Simon Arora | The Balance of Taxes and Entrepreneurship in the UK

Do you think we actually have capitalism now here in the uk?

We do. I'd like to think that my experience demonstrates that the system works. I've been able to achieve my goals. In doing so, we've created 48,000 jobs over the period that I grew the business. We've occupied millions of square feet of retail space that arguably for some periods would have been boarded up and economically inactive. The business has paid hundreds of millions in business rates and PAYE and national insurance and other taxes. So it works. But clearly there needs to be other elements that are also working in order to create a cohesive society.

Do you think the taxes in the UK right now are fair?

Broadly speaking, yes. It alarms me that there's a lot of speculation around increasing taxes on entrepreneurship, in other words, capital gains tax, because I do take the view that somebody that takes their money, invests it and that money clearly is tax paid already and risks it. That's not the same. Same as earning a salary where, frankly, if the business is doing badly, you still get your salary. Yes, of course, there might be, at the extreme case, job insecurity, but when you're taking out a second mortgage or you're taking hard earned money and risking it on a business, in my case it was a turnaround business, or before that a startup business. I would argue that it's good for society if that's encouraged through the fiscal system rather than treated as regular salaried income.

So I want to come to these proposed changes because as we sit here right now, we're in the middle between Labour coming in and then Labour implementing all those changes. And in the world of entrepreneurs that I speak to, there's a lot of fear around what labour might do. But to be fair, they've just come in the past, wasn't really on them. But you thought, you think taxes are broadly fair. At the moment that's 20%, which obviously you have to add on and you can't always claim back. Then you've got corporation tax, which is back up to 25, then you've got income at 45, but if you earn 100 to 125 in that bracket, you get 60%.

Absolutely. Tax.

I know you know this, but then of course you get national insurance, which is double digits, and then if you employ, you pay for the employees as well, then like you said, business rates, which even for small businesses can be 50, 60 grand a year, and then there's all the compliance and this and that. It feels like a lot.

It is. But as a society we need a health service, we need an education system, we need law and order, we need a national defence budget, given the uncertainties in the world. So all those things come at a cost. And for me, my instincts are that the way to square the circle is we just need to be more productive in terms of the public sector. So whether it's the nhs, whether it's education, just like in business, you only have a right to succeed and to have income, to have revenue, if you're good at how you spend that revenue and you deliver in terms of productivity. So that for me is the big challenge around government.

So do you think then at the moment public service is quite wasteful? I mean, I think about how many in government were working from home through lockdown and you know, have they really got back into full flow of work? Even if I take away their responsibility, is there the incentive to grow and is there the reward in the public sector? It feels like in the public sector if you do bad, it doesn't matter, you still get your job. If you do good, it doesn't matter, you don't really get rewarded. Is there an argument that the public sector could be a bit more like the private sector?

Yeah, I mean, you mentioned that it's actually quite difficult to get fired in the public sector if you're not particularly good at the job. My understanding is that quite often you just get moved sideways rather than actually being laid off or which has a cost, has a cost. And then the second thing is, I think you allude to it. Are there the right KPIs for the management level within the public sector to be productive, to actually be accountable for out to output and the cost of delivering that output. That's where I think our politicians should direct their attention, because what we're currently doing is arguably unsustainable, as I'm sure you know, taxation levels, the taxation burden is at all time highs since the Second World War. There isn't a lot of room in terms of where to raise additional taxes from. So the only way to square that circle is granted greater productivity in the public sector.

Do you think productivity is kind of penalized or squashed a bit in the uk? Repressed maybe?

I would say that most entrepreneurs intuitively are thinking about productivity all the time. They might not be using that word, but it's the other word for it is margins. You know, what's my profit margin? Building, creating my gross margin and all that is down to efficiency and being productive in how you deliver the product or service that you're selling. That's the language that needs to be used more often in the public sector.

