Книга - Virgin King (Text Only)

Virgin King (Text Only)
Tim Jackson


First published in 1994 and now available as an ebook.This edition does not include illustrations.Richard Branson is unique among today's folk heroes. Which other self-made British billionaire could lay claim to the highest esteem of our school children? Which other company chairman could be referred to by former BA Chairman Lord King as a 'pirate', having launched an airline largely on the profits of a pop song, and then go on to strike terror into the hearts of Coca-Cola and Pepsi by repackaging a branded cola? Only Branson. He is the everyman entrepreneur of our times: half marketing genius, half motivational wizard.'Virgin King' explains how Branson started a mail-order record business in 1969 and ended up with a corporate conglomerate and riches beyond his dreams today. In the first fully independent, unauthorised account of one of the great success stories of our time, Tim Jackson reveals how a public-school drop-out has found the key to presenting aggressive business acumen with a friendly face. 'Virgin King' is the compelling history of both a private business empire and the man at its centre.























COPYRIGHT (#ulink_c798c8dd-e47f-5895-a9f0-552429777fdf)

Fourth Estate

An imprint of HarperCollinsPublishers Ltd.

1 London Bridge Street

London SE1 9GF

www.harpercollins.co.uk (http://www.harpercollins.co.uk/)

First published in Great Britain by HarperCollinsPublishers 1994

Copyright © Tim Jackson 1994, 1995

Tim Jackson asserts the moral right to be identified as the author of this work

All rights reserved under International and Pan-American Copyright Conventions. By payment of the required fees, you have been granted the nonexclusive, nontransferable right to access and read the text of this ebook on-screen. No part of this text may be reproduced, transmitted, downloaded, decompiled, reverse-engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereafter invented, without the express written permission of HarperCollins ebooks

HarperCollinsPublishers has made every reasonable effort to ensure that any picture content and written content in this ebook has been included or removed in accordance with the contractual and technological constraints in operation at the time of publication

Source ISBN: 9780006382676

Ebook Edition © DECEMBER 2016 ISBN: 9780008240646

Version: 2017-01-05


DEDICATION (#ulink_ebeb9170-c0f9-5918-a010-c7c31b6695e9)

For Emily Marbach


CONTENTS

COVER (#u3c2e7f62-3fc2-59f9-a7cd-fcfd4e4880b9)

TITLE PAGE (#u5fb8b21b-5809-55e4-86b4-7e8e0965a89f)

COPYRIGHT (#ulink_ba98b5b1-b3a4-5ef1-bee3-b5c055aa5c64)

DEDICATION (#ulink_d9eae079-cea0-508b-974d-d8a9fa8500ae)

PROLOGUE: Concealing the Art (#ulink_5dcb05ec-e817-593d-9a72-1e2ceb3bec04)

1 1969: Easy Work, Good Money (#ulink_6dbd0175-fca7-5434-a85c-0d019b96adff)

2 One Per Cent of Tubular Bells (#ulink_8d6293c2-a3e1-5ef2-a215-4353e71b4a9f)

3 Broken Bottles (#ulink_cb595afe-4138-555f-a51c-605f182539a4)

4 Media Mogul (#ulink_2e98fedf-1dcb-5b74-9021-d43eea8a887f)

5 Do You Really Want to Hurt Me? (#ulink_bb5ab6b0-97c7-56de-9452-940af701abd1)

6 Dear Randolph (#ulink_3f66e33f-d398-5a19-92b4-d81c095b554e)

7 To Market, To Market (#ulink_6ac0d32f-99de-5087-a192-7a7ca31b36d9)

8 ‘Too Liberal a Use of the Lawyers’ (#litres_trial_promo)

9 The Little Boys and Their Boats (#litres_trial_promo)

10 Hales and the Lionheart (#litres_trial_promo)

11 Enlightened Capitalism (#litres_trial_promo)

12 ‘I’ve Got to Believe You’re Serious about It’ (#litres_trial_promo)

13 Hot Air (#litres_trial_promo)

14 Flying Across Two Oceans (#litres_trial_promo)

15 Recovery in Woodstock Street (#litres_trial_promo)

16 A Man of Property (#litres_trial_promo)

17 Branson Succumbs to Takeover Fever (#litres_trial_promo)

18 Loos, Booze and Upper Class (#litres_trial_promo)

19 The Price of Privacy (#litres_trial_promo)

20 Playing at Retailing (#litres_trial_promo)

21 How John Thornton Earned His $3m (#litres_trial_promo)

22 The BA Bonus (#litres_trial_promo)

23 Heathrow Airport and the Slot Machine (#litres_trial_promo)

24 A Matter of Timing (#litres_trial_promo)

25 The £40m Wager (#litres_trial_promo)

EPILOGUE (#litres_trial_promo)

KEEP READING (#litres_trial_promo)

CHRONOLOGY (#litres_trial_promo)

INDEX (#litres_trial_promo)

ACKNOWLEDGEMENTS (#litres_trial_promo)

ABOUT THE AUTHOR (#litres_trial_promo)

OTHER BOOKS BY (#litres_trial_promo)

ABOUT THE PUBLISHER (#litres_trial_promo)


PROLOGUE: CONCEALING THE ART (#ulink_e6889016-b0c0-5185-880b-12540565ccfd)

RICHARD BRANSON is Britain’s best-known entrepreneur, but it is not for his business activities that he is famous. Branson first achieved celebrity with his 1985 attempt on the Transatlantic sea speed record. Since then, he has ballooned across the Atlantic and the Pacific; spent an unhappy year at the helm of a Conservative government campaign to clean up the environment; launched a new brand of condoms in the hope of encouraging young people to have safer sex; and made a bid to run Britain’s National Lottery, which was unsuccessful despite his promise to give away all his profits to charity.

Even when it is his business interests that bring him into the public eye, it is more often Branson the public-relations man than Branson the entrepreneur that is on display. If his picture is in the newspapers, it might be in order to announce a new plan to redevelop the old GLC County Hall on the south side of Westminster Bridge, and to drum up interest in the hotel and leisure complex that Branson hopes to build there; or to persuade the Radio Authority that Virgin 1215, Branson’s medium-wave pop-music radio station, should be allowed to change to a more profitable frequency on FM. Or it could be to announce Virgin’s participation in a consortium running trains between London and Paris through the new Channel Tunnel; or to win a £5m legal case against Lord King’s British Airways. In every case, the coverage has a sound commercial reason behind it.

Only rarely does Richard Branson find his business activities under scrutiny against his will – and almost never does the public see this most public of entrepreneurs doing what he spends most of his time doing. But there should be no mistake: like most people who run companies of comparable size, Branson devotes most of his waking hours to his businesses – hiring staff, negotiating deals with other companies, conferring with lawyers and accountants, telephoning scores of his managers all over the world, answering letters from behind his desk. Few questions are asked about this side of his life; fewer still are answered.

This may be paradoxical, but it is not accidental. There are two Richard Bransons, one behind the other. The public man is informal, friendly, idealistic, happy-go-lucky, attached to his family, guided by strong principles, concerned to improve the society he lives in. The private man is a ruthlessly ambitious workaholic; a hard bargainer, an accountant with an instinctive feel for minimizing the losses on each new venture; a gambler who prefers to put his assets at risk every day rather than retire to a life of luxury on what he has already made. He is an empire-builder who keeps the inner workings of his businesses secret, and requires senior employees to sign binding confidentiality agreements before they come to work for him; a figure of great wealth and political influence who would not dream of breaking the law, but is equally determined not to pay a penny more in tax than he has to; an important customer for a number of top legal and accountancy firms, who knows the value of highly paid advice; and a business partner who may be informal and positive when he is being fairly treated, but will go to the High Court for a writ without a moment’s hesitation when he believes he is not.

Most public figures would be hard put to maintain such a distance between their outer and inner selves. Yet there is nothing fraudulent about the way Richard Branson behaves. The key to understanding him is that his warm public persona is not a façade. It is every bit as real as the commercial steel underneath. But Branson has realized, instinctively if not consciously, that his business interests dictate which Richard Branson he should put first, and which the public should believe in. His motto ought to be ars est celare artem – art lies in concealing the art.

In many ways, Richard Branson is a model of what the socially responsible company chairman ought to be. A visit to his office provides the first clues. It is not an office at all, in fact, but a large white stucco house in Holland Park, a few miles to the west of Marble Arch in central London. The house could hardly be described as modest – it is worth at least £5m – but less than a dozen people work inside, an astonishingly small number for the centre of a group of companies whose value is approaching £Ibn. Branson himself keeps a desk in a sparsely decorated room on the first floor, but prefers to conduct his business from an apricot-coloured sofa in the sitting room that occupies the left half of the entire ground floor. To the right of the entrance hall, there is a large dining room for business lunches and dinners, with twenty or more chairs around its table. Branson’s diary and his correspondence are dealt with by a personal assistant and two other secretaries; his press chief works in another room, with an assistant of his own. All the different Virgin Group businesses have their own headquarters, mostly in modest buildings scattered within a mile or two of the house. The nearest thing that the company has to a headquarters, apart from Holland Park, is in a three-storey building of brown brick around the corner in Campden Hill Road. That is where Trevor Abbott, the group’s chief executive, keeps tabs on the money; that is the registered office of many of the hundred or so companies that make up Branson’s empire.

