5
Innovation

A Driver for Business

In 1986 I gave an interview to a British music paper. The headline was 'BRANSON'S BOMBSHELL'. I said that we were planning to put every album and single on to a small portable computer box and that the listener would be able to buy it and play any record they wanted, listening through mini-headphones. I said it would revolutionise the music industry — and people believed me. I got frantic phone calls from some major record company bosses pleading with me not to launch such a device. They told me it would blow away the record industry. Then I pointed out the date. It was 1 April — April Fool's Day. When the editor of the paper found out, he wasn't amused.

Fifteen years later, Apple sold its first iPod.

Already, in this book, we've talked a lot about innovation. The best, most solid way out of a crisis in a changing market is through experiment and adaptation. Businesses surf the waves of changing circumstances, and I can't offhand think of any industries whose best players are not constantly engaged in reinvention of one sort or another.

Making changes and improvements is a natural part of business, and for sole traders and very small companies, the distinction between innovation and day-to-day delivery is barely noticeable and unimportant. It's all just business, and creative, responsive, flexible business comes easier to you the smaller your operation.

Larger operations command more capital, and so, in theory at least, their range of possible actions is greater. But complexity soon gums up the works of an organisation as it expands. (One marvellously backhanded Chinese curse runs: 'May you employ more than a hundred people.')

This is the point at which entrepreneurial functions become separated from management functions. This makes a lot of sense – as you'll see when we look at different forms of business leadership in the next chapter. However, the separation of day-to-day business from the motive energy that birthed the company does cause problems. Suddenly, innovating is seen as something extra, something special, something separated from the activities the company normally engages in. This is when niggles become endemic, intractable problems; morale declines; and the business begins to lose its way in the marketplace.

Virgin's management style is unique, designed to both empower employees and avoid a culture of fear. A couple of other companies encourage new ideas even in their day-to-day operations. These are very different companies from Virgin, and I admire both of them immensely.

Since 1976, with design and ease-of-use its business mantra, Apple has simply kept inventing and improving. The sale of over 100 million iPods and three billion downloads from iTunes is proof of their success. While other businesses have been caught in the free fall of the record industry revolution, Apple has been able to fire up a new generation of listeners, not just with music but with podcasts, radio shows, TV shows, movies . . .

Steve Jobs and his colleague Steve Wozniak both had a passion for gadgets and began as electronic entrepreneurs in 1970. Six years later they were listed in the Fortune 500 rich list. In 2008, Apple had a market capitalisation of $105 billion, ahead of Dell and just behind Intel. The original Apple Mac, which was released in 1984, was described by Steve as 'the fastest and most powerful computer ever placed in the hands of a large number of people'. It was a transformational product. Steve later stepped back from the sharp end of the business – which promptly started to go into reverse. He returned as its saviour.

He is seeking perfection all of the time, and from that original mouse-driven Apple Mac, through to the iPod and the revolutionary iPhone, he has pushed the frontiers of technology in a creative way. And Apple's products have transformed people's lives. On Apple's campus at Cupertino in California, innovation is driven by a combination of perseverance at tackling large, intractable problems and, as a Harvard Business Review article in February 2006 described it, Steve Jobs playing his part as the 'great intimidator'.

By all accounts, Steve is a difficult man to work with because of his impossibly exacting standards, but his co-workers are filled with a sense of 'messianic zeal' to gain Steve's approval for their work. He is meticulous about the details and zealous about protecting all the new features that give his business that vital edge. That's leadership.

Apple is an iconic global brand that inspires emotional attachment. Yet the logo is only very subtly embossed on their products. Steve Jobs and his team know exactly how to design, manufacture and then deliver high-quality products to the market.

Steve immerses himself in the marketing campaigns and product launches himself – he has chosen to be both the manager and the entrepreneur, and in his case he has been successful playing both roles. He's a rare animal. Perfecting the fine art of delegation is normally essential when you're running a large company. Steve is more zealous than he needs to be, but it seems to work for him. It gives the public and investors confidence that the admiral is at the helm – with his hand firmly on the tiller. Steve has that rare business quality: the acute intelligence to see what the public wants. You can tell this by the way Pixar Animated Pictures, which he co-founded, has had a stream of blockbusters which have earned a stack of Academy Awards, including such successes as Toy Story, A Bug's Life and Finding Nemo. Pixar's family films have grossed more than $4 billion at the box office. Steve was there when it merged with the Walt Disney Company in 2006 and he remains on Disney's board of directors. His unrelenting genius is at the heart of everything Apple does and, in my view, this places Steve in a business class of his own.

While I acknowledge that Apple's products have transformed lives – and you only have to walk along a street to see the ubiquitous white earpieces of the iPod – I reckon it is another 'Invented-in-America' brand that has made the most significant difference to the shape of our connected world. I have been asked: 'What is the greatest business invention of the last fifty years?' That's a tough question because you need to factor in the mobile phone, DNA testing, the personal computer and the Internet, but I think the winner has to be Google's powerful search engine.

Google has allowed ordinary people to find things out much more quickly. It has led to more immediate choice – and increased consumer power – and a freer flow of information, knowledge and ideas. It is far more than just a search engine – it has become an engine of change. Google's mission is 'to organise the world's information and make it universally acceptable and useful'. That's a noble ambition. It has allowed political, cultural and interest groups to flourish. It has brought the democratisation of information on to a global scale – something that was unthinkable just ten years ago. It has also brought a great deal of fun into our lives.

I'm honoured to be good friends with both Larry Page and Sergey Brin, the founders of Google. I was flattered to be asked to officiate at Larry and Lucy's wedding on Necker. Larry and Sergey won't mind me describing them as geeks – indeed, with them it's a badge of honour – but they both have strong personalities. Their characters complement each other when they are working on a project. They get on very well and never, ever disagree with one another in front of staff, clients or investors. In the world of business, this requires remarkable self-discipline. If they have a disagreement, they will wait until everyone has gone out of the room and only then will they discuss the matter. They are bound together better than the best marriages, and their personal chemistry is an intrinsic part of their business success.

Today Google attracts the brightest technical talent. I love the idea that employees are encouraged to generate and develop new ideas, and that technical staff spend 20 per cent of their work time doing something they choose to do. By giving their people ownership over their work in this way, the company and its customers have benefited enormously. Among many other innovations, this scheme has brought us Gmail, Adsense, Google Earth, Google Maps and Google News, which aggregates headlines from around the world. The company excels at IT and business architecture. It continually conducts experiments to test its system, and then improvises and improves, and it has a backbone of people who are acutely analytical.

Sergey and Larry understood early on that they are not managers. Their trade now is in finding ideas and turning them into businesses or other enterprises. While they conceived Google and built it, they also found a brilliant CEO in Eric Schmidt, who runs the company on a day-to-day level. Eric was the CEO of Novell, and he also sits on the board of Apple. He is steeped in the technology world but he knows how to deal with financial matters and the investment community. This is a classic example of how the roles of entrepreneur and manager can be separated – a theme explored further in the next chapter. At Google, both sides of the business are given room to breathe. Eric's day-to-day management of the company allows Sergey and Larry to commit themselves to the search for new ideas – and to enjoy some of their wealth!

