“Hurricanes are so rare,” says Sir Richard Branson as he looks at the ocean from the Great House on Necker, his private Virgin Island. “You get plenty of warning.”
So has he been in one?
“On purpose,” he says. “I hate the idea of not experiencing something. It was a completely awesome experience. Just watching the seas, and the velocity of the wind, and the sounds. It was fantastic.
You only get a hurricane about once every 50 years in the same specific place, so it was a privilege to be here. The house is built to withstand 180-mile-per-hour winds. Foolishly we did venture out occasionally, but we all survived it.”
He went out?
“I actually just sat in the swimming pool and kept my head as low as possible. It was fabulous.”
Branson is 54, so it’s not likely that he’ll be around for the next hurricane that hits Necker’s 74 acres of beaches, lagoons, palm trees, volcanic rock outcroppings, and Balinese-style pavilions. And he’s running out of the dangerous sporting escapades that enthrall him. He gave up trying to fly around the earth in a balloon after an American, Steve Fossett, did it first. (Branson had to be rescued from the sea five times by helicopters.) Now he’s financing a venture to send tourists into space. He plans to go up on the first Virgin space voyage, but thinks that will be several years away.
Until then, Sir Richard will have to rely on business for the danger he craves. There aren’t many challenges left here either. Branson has been superrich for a long time — his net worth is more than $2 billion — and he has indulged his entrepreneurial instinct by starting an astonishing number of ventures: His Virgin Group comprises 350 companies he founded; they took in $8.1 billion in revenues last year. Earlier this year, Virgin had $450 million in cash ready to invest.
But where? There’s not much room for Branson to grow in his native Britain, where he’s a hero for shaking up the stuffy old establishment. Or on the Continent, for that matter. In an annual poll that asks thousands of consumers to name the five brands that had the greatest impact on their lives, Virgin ranked as the number-two brand in Europe last year, ahead of Nokia, Mini, and BMW, and behind only IKEA. And Virgin Blue, Branson’s Australian airline, ranked seventh in the Asia-Pacific market.
Coming To America
Now Branson is launching his most audacious effort yet: a major assault on the United States, the world’s biggest and most competitive market. And he’s targeting one of our most notoriously challenging industries: airlines. The spearhead of his invasion is a new carrier, Virgin America, that will fly domestic routes with a base in San Francisco. It will be a very costly gamble: Branson may have to spend as much as $500 million just to start up the carrier and sustain its losses for the first couple of years. Even though he’s searching for partners to share the financial risk, it’s uncertain whether he’ll find takers. Virgin America will be the biggest and boldest test yet of Branson’s maverick approach to entrepreneurship and of the power of the Virgin brand, which he’s stretching in some very unconventional ways. Watch what he does closely if you’re interested in the power of disruption. For Sir Richard, breaking the rules has almost always paid off handsomely.
We’ll soon have a lot more opportunity to see him in action. While his transatlantic carrier, Virgin Atlantic, is beloved by Yanks who fly to London, and Virgin has megastores that sell CDs and DVDs in major U.S. cities, the brand isn’t nearly as well-known here as it is abroad. Virgin didn’t even make it onto the list of the top 68 brands in America. Branson himself isn’t much of a celebrity in our minds. But that will change suddenly in November with the premiere of a reality-TV show starring Branson, tentatively titled The Billionaire. The 13-part series will be Fox’s answer to NBC’s highly rated The Apprentice with Donald Trump.
The show is a blatant plug for Branson’s new airline. When its contestants aren’t emulating Branson’s derring-do at skydiving, they will reportedly fly on and criticize United and American airlines. The show’s premise is that Branson is the anti-Trump: He doesn’t sit behind a desk or preside over a boardroom — at Necker, his office is a hammock overlooking the sea, steps away from a billiards table and a bar. Branson never wears a suit and tie; he prefers old jeans or khakis with sports shirts. And he has really good hair. He dislikes firing people and says that he has to get others to do it for him. He’s an outspoken advocate for fun in the workplace, not fear and intimidation.
