Business Stripped Bare Read online

  After this shock, all the staff got together and we agreed to work night and day to settle our debts, expanding the company as fast as we possibly could in order to pay off these debts and to avoid me going to court.

  It took us three years. But I learned a very important lesson: never do anything that means you can't sleep at night.

  One thing is certain in business. You and everyone around you will make mistakes. When you are pushing the boundaries, this is inevitable – and it's important to realise this. Even when things are running well, there is always the prospect of a new reality around the corner. Suddenly, all the good decisions you made last week are doing you untold damage. Where on earth did you go wrong?

  At Virgin, we have always been prepared to face the facts – however unpalatable they might be. Failure usually occurs when leaders avoid the reality of business. You have to trust the people around you to learn from their mistakes. Blame and recriminations are pointless.

  In business, as in life, there will always be external risk factors that are beyond your control. Oil prices triple. A terrorist blows himself up in a shopping mall. Hurricanes level entire cities. Currency fluctuations leave behind trails of bankruptcies.

  But you can take measures to mitigate and manage business risks. Then, if disaster strikes, at least your attention won't be split every which way by other worries. Always, always, have a disaster protocol in place. Because if something truly horrific occurs, a lot of frightened people are going to come to you looking for answers.

  On 23 February 2007, at around 8.15 p.m., one of our new Pendolino tilting trains – travelling at 100mph – jumped over a set of points in Cumbria in the north-west of England, on a remote and scenic part of the West Coast Main Line.

  On board was Margaret Masson, an elderly lady travelling back to her home in Cardonald, near Glasgow. Margaret – her family and friends called her Peggy – was thrown around in the coach as the train slid along the railbed and then careened down a steep embankment.

  For ten years, Virgin Trains had been safely carrying millions of passengers all over the UK. Virgin Atlantic, meanwhile, had flown millions of customers around the globe without injury. That night, life changed in our business. We had our first casualties. Margaret Masson was dead. Several other people were seriously hurt.

  Zermatt, Switzerland. My family and I came off the slopes after a brilliant day's skiing. There had been a welcome dump of snow and everyone agreed it had been a perfect day. In the evening, exhausted, we all sat down together to watch a film in the local cinema, when I felt eight or nine gentle buzzes on my mobile phone. I went outside. The text message said there had been a rail accident and that it was Code Black, indicating that it was serious. I phoned our then director of communications, Will Whitehorn (now president of Virgin Galactic), who sits on the board of Virgin Trains. The call went to voicemail – an unusual event for a person who is always in touch with me. I called Will's wife, Lou, on her mobile and she reminded me that it was his birthday; for the first time in a year, he had actually switched his phone off. I phoned Tony Collins, the managing director of Virgin Trains, and the man responsible for building the Pendolino trains.

  'I'm afraid it's a serious derailment. The train's gone down a ravine and the police are trying to get to the passengers. We should prepare ourselves for the worst.'

  'I'll be there in a few hours,' I said. 'Can you meet me?'

  'I'll pick you up when you get in. Just let me know your arrival time.'

  I couldn't get a helicopter because the snow I had just been skiing over and having such fun on was still falling, shutting down much of Switzerland. The airports at Sion and Geneva were both out of action. The best I could manage was to drive to Zurich, which was five hours away. I hired a car and drove through the night. I got the first flight out of Zurich at 6.30 a.m. The flight went to Manchester and I met up with Tony Collins and with Will, who had flown in from Heathrow. They briefed me on the latest situation, and then we caught the BBC morning news. The reports said the train was intact, and that this had contributed to the large number of survivors. That was heartening: Pendolino No. 390033, City of Glasgow, like all our new trains, had been deliberately built like a tank. An interim accident report, later confirmed, suggested that a track failure was responsible for the accident. This news, too, reshaped our task and made it somewhat easier, because we could be fairly certain by then that nothing Virgin Trains had done or failed to do had contributed to the incident.

  As we headed to the Royal Preston Hospital in Lancashire, however, we still had little idea of the scale of the accident. The hospital registrar there said the emergency services had been gearing up for over 100 casualties when they first heard the news. Because the Pendolino carriages coped well, only twenty-four people needed to be taken to hospital – still, the scale of the medical preparations we saw was daunting.

  We went up to Grayrigg, to visit the crash site. It was as if a massive Hornby model railway set had been picked up by a spoilt giant and dashed to the ground. With a jolt I recalled how much I'd had to argue with the Department of Transport – which provides large subsidies for the railway system – to allow us to increase the safety specifications of our trains. If this had happened to any of our old BR rolling stock, the injuries and the mortalities would have been horrendous. As it was, the carriages had held together. Even the windows were intact.

