Charles Dunstone: Carphone Warehouse
Dunstone calls the market with his plan to steer Carphone through its toughest ever year
The right combination of luck and common sense goes a long way in any industry, but can it really take you all the way to the Rich List? Charles Dunstone believes it can, but then he doesn’t even think he’s an entrepreneur. James Hurley meets him to find out why
Even the most conceited of tycoons can be curiously deferential to the role of good fortune in their success, but few go as far as Charles Dunstone. The company he founded in 1989 with £6,000 of savings, Carphone Warehouse, is now Europe’s largest independent mobile phone retailer, with a turnover of almost £4.5bn, but Dunstone remains self-deprecating to a fault.
“It wasn’t an amazing piece of inspiration,” he says of his early entry into an industry with such potential for exponential growth. “I opened a shop selling phones and was lucky to be in the right place at the right time. That’s all I’ve done really.”
Such diffidence could easily sound affected, but I get the impression that Dunstone genuinely regards himself – mistakenly, in my view – as a one trick pony. But I’m sure even he would quietly recognise the skill and vision he’s shown in building a retail business of such scale in a fiercely competitive sector.
The reluctant entrepreneur
Dunstone has been one of the most recognisable and highly regarded businessmen in the UK for years, but it’s telling that the 44-year-old still doesn’t call himself an entrepreneur. Without arguing about the semantics of a word that has been adopted by a huge range of industries and professions, and even forced into bizarre contortions – mumpreneur, ecopreneur and teenpreneur being particularly cringe-making examples – if Branson is the archetype, Dunstone probably has a point.
“I’m not a serial starter of businesses and 19 years on I’m still working in the only business I’ve ever started,” he says. To succeed over that long a stretch in such a large company, he’s proved adept at disciplines many owner-managers struggle with. Chief among these was the successful transition from private owner-manager to quoted company leader.
Countless entrepreneurs have had bruising encounters with the City and returned to private-company land with their tails between their legs. So why has Dunstone succeeded where the likes of Duncan Bannatyne, Philip Green and Richard Branson have felt constrained by the need to report to shareholders and a board that won’t let them follow their noses?
“Real entrepreneurs generally have bursts of driving a business, but perhaps lose interest after a while,” he says. “With a public company, you can’t do that or go off to do something else. I just run this business, so I don’t count myself as an entrepreneur.”
That might be the case, but surely his skill for expansion is inherently entrepreneurial? Carphone Warehouse now operates in nine European countries and has more than 2,400 stores. More pointedly, what about the diversification into telecoms with the launch of Talk Talk in 2003? “It’s the same thing – it’s just using the shops to sell fixed line as well as mobile,” he replies.
I’m not buying it. Just as Dunstone’s attribution of success in mobile to good luck and timing ignores the fact that countless other firms also predicted that mobile telephony would go mass market, but only he and John Cauldwell of Phones4U made an enduring success of it, his move into telecoms was in fact aggressive, potentially risky and decidedly entrepreneurial.
Back in the tube
Creating a mini-BT alongside a retail mobile phone business was an impressive feat, but Dunstone will only acknowledge applying good retail sense and spotting a gap in the market on price.
“Most telecoms companies don’t base their pricing on what it costs them to produce a service. They have huge amounts of invested capital that they’ve had for many years, so they price it at what they think they can get away with and make pretty big margins,” he says. “We came into the marketplace and priced not on what the market charged already, but on what we could afford based on our cost prices. That was seen as disruptive in telecoms, but in retail that’s business as usual. A lot of telecoms is about inertia.”
For all of Dunstone’s unassuming charm, at heart he’s an aggressive business builder and it got the company in serious trouble in 2006. In an effort to leverage the footfall in its stores to build up Talk Talk, Carphone Warehouse offered line rental and a generous call plan for under £20, with broadband thrown in for free. Dunstone had wildly underestimated the demand this would create. “It was terrible,” he admits. “We had a disaster.”
Once consumers had bitten Dunstone’s hand off, the company was left straining under the weight of a huge customer service backlog, massive installation delays and some very disgruntled customers. It was a chastening experience, but one that Dunstone says marked a turning point as the business moved towards maturity.
“When we get something wrong or got ahead of ourselves [previously], if we worked all night for a week, we could fix it. Here we’d done something so big and out of control that we couldn’t get the toothpaste back in the tube and it took a long, long time to sort out.” Eighteen months, in fact. “It’s about growing up,” he says.