There’s not much fun and lots to fear in the airline business these days, though. Carriers are struggling with everything from soaring fuel costs to plunging brand loyalty. This time, Branson really is going out into a hurricane, his critics say. “Virgin is too late,” says the marketing guru Al Ries, coauthor of The 22 Immutable Laws of Branding. “It’s 33 years since Southwest launched a low-cost airline, and now there’s JetBlue, Song, Ted, and all the others. At this late stage, it’s hard to imagine any angle they can come up with.” The other startup airlines succeeded by serving markets that Southwest had ignored, Ries says: JetBlue flies out of New York and AirTran serves the Southeast. “Where’s the hole for Virgin? They have the advantage of a brand name, but I think Virgin America is going to be just as successful as Virgin Cola and Virgin Vodka,” which were Branson’s most conspicuous failures. Adds Henry Hardevelt, a travel industry analyst at Forrester Research: “Please tell me why anyone would invest in an airline. The U.S. airline industry makes NHL hockey matches look like fifth-grade recess. It’s brutal and bloody. The sad truth is an investor could get a better return starting a Subway sandwich shop than an airline.”
But what really gives the skeptics conniptions isn’t so much any specific business Branson launches, but the sheer number of ventures he dives into. Isn’t Branson spreading his brand too thin by slapping it on anything that will hold still? “A brand can’t stand for music stores, airlines, mobile phones, colas, financial services, and on and on,” says Peter Sealey, the former head of marketing at Coca-Cola, who now teaches at UC Berkeley and Stanford. “There’s no brand on earth that can do that. That’s ego.”
If they’re right, the thrill-seeking Branson may finally be diving into one adventure too many. He has led a charmed life so far — a man with a Midas touch who seems to be able to turn every whim, hobby, and surmise into gold. But beneath the showmanship, the seeming effortlessness, and the Boy Billionaire lifestyle, Branson is a tenacious, focused, and creative entrepreneur who has defied the naysayers time and again. The experts thought he was insane 20 years ago, for example, when he started out with only one airplane to launch Virgin Atlantic. “He’s charming and disarming,” says one of his executives, “but he has a razor-sharp mind behind that.”
Branson infuriates the experts precisely because his success has come from breaking nearly all of their most sacrosanct rules. “You’re not supposed to ‘stretch’ a brand so much,” says Alycia de Mesa, a marketing consultant and author of Before the Brand. “But Richard Branson is a billionaire because he hasn’t accepted limitations.” She contends that even a failure like Virgin Cola actually benefited the brand because it generated so much media coverage and reinforced Branson’s image as a risk taker challenging the establishment. “I would look at it as a promotional effort, not a product,” she says. “It’s a great promotional tactic.”
Branson’s willingness to pull publicity stunts has been invaluable, from plastering the Virgin name on his giant balloons to posing in full drag in a frilly wedding dress for the opening of his Virgin Bride shop. But wackiness aside, there’s a clear method to Branson’s madness. He may claim to plunge into ventures just because they seem as if they might be fun, but there’s usually much more calculation to it than that. “The time to go into a business is when it’s abysmally run by other people,” he says, and when he feels Virgin can provide a significantly better customer experience. Airlines, for example. Cell phones, too. Five years ago, Branson realized that many young people couldn’t afford the expensive monthly charges the big players required. Instead, he envisioned a pay-as-you-go approach, so teenagers wouldn’t need to lock themselves into yearlong contracts or pay for airtime they didn’t use.
Virgin Mobile USA is a classic illustration of how Branson builds a business. It started, of course, with an outrageous stunt. His people wanted to dramatize the motto “nothing to hide” since their service has no hidden costs. So Sir Richard rose above New York’s Times Square on a crane, then stripped down to a “nude” bodysuit, his loins covered with a Virgin cell phone. He was surrounded by the cast of Broadway’s The Full Monty in the same pose.
Pay-as-you-go was a new idea for cellular service in America, and the Virgin brand wasn’t widely recognized here, so Virgin Mobile USA got off to a slow start. The operation quickly ran out of cash. Its top executive, Dan Schulman, said he needed more money to order phone handsets to sell during the holiday season. Branson called him and said, “I’m selling one of my favorite hotels in the world to fund you.” Recalls Schulman: “He won me over right there. Now there’s little that I or my organization wouldn’t do for him. He puts his money and actions behind his words.”
