- Richard Branson
- Business Stripped Bare
- Business_Stripped_Bare_split_011.html
2
Brand
Flying the
Flag
When I was sixteen
I was approached by a woman called Patricia Lambert who offered me
£80,000 to sell Student — the magazine I had started at school — to
IPC, now the Trinity Mirror stable of newspapers and magazines
based in the UK.
It so happened that I had found a
tiny island off Menorca which I was thinking of buying and living
on. It was a beautiful place with one very small whitewashed house
that had a loo which dropped its waste down the side of a cliff.
Living in splendid isolation in the middle of paradise seemed like
an attractive proposition at the time because, while our music
mail-order business was taking off, running the magazine just got
harder and harder. Until I'd sold the advertising I had no regular
money to fund the printing and paper costs. It was edge-of-the-seat
stuff at first but it had begun to wear me down.
IPC were not only offering me a lot
of money; they wanted me to stay on as editor. Student wouldn't, strictly speaking, be my magazine
any more, but I would get to keep a job I still enjoyed
doing.
So I decided to accept, and I went
along to lunch at IPC in Holborn, just off Fleet Street. They had
all the directors around the table. And once we had shaken hands on
the deal, I started to talk about my vision. I told the directors I
wanted to set up Student holidays, a Student travel agency, Student
record shops, Student health clubs – even a Student airline? I
could see eyebrows being raised. After the lunch I got a call
thanking me for coming – but the directors had changed their minds
about the investment, cancelling the plan to buy my magazine. They
were far too courteous to say so, but the writing was on the wall:
they thought I was mad.
Many years later Patricia was good
enough to write me a delightful letter telling me just how much
they had been kicking themselves over the years as they watched
Virgin stir up sector after sector, almost exactly as their young
would-be magazine editor had predicted.
I suspect they were right in not
dealing with me. IPC were and are in the publishing business. They
are publishers. They know who they are, and they didn't need some
kid, however promising, telling them all the other things they
could be. The last thing they wanted was a wasp in the room,
batting itself against their windows and getting more and more
frustrated, and that, surely, is what I would have
become.
Most businesses concentrate on one
thing, and for the best of reasons: because their founders and
leaders care about one thing, above all others, and they want to
devote their lives to that thing. They're not limited in their
thinking. They're focused.
The conventional wisdom at business
school is that you stick with what you know. Of the top twenty
brands in the world, nineteen ply a well-defined trade. Coca-Cola
specialises in soft drinks, Microsoft's into computers, Nike makes
sports shoes and gear.
The exception in this list is Virgin
– and the fact that we're worth several billion dollars and
counting really gets up the noses of people who think they know
'the rules of business' (whatever they are).
We're the only one of the top twenty
that has diversified into a range of business activities, including
airlines, trains, holidays, mobile phones, media – including
television, radio and cable – the Internet, financial services and
healthcare. And believe me when I say this really upsets people. I
remember in July 1997 London's Evening
Standard covered our advance into
America with an article headlined 'WHEN
BRAND STRETCHING STRETCHES CREDIBILITY'.
I think this says more about the
business community generally than it says about Virgin. How far
must we fly before pundits of one sort or another stop predicting
our fiery descent? Our proposition isn't hard to understand:
we offer our customers a Virgin experience,
and we make sure that this Virgin experience is a substantial and
consistent one, across all sectors of our business. Far from
'slapping our brand name' on a number of products, we carefully
research the Achilles heels of different global industries, and
only when we feel we can potentially turn an industry on its head,
and fulfil our key role as the consumer's champion, do we move in
on it. The financial services industry is an eloquent example. In
three years, Virgin Direct acquired 200,000 investors and was
managing £1.6 billion. As a result of its entry into the market,
much of the rest of the industry brought their charges down too to
compete.
Incredibly or not, Virgin has thrived
by weaving its magic through many seemingly unrelated sectors.
Between 2000 and 2003, Virgin created three new billion-dollar
companies from scratch, in three different countries. Virgin Blue
in Australia took 35 per cent of the aviation market and reduced
fares dramatically. Virgin Mobile became the UK's fastest growing
network. Virgin Mobile in America was America's fastest ever
growing company, private or public. Our revenue per employee –
$902,000 – is the best in the world, and we've got the highest
customer satisfaction record too, with 95 per cent of our five
million customers recommending us to a friend. Over the last
thirty-five years we at Virgin have created more billion-dollar
companies in more sectors than any other company.
And right now, as everyone is
battening down the hatches and preparing for the twenty-first
century's first really big global recession, Virgin turns out to be
ready for the storm as well. Because its risks are spread, the
failure of one part – even a major part – will not ruin the whole.
(Imagine if we hadn't diversified and if we had just stuck with the
record and music industry, which today faces huge challenges
because of the digital download revolution – we might well have
disappeared!)
So here's the question: if Virgin has
more fun when times are good, and weathers well when times are bad,
why doesn't every company try to 'do a Virgin'? And why are the
business teachers still telling young entrepreneurs to stick to
what they know?
Well, I think the business teachers
are right. You should focus on what you know. You should also focus on what gets you up in the
morning. And for most people, that means you should focus on one core business.
The odd thing about Virgin – and this
is what people often have difficulty with – is that Virgin's
particular focus made it absolutely
imperative that it diversified into many businesses.
Contrary to appearances, Virgin is as focused as any great company.
Its oddness comes from what it focuses on. We might have hit upon the exception that
proves the rule: our customers and investors relate to us more as
an idea or philosophy than as a company.
Virgin's success upsets people because
it seems to contradict the wise rule that you should stick to what
you love. Where's its focus? Where's its centre? Something must be getting that Branson bloke out of
bed in the morning – but what the devil is it? We thought it was
music, but then it was air travel, which we sort of understood
because of his ballooning, but then it was trains, money and mobile
phones, and what is it now? Healthcare? Space? Oh help!
I've never made any secret of what
gets me out of bed in the morning. It's the
challenge. It's the brand. Maybe it's something to do with
my surname. I remember a journalist from the Daily Telegraph magazine did some research into the
root of my name and discovered that, yes, 'Branson' was originally
'Brandson': my distant ancestors made their living branding
cattle!
For me, the brand is central.
Whenever I say this to people, however, an awful lot of them feel
their eyes misting over. 'What the devil does he mean, the brand?'
I'll try to explain. Let's start
simply with a quick sketch of what a brand can do.
IPC, as we know, publishes magazines.
What I want you to do is name three of its titles. If you're in the
industry, you'll have no problem reeling off a dozen. (They're very
successful.) If you're not in the industry, you won't have a clue.
Why would you? The IPC brand means plenty to the industry, but
nothing to the punter. The punter wants the flavour, tone and
content of the magazine, not its purse-holder. The punter cares
about the magazine's brand; the owner's brand would merely get in
the way.
Who published the last novel you
read? Which production company made the DVD you watched last night?
You probably don't know, the companies know you don't know, and you
know what? – nobody minds.
Brands exist as a means of
communicating what to expect from a product or service – or to
highlight the family likeness between different products and
services. An established brand on a new product is a guarantee that
what you're getting will be, in its own way, like something you've
enjoyed before. This is not always a good thing. Readers of Mills
& Boon romances may want the same kind of story again and
again; families look forward to taking their kids to see the new
Pixar movie, regardless of whether it's about animals, toys or
cars. On the whole, though, novelty and discovery count for a lot
in the entertainment sector, and the last thing you want to do is
stick some galumphing great label over everything you do,
suggesting to your audience that your new thing is just like your
old thing.
At the other end of the spectrum –
perched in splendid isolation in the far, far infrared – there is
Virgin. The Virgin brand tells you that using this credit card is rather like using this airline, which, in turn, is rather like using
this health spa, and listening to
this record, and paying into
this pension fund.
What's the family resemblance? What
resemblance could there be between these diverse goods and
services?
Pretty obviously, it has something to
do with the customer, because when you look at the range of things
we're involved in, the customer is about the only factor common to
all of them.
And that really
is all there is to it. The Virgin brand is a guarantee that
you'll be treated well, that you'll get a high-quality product
which won't dent your bank balance, and you'll get more fun out of
your purchase than you expected – whatever it
is.
You see, what gets me up in the
morning is the customer, and the idea of giving the customer a good
time. No other brand has become a 'way-of-life' brand the way
Virgin has. And we achieved it, not by clinically deciding one day
to become a way-of-life brand, but simply by following our
appetites and the things we were curious about. I've always and
continually been interested in learning new things and, equally
important, I've always wanted to share what I learned with other
people.
Should you follow the 'Virgin
formula', and focus your company around the customer's experience?
Probably not. Not unless your heart's really in it. Not unless,
like me, you wake up of a morning saying to yourself, 'Let's give
people some fun!' Obviously, I hope you
care for your customers. But I can't tell you that your company
should be about customers. What your
business is about is up to you.
The Virgin brand came into existence
gradually, to reflect what I was fundamentally interested in. And
to my own surprise, it wasn't publishing magazines; it wasn't even
music. My driving force, I realise now, was finding new ways to give people a good time –
ideally, in places where they were least expecting it. Like
airports.
While the brand has its roots right
back in the seventies with my beliefs and spirit, I think Virgin
Atlantic has done more to capture and articulate what the brand
stands for and personifies to consumers. Many other Virgin
companies have adopted those powerful values of innovation,
honesty, caring, value and fun. So I believe it's about great
customer service and giving people a good time.
This is why Virgin wears its sense of
humour on its sleeve. We want to inform and
entertain people. You don't have to be a Virgin customer to
enjoy our adverts and our publicity stunts. We have found over the
years that giving people a good time, and making them feel like
they're in on the joke, has been better for the brand than any
amount of complex campaigning.
I'll give you a quick example: on
Virgin Atlantic flights we had these beautifully designed salt and
pepper pots. At least, we had them when we took off. By the time we
landed, most of them had disappeared. Our passengers were swiping
them and using them at their own dinner tables. What to do? We
decided to make a joke of it. At the bottom of each pot we stamped
the words 'Pinched from Virgin Atlantic'. We turned an
embarrassment into a piece of cheeky loss-leader promotion. We got
people onside by bringing them in on the joke. In itself, this was
a fairly trivial matter; repeated across our whole group, our
fun-loving attitude makes a tremendous difference to our
business.
Irreverent humour is one of Virgin's
brand values, and this has to do with our wanting to be honest
about the ups and downs of our business and to share what we think
with the people who matter most to us – our customers. The people
who read our adverts are the same people who read about our
tussles, our setbacks and our mistakes. So why would we want to
pretend the real world doesn't affect us? Everybody knows of our
run-ins with BA over the years. When the world's press gathered to
watch BA erect their London Eye Ferris wheel on London's South Bank
and we heard they were having technical problems, we scrambled our
airship. The banner trailing behind it read: 'BA can't get it up.' We also had a lot of fun when
we introduced onboard massages on Virgin Atlantic, running an
advertisment in the newspapers saying 'BA
doesn't give a shiatsu!'
