The Virgin Way: Everything I Know About Leadership (13 page)

He wrote on his blog: ‘The people at Virgin went above and beyond that day. Each and every one of them had a hand in making my unintended adventure not only successful, but enjoyable – and the best part, I didn’t once feel as if I was inconveniencing any one of them.’ The ‘typical’ and probably the expected airline response to the young man’s dilemma would have been, ‘Sorry, it’s your problem. There’s nothing we can do about it.’ The demonstration of effort and kindness that comes with the alternative approach of ‘You’ve got a problem – but let’s see how
we
can try to fix it’ can earn you a loyal customer for life.

And the word-of-mouth/social media buzz that frequently goes along with it can do even more for your social standing. The challenge then becomes living up to your reputation as an atypically customer-focused operation. Something that is much more fun than maintaining a typically average level of mediocrity where no one is a perfect fit.

Don’t always go to the biggest dogs

‘What counts is not necessarily the size of the dog in the fight – it’s the size of the fight in the dog.’

I believe it was Mark Twain who actually first wrote those words, although they are also frequently accredited to US president Dwight D. Eisenhower. But, no matter who was the original author, it’s one of those brilliant little sayings that makes everyone – well, me at least – think, ‘Darn, I wish I’d said that!’ While ‘Ike’ was probably using it in the context of some military action, it perfectly sums up the mental attitude any entrepreneur or leader of a small start-up has to assume when considering what will be needed to mix it up in a space that is dominated by ‘big dogs’ aka big brands with big pockets – but often little real loyalty.

WHAT’S BIG ABOUT SMALL

In the business world Virgin has always revelled in being the little guy chasing much larger and, as a result, usually cumbersome legacy-laden competitors. From day one at
Student
magazine and later at Virgin Records we were always in the David role and fighting an uphill battle just to survive against a variety of different Goliaths. The irony of the situation that most such young businesses face is that as long as you just kind of muddle along scraping, or for that matter ‘scrapping’, out a living, then you are far less of an endangered species than when you start to be a success. As soon as the top guy in the big corner office up the road starts hearing from his sales team that ‘That little XYZ outfit that we weren’t taking seriously is starting to nibble into our market share’ then it’s time to watch your backs.

FLY ME FROM THE GLOOM

In the history of Virgin we have run into this phenomenon in just about every new market we’ve plunged into, but it may have been more marked in our airline businesses than anywhere else. When we set up Virgin Atlantic in 1984 and began flying from London to New York with a single airplane it was hardly surprising, I suppose, that none of the incumbent airlines saw us as much of a threat to anyone but ourselves. Also our own people were having such a good time that casual observers might have been excused for thinking that we weren’t all that serious about it ourselves. At first this led to the giants of the day, British Airways, Pan Am and TWA, all just allowing us to get on with it assuming we’d implode before we could do them any harm. And mathematically speaking, even if we’d filled the 400 or so seats on our lone 747 every day (which we often did), it still didn’t represent as much as a pinprick in their sacred market share numbers. They were almost right, but they’d totally failed to grasp what we were about and that we were not into playing by the rules. If anything we were learning all the time and very much making them up as we went along.

What routinely fools a Goliath is when, instead of going after their market share, someone instead goes out to create a whole new niche market right under their imperious noses. They are well practised in defending their turf against unimaginative interlopers. This is usually achieved with such no-brainers as deep discounting, leveraging their distribution clout or what can best be described as simple bully tactics. But when someone arrives on the scene with a hybrid product that they cannot pigeonhole – as was the case with the biblical David’s slingshot – it can cause massive confusion in the enemy’s ranks. When all else is equal then the big guys will usually find a way to outmuscle any pesky upstart, so that is why the newcomer has got to make sure that the playing field is anything but level. In fact, you don’t even want to step on to their playing field – it confuses them even more when you sprint up and down the sidelines while they get bogged down in the middle. You always know it’s working when they cry foul!

So in any business where new entrants have traditionally had to buy their way in with deeply discounted fares, what do you do with someone who is suddenly pitching value for money and great customer service? Undercutting an intruder’s prices alone doesn’t work when price is just one of many weapons in their innovative arsenal.

