Book Review & Notes on Richard Branson – The Inside Story by Mick Brown
This book is one the most inspiring books I read in a long time by Mick Brown. So, here’s a quick chapter by chapter review:
Chapter 1 Childhood
Richard Charles Nicholas Branson was born on 18th July 1950. His birth was extremely difficult, as he was more than three weeks overdue and the hospital in which he was born believed in natural childbirth methods; no drips, forceps or painkillers. His mother, Eve Branson, later commented, “Richard came into the world an absolute handful. And he has been a handful ever since.”
Richard Branson’s father, Edward, was a third generation lawyer. The Branson’s had a proud tradition of producing some of the finest legal minds in the region. The family were upper middle class in British society, although in reality they were not terribly well off financially.
His mother, Eve Huntley-Flindt, had been an air stewardess on some of the first commercial flights between Europe and West Africa (an early service using converted Lancaster bombers requiring passengers and crew to wear oxygen masks while in flight). Eve was strong-minded, rather entreprenuerial and fiercely independent. She was determined to instill these same qualities in each of her three children.
The Branson family code was; “Have faith in yourself; nothing is impossible, but the only person likely to make anything happen is you.”
Richard Branson spent his childhood in activity. He showed no interest in books, and television was forbidden at home as a waste of time watching what others had achieved. It was considered far better to be out doing things for oneself. His parents went out of their way to set him challenging activities, such as learning to swim, walking across fields at night by himself, and a number of similar activities designed to build character. They later came to regret the success of this process as Richard grew up high-spirited, self-reliant and totally mischievous.
When sent to a private junior school, Richard made friends with a lad named Nikolas Powell. They soon became the closest and most constant of friends. At school, Richard produced abysmal results in the classroom, but he took to competitive sports with flair. By the time he was at prepatory school, he was the captain of the school rugby, cricket and football teams. His blithe indifference to school studies meant he became a regular visitor to the Principal’s office where he was urged to put more effort into his studies.
At age 11, Richard suffered a torn ligament in a soccer match and some weeks later, the cartilage in his knee was removed which effectively ended his sporting ambitions. One of his school mates later said of Richard, “He was very assertive and pushy. He had this attitude that anything was possible, and if it’s not possible, why not? If there was any conspiracy afoot, it was likely that Richard was at the heart of it.”
He was sent to a ’cramming’ school in order to try and pass his looming Common Entrance exams. However, while there, he became rather friendly with the headmaster’s eighteen year old daughter, and ended up spending each night climbing down the drainpipe outside his dormitory window to visit the girl. When caught, he was promptly expelled from school. His response to this was to draft a bogus suicide note, and having left the note with someone who was sure to read it immediately, set off to the nearest cliffs. He walked slowly enough to enable the persuing group to catch up, and the next day he was reinstated and caned soundly. However, despite these events, he passed his Common Entrance exams with above average marks, and was sent off to Stowe School, a public school.
Chapter 2 Stowe
Richard distinguished himself at Stowe by showing not the slightest interest in the established social order. “If he got into trouble, it wasn’t because he was making a radical statement against the system, but because he simply wasn’t interested in doing what was demanded of him. He was only interested in doing what he wanted to do, and if he could inveigle other people into doing it, so much the better; if he couldn’t, too bad,” said Tim Albery.
Richard had no interest in learning or awareness of fashion. He did not have a clue whether he was conforming or bucking fashion trends. Rather he had an enthusiasm for life, and boundless energy combined with an insatiable appetite for practical jokes. He was still accident-prone, and broke numerous bones including his pelvis when aged fourteen.
Whenever Richard Branson and Nik Powell got together at holiday time, they started a series of money-making schemes including planting Christmas trees (eaten away by wild rabbits when small) and breeding budgerigars (worked so well they ran out of cages). They also spent time admiring the local girls. Nik Powell later said, “Richard never had any problems meeting girls. Other boys would hold back at parties and look at girls wistfully; Richard would always just barge straight up to them. He was certainly very keen to be the first person on the block to have sex.”
While at Stowe, Richard and Jonathon Holland-Gems came up with a great idea – they wanted to start an inter-school magazine to be called Student. Richard decided to solicit articles for the magazine, and after obtaining a copy of Who’s Who from the school library, he began writing to every person listed asking for an interview, an article, a donation or whatever. The headmaster of Stowe became alarmed when he discovered that within a short time, Branson had organized any and almost every boy in his house room copying letters and licking stamps.
Typical of Richard at this time, he had also put his name down for a school prize for the best idea for an adventure holiday. He went to the school and said that since he was busy with Student magazine, would it be alright if his girlfriend could enter the contest on his behalf. This idea was turned down much to Richard’s chagrin), but it typified his direct, unabashed approach to any opportunity that presented itself.
The replies from his letter writing campaign started to flow in. Edward Heath, Bryan Forbes, Peter Sellers and scores of others sent letters of support, contributions and articles. Richard read them all, culling out those he thought ’too boring’ no matter what reputation the writer had. Student was turning out to be an excellent and indispensable education in the real world. Richard Branson now had visions of a career as a journalist, and Student took on a more important note. He wrote to the Archbishop of Canterbury and the President of the United States asking whether they would like to contribute a short message to the young of today.
Finally, at the age of 16, Richard announced to his parents that he was leaving Stowe to run Student on a full-time basis. They were naturally mortified, and strongly suggested he gain an education before embarking on a business career. Richard approached his headmaster and suggested that he would stay on at Stowe if he would allow him to install a telephone in his study. “He wanted it to run the magazine, and he couldn’t do that from the public telephone box,” said Mr Drayson. “I said that wouldn’t be easy, so he said in that case he was afraid he would have to leave.”
