- Richard Branson
- Business Stripped Bare
- Business_Stripped_Bare_split_012.html
3
Delivery
Special
Delivery
Right now, I'm
sitting in my daughter's home in London and the house has been busy
all morning with visitors coming in to see me and talk about
Virgin. I've already had several meetings with financiers, our
bankers and a Swedish television crew making a programme about
Britain. I've also taken phone calls from many of our managing
directors and business partners. I've asked Nicola, my personal
assistant, and other Virgin Management Limited people to fire off a
volley of emails. There's been a list of invitations approved for a
media launch. And last night, after flying in from Necker Island, I
had a late-night supper with the singer Christina Aguilera, who
told me how baby Max is doing and her latest music plans. I'm
flying off to see the French president later this afternoon.
Tomorrow we're heading to Mumbai to meet some Indian business
figures from Tata, the industrial group, and then on to Japan where
I'm speaking at an investment conference. We never sit around for
long — unless we're on holiday. We thrive on ideas, but our
day-to-day business is about delivery.
Good delivery depends upon many
things. Two of the most important elements are good communication,
and attention to detail. Neither of these essentials is difficult
to understand or implement, so, naturally, they're often the first
things we forget.
In the early days of Virgin Atlantic,
I used to write regularly to all our people, telling them what was
happening in the business. I'd jot down my thoughts in my notebook,
make a few corrections, get someone to sort out my spelling
mistakes and send it out to everyone. I thought letter writing was
an important way of communicating.
This wasn't so easy as we grew
larger, and because of Virgin's success and my subsequent fame,
anything I wrote inevitably hit the press as a news story. So it
became difficult to pen the unrestrained letters of the early days.
Nevertheless, it is important for people running companies to write
a regular letter to keep their staff in touch. And a personal
letter sent to someone's home is, I think, still very much more
appreciated than an email. Be brave: hand out your email address
and your phone number. People aren't stupid, they know not to
misuse it or badger you – and by doing so, you will be giving the
people who work for you a massive psychological boost. In any
event, regular communication by the leadership team is a must in
any service business. So keep talking and keep
explaining.
I now have a team of people who meet
once a week to go through every Virgin company, looking at figures,
projections and income. They have a list of priorities, and a list
of new projects. They make sure that the Virgin Group is running
efficiently. This frees me up to dive in and out when necessary.
They know if there is something urgent, they can phone me and I can
then focus on the things that really need my personal
input.
Don't waste your
precious time. Phone calls and emails can eat your day.
Don't let them. No one will think less of you for getting to the
point. Because there are so many calls to make every day, I
generally keep them very brief. And a short note to somebody is
often quicker than a phone call. As the business has got bigger and
spread across the globe, a lot is dealt with by short notes.
However, I'm always willing to pick up the phone and talk directly
to people if an issue needs resolving that way. There's no question
that if you are trying to persuade someone to join you, invest with
you, or make some changes, then it's important to speak to them
directly and take the time so that they know what they must do.
Face-to-face conversations are more efficient, and
videoconferencing will always come a poor second to a shared pot of
tea.
Recently I had lunch with Raymond
Blanc. He's the owner and renowned chef of Le Manoir aux
Quat'Saisons in Oxfordshire. The reason Le Manoir is so successful
is that Raymond makes sure that every tiny bit of detail is
carefully thought through. If you're running an airline, a
restaurant or any other kind of company, it's
the attention to detail that really defines great business
delivery.
I'd advise every owner of a company
to keep a notebook and jot down the things that need doing. If
you're listening to staff or customers, then write down the main
points. If you're visiting a factory or touring a new site or
partying with your staff, use the notebook. When you're busy with a
lot going on around you, if you don't write things down, I doubt
you'll be able to remember one out of twenty items the next
day.
Let me give you an example. The main
reason why staff become frustrated is that the same problems and
complaints keep cropping up and never seem to get properly sorted.
On a recent Virgin Atlantic flight someone told me that the sugar
had run out, not once, but on two or three occasions. Why were we
not stocking more sugar? And why were we overstocking vegetarian
dishes, so that people who didn't want this had no other option?
These weren't major problems, and they were easily fixed, but
someone somewhere has to make the call, the very next day, to sort
them out. Otherwise we become the no-sugar airline. The
healthy-option airline. Worst of all, we're the
not-really-listening airline. And there are enough of them out
there already.
I carry a notebook everywhere I go.
Every blue moon I wax philosophical. But most of my entries are
like this one, and these are the sort of dull, dreary, absolutely essential entries that everyone should
be capable of writing, but so few do: 'Dirty
carpets. Fluff. Areas around bow dirty. Equipment: stainless steel,
grotty. Choice of menu disappointing – back from Miami, prawns then
lobster (as a main course) in Upper Class. Chicken curry very
bland. Chicken should be cut in chunks. Rice pretty dry. No Stilton
available on cheeseboard.'
I also noted that the duty-free
trolley was going up and down the aisles without making any sales.
I looked at the in-flight service report. Sure enough: no sales.
Something had to be done either to encourage the passengers or to
improve the sales opportunities (more likely, both), or get rid of
the trolley altogether and save the weight.
But what's most revealing now – and
most useful to you if you really are reading this for business
lessons – is this note: 'Staff desperate for
someone to listen.'
Under this I jotted down an idea:
'Make sure flight staff reports are actioned
IMMEDIATELY,' and I'm pleased to say that they now are, and
onboard staff get the action and feedback they need.
When we launched our routes to Japan,
I knew that we needed Virgin Atlantic to pay particular attention
to cultural differences and to the Japanese sense of respect and
formality, without spoiling our offering. It's a fine balancing
act. On the inaugural flight I added some more thoughts:
'Need slippers in Upper Class, not socks. Need
Japanese beers. Only one kind of newspaper from London: English.
Need Japanese too. Japanese tea from London, not good. Japanese
food from London. Tastes good but must be better presented. Looks
like fish and chips. Saucers for Japanese
teacups.'
I think company owners and chairmen
should get out from behind their desks and go and sample their own
products as often as possible. I do see many bosses doing their
rounds speaking to staff, but they never write the details down.
They will never, ever get anything sorted. And month by month, year
by year, they will suffer the consequences.
*
Imagine trying to do a good job in the
teeth of official opposition. Imagine being told constantly to cut
corners. Imagine being rewarded for good delivery by having your
business taken away from you and redistributed. Imagine winning
market share and then being prevented from delivering more of your
product.
In short, imagine the British
government's railway regulatory system!
Communication and attention to detail
can make your business run more smoothly, but saying this doesn't
nearly convey their importance. As I think you'll see from the
following account, good communications and attention to detail were
what enabled us to do business at all,
in what has to be one of the toughest sectors we've ever
entered.
In January 1997, when we took over
the first of our two railway franchises, we made a public promise
to usher in new trains and lead a 'red revolution' for the
travelling public – on the busiest train lines in Europe. It was my
personal commitment to deliver on this. It has taken some time.
Eventually, we were voted the UK's best train company in January
2008 by the Institute of Customer Service. This, in my opinion, was
rather overdue, but gratefully received, nonetheless! Virgin Trains
also topped the 'Passenger Focus' National Passenger Survey with a
score of 86 per cent for customer satisfaction. And Travel Week, a trade magazine, declared Virgin
Trains the best railway company, as voted for by the travel trade
and travel agents. This string of tributes is principally down to
all the Virgin Trains people who work day in, day out, often in
fairly arduous conditions. It's also a great accolade for Tony
Collins, the CEO of Virgin Trains, who has been a champion for the
customer and staff, but a pragmatist about how difficult it is to
run a railway.
I'm the kind of person – as most
people will know from my ballooning escapades – who is willing to
stick my neck out and take risks. When we launched the West Coast
Main Line franchise on 9 March 1997, we said we would replace the
whole fleet, and improve services and connections. We also promised
new diesel Voyager trains on the CrossCountry networks which
criss-crossed Britain. But it would take a number of years before
we could deliver this. We had inherited the worst part of the
system and to start with we had to make do with a lot of
40-year-old rolling stock and clapped-out engines inherited from
British Rail. Some of the rolling stock was in a terrible state. My
first action as proud owner of a new railway set was to sign a £10
million cheque so that we could get some spare parts to run the
trains.
We steam-cleaned them, painted them
and tarted them up as best we could. More than that, we kept them
running, while promising our passengers a better service in future.
It took time and a lot of pain and disruption. And we got a great
deal of abuse from people who still didn't like the idea of the
railways being deregulated and privatised after half a century of
nationalisation.
The 401 miles of the West Coast Main
Line from London Euston to Glasgow is one of the world's great
railway journeys. As it heads north, the constant twists and turns
of its gentle bends make it difficult for a train driver to build
up a decent speed. Only tilting trains can counteract the terrain.
It's really a misnomer to call it the West Coast Main Line because
it touches the coastline only once, briefly, at a small strand near
Morecambe Bay. It is an inland route, taking in concrete-encased
Birmingham with its landscape of canals, factories and occasional
dereliction, busy Midlands towns such as Crewe and Wolverhampton,
and Border Uplands. In the 1920s, the opulent steam trains chugged
out of King's Cross and Euston at 10 a.m. each day to race to the
north. Virgin Trains was ambitious enough to try to re-create some
of that lost glamour for the twenty-first century.
We felt we could transform Britain's
rail network from the worst in Europe to one of the best. But for
the Virgin brand not to be too damaged in the process, we would
have to bring the public along with us. Innovation had to be the
difference for Virgin Rail.
For the first few months of our
franchise we examined all the technological possibilities. In May
1998 I flew out to Italy from London City airport to the Fiat
Ferroviaria site in Turin, which is the train-making arm of Italy's
largest private conglomerate. I saw the kind of stylish,
well-constructed trains that we needed on the UK's dilapidated
system. The innovation of tilting trains was explained to me, along
with the complex relationship between tilt, speed and stability.
Next day the journey from Turin to Rome was my first on a tilting
Pendolino ETR 460. It was fast and smooth as it hit 150mph through
the Piedmont countryside. When we returned from that trip I sat
down with Will Whitehorn and the rest of the Virgin Trains team. I
was wildly impressed, but I kept my head. I said: 'I want these
trains to be the best there are – and the safest. I'd like us to
look at what's available across Europe and elsewhere.'
As it turned out, I was right to be
impressed: the Pendolino proved to be the best electric train
anywhere, bar none. Its tilting system allows a skilled driver to
control the train at speed with a huge element of safety. The
trains can tilt by eight degrees on rail bends – you'll notice it,
but it won't spill your coffee. An automatic warning system rings a
bell in the driver's cab as he passes each trackside transponder.
This sends a message to the driver saying it's safe to tilt,
allowing him to increase the train speed from 85mph to 110mph. On
straight stretches the permissible speed is 125mph – soon to be
135mph, and we built the trains to be capable of over 140mph, ready
for the future if the track is further improved. It is the driver
who has the feel of the train and learns its limits – but if the
driver ignores any warnings the computer automatically applies the
brakes.
We signed a deal worth £1.85 billion
– at that time, my greatest ever financial gamble. The bogies of
Fiat's Pendolinos would be adapted in Birmingham by GEC-Alsthom for
Britain's narrower-gauge railway lines. (Alstom – the merged
company dropped the 'h' – took over Fiat's train-making in
2002.)
Stagecoach transport group chairman
Brian Souter is one of the UK's leading business figures and a
'transport entrepreneur' through to the bone. He and his sister,
Ann Gloag, are a formidable pair: they started out in the bus and
coach wars after deregulation before moving into trains. From their
base in Perth – with Ann selling the tickets and cleaning the
buses, and Brian driving some of the routes, they have transformed
the company into one of the UK's corporate success stories. The
business was sidetracked when it tried to expand into the United
States by buying Coach USA, but through their own determination and
drive, Stagecoach bounced back from this setback. As I write this
in 2008, Stagecoach is one of the UK's most successful transport
companies and Brian is still in the driving seat.
When it was announced I was thinking
of a flotation for Virgin Trains, Brian rang me up and said: 'I
share your vision for the railway system.' And nine days later we'd
done a deal. Stagecoach held 49 per cent of Virgin Trains to couple
with its South West Trains, the UK's largest commuter network, and
the Isle of Wight's Island Line, a mini-railway company. I admired
that kind of decisive action and it cemented a friendship and
working relationship that has lasted over a decade. At a time when
transport – and railways in particular – was never out of the
headlines, we wanted to make a positive statement after years of
expectation. It was all about creating a feel-good news event to
assure the frazzled travelling public that something was indeed
being done.
Brian shared our view that innovation
– leading to a better experience – was the best way to encourage
more people to go by train. And while he admitted to having
reservations about the Pendolino, he said: 'My mother used to say
to me that a fool and a bairn should never see a job half done. I
think when people eventually see what's being created here they
will understand we're really doing our best to improve the railway
system.'
In 2003 the Christmas panto season
came early. On 4 December I arrived at one of Alstom's vast
Birmingham workshops to deliver a massive present.
I was dressed as Santa Claus and sat
next to two scantily clad women on a tinsel-bedecked trap pulled by
a reindeer. Brian, wearing a Glenalmond school blazer, shorts, an
old-fashioned leather satchel over his shoulder and with a blue cap
worn at a jaunty angle, was the lucky schoolboy unwrapping his
giant train set.
Faced with a gallery of UK media, I
called out to Brian asking if he had been a good boy and what did
he want for Christmas. 'Some nice, shiny, new trains which go very
fast, please.'
I couldn't resist a quip in front of
the TV cameras: 'And how about a higher share price?' (The
Stagecoach share price was in the doldrums since its mega bus deal
with Coach USA. Brian and I have both been through the mill
together, so I can get away with jokes like that.)
As the dry ice swirled around, amid
sparkling fireworks and the booming strains of the Mission: Impossible theme tune, the nose of a new
train burst through the satin wrapping. Nationalised British Rail
never generated this much excitement. And although it was only the
shell of the first Pendolino, shipped from Italy to Bristol and
then Birmingham, we were a step nearer.
Virgin West Coast invested £1.2
billion in fifty-three Pendolinos. Each train cost £11.5 million –
which we were told by government railway officials was £1.5 million
too expensive. The extra safety features I had asked for had
increased the price. Passenger numbers began to rise – although
they stumbled at times after engineering setbacks on the
tracks.
Angel Trains, then a subsidiary of
the Royal Bank of Scotland, stepped in to become the train owners;
they then leased the rolling stock the way planes have been leased
to airlines for many decades. It's a lucrative business because
Angel Trains was sold in June 2008 to a consortium led by Babcock
& Brown, an Australian infrastructure business, that includes
Deutsche Bank and AMP Capital, for £3.6 billion. The train-building
work was also a massive boost for Birmingham and kept highly
skilled engineering jobs in this industrial heartland.
The new trains give off 76 per cent
less carbon dioxide per seat than domestic airlines and are the
most emissions-efficient rolling stock in Europe. They're very
reliable. They spend less time in the workshop, more time carrying
passengers. Every time the train slows down, the brakes heat up and
the regenerative braking system pumps electricity back into the
overhead cables – another innovative feature that government
transport officials didn't want. With oil at $48 a barrel, they
didn't see the point in putting electricity back in the grid. By
2008, with oil prices nearing $150 a barrel, perhaps it's clear
even to them that it was a good decision.
