Then, with the judge’s permission, Basham’s counsel stood up to point out that his client did not accept that the references to him in the foregoing statement were an accurate summary of his actions on behalf of BA.
Outside, in the mad hustle of journalists and photographers, I held up both hands and shook my fists in triumph.
‘I accept this award not only for Virgin,’ I said, ‘but also for all the other airlines: for Laker, for Dan Air, Air Europe and B-Cal. They went under and we survived British Airways, but only just.’
Back at Holland Park the party started. I decided to share the £500,000 damages which had been given to me among all the Virgin Atlantic staff, since they had all had to suffer from the pressure which British Airways had put us under, in the form of reduced salaries and cuts in their bonuses. The television was on in the corner and every news programme covered the Virgin success as the main story of the day. ITN even interviewed Sadig Khalifa and Yvonne Parsons. The party stopped to cheer them momentarily, and then went on.
Much later, I was in the middle of talking to someone when a wave of exhaustion hit me. I realised that we had won. All the stress relaxed out of my shoulders; I smiled a wide, happy, contented smile, toppled sideways and fell deeply asleep.
29 Virgin territory
1993–1998
NINETEEN NINETY-THREE was a watershed for Virgin. From that moment onwards, and for the first time, we had the luxury of money; and in ‘Virgin’ we had a strong brand name, which could be lent to a wide variety of businesses. We faced uncharted territory, but at last we could afford to follow our instincts, rather than spend all our time persuading others to do so. Once we had made the lateral and surprising jump from Virgin Records to Virgin Atlantic, we could try our hand at anything. We were a long way from when we first copied out an old record contract on the houseboat and signed Mike Oldfield. Times had changed and we had £500 million in the bank. But I didn’t believe in leaving it there.
At this point I could of course have retired and concentrated my energies on learning how to paint watercolours or how to beat my mum at golf. It wasn’t, and still isn’t, in my nature to do so. People asked me, ‘Why don’t you have some fun now?’ but they were missing the point. As far as I was concerned, this was fun. Fun is at the core of the way I like to do business and it has been key to everything I’ve done from the outset. More than any other element, fun is the secret of Virgin’s success. I am aware that the idea of business as being fun and creative goes right against the grain of convention, and it’s certainly not how they teach it at some of those business schools, where business means hard grind and lots of ‘discounted cash flows’ and ‘net present values’.
Even though I’m often asked to define my ‘business philosophy’, I generally won’t do so, because I don’t believe it can be taught as if it were a recipe. There aren’t ingredients and techniques that will guarantee success. Parameters exist that, if followed, will ensure a business can continue, but you cannot clearly define our business success and then bottle it as you would a perfume. It’s not that simple: to be successful, you have to be out there, you have to hit the ground running; and, if you have a good team around you and more than your fair share of luck, you might make something happen. But you certainly can’t guarantee it just by following someone else’s formula.
Business is a fluid, changing substance, and, as far as I’m concerned, the group will never stand still. It has always been a mutating, indefinable thing and the past few years have demonstrated that. But it is only when you come to write a book such as this that you discover how far you still want to go. That’s how I see this book: a comprehensive account of the first fifty or so years of my life – the struggling years – but also a work and a life in progress. This book was never intended to be as dry as a balance sheet, but will, I hope, give an idea of what has been important to my life and to the people around me thus far.
Virgin has expanded over the last few years, perhaps more quickly than any other European group, and has developed radically in the process. Our way of doing business may remain the same, but the context has changed dramatically. After the sale of Virgin Music and our victory over British Airways in January 1993, I realised that, for the first time in my business career, I had climbed the wall and could at last peer into the promised land. It hadn’t always been possible. For anyone who starts without financial backing there is a very thin line between success and failure. Survival is the key priority. No matter how many successes Virgin had had, there was always the danger that the cash would run out. Virgin has made money, but I have always invested it in new projects in order to keep the group growing. As a result, we had rarely had the luxury of spare cash to use as a cushion.
