'Expensive miscalculations, appalling frights and many sleepless nights'
In the first of a series by entrepreneurs, Tim Waterstone explains how he founded the bookshop chain that bears his name with pounds 20,000 of equity in 1982, selling it a decade later for more than pounds 40m.
Sunday 10 March 1996
I was 41 at the time, running W H Smith's US operations. America was wonderful, but Smith, for all its strengths, was in some ways a caricature of what corporate culture can be like. I tell the story with shame really. I was unhappy working with them, and they were unhappy with me. Other people's decisions have never been easy for me to accept if they contradict my own judgement.
When things went wrong I was speedily removed - correctly from the Smith viewpoint, but the irony was that the dismissal did me a great service. I then turned to what I really wanted to do - start my own business. I went back to England and launched Waterstone's.
Having grown accustomed to New York, London bookselling seemed extremely weak. With few exceptions, the shops had inadequate stock and the trading hours suited the sellers not the customers. One of the qualities you have to have as an entrepreneur is such overwhelming confidence in what you're doing that you simply cannot envisage failure. I was sure I could sell books better than anyone else, and that the public would support us. The public did, emphatically so, but looking back I shudder at the arrogance of it all.
There was so little money in the company, apart from anything else. Smiths gave me pounds 50,000 when I left, but I had to put pounds 30,000 of that into the underpinning of my house, which chose that moment to show signs of imminent collapse. Soon my severance pay had been whittled down to pounds 6,000. Friends and family lent me another pounds 14,000, and with that I shopped my idea around to the banks. Eventually NatWest lent me pounds 75,000 under the Government's Loan Guarantee Scheme; 3i took a small stake, and we were on our way.
The first branch, in Old Brompton Road, South Kensington, opened on 1 September, 1982. The idea was straightforward and uncluttered. We carried three times as much stock as our competitors, traded the shops on Sundays - and as late at night as we could afford - and employed nobody but booksellers who really knew their books. The staff were enthusiastic. We had a waiting list with hundreds of job applicants on it.
Further branches followed. Christina Foyle, from her generous and eccentric heart, offered us a wonderful site beside her in Charing Cross Road at a very attractive rent. We opened in Edinburgh. In Newcastle. In Manchester. And, most profitably of all, in Hampstead and Dublin.
One of the most satisfying aspects of shopkeeping is that once you've got the model, and it works, it replicates itself reliably. You can put a branch down in Aberdeen, and know that it will perform similarly to the one you've just launched in Belfast. When you're raising money - which we were, every five minutes - to open yet another bookshop, that's a very important strength to be able to demonstrate to your backers.
We drove the company extremely hard. Every time we had any money to spare we opened another branch and, with a cash requirement of pounds 130 per square foot, we were continually stretched. The bank was generally supportive, though continually on the telephone. Despite some narrow shaves, whenever they required it we were able to find fresh equity - helped by our decision to pull in private Business Expansion Scheme investors.
For all that, there were appalling frights, expensive miscalculations and many sleepless nights. We made an unholy disaster of our first attempt at computerised stock control. We introduced our own charge card and had to close it down less than 18 months later in humiliating ignorance of who owed us what. And we lost unfortunate sums in a culturally satisfying but commercially disastrous publishing venture.
But the shops themselves went from strength to strength. We began to be regarded as one of the two or three most successful venture capital companies of the decade. We even forced a couple of Smith shops to close. It was like watching a child grow up.
When the time came for the shareholders to realise their investment, the rewards were very high. Our original investors paid 12p for their shares. Eleven years later, in 1993, W H Smith completed the purchase of Waterstone's at 528p. Amongst the shareholders were hundreds of the staff. Between us we had established one of the most respected names on the high street. It really was the most exhilarating adventure.
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