Virgin Atlantic really muddied the equation by arriving on the side of the field with a product that was every bit as good if not better than our giant competitors’ first-class product and streets ahead of their distinctly mediocre business classes. The real trick was branding it as ‘Upper Class’, a move that made most fliers assume it to be our first class. In terms of service quality it was, but by designating it as business class and pricing it accordingly, business fliers whose corporate travel policies permitted business but not first class almost saw our Upper Class as cheating the system – which suited us just fine! We drove the spike in even harder by building in complimentary limos in Upper Class, a feature that the competition didn’t even offer to their first-class passengers. For that matter, even Concorde fliers who were paying supersonic fares had to fork out for their own ground transport.

It wasn’t all about the front of the bus, however. We learned what customers wanted and greatly improved the economy experience as well with a greater choice of meals, electronic headsets when everyone else still had those awful rubber tube things and the biggest innovation of all (next to cabin crew who were nice to our passengers) was seatback TV screens in every seat on the airplane – coach class included. This was something that was not in first class with other airlines. Our big-dog competitors thought we were certifiably insane (and maybe we were!) and with every added feature became even more convinced we couldn’t possibly sustain our presence in the market. What the big airlines failed to recognise was that airline passengers at the time – myself included – were sick of paying through the nose for lacklustre service that had been getting worse for years. They were all in that most dangerous of states where they believed that as long as they are no worse than their competition then they were doing just fine.

All it takes for this status quo of mediocrity to be shaken up is for one little outsider to step into the ring and start punching above their weight.

NO CONTRACT, NO PROBLEM

We pulled the same trick fifteen years after Virgin Atlantic when we created Virgin Mobile to jump into the mobile phone market and duke it out with the likes of British Telecom (BT). Once again, as with the airline, it was my own experiences as a dissatisfied consumer that screamed out to me that we just had to get involved – and quickly. At the time – and to this day – many of the big telecom companies were ripping off their consumers with outrageously high-priced and punitive long-term contracts that stopped just short of you signing away your firstborn. As with our entry into aviation, we really knew next to nothing about the business other than that there had to be a better, more user-friendly and affordable way to provide mobile phone service in a business that was about to take the planet by storm.

There were huge parallels to the challenges we’d faced at Virgin Atlantic. There we didn’t own any airplanes or have our own maintenance capabilities or airport counters, so we simply leased everything in or contracted it out and learned along the way. At a glance the barriers to entry for something like a Virgin Mobile seemed almost more daunting than with the airline. We had no phone masts, exchanges, cables, networks and all the other super expensive paraphernalia it takes to start a phone company – at least if we were to do it the traditional way, which of course we had no intention of doing.

At my urging, Gordon McCallum (who had joined us from McKinsey & Co.) and team had been looking into the emerging mobile sector for some time and finally seemed to have identified what looked like the launch vehicle we needed – we’d become an MVNO – a
mobile virtual network operator
. After its privatisation, British Telecom was obliged by EU regulations to allow other operators to piggyback on their excess network capacity by leasing out time to them. While we’d be competing with them on the one hand, we would also be helping them to earn some substantial incremental revenues to set against their huge sunk costs. At this stage we met a couple of impressive young BT executives, Tom Alexander and Joe Steel, who not only recognised the MVNO opportunity but instantly grasped the immensity of what Virgin could bring to the party. At the time the big legacy phone companies were right up there with airline food as material for stand-up comedians, so we were convinced that a fresh new player like Virgin, particularly with our strong appeal to the youth market and an even stronger customer service ethos, would be a natural for this lacklustre sector.

We all sensed we were on to something big here and with my excitement for the opportunity growing daily, I suggested to Tom Alexander that it was time for us to meet and discuss how a ‘Virgin Mobile’ might function as an MVNO. And what a meeting it was! After a couple of electric hours, it didn’t take a lot of arm twisting for Gordon and me to convince Tom to split with BT and come and make it happen for us, bringing mobile phone whizz Joe Steel along with him. So we had our angle of attack and we had our senior team in place, now we needed to decide on a stand-alone product. Given the hideously complex, impossibly confusing three-year contracts that were the mainstay of the industry at the time, it wasn’t terribly difficult to define the strategy: small-print-free, affordable, straightforward, simple contracts – with bills that were super easy to read – because, well, there wouldn’t be any! With our prepaid format, there would be no end-of-the-month surprises that required subscribers to take out second mortgages to pay their phone bill.