It took nearly a year to talk his parents into letting him leave school. His academic progress was faltering, with most teachers noting that his only interest in their course had been to criticize it. Richard remained adamant that he would make his mark on the world with Student. His teachers suggested
the regeneration of Britain could wait for Richard to first secure a proper education. His parents finally relented and in the summer of 1967, Richard left Stowe. “Branson,” said his headmaster on the day he left, “I predict you will either go to prison or become a millionaire.”
Chapter 3 Student
The first issue of Student appeared in January 1968. It included an impressive collection of articles from Vanessa Redgrave, Gavin Maxwell, Henry Moore, David Hockney and a number of other distinguished people. The cover featured a drawing by Peter Blake, the artist who produced the cover for the Beatles’ Sgt Pepper album. Of course, none of the contributors were paid.
Branson and Jonathon Holland-Gems worked from the basement of Jonathon’s parent’s house in London. This consisted of a single room with a rickety wooden table, a selection of mattresses on the floor, endless piles of paper, a mound of unwashed coffee cups and plates, and the remnants of whatever food they could pilfer in nocturnal raids on Mrs Holland-Gem’s kitchen upstairs. Most essentially, the room also had a telephone, and Richard quickly sold more than £6,000 of advertising.
Awkward in person, Richard was transformed on the phone. Many of the advertisers would have been astonished to learn they were talking to a seventeen year-old with a real acne problem. Over the phone, Richard came across as professional, purposeful and responsible. For example, he arranged a printing contract with Waterlows for 60,000 copies of Student, with three months credit. When they discovered his age and the fact that he was under the legal age to sign the contract, they demanded a guarantor. However, Richard suggested if they did not print, their reputation would be damaged as he had a written contract. They eventually decided to go ahead and print his magazine.
Distribution of the magazine was never a strong point. In addition to a network of contacts in colleges and universities throughout the country, Richard also tried enlisting the help of London’s ’alternative’ society – the long haired, blue jeans wearing trendies. They would turn up at the door of their office for heaps of magazines to sell on the streets. Sometimes they would return with the agreed 50-percent of the proceeds, but more often they would never be seen again.
Numerous old friends turned up to help, including Nik Powell. Before long, there were a large group of people camped in the basement offices of Student. There was a general feeling of squalor and filth, the raids on the upstairs kitchen became very regular and the nocturnal comings and goings became too much to bear. Student magazine was given notice to quit the basement by Mr Holland-Gems. Fortunately, Richard’s parents had leased a house in Albion Road as their London base, and Richard prevailed on them to let him use it for Student magazine. With the move, the numbers of helpers swelled and by issue 3, the magazine boasted a bigger staff than most national newspapers.
The word staff was actually deceiving, as nobody was actually being paid. The people were simply there for the excitement and the the thrill of being involved. They were inspired by some indefinable idea that they were working for the greater good, and having fun to boot. Branson always had the ability to know what people were thinking, and he often used to take the entire group out on treats to keep morale high.
Branson’s skills as a deal-maker were also flourishing. He approached established newspapers to finance sending his journalists to foreign countries with the promise of articles. He always managed to sell enough advertising to keep the magazine afloat. He became well known as a publisher extraordinaire. This image was carefully cultivated – for example, whenever he was being interviewed, someone would be dispatched to the nearest telephone box to ring Branson continuously, creating an impression of activity. While Student itself was a modest failure, Branson projected it as an enormous publishing success.
While publishing Student, Branson started a community advisory service from their offices. It handled enquiries about all the topics society tended to shun – legal advice, abortion, contraception, venereal diseases, etc. It was called the Student Advisory Centre and was staffed totally by the Student editorial team. This center was an immediate success, with large numbers of people coming in day and night for advice. It was the single altruistic act of the entire Student project, and has continued to the present time with funding provided by Richard Branson personally. Money was always haphazard at this time. Richard Branson became skilled at being away when people called for settlement of their bills. By this stage, a few of the staff were on wages, but the distribution of their wages was erratic.
Extracting money from Richard always took on the air of a challenge. Much creative thought went into ways to make more money. Finally, Richard came up with the idea of selling cut-price records by mail order – a perfect fit with the magazine. Richard himself knew nothing about music, but there were enough Student staffers who did. The name for the new enterprise, Virgin, came from an evening of mirth and hilarity. The name was chosen because they were novices in the business, although someone else pointed out that virgins and money were always in short supply in their business.
Chapter 4 Sex, Drugs, Rock and Roll
The first advertisement for Virgin mail-order appeared in what turned out to be the last issue of Student. It offered a 10- to 15-percent discount on any record. Orders flooded in, bringing with them the promise of a brighter financial future. The Student staff immediately switched from producing a magazine to running a mail order operation.
Richard Branson continued to build a team of people around him who would later come to be the nucleus of the Virgin empire. In addition to Nik Powell, there was John Varnom, Tony Mellor, Simon Draper and a new girlfriend, Mundy Ellis. The business was moved to new, larger premises in South Wharf Road, although Richard actually moved onto a houseboat, the Alberta.
Without any planning, Virgin soon found itself ideally positioned as a business selling things to hippies as cheaply as possible. The fact that the Virgin founders pretended to be hippies themselves further strengthened their claim to fame and fortune. The imperatives of survival had presented Virgin with an outstanding business opportunity.
Branson himself did not exactly share the tastes of those he sold to, but he had the ability to recognize a sound business possibility. He also had the knack of bringing together the right group of people to provide the necessary skills. In many ways, he was the central catalyst around which everyone rallied.
