Business Stripped Bare (17 page)

Boeing sent a salesperson over to meet me. He was a lovely old guy who stayed in a hotel for four months while we tried to get the deal sorted. Boeing finally agreed that if the airline didn't work out, they would take the plane back at the end of the first year.

This meant that we could start our airline knowing that, if I screwed up completely, I had hedged my bets. Looking back, it was one of the best decisions I ever made.

What's the most critical factor in any business decision you'll ever have to make? Basically, it boils down to this question:
If this all crashes, will it bring the whole house tumbling down like a pack of cards?

One business mantra remains embedded in my brain –
protect the downside
. By having the option of giving Boeing their plane back after a year, Virgin's total exposure was £5 million – half what we were making at Virgin Records. So we were gambling an acceptable six months' loss, for an enormous potential upside. If disaster struck, it would hurt us, but it wouldn't bring the whole pack of cards crashing down. 'Protecting the downside' is one of the very few business tenets that we try to adhere to at Virgin. Yes, there have been occasions when we have broken our own rule, times where I've said, 'Screw it, let's do it,' mortgaged my home and really stuck my neck out. But that's something I don't recommend.

It was soon very clear that there was no way we could launch a new transatlantic airline unless we had working capital of at least £3 million. We had to raise more cash.

While all this was going on, I knew that we needed to run Virgin's other businesses on a more professional footing. So I approached Don Cruickshank about joining as chief executive to sort us out. Don's arrival freed me up from the record business to learn more about the airline industry.

I phoned Freddie Laker (again) and invited him to lunch on my houseboat
Duende
and he told me why he had failed – and what I must do to avoid his mistakes. He warned me that British Airways would become the enemy, that they were ruthless and had destroyed his business.

We had to protect ourselves against currency fluctuations. The fixed instalments for the jumbo were due in US dollars, but sterling's value was plummeting against the dollar. Our customers were paying for tickets with UK pounds, and we had to be careful not to get stung.

We were also responsible for insurance – and here we nearly came unstuck. We could only get insurance when the Civil Aviation Authority in the UK had given us full certification for airworthiness. So we undertook a test flight, the plane took off – and a flock of birds flew straight into the engine. Which exploded.

A new engine was going to cost us £600,000 – and, naturally, because we'd had to abort the test flight, we weren't insured yet. This nearly brought down the whole of Virgin as it just took us over our overdraft limit. Don and the other directors wanted me to postpone the launch date, but once I was sure everything was safe, I wanted our airline to get going.

In those four months or so to get the airline going, we had to learn every single thing about the airline business, from reservations to ticket sales and whether to sell our tickets through travel agents or to sell them direct. I had to find out about marketing to let people know about our new airline, and to design and colour the plane. At night, I worked on planning the interior designs, selecting fabrics and even discussing the menus and the choice of wines. We had little or no budget for advertising, so I took Freddie's advice. He told me not to be shy, and to use myself to promote the business.

Four months to learn how to deliver an airline. Not easy. But definitely doable. Those business leaders who seek, in interviews and in their writings, to turn their industries into complex puzzles, subtle chess games of one sort or another – these people really, really annoy me. It isn't enough for them that they're good business people: they have to be Confucius. To listen to them, you'd think you must be born into an industry to make any headway in it. And this is rarely true unless you are truffle hunting. A basic understanding of the business, gleaned by immersing yourself in every little detail for months or even weeks, is often enough to get you started. The volume of information you'll need to hack through will be high – so find some friends to help you – but the underlying business model is always fairly simple.

Remember to communicate, and pay attention to detail
. You wouldn't believe how far you can get, just by remembering and practising those two rules. But the evidence of their effectiveness is there for all to see, on our Virgin Atlantic flights. And many of our original decisions are still in place. The bar in our business class was unique to Virgin at the time, and it's still there. The ruby-red uniforms were really gorgeous outfits, and they still are. We went for a first-class product but charged a business-class fare – and that remains our philosophy today.

So, on 21 June 1984, we took to the air from Gatwick in
Maiden Voyager
. It was a flight for many friends, family and other well-wishers. Joan and I sat with Holly on our knee throughout the flight. But the airline was very nearly stillborn. The day I returned, Coutts Bank visited my home to say that since we had reached the overdraft limit, they would now start to bounce our cheques. Here we were, one of Britain's most successful private companies, and expected to make £12 million profit, and they were threatening to make the whole Virgin group insolvent because we were just over our £3 million facility. As I said, communication is important – and to that we might now want to add the words, 'especially communication with one's bank!' But honestly, in my view, at that time, Coutts was hopeless. Short of employing a spiritualist and a Ouija board, we were never going to get through to these people. They had no insight at all into our individual projects and subsidiaries. This would have to change. By the end of the week we'd switched banks to Lloyds, who increased our overdraft facility tenfold to £30 million. Don't be afraid of changing your bank if they are unreasonable. Banks are not for life. But don't put it off till the last minute!

Cash flow was exceptionally tight in the early years. Passenger numbers were highest in the high-summer season, yet our costs were fixed throughout the year. But the exciting feeling for everyone at Virgin Atlantic was that people loved flying with us from the very start. We had a sense of humour, which I think is important, and our pilots and cabin crew were all up for the great adventure. My nasty experience with Coutts Bank, meanwhile, had taught me that we needed to have a professional relationship with our bankers – keeping them informed of every move and letting them know precisely our intentions – and we needed corporate managers such as Don Cruickshank to do this for us.