Do you feel like maybe places like Dubai, for example, or maybe Texas, there's. There's other places that seem to want to attract more tech entrepreneurship. Because didn't labor just pull a massive AI and tech budget, like tens of billions, I think. And does it feel like we're welcoming all the entrepreneurs and the wealth and the tech? I mean, you live here, right in the centre of London. Does it feel like that?

The narrative I'm hearing is that actually we're losing talented entrepreneurs and business people to those new locations. Part of that is tax, part of that is that those are growth markets and in many ways, in certain sectors, the UK is a very mature market. Hate to bring up the B word, but Brexit didn't help. That was the start, wasn't it? If you're a business person and you're looking to target a market, the size of that market matters. And I've got friends in, for example, the clothing industry, where they used to have a vibrant business exporting to Europe, but now it's really problematic because if the product's imported, most clothing is. You pay duty when it comes into the UK and then you find yourself having to arguably pay duty again just to ship it across the channel into continental Europe. And that's. That sort of friction limits the size of your market.

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Never been asked that directly, but that.

Was the indirect way of asking.

Shy away from the question. Our family circumstances is that it's all in the public domain because we did a transaction with a large US private equity house that was reportable and in the public domain. And then Obviously when we IPO'd our business, that's a matter of public record. And indeed the way that the stock market works is that whenever chief exec or his family or her family sell shares in the business, that's sort in the public domain. So our numbers are broadly correct.

Great. And how does that feel? Because I sit here thinking that's an amazing feat to have an immigrant family come into this country and you build from Nothing, a nearly 5 billion pound a year empire. To me that is an amazing feat. How does that feel?

The driving force isn't the personal wealth. The driving force is to achieve your potential and to be successful, to be the best you can be. We're talking in the middle of the Olympics. My wife and daughter were in Paris yesterday and I've been watching a lot and really enjoying it. Whether your area of focus is sports or music or academia or or medicine, I can't understand why you wouldn't want to achieve your potential. And for me, the personal wealth, the analogy I draw is that's like a scorecard for a cricket batsman where you just want to get the best score you can rather than take the easy option and coast through life. And so for me, as I think about the 17, 18 years that I grew B M, it was all about just achieving your potential rather than taking the easy option. And for example three, four years into it, the business might be making 10, 20, 30 million. There are plenty of people who think, wow, that'll do me. I'll go buy a nice boat or I'll buy a villa in Marbella and I'll coast. That wasn't our mindset and in fact, one of the, one of the learnings that I would like to share with your listeners is I take the view that entrepreneurs, businesses, they go through periods of bad luck and they go through periods of good luck. And the entrepreneurs that really make a difference and create great organizations are the ones that optimize their periods of good luck. They double down, they take full advantage of it rather than thinking, well, this is fine, this is not remarkable. I'm sure it'll be like this forever. And to explain what I mean by that is that our moment of good luck was being a discount retailer. Around the time of the 2008 global financial crisis, two or three things were happening. Existing, mature, well established retail chains were going bust, creating space growth opportunities for us. And then the second thing that was happening is that the consumer was under extreme duress and wanted to save money. And so we did a series of transactions in the three, four years after 2008 that each time step changed the size of our business and we doubled down in that period of good fortune where all these opportunities were coming at us rather than taking our foot off the gas and thinking, oh well, we've got to a certain level that'll do us. This level of profitability is beyond our wildest dreams. That's us done. That's not the mindset that I think entrepreneurs have.

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Yeah, absolutely. So I made it my job to. To skate where the puck is going rather than where the puck is. I'm sure you know the analogy. It's a. There's a famous Canadian ice hockey coach who said the best players are those that skate to where the puck is going rather than, rather than skating to where the puck is. And so in this environment where every two, three months a national chain was going bust, I made it my job to be thinking about, well, who's vulnerable? Which sites have they got that would be suitable for B and M and do my homework in advance. So should heaven forbid that business end up in the administrator's hands, I'm able to make a phone call to the very next morning after the administrators appointed and say, here's a list of stores we'd love to acquire. We'll take the staff, we'll keep the jobs. Here's a check, we'll pay you. Where can I come and sign? We're ready. I can be in your offices in three hours time. That for me is how that mindset translated in terms of optimize this period of luck. And just to remind you, if you think about it, there were names like Woolworths, JJB Sports, Comet, Focus diy. The list is very long of retailers that for each.