In January 1971, the British Post Office workers union called a general mail strike which was to last five weeks. The impact at Virgin was immediate – the flow of cheques and money dried up overnight. Branson made an immediate decision to open a shop, and within a matter of days a shop was found.
The first Virgin record shop opened two weeks after the mail strike began. It was an immediate success, with an atmosphere that everyone thought was ’quaint’ but which was actually borne out of financial destitution. Scant attention had been paid to anything like decor or fittings, giving everything a makeshift air that actually suited the selection of records that were available.
Branson set up Virgin with himself as 60% shareholder, and his old friend Nik Powell holding the remaining 40%. Branson had the bigger vision and the creative ideas, while Powell methodically came along afterwards keeping an eye on the accounts, cash flows and details. There was always irritation between Powell and Branson, but this was always tempered by the fact that both were friends since childhood who understood where the other was coming from.
With the success of his first store, Branson decided to open a second. He also became enthusiastic about setting up a recording studio to start producing his own records to sell by mail order or in his shops. He had always been keen to have his own record label. With the future in mind, Richard decided to set up a recording studio with his friend, Tom Newman. Initially, they thought of a London location, but then the idea came of a country property where the studio could be isolated from the hustle and bustle. He then bought Shipton Manor, twenty miles from Oxford, for £30,000, with £7,500 from his aunt and a mortgage from his bank. At the age of twenty, he had a growing business with 40 employees,a country manor/recording studio, a substantial overdraft, mounting debts and the early signs of an ulcer.
Branson also made an error of judgment at this time. He came up with a scheme under which he faked exporting records to Belgium in order to avoid paying English purchase taxes. When this came to the attention of Customs and Excise, they seized his records and had him arrested. After a night in the cells, Branson made a deal with them to pay £15,000 immediately and £38,000 over the next three years to repay the tax.
Chapter 5 The First Million
The fine imposed now placed severe financial pressure on the fledging Virgin business empire. Branson and Nik Powell decided they had two choices – sell everything and repay everyone leaving them with nothing, or try to expand out of trouble by generating sufficient cash to pay the fine. The obvious answer was to expand, and within the following two years, some fifteen shops were opened.
By this time (1971), Virgin Group had a turnover of approx. £1.0 million per year. When an accountant looked over his books at the suggestion of Branson’s father, he was astonished to realize no PAYE tax or payroll tax had been paid. When he asked Richard about this fact, he was informed that everyone in the company was paid £20 a week regardless of what they did, and nobody ever paid any tax. This was sorted out rather quickly with a proper wage and salary structure put into place.
Branson also held quarterly meetings with his bank manager. He always approached these meetings like a schoolboy called into the headmaster’s office. Richard was impatient about detailed accounts, unable to read a balance sheet and not really interested at all but always willing to talk about what he expected Virgin to be doing within the next two to three years. On one occasion, he even took his manager to lunch at an expensive restaurant but things did not go as planned. At first, he was refused entry as he did not wear a tie. They then refused to accept his personal cheque, so his bank manager ended up paying for the meal.
Richard had also fallen in love, and he married Kristen Tomassi on 22nd July 1972. His business operation finally was starting to gather momentum. A number of artists were recording at the Manor, including Paul McCartney, Buddy Miles and the Fairport Convention. When it came time to officially launch the new Virgin record label, the first artist signed was Mike Oldfield, who had become a permanent fixture at the Manor and a friend of Richard Branson. Mike Oldfield was signed to produce 10 albums for Virgin for an artist royalty of 5-percent – a standard rate for the time.
After nine months work, Virgin’s first record was released on 25 May 1973. It was Tubular Bells by Mike Oldfield. On it, Mike played some 22 instruments and overdubbed some 2,300 tracks into one, seamless sound. By 14 July 1973, the track entered the British album charts at number 23. And once it had started selling, it just kept going. The profits began to pour in to Virgin Group, much to the relief of their bank manager.
Richard Branson left all the artistic decisions to Simon Draper’s judgment. He confined his efforts to the area in which he excelled – making deals. He expanded into the USA by means of a licensing arrangement with Atlantic Records, who paid a $750,000 advance for the rights to Tubular Bells and other Virgin product. By April 1974, Tubular Bells reached the top of the American album charts.
Chapter 6 Earl’s Court Hippies
In 1974, the Virgin Group was growing rapidly and many of the people who had been with Branson in the Student days were suddenly elevated to positions within the company. Simon Draper had gone from ticking order forms to shaping the musical policy of a recording company. Jumbo Van Rennen, originally hired as a record packer, was in charge of the international division. Chris Stylianou, who had joined as a magazine seller, was in charge of exports. Ken Berry, who later became managing director of the record company, had started in the accounts department filing invoices.
Branson’s style was simple; put someone in charge of something and let them get on with it. He has the ability to encourage other people to do things they did not think they were capable of doing. The entire Virgin atmosphere was one of frantic activity bordering on total confusion coupled with extreme informality. For example, the director’s “board meetings” were little more than a game of snooker with adjournments to the local pub to discuss the future.
Branson himself was an enigma. He was self-conscious about his lack of basic education and social skills. He had never had the time for a usual adolescence, and had spent most of his youth selling print advertising or raising bank loans. However, whatever he lacked in social skills, his deal-making skills were extraordinary. He had the ability to always find the shortest distance between two points in every situation.
The key thing about the Virgin atmosphere was that it was a fun place to work. Practical jokes were a way of life. Branson, for example, could never resist the urge to jump fully clothed into any swimming pool he came across (taking as many others with him as possible). Any company dinners invariably ended up in a bread roll or meatball throwing contest. A birthday gift of a sex doll to Branson from the staff was treated with relish – Branson drove down the motor way with the doll sticking up through the sunroof. Branson also often used to drop visiting musicians off at strange houses with instructions to go in and make themselves comfortable.
