Theo Paphitis: La Senza, Ryman and Millwall FC
Theo Paphitis acquired a knack for turning around ailing companies. We talk to the man with the Midas touch
Unless you’re a Millwall fan, you probably haven’t heard of Theo Paphitis. He’s already one of the UK’s richest men: 333rd in the UK according to the Sunday Times’latest eponymous list, and expect him to climb that chart fast. He’s down to earth, often described as ‘colourful’, and highly impressive.
His knack for generating wealth is simple – buy failing companies and turn them around. And he’s very good at it. Retailing is now the core of what is now a veritable business empire, encompassing household names Ryman and La Senza as well as Contessa and Partners. But, unusually, the knack has also extended beyond retail to football and media.
What’s your secret?
There’s no magic to business, it’s very simple – just apply common sense. Except that common sense has been misnamed, since it’s actually very uncommon. In many businesses, the people who work there are nothing like as passionate and committed as they need to be for that business to work well. If you aren’t passionate, you won’t succeed.
How did you get started?
I hated working at Lloyds of London; I didn’t speak the right way or have the right family, so people kept on joining after me and getting promoted because their uncle worked there. I doubled my salary when I left to work for Watches of Switzerland as a sales assistant, and there I learned that I loved retailing and sales. Then I got into commercial mortgage sales, and started to look at all sorts of companies in trouble when the bank had turned them down. I’m a nosy bugger, and really enjoyed looking at these businesses. I wrote reports showing how they could repay their loans, and then approached different banks, who lent the money. After doing this for a while I thought ‘why not do it for myself’?
What’s your strategy?
I’m only interested if there’s a sound business there which is being badly run. You need to make sure the market’s there – no matter how much passion you’ve got you need a market. We like niches and retailing. My strategy is dictated purely by opportunity.
Now that you’ve built a successful business, is there a temptation to go for something more successful and safe?
No, what’s the point, what value could we add there? We work on the basis that 2 2 =5, which is why my maths teacher had such a problem with me at school.
How do you get your staff to care?
All my staff are incentivised, which helps; people can make between 10 and 40% of their salary in bonuses. And we make people responsible; someone needs to be responsible for everything, however small, and only one person. That makes a huge difference. We operate a meritocracy, too, where anyone who’s good can get promoted fast. We like to promote from within. We don’t care how you speak, what your father did, what colour or religion you are, we only judge you on your performance. When we take over a loss-making company we always inherit a very demoralised workforce. We offer them hope.
Do all staff really have your home and mobile numbers, and do they dare use it?
My mobile phone number is listed in every store, so anyone can call me. It doesn’t get used very often, I think the last time was about six months ago. But it was the right thing to do to call me then, and I solved the problem.
How do you manage so many businesses?
I have a great number two, Malcolm Cooke, and a very flat hierarchy. I look at sales for each business every day, and trading results for every company every week. I have loads of direct reports, but it seems to work. Twice a year I hold a ‘Theo’s moans and your moans’ session with area managers to get things off our chests and sort out problems. I still make regular store visits and insist that everyone in authority does the same. It amazes me how many executives at large companies don’t sample their own product.
You seem to be hot on five year plans. Why?
I’m f***ing enormous on five year plans. We don’t do short term. We have very accurate three year plans, and some idea beyond that for the next few years.
How important are minor things to the bigger picture? For example it’s said that you make footballers pay 50p for toast.
That is rubbish. A newspaper ran that story and it simply isn’t true. But details matter. Retail is detail. You’ve got no chance in business if you don’t take care of the little things; the bigger picture is made up of lots of little things. What’s little to a business can easily become big to a customer.
What are you proudest of?
The people I work with, the brands, and my family. We often take on demoralised staff, and I’m really proud that we can remotivate those same people so they can achieve something themselves.
