There are two lessons that anyone who starts out in business needs to learn. One is only to recruit when the existing staff are so overworked that they will accept anyone new. There is no better way of settling in a new employee than if the existing people are desperate for their help. The second lesson is that you should only move offices when you are already heaving at the seams. People don’t care where they go or what the new offices are like, so long as they have more space. Although people hate change, they will be much more ready to accept it when they are desperate. Valerie was a fantastic employee but she was part-time and had a young family. So, although we pushed her hours out as far as they would go, we knew we needed assistance.

I have always been a believer in advertising job vacancies. Using agencies to find new employees is a sign of laziness on the part of the employer. The staff you recruit from agencies are often of the same ilk. People who desperately want to work for a decent firm look at every available source of new jobs. It is a shame that very few employers today advertise and very few potential employees do other than go to agencies. We welcome, and have always welcomed, people who scan the situation vacant columns of newspapers. In fact, we normally give them preference. Why? Because it shows that they are making an extra effort. Many employment agencies are no more than post boxes. We have never found an employee from an agency who has been properly vetted and interviewed before being sent to us. What usually happens is that you pay the agencies a fee and end up doing the job of interviewing and vetting them.

When we advertised for our first full-time employee, we didn’t know exactly what we wanted. We simply said that we were a small dynamic business that was growing rapidly and we needed someone who was happy to carry out whatever we threw at them – which could be secretarial work, administrative work, whatever. In those days, you could state the sex and even the age of the prospective employee. A young woman was what we wanted. To my surprise, I also had a phone call from someone whom you definitely couldn’t describe as a young woman, namely George Budd, a man who reappears later in this story. At the time, he was the branch manager for Target Life. “Peter, a little lass that worked for me would be absolutely perfect for you,” he said over the telephone one day. “She is willing, bright and not afraid of work.”

Of course, we interviewed her and George was right. She was exactly what we wanted. I almost regretted paying for the advertisement but as we had several applications for the job, we also interviewed two other young women. The first of them escapes my memory. The second came for her interview to my little mews house in Clifton Village on a Saturday morning. I remember she turned up in a green dress looking a little windswept. I immediately got on with her. She was very bright, had a degree in politics from Bristol University, couldn’t find a job and had done a graduate secretarial course.

At first, I thought she might be one of life's perpetual students but that is not how she came across. I thought she was great but that she was probably far too good for us. I didn’t know how we could give someone with her credentials enough to do. Nevertheless, she seemed keen to join. Stephen and I agonised over which young woman to choose. In the end we offered the job to the girl that George had recommended, only for Fate to take a hand when she turned us down. I think over the years I must have knelt and thanked God a thousand times that she did turn us down. It meant that the Bristol graduate who had gone through secretarial college was our only option. Her name was Theresa Barry and I can categorically state that Theresa has been no less important than Stephen or myself in the development of Hargreaves Lansdown.

Unfortunately, we didn’t learn the obvious lesson that day, which is that you should always try to recruit people who are too good for the job. Theresa herself naturally reminds us regularly of what was nearly our biggest mistake in business. The reason I make this point is that young, uneducated, low achievers rarely persist through what they see as boredom in business to eventual success. Brighter, more intelligent employees don’t mind doing a boring job for six months because, provided their company has a culture where talent and commitment is rewarded, they know they will be given a better opportunity one day. Maybe those who can see no further than the mundane job they are doing today complain of boredom because they know they are consigned to a life of it. The really bright people can see that one day there will be an opportunity to do something more rewarding and interesting.

So came the Ides of March. It was on the 15th March that we moved into 16 Merchants Road, the name which we preferred to use for our offices in preference to Heaps Chambers. Mrs Heap, the character who lived in the flat above us, was proud of the name because apparently a relation had offices in Sydney, Australia, which were also called Heaps Chambers. But “heap” was still the word that best described the premises. The building had been rewired about 16 times without the old wires being taken out. The offices were also highly inconvenient. The room that Stephen and I worked in, for example, was not connected to the remainder of the offices. You had to cross a hallway to reach them. The stairs were narrow, dark and dingy. Heaps Chambers was 600 square feet of disaster yet we loved every minute we were there. Theresa and Valerie never seemed to mind the inconvenience. In fact, none of us had time to think about where we were working.

