The Virgin Way: Everything I Know About Leadership (14 page)

I am no banker – or actually I suppose I am now with Virgin Money – but it didn’t take me very long to come up with my thoughts on the situation. I first asked the question, ‘By the sound of it you’re still having a great time running your own independent company and have no urgent need for the cash, correct?’ He nodded affirmatively. ‘Well,’ I said, ‘there are really no right and wrong answers here, but in my opinion you have two options: either you sell the whole thing to the highest bidder and create something new with the proceeds, or you keep doing what you’re doing until such time as you don’t enjoy it any more or you just lose the passion you clearly still have. By that stage the company will have further increased in value and you also won’t be left wishing you’d stuck with it for a few more years – which, knowing you, is probably what’s going to happen if you sell it now.’

His reaction was a deep sigh and a predictable, ‘Sure, Richard. I’m not saying I want to do it, but if I were to go the IPO route I’d only sell a minority stake so I’d have the best of both worlds – we’d raise some cash and I’d still be running the company – right?’ My response was a simple, ‘Wrong! Trust me, I’ve been there. While on paper you may still be running the company, I can assure you from personal experience that the company you’re running and your freedom to run it the way you’re accustomed to doing, are never going to be the same after you’ve gone public. Let’s face it: countries go to war to protect their freedom and independence.’

I then took him through a short history of my experiences when we took the Virgin group public in 1986 – Virgin Atlantic was not included in the flotation. I won’t take you through all the details, but in essence the entity that people invested in when they bought Virgin plc shares at 140 pence was a successful, vibrant company run by a group of fun-loving, slightly batty young people with some wonderfully off-the-wall (aka highly innovative) ideas on how to run a business. The ironic fact was, however, that the moment we became a public company we could no longer operate in the same way that had made us such a success to that point in time. Everything changed overnight. Our customary laid-back impromptu meetings where we’d bash around a few crazy ideas and make impromptu decisions were a thing of the past. They were replaced by hideously formal board meetings, which now had to include outside non-executive directors, who through no fault of their own had no idea as to how we or the business worked. All the results reporting and compliance stuff in general was an enormous distraction from the freedom we’d always enjoyed to focus on the business rather than the books.

We suddenly seemed to be spending half our time explaining what we were doing and why to all nature of fund managers, analysts and other assorted ‘suits’. ‘Screw it, let’s do it’ became a distant memory! Half the time our most successful ventures had been based entirely on our contrarian intuition or
carpe diem
moments, not on tortuous feasibility studies, business plans and financial projections. It crossed my mind more than once that if we’d had to explain to one of these people why I thought we should put out an entirely instrumental record,
Tubular Bells
would never have seen the light of day! And as for Virgin Atlantic? Forget it – that one would never have made it on to the drawing board let alone off the ground.

As a public company it suddenly felt like the Virgin genie, something that had always thrived as a free spirit, had suddenly been forced into a bottle and was in serious danger of suffocating there. I realised there and then that, if working to improve shareholder value was now our
raison d’être
, as opposed to doing the things we wanted to do in the way that we had to do them, then we could never function successfully as a listed company. I’ve always seen a business as a group of people trying to improve other people’s lives – how do you monetise that in a quarterly report? So, having learned an important lesson we finally cried ‘uncle’ and in 1988 we went out and raised the money to take the company private again. The stock market had crashed so we could have paid less by going with the diminished value at which our stock was trading, but I was adamant that we ‘do the right thing’ and every investor got back the 140 pence per share that we’d started out at so nobody lost money on the deal – well, at least none of the outside investors.

Having listened politely to all this my friend didn’t say much other than, ‘Oh well, we’ll see what happens.’ I do know, however, that a year after our conversation he still has a private company, is working harder than ever and (based on a recent phone conversation) his revenues and profits are still on the ascent. A clear case, it would seem, of ‘he who hesitates’
not
being lost.