Schulman calls Virgin Mobile USA a “youth marketing company.” And it shows in how innovative it has been. Virgin Mobile offers a bunch of features that make cell phones more playful and fun, such as VoiceMania (voicemail greetings from campy celebrities such as William Shatner and Adam West), Rescue Rings (to save yourself from a bad blind date or a boring meeting), wake-up calls, ringtones from the latest hit songs, and music news and celebrity gossip from MTV. Virgin Mobile USA’s risque marketing inspired The Wall Street Journal to give it an award for the worst ad of the week. “The last publication I want endorsing our ads is The Wall Street Journal,” Schulman told his people. “Your goal for the fourth quarter is to win that award again.”
For a long time, Branson has wanted Virgin to be much bigger in America. But he thought he would have to live in the States to become a highly visible presence here and promote the Virgin brand. He wasn’t willing to consider such a move while his two children were growing up in England. Now, though, his kids are adults. His daughter, Holly, 22, is in medical school. Sam, 19, recently took what the British call a “gap year” — some time off before college. Branson was openly envious: He has worked, albeit for himself, ever since he dropped out of high school at 16. His first big success came in his early twenties, when Virgin released a recording of the Sex Pistols screeching, “God save the queen, she’s not a human being.” How ironic now that the same queen has made Branson a knight.
Last year, he decided to take his own gap year and live with Sam in Australia. “I learned to surf, which was tremendous fun, and hung out with teenagers and had a ball,” he says. But after five weeks, Branson gave it up to oversee the 2003 public stock offering of Virgin Blue, his low-priced airline startup in Australia that had swiftly captured 35% of the market.
The Australian success helped inspire Branson’s plans for Virgin America, even though he knows that the United States will be a much tougher market. Why is he entering this business so very late? Branson was waiting while he lobbied Washington to repeal the rules forbidding foreigners from owning a majority interest in a U.S. airline. It wasn’t that he was a control freak. He had learned a hard lesson from his troubled venture in the PC business, when Virgin’s name wound up on a mediocre product another company had designed. “We had decided that we’d never get involved in a company unless we could control it and protect the Virgin brand name,” he says.
Virgin’s brand was so glamorous that Branson could typically keep 60% or 70% ownership of new ventures while partners put up and risked all the capital. But his insistence on control forced him to pass on a terrific opportunity. In the late 1990s, David Neeleman offered him 40% of a new U.S. airline for no cash, just the use of the Virgin name. Branson turned him down. The airline became today’s JetBlue.
Branson has given up on lobbying. He’s starting a U.S. carrier even though he can own only a 49% stake and has to let Americans — who they’ll be is still undetermined — control the operation. His goal will be to outdo the majors and the upstarts alike in quality, especially in business class. It’s not a bad strategy, some analysts figure. Forrester’s Hardevelt says: “If I were Branson, I’d go for the quality-focused traveler who will pay $1,000 for business class coast-to-coast and give them an airport clubhouse and in-flight Internet access. That’s the only niche that’s left.”
Branson isn’t intimidated by all the competition. “In America you’ve got an excellent airline in JetBlue and a good airline, a pioneer airline, but slightly tiring, in Southwest. It’s the Tower Records of the airline business: a great reputation in the past, but now . . .” He pauses for effect. “And then most of the other airlines are just pretty awful.”
But for Branson to succeed, he’ll have to fight all the trends in domestic airlines. He’s pushing a brand in a business where they matter less than ever: Last year, only 33% of U.S. fliers were brand loyal, according to Forrester’s research, down from 40% in 2002. Meanwhile, “mercenary” customers, for whom price is everything, make up 20% of the market. And the industry’s economics, to put it politely, stink. “What’s Virgin’s advantage?” asks Sealey. “He’s going to be buying the same planes and hiring pilots at the same salaries. His cost structure will be identical to theirs. If I were a banker, I wouldn’t lend him the money. If he were presenting this as a business case in my class at Stanford, I would fail him.”
Getting It Right
Branson has lured Fred Reid, former president of Delta, to run the new carrier. But Branson says that he’s going to “get out there and help him shout about it.” And he’s planning to use all the publicity around the new airline to bolster his other American ventures. “An airline is a very high-profile way of getting a brand established in a marketplace,” he says. Virgin America will spend around $70 million a year on television advertising in the United States, while Virgin Mobile will lay out another $70 million and Virgin Atlantic will ante upward of $25 million. But the reality-TV show will probably do more for Virgin’s brand awareness than all of those well-funded marketing campaigns combined. “In one fell swoop we should get Virgin completely well-known in the States,” Branson says.
