When I arrive for my meeting with Theo Paphitis at his offices in Hayes, on the outskirts of London, he’s out being driven around in the latest Rolls Royce after the exclusive car company identified him as the kind of person who might fancy spending £350,000 on a new car.
They were wrong. “It just wasn’t me,” he explained later. “That car says ‘look at me; I’m better than you’. The car I drive is a BMW Series 7. It still costs a lot but to me that just says ‘I’m successful’. I felt silly sitting in the back of that car.”
Paphitis’ interpretation of cars reveals a lot about the way he runs his businesses: no nonsense but highly successful. Even in recent years when he has shot to fame firstly as chairman of Millwall Football Club and more recently as one of the more confrontational members of the BBC’s Dragons’ Den investors, Paphitis has preferred to let his colleagues take the limelight while he gets on with the job of making some serious money.“Being chairman at Millwall is high profile in the football fraternity and I thought that I was reasonably well known,” he reflects. “But that was before I went on Dragons’ Den. I can’t walk down the street when the show is running. We had 20% of the audience figures for the last series and that’s incredible for a BBC2 programme.”
Paphitis’ profile may have increased dramatically over the past three years but he’s still quietly going about what he’s best at: turning around failing businesses, getting them back on a secure footing and, at some point, selling them on. Late last year he finalised a deal to sell lingerie chain Contessa to the same private equity firm that bought La Senza from him last summer for a combined figure in the region of £100m. “I am no longer in women’s knickers,” he jokes.
Red alert
His current portfolio includes the stationery chains Rymans and Partners and Red Letter Days, the gift experience company he bought with Peter Jones from their fellow dragon Rachel Elnaugh in 2005 and which has proved to be one of his biggest challenges to date. “It was probably the worst managed business I ever got involved in,” he says. “We had to scale it down to the profitable part of the business, identify its market and prepare it for that. We’ve got the business back on an even keel but we’ve still got work to do.”In what should be a warning to any small business owner, Paphitis believes the case of Red Letter Days is by no means unique. This was, he says, a business with a strong brand that had suffered from mis-management and neglect. “You have to focus on the business and deal with the issues that come up,” he warns. “Looking at it through rose-tinted glasses is not a good way to run a business. Everything will go wrong at some stage; it’s how you deal with that and plan for it that matters. Focus on every single decision and how that will affect the whole business.”
One of the major problems facing small companies, particularly early on, is a lack of cashflow. But even this should be anticipated, he claims. “A lack of cashflow doesn’t just happen unless there’s some major disaster, in which case you can’t do anything about it,” he says. “Your business plan will show you the level of cashflow and you’ve got to deal with it before it becomes a problem.
“I’ve often said that a lack of profits is like a cancer, it kills you off very slowly,” he adds. “But a lack of cashflow is like a heart attack because you can’t pay your bills, the bank moves in and you’re bust. You’ve got to think ‘if I do this, what are the consequences’?”
Paphitis firmly believes that to be a successful entrepreneur requires a certain type of person. “There has to be something in you,” he says. “It’s the entrepreneurial spirit: the ability to take a risk and work without a safety net. Some people can’t do that.”
He does, however, believe the government could do more to encourage entrepreneurship in this country, and claims the main reason why the climate for starting your own business has improved in recent years is down to the arrival of new technology such as the internet and broadband rather than any state initiative.
“If you listen to the politicians, they’ll say it’s because of the way they’re trying to help small businesses which is absolute poppycock,” he says. “They’ve probably strangled more businesses than they’ve helped.
“The government has got to just wake up and smell the coffee because it strangles small businesses with red tape,” he adds. “There have to be easier ways for small businesses to start up and raise money. We should be using tax breaks or credits or exemptions for small businesses to get them going. The government will get its money back because if they’re successful they’ll pay the tax. But there’s a lot of talk and very little action.”
Straight talking
Paphitis and his fellow dragons can take some of the credit for the current interest in running a business. The fourth series of Dragons’ Den is currently being shown and the programme has moved from one to two series a year. “A lot of people have it inside them to run their own business and it’s quite compelling to actually see other people’s ideas,” he says. “The public don’t see that anywhere else, they just wonder ‘how did he make it?’ This is the first time they’ve really been able to see it.”
In his investments so far, Paphitis has found himself drawn to partnering with former Weststar Holidays owner Deborah Meaden, who he describes as “the most capable businesswoman I’ve ever met”. He did once enter into a deal with Duncan Bannatyne which later fell through although, not surprisingly given his Red Letter Days experience, he lists Elnaugh as the only dragon – past or present – who he would struggle to work with.
Partly in a bid to make the programme more appealing, the quality of entrepreneur coming into the den varies dramatically and Paphitis has administered candidates a severe dressing down for what he perceives as a lack of preparation on more than one occasion. “The cardinal sins are not knowing your product, not doing your research and not having the answers,” he says.
“We’re sitting there totally blind to what the proposal is so if we can pick things up and they haven’t thought them through, then it’s curtains. They’re living with it,” he says. “The other sad thing is that people ask relatives and friends what they think of their idea, and they aren’t the best people to ask. They’ll always say nice things to you.”