One positive lesson I took away from the whole public company experience, however, was that there are quite a few public company-like disciplines that start-ups should voluntarily adopt from day one. The reporting requirements of listed companies leave no room for the levels of creative ‘we’ll worry about that later’ accounting that a lot of start-ups practise for years. While the disciplines are mostly on the financial side, better tracking of your forward progress in all kinds of ways gives your people a better metric by which to measure their own contributions and development. And a big secondary benefit will be, if the day ever comes when you do decide to go for an IPO then the staggering amount of catch-up accounting work will be nowhere near as painful as it was for us.

Don’t get me wrong, there are lots of occasions when the IPO route makes total sense and depending on how you have funded your start-up the ‘exit strategy’ may already have been baked in by your investors. Since our flirtation with operating as a public company in 1986 we have become involved in all nature of joint ventures and licensing deals where we have partnered with listed entities. For all the reasons I’ve described, however, back then it was not the right way for us to go. There’s only one thing that is an absolute certainty in business and that is that we all make mistakes and as one should, we learned a lot of valuable lessons from our attempt to go from the rock market to the stock market! Had we given it a while longer we may have learned to adjust to living in a listed environment, but at the time I just felt that such a major deviation from the Virgin way would have required too many compromises – and I had no desire to run a genetically compromised company. So I trusted my instincts and have had absolutely no regrets ever since.

ANYONE FOR COFFEE?

In the early seventies when we were opening our first record store in London – actually a second-floor shop, to be honest – coffee bars were all the rage. Like every cool kid of my generation I used to hang out for hours over a single espresso (or none at all if I could get away with it) in a little Greek-owned coffee bar right around the corner from our shop. In fact, in some ways these espresso parlours may have been part of our inspiration for the ‘just hang out and chill’ ambiance we dreamt up to help us sell more records. At the exact same time that we were giving coffee away for free to customers sitting on bean bags, three young friends in Seattle were just setting up in business to sell bags of beans. Originally the three were only going to sell bags of freshly roasted coffee beans but they soon moved into grinding it and selling it by the cup which led to the opening of their first coffee house. Looking at the success they have enjoyed with what was to become Starbucks, particularly in light of what happened to the record-selling business, I sometimes wonder if we had it the wrong way around in our first shop. Maybe we should have been selling the coffee and giving the records away for free!

While we never did get into selling coffee, Starbucks did eventually overlap into the music business by entering into a partnership with Apple to collaborate on selling music as part of the ‘coffeehouse experience’ and in 2006, Apple added a Starbucks Entertainment area to the iTunes Store, selling music similar to that which is played in Starbucks stores.

The rise of Starbucks as an international phenomenon is actually a great example of an IPO working to the greater good with the funds raised being used to turn a small dog from Seattle into the proverbial 800-pound global gorilla. They may have been able to achieve the same results as a private company with greater control but it would have taken them a lot longer. At the time of their IPO in 1992 Starbucks was almost twenty years old but still had only 140 stores – all in the US and Canada – and their annual revenues were around $73 million. The twelve per cent of the company that was sold raised around $25 million, which was immediately used as a springboard to doubling the number of Starbucks coffee shops over the next two years, increasing the share price by twofold in the process. By the end of 2012 Starbucks had almost 20,000 stores in sixty-two countries and over $13 billion in revenues! That’s a lot of beans!

My favourite, although little known, Starbucks story involves the origin of the company’s brand name, which rather like Virgin almost started out as something quite different. In our case the final contenders were Slipped Disc Records and Virgin. I have to admit to having quite liked ‘Slipped Disc’ but, fortunately for all, it was Virgin that carried the day. I say ‘fortunately’ because while it would have been an amusing name for a record label, ‘Slipped Disc Airlines’, ‘Slipped Disc Health and Fitness Clubs’ and ‘Slipped Disc Hotels’ would probably have presented some rather steep marketing challenges! Anyway, when Starbucks started out in Seattle, the original owners were planning to call it Pequod after the whaling ship in Herman Melville’s classic tale of the great white whale
Moby Dick
. At the last minute, however, for unspecified reasons, they suddenly changed course in favour of another name from the same novel, that of the Pequod’s chief mate who went by the name of Starbuck
.
It’s strange to imagine the almost one million people a day who visit a Starbucks somewhere in the world saying, ‘Hey, let’s get together at Pequod’s for a latte.’ On the other hand, ‘I’m going to grab a Vente Vanilla at Virgin – want to join me?’ does have a certain ring to it.