The new trains went into service
along the West Coast Main Line on Monday 27 September 2004. And on
the first day there was a glitch. One that (Sod's Law being what it
is) coincided with the announcement in London of Virgin Galactic,
the world's first commercial space launch system for both
scientific and human space flight. The Royal Scot train leaving
Glasgow ground to a halt outside Carlisle. Passengers had to be
switched to another train and were two hours late arriving in
London. The press put the breakdown and Virgin Galactic stories
together and the Daily Mail had
full-page fun at our expense: 'Euston, we have
a problem . . .' It was an absolutely brilliant headline and
it put me in an irritable mood all day.
If I needed comfort, though, I only
had to look at the situation by the end of the first week. The news
was very encouraging: I wrote in my notebook:
'First week –
Pendolinos. 27 September–2 October. 82 per cent punctuality.
Promised 72 per cent. Cancellations 4 out of 210 trains run daily.
Pendolino tilting in traffic 32, two more than estimated on Monday
27th. Only two trains to fail. Got masses publicity due to space
launch. Jack Straw travelled and said PM enjoyed reception – also
that he'd had amazing feedback from our staff
parties.'
To this I added: 'Delivered exactly what we promised a year ago and general
mood of passengers is that it worked well and will steadily
improve.'
In the early days, mind you, we had
to weather constant criticism about Virgin's two franchises. Virgin
Trains had to take over the worst record for timekeeping in the
country. Our West Coast Main Line services achieved a punctuality
figure of only 84 per cent in the year to 16 October 1999. And the
performance of Virgin CrossCountry, a higgledy-piggledy
criss-crossing of routes, was worse, recording a figure of 80 per
cent. But this was unfair on our team. We were now operating more
services and carrying more passengers on the antiquated track and
rolling stock which we had to nurse along until the new trains
arrived.
I felt for all of our people. It was
demoralising to be constantly criticised. We had worked very hard
to get things better and the service had improved. The
privatisation of the network brought some real benefits, but it
imposed an institutional and political structure that was seriously
flawed from the beginning, something which was exposed by the
Hatfield accident, after a broken rail went
undetected.
The Hatfield rail crash, on 17
October 2000, left four people dead and seventy injured. It was a
nadir for the rail industry, and some questioned whether it would
ever recover. Railtrack slapped speed restrictions on the whole of
the rail network and our passengers suffered misery, delays, late
arrivals and cancellations. There were recriminations and blame. I
remember long discussions with Stephen Byers, then Secretary of
State for Transport, about what needed to be done. Privately I
wondered if it would ever be properly sorted. In 2001, following
Hatfield, Railtrack, a publicly listed company, went into
administration, and the company's shareholders lost their
investments. In 2002, the Rail Regulator presented taxpayers with a
massive bill for an additional £1.25 billion a year of increased
infrastructure costs, largely due to historic underinvestment and
Railtrack's loss of control. It was a deep and complex
mess.
Since Hatfield, however, the rail
industry has slowly begun to turn the corner. The UK government
established Network Rail as a not-for-dividend private company to
manage the railway infrastructure – that is, the track and the
signalling. These changes were implemented in the Railways Act
2005, with the Secretary of State for Transport now responsible for
setting the strategy and budget for the railways in England and
Wales.
Increasingly, Virgin Rail has
developed better partnerships with the government, Network Rail,
and suppliers like Alstom and Bombardier, to bring in huge
improvements. We've got our trains running every twenty minutes
between Manchester and London – the highest frequency for that sort
of route anywhere in the world. For business people, trains are now
a much better alternative to short-haul flying. Virgin's own
delivery has improved, too. In 1997, 13.6 million passengers used
the West Coast Main Line. In 2003, this was 14.1 million; 2004, it
was 15.1 million; 2005, 18.7 million, and by 2007, it was more than
20 million. Our punctuality was over 90 per cent. What had seemed
like Mission Impossible became more than doable. It became
surpassable. Network Rail still have big issues to deal with in the
way they upgrade the last sections of track and inconvenience the
public. But one way or another, 2009 will see another leap in
service, speed and punctuality on the West Coast line, which will
make it truly a world-class railway. It has been a tough journey
but thanks to the leadership of Tony Collins and the support of
Stagecoach's top management we have made it through the really
tough times.
You must never forget that every
change ushers in unforeseen consequences. This applies as much to
welcome changes as unwelcome ones. It always tickles me when a
spokesperson comes on the television to explain, with an earnest
frown, that an ailing company is 'a victim of its own success' – as
though it had undergone something rare and freakish and
hard-to-credit; some sort of business equivalent of alien
abduction.
Success one day
does not give you a free lunch every day thereafter.
Obviously, you can't plan for the unexpected. All you can really do
is never let your guard down. Delivery is not just hard work: it's
endless.
We had invested more than £2 billion
replacing all the trains on our CrossCountry routes with Voyager
diesel trains. The trains were popular and extremely reliable.
There was a 50 per cent increase in passenger numbers – and
suddenly people were finding it difficult to get a seat on the
busier routes. We were a victim of our own success!
Altogether more troubling was the
thought that our passengers were victims. I received one letter in
particular from a couple travelling from Preston to London. They
had been planning a treat in London and didn't realise that they
now had to book a seat. When they arrived, they found the staff
unhelpful. Given the husband was disabled and used a wheelchair,
this was pretty terrible of us. I personally sorted this one out,
and encouraged my Virgin Rail team to improve. I was concerned that
we might have taken our eye off the ball when it came to customer
service. I penned a letter to Ashley Stockwell, the brand and
customer service guardian for Virgin Group.
Dear
Ashley,
I am worried
about Virgin Trains and the service we are delivering to the
customer. We have a board of directors who have understandably got
tied down in franchise negotiations and the bigger picture issues.
When we first got involved we put people in from Virgin Atlantic
who really cared about staff and customers. Somehow, things seem to
have slipped. Tony Collins realises this – he told me very frankly
yesterday that we had 'lost that customer service'. I'm sure he'll
do everything he can to address the problem. Any help your
department can give I'm sure would be welcome.
We got better. Increasingly, we
picked up plaudits. By April 2006, when we announced our decision
to reapply for the CrossCountry franchise, I was beginning to
believe we had achieved something extra special in Britain.
Paraphrasing slightly, I used the old Magnus Magnusson line from
Mastermind to allow us to continue:
'We've started, so we'll finish.'
But there was opposition to our
franchise inside the Department of Transport. Before a crucial
meeting with officials, I got a phone call from a well-informed
transport journalist. He knew the exact time of the meeting and
what was going to happen and who would be attending. He was right
in every respect. He also told me that the government's endgame was
to destroy Virgin's CrossCountry franchise and they were looking
for an excuse to stop it. I wrote in my notebook: 'If this guy is right on everything else, is he right on
this?'
We argued that we'd worked hard and
that punctuality was the best since we took over, revenues were up
40 per cent and passenger numbers up 50 per cent – and the
government were now getting 87p in every £1 of extra
revenue.
In my notebook I wrote: 'We've been told that certain elements of the Department of
Transport want CrossCountry back so it can be remapped and absorbed
by other networks. I hope that's untrue. I'm confident that the
Virgin Group's bid will not be bettered by another operator in a
competitive tender. I find this all a little bizarre to say the
least. But that's the rail business.'
It certainly was. Having done all the
donkey work, taken all the flak and increased passenger numbers by
50 per cent in ten years – Virgin Trains lost the CrossCountry
franchise. But that's life in twenty-first century Britain. There
are (he says, through gritted teeth) no regrets. And even if there
were, in business, as in life, you're better off just moving on.
After all, we still had the West Coast Main Line.
Virgin Trains is criticised in some
quarters for the supposedly easy money we've racked up in the form
of government subsidy. I think those people should consider the
time and effort we spent for very little financial return. Out of
that subsidy money we had to pay Network Rail for running on their
tracks, and as their problems increased, so did our access charges.
When we signed off the first deal we never envisaged the increases.
So, between 1996 and 2006, we did indeed receive £2 billion in
subsidy – and promptly waved it goodbye again, paying £2.4 billion
in track access charges, first to Railtrack, then to Network Rail;
in other words, back to the UK government. Plus Virgin Trains paid
higher charges to Network Rail than any other train operators –
this when the subsidy was reduced by half from £526 million to £268
million at the end of March 2006!
Not long ago we put together a
proposal to increase the size of each train from nine to eleven
carriages so that the business could continue to meet the soaring
demand. I explained to Douglas Alexander, then the Secretary of
State for Transport, that while we could deliver on our franchise
agreement, from February 2012 our passenger numbers would be
pushing our current seating capacity to its limit. Our proposal was
to increase delivery to ten and eleven cars at optimum time from
around 2010. The total investment required would be around £260
million, all to be funded by the private sector. We also proposed
additional car parking and smart-card ticketing and in return we
would like an extension of our franchise for a couple of years,
please. I felt that our track record – excuse the pun – was enough
to give us some chance of the government accepting this. But later
in the year they rejected our bid to increase the number of cars.
At the time of writing this book we are back in discussions over
extending the trains again. I hope sense will prevail. But come
2010, if you ever find yourself standing all the way to Birmingham,
remember who to thank. It drives me to distraction to think that
the increasing popularity of our trains is being threatened by the
government's mean-fistedness and lack of vision.
At the same time we are hampered by
the poor state of the line which has been undergoing a massive
upgrade in the last four years. Our wonderful team – led so ably by
Chris Green for many years and now by Tony Collins – has remained
focused on delivering a great service in the face of these
incredible hurdles. Despite these issues I'm proud to say that
Virgin Trains has delivered on its promises – and it hasn't been
easy. First and foremost, we knew from the start what it was we
wanted to deliver, and we stuck to our guns in the teeth of
official discouragement and a negative press. We wanted the
best-looking, most comfortable trains because we knew anything less
wouldn't wash with a public that had had to put up with a declining
service for far too long. Our trains had to be efficient – as green
as possible – because we had no idea what would happen to the price
of energy, and there was no hint or sign that energy costs were
going to come down in the long term. (How right we were!) Finally,
we wanted the safest trains possible, because in the travel
business, this is the bottom line: people are putting their lives
in your hands. Nothing short of an act of God should ever put your
customers at risk.
Our proposition, then, was fully
considered in the light of our core business values, our
medium-term strategic considerations and our long-term feelings
about where our industry was headed. However overblown this sounds,
this is what you should be doing all the time as you consider how
to deliver on your business proposition. Never imagine that you are
immune from big events. Make your small decisions in the light of
the bigger picture, and you are at least pointing your craft in the
right direction to ride out any storm.
Remember, also, that the world is
full of people who want to put you right, who want to play the
realist to your wide-eyed innocent. Governments are notorious for
this sort of thing. Ministers are like mayflies. No sooner do they
get to grips with what they're supposed to be doing than they're
gone. Keystone of our liberties it may be – in business terms, it's
a disaster. In the UK in particular people who have no real tenure
over the issues they're handling let long-term considerations fly
out the window. It's not that they don't understand them, or even
agree with them; it's that they despair of ever getting them past
the Treasury quickly enough.
You can spot negative people and
stultifying institutions a mile off. Have the courage of your
convictions, and ignore them. Instead, gather together people you
can trust – get them to play devil's
advocate; get them to point out the
problems you may inadvertently be steering towards.
If you're lucky enough to become an
agent of change, it's incredibly frustrating when other people fail
to grasp your ideas – even worse when they reject them out of hand.
But you can see why it happens. Change can be dangerous. Often, the
bigger you are, the slower you move, the more dangerous change
becomes. Of course governments are afraid of change: they know
they'll never be able to get out the way of it quickly enough.
Neither can many big companies.
It's no good saying 'Prepare for
change' or 'Embrace change' or whatever other cliché the business
books are peddling this season. The bald fact is, change, most of
the time, is a threat. It's the thing that wants to kill you. And
let's face it: one day it will.
In business, change always happens
more quickly than you want – it steals up on you fast, when you are
least prepared. This was certainly true for Virgin Records in the
music industry.
For the multinational consumer
electronic giants, survival depends on finding the next disruptive
technology and getting it into the marketplace. Being the first to
do so is admirable. But being the best is what really counts. I've
always followed my nose; it's never occurred to me to wait for
others to make mistakes, just so I can learn from them. I can't see
the fun in it. Beyond that, though, I can't really criticise: the
ones in the vanguard are generally the ones who get
shot.
During the 1980s and 90s, as the
Philipses, Sonys, Panasonics and Hitachis of this world headed down
blind alleys with products that failed to bite, the music industry
was moving logically and unstoppably towards digital, downloadable
music – a process that reached its apogee (at least, from the point
of view of where I'm sitting now) in Apple's iPod.
The digital music revolution was
heralded by the arrival of the compact disc. The progression from
analogue to digital recording was a revolution for the eardrums. In
the mid-1970s, the seven-inch single was the gold standard for the
pop music industry. All the pop bands (though not all the
progressive rockers) wanted a number-one hit in Britain, America
and then the rest of the world. To have a number-one hit was to
arrive as a band or solo performer.
By the early 1980s our domination of
the charts had helped Virgin Records become the world's top
independent music company. There was tremendous excitement about
seeing a new record breaking into the charts, and the band's
virtually compulsory appearance on the BBC's Top of the Pops the following Thursday. All this
hoopla had a positive effect on the band's album sales; the two
went hand in glove.
It's easy to get nostalgic about old
formats, but there's no historical justification for it. Since the
nineteenth century, most recording technology has turned over on a
thirty-year cycle. Thirty years after the wax cylinder carried
music to wow the opinion shapers of the 1880s, brittle, shellac
78rpm recording discs revolutionised the listening habits of the
masses. After the Second World War, the vinyl LP, the single and
the EP (the extended play, containing two or three tracks on each
side) made music listening considerably less fraught. Why, you
could even send these sturdy, flexible discs through the
post!
Those pundits talking now about how
digital downloading is killing the major companies should remember
that the last time the industry was in meltdown was – surprise,
surprise – just less than thirty years ago, in 1982. The economic
recession was having a deep impact. At the time, Virgin Retail had
over a hundred record stores, in every town across the country –
and during weekdays they were deserted.
More people were home-taping off the
radio, too, or from a friend who had bought the original LP – a
forerunner to the illegal downloading that led to Napster and all
the other sites which offered the punters music for
free.
The digital revolution had arrived in
the recording studio some time before, and computer software was
already employed to mix albums and soundtracks. Now, though,
digital music was about to take the public by storm.
Dire Straits were the format's first
big seller. Vinyl fought a valiant rearguard action, and the
aficionados said they still preferred the analogue sound. Many a
music snob with a Quad system turned his nose up at Dire Straits on
a plastic beer mat. Many, many more went ahead and bought it.
Philips, the Dutch electronics giant, predicted at the major Paris
music fair that the compact disc would become 'the new world audio
standard'.