When Sydney Airport Corporation
(owned by a division of the very successful Macquarie Bank) decided
arbitrarily to raise their landing charges, Virgin Blue's CEO Brett
Godfrey and I decided to put a slogan on the side of our planes and
on the massive billboards lining the road to the airport.
'Macquarie. What a load of bankers!' It
made headlines, and it made a point: the bankers seemed to be after
easy cash at the expense of the low-cost market. Eventually
Macquarie agreed to renegotiate the fee question. I dressed up as a
native American Indian, smoking a pipe of peace, and buried the
hatchet with them. (Literally – it's still there somewhere, under
the tarmac!) It was one of those 'No hard feelings, mate' moments,
and I think the Australian public enjoyed our irreverent approach.
Interestingly, as a result, we've now become partners in a number
of companies. Befriending one's enemy is a
good rule for business – and life.
Too many companies want their brands
to reflect some idealised, perfected image of themselves. As a
consequence, their brands acquire no texture, no character and no
public trust. At Virgin, we certainly talk ourselves up, but we are
genuinely a real company doing real work in the real world – not
some sort of alien visitation.
It may be that Virgin has grown up to
be one model of what a modern company should be. It may be that, by
making the customer the focus of its business, and by giving good
customer service a brand name, Virgin has created something
genuinely new in the business world – something future generations
can emulate and build upon.
Past a certain age, we all want to be
Moses, leading our people into the promised land. Then I look at
myself in the mirror in the morning after a heavy night and I
think: Oh, Richard, get over it!
Virgin may simply be odd – an accident of history. I like fun. I began
work in a decade that prized fun. People associate me with that
decade and the feel-good factor has stuck with me ever since.
Virgin's been a rallying point for that spirit of fun – but would
Virgin have worked at any other period of history? Would it work
now? The bottom line is, we'll never know.
Good brands reflect the histories of
the time and the group of people that made them. They cannot be
easily copied. They cannot be recycled. A brand is like an artist's
signature (in Virgin's case our brand is literally an artist's
signature!) What you make of your brand is up to you. While I hope
and expect that there are lessons in this chapter for you, I cannot
tell you what your brand should do. What I will do is ask that you
take it seriously – as seriously as a painter treats the signatures
on his canvases.
A brand should reflect what you can
do. You have to deliver, faultlessly and for all time, whatever
your brand promises, so it's better to make your offering sound
witty and innovative than to pretend you're more than you are.
Get the brand right from the start, by being
honest with yourself about what it is you're offering. A
brand will eventually date you, so I think you're better off
intelligently evolving it as we have always done than tritely
updating it. These rather trivial rebrandings generate a lot of
fairly funny adverse publicity, and with good reason: they're a
sort of corporate comb-over – and about as effective.
This, anyway, was our philosophy when
we came up with the name 'Virgin' – and I had to respond vigorously
to the Registrar of Companies Office in the UK when they said the
name Virgin was too rude to register. Part of that response
consisted of proving that 'Virgin' had been used as a ship's name
without complaint as far back as 1699 and indeed one such ship was
recorded as having docked at Cadiz on 26 April 1699 in the May
edition of the London Gazette. It was a
bit risqué, I suppose – a bit of fun. But the word wasn't simply
plucked out of the air. It reflected the fact that every business
we began, we started from scratch. We've been 'virgins' in almost
every new business field we've entered. To my mind the name Virgin
was the opposite of rude: it meant
pure, in its original condition, unexploited and never used. Virgin
referred to us, because we were all virgins in business.
Registering the brand was critical. Defending it in every legal
jurisdiction in the world has been expensive. But it's all proved
essential for Virgin's success.
A brand's meanings are acquired over
time. Some meanings will be the product of serious discussions and
years of directed and dedicated effort. Some meanings will just
stick to the brand, whether you like it or not. Remember, a brand
always means something, and ultimately,
you can control the meaning of your brand only through what you
deliver to the customer.
If I describe to you Virgin's early
years, you'll be able to see how the Virgin brand came to mean what
it does today. I would like to say that all the things Virgin means
to people were the product of masterful business planning. They
weren't. Luckily, we did a good job, so the labels that stuck to us
were generally positive, whether we intended them or
not.
Immediately, however, I am confronted
by the fairly frightening fact that I will have to explain to
younger readers what music meant to my generation. How else are
they going to understand Virgin Records, our first
company?
I believe music isn't as central to
most young people's lives today as it was back in the 1970s.
There's a lot of brilliant music around today – I think about KT
Tunstall and Amy Winehouse for starters – but looking back, the
1970s was a unique time, and people then had an incredible passion
for rock music.
Partly, it was about choice. In those
days, living in England, we didn't have DVDs and mobile phones, and
we didn't have an array of TV channels – only BBC and ITV – and
computer games were the playthings of superpowers, who used them to
target their deadly arsenals of nuclear weapons. So for young
people most of their time and energy was spent on music – and that
meant buying records. It was the one luxury kids had. Anticipating
a new Led Zeppelin, Yes or Queen album kept us going for
weeks.
In the 1970s and 80s, album releases
were monumental events; and we built a business on the back of
them. I think there are some interesting business lessons that
still apply today from the creation of Virgin Records. After all,
the progressive-rock music business was then in its infancy, and
Virgin Records was there from the start.
When we started Virgin Records,
mainstream crooner Andy Williams and avant-garde rocker Frank Zappa
were in the same alphabetical A–Z racks in Woolworths. While the
1960s had witnessed an eruption in pop music and rhythm and blues
groups – led by the Beatles and the Rolling Stones – the old record
labels run by big business still dominated. There was no
discounting of music, and the industry that existed was very
conservative and stuffy. It was presided over by middle-aged guys
who listened to string quartets. Most recording studios were
sterile and expensive factories set up for only a few recording
takes, and music shops with their perforated hardboard sound booths
were stuck in the 1950s. There was little excitement attached to
buying music. And there were only a few radio shows where you could
hear decent rock music.
In the spring of 1970, we decided to
create a mail-order service that sold the kind of music we liked: a
record company that was outrageous, irreverent and long-haired.
That flavour established Virgin, sowing the seeds of what it has
become today. From day one, young people identified with it because
it was so different.
As well as the American magazine
Rolling Stone, there were two British
weekly music newspapers when we began. Melody
Maker was a serious rock and pop paper, with reviews that
also covered folk music and jazz. Although it was a must-read, the
writers were rather worthy and full of their own self-importance.
And there was New Musical Express, or
NME, which was more pop-orientated and
somehow stuck in the sixties. Then a new arrival, Sounds, with its tagline 'Music is the Message',
came along.
Sounds
was first printed on 10 October 1970 and I was on the phone to the
advertising department to secure some cut-price adverts. I've
always believed in trying to get into a new publication that is
trying to break the mould. Sounds was a
magazine that mattered for our success. It was right in our
marketplace. It sold 200,000 copies in its first week and gave the
opposition, Melody Maker and
New Musical Express, a bit of a fright.
Sounds' first rock album chart was
dominated by Black Sabbath's Paranoid,
the Rolling Stones' Get Yer Ya Ya's
Out, Led Zeppelin II,
Deep Purple in Rock and Cosmo's Factory by Creedence Clearwater Revival.
These would be the albums that our mail-order business would sell.
Unfortunately, there were some dreadful anomalies in the charts
too, such as The World of Mantovani.
His world would be banned from Virgin Records. So too was Andy
Williams.
For this start-up business there was
a basic flaw – we didn't have any credit. We didn't have any
references either, which meant the record companies wouldn't supply
us. So we took out adverts in the music press and I managed to get
a deal whereby I could pay for them a month in arrears. We didn't
have any records either, so we went along to Ray Larone's company
in Notting Hill Gate. We'd buy them from him at a discount and then
mail them out to our customers. That way, we had the cash in from
the public before we bought the records and paid for the
advertising. This is how we got the business up and
running.
When I hear of today's entrepreneurs
launching new businesses by putting all their debt on their credit
cards, I think that this pretty much parallels what we were doing
with Virgin Records. I'm not going to sit here and say, 'Don't do
it.' But if you do do it, you have my sympathy. Self-funding your
first business is cripplingly difficult.
Ray's tiny shop soon became one of
the biggest record sellers in England. The record companies'
lorries would turn up with piles of packages of records, and we
would have a lorry outside the back of his shop and then take them
off to our office, which was in the crypt under a church in
Bayswater.
From the first, our image and sales
pitch were vital assets. (We had precious few others.) During the
early days in South Wharf Road, we all contributed, but John Varnom
was the one who made a difference. He was off-the-wall, utterly
unreliable, and very creative. He wrote our adverts in a
Victorian-gothic style of self-parody but also an early Virgin
brand-message of the future: that quality could also mean value for
money.
'There must be
something wrong with them.'
'There
isn't.'
'They must be
old, bent, cracked, wizened, split, warped, spoilt, scratched and
generally too hideous to contemplate.'
'They
aren't.'
'They can't be
smooth, glistening, perfect, unblemished, miraculous, black and
shiny like those you get in the shops.'
'They
are.'
'But surely there
must be some difference, some gap, abyss, divide, chasm, canyon or
other unusual feature?'
'There
is.'
'What is it
then?'
'They cost
less.'
We all rolled up our sleeves,
stuffing brown packages with cut-price Virgin mail-order albums by
Led Zeppelin, Pink Floyd, Jimi Hendrix and the Rolling Stones. We
were all paid the same, £20 a week, and it all had a very hippy,
communal feel. 'Five to fifteen bob off any album on any label' –
that was our sales pitch. And we were now working flat out on the
mail-order business to cope with demand. The record companies
realised we were the mystery behind the huge success of Ray's
little record shop – and so they extended credit to us
directly.
But we weren't
making any money. Over the years I've met a lot of old
customers who were in on a scam. Irate people would phone up or
write a letter and say they had never received their rock album. We
had no proof that it had gone out because in our office it was all
so chaotic, and proper accounting methods were unheard of. So we
would send out another album. Our profit margin was so tight that
doing this regularly – and we did do it regularly – was wiping out
any of the money we made. This was one of the biggest business
lessons I learned. Turnover can be huge, but
it is the profit margin that matters.
Still, the Virgin Records brand was
getting noticed. Typical sales were several thousand LPs each week.
It all had potential. Then disaster struck, and here I learned
another key fact about running a business: try to have a plan
B.
In October 1970, the postmen and
women of Britain began a bitter dispute for more pay. The strike
lasted forty-four long and desperate days for us – and our business
dried up. We needed to diversify the brand. Fast.
We took out adverts in the music
press. A half-page on 6 February 1971 announced that we had now
opened a small shop at 24 Oxford Street. I'd managed to secure a
decent short-term deal on the rent of the first floor of a
three-storey shop, next to a secretarial college, and upstairs from
NU Sounds.
