On February 27, 2006 Charles Dunstone founder and CEO of Carphone Warehouse spoke at the London School of Economics Enterpreneurs Group.
We posted Dunstone's main speech here straight after the meeting, but didn't have time to type up some of the interesting responses that came out of the Q&A session afterwards. Dunstone's commentary is in italics.
We posted Dunstone's main speech here straight after the meeting, but didn't have time to type up some of the interesting responses that came out of the Q&A session afterwards. Dunstone's commentary is in italics.
On funding...
Funding Carphone Warehouse was partly luck because of being in an amazingly fast-growing marketplace. Probably the most amazing part of it was that I put my 6,000 GBP of savings into the business; from 1989 to 2000 there was never any other investment in the company and we never borrowed any money.
We just used our working capital and what became part of our DNA was 'make sure you've sold before you've got to pay for it' and we funded the whole business from our suppliers.
Erm, I've no shame about that at all their money is the cheapest and least questioning money you'll ever get. So, the great thing is to get supplier funding in whatever you do, they're much less likely to throw you to the wolves like the banks or a venture capital company or someone are.
And I guess the second part of that is, however tempting it is at the time, equity is priceless. I see lots of people who are trying to raise a bit of money and they feel like they're giving away the equity to raise the money. They'll rue that when the business is successful and is worth a lot of money. Do everything you can not to give equity away.
On Vodafone...
In reality at the time, everyone says they paid an awful lot of money for Mannesman, by buying it with overinflated paper. It was a ludicrous exchange rate with over-inflated share prices and I think that thing that people should be ever respectful of what Chris Gent managed to achieve was a very, very simple rule if you look at every transaction that he made: he bought for paper and sold for cash.
He never exposed, if he was over paying for a business it was because the stock market was too high, he was just as high as the business that he was acquiring in the long term he made sure that he got cash in the bank. That is why when we come to 2001 or so Vodafone was the only telco that didn't have massive amounts of debt; BT had to demerge Cellnet or O2 as it is now, France Telecom and Deutsche Telekom had to sell assets they had run up enormous debt.
On maintaining a strong internal culture...
Passion is difficult and I kind of refer to the point that I didn't, wasn't really sure how we created the culture. Part of it was my personal involvement. I think that a lot of it is consistent leadership. Leadership may not get everything right, but the bigger the organisation the greater the need for a sense of consistency, a sense of orientation and the values of that organisation.
And if I look at the people that supply us, its very interesting to see how their fortunes have changed. Originally you had Vodafone with very consistent leadership under Jerry Went and then Chris Gent, then you had Orange with very consistent leadership under Hans Snook at the same time you had One-2-One and Cellnet had different CEOs every two years business all over the place: absolute chaos.
Then you get a change: Orange gets sold, France Telecom changes the leadership of Orange constantly: Orange becomes a complete mess. O2 gets consistent leadership, O2 becomes a successful business: sold to Telefonica for enormous sums of money and through all of this I don't think that you can underestimate the value of having really consistent leadership. This has an impact on passion and people.
On VoIP (voice over Internet Protocol)...
I think that the difference between Europe (particularly the UK) and the US is that VoIP will be very big in businesses, in residential homes you can't have broadband without having an exchange line: that's the way the regulator has decided it wanted to make sure that BT can make a living. If you've got broadband, if if you don't want it, if you pick your phone up you're going to get a dial tone that you can make a phone call from. Once you've got broadband unbundling, once you've got a connection from the exchange to the home it doesn't cost you anything to connect a call whether its over broadband or you pick the normal phone up.
So suddenly a normal phone has the exact same economics as Skype, so I think what will happen, what you will see people like us do is offer VoIP-priced services on your normal phone at home without you having to put a headset in your PC or mess around and do all that kind of stuff. There are some people who will find reasons to do it and things that they want to do within it. The majority of people with a fixed-line are people with a family, over 30 years old, 50 per cent of it is there home alarm and ring people, 50 per cent of it is that they want to be able to ring the fire brigade if the house catches fire in the middle of the night. You won't get them to use their mobile or use VoIP as they want to sit by their bed, get a dial tone and dial 999.
So I think in residential its not going to have a massive impact, in businesses its a different thing, with VoIP you can have multiple lines over one exchange line and that's going to completely revolutionise business telephony.
