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Sunday, September 2, 2018

How Richard Branson’s Adventure Capitalism Disrupted the Music and Airline Industries

Branson wrote, “Life is much more fun when it is filled with adventure and saying yes to new experiences,” and nothing could more appropriately sum up his life.

Image Credit: D@LY3D

Virgin Group founder Richard Branson has never been one to keep his head down and go with the flow. He was known for pushing boundaries even in his youth. His high school headmaster once took him aside and predicted that he would either become a millionaire or wind up in prison. The joke was on the headmaster, however, as both scenarios actually came true.

Whether traveling around the globe in a hot air balloon—a feat that nearly got him shot down by the Chinese Air Force—or starting his own airline on a whim, Branson never shies away from risk-taking. And this love of adventure, coupled with a desire to provide alternatives to the conventional ways of doing things, has helped him become the disruptor of industries and billionaire entrepreneur he is today.

Virgin Records

At 16, Branson dropped out of school and began his very first business venture, a magazine called Student. Eager to give students a voice and challenge society’s perception of youth culture, his magazine covered a wide range of topics from protesting the Vietnam War to questioning the entire education system. In fact, the very first issue of Student came out in 1968 and ran an editorial that asked the question, “Are Young People Being Educated Not to Think?

Virgin Records was born out of a service that Branson offered through his magazine.

Branson’s main purpose in creating his magazine was to provide an alternative to the options that were presently available to kids his age. And when it came to publications, most were either mouthpieces for the same governments waging war with the rest of the world or literature approved and distributed by school administrations. But this desire to provide alternatives in the marketplace would fuel Branson’s innovations for years to come. And it was precisely this desire that sparked the creation of Virgin Records.

Branson was never one to wait on someone else to fix a problem. He was an impatient agent of change, which made him an entrepreneur by default. A lover of all things alternative, Virgin Records was born out of a service that Branson offered through his magazine. Student had a mail-order record service that gave readers the opportunity to discover more obscure music than was being offered by mainstream radio stations and record stores. Long before the days of Spotify, when anything we want to listen to is at our fingertips, in the late 1960s and early 1970s you had to put a lot of effort into finding new music. And since Branson and his friends were new to the record industry, they decided to use that as part of their branding by calling themselves, “Virgin Records.”

Since their readership base was comprised of mostly students and young people, Virgin Records also offered their mail-order music services at discounted rates. As Branson told podcast host Tim Ferriss during an interview:

Nobody had sold music cheaply before, so we discounted it by ten to thirty percent off, and we sold music that we loved, so Frank Zappa, Captain Beefheart … It was rock and roll music rather than that sort of Andy Williams and the mixture of other rubbish that was out there. The public loved it. It resonated with young people. We had good taste and we were aiming at kids with good taste. 

And Virgin succeeded in this as the company became the first “cool” record label at the height of the popularity of rock n’ roll music. It would later go on to sign musicians like the Rolling Stones and the Sex Pistols. But just as the label was beginning to take off, a brush with the government got in the way of business.

After accidentally discovering—and utilizing— a loophole that allowed the company to avoid paying a thirty-five percent tax on their product, Virgin Records got busted by the government. And just as his headmaster had predicted, Branson, who was only 19 at the time, spent a night locked behind bars. Luckily, he was told he could avoid criminal charges so long as he was able to pay the fine levied against him. Otherwise, he would have to spend three years in jail. But instead of getting discouraged by this, Branson used it to fuel his expansion of Virgin Records.

In order to pay off the fine and keep himself out of jail, Branson was more or less forced to open 30-40 new record stores. The circumstances may not have been ideal, but he later thanked the excise and customs officials for giving him the incentive to rapidly grow his business. This experience also sparked a new passion in Branson as it was the beginning of his passion for bail reform activism.

Recalling the event, Branson says:

I remember, I was in Dover Magistrate’s Court, and the Judge said he wanted 10,000 pounds bail, and I said, “Look, there’s no way I can afford £10,000 bail,” and so he said, “Well I’m sorry but you’ll have to go to prison and await the trial then,” and my mother stood up and said, “What about if I pledge the family home? Would that be all right?” The Judge was good enough to say, “That would be fine if you pledge the family house, that will be fine.”

But Branson was lucky. In the US, this is becoming a huge problem. Many people who are arrested cannot afford bail and end up spending needless time, sometimes years, in jail. He commented:

Many, many years later, fifty years later nearly, we’re now working very hard in America to try to help people who can’t afford bail get bail. This awful situation in the States, for instance, where if you’ve got money or if you’ve got a house to pledge, you don’t go to prison for six months awaiting your trial, but if you’re poor, often black, you end up languishing in prison for a few months while waiting for your trial, even although, you can be completely innocent.