To combat the downturn we needed to
get people into our shop. We increased the advertising campaign
with 'A step-by-step guide to Virgin Records'
new joint in Oxford Street'. The puns continued –
'They are no dopes at Virgin Records. That's
because all our customers are cool. They know a swell joint when
they see one.' We offered more than records; we had coffee,
cassette tapes, posters and headphones, all within thirty seconds
of Tottenham Court Road tube station. Some reckon that our staff
sold even more than this, but I don't think I can comment about
what they did in their spare time.
By the end of 1971, we were buying
full back-page adverts declaring we were: The Firstest, Bestest,
Cheapest. Another advert began: 'Ha, ha, ha,
ha. This is our managing director giving a customer money. Chap
tried to pay full price for a record.'
In some ways not a lot has changed.
In 2008, if you're sitting on a crowded tube train on the Central
line in London, you can look up and read our advertising for Virgin
Media and it still carries the same tone of gentle irreverence.
Even in the early days we were promoting convenience and customer
choice – only in a different dimension.
Back in 1971, someone had a bright
idea. We should open a recording studio, too. Tom Newman, one of
the original crew at Virgin Records, originally suggested we set up
a four-track recording studio in the crypt. Meanwhile, I'd met
George Martin, the legendary producer of the Beatles albums, to do
an interview for a new edition of Student. When I told him of my plans, he said that
four-track was out of date and that modern recording now needed at
least eight-track equipment. I told Tom to flog the four-track we'd
already bought and look for an eight-track. We'd spent £1,350. I
was learning an expensive business lesson about getting the best
equipment you could possibly afford.
By the time of my twenty-first
birthday I had a magazine, a mail-order business and now I was
contemplating setting up a recording studio. We were £11,000 in
debt after the first year from the record business and I was struck
down by an ulcer. The doctor advised me to take some time out. Tom
Newman and I thought moving our studio to the country might be an
option. It would be better for my health at least. I bought a copy
of Country Life and saw an advert for
an old English manor house at Shipton on Cherwell. It looked ideal.
I was bowled over the minute I clapped eyes on the place. I
desperately wanted to buy it and hatched plans for a 16-track
studio. The bank agreed to give me a loan and I bought the Manor on
25 March 1971.
In October 1971, as we advertised
waterbeds for sale in our shops, there was an extra little note on
our ads: 'We have a quiet studio in the
country now, so if you're going to make a sound and you want to
relax when you do it, ring us.' The studio was ready to
rock. And it did.
The recording studio began to attract
the kind of musicians we liked to hear. The decision to make it a
16-track studio was imperative, as bands were becoming more
sophisticated. Instead of simple bass, drums, guitar and vocals
there was now more dubbing and overlaying of different sounds and
textures. We soon realised we would need to have a 32-track,
20-channel sound desk to meet the increasing demand, as recording
technology and the evolution of keyboard synthesisers allowed new
forms of musical expression and way-out sounds. We brought in
leading sound specialists Westlake Audio from Los Angeles to design
the studio – with Dolby sound – and bought only the latest kit. The
magic of the Manor was that it was a place where the artists could
be relaxed and hang out after coming out of a studio session. It
was a stimulating place to stay and we kept the wine cellar stocked
up and always went with the flow. If a band wanted a wild party or
a blowout, then it was fine with us. That's what helped the juices
flow. Since then, throughout our businesses, I have always insisted
that Virgin try to create these special places or rooms where
people can become inspired and create their best work.
Almost all of the biggest names in
rock and pop music carved their reputations in that studio. The
Manor taught me how to run a business and handle creative people. I
also learned that not everyone gets what they truly deserve in
life. I listened to some musicians with a modicum of talent who got
a few lucky breaks; others with talent seeping out from every pore
who simply didn't make it. I've sat drinking with people who have
abused their gifts – and others who have made absolutely the most
of some pretty dubious talent.
It is well documented that Mike
Oldfield's debut album, Tubular Bells,
was a breakthrough into the big time for the burgeoning Virgin
empire. Mike was (and still is) a genius. But he was also an
incredibly hard and fastidious worker – and that's something that
takes you a long way in life. I remember first hearing an early
tape of his material on our houseboat and being captivated by its
haunting beauty and complexity. It was mind-blowing that a
fifteen-year-old played all of these instruments so beautifully. We
tried to get some of the record companies interested but they all
had cloth ears and the dinosaur A&R executives turned him
down.
So one afternoon in the pub, I said
to our team: 'Let's do it ourselves. Let's set up our own record
company and release Mike as one of our first LPs on our own Virgin
Record label.'
Everyone thought I'd had one glass
too many. We were still primarily a mail-order business, not a
record company. But I persevered. I asked Mike for a list of the
instruments he needed and went off to Charing Cross Road and rented
them all: drums, synthesisers, guitars and tubular bells. We
arranged for Mike to have time in the recording studio, between
bookings, in the spring of 1973. He worked night and day, playing
all the instruments himself, then sat at the mixing desk with Tom
Newman to fine-tune the recording. I had never witnessed someone
who listened and concentrated so hard or with such acute attention
to acoustic detail.
Our decision to distribute the record
ourselves was shrewd. But it was by no means certain at the time
that the gamble would pay off. Virgin Records was a tiny business
and it lacked the clout and the distribution of other major
players.
Simultaneously, we were releasing
Gong's Radio Gnome Invisible and we
were promoting an avant-garde German rock band called Faust. (In
typical Virgin Records style, we were giving away the album,
The Faust Tapes, for 48p – an album for
the price of a single.) But Gong and Faust were to be mere musical
footnotes compared with Tubular Bells.
Chris Blackwell, who ran Island Records – the company nearest to
our way of thinking – loved Mike's music and offered to distribute
it for us, and even offered to take it off our hands for a
substantial profit.
It was tempting but we decided to do
it all ourselves. It was a game-changing decision and it was
incredibly bold. I'm always apt to take the greater risk:
a bigger risk for a large chunk of the
upside. That's what I learned then, and I still apply a
version of this in business today. It might have been sensible to
let Island do all the grunt work: the advertising, marketing and
delivery to the record shops. But I felt that we had placed our
faith in Mike, and should do this ourselves.
In June 1973, John Peel played the
record on his late-night Radio 1 show, Top
Gear. This was the first time the BBC disc jockey had ever
played a whole side of an LP.
The next morning the phone rang off
the hook with people wanting to lay their hands on the album. It
never stopped ringing.
John Peel was hugely influential –
and so too were the music press. The power of the print medium has
always played a major part in building the Virgin brand. But I
began to understand and appreciate this fully only during the
summer of 1973. While the Gong and Faust reviews were lukewarm,
Mike Oldfield's were sizzlingly hot.
The album remained in the charts for
five years, selling two million copies in the UK alone. Worldwide
this figure was nearer 10 million.
In November 1972, aged twenty-two, I
was speaking to my girlfriend when I penned one of my first
lists.
1. Learn to
fly.
2. Look after
me/you/boat.
3. Entertain
everybody with me.
4. Invite nice
people back.
5. Start getting
the small house together at the Manor.
6. Start buying
odds and sods for the Manor.
7. Work with me
on projects/sort me out.
8. More shops to
be found.
But despite these ambitions it was
obvious we were still a small company thrashing around. Most of us
were still in our early twenties. We needed professional help, and
I began a search for a proper accountant in 1973. I penned the
advert myself:
Virgin Records have, within three years, built up
seventeen shops, two recording studios, a large export company, an
import company, a publishing company, an agency, a management
company, licences in every country in the world, a successful
record company and a friendly staff of 150 people. Virgin Records
don't have a shit-hot accounts
department.
Virgin Records grew to become the
largest independent record label in the world. And, in 1992, after
our abortive time on the stock market in 1987, we sold it to EMI
for a billion dollars.
We sailed pretty close to the wind on
several occasions in the early days. We just about delivered on our
promises, but it was a struggle. Given my time again, though, I'm
not sure I would make any changes to the major decisions we took.
We were feeling our way into what the brand could deliver. We were
waking up to the idea that Virgin's interests lay less in our own
enthusiasm for any one business, and more in giving our customers a
reason to be enthusiastic about the various things that we did.
This, I believe, is why the Virgin model is so devilishly hard for
start-ups to copy. Unless you're working in a magical industry to
start with – and music in the 1970s was certainly magical – it's
hard to see how you can win such loyalty and fellow feeling from
your customers as you develop and expand.
That's not to say it can't be done.
But the Virgins of the future won't look like anything we ever did.
They'll emerge from the gaming industry, or the social-networking
sector, or some area quite unknown to me and my generation. They'll
look contemporary, they'll look odd, they'll thrill the kids, scare
their parents, and they'll take everyone by surprise.
Emma, a sixteen-year-old girl, can't
afford a mobile phone contract. She's just left school and has
started in a hairdressing salon. She isn't earning a lot but she
wants to keep up with her friends. She enjoys flicking through the
celeb mags, watching Friends, likes
Madonna, Janet Jackson and MC Hammer, and she chats regularly to
Mark, her steady boyfriend, who's slightly older. He's just landed
a labouring job with a building contractor, and he supports a
top-flight football club, though he can't afford a season ticket.
He enjoys a few pints of lager with his mates. He likes rap and hip
hop and wants a heavy sound system for a souped-up Toyota, once he
passes his driving test. It's the 1990s. The big phone companies
aren't too interested in Emma and Mark – but we are.
Our entry into the mobile phone
business remains to this day one of our brand's finest
achievements. By offering prepay phones to young people, we were
offering a product that was manifestly not a rip-off, to customers
everyone else was ignoring. This proposition harnessed the brand
values Virgin had acquired in the 1970s and launched them, through
a new medium, at a new generation. This was the moment the Virgin
brand went truly 'mobile', transferring, almost seamlessly, not
simply from one sector to another, but – even more remarkably –
from one age demographic to another.
We love starting new businesses in
unfamiliar sectors, and later in the chapter I'll tell you how our
'branded market venture capital' model really ticks. This business
of leaping generations, however, is something of a miracle to me,
and I'm not entirely sure how much of it is design and how much is
dumb luck. The fact is, our brand has managed to straddle a couple
of generations and is well on the way to capturing the imagination
of a third. Market research shows that the Virgin brand is the most
admired by parents as well as their children. As I get older, the
challenge is going to be to ensure that the next generation admire
the brand, so that we get three generations enjoying what we do. By
then, the power of seventies nostalgia will be expended – and we'll
discover whether the Virgin brand really is timeless!
Our adventures in mobile telephony
began in Japan. I was on a visit, and while I was there I asked
some young people what the latest thing was. They proudly showed me
their mobile phones. The Japanese were streets ahead of the mobile
game and NTT DoCoMo, a spin-off of Nippon Telecom, had launched
mobile phones with limited Internet access. The enthusiasm with
which the young people I met had greeted DoCoMo's online games
provided me with a clear idea of where the mobile phone was
heading. NTT DoCoMo, Japan's largest cellular firm, was the first
to get a mass-market Internet-enabled phone on to the market. We
needed to be in this game, too.
