James Caan: How I launched the Ryanair of recruitment

James Caan is best known as a venture capitalist 'dragon' on the BBC series Dragons' Den. But Caan, who hails from London's East End, made his first millions from recruitment. He often quotes his father, who worked as a leather worker, as his inspiration for a life of hard work. But when he left school at 16, he chose not to follow in his footsteps. "My father never understood why I didn't join the family business. When I opened the 100th global office of my company he said that 'maybe' it was the right thing for me to do."

Having sidestepped the leather trade, Caan tried his hand at a range of office jobs before settling in recruitment. After only a few years he hit on a "new way for the industry to do business". In 1985 headhunting was confined to "the top jobs". Middle-management positions were filled "the traditional way", by placing an advertisement and vetting respondents. Success depended on who answered the advertisement, sometimes forcing firms to "pick the best of a bad bunch".

Caan's concept was simple: use headhunting for mid-level appointments. Although more expensive, he figured clients would recoup their money, as "middle management have the biggest impact on the day-to-day running of a business". In recruitment terms he wanted to do what "the low-cost carriers have done for the aviation industry".

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Caan approached firms already using the headhunting model for high-ranking posts and offered to set up a unit for middle management positions none agreed. "In those days headhunting was quite an elite sector and I think they saw this young kid from Brick Lane as an upstart."

Undeterred, he decided to go it alone. By now he realised "that in recruitment image is everything". He rented a "shoe-box-sized" office in Pall Mall. "It was a squeeze, but it was worth it." He then decided to name his firm Alexander Mann Associates (AMA) because it "sounded establishment". Yet 400 calls later, he'd received no positive responses. "People just said 'that's not the way we hire for those positions'." Then, one month in, he rang a chain of opticians.

"They were ready to open up a new store but were unable to find an optometrist. As a result they were losing money by the day." Caan found a "great candidate" and the firm agreed to use AMA for all future appointments. It was a pivotal moment: "no one wanted to be the first one but the idea soon caught on". As firms became comfortable with the concept, Caan began headhunting staff from rivals.

"This industry is all about relationships and contacts. I wanted to have specialists for each area of recruitment."

It worked. AMA generated £1m sales in its first year and began to expand rapidly. Now Caan encountered a new problem. "Some of the bright young guys I was employing thought 'why don't I set up on my own?'." In the early 1990s a number of staff left to set up rivals, "the biggest threat to AMA". But Caan had a solution: offer employees capital in exchange for a 50% stake in any start-up. Between 1992 and 1999, his international firm grew to 147 offices in 30 countries and AMA's sales hit £130m. Caan was now ready to sell his stake, worth £25m. "The idea of being free to do what I want and never having to work again was very attractive."