Business Stripped Bare (19 page)

Within the first year we were able to expand services to Dubai, as well as increasing the internal domestic routes from Lagos to Abuja, Port Harcourt and Kano, as well as Lagos to Johannesburg.

In November, having taken the airline through its momentous launch – a remarkable job in such a short time – Simon Harford decided it was time for someone else to take the reins; he announced that he was moving on. His job was taken up by Conrad Clifford, who had come with me and Simon on my first trip to Nigeria in 1996. It was a challenging time to be taking over, but Conrad, who had set up Virgin Atlantic's operations in Nigeria, was ready to take the airline to its next stage of expansion.

However, I can't deny that I had some concerns about the way things were going.

For the existing Nigerian airlines there were serious problems. One was bankrupt, and while it had enough cash to cover the cost of crews, landing and navigational fees, fuel and insurance, there was no money left for reinvestment and maintenance. Another had only one serviceable plane. The remainder of its fleet was grounded because they could not fund maintenance. This was a simply atrocious situation.

The Federal Airports Authority of Nigeria still required a lot of help to make things work more smoothly. The feedback I received told me that outside Virgin Nigeria, things were being very badly run. It was going to take time to create a superb new airline in Africa. Our competitors in Nigeria still had planes falling out of the sky and customers plummeting to their deaths.

On 22 October 2005, a 25-year-old Bellview Airlines Boeing 737 took off from Lagos with six crew and 111 passengers on board. After passing through 13,000 feet, the plane stalled, tipped and nosedived into the ground. Although the aircraft came down nineteen miles north of Lagos, it took the rescue teams nine hours to locate the wreckage. The plane had an old search-and-rescue system which hampered search efforts.

On 10 December, a Sosoliso Airlines DC10 from Abuja crashed on landing at Port Harcourt, killing 109 people. Among those who died were seventy-one students of Loyola Jesuit College in Abuja who were returning home for their Christmas holiday.

A few months later, again at Port Harcourt, an Air France jet was badly damaged after crashing into a herd of cows. Thankfully, this time, no one was hurt.

Then, on 18 September 2006, a Dornier 228 military plane crashed killing fourteen officers, including ten generals. In another Nigerian crash, a number of senior politicians were killed.

Delivering the Virgin brand in Africa is important – it must stand for the same values as in other parts of the world: integrity, safety and a commitment to customer service. Maintaining the highest standards of safety is something that can never be compromised, and over the years several international transportation groups have been forced to pull out of Africa because the cut-throat local competition chooses to ignore the regulations.

Working in the Nigerian marketplace was becoming increasingly tough. I and my team in Virgin Nigeria were growing increasingly frustrated. We were striving so hard to build a safe, high-quality airline, but we found ourselves thwarted at every turn. We were incurring all the costs of putting together a quality operation from scratch, but in a market that put safety and quality last. We were, in the end, just an airline: we couldn't hope single-handedly to transform the industry's entire infrastructure. We needed help.

I appealed to the president to ensure that companies that were not prepared to operate to the correct standards or who cut corners were dealt with rapidly. If necessary, he should take steps to remove their Air Operator's Certificates. It was simple: unworthy aircraft should be fixed – or scrapped.

Not long after, a directive arrived, forcibly ejecting Virgin Nigeria from its operational base at Lagos Terminal 1 (home of Virgin Atlantic's Nigerian operation), and relocating it at Terminal 2.

We wanted to keep all of our operations in one terminal – to create a hub, rather than be split across two terminals – and this was the binding contract we'd entered into with the government. Conrad and his team were trying to create an airline that could effectively compete on the world stage. The airline had grown dramatically since 2005, operating thirty flights per day with an excellent safety record. Splitting the airline would increase costs considerably.

We prepared to challenge the directive in the courts – and just hours before the hearing, agents who appeared to have the approval of the Federal Ministry of Transportation and the Federal Airports Authority of Nigeria came in the night like mafiosi with sledgehammers and demolished our business-class lounge.