‘Small is beautiful’ is evidently the guiding principle. Branson believes firmly that people work better in teams that are too compact to be impersonal. But separating the companies that make up the group into lots of small suburban houses and offices is not only more human than installing them in a single tower block in London’s financial centre; it is also cheaper and more flexible. There have only ever been two exceptions to the rule: Branson’s airline, Virgin Atlantic, which employs several hundred people in a couple of offices in the town of Crawley near Gatwick Airport; and the Virgin Music Group, which occupies a vast mansion set back from the Harrow Road. The reception area at Harrow Road boasts a stunning combination of Victorian cornices and minimalist art and furniture which was installed by a fashionable architect, and reputed to have cost £80,000. But this was not Branson’s initiative; the man responsible for this act of corporate patronage was Simon Draper, who ran the Virgin Music Group until Branson sold it to Thorn-EMI in 1992.

While others make money from buying big companies that have lost their way, cutting out the dead wood and returning them to profitability, Branson has made only a handful of acquisitions in his life, none of them costing more than £10m. Instead, his speciality is to build from scratch. In a business career spanning twenty-five years, he has used this approach to build an international retail chain, an airline, and a music business that includes records, music publishing and studios. The principle of starting from nothing applies to people as well as to businesses. Rather than hire in specialists from outside who will be expensive and may not be loyal, Branson prefers to offer big jobs to people who already work for him. This is by no means a rule: Trevor Abbott, the Virgin Group chief executive and Branson’s most senior adviser, joined him when he had already been in business fifteen years; and one of the two managing directors of the airline was brought in only in 1990. Yet most of the leading players in the Virgin story are people who joined straight from school or university. One, Barbara Jeffries, first worked for Branson as a housekeeper at Shipton Manor in Oxfordshire; by 1992, she was managing director of all his studio businesses.

Since inexperienced staff necessarily make a few mistakes before acquiring expertise, it helps in such circumstances to take a long-term view. Luckily, Richard Branson has never evaluated his businesses on the basis of how much profit they make each year. When he signed musicians to the Virgin record label, he was often willing to pay advances that his competitors considered ruinously high – but in return, he would demand rights over a larger number of albums, and would want to keep control of the copyright over those albums for longer than other record companies. The record shops under the banner of Virgin Retail grew steadily in number for more than a decade, without ever making a proper return. But Branson ignored the advisers who told him time and again to close them down or sell them – and was proven right in 1988, when WH Smith, one of Britain’s leading stationery chains, paid over £23m for the smaller and less successful stores, leaving him with a more closely focused chain of Virgin megastores. Branson has weathered equally stormy days at the airline, which took four years from its creation to turn in a reasonable profit. He kept his nerve during the 1991–2 recession in the air transport industry, emerging triumphantly at the beginning of 1994 with a daring deal that replaced his fleet of ageing Boeing 747s with more economical Airbus A340S.

This patience extends to his negotiating style, too. During the same recession, Branson was under huge pressure from his bankers to sell parts of the Virgin empire in order to reduce the mountain of debt he took on at the end of the 1980s. Yet he took more than a year to sell Virgin Music Group – and succeeded, like a carpet dealer in an Oriental bazaar, in persuading potential buyers that he neither needed nor especially wanted to sell. This strategy was rewarded in the astounding price that Thorn-EMI eventually paid in cash and assumed debt for the company: £560m, or almost $1bn at the prevailing exchange rate.

In the speeches that he is increasingly often asked to give, Branson is fond of pointing out that while conventional business analysis puts the interests of a company’s shareholders first, followed by those of its customers and then its employees, he takes the opposite approach. For him, it is Virgin’s employees who take top priority, particularly those who deal face to face with members of the public. If they are happy in their work, he hopes, then they will perform well – and in doing so they will satisfy his customers. Branson believes that the interests of Virgin’s shareholders (which in effect means himself and his family) can be safely left behind, on the assumption that a company that pleases its customers will prosper itself.

Fame has brought Branson an array of rich and powerful friends, and an ability to arrange a meeting with almost anyone he wants in politics or business. When his libel action against British Airways was settled in the High Court, the Princess of Wales sent him a handwritten note of congratulation on a card headed ‘Kensington Palace’ bearing a monogram of a capital D with a coronet above it. ‘Dear Richard,’ it read. ‘Hurray! Love from Diana. X.’ The friendship was cemented a few months later, when Diana agreed to preside over the launching ceremony of the airline’s first new Airbus. Her light-hearted appearance, which came only a few days after an announcement that she intended to retire from most of her public duties, put Branson and his company on the front page of newspapers all around the world.

Yet Branson himself is the opposite of elitist, and his company is one of the least hierarchical one could come across. To the annoyance of his senior managers, Branson seems to pay as much attention to a chat with a clerk in the airline’s post-room as to a memorandum from his marketing director. Letters from his staff are always read first; when Branson travels on his own airline, he spends about half his hours on board talking to the cabin crew, and he travels into town at the other end not in a private limousine to a hotel at the city centre, but in the crew bus to the airport motel where those who will be flying back the following morning spend the night. Until he became an airline owner, and thus acquired the right to travel first-class for free on other airlines, Branson used always to fly economy class.

Richard Branson may work his secretaries hard, but he resists the temptation, to which many other company chairmen have succumbed, of ordering them around as if they were servants. He will ask for a mug of tea during a meeting at Holland Park as hesitantly as if he were a guest in someone else’s house. Until recently, he used to dial his own telephone calls; he only stopped doing so when a growing number of people at the other end refused to talk to him because they thought he was only a practical joker pretending to be Richard Branson. (Given that Branson used to specialize in telephoning his friends and pretending to be other people, that is richly ironic.) It is no coincidence that Penni Pike, Branson’s senior personal assistant, has worked for him in the same job since 1977.

He manages and motivates his staff by example. Branson is hugely energetic. He needs his eight hours’ sleep a night, but is nevertheless able to put in very long hours without rest – keeping himself awake where necessary by snatching naps during the course of the day or en route between one meeting and the next. He travels by air on average once a week. Dozens of the present and former Virgin employees interviewed in the course of the research for this book have been influenced by his almost blind determination. Where others would try to put an idea into practice but then give up when obstacles appear to make it impossible, Branson takes it as an article of faith that there is a way around – if only it can be found. Sometimes, of course, he is wrong; but surprisingly often, the extra effort pays off with success – and others begin to imitate the Branson technique. The most extreme example of this approach was the establishment of Virgin Atlantic; by dint of extreme effort from a team of a dozen or so people, the airline was up and flying within four months of the day on which Branson first started discussing the idea.

While many businesses suffer from a ‘Not Invented Here’ syndrome – a resistance to ideas that come from other organizations – Branson has no shame in picking up suggestions wherever he finds them. All day long, he carries around with him a black A4 notebook – standard issue, bought from the Rymans stationery chain – into which he jots not merely ideas that might be put to use in his businesses, but also names and telephone numbers, notes on conversations, and lists of tasks to carry out. Richard Branson’s daily to-do list usually contains thirty items or so; the idea is that by numbering them, he can attend to the most important first and thus make best use of his time. Such is the respect he is held in by his employees that many senior staff in the different Virgin companies now carry the same notebooks with them, and can be seen scribbling down thoughts and notes of conversations in exactly the same way. Like the rest of Branson’s life, the notebook is resolutely low-tech. He neither types nor uses a computer, and he acquired a mobile phone for the first time only in late 1993.

As well as a second house in Holland Park, two doors down from the one that he uses as his office, Branson owns a villa in Minorca, a country house in Oxfordshire surrounded by fields and a large pond, and a private island in the Caribbean. There is a swimming-pool in the basement at Holland Park. The Oxfordshire house, his weekend retreat, has its own cricket pitch; Branson flew in a pair of Balinese craftsmen to build a cricket pavilion in the style of a traditional temple, complete with carved wooden doors and a roof of thatched rice straw. Necker Island, part of the British Virgin Islands, now belongs to the company rather than to Branson personally; it boasts a house large enough for twenty or more, a chef brought over from the Michelin-starred Manoir aux Quat’Saisons restaurant (in which Branson happens to own a controlling stake), and an extensive cellar that includes vintage clarets and burgundies as well as lighter whites suitable for quaffing on the beach.

Yet Branson seems oddly detached from the outward details of his life. It does not bother him that paint is flaking off the back of his house in Holland Park, or that the swimming-pool filter no longer works. He owns a Range Rover because he was given it by the buyer of the Virgin Atlantic Challenger II, the speedboat that broke the Atlantic speed record; but he is perfectly willing to allow his two children, both of primary-school age, to drive it around his fields in the country. He has always eschewed the ostentatiously high living of the music industry, particularly the chairman of one record company who makes a point of parking a spanking new Rolls-Royce or Bentley outside the front door of his offices. Since he married his second wife, Joan Templeman, Branson has supplemented his trademark collection of sweaters with more expensive casual jackets and shirts. Yet he often succeeds nevertheless in looking as though he picked the clothes he is wearing out of the cupboard at random in the dark – and he specializes in wearing brown shoes that look as though they were on special offer at Woolworths.

Nor does he have expensive gastronomic tastes. While many of his top managers have become connoisseurs of food and wine, Branson is the first to admit that he is unable to appreciate the finer points of the Quat’Saisons cuisine on his private island. He used to make it a rule never to spend more than £15 on a bottle, and was scandalized when colleagues wanted to spend company money tasting good vintages in restaurants.

