Business Stripped Bare Page 21

  We knew there was a lot going on behind the scenes. One of Tesco's main buying team, John Gildersleeve, a senior director who was a non-executive of several companies, had indicated that they would take one million cases of Virgin Cola. The next we heard, he had told Simon Lester at Cott that they wouldn't be supporting us after all. This was three weeks before the launch – and the invitations had gone out for the event at Planet Hollywood in London.

  I phoned John to ask why the change of heart. He said: 'It was a very fine decision – the door's not completely closed.' He knew I wanted to make a press announcement, and he knew I needed the confidence of having a major retailer on board. 'But we have two concerns. First, there are some commercial considerations. They can be resolved. But second, there's this whole question of the brand positioning and what it might do for us.'

  He explained to me that a solus arrangement – an exclusive deal with Tesco – is a two-edged sword. He said Tesco would be identified with the product whether it was good or bad. If I got fed up with it in three months' time, it would reflect on Tesco – good or bad. He said when Sainsbury's launched their own Classic Cola, Tesco adopted a position that they would only sell 'The Real Thing'.

  John said that he was worried that we might be a bit inflammatory in the way we attacked Coca-Cola. He pointed out that Coke had been very good customers for Tesco and the last thing he wanted was Coke being taken out of his stores. This was an honest opinion that I respected. I could see Tesco's position, but it was very important for Virgin Cola to be on the supermarket shelves – preferably on offer at the end of the aisles.

  I explained that every company we start, we stick with; that we wanted to give the public more choice; and our campaign was focused on defending our position and explaining why we were better – we weren't interested in merely slagging off a competitor. I told him this applied to all our campaigns – even to Virgin Atlantic's battle with British Airways. I pointed out our reputation among consumers was very good. (A NOP market research survey in a recent edition of PR Week was conveniently to hand to back this up!) Both David Sainsbury of Sainsbury's and Archie Norman at ASDA had also told me they would stock Virgin Cola.

  The next day John came to see me in person. As a consequence of the call and our meeting, Tesco changed its mind and decided to stock our cola. It was a wonderful boost for us. In December, sales of cola went up 36 per cent in Tesco stores – and 75 per cent of these were sales of Virgin Cola.

  Then Coke started to make life more difficult for us.

  I was in a Virgin Trains meeting when one of the former British Rail executives told me he had been on a management away-day at an assault course, and he had met some Coca-Cola managers. He'd asked them what they were doing on the assault course. They replied: 'We're getting ready for action with Virgin Cola.'

  I thought the story was over the top at the time, but with hindsight I can see that, once Coke had woken up, of course they had read the launch of Virgin Cola as a declaration of war.

  Coke's commandos went into action. Coca-Cola's secret recipe is a syrup essence shipped to hundreds of independent bottlers around the world and they are responsible for producing, packaging, distributing and merchandising. Coke visited every bottling business and said they didn't want Virgin Cola to be produced by their bottlers. It wasn't simply the cola – the bottlers also depended on their livelihoods for the other soft drinks in the Coke portfolio, such as Sprite, Fanta, Diet Coke and Minute Maid: all highly lucrative business for the bottlers.

  In 1998, we acquired Cott's share of the business and relaunched Virgin Cola with a further $25 million investment. Our goal: to take on Coke on their home territory. Coke wanted war. So we drove a British tank into Times Square in New York and fired a mock round at the Coca-Cola sign (we'd secretly had it wired up the night before by a pyrotechnical team and it looked like it had gone up in smoke) before ploughing through a massive wall of cola tins. Sightseers ran wailing from the square and we nearly ended up in jail.

  In Britain, Virgin Cola was flying off the shelves. In France, we were closing in on Pepsi, doing well in Belgium and Switzerland and negotiating a franchise in Japan and Italy. We thought we might be able to pull it off.

  In 2004, I was invited to meet my new corporate bank boss, Diana Brightmore-Armour, a very bright woman working in London for Lloyds TSB. We were enjoying a fun evening when she revealed to me: 'Richard, you don't know this, but I was working for Coca-Cola in Atlanta when you launched Virgin Cola – I knew what an impact you would have so I persuaded the senior management to set up a SWAT team to ensure that Virgin Cola failed.'

  I was quite amazed. In 1997, we knew that Coca-Cola were keen to drive us out of business but we didn't realise to what extreme.

  'I was at a senior executive meeting when it was reported that you were preparing to launch the cola into America. Most people at the headquarters were rather blasé. They didn't really know about Virgin and thought it just another local soft-drink brand.' But she garnered support from one or two Brits at the meeting and they helped her warn the bosses: 'This isn't just anyone – this is Richard Branson, who has a lot of clout and can build a major brand. We need to stop this as soon as possible,' she told them.