Back in the nineties I was becoming
acutely aware that our kudos with young people was declining as my
own generation was growing older. The kids we once sold records to
were buying holidays, pensions, financial services and healthcare.
That was OK by us – we sold all these things. But what about their
children? Mobile phones – and text messaging – were a booming
market. For 16- to 24-year-olds, these things were becoming like an
extra limb. From a marketing point of view, therefore, the mobile
phone gave us the opportunity to re-establish Virgin in the youth
market. We launched first in the UK in 1999.
We knew we had a great product, and
we knew how to get it out there. We got our pay-as-you-go vouchers
into places where young people found them easy to buy. We courted
WH Smith's, Sainsbury's, Tesco, Texaco and BP petrol
stations.
But we still had to get young
people's attention.
James Kydd, Virgin Mobile's
advertising guru, didn't have a generous budget to spend on
building the brand. (Mind you, we once asked him to go head-to-head
with Coca-Cola, pitting a £4 million budget against Coke's £400
million.) In the mobile battle, the competition was split between
four companies – Vodafone, BT Cellnet, One2One and Orange – and so
the hill James had to climb was a hill
and not, as before, Mount Everest. We reckoned the money stacked
against him was in a ratio of about 3:1. James told me that 3:1 was
doable. I gave him £4 million for the launch.
James aimed specifically at our
target market. He found good news stories that the tabloid
newspapers and other media would report. He used the emerging
Internet channels and viral networks to build a buzz and create a
lot of fun.
At the same time, we had to remain in
the public's eye as the 'consumer's champion', so we took the other
players head-on, challenging Hans Snook, Orange's chief executive,
to put his money where his mouth was when he promised to match our
tariffs. He didn't. Then Virgin Mobile took some swipes at Charles
Dunstone's Carphone Warehouse, urging him to recommend our phones.
Charles, a great sailing and skiing buddy of mine, was big enough
to laugh it off, but I think our in-the-face campaign caused him
some embarrassment at the time.
Vodafone was middle-aged, BT was in
decline, One2One was cheap and Orange – regarded as the gold
standard – was leaning too much towards the business market. So,
when Virgin Mobile addressed the youth market, it had the field
pretty much to itself. It filled the space with the kind of
attitude, wit and irreverence we had cultivated since our early
days at Virgin Records. We offered a blind-dating service which
people loved – we even gave them the option of receiving a phone
call half an hour into the date so they could make an excuse and
bail out – 'So sorry, I have to go – my dog has died!'
Our television adverts were a work of
genius. The creatives came up with the idea of our 'Devil Makes
Work For Idle Thumbs' series, featuring a string of superstars
including Busta Rhymes, Wyclef Jean and Kelis. Each star would have
to be prepared to have a laugh at their own expense. We wanted them
to be funny. They quickly became a cult: and we were back in tune
with urban youth.
The adverts, created by Ben Priest
and directed by Bryan Buckley, were sharp and funny and set a cool
tone for the business. From early on we knew it was working. A key
statistic for us was the acronym ARPU, average revenue per user.
This rose and rose until we had the highest ARPU in the prepay
industry. By the first quarter of 2003, Virgin signed up more
customers than O2, Orange, T-Mobile and Vodafone
combined.
Then in May 2004, as we celebrated
our 4,000,000th customer, we signed up 23-year-old Christina
Aguilera.
The advert, shot in Los Angeles, had
her make fun of her own relationship with the paparazzi. Christina
is waiting in a plush record company office and her thumb idly
moves to the button which operates the 'up' and 'down' motion of
the chair on which she is sitting. Her rising and falling in the
chair is viewed and misconstrued by construction workers on the
other side of the street, who think they have stumbled across the
celebrity sex scandal of the year. We knew we'd hit the money when
real-life paparazzi snuck in to take pictures of her during
filming, generating lurid false reports about the advert before it
was even cold in the can. Thanks, lads – you all helped raise our
profile!
Publicity is
absolutely critical. You have to get your brand out and
about, particularly if you're a consumer-oriented brand. You have
to be willing to use yourself, as well as your advertising budget,
to get your brand on the map. A good PR story is infinitely more
effective than a full-page ad, and a damn sight cheaper. I have an
absolute rule. If CNN rings me up and wants to do an interview with
me, I'll drop everything to do it. Turning down the chance to tell
the world about your brand seems just crazy to me, and it
astonishes me that the very people who sign off on
multimillion-dollar advertising budgets – the CEOs and presidents
of huge corporations – are the very same people who hide behind
their PAs and turn away all journalists at the door.
There can be no doubt that Virgin
Mobile succeeded by delivering on the promise of a unique brand: a
brand that appeals not to any particular demographic, but to an
attitude of mind. The Virgin brand is about irreverence and cheek.
It values plain speaking. It is not miserly, or mercenary. It has a
newcomer's voice – and in a world of constant technical innovation,
the voice of a company that's coming fresh to things is a voice
people find oddly reassuring. It's a brand that says, 'We're in
this together.' I think James Kydd did a brilliant job of realising
those values for a new generation. Can it be done again? I think
so. There's nothing particularly 'seventies' or 'nineties' about
the values I've just listed. The attitude is timeless. It's human.
I like to think it's pretty acute, psychologically. But I'll
concede that if my son Sam, or daughter Holly, decide to join the
business – and I would never want to push them – it would make our
job easier, because then we could have younger faces launching the
products, rather than their middle-aged dad!
Before I tell you about Virgin Blue –
a recent big adventure for the Virgin brand – now is probably as
good a time as any to talk about me. I mean Richard Branson the
public celebrity (or mascot, or scapegoat – I've been all three in
my time).
A large part of the Virgin story has
been my willingness to be a central character in our publicity. I
don't know how many different outfits I've dressed up in during my
business life – probably more than Laurence Olivier. I can thank
Jackie McQuillan, my director of Media Relations, for a great deal
of them. Over the last fifteen years she's dreamed up many costumes
and hair-raising stunts for me – from shaving off my beard and
donning a wedding dress, to dressing up as an Indian prince and
jumping off a building in Mumbai, while playing a drum, to launch
our first ever business in India! I believe the public has enjoyed
the kind of visual stunts we've pulled over the years. The reason
they're enjoyable is that they're very carefully thought through.
They have to be witty. They have to make people smile. They have to
engage the mind as well as the eyes. They have to work in the
telling as well as the witnessing. And they absolutely must convey
the qualities of the brand as well as the message. My near-naked
appearance in Times Square in July 2002 is a good example: to
unveil our partnership with MTV, a division of Viacom, I wore only
a cellphone to cover my nether regions. 'I'm here to physically
prove that Virgin Mobile USA's national cellphone service has
nothing to hide,' I said.
And as we'll see, Virgin's reputation
as a have-a-go company has had one unforeseen but highly valuable
consequence: when things go wrong with our oh-so-carefully
rehearsed stunts, they still convey the brand!
But is it constructive to have so
much attention and focus on the boss of a business? It can
occasionally work against you. As I'll explain later, all that
nonsense in the media about my 'sweetheart deal' with the British
prime minister Gordon Brown, just because we were on the same
plane, did our bid for the troubled Northern Rock bank no favours.
But all in all I think the positives outweigh the negatives. My own
high-profile adventures have not just highlighted the brand,
they've personified it. I've used my success in business to throw
myself into some truly wonderful adventures. The speedboating and
the ballooning were great for the brand because they were real
challenges, undertaken in a spirit that reflected our brand values.
And they were enormous fun. World-record attempts are not
everyone's cup of tea, and wouldn't add value to every brand. The
trick is to find your own way to personify your own brand values; I
think you will feel the advantage.
In general, the media has been
extremely fair to the Virgin brand. We've been able to enliven the
news, features and comment pages with some of our challenges – and
because we have so many consumer-facing businesses there's always a
regular stream of news stories to whet the media's appetite. Our
press people ensure that journalists are invited along to every
product launch and are kept up to speed with our plans. For any
business building a consumer brand, speaking to journalists is part
of the deal. I've met a lot of business people who shy away from
public attention, but I feel the Virgin Group has had a strong
relationship with the media over many years. Besides, I started out
as a fledgling journalist with Student;
I enjoy the company of editors, journalists, writers and public
relations people.
Having said that, I think it is
important for the public relations people to build the profile of
individual companies and their leaders within the wider group.
Steve Ridgway is the chief executive of Virgin Atlantic Airways and
he remains in the background – usually with a smile on his face –
when I'm making an announcement or undertaking a media stunt. But
Steve is also happy to appear in feature articles and business
trade magazines that are relevant to promote the airline. That's
the way it should be and I'm pleased that all the chief executives
of the Virgin Group companies work hard at promoting the
brand.
I was jet-lagged after a fourteen-hour
flight and taken straight off the plane. A whirling helicopter was
waiting for me on the tarmac at the private aviation centre. I
thought for a moment I might be hitching a quick trip to my hotel,
but I was mistaken.
One of the Virgin team put a harness
around me and over my head, strapped me in tight, and clipped me to
a wire rope. I was about to get a bumper adrenalin rush which blew
away any lingering yawns from the flight.
My arrival into Australia was
bum-tightening. It was the closest I've ever been to flying like a
bird. I can assure you it's not the normal route for our Virgin
airline passengers arriving at the Kingsford Smith airport and
heading to downtown Sydney. I was hauled off the ground, dangling
100 feet underneath the helicopter as we rose higher and higher
above the skyline. It was a spectacular way to arrive, like Peter
Pan flying over London. Instead of Big Ben and the Houses of
Parliament, I could see girls sunbathing on Bondi Beach, and
surfers gliding along in the aquamarine waters below. The aerial
tour took me over Sydney Harbour Bridge, and I was so close, my
shoes nearly scuffed the top of the arch. We went whizzing past the
Sydney Opera House, with dozens of people waving up at me, and
landed at Custom House Quay, and the waiting pack of media. I was
supposed to be telling them about the launch of Virgin Mobile
Australia. I took a deep breath.
Every time I go to Australia it's
full on. I've waterskied behind an airship in shark-infested water,
been rescued by the Bondi Beach babes, bantered with radio host
Rosso, of Merrick and Rosso fame, handed out the choc ices at V
Festival – all the normal things that a chairman should get up to,
but very rarely does.
I'm regularly asked what I've learned
about doing business down under. Has the experience of setting up
Virgin Blue been different in Australia to elsewhere? The answer is
yes; it has been different – and highly rewarding too.
I think Australians warm to the idea
of the Virgin brand more than any other nation in the world – and
that includes Britain. Even before Virgin Blue took off, the Virgin
brand had 94 per cent recognition in the country, perhaps created
in some way by my ballooning and powerboating activities and my
autobiography, Losing My Virginity,
which has sold well in Australia. In 2008, Virgin Blue was listed
as one of the top ten brands in the Asia-Pacific region, and one of
the top five most trusted brands in Australia.
