by Real Business - Thursday, 30th August 2007

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Our search for someone to say something nasty about the Carphone Warehouse founder.

Winds were light and sailing conditions slow in this year’s Rolex Fastnet Race. The infamous 608-mile passage to the lonely rock lighthouse off Ireland’s southern tip saw Sebastien Josse cross the finish line first, followed by second-placed boat PRB. Two hours after that, a 76-foot Reichel/Pugh-designed Maxi skippered by David Bedford and navigated by Jules Salter, crossed the finish line to win the Super Zero Class. Taking into account the complicated handicapping system, the boat, named Nokia Connecting People, took overall honours in the Fastnet. The semi-professional crew included the boat’s owner, who wasn’t just there for the ride. It was yet another success for Carphone Warehouse founder Charles Dunstone.

Dunstone is the “Golden Balls” of British business and the Carphone Warehouse (CPW) story an entrepreneurial masterclass. In 1989, turnover at the company was £1.5m; today it’s £1.8bn. In 1989, the firm had two staff; now it employs more than 7,500. CPW is Europe’s largest independent retailer of mobile communications, boasting more than 1,100 stores in 11 European markets. In July 2000, the company floated on the London Stock Exchange and the company was valued at approximately £1.7bn. Currently number 161 in the FTSE listings, Dunstone’s aim is to get into the top 100.

As for CPW’s founder, we spoke to a galaxy of fellow-entrepreneurs, associates and businesspeople in researching this article. None had a bad word to say. “Great guy”, they said, again and again, ad infinitum. Charles Dunstone is nice and that’s it. “You’ll never find any negative comments or coverage,” they said. Well, we did, and it’s from someone who’s known him for years.

But before we get to that, a quick recap. Dunstone started out on the CPW adventure with £6k in the bank, but this isn’t a rags-to-riches story. Brought up near Saffron Walden in Essex, Dunstone attended that quintessentially mid-ranking boarding school, Uppingham, where other pupils have included former health secretary Stephen Dorrell, actor and writer Stephen Fry, Test Match Special commentator Jonathon Agnew, and a certain David Ross, of whom we’ll hear a lot more later.

CPW was the first mobile phone seller to deal directly with the public. Previously, the manufacturers had focused on corporate sales. Dunstone had what now seems a very unexceptional insight: that almost all would own a mobile phone (today it’s around the 90 per cent mark of the UK adult population). He also embarked on the previously unheard-of policy of providing mobile phones if yours broke. And the company ensured that its sales staff knew what was on offer and what was best for customers. That good-quality, impartial advice brought repeat custom – and that was good news for the likes of Nokia, Sony Ericsson, Siemens et al, all of whom are stocked in Dunstone’s outlets. Again, it wasn’t rocket science, but it was rare. CPW put customers first and they liked it.

David Chow, an editor on industry magazine What Mobile, cites CPW’s ability to offer new and original services to customers as one reason the company has grown. “In the early days, most mobile phone shops were just shops,” he says. But not CPW. “Instead of simply telling customers to speak to the manufacturers if something went wrong with their mobiles, they’d give people a new phone.” It may seem obvious now, but it was revolutionary then.

Mobile telecoms is a complex and fiercely competitive marketplace. Being a great middleman has been central to CPW’s success. “One of our great rules is, we’ve never paid anyone in our stores to sell one network or product over another. You can’t bribe CPW people to sell your products,” says Dunstone. “I would say that if you go to our competitors, one week they’re selling Orange, the next Vodafone or whatever it may be. But there’s little integrity in the eyes of the public.”

As a result, he says, CPW customers tend to be better customers – ie, ones who spend their money in large numbers. With churn the biggest issue for the networks, they appreciate CPW’s approach. “If manufacturers want to sell more next month, then they have to make their offer stronger,” says Dunstone.

By being on the high street and having developed a reputation for good customer service, CPW believes it can go on to leverage other revenue streams for the networks and, thus, itself. It manages more than a million customers on behalf of the mobile phone networks. More airtime from customers means more revenues for CPW. So CPW and the networks are united in their aims of getting customers to sign up to 12-month contracts, generating ongoing revenue streams.

In some ways, CPW is a victim of its own success. Steve Wallage, research director at technology analysis firm the451, says CPW faces the same, paradoxical challenge as the mobile operators (such as Vodafone and O2): what next when everyone has a mobile phone?

One response is the move into the residential fixed-line market. CPW bought the network provider Opal Telecom in December 2002 for an initial consideration of £65m with a further potential element of up to £18m payable over two years.