Did you buy Wilkinson as well, was that right?

No. So Wilkos went bust many years later. That happened last year. So I'm talking About that period, 2008 to 2012, this, the global financial crisis and the the recession that came with it. But all of those businesses, they'd been around for decades and it was a positive that we were able to, for each of those examples, take some of the stores, retain some of the jobs and retain some economic activity in those locations and those towns.

How did you assure that you weren't one of the casualties? Because it mustn't have been easy.

So as I think back to my career after graduating, I had three jobs. My first one was McKinsey & Co. Strategy Consulting. The second was 3i Venture Capital and the third was Barclays Bank Financial Services.

This recent budget should warn you that your pension is not safe and secure and they're coming for your inheritance. Do you even know how much is in your pension or where your pension is invested? Add to this the recent inheritance tax grab on your pensions and the risk of a market crash. You probably didn't know this and I didn't until recently, but physical gold can be added to your pension pot Gold is inheritance tax free and has grown 700% in the last 20 years. You probably know from my content I'm investing heavily in silver and gold and that's why I've partnered with Direct Bullion. Myself and Nigel Farage are brand ambassadors and direct bullion can help you with gold to protect and grow your pension. I buy my gold and silver from Direct Bullion and I don't earn any money on any purchases of gold or silver silver if you buy direct from Direct Bullion. So if you go to robmore.directbullion.com you can get a great price on your silver and gold and you can get the Pension Gold Investing Guide completely for free. As you know, I don't do many strategic partnerships and when I do, I do them with people who are credible, who've been doing it a long time, who invest in things that I invest into. And gold and silver's going wild. I'm investing heavily in gold and silver I and I recommend you check out robmore.directbullion.com I took what I learned from those jobs.

First of all, strategy. Make sure you're in the right place, you're delivering the right product. And when I say the right place, I mean the right part of the market, the right types of physical locations, the right pricing strategy, that strategic stuff that needs to be right to make sure that you chime with what consumer wants. I then think about my time at 3 I where I had the benefit of a pretty rigorous training on P and L balance sheet and cash flows. So I deployed what I learned at 3i in terms of cash is king. Knowing what your working capital is, knowing what capex you can afford. You know, even though I was a lawyer at university, I made it my job that I understood intuitively and applied those rules day in, day out to make sure that we always had cash and that we were profitable. The cliche turnover is vanity, profit is sanity, cash is reality. I distilled all those things into a handful of KPIs, one of which was just making sure that we always had the cash available to take advantage of growth opportunities. And we never overstretched ourselves. We didn't take out a load of money, didn't pay out big dividends. One of the things that I should remark upon is that in that growth period, my brothers and I, we were fortunate. We didn't have to take a salary from the business. We weren't salaried, we weren't taking dividends, it was all being reinvested in order to create the long term goal.

And how do you stay hungry when you've done nearly two decades and you've built it to nearly 5 billion a year in sales?

I think that comes down to upbringing. I was very fortunate in that my brothers and I, we lived in a wonderfully loving, supportive family. It was a small business family environment. I remember spending my childhood the family kitchen table, my late father talking about customer situations, supplier situations, interactions with the bank manager. You just absorb the world of business and you enjoy the world of business. It's my favorite topic. It's no coincidence that a lot of my friends are entrepreneurs. And rather than talking about the soccer results, I'm just as happy talking about what's happening in different sectors and what's happening in the world of business. But the other thing that my parents gave myself and my brothers is, is this confidence that you have the potential and that self confidence that there's all, it's all there to be done is what one of the things that makes you keep going and gives you that hunger. I'd also share with you a conversation I had in sixth form at school that will never leave me. I was talking to the head of sixth form, he was a history teacher and we were debating what I should do at university when I was thinking about filling out my UCAS forms.

