Richard Branson: 1950-1993

[00:00:09] Morning folks and welcome to today's episode. It's called Richard Branson, 1950-1993. And I would say more than anyone else, Richard Branson was the guy who inspired me to become an entrepreneur. Like I have a terrible memory, but I remember so vividly Branson's first appearance on the Late Late Show. That was Ireland's biggest talk show in the day. And this was in 1986.

[00:00:36] And when he appeared on the show, it was the first time I'd ever seen a businessman who didn't act like a businessman. You know, he had a woolly jumper on, the jeans, the big hair, the big teeth. And when he talked, he just made business sound like fun, like an adventure, which for most of us who love business and get into business, I mean, that's kind of how we see it.

[00:01:02] You know, yeah, it's tough. It's challenging. But that's all part of the fun and the adventure. And the story I'm going to tell today where Branson leaves school at 16 to set up an anti-establishment magazine, gets arrested for cheating the tax man, signs the sex pistols when no one else would touch them, starts a transatlantic airline,

[00:01:26] uses his hair-raising adventures on boats and hot air balloons to publicise his businesses, brings the mighty British airways to its knees. Like, it makes for a crack at story. Enjoy.

[00:01:43] So Richard Branson, born 1950 and grew up in Surrey. His father, Ted, was a barrister and he came from three generations of barristers. But despite being kind of posh, they weren't really very wealthy. His mother, Eve, she was a former dancer, a glider pilot and an airline stewardess. She had to hustle constantly. She'd make hand-painted wooden tissue boxes and waste paper bins from their cottage in Surrey and sell them.

[00:02:10] And his mother, this is brilliant, his mother also believed in building independence in her children through pretty bizarre physical tests. For example, when Branson was four, she stopped her car miles from home and made him find his own way back home across the fields. Like, can you imagine doing something like that to your four-year-old child?

[00:02:35] As Branson later put it, she did things then that if she did them now, she would be arrested. So it's pretty clear that Branson, he got his entrepreneurial streak and his sense of adventure from his mother. Now at school, Branson wasn't very good academically because of undiagnosed dyslexia. And this link between dyslexia and successful entrepreneurs, it comes up again and again in a lot of the episodes that I've done.

[00:03:04] Like Alex Karp of Palantir, Kerry Packer, Ingvar Ard-Kampard of Ikea, Michael Rubin of Fanatics. I mean, for people like these entrepreneurs, I'm guessing dyslexia helps them build resilience because they learn to keep going when things are difficult. It also probably forces them to find different ways to solve problems. And I also read somewhere where it helps them build teams as well because they're reliant on other people to do the things that they can't do.

[00:03:31] Anyway, because Branson wasn't very strong academically, he focused on sports and he was very, very good. He became the captain of the cricket team, the rugby team, the football team. But he got a very, very bad knee injury when he was just 11. That put an end to his sporting career. And so he put all his energies into business. He started selling Christmas trees, breeding budgies. Now, these early ventures weren't very profitable.

[00:03:57] In secondary school, he then started putting together the idea for a magazine that was called Student. It was anti-establishment, anti-Vietnam War. And at the same time while he was doing this, he was getting frustrated by school. In his own words, school wasn't teaching me anything relevant. I decided that the only way to make the magazine happen was to throw myself into it full time. So that's what he does. In 1967, just 16 years of age, he left school.

[00:04:26] And his headmaster said the following to him. Branson, I predict you're either going to prison or become a millionaire. So Branson, he moved to a basement flat near Hyde Park with his friend and co-founder, Nick Powell. And that flat also became the magazine's office. Now, they had only one phone line. So to give the illusion that they were this big publishing house, Branson would disguise his voice when people called and transfer callers between fictional departments.

[00:04:56] Now, the first issue of Student, published in January 1968. And first, Branson managed to talk Peter Blake into designing the cover. This was the guy or the artist who designed the Sergeant Pepper album cover for the Beatles. He also got to interview Vanessa Redgrave, a very high-profile British actress back then. And in later editions, he interviewed John Lennon, Mick Jagger, Bertrand Russell, David Hockney.