Despite the tribulations, his company is now the third largest broadband provider in the UK, and while business has been hit by the slowdown in the housing market (people often change provider when they move house), putting telecoms into a retail setting has worked a treat in the long run. When he launched Talk Talk, he said he intended to gain 15% of the market, and he’s already reached 18%. So is he satisfied? “It’s enough, but clearly, I’d like some more.”
Along with co-founders Guy Johnson and David Ross, Dunstone became a millionaire when Carphone Warehouse floated on the London Stock Exchange in 2000. As one of the few owner-managers who have been able to adapt to public company life, his protracted balancing act between a potentially high risk, aggressive growth strategy and managing shareholder opinion has been sensitively handled, although he concedes that it’s been a steep learning curve. “To start with, it’s odd to have a lot of people examining and commenting on your business,” he says. “You’re very exposed. You reveal what’s going on and people vote every day with your share price as to whether you’re doing a good job or not.
“When analysts write a sell note on you, at first you’re really offended and take everything personally. After a while, you get broader shoulders and you learn how it works.”
Perhaps Dunstone’s greatest gift is his pragmatism. Second guessing the whims of the market is not an exact science, but when he does get it wrong, his response is calm and measured, qualities that entrepreneurs aren’t renowned for. “The trick is not running the business too closely to the reporting dates and ensuring you’re doing the right thing [for the company]. Until about a year ago, we did pretty well at that.”
While entry to the stock market’s premier league, the FTSE 100, in 2007 was a major milestone for the company, by September last year its share price had almost halved as a slowdown in broadband use and the housing market hit Talk Talk.
Dunstone also made the mistake of correctly predicting the depth of the downturn and its impact on consumer spending when, last November, he admitted that 2009 would be the company’s toughest, and most controversially, that the deepening recession meant it could not predict how it would fare over the Christmas period. He also told analysts that “for a lot of retailers now it is about staying alive”, and that “the people who are left standing at the end of this are the people that will prosper in the future”. Shares went into a tailspin.
“We were very public about being concerned about the consumer environment, so that made people nervous,” Dunstone concedes, although he seems bemused that honesty should be punished on the markets. “They think there’s a subtext and you’re trying to tell them something about your own business rather than the overall environment,” he says. “Actually, we called the market absolutely right ahead of when other people were calling it. But you don’t get prizes for that.”
Cutting his cloth
When I ask him what advice he’d give other business owners hoping to steer their companies through the recession, instead of offering empty platitudes, he recalls steps recently taken in his own business.
“You’ve got to batten down the hatches, focus on costs and just get through it,” he says. “You have to face up to the fact that this is happening and people won’t be spending the money they have been in any area of the economy for some time. You have to cut your cloth accordingly.”
Dunstone has been busy doing exactly that. In January, he sent a memo to staff asking senior managers to find ways of culling “meaningful sums” from the company’s £1.3bn annual running costs. He advised his own managers to “take a look at everything you do in your job with fresh eyes” and that “every pound is a prisoner”, which could probably be applied to many businesses with significant effect.
He’s also adapted pricing and products with impressive results. For the quarter to December 27, like-for-like revenues were up 6.5%, although retail margin was down as the company worked harder to win business. “We have to be very aggressive on offers and price. We find that we can make the sales, but we can’t make the margins,” Dunstone explains. “Consumers are much more circumspect about buying and they only make the decision if someone’s giving them a really good deal.”
In an attempt to breathe life into a subdued broadband market, he’s introduced an emergency tariff for cash-strapped customers, waiving the company’s £6.49 monthly charge for six months. It’s a nimble bit of positioning in an increasingly cost-conscious market, but he hasn’t just been focusing on the short term health of the business.
Dunstone could cite an enviable number of milestones, from going public, to establishing Talk Talk and getting exclusive UK rights to the iPhone, but the one he’s most proud of bodes extremely well for the future of the company, even if the bravery he showed in securing it made the markets jittery.
Last May, he sold half of Carphone Warehouse’s retail business to US consumer electronics giant Best Buy for £1.1bn, a price that diluted the year’s earnings per share by 10-15%. The combined companies have created a joint venture that aims to build as great a share of the European consumer electronics market as it has in the States, where it has secured 20% and generates revenues of more than £20bn.
It was an ingenious strategic maneuver from Dunstone. He can use the £1.1bn to reduce the company’s debt and reinvest in the retail and broadband divisions, inspiring a renewed assault on BT and Virgin. The combined scale could easily create a brand capable of toppling a listless and dithering market leader (DSG, owner of Dixons and Currys) in consumer electronics, and once again, he has diversified a business that has been misleadingly named for years. Some one trick pony. “All specialty retailers die eventually,” he says. “You can’t just sell one product.”
