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Just an old fashioned family business

Melanie Stern Section Editor of Families in Business magazine.

David and Ralph Gold are known commonly as the 'Porn Barons' – but behind the headlines, Gold Group International is an exemplary family business model

David Gold, the UK's most notorious 'Porn Baron', is sharing a nice cup of afternoon tea with me, telling me how much he loves his mum.
 
Broaching the part of his multi-million pound business from which he gets this well-worn media title, he politely asks that I refer to it as 'top-shelf' and not pornography, "because the word 'pornography' suggests something aggressive, which is not what we do." It seems David and his brother Ralph Gold, owners of Gold Group International (GGI), are misunderstood.

Indeed, there is nothing of the Porn Baron in David Gold. He appears a modest man who repeatedly attributes his success to the strength of his family. He speaks of the enormous faith he has in his children Jacqueline and Vanessa, and Ralph's son Bradley, as successors-in-waiting (despite admitting like so many other family business founders, "and this is confidential of course – my brother and I have decided that we intend to live forever, so that's going to be a real challenge for the children..."); refers warmly to the kinship and love of his brother Ralph, the steely support of his mother Rose – and notes how the turbulent relationship with their father, Godfrey Gold, drove his desire to succeed.

Whatever one's stance on the erotica market may be, GGI is a successful enterprise and an exemplary family business model. Led by the brothers, managed at ground level by their children and with Mum managing part of one of their biggest interests, even at 89 years of age – GGI is, at heart, just an old-fashioned family business.

Modest beginnings
Being born less than two years apart, the Gold brothers were in business together from an early age. Raised by their mother Rose in London's East End, as a single parent family on a cleaner's wage, pulling together to make ends meet was a necessity. David and Ralph had the effects of poverty indelibly imprinted upon them, borne with the hatred they endured as a Jewish family. "The poverty and the racism we experienced brought us closer together, and while most brothers of that age hate each other, we stopped fighting pretty quickly because we had to stand back to back," David recalls. "We started off fighting kids, then older people, and before we knew it, we were fighting the world together. It was that family strength that inextricably linked us; it was us two brothers together in our effort to succeed."

In the sporadic periods when the family was together – David and Ralph's father Godfrey was frequently in prison for petty crimes or working in Northern England – their mother Rose ran a stall selling buttons and bric-a-brac from their front porch, enlisting her sons to sew the buttons onto pieces of card or take turns manning the stall. Meanwhile, David and Ralph's uncle, David, had begun selling books and comics to retailers with their father, buying up surplus stock of Captain Marvel comics and a selection of 'pin-up' magazines for bargain prices, enlisting the brothers to deliver them across London. Before long, Rose had started stocking the pin-up magazines on the stall, and soon converted the front room of the family home into a fully-fledged newsagent's shop. David and Ralph would later go on to start printing their own lines of these magazines to capitalise on the growing niche, publishing now infamous titles including print runs of the famous John Cleland books Memoirs of a Woman of Pleasure, its successor Memoirs of a Coxcomb, and New Direction magazine.

In the 1970s, David Sullivan emerged as a strong rival in the erotica trade, publishing more explicit magazines than the Gold brothers had chosen to such as Parade and Whitehouse (dangerously named after the staunch UK anti-pornography campaigner Mary Whitehouse). David and Ralph had bought up a distribution company, GBD, and due to the heavy demand for these more risqué titles, began to distribute these as well as their own range.

Profits ballooned – they had capitalised on a boom market at just the right time – but with that came a high profile that the brothers never wanted. The business was growing too fast for society to keep up with, and the British Establishment dug its heels in; Gold Star Publications endured a series of protracted investigations, lawsuits, customs and police raids on its shipments and offices to seize its titles under the UK's Obscene Publications Act. Thousands of magazines were destroyed. David narrowly escaped a prison term under the Act, despite being tried twice for the same charge. Ironically, the advent of the Internet has eroded the call for printed matter in this field, and now top-shelf publishing constitutes just 1.5% of the group's business.

From front room to high street
As the top-shelf market gradually became more socially acceptable, Establishment curiosity died down allowing the Gold brothers to become leaders in the erotica market. In 1972, capitalising on its new-found place in the minds of 'ordinary' people, Gold Star Publications made its first steps out of magazines and on to the high street with the purchase of two erotica shops under the name Ann Summers for £15,000. Three decades on, led by David's daughter Jacqueline, Ann Summers is Gold Group International's best performing brand bringing in UK£8 million (nearly half the group's total profit) in 2002, operating 99 outlets across the UK, an online mail order arm, a lingerie arm, and a party plan arm – the largest of its kind in the world. Not content with that, Jacqueline furthered the GGI high street offensive in 2001 by leading the buyout of underwear chain Knickerbox.

Now a diversified group, the secret to the GGI's success is clear: it is about exploiting niches as they emerge and keeping the competition out, facilitated by sheer hard work. A key trait, surely residual from their experience of poverty, has been to stop giving other companies money; for instance, as well as publishing magazines, GGI also prints and distributes them itself through its own companies, rather than outsourcing these expensive necessities - eliminating the risk of failing service providers while keeping money outflows to a minimum.