I remember those.

And he asked me, he said, aurora, I went to a school where you were called by your surname back in those days, Aurora, what do you want to do in your life? And I Said, actually, I'd love to be an entrepreneur, I'd like to be in business. And he said to me, well, one thing you should know, young man, is that whatever business venture you try, whatever entrepreneurial adventures you have, you're very fortunate in that you will always have a roof over your head and food in your belly. And that statement just isn't true of previous generations. Your parents generation didn't have that luxury. Your grandparents generation around the world, not just in India, but in the uk, that just wasn't a given that you're always going to have a roof over your head and food in your belly at the end of an evening meal. And that's a freedom. And so why wouldn't you take risk? Why wouldn't you be an entrepreneur? So, yeah, I thought that was wonderful advice and I'd like to think I've applied some of it over subsequent decades.

Do you feel like you face and manage fear?

Part of my management style, my business style, is living in a state of paranoia. Waking up every morning having reflected the night before about what could go wrong, what could go wrong today, what could go wrong in something that we're doing over the next few months, what could go wrong over the years to come. And the reason why I think that paranoia is healthy is that makes you avoid those situations if you're not thinking about them, but also equally, it makes you think about a plan B should that event happen. Other business leaders have a different phrase for it, I think. Is it Bezos? And I'm no Bezos, by the way, but I. I love reading books and biographies about other great entrepreneurs. You know, I. I'm one of those people that believe you can do nothing but learn by finding about how other people experience their success. Bezos talks about having this mentality that even though the business is years and years established, he wants everyone in the business to have, I think, day two mindset, or day one mindset, which is go to work thinking that the business is only two days old. And I think that's another way of expressing that it's fragile. There's someone going to eat your lunch, something's going to go wrong, there's lots to do rather than a position of complacency. And also, interestingly, Rana being too introspective within the business, internal office politics, internal sort of machinations and processes, rather than looking outward, looking at what your competition's doing, what's happening to the economy, what's happening in terms of opportunities both in your core market and ancillary markets, that you might go into, in our case that was geographic expansion into Europe.

So how do you have a personal life or manage your own personal emotions with a family? When you wake up every day in a state of paranoia trying to figure out what's going to go wrong in your business so that it doesn't go.

Wrong, you have to pick your life partner very carefully. So my darling wife, Shalni, she. We've been together since university.

Wow.

I was 19, she was 18. I'm very fortunate in that she comes from a business family and so she gets the values. That's one of the reasons why we work as a couple. As it happens, she comes from an immigrant background herself. She's from East Africa. And actually there's a similarity. My late father was a refugee from what is now Pakistan at the time of partition, the age of four. His family had to flee on a couple of days notice. Painless. And there is an analogy in that my wife's family, my parents in law, they had to pack up and leave Kenya at pretty short notice in the 70s when, as I'm sure you're aware, a lot of East African Indians found themselves suddenly very unwelcome and had to flee. So those shared experiences, those shared values allowed her to be very understanding of the stresses and costs that comes with building a business, a family business. But to be fair to her, she also, as a successful entrepreneur in her own right, she. She co founded and exited a biotech business. So. So she gets it. And I think the other thing I'd say is that I did keep weekends sacred. I tried to avoid working at the weekends other than when I was on an overseas buying trip. And if you can deliver quality time with your family, that can make up for there not being perhaps as much quantity of time spent together.

Do you live your entrepreneurial life on the roller coaster, feeling the ups and downs, or are you able to take a step back almost like a crouching tiger and just observe with an emotional distance?

It is the roller coaster.

Oh, you do.

And I have to tell you that my character flaw is that every transaction or opportunity didn't go right. Is seared in the mind ten times more vividly than the successes.

Right.