Branson also had an amazing ignorance of the world of music. There were a number of times that he would stroll up to visiting roadies mistaking them for famous performers, and tell them how pleased he was to see them at his recording studio. It wasn’t that Branson was a snob – he was simply and totally ignorant about the personalities of music. However, when it came to the business side of the music industry, Branson absolutely shone. He had the innate ability to gauge what was valuable, what was not and what should be defended at all costs.
Richard Branson always had the ability to think about business negotiations in the long term. He invariably signs acts for the longest possible term, and actively makes an investment in his acts by promoting their careers. And he never forgot the key to success in the music business – control of the copyright for as long as possible. Once a contract was signed, Branson would stick to it with a precision and ruthlessness that belied his totally laid-back business style. If Branson had one fault about his style of negotiating, it is that his competitive instincts compel him to extract the best possible advantage from every negotiation. This can, at times, be the equivalent of missing out on a large deal because of some seemingly minor point.
Richard Branson is totally indifferent to personal possessions. On more than one occasion, someone would be dispatched from the office to find a car which Branson had parked ’somewhere in the West End’ the previous night that he had been unable to locate himself. His wife buys all his clothes, picks all the furniture in his house and looks after all domestic details. Richard hates locking the doors of his house, and always parks his car with the keys left in the ignition so he can find them. He never carries money, and invariably borrows money for odd expenditure from whoever he is with.
With the success of Tubular Bells by Mike Oldfield and Phaedra by Tangerine Dream, Virgin flourished for almost three years. Branson began to diversify. The mail-order business was closed. A management company, music publishing company and a booking agency were started, although only the publishing company would be continued. A short-lived clothing venture was started, and even a restaurant was opened.
One restaurant, Duveens, was opened near the Virgin office. It promised to be a great success, but had the drawback of attracting a large proportion of Virgin staff. Customers going to the restaurant for a romantic dinner were often disturbed by a bread roll fight at the next table by some inebriated Virgin staff. One night, Rod Vickery was heading to the restaurant when he sighted a figure outside. It was Branson, standing in the road dressed only in his underwear and coated head to foot in cranberry sauce. Vickery nodded a greeting and hurried on, unwilling to broach the carnage within.
Meanwhile, Branson was also working to diversify the artists under contract to Virgin. He tried to sign David Bowie, Pink Floyd and the Who, all without success. He even made a serious offer to the Rolling Stones, but lost to another company. Virgin was at a watershed needing a major act to boost the label’s image.
Chapter 7 Pistols at Dawn
Fate intervened to give Richard Branson and Virgin their next musical break. In 1976, Malcolm McLaren decided that the world of pop offered a medium for spectacle, subversion and profit and decided to put together a group. He took four disgruntled teen-agers, without musical skills, and turned them into the Sex Pistols. Their performance boasted an amazing amount of belching, face pulling and rude gesturing. The group consisted of John Lydon (Johnny Rotten), Steve Jones, Paul Cook and John Ritchie (Sid Vicious). They soon built up an excitable following and a reputation for creating mayhem wherever and whenever they performed.
The Sex Pistols had no artistic value, but strong shock value – exactly the shot in the arm Virgin needed. The only problem was that Malcolm McLaren had never forgiven Virgin for not signing them in their early days. A war of wills raged between Richard Branson and Malcolm McLaren for more than a year. Finally, in May 1977, the Sex Pistols signed with Virgin.
The release of their first record, a punk version of God Save the Queen, caused a furor. Television and radio advertising was banned, and the BBC refused to play it while major retailers refused to stock it. The release of this record had neatly coincided with the official Jubilee celebrations to mark the ascension of Queen Elizabeth to the throne. More than 100,000 copies of the record were sold in its first week of release.
In November 1977, the Sex Pistols released their first album, Never Mind the Bollocks, Here’s the Sex Pistols. Again a raging debate ensued, with advertising banned the length and breadth of Britain as bollocks was considered an obscene word. A film was also started, called The Great Rock ’n’ Roll Swindle. However, despite all this frenzied activity, the Sex Pistols disintegrated under the pressure of their public persona of outrageousness. By early 1979, they had broken up. They were an excellent public relations exercise for Virgin, but they didn’t stay around long enough to make serious money for the company.
On a trip to the United States, someone asked Branson whether he had named his company after the Virgin Islands, and acting on impulse, he decided it would be fun to investigate what it would cost to buy your own island. He ended up at Nekkar Island, part of the Virgin Islands, and owned by Lord Cobham who asked for £3 million. Richard Branson offered him $250,000, due to the fact that he had found out whoever bought the island would be obliged to spend millions on developing it within the following five years. By the time Branson arrived back in London, Lord Cobham told him if he could raise his offer to $300,000, Nekkar Island was his. He took it.
Chapter 8 Growing Pains
By early 1980, Virgin was now an established and thriving company. The group owned one of the third largest record-shop chains in Britain. There were now three recording studios, each having the latest state-of-the-art equipment.
Music publishing, book publishing, motion picture production and numerous other ventures were operating within the group. Virgin also owned a tropical island. However, the principal source of most of the profits for the entire group was the record company. However, in 1980, the recording industry as a whole went into a recession.
