Peter Jones: Phones International Group
The Dragons' Den star who created the £200m Phones International Group
Rachel Elnaugh's Red Letter Days went into administration amid crippling debts. Couldn't get much worse, could it?
She had carefully built the £17m-turnover experiences company before busily forging a career as a business guru on the BBC's Dragons' Den – only to lose it all. To then see the ailing business saved by two of her fellow panelists on the programme in a blaze of headlines rubbed salt into an already gaping wound. It's about as humiliating a scenario as you could imagine.
Peter Jones, the entrepreneur behind £200m-plus wireless communications business Phones International Group, and Theo Paphitis, the man who revitalised La Senza, Ryman and Millwall FC, stepped in to pluck Elnaugh's 16-year-old ‘baby' from the clutches of administrators Kroll in early August.
Jones, particularly, may have looked to outsiders as though he had a mean streak. He had sat side by side with Elnaugh for the filming of two series' of BBC Two's cult success. Paphitis on the other hand had yet to be publicly unveiled as the replacement for YO! Sushi founder Simon Woodroffe.
For Jones, there was no discernible ‘fit' with his other business activities and his position in the limelight could only be enhanced by this sexy business story for the nationals. Furthermore, taking on the debts would barely dent his estimated personal wealth. How could he lose?
But he refutes absolutely that he moved out of any desire to boost his profile further, arguing that he and Paphitis have far from courted the press. “This is not a publicity stunt,” he says, anticipating how some might perceive it. “The reality of life is we've got to go in and do a turnaround. When we've achieved that, we'll talk about it. Over the last eight weeks we've been completely wrapped up in the business.” He admits he's spoken to Elnaugh, who he described as a business acquaintance more than a friend, once or twice since but says they're not in dialogue as she has no further part to play.
To date, he's bouyant about what the pair have achieved, already referring to it as an “astounding turnaround”. “I'm very pleased with what we've got,” he enthuses. “We've done a lot already. I'm not saying it's a miracle, but it's not far from it if you compare where the business was to where it is now.”
Orders are being processed every day. Agreements with suppliers have, to a great extent, been salvaged. And customers too will be pleased to learn that the initial commitment to redeem vouchers bought via Visa and Mastercard, where the card issuer picks up the liability anyway, has been extended.
Debenhams, Harrods and Selfridges, where the company has concession outlets, are all back on board. This represents more than 80% of the company's retail business. And more announcements appear imminent. “We're working closely with House of Fraser to see whether that can be sorted out. So we've got a lot of very happy people as a result,” he says.
Customer satisfaction has come at a price though and Jones and Paphitis are digging deeper than they had expected to. Jones admits he was surprised at the number of vouchers that have not been redeemed, and Kroll puts total debts at more than £14m – much of which is effectively written off because the money had been paid up-front and used within the business by Elnaugh. What seems incredible is that she told Growing Business in 2003 that the company had been profitable for a decade at that time. Proof that an apparently successful company's demise can be rapid.
Taking on monsters
Acquisitions too have been known to turn into monsters, swallowing up cash – in many cases the entrepreneurs' own money as their hearty conviction that it ‘has to work' battles with their business head. “If it turns into a monster we've clearly failed,” he says. “I think the business has got very good brand value and I think you'll find Theo and I will put in as much effort as is necessary to make sure it succeeds.”
Fighting talk and, aside from the cost, the unredeemed vouchers are actually ‘good' news for the business, he says. “It's £15m-worth of experiences that people just wouldn't have had had we not taken the company over,” he contends.
And by committing to honouring vouchers a number of suppliers have been saved from bankruptcy, he says. “Without Red Letter Days they don't have a business.” What's clear is that Jones and Paphitis are taking a calculated risk – not only do they maintain the product offering, but they secure the longer-term buy-in of its existing customer base, and show the world that the business is back on track and can be trusted again. Whether they restore it to a profitable state and sell, or instead stick with it, you sense their cash will be clawed back.
An old hand at turnarounds, Jones has chosen, in Paphitis, the best possible running mate. It's the first time he has partnered with anyone in business and admits that there are ‘interesting' and ‘different' views about what needs to be done. With so many key decisions made in such a short time you'd imagine it's not been the best time to team with another strong ego. But Jones says it's working well. “What is very healthy about it is that we've got a very close working relationship. It helps that we're friends and it's obvious the relationship's got closer as a result of the acquisition.”
So it's pretty equal then? Apparently so. “This month I'll be chairman, next month he'll be chairman,” he says of the cosy arrangement. “We're jointly calling the shots. If there's any level of financial exposure we're both in it together. I think both of us will leave egos aside. We've got a job to do.” Key appointments have already been made. A new FD and an operations director on the call centre side are installed, and the new MD is hired and ready to go.