[00:05:21] I mean, these are big, big names to get on board for a teenager who's running a magazine from a basement. But as Branson said, But despite getting such big names for the magazine, it didn't sell well and within two years it was gone. But Branson noticed that the ads for discounted records in the magazine always got a lot of attention.

[00:05:50] So he and Powell moved into selling records by post. And for the new business name, Branson suggested Slip Disc. But someone else said, So that's what they went with. In May 1970, Branson put a full-page ad in Melody Maker. That was one of the UK's biggest music magazines back then. So they were offering vinyl records by mail at discounts up between 10% and 15%. Purchasers mailed in cash or checks in advance.

[00:06:20] So Virgin was earning thousands a week within the first few weeks, but the margins were tight. Then in January 1971, Britain's postal workers, they went on strike. So there was no money coming in. Branson had to pivot. So he persuaded a guy who owned a shoe shop in London's Oxford Street and had some extra space upstairs to let Virgin use it rent-free. Because Branson said that young people coming in to buy records might also buy shoes. I mean, he's got so much moxie.

[00:06:50] You just, you gotta love it. Now the record shop he sets up was very different to the norm. There were cushions, headphones, free tea. So you could sit there listening to music for hours without any pressure to buy. And it created this hub somewhere people wanted to spend time. And on the back of its success, they opened up shops in Liverpool and Birmingham. Now, as mentioned, the margins were really, really tight.

[00:07:19] So Branson came up with a way to improve those margins. And, I mean, it was illegal. It was fraud. So for context, this is 1971. Records sold in Britain back then carried a tax of 33%. But exports were tax-free. So, Branson purchased albums that were declared for export to mainland Europe. He loaded the stock into a van. Drove down to Dover Port. Got the export paperwork stamped.

[00:07:47] But then turned around without boarding the ferry. Back to London. And he saw them in his shop. Undercutting his rivals while still making a healthy profit by pocketing the tax. Now, a disgruntled rival retailer who was very, very suspicious about the prices Branson was charging. Tipped off customs. They investigated, raided the business and arrested Branson. He spent the night in jail and had to be bailed out by his parents who had to put up the family home as security to pay the bail.

[00:08:17] And look, you know where I stand on this. Most of us did stupid stuff when starting out in business. You learned from us. Anyway, Branson reached a settlement with customs. It was a £70,000 fine. Which was a huge amount of money paid in £5,000 installments. But this run-in with the customs and this huge fine, it doesn't slow him down. Branson goes on. He borrows £35,000 from a bank. Bought a manor house in Oxfordshire.

[00:08:45] And turned it into a very successful recording studio. So by this stage, and remember, he's only 21 at this time. Virgin now has 14 record shops. They have a recording studio. So the next logical or maybe organic move for them is to start a record label. And that's exactly what they did in 1972 when a 19-year-old musician named Mike Oldfield,

[00:09:09] he submitted a demo tape that he made in his class using a tape recorder to build up layers of guitars, bass and other instruments. And there were no vocals. So the established record companies, they turned it down because they just didn't think it would sell. Simon Draper, he was the guy in charge of buying records for Virgin's stores. He thought there was something to Oldfield's music. So he persuaded Branson to sign Oldfield and they launched Virgin Records in 1972.

[00:09:39] And Oldfield's first album was called Tubular Bells. Came out in May 1973. Sales were solid at the start. But then, in December that year, they got a huge break. The opening piano section from Tubular Bells was used in The Exorcist. Which not only became this huge box office hit, but it was also a culture phenomenon. And as a result, Tubular Bells ends up selling more than 15 million copies worldwide.

[00:10:08] And that success gives Virgin the money to sign more artists. But, for its first few years, Oldfield remains their only successful signing. Now, at the same time, we're in the mid-70s now. The British economy is struggling. Sales and Virgin shops are falling. And the company had taken out big loans to pay for their store expansion. Which, by 1976, they had 24 stores. So, the company is under huge financial pressure.