Below us was a little estate agency called Harrop & Co. Graham, who owned it, had sold me the house in Clifton from where we started the business. He was a sound businessman, never spent a penny where a ha’penny would do and had worked out that if you employed temporary staff it saved you National Insurance because temporary staff never earned enough to incur more than minimum National Insurance contributions. Like all estate agents, he had a photocopier. (Estate agents were the first people to employ photocopiers because it made more sense to copy their blurb when it was required rather than print a large number, many of which might then be wasted.)

Graham had what, for those days, was a state-of-the-art photocopier and had worked out that it made sense to offer a photocopying service to others. In fact, he once told me that it was such a good source of income that it paid for one of his temporary staff. His copier was also ideal for us. We didn’t need to buy our own because it was only a flight of stairs to get something photocopied. Graham ran a little account for us and we settled up from petty cash whenever he needed a few quid. There was always a bit of fun with the girls down in the estate agency. We never stood on ceremony. If you wanted something photocopied you took it down yourself. We never asked anyone else to do it. If you gave it to somebody else, what would you do while you waited for the copy to come back? Answer: nothing. You might as well do it yourself and not stop somebody else working. This is a principle that we have always applied in Hargreaves Lansdown and still apply today.

A year or so after we moved into Merchants Road, it became clear that, given the time we were spending on photocopying, especially the time spent socialising on the ground floor, it would make sense to have our own photocopier. So we duly acquired one. Before this, we had probably paid for 30 or 40 copies a day downstairs. How many copies a day did we make when we had our own machine? The answer is at least 250 a day. When we were paying for copies, and had to go downstairs to make them, people were much more frugal with their time and our money. I suspect that if we didn’t have photocopiers today, we would probably end up making do with fewer than 1% of the copies we currently generate. The moral of the story is that simple cost projections can be hopelessly wrong, however obvious they might appear at the time.

The board of this little company sat down and wondered what they had got. One bright spark said, “Why don’t we mail all the companies in the S&P 500 (America’s top 500 companies) to find out what use they would have for our invention?” Everyone thought it was a great idea. So they mailed all 500 companies. How many of those S&P 500 companies replied saying they might have a use for this wonderful new invention? The answer is: just two. Undeterred, in one of the biggest business gambles of all time, the board of this little company decided that the S&P 500 companies were wrong and spent the equivalent of three-years’ profits developing the process. The company was called Xerox. Xerography, the process they developed, is not only the basis on which all photocopiers work but also how laser printers work. The gamble certainly paid off. Soon after the launch of its first photocopier, Xerox had produced no fewer than 130 millionaires.

I am not surprised by that. I have always been astounded about the way that photocopiers get used (and misused) in business. When I worked for large companies in the 1970s, they used to have special “photocopier operators” where you went and said, “Could I have a copy of this?” My experience was that however many copies I asked for, I never got what I needed. I always received at least twice as many. Today I suspect that most laser printers and photocopiers still produce many more copies than are really required. Yet it keeps the manufacturers of the machines and the suppliers of the paper and the toner (the material which photocopiers depend on) clapping their hands with delight on a daily basis.

Despite the less than palatial surroundings, our days in Merchants Road were happy ones. Although we were running the same old “Choosing a Unit Trust” advertisements, one advertising agency had noticed our presence in the newspapers and decided to revamp the shape of the advertisement. Instead of a five-double, which was five centimetres deep and spread across two columns, they re-designed it as a ten-single. I had discounted this shape earlier because with a five-double you had an extra couple of millimetres between columns for free, something you didn't get in a single column. There are times, however, when what looks to be the best value isn’t. The advertising agency which had drawn up our ten- single had a point. The first time we ran the advertisement in this shape it had a lot more impact. I remember Martyn Arbib, the hands-on managing director of Perpetual, ringing me up and moaning almost to the point of tears that he had paid several thousand pounds for his advertisement and yet my little ten-single had more impact on the page. That was a great endorsement and proof that the innovation was worth the effort.

