What You See Is What You Get: My Autobiography (56 page)

This hard disk drive market was very vulnerable. American manufacturers were the leaders and the technology was advancing all the time. Every three months they would suddenly announce a doubling of capacity from, say, 20MB to 40MB and if you got lumbered with any 20MB drives, you might as well chuck them in the river because no one wanted them. Twenty-five years earlier the same thing had happened with six- and ten-transistor radios and now the computer business was going down that road, but a hundred times worse. It was all specmanship, particularly in the corporate market.

Though we had been adventurous introducing the PC1512 as the first IBM-compatible with built-in colour video, the market meanwhile had established VGA colour technology and this became the industry standard. Whereas our colour system was built-in, other computers adapted to the new system by slotting a very expensive VGA card into the main PC circuit board. This card provided a port for a specially produced VGA colour monitor to plug into. So not only was our PC1512
not
VGA, neither was our colour monitor.

Fortunately, Bob and I had recognised this trend. The customers were demanding VGA products and we had to introduce a new model - the PC1640. Instead of converting it by simply fitting a VGA card, we decided to take the circuitry off a VGA card and incorporate it onto the main PCB. A lot of re-engineering had to be done by Mark Jones, but eventually, in June 1987, the PC1640 computer was born and we managed to keep the momentum going. At the same time, we had to start buying a different range of monitors to support this new video output.
I've not yet touched upon my philosophy on profit margins. Working on slim margins like 5 per cent or 10 per cent was not for me. However, the only way to achieve larger margins - say in the region of 30-33 per cent - is to think of a product that is sought after and that no one else has, and then ensure that you beat down the cost price to achieve a great retail price. A no-brainer, right?

As I have explained, I learned early on in my business life that selling PS5 items is a waste of time. I was now fully focused on raising the ticket value of the products we sold. Say I wanted the retail price of a new product to be PS399 including VAT (which was 15 per cent at the time). To work out the
cost price
I established a simple formula:

Once we had established the target cost price, we worked diligently with our suppliers to reach it. The way we achieved low material costs was to bang down large firm orders on the table to the vendors - nothing got their attention better. This was a science in which we became expert. Bob Watkins and I trained up a couple of other buyers and together we formed a crack team. We constantly monitored the prices of major components and had our own database of prices on all the materials we were buying. Each and every time we were notified of reductions, the database would be updated and from this database, we were able to assemble a bill of material for any new item we dreamt up. My rule was never to compromise on my 1.54 ratio and I have to say that this contributed to the phenomenal success of Amstrad.

Of course, it's not unusual for manufacturers to have such large gross margins as 35 per cent. But what
was
unusual was for those gross margins to flow through and result in a tremendous 25 per cent net margin. The difference between Amstrad and other manufacturers was that our formula was based on
sub-contracting
the manufacturing - we included the labour cost charged by our sub-contractor as part of the target cost price. Our costs after that were simply those of administration, marketing and engineering. I had a winning formula and became stuck trying to do things the same way I had in the past, blindly thinking the success would continue endlessly. However, as my story moves on, cracks start to appear at the seams. Sometimes running a tight ship without the correct financial control and deeper engineering and research facilities takes its toll.

Part of my philosophy of maintaining margins meant that dealing with people like Schneider and Dominguez would inevitably end in tears. The European market was becoming more and more competitive and to maintain the retail prices in those markets and generate volume sales, there would be no room for two margins. By 1987 I was starting to think that opening more overseas subsidiaries was the best move.

In Spain, Dominguez was looking to take Indescomp public, to capitalise on his company and get some real money for himself. In one way, it would be good for us if he went public, as he would have endless bank facilities to open LCs. But in another way, it would not be good, as he'd be under constant pressure to make a profit and, like all things in consumer electronics and computers, prices would be forced down.

At the same time, more advanced computers were coming on to the scene which used a new generation of processors - the 20286 and 20386 from Intel - and both Schneider and Dominguez were starting to think that they'd procure their computers from other suppliers. As far as I was concerned, they could do as they wished - we never had any exclusivity agreement. I wanted to be flexible to do as I wished and I knew the downside of this was that they were free to buy from others.

As Amstrad was developing new 20286 and 20386 machines, it was inevitable that the PC1512 and PC1640, both based on the 8086 processor, would cease production. Allowing Schneider and Dominguez to buy their next-generation PCs from others would mean that our grip on the Spanish and German computer markets would eventually die.

I called a meeting with Dominguez and discussed the possibility of us buying his company. In exchange, he would take some shares in Amstrad plus a wedge of cash. As he was a great marketing man, I really liked the idea of him joining the board of Amstrad to assist in overseas marketing, along with Marion Vannier.

We acquired Indescomp in September 1987 at a value of approximately PS25m in shares and cash. At the same time, we opened subsidiaries in Holland, Belgium, Italy and Australia. Joe Oki was dealing with the smaller markets in Scandinavia and Greece through distributors.

I also believed that the potential for the PC1512 in America was great, but there was no way of selling it through Sears World Trade. For one thing, the senior bosses there had put the kybosh on any more irresponsible dealings, due to the cock-ups on the CPC6128 and PCW8256, although the latter did become a runaway success once the price was right. Flummerfelt had come to see me at the Las Vegas show in January to discuss whether I had any
ideas on how to dispose of their stocks of PCW8256 word processors. I told him that the first loss is the best loss and suggested that Sears should put them in their own stores at a retail price of $399. If they did this, I was sure they'd fly off the shelves.

