Service Central learns a traffic lesson

Young entrepreneur Danial Ahchow has built a thriving online marketplace of service providers in less than five years. In the midst of a skills shortage, Service Central is now pushing hard into other markets, and plans to double turnover to $16 million n

By Jacqui Walker

Young entrepreneur Danial Ahchow has built a thriving online marketplace of service providers in less than five years. In the midst of a skills shortage, Service Central is now pushing hard into other markets, and plans to double turnover to $16 million next year.

When entrepreneur Danial Ahchow, 30, was pitching his internet business Service Central to a boardroom full of high-powered suited potential investors in Sydney last year, he told the story of how eBay beat Yahoo in the online auction game. 

eBay got started first and attracted sellers. Buyers were attracted to the large number of sellers on eBay and in turn the large number of buyers attracted more sellers. In other words, eBay created a thriving marketplace first – and it killed Yahoo’s plans.

As Ahchow told the story, Cliff Rosenberg, former CEO of Yahoo Australia, rose from his seat and said: “I completely agree, and it cost me $20 million.”

The point that Ahchow, a former industrial relations lawyer, was making is that to make an online market work you need a critical mass of buyers and sellers. Ahchow’s site Service Central is a marketplace where potential purchasers of services such as plumbing and carpet cleaning find qualified service providers.

He believes he has hit critical mass in Melbourne, where he started the business with his father Bruce, and he is now working hard to achieve it in Sydney and Brisbane. Last financial year he turned over $1.9 million. This year turnover will reach $8 million and he hopes to double it to $16 million in 2008-09. He plans to be cash flow positive this quarter.

Ahchow has 3000 service providers signed up and gets about 50,000 visitors to his site a month. He has attracted several high profile investors to the business, including Seek co-founder Matthew Rockman and wealthy property developer Shaun Bonett, who, according to BRW magazine, is the richest entrepreneur in Australia aged under 40.

But building the critical mass of buyers and sellers required to make the online marketplace work has been a hard slog, especially since good service providers are hard to find, and usually really busy.

After a stint as an industrial relations lawyer for RACV, Ahchow was developing a tender proposal for his parents’ cleaning contracting business and working out how to recruit cleaning contractors on a large scale when he first appreciated the need for a service like Service Central.

He saw that technology could help sort the good service providers from the bad. He first spent about two years working on technology. By 2005 he was ready to launch. At the time there was nobody else offering a similar service because the technology was new. Web 2.0 technologies, two-way SMS and high speed broadband internet made it possible.

The first challenge: Recruiting service providers

The first real challenge was getting service providers on board. “I called 600 plumbers before one would meet with me when I started. They all said they were too busy.” But he persisted and tried to make it worth their while.

“Over the last three to four years we’ve been tenacious in getting out there and meeting them and presenting a user-pays system that’s fair to them. They only pay when we generate the right type of work for them,” he says.

Service providers pay an annual subscription fee and a small fee for every lead that Service Central sends their way. The amount of the fee is calculated according to the profit margin of the service, the size of the job, the amount of jobs in that location.

He finally signed his first plumber, but it took another year to get 150 plumbers signed up in Melbourne. He then added other services, but limited the offering to Melbourne. Ahchow added Sydney and Brisbane last year.

He has done deals with some franchise chains like Harvey Norman Home Services and Chem-Dry, and is in negotiations with others such as VIP Home Services and Jim’s Group. Adding a chain to the network adds many providers at once and also provides some quality assurance.

Service Central uses feedback from customers to rank service providers, and promises a quality service. Ahchow says he knocks back 75% of service providers wanting to join the network because they lack proper insurance, qualifications or won’t follow the code of conduct.

If consumer feedback is three stars or below, the account management team questions whether they should remain in the network. “We purge quite a few, and it lifts the quality of the network,” Ahchow says.

The second challenge: Generating the leads

To make the business work, Ahchow had to get leads for the service providers. He had designed the business to be purely web-based but he quickly discovered that there were not yet enough people online for it to work, internet speeds weren’t fast enough and people didn’t have faith in the internet.

“So our strategy of migrating people away from how they traditionally found services was difficult. The internet is a difficult space to build trust and relationships in. So we quickly introduced call centres and a 1800 number, and job numbers went up 10-fold overnight.”

He used radio advertising and then television to attract consumers. As internet speeds improved and consumers went on line he focused on online marketing with Google, ninemsn and Yahoo. He now has a fulltime staff member working on Google AdWords and another working fulltime on search engine optimisation, to generate as much free organic traffic as possible.

“That has been phenomenally successful. We have trebled traffic over the last six months.

Yesterday we had 2650 unique visitors, and we are averaging about 50,000 unique visitors a month to site.”

He is most proud of the fact that 60% of jobs are repeat business. Less positive is the fact that he is unable to service 20% of leads because service providers are not available. “Quality is key. We made a conscious decision we would find quality providers. We’d rather let consumers know we can’t help rather than send out a cowboy.”

Raising capital

Ahchow has funded the growth of the business with investment from family and friends. Last year he raised $5 million from a syndicate of high net wealth investors put together by private equity firm Wingate House.

Just in time, because equity funding for early stage investments is now drying up thanks to the credit crunch. “We will hit cash flow positive this quarter. We are coming out of investment zone now and plan to be profitable from this quarter onwards… It’s perfect timing.”

He believes some of his competitors are in a different boat. “In the last six months a number of sites have appeared that have a similar look and feel to Service Central. But an online market requires businesses and consumers, and it is not until you have a high volume of both that it will work.”

He reckons getting his business underway in 2005 gave him a head start on competitors and enabled him to build the relationships that will enable the company’s success in the long term.

In Sydney, Service Central is now investing $100,000 on marketing a week and has 15 staff working on building relationships with providers. Work in Brisbane is also underway.