[00:10:38] But then, in the spring of 1977, Virgin finds itself at the centre of a music revolution. Because Interstate Rice, the Sex Pistols. Now, the band had already caused one of the most notorious moments in British television history. When they swore live on Tea Time TV. This was massive accotting. The newspapers in the UK went nuts.

[00:11:06] The Daily Mirror's front page headline was The Filth and the Fury. That's a very, very famous headline. Now, as a result, the Pistols were dropped by their record company. No other record labour wanted them. Including Virgin. Because Draper, Branson's head of music, he argued against signing them. Branson overruled them. Because Branson could see that punk, it represented a big shift in youth culture.

[00:11:32] And also, Branson got on pretty well with the Pistols' lead singer Johnny Rotten. And here's a quote from Rotten. I love this. I've always liked Richard Branson because poppest rich trash that he is. He has a great sense of rebelliousness. And Rotten is 100% right. Branson has this boyish rebelliousness. And he still has it. You know, it's a curiosity that most entrepreneurs have.

[00:12:02] But also, he has this huge sense of adventure. He has a big anti-authority streak. He's always very politely pushing against the grain. And having great fun doing it. And so, in May 1977, Virgin signed the Sex Pistols. And Branson, of course, he immediately weaponises the controversy. So, the Queen's Silver Jubilee is happening just a month later.

[00:12:28] And Branson charges a riverboat to take the Sex Pistols down the Thames, blasting God Save the Queen. The police intercept the boat. There are scuffles. Malcolm at Clarence, the Pistols' manager and several others are arrested. The outrage is huge. And, of course, so is the publicity. And this becomes one of Branson's great strengths throughout his career. Getting enormous amounts of attention for his business without having to pay for it.

[00:12:58] And when the Pistols launched their album, Never Mind the Bollocks, a few months later, the BBC imposed a complete broadcast ban. All the major record stores refused to stock it. And, of course, all of this, it only serves to make the Pistols even more appealing to young people. So, the demand for the record is huge. And you can only buy it in Virgin record shops as well as some independent ones. The album went straight to number one.

[00:13:25] So, a huge win for Virgin on every front. Now, the Pistols break up the following year. But signing a band that no other record label would touch because of their controversy, their profanity, their anti-establishment attitude, like this gives Virgin fantastic credibility with other musicians. And it helps it sign up big established names like Peter Gabriel, Steve Winwood and later the Rolling Stones.

[00:13:54] In 1979, Virgin opened its first mega store on London's Oxford Street. It's billed as Europe's largest discount record shop with a huge range of music that people can spend hours browsing. And there's loads of other apartments. You know, there's magazines, there's VHS or videocassettes, there's computer games, everything. But, despite its success, the wider business, it's constantly under financial pressure.

[00:14:21] Branson keeps expanding, keeps spending more money on other projects. And by 1981, Nick Powell, his childhood friend and 40% partner in the business, and the man trying to keep the finances under control, he's had enough. And he sells his stake for around £1 million. That's roughly £5 million in today's money. Now, a decade later, that 40% would have been worth over £200 million. But, Powell said he never regressed leaving.

[00:14:50] Because he goes on to film Palace Pictures, the company behind groundbreaking films like Mona Lisa and The Crying Game. And I can see why Powell left. I mean, Virgin's business is so chaotic. They always seem to be relying on the next big thing to get them out of trouble. But somehow, they keep finding it. Like, in late 1981, when they're in big trouble, the Human League released the single Don't You Want Me. It becomes a massive hit.

[00:15:16] Their album goes on to sell millions, and it gives Virgin a badly needed financial lifeline. That success then is followed by Culture Club, whose first two singles flop. Then, in September 1982, Virgin released Do You Really Want to Hurt Me? And they do it against by George's wishes. He thinks it's too slow. It's too personal. And he actually said, You're going to ruin our career before we've even started. But as we all know, it becomes a huge international hit.