One of our Virgin team was visiting Google's HQ in Mountain View and told me they have an enormous whiteboard detailing the strategy of Google. It is Google's Master Plan and there are thousands of ideas on the board, all contributed by the employees. One of the key tasks along with 'Hiring network engineers' and 'Hiring hardware engineers' was 'Hire Richard Branson'. I don't need to be hired: I'm always happy to help Sergey and Larry.

On April Fool's Day 2008 we announced the launch of Virgle, a partnership between Virgin and Google looking at creating a community on Mars in the next fifteen years. We were advertising for volunteers to travel on a one-way ticket to Mars. It was concocted over dinner at Necker when we talked seriously about the creation of a human colony on Mars and what it might look like. We then pondered who we would invite. Our announcement made headlines around the world and had dozens of blog sites buzzing with activity. Were we joking? Of course we were joking. Mind you, fifteen years before Apple started selling iPods, I was joking about portable digital music players. With that in mind, we've registered the Virgle brand – just in case . . .

Innovation can occur when the most elementary questions are asked and employees are given the resources and power to achieve the answers. That's how Virgin America did it. While the legal team fought to convince the Department of Transportation that Virgin America was indeed a US-owned carrier, the Virgin America design and finance teams focused on taking care of business, and that was the business of creating a totally different and better flying experience. What does a great travel experience look and feel like? How would it be different from anything else US travellers have experienced? What would it take to knock their socks off?

Building an entirely new way to fly required a team of specialists who respected each other's expertise but didn't hesitate to fight for what they believed was important, who worked in close proximity round the clock, made decisions swiftly, and passionately believed in their vision for the customer. Ironically they themselves were the customers!

While understanding that the airline was to be under US control, Virgin USA CEO Frances Farrow was convinced that the issues the flying public truly cared about – the actual product and experience – should be without equal in US skies. Her first focus was to go after the best talent for customer service and design, and where better to look than people leaving Virgin Atlantic?

As I've said before, Virgin employees, after they've started a shiny new Virgin company or run a mature one with aplomb, are worth holding on to because they love the brand they helped build and their experience and knowledge of the brand are priceless. New companies are a great way to keep them challenged – and to keep them within the family.

Adam Wells, a whizz-kid from Virgin Atlantic's design team which had created the award-winning upper-class suites, and Todd Palowski, Virgin Atlantic's customer service specialist, were brought in as part of the original customer and product insight team. They were quickly followed by talent of the likes of Charles Ogilvie, a cutting-edge interactive entertainment guy.

This small but dedicated group began to dream big. The team didn't inherit drab legacy planes and they weren't stuck in the status quo. They were empowered with the Virgin brand to do things differently; there was no other way to create a completely different experience. What if we got rid of check-in lines? What if we turned the airplane into a living room? How can we give control back to passengers? What should we put in our toilets? How can airplane seating express freedom? And how can we express that freedom from the moment passengers reach the ticketing area?

Flying is generally a passive experience. From the moment you enter the airport, you are told what to do. Claim your boarding pass here. Put your luggage there. Stand in line, take your belt off, remove all liquids The onboard experience is no better. If you're lucky, the cabin crew flips on a heavily edited movie that no one really wants to watch. And that's followed by a trolley of unhealthy snacks that blocks you from the loo.

What you don't have is freedom. The Virgin America team believed they could find a way to give it back to you, and they did. (Sorry, they're geniuses but even they couldn't make check-in go away.) They designed a liberating experience, one in which you could genuinely do what you wanted with your flying time. You want to work on your laptop? Open it up and go, there's plenty of room. Running out of power? Plug it in, charge up your computer and play a game while you're at it. Want to chat with your cousin who is a few rows back? Try seat-to-seat chatting on the inflight entertainment screen using the QWERTY keyboard at your armrest. Feeling peckish? Order a sandwich from your seat, and a flight attendant will deliver it to you when you want it. Want to listen to music? Create a music playlist? Watch a movie ... in Mandarin Chinese? Go for it. It's all there right in front of you.

You will not get bored on our flights.

So innovation has to be appropriate for your business. It must fulfil a need, and it must give you an edge over your competitors. Our food-ordering system was an extension of our service philosophy, the idea that the cabin crew wanted to give passengers control. No airline in the world but Virgin America offers on-demand food ordering. We decided that free airline food was a failed model. Free is not necessarily good; customers have low expectations and the airline is pressured to slap down the absolute bottom-quality snack. But our team asked some questions and offered a simple solution: if you pay a little bit, you will get what you want. Customers had passively accepted the norm of free peanuts and then nothing at all ...

The Virgin USA brand team did some research on Virgin's US customers and learned that they tend to be open, ambitious, very social and up for trying new things. It says something about you if you choose to fly with Virgin. You can think of flying as being trapped on a plane with strangers but we think our passengers have more in common with each other than they would with passengers on a legacy carrier. The team liked the idea of giving people a real opportunity for community creation, whether it's on the entertainment system or chatting with the person next to you or texting someone a few rows away.

We knew broadband was coming but couldn't time it, and we needed a stopgap to invite people to chat and interact in the cabin. So Charles put chat rooms and seat-to-seat chatting in the inflight entertainment system, with keyboards at every seat. It's a totally new way of stretching out and interacting while being in a confined space. And through those little seat-back entertainment screens, we created a social community. It didn't hurt that our small new airline's tight-knit cabin crew was friendly, remembered repeat passengers and helped to make each flight feel like a party.

While the commercial team was about to order millions of dollars' worth of planes, the brand team was at the next desk demanding a brighter shade of white from the seat supplier. The supplier had never had this sort of request before; in fact, seat-back colour choices ranged from ten shades of beige to the same of purples and greys ... but no white, and definitely no whiter-than-iPod white.

Lighting on planes tends to be harsh and grim, so Adam designed a mood lighting system with special controls that was custom-developed for us, a first for aeroplanes. Because no whiter-than-iPod white option was available, we gave the seat-backs a unique coating, giving the lighting a sleek surface to reflect off and washing the cabin with soothing light; it was a deliberate visual experience to give the impression of space and freedom.

These simple details are the stuff of Virgin. If that's what business professors call innovation, fine. Innovation is often what you didn't know you wanted until you got it. Now the other airlines look outdated and neglected, so they will have to catch up to our innovation. And so the cycle of competition goes.

Like any Virgin company, the Virgin America team were surrounded by, learned from, and influenced amazing specialists. Colleagues are your best resource at Virgin companies: open and thoughtful people to bounce crazy ideas off – which don't seem so crazy when the person next to you shares your vision and can help you realise it. The Virgin brand demands people like that, people who are going to ask tough questions and demand excellence and something different.

Could the team have worked as effectively in a different setting, a different company? They were indeed extraordinary but the circumstances were equally unusual. The team weren't motivated by getting ahead – there was no corporate ladder and they weren't inspired or intimidated by a bureaucratic hierarchy. They were empowered and they owned the product, and they would have to live with it once it launched. Because the brand is known for being a leader and going against the grain, there's a bit of pressure to innovate – not just for the sake of innovation but truly to deliver something better.

Virgin America also benefited from being the underdog. The airline was a start-up minnow fighting the legacy sharks that wanted to keep its planes grounded. This do-or-die mission was motivating.