  While Coca-Cola had few worries about a regional brand competing in a local marketplace with Coke and its other products, it didn't want to face another competitor such as Pepsi. My dining companion revealed how a team came to England to set up another team to ensure that distributors and shops were all given extra incentives to sell Coke – and keep us off the shelves. I heard later that the number of Coke people trying to stop us was bigger than the whole of our team in Virgin Cola! We truly were the underdogs.

  After gaining a peak of 75 per cent of sales at Tesco and over 10 per cent of total UK market sales, sales started to decline. Coca Cola's SWAT teams were beginning to punish us. Coke started discounting cola more cheaply than bottled water – an offer we couldn't match: we simply didn't have the money. The only way to make money on a commodity where the price is so low is to ensure that you sell huge volumes – that's what the Coca-Cola company does. Coca-Cola threatened small retailers that they would take out their fridges if they continued to stock us. They also hinted that they would withdraw Coke altogether from the same retailers.

  Our Coke escapade led to a number of articles asking whether Virgin had a proper strategy in place. A Business Week cover article questioned whether we had the ability to manage Virgin's 'chaotic' empire. Well, of course we had. We were a way-of-life brand, offering a consistent and enjoyable experience to our customers whether they were flying the Atlantic or making a mobile phone call. Virgin wasn't chaotic – it was utterly focused on the job of realising its core values in many diverse sectors.

  Colas are a drink young people enjoy, so we figured a Virgin Cola would be a good idea. Coca-Cola is a huge corporation, and since Virgin is all about outfoxing the big guy, we leapt at the opportunity to take them on. Colas are pretty much indistinguishable as drinks, and much of the customer's enjoyment comes from brandishing their favourite brand; the Virgin brand was popular, so how could we lose?

  We lost by ignoring the gaping hole in this otherwise rather solid-sounding proposition: as a cola manufacturer, we weren't the people's champion. They already were. They were getting their product into people's hands, every day, everywhere. They were offering their product at an unbeatable price because they had the biggest economies of scale on the planet. They were offering their customers a rather nice soft drink into the bargain. And their brand name was so ingrained in people's minds that when they asked for a Cola, they'd call it a 'Coke'.

  Yes, Coca-Cola played hardball against us. But we had already lost. We still produce Virgin soft drinks, but in a much more targeted and niche way. And Virgin Cola is still the number-one cola drink – in Bangladesh!

  I notice that Red Bull has launched its own cola. I know it will take them some time and a large tranche of money to win significant market
share. But then, as a drinks company, this is their core business.

  And perhaps the best thing to come out of our Virgin Cola escapade was a brilliant new company called Innocent Drinks, run by some entrepreneurial guys who were at Virgin Cola and saw a gap in the market for fresh fruit smoothies and have now built a business worth several hundred million dollars. While still with Virgin they set up a stall at the V festival to have revellers sample their products. They had two bins: a 'yes' bin and a 'no' bin. They asked people whether they should give up their full-time jobs to start the company. People tested the product and by the end of the day, the 'yes' bin was overflowing. Our loss, but even if it isn't a Virgin Company, I get a real surge of satisfaction to know that these guys cut their teeth in a Virgin business and made it work.

  Back in 1971, when I was more gung-ho, I wrote in my notebook: 'We don't need lawyers.' But over the years, stating our agreements in clear and unambiguous terms has proved, again and again, to have been vital for our success. Our contract with T-Mobile, in particular, turned out to be a vital document for us. Incurring unnecessary legal fees can ruin your start-up, but the answer, I now think, is not to ignore the lawyers, but to get the basics right from the very beginning. Any start-up business should sit down and take a long hard look at its legal agreements.

  Our Virgin Mobile business was going exceptionally well in the UK. There was an incredible buzz – we were hitting the bullseye of the UK youth market with funky and irreverent adverts and great deals. Tom Alexander and the team were single-minded about the business and piling on thousands of new customers and there was a sense of fun. In the first three months of 2003 the turnover was exceeding £1 million a day.

  Our television adverts were scooping awards for innovative marketing – and we were stealing market share from Orange, Vodaphone and even our network partner, T-Mobile. In the UK, we were able to use the American rap superstar Wyclef Jean for a cult advert. In it, he unwittingly signs a contract that leads him to being bound as a trailer park sex slave. In an attempt to escape he is subsequently imprisoned for 'breach of contract'. The underlying message of 'Be careful what you sign' demonstrated the benefits of switching to non-contract Virgin Mobile.

  For all of us at Virgin Mobile, however, that advert had acquired a second, private meaning.

  Our original deal had T-Mobile putting in the network, and Virgin arranging handset procurement, marketing and the Virgin Mobile brand. It all worked smoothly – until a new American executive, Harris Jones, arrived on the scene in Britain. He really set the cat among the pigeons.