There was fierce debate in our office
between the hi-fi buffs. Could vinyl ever be surpassed by a shallow
digital sound system? At the time there was genuine doubt – even
today I hear people say that vinyl is much better. An LP's record
cover and the sleeve notes, meanwhile, had become a contemporary
art form.
But the shiny CD was on the march. It
was more convenient, it was easier to use and it protected the furniture from your beer
glass.
Philips, who had developed the
system, announced plans for software to be manufactured and
released by PolyGram and sold through record retail outlets,
separately from the hardware. The CD also had a competitor in the
LaserVision disc which was ready for the spring of 1983. JVC, the
Japanese electronics giant, was promoting its VHD system. There
were about thirty companies looking at manufacturing special CD
players, and I was very keen not to be left behind if this was
going to be the new standard.
Only PolyGram and Ariola had made
agreements with Philips for the release of products for the new CD
system. (At that time, I thought the royalties being demanded by
Philips were too high.) Philips began delivering the first CD
players in Belgium. They could be attached to a hi-fi system, as a
separate, just like the record deck, and were expected to sell for
around £300–£400. This was a lot of money for the young
record-buying public – and in the early days the CD owner was
usually the richest guy in the street.
From launch, around 200 titles would
be available, retailing at between £7.50 and £8.50. PolyGram were
preparing a disc-pressing plant in Hanover in West Germany, which
could produce 500,000 in 1982, and a staggering four million the
following year. In June 1982, Sony ran some full-colour adverts in
the music press. They showed a full-size twelve-inch LP, alongside
a compact disc, depicted in actual size. The advertising campaign
was slick and it impressed me: 'Six months from now the industry
will expand dramatically.'
The CD was the answer to many a music
lover's prayer: no wow, no flutter, no wear, virtually immeasurable
distortion, wide dynamic range and no surface noise.
My notebooks are full of the
questions I had about the impact on our business and what we should
be doing to counter any threats. I wrote: 'What happens to the record collection around the country –
do people replace their vinyl with CDs?'
The arrival of the compact disc was a
shot in the arm for our industry but, as with most medicines, in
the wrong dose it could quite easily kill the patient. The CD was a
game-changing technology – and we had to adapt or die. The arrival
of the CD and, later, the DVD would eventually give retail a lease
of life, but at first the only way for our business to survive the
CD menace was to cut the cost of vinyl. And that's what we did. We
needed to start shifting stock and clear the decks for the new. The
era of selling vinyl LPs by the truckload was coming to an
end.
Meanwhile, in March 1982, Virgin
Records shuffled the pricing structure for dealers. Price changes
were being forced on all of the industry by high inflation rates in
the early years of Mrs Thatcher's government in Britain. We had to
put up the price of our chart-topping bands, so Dare by Human League was selling for £3.40. We made
an 18p increase to £2.92 from £2.74 to dealers for our back
catalogue albums. But we reduced a certain number of titles to
£1.82 on a purely experimental basis, to see if this could shift
material that had been overlooked, such as the Skids and
Magazine.
Some of the smaller independent
retailers protested. Alan Davison, the vice chairman of RAVRO, the
association of record dealers, who ran a small record shop, joked
at the time in Music Week: 'Trying to
think of everything that would be nice for this year, I found the
really big thing I would like to see would be for Our Price and
Virgin to close down. They can open up again, if they want to,
provided they sell records for the right price. Records are a
specialist product. Discounting them, like groceries, was the worst
thing that ever happened.'
Poor Alan: the only way you can get
away with charging high prices in a deflating market is to downsize
and specialise. That means you're firefighting and innovating at
the same time – a difficult double somersault, and one Alan simply
didn't have the will for. He simply put his prices up to the full
recommended retail price in order to ensure his business mark-up of
33 per cent. This made no business sense to me. The margin on
records and tapes was dropping from 32 per cent in 1978, down to 23
per cent in 1981, and cut-throat discounting had it as tight as 16
per cent. According to the BPI, the notional price of an average LP
was £5.22 in 1981 – while the actual price paid by the record buyer
was £4.39. Margins were so tight that a record company without hit
artists that season was unlikely to weather the storm.
Meanwhile, another new retailing
phenomenon was dawning (or looming – it depended on your point of
view). In 1980 the British inventor and entrepreneur Clive Sinclair
broke the £100 barrier with his Sinclair ZX80 computer. If you were
brave you could buy a kit for £79.95 and solder it together
yourself. A year later, he brought out the ZX81, and in 1982 he
brought out the Sinclair ZX Spectrum. By the middle of 1982, there
were nearly 500,000 video-game machines in use in the UK. I was
surprised at how rapidly it spread across into our business – and
again we had to be prepared for its impact.
One day one of the reps came in to
see me. 'Richard, the kids are really getting into this Pac-Man
video gaming. Perhaps we should be selling some games,
too.'
We started to order computer games
directly from Atari – a subsidiary of Warner Communications. The
arrival of Pac-Man, a maze-chasing alien who munched up fruit,
helped bring in excellent business for years, outselling every
other arcade game including the hugely successful Space Invaders,
the staple of every single student-union bar in the country. With
Tetris, Pac-Man became a starter game for Nintendo's Game Boy,
introduced in 1989. In the early 1990s Sega's Game Gear introduced
us to Sonic the Hedgehog. Popular games for young people allowed
home computer games to lift off, especially in the UK, and
introduced a whole generation to computing. The hardware multiplied
and diversified at a dizzying rate: the Atari ST, the Commodore 64,
the Amiga, the Apple Mac . . . The computer-gaming industry was
about to go into overdrive.
Pac-Man was, indisputably, the first
computer game icon. We didn't get into our stride until the arrival
of Nintendo's Super Mario at Christmas in 1985. It was to become a
worthwhile sideline for our stores as they expanded around the UK
and into Europe. Software cartridges selling at £15 to £45 offered
us a much greater mark-up than music, so computer games and then
films – on video, then on DVD – became an increasing part of our
range.
The truth is that even from the start
our smaller Virgin Records shops made very little money. The stores
kept our name in the public eye, and represented our youthful,
irreverent brand, but they were unsustainable in the long run. One
of my biggest business mistakes – indeed, regrets – was not selling
all of our stores sooner.
By 1986, even the Megastores were
under threat. Our biggest rivals, HMV, had taken up the cudgels
against us and were launching a new store on Oxford Street in June
which would stock every record currently available, while Tower
Records was opening at a prime site in Piccadilly
Circus.
Undeterred, in March we launched our
Dublin store, the biggest in the world, at Aston's Quay. We spent
£1 million on converting the five-floor 50,000 square foot
McBirney's store – and it would be similar to our Megastore on
Oxford Street.
The press thought we were mad.
Stanley Simmons, a director of Music Makers, pitched into the
debate in the Counterpoint section of Music
Week. 'In my opinion the whole concept of the megastore in
UK record retailing is seriously flawed and based on false
assumptions.' He pointed out that in the US large retailers were
able to negotiate better credit terms and returns that were not
available in the UK. And he was right to point an admonishing
finger at our fixed overheads – the rent and rates – and our
obligation to carry a large amount of stock.
But he was missing the point. Our
Dublin store not only stocked specialist classical and jazz, folk
and rock music, it also sold music videos, games and computer
software. This was where I could see the future of our business. We
were now giving the old-fashioned retailers, such as Woolworths,
Dixons and Currys, a real run for their money.
Our shop windows and our interiors
were dynamic and exciting. If Selfridges could do stunning window
design, then we would do it better. When Depeche Mode launched
their new album, Black Celebration, we
had a twelve-foot-high mirror-tiled tower in the window of the
Oxford Street shop. It was eye-catching stuff. Inside we began to
bring the bands in to perform and play a few songs. They became
events in themselves which drove more sales and better
publicity.
Our Virgin staff were the key. They
were usually music buffs not much older than the customers coming
in with their weekly pocket money or cash from part-time jobs. We'd
created a cool place to work – and that made it the place to hang
out on a Saturday afternoon, too.
Dixons chairman Stanley Kalms was
increasingly impressed by what Virgin was able to achieve. We also
began discussions with Debenhams to open Virgin outlets in their
regional department stores.
The days of the small,
please-everybody record shop were numbered, and you can't build a
business empire on nostalgia alone. In June 1988 we were approached
by WH Smith, and we decided to sell sixty-seven of the smaller
shops to them for £23 million, and concentrate on a few Virgin
Megastores, including a new one in Paris on the Champs-Elysées. A
larger retail experience had some future. But the glory days of our
involvement in the music industry were now behind us.
By 2008, the CD as a retail item was
terminally ill. Its zenith had been 1999, when the worldwide market
for consumer spending on music had been $17 billion a year. By 2005
that figure had dropped to around $10 billion, with digital
downloading emerging strongly. (By 2012, the projected revenues are
just over $9 billion, with half of this downloaded via the
Internet.) The corporate music industry – some owned by private
equity houses – became more interested in selling millions of
plastic discs rather than supporting their actual artists and
talent.
When we set up Virgin Records we
funded the recording sessions, manufactured the product,
distributed it to the shops and then marketed the band and the
music. We would give loans and advances for touring, for making
promotional videos, for equipment, props and lighting. We would
also advise and look after the careers of our musicians and handle
the accounts and the sales.
Did all this work make us
future-proof? Of course not. The value of these services has
disappeared, thanks mainly to digital technology, the Internet and
the arrival of YouTube and social networking.
Digital downloading is killing music?
You could have fooled me. The music scene is changing, but it's
certainly not dying. The economics of music production today are
far healthier than they ever were in Virgin's heyday as a music
company. When we built the Manor recording studio in Oxford (where
we gave Mike Oldfield his big opportunity) and the Monster Mobile
recording truck, it was a massive undertaking. It cost thousands of
pounds each day to rent a professional studio, pay for a top-notch
engineer and a producer, plus all the wine you could drink and dope
you might smoke. Virgin Records' job was to bankroll this upfront –
and take the risks. Now a top-quality album can be made on a decent
laptop – and then you can send it as a music file over the Net to a
myriad of different places.
The cost of manufacturing and
distributing is minimal compared to when Virgin Records was
promoting Phil Collins, the Sex Pistols, Human League or even the
Stereophonics. To make money, we had to sell LPs and then CDs in
large numbers, just to cover the manufacturing, printing, shipping
and retail costs and the royalties. That business model no longer
exists – gone, I think, for ever. Digital distribution is almost
cost-free and it's as cheap per album to distribute a million
copies over the Internet as it is to send out fifty by FedEx.
Economies of scale don't matter to young emerging bands – although
they still matter a great deal to the record companies and their
shareholders.
If I was a happening band on the cusp
of success today, I wouldn't go through a conventional record
company. I'd gather a small team of people around me and release it
myself. I would consider getting together and sharing distribution,
advertising and marketing with like-minded musicians and marketing
people. Promotion is as easy as setting up a page on MySpace,
Facebook or other social networking sites. Smaller and newer bands
will earn less, because record companies will only be able to
promote lesser known bands on the back of major artists. But there
will be more new music to choose from, and more people will get
themselves heard.
Record companies will survive – but
they will have to be much leaner, much closer to my 'small is
beautiful' business model. They will have to discover genuine
talent. If you want to know what the future of digital download
really looks like, think of artists like Brian Eno, the producer of
Coldplay's most recent album Viva la
Vida, David Byrne, of Talking Heads fame and – above all –
Radiohead.
In 2007, when the Oxford-based band
said that they were going to release their album In Rainbows as a pay-what-you-like digital
download, they were branded as barmy, throwing away their
intellectual musical property. For fifteen years, Thom Yorke and
Radiohead have been major-selling rock artists. They were out of a
record contract, had their own studio and their own server, and so
the costs of distribution were minimal. It was a gamble – but it
worked out, and 40 per cent of fans paid an average of £3 each for
the album, making the band nearly £1.5 million. Not only that, but
they have licensed the music and it went on sale as a CD too. Yorke
said that as artists the band had made more money out of
downloading than all their other Radiohead albums put
together.
This kind of economics is smothering
the big labels. Madonna is another artist who has taken control of
her music in a recent deal with Live Nation which connects her
reputation for fantastic live concerts with the promotion and
download of her music by a website.
While recorded music has cycled
through different formats and various paths to making money have
been explored, music will always be something personal and
meaningful, resulting in a deeply emotional connection point for
people of all ages. As records have been pressed into vinyl, discs
and now ripped online, we at Virgin have been heading to the fields
each summer with hundreds of thousands of other fans in an annual
communal celebration of music and people.
In 1995 Jackie McQuillan and James
Kydd called me. 'Richard, we've got a great idea. It'll be a world
first, truly cutting edge and will give Virgin Cola, and naturally
(by association) all the other Virgin brands, great music
credibility, whether they're in music or not. Oh, and we've met
some fantastic, professional people who can help make it
happen.'
OK, I was beginning to guess where
this was going when James added (tongue in cheek, I have to say):
'Richard, we'll be doing it for the kids,' and Jackie threw in:
'Richard, I swear it'll be fucking huge!' I realised that no matter
what this great idea was, they'd talk me in to it.
Within a matter of minutes, after
they'd filled me in on the details, I found myself saying: 'If I've
got this right – V Festival would be the first ever music festival
anywhere in the world to be held on two days, on two sites, on the
same weekend by swapping international A-list bands overnight on
buses – from one end of Britain to another? What a brilliant idea.
I'm in …'To others, the logistics of this plan might have sounded
impossible to pull off – I decided to put my trust in the team and
back their gut instincts on this one.
By working with the most experienced
concert promoters in the UK – Bob Angus of Metropolis Music, Denis
Desmond of MCD Concerts, Simon Moran of SJM Concerts and Stuart
Clumpas of DF Concerts – Jackie and James knew they were talking to
the best in the business. None of the parties involved had ever
produced a festival like V before but they formed a good rapport,
and sometimes that's all you need.
The promoters recognised that the
Virgin brand could bring something different: a truly
punter-focused festival. A brand that believed everything appearing
on site should add value to the whole weekend experience – well-lit
campsites, directional signage that actually directed you
somewhere, longer bars to make sure there were shorter queues and
food that people might, for once, want to eat, and the introduction
of Virgin Angels to help anyone out if they needed information or
assistance. The attention to detail even got down to bringing in
ten times the amount of toilet rolls available on site compared to
any other festival. I doubt the promoters had ever had such long,
or heated, conversations about toilet rolls before, especially not
toilet roll printed with the words 'Poopsie and Cack'– a nice
little tribute to Virgin Cola's main two competitors!
Jackie and James, in return,
respected the expertise of these experienced promoters. After all,
they know how to get tens of thousands of people through multiple
gates at the same time without riots breaking out, they know about
staging, lighting, the temperaments of artists, and how to ensure
the safety and security of running a massive music event while at
the same time putting on a great show. Although, in true Virgin
style, the team insisted on hiring the friendliest security guards
in the business, ones who would be helpful and smile. Now that
really was a world first!