Innovation doesn't necessarily mean being first or biggest, but being the best. We weren't the first carrier to introduce low-cost fares to Americans. We aren't interested in flying into every airport in all fifty US states. We want to offer travellers an excellent flying experience to a small but growing number of urban point-to-point centres. We have a model that gives us the flexibility to navigate these turbulent times. We want people to enjoy flying again and that's why Virgin America continues to focus and innovate on the customer experience.

Customers are talking about Virgin America. They're writing in their blogs about a vacation and how it started with a flight on Virgin America and how much fun they had on their flight or how clever the safety video was. They're uploading on their Flickr pages snapshots of themselves on our planes or the inflight entertainment screen.

This tells me we're doing a pretty good job of it so far.

The power of research and development is great – too great just to be let out to graze on the existing market. Governments and powerful philanthropists have understood this for centuries, and have tried, often quite successfully, to harness innovation to their own long-term purposes. I am becoming more and more involved in questions of how we can best direct capital investment to address the problems which we know are round the corner, but which are not yet driving the day-to-day responses of the market.

Schemes to encourage advances in a particular field are not new, of course. The first recorded prize created by the British government was launched in 1714, offering financial incentives to the inventor who developed a device capable of measuring longitude within half a degree of accuracy. This was vital work at the time, because European seafaring nations, including Britain, were finding themselves caught up in increasingly violent skirmishes with each other – all because they couldn't agree on the location of borders and treaty lines in territories far away from their home shores.

Fifty-nine years later the prize was won by John Harrison, a self-educated Yorkshire clockmaker. The prize – £20,000, a vast sum for its time – made his family's fortune.

I've always liked the idea of prizes. Even if a prize isn't awarded because the competitors fail in their attempts to win it, the very fact that there is a target to aim for can drive an idea forward to early maturity. As focus points for venture capital, technical innovation and entrepreneurial ambition, prizes are hugely valuable. And as we've been discovering at Virgin Galactic, our space-tourism operation, prizes like the Ansari X Prize capture the public imagination, providing the commercial applications of the future with a firm foundation.

Indeed, success in the world of aviation has been built on winning trophies. In December 1912 Jacques Schneider – a French industrialist and a fanatical balloonist – offered a trophy for a seaplane race. This was the Schneider Trophy. To secure it – and to pick up 75,000 francs in prize money – a pilot needed to win three races in five years. In 1919 Raymond Orteig, a New York City hotel owner, offered the $25,000 Orteig Prize for the first non-stop transatlantic flight between New York and Paris. It was eventually won by Charles Lindbergh in 1927 – while the Schneider Trophy was still up for grabs. In 1925 the UK's air ministry formed a racing team at Felixstowe, Suffolk, and commissioned the designer Reginald Mitchell to develop a monoplane to compete for the Trophy. The result was the Supermarine S5, which spawned successive improvements. The S6B broke the world speed record by flying at 407mph, a record that remained unbroken for fourteen years – while another direct successor, the legendary Spitfire fighter plane, probably saved Britain from invasion by Nazi Germany.

Prizes are not the only way to encourage research and experiment. Tax breaks serve innovative businesses well. Various schemes have been rolled out by successive governments, with varying degrees of success. In the private sector, the new generation of entrepreneurs emerging from Silicon Valley and elsewhere in the world are keen to encourage new ideas to help them achieve their philanthropic goals. Some of their schemes are incredibly ambitious. You need to be aware of these developments, and I hope that, as well as offering a few lessons about innovation, this chapter will serve, in passing, as an introduction to some exciting and fast-developing areas of business.

*

Like so many leaders and heads of state, from Blair to Mandela, President Mikhail Gorbachev was a persuasive salesman. 'Richard, you are known in Russia as a very brave adventurer, surely you would like to be a cosmonaut?'

In the aftermath of the Soviet Union's implosion, Gorbachev was sweeping away all the symbols of the inefficient and discredited communist regime. In the Kremlin, the free market was the buzz, with Margaret Thatcher its flag-waving hero. And it was Thatcher who told her new-found Russian friend that I was worth meeting.

So here we were now, at the Livadia Palace, once the imperial home of Tsar Nicholas and his wife Alexandra, in Yalta on the Black Sea. This was the Italianate residence where Churchill, Roosevelt and Stalin met to redraw the map of Europe at the close of the Second World War. The Russians were very keen to persuade me to help open up this beautiful area for tourists – and earn them much-needed hard currency.

A few days later, I was flown by helicopter to Star City at Baikonur in Kazakhstan for a VIP tour. As a Westerner, it was a privilege to be allowed into this secret world. Here were the creators of the Sputnik satellite, the Vostok, Voskhod and Soyuz manned missions, the Salyut space station – and of the ballistic missiles that had once threatened us. This was where Yuri Gagarin blasted off into space in April 1961 to make history. And now a new breed of Russians occupied this place, negotiating with all the entrepreneurial zeal of a Palo Alto deal-maker.

These guys offered me a once-in-a-lifetime opportunity: to sit in a capsule on top of a Russian rocket and be blasted into space. They were giving me the chance to become the first ever space tourist.

Of course, there was a price tag.

Over $30 million.

At the time Virgin had a high-level ballooning project called Earth Wings and a Soviet cosmonaut was coming to join our team. I was very keen to do business with the Russians – all good grounding for the future when I planned to start a low-cost Russian airline – but the price tag for this junket – $30 million! – was astronomical. It felt immoral to me, the idea of spending that much money on myself.

It's certainly far too much for one individual to fork out for a trip into space. Yet that remains the going rate if you want to spend your annual vacation at the International Space Station. It seems a fortune to pay when there are other priorities in life. It made me question the ridiculous economics of putting people in space – and it sparked my search for the big-business breakthrough that would make space travel a more realistic proposition for many, many more people and be able to get crucial science and technology into orbit at an affordable price to really make a difference to life here on Earth.

I passed up my opportunity, but others were more than willing to pay the price. Dennis Tito (who actually has a scientific background working as an engineer in the Jet Propulsion Laboratory in Pasadena) became the first civilian to go into space in 2001. Tito was followed by Mark Shuttleworth in 2002, Greg Olsen in 2003, Anousheh Ansari in 2006 and Charles Simonyi in 2007. All said the experience surpassed their wildest expectations. As I write this, English-born Richard Garriott, the son of an astronaut, is expecting to fly into orbit in late 2008. He will be only the sixth paying customer. Half a dozen people in space, at a total cost of nearly $200 million – that isn't very good, is it?

Thirty million dollars isn't space tourism. It's private exploration by rich individuals subsidising a Russian mission. The chances of a tourist going into space are currently one billion to one. I want to shorten those odds drastically. I want to see if taking people into space could become a working business proposition and also create a new technological platform for science, satellites and other human activity in space. There is no doubt though that tourists need to be the first stepping stone on our journey.

Our initial task has been to establish the likely demand for what we have in mind. In a new field, this can be hard. What questions should we ask, and how should we interpret the answers we get back?

Market consultancies are a mixed bag, on the whole. You should definitely see what they have to offer, but please, never neglect your own reading and thinking. Consultancies, like any group of experts, are best given something to chew on, and the more insight and detail you can provide about your needs and questions, the more useful the advice you will get back.