Not only did the advertisement in its new shape have more impact, it also meant that the reply coupon need only take up a third of the advertisement space instead of half. This gave us an opportunity to sneak in a couple of questions about what the investor wanted. Did they want income or growth? How much did they want to invest? And so on. With this extra information, we set about trying to tailor plans for clients more carefully. We worked out how to send those who replied to the advertisements a complete bespoke response. If they said they had £30,000 to invest and wanted income, we would give them a list of income unit trusts and suggest a couple of fixed interest unit trusts as well, while leaving £5000 in the building society. Our response would also show how much income they would get and how the whole plan linked together. In the case of clients who opted for growth, we would list a number of UK growth funds and then, depending on how much they had to invest, perhaps two or three overseas growth funds as well.

Naturally, we thought that what we had produced was absolutely brilliant – but we were totally wrong and it taught us an invaluable lesson. The problem was that our investors varied so much, from the ultra-naïve to the ultra-sophisticated. While we probably hit the right note with the sophisticated investors, there were far too few of them. Investors today are far more knowledgeable but, in those days, most investors thought that “growth” was what happened when you allowed income from a building society account to roll up. In the event, most investors ticked the growth box – but the way we responded to that was wrong. What we should have done was send virtually the same plan to everyone. That plan should have been based around income funds. For those who wanted income, we should have suggested they took the income from the income fund. For those who wanted growth, we should have suggested that they simply rolled up the income from the same income funds.

The insight into the power of income funds that we have gained from over a quarter of a century has been invaluable in helping us give investors what they want. As an adviser, you have to interpret what the client is requesting. The response to our advertisements provided us with invaluable intelligence. The response to those early coupon advertisements allowed us to continue honing our literature, our products and our advice – something that we have never ceased doing and still endeavour to do today.

In fact, by 1982, unit trusts were becoming so popular that the Money Programme selected a panel of experts to choose which unit trusts they thought would perform best during a calendar year. It ran the competition in conjunction with The Times newspaper. The general public was also asked to compete. I noticed in The Times that there was a section for professional advisers and after some thought I entered a fund. I didn’t expect the readers who chose poor funds would get pilloried but I did suspect that the four experts who were sticking their necks out on television had a real chance of being pilloried, which was exactly what happened. The panelist that did the worst was ejected from the panel, meaning that a new expert had to be found. I felt at the time that it should have been ourselves, but someone else who had just come into the unit trust industry and played the PR game extremely well was chosen instead. Kean Seager, the guy in question, based his whole business on PR. I sometimes thought he must have spent more time in Fleet Street than in his own business (yes, Fleet Street was at that time still home to a few newspapers). In the competition, I was the leading professional adviser at the halfway mark with my choice of Britannia Hong Kong. My picture was in The Times and I found myself commenting on investment after only being in business 18 months.

We were also in a competition in a magazine called Planned Savings and the portfolio that Stephen had selected was doing well and getting mentioned in the national press. It was clear that PR was going to be an important tool in building the business. So it became an obsession of mine to work out how we could become proactive rather than reactive at PR. Since the journalists didn’t know who we were, let alone our address or telephone number, I didn't imagine that they would phone us up out of the blue and nor did they. One night I was in my local where I used to meet a couple of chaps from Lancashire who like myself were in exile in Bristol! One of them was in PR and I asked him how it was done. “It’s simple,” he said, “you need to give journalists ideas. They have a column to write and a blank sheet of paper, so they welcome all ideas with open arms.”

“I don’t need a PR agency then?” I asked. “Well,” he said, “PRs can introduce you to the journalists and help you with your plans, but essentially no.”

The other important thing he told me was that I shouldn’t give all the journalists the same story. No journalist likes writing a story and finding it being carried by three other national newspapers the same day. Now, at least, we thought we knew what we were trying to do. Stephen and I sat down and came up with seven different stories. I got on the phone and booked half hour appointments with seven journalists from seven different newspapers in one day. I didn’t know then that wasn’t the way that a PR firm would do it. Its solution would be to take the journalist and myself out to lunch, then charge me for all three meals and repeat the operation for seven days running! I travelled up to Paddington station, joined the taxi queue and told the first taxi driver who came along that I wanted to go the Daily Mail’s offices, which in those days were close to Fleet Street. I got on well with the taxi driver so when I got to the Daily Mail’s office I said to him, “I will be half an hour. Keep the meter running. I’ll be back.” From there it was on to the Financial Times, the Telegraph, the Sunday Times, the Guardian and the Observer. I had a different story for each journalist. I remember seeing Joanna Slaughter at the Guardian and Chris Hill at the Sunday Telegraph. The only one that I failed to see was Louise Botting, who presented Money Box on the BBC. She expressed doubts that someone that had been in the industry for such a short time would have anything particularly authoritative to say. I hope she was surprised when she saw the newspapers that week!

