Sir Alan Sugar (7 page)

So, in the second half of 1985, the project to build the first IBM-compatible Amstrad machine was launched. This time, the codename for the project was Airo, which stood for Amstrad’s IBM Rip-Off. This was merely a joke, though, because Amstrad was making sure that its new machine would not copy an IBM model. Once experts saw the finished product, they were impressed. Paul
Bailey of Digital Research hailed it as ‘revolutionary’.
The Times
called it ‘a personal computer coup for Amstrad’; the
Economist
described Amstrad at this point as ‘A British David’ (as opposed to Goliath) in the computer world. A week on from the launch,
The Times
reported again on the PC1512, rounding up the critical response: ‘First reports from those few computer reviewers who have been able to lay their hands on a new Amstrad computer are encouraging – more impressed than expected seems to be the most popular view.’ The
Guardian
described the model as ‘a fast 8086 machine that costs a fraction of its IBM competitor’. The newspaper added, ‘While Amstrad is famous for cost cutting, the company has not skimped on the PC1512’s performance.’
Personal Computer World
was little short of gushing in its praise: ‘It goes faster than the IBM, it’s smaller, has better onscreen colours, and includes functions which have to be added (and paid for) separately on normal IBM-style machines.’ The following year,
Which?
magazine named the PC1512 its ‘best buy’.

As for Sugar, he saw it as a multipurpose machine. ‘I see it as a real home computer where father can bring work home from the office on a floppy disk, put it in his machine and work on it on his own desk, before taking it back with him into his office in the morning,’ he said. ‘At the same time, “Sonny Jim” can use it to play Space Invaders if he wants.’ He made this statement at the grand launch of the model, when nearly 1,000 hacks
turned up to the Queen Elizabeth Conference Centre in London to be met by a huge pair of red lips on a giant screen. Those lips explained what the many benefits of the PC1512 were. The eight differing models that formed the PC1512 range were then unveiled. A reported
£
3.5 million was spent on advertising the model, and the accompanying television advertisement cheekily said, ‘Compatible with you know who. Priced as only we know how.’

A tempting prospect. Too tempting, at first, it turned out. In the opening months of sales, customers found it increasingly hard to get their hands on a PC1512 model because initial demand had far outstripped Amstrad’s projections. Obviously, this was a nice problem for Amstrad to have and contributed to a 50 per cent increase in the company’s share price. A more serious problem was the rumours that the models overheated. Although there was some truth to these rumours, there was also evidence that a dirty-tricks campaign was under way against Amstrad’s new computer. Sugar was incensed by this, and said it was worse than anything he had experienced in previous years. ‘When I was competing against 40 other small-time dealers [in the
hi-fi
market], who’d kill their grandmothers in order to beat me to a deal … these dirty tricks and lies were never thrown at us.’

To counter the overheating rumours – rumours Sugar denied – he agreed to build a fan into the PC1512. This
did not constitute an admission on his part that a fan was needed. It was more about reacting to customer concerns. He joked that, if customers wanted bright-pink spots on the computers, he would react the same way.

However, the rumours had proved damaging and Sugar’s fury and disgust at the dirty tricks is justified. In October 1986, it was reported that chemicals company ICI had opted not to buy the PC1512 for use in its offices, due to concerns about overheating and performance. However, the truth was that ICI had made no such decision and were still involved in tests. To clear the matter up, ICI wrote an open letter to Amstrad. It read, ‘During the trials no problems were experienced with overheating when the Amstrad PC was connected to a token ring network. The Amstrad PC1512 has now been approved for purchase by ICI operating units.’ Nonetheless, damage had been done to the model’s reputation by the regular whispers and reports.