  It was while I was surveying the devastation that I was first told about the bravery of one man. Since that time, whenever I think of the courage of our test pilots, or my friend the explorer Steve Fossett, who's sadly lost to us now, or the ballooning guru Per Lindstrand, I also consider the resolve it must have taken to deal with 400 tonnes of derailed train. The actions of the train driver Iain Black, a former policeman, were incredible. Once the train had derailed, its own momentum propelled it a further 600 metres along the railbed. Iain battled to slow the train down on the stones. He stayed in his seat for a quarter-mile, trying to control the train. He didn't protect himself by running back from his cab. Instead, he did everything he could to save his passengers, and in the process he sustained serious injuries to his neck. It was his selfless action that averted more casualties. In my book, he is a true hero.

  We stared numbly at the wreckage for a while, then returned to the hospital.

  I met Margaret Masson's family in the hospital mortuary, of all places. They were clearly devastated. I offered them my condolences. We found ourselves hugging each other.

  The next minute – or that's how it seemed – I was facing television cameras and a press pack hungry for answers. I thought I was going to choke up. I came very close, but held it together and stuck to the facts as we knew them on the day.

  At the time I couldn't say much. Again, I offered my condolences to Peggy's family. I also expressed my gratitude to Iain, who lay in another hospital nearby with injuries that would keep him off work for many months. Our other on-board staff – Karen Taylor, Derek Stewart and Gordon Burns – had all behaved in an exemplary fashion, and well beyond the call of duty, ignoring their own minor injuries in order to lead customers safely from the train.

  After that, if I wanted to help people – the police, emergency and hospital workers, the mountain rescue volunteers, railway colleagues from Virgin, Network Rail and other companies – the best thing I could do was to keep out of their way. I left feeling unsatisfied: was there really no more that I could do? There didn't seem to be, but I comforted myself with the thought that at least I'd been there.

  It is a boss's duty to get to the scene as quickly as humanly possible. If you delay showing your face in public after something like this, recriminations, anger and blame set in. This will be bad enough for you; imagine what all that confusion and worry does to the people who've been affected by the incident. In my view, if the press are demanding early answers for good and just reasons – and that was very much the case here – it is imperative for business executives to be prepared to face the media at
the first opportunity. Every senior executive should be capable, if push comes to shove, of becoming a visible company spokesperson. I remember, after a serious plane crash at Kegworth in January 1989, Sir Michael Bishop, who was CEO of the airline British Midland, spoke to the media straight away with great clarity and care.

  When Virgin Trains was putting its own emergency procedures in place, we analysed a number of serious rail incidents, and had been consistently appalled by the amount of time it took before anyone stood up and said: 'Speak to me about this'. And we were daunted at how fast confusion and blame set in as people waited for any kind of statement from anybody about what had happened and why.

  So our disaster-planning scenarios have three main aims: to get to the scene fast; to be efficient in dealing with the passengers, staff and media; and to be honest about what is happening. The other lesson to come home was that the tremendous planning and refusal to skimp on costs on building the Pendolino to the very highest standards in the world really paid off and saved the lives of people who would not be here today if they had been travelling in the old trains we replaced.

  *

  You can't protect yourself against the unexpected, so you need to keep your house in as good an order as you can. If disaster strikes, you don't want to find yourself doing twelve things at once and misprioritising them in public. It's vital, therefore, that you take control of your internal business risks – the ones you can influence.

  I've failed to follow my own advice here on a couple of occasions – and I've always regretted it. For instance, I'm not always good at cutting my losses. I should have faced up to the realities of the market and sold off Virgin Megastores years before we did. My decision to overrule my colleagues and hold on to them for too long cost us a lot of money, only balanced by the fact that the chain's very existence and brand was the distributing channel and bedrock of the early success of Virgin Mobile.

  I don't think that a chairman need fall on his sword if someone messes up in the company. Chairmen must learn from the incident and try to make sure that particular mistakes are never repeated. An apology on behalf of the company – perhaps in a public forum, sometimes in person to the individual who has been messed up – is an appropriate starting point. I know business books that say you should never admit to failure, but I would not tolerate such an attitude among my people. I see nothing wrong with admitting a genuine mistake.

  An entrepreneur has to make the tough calls. Some say it requires a ruthless streak. I don't agree. I don't think I'm ruthless, although I have been portrayed that way by a few people who don't really know me and have never met me. There are some things in my business life that I regret – and I have made mistakes about people. One of my faults is that I have often been so focused on a business project or an idea that I have been unable to appreciate what was going on in someone's life right in front of my nose. I've tried to learn from this, taking extra time to listen. Actually, I think it is counterproductive to be ruthless. You've got to treat people as you would yourself, or better.

  Let's be clear about the manager's responsibilities here. There's an idea abroad that people no longer resign when they should. To hear some people spin it, you would think resignation is the only effective action the manager of a troubled company can take. This is patent rubbish. And for the record, there never was a time in business or political history when talented people resigned over trifles, or out of some notion of honour. It's a myth.

