by Sugar, Alan
This guy was scary. He’d obviously found out every single detail about me personally. He spoke about virtually everything I’d ever done in business and while he was trying to be complimentary, it made me feel uncomfortable. This was before Google made it easy to find the ins and outs of everything. To have this level of knowledge meant someone had done a lot of work. Perhaps I hadn’t realised how much people pored over stories that documented Amstrad’s meteoric rise in magazines like Business Weekly. As Nick Hewer will testify, I took no notice of any of these stories and when pestered for interviews, I’d continually say, ‘I’m not interested, I don’t have time to talk.’ I saw no merit in it whatsoever and I left it to Malcolm Miller or one of the product managers to discuss things with the media. Nick Hewer used to tear his hair out trying to keep the journalists happy, while at the same time constantly having to turn down their requests for personal profile interviews.
Anyway, Flummerfelt was a mine of information. He was what you’d call in this day and age ‘Wikipedia on Alan Sugar’. The long and short of my meeting with him was that Sears World Trade wanted to represent Amstrad on the PCW8256 in America. They saw how successful it had been in Europe and took this as an indication of how successful it would be in the USA. Personally, I had my reservations.
We’d seen on our trips to America that if something was £399 in the UK, it was $399 there (one never saw this the other way round, however). In reality, £399 translated into something like $800 and at $800 the PCW8256 didn’t look such a bargain. I was not enthusiastic about this venture, but Flummerfelt insisted they wanted to buy the product. His attitude also made it quite clear to me that this Jaime Pero guy was now becoming an irritation. He had talked Sears World Trade into financing the CPC6128s and, surprise surprise, they didn’t sell. What’s more, the people in California who’d promised Pero they would take the goods didn’t! So they were well and truly lumbered with the first batches of CPC6128s. They asked whether it would be possible to cancel some of the new shipments on the way, as Pero couldn’t even sell the first lot.
At the time, demand for the CPC6128 was big in Spain and France and we were turning customers away because we hadn’t ordered enough. So it suited me to flip the production over and divert the American ones to the French market. However, there would be some costs involved in writing off redundant components used solely on the American versions.
Before I even broached the subject of payment for the redundant components, Sears World Trade offered to pay a 50 per cent cancellation fee for the next 20,000 units on the way (in fact, it turned out that no more than 10 per cent of the total sales price would be redundant).
Some people might have bitten their hands off at the 50 per cent offer – I felt it would have been a bit of a cheek, total greed considering I badly needed the units in Spain and France. It does show you how stupid people from these giant companies can be when they’re dishing out what is effectively shareholders’ money. Maybe they had their reasons, but I couldn’t understand them. I told Flummerfelt there was no need to pay a 50 per cent cancellation fee, though there would be a small charge, around 10 per cent. I told the truth – I needed the product in another market and could divert it.
I also took a big stab at Pero, saying how full of shit he was and that I’d warned him a hundred times that this product would not sell in America, but despite those warnings he kept insisting he had orders. I lost my rag and told him that his orders weren’t worth wiping my arse with and that he was a typical bullshitting American.
Part of my anger over the situation in America was because I was growing up in a business sense and was no longer prepared to be as opportunistic as I’d been when dealing with the United Africa Company or importing CB radios. Amstrad was now a public company and we had to be careful and try to build our brand.
While there was a lot of praise from the media over our phenomenal growth, there were also snipers. The Daily Mail, for example, never joined the Alan Sugar fan club during my rise to fame. Success stories are not on their agenda, but they are always ready to pounce on a failed venture – and Amstrad failing in the USA would be right up their alley.
It didn’t seem a good thing to ship stuff to America, even if payment was guaranteed, but despite witnessing the bollocking I’d given Pero, the Sears World Trade people still insisted on going forward with the PCW8256.
I told them they had to be realistic – there was no way they could sell the PCW8256 for $399. In simple terms, if I gave them the same price as I gave Dixons, fine – they might be able to add a 25 per cent margin and sell it in their own retail stores. But if they expected to make a profit and sell it on to another retailer, who in turn had to put their own 25 per cent margin on it, the product would end up ridiculously overpriced at $800.