I am delighted to say the rapport
formed thirteen years ago is still as strong as ever. The UK V
Festival takes place every summer during the third weekend in
August on two beautiful sites, Hylands Park in Chelmsford and
Weston Park in Staffordshire. It is one of the largest and most
popular in the UK – attracting over 175,000 music fans in 2007 –
and plays host to more than a hundred bands. It's an industry
favourite, with the live-music business voting V European Festival
of the Year for the past seven years at the annual Live Magazine
Awards. Good thing I trusted their instincts!
Fast forward to spring 2006 in the US.
It's year two in our fight to launch our newest airline, Virgin
America, and there is no clear end date in sight.
While the US Department of
Transportation took its time making a decision, the design team
kept its head down and continued to create a revolutionary new
travelling experience for US consumers. But our patience was
frayed. We thought we'd have launched a new company by
now.
One day that spring, Virgin USA's Dan
Porter, who came to Virgin with extensive expertise in technology
and music, rang me up and said: 'Richard, Virgin businesses are all
inherently social, whether it's health clubs, mobile phones or
airlines. So is music. You've been building incredible communities
every summer with V Festivals in the UK, so while America waits for
the airline to launch, what do you say to throwing the largest
music and art festival on the East Coast? Give Americans a taste of
the Virgin brand?'
'How quickly can you get it going?' I
asked. A big splash could be just the thing, I thought, and it
wouldn't have to take as long as starting an airline. I do like
live music and believe in the rejuvenating powers of parties. And I
certainly enjoyed camping.
'Give us seven months,' Dan said with
a gulp.
Now, we'd never put a festival
together in the largest music market in the world, and what did the
Virgin USA team know about festival logistics, finding the right
campsite, locking down the best date and convincing 50,000 people
to give it a go? It took the right kind of magic and chemistry to
create something like the UK's V Festival. Could it be replicated
in America?
The US team decided to launch two
festivals, one on the East Coast in the US and one in Canada. Both
would be called Virgin Festival – we were lucky enough to have a
brand name that didn't sound like a corporation or a cleaning
product. We then had to find concert partners who shared our
vision; while the festival was a business, it wasn't just something
to make money but an extension of the brand and the Virgin
lifestyle, so every detail had to be perfect.
Two independent promoters with a
strong aesthetic sense and vision joined up: Seth Hurwitz, the last
great independent rock promoter in a cut-throat market of giant
corporations that were swallowing concert venues and record labels
whole; and Andrew Dreskin, promoter and trusted partner who had
started Ticketweb with Dan. They felt as strongly as we did about
putting on an incredible experience so they didn't hesitate to
spend an extra bit of money for the best line-up, the best
production, the best food, the best drinks. It was important to
stay true to the original values behind setting up V Festival back
in 1996 – a truly punter-focused festival. They identified
Baltimore as a site in the north-east that was under-penetrated and
in close proximity to hundreds of colleges and several key
mid-sized to large US cities. Virgin Mobile US joined up as a
sponsor and offered their expertise in marketing to a youthful
target audience.
Meanwhile, in Toronto, the Virgin
Mobile Canada team – including marketing gurus Nathan Rosenberg
(recruited from Virgin Mobile Australia to start Virgin Mobile
Canada) and Andrew Bridge – began to transform the lush Toronto
Island Park into Virgin Festival grounds.
Without a fantastic headliner, there
is no festival. In a stroke of luck and genius, the Who decided to
tour that summer and Seth signed them up to open for the Red Hot
Chili Peppers in Baltimore. It was to be their only mid-Atlantic
stop. Once the Who joined us, we knew the festival was going to
make a strong first impression.
Dan even convinced my son Sam to get
in on the excitement. In June, less than three months before the
festival date, Sam kicked off ticket sales at the Union Square
Megastore in New York City. He was flanked by a row of lads wearing
nothing but socks in a tribute to the Red Hot Chili Peppers.
Afterwards, Sam rang Jackie up in the UK and convinced her that he
did the media event in nothing more than a sock – thankfully, my
son has more modesty than his father and was only winding her
up!
I had a busy September that year. On
9 September I helped kick off Toronto's Virgin Festival and then
went down to New York to announce during the Clinton Global
Initiative that 100 per cent of profits from Virgin Group's
transportation interests would be invested in clean energy. Days
later, my wife Joan and Sam and I travelled to Baltimore for the US
festival. As I walked across the grounds and shook hands with
thousands of festival-goers, I was struck by the number of people
who thanked me for bringing Virgin and the festival to the US. Many
jokily thanked me for saving the Earth but I reminded them that it
is just as much their responsibility as it is mine!
While the North America market is
very different from the UK market, one thing was clear: we all love
a brilliant party. So we responded to each individual market but
also gave them signature Virgin touches, most of which were
inspired by the UK's V Festival. We wanted to be remembered for
unsurpassed production quality, Virgin Angels who helped people in
charming and unexpected ways, chill-out areas, delicious food and
beverages. We partnered with sub-sponsors who agreed to contribute
to the overall consumer experience, not just their logos, and our
stages weren't named after athletic shoes or radio stations.
Because we took it seriously as a business, people got to enjoy it
as a party. In 2007 we launched V Festival Australia (Sydney, Gold
Coast, Melbourne and Perth) and the Aussies definitely know how to
party!
In an era of digital downloads and
headphones that tune out the rest of the world, the live-music
experience offers something different, authentic and communal. It
provides a rare chance to gather with people to catch favourite
acts and also make unexpected discoveries. Little did we know that
thirteen years ago when Jackie and James came to me with the idea
of starting V Festival in the UK, we would be in the vanguard of
new music festivals in North America.
Just as competition is a great thing
for airline passengers, competition will be a great thing for music
fans. Many new festivals have sprouted up since that summer, and
eventually the best will last.
So, the milliner says to his son:
'Don't worry, lad. People will always need hats.'
What he means is: 'I will always need hats.' Hats are his life, and he
is proud of what he does.
Is his attitude a healthy
one?
Of course it is. No business lasts
for ever, and being true to your life's work carries with it the
risk that you may lose your future. This is the deal we make with
the world: that we exercise our free will and accept the
consequences. (I love ballooning, and it's almost killed me on
several occasions.) Every risk is worth taking as long as it's in a
good cause, and contributes to a good life.
Of course, if your business involves
the investment of other people's money, you are under certain legal
and moral obligations. You may have to adapt your business to meet
those obligations.
But I have every sympathy –
especially in the light of changes in the music business – with
those companies who delivered a thing well, with care and pride,
long after the thing being delivered had lost its currency. It's a
classic case of doing the right thing at the wrong time. Sometimes
it's a mistake. Sometimes – and there's not a business book on the
shelves will admit this sorry fact – it's not a mistake at all.
It's just something dying.
Virgin is not especially aggressive
in the marketplace. (We fight hard and long when we have to, but we
don't do dirty tricks and we don't go looking for punch-ups.) And
heaven knows, Virgin's success is not down to its crystal-clear
vision of the future. If it were, you'd be Virgining our company
valuations on the Internet rather than Googling them – and our
Megastores would have been sold off in the eighties.
Virgin's success is primarily down to
the consistent way it's delivered on its brand proposition. Closing
the book on Virgin Music was pretty
painful, whichever way you spin it. But because the central
proposition of the Virgin brand is about customer experience,
Virgin has overall found it less painful than most to innovate
products or services to satisfy changing consumer demands. For us –
and we may be unique in this – a change of industry, and a move
into a new sector, does not entail a
wholesale change in our philosophy or life's purpose.
What astonishes people is less our
ability to move into new sectors – after all, venture capitalists
do this all the time – than the speed with which we deliver.
Willingness to change jobs is one thing, but how do we sometimes
manage to hit the ground running so fast?
Delivery is
never rocket science. When we move from sector to sector,
I'd say about 90 per cent of our core delivery strategy comes with
us and slots straight in, without adjustment, without fuss, without
trouble. Getting to grips with an unfamiliar infrastructure is
simply a question of workload – of mastering
detail. I haven't yet had to be initiated into the mysteries
of a cabal, and neither have the people I work with.
However complex the business is, you
should be able to boil it down to a proposition that ordinary
people can understand. When an industry delivers its proposition in
a way that's totally loopy and counter-intuitive, either you've
made an elementary mistake and need to go back to your research, or
the entire industry is pulling a fast one and is out to rip off the
customer. And if that's the case, then you, the wide-eyed innocent,
are like the boy who declared that the emperor wasn't wearing any
clothes. You are about to change everything.
This can happen. In fact, it happens
all the time. In fact, here at Virgin, we could write a book on how often this
happens.
Welcome – for starters – to the
airline industry.
There are a few contenders for
Virgin's greatest ever business deal. But the epitome of our spirit
was the way we hired a jumbo jet to start up Virgin Atlantic in
1984. Of all our enterprises, it's the classic case of snatching an
opportunity when it appears and making it happen. The creation of
Virgin Atlantic is the perfect case study of how we have gone about
our business since then. Even today, many years on, it shows our
pure audacity and it still defies all business-school
logic.
I was interested in an airline as a
business idea, but it was really my frustration as a frequent flyer
that crystallised the idea for me. I was spending more and more of
my time in the air and, along with everybody else, I was having a
thoroughly horrible time of it. There were no redeeming factors
about flying with British Airways, PanAm or TWA. The quality of
service was dire and the staff looked bored and morose. Then, at
the turn of the eighties, came the straw
that broke the camel's back.
Joan and I were supposed to be flying
from the Virgin Islands to Puerto Rico, when the scheduled American
Airlines flight was cancelled. The terminal was full of stranded
passengers. I'd had enough. I called a few charter companies and
agreed to charter a plane for $2,000 to Puerto Rico. I borrowed a
blackboard, divided the charter cost by the number of people
stranded, and wrote down the number. We got everyone to Puerto Rico
for $39 a head.
The utter frustration I had been
feeling while flying on other people's airlines convinced me that
Virgin Atlantic should be a fun airline with a ring of quality and
one that got all the little details right from the start. But our
big break had to wait till February 1984, when an American lawyer
called Randolph Fields came to me with news that there were landing
slots available for a British-based carrier from Gatwick airport,
outside London, to Newark, New Jersey. Randolph had been hawking
the idea of a budget business airline around all the usual
airlines, but they were too close to the realities of the market
and remembered the harsh lessons of Freddie Laker and Florida-based
People's Express – airlines that had both collapsed under pressure
from the four transatlantic flyers, British Airways, British
Caledonian, PanAm and TWA. The established airlines had conspired
to put Freddie out of business by putting pressure on McDonnell
Douglas not to supply him with planes; they persuaded the banks not
to lend to him when he needed it; and they slashed fares to
undercut him. It was a good old-fashioned mugging, and it
succeeded. The British public never forgave them, but what did they
care?
Randolph had obviously drawn a blank
and I must have been on a list of his last-gasp record-label
mavericks. In any normal business an unsolicited caller might get
through to the chief executive's PA, then be told to drop a letter
in (or these days, send an email) to arrange a meeting on another
day. Back in 1984, however, we were based on the canal boat and I
made a point of answering my own phone. Randolph got straight
through to me. He had a very persuasive pitch: he told me there
were lucrative landing slots up for grabs but they had to go to a
British carrier. Not only this, but nobody else would be able to
get in on these slots once they were assigned. It was a genuine
opportunity. Was I interested? I asked him to send me a proposal
and I took it with me to the country to read over the
weekend.
Randolph was proposing a
business-class-only airline, but I thought a mix of business and
economy would be better so that we could fill the planes at Easter,
Christmas and bank holidays. I agreed to put £1 million into the
project to get it going. In the meantime, I needed to become an
airline expert overnight.
I phoned Freddie Laker and he told me
I didn't need to buy a plane – that wasn't the way it was done. He
explained that the banks bought the plane in a deal with either
Airbus, Boeing, Lockheed or McDonnell Douglas, and then the
airlines leased the planes, guaranteeing to pay monthly
fees.
I put in a lot of the legwork to find
out all I could about starting an airline. We registered the name
Virgin Atlantic and submitted our application for the slots. Then I
found the Boeing telephone number through international directory
enquiries. The actual conversation still makes me laugh. I remember
calling Seattle and asking to be put through to the senior vice
president for sales. 'Hello, this is Richard Branson from Virgin
here and I'm interested in acquiring a secondhand 747,' I said in
my politest English accent.
The guy at the other end said: 'What
does your company actually do?'
'Well,' I said, 'we put out bands
like the Sex Pistols, Boy George and the Rolling
Stones.'
'Oh. Really? What did you say your
company is called? "Virgin"?'
At the time, worldwide aircraft sales
were in the doldrums and Boeing was having problems shifting its
fleet of second-hand 747s, with many parked up and decommissioned
in the Arizona Desert. So he didn't put the phone down on me. I
think perhaps he was intrigued by my chutzpah. He took my details.
And he jokingly said at the end of our conversation: 'With a name
like Virgin, as long as your airline goes the whole way, we'll
consider selling you a plane!'
Boeing sent a salesperson over to
meet me. He was a lovely old guy who stayed in a hotel for four
months while we tried to get the deal sorted. Boeing finally agreed
that if the airline didn't work out, they would take the plane back
at the end of the first year.
This meant that we could start our
airline knowing that, if I screwed up completely, I had hedged my
bets. Looking back, it was one of the best decisions I ever
made.
What's the most critical factor in
any business decision you'll ever have to make? Basically, it boils
down to this question: If this all crashes,
will it bring the whole house tumbling down like a pack of
cards?
One business mantra remains embedded
in my brain – protect the downside. By
having the option of giving Boeing their plane back after a year,
Virgin's total exposure was £5 million – half what we were making
at Virgin Records. So we were gambling an acceptable six months'
loss, for an enormous potential upside. If disaster struck, it
would hurt us, but it wouldn't bring the whole pack of cards
crashing down. 'Protecting the downside' is one of the very few
business tenets that we try to adhere to at Virgin. Yes, there have
been occasions when we have broken our own rule, times where I've
said, 'Screw it, let's do it,' mortgaged my home and really stuck
my neck out. But that's something I don't recommend.
It was soon very clear that there was
no way we could launch a new transatlantic airline unless we had
working capital of at least £3 million. We had to raise more
cash.
While all this was going on, I knew
that we needed to run Virgin's other businesses on a more
professional footing. So I approached Don Cruickshank about joining
as chief executive to sort us out. Don's arrival freed me up from
the record business to learn more about the airline
industry.
I phoned Freddie Laker (again) and
invited him to lunch on my houseboat Duende and he told me why he had failed – and what
I must do to avoid his mistakes. He warned me that British Airways
would become the enemy, that they were ruthless and had destroyed
his business.
We had to protect ourselves against
currency fluctuations. The fixed instalments for the jumbo were due
in US dollars, but sterling's value was plummeting against the
dollar. Our customers were paying for tickets with UK pounds, and
we had to be careful not to get stung.
We were also responsible for
insurance – and here we nearly came unstuck. We could only get
insurance when the Civil Aviation Authority in the UK had given us
full certification for airworthiness. So we undertook a test
flight, the plane took off – and a flock of birds flew straight
into the engine. Which exploded.
