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Tim Waterstone set up his eponymous chain of bookshops after being fired, "in very gruesome circumstances", from the high-street newsagent WHSmith. Advised by his boss to quit the bookselling business, Waterstone did the exact opposite, set up a successful rival and, in 1993, sold it back to his erstwhile employer.

What's the moral of the story? Waterstone had no doubts when he addressed a 150-strong audience of the London Business Forum at the British Library Conference Centre: "The entrepreneur can always win," he said. They can move faster, settle for lower margins and offer a more personalised service than their larger rivals. Also, he suggested, Britain today has an "entrepreneurs' economy" thanks to the tax regime of Chancellor Gordon Brown.

"Ignore the received wisdom of any industry you're entering," Waterstone advised. "Never be trapped by dogma. Never let other people's opinions drown out your own inner voice." It was only by clinging onto such an attitude that Waterstone was able to survive his early days of independence - he left WHSmith with only £6,000 in his pocket, and needed £100,000 to open his first shop.

"I managed to get £4,000 from 3i," he said, smiling. "It was the smallest investment they'd ever made." He also managed to get £16,000 from his father-in-law. Then 3i suggested he apply for a small business loan guarantee to cover the remainder, via a particular Barclays bank manager in Cranleigh, Surrey.

Upon visiting this alleged talent-spotter, Waterstone was delighted to be asked for 16 additional copies of his business plan. Unfortunately, the man had no interest in actually making an investment. He was in fact giving a talk later that afternoon about the kinds of business plans that should never be given the bank's support. "On the day we sold out to WHSmith I sent him some newspaper cuttings," Waterstone said. "He sent them back by return of post with a note saying 'Win some, lose some.'"

With hindsight, of course, the idea was almost guaranteed to succeed: "In those days publishers were protected by the Net Book Agreement, which meant nobody could offer discounts on books. This meant Smith's couldn't undercut us, and we could beat them in every other way."

Throughout his speech, Waterstone continually implied that emotional intelligence and personality were more important to entrepreneurship than, say, management techniques or even experience. "If you start out as an entrepreneur wanting nothing but to make money then you'll make a complete ass of yourself," he said. In particular, he suggested, the right attitude manifests itself in a company's mission statement: "A private game of mine is to look for inordinately long mission statements," he said, drawing significance from the fact that "BT's is several paragraphs long, [while] Vodafone's is one sentence long."

Such statements are no good, he argued, if customers can't understand them and staff can't buy into them. Choose the right one, by contrast, and you generate momentum that makes it easier to recruit new talent, as well as to channel your organisational efforts. "All the best entrepreneurial companies are simple in organisation," he said. "There aren't too many management initiatives going on, there aren't too many ideas, there isn't too much thinking. You shouldn't go for endless wins; just concentrate on what matters and do it."

He offered one vivid example of how an entrepreneur can suffer if he or she stops listening to their instincts: that of Anita Roddick, the founder of eco-ethical cosmetics retailer Bodyshop. When Waterstone met her recently at a business event, he asked her - tactlessly, by his own admission - to explain 'What went wrong?'. She replied that "Everyone knew exactly what we were doing, and trusted in me. They so believed in my sense of direction and vision that they all went with me. What went wrong was that I kept on being told by City people to develop slicker management systems, so eventually I brought in consultants, started think-tanks, and immediately we started to question ourselves, and the company's self-confidence started to implode."

Another area in which the entrepreneur's personality can provide a template for his company is recruitment: "I believe passionately that you should do all your own hiring," Waterstone said. "I did at Waterstone's for the first 500-600 people: you sense very quickly who's going to work and who isn't and [with those you recruit] you develop instantaneously a sense of common bond." He added that one of his favourite maxims comes from the US business world: "Hire for attitude, train for skill."

He continued: "A good attitude, good spirit and optimism in somebody is a precious thing. Without this, no matter how good somebody is technically, they'll bring you down."

In the Q&A session that followed his speech, Waterstone was asked whether he thought employee share ownership schemes were a good motivator, and he replied that, having tried one at Waterstone's, he thought they generally led to disappointment. "What you find is that an awful lot of staff don't really understand what they've been given," he said. "It doesn't give them the driving motivation you think it's going to. People want to be rewarded for their own efforts, so we offered a very generous bonus scheme based on individual performance. Once Waterstone's was three years old it had about 50 stores, and we told branch managers: 'We will bonus you on the EBITDA [earnings before interest, tax, depreciation and amortisation] of your own individual branch.' The deal was that, in the first year, they got one-fifth of the EBITDA... I remember the manager of the Dublin branch got the most unbelievable reward. She understood her branch and what she could do with it and her reward was absolutely huge."

Equally, Waterstone added, "the only management model for any start-up company that ever succeeds is based on people's freedom". Quoting Noel Coward, he said: "Work's more fun than fun... That's why I'm still working at the age of 66." Of course, entrepreneurship is the ultimate expression of freedom in business, and Waterstone made it clear he could "never go back into corporate life - I have a total incapacity to live within other people's dogma." His only regret, it seemed, was that he hadn't set up his own company sooner: "I waited until I was 40 and had one divorce and five children by that point."

Nevertheless, he concluded, anyone thinking of following in his footsteps needs to appreciate how demanding the entrepreneurial life can be: "Any people here who want to be entrepreneurs must have a superhuman ability to deal with stress and a very strong vision. Ninety-five out of 100 businesses still fail - it's pretty much the same strike rate as drilling for oil in America in the 1950s - so you [need] the capacity to take the most stunning risks... repeatedly."