[00:15:46] Culture Club's first album sells 4 million copies. Then, in 1983, comes Karma Chameleon. And their second album goes on to sell over 10 million copies. Also, in 1983, Virgin teamed up with EMI to launch Now That's What I Call Music. It's a double compilation album, and it reaches number one and sells over 900,000 copies in Britain within weeks. And they later expanded into an international series, selling hundreds of millions of albums worldwide.

[00:16:16] That same year as well, 1983, very busy year for Virgin. Branson launched Virgin Games. I actually never knew about this business. It was pretty low profile compared to a lot of the Zubb businesses. But it turned out to be very successful because in 1994, it was sold for $135 million. So by 1983, with revenues of £94 million, the business really seems to be hitting its stride.

[00:16:42] And Branson, of course, is the type of entrepreneur who is always restless. He's always on the lookout for new opportunities. And in 1983, he decides to start an airline. Now, the genesis for this idea, and I love the backstory for this, it was in 1979, when he was in Puerto Rico, waiting to catch a plane to the Virgin Islands because he was going to Necker Island. This is an island that Branson had bought in 1978 for just $180,000.

[00:17:10] But, as part of the deal, when he bought the island, he had to agree to develop the resort within four years or he'd lose it. So he ends up putting about $10 million in total into the island. Anyway, he's trying to get to Necker Islands. The flight was cancelled. His girlfriend, who went on to become his wife, was waiting for Monaco Island. So, you know, 29-year-old Branson, he was obviously very keen to get there. So he chartered a private plane and then he went around the airport to all the people who were on his cancelled plane

[00:17:39] and convinced them to pay $39 to cover the cost. So this planted the initial seed in his head. And then by 1983, with Virgin's revenues at over £90 million, he decided to go for it and to start an airline. Now, British Airways back then was the big beast and had what amounted to a monopoly that it fiercely protected.

[00:18:01] For example, Freddie Laker had taken on BA and the other big transatlantic carriers in 1977, but Laker Airways collapsed in 1982. And Laker alleged that the airlines, including BA, Pan Am, TWA and Lufthansa and others, had worked together to drive them out of business. Basically, a cartel. And there was obviously a lot of truth to this because BA and the other airlines later agreed to a $48 million out-of-court settlement.

[00:18:32] And when Branson approached Freddie Laker for advice when he was setting up his airline, Laker told him the following. BA is a vicious company. They will do anything to get rid of you. Be on your fetal all the time to combat anything they do. Watch your backside. Prophetic words. In terms of the business model, Branson knew cheap fares alone weren't enough. Virgin, they needed something people would choose, even when the bigger airlines matched its prices.

[00:19:01] And here's a quote from Branson. I wanted to provide something different and better for customers. I thought if Virgin had an airline, we could put the fun back into flying and bring glamour back to the skies. So how exactly was he going to differentiate Virgin? Well, in the established airlines, first class was very expensive and stuffy. Like on BA flights, you had to wear a suit in first class. While passengers in economy class, they weren't really made to feel welcome.

[00:19:30] They were kind of treated with indifference. So what Virgin did was they had what was called upper class. And this is first class treatment at a business class price. So passengers were chauffeur driven to the airport. There was better food and service. An onboard bar where you can just get up and have a drink. And Branson was also keen that economy passengers enjoyed themselves. Those are very, very friendly cabin crew. And over time, you had personal video screens and ice creams during the film.

[00:19:59] Like small twitches. But they gave people a reason to choose Virgin. And Branson was obviously wary of the amount of money needed to start an airline. It's a huge investment. So he put a limit on the initial risk. They started very small. Just leased a secondhand Boeing 747 with an agreement that he could return it after a year if the business didn't work. But then, three days before the first flight, the aircraft hit birds during a test flight, blowing an engine.

