Virgin Group PLC

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Virgin Group PLC

120 Campden Hill Road
London, Greater London W8 7AR
United Kingdom
71 2291282
Fax: 71 7278200

Private Company
Founded: 1973 as Virgin Records
Employees: 7,900
Sales: $1.2 billion
SICs: 4512 Air Transportation, Scheduled; 5735 Record and
Prerecorded Tape Stores; 7372 Prepackaged Software;
7929 Entertainers and Entertainment Groups

Virgin Group PLC is a privately owned holding company primarily involved with airline, music, video, publishing, and retail ventures. Based in Great Britain, Virgin has operations in more than 20 other countries, including the United States. Virgin Group was the creation of British entrepreneur Richard Branson, who had dropped out of boarding school at the age of 17, in 1967, to start his own magazine. That venture was an immediate success, establishing the foundation for what would become a billion dollar conglomerate during the 1980s. Along the way, Branson would attain cult status in his home country— the result of his business exploits, quests for adventure, and unique personal style.

Branson’s entrepreneurial bent emerged during his childhood. “The fact that we never had any money was a very good thing,” explained Branson’s mother, Eve, in the November 1987 Inc. Eve Branson went on to suggest that her son “wanted to help the family.” A friend cited Branson’s love for sports and competition as another major ingredient of his success; “He likes playing the game for the sake of playing he game. He competes hard because he enjoys the competition,” noted Simon Draper in the Inc. article.

Although Branson loved sports as a youngster, he was forced to rechannel that energy following a serious knee injury. He decided, instead, to focus on establishing a business. Branson embarked on his first venture, in fact, when he was around 11 years old, planting 1,000 seedlings, which he hoped to eventually sell as Christmas trees. When rabbits ate the seedlings, Branson tried a different scheme a year later. His plan this time was to breed and sell a type of small, highly reproductive parrot. That effort fell through when, according to Branson, rats ate the parrots; Branson’s mother, however, contended that she released the birds.

Branson was undaunted by early failures. With the same enthusiasm that would characterize his entry into new endeavors as an adult, he initiated his first major success at the age of 15, when he started a magazine called Student. His parents reportedly were under the impression that Branson had been working on a simple school newspaper, but they learned that he intended to launch a magazine for the general public after he travelled to London to sell advertising space. Branson’s father, Edward, had his doubts, but he didn’t want to quash his son’s excitement. Besides, Edward reasoned, Richard only had 100 pounds (about $150) to his name, and it would be good for him to learn a lesson about the difficulty of making it on his own.

To the surprise of his parents, Branson sold 50,000 copies of the first issue of Student. In fact, the venture was so successful that Branson dropped out of school when he was 17 to run his business full time. Soon thereafter, he launched his second major undertaking, a company called Virgin. Virgin started out as a mail–order record company. A new law had just been passed that allowed people to sell records at discounted prices, and Branson was among the first to take advantage. Like his magazine, Branson’s new company was an immediate success. Sales skyrocketed, and Branson scrambled to find workers to keep up with the tremendous order load. When a postal strike crushed the mail–order endeavor, the resilient Branson responded by changing his strategy. He opened a small, discount record shop that was also a hit. A string of Virgin Record stores followed.

Early setbacks, such as the postal strike, were representative of the great obstacles that Branson would be forced to overcome in Britain’s anti–business climate of the 1970s and even 1980s. Indeed, during the 1970s, the country was mired in economic malaise. Tax rates on unearned income were as high as 98 percent, and labor strikes like the one that nearly destroyed Virgin were the norm. Furthermore, a general disdain for entrepreneurs and “new money” permeated the business and social environment, making it more difficult for would–be capitalists to get their ideas off the ground. A mid–1980s survey, for example, showed that 29 percent of the executives in the United Kingdom viewed business owners as having the lowest status in the country, while only 13 percent thought they had the highest status.

Nevertheless, Britain’s political, social, and economic environments were perfect for Branson; a rebel by nature, he loved a good challenge and enjoyed bucking convention. That characteristic was most conspicuously evidenced by the name that he chose for his company. He used Virgin to signify his lack of knowledge about the businesses into which he entered. While convention demanded that entrepreneurs have experience in the ventures they began, Branson elected to enter businesses that interested him, regardless of his background; he would ask questions and invent his own route to success. Having no preconceived ideas about an industry, he was able to identify unnecessary hurdles that his competitors took for granted, as well as to recognize hidden opportunities.

Branson demonstrated his unique style again when he entered the recording business in 1973. By then, the 23–year–old entrepreneur was becoming bored with his publishing and record store endeavors, Still, he was fascinated by the recording business and wanted to take a crack at running his own studio. Snubbed by the British financial establishment, Branson was able to get friends and relatives to contribute start–up capital for the project. The first act he signed was an unknown artist named Mike Oldfield. They cut a unique album, Virgin Record’s first, titled “Tubular Bells.” The record sold five million copies, became one of the biggest selling albums of the decade, and was used as the soundtrack for the movie blockbuster, “The Exorcist.”