I can't deny that, in our hunt for sound advice, our passage has been smoothed by the fact that space has such huge commercial potential. Apart from Virgin Galactic, there are others anxious to become involved in commercial space: there is Jeff Bezos, who made billions selling books and other goods in cyberspace with Amazon.com; the Las Vegas hotel magnate Robert Bigelow, who is now developing a large inflatable space-hotel; John Carmack, the computer-games creator behind hits such as Doom and Quake; Elon Musk, the founder of PayPal, who has set up SpaceX, a commercial orbital transportation service.

Such is the demand for high-quality research in this sector, consultancies have grown up dedicated to encouraging and shaping its emerging markets. In 2002, a survey performed by Zogby International for Futron, one of the leading space consultancies, began to look seriously at the market for space tourism. Their reports suggest that from 2011 there will be 2,000 tourist astronauts a year, and that by 2021 as the cost comes down, there will be around 15,000 a year, by which time the potential revenue from this business is $676 million per annum.

Zogby arrived at these figures by interviewing thousands of very wealthy individuals. My vision is to make the experience of suborbital flight open to many more people. Virgin Galactic only needs two flights per day at three different sites to break through the Futron survey barrier and, with all things going well, this is a highly conservative estimate. My own prediction is that by 2019 the price of a trip into suborbital space will drop to a level that will enable hundreds of thousands of people to experience and enjoy a flight into space. For someone in Europe or America it will be as simple as a decision of whether to go on holiday to Australia or up into space. A figure of under $100,000 is eventually achievable. But even if Futron's survey is correct, Virgin Galactic will still be a successful business.

Virgin is ideally placed to move into the space industry. We have the expertise and experience of moving millions of people around the globe, safely and securely. What the Virgin brand will do – unlike any other in the commercial space market – is establish in the public mind that space tourism is for them: a service industry that's going to be a lot of fun, while being as safe as people can make it. The brand also helps to give the team global credibility as they build out the business to include environmental science work in space, satellite payload launching and astronaut training.

In March 1999, Will Whitehorn registered Virgin Galactic as a company – and our hunt for technology to get us into space relatively cheaply began in earnest.

For years, however, I had been keeping tabs on anything and everything to do with the vexed business of getting off the ground and into space. I wanted us to be first in this sector, in the same way that I wanted us to be first in the biofuels market. And just as we've toyed with some very unlikely biofuels over the years, we've witnessed the launch of some pretty crazy prototype spacecraft!

This is the unseen part of business, the part that nobody ever discusses because, to be fair, there's not a lot to discuss. The secret to success in any new sector is watchfulness, usually over a period of many years. It's hard to spin waiting and watching into a vibrant business lesson, but if there's one thing you take away from this chapter, let it be this: that Virgin's sudden emergence as a leader in cutting-edge industries was decades in the making. You need a huge amount of sheer curiosity to make it in a new sector.

Our search for a way into space led us into a brave new world of exotic materials and untried designs, bristling with spin-offs and business opportunities; a thriving community of small companies and driven individuals, motivated by prizes, supported by engaged and well-informed philanthropy.

It was a strange experience. Having considered myself a small entrepreneur all my life – all evidence, airlines and the rest of it, to the contrary! – it was dizzying for me to find myself looking at business through the other end of the telescope. Yes, I was looking to set up my own business – a small commercial space company – but at the same time, I could see that the capital I had to hand could make a real difference in this sector, encouraging other small businesses to develop.

I was now not merely innovating in an existing market; I and people like me were actually helping to create the market. This posed the old question in a whole new light for me – how could we best make a difference?

The tipping point for commercial space travel came during the millennium with the announcement of the Ansari X Prize by space entrepreneur Peter Diamandis. The X Prize set a simple challenge to contestants: carry three people 100km above the Earth's surface, twice within two weeks. Peter had come to England to pitch the idea to me several times since 1997, and we thought a Virgin X Prize was a good idea. However, rather than sponsor a prize, we wanted to take the technology forward ourselves and build a business.

We made the right decision. We were playing to our strengths by developing our own company. That said, I don't think we'd be sitting here preparing for the launch of our first spaceship if it had not been for Peter's idea, his determination, and the huge generosity of Anousheh and Amir Ansari, who were the ones who ultimately donated the $10 million prize.

The Ansari X Prize had twenty-nine entrants, but only three serious contenders. Of these, just one had managed to acquire serious funding – SpaceShipOne.

Burt Rutan's company, Scaled Composites – based in Mojave, California – unveiled the existence of its space programme on 18 April 2003. Burt's SpaceShipOne was to be carried into the upper atmosphere by a mother ship – a lightweight plane called White Knight – and launched in flight.

On 17 December 2003, we finally got confirmation of what had become an open secret in aviation circles – Paul Allen, a reclusive billionaire with a passion for science fiction, was Burt's financial backer for the SpaceShipOne project. That day, SS1 broke through the sound barrier during its first manned test flight. On 21 June 2004, Mike Melvill flew SS1 above 100km altitude, and this was a significant breakthrough, dispelling the myth once and for all that manned space flight was the sole domain of huge government programmes.

I calculated that Paul had spent about $26 million to achieve winning the $10 million X Prize. So I wrote to him in January 2004 proposing a fifty-fifty joint venture.

Dear Paul,

May I congratulate you on the latest flight. From the footage I saw it looked magnificent. I should be delighted to work with you on taking the project forward and helping turn it into a serious space-tourism project. I'm hopeful that with the strength of the Virgin brand and our team's marketing skill and your technological skills we can not only get your investment back but earn enough to take the project forward into even greater heights. Our suggestions are these: 1) that initially we together spend the necessary funds to create a three-man craft (along similar lines to the test craft) but with large windows. We spend these funds to make it safe but don't apply (at this stage at least) for FAA certification. This craft should be ready to take passengers in 18 months. We put aside $100 million each over three years to achieve this. 2) We start marketing in a major way to coincide with the last flight before the X Prize flight. We offer 1,000 trips at $200,000 per trip. This would result in $200,000,000 and should be sufficient to get our total investments back plus have a fund left over to take the project to the next stage (possibly a six-seat craft at more affordable fares).

I suggested the name Virgin Galactic Airways and thought we could start taking deposits in the summer. I said: 'We have a team which I believe can manage this well.'

While running an actual airline in space didn't appeal to Paul, he loved the idea of developing a six-seater commercial space plane. Will Whitehorn and Alex Tai, a former Virgin Atlantic captain, flew to Seattle to meet Paul's advisers. Jon Peachey, Virgin's investment director and a Galactic board member, went with them. Peachey was the moneyman, with strict instructions to keep Will's and Alex's enthusiasm under control!

The first deal didn't work for Paul's company, but we resumed discussions a little while later and this time things progressed well. Both sides were conscious that the Ansari X Prize was looming, and we needed to complete the deal quickly if the new company was to get the benefit of the publicity. Eventually Virgin negotiated with Paul Allen to buy the rights to use his technology – just three weeks before the X Prize! It was a terrific deal for us because the Virgin Galactic branding would now be on SpaceShipOne during the ceremony in the Mojave in October. This would give us worldwide exposure – and it would deliver a message that we were now a serious player.