Still, Branson knows from experience just how unforgiving the airline business can be. Four years ago, Virgin Atlantic introduced new first-class sleeper seats, but customer feedback revealed that “we didn’t get it quite right,” Branson says, because the seats didn’t fully recline. “Rather than living with it for 10 or 15 years, we just decided to start again,” discarding an investment of $68 million. “It’s important to acknowledge that you haven’t gotten it right and then not keep your head in the sand but get on with it.” The cost this time around was another $127 million.
Isn’t that throwing good money after bad? Isn’t that kind of business decision a lot like playing blackjack in Las Vegas: You lose big and then you raise your bet, but each new hand is still another big gamble, right? “There’s always a risk,” he says. “But the much bigger risk is to let your reputation erode away by not getting it right. There’s no room for second best. In the airline business that’s particularly the case.”
Virgin is an unusual conglomerate. While most of its revenue comes from a handful of businesses — airlines, megastores, mobile phones, the V2 music label, and European trains — the final 20% or so comes from hundreds of small and scattered ventures, so many that it’s hard to believe that even Branson can remember what they all are. There’s Virgin Cosmetics, Virgin Radio, Virgin Wines, Virgin . . . just about everything. In London he even owns a modeling agency and two nightclubs (one straight, one gay).
Why does he keeps launching so many small operations? “If we were purely a money-making machine, with our one reason for being to get a 35% to 40% return annually, I suspect that we wouldn’t do as many new ventures and we would be marginally more focused than we are,” he says. “Having said that, our returns are still pretty astounding — maybe triple what they would be if you invested in the stock market or with other venture capitalists.” Of course, that’s impossible to confirm since most of Virgin’s ventures are privately held and chartered offshore.
So again, why start all those companies? “I love learning about things I know little about,” Branson says. “I love people, and I don’t like to say no all the time. We’ve got people all over the world who are coming up with great new ideas, and it doesn’t actually cost us a lot relative to the overall size of the group. Four months ago, I went into a juice bar in Sydney called Pulp. Fantastic. Healthy. Delightful staff. I knew the guy who set it up. So let’s give it a go outside Australia.”
Branson especially hates to say no when he likes the people who propose ideas. Virgin Bride was the brainchild of one of his flight attendants, who wound up running the London wedding superstore. When Branson’s wife Joan’s manicurist suggested offering massages and nail treatments to Virgin’s first-class passengers, he created Virgin Touch and put the manicurist in charge of it. Even the Virgin Web site solicits proposals for new business ideas.
The person Branson admires most in the world is his friend Nelson Mandela, who has been an accidental scout for new ventures. Mandela told him that a big chain of health clubs had gone bankrupt in South Africa and 5,000 people were about to be put out of work. He asked if Branson could come down the next day and save their jobs. Branson got on a plane, looked over the books, and decided it was a very good business. Now Virgin owns around 85% of the health clubs in South Africa.
Branson’s home in London is a 19th-century four-story Holland Park townhouse that doubles as an office. He doesn’t have a driver — he hates the idea of making someone wait for him all the time — so he takes taxicabs around town. Like the queen, he doesn’t carry cash, so the billionaire has to scrounge cab fare from colleagues. He won’t carry keys, so he’ll wait outside his own office until someone lets him in. He wears frayed woolen pullover sweaters, even when he goes to the House of Parliament, that bastion of formality, to address the ministers on important matters of international airline competition and regulation. At boozy London parties, Branson flirts outrageously and pulls naughty stunts such as lifting up a woman in a short cocktail dress and holding her upside down until everyone in the room can see her underwear. Oddly, the British find this perfectly charming. Americans would probably sue him.