With the Virgin group’s finances under pressure, Nik Powell swung into action. He began by trying to work more closely with Virgin’s bankers, Coutts. However, their relationship to the Virgin Group had always been strained as they could never quite grasp how the company made any profits, as well as being unsettled by the management culture. Branson, meanwhile, maintained an attitude of full speed ahead and expand out of trouble rather than cutting back and back until there is nothing left.
By 1981, Virgin was still bogged down in the record industry recession. However, Branson still maintained that an expansionary course of action was required, and continued to purchase nightclubs and other ventures, much to the chagrin of his long time partner Nik Powell. The pressure became too much for both, and an agreement was reached for Richard Branson to purchase Nik Powell’s Virgin 40% share holding. Settlement was £1 million, some video editing facilities and a cinema owned by the company. Nik Powell later went on to form Palace Pictures from these assets.
Virgin was still an interesting company to work for. There was almost no hierarchy and staff felt involved in whatever was happening. An annual staff outing invariably turned into three days of high jinx and practical jokes, with Branson himself typically being the first to let off all the fire extinguishers at their motel, initiate a food fight or dress up in fishnet stockings and make-up for the inevitable fancy dress party. These events, combined with the fact that Richard Branson himself had an apparent indifference to material trappings, developed a close-knit business atmosphere.
Branson also had an astonishing readiness to delegate responsibility. He showed his trust, and that trust was invariably returned with fierce loyalty. A standing company joke was Branson’s saying, “I believe in benevolent dictatorships – provided I’m the dictator.” He did not pay his staff as well as other companies paid, but rewarded them instead with a stimulating work environment and the opportunity to progress within the company. Most of his staff considered him as a throwback to a by-gone era when Lords ruled over their feudal kingdoms with the welfare of his staff at heart although he was not always fully in touch with the details of their day-to-day existence.
During 1981, the finances of the Virgin Group were strained. This was not helped when Richard Branson tried to start an entertainment magazine in London called Event. By the time the magazine was closed, the Virgin Group had lost £750,000.
Chapter 9 Litigation and Consolidation
The failure of Event magazine had been offset within the Virgin Group by two huge success stories – the Human League and Phil Collins. During 1982, a new development occurred in the rock world – with the launch of MTV in the USA, the music video became established as a huge, saleable commodity. Virgin also signed a new act that was destined to become the biggest pop group in the world within the next 12 months – Boy George and Culture Club.
In 1982, Richard Branson also started establishing foreign offices throughout the world, rather than working in with foreign distributors. This has proven to be an important factor in the Virgin group’s success, as by 1986, almost 75-percent of the group’s overall business was generated by its own foreign subsidiaries.
By the end of 1982, a number of groups under the Virgin label were becoming successful. By the end of that year, the Virgin Group turnover was £48.6 million, and profits had risen to £2 million. While these figures were impressive, by the end of 1983, turnover had risen to £94 million and profits to £11.4 million. The Virgin Group was now made up of some 50 different companies in every business activity from records and nightclubs to property, industrial activities and even servicing of air conditioners. Yet, for all it’s size, the Virgin Group was situated in an assortment of ramshackle buildings scattered around London.
Clearly, Richard Branson (and therefore the Virgin Group) placed little value on appearances. The company had almost an air of a cottage industry in the midst of random chaos. Branson himself drove a second-hand Volvo, still lived on a house boat and actually lived a fairly simple life-style – not easy when you also own a tropical island, a country house for weekends and majority share holding in a huge company.
Yet Richard Branson’s business philosophy was equally straightforward. He formed small companies to give responsibility to as many people as possible, so that they felt the need to make the business a success rather than turning up for eight hours a day. Branson did not look for the biggest risks but he worked to spot the safest bets.
Chapter 10 Virgin Atlantic
The idea of owning an airline had never been anticipated by Richard Branson. When he was first approached with the idea by Randolph Fields, he reacted with mild curiosity and asked to see ’something on paper’. Branson spent one weekend studying the proposal for a new airline to be called British Atlantic, which would in effect take up where Laker Airways had left off. By the end of the weekend, Branson thought the concept was feasible and attractive, and within a week he had agreed, in principle, for Virgin to go into partnership with Fields to form an airline.
Randolph Fields was 31 years old and a barrister by profession. He had followed Laker Airways with interest, and had decided to go into the airline business in early 1982 when Freddie Laker’s airline had collapsed. He had already applied for a license to fly between London and New York, and had
examined the feasibility of a new airline to fly the route. His initial concept had been to establish an all business class service, but Branson told him he would only become involved if it were a cut-price airline. Fields agreed and the partnership was formed.
Branson estimated it would cost Virgin £20 million a year to run the airline. He also estimated they would lose £2 million if the airline was unsuccessful and had to close down. Flying at full capacity, the airline could show a $9 million profit in its first year of operation. It would need to fly at 70-percent capacity to break even. In order to take advantage of the peak summer season, the airline would need to be up and running within three months. The fact that Branson knew nothing about the business was neither here nor there.
Branson started by closely studying the factors behind both the rise and fall of Freddie Laker’s Skytrain. Branson realized the early success of his low-budget, no-frills service had caused Laker to expand too quickly, taking on high levels of debt in US currency which became worse when the British pound’s value fell. By the end of two weeks, he decided he should lease a 747 (so he could carry freight) in a lease arrangement that protected against currency fluctuations.
Virgin Atlantic Airways was publicly launched on 25 February 1984. The Civil Aviation Authority hearing was held on 1 March 1984, and a license to operate was granted one month later. All that now remained were a few details – leasing an aircraft, hiring and training flight crews, cabin attendants and ground staff, establishing maintenance and operational facilities, landing and departure agreements, in-flight food and entertainment, printing tickets and selling the tickets. And, the minor detail of an aircraft had to be found.