LITTLE DOGS, BUT SHARP TEETH

When Ron Faris was the chief marketing officer at Virgin Mobile USA he once told me how it was a standing joke with the Virgin Mobile marketing team that AT&T would spend more on advertising during one episode of
American Idol
than we would spend in a whole year. This is, in fact, something that, with the occasional exception (like Virgin Media’s ads with sprinter Usain Bolt), has been a long-standing tradition in almost every Virgin company. We have always relied on smart, cutting-edge creativity and scads of often quite self-deprecating humour to get ourselves noticed – it’s called getting a much bigger bang for a much smaller buck. The social-media revolution has been a game changer in giving smaller dogs a medium in which they can bark a lot more loudly than they could ever have afforded to do with traditional measured media like TV and print. Even so, the level of creativity involved in tweeting a relevant, engaging product conversation into the hearts, minds and ultimately wallets of your target audience is still what sets a winning brand apart from the also-rans. And that degree of creativity has got nothing to do with the size of the dog but is much more about a combination of the sharpness of its teeth and how hungry it is.

Creating strong brand affinity – or ‘brand lust’ as Ron Faris likes to call it – in today’s social media world may be less expensive but is essentially no different to what we’ve always done – learn to cut through the clutter with a message that grabs them by the throat. When, for instance, Virgin Atlantic added shiatsu massages to its on-board Upper Class services, much to our delight British Airways was openly scornful about it. This gave us the perfect reason to put them in their place with a couple of well-placed billboards around Heathrow Airport sporting a double-edged message that was hard to misinterpret: ‘
British Airways Doesn’t Give a Shiatsu.’

Another time, in early 1995, British Airways ran a rather odd two-page spread in all the major US newspapers including the
New York Times
that boasted:
‘More people choose British Airways to London than any other airline.
Duh!’

If they’d stopped short of the juvenile ‘duh’ we probably wouldn’t have thought anything about it, but that strange little word and the tone of voice it projected sent our US marketing team and the creative people at our US agency, CMG Communications, into a frenzy of activity: within a matter of hours they’d managed to purchase the same double-page spread in the
New York Times
and come up with a response ad to ride the coat-tails BA had so kindly offered up to us. The following morning New Yorkers opened their papers to read:
‘More people switch to Virgin Atlantic from British Airways than from any other airline.
Hah!’

We’d pillaged our marketing piggy bank to run the ad one time only in New York but the effect was seismic. Clearly refusing to believe that anyone could have come up with such a response in just a couple of hours, British Airways threatened to sue the
New York Times
,
accusing them of leaking their ad – they never did follow through on the threat but they also never ran their bizarre ad again. Some readers even suggested that we had actually run the first ad as well in order to tee up the second! Our one-off ad placement, however, had an unprecedented tail as it was written up and quoted in scores of marketing articles and columns for months to come, with headlines such as, ‘Virgin Goes Jugular’. Almost a precursor to ‘going viral’, wouldn’t you say?

PINK SLIP VIPS

As that last story demonstrates, one of the greatest advantages to being the little dog in a big dog pound is the ability to react quickly and ride every competitive coat-tail that comes your way. Ron Faris and his Mobile US team were always masters at this art and it was never better demonstrated than in 2009, a time when the economy had gone to hell in a proverbial hand-basket. With swine flu and job lay-offs dominating the news, Virgin Mobile was faced with a tough decision on its annual music festival. Other organisers had already cancelled their events fearing that fans could ill afford such outings so the easy thing to do would have been to follow suit. Ron and his team, however, were never very good at being trend followers and rather than cancelling they decided to buck the gloom and lighten things up. With a goal of putting out a new energy that would focus on optimism, the upcoming festival in Columbia, Maryland was given the go-ahead. Not only would it take place but the tickets would be free, as would a whole lot more.