I had to write to President Yar'Adua, Obasanjo's successor, asking him to intervene personally in this dispute. I knew that Nigerians wanted an international and domestic airline that they could be proud of – and we'd worked hard to deliver this. What we needed now was some common sense and cool heads to ensure that disputes never again escalated in this way.

Fortunately, the president took on board what I said in my letter, and as this book is going to print the issue appears to have been resolved.

*

Out of recession, new ideas and new businesses often grow. But how do you deliver new products to a market that's barely staggered free of the emergency room? How do you get people who've spent the last months or even years firefighting to think strategically? This was one of the challenges facing me as I set out to create mobile networks across the world.

Since 1995, I had been harrying our Virgin management team in London to find a way into the growing market for mobile phones. In the last fifteen years, the mobile has become the personal possession that has most changed the way we live and work across the globe. In 1998 more mobile phones were sold worldwide than cars and personal computers combined. But the early dominance of the giant mobile phone companies was not doing the consumer any favours. I was increasingly frustrated and keen to get involved, but we had neither the firepower nor the infrastructure. What we had was the Virgin brand and a service ethos.

Following Gordon McCallum's arrival, we focused on mobile phones as the sector meriting our greatest attention. One of the downsides was that Virgin Radio, our FM radio licence, was doing well, selling advertising slots to the major phone companies, and the management were trying to discourage me from anything that might jeopardise their revenue. The competitive mobile companies were spending huge amounts and there was a fear – unfounded, in my view – that we might lose their custom.

Gordon McCallum, Stephen Murphy and the team identified a report from Goldman Sachs which they thought might whet my appetite. It was all about MVNOs, and as you can probably imagine, it wasn't exactly bedtime reading.

An MVNO is a
mobile virtual network operator.
It's a phone company, but a phone company without any of the usual telecoms paraphernalia. No telephone exchanges, no phone masts, no networks, wires, switches or cables under the ground. Instead, an MVNO rents time and bandwidth on another carrier's system.

I'm always scouring around for a bargain. And you can usually track them down where someone has produced too much of something and isn't selling enough even to cover their costs. This was happening all over the telecoms industry. The big mobile phone operators had paid vast sums upfront for their mobile infrastructures – now they needed to pull in revenue, and so were keen to lease time to others.

Our first call was to British Telecom, the UK's national phone company, employing tens of thousands of people. Since they had been privatised, BT had been forced by European Union regulations to allow other phone and Internet service providers to piggyback on its massive, fixed-line network. Setting up our own stand-alone telecoms company didn't appeal to us. During our talks I met Tom Alexander, a former professional go-kart racer, who was working with BT Cellnet as deputy commercial director. My instincts about people are usually pretty sharp, and I liked Tom. He shared my passion for business. (He later told me his father had been an inventor in the horticultural industry, and that this had inspired his entrepreneurial streak.)

We thought BT Cellnet would make a good partner, so Virgin made an offer. We started fleshing out how Cellnet as a 'consumer-focused, youth-oriented mobile business' might work with us – and we were also keen to work with BT to secure a third-generation (3G) mobile phone licence. Competition for these five licences on offer in the UK was proving so fierce BT Cellnet had to abandon discussions with Virgin to concentrate on their bid (and, as we subsequently discovered, on one of the most successful rebrands I can think of, to O2, with a much more youth-focused orientation that competes head-on with Virgin Mobile!). Nevertheless, I called Tom. 'Why don't you come over and have a chat about setting up a new company?'

Tom came over that same day to my house in Oxfordshire and we sat with a notebook and pen and plotted how we might run an MVNO.

Gordon and I managed to persuade Tom to jump ship, bringing with him his colleague Joe Steel, then in his early thirties and a mobile phone whizz. Meantime, we began looking for another partner, now that BT Cellnet had pulled out to pursue its bid for a 3G licence. One2One was a company operating in the south-east of England, in the area contained by the M25 orbital motorway. The company was a joint venture between Cable & Wireless and US group MediaOne, and they were keen to talk to us. One2One's strategy of free weekend and evening calls had left it with a network that hardly anyone used during the day. I was sure that Virgin could fill their dead air.