David and Ralph have created an empire that makes money from its own operations and can cut itself amazing deals; it is a lean and mean strategy, and one that makes the Golds one of Britain's most successful business families, listed 67th in the Sunday Times' 2003 Rich List.

Leap of faith
One part of the business, however, completely defies this philosophy and illustrates the risk David and Ralph were willing to take for something close to their hearts. In 1993 they bought a 50% stake in the near-bankrupt third division football club, Birmingham City (BCFC), along with their business partner – one-time arch rival David Sullivan – who bought the other 50%. The kid brothers, lodging with a surrogate family in Birmingham for a time when Rose was unable to cope, had watched the side play at home to rapturous support from the 'Kop' stalls, filled with dedicated 'Blues' fans. As a boy, David had been offered a contract to play for West Ham FC Under-21's, but missed his chance because his dad would not sign the consent forms; for him, it was a second chance to play, if only from the director's box and not the pitch. The risk worked out and in a tidy decade, the club hit the Premiership, sitting comfortably as this article goes to press at its highest ever position, fourth. Mum Rose continues to head up BCFC's Senior Citizens club alongside Sullivan's mother, Thelma.

More aggressive in their approach than many other family companies, David and Ralph are quick to thwart competition before it presents a threat or even exists – the alliance with David Sullivan being one of their most valuable defence strategies yet. When a team of rival bidders emerged for Ann Summers, the Gold brothers approached them to cut a deal; each side was to produce an envelope containing the maximum they wanted to bid, and the one offering the least would step down from bidding, receiving the difference in cash between their offers as compensation. The Gold bid was £5,009 more than their rivals, and they snapped up the chain within a week. Similarly today, they have continued to defend Ann Summer's unmatched position without hesitation, aiming to have a store in every town and realising this by opening 30 new stores every year. Even locally, the Golds take no prisoners; not content with having a store at the east end of London's Oxford Street, they opened a second store at the west end, "just to dissuade someone from thinking about it". David explains: "Everybody looks at us longingly, at our figures and our sales growth. So, while no one has yet emerged as serious contender, we want to stifle any competition before it gets a chance, and we want to do that quickly – though I'm not paranoid about it," he adds. "People have done that in the past at their peril; it's like buying up the world's supply of tin so that you can charge twice as much for it."

Ready for G2
David has much enthusiasm about the year ahead. In 2004, David reveals that Ann Summers will begin to expand onto the European continent, working its way in via British tourist and ex-pat hotspots like Marbella in Spain (where an Ann Summers shop is already installed). Gold Air will take delivery of a US$55 million order of five new Lear Jets; projected group profits for the year are upwards of £20 million.

Behind much of David's excitement is his belief in the next generation, and the strategy in place to nurture them as they help build the family empire. As well as Jacqueline leading Ann Summers, her sister Vanessa is director of a range of GGI companies including Ann Summers Lingerie, while Ralph's son Bradley is director of Gold Air International (while Bradley's sister does not work in the business). All three worked their way up through the ranks: Jacqueline started out in 1979 at Ann Summers as a wages clerk, going on to launch Party Plan in 1981 and becoming Director in 1993. For now, it seems clear who is poised to take the mantle as head of the business after David and Ralph. "Jacqueline has emerged as the current principal, being Chief Executive of our most lucrative company," David admits. "What I can say is that everyone is bright enough to do it, and I am hugely optimistic about the future of our family.

He continues; "Sometimes in family businesses, the children inherit the company but they aren't particularly business minded. I've seen children inherit a business when they'd rather be on the golf course – they've almost been forced into it, and that's sad for the business because it is then led by a person who doesn't share their predecessor's passion for it. That's not true of our family: our successors are actually instrumental in our success as we speak and are being carefully groomed, given greater responsibility and autonomy by the day. We aren't fragmented by the jealousies you so often see in family businesses. We're a very warm family, and not just because my brother and I have worked together for so many years."

But there have been some destructive forces to contend with. David and Ralph's father had at one time tried to trick the brothers out of an equal share in the business. They created a holding structure and each took three shares, signing the contracts separately, without witnesses. Only when the brothers challenged their father on a financial query did he move to maintain his superiority by blurting out that they did not have any right to argue their point, since he had fashioned Ralph's contract to sign over two of his three shares to his father. "I think he feared that he would lose his patriarchal position in the business because of us holding shares; he saw his sons evolving but didn't want to stop being the Alpha Male," David recalls. "He realised that my brother and I were inseparable in our determination to succeed, and he was right to see that – we didn't even see it then."

Godfrey's plan was foiled anyhow because the contracts were not legally binding, and the brothers went on to form GGI without him. Turning this traumatic experience into a valuable lesson, the family will from 2004 begin formalising the succession and share transfer plan. Each of the four Gold children will receive exactly 25% of the business.

Lastly, I ask David the mandatory question all business families love to hate. Would you ever sell out? "We have been approached many times by companies wanting to take us to market, but it is a question of need. People go to the market because they need money to expand at a faster rate; Ann Summers Retail, for example, is growing at 50% a year – we couldn't expand any faster than we already are," he explains. "We are a family business and have an excitement about remaining so because we have very, very good people ready to take over. So no."

That's perfectly understandable.

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