Not that Amstrad has ever been backwards in coming forwards, and after a report in the BBC staff magazine
Ariel,
which threw doubt on the safety of the PC1512, Sugar put his men into action. Nick Hewer, of Michael Joyce Associates Public Relations, and the man who would later stand alongside Sugar on
The Apprentice,
spoke of how he responded to the growing controversy. ‘When the safety of the PC1512 was being questioned by the BBC in its magazine
Ariel,
the writ came so fast their feet tingled. Harmful publicity was difficult for us to
deal with. We waited for the biggest one to get it wrong – and they apologised within 24 hours. We couldn’t let it carry on.’

At the launch of the model, Sugar had proudly boasted that he expected to sell 300,000 models by the end of the year, and in the first full year of sales he expected to shift 800,000. More than 50 per cent of these sales, he predicted, would come from outside Britain. These optimistic projections, combined with the whizzing early sales, led to disappointment when the projections were not ultimately reached. There was a dramatic decline in Amstrad’s share price in 1987. In June of that year, almost
£
300 million was knocked off the company’s market value. Relations between the City and Amstrad were often not great. One City analyst accused Sugar of being a Trappist monk, and then –even more bizarrely – compared him to the Islamic prophet Mohammed, a rather strange combination of characters to compare any man to. Sugar was succinct as ever: ‘There should be some professional exam for these analysts. Most of the time they talk through their backsides.’ If such an exam were to include a mathematics question, then the analysts could have feasted their eyes on the following set of statistics. In the financial year 1986/97, Amstrad’s profits were up 80 per cent at
£
135.7 million. Sales were up 68 per cent at
£
511.8 million.

No wonder Sugar was in bullish mode as he wrote the chairman’s statement for the year. ‘The Amstrad effect of
course rocked the boat,’ he said of the computer world. ‘The resultant factor being critical comments of the product with which I am sure all and sundry are familiar. I think Pythagoras and Columbus had the same problem when they announced the world was round.’

It was around this time that Sugar gave his speech to City University mentioned in this book’s Preface. There he had outlined the lean and mean nature of Amstrad. Ironically, this speech almost served as a coda to that era. For Sugar’s company was about to go through a number of significant changes. ‘There is a temptation to follow the experience of other companies which have risen, like Amstrad, to great heights,’ wrote Sugar in the chairman’s statement of 1987/88. He described these companies as wandering ‘like a lost lamb with a shopping basket’. Amstrad, he decreed, would be different. It would react to its success by creating overseas subsidiaries. Out would go the ‘middle man’s margin’, in would come more control over its ‘destiny’. Soon, the company had formed subsidiaries in many nations including Australia, Belgium, Italy, the Netherlands, Spain, the United States and the old West Germany.

Another significant change came about not as a result of Sugar’s forward thinking, but as a consequence of what many regarded as the backward thinking of the European Community, which began to levy huge duties on goods imported from Japan. This was fine for the giant electrical firms such as Philips (who were
supporters of this trend) but not good news for Amstrad, who relied on the cheaper prices of Far East manufacturing. However, his opposition was not just a matter of self-interest. The customer too would pay, because it would be harder for any company to offer them discount prices. And where, some wondered, would the next Amstrad come from if these restrictions continued? It was all very well for the giant multinationals who could afford to make components themselves. A fledgling firm would find it a much more uphill task.

As Sugar explained, this new legislation may have been passed to try to protect industry in Europe, but it was about to have the opposite effect. ‘The EC is being too protectionist. It’s going to hold back people like myself in future. It’s very fashionable in the EC for big companies to sit back and complain about the rest of the world.’ No wonder he was so frustrated with what he called ‘the gnomes of Brussels’. However, he did visit the Trade and Industry Secretary Lord Young, to let his opposition be known. He also told a BBC programme, ‘If [Margaret Thatcher] knew what was going on she would do her nut.’ As the new legislation tightened its hold on his businesses, he visited the gnomes of Brussels to plead his case. He returned with the conclusion that they were ‘a total sham’. Not that Sugar felt the same about European businessmen. Quite the opposite, in fact. ‘The European businessman is the best in the
world,’ he has said. ‘They are in a class so much above the Americans and Japanese it’s untrue.’