We signed a deal on 1 August 1999, announcing the plan to launch Virgin Mobile in November. Together we were committing over £180 million to the joint venture, using our high street chain of Virgin Megastores and V Shops as our retail channel. But a few weeks later, Cable & Wireless announced it was selling One2One. Deutsche Telekom swooped to buy and it looked as though Virgin Mobile was dead in the water. I decided to intervene. I went to see Deutsche Telekom boss Ron Sommer to smooth the position. To their credit, the Germans got up to speed with our plans incredibly quickly. And to our delight, they liked what they saw: they agreed to proceed and signed off the joint venture, with One2One now becoming T-Mobile.

The Virgin Group and T-Mobile each invested £40 million, giving us £80 million. And we started negotiations with Royal Bank of Scotland and JP Morgan for extra bank debt of £100 million. It was one of the UK's biggest ever start-ups, employing more than 500 people with plans for another 500 jobs within two years. City analysts Investec Henderson Crosthwaite Securities valued the business at £1.36 billion – and we'd yet to make a penny! We had the seed money. We had the confidence of the analysts. Now we needed to prove ourselves. Fast.

If you are a late entrant to a market, you need to be radically different to win over customers
. First-mover advantage is often cited in business as giving the early players the edge, but there are plenty of occasions when this isn't the case. In Virgin's favour is the power of the brand, and its arrival into a market can cause some shock waves. This was what we hoped to do with the mobile phone market.

While Tom and Joe were whizzes in the telecoms field, they required an informal lesson in the Virgin brand. The best person to deliver this was James Kydd, who had been working on the launch of Virgin Cola. James was an advertising executive who had known Will Whitehorn since their beer-drinking days in the student union at Aberdeen University, and he had worked in a number of high-profile consumer brand companies. Like so many people who now work for Virgin, he arrived in 1993 to help the airline for three months and ended up staying. We'd had a woeful business-class campaign and I wanted to scrap it. James fixed it and thought it would be fun to hang around Virgin for a while, so we gave him one hell of challenge: the marketing of Virgin Cola and Virgin Vodka. Taking on Coke was, as I'll discuss later, one of our more ambitious business adventures. In 1998, I asked him to join the team on the Virgin Mobile project as brand director.

Meanwhile, the major mobile phone companies were making the consumer's life complicated – deliberately. Across Europe, the consumer demand for mobile phones was shooting into the sky – yet the cost of the latest stylish Nokia, Ericsson, Siemens or Motorola was often prohibitive. So the phone companies began tying the unsuspecting consumer into two- and three-year-long contracts. 'Confusion marketing' was the spurious tag. A customer would sign up and pay for 200 minutes of voice and 100 text messages, but if they used more than this they were charged more per minute not less, as you might expect for being a good customer. This was barmy logic. Of course it was: it was designed to fool people. The industry was deliberately shrouding itself in complexity to fleece people.

James Kydd and Will Whitehorn attended a day-long powwow at a Hertfordshire hotel to discuss the way ahead with a dozen One2One people, including Alan Gow, the finance director, and Tim Samples, the managing director. The discussion was about how the Virgin brand might be effectively applied to the mobile phone market. There were plenty of mobile phone specialists there who could recite the technical spec, but they weren't people who understood our brand. I heard later that James and Will became a little aerated when they tried to defend Virgin Mobile as a consumer-led mobile phone product.

For Virgin, a recurring problem has been that some people who have tried to do business with us think they have bought a label to stick on the front of a product – that 'Virgin' is only a marketing tagline. On the contrary, Virgin has to be the consumer's champion, rather than just a bold red logo. It has been a difficult job over the years, explaining the commercial benefit of this approach – but I think the success of Virgin Mobile has proved beyond a shadow of a doubt that it works. We started from the basic premise: if you rip off the consumer, then you will destroy the integrity of the brand. It's as simple as that.