I've tried to work out why the Virgin
brand should have struck such a chord with the Australian people,
and I think it's because having fun is an unofficial national sport
there. The outlook of most Australians isn't parochial. Many have
been off backpacking around the globe and doing their own thing
before settling down. The Aussies don't like unnecessary
regulations or petty officiousness, and they are prepared to work
their socks off, then go and party like there's no
tomorrow.
I've always tended to think of Virgin
as a youthful brand (not a 'youth brand': that's a different,
narrower idea). In Australia, though, I don't think Virgin's brand
values carry the same connotations about age. I think everyone gets
it, straight away, without worrying about whether our offering is
for their generation or not.
Given Virgin's growing maturity, and
the ever increasing distance we're putting between our current
businesses and memories of our progressive-rock roots, Virgin's
welcome in Australia is reassuring. It convinces me that our
cross-generational appeal isn't a fluke, and that our offering is
pretty much universally welcomed.
It's been fascinating to see how the
Virgin brand interacts with other aspects of the Australian
national character. When you compete against Australians, it's
hardball, but usually scrupulously fair. They also like the
underdog and most of our businesses in Australia fitted that model,
even though Virgin, as a group, now employs thousands of people
down under. Part of the Australian sporting ethos is to play tough
and during any game drive your competitor into the ground as hard
as you can and then have a few beers afterwards with your opponent
and celebrate – or commiserate – in friendship. 'No hard feelings,
mate,' is a widespread Aussie expression after a tussle. That's the
Virgin way, too – though we'd never thought of the brand in quite
those terms when we started. So it may be that the Virgin Blue
experience is adding a further meaning to the Virgin
brand.
The ordinary Australian – and New
Zealander – deserves a good deal. They work hard for their pay and
hate being ripped off, but for years they knew that Qantas, their
national carrier, the now defunct Ansett and Air New Zealand just
weren't giving value for money.
I have always said that I love
tackling lazy industries: Qantas and Ansett are good airlines but
they had a duopoly ripe for challenge. In August 1999 we announced
our intention of setting up an Australian domestic airline. We had
A$10 million of capital to invest.
At the time of writing, in 2008,
Virgin Blue has 32 per cent of the air-travel market in Australia,
with over 2,200 flights per week to twenty-two domestic
destinations. It has expanded into New Zealand as Pacific Blue, it
flies in Tonga, Samoa and Fiji as Polynesian Blue, and is planning
to fly to the United States as V Australia.
In under ten years we have built an
airline that Australians, New Zealanders and Polynesian islanders
really seem to love, and there's an infectious spirit every time I
step on board one of our planes.
Virgin Blue was the brainchild of
Australian Brett Godfrey, whose dad worked for Qantas, and Rob
Sherrard (who set up Sherrard Aviation and gave Brett his first job
as an accountant). They jotted their idea on the back of some beer
mats in 1993. Brett had walked around with this stack of cardboard
in his back pocket for several years before he approached me. It's
strange that some of the best ideas in life emerge after some
liquid lubrication!
Brett first came to my attention when
he wrote a brilliant reply to an article that was hostile to our
European carrier, Virgin Express. It encapsulated my thoughts
exactly, and stuck in my mind for a long time.
By 1999, Brett was Virgin Express's
chief financial officer. We'd gone through three CEOs, and Brett
had been acting chief operating officer, so by now he knew all the
snags and problems of the airline business up close. He was
incredibly hard-working, and had a great way of getting along with
people. His force of personality had smoothed over some sticky
situations.
So, one Thursday evening, I phoned
Brett to offer him the job as head of Virgin Express, staying on in
Brussels. He was polite, but turned me down. He said he wanted to
quit because he now had two young children, Ryan and Nicholas, with
his wife, Zahra, and wanted to return to Australia.
I said: 'If you want to do anything
in Australia let me know and we'll see what we can
do.'
'Funny you should say that,' was his
reply. And he proceeded to tell me about his plan for a low-cost
airline in Australia.
'Well, why don't you put a plan
together? I'll have a look at it,' I said.
Brett went home that evening, dusted
down his proposal, and got one of his colleagues to fly to Oxford
next morning to deliver the plan. I read it and phoned him the next
evening. Brett's idea had already been rejected by the Virgin
executive team in London. But I believed there was value in this
case. He told me I was the first person who shared his vision and
that he had almost given up on his idea. I asked him to look at
five outstanding issues and then get back to me. My questions were
about slots, good aeroplanes, terminals, ticketing and staff and
pilots. Brett went off to Australia and returned within a week with
all the answers nailed down. After speaking with our team I said:
'Screw it, let's do it.'
There was a handshake. I said I would
give him A$10 million, and the next day it was deposited into his
bank account. (His bank manager phoned him up, thinking it was a
mistake!)
Brett had already garnered support
from Queensland's government, led by Peter Beattie, which would
help with the marketing of this untapped tourist region. This was a
great stroke of luck – all of the regional capitals in Australia
were keen for a new airline to be based in their states, but
Brisbane, along with Perth, was the fastest growing part of
Australia, with the Sunshine Coast a huge attraction. The payroll
tax was better than elsewhere, and so too were the beaches. When we
launched we had 12,000 CVs from people all wanting to relocate to
Queensland!
When the American low-cost carrier
JetBlue was set up, it had a budget of $120 million. Brett's budget
of A$10 million was extremely tight, but he had done his homework.
He knew that Compass, Australia's first budget airline, which was
under-capitalised, collapsed and died in December 1991, squeezed
out by Ansett and Qantas in a price war. Compass boss Bryan Gray
gave us an indication of what to do – and where it all went wrong.
We didn't need to repeat his mistakes. And what followed was as
perfect an example of Virgin's 'branded venture capitalism' in
action as you could want, and also a good illustration of why it is
sometimes better to follow a pioneer than be a
pioneer.
Rumours started to fly about a new
entrant in the domestic airline market, and on 30 November 1999, at
a press conference in Custom House Quay, Brett's backer was
revealed. It was Virgin. We had kept our deal under wraps
brilliantly and caught the market on the hop. A one-way fare from
Brisbane to Sydney, which had cost A$150 each way, would now be
less than A$100. ASX, the Australian stock exchange, went mad. A$2
billion was wiped off Qantas's stock price. Brett and I joked that
if we had thought to take a hedging position on the fall in
Qantas's shares, we could have already recouped our start-up
costs.
We both knew that Qantas was one of
the best-run airlines in the world – but they had become very cosy
with their duopoly with Ansett. Virgin Blue simply had to be
different. Our culture would be the point of differentiation – and
no one could copy the Virgin culture.
From day one, Brett was on the
lookout for people with no previous airline experience. The
advertising for Virgin Blue was along the lines of: 'If you've got
purple hair and you're working in a butcher's shop and you can
still smile after a tough day, you're the kind of cabin crew we're
looking for.' His whole approach reminded me of the tone we set for
publicity at Virgin Music. It was direct, informal and genuinely
informative.
And, of course, these were exactly
the qualities he was looking for in his people. A genuine smile is
impossible to fake for very long, and we needed people who were
prepared to smile. The job of an airline cabin crew is arduous.
You're standing for ten hours a day, in confined spaces, dealing
with the public. At least the pilots get to sit down and don't have
to face the passengers. But a cabin-crew member has to have the
right spirit to deal with customers who have lost their bags,
missed their flights or spilt red wine over their white sundress.
On Virgin Blue, Brett and his team called his cabin staff
'guest-facing crew' and he worked hard to get their ethos right. I
remember telling him once that his Virgin staff were more Virgin
than anywhere else in the business. Admittedly the morning after a
great party with them! I would have said the same about Virgin
Atlantic staff the morning after the night before!
Once I was asked by an Australian
reporter why we had decided to call our new airline Virgin Blue
when the Virgin symbol was red. The fact was we'd run a
competition, and some people had sent this idea in to take the
mickey. Since in Australia a redhead is known as a 'bluey' we
thought, Hang on, that's quite clever. Let's make our red planes
Blues.
We're by no means the only company to
gently mock our own brand, and the strategy is often very
effective. You do need years of successful delivery before it's
worth doing, but the idea is a sound one. It shows that you're
comfortable with your public. Some commentators complain that
Virgin's chumminess is a bit hard to take, given our global reach.
On the contrary, I think the public are pretty smart. They know how
big we are. They see our planes in the sky. I think the public are
irritated far more by pompousness and cant, and so it's much better
to make gentle jokes at your own expense than to make out you're
more important than you are.
Back in March 2000, Brett was still
talking about starting slowly, with only a dozen people, including
director of communications and third founder, David Huttner. But
the momentum took hold. By August we had 350 staff and we were
ready to take to the skies. We wanted to be ready in time for the
Sydney Olympics, due to start on 15 September, but we were burning
through our cash. Manny Gill, the finance director, went to see
Brett to tell him there was nothing left in the coffers and they
couldn't afford to pay the wages. Brett was shrewd: he had set up a
separate account and tucked away a spare million for exactly this
eventuality, and Manny was able to run the payroll.
We needed new planes and Brett had to
deal with this too. Our first planes were leased but later we also
decided to buy ten New Generation Boeing 737s, delivered brand
spanking new from Seattle. A few days later I received my daily
phone call from Brett. The cheeriness was gone from his voice, and
I sensed his nervousness.
'Richard, I've a cheque in front of
me for $A600 million. Are you sure you want me to sign it? The
biggest cheque I've signed before was for my
mortgage.'
'Brett?'
'Yes, Richard?'
'Just sign the bloody
cheque.'
Our initial sales projection had us
reaching profit within three years, but we overtook those goals
sooner than we expected. Brett wanted to enter the New Zealand
market after Air New Zealand's subsidiary, Freedom Air, began a
service from Tasmania to Brisbane. This allowed us to launch
Pacific Blue, operating out of New Zealand and flying from
Christchurch to Brisbane.
The idea was simple: to fly directly,
point to point, rather than herd passengers unnecessarily through a
larger hub airport. This 'hub-busting' approach made life far
easier for the customer, and since our new planes were extremely
reliable, there were huge efficiency gains. Within four years,
Virgin Blue was flying forty-one Boeing 737s, the packhorses of the
worldwide expansion of budget flying, and we had 3,000 people on
our payroll and more than 30 per cent of the market. It was a
considerable achievement.
The day of the launch was 31 August
2000 at 10 a.m. The flight was packed and Brett, Rob and the team
took a leaf out of my book and began a tradition of dressing up.
They arrived as the Blues Brothers. I wish I could have seen the
expression on the face of Geoff Dixon, Qantas's CEO, when he heard
that. Here were his only serious rivals, taking the piss out of
themselves, and everybody – crew, press and passengers – was loving
them for it.
A year in, and we were going
head-to-head with Qantas and Ansett. We knew we were hurting them.