Most rich men of Richard Branson’s age start to collect things as a way of finding a use for the millions they have amassed. The pond in the grounds of his Oxfordshire house duly contains a number of rare species of duck and goose from around the world, their wings carefully clipped to prevent them from flying away. Branson takes pleasure in strolling around the pond pointing out the bright colours on the plumage of each one – but cannot quite remember which is which. He is fond of telling the story of how, when he used to live on a houseboat oh the Regent’s Canal, he and Joan once returned from a weekend away to find that the boat had flooded and sunk. Yet Branson had no regrets to discover that all his worldly goods had been lost – for he knew that his photograph album, which was more precious to him than anything that mere money could buy, was safely stored somewhere else. Proof of how little his attitude has changed can be seen in his decision to put the two houses in Holland Park on the market at the turn of 1994 with a price-tag of £15m, and to start looking for another houseboat so that his family could move back to the canal from which he started twenty years ago.

Indeed, most of Richard Branson’s pleasures could be enjoyed just as easily without great riches. He loves tennis and swimming in the sea; underlying his boating and ballooning in the second half of the 1980s were great reserves of physical courage, which allowed him several times to face death without panic. He plays practical jokes that are more physical than intellectual – throwing people into swimming-pools, dressing up in bra and suspenders at parties for Virgin employees, pushing cakes into people’s faces in the style of television cartoons. At an airline-industry awards ceremony, he once grabbed hold of Ivana Trump, the former wife of a leading American property billionaire, and turned her upside down in front of hundreds of astonished black-tie guests. It is this humour above all that makes Richard Branson such an object of affection among his employees. The ear-to-ear smile that he wears for so many hours every day conveys a simple message: business is fun.

Underneath this gregariousness is an insecurity. Richard Branson’s lack of verbal fluency was intimately linked to his poor academic record at school, and his decision to leave rather than to go to university. For a man who has made his money in industries that are all about communication and people, Branson is sometimes astonishingly inarticulate. He will talk with passion when his interest is raised, but can be stumped by an utterly straightforward question. During one of the last interviews he gave for this book, Branson took a fifteen-minute break in order to record for a camera crew waiting in his sitting-room a short speech of welcome to a charity dinner that he could not attend. The speech was warm and friendly, conveying all the right points about the charity’s work, and ending with a rousing demand to guests that he would never see to give generously to the appeal at the end of the evening. But its three minutes were punctuated with umms and aahs – hundreds of them, separating not just sentences and phrases but also single words. Despite the decade of practice he has had, and the hundreds of television interviews he has given, Branson remains clearly ill at ease with the spoken word. When he got up at the end of a chat-show interview in 1992 and poured a glass of water over the head of his host, the audience took his action as a joke, and laughed uproariously. They were probably wrong. Emptying the glass of water was more a sign of Richard Branson’s frustration at being outmanoeuvred by the glib questions he had been asked.

If there is one respect in which Branson can fairly claim to have been valued by the public at less than his real worth, it is to do with his charitable activities. He is not a giver of huge sums to charity in the way that some businessmen are; nor does he have to his credit, as the Sainsbury family do, a gift to the cultural life of the nation on the scale of a new wing for the National Gallery. But Branson has been involved in three important projects in which he has attempted to give something back to the community from which he has made his riches. The first was the UK 2000 campaign, a scheme to bring together a number of different government and private initiatives to improve Britain’s environment and to provide useful work experience for the young unemployed. From the very day Branson took on the chairmanship of the campaign, he was dogged with the tabloid misconception that it was nothing more than a litter-picking organisation; his departure from the job a year later, after acres of hostile press coverage, was a relief to himself as well as to his advisers at Virgin.

His second venture for the public good was the launch of Mates, a brand of cut-price condoms intended to shake up the monopoly in the British condom market that allowed the manufacturers of Durex not to advertise. The project was a commercial triumph: the new brand was easily established, and took more than a quarter of the market in less than two years. In terms of public health, however, the outcome was mixed; although condom advertisements were shown on British television for the first time, Mates did little to change the reluctance of young people to take elementary precautions against the spread of AIDS. Branson himself also came in for a good deal of criticism – despite the fact that he had risked large sums of his own money in a venture whose proceeds were intended only for charity.

Branson’s bid to run the National Lottery suffered a similar fate. Once again, his intentions were altruistic; he would take no profits personally from the exercise, and the lottery and the money it raised would be administered by a foundation kept entirely independent of the Virgin empire. Branson was bitterly disappointed when the franchise was instead awarded to a business consortium; but he was angrier still to find himself criticised for his involvement in an exercise for the good of others. Somehow, despite the clear separation of the lottery from his business interests, Branson never quite managed to dispel the suspicion that he was hoping to benefit personally from running it.

Most public figures – politicians and sports stars as well as business people – would be less sensitive. They would expect their motives to be impugned, their failures exaggerated, their successes attacked, their physical characteristics made an object of fun. The very fact that Richard Branson can take such offence is proof of how unaccustomed he is to public criticism, and how he has come to take it for granted that a little effort and imagination in arranging what information is made public will inevitably result in positive coverage.

Achieving good press has been as important in Branson’s business career as making sure that the books balance at the end of the year. From his first days as a magazine publisher and record retailer, Branson knew that descriptions of his ventures as successful and expansionary could become self-fulfilling. That is why he would arrange, when a newspaper journalist came to talk to him, for an employee to go to a nearby telephone box and ring in constantly during the interview in order to give an impression of activity; and why he similarly drafted in a couple of friends to pose as musicians signed to his record label for a television documentary when in fact Virgin Records had no artists at all on its roster. It took two factors, however, to turn Branson from a moderately well known and eccentric pop millionaire into a fully fledged celebrity. One was the launch of Virgin Atlantic, which gave him the opportunity to indulge his taste for dressing up in a series of outlandish outfits. (The apparent thirst for personal publicity which he then acquired had a great deal to do with the need to compete with British Airways on a shoestring advertising budget.) The other factor in his current fame was the danger involved in his record-breaking sea and balloon crossings of the Atlantic and Pacific. In public, Branson would talk about his thirst for adventure and his love of competition and the outdoors. In Virgin board meetings, he defended the spending of company money on these exercises by saying that they were the cheapest possible way of advertising group companies.

By the end of the 1980s, Branson’s image as popular hero had become a bankable asset for his businesses, arguably even more valuable than the Virgin brand name itself. He would be wheeled out to meet rock stars signing contracts with Virgin Music, even though he had not been involved in the negotiations; and they, accustomed to receiving the adulation of fans themselves, would be awed as if they were in the presence of royalty. Four years after he sold Virgin Music, Branson took me on an impromptu tour of the company’s recording studios at Shipton Manor in Oxfordshire. The woman who opened the front door was visibly delighted to see him, and reminded him as they kissed that she had worked for him a decade earlier. When we went into the studio itself, rich in the nostalgic smell of marijuana smoke, the band who were working there took their feet off the desks when he walked in.

One example of the commercial value that Branson squeezes from his own public persona and the strength of the Virgin brand was the air service that City Jet began to operate under the Virgin name between London’s City Airport and Dublin in 1994. Another was the launch in 1993 of a Virgin personal computer, which was in reality being built entirely by a separate company that paid a royalty for use of the Virgin name. Even firms that have no dealings at all with Virgin want to cash in on the Branson name. American Express, Mercury and Fiat are only three of the companies that have used him in their advertisements. In the Mercury television advertisement, Virgin received a double benefit, for Branson’s script required him to be an uncharacteristically fast-talking salesman of the attractions of Virgin Atlantic’s service.

Lack of cash has been a constant theme throughout Virgin’s history. Founded on a shoestring, the company was desperately undercapitalised throughout the 1970s, and narrowly avoided collapse in the recession that followed the election of Margaret Thatcher as Prime Minister in 1979. Even after it had established banking facilities suitable for a company of its size and had raised £25m from institutional investors, it still required great skill and assiduous chasing of debtors to make sure that none of the company’s cheques bounced. Don Cruickshank, the management consultant brought in to take Virgin public, described the group during the time he worked for it as ‘teetering on the edge of disaster, seven days a week’. In February 1985, after American aircraft had bombed Libya and passengers decided to avoid air travel, Cruickshank sat around a pub table with Branson and Trevor Abbott to discuss whether Virgin Adandc should be closed down altogether. Once Virgin’s shares were quoted on the Stock Exchange, there was more money about; but Branson’s decision to take the company private in 1989 saddled it with a mountain of debt that was paid off only by giving up the ‘crown jewels’ of the business – the Virgin Music Group itself. Perhaps surprisingly, given his wish to reassure outsiders of the stability of Virgin’s foundations, Branson himself describes his entire business career as a struggle for survival.