  If something catastrophic happens to a company, and the chairman actually appointed that person who caused this systemic failure of the business, then the chairman certainly needs to consider his or her position. If a major bank does not have the security systems in place to protect itself from a rogue trader, and that trader does immense damage to the company, then, yes, the chairman or chief executive should probably consider resigning their position. They are ultimately responsible.

  In most other cases, managers should stay where they are and sort their messes out. It's what they're paid for, after all. Most importantly, someone should apologise for the mess happening in the first place.

  You definitely should get the best people around you when confronted with a serious problem. Don't try to deal with it all by yourself. Don't be afraid to seek help and advice. If someone else is better than you at dealing with it, then for goodness' sake delegate it. And equally for goodness' sake, don't jump down their throats if they fail.

  My management team reckon 2003 wasn't exactly a vintage year. That was the year Apple's first iPod personal music player was emerging. We had a couple of very bright people from Palm who came over with their own funky version of the MP3 and a range of accessories. The analysis didn't truly stack up according to the management team but I insisted we push on with it: our very own MP3 player, Virgin Pulse! We had to make some heroic assumptions about how to scale up because we were buying the devices from China and Taiwan. We spent $20 million on designing and bringing it to market – and our products were critically acclaimed in the United States – but it didn't have the simplicity of the iPod and the cost of manufacturing just throttled us out of the marketplace. Apple had taken a leaf from Texas Instruments, the pocket-calculator experts who dominated their market for many years. If you drive down the retail price fast enough when you are the dominant player, you never allow anyone else to catch up because they can't make enough money. It requires the dominant player to be brave, because it can mean cannibalising your existing sales by dropping the retail price. That's what happened when iPod introduced the cheaper and smaller iPod nano – it slammed the door on anyone else trying to build significant market share beneath them. The Virgin Pulse bombed and we had to write off $20 million.

  It's often hard when you're focusing on the day-to-day in business to admit that what you thought was right becomes wrong. For example, we put a truly innovative upper-class seat on Virgin Atlantic's planes in 2000. However, we took too long to develop them and did not keep the project secret enough. British Airways got wind of what we were up to (and even got hold of our plans) and out-innovated us with a better seat. Customer feedback was swift and brutal. People were voting with their credit cards and travelling with other airlines – and our airline began to suffer. We could have kept the seats until they depreciated, but we decided the mistake was just too ghastly to live with. We cut our losses and dumped them. The cost to us? £100 million. The benefit to us? We now have the best business-class flat beds in the world, designed by our own team, and we have created a product our rivals cannot match. We have easily recouped our losses with this decision.

  It's embarrassing to admit this stuff, and I think it's a fear of embarrassment that discourages many chairmen and bosses from doing their jobs properly. It's all very well sitting there wondering why your business is disappearing, but it's only by getting out from behind your desk and sampling the products that you will ever see what's going wrong. When you have found out what is going wrong, the next step is to get the team involved to fix it rather than fire them. That way, you can keep your team together and close the door on rivals who might benefit from your mistakes by hiring the very people who have just learned the lesson the hard way.

  Starting a soft-drinks war with Coca-Cola was crazy. It was one of our highest profile business mistakes, though it was also one of the things that raised the profile of the Virgin name in America. Launching Virgin Cola in 1994, we were having fun and revelling in underdog bravado, so pleased to be snapping at the heels of the biggest dog in town. Taking on Coke taught us two things: how to make a great cola with a different taste; and how to antagonise a global business that brought in $28 billion in 2007, with profits of $5 billion.

  It was only several years later that I learned how Coca-Cola eventually set up a SWAT team to ensure that Virgin Cola never got a proper foothold in the soft-drinks market. Yes, we somehow contrived to blind ourselves completely to the power and the influence of a global brand that epitomises the strength and reach of American cap
italism.

  Here's how we did it – and, whatever you do, don't try this at home.

  The Virgin Trading Company, a wholly owned Virgin subsidiary, was our beverage start-up division. Virgin Spirits, a joint venture with Scottish whisky distiller William Grant, had been established to market and distribute Virgin Vodka. You can still enjoy a bottle of Virgin Vodka – it's available on Virgin Atlantic flights, along with our special Glenfiddich Scotch whisky.

  The Virgin Cola Company was a joint venture with the Canadian soft-drink company Cott Corporation, the world's largest supplier of retailer own-brand soda drinks. Cott bottled own-brand products for such chains as A&P, Loblaw's and Safeway in Canada and Albertson's, K Mart, Safeway, 7-Eleven and Wal-Mart stores in the United States. Virgin Cola was introduced in the UK in 1994 and we originally achieved success in the pub and restaurant trade. I was convinced by the late Gerry Pencer, the chief executive of Cott Corporation, that we were in a position to make a strong bid for a portion of the global market. After all, Cott had customers in Australia, Britain, Hong Kong, Israel and Japan, and these were key markets for us. But Cott baulked at taking on Coke directly. We should have listened.