Hung up on art but still in the frame: Terry Smith - A series on City and business figures who like to have a bit of other business on the side

IT IS the camera as voyeur; that shot of a lithe, tanned female tennis player strolling towards the net to pick up the balls, revealingly hitching up her dress, unaware that anyone is watching her.

The image that decorated two million teenagers' bedroom walls in the 1970s and early 1980s was sold by Athena, a chain of poster and print shops that reached more than 170 British high streets. In the five years to 1990 it saw sales growth averaging 35 per cent a year.

It was against this apparently sunlit background that Terry Smith, the highly rated investment analyst whose controversial bestseller, Accounting for Growth, was to make him the talk of the City, used pounds 80,000 out of the golden handshakes he had amassed since the Big Bang to buy an Athena franchise in Chelmsford, Essex. It was May 1989.

The venture began the way so many 'informal investments' start, whether they involve the recycling of City riches or just some friends, an idea and a few thousand to spare. During a compulsory break between broking jobs Smith got talking over dinner to a family friend who was looking for a change from working in insurance. Like hundreds of would-be entrepreneurs, they visited the next trade fair for franchise businesses together.

Smith, a forceful man who relishes rivalry with his stock market competitors, had always planned to keep the day job. He had been head of research at UBS until the Swiss bank sacked him in 1992 and sued for breach of copyright over his book - a telling indictment of creative accounting methods in which many UBS clients figured prominently. Last week it emerged that Smith, now a partner at stockbrokers Collins Stewart, had settled out of court a pounds 600,000 counterclaim for unfair dismissal.

As one ex-colleague at UBS observes: 'Terry was never one of nature's employees.'

Smith insists it was not the longing to build his own empire that drew him to Athena. He just liked the sound of a 20 per cent-plus pre-tax return. It was cash he could afford to lose.

Essex Man, Smith reckoned, wanted something nice to hang on the wall when he took his first step on to the property ladder. 'People didn't want that green lady from Boots any more. Athena offered the customer more than 5,000 different print images.'

For pounds 104,000, Smith learnt, he could have a 14-year lease, shopfitting and the backing of Athena, in business for more than a decade and the principal supplier of posters and prints to the shops. Turnover was forecast at pounds 250,000 in the first year, with a 9 per cent fee to the franchiser. When his partner agreed to manage the business and take 20 per cent, Smith was in.

By 1992, however, the British economy was in deep recession. Athena - and Smith's franchise with it - had slumped into loss. Terry Maher, chief executive of Athena's quoted parent, Pentos, was ousted the following year after an pounds 18m one-off charge at Athena helped drive the group into the red. Nearly 40 stores would have to be sold or closed.

Stocks of posters held in the books at absurdly high valuations had to be sold off like so much waste paper. The sales growth figures hid some very tiny margins. The Athena range, which completely dominated the shop's stock, included too few reproduction Van Goghs for the newly mortgaged and too many popstars at pocket money prices.

Smith's first-year turnover was pounds 40,000 short of projections, and it soon got worse. He clamped down on wages but could not control all the costs or boost sales. He has taken no salary or dividend. A sum that he might easily have doubled in the stock market has lost perhaps a third of its value through inflation, even before the business's losses enter the equation. Franchise holders who borrowed money have lost a great deal more.

'It was not a very good business and the timing was awful. They were not a member of the British Franchising Association, which, looking back, I should have picked up on. Would I do it again? No. Was it a worthwhile experience? Yes,' is his verdict now.

Despite the notice in the shop that said 'Don't let Terry near the till,' Smith still signs each cheque and visits the shop every week. He says: 'Every analyst should take pounds 100,000 of their bonus in shares in a small business. What people don't realise about business is how hard it is to get out of loss-making operations. As an analyst I can downgrade a company with an unprofitable division and my client can just sell the shares.'

The experience has also coloured his view of the Inntrepreneur pub franchise scheme run by Grand Metropolitan, one of the principal targets of Accounting for Growth. 'The franchiser can grow fast using other people's capital and labour, but the franchisee has to make payments regardless of the ups and downs of business,' Smith points out.

His 'never again' verdict applies to any retail scheme. Another venture, selling horse tackle, meant to his disgust that he spent more time signing cheques than riding horses.

Alone among Athena franchisees, however, Smith negotiated at the outset a 'put' option to sell the still functioning business back to Pentos at an independent valuation. In the worst case - which looks unlikely - and including a second Athena franchise he acquired in Harrow, he would have pounds 150,000 of losses he could set against tax on his better investments.

And at best? Athena recently appointed a new managing director to shake up the business. So ''Tennis Player' - or maybe her newish male version - might just come back into vogue.

(Photograph omitted)