It was clear that Flummerfelt had been given the job of running Sears World Trade and he was treating it as his little empire. It was also becoming clear to me that they didn’t have any products other than the CPC6128 – and now they wanted the word processor too! When I asked him what other things they were importing, he was very vague and couldn’t tell me. It seemed that this new business unit, Sears World Trade, had to start proving it could do something otherwise it would be shut down.
These deluded people ordered 100,000 PCW8256s and opened the LC for the first 50,000. They told me they were going to push Pero to one side and that this deal had nothing at all to do with him – it was between Amstrad and Sears World Trade.
On the face of it, the story of Amstrad selling to the mighty Sears organisation in the USA sounded good and people in the UK thought we’d pulled off a major coup. But deep down, I knew it wouldn’t be successful. Nevertheless, I reluctantly agreed to develop an American version of the PCW8256. The following summer, at the Chicago Consumer Electronics Show, Sears World Trade displayed the PCW8256. They had taken on a team of salespeople to sell these into the trade.
Finally, the penny had started to drop with them that although the product was conceptually excellent, the pricing was too high. They asked me if I would be prepared to contribute to advertising, on the grounds that they were promoting my brand. They wanted to put our advert – the one trashing the typewriters – on TV. I explained that we were not responsible for paying for their marketing – that was part and parcel of their privilege of being the sole distributor for Amstrad in America.
I remember having a row with their sales manager on the stand. He started getting sarcastic, slapping me on the back and saying, ‘You’re a clever man, Alan, you really are. You take all this money from us, all these letters of credit which we can’t cancel, you won’t give us any money for advertising and I’m stuck with the job of selling the product. Seems you’ve stitched us up quite well.’ I turned to this loud-mouthed idiot and told him that he was just a simple salesman and that he should keep his mouth shut and his nose out of business that didn’t affect him.
Not that I had to justify myself to him, but he wasn’t at the original meeting the previous year, when I’d told his bosses not to buy the bloody stuff! I raised my voice so loudly that everybody started to look around. He went bright-red in the face.
Although the stuff wasn’t selling, the shipments were still piling in. However, this time there was no way I was going to cancel the order because the number of components required in the construction of the PCW8256 for the American market was significant. Plus, this time we weren’t short of units for our other markets.
Flummerfelt asked me whether we could slow down the shipments. I wanted to shut those thoughts down immediately and said, ‘The CPC6128 was a one-off situation and it ain’t happening here. You’ve got to take this whole batch of 100,000 units. And, by the way, you’d better open the LC now for the balance.’
They never did open that LC. To be honest, we only produced 35,000 of the first 50,000 units, so we were not financially exposed for the balance of the order. Instead, David Hyams and I negotiated with the legal department of Sears World Trade a $2m
cancellation agreement for the balance of the order. This time I didn’t feel morally obliged to let them off the hook. They had been warned very clearly not to try to sell this stuff. Being backed by the mighty Sears, they coughed up. They realised that they had no chance of fighting the compensation because we had done nothing wrong. We were quite within our rights to sue them for loss of profit on the 50,000 units they wanted to cancel.
The story of Sears World Trade doesn’t end there. It got a bit messy. Pero believed he was diddled out of a great business opportunity and he went to an ambulance-chaser lawyer in Chicago and started a class action against Sears World Trade and Amstrad.
The ambulance-chaser was obviously working on a contingency fee. He was banking on the fact that if he caused enough aggravation to a giant organisation like Sears World Trade, they would just pay him some money to get rid of him. He made the fatal error of thinking that’s also what I’d do.
To cut a long story, we employed lawyers in Chicago to fight the issue on our behalf. Pero had contacted Dominguez and told him that if I were to agree that Sears World Trade had screwed Pero and give a witness statement to that effect, he would drop the action against Amstrad – all he wanted to do was get a lot of money out of the subsidiary of the giant Sears.