Vonage is already more expensive than we are for your phone service and we're not even using an unbundled broadband line on it. The economic difference is very different here than it is in the US.
On where mobile phones are going...
I don't have a clue where things will be in ten years. A few predictions on mobile phones, it is a unique device because the last 15 years have changed the world, more than it had changed for 500 years before that. 15 years ago, no one left their home without their money and their keys, now no one leaves home without their keys money and mobile phone and its taken a part in peoples lives that no other product has for hundreds and hundreds of years.
That relationship is so powerful that if a producer wants to gets content to you, they can guarantee if if they can get it to a mobile phone, so that's why we see cameras, now everyone carries a camera and a mobile phone. Soon everyone will be an iPod and a camera and they'll keep getting better and better. By next Christmas you'll be able to buy cameras with flashes, zoom all this kind of stuff. I think that video is going on mobile phones, I think that payment is coming, payment systems is coming onto them and Carphone Warehouse is the largest retailer of digital cameras in the UK by accident. We didn't mean to sell one of them, they just come in the products that we sell as standard and its just that everyone else's business is morphing into ours because of the unique relationship the product has.
My final prediction on phones on the next year to two is that fashion is about to become a big thing in phones, at the moment they are driven by technology. We had an extraordinary experience this Christmas with a pink V3 we brought out. We've done some analysis that absolutely blew us a way, you're starting to see the manufacturers talk to the big brands about putting things into phones and people spend stupid money on pens and watches and shoes and clothes. I think that all that madness is also going to end up in mobile phones as its such a public personal accessory.
On the competiton...
I've basically got two types of competition: people like Phones4U and The Link who are trying to do what we do and we just get up early and try and do it better and try and beat them up every day. And we have a team, we meet at 8 am every single morning and look at everybody else's prices and reprice based on what happened that day its that brutal. We fight, fight, fight.
My other competition is the network stores which is a combination of wanting to have some direct impact with customers and a certain amount of vanity about wanting their brand on the hight street. They don't compete with us in terms of the volumes of sales that they do, as the market gets more fragmented I think that its less likely that the customer is going to say I just want to go and see the world according to Orange today, rather than even going to one of my normal competitors. In reality it will be let me go and compare Orange with everybody. I think that its going to change but there's not a very strong economic rationale for them in the first place.
On handsets...
The networks are kind of frightened by handsets, as its the handsets that drive churn in the marketplace, the networks would like to just to have a dozen hand handsets across the world. We know when we talk to customers that handsets are the only reason that they've come in the first place. People love handsets, they hate networks; so they want to see the widest possible range of handsets available.
On the role of technology in solving world poverty...
I have no idea, but I have my doubts and I don't stand here saying that the mobile phone is a fantastic thing that has improved the world, you can easily argue that actually the mobile phone and Blackberry and these kind of devices are doing are polarising the world and are allowing certain people to have even more power and faster decision making and disenfranscishing a huge proportion of the population. So I am no defendant of the mobile phone, people want to buy them, they feel that they can't live without them; then its my job to help them with that.
The developing world has made the leap absolutely and it may well be that they never feel the need to go and dig the street, dig the roads up and put copper in. However, I am skeptical as to the mobile phone as those peoples communications needs develop will ever give them the access speeds that they will really want to run fast broadband-type services. At some stage someone is going to have to do something: maybe its four G, WiMax whatever to bring high-speed bandwidth into those areas. McNicholas aren't going to dig the road up to put in more copper wire. We use it in countries like this because its there and why wouldn't you? If you were rolling it out here again you probably wouldn't do the same thing.
On the transition of phones to computers...
Absolutely they're changing into computers, they start to have bugs, they start to have all kinds of usability issues. Our job is very simple and I think the worst thing that could have happened for me is that there could have been one mobile phone network and one really simple phone and the people understand it so that they did not need anyone to help them set it up and work out which one to buy. So we absolutely love complex markets as this gives us something to offer and something to do we have to keep changing. I just watch in delight as Microsoft come into the marketplace because that's not going to work is it? Its going to have lots of bugs and crash and do all these sorts of things that needs tons of support. Lots of competing systems Symbian and others, so its another level of complexity alongside all the complexity of the operators, all the complexity of the tarrifs - Bring it on.