The last week of September 2004 is one I will always cherish. We launched our 125mph Pendolino tilting service in the UK. We gained plaudits from the President of Nigeria for the launch of Virgin Nigeria. And I was on the platform at the Royal Aeronautical Society in London with Burt to announce the launch of Virgin Galactic. We signed a historic $21.5 million deal for the use of the technology with Paul Allen's company, and announced that we had developed a $100 million investment plan to develop a prototype commercial six-seater spaceship at Burt's factory in Mojave.

Burt Rutan is an engineering genius, years ahead of his time. Do you remember Voyager, a plane that looked like a flying catamaran and flew around the world on a single tank of fuel in 1986? That was Burt's design. It was the largest all-composite aeroplane ever built, and the father of much of Scaled Composites' later work and of SpaceShipTwo. That plane was woven from glass, graphite and aramid, and bonded with epoxies and resins. Once heated in an autoclave, the compound became immensely strong and far lighter than pressed aluminium.

SpaceShipOne was constructed from equally exotic materials. In fact, there was very little about its design, fabric, execution and flight behaviour that wasn't exotic. Take the engine: a revolutionary rocket-motor design that will be used in SpaceShipTwo, and one without which commercial space tourism simply wouldn't be possible for us.

It was Burt's unique take on an old idea, of course: a dual-propellant system with a liquid oxidiser and a solid fuel. The solid fuel lines the case of the rocket. The liquid oxidizer is injected at the head of the motor and then ignited. The surface of the solid fuel reacts, combusts and turns to gas. And because the propellants are separated they cannot mix in the event of a leak. Consequently, they cannot explode. Most serious systems failures on rockets over the years have been fatal. Not so here: Burt's spaceships are very failure-tolerant.

And they're cheap. Once all the engineering and design has been done, cranking them out on a production line is a relatively simple business. The solid fuel is rubber. Once the igniter motor starts the rubber burning, nitrous oxide is added under pressure, producing a flame. The gas expands through the nozzle and provides instant thrust.

The rocket motor will give us just enough push to tip the craft into suborbit. After this the motor shuts down, and the spaceship coasts into space for a few minutes. It reaches the top of its arc and then starts to fall back down again. Just like tossing your keys in the air, once they reach the top, they start to come down.

And another lovely thing about this engine. It's green. Well green compared to any other form of rocketry from the ground. Fly into space with Virgin Galactic and we'll be releasing less CO2 than the equivalent of a person flying from London to New York and back on an upper-class ticket. NASA's Space Shuttle has the same environmental output as the population of New York over the average weekend!

Mike Melvill, a long-time friend and associate of Burt, was the pilot as SpaceShipOne, tethered to its mother ship White Knight, took off from Mojave Airport's Civilian Aerospace Test Center on 29 September 2004. It was a shaky ride, which required brilliant skills from the pilot. SS1 reached its apogee of 337,600 feet, or 103km. This was space.

On 4 October 2004, SS1, with test pilot Brian Binnie at the controls, was launched from its mother ship and soared into suborbit, reaching 367,442 feet above the Earth. For Binnie, it was a flight and a day to remember for the rest of his life. He had become an astronaut.

For Burt Rutan, it was the culmination of his life's work. SS1 had won the Ansari X Prize.

At Virgin, we believed the success of this tiny spacecraft revealed commercial possibilities, and so we decided to license the technology of SS1 and its mother ship, White Knight.

On 27 July 2005, at Oshkosh, Wisconsin, Burt and I announced the signing of an agreement to form a new business. It was agreed that the new company would own all the designs of SS2 and the White Knight Two launch systems that were being developed at Scaled Composites. The new business, the Spaceship Company, would be jointly owned by Virgin and Scaled. Burt's company would undertake all the research, development, testing and certification of the two craft, with Burt heading up the technical development team.

I believe Virgin's work with Paul Allen and with Scaled Composites is a great example of capital and inventiveness working together. From day one, we have, every one of us, been singing from the same song sheet. Our symbiosis is nigh on perfect. Burt's genius is being challenged and stretched and will be well rewarded, even as our investment of capital produces a fantastic return. I think – setting aside the huge financial risks involved in doing anything new – the relative ease of doing business in this sector is due partly to the environment; the enthusiasm is tremendous. I also think it has to do with the fact that Virgin considers everyone involved, regardless of their capitalisation, as an entrepreneur. We're all, in our own way, moving into unknown territory, and so we're all sharing the same experience.

The commercial success of White Knight Two and SS2 will open doors for our business. A single shuttle mission can carry 23,000kg into orbit at a cost of around $450 million. We are working towards the day when White Knight Two will be able to take 12,500kg of payload to 50,000ft, and then blast it into low Earth orbit. This will give it the highest drop capability in the world, and opens up a whole array of commercial possibilities for localised weather satellites, carbon-emission measurement and cheaper zero-gravity training for tomorrow's astronauts. In the future, SpaceShipTwo and its successors may be able to take payloads further out into space. While Virgin Galactic must concentrate on its original plan, these are all options for our business to grow its revenues and technology base.

While I want to take nothing at all away from the importance of prizes, I'm glad that in this instance, we chose to develop a company, rather than sponsor a cup. I think this emerging market benefits from Virgin's spirit of branded market capitalism. Virgin brings the public on board, it brings serious capital into play, and it keeps the field inclined towards small entrepreneurial ideas. We stand to make money by doing good, and in business, things don't get much better. And believe me, cheap access to space matters enormously if humankind is to have any hope of solving its problems here on Earth.

Even the most rarefied and exotic-sounding business environment works to familiar principles. Once our systems are proven, and our first space travellers are talking enthusiastically about their experiences, I believe the floodgates will open. A major reduction in costs will come when the insurance industry sees how safe space travel is becoming. More venture capitalists will sense that there is a buck or two to be made; their funds will, in turn, support further expansion. We might even see some commercial space companies listed on the New York Stock Exchange or in London.

Frankly, space – outer space – is there for the taking. The risks of failure are high and you will need to churn ideas at high speed to attract funding. On the other hand, there are plenty of ideas to explore. Materials science and biotechnology are both throwing up possibilities faster than businesses can find applications for them, so an appetite for learning is vital if you are to take advantage of new opportunities in these areas. That, in turn, requires you to take a real interest in people, and what they're up to, and how you might be able to help. You are not going to strike gold in this sector on your own.

Reality shows about business are becoming much more popular. Dragons' Den, in particular, makes excellent viewing, not least because it focuses on the more exciting side of business – coming up with, assessing and testing new ideas. The business panel is comprised of successful millionaires, and while the programme makes some token gestures towards how scary these people are, I think it's pretty clear to everyone that they're a courteous, lively bunch who bring a sense of adventure to their work. Some contestants are well prepared and have worked out their pitches; others are thrown to the Dragons, gobbled up and spat out. But it's a wonderfully positive show: it's amazing the number of interesting ideas and schemes that people come up with.