There is a tension at the heart of Branson’s wooing of the media. Although he wishes himself and his businesses to be written about and filmed, he is less willing to make himself accountable to outsiders. When he decided to take Virgin public, one of the investment bankers who discussed the flotation with him (though not, interestingly, the one that was eventually chosen to handle it) warned Branson and his colleagues that life as a public company would be very different. The banker was right Branson disliked having to pay dividends; he disliked having to explain to hostile analysts in the City why he had taken this or that decision; and although his small shareholders were always faithful, he disliked the thought that institutional investors might have the right to question business decisions that had hitherto been his sole prerogative to take. Branson was also uncomfortable with the need to win the approval of his fellow directors before spending the company’s money – and on one occasion, which was successfully kept secret, had to find £700,000 from his own pocket when some shares he had bought on his own initiative lost value in the market crash of 1987. Branson’s wish to be given back full control over Virgin was as important a factor as any other in the decision to take the company private. With the transaction now safely accomplished, he likes to tell the story of a Japanese businessman who was discussing the possibility of taking an equity stake in a Virgin business and trying to convince Branson of his own merits as a docile minority shareholder. ‘Would you rather have Japanese wife or Western wife?’ the businessman asked. The answer was, and is, quite clear: when the marriage in question is a commercial one, Branson would far rather have Japanese wife.

What makes the accountability issue particularly sensitive for Richard Branson is that he has always been a generator of ideas who needs someone else to follow behind him – attending to details, pruning back ventures that later prove mistaken and, where necessary, warning him against putting his wilder ideas into practice. Throughout his career, his relationship with the person who has performed this function has always been unstable. Branson’s first partner was Nik Powell, a childhood friend to whom he gave a forty per cent shareholding in Virgin at the beginning of the 1970s. A decade later, dealings between the two had deteriorated sharply; Powell thought that Branson was taking foolhardy financial decisions, while Branson himself came to the conclusion that Powell was no longer contributing enough to the business to justify his position in it. It was more than two years after Powell’s departure that Don Cruickshank, the managing director who took Virgin public, took on the responsibility. But this new pairing was not to last either. Five years later, after the two had clashed frequently, Branson’s decision to take the company private again left his MD without a clear role. The gap was filled by Trevor Abbott, the group’s more emollient finance director. Promoted to group managing director, Abbott has been more cautious than Cruickshank in saying no to his boss; five years into the job, he seems to have retained Branson’s confidence without challenging his authority. Part of Abbott’s secret is that he has no enthusiasm for the limelight that has so changed Branson’s life. Although he wields considerable power both inside and outside the Virgin empire, Abbott passes almost unknown in public, save among a small number of suppliers, partners and customers, who hold him in high regard.

Each of these three men in turn has tried to devise a strategy to account in public for the essentially spontaneous decisions that Branson himself makes. Powell had grand ideas about vertical integration, believing that Virgin would make money from all the different activities involved in the production of music and film; but that notion was damaged fatally by the group’s withdrawal from film production. Cruickshank preferred to cast Virgin as a music conglomerate whose core was the record company; but Branson had no compunction in selling it. Abbott has picked out Virgin’s long-term cooperative ventures with other companies (notably in retailing and in the company’s video-game business, but also in the airline itself) as the core of its vision. It is too early to offer a judgement on this, since Abbott’s tenure in the group managing director job has only just reached five years. But by 1994, Virgin had already dissolved two of these strategic alliances (with Fujisankei in the record business, and with Seibu-Saison in the airline) – and the company was contemplating selling its video-game business to one of its minority American shareholders. Only months before, Branson had described that business as one that could grow to the same size as the airline within a decade.

These deals with other companies do illustrate, however, a skill that has become a Virgin hallmark. Richard Branson is a brilliant and ruthless negotiator. When the company was small and he was striking agreements on his own, Branson had enough cheek to demand far more than he ever hoped to win – but also enough patience to argue a deal point by tiny point if his adversary so demanded. He was highly skilful at hiding behind others, telling those he was negotiating with that it was the objections of his lawyers or his colleagues, rather than his own misgivings, that made him unable to agree to a proposal. To this day, he has an uncanny ability to portray a transaction in the terms that make it attractive to the person he is negotiating with, rather than allowing them to focus on what he intends to get out of it. He knows when to speak and when to stay silent; and he is capable of letting others leave a meeting under the impression that they have got what they want, even if they have not in fact done so. Finally, Branson is a masterful haggler: rather than accept an official fixed price when buying something, he will put in a lower (and often a significantly lower) offer. On many purchases – an aircraft, a house, an island, even the removal bill for a snooker-table – he will succeed. One of his friends jokes that if you ask Richard Branson to lend you a fiver, he will counter with an offer of £4.50.

It is this skill that has helped Branson to perform the most extraordinary feat of his business career. Most entrepreneurs who start businesses begin by owning all the company’s shares, but find themselves forced to give away a growing proportion of equity to others as the need for new investment capital grows. Richard Branson’s control over Virgin, however, has moved in the opposite direction. When Tubular Bells became a hit in 1973, Branson only owned 60 percent of the main Virgin holding company, and Nik Powell owned the remaining 40 per cent. At Powell’s suggestion, others had been given 20 per cent holdings in subsidiary companies including the record company, the studios, and the Virgin management company. So Branson’s effective holding over these companies was just under 50 per cent. Today, the various Virgin businesses are worth over £1bn – yet Branson and his family interests own more than 60 per cent of them.

Two policies allowed Branson to do this. First, he used the cash generated by the businesses themselves to make them grow. Second, he succeeded with great skill in easing out his minority shareholders. A shareholder in one of the subsidiaries departed the company in high dudgeon with Branson, leaving his shares behind him. Another subsidiary shareholder lost his stake when the company for which he worked was closed down altogether. Branson asked Nik Powell to go during the 1981 recession, giving him £1m cash, a cinema and some other assets in return for his 40 percent stake. (Within five years, that stake was to be worth almost £100m.) There was a similar pattern at Virgin Atlantic. When Randolph Fields brought Branson the idea of flying across the Atlantic, both men were originally to own half of the airline. During the negotiations before the airline’s launch, Branson forced Fields to reduce his shareholding to 25 percent; later the same year, Fields was made to step down as the company’s chairman; another year later, Branson bought out his remaining stake for £1m.

The one exception to this pattern was Simon Draper, Branson’s South African cousin, who established the record label for him. Draper took the precaution of asking his older brother for advice, and demanded that his 20 percent shareholding in the record company should be converted into a less risky 15 percent holding in the parent company. As his position in the business strengthened, Draper demanded further safeguards – with the result that he became a millionaire many times over when the company went public in 1986. Draper was also unique in never negotiating directly with Branson. The arrangements would first be discussed by lawyers or other intermediaries; when Draper and Branson came to meet, the usual pattern was that Draper would make his demand and Branson would quickly accede to it. Yet Draper’s craving to be financially independent from Branson, and immune from whatever decisions Branson might make inside Virgin, cost him dear. So keen was Draper to limit his risk on the airline that, after Virgin went private, he sold his ten percent stake in Virgin Atlantic back to Branson for £6m. As he signed the papers, Draper turned to the lawyer and smiled. ‘I know this is probably the worst deal I will ever do in my life,’ he said. It may yet prove to be; but Draper, who now runs a private publishing house and owns thirty-nine Aston Martin sports cars, has enough money not to care.

Richard Branson’s wish to make sure he always does as well as possible from any business arrangement applies equally to his dealings with the Inland Revenue. He discovered early in his career the risks of breaking the law, when his botched attempt to evade purchase tax was detected by Her Majesty’s Customs & Excise. Luckily, the Customs were willing to settle for the payment of a £53,000 penalty, so the young entrepreneur was spared the humiliation of a prosecution, and the risk of a gaol sentence that might have put an end to his ambitions. From that clumsy attempt at fraud he learned the distinction between tax avoidance (which consists of arranging matters so as to minimise the tax bill) and tax evasion (which is illegal); and he learned to make use of top-class advisers to ensure that every step he took was watertight and could be defended against challenge. But Branson’s instinctive reluctance to see his hard-earned profits paid over to the Chancellor of the Exchequer never left him. In 1973, when Branson was not yet twenty-four years old, the first trademark of the Virgin record company was registered as the property of an offshore trust, thus legitimately placing beyond the taxman’s reach part of the royalties that overseas companies paid to Virgin. Later in the 1970s, Branson made use of a number of carefully prepared tax-avoidance packages bought in from experts. Early in the 1980s, Don Cruickshank had to warn Branson that he might actually be wasting time and money with these convoluted schemes, since Virgin was growing so fast that the schemes could not keep up.

Before Virgin went public, Branson took the step that has saved him tens of millions in tax. He transferred ownership of many of his shares in the company to offshore trusts of which he and his family are beneficiaries – so that when the company went public, and when the music business was later sold in a transaction valued at 2560m, the bulk of the capital gains could be free of tax. There the position still stands. The offshore trusts, resident in the Channel Islands, are the major shareholders in the holding companies of Branson’s present businesses; and they are able, quite legally, to invest money in his ventures if the independent trustees believe it wise to do so. If Branson ever decides to retire, he will be quite at liberty to take a one-year tax holiday abroad and to come back to the UK several hundred million pounds richer without owing anything to the Inland Revenue. Hostile questions were asked in Parliament about these arrangements soon after the sale of Virgin Music Group; but the lawyers and accountants have done their jobs too well for there to be anything to criticise.

