What You See Is What You Get: My Autobiography (49 page)

When the product launched in Britain, there was a queue outside Dixons at Brent Cross on the Saturday. This was not some pre-planned PR stunt -
people were genuinely falling over themselves to get these word processors as soon as they came into the shop.

Stanley Kalms must have been plutzing. Never mind that he was making 25 per cent on every unit sold, he hated the fact that he was buying from me, knowing he couldn't get them from anyone else. He also hated the fact that there was no negotiation on price, no negotiation on quantities and no real negotiation on exclusivity. Then he got the raving hump when he saw the product on sale in Comet. One of his underlings, Eddie, the acting MD, called me to complain. I told him that no official agreement had been made as far as exclusivity was concerned - it was all in Mr Kalms' mind. It certainly wasn't in
my
mind.

Eddie threatened that they would no longer stock Amstrad products. The conversation ended with this fellow saying something like, 'Well, that's it. We're closing our account with Amstrad.'

I said, 'Fine. That's a decision which you'll have to live with.'

I have to admit that at the time I was worried. I wasn't really so arrogant as to believe that one could exist without Dixons - they were growing in the marketplace. They had acquired Currys in a hostile takeover bid in December 1984 and they had a tremendous distribution network throughout the country. However, it was just one of those stand-off situations. Should I get on the phone and start kissing the arses of Stanley Kalms and Mark Souhami? Or should I just sit back and be quiet? More by luck than good judgement, having been distracted during the next day or so by other problems, I didn't do anything about it.

Then I received a phone call from Souhami, who was a bit of a smoothie. He was a short, well-groomed gentleman with a very posh, City-type accent. 'Now, young Alan,' he said, 'you've upset Stanley. And when you've upset Stanley, you have to understand that people like me have to sort it out. Now, what can we do about this?' I told myself to keep my mouth shut and not fan the flames by arguing over whether I'd offered exclusivity or not. Just be quiet.

After a moment I spoke. 'Well, I don't know what to say, Mark. According to your managing director, Eddie What's-his-face [I never
could
remember his name], we haven't got an account with you any more, so . . . there you are, that's it. What do you want me to say?'

'Well, this can't go on, obviously. We need your products, you need us . . .'

Best to shut your mouth, Alan. Keep quiet. 'Yeah, you're right, Mark, you're quite right.'

'Now, we're right out of these word processors - what are you going to do about it?'

'Er, sorry, Mark, I was told by Eddie that our account is closed - what do you
want
me to do about it?'

'No, no, take no notice of Eddie! We need some units - how many have you got?'

Alan, keep your mouth shut, don't be spiteful, don't rub it in. Don't start bullshitting that you've allocated all the stock to someone else and make it even worse. Just shut up.

'Let me call you back, Mark, and I'll see if I can get some stuff to you quickly.'

I had been a good boy and restrained myself from my mischievous ways. We were obviously back on track with Dixons without the need for further confrontation. But the episode did endorse something that was to become part of my philosophy: never rely on the retailers to help you. Don't listen to any bullshit that they love you and they'll always support you. No, you have to generate a demand for a product which drives consumers to the retailers. You must create a situation where the retailers need you and you
don't
need them because, as I was to find out through painful experience, the minute you're no longer the darling of the market, they'll drop you like a hot potato and forget about all the help and support you've given them in the past. And with the exception of my relationship with Nick Lightowler in the early days, they
all
fall into that category.

We were extremely successful with the PCW8256, selling 350,000 in the first eight months after the launch, and we went on to make a big brother version, the PCW8512, with two floppy disk drives and 256k more memory to justify sticking the price up by another PS100. The same old trick worked every time - PS399 for the lead-in model, PS499 for the twin-drive/larger-memory version. As ever, the margin on the additional PS100 per unit was exceptional.

In June 1986 we announced a turnover of PS301m and profits of PS75m - almost four times the profits of the previous year.

*

In America, as I'd predicted, the CPC6128 was not selling. But despite this, Pero was now driving me crazy about the PCW8256. I said, 'It's bad enough you can't sell the CPC6128s which are arriving in volume - now you're talking about buying something else that isn't suited for the American market! Haven't you learned your lesson yet?' He explained that it was the people at Sears World Trade who'd picked up on the publicity for the PCW8256 - it was
they
who were showing enthusiasm for the product.

These Americans, bless 'em, they're ever the optimists and you have to take them with a pinch of salt. I certainly
wouldn't
take any notice of their enthusiasm for their so-called ability to sell my products in the US market. I was very sceptical, but Pero insisted on coming to London with a representative of Sears World Trade, Karl Flummerfelt.

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 PS399 in the UK, it was $399 there (one never saw this the other way round, however). In reality, PS399 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.