Over the years we have clung on through three recessions; we have suffered losses; we have closed down some businesses and, in some instances, we had to make some staff redundant. But after 1993 no bank would ever again be able to dictate to us how to run our business. We had financial freedom. I was one of a rare breed: most entrepreneurs don’t manage to survive that far or for that long. In the process of gaining that freedom, we had to overcome all kinds of obstacles thrown without warning into our path.
When we were established as a mail-order record company, and thus dependent on the post, out of the blue came a six-month postal strike. If we hadn’t reinvented ourselves, we would have gone bust. There was no choice. Within days of the strike we had opened our first Virgin Records shop. It may have been up a dark, narrow flight of stairs above a shoe shop and have consisted merely of some shelves, a shabby sofa and a till, but in its own small way it taught us all we now know about retailing. I can draw a straight line from that tiny shop to the Virgin Megastores in London, Paris and New York. It’s just a matter of scale, but first you have to believe you can make it happen.
In the same way, as the record label gathered momentum through those early years, every deal was make-or-break. We may have failed to sign 10cc, but we were still willing to put the company on the line when we tried again with the next band. We launched the airline on a wing and a prayer, and when the engine blew up on our test flight it might have been over before it had begun. We were lucky: each time something went wrong, we were the smallest jump ahead of the banks.
However tight things are, you still need to have the big picture at the forefront of your mind. The most vivid proof of this came during the depths of the recession in 1992. At the time, I was trying to raise money to install individual seat-back videos in all our aircraft – I have always believed that Virgin should offer the best in-flight entertainment. We needed £10 million to install the equipment. Nobody at Virgin Atlantic could raise the necessary funding and we were all sitting down at Crawley one day in despair, on the point of giving up, when I thought I would try one last gamble.
Nervously, I picked up the telephone, called Boeing and asked to speak to the CEO, Phil Conduit. I asked him whether, if we bought ten new Boeing 747–400s, he would throw in the individual seat-back videos in economy class. Phil was amazed that anyone was thinking of buying planes during that recession, and he readily agreed. I then called Jean Pierson at Airbus, and asked him the same question about the new Airbus. He agreed. After a few further enquiries, we discovered that it was easier to get £4 billion credit to buy eighteen new aircraft than it was to get £10 million credit for the seat-back video sets. As a result, Virgin Atlantic suddenly had a brand-new fleet of planes, the youngest and most modern fleet in the industry, at the cheapest price we’ve ever been able to acquire planes before or since.
The Virgin Group has always had a life of its own and I have always tried to think ahead with it. When I tried to sell Student to IPC Magazines back in the early 70s, they shied away from me because I started talking about all the other business opportunities I wanted to explore: a Student travel company that would offer cheaper travel than the existing airlines, a Student bank because I thought that students were being ripped off when they had no incom
e to protect them. I even wanted to hire trains from British Rail because their tickets were so expensive and their trains were always late. Even then, I was attempting, with limited resources, to explore what was possible by wanting to go into some of these businesses and turn them upside down. At the time, it was all theoretical and beyond my capacity, but some interesting ideas emerged from the process. I may be a businessman, in that I set up and run companies for profit, but, when I try to plan ahead and dream up new products and new companies, I’m an idealist.
My grandiose plans didn’t work for Student. But, following the sale of Virgin Records, I was once again ready to start pushing at the barriers. This time it was rather different: I didn’t have just a few pounds in the Student biscuit tin – which we ended up spending on takeaway curries – but a treasure chest of hundreds of millions of pounds. In an intoxicating moment, everything seemed possible. We had the finance, and, even more importantly, we had the name, ‘Virgin’, which already had a track record of reinventing itself. There was nothing to stop us becoming something else.
I give free rein to my own instincts. First and foremost, any business proposal has to sound fun. If there is a market that is just served by two giant corporations, it appears to me that there’s room for some healthy competition. As well as having fun, I love stirring the pot. I love giving big companies a run for their money – especially if they’re offering expensive, poor-quality products.
