Out with the old and in with a profit for online Freeflow
Alan Scroope saw the potential for profit in companies' excess software inventory, writes Jane Suiter
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ALAN Scroope is a young Kerry entrepreneur in a hurry. As managing director of Freeflow, he has built a multi-million-euro technology business in just a few years with relationships with some of the world's largest technology companies.
Freeflow, an online business-to-business auction company, handles more than $30m of goods every year and is growing at over 30 per cent annually.
Scroope, originally from Tralee, Co Kerry, trained by night as an accountant in Dublin. He first started working for M Kelleher & Co, a Tralee-based electrical wholesaler that was going nationwide, before moving to another Munster family company, Garvey's, which owned a chain of Supervalu supermarkets.
However, it was when he began working for 3Com that he realised what he really wanted to do. At 3Com he was responsible for inventory management, where his main job was to set aside sufficient resources to cover the write-off of goods every quarter. Essentially, every time the company introduced a new model, they would have to scrap all the old models. The waste was on a colossal scale and every month he was scrapping up to $30m of goods which was taken on the back of a truck to the waste recycling centre in Fingal.
Other companies had the same problem. They manufacture to forecast rather than order and the best forecast, says Scroope, is only about 70 per cent accurate. That leads to an awful lot of scrapping. Microsoft, for example, might sell about $3bn to $4bn a year and if the forecast is 25 per cent out, that can lead to waste of up to a $1bn of product. Overall, according to US consultants PRTM, the high-tech industry accounts for around $22bn of excess inventory annually.
Back in Dublin, Scroope realised that there must be potential in all that waste. His own corporate metric was simply to have zero inventory at the end of the quarter, as that was the key stockmarket indicator. The company did not focus on the cost of that, opportunity or not.
Nevertheless, Scroope had found a company that would pay 3Com 10¢ per €1 to come in and take away excess inventory. By the year 2000, other companies were coming and offering more. However, it took time and hassle to set them up as customers and in any case, it was very hard to control exactly what they would do with the product after achieving it and the last thing the company would want was for the old product to cannibalise the new. The solution, he believed, was in the company having more control over where the inventory went and in getting maximum value for it. He patented an online auction system and in 2001 set up Freeflow. Now Freeflow supplies web-based auction sites to companies for free. They can upload whatever product they like onto the site and have full control over which bids to accept or reject. However, Scroope hosts all the auctions. Some companies, including Apple, Motorola, Fujitsu and Cisco, host branded auctions while others have anonymous auctions. Freeflow also manages the product; it will repackage the product into plain brown boxes if the company requires or mark it with invisible ultraviolet pen so that it is clear how the product was sold.
Freeflow also manages the shipping and the payment. For example, if a company accepts a bid for €1m, Scroope will invoice the bidder and when payment is delivered, he will pass 90 per cent onto the vendor keeping 10 per cent for Freeflow. In this way the vendor only has to deal with Freeflow and not with any of the companies buying the goods. Freeflow also handles all customer relations, dispute management and so on.
Some 3,800 companies are registered to bid on the site with the majority being based in the United States.
The company is doing so well that two years ago eBay approached Scroope. It has a department which builds auction websites for third parties but it could not supply service or inventory. Now Freeflow provides all post-auction service to eBay's private marketplaces.
Turnover is growing rapidly. When this financial year ends in May, Scroope expects to see turnover hitting $334m, up from $1.1m in his first year.
On average, says Scroope, the company achieves growth in turnover of about 30 to 40 per cent a year. He now employs 18 people.
The recognition has not been slow in coming. In 2006 he was named the Emerging Entrepreneur of the Year by Ernst & Young in Ireland. FreeFlow was also chosen by Manufacturing Business Technology magazine as one of the 40 Emerging Software Vendors in 2006. Asked how the downturn is affecting him, he laughs. "It's great in a downturn, companies have more inventory that they need to offload, which helps us."
The one thing which does not suit is the weak dollar. All transactions are in dollars while costs are in euro. "We need a 14 per cent increase in turnover simply to cover the devaluation in the dollar."
In the next few weeks Scroope is due to announce another two big names which are joining his site, while he is also focusing on other areas. For example, the market for cars on eBay is around $10bn and in the UK, GE takes about 80,000 cars back off lease and sells them in traditional ways. He is now looking at developing web-based auctions for these.
But the best bit? Moving away from Dublin and enjoying a traffic-free commute from the lakes of Killarney.