This brush with the government couldn’t stifle Branson’s love of innovation though, and it wasn’t long before he was ready for his next venture.

Virgin Airlines

It had been weeks since young(er) Branson had seen his girlfriend. And as he sat in an airport in Puerto Rico awaiting his flight home to the British Virgin Islands (BVI) to see her, he received some horrible news. American Airlines announced that they would be delaying Branson’s flight until the following morning due to a lack of passengers. But Branson had paid money to fly out that night and he was not about to postpone his plans.

In true Branson style, he quickly began to think of an alternate plan. Crossing his fingers and praying that his credit card would be approved, he rented a plane from the airport. Branson later recalled:

I had a beautiful lady waiting for me in BVI and I hired a plane and borrowed a blackboard and as a joke I wrote Virgin Airlines on the top of the blackboard, $39 one way to BVI. I went out round all the passengers who had been bumped and I filled up my first plane.

And as Branson and the other passengers were about to land in BVI at eight or nine in the evening, he recalls a conversation he had with one of the passengers:

One of the passengers tapped me on the shoulder and said, “Sharpen up the service a bit, Richard, and you could be in the airline business.”

This idea intrigued Branson. He was tired of airlines bumping their passengers. He also thought most could do a better job at encouraging their employees to smile and create an entertaining experience for the customers onboard. And just like with Student magazine, Branson saw an opportunity to create an alternative to the airlines that were already in business.

The only real hurdle standing in Branson’s way was the fact that he wasn’t in the airline business. While he has never been one to shy away from a risk, he really wanted to be sure this was a good idea before placing all his eggs in one basket. If Boeing would agree to let him give the plane back after the first year, then he would seriously consider turning Virgin Atlantic into an actual airline. In Branson’s view, so long as he could mitigate his risks, he wouldn’t mind giving it a shot.

Boeing agreed and instead of returning the plane at the end of the first year, Branson bought additional planes from the company. The company was such a success, it became the target of British Airways, who mercilessly tried to put it out of business.

When it came to entertainment, Virgin Atlantic took things to new heights.

Virgin Atlantic was mocked, as British Airways questioned why on earth someone in the entertainment industry would start an airline. But this was exactly what gave Branson his competitive edge. Passengers spending hours in a cabin wanted entertainment, and this is where all the other commercial airlines were severely lacking.

When it came to entertainment, Virgin Atlantic took things to new heights. The captains and crew members used humor to make even boring announcements exciting and Virgin is credited with the creation and widespread adoption of the seat-back screen. On its maiden voyage, Virgin showed the film Airplane to its passengers, a testament to its sense of humor.

But British Airways was not pleased with Virgin’s continued success, and the company soon launched what came to be known as the “dirty tricks campaign.” Obsessed with trying to soil the reputations of Branson and his company, the competing airline organized a team who illegally wiretapped Virgin’s computers and phones. Getting access to all Virgin’s passenger information, British Airways employees would call passengers pretending to represent Branson and Virgin. They would then tell the passengers that their Virgin flight was delayed, or canceled, but that British Airways would happily get them on one of their flights. But the tricks did not stop there.

Branson also owned a nightclub, and the British Airways team was found looking through the garbage looking for needles and other drug paraphernalia with the explicit intent of finding something to use against the airline. Luckily, this entire debacle made it to court where a ruling was made in Virgin’s favor. And the money that the competing airline was forced to pay Virgin Atlantic was divided among Branson’s employees just in time for the Christmas holiday, earning it the nickname, the “British Airways Christmas bonus.”

The Heart of an Adventurer

Unlike more cautious entrepreneurs who will tell you to mitigate risks as often as possible, Branson is a natural born risk-taker. And this lust for adventure is in many ways responsible for his success. In addition to writing a book called Screw It, Let’s Do It, his employees gave him the nickname “Mr. Yes” since he never says no to someone’s passionate business idea, including his own. But he isn’t just adventurous about business.

This love of adventure has made Branson fearless both in the business world and his personal life.

On multiple occasions, Branson has tried to break world records by traveling long distances in a hot air balloon. He also tried to break the record for the fastest trip across the Atlantic, an adventure that ended in his boat, the Virgin Atlantic Challenger, sinking and the crew needing to be rescued by the RAF. But this is just the tip of the iceberg when it comes to this adrenaline junkie.

In a blog post for Virgin, Branson wrote, “Life is much more fun when it is filled with adventure and saying yes to new experiences,” and nothing could more appropriately sum up his life.

On paper, Branson had no business being in the airline industry, just as he had no business starting a magazine or a record company. But these apparent limitations have never stopped him because this love of adventure has made Branson fearless both in the business world and his personal life.

  • Brittany is a writer for the Pacific Legal Foundation. She is a co-host of “The Way The World Works,” a Tuttle Twins podcast for families.