Opal, founded in 1995, is one of the UK’s largest independent telecoms network operators offering fixed-line voice services primarily to the UK’s corporate and smaller business market. Dunstone thinks the business fits well into the CPW strategy. “If you look at fixed-line business,” he says, “the regulations changed in the autumn and that made it much easier to compete with BT. We have got authority to talk to customers about peak, off-peak. We understand parity. People have a lot of trust in CPW to offer good value. You can tick all the boxes. Is it right for our customers, do we have authority to sell it and is it a good sustainable business model? Yes, yes, yes.”

Dunstone reckons the acquisition will allow CPW “to do a Richard Branson on British Airways... BT isn’t particularly loved by people in the sense that you had to use them. You’ve never really had a choice. So if someone like us turns up, and I think people have a feeling of goodwill towards us, and say we’re going to do it and offer better value and be more straightforward, people are very receptive to it. It’s quite English to like the underdog...”

BT’s Christopher Bland, in a recent Mail on Sunday interview, was less optimistic about CPW’s chances, referring to Dunstone as someone who “punches above his weight in decibel terms.” Bland went on to say he thought new entrants to the fixed-line telecoms business would find it “harder than they thought.”

CPW’s fixed-line service, talktalk, is “interesting”, says analyst Wallage. “However, this is a very competitive and often low-margin business. Although it may claim to be going after BT, and investment analysts have suggested it may make a dent in BT’s fixed revenues, market research suggests the most likely subscribers are those who have already moved away from BT.”

(In its latest trading update, CPW raised its year-end target for fixed-line residential customers to between 300,000 and 350,000. Having already attracted 86,000 customers since launching in February, the firm says it is starting to add more at the rate of 44,000 a month.)

Wallage reckons CPW’s big challenge is how it can make money from the next mobile wave and particularly mobile data and internet services. “CPW has made some interesting investments such as in its portal area but needs to increase its range of partnerships to gain the credibility and skills in this area,” he says. The big opportunity, he reckons, is meeting the needs of businesses, particularly smaller companies, in mobile services – something, he says, the mobile operators have tended to do “very poorly.”

Continuity at board level has been crucial to CPW. The firm was founded by Dunstone and partner David Ross in 1989 and, says Dunstone, part of the success comes from board members “growing up” with the company. “Part of the fun of running the business is having a team of like-minded people that share a common goal. They are there when things are going badly as well as when they’re going better.”

Under the Phone House brands, CPW opened its first stores outside the UK, in Paris and Dublin, in 1996. It moved into Madrid in 1997, then Spain and Sweden in 1998. In January 1999, the company acquired Tandy, the general electrical goods and mobile phone retailer with 260-plus stores spread across the UK, in a deal that transformed the scale of the UK business.

The company also bought the Tecno chain of camera stores with fellow CPW director David Ross, hi-fi retailer Julian Richer and pizza man Luke Johnson. After absorbing the shops into CPW, Dunstone then sold the small chain to Jessops in July 2002. Jessops’ chairman, Tim Brookes, has nothing but praise for Dunstone. “It’s a popular misconception that you can’t be nice and get to the top,” he says. Brookes has met Dunstone many times and even invested in CPW shares. “He’s a remarkable guy,” Brookes says. “He’s managed to blend a pleasant personality with being a hard-nosed businessman. He always gives you time and makes you feel good, although he’s a tough negotiator.”

Brookes says CPW spends time speaking with its industry. Both Jessops and CPW, he says, are trusted. This brings commercial benefits: suppliers tell them, up to two years in advance, of upcoming changes or developments. This means CPW is always on the button when it comes to new products. “Real business,” says Brookes, “is about cultivating long-term relationships.”

After putting the phone down to Brookes, it rang again immediately. It was Brookes. “One more thing,” he said. “He surrounds himself with very good people. People such as David Ross and his finance director [Roger Taylor]. He couldn’t do it without those people.”

Pizza entrepreneur and former business partner Luke Johnson is one of those who says he’s never read a critical article written about Dunstone – someone he now counts as a friend. “I’ve always been impressed with Charles,” he says. “He’s energetic, down-to-earth, charismatic and focused.” Dunstone, says Johnson, runs a fairly open company with a genuine style of leadership, adding that he doesn’t feel Dunstone is particularly money-driven. He concludes that Dunstone “is one of the more likeable successful entrepreneurs around.”

David Mansfield, chief executive of London’s Capital Radio, has worked closely with Carphone Warehouse over a number of years. The firm has been a big advertiser on Capital. Mansfield acknowledges that the radio station would not have been so successful without Dunstone’s advertising attracting other firms to do the same. “There is no doubt he did more to accelerate our credibility as a mainstream medium than anyone else,” Mansfield has said.

