MISFORTUNE IN THE 1980s
0222 Computerland - the Road to Bankruptcy
Although we didn't know it, our fate was sealed before we ever opened the doors of our Computerland. It was sealed because we were misled twice.
The first of these came unintentionally from IBM which, by my insider knowledge, had led me to believe that it would regain control of the PC market. This turned out to be false. Even worse, although IBM ruthlessly forced on us the 'glass on street' policy, which cost us the best part of £200,000 for our wonderful new showroom, behind the scenes it was happily excepting warehouse dealers on the basis that they shifted large volumes of equipment. This latter group proved to be the way the industry was going, covertly encouraged by IBM’s PC dealer force against the wishes of IBM central management. As well as killing our dealership, this ultimately nearly destroyed IBM itself.
The second was that made by the ComputerLand management in the UK. They allowed us, indeed encouraged us, to work to a net profit percentage which was twice as high as any other ComputerLand in the UK was actually achieving.
Put these two factors together and, despite my wonderful business plan, we were always doomed. When it took longer to open than was anticipated to open, so that Ian could have a beautiful polished ceiling for the showroom, we had no hope left.
At the point where our business plan still seemed viable we, indeed, had built it into the most wonderful spreadsheet. Frank, our new sales manager, was a wizard with such spreadsheets. Eventually it ran to something like 2 MB; an enormous size in those days. It took into account every factor imaginable. As, every month, we got our new sales figures Frank managed to incorporate all sorts of new factors. Even so, as the months progressed, we were clearly on line for our targets.
It was, thus, a terribly memorable Sunday afternoon in December when his spreadsheet no longer could explain the deviations. It was only then that I realised the spreadsheet had become, for him, a self-fulfilling prophecy. As the sales deviated from the plan he massaged the plan to follow the sales.
I remember that dark day in December, with Ian and myself standing and Frank on his knees in front of the computer -- for some reason he always preferred to kneel at the computer rather than sit in front of it -- as the figures rolled out in front of us. Frank, once more, wanted to make more changes so that the target matched the sales, but for once I didn't allow this. In an awful moment, when it felt like the bottom of my stomach dropped out, it became obvious that we would run out of money, and become bankrupt, within a couple of months. It was one of the most horrible moments of my life.
Thereafter we were engaged in a chase to postpone the inevitable day of reckoning. We actually ran out of money rather early, within six weeks so, but we managed to postpone the inevitable by manipulating our suppliers. Thus, we would pay IBM what we owed and they would release our outstanding orders; at which stage we buy large amounts of kit from IBM. We would then go on buying until we were stopped by them. But by then we would have raised enough money from selling IBM units to buy ourselves off the Compaq stop-list. And thus the circle continued as we moved ever further into debt. Ultimately I realised we were almost illiquid, trading nearly illegally, and decided to get out before we were really illegal.
There was nothing to do about it. Keeping the business afloat became the responsibility of our accounts supervisor, Nishi, who spent all her time balancing of one creditor against another. She was wonderful at this.
She was one of the greatest finds I have made. I remember when she came to apply to us. She had been a law student at Sussex University when her father had heart attack and she had to leave to manage family business. The family were East African Asians. Her father had run very successful chain of cinemas in Idi Amin's Uganda. He was in fact a millionaire there. When he was forced out of the Uganda he'd come across to the UK and set up to another chain of cinemas over here, becoming a millionaire again, this time in the Uk. By the time I first knew Nishi, however, he had hit a new low, being hit by consumers switching from cinema to home video -- his audience were Indians watching films -- and this had once more destroyed his empire. He was starting yet again, with video shops.
Nishi was a lovely girl, but she was caught between her own culture and British culture. She had a British boyfriend who she wanted to marry, but the family opposed this. I supported her wishes, and became almost a father figure to her in this respect, even though I thought the boyfriend was a wimp. Her family eventually sent her out to India, and we later heard she had married the new boy the family wanted her to.
Back to our bankruptcy, that Sunday had been terrible and over the next few weeks I began to realise just how wrong we had been. This resulted in a further terrible moment on the night when before we were attending a ComputerLand meeting in Manchester. To save money, Ian and I were sharing a hotel bedroom. I had decided at that stage Frank had to go, as a sales manager, since he was clearly failing to manage the sales force. Ian, on the other hand, did not believe this. He had been swayed by Frank's apparent air of professionalism. Even worse, he had begun to listen to ComputerLand who were backing Frank against me. We had a terrible row. We had been expecting, a few weeks before, to go into this meeting triumphant; as the leading British Computerland. Instead I went in to the horrible sinking feeling, well knowing that we were abject failures.
We then started hawking ComputerLand around to try and find extra capital. We met with a number of people who had personal capital and wanted to start small businesses. Even they rejected us. Then we got on the rounds of those asset strippers who wanted a cheap purchase.
It was at this stage that I put together what was one of my better con acts. It was a variation on loading a gold mine by firing gold into the rock from a shotgun. Thus, I deliberately made our position on the surface even worse than it really was. But I ensure that, once you removed the surface of the accounts, you suddenly came upon what seemed to be a layer of gold; which made the whole purchase very valuable indeed. In terms of personalities I sacrificed myself, by indicating that my business plan -- and myself -- were rubbish. Then, going down a bit, you found that the part run by Ian not myself was the gold. This was in fact true, because the business was only prospering where we were selling CAD. Indeed, at one stage we became Compaq's largest outlet in the UK. It was a marvellous story – though, as it so happened, our sales of this equipment were being made at a loss!
The really terrible thing was that, even though I carefully explained to Ian exactly what I was doing, he came to believe it himself. Reinforced by ComputerLand management, who I had intended to buy the story, he forgot all I had taught him about it and fell in love with it and his own abilities.
I got out, having been bought out for the something like £25,000, and consequently having lost £65,000. Fortunately, thanks to Ian's insistence, my house had never been on the line and I still had that capital behind me. I also had earned money, £25,000, for the critical year in question.
On the other hand it felt terrible at the time. On the other hand, I learned more valuable lessons from the terrible experience at ComputerLand than I learnt in much of the rest of my business career.
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