A new engine was going to cost us
£600,000 – and, naturally, because we'd had to abort the test
flight, we weren't insured yet. This nearly brought down the whole
of Virgin as it just took us over our overdraft limit. Don and the
other directors wanted me to postpone the launch date, but once I
was sure everything was safe, I wanted our airline to get
going.
In those four months or so to get the
airline going, we had to learn every single thing about the airline
business, from reservations to ticket sales and whether to sell our
tickets through travel agents or to sell them direct. I had to find
out about marketing to let people know about our new airline, and
to design and colour the plane. At night, I worked on planning the
interior designs, selecting fabrics and even discussing the menus
and the choice of wines. We had little or no budget for
advertising, so I took Freddie's advice. He told me not to be shy,
and to use myself to promote the business.
Four months to learn how to deliver
an airline. Not easy. But definitely doable. Those business leaders
who seek, in interviews and in their writings, to turn their
industries into complex puzzles, subtle chess games of one sort or
another – these people really, really annoy me. It isn't enough for
them that they're good business people: they have to be Confucius.
To listen to them, you'd think you must be born into an industry to
make any headway in it. And this is rarely true unless you are
truffle hunting. A basic understanding of the business, gleaned by
immersing yourself in every little detail for months or even weeks,
is often enough to get you started. The volume of information
you'll need to hack through will be high – so find some friends to
help you – but the underlying business model is always fairly
simple.
Remember to
communicate, and pay attention to detail. You wouldn't
believe how far you can get, just by remembering and practising
those two rules. But the evidence of their effectiveness is there
for all to see, on our Virgin Atlantic flights. And many of our
original decisions are still in place. The bar in our business
class was unique to Virgin at the time, and it's still there. The
ruby-red uniforms were really gorgeous outfits, and they still are.
We went for a first-class product but charged a business-class fare
– and that remains our philosophy today.
So, on 21 June 1984, we took to the
air from Gatwick in Maiden Voyager. It
was a flight for many friends, family and other well-wishers. Joan
and I sat with Holly on our knee throughout the flight. But the
airline was very nearly stillborn. The day I returned, Coutts Bank
visited my home to say that since we had reached the overdraft
limit, they would now start to bounce our cheques. Here we were,
one of Britain's most successful private companies, and expected to
make £12 million profit, and they were threatening to make the
whole Virgin group insolvent because we were just over our £3
million facility. As I said, communication is important – and to
that we might now want to add the words, 'especially communication
with one's bank!' But honestly, in my view, at that time, Coutts
was hopeless. Short of employing a spiritualist and a Ouija board,
we were never going to get through to these people. They had no
insight at all into our individual projects and subsidiaries. This
would have to change. By the end of the week we'd switched banks to
Lloyds, who increased our overdraft facility tenfold to £30
million. Don't be afraid of changing your bank if they are
unreasonable. Banks are not for life. But don't put it off till the
last minute!
Cash flow was exceptionally tight in
the early years. Passenger numbers were highest in the high-summer
season, yet our costs were fixed throughout the year. But the
exciting feeling for everyone at Virgin Atlantic was that people
loved flying with us from the very start. We had a sense of humour,
which I think is important, and our pilots and cabin crew were all
up for the great adventure. My nasty experience with Coutts Bank,
meanwhile, had taught me that we needed to have a professional
relationship with our bankers – keeping them informed of every move
and letting them know precisely our intentions – and we needed
corporate managers such as Don Cruickshank to do this for
us.
In the fairy tale, when the little boy
starts laughing and pointing at the naked emperor, everyone –
including the emperor – realises the emperor's mistake, and the
little boy is instantly vindicated.
Well, life's not like that. Let me
quickly tell you of a couple of occasions when we laughed and
pointed at some ludicrous business absurdity – and the emperor's
ministers rushed over and promptly smothered us.
On 25 October 2003, Matthew Parris
wrote in The Times: 'When we were
younger we thought ourselves the first generation when everyone
would fly faster than the speed of sound. We were to be the last,
not the first.'
He was writing about the last
commercial flight of Concorde. The BA 002 service from New York
touched down at London Heathrow at 16.05 on 24 October 2003,
bringing the first supersonic transportation era to a close
twenty-seven years and nine months after it began.
British Airways and Air France's
decision to ground the fleet was a disgraceful one because it was
taken and executed to ensure that nobody else could ever fly the
planes again, in some cases by literally cutting off the tips of
their wings. It was an insult to Concorde's engineering brilliance.
We knew that we could make a go of the service, and Virgin mounted
a Save Concorde campaign. But it came to nought, due to British
Airways' insistence that no one else could maintain and run the
fleet. They hurriedly dismantled the planes and dispersed them to
museums around the country – just to make sure. It was a deplorable
way to end such a glorious era.
At the post-flight bash British
Airways chairman Lord Colin Marshall was keen to show the 300
guests, who had just arrived on the three flights, the live BBC
news report of the historic arrivals. To his horror, the soundtrack
accompanying the picture turned out to be by John Hutchinson – a
former Concorde pilot! John lambasted British Airways for retiring
the aircraft while still in its prime, and very generously sang my
praises for trying to keep her flying.
Sir Colin disappeared behind the
screen – and the sound suddenly cut out, apparently interference
from all the TV satellite vans parked nearby . . .
The moral is that it is important to
stick to your guns. The public isn't stupid, and I think we've
reaped huge rewards for being forthright in the
marketplace.
In 1997 I came to share my experience
about the lottery business with Thabo Mbeki, who was then the
deputy president of South Africa. I thought a national lottery
would be an excellent way of raising vital funds for the
nation.
A lottery is a licence to print money
because there is no competition. There are no risks at all in
running a national lottery, and it is also one of the easiest
companies in the world to set up. The formula has been tried and
tested worldwide. In almost every country and state the lottery is
run so that 100 per cent of the profits go to good causes. The
country appoints a trustworthy business person with lottery
experience and he or she hands the profits straight to the
government's charitable arm for distribution to the most important
causes in the country – usually for education, health or fighting
poverty. What these lotteries don't have is a level of shareholders
creaming off the profit between the person running the lottery and
the good-cause fund.
I had made two unsuccessful bids for
the National Lottery in the UK – in 1994 and 2001 – and to this day
it still perplexes me that Camelot, the company that runs the
lottery on behalf of the government, and who employed GTech (one of
whose directors tried to bribe us during our bid), has been allowed
to make so much money at the expense of good causes.
There was not a lot of love lost
between me and Camelot in those days. The lottery company once
hired Madame Tussaud's, the famous waxwork attraction in London,
for a corporate evening. A brother of one of our Virgin Atlantic
staff was at the party and found that my wax model had been
temporarily removed and put in the broom cupboard for the evening.
Actually, I think my effigy took one look at the company it was
keeping, and walked.
So I said that if South Africa set
its lottery up in the right way, it could be a provider for good.
But I was anxious they didn't make the same mistake as Britain. I
was seriously concerned that some in the business community were
putting pressure on the government to set it up as a profit-making
scheme for the business community.
I pointed out that the Conservative
government in the UK made that mistake in 1994 and instead of the
lottery being something the whole country has been proud of, it is
talked about, even among regular ticket buyers, with some contempt.
At the time, the opposition Labour Party realised this terrible
mistake and pledged to turn the lottery into the people's lottery
when Camelot's licence ended.
In 2007, with Labour still in power,
Camelot were given the licence for a third time – another political
promise broken by a government once in power.
I tried hard to convince Thabo Mbeki
and the president not to make the mistake that was made in the UK.
But it seems that, in the end, they also fell into the same trap as
the UK, and granted the licence to a commercial company, Uthingo
Management.
Sometimes you will fail to transform
a business because of other people's short-sightedness. Other
times, you fail because of other people's greed. It's that simple
and that galling. The fight you lost will turn out to be worth it
down the line: the public will respect you for it, and show you
great loyalty thereafter.
Delivery is the moment where your good
intentions meet the real world. Delivery is best approached
steadily, and with fortitude. You'll need stamina and patience to
deliver well – especially when everybody is out to kill
you.
For a long time I have nursed an
ambition: to run a profitable airline in America. The most
important word in that last sentence is 'profitable'. It was easier
said than done, and although the new baby is now doing extremely
well, the arrival of Virgin America, our airline in the US, was a
slow and painful birth.
The United States of America is
littered with the carcasses of British businesses – and rock bands
too – that have tried to make it big and then foundered. I wanted
Virgin to be different, and Virgin Records USA and Virgin Mobile
USA showed what could be done. But airlines – with their huge
amount of federal regulation, issues of ownership and industry
resistance – are a different ball game. It's a bit like Arsenal
playing in the American National Football League.
The first hurdle was the
certification process. Under US law, foreigners can own as much as
25 per cent of the voting equity in a US airline and an additional
24 per cent of the non-voting stock. I expected negotiations
between the US and the European Union on aviation treaties to
loosen this, letting in greater foreign investments and stimulating
competition. But it wasn't happening quickly enough, and we had to
ensure that at least 51 per cent of the business was owned by
Americans.
The arrival of Fred Reid to lead
Virgin America, in April 2004, was a boon. Fred, the former
president and chief operating officer of Delta Airlines, had a
welter of airline experience spanning more than twenty-five years,
and he knew his way around Washington, DC. Our legal and political
advisers were anxiously pursuing an operating certificate for
Virgin America. It was all highly sensitive, and Fred cautioned me
and the Virgin people that even the slightest off-hand remark by
any of us in any venue official or otherwise could easily trigger a
ninety-day delay in certification. It was election year, and our
application had unique aspects which made it frighteningly easy for
a hostile party to trip us up. And there were plenty of them: Fred
told me that every single airline in America was dreading our entry
into the market.
After 9/11 and its aftermath, I saw
an opportunity to capitalise on the weaknesses of the big US
carriers. United Airlines was operating in Chapter 11 bankruptcy
protection, and American Airlines and Continental were slashing
costs and staff to compete. I've been asked if there are such
things as insurmountable problems in business. I think there were
for these legacy airlines, with their large payrolls, outmoded
practices and ageing fleets of planes. According to The Economist in 2007, their own poor management
and circumstances beyond their control – oil prices tripling,
terror attacks in 2001 and a plummeting dollar – lost them a
cumulative $35 billion in the five years to 2005, a mind-blowing
amount of money for investors to lose.
We honestly thought that by abiding
by the rules of the US government and the Department of
Transportation, a timely decision would be made. We did not expect
it to drag on and on. Our application turned out to be a lesson in
naivety. The US DOT is not accountable to anyone about when it
approves applications, and it took its own sweet time. Existing US
airlines, although visibly failing to serve the public with decent
fares and service, became involved in a spectacular filibustering
process to delay and deter us from getting off the ground. We were
a visible threat, with our new fuel-efficient aircraft and a
genuine focus on the consumer experience. Noticeably absent from
all the ganging up were the two airlines we'd surely compete with:
JetBlue and Southwest. You would think they had more to lose yet
these two healthy and strong airlines didn't jump up and down and
cry, 'This isn't fair.'
To meet the DOT's hurdles, the Virgin
Group moved heaven and earth, making concessions beyond what was
required by US law. Fred Reid reassured the American regulators
that our airline was indeed 'Born in the USA'. A tranche of
sophisticated investors were on board, and those investors hired
Don Carty, a thirty-year industry veteran and former chairman and
CEO of both Canadian Pacific and American Airlines, to lead the
board. Virgin had a statutory right to three board directors but we
gave up one.
Eventually, in May 2007, we were
granted approval – but there was a sting in the tail. Fred was told
by the Department of Transportation that since he'd been taken on
by me personally (which was not true) – and I was a foreigner – he
would not be allowed to run the business.
This was a blow for Fred, and for us:
we had to find someone else to lead it. Virgin America should have
been ready to launch at the end of 2003. Instead it launched in
August 2007. It had taken nearly four years – Virgin Atlantic took
four months. During our battle to cut through the Gordian knots of
US regulation, six new planes sat idle on the ground for nearly
eighteen months. They alone burned $11 million before we made a
penny. In its first year, Virgin America has won all sorts of
awards, including Zagat's 'best
first-class service in America' and 'best domestic airline' in
Travel + Leisure's World Best Awards.
The airline has stimulated competition among carriers and created
thousands of jobs. And as a consumer champion, Virgin is making
good on our promise of a better overall experience and better
prices whether you fly Virgin America not.
Virgin America's new president and
CEO David Cush, formerly of American Airlines, and his team have a
unique business model with the kind of flexibility needed to
cleverly navigate these turbulent times. They're continuing to
deliver a great flying experience to a small but growing number of
urban point-to-point centres. Now the battle is to make the airline
profitable. At a recent Washington Aviation lunch an American
Airlines director said to a colleague that it was ironic that
American Airlines had lost one of its best people as a result of
its own lobbying on Capitol Hill to get rid of Fred Reid. Some
clouds do indeed have silver linings.
All businesses, at least when they
start, want to be agents of change. This is not always easy –
especially if you're operating on a shoestring in a developing
country with poor infrastructure, and where the delivery systems
are held together by little more than bribery. In those
circumstances, pretty much anything new is a threat to your
business.
Equally, it is all very well being
cast as an agent of change in an ambitious, developing country –
but you can never afford to forget that your arrival is going to
hurt people. The welcome changes you're bringing in may well look
like threats – and almost certainly will
be threats – to existing interests. These interests may look
rather paltry to you, but they're life and death to
some.
Knowing when to
tread carefully, and when to put your foot down, is a lesson
all businesses must learn, if globalisation is ever to bring about
change for the better.
June 2004: I was with my family,
playing tennis in our garden in Oxfordshire, when the call came
through. I wasn't too surprised to get the summons. For a few
years, I had been in discussions with several Nigerian officials
about airline services into Africa. Now I was to go to Paris and
meet the Nigerian president himself.
Nigeria is a great entrepreneurial
nation and there are many excellent business people throughout the
country. But it is hampered by poor infrastructure.
Chief Olusegun Obasanjo, now the
former president of Nigeria, is a commanding character. A retired
army general who has served his country, he is a towering presence
throughout Africa. What I liked about President Obasanjo was that
he came across to me (then) as a very honourable man. He liked me,
and I him. That's the way it is in business. The president was very
open and honest about the problems of the past. He was now pursuing
a programme of privatisation. The airline industries, however,
posed serious difficulties, particularly regarding regulation. In
the past, the president acknowledged, there had been all kinds of
shady deals and lobbying done between the airlines and the aviation
suppliers. He wanted a much fairer and transparent system. (Later,
in my notebook I wrote: 'In all my dealings
with him and his cabinet, never a hint of corruption. A desire to
cut through red tape and get things done.') I agreed, saying
that we weren't interested in being involved with anything that
meant backhanders or 'special' payments. If he wanted us to help,
then we would work together on a basis of trust.
The airline industry across parts of
Africa has an atrocious record on safety – planes crash quite
regularly, particularly in Sudan and Nigeria. I wanted to use our
expertise to make a difference. But I was also very mindful of
affronting people's sensibilities – a Westerner criticising a
developing nation even as it tries to turn things around. My
experiences with Virgin Nigeria were to throw these tensions into
sharp relief, as we struggled to attain world-class excellence in
an underdeveloped and undercapitalised industry.