[00:20:29] And while nobody was hurt, the replacement engine cost £600,000. And because of an insurance oversight, Virgin had to find that money itself. So not a great start. For the maiden flight from Gatwick to Newark on June 22nd, 1984, Branson, he greets guests dressed up as a pilot. There are celebrities, journalists, champagne, caviar. Of course, it generates huge publicity.

[00:20:57] And on the publicity front, Virgin has a tiny advertising budget compared to the likes of British Airways. So Branson finds a way to keep the business in the headlines by combining two things he loves. Adventure and promoting his businesses. So in 1985, he sets out on the 65-foot Virgin Atlantic Challenger to beat the record for the fastest Atlantic crossing by boat. But just hours before the finish, they hit something. It could have been a buoy or debris.

[00:21:27] The boat sinks and the crew are rescued by a cargo ship. And even though they don't beat the record, Branson and Virgin get huge amounts of publicity. And the following year, he tries it again and beats the record. And days later, Margaret Thatcher joins Branson aboard the boat on the Thames River. And she tells the press what a boost it gave the whole of Britain. Then in July 1987, Branson and Swedish engineer Pair Lindstrand,

[00:21:53] they make the first Atlantic crossing in a hot air balloon, reaching 130 miles an hour in the jet stream. But as they approach Northern Ireland, they hit severe turbulence. The balloon bounces off a stone wall, goes back out over the Irish Sea. Lindstrand, he jumps from a height of 50 feet into the water, leaving Branson alone in the balloon. Branson eventually manages to bring it down into the ocean and both men are rescued.

[00:22:20] Another, you know, death-defying adventure and another huge amount of free publicity. But the airline itself, it still is tiny. Even as we get into the late 80s, Virgin only has three jumbo jets. Like, compare that against BA, which is over 160 jets. Branson wants to expand. And so in 1989, he sold a quarter of the music business to a Japanese media group for £98 million. Then in 1990, Iraq invaded Kuit.

[00:22:50] And Saddam Hussein prevented thousands of foreigners from leaving. Basically using them as human shields. And Branson uses the friendship with the King and Queen of Jordan to help arrange a deal. Medical supplies in exchange for freeing some of the hostages. And it's a brilliant PR stunt for Virgin Atlantic. Major TV networks across the world lead their news coverage with footage of the Virgin 747 landing in Baghdad.

[00:23:19] And Branson is the first out the door. And it's the kind of coverage that is really starting to annoy BA. And in particular, their chairman, Lord King. Because he's always been extremely close to the Conservative Party. He's one of Margaret Thatcher's favourite businessmen. But here you have Virgin and Richard Branson himself leading this mission. You know, coming to the rescue of British hostages.

[00:23:48] A role that BA, as the national carrier and one of Britain's most visible and successful brands. It's a role they should have fulfilled. And had Branson with his long hair, his big smile, his no-suit, you know, always casual. He was the total opposite of Lord King. And within BA, you know, despite the fact that Virgin was still tiny and middo compared to BA,

[00:24:15] they acknowledged that Branson had given Virgin style and flair. And because he's this young, hugely ambitious and successful entrepreneur, he was seen by BA as a big threat because he was appealing to younger passengers. So Branson has been annoying Lord King for a few years now. But the straw that breaks the camel's back as a foray comes in March 1991.

[00:24:41] When Thatcher's Conservative government scraps restrictions on access to Heathrow to encourage more competition. So it opens up Heathrow to other airlines, including Virgin. And Heathrow is the most popular airport for business travellers. So Branson now can finally compete for those lucrative passengers that BA has more or less had to themselves for decades. Lord King was furious.

[00:25:08] He saw this as a betrayal by the very politicians he had always supported and lobbied. And many of these politicians were getting free flights on BA for years. He calls Branson a pirate. So what does Branson do? Well, on Virgin's maiden flight from Heathrow, he turns up dressed as a pirate. And he puts the Virgin colours over this giant British Airways Concord model that sat outside the airport.