Tough times for Amstrad and other companies like it. However, at least Sugar’s multinational sales drive and new subsidiaries system was paying dividends. Soon, sales in Britain constituted only half of the sales the company was enjoying. The rest was made up by overseas sales, including 19.4 per cent in France, 17.3 per cent in Spain and 5.4 per cent in North and South America. Sugar’s reputation was on the rise. As a result, he was having an increasing number of the aforementioned approaches from people who claimed they were old friends of his from Hackney, but whom he could not recall ever knowing. It’s a peril that befalls many who are rich and well known. ‘The school I went to in Hackney must have had 250 million boys in it, because everybody that phones claims to know me, or went to school with me, or knows a brother who’s got an uncle who knows an aunt who knows me.’ As a result, Sugar took to asking his secretary to screen such calls, politely but firmly.

This was a sensible course of action, but it led to one memorable and – in retrospect at least – amusing episode. In May 1988, Sugar’s secretary told him that a Mr Rupert Murdoch was on the line. Without even looking up, Sugar – who readily admits that he is terrible at remembering names – replied, ‘Never heard of him. Tell him to piss off, clear off … I bet he thinks he went to
my school.’ He added that, unless this Rupert Murdoch would say what he was calling about, he wouldn’t take the call.

His secretary returned with the news that ‘Mr Murdoch doesn’t normally tell people what his business is before speaking to them himself,’ and had consequently rung off.

‘But who is he?’ asked Sugar.

His secretary replied, ‘He owns the
Sun, The Times,
the
Sunday Times,
the
News of the World
and
Today
newspapers.’

Sugar was horrified at his error. ‘Oh my God,’ he said. ‘Quick, get him back on the line.’

Not that this episode did anything to harm Sugar’s standing with Murdoch, who has since described him as ‘probably Britain’s greatest entrepreneur’.

Sugar was delighted by this compliment when he was informed of it during a newspaper interview. ‘He said that? I really admire Rupert Murdoch. When he wanted to own a TV station in America, the law was you can’t unless you’re an American. So, instead of giving up, he became an American. But he’s laughing up his sleeve, because he still thinks he’s an Australian! That’s the kind of logic I like.’ He went on to speak of not just Murdoch, but other businessmen he admired. ‘He’s a good bloke. And, well, yeah, I suppose I have to admire Richard Branson. Apart from all that self-promotion stuff, he’s got a bloody good business with that airline. His cola
drinks apparently aren’t doing too well, but at least he has a go. Yeah, I like that. Good on him.’

For the record, he has since spoken fondly of other businesspeople, including Microsoft founder Bill Gates. ‘You can only admire him for his vision that software was going to drive the computer industry,’ he said with a smile. ‘When we were the kingpins of the computer business in the UK and Europe, he came to my home and sat there discussing business. I’m not saying that we’re bosom buddies and that we call each other up all the time, but if you mentioned my name I’m sure that he would know me.’

Another company that knew of Sugar was closer to home. Formed in 1975, Viglen provides IT products and services, including storage systems, servers, workstations and data/voice communications equipment and services to the education and public sectors. In 1994, Amstrad acquired Viglen and three years later it was listed as a public company. Sugar described the Viglen acquisition as ‘the start of a new direction’ for Amstrad. ‘We are delighted that Viglen and its senior management team are joining the Amstrad group. We have looked carefully at many acquisition opportunities and consider that Viglen provides an exciting new dimension to Amstrad’s existing businesses,’ he said.

As for Viglen, they echoed Sugar’s glee. Vig Boyd, the company’s managing director, said that he had been looking forward to becoming a part of the Amstrad
group. ‘We look forward to becoming a wholly owned, but nevertheless independent, subsidiary of one of the largest British electronics companies,’ he said. ‘Viglen will continue to develop, manufacture and directly sell high-quality, innovative PCs.’