On suppliers...
We have a guy at one of our suppliers who we've named Del Amitri from that song 'nothing happens, nothing ever happens at all'.
Image of Carphone Warehouse in Oxford Street London courtesy of the Carphone Warehouse press image library.
Funding Carphone Warehouse was partly luck because of being in an amazingly fast-growing marketplace. Probably the most amazing part of it was that I put my 6,000 GBP of savings into the business; from 1989 to 2000 there was never any other investment in the company and we never borrowed any money.
We just used our working capital and what became part of our DNA was 'make sure you've sold before you've got to pay for it' and we funded the whole business from our suppliers.
Erm, I've no shame about that at all their money is the cheapest and least questioning money you'll ever get. So, the great thing is to get supplier funding in whatever you do, they're much less likely to throw you to the wolves like the banks or a venture capital company or someone are.
And I guess the second part of that is, however tempting it is at the time, equity is priceless. I see lots of people who are trying to raise a bit of money and they feel like they're giving away the equity to raise the money. They'll rue that when the business is successful and is worth a lot of money. Do everything you can not to give equity away.
On Vodafone...
In reality at the time, everyone says they paid an awful lot of money for Mannesman, by buying it with overinflated paper. It was a ludicrous exchange rate with over-inflated share prices and I think that thing that people should be ever respectful of what Chris Gent managed to achieve was a very, very simple rule if you look at every transaction that he made: he bought for paper and sold for cash.
He never exposed, if he was over paying for a business it was because the stock market was too high, he was just as high as the business that he was acquiring in the long term he made sure that he got cash in the bank. That is why when we come to 2001 or so Vodafone was the only telco that didn't have massive amounts of debt; BT had to demerge Cellnet or O2 as it is now, France Telecom and Deutsche Telekom had to sell assets they had run up enormous debt.
On maintaining a strong internal culture...
Passion is difficult and I kind of refer to the point that I didn't, wasn't really sure how we created the culture. Part of it was my personal involvement. I think that a lot of it is consistent leadership. Leadership may not get everything right, but the bigger the organisation the greater the need for a sense of consistency, a sense of orientation and the values of that organisation.
And if I look at the people that supply us, its very interesting to see how their fortunes have changed. Originally you had Vodafone with very consistent leadership under Jerry Went and then Chris Gent, then you had Orange with very consistent leadership under Hans Snook at the same time you had One-2-One and Cellnet had different CEOs every two years business all over the place: absolute chaos.
Then you get a change: Orange gets sold, France Telecom changes the leadership of Orange constantly: Orange becomes a complete mess. O2 gets consistent leadership, O2 becomes a successful business: sold to Telefonica for enormous sums of money and through all of this I don't think that you can underestimate the value of having really consistent leadership. This has an impact on passion and people.
On VoIP (voice over Internet Protocol)...
I think that the difference between Europe (particularly the UK) and the US is that VoIP will be very big in businesses, in residential homes you can't have broadband without having an exchange line: that's the way the regulator has decided it wanted to make sure that BT can make a living. If you've got broadband, if if you don't want it, if you pick your phone up you're going to get a dial tone that you can make a phone call from. Once you've got broadband unbundling, once you've got a connection from the exchange to the home it doesn't cost you anything to connect a call whether its over broadband or you pick the normal phone up.
So suddenly a normal phone has the exact same economics as Skype, so I think what will happen, what you will see people like us do is offer VoIP-priced services on your normal phone at home without you having to put a headset in your PC or mess around and do all that kind of stuff. There are some people who will find reasons to do it and things that they want to do within it. The majority of people with a fixed-line are people with a family, over 30 years old, 50 per cent of it is there home alarm and ring people, 50 per cent of it is that they want to be able to ring the fire brigade if the house catches fire in the middle of the night. You won't get them to use their mobile or use VoIP as they want to sit by their bed, get a dial tone and dial 999.
So I think in residential its not going to have a massive impact, in businesses its a different thing, with VoIP you can have multiple lines over one exchange line and that's going to completely revolutionise business telephony.
Vonage is already more expensive than we are for your phone service and we're not even using an unbundled broadband line on it. The economic difference is very different here than it is in the US.
On where mobile phones are going...