This book is an attempt to capture what makes Richard Branson distinctive as a businessman. It is therefore in part a biography, and in part a history of the Virgin empire that he has established. But it does not seek to do both jobs in full. There is little on these pages, for instance, about Branson’s marriage to Joan Templeman, his second wife; and little about the companies in his empire with which he has so far had little to do – notably the communications businesses run by his brother-in-law Robert Devereux, and the Voyager hotel interests. In some cases, such as his participation in a consortium running train services through the Channel Tunnel, the projects are still at too early a stage for any serious conclusions to be drawn about them at all. Broadly, however, this book tells the story of Branson and his ventures one by one, starting from the mail-order record firm that was his very first serious venture at the end of the 1960s, and ending with his abortive attempt to run the National Lottery in 1994. Whether the reader will agree with the conclusions and predictions to be found in the epilogue, however, remains to be seen.


ONE (#ulink_4dd08bd5-186f-56ca-bfab-a6627c545a67)

1969: Easy Work, Good Money (#ulink_4dd08bd5-186f-56ca-bfab-a6627c545a67)

STEVE LEWIS, sixteen years old, knocked on the door. After a long pause, a bony youth with lank, black, greasy hair appeared. He had a prominent rip in the inside leg of his jeans. The brightness of the July sun highlighted the contrast between his pale, long fingers and the dark semicircles underneath his nails.

‘Is this number forty-four Albion Street?’ asked Lewis.

‘Yes,’ replied the boy, who looked eighteen or nineteen.

‘I’ve come about the job which was advertised in the personal columns of The Times’, said Lewis. ‘“Record company and magazine looking for young people,” it said. “Easy work, good money.” This was the address to apply to.’

‘The job’s gone, But you can come and sell magazines for us if you want to.’ Nik Powell, the boy on the doorstep, turned on his heel and led the way past piles of magazines wrapped in string and paper into the hall of the terraced house. ‘Take that stack down to Hyde Park,’ he said, pointing to one of the piles. ‘You sell them for three shillings each, you keep one and six, and you bring the rest back here at the end of the day.’

Steve Lewis was just about to start studying for his A-levels at Christ’s College in Finchley, and he wanted to earn some pocket money in the summer holidays. Music was his passion – everything from Sergeant Pepper to Jimi Hendrix, but the black American music of the Motown label in particular; that was why the advertisement had caught his eye. But he didn’t want to hawk magazines in Hyde Park, he wasn’t going to be intimidated into doing so by this unkempt, haughty teenager he had never met and he made his feelings clear.

Powell grudgingly identified himself and told Lewis that he would have to wait until Richard Branson was free. As he waited, Lewis was struck by the glamour and buzz of the office. Phones were ringing; attractive women were coming and going. At the other end of the room, a young man with tousled light brown hair and a dazzling smile was talking very earnestly into the telephone.

When at last he finished his call and came over to see Steve Lewis, Richard Branson was a great deal more friendly than Nik Powell had been. His voice was mellifluous and rather posh. He explained that he had just set up a business to sell records by mail order, but admitted rather shamefacedly that he did not know much about music. Steve Lewis saw his opening. Within ten minutes he had dropped the names of enough obscure artists to convince the nineteen-year-old Richard Branson that he could provide the expertise that the business lacked. Branson, his interest rising, told Lewis that he had placed an advertisement in Melody Maker, the country’s leading music magazine, offering a list of records at a discount. ‘If the record you want is not listed here,’ said the advertisement, ‘write to Angie, and we’ll give you a price.’ The trouble was that Angie had left, yet the business was booming.

Branson had spotted a hole in the record market, and now it was all he could do to meet demand. Retail price maintenance – the system that allowed manufacturers of products to force shops to sell them at a minimum price – had been abolished by the government five years earlier, but neither record companies nor record shops had taken much notice. Rather than engage in a frenzy of discounting, the industry preferred to carry on much as it had done before, selling records at a standard price of thirty-nine shillings and elevenpence. Branson, therefore, had advertised his records at thirty-seven and six. A flood of customers had written in saying what they wanted, and enclosing postal orders and cheques. The records themselves had come in bulk from shops in Muswell Hill and the East End that were keen to unload excess stock. A group of girls had been recruited to type labels and to pack the records into envelopes. But without Angie, who could find the unusual titles that customers asked for? Who could distinguish the up-and-coming bands from the three-minute wonders?

Within half an hour, everything was agreed. Steve Lewis would become the new Angie. He would work for the business – Virgin Records, it was called – over the summer, at a wage of £10 a week. When the autumn came, he would go back to school to start his A-levels. But he would come down to Albion Street every day after school at 5 PM, and work four hours for £1, of which six shillings would have to be spent in tube fares. Once the arrangements had been made, however, Lewis saw little more of Richard Branson. It was Nik Powell – the scruffy character who had opened the door, the junior member of the partnership – to whom he would report from day to day. To his relief, Steve Lewis found Powell increasingly friendly, and came to appreciate his idealism, his warmth and his dry wit.

The mail-order record business that began in 1969 was Richard Branson’s first real commercial venture. But it was by no means the activity that he had intended to pursue. He had planned to start a national student magazine, and had first worked on it from the basement of a house belonging to the parents of a friend before moving his centre of operations to his parents’ pied-à-terre in Albion Street, near Paddington Station. The house had been taken by Branson’s parents on a short lease from the Church Commissioners for occasional nights in London, and he had been allowed to use part of it.

Student was an organizational, artistic and literary success. Its list of contributors and interview subjects read like a Who’s Who of the counter-culture 1960s. John Le Carré, the diplomat-turned-spy writer whose novel The Spy Who Came in from the Cold had established him a powerful reputation, had provided a short story. There were articles about Vanessa Redgrave, the revolutionary actress; David Hockney, the fashionable pop artist; and Henry Moore, the sculptor. James Baldwin, an American novelist who was exploring the uncomfortable themes of homosexuality and race, appeared in print next to an extract from a notorious speech by Enoch Powell, a coldly brilliant classical scholar who had predicted a year earlier in Parliament that racial tension caused by immigration would make Britain run with ‘rivers of blood’. Other names to be found in the magazine’s pages were Alice Walker, Jean-Paul Sartre and Stephen Spender. Letters of support had been solicited from everyone from Peter Sellers to Lyndon B. Johnson, the President of the United States.

Richard Branson was not only the magazine’s founder but also its editor-in-chief, interviewer-at-large, production manager and advertising director. With equal confidence, he telephoned famous people to ask for articles and businessmen to ask for advertisements. He boasted of the magazine’s success to visiting newspaper journalists, but pleaded failure when there were printers’ bills to pay. He had even once been promised a recording by John Lennon, to be distributed free as a plastic 45rpm single on the magazine’s front cover.

When the Beatles’ publicity man failed to honour his promise, the nineteen-year-old Branson had issued his very first writ – though Lennon had the last laugh by producing as his promised recording a tape-recording of the heartbeat of Yoko Ono’s dying baby.

Despite these achievements, Student never made money. Not even Richard Branson’s energy could produce new issues with the regularity that a proper magazine would have demanded. So the diversion of selling records by mail-order was something of a relief. What turned out to be the last edition of Student contained the first advertisement for Virgin Records – and by the time Steve Lewis appeared on the scene, there was little doubt about which venture would flourish and which would founder. The piles of undistributed magazines in the hall of 44 Albion Street, and the desperate attempts to find teenagers willing to break the by-laws by selling them in Hyde Park, were eloquent testimony to the greater commercial attraction of selling records.

It was no coincidence that Branson was the senior partner and Powell the junior. Richard Branson’s air of confident assurance made him a natural leader. Had he not suffered a torn ligament on the football field, he might have been the sort of schoolboy who was captain of every sports team. As it was, he seemed by the age of nineteen to be more mature than the other inhabitants of the Albion Street house, from some of whom he collected a weekly rent of up to £10. Anyone who wanted to could hear the story about how he had lost his virginity at the age of fourteen to the daughter of his cram-school headmaster – and how, when he had been caught clambering through a lavatory window, he had faked a suicide attempt in order to avoid being expelled by his paramour’s irate father.

The real story of Branson’s first experience of sex was told less often, but was perhaps more revealing. His father, a typical product of public school, the upper middle class and the British army, had taken Branson to Soho one evening and arranged a ten-minute assignation for his son with a backstreet prostitute, while he waited dutifully downstairs.

Richard Branson’s father Edward came from a distinguished county family. The family expectation had been that Edward Branson would follow his own father and grandfather before him into the law. But Edward had failed his Common Entrance exam, and instead of going to Eton had been sent to a very minor public school in Yorkshire. His stock had risen in value during the Second World War, when he served in the cavalry in Palestine, in tanks in the desert, and on the general staff in Germany. Once demobilized, however, the dashing Major Branson had been less fortunate when facing the cold realities of civilian life in late 1940s Britain. He studied to become a barrister, but failed to pass his exams.

Edward’s father, Sir George Branson, who had received his knighthood as the traditional reward given to a High Court judge, was not amused at his son’s apparent inability to measure up to the family’s intellectual standards. His irritation was compounded by Edward’s announcement that he had decided to marry a girl by the name of Evette Huntley-Flindt. Self-possessed, slim, beautiful and blue-eyed, Eve came from a respectable stockbroking background. But there were questions to be answered. Her father had retired to farm chickens in Devon; and Eve herself had worked as a dancer, an actress, and an air stewardess, serving drinks on the route between London and South America. Why, Sir George and his lady wanted to know, were Ted and Eve so keen to marry so quickly? After all, the two had only just met at a cocktail party; surely it would be prudent to wait a little.