To this day, relations are fantastic. Viewers of
The Apprentice
would recognise the Viglen headquarters in St Albans as the location for the infamous interviews round that precedes the grand final. Indeed, Bordan Tkachuk, the CEO of Viglen, is one of the men who give the candidates the notoriously tough grilling in that round.

With his reputation on the up, with even the likes of Rupert Murdoch heaping praise on him, it was time for Sugar to reach for the Sky.

CHAPTER FIVE

SKY HIGH

T
he cultural significance and impact of the launch of Sky television can scarcely be overestimated. Quite simply, the experience of the television viewer would never be the same again. It was very much a launch that chimed with Sugar in both a business and leisure sense. He had long felt that British viewers were poorly served, particularly when compared with their American equivalent. There were just four channels for British viewers to choose from at this point, whereas in America there were more than 50 on offer. High on the list of Brits who would appreciate more television choice were what he saw as the classic Amstrad customer: the ordinary man and woman. ‘Satellite broadcasting is good for our type of British consumer,’ he said. ‘It may not appeal to you lot [City analysts], but the
Sun
readership and the
News of the World
readership are going to buy that stuff.’

There was clearly serious money to be made here and the Amstrad customer was going to hand over a lot of it. ‘US-Style TV Turns On Europe’ ran the headline in
Fortune
magazine. So, when Rupert Murdoch knocked on Amstrad’s door to see if they were interested in making the satellite dishes that would receive all these new channels, Sugar jumped into action. He gave Bob Watkins three days to find out if they could profitably make such dishes at the sale price Murdoch wanted:
£
199. Watkins reported back that, yes, this was a ‘goer’. However, Sugar needed further reassurance from Murdoch before doing the deal. ‘I put my humble hat on and said, “Look, I’m only a little humble lad from Brentwood. I haven’t got the multi-mega-millions of your organisation. You’re not asking me to ponce around making 5,000 pieces; you want me to put hundreds of thousands of receivers out there. So what happens if the bleeding rocket doesn’t go up?”’ Sugar also stressed that he wanted to get involved only if Sky could promise to launch at least four channels, including a movie channel. Sugar knew his television: he was an open fan of ‘American garbage’.

With basic terms agreed within 21 days of Murdoch’s first phone call to Sugar, the Amstrad boss set out to make a million satellite dishes in one year. The deal was announced at a press conference on 8 June 1988. Just two years previously, Sugar had stood alongside Sir Clive Sinclair in front of the press. Here, he stood alongside the
mighty Rupert Murdoch. Without a word being spoken, here alone was evidence of how much Sugar was on the up. Murdoch boasted, ‘We will be bringing for the first time real choice of viewing to the British and European public, particularly the British public. We are seeing the dawn of an age of freedom for viewing and freedom for advertising.’

Turning to the dishes manufacturing for which he had teamed up with Sugar, Murdoch said the venture would prove to be ‘a major job-creation exercise’. Sugar agreed: ‘It is our intention to manufacture these dishes and assemble the units in the UK. It would be very nice if we could manufacture them in an area of high unemployment. It is our intention to put our manufacturing process in that direction. At the moment, satellite television dishes on the UK market are selling for more than
£
1,000 and consumers are being asked to pay up to
£
200 for aerial erection. Those days are fast coming to an end. Our 60-centimetre dish, no bigger than an opened umbrella, does not need planning consent and will be erected by television aerial contractors for
£
40 or so.’

Turning to the man alongside him, Sugar said how pleased he and Amstrad were to be working with him of all people on this project. ‘We are pleased that Rupert Murdoch has taken the initiative on this front. He has a reputation of getting things done and his proposal … is very exciting.’

He was asked how their project for dishes was progressing.

‘We are starting to tool up for dishes and receivers,’ he replied. ‘Deliveries will start in the first quarter of 1989 at the rate of about 100,000 per month. We hope to set up a subcontractor in a high-unemployment area for UK assembly.’ It was when he turned to the retail price for the dishes that Sugar drew gasps of admiration. For the Amstrad price was several times smaller than many would have expected.

