by Real Business - Thursday, 30th August 2007

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Theo Paphitis loves proving people wrong.

"When someone says, this is a dog, I see it as an incentive," says the 41-year-old chairman of Millwall Football Club. "They said that about Ryman, they said that about Contessa, they said that about La Senza, they said it about Millwall."

When Paphitis bought high-street stationer Ryman, it had liabilities of £13m. Today, the company has no borrowings and profits in excess of £3m a year. It could be worth £20m, says one corporate financier - roughly four times what Paphitis paid for it. La Senza and Contessa, meanwhile, were lingerie retailers in serious need of oomph.

But Millwall? Is he insane?

Of all 92 clubs in the Premiership and Nationwide League, Millwall has perhaps the grimmest reputation. Even geography is against it: Millwall's ground, the New Den, languishes between railway lines and drab councils estates in Bermondsey, south-east London. Founded in 1885, "the Lions" have spent just two years in the top flight. When Paphitis bought the club in April 1997, it was in administration. And then there are Millwall's notorious fans who just love to boast: "No-one likes us. We don't care!"

Paphitis wasn't worried. "The fact that no-one likes us, that was me all over," he laughs. "That job had my name on it!"

What attracts Paphitis to such apparent no-hopers? It starts with "gut feel," he says. "It's got to have a good brand image and a name. All the companies I've bought, the City hated. But the customer perception was totally different... If the product is right and there's a market for the product, if you believe in those things, the rest is a piece of cake."

It's not, of course. In reality, Paphitis works damn hard for his money, regularly clocking up 20 hours a day. But he isn't complaining. "I enjoy the pressure," he says. "My missus will tell you that. I can't sit on a beach or anything."

Paphitis only launches a bid after he's done extensive homework on the target. He then names his price and sticks to it. "If you buy a business right, your chances of turning it around are much, much greater," he says. "We've lost out on things that we've gone for, but I don't spend any sleepless nights over it. There's no one business that I've gone for where I've said I must have it at any price."

Negotiating with receivers is not about making the biggest bid, it's about making the best deliverable bid. "What you find is a lot of people put bids in and don't understand what they're doing and, when they get into the lawyers' offices it all falls down. So the receivers come back to us." When they do, Paphitis is ready. "We will perform in 24 hours," he says. "We'll hand the cash over. Whatever bid I put in, it's accompanied with a letter from our lawyers saying they're holding the money to our order for this purchase - the full purchase price."

The receivers enjoy doing business with Paphitis. "With Theo, what you see is what you get," says Lee Manning, a partner with Millwall's administrators, Buchler Phillips (now Kroll Buchler Phillips). "He talks straight and he doesn't bullshit you."

That said, Paphitis is anything but a pushover. Indeed, when negotiations aren't going as he wants, he can flare up. "He can be quite frightening sometimes to people, because he will throw his toys around," says Dick Towner, a consultant with City law firm Richards Butler and a non-executive director of all Paphitis's companies. "But, when he's thrown his toys around, that's it. There's no holding over of views."

WALKING THE TALK
Once the deal is done, Paphitis starts touring stores, talking to managers and staff and sorting out their problems. These charm offensives are an important part of post-acquisition integration, says Lee Manning: "He's able to deal with people at all levels. He can communicate with the best and the worst. It's not pitched at the level he sets."

Integration is about listening. "We've always found that every store hates head office," says Paphitis. "It's normal. They hate head office because head office people don't have to sell, they don't have to deliver. If they have a bad day, they have a bad day. But if the shop staff have a bad day, they lose money and someone's on their back."

Turning companies around isn't about dishing out P45s, but about getting the management culture right. "We very quickly get it into [the shop staff's] heads that they're the most important people in the whole group," he says. "We're here to serve them. If we don't do that properly, I want to know. All the staff have got my mobile number and private number."

"We have a very clear philosophy in this business and all the companies," says Paphitis. "The customer does not come first. Staff come first, then the customer... If I get them right and they're happy at their job and they're incentivised properly, then they'll look after the customer - no question about it. It's up to me to get their rewards right and their structure right and be able to motivate them and make sure they're happy in their job."

Everyone in Paphitis's shops works on a commission basis. Prizes are awarded to the best stores. Just as important, staff and managers are never blamed for stores' shortcomings. "I never tell shops off," says Paphitis. "Even if a shop looks like shit, I won't tell the manager off. I leave the shop and the area manager gets it in the neck, 'cause why do I pay them?"

