”

Once Butterworth had the company in his clutches, he put in tighter financial disciplines, such as adding a proper logistics system for handling orders – “they
were still writing down orders on pieces of paper” – and slashing its outrageous advertising budget.

“They had full-page ads in the national press. Money was pouring through their fingers like sand.”

Butterworth admits that he spends “bugger all” on advertising and relies predominantly on word-of-mouth recommendations.

“I’d rather look after our existing customers than chase new ones. We put discount vouchers into every delivery, which we hope will act as an incentive for customers to come back and buy more.”

He has stormed ahead with a shopping spree, buying Californiabased Mobile Planet for $35m in 2005, and then Nomatica, a French digital camera specialist, in 2006 after it went into receivership.

“Mobile Planet was our biggest competitor in the States,” he says of the US acquisition, which was funded by Bank of Scotland. “We were turning over $8m in America; Mobile Planet was turning over $22m.

"The US is such a big market for wireless products. If you’re not there, you can’t claim to be global. Our European and US operations are much more balanced now and we also have the scale to negotiate better prices with our suppliers.”

He says the bulk of Expansys’ future growth is likely to be achieved overseas. It already ships to 139 different tax jurisdictions, including Antarctica, but the Far East offers the best opportunities.

“China is our fastest-growing market at the moment,” says Butterworth. “We set up an office there at the end of 2005 and it already accounts for more than five per cent of our turnover.”

Out of control
The company’s spectacular growth has caused Butterworth a few headaches. He admits that, up until the end of 2005, he was personally signing off every single purchase order. That’s around 50 each day.

His hands-on approach was admirable – but it was completely unsuitable for running what had become a big and complex business. “We issue around 4,000 customer invoices each day. And we move more than a million stock items to a quarter of a million customers each year,” he says.

“I struggled to keep a grip on the finances and they started to spiral out of control. I
got to the point where I didn’t know how much money we were making or losing
each month.”

So, 18 months ago, he finally hired a finance director. “In retrospect, we shouldn’t have waited that long. We were scared of the cost. It seemed like such an extravagance. But our FD paid for herself within two months and she’s made my job a hell of a lot easier.”

Butterworth has also seen the number of employees shoot up. There were six people when he joined the company in 2000. Now it lists 165 employees. “It’s a completely different kettle of fish. But I’m proud to say that the original six people still work at the company today. And they are all in senior roles.”

Five out of ten senior directors at Expansys are female. “Women are much better at multi-tasking than men. But they do tend to be riskaverse and lack ambition. I think the ‘glass ceiling’ concept exists only in women’s heads.”

Disaster averted
Butterworth’s other bugbear is legislation and red tape. In 2005, Expansys fell foul of the law when it was found guilty of importing Hewlett-Packard handhelds from Malaysia and selling them in the UK.

“I thought it was perfectly legitimate but there’s a quirk within EU trademark law that treats products imported from outside the European Economic Area as counterfeits. It’s utterly ridiculous.”

That legal wrangle took more than a year to sort out: “We settled for next to nothing but we spent over £200,000 on legal fees,” says Butterworth. “We don’t do any grey import into the EU now but it means that we’re having to charge our European customers ten per cent more.”

He also bemoans the introduction of the Waste Electronic Equipment Environmental (WEEE) directive, which states that for every new mobile phone that Expansys sells, it must offer to take back the customer’s old phone and have it recycled.

“It makes sense when you’re talking about products like washing machines, but mobile phones are practically impossible to recycle. If anyone out there has a business recycling lithium-ion batteries, I’d be delighted to hear from them!”

The next level
Online retailers are typically crippled by price-comparison sites and wafer-thin margins. Butterworth admits that Expansys’ margins are a “terrible” 1.7 per cent.

But the company gets around these problems in two ways. First, it publishes reams of useful information about each product and lures customers with additional content, such as forums and user reviews. Second, it competes on price by buying its products direct from factories.

“Historically, we’ve always bought products from local distributors on credit. But now we’ve reached a certain size, we can cut out the middleman and make a much higher gross profit.”

But there’s a caveat: “The Far Eastern suppliers want us to pay cash in advance of shipment. That means we need more working capital to fund the business.

"We did consider venture capital but I’m sceptical. VCs are the ‘wholesalers’ of the share industry. They want to buy low and sell high. And they’ll want power of veto over decisions. We also considered a trade sale but decided it would be a cop out. The business is still a work in progress. So we’re now in the process of listing on AIM.”

Butterworth’s outlook is ambitious. He wants to grow Expansys to a £100m market cap; he wants to make more acquisitions; and he wants to expand into new product ranges, such as laptops. Looks like we’ll be seeing this chap in next year’s Hot 100 list, then.

Tags: doing business online, acquisitions, success stories, financial management, management buyouts, roger butterworth, hot 100, expansys, raising finance, doing business overseas, 21store, mobile planet, share options, buying a business, growing a business, china, america, us, women in business, europe, doing business internationally, cash-flow,