‘The Amstrad Fidelity 8RX 100 lead-in model will retail at
£
199 including VAT,’ he revealed. ‘Also there will be a series of enhanced models including a
£
259 unit with infrared remote control and a number of other features.’ In distributing and selling the goods, Sugar would be drawing on Amstrad’s extensive and impressive contacts book, he explained to the media throng. ‘Distribution of the Amstrad Fidelity equipment will be made through the company’s traditional high-street and independent stores and initial indications from some of our leading customers suggest that they are as excited about the opportunities as we are.’ This much, then, was familiar territory.

However, this was the first time Amstrad had been properly involved in satellite television. Not that this would be its last involvement, predicted the boss. ‘Although our first entry into satellite television will be through the dish and receiver sector, it should be noted
that our Amstrad Fidelity brand is well placed to manufacture television sets and combined television/video units with built-in receivers. This is an area of the market we are studying now.’

Murdoch outlined just how significant he felt the launch of Sky was. ‘This expansion of television presents great opportunities for a lot of people and organisations: viewers, advertisers, programme makers, electronics retailers and manufacturers,’ he said. ‘It also means new jobs across a range of industries.’

Turning to what Sky would actually offer the viewing public, he sold the service very well. ‘The variety of quality programmes available will range from a wide choice of arts programmes to sporting events from around the world, to instant news coverage and to a wider selection of general entertainment. The film channel, which will be available in the UK only, will offer an extensive range of top movies from major distributors and they will be free of cost to the viewer.’

Many were excited by the prospect of Sky television, and the media were awash with stories about satellite television and how it would change all of our lives. ‘Beaming Murdoch launches a battle for the skies’ ran the headline in the following day’s
Guardian.
True, in time, some of the non-Murdoch press would take great delight in poking fun at the Sky service, but at this point in the story it seemed that everyone was excited by this broadcasting revolution. And there was Sugar, the boy
from Hackney, right in the middle of the action. Sugar’s part in the revolution was to get those receiver dishes made – and fast. For this, he turned to the General Electric Company (GEC), whose managing director Lord Weinstock was no stranger to Sugar. The talks between Amstrad and GEC actually hit a rock at one point, and there were fears that the deal would not be done. Sugar decided to go straight to Lord Weinstock and warn him that the deal was on the rocks. ‘I told him what was going on and that GEC was about to lose the order,’ he explains. They tied up the details and the deal was struck. It reminded them of their dealings in the past. ‘He liked doing the deal,’ said Sugar. ‘It reminded him of his early days, because him and me were haggling on the phone over 50 pence, which is probably something he hasn’t done for 30 years.’

Of course, Sugar had been no fan of British electronics manufacturers in general prior to this. So he may have felt a little nervous about giving the dishes contract to a domestic firm. However, he was impressed with the outcome. ‘I must give them credit where credit’s due,’ he said of the speed at which the GEC team worked. ‘It brought back a lot of my confidence in British electronics when I saw them do that.’ Once more, he was showing an openness to new ideas, to change. The man who once said that he wouldn’t manufacture at home because he was running a business, not a benevolent society, was now not only using but praising British manufacturers.

Later, even more of Amstrad’s manufacturing would ‘come home’. In early 1999, Amstrad moved production of nearly a fifth of its PC2000 computer to a plant in Fife, Scotland. This plant was owned by GEC, and, by moving production there, Sugar saved 700 workers from losing their jobs. Sugar had worked out that, although it cost around
£
10 extra to make these products in the UK, the flexibility it allowed him in terms of reacting quickly to market trends more than made up for that. Accordingly, later that year he awarded the contract to produce Amstrad fax machines to a factory in Northern Ireland. This meant that around a quarter of Amstrad products were now made in Europe, rather than the Far East. He said this proportion of domestic production would increase in time. ‘The Far East has no advantage any more in computers, because in the past the most
labour-intensive
part was the building and testing of the main printed-circuit board. Now, with automation and modern surface mount technology, that does not require so much labour.’