After that, I never looked back. We struck up some great relationships with the journalists and today I still talk to some who were around then. Lorna Bourke still writes a column. Roger Carroll, who was also at the Telegraph, contacted me when we announced our flotation because he went to work for a PR firm and wondered whether his firm could do our flotation. In fact, we chose someone else but the flotation was one of the few times that we have appointed a PR firm. It was such a different field that it was wise not to risk getting it wrong. The only other time we have employed a PR firm was for our stockbroking side where Richard Hunter, who is regularly quoted on stock market matters, was ably assisted by an excellent PR firm for a while. The advantage of having a PR firm is that they know the ropes, know the people and know what stories journalists will like. Journalists have confidence that the better PR firms won’t waste their time. I was impressed with the PR firm that we appointed for our float. The day we announced our decision they had pre-booked times for every national newspaper, all the news services and various specialist publications. Stephen and I sat in a room as the calls were put through. The following day we had comment in every single national newspaper. Over the years, of course, we had become known by the financial press even though these journalists were on the City pages rather than the personal financial pages. Many of them had cut their teeth in the industry’s trade publications and some had gone to the City pages via the personal financial columns. It was easy talking to them because we knew them, we knew what we were doing, we were relaxed and I have to say they were exceedingly kind in their comments the following day.

I caught up with the second one and, having squarely planted my foot in the middle of his back, kicked him down the last flight of stairs. (You can be very brave when the circumstances demand it.) With the help of a young man who was working in the estate agent down below, I managed to make a citizen’s arrest. You don’t have a lot of fight left in you when you have been kicked down a flight of stairs. Sadly, that was the last I heard of it. Although there was eventually a court case, and both offenders were caught, we never received the money back, nor a word of thanks from the police. In court, the lad whom I had kicked down the stairs asked for four other offences to be taken into consideration. Two of them were for grievous bodily harm so perhaps I had rather a lucky escape. In those days we could not be accused of lacking passion.

Another thing that became very evident to me with our early mailings was that the amount of business we did was directly proportional not just to the quality and desirability of the products we were recommending but also to the size of our list. Our early list probably had no more than 1000 names. Stephen and I often discussed how much business we would do if we had a list of 10,000 names instead and, in time, we got to find out. We have always had a good feeling for what clients wanted but it soon became apparent that response rates did not fall off when we expanded the numbers we mailed. This was mainly because our lists all came from the same sources and those who didn't invest were removed from the list, so we were, in effect, concentrating our list all the time. After we had established this, the game became one of growing the list as fast as we could. For the first 15 years of our existence, you could say that the most valuable commodity we had wasn’t Stephen, Theresa or myself but the list. All I can say for the three of us is that we knew how important the list was and did everything we can to make the most of the strength it gave us.

As the business continued to develop, we realised that we couldn’t just confine ourselves to unit trusts. We needed to look at other options. Despite 25 years of criticism, life companies still have some valuable products. People do need life assurance and when people retire they do need to buy annuities to secure a lifetime income from their accumulated pension funds. We have never been wildly impressed by the talents of most of the life company people who have called on us. We always wondered whether they were just innately low calibre people or whether the environment in which they worked cultivated mediocrity. However there was one young lady who impressed us immensely. She worked for Commercial Union and, after a short period of time, we started to give her business, not least because the service she gave us was second to none. One day she came to me and said, “My branch manager has been asking me ever since I opened your account whether he could come and see you.” She smiled winsomely and said, “I have put him off so many times that I can’t put him off any more. He is a complete jerk and it will be agony, but would you do it for me?” I thought it could be a bit of fun to bait the old rascal so I agreed.