And that's exactly what they did. Amazingly, they sold all 30,000-odd units they had in stock in one week, across the whole of their distribution in America. I repeat - one week. This may sound incredible, but it shows the appetite the American market has if something is the right price.

The funny thing was, Flummerfelt called me a few weeks later, asking me if it was possible to buy some more to sell at $399, as he reckoned they could sell hundreds of thousands. He had not signed on to the fact that if he were to sell at $399 on an ongoing basis and tried to make at least 20 per cent margin, he would need to buy them for $300. There was no way, even with our aggressive buying, that we could produce them and make a profit at that price. It makes me wonder sometimes how such senior positions in giant organisations can be given to people who seem as thick as a plank when it comes to simple business principles. Maybe I was missing something.

So Sears were out and instead we acquired a small distributor of computer products called Vidco and appointed the owner, Vernon Moore, as managing director of our American subsidiary. I seconded Chris Pullen and Mark Simons over to the head office in Dallas, Texas.

In Australia, Gary Meyer, the young man I'd met years earlier when he worked for Waco Trading in Korea, moved to Sydney and started working for us.

Malcolm Miller and Jim Rice recruited Mr Ettore Accenti, an expert marketeer in Italy, and set up our Italian subsidiary in Milan. Malcolm and Jim also set up our Dutch subsidiary under the leadership of another marketing expert, Richard Inemee.

The following year, I parted company with Schneider and opened our own subsidiary in Germany. We recruited a heavy-hitter, Helmut Jost, who was previously the managing director of Commodore Germany and was very well connected in the marketplace. We did an interesting bit of business with the PC1512 out of our German office after the reunification of East and West Germany. One customer in Berlin told us he had been visited by lots of Russian and East German students who were somehow managing to ship our computers into Russia. Export to Russia was virtually impossible from a commercial point of view, due to import bans and because they lacked foreign exchange to pay, but these enterprising people had found a way into the Russian market. In recognition of this, I sent Mark Simons (just before he went to the USA) to
Russia to suss out the situation and see if he could find a technical guy there who'd be able to translate our instruction manual and MSDOS into Russian.

Microsoft did not have a Russian version of MSDOS at the time, as there were restrictions imposed by the American government under CoCom's rules (this was the committee set up after World War Two by Western Bloc countries to prevent the export of weaponry to the Eastern Bloc). The US didn't want certain computer technology to be exported to Russia, including the 8086 processor (made by Intel, an American company). This was a bit of a joke in the sense that the Russians could always buy IBM 8086 machines in the market if they wanted to copy them. I guess that Amstrad's commissioning of the translation of MSDOS by some Russian hack was sailing a bit close to the wind. You never know, I could have caused World War Three or been banged up in some American jail.

Effectively, we had created the first Russian IBM PC-compatible with Russian MSDOS and a Russian Cyrillic keyboard. As you can imagine, sales of this computer shot up dramatically through the Berlin connection. I guess it's another example of entrepreneurial spirit, though still sailing a bit close to the wind as far as CoCom was concerned. My justification was that we, Amstrad UK, were selling the goods in Berlin, which was now a Western economy and what the Berliners did with them was not our problem. I don't think that would have gone down too well in a Washington courtroom, but that was my stance.

*

My sons Simon and Daniel were educated at Chigwell School, which, coincidentally, was adjacent to our house, Bramstons. Growing up with a father who was a well-known and established businessman was quite difficult for them at times.

I tried to keep their feet on the ground when it came to pocket money. If Simon and Daniel wanted some extra cash, they had to go and get a Saturday job, just like I did when I was their age. Simon worked on Saturdays and school holidays serving up hamburgers at McDonald's in Ilford. He left school at the age of sixteen with a few GCSEs and went to Loughton College to study art and design.

He did express a desire to work for his dad's firm, but I told him that he wasn't coming to work for Amstrad until he'd spent at least a year as a shop-floor salesman in a retail outlet, to give him some training at the school of hard knocks. He needed to see what consumers wanted and what was involved in dealing with them on a day-to-day basis.

I asked Stanley Kalms if he could arrange a job at Dixons for Simon and insisted that he should not be given any special treatment in respect to pay or seniority; after all, he was just a kid. Stanley took this onboard and sent the message through to the shop floor. However, everybody knew that he was Alan Sugar's son and it was assumed by some of the staff that he had special privileges. As a result, he found it tough trying to be one of the boys.

After spending over a year working at Dixons, Brent Cross (a good hour and a half's journey every morning from Chigwell), he moved to Oxford Street to get the feeling of an up-market branch. Finally, he went to the other end of the spectrum, working at the Ilford branch. It was great experience of what's involved on the retail side of things.

He then joined Amstrad to work in the audio, TV and VCR department as a junior sales and marketing person, under the guidance of Malcolm. Once again, I insisted there should be no special treatment; he would come in on the same salary level as everyone else. As far as I was concerned, this was part of his training in life, to get some values.

Both Ann and I wanted to ensure that our children became nice, levelheaded people when they grew up. We've seen so many cases where the children of wealthy individuals go off the rails and we were intent on ensuring that our three children's feet were firmly on the ground.

At Amstrad, because Simon and I worked in the same building, people could see there was no special treatment when I walked the floors. He was either going to be good at what he did or not. Most people inside Amstrad observed this and respected the situation. Of course, there were the odd few who couldn't see the wood for the trees, still thinking that Simon had privileges. New employees in particular assumed that he must have been given some form of seniority.