Under the American laws of deposition, the lawyers acting for Pero came to England to take a statement from me. In that statement I had to explain everything that went on, as far as transactions were concerned, in the relationship between Amstrad and Sears World Trade and also declare anything else that had gone on which may influence the case.
These smart-arse lawyers were firing questions at me all day long till it got to the stage when they asked me if I’d had any contact with Pero since the last meetings in Chicago.
‘Yes,’ I replied.
‘What did he say to you?’
I told the lawyers, ‘I’m sure you don’t want to hear what he said to me.’
They thought they’d struck gold.‘ We’ll decide whether we want to hear it or not. What did he say to you?’
I replied, ‘Are you sure you want to push me on this – on what he said to me?’
‘Yes,’ they said impatiently. Bear in mind that also in the room was a lawyer from the main Sears legal department.
‘Well, you asked for it. What your client said to me was, “Alan, if you write me a witness statement saying that Sears screwed me, I will let you off the hook and I will not sue your company.” Okay? Are you happy with that?’
David Hyams couldn’t hold back his laughter. He turned to them and said, ‘He did warn you! He asked you twice whether you wanted to hear it, you said yes, so he told you. Now it’s in the deposition.’
‘When did my client ring you and say this? Last week? A couple of weeks ago?’
‘Dunno,’ said I, ‘but he also said it to Mr Dominguez. I’m sure that when Mr Dominguez is called into the courtroom in Chicago, he will also give witness to this fact.’
The ambulance-chaser was not a happy bunny. He was deflating like a balloon.
A couple of weeks later, the Sears corporate lawyers decided to settle with Pero and give him some money to get rid of the irritation. His lawyers must have copped a large share of this, leaving Pero with the dreg ends. We told them both to get stuffed – they got nothing out of us. Unfortunately, under American law, there’s no way to claim back your legal fees, even if someone brings a failed action against you, so the ambulance-chasers rely on large corporations realising it’s going to cost them a fortune to defend their position and deeming it cheaper simply to pay some money for them to go away.
In truth, it would have been cheaper for Amstrad to give Pero $100,000 and tell him to piss off, because the bill we got from our high-class Chicago lawyers, Mayer, Platt & Brown, must have been for well over a quarter of a million dollars. But it was the principle that mattered in this particular case.
People often argue that my principles are wrong if they cost me money. There have been times when I’ve spent a fortune on lawyers just to get a point over, knowing I had no chance of getting all the money back. I don’t know whether I’m right or wrong – commercial people would say I’m wrong. I defy the principles of business which say, ‘Pay a few quid and tell the people to clear off.’ Somehow I don’t think I could ever bring myself to do that.
*
Otake was never one to dish out compliments, but he used to say to me, ‘Sugar-san, you are a gambler. I like your fighting spirit.’ By this he meant that he’d never come across a person like me who was prepared to place large orders based on unproved concepts. In the Harvard Business School manual, they advise that before anyone embarks upon large-scale production of any item, they should test the market with sophisticated market research techniques. Then, and only then, should they sample the market by making a small production run to see how the products are accepted.
This is all well and good in certain sectors, but in the dynamic electronics industry of the eighties, there was no time for this nonsense and I had to trust my gut instinct when it came to gauging what consumers would go for. This ability took in things like spotting trends and tendencies, observing what competitors were doing, trying to condense and feature-pack a product (Amstrad was the Swiss Army knife of electronics) and at the same time bring it down to a price affordable by my target consumer, whom I warmly referred to as ‘the truck driver and his wife’.
I’ll now tell you a story which will be hard for so-called business experts to understand. What I was about to embark on, you can’t learn from a book. Nor can you go into Boots and buy a bottle of entrepreneur juice to teach you how to do it.
In February 1986, Bob Watkins and I were on one of our regular trips to the Far East. I was staying at the Peninsular Hotel in Hong Kong, on the Kowloon side, a fantastic place that brings back so many great memories for me. While there, I received a message asking me to call Mark Souhami of Dixons at the Mandarin Hotel.