Branson, approached all these tasks with gusto. In one moment of impulse, he actually decided to do away with the traditional airline classifications of first-class or economy and had baggage stickers printed up for ’Upper Class’, ’Middle Class’ and ’Riff Raff’ classifications. He was eventually persuaded this was not a great idea, and more traditional distinctions were applied.
The airplane was eventually purchased from Boeing Corporation, with Barclays Bank and Chemco Equipment Finance providing finance for the purchase under a lease arrangement. By the end of negotiations, Virgin had agreed to pay $31 million, spread over 10 years, for a Boeing 747-200 with only 19,000 flying hours on the clock. The target date for the first flight of Virgin Atlantic was 22 June 1984.
With the launch of the airline, Branson realized he would need to lift his own public profile. His new airline would be competing against the established giants, with huge advertising budgets at their disposal. Branson became more and more of a public celebrity. He became popular simply because he was so approachable, down to earth and rather natural. He soon found the trick with good public relations was not to pretend to be something you’re not, but simply to project what you are on to a larger canvas. For Virgin Atlantic to succeed, Richard Branson realized he had to turn himself into a public figure.
On 19 June 1984, Branson took delivery of his first 747, painted white with a huge Virgin logo on the tail. It was barely four months since he had first been approached with the idea. On the flight of inspection for his air-operator’s certificate, a compressor-blade failed in one engine requiring a £600,000 replacement which would not be covered by insurance. Once this was done, all other formalities were completed and the first commercial flight of Virgin Atlantic took place on schedule on 22 June.
However, behind the scenes, a major drama was unfolding with Virgin’s long time bankers, Coutts. They had always felt uneasy about Virgin, mainly due to the fact that the company had no ’bricks and mortar’ types of assets but rather more nebulous music and publishing copyrights. Coutts considered the airline venture to be foolhardy, and threatened to bounce Virgin cheques for any amount which would take the company past its agreed overdraft of £4 million. Virgin at this time was one of Britain’s largest private companies, with a net worth between £100 and £250 million.
A similar drama was unfolding between Branson and Randolph Fields. Their original agreement had given Fields 25-percent of Virgin Atlantic, an equal number of directors on the board and a job as chairman responsible for the day-to-day running of the company. By the end of July 1984, the first three week’s trading for Virgin Atlantic had produced a loss of £514,000. The major contributor to this loss was seen as the shambles of a reservation system being run by Fields. The situation was so bad that on more than 10,000 bookings, it was impossible to tell whether or not the people had actually paid for their seats. It was decided that Randolph Fields must be removed for the airline to succeed.
A courtroom battle took place over control of Virgin Atlantic. Eventually, Fields agreed to be bought out by Branson for £1.1 million and he went on to establish his own, rival airline to be called Highland Express. His venture was short-lived, however, and went into liquidation in December 1987. Fields would always maintain Branson had stolen his idea and edged him out of the picture. Branson maintained Fields was inept at the nuts and bolts side of the operation, and he couldn’t risk the longer-term future on him. In the final analysis, Fields had managed to sell Branson on the idea of an airline, and had walked away six months later with more than £1 million – evidence of a particular deal-making skill that anyone can appreciate.
While Branson was sorting out his company, a price war broke out between transatlantic airlines in response to Virgin Atlantic. In October 1984, British Airways reduced the price of its London-New York return fare from £278 to £259, only £1 more than Virgin’s price. Branson was able to successfully lobby against approval for the new fare, on the grounds that an established airline was trying to use its market position to squeeze out new competition. Branson was quickly learning that big business and politics were inseparable bedfellows.
By the end of 1984, Virgin Atlantic had turned its early trading loss into a profit of £250,000. The planes were flying at more than 90-percent capacity during the peak season. The first year of operation had not been without drama and challenges, but the airline seemed well and truly airborne.
Chapter 11 Sound and Vision
While Virgin Atlantic was getting underlay, Richard Branson and the rest of the Virgin Group were continuing to expand their operations in both the record and film industries. Virgin made their first feature films, Secret Places and Electric Dreams. This was followed by Nineteen Eighty Four, an adaptation of the now famous George Orwell novel. Virgin was in a good position to produce movies as well as make profits from the soundtracks associated with each movie which would use as many Virgin artists as possible.
Branson became fully involved in the numerous commercial deals structured around each film. His business negotiating strength lay mainly in the fact that he was not a music man, a movie man or a publisher – he was an entrepreneur. To him, the real beauty of any project lay in the deal.
The Virgin Group were now moving to position themselves for stock market listing. As part of this structuring, Virgin became involved in setting up The Music Channel Ltd, a European clone of the now established music video TV channel MTV. Virgin held a 45-percent share holding in The Music Channel Ltd after an investment of £3 million. When Thorn decided the investment required was too high, they sold their 50% share holding to Virgin for only £1. Branson then resold the Thorn shares to Granda and Yorkshire, producing a profit of more than £4.5 million.
Chapter 12 Challenger
To the staff of Virgin, Richard Branson led a charmed life.
Stories abound about the near-misses he survived. For example, he once accidentally took off in a microlight aircraft without knowing how to land, he went out of control on a ski slope only to be saved by his ski-pole becoming lodged in a rabbit hole and his driving skills on the road were legendary for their speed and recklessness. Virgin even held a yearly open day at Goodwood where staff could fling saloon cars around the track for a day, leading a Grand Prix driver, Stefan Johansson, to comment about Branson, “Your boss has got a lot of balls, but no bloody skill.”
