Small wonder

Carphone Warehouse doesn't sell car phones and doesn't have a warehouse but it is the fastest-growing private company in Britain today

A mobile phone firm that attributes much of its success to the disgraced former Guinness chairman, Ernest Saunders, is this year's fastest- growing privately owned business, according to the 1996 survey by the Independent on Sunday.

Carphone Warehouse, founded by managing director Charles Dunstone when he was just 25, achieved compound annual sales growth of more than 90 per cent over five years, to reach a turnover of more than pounds 37m. In the same period, its workforce grew tenfold, from 14 to 144 and it now has 60 shops nationwide.

From a pounds 6,000 investment seven years ago, Mr Dunstone's majority stake in the business is now worth an estimated pounds 10m.

Carphone Warehouse is one of four companies concerned with either selling, or supplying parts for, mobile phones to feature among the leaders in this year's sixth annual survey of the vibrant unquoted company sector. Phase Devices, third in the main listing, makes components for the phones, while Caudwell and Peoples Phone Company, respectively first and second in the Middle Market table, are both mobile communications retailers.

The tables, which are produced in conjunction with accountants Price Waterhouse, rank unquoted companies according to sales growth over a five-year period. Though many of these companies are highly profitable, turnover is considered a more accurate gauge of performance because owner- managers often downplay profits for tax and other reasons.

The companies appearing in the Independent 100 and Middle Market 50 listings have together generated more than 18,000 jobs in the five-year period concerned and achieved total sales growth of pounds 2.4bn.

According to Nigel Crockford, Price Waterhouse's partner for middle-market and growth companies: "This year's Independent 100 has identified a wealth of entrepreneurial energy and talent in the hi-tech and fast-developing IT and telecommunications sectors."

As in previous years, companies from London and the Home Counties figure strongly in the two listings, while the most popular sector was - as before - computers, even though only one such business - Morse, which was placed third in the Middle Market - is among the leaders. However, the proportion from the financial and professional services sectors has dropped sharply over previous years, while engineering and electrical - boosted by the strength of mobile-phone companies - has grown.

In common with other companies that have appeared in the listing, Carphone Warehouse's growth is continuing. In the financial year just completed, turnover hit pounds 70m, while the staff now number 400.

But then the Carphone Warehouse has been a success from the start. Founded in February 1989, just as the now booming mobile communications industry was getting into gear, it turned over pounds 1.5m in its first full year of operation, went from two to 14 employees and only lost pounds 2,000 - an unusually small sum for an organisation starting trading on such a large scale.

But Mr Dunstone, now 31, insists that the venture "wasn't a leap of faith". He had previously worked selling mobile phones for the Japanese electronics group NEC, so "I knew what was going on."

The niche he spotted, however, was at the lower end of the market. "If you worked for a large corporation it was really easy to buy a mobile phone because your purchasing department could organise it. But if you were a small business you had to go to car stereo shops and the like," he says.

His venture was an attempt to give help in what was already becoming a market characterised by a bewildering array of choice.

"I spotted this opportunity, but I never realised how complex and competitive the market would get and how appropriate our position would be."

That position is based on offering customers impartial advice. That is an easy thing to say, but Mr Dunstone and his fellow executives - also in their early 30s - back this up by linking the staff incentives to the concept. Everybody is paid the same commission on sales - regardless of their value - in an effort to prevent salespeople selling equipment and services that are inappropriate.

In a further effort to counter the rough-and-tough, "sign 'em up" image of the sector, it is a company rule that nobody who has worked in direct sales or mobile phones is recruited. Such people only bring bad habits and attitudes, believes Mr Dunstone.

This is carried through to the point where today's company conference will not feature the glorification of sales achievements common in the business world. All the prizes are for such attributes as customer care and performance in mystery shopping exercises - where testers pose as customers to assess staff.

If this seems odd for a retail company, Mr Dunstone explains: "We feel that the sales will come if you get the customer care right. A Nokia phone, say, is the same from us as from anybody else. All we can sell is ourselves. If you are honest and give them better service, they'll keep coming back."

To make up for the lack of commission differentiation, Mr Dunstone pays his staff more than other retailers and is consequently attracting many ambitious young professionals to his ranks. "The majority are graduates. They do a fantastic job for us and I'm incredibly proud of them," he says.

But this does not mean that Carphone Warehouse feels it can afford not to compete with its rivals on price. Its growing share of the more than 5 million mobile-phone subscribers gives it the buying power to get the best deal in town and it tries to lead the field with marketing initiatives. But it also has regular management meetings designed to outmanoeuvre the opposition.

Unlike many of the those who have featured in the Independent 100 over the past six years, Mr Dunstone does not claim to have always had a burning desire to be an entrepreneur. But he does admit to a longstanding fascination with retail. After a public-school education at Uppingham, he was set to pursue business studies at college. However, a year off led him into computer sales and he never started his course.

Although he is now a multi-millionaire by dint of his stake in the company Mr Dunstone claims to be unfazed by his new-found wealth. Neither he, nor fellow executives, such as finance director David Ross, enjoy lavish salaries, opulent homes or big cars, he says. And that attitude extends to the company's prem-ises: Mr Dunstone's own office is in the basement of the shop

in London's Marylebone Road.

Such an approach has enabled the company to remain free of debt throughout its seven-year existence. The only finance has been the pounds 6,000 of savings with which he started

"It was all I was able to invest at the beginning," he says, adding that he regards the growth from this tiny acorn as "the most remarkable thing" about the company.

He and his original team succeeded simply by "keeping the business tight", he says. It was a question of concentrating on the basic principles of retailing, ensuring in particular that "we could sell it before we had to pay for it".

Now the company is in the happy position of not needing extra funds to meet current plans, which include international expansion, possibly in conjunction with local partners. "There's no pressure to float," says Mr Dunstone. "We're very cash positive."

Perhaps his greatest triumph in those early days was persuading London commercial radio station Capital to allow him to run a series of advertisements without having the money to pay for them. It was a leap of faith on both sides, he concedes.

In the end, Capital received the pounds 13,000 it was due because the calls flooded into Carphone Warehouse - and the company has gone on to become one of the biggest radio advertisers in the country.

Much of the responsibility for the advertising campaign can be laid at the feet of Mr Saunders, says Mr Dunstone. Before the intense takeover battle between Guinness and Distillers - involving an illegal support operation for Guinness's own shares - brought him down and put him in prison, Mr Saunders had been a highly regarded marketing man.

The two men got together through Mr Saunders' daughter, Jo, whom Mr Dunstone had met on a skiing holiday, and Mr Saunders has been helping the company for about four years.

Besides helping with marketing, the former captain of industry performs the especially valuable role of supplying his young associates with "the grey hairs", says Mr Dunstone.

"All of the directors are around 30 and none of us have been directors of other companies. He says: 'Are you sure boys?' and makes us justify what we're doing."

For all his talk of investing in staff and customer care, Mr Dunstone is the first to accept that good fortune has paid a large part in his success. "A lot of it is luck and making the right guesses," he says.

It is perhaps typical of such an attitude that little care was taken over the company name, which is something of a misnomer since it does not sell car phones or operate from warehouses.

"It does have the benefit of being distinctive," he says, adding that Radio Rentals' name does not seem to have prevented it from dealing in televisions.