I had told the president that my
vision was the creation of 'a world-class airline with a spirit of
Africa and Nigeria at the hub'. It was certainly something that
Obasanjo thought would give Nigeria a renewed sense of stature. But
we had to set about a serious issue: the African air traffic
control system was in need of overhaul and investment, its
operators were in dire need of retraining – and Nigeria had one of
the bleakest aviation track records in the world.
In early September 2004, I was in
Nigeria's capital, Abuja, for another meeting with the president.
It was nearly 1 a.m., and a long queue of Nigerians were waiting
patiently in the corridor of one of the city's best hotels.
Fortunately I was able to jump the queue, as government advisers
whisked me to his top-floor suite.
He put his hand on my shoulder and
said: 'I like you, Richard.'
'Thanks, Mr President,' I said,
rather bowled over by such a welcome. 'Erm, what is it about me
that you like?'
'I like the fact that you never wear
a tie. I hate those stuffy English gentlemen with their
ties.'
Our talks went extremely well and I
was able to say that he could be assured of Virgin's commitment to
his country. We shook hands on the deal, and the next day we
launched a new airline for Africa.
I knew the president admired our
flagship, Virgin Atlantic. Though launched as a cut-price airline,
its success was also based on giving the business traveller the
best customer service in the world. We'd offered our business
travellers what first-class passengers on other airlines didn't
get. We had pioneered comfortable reclining seats, flat beds,
lounges with hairstylists and masseuses, and a motorcycle and limo
home-pickup service.
In economy, Virgin Atlantic was the
first to provide personal video screens in every seat-back, so that
the traveller could choose the films and television shows he or she
wanted to watch.
Nigerian Airways had been the
nation's flag carrier from 1965 until 2002, but it had been overrun
with bureaucracy and riddled with corruption. During the summer of
2004, the Nigerian federal government proposed a new flag carrier
as part of its privatisation process. They wanted Virgin's support.
On Tuesday 28 September 2004 – the same week we were making an
announcement about Virgin Galactic – I flew from London to Abuja to
join President Obasanjo once again and the Minister of Aviation,
Mallan Isa Yuguda, to sign a Memorandum of Mutual Understanding,
which formally established Virgin Nigeria as a new flag
carrier.
The airline was created with a $50
million investment, the shares split between the Nigerian
investors, with 51 per cent, and Virgin Atlantic, with 49 per cent.
The aim was to widen the offering in time on the Nigerian stock
exchange. It was set in stone that the home base would be Murtala
Muhammed International Airport (MMIA) in Lagos, flying to London,
Abuja, Kano and Port Harcourt, then to Abidjan, Accra and Dakar.
Although we'd be a minority partner in this new airline, I wanted
us to bring all our expertise to help our Nigerian partners create
the best airline, not just in Africa – but in the
world.
We brought in Simon Harford, who had
worked with Barbara Cassani on setting up British Airways' low-cost
airline, Go, to be the CEO, and he set about his task with
alacrity. He signed up KPMG and Philips Consulting to handle
recruitment – a key area for us. We were swamped with applications
– nearly 25,000 wanted to join the airline.
Virgin Nigeria was to be built from
scratch: a modern airline with excellent service. We believed the
business would create several thousand jobs within five years and,
indirectly, a further 200,000 jobs.
We set about building a best-in-class
terminal for Virgin Nigeria at MMIA, and commissioned EDS to
deliver us an integrated airline reservations, ticketing and
baggage system that was as good as anything else in the world. We
signed a deal to lease the first of our Airbus A320s, with sixteen
business-class seats, for the domestic routes.
Meanwhile, Simon and his team were
working to finalise approvals from the Nigerian Civil Aviation
Authority. On 13 June 2005, tickets went on sale – via phone,
travel agents and the Internet – for our inaugural flight from
Lagos to London Heathrow, arriving at Terminal 3. The tickets were
sold out within a few days. We aimed to fly weekly at first and
then three times a week operating an Airbus A340-300, with 187
economy, 28 premium economy and 40 business-class
seats.
Our maiden flight left Lagos for
London on Tuesday 28 June. The aviation minister, Isa Yaguda,
presented the first group of trained cabin crew with their 'wings
to fly'.
In the following days the domestic
services would be launched too. The initial feedback was
tremendous. One regular flyer, Dan Ekpe, said the sight of Virgin
Nigeria's aircraft on the tarmac in London had filled him with 'a
sense of pride' that a Nigerian carrier was now doing a great
job.
In the first ten months, we flew
500,000 passengers on our six planes, two Airbus 340-300s, an
A320-200 and three Boeing 737-300s.
On 11 July 2005, President Obasanjo
sent Virgin a note to thank us for our commitment: 'I believe that
your role in the aviation sector will bring innovation,
competition, new technology and, of course, a lot of satisfaction
to the Nigerian public.'
He then went on to remind me that
there was a need to 'Nigerianise' the staff at all levels in order
to anchor the future of the airline on indigenous capacity from
management through to technical and cabin crew. 'I know that you
have put a quality training facility and programme in place. It is
my expectation that you will use these facilities to train
Nigerians in all critical areas of airline management and
operations.'
We did indeed. We put a lot of time
and effort into training and recruiting staff for the airline. We
set up a technical partnership with the Nigerian College of
Aviation Technology to train new pilots who would then be sent away
to get experience on short-haul airlines. We also set up
apprenticeships, and offered automatic employment to those trainee
engineers who successfully completed their courses.
Within the first year we were able to
expand services to Dubai, as well as increasing the internal
domestic routes from Lagos to Abuja, Port Harcourt and Kano, as
well as Lagos to Johannesburg.
In November, having taken the airline
through its momentous launch – a remarkable job in such a short
time – Simon Harford decided it was time for someone else to take
the reins; he announced that he was moving on. His job was taken up
by Conrad Clifford, who had come with me and Simon on my first trip
to Nigeria in 1996. It was a challenging time to be taking over,
but Conrad, who had set up Virgin Atlantic's operations in Nigeria,
was ready to take the airline to its next stage of
expansion.
However, I can't deny that I had some
concerns about the way things were going.
For the existing Nigerian airlines
there were serious problems. One was bankrupt, and while it had
enough cash to cover the cost of crews, landing and navigational
fees, fuel and insurance, there was no money left for reinvestment
and maintenance. Another had only one serviceable plane. The
remainder of its fleet was grounded because they could not fund
maintenance. This was a simply atrocious situation.
The Federal Airports Authority of
Nigeria still required a lot of help to make things work more
smoothly. The feedback I received told me that outside Virgin
Nigeria, things were being very badly run. It was going to take
time to create a superb new airline in Africa. Our competitors in
Nigeria still had planes falling out of the sky and customers
plummeting to their deaths.
On 22 October 2005, a 25-year-old
Bellview Airlines Boeing 737 took off from Lagos with six crew and
111 passengers on board. After passing through 13,000 feet, the
plane stalled, tipped and nosedived into the ground. Although the
aircraft came down nineteen miles north of Lagos, it took the
rescue teams nine hours to locate the wreckage. The plane had an
old search-and-rescue system which hampered search
efforts.
On 10 December, a Sosoliso Airlines
DC10 from Abuja crashed on landing at Port Harcourt, killing 109
people. Among those who died were seventy-one students of Loyola
Jesuit College in Abuja who were returning home for their Christmas
holiday.
A few months later, again at Port
Harcourt, an Air France jet was badly damaged after crashing into a
herd of cows. Thankfully, this time, no one was hurt.
Then, on 18 September 2006, a Dornier
228 military plane crashed killing fourteen officers, including ten
generals. In another Nigerian crash, a number of senior politicians
were killed.
Delivering the Virgin brand in Africa
is important – it must stand for the same values as in other parts
of the world: integrity, safety and a commitment to customer
service. Maintaining the highest standards of safety is something
that can never be compromised, and over the years several
international transportation groups have been forced to pull out of
Africa because the cut-throat local competition chooses to ignore
the regulations.
Working in the Nigerian marketplace
was becoming increasingly tough. I and my team in Virgin Nigeria
were growing increasingly frustrated. We were striving so hard to
build a safe, high-quality airline, but we found ourselves thwarted
at every turn. We were incurring all the costs of putting together
a quality operation from scratch, but in a market that put safety
and quality last. We were, in the end, just an airline: we couldn't
hope single-handedly to transform the industry's entire
infrastructure. We needed help.
I appealed to the president to ensure
that companies that were not prepared to operate to the correct
standards or who cut corners were dealt with rapidly. If necessary,
he should take steps to remove their Air Operator's Certificates.
It was simple: unworthy aircraft should be fixed – or
scrapped.
Not long after, a directive arrived,
forcibly ejecting Virgin Nigeria from its operational base at Lagos
Terminal 1 (home of Virgin Atlantic's Nigerian operation), and
relocating it at Terminal 2.
We wanted to keep all of our
operations in one terminal – to create a hub, rather than be split
across two terminals – and this was the binding contract we'd
entered into with the government. Conrad and his team were trying
to create an airline that could effectively compete on the world
stage. The airline had grown dramatically since 2005, operating
thirty flights per day with an excellent safety record. Splitting
the airline would increase costs considerably.
We prepared to challenge the
directive in the courts – and just hours before the hearing, agents
who appeared to have the approval of the Federal Ministry of
Transportation and the Federal Airports Authority of Nigeria came
in the night like mafiosi with sledgehammers and demolished our
business-class lounge.
I had to write to President Yar'Adua,
Obasanjo's successor, asking him to intervene personally in this
dispute. I knew that Nigerians wanted an international and domestic
airline that they could be proud of – and we'd worked hard to
deliver this. What we needed now was some common sense and cool
heads to ensure that disputes never again escalated in this
way.
Fortunately, the president took on
board what I said in my letter, and as this book is going to print
the issue appears to have been resolved.
*
Out of recession, new ideas and new
businesses often grow. But how do you deliver new products to a
market that's barely staggered free of the emergency room? How do
you get people who've spent the last months or even years
firefighting to think strategically? This was one of the challenges
facing me as I set out to create mobile networks across the
world.
Since 1995, I had been harrying our
Virgin management team in London to find a way into the growing
market for mobile phones. In the last fifteen years, the mobile has
become the personal possession that has most changed the way we
live and work across the globe. In 1998 more mobile phones were
sold worldwide than cars and personal computers combined. But the
early dominance of the giant mobile phone companies was not doing
the consumer any favours. I was increasingly frustrated and keen to
get involved, but we had neither the firepower nor the
infrastructure. What we had was the Virgin brand and a service
ethos.
Following Gordon McCallum's arrival,
we focused on mobile phones as the sector meriting our greatest
attention. One of the downsides was that Virgin Radio, our FM radio
licence, was doing well, selling advertising slots to the major
phone companies, and the management were trying to discourage me
from anything that might jeopardise their revenue. The competitive
mobile companies were spending huge amounts and there was a fear –
unfounded, in my view – that we might lose their
custom.
Gordon McCallum, Stephen Murphy and
the team identified a report from Goldman Sachs which they thought
might whet my appetite. It was all about MVNOs, and as you can
probably imagine, it wasn't exactly bedtime reading.
An MVNO is a mobile virtual network operator. It's a phone
company, but a phone company without any of the usual telecoms
paraphernalia. No telephone exchanges, no phone masts, no networks,
wires, switches or cables under the ground. Instead, an MVNO rents
time and bandwidth on another carrier's system.
I'm always scouring around for a
bargain. And you can usually track them down where someone has
produced too much of something and isn't selling enough even to
cover their costs. This was happening all over the telecoms
industry. The big mobile phone operators had paid vast sums upfront
for their mobile infrastructures – now they needed to pull in
revenue, and so were keen to lease time to others.
Our first call was to British
Telecom, the UK's national phone company, employing tens of
thousands of people. Since they had been privatised, BT had been
forced by European Union regulations to allow other phone and
Internet service providers to piggyback on its massive, fixed-line
network. Setting up our own stand-alone telecoms company didn't
appeal to us. During our talks I met Tom Alexander, a former
professional go-kart racer, who was working with BT Cellnet as
deputy commercial director. My instincts about people are usually
pretty sharp, and I liked Tom. He shared my passion for business.
(He later told me his father had been an inventor in the
horticultural industry, and that this had inspired his
entrepreneurial streak.)
We thought BT Cellnet would make a
good partner, so Virgin made an offer. We started fleshing out how
Cellnet as a 'consumer-focused, youth-oriented mobile business'
might work with us – and we were also keen to work with BT to
secure a third-generation (3G) mobile phone licence. Competition
for these five licences on offer in the UK was proving so fierce BT
Cellnet had to abandon discussions with Virgin to concentrate on
their bid (and, as we subsequently discovered, on one of the most
successful rebrands I can think of, to O2, with a much more
youth-focused orientation that competes head-on with Virgin
Mobile!). Nevertheless, I called Tom. 'Why don't you come over and
have a chat about setting up a new company?'
Tom came over that same day to my
house in Oxfordshire and we sat with a notebook and pen and plotted
how we might run an MVNO.
Gordon and I managed to persuade Tom
to jump ship, bringing with him his colleague Joe Steel, then in
his early thirties and a mobile phone whizz. Meantime, we began
looking for another partner, now that BT Cellnet had pulled out to
pursue its bid for a 3G licence. One2One was a company operating in
the south-east of England, in the area contained by the M25 orbital
motorway. The company was a joint venture between Cable &
Wireless and US group MediaOne, and they were keen to talk to us.
One2One's strategy of free weekend and evening calls had left it
with a network that hardly anyone used during the day. I was sure
that Virgin could fill their dead air.
We signed a deal on 1 August 1999,
announcing the plan to launch Virgin Mobile in November. Together
we were committing over £180 million to the joint venture, using
our high street chain of Virgin Megastores and V Shops as our
retail channel. But a few weeks later, Cable & Wireless
announced it was selling One2One. Deutsche Telekom swooped to buy
and it looked as though Virgin Mobile was dead in the water. I
decided to intervene. I went to see Deutsche Telekom boss Ron
Sommer to smooth the position. To their credit, the Germans got up
to speed with our plans incredibly quickly. And to our delight,
they liked what they saw: they agreed to proceed and signed off the
joint venture, with One2One now becoming T-Mobile.
The Virgin Group and T-Mobile each
invested £40 million, giving us £80 million. And we started
negotiations with Royal Bank of Scotland and JP Morgan for extra
bank debt of £100 million. It was one of the UK's biggest ever
start-ups, employing more than 500 people with plans for another
500 jobs within two years. City analysts Investec Henderson
Crosthwaite Securities valued the business at £1.36 billion – and
we'd yet to make a penny! We had the seed money. We had the
confidence of the analysts. Now we needed to prove ourselves.
Fast.
If you are a
late entrant to a market, you need to be radically different to win
over customers. First-mover advantage is often cited in
business as giving the early players the edge, but there are plenty
of occasions when this isn't the case. In Virgin's favour is the
power of the brand, and its arrival into a market can cause some
shock waves. This was what we hoped to do with the mobile phone
market.