For busy men like Paphitis and Jones this is clearly a relief, leaving them able to concentrate on existing business interests and other ventures. “We're certainly not less interested,” he insists. “We'll just leave others to run the business.”
In Jones' case it means more time developing his career as a business personality on TV. The success of Dragons' Den has led to him entering a joint venture with TV's ‘Mr Nasty' Simon Cowell, star of ITV's Pop Idol and The X Factor. Jones' production company PeeDee Productions and Cowell's Syco TV have an equal share of the format, provisionally titled The Inventor. The programme's been commissioned by ABC and will air in America, with the hope that Jones can emulate some of Cowell's Stateside success. “We start filming in seven states in the US later this autumn,” he confirms. “We'll be doing auditions looking for the million dollar idea. One person will win $1m and will potentially have their product stocked in most major retail players in America.”
Jones will preside over the panel alongside two high profile, but yet to be named, American entrepreneurs. Cowell, for once, will remain behind the scenes. Filming is set to commence this month.
Business has undoubtedly become sexier in recent years. “I think business touches every heart and every hand in the nation. For me, business TV is becoming the new rock and roll,” he says, without irony. “Everybody's got an idea. Everybody thinks of something, whether it's an invention or a business idea.”
His somewhat grander design is to influence the national curriculum, starting business teachings at an early age. “It should be a lot more entrepreneurial. I would very much like to be a part of it. So if Mr Blair would like to pick up the phone and give me a call, the line's open.”
A natural frontman, Jones recognises the value profile brings to his business, but warns that you can't get wrapped up in your own world. “People in business becoming celebrities is almost a necessary evil. Profile is important.” True enough, but the danger is the tide can turn and those in the public eye become ‘legitimate' targets. As a businessman that might be hard to take. With Phones International Group actively considering a public flotation in the next year, the issue will come to the fore. There's no question Jones' status will guarantee the company coverage – most of it positive in the run up and immediately after listing. But if it underperforms you can be sure it'll be thrust even further into the limelight.
He admits that he copes badly with having his head above the parapet, adding that “it's a disappointing reflection of our approach to success in this country”. So far, while he claims to have been on the receiving end on occasion, it's not proved detrimental to the business. “There are always others who have done it better, can do it better, and will have an opinion on me. People have to write about something.” One thing he hopes they'll be writing about positively is Wonderland, his £175,000 magazine investment on Dragons' Den. Launched for young careerists with large disposable incomes and an eye for fashion the title represents quite a risk. But Jones is staggered by the response of advertisers so far. “I think Huw Gwyther's done an amazing job,” he says of the editor. “Exactly what he said on Dragons' Den he's delivered.”
Jones invites entrepreneurs to pitch to him via his own website, www.peterjones.tv, and applies his ‘PeterMeter' to their efforts. So how does he rate his Wonderland investment? For him, it's a success already, he says, “because we've done exactly what we planned to do. Now it's taking it further to make sure it becomes profitable”. For the moment, at least, everything's coming up roses for one of the UK's fastest-rising entrepreneurs. The next year or so could well elevate him to Branson-esque status. Let's hope he's ready for it.
We did limited due diligence. We had only a couple of days working through the night, because we realised how quickly we had to act,? says Jones of the recent rescue package for Red Letter Days.
One entrepreneur we spoke to, who was offered the business, was told it would not be possible to take a look at the company?s books. ?At the end of the day we had to take a lot of judgement calls,? confirms Jones. ?We were pretty much confident that this was a good sound business that with a good bit of change management and direction could be turned around.? Certainly the company?s claim that 90% of FTSE 100 companies are customers proved attractive. ?It?s an amazing database in its own right. The corporate quality from British Airways to Orange to Vodafone is fantastic.?
Jones slams reports that he and Paphitis bought the business, with substantial debts, for a ?nominal amount?. ?It certainly wasn?t a nominal amount. It certainly was and is going to be a substantial investment.?
He refuses to be drawn on where Elnaugh went wrong, preferring to focus on the future. ?If you focus all the time on the things that went wrong you don?t actually take the company forward. A lot of people would think that we?d have gone in and evaluated all the things that went wrong, why the mistakes were made, but we didn?t.?
But it?s not hard to read between the lines. ?We?ve tightened up the financial reporting, we?ve looked at the overall operations of the business and the way the business was run from a call centre and customer service perspective ? from time to answer the phone to all the basic things. We?ve also looked at how we can work closely with the retailers with regard to specifically targeting the corporate sales team to deliver against specific accounts, looking at real account management, profiling accounts, understanding why a customer needs our service. That?s not to say that some of these things weren?t done before, it?s just what we believe we have to do to make the company work more effectively.?