The motorsport interest led to a meeting between Branson and Ted Toleman, head of a boat building company. Toleman was in the process of assembling a team to challenge for the Blue Riband – the trophy for the fastest transatlantic crossing for which the great ocean liners had once competed. All Toleman required was a sponsor with £1.5 million to invest.
The idea had immediate appeal to Richard Branson as an ideal way to gain publicity in America for his new airline. He also considered it would be enormous fun, and he insisted on becoming part of the crew. From that point on, it became widely known in the press as Richard Branson’s challenge, much to the chagrin of the Toleman team who actually did all the work.
Branson rushed about and arranged other sponsors. He organized Esso to provide all the fuel required in addition to three refueling vessels. He also took 400 journalists on a flight in his 747 and conducted a press conference dressed as Long John Silver, complete with a parrot on his shoulder. The challenge became known as Richard Branson’s Atlantic Challenge, with no mention of Ted Toleman’s team and technical input.
The Virgin Atlantic Challenger finally started its 3,000 mile journey on 12 August 1985. The record, last set in 1952, stood at three days, ten hours and forty minutes. The Challenger spent thirty six hours crashing through huge seas at speeds of up to forty knots. At one stage, Branson had tried to crawl into the solitary bunk for some sleep and had spent twenty minutes being bounced violently between base and ceiling before managing to crawl free. Everyone simply hung on for dear life.
Just five hours from home and well ahead of schedule, the record looked in the bag. With only 138 miles to go, the Challenger rode a wave and crashed down on to a piece of flotsam which tore a gaping hole in the hull. The crew hastily abandoned ship and were rescued after two hours clinging to life rafts.
While the Virgin Atlantic Challenger had failed to break the record, to fail so close to success actually bought them more publicity than if they had succeeded. The insurance payout for the boat also meant it had cost Virgin next to nothing. Branson considered the record attempt to be worth persuing, and set about organizing a second attempt. His new initiative, using a boat called Challenger II, got underway from New York on 15 July 1986. Despite problems with water in the fuel and a mid-Atlantic storm, Challenger II beat the record by 2 hours and 9 minutes. The news of this success was publicized throughout Britain, again giving Virgin a huge publicity boost. Richard Branson had now moved from businessman celebrity to folk hero. The museum housing the trophy eventually refused to give Branson the trophy, as they considered it was for ocean liners, not smaller boats. Branson considered suing them, but instead inaugurated a trophy of his own than anyone could challenge for.
Chapter 13 The Boy and the City
It had now become clear to Richard Branson that the rate of growth he had in mind for Virgin could not be achieved out of the company’s generated cash flow. In the summer of 1984, he decided it was time for Virgin to go public. To do that, he realized it would also be necessary to bring in the right people to sort out the company’s finances. Don Cruickshank was appointed as managing director in August 1984, and Trevor Abbott as finance director. Their arrival confirmed that the ’cottage industry’ days were over at Virgin. This fact was further confirmed by the fact that the projections for 1986 were a turnover of £188.6 million and a profit of £19.1 million.
Cruickshank proved to be a clever and tenacious operator. He streamlined the host of Virgin companies into three divisions; Music (records, song publishing, studios); Vision (cable, film); and Retail. Peripheral businesses were discarded. The airline was put into a separate company to minimize the risk factor. The object was to present Virgin as a sleek, profitable and safe business enterprise.
Trevor Abbott set to unraveling the Virgin style of bookkeeping. He was amazed that a company of that size could operate on an overdraft of only £4 million. He identified the fact that Virgin lived on the volume of its cash flow alone, making it susceptible to the inevitable peaks and flows. He also worked on the company’s banking arrangements. Coutts were refusing to extend their overdraft past £4 million (for a company worth £250 million). By July 1985, he had negotiated consortium of six banks which gave Virgin an overdraft of £30 million.
The Music division remained Virgin’s main source of cash flow, although Vision now had the fastest rate of growth. In 15 years, Virgin had come from nothing to being one of Britain’s largest private companies. Both Cruickshank and Abbott proved to be the perfect foil to Branson’s grand ideas. Whereas Branson would provide the big picture or the grand vision, Cruickshank and Abbott came along afterwards taking care of the fine, nit-picking details that were required in the longer-term.
Of course, the real paradox was that the relaxed, devil-may-care attitude of Richard Branson which made Virgin a household name was the very reason financial institutions were cautious of him and his company. The idea of company executives racing powerboats across the Atlantic was exciting, but not reassuring to the finance community. The move to bring in experienced management was well worth it. In the lead-up to flotation, numerous presentations were given to analysts, investors, insurance companies and pension funds. Everyone was confident there would be no shortage of private investors caught up in the excitement of the initial flotation. However, the longer-term stability of the company’s share price would depend on the institutional investors.
On 13 November 1985, Virgin was floated on the London Stock Exchange. There were more than 100,000 private investors, although generally the institutions had ignored the share float. The shares were priced at 140 p each, which valued Virgin at £240 million. Branson retained 55-percent and Simon Draper retained 9-percent. Branson raised £21 million gross from the issue, all of which went into the Virgin Atlantic Airways company. The shares were quite volatile at first, moving from 136p to 180p. By the end of the first year of trading as a public company, Virgin had a profit of £31 million on a turnover of £250 million.
Richard Branson’s personal business style continued to be a double-edged sword for him. On the one hand, it was refreshingly unique – a self made man who built his business on native wit, shrewdness and hard work. But on the other hand, if he was so busy running around the world, who was running the company? In reality, the public company could run quite well on its own. Having sold the notion that Virgin was built on his entrepreneurial zeal and enthusiasm, it was now necessary to stress the fact that the company had always been run by Branson delegating responsibility, and now, more than ever, he was valuable but not indispensable.