While Tom and Joe were whizzes in the
telecoms field, they required an informal lesson in the Virgin
brand. The best person to deliver this was James Kydd, who had been
working on the launch of Virgin Cola. James was an advertising
executive who had known Will Whitehorn since their beer-drinking
days in the student union at Aberdeen University, and he had worked
in a number of high-profile consumer brand companies. Like so many
people who now work for Virgin, he arrived in 1993 to help the
airline for three months and ended up staying. We'd had a woeful
business-class campaign and I wanted to scrap it. James fixed it
and thought it would be fun to hang around Virgin for a while, so
we gave him one hell of challenge: the marketing of Virgin Cola and
Virgin Vodka. Taking on Coke was, as I'll discuss later, one of our
more ambitious business adventures. In 1998, I asked him to join
the team on the Virgin Mobile project as brand
director.
Meanwhile, the major mobile phone
companies were making the consumer's life complicated –
deliberately. Across Europe, the consumer demand for mobile phones
was shooting into the sky – yet the cost of the latest stylish
Nokia, Ericsson, Siemens or Motorola was often prohibitive. So the
phone companies began tying the unsuspecting consumer into two- and
three-year-long contracts. 'Confusion marketing' was the spurious
tag. A customer would sign up and pay for 200 minutes of voice and
100 text messages, but if they used more than this they were
charged more per minute not less, as you might expect for being a
good customer. This was barmy logic. Of course it was: it was
designed to fool people. The industry was deliberately shrouding
itself in complexity to fleece people.
James Kydd and Will Whitehorn
attended a day-long powwow at a Hertfordshire hotel to discuss the
way ahead with a dozen One2One people, including Alan Gow, the
finance director, and Tim Samples, the managing director. The
discussion was about how the Virgin brand might be effectively
applied to the mobile phone market. There were plenty of mobile
phone specialists there who could recite the technical spec, but
they weren't people who understood our brand. I heard later that
James and Will became a little aerated when they tried to defend
Virgin Mobile as a consumer-led mobile phone product.
For Virgin, a recurring problem has
been that some people who have tried to do business with us think
they have bought a label to stick on the front of a product – that
'Virgin' is only a marketing tagline. On the contrary, Virgin has
to be the consumer's champion, rather than just a bold red logo. It
has been a difficult job over the years, explaining the commercial
benefit of this approach – but I think the success of Virgin Mobile
has proved beyond a shadow of a doubt that it works. We started
from the basic premise: if you rip off the consumer, then you will
destroy the integrity of the brand. It's as simple as
that.
So we would not follow the 'confusion
marketing' of the other guys. I wanted the whole mobile business to
be simple enough that even I could understand what I was being
charged. It's a basic business message. If the directors can't get
their head around the pricing structure of anything, then how on
earth is the consumer going to work it out? And we would move into
the prepay market so that more young people and those on lower
incomes could join the mobile phone revolution.
We needed to keep the tariffs simple.
I wrote in my notebook: 'Let people know
exactly what they are paying for – and reward those who stay with
us. James said think tins of beans! (The more beans they buy the
cheaper the price.)'
James told me later that all the
phone people looked on in horror when it was suggested that we make
life easy for people. It wasn't what our telecoms partners wanted
at first. They wanted to continue with the established charging
structure. Joe Steel had experience of this kind of pricing plan –
so we asked him to turn it on its head. He got it straight away. We
looked at discounting – which had to be a central part of our
offering – and rewards for loyalty. If your whole family bought
mobile phones it would be cheaper; if it was a Virgin to Virgin
phone call it would be cheaper. So there was a distinct reason to
buy Virgin. We wanted people to come into Virgin Megastores to buy
their phones and purchase their prepaid vouchers for airtime, and
we signed up a huge number of places – filling stations, high
street chains, local corner shops, even nightclubs – where people
could top up their mobile phones.
For the launch we set a simple
tariff: 15p for the first ten minutes, then 10p for the next ten
and then 5p after this. Later, I wanted to make this even simpler.
We settled on 15p for the first five minutes and 5p after that.
There would be no confusion about peak or off-peak, local or
national calls. Calls to other mobile networks would be charged at
a flat rate of 35p per minute. Customers would pay £12.50 for a
one-off service pack, including a SIM card, phone number and £10 of
free airtime. And they would be able to buy their own phone,
choosing from seven models priced between £70 and
£380.
Once all this was set in stone I had
faith that the team we had put together would be able to run and
deliver a great business. I wasn't let down – each one of the
Virgin Mobile team could feature in a business-school case study of
how to build great collaborative business teams. Graeme Hutchinson,
who played with a heavy metal rock band that made two albums, was
our head of sales. Andrew Ralston in the customer services office
worked exceptionally hard to ensure consistency across our call
centre. Steven Day, the former Daily
Express journalist, joined as director of communications and
did a brilliant job of keeping us in the news, as well as helping
with investor relations.
Tom, Joe and the team had a real
sense of autonomy at Virgin Mobile. I didn't need to be involved
day-to-day, but I was sent regular information and figures, which I
looked at each night. From the off, the business acted like a
listed company – and that's how all start-ups should try to behave.
I loved going to the call centre in Trowbridge in Wiltshire to meet
the exuberant staff and join in the parties – they knew how to let
their hair down and I was exceptionally proud of them all – and
delighted for their success. The young Trowbridge staff would turn
out in force when I came to visit and they all volunteered to be
Virgin Angels at the V Festivals, helping people put up their tents
and handing out goodie bags. One of our parties got a little out of
hand and the local paper declared on its front page that it had
become an orgy, in which drunk young people coupled
indiscriminately in the nightclub car park. Good luck to them, I
thought: since outside it was minus ten degrees with a foot of
snow. Accurate or not, this nonsense was better than a full-page
recruitment advert – the following week we were inundated with
people wanting to work at Virgin Mobile!
The launch idea was a great caper
too: extremely saucy, it made the headlines in all the major UK
newspapers. On 11 November 1999, I appeared with seven very
attractive women – all naked, except for some strategically placed
orange cushions – announcing Virgin Mobile in a giant see-through
mobile phone in Trafalgar Square, in the centre of London. Our
slogan was: 'What you see is what you get.' I said the confusing
range of offers and tariffs out there was just there to fool
people, and that if everyone in the UK with a mobile switched to
Virgin, they would save a combined £1.6 billion per
year.
The Metropolitan Police turned up to
find out if our lovely ladies really were stripped bare. We made a
swift exit.
I had no idea, back then, how
successful this business would become.
On 21 February 2001, I was in Cannes
at the 3GSM World Congress, and I announced our intention of making
Virgin Mobile the first global MVNO, with non-stop plans to serve
ten countries across five continents in the coming years. I
informed the delegates about our partnership with Singapore
Telecommunications which would result in the launch of Virgin
Mobile Asia that summer, and said that partnership plans for Virgin
Mobile USA would be announced imminently.
I said Europe, Africa, China, India,
Indonesia, Hong Kong, Taiwan, Vietnam and elsewhere throughout
South-East Asia and the Pacific Rim were all ripe for MVNOs. I felt
I had to explain how it all made sense. 'I believe no
self-respecting GSM or future UMTS network could afford to be
without an MVNO.' (There were so many acronyms in this business,
I'd had to spend the morning rote-learning them. For the record,
GSM stands for Groupe Spécial Mobile – the most popular world
standard for mobile networks. UMTS – Universal Mobile Telephone
System – is its successor.)
It was easy to see why you might want
to set up an MVNO. The start-up costs are tiny compared to buying
an existing mobile business, and practically non-existent when
compared to the cost of building a new network. But what were the
benefits for existing network operators?
MVNOs are great at cutting network
churn. If a customer is going to leave an operator isn't it better
that they go to the MVNO partner than to a rival? Then at least
they are still on the network and there's a half-share of ongoing
revenues. The MVNO has its brand and the network has its own brand,
and different brands attract different people. Two good brands
together will invariably attract more custom than one good brand on
its own. So, I argued, networks should think of MVNOs as a kind of
insurance policy. Collaborating with an MVNO spreads the risks of
the business. The 3G standard had made a lot of extra services
possible – from on-the-go email to video messaging – but no one
really knew how best to exploit, package or sell these services.
'So,' I argued, 'an MVNO with a different strategy on the same
network increases the likelihood of success, while stimulating
traffic and revenues.'
It wasn't the wittiest presentation I
had ever given and it wasn't the glitziest. But my audience was
certainly paying attention. The market was in a quandary, and
people were anxious to find 3G business models that would
work.
The original mobile networks were
built mainly for ordinary voice telephony, and assumed transmission
rates that these days seem quite slow. At the end of the 1990s, the
International Telecommunication Union created a new set of
standards called 3G, so that network operators could offer users a
range of more advanced services, including video calls and
high-speed Internet access. Because 3G networks each use a much
narrower band of the radio spectrum than the old networks, there
was now room on the spectrum for newcomers to come and try their
hand at the mobile telecoms business. At least, that was the
theory.
What actually happened was rather
different. In Germany and in the UK, for example, the governments'
auctions of 3G licences impoverished the very markets they were
supposed to encourage. In the UK, the auction effectively imposed a
crippling tax on mobile phone operators. It all helped Gordon Brown
and Tony Blair and their New Labour project. The money heading for
the UK government's coffers was an unbelievable £22 billion, which
was a lot of schools and hospitals. To that extent you could see
why they were tempted into taking advantage. But it backfired in a
way, as the auction winners spent so much on their licences that
they ended up really dragging their feet building their networks
and developing the very services that the government wanted to
promote! We were concerned that T-Mobile might not give us access
to 3G, so we wanted to bid ourselves.
Our consortium decided to stick at
£1.5 billion, and when bidding for licences began, we were
decisively outgunned by silly money. On 5 April 2000 we pulled out
of the bidding. At the end of April, the winners were announced:
TIW, the Canadian Telecoms company in which Hutchinson Whampoa,
better known for 3, have a stake, paid £4.3 billion; BT, One2One
and Orange, around £4 billion; Vodafone paid a swingeing £5.9
billion!
We had had a lucky escape by sticking
to our principles and only bidding what we thought the licence was
worth, not allowing ourselves to get carried away by the open
gambling nature of the process itself.
*
In February 2001, as I was speaking at
Cannes, describing what I believed was the future for mobile
telecommunications – even as I was juggling, or trying to juggle,
all those unlovely capital letters, like something out of Dr Seuss
– Virgin Mobile's plans were gathering pace in the United
States.
In America, the problem with the
mobile market wasn't so much that the government had sucked the
blood out of it, but more that everyone was reeling from the sheer
cost of creating the infrastructure you need to take full advantage
of the 3G standard. In the wake of deregulation, companies had
piled billions of dollars into new communications gear to deliver
everything from telephone services to viable TV networks to
high-speed Internet capacity. The capital spending on
infrastructure was massive – more than $100 billion in 2000. Dozens
of telecoms start-ups set in place during the previous few years
began running out of money and folding. Between June and September
2000, the telecoms giants in the US also began to melt down.
Business Week in September talked about
an industry downturn as the Big Three local phone companies –
Verizon Communications, BellSouth and SBC Communications – watched
their shares slide.
Annual revenues – increasing at a
respectable 10.5 per cent a year – were simply not keeping pace
with the cost of these soaring capital projects. Investors were
getting their fingers burned. This was what made Virgin Mobile's
MVNO such an intriguing option for our new partners,
Sprint.
The problem was, Sprint was hurting
just as much as everybody else. They were spending more and more
time firefighting, less and less time thinking strategically.
Shaken by a bad set of quarterly results, Sprint began to lose
their enthusiasm for our innovative scheme. Things began to look
dodgy and after nearly a year and a half of discussions and
investment there was pressure from the finance team to shut it all
down. Charles Levine, the president of Sprint PCS, the wireless
division of the US telecoms giant, wanted to go ahead, but he was
facing strong opposition. It was time for a last-gasp effort.
Gordon encouraged me to phone Sprint's group president, Ron LeMay,
and the chairman and chief executive, Bill Esrey.
I said it wouldn't cost them a
lot.
No response.
I said it would make money for them
in a new category.
Nothing.
I wheeled out the big guns. I told
them we could transform their stuffy image.
Nothing.
'Look,' I said, fairly desperate by
this time, 'you need a brand like Virgin. Right now you're the
phone company of choice for . . . for young
Republicans.'
And Bill changed his
mind.
We were on.
In June 2000 Red
Herring, the business technology magazine, listed the '100
Most Important Companies in the World' and their branding. Virgin
didn't make the list. Forbes magazine
spent time following me for a cover story in July 2000 and its
writer Melanie Wells concluded that our brand was stretched too
thinly across too many businesses. Gordon McCallum had told me to
my face that Virgin was still 'a British brand'.
We needed to be more focused and show
we could deliver an outstanding product to tough international
markets. We needed to prove ourselves in the right place. And that
place was the United States.
In October 2001, Sprint and the
Virgin Group officially announced our joint venture – a
Virgin-branded MVNO running on Sprint's PCS digital system. Our aim
was to target fifteen- to thirty-year-old consumers in the United
States.
Our eyes and ears in America was
Frances Farrow. I'd asked her to join the board of Virgin Atlantic
back in 1993 and she was a thoughtful and incisive person. She was
now CEO of Virgin USA, the headquarters of the Virgin Group in
North America, responsible for expanding the Virgin brand,
developing new business and managing investments in the
region.
Conventional wisdom had it that the
prepaid market simply wouldn't work in the United States. Prepay
phones effectively guarantee anonymity, and people told me that the
only people wanting phones like this were the three Ps market:
pimps, pushers and prostitutes! We were less than charmed by that
argument. We said that it was fundamentally wrong; that the prepay
phone was an attractive category for younger people who didn't want
to lumber themselves with niggling financial
commitments.
We were reminded of an extremely
smart guy called Dan Schulman, the CEO of Priceline.com, one of the
most recognised brands on the Internet. Dan, who had previously
been president of AT&T's consumer markets, was just then
bringing Priceline.com into profit. We had already been talking to
him about Virgin Atlantic flights on his price comparison site; now
we began talking about the future of mobile phones. On 15 June
2001, we were able to confirm the rumours – and we launched Virgin
Mobile in the USA.
In the UK, we had now signed up our
one millionth customer. In just nineteen months we had established
a record as the fastest growing mobile business Britain had ever
seen. (It had taken Orange more than three years to hit a million
customers, One2One in excess of four years, Vodafone more than
eight years and Cellnet almost a decade!)
We were already rolling out Virgin
Mobile Australia to a market that was gasping for innovation;
Virgin Mobile Canada, France and South Africa would follow once we
had perfected the business model. In a Memorandum of Understanding
with Sprint, we said our intention was to launch a Virgin
Mobile-branded joint venture company in the USA.
Sprint would be hosting the first
MVNO in the US. This gave us a head start; but I knew that others
would be watching with interest, and it wasn't long before Disney
tried – and failed – to do their own MVNO deal. We soon needed a
larger injection of capital. We needed a bigger corporate hitter.