He admits he’s had to find a way of dealing with the extra commitments that have resulted from his investments in up-and-coming entrepreneurs. He’s there for advice but Paphitis won’t invest in anyone he thinks will take up too much of his time. “I laugh when people say ‘I’m not after your money, I’m after your expertise’,” he says. “And I say ‘well, I won’t give you any money then’. But I’m not going to run their business for them.’
Circuitous route
But if any entrepreneurs are looking to follow Paphitis’ own route to millionaire status, they’re likely to be disappointed. “I didn’t just become a millionaire,” he says. “You never get this feeling of being rich. It still hasn’t happened for me. Sitting in that car made me feel very silly because I didn’t feel like I belonged there.
“I made £10,000 and put it in the building society,” he continues. “And for me that was a lot of money because I constantly had overdrafts. But I don’t think I got to having £100,000 in the bank for a long time. I might have got to £50,000 but I always reinvested it into a business so I never had it to use.”
Born in Cyprus in 1959, the family emigrated to the UK when Paphitis was just six. After leaving school at the age of 16, he began his career as a filing clerk at Lloyds of London before picking up his first taste of the retail market as a shop assistant for Watches of Switzerland.
“It was the first time I’d experienced the ‘them and us’ mentality between the workers and the head office,” he recalls. “It was a very structured Are you being served? type of organisation and you could see things that didn’t make sense but you were powerless to change them.
“We also have a structured organisation in my companies but I’m happy to listen to the shopfloor,” he adds. “We have a conference every year when we all stay up until three or four o’clock in the morning so, if they have the stamina and the liver, staff can help themselves by putting a few beers down them and telling us what they really think.”
Paphitis’ inability to conform to a traditional employer-employee relationship meant he always felt he would be better working off for himself. “I’m one of those people who always has an opinion,” he explains. “Nine times out of 10 it’s right. That was there from school. So it became very clear that I wasn’t the type of character who was going to survive in any corporate environment.”
After working for Legal & General in financing property deals, Paphitis set up his own consultancy called Surrey & Kent. But it was when he agreed to sell this to, and become part-owner of, Hanover Druce – a London-based commercial finance company – that he started to expand from helping to finance property deals to other non-asset-based lending, eventually investing his own money in businesses he liked the look of.
“It was more businesses looking to survive rather than expand,” he says. “I didn’t get to see those because they were too easy pickings for the big boys. They were only interested in showing me what in those days were called ‘the dogs’, where the choice was to put them into receivership or find a way of refinancing them. It then got to the situation where I’d say ‘well, I’ll buy that company’. But it’s about hard work, commitment and dedication. I’m a very impatient person in lots of ways but I’m very patient in business. I don’t just put my money in and sell it tomorrow for a small fortune.”
Different league
But if Paphitis knew what he was doing in retail, it was a whole different ball game – literally – when he decided to take Millwall out of administration in 1997. “It’s a totally different business,” he admits. “If you’ve got badly performing employees here you put them on notice and you performance-manage them out of the business. But you can’t do that with football players. If you’ve got a lazy sod and who’s good at getting his wages, you’ve had it. Agents fill young men’s heads with rubbish, the FA was in turmoil and the Football League was in a terrible state after ITV Digital went bust.
“But Mrs P and I used to live in Peckham so it was our local football club,” he explains. “If I hadn’t got involved the club would have gone into liquidation and I let my heart rule my head. But sometimes it’s good to let your heart rule your head and I don’t regret it for one second. I had eight years there and they were some of the best of my life.”
Under Paphitis’ stewardship – and like his other businesses – Millwall gradually got back on its feet again. The club was promoted to what is now the Championship in 2001 and went on to reach the FA Cup final and qualify for European football for the first time three years later. But there were also dark days, notably the riots that followed Millwall’s playoff defeat in 2002 and threatened to return the club to the dark days of the 1980s and ruin the image Paphitis had worked so hard to build up. For the first time he began to question why he was there.
By 2005 Paphitis felt he could take the club no further and owed it to his other businesses to give them more attention, a process that eventually led to the sale of La Senza and Contessa last year. Yet the decision to let the lingerie stores go and retain the stationery businesses took many analysts by surprise.
“Fashion businesses take up a lot of time. It’s a bit like the football really. A lot of the time you have to be really hands-on,” he explains. “I was a bit concerned about the fashion market as well and I decided that the exciting business was the one that was going to go and the not-so-exciting business that was perhaps more stable was going to stay.”
But if anyone thought being a millionaire entrepreneur was an easy life, they should think again. Like Gordon Ramsey, Paphitis regularly works 20-hour days, going out to dinner functions at least four times a week and often not making it home at all.
And if ‘Mrs P’ is hoping that by selling his majority stake in Millwall and letting go of La Senza and Contessa she will see more of her husband, she’s in for a nasty surprise. “The days are there all day and the working week is a working week,” he says. “So I work from first thing in the morning to last thing at night. I try and get weekends off now and that’s another reason why I let go of Millwall. But I kiss the missus and the kids goodbye in the morning and then they won’t see me again until the following morning.”
Paphitis is already plotting further acquisitions and admits that “more than likely I will have to educate myself about a sector that I know nothing about”. So, for a few weeks at least, it looks like the closest his wife will get to him on a week night will be watching BBC2.