While Branson enjoyed success with Virgin Records during the mid–1970s, by the end of the decade, the company was trying to shake its image as an outmoded “hippie” label. To that end, Branson signed a popular band known as the Sex Pistols. A crude, irreverent, hard–core punk band with a flair for the obscene, the Sex Pistols had become popular during the mid–1970s and were credited with spawning the entire hard–core punk movement. Branson had tried unsuccessfully to sign the band before. Then, in 1976, the Pistols were dumped by the company that held their recording contract, following a particularly offensive display by the band on national television.

Although another company was quick to sign the Pistols, within hours of signing that contract, the band trashed that firm’s offices and found themselves once again in need of a sponsor. Then, Branson moved in to sign a band that would bring the youth market back to Virgin with a vengeance. Under Virgin, the Pistols continued to shock the world—some of their songs were even banned by the British Broadcasting Company (BBC)—and thereby helped Virgin achieve notoriety in the industry. More importantly, though, the Pistols attracted other major talent to Virgin’s studios. Other major stars, including Steve Winwood, Boy George, Phil Collins, Genesis, and the Rolling Stones, signed onto the Virgin roster.

Branson’s burgeoning operations prospered during the early 1980s. Still, the entrepreneur was restless and continued to seek new opportunities. In 1984, he came across another industry that interested him and about which he knew relatively little: the airline industry. Critics effectively laughed off Branson’s proposal to begin providing long–haul air service between the United States and London. Nevertheless, he purchased a Boeing 747 and began flying people back and forth between London and New Jersey, offering improved service and unique features. Virgin Atlantic Airways wowed observers by posting a profit in its second year. “It’s not so divorced from the music business,” Branson pointed out in the November 14, 1988 Forbes, noting that “if people are traveling for ten hours, they want to be entertained.”

Entertainment was, indeed, an important element of Virgin Atlantic’s success during the 1980s and early 1990s. Passengers were entertained with videos and, in some cases, live performances from mimes or musicians like cellist Julian Lloyd Webber. In addition, first–class travelers enjoyed perks like round–trip limousine service to and from the airport. Furthermore, Branson kept costs low by growing his airline slowly and focusing on low costs and high profit margins. By 1988, the airline consisted of only two planes, but was boasting the highest occupancy rate and greatest profit margins in the industry. Virgin Atlantic expanded during the early 1990s to include routes to several U.S. cities, Tokyo, Hong Kong, and Greece.

By 1985, Branson’s Virgin companies were generating a hefty $25 million in profits from more than $225 million in sales. His holdings included a string of 60 retail stores, a budding video–cassette and television operation, the recording studio, and the airline. Hungry for expansion capital, Branson formed Virgin Group PLC in 1985, which consisted of all of his holdings except the airline company and some miscellaneous businesses. He put the airline and the other ventures, which included a night club business and airfreight operations, into a separate company called Voyager Ltd.

Branson took Virgin Group PLC public in a 1986 stock offering that generated more than $56 million. In typical Branson style, the offering was promoted through a media blitz that included a television commercial with a pinstriped executive dancing on his desk and the ad slogan: “From the rock market to the stock market.” By 1987, Virgin Group PLC’s sales had risen to more than $230 million; when combined with sales at Virgin Atlantic, Branson’s companies were pulling in over $350 million annually. Interestingly, Branson took the company private again in 1988, restructured his companies, and sold 25 percent of his Virgin Music Group for $170 million.

Virgin’s success during the 1970s and 1980s was a tribute to Branson’s unusual management style, which was a radical departure from corporate norms at the time. Branson abandoned the traditional suit and tie in favor of a sweater and slacks. And he operated his unwieldy holding company from the bow of his private barge, relying on telephones, fax machines, and a personal secretary to keep him in touch with his managers. The barge, named Duende, was located in the industrial Regents Canal. Branson’s logic behind his remote office was that it gave his subordinates, spread out in more than 25 London buildings, greater autonomy. “People always want to deal with the top person in a building,” he explained in the November 1987 Inc., “so somebody besides me takes complete responsibility. He becomes chairman of that company... and I can be left to push the group forward into new areas.”

Indeed, one of Branson’s greatest virtues was his ability to delegate authority and allow managers to take control of the pet projects that he conceived and started. He relied heavily on a small group of hand–picked executives that he could trust. Allowing them to operate their divisions with minimal interference, Branson also offered them high–value incentives based on performance. For example, distant relative Simon Draper ran the profitable music division. He joined Virgin in 1971 after emigrating from South Africa, and had become a multimillionaire by the late 1980s.