Dunstone himself admits to being “more hard-nosed than people think.” He says: “CPW tries to get the best commercial terms we can from suppliers, but we never rip them off. Many people in the mobile phone business have damaged themselves by trying to make a quick buck by exploiting loopholes. If you talk generally to the CEOs of the different networks, they would say to us that we are an expensive channel. But that’s because we’re doing our job right, because we’re giving great value to customers and making money.”

Simon Waugh, group marketing director of Centrica (among other things) has known Dunstone on a personal and business level for five years. He says that business today has a terrible reputation in the eyes of the public. But Dunstone is different. Not only is he an outstanding leader, says Waugh, he’s “all substance and no bullshit.” Unlike many other entrepreneurs in the UK, what you see with Dunstone is what you get. “He’s genuinely nice. That is the story. That he is shouldn’t be seen as pejorative, it’s a good thing.” It’s the reason CPW has been a success, says Waugh.

Dunstone, who counts Jonathan Harmsworth (otherwise known as Lord Rothermere, chairman of Daily Mail & General Trust) as a friend, certainly hasn’t been swept away by his success. “I still really have the same close friends. My life hasn’t really changed all that much in terms of my friends. I live in a bigger house and have a bigger boat, but you’ll never see me in the back of Tatler or Hello!” You will find him on two company boards, though: the Daily Mail & General Trust and HBoS.

In addition, as chairman of the Prince’s Trust Trading Board – the business and sponsorship end of the Royal charity – you may also see him accompanying Prince Charles to various concerts or fund-raising events.

“You get to meet very interesting people who are interested in you because of what you’ve done, not because of you,” says Dunstone. “It’s a real privilege to meet all these people, but I’m also very conscious that if I was still an account executive at NEC I wouldn’t be in that circle, even though I’m the same person.” Nowadays he can attract the likes of Orange creator Hans Snook to the company as a non-executive. Snook joined in May 2002 after making Orange the youngest ever company to enter the FTSE 100.

Dunstone’s glass-walled office, on the same massive open-space floor at the Acton HQ has two big doors, both of which are generally wide open. He arrived for our interview without the customary army of PR advisers. “I generally only do publicity for CPW,” he explains. “People invite me to do all sorts of things, like go on Question Time, but I don’t think anyone really cares what Charles Dunstone thinks about the Middle East peace process and I don’t want to get involved. If I can go on the Today programme and talk about CPW, then that’s great.”

What does he think are his strengths? “Quite a good sense of how customers think. And a reasonably good mind about how to overcome problems.” And weaknesses? “I can be quite unreasonable. I feel I have to be. Organisations can get too comfortable unless you’ve got people being unreasonable and setting challenges people feel they cannot possibly achieve.”

And there we have it. Sir Christopher Bland reckons he’s a bit gobby and the man himself says he can be “quite unreasonable.” It’s hardly Watergate.

But, wait, what’s this? Our very own deepthroat...

Johnny Hornby met Dunstone through his then girlfriend, and now wife, at a dinner party. They’ve been sailing partners/rivals ever since. Hornby was formerly at global ad agency TBWA and, while there, he worked on a project for Dunstone. A year later, Dunstone told Hornby he’d be better off working for himself. And, to prove his faith in him, CPW became Hornby’s first client. Dunstone has been on the advisory board of the ad agency, Clemmow Hornby Inge, ever since.

One of Dunstone’s strengths, says Hornby, is his ability to see the world from a customer’s point of view. He also makes even the most complicated financial issues appear simple. “He’s irritating as a mate, though,” adds Hornby. “Because he’s always bloody right. That really can get annoying.”

As a sailor, says Hornby, Dunstone is especially competitive. “We were sailing in the Caribbean a few years ago. We both had big boats, I’m not sure how many tonnes, but they were big. We were both on different tacks but neither was willing to give in. I was on the verge of driving through his boat – and him – but he didn’t blink.” In sailing, as with his business, Dunstone is very focused. In everything he does. Dunstone is also quick to make decisions and, says Hornby, “he doesn’t fanny about.”

But then comes our big moment. “His proper mates still rip it out of him,” says Hornby. “Mainly for being such a geek. You can quote me on that. There’s nothing he likes more than someone’s video breaking or mobile phone going wrong. He’ll be straight in there.”

So that’s it: Dunstone in geek shock. It was the best we could do.

Jamie Oliver is associate editor of Real Business.

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