There's something wrong with me and as.

But does that not make you why you're good and why you care?

I think it speaks to the hunger. And I'll give you an example. So one of the unusual characteristics of my career as a retail chief exec is that throughout the 18 years I never had a property director. I also Played the role of property director, which means that I personally negotiated something like 17 million square feet of UN UK retail selling space. Wow. 750 large stores. @ the risk of sounding immodest, no individual's ever done that in UK retail. Sure, corporates have, Tesco clearly has, but that's been a series of property teams and property executives over decades. I did it all myself. I can tell you about the sites that I missed out on because I was the under bidder and I negotiated a little bit too hard and then lo and behold, out the blue, a competitor's taking it. I relive those disappointments ten times more than the stores that I opened that went into the top 10 out of 800 stores. It's just the nature of, of my personality type. But I think.

Does that sit there and drive you?

Yes, that's part of the hunger. You want to, you want to succeed. You don't, you don't want to be second best. Another, another way that that hunger expresses itself is I actually think it's really helpful for entrepreneurs who are building a business to have, and I'm putting inverted commas around this word, have an enemy. And what I mean by that is find a larger, more established competitor that you just want to beat. And it's not personal. In fact, that that competitor, in each of the cases, I'm thinking about huge amount of respect for the family and the leadership of those businesses. They're successful. But rivalry and the desire to beat someone just as it is on a sports field or in a track and field race, that's what drives performance. And that's not just in my mind. You know, I, I try to inculcate that across the entire business. So that when we opened a store in a town and there's a competitor four doors away, I'd want everyone in that store to say, we're gonna start taking some of their customers. We're gonna, you know, we don't want all the cake, but we want a good slice of the cake. And I think it's a healthy thing. And again, it's not personal. Huge amount of respect, but. And I'm sure there are today up and coming retailers that have got BM in their sites and think, yeah, let's take. They're getting, they're too big, they're getting flabby around the edges. I'd like to think B M isn't, but, you know, it's, it's part the cycle of business.

Do you think there's a bit of that that has been lost in society. Maybe you, you must have heard that hard times create strong men, strong men create good times, good times create weak men, weak men create hard times. And the cycle goes around and you know, it's very easy to point fingers at lots of different governments, organizations, but sometimes I just think society was just easy for 25, 30 years and everyone just got a bit lazy and maybe it just needs to be hard again. Do you think that competitive edge is a bit out of schools and out of society now?

I think there is an element of that and it frustrates me. I'll share with you that as a favor to a niece who was studying at the time at LSE London School of Economics, reading Economics there. She invited me to come along and speak to the Economic Society bunch of students who are interested in the world of business and economics. And they, they have a handful of speakers each year and it's very informal, I don't know, 50, 60 students in the room. And I'm sat on top of the, the table at the front of the mini auditorium and I talked about our business journey and lessons learned and tried to share some of the, some of the little bits of wisdom I might have having sort of got the T shirt. One of the questions I got from a young man in the audience was what's the point? I said, what do you mean what's the point? He said, well, 1 billion, 2 billion, 3 billion, getting to a 5 billion. What's the point?

It's kind of a good question in.

A way I didn't know how to answer other than saying when people asked the early Everest climbers what's the point? They said because it's there. It's there to be done. Life's not about taking the easy route. Life's not about being lazy. I call it complacency and lazy self indulgent. Because do you know something? We live in a world where two thirds of the global population are hungry. China, Indonesia, India, sub Saharan Africa, they're hungry. And if we in the west, in Western Europe start becoming complacent and self indulgent, they're going to eat our lunch. These are just the basic rules of economics. This episode was brought to you by Disruptive Media Helping bold entrepreneurs stay stand out through podcasting, video and social content. Visit disruptivemedia.co.uk to learn more. This episode was brought to you by Disruptive Media Helping bold entrepreneurs stand out through podcasting, video, video and social content. Visit disruptivemedia.co uk to learn more.