Paphitis’ Business Career Case

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Table of Contents

Introduction
Sources of his business finance
Sources of Paphitis’ business ideas
Failures in Business Processes
Solutions
Conclusion
Reference List

Introduction

Paphitis began his business carrier at the age of 16 as a tea boy at a Lloyd’s insurer. Two years later, he left the job to become a clerk in an insurance company in London. The need to acquire more money drove him to join Watches of Switzerland as a sales assistant in Bonds Street where he did not work for long as he later on went to sell commercial mortgages at Legal & General at the age of 21. It is in Legal & General that he learnt his business ideas.

He could now read and understand most business transaction documents and reports. He set up his first major business at the age of 23 when he partnered with his friend, Mark Moran to established Surrey & Kent Associates, a property finance company. He maintained the business when the friend left and managed to partner with Hanover Druce, a property group. It was in this business that he made enough money to acquire capital to buy shares in NAG telecom (Paphitis 2009, 4-7).

He later on ventured into business turnarounds on companies that were facing receivership. When Ryman Stationery Stores became bankrupt, he used the massive market shares he had gained in NAG to buy Ryman. He turned the company around by improving its management and business processes. Since then, he has been involved in turning failing business organisations into successful businesses. Acquisition of Ryman was followed by Partners & Stationery Box and then Contesa Patners and later on La Senza, a lingerie chain store among others. He has since then acquired many companies on his own and also co-owns many companies within the UK. Paphitis also managed Millwall Football Club between 1997 and 2006. He took over the club at the time when it was experiencing extreme financial problems and revived it financially and helped improve their performance. This saw the club reach the FA Cup Final in 2004 (Crimson Business n.d).

Sources of his business finance

Paphitis first entered business with venture capital that he had acquired through savings and from his previous jobs and loans from banks. His partnership with his close friend, Mark Moran helped boost the capital that they used to enter the property financial markets. When the friend left, he did a joint venture business with Hanover Druce which was also a property financial group. This helped him and the group acquire a joint venture capital so as to maintain and expand the capital that was needed to run the business. Joint ventures have helped him raise capital in most businesses that he co-owns such as Red Letter Days which they own with Peter Jones, a fellow Dragon’s Den businessman.

Paphitis has also been able to acquire finances by trading in his ordinary shares in such companies that he owns shares. He sold his ordinary shares that he owned in NAG Telecoms to buy Ryman Stationery Stores. Paraphitis is able to identify particular business for investment and therefore buys large shares to enable him become the Chairman. In NAG Telecoms and in Millwall Football Club, he had substantial equity shares which he sold to enable him undertake more important acquisitions. In 2006, Paraphitis sold his equity stake in the global lingerie brand, La Senza, for £100 million.

In his own his businesses such as Ryman Stationery Stores, he has used retained earnings to maintain and expand his businesses. Retained earnings in this case are the profits-reinvested in the business instead of paying it out as dividends (Investment Accountants 2009). Retained earnings are mainly used to fund new investments or to expand the business. It provides an easier source of finance since the investment projects of the business can be carried out without involving the shareholders or even outside investors. However, retained earnings in a business have an impact on the dividends.

He has also used the profits gained from his businesses as well as profits gained by selling his equity shares and companies to acquire more businesses or expand the existing businesses. In 2010 alone, Paphitis made £6 million profits in his La Senza Company (The Investor 2009).

Paphitis has also benefitted from “points in the favour of ordinary shares” to boost his business finance (Investment Accountants 2009). Points in the favour of equity shares are normally earned when one is involved in managerial activities of the business (Investment Accountants 2009). The dividends will grow as the company earns more capital profits. Paphitis has been involved in the management of many companies such as NAG Telecoms and Millwall where he was the chairman in both cases.

Paphitis has also worked for various companies to boost his business finances. He is currently filming with BBC in the Dragon Den series. He hosts the show which is meant to offer other entrepreneurs business ideas. He also runs various projects which help him earn money to boost his business finances. He was also appointed chairman of Astra Industrial Group PLC earlier on in 1987 when the company faced receivership due to unpaid loans although in this case, he ended up losing his investments in the company (The Investor 2009).

Loans from banks and other financial institutions have also boosted Paphitis business finances. He started by identifying businesses that had financial problems in repaying their loans. He would then write proposals and reports on how they could repay their loans and approached banks to lend the companies the money. He has since then acquired development loans from different banks for his business acquisitions (The Investor 2009).

Sources of Paphitis’ business ideas

Paphitis’s business ideas have been inspired by his creative thinking as he is always motivated by the search for more opportunities. The challenges that he meets in his businesses particularly his turnaround businesses have spurred him to be more creative in finding solutions to problems that existed in the companies prior to his acquisition without contracting consultants. Paphitis has great visualisations and ability to look into his crystal ball. According to him, the best way to acquire information on the problems that exist in the company is through talking to the staff especially the first line staffs and managers.

Paphitis says that it is pointless contracting consultants to find solutions to problems in your company when you can do it better by yourself. Besides, employees usually have great experiences which they gain outside the company particularly from their past employers and therefore can help develop best practices in the organisation (UK IDEA 2008). He gained his business ideas from his working experience in sales particularly in selling mortgages. Business owners and managers can also benefit from creative and forward thinking employees who are able to identify problems and come up with sustainable solutions (De Ridder 2008).