I thought this rather strange and called him back to ask what he, a retailer, was doing in Hong Kong. He explained he was there with Stanley Kalms on a general trip around the Far East and that Stanley thought it would be a nice idea for me to pop over and have tea at the Mandarin.
‘Have tea with Stanley?’ I said, puzzled. ‘What are you going on about? Stanley doesn’t have tea. What’s going on, Mark? What do you really want?’
Alan, why are you so sceptical? Why are you so suspicious? We’re friends! We’re all in Hong Kong. Pop over, have tea. What’s wrong with that?’
‘Nothing wrong with that, Mark, but rather strange, to say the least.’
Intrigued by the invitation, next day I took the ferry from Kowloon across Victoria Harbour, which dropped me right outside the Mandarin Hotel. I went up to Stanley’s suite.
‘Good afternoon, Stanley, I’m surprised to see you here. What are you trying to do – contact my suppliers, as usual? You’re wasting your time, mate. You can’t screw me any more, you know.’
Usually, nobody would talk to Stanley in that way, but I had this cheeky knack of getting away with it, as it came across as half-joking. I am like an elephant – I never forget – and this was my little dig at him for the way he’d screwed me on VCRs. While Stanley liked me personally, there would be no favours coming from him in business terms. And the feeling was mutual.
‘So, what do you want, Stanley? What have you schlapped me over here for? I’m busy. I’ve got no time for tea.’
‘Calm down, Alan. I just thought it would be nice for us to touch base.’
Yeah, okay, Stanley, forget all that touching base stuff and tell me what you want.’
‘Oh, you are terrible, you really are terrible, Alan. All right, well, look, let me tell you this – this Clive Sinclair fellow is going bust.’
I was shocked, but seconds after digesting the statement I remembered hearing rumours that he was running out of money fast and I’d seen a frontpage story in the Mirror about how the mogul Robert Maxwell was going to rescue
Sinclair.
‘Right, okay . . .’ I said cautiously.
‘Well, we sell hundreds of thousands of his products and we’ve been approached by Price Waterhouse to see whether we would take over his company to get him out of trouble. Now as you know, Alan, we are retailers. We’re not interested in this, so I’m giving you the heads-up. You need to jump in quickly and see if you can sort a deal out.’
Wow! Now that was interesting. It actually took the wind out of my sails.
First of all, I couldn’t help feeling some satisfaction that my arch-competitor was going down the pan. I know it’s not a nice thing to say, but I’m being honest. Secondly, the acquisition of the Sinclair brand would be a massive coup for Amstrad.
After further discussion with Mark and Stanley, the story became clearer. The truth of the matter was that the man at Price Waterhouse had not suggested that Dixons buy the company, but had actually asked for an introduction to me, knowing that I was also a supplier to Dixons.
Dixons quite selfishly realised that if Sinclair went bust, they would be stuffed in two ways. One, they would lose a lot of business because they were selling hundreds of thousands of Sinclair Spectrums; and two, they would have no after-sales service path for the millions of Sinclair units they’d put into the marketplace.
From Stanley’s suite in the Mandarin Hotel, we called London to speak to the guy at Price Waterhouse. From what I could gather, Sinclair was in dire financial straits. Barclays Bank had a debenture over the company and by 31 March 1986 either Sinclair had to cough up the money they owed them or they were going to force them into administration.
Clive Sinclair at that time was a national treasure and the guy at Price Waterhouse explained to me that there were deep political connotations here. They could not allow Sinclair to go into bankruptcy – it would be deemed a disaster for the flag-bearer of the British computer industry to go under. So many songs had been sung about his enterprises and Barclays Bank would be seen to be the people that shot Bambi’s mum. It’s true to say that if Clive Sinclair, who by then had been knighted, wasn’t as famous or popular as he was, the company would have simply been slung into liquidation and no one would have heard any more about it.