Returning to the Sky issue, Sugar was concerned that Murdoch may have viewed him as a ‘geezer with a bloody great big head’. He was concerned that his knowledge, confidence and impulsive responses may paint him as a bighead. However, Sugar had simply felt that the News International people were entering a territory – electronics – where he knew far more than they did. Therefore, when Murdoch expressed his concern to Sugar
that their rivals BSB might launch first, Sugar told him flat that they wouldn’t. (He was right.) He also told Murdoch that the other electronics firms who were offering to make dishes wouldn’t deliver on time. When the pair discussed how to best scramble the movie channel so only those paying for it would receive it, Sugar suggested using a smart card. Murdoch believed this would be too expensive, but ultimately backed down when his own technical experts backed up Sugar’s view. ‘Don’t start barking like an old crow and shouting your head off, but basically you were right,’ he told Sugar. ‘We’re going with the smart card.’ However, he didn’t hire Amstrad to make the smart cards, choosing to go with a rival firm instead. They’ll deliver late, Sugar told Murdoch – and again he was right.

However, ultimately the various parts all came together and Sky was ready for launch. With Murdoch’s newspapers regularly promoting the new service, demand began to pick up. ‘People are driving us barmy wanting the dishes,’ said Sugar. Here, his son Daniel gave an early indication that he had inherited his father’s eye for a deal when he booked a hall in Essex on the night that Sky televised the Mike Tyson versus Frank Bruno fight and charged people
£
30 apiece to watch the fight and eat a meal. It turned out to be a nice little earner for Daniel, who was then just 18.

Meanwhile, Sky’s rivals BSB struggled from embarrassment to disaster and back again. Sugar watched
this as a particularly interested party because he had nearly got involved with them a few years previously. He could afford a smile when he realised that he had once again been proved right. He noted, though, with disdain that, despite BSB’s woes, the City did not treat them with the same paranoia they had sometimes exhibited towards Amstrad. He joked that he was going to commission a sculptor to build a huge cement hand giving the famous two-finger salute. He would then, he quipped, get it placed right in the middle of the City. No Christmas card for the City analysts that year, then.

But what was the legacy of his involvement with Murdoch for Sugar himself? He said he suspected that, within two years of Sky’s launch, Murdoch would have forgotten all about him. But Murdoch was more impressed with Sugar than that. ‘I call him once or twice a month to see how things are going – to keep in touch and get his opinion on the marketplace,’ he said after the launch of Sky had been and gone. Murdoch was very impressed with Sugar, and there was no evidence he considered him a bighead. Instead, he was gushing with praise. ‘He’s very entrepreneurial, a tremendous worker. In negotiations, he’s a master of detail. I found he came to the point, to the bottom line very quickly. He’s been very straight with me – totally. He’s kept his word on everything.’

Might they work together again? ‘I’d be surprised if there aren’t other things we do with him,’ Murdoch said
with a smile. It would prove to be a very big deal when Murdoch’s words eventually came true. Before then, there was much water to pass under the bridge – and not all of it was to be happy.

Every business and every businessperson goes through a rough patch. From the world’s richest men to the modest small-business owner, everybody has ups and downs. However, it is at times such as these that the men get separated from the boys. There are those who respond defensively and there are those who react well, and Sugar belongs firmly in the second camp. The late 1980s became, in many ways, a bad time indeed for Amstrad, which lost
£
114 million in sales because it did not have the products to meet the demand. Its foreign subsidiaries began to perform less than ideally, and its share value collapsed. Dark times for his company, but Sugar did what every successful person does at such times: he analysed what had gone wrong and worked out what could be done about it. This may sound an obvious response to make, but the business world is full of people who were too busy stroking their own egos to have found their way out of trouble.