Business beware the Sugar rush that wiped out Amstrad

Chris Blackhurst
15 Jun 2009

Wherever I went last week, one topic came up in conversation — and produced laughter every time. At a couple of business parties, one attended by several government ministers; at a City reception; at the tennis at Queen's; someone mentioned Sir Alan Sugar.

Gordon Brown's reshuffle would be discussed, and with it the appointment of the Amstrad boss as “enterprise tsar”. While no one doubts that Sugar produces good television and there is no question that he is a successful businessman, I've never known a government appointment prompt such ridicule — and not a little discomfort.

First, there is what Sugar's persona represents. The Apprentice may be compelling viewing but he comes across as bullying, hectoring and sexist. Sugar is, as many senior people in business realise, far removed from the modern boardroom.
While that invites amusement, there is a certain embarrassment as well: in the opinion of some and clearly now the Prime Minister as well, he is regarded as the best we have got.

Throughout the Labour years, we've been treated to Tony Blair, Brown and their colleagues telling us of their faith in our enterprise society. Their commitment to it was a mantra, to be trotted out at every sound-bite opportunity.

The suspicion had to be that they didn't have a clue what it really meant and how their vision could be achieved. Final confirmation of their empty rhetoric comes, surely, with Sugar's elevation.

He's to become a “Lord” for his trouble. Why? If he was so keen to assist the nation, why does he have to be made a peer?

But putting that niggle on one side, what bothers me is his own track record and, more to the point, what it says about the state of UK Plc
In 1986, this country was in the vanguard of then fledgling, mass computer technology. Two businesses were making waves, here and in the US. We had Sir Clive Sinclair, hailed by the then Prime Minister, Margaret Thatcher, as pointing the way towards Britain's hi-tech future.

That year, Sinclair sold his computer firm to Sugar, a 39-year-old entrepreneur running a company called Amstrad Consumer Electronics, who had started selling boiled beetroots to the local grocer as a boy in London's East End and later sold car radios from the back of a van. Sinclair and Sugar could not be more different — while the former was an inventor but unable to turn his ideas into profit, the latter was a marketeer who made no secret of the fact that he had no clue about or interest in what made his computers work.

Sugar was a packager, who had his products made cheaply in the Far East. He didn't have proprietary technology and when competition became too tough, he would simply move into another field, from easy-to-use hi-fi to TV sets, to VCRs to computers. His Amstrad PCW8256, an affordable word processor that included computer, monitor, printer and software, was regarded as a genuine world-beater.

In the US, also in 1986, Microsoft floated with a value of £490 million. The computer software company's founder, Bill Gates, had a stake worth £220 million at the prevailing exchange rates. At the time, Sugar was worth roughly two-and-a-half times Gates.

Today, Sugar is worth £700 million-plus and Gates, even after charitable donations and a difficult spell for Microsoft shares, is the richest man in world, according to Forbes, with £28 billion.

What happened is that Amstrad failed to capitalise on its promise, to exploit its potential, to develop, to innovate and to grow. As for Gates and Microsoft, the rest really is history.

Sugar drifted through other products and low-priced retail packages, and football, before becoming what he is primarily today, a property owner.

“We would like to manufacture in the United Kingdom,” said Sugar in 1986, “but we're a computer company, not a benevolent society.”
Amstrad isn't in computers any more. But today, incredibly and shamefully, Lord Sugar is Britain's enterprise tsar.

Varley hero of the hour, but owes a lot to villain Goodwin's ambition to go Dutch

John Varley is a very religious man. I've never got God to the same extent myself but I am beginning to wonder if there isn't a case for having what he's having.

Cast your mind back to March 2007. That's when Varley, as head of Barclays, was trying to explain to the world the case for merging his bank with ABN Amro. The union was his big play, all £80 billion of it.

By now, if it had gone to plan, he would be chief executive of a UK listed company, answerable to a chairman nominated by the Dutch. The group would be headquartered in Amsterdam but incorporated in Britain. The centre of operations would be in London with Varley shuttling backwards and forwards to Holland. Sounds good, doesn't it? It's even worse when you consider that ABN was a basket case of disparate brands and businesses.

He would be tasked with marrying two very different management cultures and trying to justify an outlay of staggering proportions.
Fortunately, along came Sir Fred Goodwin to scupper his ambition.

I was talking last week to a very senior executive of Royal Bank of Scotland about how close the line between success and failure can be and how, but for his competitive streak and pride, it would have been Goodwin and not Varley who is today cast as some sort of hero.

This was before the news of the sale of Barclays Global Investors to BlackRock for £8.2 billion, a move that capped Varley's determination to avoid his bank being bailed out by the government.

It could so easily have been very different. Goodwin couldn't bear to see RBS usurped and ended up committing an almighty folly in beating Barclays to ABN.

While Goodwin is reduced to fighting to persuade his former employer to pay his pension in the knowledge that he almost certainly will never command a senior post in business again and has seen his home attacked and his reputation decimated, Varley has managed to follow a gilded path.

He deserves praise but Varley must give thanks for Fred Goodwin.

Pre-packs: Smug v mugs

When I wrote last week about the pre-pack administration of Cobra Beer, I obviously touched a nerve.

What hasn't been made clear, I was told, is the role played by the banks. A friend said that he's come across several pre-packs, all of which have been driven by the banks, determined to recover their secured loans. He's encountered the same crack units from the same banks on different companies.

They see the business in trouble and send in a hit squad to push for administration. The outcome is always identical — bank gets back its cash and unsecured creditors can go hang. The banks may feel pleased with themselves but that doesn't mean anybody else should.