And my success. Business is not about money for me, it’s about success. Money is a by-product, a way of measuring success – but it isn’t what drives me. I wonder sometimes whether I should do something more meaningful with my life, something which contributes more to society. Although Millwall is arguably a contribution to society, and I never get any thanks for doing that.
Why ladies’ underwear?
I spent most of life trying to get women out of their underwear, now I’m trying to get them back into it!
What gets you up in the morning?
I love my life. There’s so much I want to do, I can honestly say I can’t wait to start each day. But I’m not a morning person…it takes me ages and several drinks to get going. There’s always another mountain out there to climb.
What are your weaknesses?
Strengths and weaknesses are often the same. My open, informal way of working can be seen as a weakness. I lose interest in things very quickly, and need lots of balls in the air all the time with fresh challenges to stay interested.
When is it OK to get mad?
I like to push things to the limit. I’m an emotional person and think that passion is key to business. Whatever I’m doing is the most important thing in the world to me at that time. With all that, it’s inevitable that I’ll get mad from time to time.
What’s your biggest scar or disappointment?
When I was thrown out of AT after making an acquisition which was full of fraud. I was a paid exec then, and carried the can very unceremoniously. The company went bust within a year after I left, and I’m sure that if they’d let me do it my way that wouldn’t have happened. That was when I started to get disillusioned with the City.
The art of turnarounds
Buying firms from the receiver or administrator brings all sorts of additional hurdles compared to buying something successful. For a start, potential acquirers have very little time in which to decide whether or not to proceed. And there are no warranties (legal guarantees) that the information you are told is accurate.
Moreover, many suppliers or key staff might be sufficiently angry or demoralised to cease doing business with you after the deal. Research suggests that most acquisitions don’t work. And without proper due diligence, buying a failed business is substantially more dangerous. Health warnings in business don’t get any higher.
Yet despite this, Paphitis has been consistently successful at turning around failed companies, and Philip Green did it in an even bigger way with BHS. How?
Buying a business out of receivership or administration often frees a limited company from various burdens, principally debt, which is a massive step forward.
Then the fundamental business has got to start being run at a profit very rapidly to avoid the new management running out of cash. This will mean paying very close attention to business basics: making sure it is making sufficient margin on its sales to cover fixed costs. For a retail chain, this probably means closing some stores where costs are too high to ever generate a profit. Changing supplier or renegotiatingor supply contracts may also be necessary, as could be shedding staff.
But for Paphitis it is far more than this. One of his first steps is to invest heavily in IT systems. Accurate and up to date management information is crucial to making decisions at any time, even more so when a business is losing money. Where are the costs going, what lines are selling well? A substantial mail order business recently went bust despite robust sales. Why? It ran out of cash. One reason was it failed to pay the suppliers who supplied its best-selling products, thus missing out on good margins. Its lack of tight financial controls proved fatal.
Paphitis also addresses the issue of staff early on. Unusually perhaps he offers incentives to all of them straight away, assigns clear responsibilities, and talks to them about their own prospects at the company. His aim is to turn depression into hope and excitement. This inevitably rubs off on customers. If staff care, they can usually fix the many little problems present in any failing business.That mail order company? It was bought out of receivership and is now trading profitably; Paphitis is right, it’s not magic. But getting turnarounds
The fundamental business has got to start being run at a profit very rapidly to avoid the new management running out of cash
Theo Paphitis CV
Born: 1959 in Limassol
1976 Leaves school at 16; Works for Lloyds of London as ‘Tea Stirrer’s Assistant’
1982 Aged 23, set up his first business, Surrey & Kent Associates, a property finance broker.
1987 Appointed Chairman of Astra Industrial Group PLC by a bank owed millions by the quoted company.
1990 Bought Movie Media Sports, a media agency, from the receiver.
1995 Bought Ryman from receivership
1997 Bought Millwall Football Club from Administration
1999 Acquired La Senza and made 6 million profit last year.
2001 Bought Partners, a chain of 120 (now 88) stationery stores, as usual from the receiver