The couple married on 14 October 1949. Eve gave birth to her first child, Richard Charles Nicholas Branson, on 18 July 1950 – precisely nine months and four days after the marriage. The child was born, according to his mother’s account, three weeks overdue. By the time Richard arrived, his father had qualified as a barrister; and he had settled with his wife in a picturesque village called Shamley Green, deep in the Surrey stockbroker belt in which people of their class and upbringing felt at home. But there was little money about – and the only home they could afford was Easteds, a condemned cottage which a ‘dear old lady’ was willing to let Eve Branson have for twelve shillings a week.

Richard inherited his easy charm, and his eye for a pretty woman, from his father. From his mother he inherited parsimony, enthusiasm, daring, an aptitude for sport, and a hyperactive tendency to pursue one madcap scheme after another until something succeeded. During Richard’s childhood, Ted Branson would go dutifully to his London chambers by motorcycle every morning, picking up here and there the ‘three-guinea briefs’, often paid six months after the conclusion of the case, that were the sole means of support of a young and financially straitened criminal barrister. Meanwhile, Eve had gone into business at home with a helper in a little hut in the back garden, making and spray-painting objets d’art and ‘fancy goods’ – table mats, trays, tissue-box covers, decorative waste-paper baskets. At first her products were sold to local shops and taken up to Harrods in London. As the business grew larger, however, Eve would travel to fancy goods fairs in Blackpool or Bournemouth – on one occasion slipping three discs in her back when she picked up a heavy box and sneezed at the same time. Although he was willing to allow his wife to help support the family, Ted was in other respects an old-fashioned father. Only once did Eve venture to leave him with the baby; when she returned, Ted was at the window with the squalling Richard under one arm, and helplessly waving a nappy with his other hand. It was financial necessity that first prompted the couple to think of sending the young Richard to board at Scaitcliffe Preparatory School on the borders of Windsor Great Park; the school was run by a cousin of Ted’s, who might have looked upon an occasional delay in paying the fees with more sympathy than a stranger.

As Richard grew up, his parents’ finances became more comfortable. The owner of the cottage died, and generously stipulated in her will that the cottage should be offered to the Branson family for sale. ‘As the people came from Somerset,’ recalled Eve bluntly, ‘the solicitors didn’t know the value. We got that quite cheaply.’ The family was later able to sell Easteds at a substantial profit, and to invest the proceeds in Tanyard Farm, a sixteenth-century farmhouse with its own orchard, dovecote and swimming-pool, on the other side of Shamley Green. But Richard had already learned from his mother. As a child, he pursued a number of unsuccessful moneymaking schemes, from growing Christmas trees to breeding budgerigars.

Eve had few expectations of Lindi and Vanessa, Richard’s two younger sisters, other than that they should grow up healthy, happy and charming. But she had grand ideas for Richard, taking it almost for granted that he would some day become prime minister. ‘I always aimed terribly high,’ she remembered. ‘You’ve got to get to the top. Nothing but the top was good enough.’ There was only one difficulty. Richard showed little more aptitude for scholarship than his father had. He had scraped into Stowe only after his worried parents sent him to a crammer; once at public school, he had shown more interest in cricket than in Latin. He passed O-levels in scripture, English language, English literature, French, history and ancient history; but he failed elementary mathematics three times. By the age of seventeen, he was pressing his parents to move him from Stowe to a more ‘useful’ technical college. It soon became clear from the draft letters that he sent his father, urging him to copy them out in his own hand and send them back to the school, that Richard Branson had had enough of education. He saw no reason to take the regulation three A levels. He did not want to go to university. What he wanted to do was to work.

Steve Lewis did not have to spend long at Albion Street before he realized that the house was being used by Richard Branson as the centre not just for the mail-order record business and the magazine, but for two other activities as well. One was the Students’ Advisory Centre, a voluntary organization set up by Branson to help answer teenagers’ problems; the other was an employment agency which sought to match underemployed nurses with London families who wanted cleaners or babysitters. In his capacity as Angie, Lewis might therefore spend half his day chasing up obscure records to satisfy an order from a foreign collector. For the other half, he would be administering pregnancy tests to visiting teenage girls – reminding them to urinate in a bottle that was clean and had been rinsed very thoroughly to remove the last traces of soap – or referring worried young men with spots on their genitals to the relevant clinic at the nearby St Mary’s Hospital.

The employment agency for nurses was a short-lived venture. Branson saw a business opportunity to capitalize on the public sympathy for the low pay of nurses; he contacted the Daily Sketch, which had been running a campaign to raise nurses’ wages, and gave them an account of his plan with a philanthropic spin DICK STARTS BABY-SIT PLAN TO HELP NURSES, read the paper’s banner headline. The ‘strap-line’ above was more specific: ‘Now a barrister’s son joins battle for underpaid mercy girls’. In the article, Branson provided a plausible rebuttal to complaints by a nursing association that nurses who took in extra work would be too tired to do their normal hospital duties. ‘Most of the nurses sit in front of a television at nights, watching babies, and are paid five shillings to seven and sixpence an hour for four hours.’ The article described him helpfully as ‘founder-editor’ of Student magazine, and reported (without appearing to have taken any steps to verify the facts) his claim that Albion Street was getting calls ‘every thirty seconds’ for nurses to help out. In fact, the agency was far more casual and sporadic than the article suggested, especially since local families preferred to employ the same person to look after their children regularly than to invite into their houses an unknown member of an employment pool. But the coverage, which obviated the need to advertise for nurses, was an early example of Branson’s ability to use the press to get his message across.

It was personal experience that had prompted Branson to set up the Students’ Advisory Centre. According to the romantic account given to the Sun by the ‘brilliant young editor’, he had at the age of seventeen ‘met a girl, made her pregnant, then spent three months of hell not knowing what to do or where to go … Together, they set up an advice centre for young people.’

The Centre’s most controversial activity was probably its discreet system of referring pregnant women to sympathetic doctors for abortions. But it was to be something far more mundane that brought it notoriety. Among the ills which the Centre’s leaflets advertised help in curing was a reference to venereal disease’. In early 1970, the police told Branson that he was breaking the law by using the word venereal’, and ordered him to remove it from his leaflets. When the young entrepreneur refused, he was promptly arrested and charged with two offences, one under the Venereal Diseases Act (1917), and the other under the Indecent Advertisements Act (1889). John Mortimer, a rising barrister who was later to achieve fame as a writer and playwright, offered to defend Branson at no charge. Despite Mortimer’s eloquent denunciation of the archaic legislation that made it a crime to use a word that was in any case a euphemism, Branson was fined £7. But he won the wider argument; soon afterwards, the Venereal Diseases Act was repealed. The Students’ Advisory Centre continues, with Branson’s financial support, to give advice on venereal diseases to this day – though today they are known as ‘sexually transmitted diseases’, and the centre, based in Portobello Road, has changed its name to Help.

Lewis was happy with his work for the employment agency and the advisory service, but his work as Angie gave him cause for disquiet. The preprinted reply forms sent back to customers ended with the valediction ‘Love and peace, Angie’ – and some record buyers got the wrong end of the stick. It was not long before lovesick male students began writing to Lewis under his female pseudonym; when one said that he was coming to London and wanted to visit Angie in Albion Street, Lewis took fright. In future, his style of correspondence would be a little less friendly.

There was anyway little choice. While the other activities of the Albion Street gang withered, the record mail-order business, and hence Lewis’s workload, continued to expand. When Lewis went into hospital with suspected meningitis, Nik Powell brought round the sack of correspondence for him to deal with in his bed. Thereafter, he would do most of his work at home, picking up the letters once a week. Lewis also became the compiler of the Virgin Records sale list, and as such the company’s informal arbiter of musical taste.

Whatever arguments Richard Branson might offer, however, Steve Lewis had no intention of giving up the chance to go to university. The concession he was willing to make to Virgin was to apply to Brunel, in Uxbridge to the west of London, instead of to Manchester, so that he could be closer to Albion Street. Over the three years he spent at Brunel, Lewis was to combine his academic studies and his progression in the business with great success. By his last year, when Lewis was ready to think about working for Virgin full-time, he was the only student at the university who already had a company car. There was undoubtedly something reassuring about working at Virgin. All the senior staff drew the same £50 a week, and all of them drove Volvos. In those days, the Swedish marque had no connotation of suburban solidity; rather, its image was raffish and slightly exotic – just like the company itself. It was only later, however, that Lewis began to reflect on the fact that although he and the other senior Virgin staff had the right to drive the Volvos, it was Richard Branson and his partner Nik Powell who owned them.

But Branson had bigger things on his mind. If he could profit from selling records, why should he not also profit from making them? The idea of opening a recording studio was put in Branson’s mind by Newman, a guitarist and songwriter who had worked in Albion Street and had dabbled in amateur recording for a while. Once the record shops began to make money, it became a serious possibility. Newman was therefore duly sent off to buy some professional studio equipment. There was just one difficulty: the eight-track system he acquired was too large to fit in the crypt beneath the church across the road from the Albion Street house where the studio was to be installed. Another place would have to be found – and with London property prices what they were, it might as well be in the country.