At a meeting in Downing Street a while ago, I was asked by some emerging Russian business leaders if I could help with some informal education about the practical aspects of capitalism. I scribbled on a bit of paper: 'Russian Dragons' Den: Must Launch'. As I walked along Downing Street after the meeting, a Times newspaper photographer about sixty to seventy feet away snapped the bit of paper and then blew it up. This ended up headlined 'BRANSON TO CONSIDER LAUNCHING DRAGONS' DEN IN RUSSIA'. I still think it's a good idea – but I'm sure the BBC, who commission the show, are on to it.

Everywhere I go, I'm deluged with business ideas. A few years ago I would sit with a pile of business ideas in front of me and work my way through them. For example, there was a charming offer from a Spanish gentleman, written in perfect English. He told me that he would like to work with me to create Virgin White – a washing powder. He reckoned this would be a wonderful product and, of course, he might have been right.

Some of the proposals we get are brilliantly thought-out, down to the last detail, and offer us a good share of the market. Others are simply handwritten scribbles, often marked 'Private and Confidential', saying basically, 'Dear Mr Branson. I have had this idea for a great product which you might like to launch – it is Virgin Tomato Soup in a tin can. I think it would be a very popular product. I look forward to hearing from you.' What can you say about that? That Mr Heinz and Mr Campbell already have perfectly good products? I never like to be rude. I've looked back and discovered that we've had about a hundred proposals to set up – yes – Virgin White. So you might think your idea is original, but there are other people out there who might have been there before you.

I never want to blunt anyone's passion or enthusiasm but over the last thirty-five years we have run the rule over almost every single idea you can think of. We are bombarded with ideas: some half baked – like Virgin Beans – some plain crusty – like Virgin Breadsticks – and, among them, some real ringing successes – such as Virgin Mobile.

I've come to think of our search for ideas as 'Showgirls to Stem Cells'. Indeed, we have always looked at sex and health as being pretty fundamental parts of the Virgin brand.

The ageing of the 'baby boomer' generation in a number of wealthier nations means that people can no longer expect their own national welfare systems to prop them up in terms of pensions and healthcare. In the UK, the National Health Service can only come under increasing strain. In the future, there's going to be a need for supplementary and supportive health services, which might deliver the extras and the non-life-threatening services that would give people a better quality of life. This isn't a political view, or even a business pitch. It's stark reality. The NHS can no longer be expected to do everything. There are too many of us, and it is simply unreasonable to expect a single organisation – however visionary – to adopt every single new procedure, however expensive, however rarefied, and roll it out to everyone. It's just not doable.

This, anyway, is the big picture. Virgin's supportive role is quite modest but, we hope, targeted in a way that will support and sustain current public services. We want to offer non-urgent complementary services that combine physiotherapy, dentistry, optometry, diagnostic testing and scans. Given the surge in the number of fit and active people in their forties, fifties and sixties with a lot of disposable income who want to travel and see the world, it seems crazy not to offer them the opportunity to invest in their own well-being. It is an evolutionary step for us, too – to consider the healthcare of the first Virgin generation!

In addition, and with the awareness that there are many regulatory issues and ethical ones to look into, we are exploring the highly contentious field of stem cell research. Stem cells could open up breakthroughs in treatment in years to come. As I jotted in my notebook: 'Stem cells are the essence of life. They have potential to develop into any other cells. Given the right conditions they can create not just a heart – a heart for you.'

We've researched the harvesting of stem cells from the blood stem cells of human umbilical cords. We've set up a Virgin cell bank storing stem cells for forthcoming generations, and we've invested in a genetic testing service which might be able to predict certain conditions and diseases. I've spoken to several scientists at the cutting edge of this field, including the head of a company called ViaCell, a clinical-stage biotechnology company whose raft of experimental cellular medicines might one day beat cancer, neurological diseases, diabetes and muscular dystrophy. My view is that difficult ethical questions are there to be answered – again and again, if necessary, as the years go by and morals and fashions change – and that anything that can save lives in the future is certainly worth studying.

Virgin – like all the best entrepreneurial businesses – is really looking for something fresh. If you think we're going to make millions together launching a washing powder, tomato soup or even three-legged women's tights (yes, we've had that: you tuck the spare leg into your underwear and use it if you ladder one of the other legs) then perhaps you need a different entrepreneur.

The other thing you'll need – in spades – is luck. The business-school gurus tend to underplay this commodity, presumably because the power of chance undermines every other business rule they teach you. But trust me on this: luck is essential. There aren't many chief executives who admit to simply being in the right place at the right time. Yet the business world is littered with the broken careers of those who were in the right place at the wrong time and screwed up. Certainly Virgin Mobile – the fastest growing company in history to reach a billion-dollar turnover – was propelled by a huge slice of good fortune.

But then, chance favours the prepared mind. Gary Player, the South African golfing master, used to say that the more he practised, the luckier he became. Yes, the rub of the green (or should that be the red?) played a significant part in Virgin Mobile's success. But never forget we doggedly stuck with our interest in mobile phones, and were constantly searching for the gap in the market. When a gaping canyon revealed itself, we were ready.

Right now, the world could do with some luck. Climate change will be a serious business challenge for our lifetimes and well beyond. Companies are already starting to make major changes, but things aren't progressing nearly fast enough. We need advanced control technologies and clean energy alternatives to start delivering much sooner than we ever anticipated – and we haven't even developed a fraction of what we need: ultra-efficient water heaters, improved refrigeration and freezers, advanced building materials, heating, ventilation, insulation, cooling, rainwater harvesting . . .

Some terrific products have already emerged. Smart windows that adapt and maintain comfortable temperatures. Super-efficient LED lighting. Energy-saving improvements in building design. Sensor technology to help us use scarce resources more wisely. Even a new breed of super-smart robots. (Bill Gates tells me this technology is as exciting as the nascent personal-computer industry was in the mid-1970s.) According to a Scientific American report in 2008, by 2055 a $1,000 personal computer will have as much processing power as all human brain power combined. By then we could probably do with the help.

Then there are next-generation hybrid cars (the latest being encouraged by Peter Diamandis, the founder of the X Prize and now the Automotive X Prize) that emit less pollution. There are colonies of wind farms, on- and offshore, sea barrages and solar panels. There are technologies emerging to capture carbon from power stations. Parabolic mirrors, deployed in Africa's deserts, provide green electricity. There are huge investment programmes looking at biofuels such as cellulosic-based butanol that don't eat away at our vital food supplies. And many of these excellent schemes have been evaluated by Virgin's Investment Advisory Committee.

In business, as in life, you can't afford to be afraid of doing the wrong thing. This book is littered with accounts of my and my colleagues' successes and mistakes. Virgin Fuel's first biofuel investment was in manufacturing plants that make ethanol from corn. Given what's happening to world food investment at the moment, we can all agree that that was going to be a non-starter! But as we saw, from that not-so-good idea, good ideas have grown. Remember: success in business never comes from inaction. Have I been lucky in business? You bet. But most people, most of the time, have the same amount of luck. It's what you do with it that counts.

Innovation is what you get when you capitalise on luck, when you get up from behind your desk and go and see where ideas and people lead you.

'It's idyllic here – would you mind passing me the sunblock?' I asked my wife, as we both lay sprawled out on our sunloungers. Joan and I were having a romantic anniversary break in the Maldives, and the Indian Ocean was a shimmering mirror of turquoise. It was wonderfully warm, with a gentle sea breeze, and the only sound was the lapping of the waves on the pure white lagoon sand.