According to Paphitis, being curious to know what is going on in other businesses through creating customer relationship with them is very important if one is to acquire more business ideas. Through curiosity and customer relationship with the banks, he was able to acquire loans which he has used in buying and developing failing businesses. Solutions to business processes can be learnt from other business organisations including companies that are facing possibilities of receivership (Chesbrough, Vanhaverbeke, & West 2006, 25). Selling mortgages exposed him to environments where he could interact with other companies including those experiencing financial problems.

Partnerships and joint ventures are also important sources for gaining innovative business ideas. His first business was a partnership between him and a friend. As he partnered with companies and individuals he has been able to acquire great business ideas and finances to buy other businesses. Through partnerships and competitions in the industry, one is able to borrow best practices and implement in his or her business. Great companies even outside your industry can provide best business ideas that could be applied to drive your company (Chesbrough 2003, 39). In his show of the Dragon Den, he hosts entrepreneurs to enable viewers acquire great business ideas.

Failures in Business Processes

Paphitis chose a less profitable business when he bought Millwall FC as it was in a situation that required long-term plans of may be more than ten years to gain sustainable profits. He managed Millwall FC as the chairman for eight years which is equivalent to two terms and although he helped the club reach its first FA Cup Final in 2004 and also play in the UEFA Cup in the 2004-2005 season for the first time, he did not achieve much financially.

In his efforts to eliminate hooliganism among Millwall fans, he implemented a membership scheme which required that all the ticket holders provide their personal details. This saw the revenues of the club drop significantly (Kelso, 2004). Thus he had failed to define and understand Millwall’s fan’s revenue contribution to the club. His relationship with the fans also had some problems as he denied them the democracy they needed in the club. He did not reach the fans in person.

He did not give the managers the much freedom needed to make some decisions. He did not allow selling of players to earn revenue for the club and only relied on other sources of revenue. Again he sometimes appointed managers who could not achieve the needed results. Thus, he failed to react effectively to the competition that exists in the world of football. He also spent a lot in giving incentives to players in attempts to encourage them to perform better (Kelso, 2004).

In Astra Industrial Group PLC, he was later on ousted even after saving the company from its financial problems which almost cost the company liquidation. He had bought stakes at the club which were later realised to be full of fraud. However, according to him, the company should have listened to him as he had done that to save the company from going into receivership. He ended up losing his money in this deal.

Paphitis had also assumed that by being strict to employees to buy into his vision for his businesses, he would encourage employees to work harder and be more responsible and committed to the company. However, according to The Investor (2009) some employees could not put up with the excess loyalty he expected of them and so, they just left without being sacked. He had failed to realise that incentives alone can not effectively drive workers’ motivation.

Employees become more satisfied if they are allowed to contribute their ideas into the running of the organisation (Bloomberg 2006). Paphitis failed to let go of his attitude that he has to make decisions on his own in his own businesses or where he had the highest decision-making authority. He had assumed responsibility and authority in the financial activities and processes of Astra Industrial Group PLC. His manipulations of the business’ capital finance cost him his investments in the company.

Paphitis is also a victim of inadequate strategic planning. According to Mason (2011) a business plan should not promise more than what can be delivered. This in itself is considered fraud. In his stint at Millwall FC he had promised to drive the team into Barclays Premier League within the first five years; however, he stayed in the club for eight years without achieving that status. He did not invest on more professional players who could drive the club into the premier league and even let some quality players leave the club.

Solutions

It is important to develop realistic and achievable strategic plans in order to avoid cases of fraud in the business and to strengthen the investors’ trust and commitment to the business organisation. It is also important to realise that employees come to the organisation with different dispositions and cultures. Therefore it is essential to adopt management style that takes these factors into considerations. Managers should also consult employees and other stakeholders before they come up with some decisions particularly those that are bound to impact on them directly.

Conclusion

Managers and business owners have to analyse the business risks that are involved in the businesses they intend to establish. Management of business organisations require that those in charge of the financial activities and processes of the organisation be able to predict the future risks of every financial activity of the company. The manager also has to be aware of the impacts of the management style he or she adopts.

Reference List

Bloomberg, L. P., 2006. The world’s most innovative companies. Bloomberg Businessweek, Web.

Chesbrough, H. W., 2003, The era of open innovation. MIT Sloan Management Review 44 (3): 35-41. New York: ACM New York.

Chesbrough, H., Vanhaverbeke, W., & West, J., 2006, Open innovation: Researching a new paradigm. Oxford: Oxford University Press. P. 25.

Crimson Business, (n.d), Theo Paphitis (La Senza, Ryman and Milwall Football Club). Business Link, (n.d). Web.

De Ridder, P., 2008, Sources of innovations: Where do business leaders think ideas & innovation come from? Open Innovators, Web.

Investment Accountants, 2009, Eleven sources of finance that small and medium sized businesses can use to finance non-current asset. WordPress, Web.

Kelso, P., 2004, Millwall get FA Cup sympathy vote yet fans say: No one like us, we still don’t care. The Guardian, Web.

Mason, M, K., 2011, What causes businesses to fail. Web.

Paphitis, T., 2009, Enter the dragon. London: Orion Publishers.

The Investor, 2009, Theo Paphitis: Enter the dragon. Monevator, 18 August, Web.

UK IDEA, 2008, Creativity and innovation. ukIDEA, Web.

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