Paphitis also lavishes time and money on his managers. His diary contains numerous dinner dates, while all the managers who attended Ryman's annual conference last Christmas enjoyed "freebies, a fashion show, loads of food and a huge amount of alcohol." Some got foreign holidays and substantial bonus cheques.

Paphitis knew he could afford to be generous. Ryman, he says, has delivered. "It's 107 years old and we've had double-digit growth again this financial year. Everyone said it was knackered, no future, computers were taking over. It's bollocks!"

There was nothing wrong with the company that couldn't be fixed with a little tender loving care, says Paphitis. When Ryman was still part of the Pentos group, the managers, he says, "spent most of their time writing reports for head office, who never looked at them, I'm sure. They were told what to do, especially what was right for the business. It was a really good business that was being fucked."

The root of the problem at companies such as Ryman is that "they should never have been public companies in the first place," he says. "A lot of the decisions they take are short term. You've got to take long-term views and medium-term views in any business."

LIFE WITH THE LIONS
Theo Paphitis has an aversion to all things public. But when the call came, he couldn't turn his back on Millwall Football Club. "Millwall's slightly different, because I'm football nuts and I used to live in Peckham." Nonetheless, getting involved with the club "wasn't an emotional thing," he insists. "An emotional thing would have been to go buy Watches of Switzerland when they were available a few years ago. That would have been emotional, but it wasn't right. I was pretty confident that with Millwall I could actually do something. And, basically, there was no-one else there."

"He's no fool," says Lee Manning. "He got a club that was free of debt, a stadium, a squad of players and £2.75m in the bank to keep it trading for at least 18 months even on the most pessimistic forecast." And, because there's always a market for football club shares, Paphitis knew he had an exit route if things went wrong.

And he certainly wasn't going to flash his credit card around in the hope of buying overnight success. Instead, he gave Millwall a five-year plan. Paphitis proposed that Millwall should go back to its roots. As a club with a strong tradition of producing young talent, Millwall, he said, should focus on its youth policy, steadily introduce youngsters into the first team, get promotion to the First Division of the Nationwide League and then move into profit with the aid of that division's much bigger TV revenues.

When he first delivered his programme to the supporters, "there were a lot of groans and moans about not being ambitious enough," says Paphitis. "But, actually, a lot more got behind me than I thought would. A lot said, 'Yes, let's do it right this time - but don't let us down'."

Since then, Paphitis has worked hard to get and keep the fans on board. He set up a supporters' club and has made sure its voice is heard by attending meetings and demanding that the rest of Millwall's management do the same. At these "Fans' Forums", supporters can ask any member of the management any question they like.

"He's unbelievably open and approachable," says Paul Welch, chairman of Millwall Supporters' Club. "I have his telephone numbers and I've never not been able to get hold of him. If he says he will call me back, he will call me back."

Nor does Paphitis shun the fanzines, provided they're sensible. "They've got every right to give me a hard time," he says. "Their job is to keep you on your toes. I consult with them on a lot of things, just to get the feedback. But if it's whinging just for the sake of whinging, I ignore it. One of my skills is that I can separate the bull from the shit."

There's no doubt about who's the boss. "Don't get me wrong, we're not democratic in that view," smiles Millwall's chairman. "We don't do things by committee. I'm prepared to put my balls on the line and take unpopular decisions without blinking an eyelid." A few weeks into the current season, he sacked Millwall's two managers, Alan McLeary and Keith Stevens, both of whom were former players and legends at the club.

"That's the shit part of being chairman of the football club - you've got to make decisions like that," says Paphitis. McLeary and Stevens had been "right for the club at the time. We needed stabilisation and we needed to bring the youngsters through. We didn't have a lot of money and everything else. But the club had moved on and I could see that... The crowd were on their back and the longer I would have left it, the more they would have slaughtered them. Just like they'll slaughter me one day."

TRUE TO FORM
For the time being, however, things are looking good for Paphitis. Most Millwall fans consider him the best chairman the club has ever had. Of course, it hasn't done Paphitis's popularity any harm that Millwall are among the favourites for promotion from the Second Division this season, but it's really Paphitis's charm, commitment and willingness to listen that have won over the doubters.

A cynic might argue that he doesn't have an awful lot of competition, but Paphitis could prove to be the best thing that's ever happened to Millwall. Not only has he saved the club from extinction, he's gradually steering it towards something it's never really had before - long-term financial security.