They were running into a lot of difficulties. Virgin Blue, the new
kid on the block, was roughing up the market.
From the start, Virgin Blue was the
airline of the Internet. If you wanted to fly, the cheapest way was
booking over the Net. Qantas and Ansett, with their legacy systems
and relationship with travel agents, took around 2–3 per cent of
their bookings on the Net. Virgin Blue's Internet bookings were 60
per cent of the total at the launch, and 92 per cent within six
months. The Net was easier to use, and because the transaction fees
were minimal for us, this gave us an edge on costs.
Then, in June 2001, we received an
unsolicited offer for Virgin Blue. Brett was approached by Gary
Toomey, Air New Zealand's CEO, and they had dinner at the
Chairman's Club Lounge in Melbourne – an opulent place with its
gold-plated toilet seats. They chatted away and Brett said that he
would definitely listen to any offer, and wanted to keep the
channels open if there was any way they might work together. A few
weeks later, Brett was invited to catch up with Gary again at the
Crown Casino in Melbourne, a popular haunt for big dealmakers.
Before their hors d'oeuvres were ordered, Gary offered him $70
million for the airline. Brett, as quick as a flash, asked if this
was US dollars. 'Of course,' replied Gary.
That was A$120 million.
When Brett finished supper he phoned
me with this info. It meant that at least we had a valuation for
the business on the table. As far as the wider Virgin Group's
position was concerned, it would have been a good time to realise
some of the investment but, in truth, it was far too early to
contemplate.
We turned down the offer but it
wasn't long before we had another, more significant approach. The
chief executive of Singapore Airlines, Dr C K Cheong, called me up.
I knew him well. In December 1999, we sold a 49 per cent stake of
Virgin Atlantic to Singapore Airlines for £600 million, using the
proceeds to invest elsewhere within the Virgin Group.
Singapore Airlines had a 20 per cent
stake in Air New Zealand – and Air New Zealand owned Ansett. We
knew that Ansett was in deep trouble. Air New Zealand had bought it
for too much money, only to discover it couldn't afford the number
of planes necessary to replace Ansett's ageing fleet. Given
Ansett's troubles, it didn't surprise us that Cheong wanted Virgin
Blue out of the way.
What startled us was his offer.
'Look,' he said to me, 'it only cost you A$10 million to launch
Virgin Blue last year. Now I'll give you A$250 million for the
company. But you have to give me a decision by tomorrow morning. If
you don't say yes, we'll put massive investment into Ansett, and
put Virgin Blue out of business within six months.'
Cheong was our new partner. And this
was a friendly conversation! But Virgin Blue was a fantastic
airline. It was really making a difference in Australia. It was a
fun airline to have a stake in. It had the best cabin crew,
wonderful new planes and everyone thought the world of it. So we
had a dilemma. On the one hand we had this amazing offer – it
really was a fantastic return on the money we had invested. On the
other hand the business had massive potential and the public and
the staff relied on us.
Brett understood the position. He
knew that I might sell at this stage. We met up in Brisbane and had
a long chat. We walked around the hotel room all evening,
discussing the different options. There was something fishy in all
this. Why were Singapore so desperate to get rid of us? Why were
they willing to hurl their money down the bottomless pit that was
Ansett, just in order to destroy Virgin Blue? They were our
partners. They had taken a stake in Virgin Atlantic. I couldn't
figure out their intentions.
My executive team was keen that I
sell up and take the money, but my instinct was to run the other
way. As I've explained, for a good slice of the upside, I'll
generally accept the greater risk. Then Brett called up his
supporters and they came round to see me to try to persuade me to
hold on and build the company. On the way back to the hotel lift I
took Brett aside and said, 'You know, you didn't need the posse:
I'm not going to sell.'
Then the fax arrived. And we were
back to square one.
Quarter of a
billion Australian dollars. There it was, Cheong's offer, in
black and white. Brett and I sat there staring at it. This was
twenty-five times the amount it had
cost us to create, less than a year ago. Were we going
mad?
I rang up Andy Cumming, our corporate
director at Lloyds TSB in London. I told him we had an offer of
A$250 million on the table and that we could sell tomorrow, but we
wanted to keep hold of the airline. If we turned this lucrative
deal down, would the bank still support us?
Andy and many of his bank colleagues
have been very helpful allowing us to grow and prosper. They knew
the score. Andy said our other projects were safe – we still had
their backing.
Then we went back to the sofa and
stared some more at the fax.
The next morning we made our
decision. We called a major press conference, with dozens of TV
cameras and most of the Australian press, at the terminal in
Brisbane. There was hush when I stood up.
'Hi, everyone. I've got some good
news and some bad news. The good news is that I have this cheque
for A$250 million.' I held it up. (The cheque was a prop, written
out on a Qantas Savings Bank cheque belonging to one of the airport
managers.) 'And I'm back off to England. Obviously, we've had a
fantastic time in Australia. It's sad that we are selling out today
– it's an offer we can't refuse.'
Some Virgin Blue girls broke down in
tears. I was so startled I forgot my lines. Before I could recover
myself an Associated Press reporter rushed out of the hall to file
her story. This news would be around the world in a matter of
minutes. 'Only joking!' I cried, ripping the cheque up into tiny
pieces. I threw them up into the air. 'There is no way we would sell out.'
There were cheers and loud hurrahs.
The AP reporter heard the commotion, came back and went white.
'I'll lose my job because of that!'
I got down on my hands and knees and
kissed her feet.
The night before, as we sat there
staring at that fax, Brett and I had become more and more convinced
that something was fishy. Singapore Airlines just seemed
too desperate to get rid of us in
Australia and New Zealand. Why would they throw good money after
bad, propping up an obviously ailing company like
Ansett?
We came to the conclusion that
Singapore Airlines had no intention of propping up Ansett. Ansett's
only hope was if we could be made to blink, and give up Virgin Blue
in return for cash.
The very next day they decided to
pull the plug on Ansett, and on 13 September 2001 the company was
placed into voluntary administration and the fleet was grounded.
Competition from Virgin Blue and the shock of September 11 and the
attack on the Twin Towers in New York City knocked the last breath
out of them.
More than 16,000 people lost their
jobs – the largest single loss of jobs in Australian history. The
Ansett collapse became a political issue in the Australian election
campaign of 2001. Kim Beazley, the Labor opposition leader, made a
promise to keep the airline going and subsidise the jobs. But this
brought a challenge from John Howard, the Liberal leader, who said
that the free market should dictate and propping up a dying airline
wasn't good for Australia. Howard's coalition victory with the
National Party put paid to any plans to restart
Ansett.
The black irony of September 11 was
that many Australians stopped travelling abroad because of fears of
terrorism. Instead they turned, en masse, to their own country for
holidays in the outbackyard, Cairns and the Gold Coast. As a
result, Virgin Blue – with no competition from Ansett – doubled its
fleet in six months, then doubled it again, and doubled it again.
Its thirty-six aircraft were nearly 100 per cent full, since many
chose not to go to Europe or the US.
In terms of productivity, Virgin Blue
was streets ahead in the efficiency stakes: while Ansett had
carried 10 million passengers at its peak with 16,000 staff, Virgin
Blue was employing 4,000 people to carry 15 million.
'Virgin Blue is a
lot of media hype.'
'The market is
not big enough to sustain Virgin Blue.'
'Virgin Blue
doesn't have deep enough pockets to cope.'
'Qantas will
employ any options to see off the interloper.'
'They'll be
unlikely to survive a year.'
'Claims by
Richard Branson that domestic fares are high are
misleading.'
This was a range of opinions from
senior airline executives quoted in a number of press interviews.
We were certainly beginning to make waves in some Qantas back room
or other. When I announced we had been given the British rights to
fly to Australia (all that was left was for the Australian
government to grant us landing rights), a scathing article in the
Australian Financial Review said that
our plans were a 'lot of hot air'.
Enough was enough. In 2003, I wrote a
letter to the Australian.
I'm willing to
lay down the following challenge to Geoff Dixon. If Virgin Atlantic
is flying to Australia within 18 months he'll agree to eat humble
pie by flying on our inaugural dressed as one of our stewardesses
serving our customers throughout the flight. If I'm not flying to
Australia by December next year I'll be prepared to do the same on
a Qantas plane from London to Australia.
I enclosed a mock-up picture of
Geoff's head on top of a Virgin stewardess's shapely
body.
Geoff's reply was curt. 'We're
running an airline – not a circus.'
Qantas shares promptly dropped 3 per
cent.
Virgin Atlantic began flying into
Australia in December 2004. And Geoff never did wear the
outfit!
Brett is fastidious about his baby. A
few weeks before Virgin Blue was floated on the Australian stock
exchange, a group of financial journalists were waiting to
interview him about the numbers. He was due off the flight from
Brisbane to Sydney but there was no show as the last stragglers
came down the exit ramp. An airport staffer was sent to collect
him. He was on the flight, but he was helping attendants vacuum the
aisles, remove the dirty drinks cups and recross the seat belts to
ensure a faster turnaround. He knew that punctuality was the key to
successful business – and flotation.
On Thursday 13 November 2003, Brett
and I were partying hard with a crowd of Virgin Blue people at the
Loft cocktail bar in Darling Harbour. We staggered out at 4 a.m.
Three hours later, and under the harsh lights of a television crew
that had followed us throughout the process, we set off for
meetings with bankers and investors.
My meeting with Goldman Sachs a few
days later was one of the most encouraging I have ever had in
business. The Virgin Blue flotation was eleven times
oversubscribed. Two hundred and fifty institutional investors were
demanding 3.8 billion shares! Impishly, I wondered if I should call
for Geoff Dixon to raise the white flag on his own
business.
On 8 December 2003, the day we
floated Virgin Blue on ASX, we had a market capitalisation of A$2.3
billion. Virgin's return on its investment was staggering. But what
was even more satisfying for me was seeing Brett, the founding
partner, and his team also reaping the rewards of Virgin Blue's
success.
Brett's share was A$80 million.
Today, he is one of the richest Australians under the age of
forty-five, thanks to the millions he made from the flotation. Ask
him why he doesn't want to go and retire to a Queensland beach, and
he just shakes his head. He can see the opportunities ahead, when
Virgin starts flying from Australia to the United States. And
besides, he still loves running Virgin Blue.
Maintaining a consistent tone in the
face of rapid growth was a key requirement – and here, brand values
helped enormously. I think Brett's naturally a Virgin sort of
person. Had he never worked with us, his thinking would not be
radically different today. But I believe thinking about the Virgin
brand enabled him to focus, and to convey values quickly and
efficiently to his colleagues and his staff.
The business now employs over 4,200
people – and it is difficult to get around to everybody – but Brett
insists on speaking at every induction course to new recruits. At
these sessions he is refreshingly honest. He says that a cabin crew
member's job can be tiring. If a person has the temperament to
smile, stick with it and enjoy it, then that's fine; but he won't
throw money at people because they're miserable. He believes it's
ludicrous to pay people inflated salaries in order for them to have
a bad time in a service job they hate. Look, he says, give it three
years or so, then decide. If you like it, stay on – but if you
don't then life's too short.