Scouring the pages of Country Life, the glossy magazine of choice for those who wish to buy manor houses and estates, the two men made appointments to look at a number of possibilities between London and Wales, all of which proved disappointing on closer inspection. It was almost by chance that they dropped in at a seventeenth-century manor house at Shipton, a village on the Cherwell river twenty miles from Oxford. They arrived as the sun was setting, vaulted over the garden wall, and inspected the ruined mediaeval cloisters attached to the main Cotswold stone building.

On 11 January 1971, Steve Lewis discovered a kindred spirit. A fresh-faced young South African turned up at South Wharf Road, the new location of the Virgin offices, and announced himself as Richard Branson’s cousin. Simon Draper had finished studying literature at a South African university, and had nine months to kill. London, as the centre of the musical world that absorbed all his energy and money, was a magnet to which Draper had been attracted in his search for an interesting job. He had heard through his uncle, who was Ted Branson’s half-brother, that Richard was a fellow who couldn’t pass his exams. Then Draper saw a copy of Student, and was impressed; and saw a Virgin mail-order advertisement in Melody Maker, and was enthused. He knew nothing whatever about business, but Simon Draper had pronounced tastes in music. Working with his young English cousin, he decided, might not be so bad after all.

Encouraged to confide in Draper by the family connection, Branson revealed to him over lunch that the Virgin empire was soon to become a great deal larger. A postal strike was threatened, which would if it took place immediately starve Branson of his mail-order financial lifeline. So Virgin would open a record shop as a substitute. But that was by no means the only plan up Branson’s sleeve. He had already planned a fully fledged music empire, encompassing not only retailing but also an artistic agency, a chain of recording studios, a management company, a music publishing business – and a record label, for which a logo had already been designed. ‘You can start my label,’ said Branson.

Draper was at first tempted to be dismissive. The empire by the end of January 1971 would consist of a small and rather shabby shop in an upstairs room in Oxford Street, and a mail-order firm that was doing no business. His cousin’s ambitions seemed a little fanciful, to say the least. But Draper’s interest was tickled; he liked the look of the group of new friends whom he would meet if he came to South Wharf Road; and he loved the idea of turning the music that was his life’s great enthusiasm into a way of making a living. He agreed to start the following day, but refused to commit himself on how long he would stay. It would never have crossed Simon Draper’s mind that he would work for Richard Branson for more than twenty years.

Caroline Gold had required some persuading to work as Richard Branson’s secretary. At twenty-one, she was a year older than him when she answered the ad in the Evening Standard. She had been to art school, and was married; and she had not been at all sure after her interview with this ‘gauche, studenty type’ that this was the right job. The crypt in which Branson had his desk was dark and damp; and the salary, at £12 a week, was significantly less than the £20 that her talents might have commanded elsewhere. But she had accepted the offer – intending, with the blithe confidence of someone brought up in an era free of mass unemployment, to find something else if this job did not work out. But Branson’s mixture of simplicity and guile had charmed her, and the typing he had asked her to do on her first day at work was more interesting than she had expected. Instead of a stack of commercial correspondence about widgets and settlement dates, he dictated to her a string of letters to famous contributors to Student, thanking them for the articles they had sent in and apologizing for having been unable to use them. To her relief, she discovered that his dictation was so hesitant that she had no difficulty keeping up with shorthand. Then he took her across to the Albion Street house to meet the others. It was only when she knew and liked Richard Branson better, that Caroline Gold got around to wondering whether he had saved up some exciting letters just to impress her.

Branson surprised her with his ability to get things done. One example was the installation of new telephone lines when they were needed. In those days, ordering a new telephone was a major project that required correspondence with the General Post Office, and usually a delay of several months. But Richard Branson had found a shortcut. He had befriended a local telephone engineer, who made himself available around the clock to serve the needs of the growing business. Whether Branson paid anything for this service or not, Caroline Gold never discovered; but the middle-aged engineer once boasted to her that he was allowed to use Branson’s houseboat on the canal at Little Venice for secret assignations with the women with whom he had affairs. He once approached her with the news that Branson had been forced to turn him down because of a prior engagement, and asked whether he might borrow the next-door boat where Caroline lived with her husband Rob. The answer was a polite no.

Branson had an uncanny knack for negotiation. On one occasion, a man telephoned to offer the nascent mail-order firm a load of bootlegged, or illegally copied, Jimi Hendrix records. The caller was told to come around to the Virgin offices in South Wharf Road, where Mr Zimmerman would discuss the transaction with him. At ten o’clock the following morning a shifty-looking character appeared, and duly asked for Mr Zimmerman. Branson explained that Mr Zimmerman was just around the corner, and would arrive in a minute. An hour later, Branson explained to the waiting caller that Mr Zimmerman was around the corner at the Riviera Café, and suggested that he should go and meet him there. When the angry bootlegger returned at twelve, complaining that there had been no Mr Zimmerman at the Riviera even though he had waited at least half an hour, Branson looked at him innocently.

‘What did you want to see Mr Zimmerman about?’

The man opened the boot of his car, and replied that he was going to sell him some records.

Branson looked inside doubtfully. ‘How much did you agree to sell them for?’

The man replied that he wanted £1 each for them.

‘I’ll give you 50p apiece,’ said Branson. Within half an hour, the records had been stacked on the shelves inside South Wharf Road; within another few days, they had been sold by mail-order at £3 apiece to fans of Jimi Hendrix.

It was the purchase of the Manor, however, which made Caroline Gold and her husband realize that Branson was an entrepreneur whose powers of persuasion had to be taken seriously. He may have been only twenty-one at the time; he may have climbed over the wall of Shipton Manor with Tom Newman; but he was now beyond doubt the owner of a charming country house, complete with its own croquet lawn and swimming-pool. Including its attached cottages, the Manor had cost Branson £30,000. Some of that sum had been lent to the young entrepreneur by an aunt. The rest, however, came from Coutts Bank. Dressed in the pinstripe suit that Caroline Gold had taken him to buy, and in the black shoes with which she had advised him to replace his brown ones, Richard Branson had been given a mortgage of £22,500.

Soon after the purchase was complete, the sound of footsteps alerted Caroline and Rob Gold to the fact that they had a late-night visitor to their boat. It was Richard Branson, pale, shaken and extremely distressed, and he was in an appalling state. At first, he could say nothing but ‘Oh no, oh no.’ Only gradually did his story come out.

Rob Gold’s younger sister was married at the time to a man called Andy, who owned a Transit van. Branson had received an order to send some records to Belgium, and had asked Andy to deliver his consignment in his van. Somehow, in the course of the deliveries, the two men had discovered a loophole in the customs procedures at Dover. When you passed the customs post, your papers would be stamped so that you would be able to prove that the records had been exported and thus reclaim the purchase tax you had already paid on them. But there seemed to be no proper arrangements for checking the records, or for making sure that they really had been exported.

Here, surely, was an opportunity for a young businessman. Instead of exporting the records that your documents showed you were carrying, why couldn’t you fill in the paperwork and reclaim the tax as normal, but sell the ‘exported’ records in London and instead take to Belgium some old deleted records, picked up for a song from a company that was about to throw them away anyway? Come to think of it why bother to go to Belgium? The system at Dover seemed to be based entirely on trust; nobody was there to see if you simply drove around the docks and then came back to London without even getting on to the boat. Better still, there was no need even to go to the trouble of buying the old records; to a dozy Dover customs officer, a vanful of record sleeves with nothing in them would do just as well.

As Branson made trip after trip, revelling in the ease with which he was increasing the profits of his mail-order business, he never stopped to consider that the customs men might be less dim-witted than they seemed. But they were. The Transit van had been tailed; and the records he had been selling in London instead of exporting had been marked with an ‘E’ in fluorescent ink. An anonymous tip-off gave Branson a few hours in which to try to hide the evidence. But he was arrested at his houseboat, taken to Dover, and charged with producing fraudulent paperwork under the Customs & Excise Act 1952. The following morning, after a night in the cells, he was committed for trial. His mother, to whom the tearful Branson had relayed the news over the telephone the previous evening, came up by the morning train and offered the family house as surety for his £30,000 bail.

To his enormous relief, Branson discovered over the course of the coming three months that dealing with Her Majesty’s Customs & Excise was almost like a business negotiation. Although the maximum penalty for what he had done was two years’ imprisonment, the investigators seemed to have no special desire to send Branson to gaol. True to their occupations as taxmen, what they wanted instead was money. Before the case came to trial, therefore, Branson and the customs settled their little dispute as follows: he would make an immediate down payment of £15,000, and would then pay taxes, duties and charges to the tune of another £38,000 over the next three years. Given the size of Virgin at the time, these were daunting sums of money to find. But he would have no criminal record, and he was free to go back to his mail-order business.

When they heard the story on the night after Branson’s appearance in court at Dover, Caroline and Rob Gold were sympathetic. But they were hardly surprised. Some weeks earlier, Richard Branson had discovered that Caroline’s father, Francis Rodgers, was a shipping agent who had just set up a containerized freight business. He had approached the older man with a request for advice and for a place to store some records. Caroline was not present at the conversation. But Francis Rodgers left her in no doubt: he had smelt a rat, and wanted nothing at all to do with the scheme. The customs scam was no adolescent mistake, as the investigators might have inferred from Branson’s earnestness and youthful enthusiasm; it was a deliberate and quite knowing attempt to break the law and get away with it.