'There you go. You'll smell gorgeous with this one on,' she laughed as she handed me the bottle.

It was a factor 30 organic coconut-based lotion and my arms, legs and tummy glistened after I applied it. Joan was right, I had acquired the aroma of a molten king-size Bounty bar.

My novel wasn't very exciting – so I replaced my sunglasses to read the ingredients on the bottle instead. I'm always on the lookout for ideas and almost anything can kick-start your thinking. I began contemplating the irony of our globe. Here was one of the most beautiful places in the world – and over 80 per cent of it is less that one metre above mean sea level. Global warming and rising sea levels meant catastrophe for this piece of heaven on Earth. Was there a solution? Perhaps part of the answer lay in the bottle I was holding . . .

Rising population combined with climate change are the main challenges facing our world – and aviation contributes about 2 per cent to industrial global warming (agriculture is the main culprit). On 21 September 2006, I stood next to the former US president Bill Clinton, and pledged to commit all the profits the Virgin Group made from our transport business over the next ten years to combating global warming. At the Clinton Global Initiative in New York, I said: 'Our generation has inherited an incredibly beautiful world from our parents and they from their parents. We must not be the generation responsible for irreversibly damaging the environment.'

On CNBC's Power Lunch programme, I repeated my pledge. 'Obviously we are in the transportation business and we do our fair share of spewing out CO₂ . . . We are pledging that any money that comes back to the group in the form of dividends, share sales or flotation, that 100 per cent will be invested in tackling global warming. We expect over the next ten years to put aside around three billion dollars.'

My notebooks for the weeks following my announcement are spiderwebbed with figures and arrows and exclamation marks as I tried to understand the economics of the fuel debate.

Less than a week later, on 27 September, Virgin Atlantic unveiled an initiative to reduce carbon emissions from aviation by up to 25 per cent. Our airlines use around 700 million gallons of fuel a year. I wanted to cut back on this consumption and floated a few ideas. At the time, I knew these were ambitious targets. What if our planes were towed to the runway before the engines were started? We proposed starting grids for planes at airports, and a method of landing planes called the 'continuous descent' approach, which meant a saving in fuels. We also pointed the finger at Europe's air traffic control system, which is punishing the environment by keeping planes on holding patterns in the sky. (There are thirty-five separate traffic-control organisations in Europe; there's a single one for the whole of the US!) Virgin Atlantic was working to pull together the airlines to make commercial flying more environmentally friendly, and by 2008, many of the world's airlines – now faced with growing criticism over their contribution to global warming – had begun to adopt these procedures to save vital aviation fuel.

Of course, we could all stop flying tomorrow. But that's not only an unrealistic idea, it's politically and economically disastrous for millions of the world's poor. If you stop people going to Africa, say, you will only increase the hardship of the people there. Many African nations have been building up worthwhile and profitable tourism ventures. You only need to look at Kenya in 2007, and how tourism dried up after the disputed presidential election results and the massive loss of jobs that followed, to recognise the industry's importance, and the destabilising effect the loss of tourism can have on a nation.

The global economy now depends on aviation and tourism, two of the world's most important industries. They have grown exponentially over the last forty years and have kick-started the economies of many developing nations. I can't see how we're going to stop this and return to the Stone Age. People love to travel. It broadens the mind and increases international cooperation and understanding. Ironically, eco-tourism is often the best way to protect sensitive environments such as rainforests.

Slowly the aviation industry is waking up to a harsh reality: the status quo is no longer sustainable. The airframe-makers – and indeed the engine-makers – must keep searching for quieter and cleaner engines. The other issue for all airlines remains the sustained high price of oil – indeed all of our Virgin airlines have felt the pinch as fuel costs have risen. Virgin's fuel bill went up by several hundred million dollars between 2004 and 2006. Cutting back our consumption of fossil fuels isn't a lasting solution, however. At best, it merely postpones the coming crisis.

What is the solution?

The key to saving our environment is to create a new breed of cleaner energy sources and fuels that do not damage the atmosphere, do not lead to deforestation, and do not eat up vital food stocks that the world's growing population will need to eat. The recent backlash against biofuels has lumped all kinds of energy and fuel initiatives together, without considering the individual arguments. But not all drugs are bad – compare aspirin with heroin – and the same argument applies to renewables generally. While I know they probably won't provide the overall answer, I believe we have so far not even begun to find out what biofuels might be able to deliver.

Burn any organic matter – and that includes coal and oil – and you release carbon dioxide – CO₂ – into the atmosphere. Coal and oil are what happens to vegetation when it's compressed in the earth over millions of years. If we used living vegetation – sugar cane, willow trees, peanuts, corn, coconuts – instead of these 'fossil fuels', then we wouldn't be loading the carbon of previous ages on top of the carbon already in our environment. There's a phrase I like which sums up this view: 'Don't dig up the dead.'

Synthetic fuels have been around since the 1910s, when fuel alcohols first went into mass commercial production. Before Prohibition in the US, cars were run on the stuff – but since ethanol is a type of alcohol, the practice was eventually outlawed for fear that people would drink it.

Vinod Khosla, the man who founded Sun Microsystems and one of the most influential investors in California – indeed, the United States – believes that ethanol is likely to be the future fuel of cars, and a far more practical option than hard-to-handle hydrogen. However, ethanol – which would otherwise be a suitable alternative for traditional aviation fuel – freezes in temperatures above 15,000 feet.

For nearly a century, the unsuitability of ethanol seems to have put the dampers on research into alternative aviation fuels. When I first started to look into this area, I was astonished at the lack of progress or interest in this field. Had no one seriously thought of putting biofuel into a plane?

Apparently not: when I first mentioned in 2006 that we were looking for a jet engine fuel that was clean, we were laughed at and mocked by environmentalists and engine manufacturers alike. People said it was absolutely impossible. It's worth remembering that as recently as the 1950s, some airline people – including the American aviator Charles Lindbergh, then working for PanAm – didn't think the jet engine had a future in commercial aviation. Step changes, driven by business imperatives, do happen – but they need a catalyst.

Our first port of call was Rolls-Royce, the world's leading jet-engine makers, based in Derby. We tried to get them interested in biofuel development, but they were pursuing a different path, improving the efficiency of their engines. More than that, they told us that the fuel we wanted to develop was 'impossible'. So we went to GE Aviation, one of their rivals, and makers of jet engines for Boeing and Airbus airplanes. They did want to help us. And with them on board, we got Boeing Commercial Airplanes interested too. At last, the key players were engaging in the hunt for clean fuels.

Many of my notes from around this time are highly technical, as I tried to wrap my head around molecular structures, enzyme activity, the chemical formation of algae . . . The really dizzying part, though, was trying to get to grips with the sheer scale of the fuel economy. Our transport needs for the next two decades are still likely to be met by liquid fuels to drive the internal combustion engines in our cars, boats and generators. For any alternative liquid fuels to be a viable option, we need massive amounts of feedstock – the raw material to make the energy – and it has to be cheaper than – or at least comparable to – traditional fuels.