Brett recently recalled to me, 'I was
adamant when we started this airline that we would do it from
scratch. There was an airline in New Zealand for sale and we didn't
want to go near it. I felt we had to start with our own. Our
airline wouldn't have been ours if we bought someone else's
baggage.' (It's a point discussed earlier: you can't restructure
culture. If you've burnt people, if you've killed their enthusiasm
or commitment, then changing office spaces or putting a few more
dollars in their pocket will not unduly affect the culture that
exists.)
At the time of writing this book, the
aviation industry is facing global issues that are more challenging
than at any time I have known. Virgin Blue and Qantas share prices
have fallen and both are having to reduce capacity and look to cut
costs to meet our soaring fuel bills. This is the time when a
management team really have to prove how strong they are, and show
calm leadership and good judgement. I think Virgin Blue was
Qantas's wake-up call, and in Geoff they had a talented and capable
CEO who has done the job that needed doing. On the other hand, the
story of Virgin Blue has been one of bold expansion and great
delivery; now, in order to weather these storms, Brett and his team
will have to show other qualities, such as protecting your downside
and assessing risk.
Now, Virgin Blue is its own, unique
proposition. The understanding of the Virgin brand is very strong,
and they've taken it and run with it. They've hybridised the Virgin
brand with their own national culture to produce something exciting
and different – though I have to say success has not made Brett any
less cheeky.
On Saturday 29 March 2008, we held a
ball for 3,000 people in our massive hangar in Brisbane, a
twenty-minute ride from the city centre. Before the big event, I
was invited to Brett's home for a VIP reception in the garden. I
was a bit precoccupied that afternoon. I had just returned from
Makepeace Island, which is being developed as a holiday destination
for Virgin Blue staff, family and friends. It's a wonderful
tropical island, teeming with wildlife. I had just been given a
briefing about a campaign that was hotting up on the island. I was
told that Makepeace was the indigenous home of the Queensland tree
frog and that this was a protected species. Our plans for the
island were endangering the frog and this was causing upset in the
local community. I'd been told that there might well be a protest
at Brett's VIP party, but that I didn't have to worry because the
police would cordon it off. I presumed it was all under control,
but the idea that we might have slipped up so badly over a hot
ecological matter was concerning. Was I really so out of touch? I'd
never even heard of the Queensland tree frog. Neither had anyone
around me. Was I getting sound advice?
So there we all were, in Brett's
garden, with several major politicians, including Australia's
Federal Treasurer Wayne Swan, when, at 4.40 p.m. exactly, Brett
took a call on his mobile.
He turned to me and said: 'Do you
know anything about this, Richard? There are some protesters
heading towards the house with placards and banners.'
I told Brett about the frogs on
Makepeace. 'They're Queensland tree frogs,' I said.
Brett whistled through his
teeth.
'What?' I said.
'Did you say Queensland tree frogs?'
'Yes. What?'
Just at that moment there was a
commotion outside on the street and a security guard came bursting
through to say that the protesters were heading for the garden.
Within minutes, there was a band waving banners and shouting:
'Makepeace not war on the tree frog' and 'Sir Richard – shame on
you.'
Brett said: 'Richard, we've got to
deal with these protesters and talk to them.'
I just froze.
'Richard, you have to talk to them.
It's the Queensland tree frog for
goodness' sake.'
I couldn't think how to respond. But
Brett stepped forward and I realised, with a sinking heart, that I
had to give him moral support. I strode up beside him. Locking eyes
with me, the protesters turned their protest signs
around.
The placards read: 'You've Been Punked, Love Brett.'
*
In 1973 the economist Ernest Friedrich
Schumacher penned a collection of essays under the title 'Small is
Beautiful'. It became a credo that was adopted by many as an
antidote to the large conglomerates that ruled the business world.
E F Schumacher was a great thinker, who made some exact
predictions. He pointed to the end of fossil fuels and wrote that
the West was consuming too large a proportion of the world's
precious natural resources. He believed multinational corporations
and heavy industrial conglomerates used up a vast amount of the
world's resources yet accomplished little. He was one of the first
people to point us in the direction of a sustainable
world.
When I read his work again in 1999 I
wanted to find a positive direction for the Virgin Group. And I
came to the conclusion that there was little purpose in us trying
to become the biggest brand in the world. It was much more valuable
to become the most respected.
Once I would take a look at any
business opportunity where the customer was being poorly served.
Now the Virgin Group has more of a geographical focus. Today's
priorities for the Virgin Group are transport and tourism,
communications and media, financial services, leisure,
entertainment and music, health and well-being, and renewable
energy and the environment. Not every Virgin business has been a
soaraway success. But we've learned along the way. We've learned to
improve what was already on offer and to look for areas where the
consumer deserved better. We've learned to ride our
luck.
We are now a 'branded venture
capital' company, and – given the importance of the word 'brand' in
that definition – I think now is a good moment to say something
about how we arrived at this way of doing things.
In 1989, I asked Will Whitehorn, our
former director of communications (now head of Virgin Galactic), to
take a look at how companies similar to ours operated. We began to
look at different types of business organisation, to see what
suited a company such as Virgin. Will's report crystallised our
options very neatly, identifying three models of corporate
governance we should study further.
America was home to the equity
investment option. Big equity investors like Berkshire Hathaway
(owned by Warren Buffett, the world's richest man), Blackstone and
the Texas Pacific Group took a large share of traditional
businesses that had good cash flows, and this proved to be an
excellent way of making money for investors, including mutual funds
and pensions. The Texas Pacific Group, for example, had stakes in
Continental Airlines, Burger King, MGM and the Carlyle Group, one
of the world's leading private equity groups.
As a sure-fire way of turning a
healthy profit, the equity investment option left us curiously
unmoved. It certainly didn't sit easily with the energetic Virgin
brand. These groups tend to sit back and simply provide capital.
That's not the Virgin way of doing things. We like to get our hands
dirty. There were aspects of its organisation that we liked – it
could respond quickly to changes in the market, and bail itself out
of trouble fast. But it seemed a bit anonymous for our taste, and
altogether too concerned for its own well-being.
The second business model Will
identified came from South Korea. There, big business is conducted
through 'chaebols', which are chiefly responsible for the nation's
remarkable economic progress. The chaebol is usually controlled by a founding family,
and its ownership is centralised. It is, at its heart, an
old-fashioned family business – probably a manufacturing company –
with subsidiary companies providing it with components. Companies
such as Samsung, Hyundai and LG operate a range of businesses, from
computer-chip manufacture to laptops, phones, PCs and motor cars.
This makes the chaebol powerful in
certain key industries – computers in particular. However, we saw
that its 'family' structure made it difficult for it to raise vital
funds at short notice. These companies tended to look after their
own; and capital didn't flow so easily between them (an image with
which we are all painfully familiar, as we cope with the 2008
global 'credit crunch').
Will's third business model came from
Japan. I have admired the Japanese technological revolution ever
since I was running Virgin Records shops. In 1971, Japan was one of
the first countries we exported records to, and I went out and
launched a joint venture business there. Our Virgin Megastores were
first into computer games and consoles with SEGA Nintendo, Atari
and Sony PlayStation, all keen supporters of Virgin. And what I
learned about the Japanese way of doing business has had a strong
impact on us.
Before the Second World War, Japan
was controlled by a few major conglomerates under the system of
zaibatsu. The zaibatsu were disbanded by the Allies because they
wielded excessive political power, and their machine tools for
making armaments and munitions were converted to the manufacture of
items such as sewing machines, cameras and motorbikes. From these
ploughshared industries, and excellent loans from Japanese banks,
the keiretsu emerged, and they have
since taken world leadership positions in a surprising number of
industries.
In 1984, in a Fortune listing of the largest 500 non-US
industrial corporations, 146 were Japanese. Twenty-eight of the 100
largest commercial banks outside of the US were Japanese – with
Japanese banks filling the top four spots. Toyota and Nissan became
the third and fourth largest car manufacturers behind General
Motors and Ford. Nippon Steel was larger than US Steel. Hitachi and
Mitsushita Electric were second and third behind General Electric,
and bigger than Philips and Siemens.
When I started in business there were
around half a dozen major keiretsu in
Japan, and I have had business dealings with almost all of them in
some way over the last thirty-five years. Where chaebols have a centralised ownership, keiretsu are held together by cross-shareholdings,
and governed by a strong group of professional managers. So, for
example, we have a company like Mitsubishi, set up around the
Mitsubishi Bank, and working in a host of industries from cars
through to brewing, oil, real estate and heavy industry. All of its
companies are woven together, yet each is
self-contained.
I liked the fact that the
keiretsu employed a lot of different
corporate structures. Indeed, both chaebols and keiretsu
were tempting models to adopt – were it not for the fact that they
were so impossibly complicated for us to implement. On the one hand
it was hard to see how Virgin could behave as a chaebol-like extended family network, given – well
– we weren't really a family. As
people, we certainly tried to behave well and responsibly to each
other, but past that point the family metaphor began to break down.
It suited neither our flexible way of working, nor the freedom each
company enjoyed to pursue its own projects, nor the dizzying rate
at which our top people joined, left, rang us up, worked with us
again for a bit, vanished again, rang us up . . .
Keiretsu
presented us with a different problem. All these
cross-shareholdings meant that everyone was working out of each
other's back pockets, whether they wanted to or not. It meant we
couldn't shed businesses without a lot of pain and, by the same
token, our businesses couldn't build up their own head of steam
without a lot of interference. Turn us into a keiretsu, and I could imagine all 300 companies in
the group advising and cautioning each other to death. We'd
disappear up our own internal politics in seconds.
We wanted to do something that was
like a hands-off keiretsu – something
with venture capital corporate governance. This is where the
American private equity model came in. We realised that, rather
than tie ourselves in knots with cross-shareholdings like a
keiretsu, we could emulate the best of
American private equity companies, investing in all our companies
like classic Western venture capitalists.
So we were back to the venture
capital model again.
For a little while there, it felt as
though we were going round in circles – but then it began to dawn
on us. What would separate us from all the other venture
capitalists and private equity houses out there? Our brand. Our worldwide brand name both advantaged
our businesses, and bound them together. The solution had been
staring us in the face all the time. Indeed, it was already in
place and working well. We didn't need cross-holdings, or strong
family structures: we had a
flag.
The bonding power of the Virgin brand
has permitted us to take the bold decision to give everyone the
opportunity to be entrepreneurs in their own right. It is a flag to
which all members of our extended family pay due respect. They
enjoy the advantages of doing business under the Virgin umbrella,
and in return they agree to protect the integrity of the brand. If
they don't, then we can legally withdraw the name. Everybody fights
for their own particular Virgin company – and shares in the upside
when things go well.
