Dealing with energy suppliers can be a significant obstacle for many small businesses, as Bobby Kalar knows. He bought his first company in 2002, a small care home, and spent the next six years building it into a larger business with 170 members of staff.
Like many business owners in the tough period following the financial crisis, Kalar searched with a fine tooth comb to see where savings could be made. He found a glaring question mark. ‘I realised I was paying a horrendous amount of money for my electricity,’ he says. ‘It’s part of running your own business – particularly a care home that requires 24/7 heating and power, but I was paying almost 35% more than the previous year. Because I hadn’t engaged with my supplier they’d decided to renew my supply and recap it at their choosing.’
This discontent sowed the seeds for Kalar’s move into the energy sector; selling his care homes for £8m. Yu Energy, a supplier for small businesses, was born – but Kalar soon realised why the industry was so dominated by the current Big Six. ‘Massive challenges were the barriers and hurdles placed by the industry to dissuade potential entrants from coming into a non-diluted industry,’ he says.
He had numerous questions. ‘How do you create billing platforms? How do you find software? Where do you get electricity from? How are you going to transport it from one place to the customer’s address? How do you monitor it?,’ he lists. ‘It’s huge – the disjointed nature of what the industry requires in order to co-exist with the grid. It took me a solid two years to get to market.’ And he’s adamant this confusion has been ‘created by desire not by default’. Kalar jokes that if he’d been aware of all the obstacles early on, he likely wouldn’t have bothered. ‘If I’d known I would be sitting in Marbella somewhere right now! Twice I’ve nearly jacked it all in.’
‘I’m the sort of person who if I start something, then I’m going to finish it,’ he adds. ‘If I want to sell electricity then I will, if I want to sell cars then I will – that’s what my mentality is.’ Since founding Yu Energy in 2014, Kalar has slowly but surely built up customers. ‘Such is the lack of knowledge that some customers feel a small independent might run out of power which is not true,’ he says. ‘So we’ve had to get over people’s distrust and scepticism. That was always going to be a challenge and it remains a challenge.’
Read more on energy: Ovo: the new player in the game
Yu Energy employs 52 people, turnover for last year was £4m and Kalar says it’s projected to quadruple that for 2016, taking on nearly 200 customers each month. Customer retention is at 89% and for the past six months, complaints have been in the single digits. So far, so good.
Of course, Kalar’s not the first to see a chance to shake up the Big Six. The likes of Ovo and First Utility have done the same - and the latter was ranked as the largest supplier outside of the six major firms in 2013. Kalar though, wants Yu Energy kept entirely concentrated on small businesses.
Credit: Karen Eliot/Flickr
The business has just launched on Aim – pricing its shares at 185p and valuing the firm at £26m. ‘The primary reason for going on Aim was to get collateral and to get money,’ Kalar says. ‘We needed to get several million pounds so that we could lodge credit with power station and gas transporters so we could buy future contracts. If we didn’t, it would mean limiting ourselves to a very small number of customers.’
The difficulty of tempting enough customers away from the established players can’t be understated, nor the barriers to future growth, and Kalar acknowledges there’ll be more challenges ahead. But he says there’s one person in particular who helped steady the ship throughout. ‘If it wasn’t for my wife’s vote of confidence I probably wouldn’t have persisted with the business,’ he says. She was the operations director up until recently – and now focuses on looking after their children.
‘It’s all very well selling electricity, but how do we interact with customers? How do we close the contract? From an operations perspective, she was fundamental,’ he says. ‘It’s me who gets the high five and the credit, but what she did was equally if not more important in getting this to where we are today.’