We took Mobile public in 2004 and after a couple of successful years were approached by NTL:Telewest in 2006 and we agreed to sell the company in exchange for £123 million and a ten per cent stake in the enlarged group. A year later the company was rebranded Virgin Media, becoming the first ‘quadruple play’ media company in the UK offering television, internet, mobile phone and fixed line services. By 2012 Virgin Media had over four million customers and the little dog that was Virgin Mobile took a $6 billion revenue bite out of the previously big-dog-only media market.

In 2013 the giant US cable group Liberty Global acquired Virgin Media in a deal that meant our investment of around £50 million generated more than £1 billion for us – and we are still involved via a brand licensing agreement with Liberty. All in all, not a bad result for something that had its genesis because I wasn’t happy with the level of mobile phone service that was available fifteen years earlier. Sometimes, rather than sitting back and complaining about lousy service, it really pays to get out there and find a way to improve upon it by reinventing it yourself.

DIFFERENT THINK, DIFFERENT DO

Twenty years after we started Virgin, the critically acclaimed if grammatically controversial ‘Think Different’ campaign from Apple defined the spirit of entrepreneurship like never before. It also encapsulated in just two words exactly what Virgin had been doing for two decades and is still at the core of everything we do today.

Thinking differently doesn’t necessarily cost any more – it just takes a commitment to not doing more of the same. While no company would ever buy into a marketing campaign of ‘We Are Every Bit as Good as Everyone Else in Our Field’, that is effectively the way many of the world’s biggest corporations have conducted their business for generations. In my experience this bizarre ‘stay inside our little comfortable box at all costs’ mentality is frequently a by-product of the malaise that goes by the name of ‘shareholder accountability’. When the leaders of a public company’s primary focus is their stock price – and with it their performance-linked bonuses – it makes it very difficult for them to take in the big picture.

When the going gets tough the standard big corporation approach is to try and slash and burn their way back to profitability, and with labour generally constituting the greatest single cost, cutting heads and/or pay freezes are invariably the first thing to happen. Now maybe I’m oversimplifying things, but if one of the primary reasons a company’s profits are suffering is poor customer service, then following a round of morale-destroying lay-offs by asking the diminished workforce that remains to do more for less strikes me as a somewhat foolish expectation. Rather than digging their way out of a hole, such slash and burn tactics will typically only dig it deeper. Smaller companies that have the freedom to turn the traditional corporate pyramid of stockholders first, employees last, on its head and put their employees and customers ahead of shareholder interests are usually doing the latter a far greater service. Learn to look after your staff first and the rest will follow.

CHERISH YOUR PRIVACY

I had a fascinating dinner conversation not so long ago with a good friend who confided in me about a ‘problem’ he’s wrestling with – a problem that just about anyone else would die to have. The company he founded a decade ago has been phenomenally successful and dominates a market segment that he pretty much invented. He loves what he does, is still very much hands-on and involved on a day-to-day basis, owns the company outright, has no debt and has been turning in steadily growing and very healthy profits almost every year for the last decade, so much so that the company has been valued at close to a billion dollars. So you might well ask, ‘So what exactly seems to be the problem here?’

Well, for several years now his bankers and financial advisors have been pushing him to float the company but he really isn’t sure that it would make sense for him. He could certainly use the funds to speed up his long-term expansion plans, but as he succinctly put it, ‘Why sell the farm to force-feed evolution when the business is growing organically at a steady clip?’ He is, however, being steadily nudged in the direction of an initial public offering (IPO) to, as they put it, ‘unlock the value’ in his company. Needless to say the ones who are doing the nudging are his kind-hearted bankers who would make a very tidy killing from the fees and commissions that an IPO spins off – but I’m sure that has nothing to do with their enthusiasm for the project! In any case, my pal knew that I had been down a very similar road once before and was keen to get my take on his delightful dilemma.