In a fireside discussion about his career with Gabby Logan at the QuickBooks Connect conference in London, the Apprentice star and business tycoon revealed how his success has been due to a relentless focus on margins.
Sugar began his career at the age of 17 as a wholesaler of electricals products and said there was “no rocket science to it”.
The transformative moment for Sugar came when he realised he could manufacture the plastic cover for a turntable vinyl record player and sell them on for a little cheaper than the competition.
“I used to buy these things called ‘plinths and covers’ off somebody at an outrageous price and I just knew instinctively that the plastic lid can’t cost that amount of money, it was nonsense,” said Sugar. “So I made the transition from wholesaling, to wanting to have a product that I owned and made, and that I did not have any competition for.”
Sugar discovered he could make the plastic covers for four shillings – around 20p in today’s money – if he bought a £2,000 injection moulding machine.
“Under normal circumstances people would be delighted to make a 50% margin and sell them for 30p but I realised that if I sold them for 7.5p less than the conventional £1 cost of manufacturing them out of sheets of Perspex, then customers had nowhere else to go other than to me,” said Sugar. “That was the spark of the whole culture of my business – high margins.”
Sugar believes young people, such as some of the Apprentice winners, would be happy with the 50% margin instead of questioning the true worth of the product.
“Because I owned the product and no one else had it, the perceived value of it was whatever I chose to put on it,” said Sugar.
This paved the way for his move into electronics manufacturing and laid the foundations for his Amstrad computing business.
Sugar advised the audience of small businesses that the “first thing we need to know is how much money we are going to make”.
He said it was important to “focus on your costs and how you are doing” as much as once a day or “certainly every week”.
Sugar admitted his career has not all been a “story of absolute success” but had involved ups and downs, in both the very early stages of his career and in the Amstrad years.
He revealed that in the days where he first worked for himself as an electricals wholesaler there “were times when I got very down because things were just not going right and at those moments you have to stop, count to 10 and go on”.
Another dark moment in his career was when Amstrad “made a duff batch of computers” in 1989 and lost its position as Europe’s top computer manufacturer.
“The company got into massive debt and I remember a very trying period of time,” said Sugar. “But it was a case of ‘come on get yourself sorted out here’.”
Sugar said that in the “September of one particular year” the company was struggling under £120m of debt, but managed to finish with a profit of £140m by April of the following year.
When quizzed by an audience member on how small businesses can cope with a potentially disruptive situation such as Brexit that they have no control over, Sugar reassured business owners they “should not worry too much about Brexit at the moment”.
“Don’t worry if you don’t know how to deal with it because neither does the government,” said Sugar. “That is not a criticism of the government. They are trying to work out how to deal with it and it is a monumental task.”
Sugar believes “free trade has to be number one on the agenda” during negotiations and it is of the utmost importance to avoid the EU imposing tariffs on trade with the UK.
The size of the UK as a consumer market for the rest of Europe makes Sugar believe “it should be a no brainer for the rest of Europe to agree that we are going to have no trade tariffs”.
Sugar dismissed the notion he would follow the lead of Donald Trump, who was the star of The Apprentice in the US, by entering into frontline politics.
While he sits in the Lords, Sugar turned down the opportunity to run for the Mayor of London.
“I would not know where to start to be honest with you,” concluded Sugar. “It is important you stick to what you know.”
Lord Sugar was speaking at QuickBooks Connect a two-day conference, run by Intuit QuickBooks, for SMEs and accountants looking to network, collaborate and grow.
