Money: My worst mistake; Stockbroker Stephen Pinner

"In 1987, I was working for Hoare Govett, which was going through a change of ownership at the time, and I had an idea for what I thought could be a great new business.

I had been to America, and seen the way stockbrokers there used independent companies to do all their back-room work. The brokers themselves would go out into the market and buy the shares. Then they handed the settlement work and all the admin over to somebody else.

I thought there could be a big demand for a similar service here, so I decided I wanted to set up an independent UK securities clearing firm.

I got hugely excited about this idea, and soon found myself surrounded by teams of professional advisers and other experts. We went on to draw up the business plans and everything else. I was soon persuaded that we needed pounds 3m to get this thing off the ground, which we consequently went out and raised. At that time, it wasn't difficult to raise capital.

Security Settlements plc was launched in the week of the 1987 Crash. We thought at first that we'd only need two or three client firms to make it all work but, when the Crash came, it was clear we were going to need a lot more. In the end, the business did hang together, but it was extremely hard.

Looking back, having all that cash there from day one taught me a bloody good lesson. I could go out and recruit very high-quality people knowing that I'd got the capital base to support it, even though the income wasn't there yet. But knowing you've got that kind of facility at the bank all the time can really take your eye off the ball.

Instead of going out and buying just the space we initially needed, we took the decision to buy 16,000 or 17,000 square feet outside London and 2,500 square feet for a nice City office, because we could afford to do it. The business plan told us it was all going to come good, and not to worry.

As a result of all this, everyone became a bit too comfortable and sometimes we missed the main chance. It was impossible in some cases to motivate the staff. They knew we had good reserves and often performed as if we had a long-established business and a bottomless pit of cash.

Consequently, we had to raise another pounds 1.5m within the first 18 months of operation, and we were always chasing capital. Eventually, the main investors got rather tired of it all, and the company was sold on.

A few years later, when the time came to start City Deal Services, I did so with just pounds 50,000, which was the minimum capital you had to have at that time. Like all start-up businesses, City Deal didn't make a profit straight away, but it very quickly became profitable to the point where, in the last year before acquisition, it generated a profit of about pounds 800,000.

I can laugh about it now, but it took me about three years to get the Security Settlements thing out of my system You get fairly low, you feel disappointed, and then you get real. I've had all those emotions. Now, if I was starting a business again, and I had a choice of starting with pounds 3m or starting with pounds 50,000, I'd go the lower way every time. There is an argument that, once you've got a business plan that says you need a certain amount of capital - no matter what the number is and no matter how scientific you've been - you should double it. These days, I'd prefer to go the other way.

If you're starting from scratch, with no involvement from any of the major entities, I would certainly want to have enough capital, but not enough to let day-to-day profitability come too far down the line. The only thing that makes a business tick is people having a focus on the amount of money it's generating. That's the key."

Stephen Pinner is managing director of City Deal Services, execution- only stockbrokers. He was talking to Paul Slade.