[00:25:37] And again, as always, the press cameras are there to capture all of it. So by now, by this stage, Lord King is just, you know, he has reached the end of his tether. He gathers his top people and instructs them. And I quote, Do something about Branson. And this one command, it kicks off what became known as the BA Dirty Tricks campaign. And the whole campaign, it is so dirty.

[00:26:06] It is so below the belt. For example, BA employees, they illegally access an airline reservation system, get the contact details of Virgin's upper class passengers, then ring these passengers at their homes or their hotels, wherever they are, pretending to be from Virgin, telling them their flights are delayed or cancelled, and offering them transfers on BA flights. They hire a PR consultant to plant false and negative stories in the financial press,

[00:26:36] claiming that Virgin Atlantic is close to being insolvent, that it's unable to pay its fuel bills, that it's cutting corners on maintenance. I mean, these are hugely damaging to passengers' confidence in the airline. But they're also hugely damaging because this was at a time when Virgin was looking for investment. And then they get personal. BA hired private investigators to follow Virgin executives, to check their phone records, to go through their rubbish,

[00:27:04] looking for anything that they can use against them. But fortunately, there were some people with MBA who knew that this was just plain wrong. And one of them goes to Branson and tells him everything. So Branson writes to BA, setting out his accusations and asking them to stop doing what they're doing, really. Very gentlemanly at the start. But BA writes back, denying all the accusations, and then goes further.

[00:27:32] In their weekly staff newsletter, BA attacks Branson's credibility, and they dismiss his allegations as a publicity stunt. Basically, BA are saying to all their staff, look at what Branson is saying, and look what he's doing. He's making all this up because, you know what, that's what Branson does. He just craves publicity. I mean, this is corporate gaslighting on a massive scale. And the reason why BA are so bolshy

[00:28:01] is because they know that financially, Virgin Atlantic was in a bad way. The Gulf War has resulted in a drop in airline travel, as well as high fuel costs. And unlike BA, Virgin Atlantic doesn't have the cash reserves to weather this for much longer. So BA are thinking that Branson doesn't have the funds to keep the airline going or to fight them. But Branson isn't going to be bullied, and he's not going to give up on the airline business.

[00:28:31] So he has to make an agonising decision. And here's a quote from Branson. I felt sick. It was a choice between letting the airline go under, throwing thousands of people out of work, or selling my first company. Virgin Records was my baby. It was where the whole Virgin story began. In March 1992, Branson sells Virgin Music Group to the record label EMI for £560 million.

[00:29:00] Lord King and the BA executives were totally blindsided because the sale of Virgin Music, it was a huge shock. And now Branson has the money to not only grow his airline, but also to fund a massive high court action against BA. And during the discovery for the case, internal BA documents are uncovered with details of all their payments to private investigators, their operation to poach business class passengers,

[00:29:30] or of their dirty tricks. So, on the 11th of January 1993, the day before the trial was due to begin, BA completely capitulated. They issue a public apology in open court. They agree to pay £110,000 to Virgin Atlantic and roughly £3 million to cover legal fees and £500,000 in personal damages to Branson. And Branson brilliantly takes that £500,000

[00:29:58] and gives it to the Virgin Atlantic employees and calls it the BA Christmas Bordus. It is a huge humiliation for BA and for Lord King, who was forced to bring forward his retirement. As for Branson, I mean, he emerges from the scandal with his reputation enhanced. The ultimate plucky underdog standing up to the establishment. And that's where I leave it for now.

[00:30:27] With Branson, still only 42, a self-made billionaire with a net worth of £1.7 billion. And through his swashbuckling adventures and his David versus Goliath battle with BA, he has become one of the most recognisable and I think rightly admired entrepreneurs in the world at this time. And that brings us to listeners' emails. And this one comes from Dylan, who would love me to do the story of John McAfee,

[00:30:56] the very controversial software entrepreneur. I've seen the documentary on McAfee and it is a crazy, crazy story. Thanks so much for the recommendation, Dylan, and for listening. And remember, if you have any comments, any corrections, or any story you'd like me to cover, email me at info at gbspod.com. All the best, folks.