Commentators were suitably impressed by the move, but Dunstone was already regarded as a visionary leader, and whether he likes it or not, an inspiring figure for entrepreneurs. While some shareholders questioned the timing of the deal and the recession’s impact on the valuation, effectively creating a new store close to the bottom of the market could yet prove to be his greatest coup. When trouble strikes, he reckons owner-managers know best. “In tough times, businesses that have had the same management team for a long time and are owner-managed do better. We know what makes our companies tick.”
Married to the firm
Despite his inspiring leadership and determined deal making, as an interviewee, Dunstone is courteous, quiet and unassuming. Following a newspaper profile in 2006 that portrayed him as married to the job, it’s hardly surprising that he was considered London’s most eligible bachelor for a long time. No doubt many were disappointed to learn that a man who’s worth an estimated £276m (an eye watering fall from the £900m estimate in 2007 as the financial meltdown devalued his one-third stake in Carphone Warehouse, but still an attractive wedge) got engaged at the end of last year. Not that he’s taking it easy.
“It’s difficult to do a job like this and not think about it a great deal. I probably don’t work the hours I used to but the gravity of the decisions you make increases as you get bigger,” he says.
In the little spare time he does have, he’s a gifted amateur sailor. He’s also recently been appointed chairman of The Prince’s Trust ‘Enterprise Fellowship’, which encourages business owners to invest in and mentor budding entrepreneurs from disadvantaged backgrounds.
“The Enterprise Fellowship is fantastic; it allows people like me to play their part by showing that you can start with nothing and build your business,” he says. “When you do it and it works, however big the company is, it’s the most fantastically rewarding thing.” Spoken like a true entrepreneur.
The Ross share affair
Why Charles Dunstone was bemused by the coverage of 2008’s other Ross affair
In 1991, when portable phones resembled house bricks and were still the preserve of yuppies, David Ross joined Charles Dunstone’s two-year old mobile phone business as finance director.
While Dunstone is known for his modesty and reserve, Ross, a former school friend has often drawn media interest for his extra curricular activities and extravagant lifestyle. His fondness for dating glamorous partners, including supermodels and pole-dancers, has meant he’s often been pictured in the tabloids.
At the tail end of last year, Ross was in the news for an altogether different reason: he’d resigned form Carphone Warehouse’s board because he’d failed to disclose that he’d used a large slice of his personal holding in the company to guarantee personal loans, breaking FSA regulations.
Following a whirlwind of bad press and indignation, by the time Dunstone and I meet, Ross has effectively been cleared by the FSA, with the authority admitting that its rules were had not been completely clear, prompting it to offer a two-week amnesty for other company directors to declare whether they had made similar pledges with their shares in the past. A flurry of hasty and bashful admissions ensued, putting Ross’ offence in context. It emerged that public company directors had pledged almost £680m worth of shares as collateral against personal loans, with more than 50 companies disclosing share-backed loans during the amnesty.
Dunstone is bemused that the issue had initially caused such a furore. “He’s been cleared by the regulator. You couldn’t imagine that from the commentary that was written about him,” he says.
“Some of the people who have been running banks haven’t been on the front page six days in the week. That’s the way of the world – they knew that that story would sell newspapers and I guess that did. But it’s very sad but he did seem to get vilified.”
Dunstone also confirms that the friend he’s “still close” to won’t be returning to Carphone Warehouse in the wake of the amnesty. “He’ll move on now. He’s got lots of other interests. He was non-exec. He was only really attending board meetings. It would have been very different if he’d have been working full time in the business.”
In his own words
On focusing on Carphone Warehouse
“Once you’ve got a bit of scale, you can put some effort into that; the leverage you can get and what you can achieve is greater than founding lots of start-up businesses”
“Retail is really about attention to detail. There’s never one big thing you can do. It’s millions of little things that you have to work at, getting as many of them right as you can”
On the recession
“The change in attitude among consumers has happened extraordinarily quickly. It’s amazing. I don’t think the world has ever seen this kind of deceleration”
On his school years
“I didn’t have ambitions to be an entrepreneur. I was a waster. I didn’t really work or do anything”
On daily reports
“I have an incredibly short attention span, so I butterfly over lots of stuff. I remember key bits of data. You learn the bits that matter quickly”
On running a public company
“It’s a lot of pressure. You can’t just decide to grow a lot one year and not make much profit. External shareholders won’t necessarily agree with your strategy”
On working with the Prince’s Trust
“The thing that really attracted me is that there are so many people in the world and in the UK who never get a break. I’ve been lucky to have breaks – I’ve squandered quite a few, but taken some as well”