Branson: The global brand builder
Diversification on the scale of Richard Branson's Virgin group of companies shouldn't really work, say the academics. And yet it has.
Richard Branson may have his occasional little local difficulties - such as Virgin Media's spat with BSkyB, its £4.3bn debt, payment of which has been successfully deferred for three years, and engineering work delays for Virgin's latest high-speed train - but as a super business builder and manager he has few equals.
Who else could have built eight billion-dollar companies - including the fast-growing Virgin Mobile business in America - and still enjoy the escapades and visual stunts he's been involved in over the years to promote the brand? A large part of the Virgin story, he readily admits, has been his willingness to be a central character in its publicity. In return the media has been more than fair to the Virgin brand.
This is the guy who ran a student magazine at school. On leaving college he started a small mail order business and a record company that launched some of the biggest names in rock and pop music. It was the start of a 35-year journey leading to a global business empire. Within the first three years Virgin Records had 17 shops, two recording studios, an export business, an import company, a publishing company, an agency and a management company.
Media giant IPC had offered him £80,000 for his student magazine, but withdrew the offer when Branson spelled out his vision for Virgin. They probably thought Branson was mad and later regretted it.
"Most of what I have done with the Virgin Group," Branson admits in his new book, 'Business Stripped Bare', "is about my own gut instinct. I've never analysed what I do in any formal way. I think of our brand as one of the premier 'way of life' brands in the world. Whether you are in the United States, Australia, New Zealand, Japan, South Africa, India, Europe, Russia, South America or China, the Virgin brand means something."
Branson describes how Virgin started as a small business, how he found opportunities to grow the business and like-minded characters to help him build the group - and the brand. 'Business Stripped Bare' is a far better guide than most business books on the market: a 'must read' for anyone aspiring to start a business or ambitious to break away from corporate life and determined enough to have a go. It should be read too by government ministers seriously interested in practical support for young entrepreneurs.
Today, Virgin is organised into around 300 limited companies - a branded group of separate businesses. Although the combined Virgin Group is the largest group of private companies in Europe, each company is relatively small in its sector. "So we have the advantage," Branson explains, "of being the nimble 'underdog' player in most markets."
Nor is Virgin especially aggressive in the marketplace. Its success is claimed to be primarily down to the consistent way it delivers on its brand proposition. "We want to inform and entertain people. Publicity is absolutely essential. You have to be willing to use yourself, as well as your advertising budget to get your brand on the map."
Having worked in many key markets, Virgin is now turning its attention to China and India where an earlier dalliance with the Indian aviation market didn't turn out so well. For Virgin Mobile however, India looks like a mouth-watering prospect.
How does Richard Branson manage his fast-expanding group and continue to give it fresh impetus? There's a touch of what has become known as the Weinstock management style here, the late Lord Weinstock of GEC fame. "I now have a team of people," says Branson, "who meet once a week to go through every Virgin company, looking at figures, projections and income. They have a list of priorities and a list of new projects. They make sure that the Virgin Group is running efficiently. This frees me up to dive in and out when necessary."
Entrepreneurs versus managers
Branson has firmly held views on management. "Good managers are worth their weight in gold: they are the people who organise and handle the pressures of an ongoing business, the glue that binds the business world. Entrepreneurs have the dynamism to get something started - they create opportunities that others don't necessarily see and have the guts to give it a go, but are not necessarily good at the nuts and bolts of running a business."
Again on management, he admits, many outstanding and committed people steering the Virgin businesses have helped him over the years. "Business," he is first to admit, "requires astute decision-making, leadership, discipline and innovation if you want to turn entrepreneurial ideas into outstanding businesses."
Not surprisingly, Virgin receives hundreds of business ideas every week. The group's global and UK chief executives rigorously examine these plans to see if there is an underlying profitable business. "We look at spending plans, income forecast, marketing budgets and when the company is likely to break even, work out an exit strategy and determine whether it will be a sale or a flotation on the stock market. Above all we look at the key managers who will be running the business. This is the Holy Grail for us because it's the people that make a great business idea work."
Then the Virgin team assesses the idea's potential. Whether it fits with the group's ambitions and strategy, brand values and what the possible return and profits will be, and what kind of stake Virgin Group should take. If the Group decides to go ahead it signs up as branded venture capital, takes a stake in the company and looks for a return after between two and five years. It won't go far unless those behind it share Virgin's strong service ethos. Branson estimated as early as 1995 that some 30 people had become millionaires or multimillionaires as a result of starting Virgin businesses and this didn't include the hundred or so musicians who became millionaires in the Virgin stable.
"I feel very strongly," Branson asserts, "that young, independently minded businesses can provide customers with great service; it's the monoliths and the business establishment that make customers' lives a misery. Virgin companies are focused on the customer." This was clearly the approach that led to forming a mail order service in 1970, a recording company and a record shop that was "outrageous, irreverent, and long-haired". But Virgin Records grew to become the largest independent record label in the world.
Not every idea worked. Starting a soft drinks war with Coca-Cola was "crazy, one of Virgin's highest profile business mistakes, even though it raised the profile in America and achieved some 'underdog' bravado. The Coke escapade led to a number of articles asking whether Virgin had a proper strategy in place. The group still produces Virgin soft drinks but in a more targeted and niche way."
There were other mistakes, like floating parts of the group, then conducting a management buyout, and a dream of taking over EMI from Thorn EMI. Virgin's brave efforts to save Concorde came to nought.
Then there was the failed bid for ailing UK bank Northern Rock. Despite putting together a formidable team headed by Sir Brian Pitman, meetings with Prime Minister Gordon Brown and the Bank of England, the FSA and the Treasury and being willing to take Northern Rock off the government's hands, the decision was taken to follow a nationalisation route.
As if by way of compensation, 2007 saw the combined company, NTL, Telewest and Virgin Mobile become the largest Virgin company in the world, the UK's most popular broadband provider, the largest mobile network operator and the second largest provider of pay TV and home phone.
Virgin Blue, the group's Australian airline, has 32 per cent of the air travel market in Australia, with over 2,200 flights per week to 22 domestic destinations and to New Zealand, Tonga, Samoa and Fiji and plans to fly to the USA within four years. It started like all Virgin companies - small - yet Virgin Blue was flying 41 Boeing 737s and had 3,000 people on its payroll.
The Virgin story has been a phenomenon. Purists among top business school academics and senior managers might argue that no single group can run railways and airlines, mobiles and media, finance, health clubs and spaceships and musical businesses. It goes against all proven arguments in favour of sticking to core businesses. Diversification on this scale has rarely worked. Richard Branson has proved the opposite can be done. His example of building a major group of mostly small companies needs the widest study.