Our studies found that cellulosic biomass meets both these requirements, as does waste from agriculture, municipal sewage and animals. This is where new businesses must emerge, and investors such as the Virgin Green Fund and Vinod Khosla are spending billions of dollars on this bet. It is not simply the feedstock but its collection, transportation and processing which needs to be tackled so that the end product is competitive with gasoline. This brings lots of opportunity – and many blind alleys. I'm going to take you down a few unlikely avenues now to give you an idea of the scale and complexity of the biofuel sector, its sheer pace and the effort that's being invested.

Inefficient corn ethanol started the ball rolling in the United States, aided by massive government subsidy, while the Brazilian experience has long since proven the viability of sugar cane. Brazil has over thirty-five years' experience of using it as a fuel, and in 2008, its cars consumed more ethanol than fossil fuels. The primary feedstocks for the production of renewable fuel are sugar from sugarcane, and starch from corn, the source of most US-based ethanol. Corn ethanol has become a major concern because of its impact on food production. In Asia, tapioca, potatoes and other starches can also be used. But I cannot now see the benefit in growing food and using it for energy when people around the world are starving and basic food prices are rising elsewhere.

So I became interested in the discussion regarding the tonnage per acre of plants with no food value. Prairie grass, willows, corn stalks and wheat straw all can be used to manufacture cellulosic ethanol. I spoke to John Ranieri, vice president of biofuels at the chemical giant Dupont. I was interested in how the big players were tackling this. John's a very sound guy, and he gave me some excellent advice and information. He told me about Dupont's strategy to bring biobutanol and cellulosic ethanol technologies to market. This led to discussion with Ian Ferguson at Tate & Lyle, the sugar giant. We began to think that the Dominican Republic might be a suitable place for a sugar refinery and then considered a prairie-grass plant in Louisiana. Our research also led the Virgin Green Fund to make an investment in Gevo, a world-class biofuels company that converts biomass into butanol. It was important to invest in the development of many clean energy solutions, not just one.

We talked to Iogen, which was already turning some of the Canadian prairie's vast cellulosic waste into ethanol and had a 40-million-gallon plant making E10 biofuel for cars. We spoke to Cargill, one of the world's largest food and agricultural companies. We went to Brazil to look for joint venture partners.

We even played with coconuts.

Now, coconuts will never solve a global energy crisis. But they have a few things going for them. For a start, they thrive on sandy beach areas in the tropics, where other plants don't grow well. The market for copra – coconut flesh – has been falling worldwide, and so has the price, leading to declining incomes in regions heavily dependent on copra production, so it would be great to find another use for this important crop. The low return for the harsh work involved with the cutting and drying of copra has pushed many rural farmers into other cash crops, leaving unharvested coconuts lying on the beaches. It may be that the harvesting of coconuts on a large scale can bring much needed income to these areas.

Coconut oil in engines is not new. It was used in the Philippines during the Second World War when diesel was in short supply. Today, on the islands of Vanuatu in the Pacific Ocean, an Australian entrepreneur, Tony Deamer, has succeeded in using coconut oil in fuel for motor vehicles. Potentially, this enterprise could help to revitalise the market for copra and have wide-ranging environmental benefits as well. Tony, together with a local coconut-oil producer, has been negotiating with the government for a reduction of duty on coconut oil-based mixtures. In Vanuatu, the local electricity company UNELCO has been using diesel blended with coconut oil to run a large (and now pleasantly perfumed) four-megawatt generator.

I did some basic sums and quickly confirmed what we all suspected, that the sheer labour of breaking into the things and scooping out the flesh made coconuts an unlikely player on the world biofuel scene. Coconut oil was, however, an excellent local solution.

In general, I think that the debate about biofuels gets too easily hung-up on this or that single 'solution', its merits and demerits. We don't have to find a single biofuel that will do everything for everyone. What we can and should develop is a suite of solutions that work well in different places, for different purposes, and at different scales. It should, for example, be possible to cut dramatically the human carbon footprint by introducing bio-ethanol for cars and buses. Flying will require a major breakthrough, however.

That's why it was important to us that we prove, in principle, that we could fly a commercial airliner on biofuels. To demonstrate this principle, it didn't strictly matter what biofuel we used, or whether or not it could be scaled up. It just had to keep a Boeing in the sky. On Sunday 24 February 2008, we flew Cosmic Girl, a Virgin Atlantic Boeing 747–700, on a test flight from London to Amsterdam. A 747 has four engines, and in one of the engines, for the first time, we used, not fossil fuel, but a mixture of coconut oil and oil from a related fruit, the Brazilian babassu nut. No modifications were made to either the aircraft or its engines to enable the flight to take place.

The demonstration flight, piloted by Captain Geoff Andreasen, Virgin Atlantic's chief Boeing pilot, took off from Heathrow at 11.30 a.m. and arrived in Amsterdam at 13.30 local time. It was a quiet, intense affair: during the flight, technical advisers on board monitored readings and recording data for analysis. The flight was a success: we had shown that it was possible to fly a plane at 35,000 feet on cleaner fuels. Now the challenge was to develop a biofuel that would scale up, and that wouldn't eat into the food supply.

That work continues. Imperium Renewables, who manufactured our experimental fuel, have since opened one of the world's largest biodiesel refineries at Grays Harbor, Washington State, in the United States. It's capable of producing up to 100 million gallons of biofuel per year. The company has formed a subsidiary in Hawaii to develop another biodiesel production facility, which will likewise provide 100 million gallons of biodiesel fuel a year, using locally produced feedstock, including coconuts.

Meanwhile John Plaza, president and CEO of Imperium, is overseeing the development of a 'second generation' bio-jet fuel, harvesting algae which can be grown in fresh or sea water. I think that, for us, this approach promises a great deal.

Some people have asked why don't I give straight to charity the profits I have pledged to clean technologies and renewable energy. But that won't do the trick. There is a time for giving in a charitable way, but where there are business opportunities to be had, one is much better off harnessing the might of the commercial sector to one's cause. Given our rapidly rising population and the consequent environmental pressure, our solutions have to be technological as well as social. I'm not saying: let the market dictate everything, and all will be well. Quite the opposite – I'm saying: let's use our position in the market for the greater good and prove there is money in greener technologies. That's what Virgin Green Fund is trying to do.

Business has a duty to continue to push the boundaries. In the next ten years, we'll all head into unknown territory. There will be a vast increase in our demand for energy – yet I believe we may well have passed the point of 'peak oil', and that it is now starting to run short relative to demand. Carbon fuel prices look set to remain high, and alternative fuels are urgently needed. It is not beyond the wit of man or woman to come up with an answer. And if we go into this for the right reasons, in a concerted way to tackle climate change, we will, on the way, definitely create some very exciting and successful new businesses and technologies for the future.

Most of them will be small businesses. If the complex and often overheated debates about climate change have taught us anything over the years, they've taught us that local solutions and small initiatives punch well above their weight, while broad-brush initiatives get horribly bogged down in their own complexity, and very often have unintended and sometimes damaging consequences. I say this as a global businessman, working at a global scale on global problems.

Big initiatives – like Virgin Fuel's project to develop a clean aviation fuel – depend on small initiatives – like the coconut-oil-powered cars on Vanuatu – for their development. No one is going to solve global warming by edict, and at Virgin, we never forget that, in business, small is beautiful.