And Paphitis has done it all by remaining true to his business principles. When he bought into Millwall, he acquired a strong - some would say infamous - brand; he bought it at the right price; he eschewed the quick fix in favour of steady growth; and he's made the fans feel they're an important part of the club.

But Millwall is different from Paphitis's other businesses in several crucial respects. At Ryman, its chairman has direct contact with and control over his shop staff. At Millwall, however, it's the manager, Mark McGhee, who takes responsibility for the players.

A football club is "a very difficult business to run," acknowledges Paphitis. "You've got to give the manager the authority. There's no point in hiring them and then getting in their way. I'd love to be a lot closer to the players than I am, but that's because I'm a fan. I'm in danger of letting that spill over. I see them at dos and things like that and I see them about their contracts, but then I leave the manager alone."

At Ryman, Paphitis is accountable to no-one. At Millwall, he's under constant scrutiny from the fans, most of whom are notoriously fickle. And then there's the press, most of whom enjoy nothing more than cutting a victim down to size. Paphitis has in fact already had one or two run-ins with journalists. Should events turn against him, he will need to control his sometimes volcanic temper.

Paphitis is well aware that he can't escape the press. "I've got to entertain them and talk to them," he says. "What I've got to do is explain to them everything that happens and not ignore them, because they'll write about it anyway."

Ironically enough, if Millwall is successful, then Paphitis could have a third group on his back - the shareholders. To date, most of them have put money into the club for emotional rather than financial reasons. However, investors' attitudes could quickly change should Millwall's share price soar.

Four years on, Paphitis knows he is still mastering the job and has shown a willingness to learn from - and apologise for - his mistakes. He ruffled a lot of feathers when, in an attempt to improve Millwall's image, he changed the colour of the club strip without consulting the supporters. He has since promised to take soundings in the future.

But running a football club isn't just about giving the fans what they want, it's about leadership. For Millwall's sake, Paphitis must remain the benevolent despot they know so well at Ryman, Contessa and La Senza.

To that extent, Millwall has an advantage over much of the competition. Most football clubs are still run in an astonishingly amateurish way by tired old men with too much time on their hands. Millwall has a leader at the height of his powers, who has brought professionalism into the boardroom without losing sight of what the club is really all about - the fans.

"We could be a reasonable force to be reckoned with," says Paphitis. "I'm not saying we'll beat the Manchester Uniteds or Arsenals or Liverpools of this world, but we could be there to be a serious irritant to the big names. And that's me all over."

IN THEORY
FIRST JOB: Dogsbody at Lloyd's. A "big mistake." Career opportunities for Greek-Cypriot immigrants with just three O-Levels were decidedly limited. "In those days, Lloyd's of London was very institutional. People would progress not from merit but by family contacts," he says. "I've got no particular issue with that. The only issue I had is that I was a young man in a hurry."

WEDDING BELLS: Watches of Switzerland served a purpose: it allowed Paphitis to get married. "Shop work paid so much more."

THE TURNING POINT: At Legal & General, Paphitis worked his way into the finance section and started handling residential and commercial mortgages. It was love at first sight. "It meant getting stuck into other people's business, and I'm a nosy bugger," he says. "You had to go through the business, you had to go through all the bits and pieces. Even without any formal training, my curiosity was enough to get me to ask the right questions."

GOING IT ALONE: Aged 23, he set up his own property finance business with a friend. After the friend left, Paphitis did a deal in 1987 with Hanover Druce, which set up a new business around him. Soon got bored with property work.

PER ARDUA AD ASTRA: Paphitis receives a call for help. "One of the banks I was dealing with had a public company that was knackered," he says. "They were going to lose quite a lot of money. They said, 'Have a look at this and tell us what you think we should do'."
"I sort of specialised in hospital cases by that time," he says. "I was always looking for the difficult deals. You not only made a lot more money out of them, it was also more of a challenge." However, Paphitis got a surprise when he handed in his report. "They said, 'Right, when do you want to start?' Basically, they offered me the deal of a lunchtime if I got it right and got their money back."
Paphitis became chairman and CEO of Astra Industrial Group, a company losing several million pounds a year. Within two years, it was making a profit. Paphitis had found his forte.

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Dominic Egan is a business and legal journalist. He is author of Irvine: Politically Correct?, an unauthorised biography of the Lord Chancellor.*Sunday Times Rich List 2001

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