In the early 1990s, there were already scribblings in my notebook about the possibility of launching a range of Virgin soft drinks, led by Virgin Cola, which could take on the might of Coca-Cola, one of the world’s top ten companies. The Cott Corporation specialises in bottling own-label colas and was looking for a brand that could have global appeal.
‘You’ve got the X factor, the Y factor – you’ve got every factor there is,’ Gerry Pencer, the chief executive of Cott Corporation, said to me. ‘People like Virgin; they trust the name; they’ll buy a product because it’s a Virgin product. So how about it? We’ve got the recipe; you’ve got the name. What do you say to Virgin Cola?’
As usual, when people warn me against doing something once my mind is made up, I grow increasingly determined to try it. In this case we all recognised that it would be an inch-by-inch fight along the shelves of the supermarkets but, once we established that there was minimal financial risk if we failed, we decided to proceed. We knew that the product was as good as either Coke or Pepsi, and the first blind tasting we had at the local school, which was followed by many across the country, established that most people preferred Virgin Cola to the others. And so we went into Virgin Cola. Within a few months we were selling £50 million worth of Virgin Cola across the country and had grabbed 50 per cent of the market in the outlets that stocked it. We went on to launch it in France, Belgium and South Africa, and we even managed to place a Virgin Cola machine right underneath the Coke sign in Times Square, New York. This was after we’d driven a Chieftain tank through a wall of Coca-Cola and Pepsi cans, and fired at the Coke sign hanging above Times Square!
Initially Coca-Cola head office didn’t take Virgin Cola seriously as a threat so we had no opposition from them. What I didn’t know was that based in Atlanta, in Coke’s head office, was an English lady working in a senior position for Coca-Cola. She warned the management there that Virgin had the power and the brand to rock Coke on a wordwide basis and she persuaded her directors to let her set up a SWAT team in England to try and stamp us out. Within days she and her team had moved to England. Retailers were offered unbeatable terms from Coke to take their cola over ours. Smaller retailers were threatened with removal of Coca-Cola fridges. The campaign from Coca-Cola was even more potent than the dirty tricks campaign from British Airways to stamp out Virgin Atlantic but Virgin Cola survived. Ironically this very same lady now holds a senior position at Virgin’s main clearing bank.
Looking to the future, I had no idea whether Virgin Cola would become a global leader in soft drinks or not, but, as with all of our businesses, I keep an open mind. But I do know that Virgin Cola, which has now expanded to become Virgin Drinks, is indicative of the Virgin philosophy – beneath all the fun and razzmatazz of selling it there is a sound business plan. The decision to launch Virgin Cola was founded on three key things: finding the right people, the positive use of the Virgin brand name, and protection of the downside.
The business plan for Virgin Cola was clear: we would never lose much money selling it. It is so cheap to produce that, unlike most other products, the manufacturing cost is negligible. We could therefore balance the advertising and distribution costs directly against the sales. One look at Coca-Cola’s balance sheets is enough to reveal what a profitable business it is, and with that kind of margin we knew there must be plenty of room for someone else to come in with a decent cola to sell alongside Coke and Pepsi.
Once I was convinced that we had protected the downside – which is always my first concern – the other significant question to resolve was whether the move into Virgin Cola really enhanced the Virgin brand name. Despite objections from colleagues, I was persuaded that cola has a number of attributes that people associate with Virgin: fizz, fun and freedom. Not only that, but ours was a better, cheaper cola than the others. We thrived on the fact that we were small and a newcomer up against the two giants. And it meant that we kept the brand alive in the youth market.
‘All right,’ people admitted, when they heard my defence of Virgin Cola. ‘I can see that cola is fun. It’s fizzy and profitable and fits the Virgin image. But surely not life insurance? What on earth are you doing selling life insurance, mortgages and investments?’