Another of Branson’s innovative techniques involved breaking his operations up into multiple units, rather than allowing them to grow into large, less personal organizations. For example, he had broken his record enterprise into five separate companies by the late 1980s, each of which concentrated on different bands and artists. His collection of companies had swelled to an assemblage of more than 100 loosely connected enterprises by the late 1980s, each of which was run by a small, streamlined staff. Importantly, he encouraged his employees to innovate and take risks without the fear of failure. “You fail if you don’t try things,” Branson explained in the November 1991 Florida Trend.” If you run a company based on fear, then you’re not going to get the best out of people. They won’t make bold decisions. They won’t make any decisions,” he stated.

Another important, and perhaps the most intriguing, aspect of Branson’s leadership was his penchant for peril. His wild, sometimes daredevil stunts earned him a reputation in Britain and the United States as an adventurer and risk–taker. His first publicized stunt was a speed boat crossing of the Atlantic Ocean. The previous speed record of 30 hours was held by an American boat, and when a sailor told Branson that the record could be beat, Branson became hooked on the idea. In 1985, Branson set out in a speedboat that struck submerged debris just three hours short of finishing. Predictably, Branson tried again in 1986 and succeeded in setting a new world record.

Branson’s second major stunt was a 1987 attempt to cross the Atlantic in a hot air balloon. He combined the adventure with a public relations effort to market his airline, which included television documentaries that aired both before and after the flight. The project was riddled with mishaps. For example, Branson spiraled out of control on his first parachute jump and was barely rescued, mid–air, by his instructor. The televised misadventure sent Virgin Group’s stock price tumbling the day after it was broadcast. Although the harrowing balloon trip succeeded in getting Branson and his copilot across the Atlantic in less than two days, the passenger capsule failed to disengage from the balloon when it landed, and Branson nearly died in the Irish Sea.

Despite brushes with death, Branson’s exploits succeeded in boosting Virgin’s image and improving the Virgin Group’s bottom line. Branson even decided to start a new company that manufactured balloons, provided balloon flight training, and sold balloon vacations. Branson secured rights to fly over the Taj Mahal and the Pyramids. In addition, he wanted the venture to design and build small balloon airships that would carry observers up for traffic reports, or simply for entertainment, at a fraction of the price that a helicopter operator would charge.

At the same time that Branson was risking his life over the Atlantic, he continued to grow his Virgin Group at an astonishing rate. During the late 1980s, Virgin was reporting over $1 billion in annual sales and was comprised of more than 150 different companies operating in 20 countries. Going into the 1990s, Branson was overseeing holdings related to broadcasting, entertainment, air travel, real estate development, publishing, and other industries. His original Virgin Records enterprise alone had branched into 14 different companies.

The giant, privately held Virgin Group generated estimated sales of more than $2 billion in 1991, and the 41–year–old Branson continued to deal. He signed pop star Janet Jackson, for example, in a contract valued at $30 million, and was rapidly expanding his Virgin Atlantic airline operations. He also purchased an airline company in Florida. In fact, the buy reflected the company’s increasing emphasis on the U.S. market, particularly in Florida, beginning in the early 1990s. Branson planned to build a 40,000–square–foot music superstore there, as he had at 20 other international locations, and was considering making Florida the home office for Virgin Records. Back in Britain, Branson relocated his barge–based office to a three–story Victorian villa backing up to London’s Holland Park.

Branson’s office move reflected the immense growth and complexity of Virgin Group. Despite his monstrous financial gains, however, the entrepreneur was generally respected by his fellow capitalist–wary countrymen—he was even selected as the third most popular Brit in a late 1980s poll. “People can recognize him in a very English sort of sense of fair play and decency and modesty and good manners,” explained Mick Brown in an Inc. article. “He’s that unusual combination, really, of all the things that people expect success and money to corrupt out of people,” Brown wrote. Backing that assertion was the fact that Branson drove a 1959 Bristol automobile, for which he paid $5,900, and continued to wear casual clothing.

Virgin Group expanded during the early 1990s, despite a global economic downturn that started in the United States and spread to Europe. Branson diminished his holdings significantly when he sold Virgin Records for about $1 billion early in 1992, evidencing his intent to focus on his airline operations. He also began to engage in various interactive media ventures. Late in 1992, for example, Virgin announced a joint venture with Florida tycoon and entrepreneur H. Wayne Huizenga of Blockbuster Video. The two decided to combine their knowledge of record store and video store retailing to create mega–media outlets that offered a full range of entertainment products. They opened their first Blockbuster Virgin store in December 1992 in Los Angeles.

Among other innovative ventures during the early 1990s, Branson fired up an airline charter service connecting Key West and Orlando, using refurbished DC–3 planes and requiring the flight attendants to wear 1940s attire. And in 1994 Virgin launched an AM radio station aimed at music listeners in the 25 to 44 age group. In addition to building new businesses, Branson continued to seek adventure. Most notable was his hair–raising attempt to cross the Pacific Ocean in a balloon. The craft floated into the jet stream and was blown into the Yukon territory in Canada. After crashing on a frozen lake, Branson was tracked by radar and rescued before he froze to death.