We met in a restaurant close to the office. (We are lucky that Clifton Village has always been a place where people go out to wine and dine.) We sat down and Hilary’s appraisal of her boss proved to be entirely accurate. He had risen through the ranks more by longevity and luck than ability or intelligence. “Peter,” he told me earnestly halfway through our lunch, “I have got to tell you about something we have just acquired in our office. We’re a big company and so we can afford it but I wouldn’t be surprised if you have one, too, within a few years. It is a word processor. The amount of work it will save and the things we can do with it are just amazing.” I answered him by asking him, “How many staff have you got in the Bristol office?” “I suspect around 90,” he said. “Really,” I said, “we have three office staff and they have a word processor each.” Hilary’s face was a picture. It was one of the best business lunches I can remember, if only because I have laughed and dined out on it for years. Needless to say, we employed Hilary the following week. She just couldn’t bear to stay where she was any longer. When she joined us, it enabled us to set up our own pensions business.

I was able to remind John that back in 1982 one particular call had played a large part in the development of our business at Hargreaves Lansdown. At the time his call had a certain frantic edge to it. “I have got John Stone down tonight and the broker in Bristol who was supposed to be having dinner with him has cried off.” Knowing that I was a bachelor and probably doing nothing, he asked if I could take the broker's place. The deal was dinner at Harvey’s, arguably Bristol’s best restaurant at the time. John Stone was the head of Target Life and had previously been head of Vanbrugh, the Prudential’s unit-linked business. It was an opportunity that I could not miss. I had never met John Stone before although, whilst working for Bill Sandham, I had attended a presentation at a seminar in a country club on the outskirts of Bristol. It was one of the most remarkable seminars I have attended. During it, he cleverly wound up all the investment and pensions brokers from the Bristol area by telling them about a new concept in personal pensions which was brilliant in its simplicity. It was the way he toyed with the audience that was so impressive. He was a very charismatic presenter and none of that charisma has left him over the years.

The new product that John Stone was presenting to his audience was called Loan Back. It worked on the basis that few successful businessmen could afford to make pension contributions in their formative years, mainly because their businesses when embryonic consume so much capital. Pension contributions in those days were even more tax advantaged than they are today. At the time, the highest rate of income tax you could pay was 60% but on top of that there was the so-called investment income surcharge, which meant that unearned income paid an extra 15% tax, making a top marginal rate of 75%. Pensions, however, were exempt from the income tax surcharge. A pension contribution of £100 in effect cost you just £40 if you were a higher rate taxpayer and potentially saved you another 15% as well.

The deal Vanbrugh was introducing was so simple that it was remarkable that nobody had thought of it before. It involved making a contribution to a pension plan and then immediately borrowing back the amount of the net premium. This is how it worked. If a 60% rate taxpayer paid in £10,000 to a pension plan, it effectively cost him only £4000 because he got 60% tax relief on his contribution. If he immediately borrowed back the £4000 from his pension plan, it meant that he had actually paid nothing, albeit that he owed his pension plan £4000. The net effect was that he ended up with £10,000 in his pension without having to part with any cash. Of course, he had to wait to reclaim the tax, so there was a cash flow problem. This is where Vanbrugh proposed to come in with its ingenious new Loan Back scheme.

The company's plan was to make short-term loans until the person who had made the pension contribution was able to reclaim the tax on his pension contributions. As John Stone was explaining his new scheme, I noticed that the room suddenly started to empty. I couldn’t at first understand why. The content was spellbinding. The reason for their exodus turned out to be quite simple. Most of the brokers in the room had clients who should have been putting more money into pensions but didn’t have any spare cash. As soon as they had grasped what they were being offered, the brokers were jumping into their cars and driving off to see those clients before someone else got to them with Vanbrugh's new scheme! I have never seen anything like that before or since. John Stone certainly left a lasting impression on me.

The chance to meet such a charismatic figure was not one to be missed therefore. I turned up at Harvey’s bright and early. John Stone and John Simmonds were already there and I was duly introduced. We had the most enjoyable dinner. We all seemed to hit it off together extremely well, so well indeed that our table became the noisiest in the restaurant and the last to be vacated. I suspect there was more than the odd bottle of wine drunk. I was fascinated by John and his stories and he seemed interested in my business. Although Hargreaves Lansdown was only embryonic in those days, he could see we had a goal and we seemed to know how we were going to achieve that goal. I suspect it was quite late in the evening when he suddenly looked at me and said, “So Peter, how are you doing this direct mail?”

