Business Stripped Bare (21 page)

In the UK, we had now signed up our one millionth customer. In just nineteen months we had established a record as the fastest growing mobile business Britain had ever seen. (It had taken Orange more than three years to hit a million customers, One2One in excess of four years, Vodafone more than eight years and Cellnet almost a decade!)

We were already rolling out Virgin Mobile Australia to a market that was gasping for innovation; Virgin Mobile Canada, France and South Africa would follow once we had perfected the business model. In a Memorandum of Understanding with Sprint, we said our intention was to launch a Virgin Mobile-branded joint venture company in the USA.

Sprint would be hosting the first MVNO in the US. This gave us a head start; but I knew that others would be watching with interest, and it wasn't long before Disney tried – and failed – to do their own MVNO deal. We soon needed a larger injection of capital. We needed a bigger corporate hitter. We asked the executive headhunters Heidrick & Struggles to scour the market and they coincidentally suggested Dan Schulman who moved to us from Priceline.com in May 2001.

Complex as this account has been, I hope it's clear by now that you don't necessarily need an accounting or a legal brain to run a successful business. Our approach has come by asking questions.

What if we create a product and it's the best in the world – will there be a market for it? The answer to this isn't as obvious as it looks at first. If quality always won out in the marketplace, the Betamax videotape format would have trounced VHS and there would be more Apples than PCs.

If, on the other hand, I asked you: 'Do people want to fly with the best airline in the world?' Without any figures or numbers, your answer would be 'Yes'.

When you're first thinking through an idea, it's important not to get bogged down in complexity. Thinking simply and clearly is hard to do. It takes concentration and practice and self-discipline. Reducing those initial reports on the MVNO model to a simple business proposition took work. It also, dare I say it, took a pinch of courage on the part of Virgin risking its brand and on the part of those who left cosy jobs to make the vision a reality.

It's easy to be hoodwinked by technical-sounding detail, and to parrot it at others, and to feel important in doing so. It's hard to ask the naive question. Nobody wants to look silly.

But I would say you can never go too far wrong by thinking like a customer who's new to the business. Why do these mobile charges make no sense? Because they make no sense, that's why! Because they are there to fool you! It staggers me to this day that, when we entered this lucrative and exciting young market, we were the only one in the crowd pointing and laughing as the emperors of the phone industry strode by.

It's easy – too easy, in fact – to relinquish your responsibility for your idea to experts. This is almost always a mistake, because experts are only experts in their field. They're not experts in your idea. At this stage, the only person qualified to assess your idea is you.

Your initial business ideas may lack detail. That's fine – but it doesn't give experts anything to work with. Ask them for their opinion, and they'll give you something back that's generic, predictable and fairly useless. I know that if I present an unready idea to experts such as Ernst & Young or McKinsey, they will advise me how much money I stand to lose. If, on the other hand, I go to PricewaterhouseCoopers or KPMG with the same idea, they could well tell me how much I'm going to make. In neither case do I learn anything useful about my idea.

You need to flesh out your own ideas. You need to do your own research. You need to take responsibility for how you plan to turn an idea into action. That way, when you approach the experts – the accountants, the legal brains – they have something to get their teeth into.

Virgin's move into the finance sector astonished many, and still raises an incredulous eyebrow among some politicians and heads of industry. Finance, surely, is sacrosanct: an impossibly arcane and rarefied practice – the province of experts?

Our success in the financial sector has come from asking very clear questions of ourselves, and then (and only then) surrounding ourselves with experts who are demons at cutting through the verbiage to the relevant details. An expert who makes things more complicated isn't doing their job right – and frankly, this is probably your fault. An expert should make things simpler. An expert should give you twenty-twenty vision. Given the right tools to do her job, she is a marvel to behold.

Enter Jayne-Anne Gadhia.

Jayne-Anne qualified as a chartered accountant with Ernst & Young and went to work with Norwich Union, the insurance and pensions giant. She became one of their rising stars, working in unit trusts and PEPs, a tax-efficient personal savings product. Now she was looking for her next move.

One day in 1994 she took the train to London, in time for lunch with Alastair Gornall, a PR agent who ran Consolidated Communications. On the train, she flicked through a copy of
Hello!
. There was an article and colour photographs featuring a bearded and grinning Richard Branson talking about the Virgin Group.

'I read that article and I thought, Gosh, it's so different from Norwich Union; it must be fantastic to work for a guy like that,' she later told me.

She mentioned the article to Alastair. Alastair was a friend of Rowan Gormley, who had just joined Virgin and was the brains behind a joint venture project between Norwich Union and Virgin. It was called Virgin Direct.

Jayne-Anne came to see me for a meeting at Holland Park. There was a lot of commotion because we'd just set up Virgin Cola. She recalls ringing the doorbell at Holland Park and having to find her own way around. She wandered up the stairs and found me working in one of the bedrooms. I led her into the snooker room where her boss Philip Scott had brought along all the papers to review. We worked on the plans to launch Virgin Direct in the snooker room, then we went back downstairs. Philip had a quick gin and tonic and left to catch his train.

I shook my head and said to Jayne-Anne: 'How life moves. One day we're dealing with the Sex Pistols, the next day we're dealing with pensions.' I pointed to the chair Philip had been sitting in. 'Sid Vicious was sitting there not so long ago.'

'Really?'

'Yeah. You see that corner there?'

'Yes?'

'That's where he threw up.'

We signed the deal to set up Virgin Direct on 19 December 1994, with Norwich Union and Virgin both putting in £2 million.

We worked hard to get the deal done, the business launched and all the regulatory approvals in place, but we still managed to have some proper fun. I think that's what Jayne-Anne liked about Virgin.