I have to admit that some healthy discussions about life insurance took place before we decided to launch Virgin Money. ‘Life insurance?’ everyone snorted when they heard the idea. ‘People hate life insurance. All the salesmen seem so unscrupulous, barging into your home and taking secret commissions. It’s a terrible industry. It’s definitely not a Virgin kind of business.’
‘Exactly,’ I said. ‘It’s got potential.’
It is no secret that I love playing devil’s advocate. I could see all the bad points about the financial-services industry. The idea of setting up Virgin life insurance and a Virgin bank would have horrified our original staff at Albion Street, or our customers who lounged about on the beanbags at the record shop. And yet, whenever I see people getting a bad deal, I want to step in and do something about it. Of course, this is not pure altruism – there’s a profit to be made, too. But the difference is that I’m prepared to share more of the profit with the customer so that we’re both better off. The maverick in me was also quietly amused that the guy who brought you The Sex Pistols could sort out your pension, too. Another part of me was equally amused by the idea that we were going to set up our own bank to give those very banks that nearly foreclosed on us a run for their money.
My attention had first been brought to the financial-services industry by Rowan Gormley, a venture capitalist I had asked to work for Virgin to identify new business opportunities. One of the first things he did was review the Virgin pension policy, which he told me made no sense. When he asked six different pension advisers to give quotes as to how best to restructure it, he was the bemused recipient of six different answers.
‘I don’t understand it,’ he told me. ‘I’ve three degrees in finance, but none of what they’re saying makes sense.’
Instinctively, I felt that the world of financial services was shrouded in mystery and rip-offs and that there must be room for Virgin to offer a jargon-free alternative with no hidden catches.
As with our other ventures, we needed a partner who both knew the industry and could put up the money to go alongside the Virgin name. Despite some of our past difficulties, I still believe that a fifty-fifty partnership is the best solution to financing. When something goes wrong, as it invariably will at some point, both partners have an equal incentive to put it right. Such is not always the case. At
worst, such as with Randolph Fields and Virgin Atlantic, Virgin will buy out the partner entirely. At best, as with Sprint, our partner with Virgin Mobile in America, it stays at fifty-fifty and both sides remain content. In between these poles there can be many variations and we have tried out most combinations. Ultimately, you never know what to expect when dealing with other people and, although you might both appear to go into a project with the same enthusiasm, situations can change. Knowing when and how to renegotiate a contract is all part of the challenge of business.
Virgin Money, our financial-services company, started off as Virgin Direct with Norwich Union as a fifty-fifty partner. After Virgin entered the financial-services industry, I can immodestly say it was never to be the same again. We cut out all commissions; we offered good-value products; and we were practically trampled by investors in their rush to buy. We set up a new office in Norwich rather than rent a gleaming tower block in the City of London. We never employed fund managers, some of the world’s most highly paid people, since we discovered their best-kept secret: they could never consistently beat the stock-market index.
We launched aggressively and the initial signs were good but, in spite of our success, we realised that we were going faster and further than was comfortable for Norwich Union. It looked like we would be three times the size we had originally predicted. After a short time we arranged for Norwich Union to sell their shareholding to a partner who shared our ambitions, Australian Mutual Provident (AMP). Together with AMP and our great team at Virgin Money, we had cut a broad swathe through the financial-services jungle. From a standing start in 1995, it is staggering to think that Virgin Money had become the country’s most popular investment house, and 250,000 people had trusted us with over £1.5 billion, and all this had been achieved within three years.
The success of Rowan Gormley and his vision for Virgin Money illustrates one of the great strengths of the Virgin Group: we thrive on mavericks. The quality that I recognised in Rowan when I first asked him to work for Virgin was that he would make things happen. When he started work perched at a desk on a half-landing at 11 Holland Park, neither of us had any idea that a few months later he would start up a financial-services company. When – unsurprisingly, with hindsight – he alighted upon financial services, we arranged a company structure that gave him and his team a shareholding in the business and let him get on with it. Like all the managers of Virgin companies, Rowan was given a high incentive to succeed because he could clearly see the wealth that success would bring him and his team.
Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way Page 36