In the fairy tale, when the little boy starts laughing and pointing at the naked emperor, everyone – including the emperor – realises the emperor's mistake, and the little boy is instantly vindicated.

Well, life's not like that. Let me quickly tell you of a couple of occasions when we laughed and pointed at some ludicrous business absurdity – and the emperor's ministers rushed over and promptly smothered us.

On 25 October 2003, Matthew Parris wrote in
The Times
: 'When we were younger we thought ourselves the first generation when everyone would fly faster than the speed of sound. We were to be the last, not the first.'

He was writing about the last commercial flight of Concorde. The BA 002 service from New York touched down at London Heathrow at 16.05 on 24 October 2003, bringing the first supersonic transportation era to a close twenty-seven years and nine months after it began.

British Airways and Air France's decision to ground the fleet was a disgraceful one because it was taken and executed to ensure that nobody else could ever fly the planes again, in some cases by literally cutting off the tips of their wings. It was an insult to Concorde's engineering brilliance. We knew that we could make a go of the service, and Virgin mounted a Save Concorde campaign. But it came to nought, due to British Airways' insistence that no one else could maintain and run the fleet. They hurriedly dismantled the planes and dispersed them to museums around the country – just to make sure. It was a deplorable way to end such a glorious era.

At the post-flight bash British Airways chairman Lord Colin Marshall was keen to show the 300 guests, who had just arrived on the three flights, the live BBC news report of the historic arrivals. To his horror, the soundtrack accompanying the picture turned out to be by John Hutchinson – a former Concorde pilot! John lambasted British Airways for retiring the aircraft while still in its prime, and very generously sang my praises for trying to keep her flying.

Sir Colin disappeared behind the screen – and the sound suddenly cut out, apparently interference from all the TV satellite vans parked nearby . . .

The moral is that it is important to stick to your guns. The public isn't stupid, and I think we've reaped huge rewards for being forthright in the marketplace.

In 1997 I came to share my experience about the lottery business with Thabo Mbeki, who was then the deputy president of South Africa. I thought a national lottery would be an excellent way of raising vital funds for the nation.

A lottery is a licence to print money because there is no competition. There are no risks at all in running a national lottery, and it is also one of the easiest companies in the world to set up. The formula has been tried and tested worldwide. In almost every country and state the lottery is run so that 100 per cent of the profits go to good causes. The country appoints a trustworthy business person with lottery experience and he or she hands the profits straight to the government's charitable arm for distribution to the most important causes in the country – usually for education, health or fighting poverty. What these lotteries don't have is a level of shareholders creaming off the profit between the person running the lottery and the good-cause fund.

I had made two unsuccessful bids for the National Lottery in the UK – in 1994 and 2001 – and to this day it still perplexes me that Camelot, the company that runs the lottery on behalf of the government, and who employed GTech (one of whose directors tried to bribe us during our bid), has been allowed to make so much money at the expense of good causes.

There was not a lot of love lost between me and Camelot in those days. The lottery company once hired Madame Tussaud's, the famous waxwork attraction in London, for a corporate evening. A brother of one of our Virgin Atlantic staff was at the party and found that my wax model had been temporarily removed and put in the broom cupboard for the evening. Actually, I think my effigy took one look at the company it was keeping, and walked.

So I said that if South Africa set its lottery up in the right way, it could be a provider for good. But I was anxious they didn't make the same mistake as Britain. I was seriously concerned that some in the business community were putting pressure on the government to set it up as a profit-making scheme for the business community.

I pointed out that the Conservative government in the UK made that mistake in 1994 and instead of the lottery being something the whole country has been proud of, it is talked about, even among regular ticket buyers, with some contempt. At the time, the opposition Labour Party realised this terrible mistake and pledged to turn the lottery into the people's lottery when Camelot's licence ended.

In 2007, with Labour still in power, Camelot were given the licence for a third time – another political promise broken by a government once in power.

I tried hard to convince Thabo Mbeki and the president not to make the mistake that was made in the UK. But it seems that, in the end, they also fell into the same trap as the UK, and granted the licence to a commercial company, Uthingo Management.

Sometimes you will fail to transform a business because of other people's short-sightedness. Other times, you fail because of other people's greed. It's that simple and that galling. The fight you lost will turn out to be worth it down the line: the public will respect you for it, and show you great loyalty thereafter.

Delivery is the moment where your good intentions meet the real world. Delivery is best approached steadily, and with fortitude. You'll need stamina and patience to deliver well – especially when everybody is out to kill you.

For a long time I have nursed an ambition: to run a profitable airline in America. The most important word in that last sentence is 'profitable'. It was easier said than done, and although the new baby is now doing extremely well, the arrival of Virgin America, our airline in the US, was a slow and painful birth.

The United States of America is littered with the carcasses of British businesses – and rock bands too – that have tried to make it big and then foundered. I wanted Virgin to be different, and Virgin Records USA and Virgin Mobile USA showed what could be done. But airlines – with their huge amount of federal regulation, issues of ownership and industry resistance – are a different ball game. It's a bit like Arsenal playing in the American National Football League.

The first hurdle was the certification process. Under US law, foreigners can own as much as 25 per cent of the voting equity in a US airline and an additional 24 per cent of the non-voting stock. I expected negotiations between the US and the European Union on aviation treaties to loosen this, letting in greater foreign investments and stimulating competition. But it wasn't happening quickly enough, and we had to ensure that at least 51 per cent of the business was owned by Americans.