I don't have a clue where things will be in ten years. A few predictions on mobile phones, it is a unique device because the last 15 years have changed the world, more than it had changed for 500 years before that. 15 years ago, no one left their home without their money and their keys, now no one leaves home without their keys money and mobile phone and its taken a part in peoples lives that no other product has for hundreds and hundreds of years.
That relationship is so powerful that if a producer wants to gets content to you, they can guarantee if if they can get it to a mobile phone, so that's why we see cameras, now everyone carries a camera and a mobile phone. Soon everyone will be an iPod and a camera and they'll keep getting better and better. By next Christmas you'll be able to buy cameras with flashes, zoom all this kind of stuff. I think that video is going on mobile phones, I think that payment is coming, payment systems is coming onto them and Carphone Warehouse is the largest retailer of digital cameras in the UK by accident. We didn't mean to sell one of them, they just come in the products that we sell as standard and its just that everyone else's business is morphing into ours because of the unique relationship the product has.
My final prediction on phones on the next year to two is that fashion is about to become a big thing in phones, at the moment they are driven by technology. We had an extraordinary experience this Christmas with a pink V3 we brought out. We've done some analysis that absolutely blew us a way, you're starting to see the manufacturers talk to the big brands about putting things into phones and people spend stupid money on pens and watches and shoes and clothes. I think that all that madness is also going to end up in mobile phones as its such a public personal accessory.
On the competiton...
I've basically got two types of competition: people like Phones4U and The Link who are trying to do what we do and we just get up early and try and do it better and try and beat them up every day. And we have a team, we meet at 8 am every single morning and look at everybody else's prices and reprice based on what happened that day its that brutal. We fight, fight, fight.
My other competition is the network stores which is a combination of wanting to have some direct impact with customers and a certain amount of vanity about wanting their brand on the hight street. They don't compete with us in terms of the volumes of sales that they do, as the market gets more fragmented I think that its less likely that the customer is going to say I just want to go and see the world according to Orange today, rather than even going to one of my normal competitors. In reality it will be let me go and compare Orange with everybody. I think that its going to change but there's not a very strong economic rationale for them in the first place.
On handsets...
The networks are kind of frightened by handsets, as its the handsets that drive churn in the marketplace, the networks would like to just to have a dozen hand handsets across the world. We know when we talk to customers that handsets are the only reason that they've come in the first place. People love handsets, they hate networks; so they want to see the widest possible range of handsets available.
On the role of technology in solving world poverty...
I have no idea, but I have my doubts and I don't stand here saying that the mobile phone is a fantastic thing that has improved the world, you can easily argue that actually the mobile phone and Blackberry and these kind of devices are doing are polarising the world and are allowing certain people to have even more power and faster decision making and disenfranscishing a huge proportion of the population. So I am no defendant of the mobile phone, people want to buy them, they feel that they can't live without them; then its my job to help them with that.
The developing world has made the leap absolutely and it may well be that they never feel the need to go and dig the street, dig the roads up and put copper in. However, I am skeptical as to the mobile phone as those peoples communications needs develop will ever give them the access speeds that they will really want to run fast broadband-type services. At some stage someone is going to have to do something: maybe its four G, WiMax whatever to bring high-speed bandwidth into those areas. McNicholas aren't going to dig the road up to put in more copper wire. We use it in countries like this because its there and why wouldn't you? If you were rolling it out here again you probably wouldn't do the same thing.
On the transition of phones to computers...
Absolutely they're changing into computers, they start to have bugs, they start to have all kinds of usability issues. Our job is very simple and I think the worst thing that could have happened for me is that there could have been one mobile phone network and one really simple phone and the people understand it so that they did not need anyone to help them set it up and work out which one to buy. So we absolutely love complex markets as this gives us something to offer and something to do we have to keep changing. I just watch in delight as Microsoft come into the marketplace because that's not going to work is it? Its going to have lots of bugs and crash and do all these sorts of things that needs tons of support. Lots of competing systems Symbian and others, so its another level of complexity alongside all the complexity of the operators, all the complexity of the tarrifs - Bring it on.
On suppliers...
We have a guy at one of our suppliers who we've named Del Amitri from that song 'nothing happens, nothing ever happens at all'.
Image of Carphone Warehouse in Oxford Street London courtesy of the Carphone Warehouse press image library.
