Be ordinary and make your millions
Sunday 24 May 1998
You may have noticed a piece last week in this newspaper about the millions made by Scott and Ally Svenson, two young Americans who founded the Seattle Coffee Company here in 1995 and have just sold it for pounds 49m. Yes, pounds 49m for a chain of coffee shops after three years.
Sure, the coffee is decent stuff, and it is also expensive. I once calculated that for the price of a latte on the way to work every morning for a year you could buy a round-trip airfare to Seattle. Coffee is not exactly cutting edge, high-technology, future of Britain, stuff. But that is how these two enterprising people have made a fortune.
Then a proof copy of a new book by ex-Independent writer Christian Wolmar landed on my desk. It was about Stagecoach, the bus - and now train - company run by the brother and sister team Brian Souter and Ann Gloag in Perth. They now have a joint net worth of some pounds 560m.
Yes, the decimal point will appear after the nought: half a billion. And they have done that from a standing start with one second-hand bus in 1980.
Finally, there was a press release from Enterprise magazine. It arrived last week, with its listing of the UK's top 100 entrepreneurs. Top of the list on a score ranking personal wealth, business acumen and increase in the employment generated, comes James Dyson, who makes the "bag-less" vacuum cleaner.
Mr Dyson is not quite the richest entrepreneur of all; that title goes to Richard Branson. But Mr Dyson's net worth is estimated at pounds 400m, the entire fortune being made very quickly from a standing start.
So there you have it. Spectacular fortunes made not out of the "new" products or services of the 1990s, such as things like computers or software, but out of very basic human needs. But does that represent a wider theme - that fortunes, in general, are not made out of cutting-edge technologies, but rather by doing something ordinary but doing it better than the others?
Not quite. The results of the Enterprise survey are shown in the charts, and as you can see computers and software do come out very well in the list. But then so do industrial companies.
There is no obvious, clear pattern in terms of activity; indeed at first sight the remarkable thing is the sheer variety of different ways in which people seem to make a lot of money.
However here are some suggestions, drawn not just from the list published here, but also from the Independent on Sunday's own league table of fastest- growing public companies, published on 26 April. That survey put high technology very much at the top of the league. Computers took six of the top 10 places and nine of the top 20.
The second largest category was engineering,electrical, and telecommunications, pushed there mainly by the growth of mobile communications firms.
The measure in the IoS study was annual sales growth, not the wealth generated by the founders for themselves, and that might give a slightly different picture. It is, of course, easier in fast-growing markets to generate turnover, but growth also generates competition. Nevertheless, there is probably more room for decent fortunes to be made in fast-growing areas than in more traditional ones.
So rule one for the budding entrepreneur is: pick a growth market and hope to ride along with it. That will probably mean high technology, but it does not mean any fancy business practice. There seems to be quite a large window for companies which apply sensible business practice to a new or rapidly-growing market, for example, selling personal computers or mobile phones.
The actual way you do this may simply be standard niche retailing, but provided you are competent, the growth of the business will carry you along.
Rule two is spot a social trend. There is no necessary relationship between technology and growth of market. Coffee is low-tech, but decent quality coffee bars are a rapidly-expanding market both here and in the US. The driver there is not technology but a shift in behaviour.
Seattle gave Britons up-market US-style coffee in those covered cups that you can use on the hoof. We lapped it up. This social change - almost a glamorising of the process of eating and drinking - is driving the wider boom in lunch-bars and restaurants, a boom which has created many other fortunes - witness this week's profile of Luke Johnson ( Section 2, page 3).
Rule three is spot a change in regulation. Buses are low-tech, but the entire bus industry has been revolutionised by the deregulation and privatisation which started in 1980. So Stagecoach accordingly found itself in a growth industry, the growth being created by cutting back the role of the state. It delivered a more efficient and flexible service.
Rule four is build a better mousetrap. Mr Dyson's vacuums are a classic example of the better mousetrap - or at least a different one, since the supposedly better performance of the Dyson products has now been challenged by the established makers. Total demand has been pretty stable but Dyson has changed the technology and thereby managed to produce a product which has almost become a fashion statement. To be able to glamorise the vacuum cleaner is a feat indeed, and actually one achieved by a technological change: the loss of the dust-bag. If the Dyson merely looked different, I don't think it would have done so well.
Rule five is play the publicity game. We are living in a world where we are bombarded with publicity. The greater the background noise the harder it is to get the signal across. Being a brilliant publicist does not ensure lasting business success - as Anita Roddick has just discovered. The products have to be right, and the business has to be run in an orderly way. But it is interesting that the richest person on the Enterprise list is Richard Branson, who comes in at pounds 1bn, and who is, of course, the most brilliant publicist in the land.
If you are a giant company you can bludgeon your way into a market by spending money on publicity. If you are a new entrepreneur you have to get your publicity for free. That does not need to be through the cult of personality, but there does have to be a story.
Stagecoach was particularly clever in the early days, presenting itself as a tiny, family business battling against the corporate giants.
Beyond these five rules that's it. But it seems to help to be young and male. Most of the businesses seem to have been started by people while still in their 20s and early 30s. The youngest on the top 100 list, Tahir Mohsan of Time Computers, was born in 1971.
As for gender, there are only five women in this listing, but there have been enough successful female entrepreneurs to show that entrepreneurship is not gender-specific.
Self-evidently entrepreneurs have to start in businesses where the entry cost is low. Or rather they have to pick corners of a business where the entry cost is low, for no-one would claim that computers represent a low-entry-cost industry. Once youhave a story to sell (which means having some sort of trading record) it seems to be surprisingly easy to raise more cash. But you can only get the story together in a business where entry is cheap.
But the thing that strikes me most strongly - looking at the extraordinary variety of people one meets over the years who have become successful entrepreneurs - is just how utterly different they all are.
Young, middle-aged, smooth, rough, charming, abrasive, quiet or noisy. They are all utterly different. The only single quality I think I have detected is a certain cussedness, a dislike of being mucked about. But then, there are lots of people who display that quality, sometimes to excess, and who never make it as entrepreneurs.
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