Chapter 14 Balloons
Per Lindstrand, a brilliant aeronautical engineer and one of the world’s leading balloonists, approached Richard Branson with a business proposal – would he like to fly across the Atlantic in a hot-air balloon, and, of course, pay for it? The proposal was met with immediate enthusiasm. Learning to fly a hot-air balloon would be an adventure, and being the first to fly across the Atlantic a challenge. Branson did not believe in taking unnecessary risks with his life, but neither did he believe that caution should necessarily deter his enjoyment. And, there was the publicity element to consider.
There had been three previous Atlantic crossings, but all by helium-filled balloons. A crossing by hot-air balloon was considered impossible, but Lindstrand had developed a double skinned balloon which drew heat from sunlight at very high altitudes to maintain the temperature. This would require the use of a pressurized capsule flying at 28,000 feet catching the trans-atlantic jet stream – winds of about 120 knots. The journey, in theory, would take three to four days.
The launch was set for the longest day of the year, 21 June. Branson threw himself into his training with gusto. In May, while practicing free-fall parachuting, he pulled the wrong rip cord. Only quick thinking by his instructor who yanked at the cord on his emergency chute saved his life. This was all captured on a television documentary that was being made.When the documentary aired on TV, Virgin’s share price plummeted by 15p.
The balloon to be used would be the largest hot-air balloon ever built. More than 12 miles of material was used in the balloon’s construction. When fully inflated, the balloon would swallow a 747. The capsule was no less impressive, featuring state-of-the-art navigation, communication and life-support systems. The only worry was how do you land something so big? It was more like a controlled crash than a landing. Lindstrand described it as ’like a freewheeling battle tank without any brakes’.
When the balloon finally left Sugarloaf Mountain, Maine, the adventure began in earnest. Within 90 minutes of their dawn launch, the balloon was at 25,000 feet cruising at 75 knots. At 28,000 feet above Newfoundland, the capsule suddenly jerk upwards. a passing Concorde radioed back their apologies for the effect of their sonic boom shock wave. Within 10 hours, the balloon had traveled 914 miles. They were halfway and traveling at up to 140 miles per hour.
As the Virgin Atlantic Jumbo Jet flew past with the balloon’s launch and recovery crew aboard, Branson’s mother radioed to her son, “Can’t you go any faster, Ricky?” Three hours away from Ireland, a venting plug jammed on the balloon and they climbed to almost 60,000 feet and it looked like they would have to parachute out of the capsule before the cabin depressurised. Luckily, however, the vent came free and they descended to 30,000 feet.
On Friday, 3 July they crossed the coast of Ireland. They had been airborne for just 29 hours and 23 minutes. The journey had been so quick they needed to jettison their spare fuel tanks and they descended to the ground, but the difficulty of this task had been underestimated. The balloon thumped into the ground with a bone-jarring thump, which not only tore off the spare fuel tanks but also a proportion of the capsule itself. They climbed sharply back into the air, verging on a total loss of control. All their electrical systems were dead. They were now off the coast of Scotland and decided a waterditching would be safest. They descended and hit the water with a thump. Both men clambered out of the capsule, and Lindstrand jumped into the ocean. By the time Branson tried to jump free, the balloon had taken off again and he was 500 feet in the air. For a long time, he feared he would have to parachute free, with nagging thoughts about pulling the wrong ripcord. However, after 20 minutes, he bought the balloon down again and managed to jump into the sea to be picked up by a Royal Navy helicopter. They then went back and picked up Lindstrand, who had spent two hours in the freezing water. They had made it – just.
Virgin had invested £750,000 in the balloon trip, although by the time subsidiary sponsors had been found (including £100,000 for the television rights), the project had only cost Virgin £200,000. It was estimated they had gained approximately £25 million worth of free advertising by the end of the flight.
In 1987/1988, Virgin Atlantic reported a £10 million profit, and began plans to expand to new routes – Los Angeles, New York and Tokyo. At the same time, Branson began confidential moves to privatize Virgin, barely 18 months after listing on the stock exchange. This was mainly due to the fact that the institutions had, by and large, ignored Virgin shares at what he considered a realistic price. It was also due to the fact the analysts always urged Virgin to go for short-term profits, while the company preferred the longer-term perspective. Finally, Branson found the expectations of a public company officer stifling and distracting. Richard Branson set in place £200 million worth of bank loans, and bought back the Virgin shares for the same price at which they had been floated. Virgin was once again a private company.
In October 1989, Richard Branson sold 25.1-percent of Virgin to Fujisaneki (Japan’s largest owner of television, newspaperand media interests) for £115 million. This was the largest equity investment ever by a Japanese company in Britain. As well as reducing debt, it provided funds for Virgin to take on the big players in the record industry. It also represented a long-term financial commitment to Virgin, without any impediments such as managerial interference.
Branson also used the occasion of the Fujisaneki investment to announce a new balloon flight, the Virgin Otsuka Pacific Flyer, to fly the 6,200 miles from Japan to California. (By comparison, the atlantic flight had been 3,075 miles). The flight was scheduled for November 1989. Once again, the same team would be involved in this flight as had been used for the atlantic crossing. It was expected to take approximately four days flying time.
The new flight served a number of purposes. Firstly, it filled Branson’s taste for adventure. It also gave him a chance to publicize environmental concerns; saving the Indonesian rain forests and stopping both whaling and the ivory trade. Besides, with Japanese business keen to become involved, the entire cost of the journey would be met without any Virgin capital input.
Richard Branson was now an instantly recognizable figure in Japan – almost as popular as he still is in Britain.