Now that he’s invading America, Branson is spending more of his time at Necker, which is closer to the States and shares a time zone with New York. (When he is not using the island for his own work or leisure, he rents it to tourists for up to $40,000 a night, which includes food, booze, and lodging for as many as a couple of dozen guests.) This summer, Branson invited the boards of Virgin Mobile USA and its partner, Sprint, to meet on the island. Dan Schulman arrived at 5 p.m. and Branson made him play three sets of tennis before dinner. Then Branson got him up at 5:30 a.m. for another match. “He’s an incredibly competitive guy,” Schulman says. By the end of the three-day visit, they had faced off over 10 sets of tennis, three games of chess, and a round of billiards. They raced Hobie Cats, and Branson forced him to try kite-surfing. “The actual board meeting was a picnic in comparison,” Schulman says. “When I come back from Necker, it takes a week for my body to recover.”
On a weekday at Necker in May, Branson got up before dawn and settled into his “office,” the oversized white hammock in the Great House. When he bought Necker at age 25 for $300,000, there was only one lonely palm tree on the island. Since then he has imported so many that it looks more South Pacific than Caribbean.
Beginning around 5:00 a.m., Branson made a couple of hours of phone calls to the UK, where it was still late morning. Then he played tennis by the beach before returning to the hammock to resume his calls when the Americans on the East Coast were just getting into the office. He frequently made himself fresh pots of hot tea. He called himself a “tea addict.” By 1:30 his workday was done, and he had lunch outside with his wife, Joan. He limited himself to a small bowl of curried pumpkin soup, passing up the Greek salad and spicy chicken samosas prepared by the island’s superb chefs. That afternoon he walked down a path to the beach to rendezvous with his personal watersports instructor for his daily lesson in kite-surfing. The idea is that the kite catches the wind, like a sail, and propels the surfer at high speeds along the water.
His instructor was pleased with Branson’s rapid progress. He said that Branson actually listens to his comments and fixes what he’s doing wrong, unlike many students. Afterward, Branson hurried to play more tennis before joining the live-in staff of 10 for dinner beneath a bright full moon.
Even after-hours on the island, Branson was much more subdued and well behaved than during his raucous nights of London partying. Perhaps it was because he was trying to get “ship shape” while on the island. Even at the beach, he poured guests Chassagne-Montrachet but passed on the fine white Burgundy himself. “When I’m here, normally I misbehave myself atrociously,” he said. “On this particular trip, I’ve decided to cleanse myself. I’m trying to do a month without drinking at the moment. Very dull, very boring.”
Maybe he was uncharacteristically restrained because his wife was there, too, quaffing Dom Perignon with the island’s young British staffers and talking about the Martha Stewart case and Dominick Dunne’s profiles of the rich and powerful in Vanity Fair. Two of the gorgeous female attendants looked very much as Joan must have appeared 30 years ago, but Branson wasn’t flirtatious or outrageous this time.
Three weeks later, Branson traveled to New York for the first open audition call for contestants for his reality-TV show. The event took place at the Virgin Megastore in Times Square. The line outside began forming at 10 p.m. the night before for the 10 a.m. call. The event began with the sound system playing the theme song to the James Bond movie Live and Let Die as Branson descended through the store’s central atrium using the same kind of jet backpack that propelled 007 in Thunderball. Branson took the stage to address the long line of would-be contestants and have his picture shot by the paparazzi. As usual, though, he seemed conspicuously stiff at public speaking. He’s uncomfortable in public forums, which is odd for someone famous for his publicity extravaganzas. Branson has a natural shyness that he overcomes for the sake of promoting his brand. He’s better schmoozing one-on-one, and he’s at his best at parties with women around and a drink in hand. Before long, the potential contestants hijacked the media event, shouting out questions from the balcony levels. Their cheekiness and chutzpah inspired Branson to loosen up. He confessed that he’ll have nothing to do with choosing the 16 initial contestants, since “if it were up to me, all 16 would be women.” Someone asked whether the producers want only contestants with prior business experience. No, Branson replied: “I started out at 16 and I didn’t have any experience at business,” he said. “I didn’t have any experience at anything, actually. That’s why I called the company Virgin.” The crowd loved it. Either this guy was going to get sued for sexual harassment here, or he was going to become America’s newest star.
Alan Deutschman (email@example.com) covers technology for Fast Company from San Francisco.
Interested in further exploring some of the ideas and issues in this article? Consider starting a Fast Company reading group. Here are some possible conversation catalysts:
Brainstorm the business plan for a Branson-backed airline. How would you differentiate it in a struggling airline industry? Think of other Branson brands; what does the Virgin brand connote to you?