The story of Virgin Active's growth
is, in many ways, one of the best examples of Virgin's branded
venture capitalism at work.
In 1997, I was approached by Frank
Reed and Matthew Bucknall with an idea to set up Virgin health
clubs. The pair had just sold their company, LivingWell, to Hilton
hotels and they wanted to have another crack at building a health
club business with a difference. They felt that together with
Virgin they could bring a sense of fun, value for money and quality
to a market that was disappointing the customer.
Some of the existing UK health clubs
were a little tired, the membership fees too restrictive and the
service unfriendly. In a way it was not so dissimilar to the
airline industry that we had launched against in 1984.
Frank and Matthew spent two years
researching and developing a Virgin product that would stand out
from the crowd. The market seemed overcrowded to many and Virgin
Active (as the business was called) would have to pass the test
with our team.
To their credit they managed it – the
large family-friendly clubs hit the spot. In August 1999 we opened
the first one in Preston. It was much bigger than the average UK
health club and had that sense of fun and value for money which is
core to so much of what we do.
The combination of strong and
independent management, the brand, great delivery and ambitious
staff has been a real recipe for success. In an industry which has
had its difficulties, we have continued to grow both in the UK and
internationally.
Our big break, for example, was the
acquisition of South Africa's Health and Racquet chain, which
catapulted the business from a small UK operator to the leading
player in South Africa.
Many of our successful businesses
have been built from the ground up – employing new people rather
than converting existing companies. However, in the case of Virgin
Active, we have been able to do both. It is a credit to the
management team that we have been able to buy clubs in Spain and
the UK, and rebrand them and re-energise staff to do things the
Virgin way.
The takeover of Holmes Place in the
UK – for so long one of the leading health-club brands – is a great
example. Matthew and Patrick McCall saw an opportunity to
reinvigorate the business and give it the Virgin treatment.
Conscious that we would want to spend money rebranding and updating
the clubs, Patrick persuaded the investors in Holmes Place to take
shares in Virgin Active and come along with us for the
ride.
One of these was Bridgepoint, who had
been our partners in the earlier development of Virgin Active and
had sold out once but were now happy to reinvest at a higher price.
I think they would have been pleased – today the company is one of
the top three health-club chains in the world and it is currently
expanding in Italy, Spain, Portugal and Dubai.
Virgin Active still retains that
spirit of entrepreneurship, independent thinking and commitment
that first attracted us, and has built up a strong brand in its own
right. To me, it is proof of how if one picks the right management
– and gives them autonomy and resources – they will create a
world-class business.
We've never let a Virgin company go
bankrupt even though we've had one or two companies that we'd like
to have seen the back of. Because our reputation is everything,
we've always paid off the debts of any company we own that has had
problems. And we move on.
We move on. Easy to say: harder to
do. And that's why you need honest people around you.
A few blunt ones don't hurt, either.
In 1996, Gordon McCallum put my nose right out of joint. I'd asked
him for an honest assessment about the Virgin Group. He told me
Virgin was fundamentally a parochial British brand and needed to be
stronger in other, international markets in order to be truly
global. I felt like a schoolboy being handed a 'must try harder'
term report.
Today, while we retain our footprint
in the UK, we are looking further afield for our opportunities.
We've chosen twelve countries which we believe are ripe for
development, based on their population, the income of their
consumers, the awareness of our brand and the ease of doing
business.
So far we've enjoyed success in the
United States, Canada, Brazil, France, Italy, Spain, China, India,
Japan, Russia, Australia and South Africa. Now, like so many other
businesses, we're turning our attention even more to China and
India. I'll round off this chapter, then, with a few thoughts about
how we hope to leverage the Virgin brand in these culturally
complex territories.
For the Virgin Group, expansion into
India was always going to be an easier option than China because of
our shared culture, the English language and the Indian legal
system's mature approach to business. This has all made a massive
difference to us.
We took our time in India, making
small investments in radio and comics before launching Virgin
Mobile with Tata in 2008. Statutory regulations prevent us from
being able to use the successful MVNO (Mobile Virtual Network
Operators) model – which I'll explain in detail a bit later – so
instead we've set up a marketing partnership with one of the
country's biggest blue-chip corporations. This is a mouthwatering
prospect for Virgin Mobile: Indian phone networks are adding five
million new customers a month. This is a massive rising
tide.
Our long flirtation with the Indian
aviation market didn't turn out quite so successfully. We spent a
lot of time talking to Air Deccan, the first of India's emerging
low-cost carriers, which had been set up out of a private charter
helicopter company in 2003. I met Captain Gopi – G R Gopinath, its
founder – and we tried for over a year to take a stake in this
growing market. Somehow – and despite the arrival of SpiceJet and
Kingfisher and others to compete with Deccan – every time we
talked, the price jumped up a bit more. Ultimately we correctly
concluded that the industry was expanding too quickly and after
some huge losses, Deccan merged with Kingfisher Airlines – a part
of the UB Group, owned by the Indian entrepreneur Vijay Mallya. We
wished them well and stood aside.
The things that make India an ideal
territory for us are the very things that make it difficult. Our
impatience with bad service may as well be the national anthem
right now, and everybody, but everybody, is seeking to address this
national mood. It's hard to be the consumer's champion in a nation
of businesses that, rightly or wrongly, claim value for money above
all other values. Have we worked out the best way to leverage our
brand here? To be honest, I think this will take time.
For me, though, the bigger prize lies
to the east. And so it was with no small thrill that I phoned David
Baxby. After all, it's not often in life you get to call someone up
and say, 'I want you to run China.'
David, who'd been running Virgin
Asia-Pacific from Sydney to Shanghai, took it remarkably well. Now
that he had anchored our successful businesses in Australia, we
wanted him to spearhead our operations in the most populous nation
on Earth. Today, we're talking to an exciting new generation of
Chinese entrepreneurs. They are intensely keen to retain their
Chinese identities and traditions but also to bring in best
practices from around the world.
I have been in China several times
recently, meeting young business people. The visit that everyone
talks about, of course, is the one I made in January 2008, because
it coincided with our bid for Northern Rock. It's a pity that the
bid overshadowed the substance of our trip, because – unusually for
an official mission, a huge amount of very solid work got
done.
I'd been invited along to promote
goodwill and cement business ties between Britain and China, and I
had asked specifically to meet with some of China's entrepreneurs
so I could swap notes about their experiences and
opportunities.
It was minus ten degrees in Beijing
when our flight touched down. I had been asked to say a few words,
via an interpreter, about what it was like to be an entrepreneur.
Ours was an important visit, diplomatically speaking, and so the
size of the audience – several thousand people – was not too much
of a surprise. Still, I was surprised and encouraged by the crowd's
response: entrepreneurism has been central to Chinese culture for
many centuries, and clearly the excesses of China's Cultural
Revolution in the 1960s have done little to stifle the Chinese
people's belief in themselves as a nation of supremely ambitious
shopkeepers.
Indeed, trade and commerce are
becoming, once again, a natural part of life there, and the
entrepreneurial spirit is much more highly valued in China than it
is, say, in Britain. This was very clear when I attended an
entrepreneurs' round table in Shanghai.
Novelty explains some of the
enthusiasm I encountered. I got talking to Zhang Xin, a fascinating
Chinese businesswoman who runs one of the largest real estate
businesses in China. She told me that the property boom in China is
a continuing opportunity. There are already more than 400 million
people who can be vaguely classified as 'middle or professional
class' and this category is increasing by 30 to 40 million every
year.
Zhang Xin has a passion for art and
design and she has won several international awards for her
visionary architecture. Born in Beijing in 1965, she moved to Hong
Kong at fourteen, came to England and studied at the University of
Sussex and then Cambridge. In 1992 she went to work on Wall Street
with Goldman Sachs before returning to Beijing to start her own
property business in 1995. The rapid rise of small Internet-based
companies gave her and her husband an idea for combined living and
working spaces. Zhang Xin initiated the concept of SOHO (Small
Office Home Office) for young urban professionals and their
companies. It's a business now worth billions.
China's own version of Google is an
incredible business story, too. On our trip I met Charles Zhang,
the CEO of Sohu, the leading Chinese-language Internet business,
now listed on NASDAQ in New York. Sohu is a massive branded portal
and its related Internet search engine, Sogou.com, has over 10
billion retrieved web pages. Charles told me that Sohu's strong
brand had been achieved largely through its online role-playing
game Tian Long Ba Bu, which has a massive following among the young
Chinese.
For all that, David Baxby and I
sensed an atmosphere of anxiety among young business people. The
Chinese authorities have opened a door of opportunity for their
people, but a tradition of hefty state regulation and interference
might yet curtail the record growth of this amazing nation. I hope
not.
The catastrophe of the Sichuan
earthquake on 12 May 2008 was on a scale to stretch and break
China's considerable disaster-relief plans. It was hugely
encouraging to see this proud and often secretive nation
acknowledging the scale of the plight facing its own people, and
welcoming foreign help and support. Managing the Olympics, too, is
already proving to the Chinese authorities that they can bend to
the rough and tumble of international opinion and still remain true
to themselves.
Much has been written about how
China's liberalisation of business will lead inevitably to a more
liberal political culture. I think that's true, though I suspect it
will take a lot longer than the optimists would have us believe. I
predict that free speech and open debate will be helped by the
development of Chinese brands. Brands, remember, are about
meanings. Every brand means something, and nobody can ever really
control all the meanings a brand acquires. Brands are ideas. They
are tangles of associations. They are dreams. In the developed
world we live in such a brand-rich environment, we take their power
for granted. I don't think that we should underestimate the power
of the brand in China – as a force for change.
I come from a line of lawyers. My
father was a barrister in the English legal system. I was probably
the first in a number of generations not to go into law, but I
understood the value and importance of protecting a good name. We
have nailed Virgin's colours to the masts of many businesses, so
every one of them must pull its weight with our
customers.
The day-to-day survival of the Virgin
brand depends upon all kinds of companies, and if one of our
companies spoils your day, then that's the day more than just one
Virgin company will suffer. That's the day you write off our TV
service and look up another broadband provider. You open your
wallet and there, poking out the top, is a Virgin credit card.
Well, you're not going to be using that again in a hurry. You reach
into your pocket to make your call and there, in your hand, is a
Virgin mobile phone. You think to yourself: Was this thing such a
great deal, after all . . .?
Whatever your brand stands for,
you have to deliver on the promise. Don't
promise what you can't deliver, and deliver everything you
promise. That's the only way you'll ever control your brand.
And beware: brands always mean
something. If you don't define what the brand means, a
competitor will. Apple's adverts contrasting a fit, happy, creative
Mac with a fat, glum, nerdy PC tell you all you need to know about
how that works. Even in the absence of competition, a betrayed
brand can wreak a terrible revenge on a careless company. How many
brands do you know that mean 'shoddy', 'late' and 'a
rip-off'?
You see?
Easy.
And that's why our next chapter is
all about delivery.