Virgin Direct in December 1994 was a new player because it was one of the first financial service companies to sell products over the telephone. Jayne-Anne said to me that approval from LAUTRO (the Life Assurance and Unit Trust Regulatory Organisation) and IMRO (the Investment Management Regulatory Organisation) would take months and months. I thought at first she was talking about her Italian cousins. I said: 'I can't understand this, Jayne-Anne. This is a relatively small company – we launched an airline in ninety days.'

But we pushed on and the combination of Norwich Union, Jayne-Anne and Virgin gave us enough clout to get the job done on time.

We needed a new computer system and we approached the big players. IBM estimated it would cost £7 million and would take many months to build. We didn't have that kind of money and we didn't have that amount of time. So one of Jayne-Anne's colleagues, Kevin Revell, and a computing friend, set up the first system for Virgin Direct in his attic in Norwich. In all, it cost us £17,000. On Sunday 5 March 1995, Virgin Direct was launched on that system, with sixty people taking the telephone calls at Discovery House, Whiting Road, which is still the office of Virgin Money. I went up to Norwich for the launch. The office looked pristine, it sported the new signage, and all the computers were working. The boss, Rowan Gormley, wasn't there as he was due to appear on the BBC's
Money Programme
to explain our arrival on the marketplace. So I took the lead: I jumped on a desk and shook open a bottle of bubbly – like they do on the Formula One rostrum. It fizzed up brilliantly into the air, over all the cheering staff and over four of the PCs. The computers started fizzling. Then they blew up.

It was clear from day one that the Virgin brand was going to succeed in financial services. The staff were brilliant and worked their socks off. The £17,000 attic computer system became the prototype as we launched life insurance and pensions too.

Norwich Union didn't have the appetite for building a bigger business, but Virgin Direct needed the capital to grow. So in 1997 Norwich Union sold its 50 per cent stake in Virgin Direct to AMP, the Australian life assurance business and owner of Pearl Assurance. AMP and Virgin became fifty–fifty joint venture partners. In November 1996 I wrote to George Turnbull of AMP, proposing 'a business plan to launch a basic mortgage first (together with a card) followed by a mass-market card'.

The question was: how? Almost all of the UK's high street branches had approached me to talk about banking and financial services. They wanted to shelter under the umbrella of the Virgin brand. As simple as that. But Virgin wanted to do much more than stick their logo on someone else's product. Then, in 1997, I was contacted by the Royal Bank of Scotland, at the time being run by George Mathewson and Fred Goodwin. Finally, here was a company that wanted to innovate.

The idea around the Virgin One account was revolutionary and simple – even I could get my head around it. It had originated in Australia where it was increasingly popular. It was about putting all of a customer's products together. At the end of each evening your net balance is charged interest. Most people have a separate mortgage, current account and savings, and you're paying interest on the whole mortgage. If you roll everything together, you'd have a lower negative balance and you could pay off your home loan more quickly.

George Mathewson, a shrewd and canny Scot, went to see Jayne-Anne Gadhia in Norwich. He was enthusiastic but, at the same time, seemed reluctant to make a fuss about this great product.

'You don't seem to want to shout about this,' Jayne-Anne observed.

He replied that if it were successful, he would take half the profits; if not, nobody would know he had anything to do with it.

But in fact George and his team were brilliant and our relationship is a long one that has lasted to this day (he advised us on our bid for Northern Rock). He said to the Virgin One team that he wanted us to build a business around what worked for customers. He admitted that if RBS could have done it themselves as a mainstream bank they would have, but they liked Virgin's culture of innovation and our history of delivering on our promises. In October 1997, the Virgin One account was launched internally to Virgin Group staff, and then rolled out in 1998. I admit it was a difficult start because the UK public weren't used to the idea of putting all their eggs in one basket, however safe it might be. By October 1998, we had opened 2,000 Virgin One accounts. The following year we opened 9,000, and 15,000 the year after that. We were up and running.

The dinner-party brigade became our best promoters. Doctors, lawyers and professional people were converting to its merits; they told their friends, and the idea began to spread through recommendation. We heard that people would take their Virgin One cards out at meals with friends and sell the idea. In business terms, this is pure gold. You can't buy this kind of advocacy. In Norwich, Virgin One recruited people who wanted to help the customer and make a difference – it was a huge part of the training. There were no stifling scripts to follow, or average talk-times to listen to. We just answered the questions. We hired people who believed – like we did – that Virgin was on a revolutionary crusade to change banking in the UK. One theme was 'uncommon people' – that those who worked with us and our customers were special because they were 'uncommon people'. We had baseball caps, T-shirts and jackets made for 1,500 staff and for customers, to trumpet our attitude of going the extra mile.

In 2001, RBS could see this was a great business. They decided they wanted to buy 100 per cent of Virgin One. They already had 50 per cent, but the remaining part was held by Virgin Direct, which was a fifty–fifty joint venture between Virgin and AMP. I owned a quarter of this and there was a lot of discussion about the shareholding. I had lunch with Fred Goodwin and Fred was quite clear with me: he didn't have a huge amount of time for AMP.

I wrote in one of my notebooks: '
Fred Goodwin. "Don't want to come into three-way venture. Try to buy out other 50 per cent of Virgin One. Come up with basis to take out 50 per cent. Somehow chemistry: us and AMP don't get on. Have relationship with CGNU."
'

On a nearby page I added: '
A game of Monopoly. I used to enjoy playing Monopoly as a child. Recently I began to realise that I've never stopped. Mortgaging my hotels to keep Euston Station. Mortgaging my houses to acquire the Utilities. Borrowing from the bank to pay for everything! Selling everything to pay the bank!
'

We eventually sorted out a deal with AMP. Once it was announced I phoned Jayne-Anne.