We asked the executive headhunters Heidrick & Struggles to
scour the market and they coincidentally suggested Dan Schulman who
moved to us from Priceline.com in May 2001.
Complex as this account has been, I
hope it's clear by now that you don't necessarily need an
accounting or a legal brain to run a successful business. Our
approach has come by asking questions.
What if we create a product and it's
the best in the world – will there be a market for it? The answer
to this isn't as obvious as it looks at first. If quality always
won out in the marketplace, the Betamax videotape format would have
trounced VHS and there would be more Apples than PCs.
If, on the other hand, I asked you:
'Do people want to fly with the best airline in the world?' Without
any figures or numbers, your answer would be 'Yes'.
When you're first thinking through an
idea, it's important not to get bogged down in complexity. Thinking
simply and clearly is hard to do. It takes concentration and
practice and self-discipline. Reducing those initial reports on the
MVNO model to a simple business proposition took work. It also,
dare I say it, took a pinch of courage on the part of Virgin
risking its brand and on the part of those who left cosy jobs to
make the vision a reality.
It's easy to be hoodwinked by
technical-sounding detail, and to parrot it at others, and to feel
important in doing so. It's hard to ask the naive question. Nobody
wants to look silly.
But I would say you can never go too
far wrong by thinking like a customer who's new to the business.
Why do these mobile charges make no sense? Because they make no
sense, that's why! Because they are there to fool you! It staggers
me to this day that, when we entered this lucrative and exciting
young market, we were the only one in the crowd pointing and
laughing as the emperors of the phone industry strode
by.
It's easy – too easy, in fact – to
relinquish your responsibility for your idea to experts. This is
almost always a mistake, because experts are only experts in their
field. They're not experts in your idea. At this stage, the only
person qualified to assess your idea is you.
Your initial business ideas may lack
detail. That's fine – but it doesn't give experts anything to work
with. Ask them for their opinion, and they'll give you something
back that's generic, predictable and fairly useless. I know that if
I present an unready idea to experts such as Ernst & Young or
McKinsey, they will advise me how much money I stand to lose. If,
on the other hand, I go to PricewaterhouseCoopers or KPMG with the
same idea, they could well tell me how much I'm going to make. In
neither case do I learn anything useful about my idea.
You need to flesh out your own ideas.
You need to do your own research. You need to take responsibility
for how you plan to turn an idea into action. That way, when you
approach the experts – the accountants, the legal brains – they
have something to get their teeth into.
Virgin's move into the finance sector
astonished many, and still raises an incredulous eyebrow among some
politicians and heads of industry. Finance, surely, is sacrosanct:
an impossibly arcane and rarefied practice – the province of
experts?
Our success in the financial sector
has come from asking very clear questions of ourselves, and then
(and only then) surrounding ourselves with experts who are demons
at cutting through the verbiage to the relevant details. An expert
who makes things more complicated isn't doing their job right – and
frankly, this is probably your fault. An expert should make things
simpler. An expert should give you twenty-twenty vision. Given the
right tools to do her job, she is a marvel to behold.
Enter Jayne-Anne Gadhia.
Jayne-Anne qualified as a chartered
accountant with Ernst & Young and went to work with Norwich
Union, the insurance and pensions giant. She became one of their
rising stars, working in unit trusts and PEPs, a tax-efficient
personal savings product. Now she was looking for her next
move.
One day in 1994 she took the train to
London, in time for lunch with Alastair Gornall, a PR agent who ran
Consolidated Communications. On the train, she flicked through a
copy of Hello!. There was an article
and colour photographs featuring a bearded and grinning Richard
Branson talking about the Virgin Group.
'I read that article and I thought,
Gosh, it's so different from Norwich Union; it must be fantastic to
work for a guy like that,' she later told me.
She mentioned the article to
Alastair. Alastair was a friend of Rowan Gormley, who had just
joined Virgin and was the brains behind a joint venture project
between Norwich Union and Virgin. It was called Virgin
Direct.
Jayne-Anne came to see me for a
meeting at Holland Park. There was a lot of commotion because we'd
just set up Virgin Cola. She recalls ringing the doorbell at
Holland Park and having to find her own way around. She wandered up
the stairs and found me working in one of the bedrooms. I led her
into the snooker room where her boss Philip Scott had brought along
all the papers to review. We worked on the plans to launch Virgin
Direct in the snooker room, then we went back downstairs. Philip
had a quick gin and tonic and left to catch his train.
I shook my head and said to
Jayne-Anne: 'How life moves. One day we're dealing with the Sex
Pistols, the next day we're dealing with pensions.' I pointed to
the chair Philip had been sitting in. 'Sid Vicious was sitting
there not so long ago.'
'Really?'
'Yeah. You see that corner
there?'
'Yes?'
'That's where he threw
up.'
We signed the deal to set up Virgin
Direct on 19 December 1994, with Norwich Union and Virgin both
putting in £2 million.
We worked hard to get the deal done,
the business launched and all the regulatory approvals in place,
but we still managed to have some proper fun. I think that's what
Jayne-Anne liked about Virgin.
Virgin Direct in December 1994 was a
new player because it was one of the first financial service
companies to sell products over the telephone. Jayne-Anne said to
me that approval from LAUTRO (the Life Assurance and Unit Trust
Regulatory Organisation) and IMRO (the Investment Management
Regulatory Organisation) would take months and months. I thought at
first she was talking about her Italian cousins. I said: 'I can't
understand this, Jayne-Anne. This is a relatively small company –
we launched an airline in ninety days.'
But we pushed on and the combination
of Norwich Union, Jayne-Anne and Virgin gave us enough clout to get
the job done on time.
We needed a new computer system and
we approached the big players. IBM estimated it would cost £7
million and would take many months to build. We didn't have that
kind of money and we didn't have that amount of time. So one of
Jayne-Anne's colleagues, Kevin Revell, and a computing friend, set
up the first system for Virgin Direct in his attic in Norwich. In
all, it cost us £17,000. On Sunday 5 March 1995, Virgin Direct was
launched on that system, with sixty people taking the telephone
calls at Discovery House, Whiting Road, which is still the office
of Virgin Money. I went up to Norwich for the launch. The office
looked pristine, it sported the new signage, and all the computers
were working. The boss, Rowan Gormley, wasn't there as he was due
to appear on the BBC's Money Programme
to explain our arrival on the marketplace. So I took the lead: I
jumped on a desk and shook open a bottle of bubbly – like they do
on the Formula One rostrum. It fizzed up brilliantly into the air,
over all the cheering staff and over four of the PCs. The computers
started fizzling. Then they blew up.
It was clear from day one that the
Virgin brand was going to succeed in financial services. The staff
were brilliant and worked their socks off. The £17,000 attic
computer system became the prototype as we launched life insurance
and pensions too.
Norwich Union didn't have the
appetite for building a bigger business, but Virgin Direct needed
the capital to grow. So in 1997 Norwich Union sold its 50 per cent
stake in Virgin Direct to AMP, the Australian life assurance
business and owner of Pearl Assurance. AMP and Virgin became
fifty–fifty joint venture partners. In November 1996 I wrote to
George Turnbull of AMP, proposing 'a business plan to launch a
basic mortgage first (together with a card) followed by a
mass-market card'.
The question was: how? Almost all of
the UK's high street branches had approached me to talk about
banking and financial services. They wanted to shelter under the
umbrella of the Virgin brand. As simple as that. But Virgin wanted
to do much more than stick their logo on someone else's product.
Then, in 1997, I was contacted by the Royal Bank of Scotland, at
the time being run by George Mathewson and Fred Goodwin. Finally,
here was a company that wanted to innovate.
The idea around the Virgin One
account was revolutionary and simple – even I could get my head
around it. It had originated in Australia where it was increasingly
popular. It was about putting all of a customer's products
together. At the end of each evening your net balance is charged
interest. Most people have a separate mortgage, current account and
savings, and you're paying interest on the whole mortgage. If you
roll everything together, you'd have a lower negative balance and
you could pay off your home loan more quickly.
George Mathewson, a shrewd and canny
Scot, went to see Jayne-Anne Gadhia in Norwich. He was enthusiastic
but, at the same time, seemed reluctant to make a fuss about this
great product.
'You don't seem to want to shout
about this,' Jayne-Anne observed.
He replied that if it were
successful, he would take half the profits; if not, nobody would
know he had anything to do with it.
But in fact George and his team were
brilliant and our relationship is a long one that has lasted to
this day (he advised us on our bid for Northern Rock). He said to
the Virgin One team that he wanted us to build a business around
what worked for customers. He admitted that if RBS could have done
it themselves as a mainstream bank they would have, but they liked
Virgin's culture of innovation and our history of delivering on our
promises. In October 1997, the Virgin One account was launched
internally to Virgin Group staff, and then rolled out in 1998. I
admit it was a difficult start because the UK public weren't used
to the idea of putting all their eggs in one basket, however safe
it might be. By October 1998, we had opened 2,000 Virgin One
accounts. The following year we opened 9,000, and 15,000 the year
after that. We were up and running.
The dinner-party brigade became our
best promoters. Doctors, lawyers and professional people were
converting to its merits; they told their friends, and the idea
began to spread through recommendation. We heard that people would
take their Virgin One cards out at meals with friends and sell the
idea. In business terms, this is pure gold. You can't buy this kind
of advocacy. In Norwich, Virgin One recruited people who wanted to
help the customer and make a difference – it was a huge part of the
training. There were no stifling scripts to follow, or average
talk-times to listen to. We just answered the questions. We hired
people who believed – like we did – that Virgin was on a
revolutionary crusade to change banking in the UK. One theme was
'uncommon people' – that those who worked with us and our customers
were special because they were 'uncommon people'. We had baseball
caps, T-shirts and jackets made for 1,500 staff and for customers,
to trumpet our attitude of going the extra mile.
In 2001, RBS could see this was a
great business. They decided they wanted to buy 100 per cent of
Virgin One. They already had 50 per cent, but the remaining part
was held by Virgin Direct, which was a fifty–fifty joint venture
between Virgin and AMP. I owned a quarter of this and there was a
lot of discussion about the shareholding. I had lunch with Fred
Goodwin and Fred was quite clear with me: he didn't have a huge
amount of time for AMP.
I wrote in one of my notebooks:
'Fred Goodwin. "Don't want to come into
three-way venture. Try to buy out other 50 per cent of Virgin One.
Come up with basis to take out 50 per cent. Somehow chemistry: us
and AMP don't get on. Have relationship with
CGNU."'
On a nearby page I added:
'A game of Monopoly. I used to enjoy playing
Monopoly as a child. Recently I began to realise that I've never
stopped. Mortgaging my hotels to keep Euston Station. Mortgaging my
houses to acquire the Utilities. Borrowing from the bank to pay for
everything! Selling everything to pay the
bank!'
We eventually sorted out a deal with
AMP. Once it was announced I phoned Jayne-Anne.
'I'm really sorry.'
'About what?'
'About losing you. I'm phoning to say
how sad I am today.'
'Sorry? Why?' she said. 'I've just
got a very decent cheque and so have my team.'
'Well, I feel as if I'm selling you
and the guys along with all of the furniture. I've signed a clause
with the Royal Bank saying we can't go into mortgages in the UK for
the next two years. Look: if you don't like corporate life in two
years' time, come back to us.'
Two years to the day later, I phoned.
'Are you happy?'
My call had surprised her, and
pleased her, but – yes – she was happy. She was doing extremely
well with Sir Fred, helping develop the One account, and the First
Active account. She was now responsible for all of RBS's consumer
finance in the direct market – and later the whole mortgage
business in the UK. She was such a fit and capable person: it
occurred to me that she should be running a bank.
She kept in touch and on 19 December
2006 – the anniversary of launching Virgin Direct – she left RBS,
departing on good terms. We were keen to get her back to Virgin to
take hold of our money business. Luckily Gordon managed to persuade
her to return after a short rest, and she rejoined in March 2007. I
phoned her from Necker: 'Jayne-Anne – welcome home.'
By then Virgin Direct had evolved
into Virgin Money – a joint venture model offering products with
several different partners, whilst the business is owned by our
group. Virgin Money undertakes the marketing and designs the
products – credit cards, savings and investments, life and general
insurance – while our partners provide the rest. (Bank of America
operate our credit cards, which means the cards are on Bank of
America's balance sheets, not Virgin's!) But (possibly fortunately
given the unfurling of the mortgage crisis) we hadn't been able to
get back into the mortgage business since selling the One account.
I asked Jayne-Anne and the team she brought with her to
re-establish the One account on another level to fill the gap left
by all the struggling mortgage lenders. It was this springboard
that gave us the ability to make a proposal for Northern Rock –
which I'll talk about in the next section.
In this chapter I've tried to
demonstrate how Virgin has delivered on some of its best ideas.
I've tried to illustrate the importance of good communications and
attention to detail. I've stressed how vital it is to think
clearly, reducing a business to its essentials. Do not
underestimate the effort required to do this. It is very hard to
look outside your own industry, and think the way a customer
thinks, particularly if, as is likely, your life's efforts are
devoted to one operation, in one sector.
Virgin's brand values of informality
and plain speaking are incredibly useful to us in our day-to-day
delivery of business, because they keep us grounded. They stop us
from losing touch. They prevent us from ever, in our wildest
nightmares, contemplating anything as self-defeating as 'confusion
marketing'.
Remember: complexity is your enemy.
Any fool can make something complicated. It is hard to make
something simple. Use experts wisely. Direct them. Give them work
to do. They're not there to hold your hand. Ignore flak. Remember,
everyone has an agenda, so the advice you receive from outside your
trusted circle is not just to benefit you. Almost all of it will be
well meant, but even the best of such advice needs
interpreting.
Keep a cool head.
You're in business to deliver change, and if you succeed, the
chances that no one will get hurt are virtually zero. This
is the rough and tumble of business. Be sportsmanlike, play to win,
and stay friends with people wherever possible. If you do fall out
with someone, ring them a year later and take them out to dinner.
Befriend your enemies.
Engage your emotions at work. Your
instincts and emotions are there to help you. They are there to
make things easier. For me, business is a 'gut feeling', and if it
ever ceased to be so, I think I would give it up tomorrow. By 'gut
feeling', I mean that I believe I've developed a natural aptitude,
tempered by huge amounts of experience, that tends to point me in
the right direction rather than the wrong one. As a result, it also
gives me the confidence to make better decisions.
My plans acquire detail as I test
them against questions that on the face of it are really quite
simple – and more to do with emotions than figures. If we create
the best health club in town, will existing gym users go to all the
bother of transferring their membership to us? If the answer is
'Yes', then we will give it a go and see if it works.
This is the point where being a
well-funded company puts you at a tremendous advantage. Big
businesses can afford to do this sort of thing. The good news for
small businesses is that the big ones rarely bother to use their
advantage to its maximum. Why? Because they've forgotten how to
think like entrepreneurs. Worse still: many of them have forgotten
how entrepreneurs feel.