Business Stripped Bare Read online

  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 n
ormal 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.