'We debated the name. One idea that got dropped was The Mad Axeman on Acid'

My first million: James Palumbo, 33, son of the former Arts Council chairman, Lord Palumbo, has turned his Ministry of Sound nightclub into a multimedia brand worth an estimated pounds 30m. But his start in the music business struck a sour note

I've always, in a very heavy way, been interested in classical music. When we started the Ministry of Sound I had zero knowledge about dance music. It has a more monotonous, faster beat, although I've now learned to like it. Intellectually it's not an opera by Wagner but some of it is extremely clever. It's quite like works by the composer Philip Glass. But really, even now, I'm not the sort of person who goes to the type of nightclub I own.

After I left Oxford in 1984 I worked in the City, first in the bond market, then in convertible equities and eventually in property finance. I hated the City. It was terribly depressing. But I was always up to my own little projects on the side - buying and selling flats and putting money into small businesses like restaurants and sandwich shops.

In 1990 a friend of mine, Humphrey Waterhouse, introduced me to Justin Berkmann, a disc jockey who had worked at an incredibly famous gay nightclub in New York, Paradise Garage. We decided to do the age-old thing of taking a good American idea and bringing it to the UK.

In those days there were two kinds of clubs: the ones run by Rank and First Leisure, which are aimed at middle-class kids from the suburbs, and the underground rave clubs set up in disused warehouses. We've sort of institutionalised rave clubs.

There are very few really talented pop stars any more. About 90 per cent of them are manufactured in the studio by writers, producers and mixers. Paradise Garage started the trend of bringing those people in as superstar disc jockeys. Since then it has become massive, and that's the wave we rode.

The first problem we faced was finding the right location. To work, it had to stay open all night. That was unheard of in London, where licences never went later than 3am. We had to find a location where there would be few complaints about noise and parking problems.

Justin and Humphrey spent six months scouring London. In the end they found this old warehouse near the Elephant & Castle. It was full of old crates and pigeon droppings and the ceiling was falling in. But at pounds 2 to pounds 3 a square foot a year it was the perfect site.

Getting a licence involved a marathon meeting with the local authorities. The police objected, not because they were worried about drugs - ecstasy has only taken off in the last two years - but because they thought that we would create crowd problems for them.

The system of granting licences here is archaic. There are no firm rules as there are in the US. It's all up to the councillors deciding whether they like you. They must have thought we were decent, responsible people because they gave us the first 24-hour entertainment licence in the UK.

I had pounds 250,000 that I had saved during my time in the City, and I raised the balance from a business associate. We spent it on refurbishing the warehouse. Our "sound box" room was the first purpose-built sonic environment in Britain. That and the sound system alone cost pounds 300,000. We also fixed the roof. The rest of the interior was still very raw. There wasn't a seat in the building and the loos were prison-like with the flimsiest of doors.

We had a big debate before hitting on the name Ministry of Sound. One idea that got dropped was "The Mad Axeman on Acid". We opened in September 1991, a year after we started working on the idea. We didn't have to do much marketing. In the underground scene people either know what's going on or they don't. From the day we opened the doors it was a tremendous success - outwardly at least.

But inwardly it was a disaster. We had no experience of running a business. Money went all over the place. God knows what the staff were doing. Stock checks did not happen and I suspect a lot of people got in free because they knew the doormen. I'm sure every single trick possible was pulled on us.

A year later we were on the verge of going bust. After the business went into receivership I bought it back and, over a period of months reached a financial settlement with my former partner, who did not want to continue with the enterprise. It taught me a huge amount. Now that I own the whole business, anything that goes right or wrong is entirely my responsibility.

Over the next two years we put in better managers and built up systems of control. I had quit my day job in the summer of 1993 because I needed a back operation, but by May 1994 I was ready to come and work on the business full-time. By then, it had reached a critical mass. There have been bad moments, however. We got robbed one night when three or four men armed with shotguns burst in after all the customers had left.

The experience of having the club go into receivership, taught me a very important lesson: the margin between success and failure is very thin. Anyone with ambitions to be an entrepreneur has to realise this and learn as much as possible about their chosen industry before plunging into it.