It seemed a rather silly question but I answered it all the same. “Well, John, it’s coupon response. We send the respondents a few mailings and if they haven’t invested after six months, we drop them off the list.” I don’t know why I told him we dropped them off the list. I just happened to say it. He looked at me over the top of his spectacles, perched on his above-average sized nose, and he uttered three words, two of which were expletives. I will say no more than the first word was “you” but the rest of the statement indicated that I was making a very serious mistake!

I have found that if somebody makes an impassioned statement like that, you are usually going to hear something important. I still didn’t realise what I was doing wrong but John was quick to explain. “After six months is just when they are going to invest.” Nothing more needed to be said. The following morning, I went back to the office, told Theresa the story and we resurrected all the names we had abandoned and mailed them again. It turned out that John Stone was very right indeed. It was one of the best pieces of advice I have ever had in business and I hadn’t even paid for the dinner.

When I asked Theresa what she was going to do, she felt that she might try to find a job in the City as that was within easy commuting distance of where she needed to live in Kent. We wrote a few letters, as we have done for many employees who have needed to move for personal reasons. One of the letters must have struck a chord because Theresa found a job working for the unit trust division of Abbey Life, who in those days had an excellent investment business. Her boss, a man called Jack Bourne, was someone for whom we have always had a soft spot at Hargreaves Lansdown. Jack had earlier been part of the marketing team at a successful unit trust business called Schlesingers, famous for having the best marketing in the industry.

Her intended move was going to leave a huge gap. When it came to replacing Theresa, we decided that we needed someone to look after unit trust dealing full-time. It had been a job that Theresa had done before as part of her many duties. By strange coincidence, the young lady who applied for the job had worked for the same firm that had originally given me the idea of selling unit trusts through the post. She knew the job and was a bright, intelligent girl who, while she would never be a Theresa, was just right for what we wanted. Theresa agreed to stay on and train her. The young lady told us how much she required as a salary and we agreed it. Within days of starting, she was astounded to discover how big our volumes were in comparison to her previous employer. At the end of her first week, therefore, she came into the office that Stephen and I shared to say, “I don’t think the salary you are paying me is enough.” I replied, “But I agreed to pay you exactly what you wanted.” She gazed back and said, “Yes, but I didn’t realise how much business you were doing.” I thought it was completely immaterial how much business we were doing. She was being paid to work from nine until five, with an hour for lunch, and that was the end of it. Nevertheless, I said I would consider her request.

Then I went to the pub with Stephen, as I often did in those days. We generally found that a snack and a beer in the pub was the perfect environment for discussing things and for holding management meetings! Stephen had sat there in silence while the girl had been talking in the office and continued to say nothing. “Should we give her what she wants?” I asked. “Perhaps we should meet her halfway.” I must have agonised aloud for about ten minutes. Stephen never said a word. In the end, I said, “Oh hell, lets sack her. She will always be a problem. Whatever we offer her now she will want more in the future. I can’t do with someone who wants to change her contract within a week.” Stephen looked at me and smiled. “I thought that an hour ago,” he said, “but I thought you would come to the same conclusion if I left you to blow off steam.”

The young lady went that afternoon, despite telling us that she really didn’t want the rise and would have carried on working for the same money. The problem was that we could never have trusted her after that. To replace her, we contacted the college where Theresa had done her secretarial course. We were confident that we could teach their students the job. In the end, we found two young women who were absolutely great and took them both on. Theresa trained them and finally left us to head for her new life. My last words to her were, “If you ever come back this way, make sure your first letter is to me.”

The two young women we recruited were both efficient although very different in character. Rosemary Young was perfect for us because she liked being in a small firm and didn’t mind the shabby surroundings. She was a real character and I still have some contact with her today. Penny Foren was more formal and eventually moved into marketing when she left. I shall never forget how one day, having been asked by a journalist on a national paper to write something, I asked Penny to have a look at it and write it. I knew she could do it but she had less confidence in herself than I had in her. After I had walked out of the office, Penny turned to Rosemary and said, “Peter has asked me to do this but I haven’t got a clue what it’s about, I don’t know what I am doing and I don’t know what to do.” Rosemary looked at her and laughed. “Well, it has never stopped Peter in the past.” It was one of the saner comments made about Hargreaves Lansdown. Penny wrote the article and the journalist never knew.