  He was smart. He looked at our original contract and saw we had a joint company worth £1 billion, of which Virgin owned 50 per cent: a fantastic success story in which both parties were doing well. Harris Jones – and ultimately his bosses – were desperate to obtain our shares and were willing to try a number of different tactics to get hold of them.

  What was their problem?

  They saw the Virgin Mobile deal as just another cost, because for every customer on Virgin Mobile, T-Mobile paid us a monthly marketing fee. This payment was a termination charge which T-Mobile collected from other networks to connect their callers to Virgin Mobile's customers. Virgin Mobile was entitled to this termination fee, even though we didn't own the network infrastructure. It was in black and white in the contract.

  T-Mobile were saying that the terms of the contract were legally questionable. While we thought the agreement was crystal clear, going to court over this was frightening: T-Mobile was a substantial business and had pockets deep enough to fund an expensive litigation. Every day spent dealing with lawyers is not only costly, it's hugely time-consuming for key executives. Our relationship soon became very sour indeed, and our cherished flotation looked increasingly remote.

  The case ended in the High Court in London – and T-Mobile lost. The judge, it was reported, said that T-Mobile's conduct was 'deserving of moral condemnation'.

  The head of T-Mobile in Germany handled the fallout well. He was good enough to invite me over to Germany so that he could apologise to me in person – a decent gesture, and one we appreciated. After many months, we managed to secure an out-of-court settlement with Harris Jones's former bosses in Germany and with a new UK team led by his successor Brian McBride. Due to the court ruling they had to sell us their shares for £1 (Brian framed the coin in a presentation case!), and they offered Virgin Mobile a new airtime contract that it still operates with today. Thanks in large part to him, we managed to steer our way towards a stock-market flotation.

  The lesson of all this is that you need to get your basic business contracts properly sorted out. It's always worth getting the contract right in the first place. And be prepared, on occasions, to go to court to defend the company. I'm afraid that when you draw up a contract for a joint venture, you have to take into account what might happen if there is a falling-out – or, worse still, when someone is trying to screw you. It would be lovely if all business could be done with a handshake – and I have done plenty of successful business this way in the past – but there are unscrupulous people out there, and you have to guard yourself and your business. We have never lost a major court case in forty years of doing business. In the GTech case (where I was awarded substantial libel damages), the British Airways case and the T-Mobile case, we have stood by our decision always to fight our corner.

  Protect your reputation. Don't be afraid of making mistakes.

  These are the rules I live by. They ought not to contradict each other but many businesses wrongly assume that they do. Yet there is no denying the risk that mud sticks, and a damaged reputation in business can follow you around for years. You can deliver on every promise, keep your word, deal fairly, show forbearance – and the world can still throw you curveballs that mess up your reputation. And long after you have learned your lesson and moved on, others will still be harping on about this or that misfortune, this or that error. I've known plenty of talented and trustworthy business people who have carried the shadow of past errors around with them, and whose careers have suffered as a result.

  There is no way to solve this problem, but there are ways to mitigate its effects. Certainly you should never keep your head down. That will do you no good at all – it'll simply confirm someone's lousy opinion of you.

  I would say, first of all, that you should improve your communications. At Virgin, we take a great deal of care to keep the press up to date with what we're doing. Aside from maintaining a high profile, this helps decent journalists put any old, bad news in context. Our culture of openness also prevents bad news from building up a head of steam before it reaches the public. The public is actually pretty forgiving of most business errors except hypocrisy, and stalling almost always backfires.

  We also practise what we preach. We look for people with exciting, dynamic CVs, not spotless ones. We're not pushovers, but we're happy to take chances with people, to move them around, to see how they tick and where they fit in. We don't pin the blame on people, or marginalise them when things go wrong. This culture pays dividends the longer we're in business, because eventually people realise that we're a company that knows how to deal with its problems, and is willing to take chances.

  Over the years the Virgin brand has earned the reputation of being bold and unafraid. Isn't it extraordinary how few brands communicate fearlessness? Commercially, our reputation for fearlessness has been like gold dust. It turned our battle with Coca-Cola, which was commercially bad for us, into a story that, in brand terms, strengthened customer loyalty.

  An error-strewn reputation is more damaging as rumour than it is in face-to-face dealings. Satirical magazines like Private Eye are always horrified to discover how many successful and famous friends stick by figures who are supposedly 'disgraced'. But that's not so surprising: individuals are better than groups at judging someone's character.

  Your friends are your allies in the battle to improve your reputation after a knock-back. They will not only advocate for yo
u; they will front for you. Their reputations will help yours recover. Distinguished people aren't stupid, and cultivating someone to take advantage of their reputation isn't going to wash. But they are, to a fault, generous and understanding. (They've been through the mill; they know what life's like.) So don't be afraid to ask the senior figures in your circle for advice and help.