Luckily for Branson, his neighbours on the canal saw no reason to be judgemental on the matter. More luckily still, the Customs & Excise never found out about Branson’s approach to Francis Rodgers. By the time they had begun to investigate the customs fraud, Caroline Gold had already given up her job to have children. She was no longer an employee of Richard Branson’s, so nobody ever thought to interview her.


TWO (#ulink_42983798-66df-5b86-b1b2-91675a4b2ae5)

One Per Cent of Tubular Bells (#ulink_42983798-66df-5b86-b1b2-91675a4b2ae5)

‘NIK AND RICHARD,’ Simon Draper would later recall, ‘had no particular feel for the music business. They found themselves in it by accident. They were public-school boys who had dropped out of education.’

While the two budding entrepreneurs did what they were good at – Richard sweet-talking the press and striking daring deals, the more introverted Nik reading his management magazines and trying to think of ways that Virgin could cut costs – they needed some real musical expertise. Steve Lewis, for all his encyclopaedic knowledge of Motown, was at first only a part-timer, he was also still at school. Tony Mellor, a former trade union official, had been in charge of buying stock for the mail-order company and the shops; but he soon disappeared to America, never to be seen again. So there was a vacuum for Draper to step into. After Branson’s brush with the Customs, it had become clear that Branson’s plan to start the record label would have to wait a little. In the meantime, Simon Draper would become the company’s record buyer.

Over the next two years, Draper’s work gave him an invaluable insight into the sort of music that would sell. Although the record shops and the mail-order business were not profitable, they were a goldmine of information about the likely future habits of the record-buying public, for the tastes of the Virgin clientele were more adventurous than those of the average teenager. For instance, the mail-order company received a growing number of requests for records by an obscure German band called Tangerine Dream, which Draper fulfilled by finding out where the records were produced and then buying a job lot of them. So it required no great insight to see that the band might be worth trying to acquire for the new Virgin label. ‘When we signed Tangerine Dream in 1974,’ said Draper, ‘it looked like clever stuff. But we knew it was going to sell.’ It did – by the million.

The great coup of Virgin’s early years came via a different route. While the Manor was preparing for the first formal booking of its recording studio in 1971, an obscure band was allowed to come and rehearse there. During a quiet moment, one of its members produced from his pocket a demo tape that he had made and handed it over to Tom Newman, who was in charge of the studios. This was an occurrence that would become tiresomely familiar to anyone involved in the record business. But Newman listened to the tape, and he liked it; so did the other Virgin people he played it to. A few weeks later, he came back to the guitarist and told him that he should try and get a recording contract.

Simon Draper heard the tape later that year, by which time the young guitarist had been turned down by almost every record company in London, and pronounced it ‘incredible’. He took a copy home to his flat, and played it time and again to anyone who would listen to it. The recording elicited an extraordinary reaction. When Virgin Records was ready to start its label, Draper decided, he would tell Richard to sign up Mike Oldfield.

Oldfield was an unlikely pop star. Son of an Essex doctor, born in Reading, he had an unhappy childhood; his mother drank too much and was prone to roller-coaster changes of mood. By the end of his teens, it was clear that Mike, too, was unable to face life as an independent adult. He was painfully shy, and was as lacking in self-confidence as Richard Branson was full of it. Women were attracted to him, not so much for the physical charms of his underdeveloped body and adolescent beard as for his air of vulnerability and for his bouts of depression from which only constant reassurance and attention could redeem him. Yet Oldfield was by no means an inadequate musician. He had been playing guitar professionally for five years, and had made two albums with the Whole World, Kevin Ayers’s group. He had made the demo tape that he had given to Tom Newman entirely on his own, working painstakingly at home on a battered Akai tape-recorder that Ayers had lent him.

Oldfield arrived at the Manor at Draper’s instigation, and spent a week in the recording studio there without even having a written agreement with the Virgin record label. In the event, there was no hurry; it was to take months of work before the album was ready. Oldfield played more than twenty different instruments, laying each performance down on the tape on top of the mixture that was already there. This procedure, known as ‘overdubbing’, allowed him to build up a full-length instrumental album with only incidental help from others. It was a challenging use of the state-of-the-art recording equipment that Branson and Newman had agreed to buy. The machinery stood up to the punishment, but the tape did not. After being passed across the heads thousands of times, the master tape of Tubular Bells came dangerously close to wearing out. For Oldfield was not content to remake what was already on his demo tape, and to finish off the as yet uncomposed second half of the record. He wanted to polish and repolish; hence the weeks of work.

Richard Branson had been to a trade fair in the meantime, and had been warned that it would be commercial suicide to publish a record without any lyrics. Once persuaded, however, he set to work with gusto. By the time the album was complete, Branson had managed to learn a little about music industry contracts. He had asked Rob Gold, his houseboat neighbour, to explain to him how record companies worked – and the obliging Gold had put down the basics on a single sheet of yellow foolscap paper. ‘He hardly knew what a record was,’ Gold recalled. ‘I told him that you go to a distributor to distribute your records, and that you get more if you’re a production company that makes its own records. Your percentage is higher if you do your own marketing.’ Crucially, Gold also told Branson what sort of figures he should be aiming at.

The deal that Branson struck with Oldfield was a standard record industry contract of the time. In fact, it was copied directly from an Island Records contract that Branson was given a copy of. Oldfield would give Virgin worldwide rights to Tubular Bells and to a fixed number of albums that he would make after that. In return, he would be paid a flat-rate royalty of five per cent of sales (but not on samples or records returned by retailers). He would also receive the equivalent of an annual salary of £1,000 a year, though this would be deducted from any future royalties he might earn.

This deal was no less attractive than the deals which hundreds of other aspiring rock stars had received; in fact it was more attractive, since Oldfield had failed to find a recording contract with a number of other labels before coming back to Virgin. But the seeds of ill-will were laid in that agreement. Oldfield had signed at the kitchen table of the Manor, negotiating directly with Branson. More important, the albums he was contracted to produce could easily be ten years’ work; they would certainly tie him to Virgin for a period of time that was longer than the entire creative career of most rock musicians. And Richard Branson, the man with whom he would have to negotiate future changes to these arrangements, had become Oldfield’s manager.

Branson’s next job was to find a way of distributing Tubular Bells. Island Records, Britain’s leading independent record label at the time, offered to license it from Virgin in return for a royalty. Branson refused: remembering the advice he had received from Rob Gold, he suggested instead that Island should do no more than press and distribute (P&D) the record on Virgin’s behalf. David Betteridge, Island’s managing director, told Branson he was mad. If it accepted a straightforward licensing deal, Virgin would be able to hand Tubular Bells over to Island and forget about it, but still pocket the difference between the royalty it was paying Oldfield and the much higher royalty it received from Island. By insisting on a P&D deal, Virgin would miss out on an advance from Island, and would itself have to carry the risk of financial failure. In any case, said Betteridge, Island did not do P&D deals; the other small companies for whom it distributed records were signed up on a full licensee basis. But Branson was adamant. In the end he got what he wanted.

Tubular Bells was released in May 1973 along with the three other albums that made up the beginning of the Virgin Records list. But it was on Oldfield’s work that Virgin concentrated its attention, and where Branson’s salesmanship came into its own. Having had the nerve to telephone businessmen he had never met before to ask them for advertising for a student magazine, the young entrepreneur had no hesitation in making a nuisance of himself in the offices of radio stations and music papers and magazines, trying to get air time or publicity for his new Oldfield album.

At first, the job of selling the record seemed daunting: albums were supposed to be made up of a dozen or so three-minute songs, not of two long continuous instrumental compositions. But once the record had received the honour of being broadcast in its entirety on BBC Radio One by John Peel – a disc jockey of undisputed authority and street credibility – its future was assured. Within a matter of weeks, it was the number one selling album in the British pop charts. Within a few weeks more, Branson had flown to the United States, and sold a package of the four inaugural Virgin albums to Atlantic Records for three-quarters of a million dollars. Ahmet Ertegun, Atlantic’s chief executive, sold Oldfield’s record in turn to the makers of a new film who were looking for a soundtrack. The Exorcist, as the film was called, became a hit in America; so did Tubular Bells. It reached third place in the US charts.

That single album, and to a lesser extent the Tangerine Dream LP Phaedra released the following year, put Virgin on the map. It also unleashed a torrent of money into the company’s bank accounts. The £38,000 that Branson had to finish paying to the Customs, and the continuing dribble of losses from the shops and the mail-order business, suddenly came to seem insignificant. Virgin Records was in business as an independent label; and Simon Draper now had enough money to sign the bands that he wanted.

In July 1972, four days after his twenty-second birthday and while Virgin Records was preparing its first albums for release, Richard Branson married. His bride was Kristen Tomassi, a tall, slim blonde New Yorker who had come to the Manor a year earlier on the arm of an Australian boyfriend. Branson, struck instantly by her high-cheeked, almost Scandinavian good looks and by his discovery that her sense of fun matched his, decided instantly to make her his own. Like him, Kristen loved friends, practical jokes, convivial evenings with a bottle of wine and a joint or two, and sports. But she was still a student when she visited the Manor, and had been intending to go back to the university architecture course from which she had been taking a summer break.

Branson won her with the same impulsive daring that had already helped him to start a magazine and a mail-order business. On the day that her two-week holiday in England was over, Kristen received a telegram, A BOAT IS SINKING, it said, and asked her to ring a telephone number. Kristen rang him from a call box to thank him for the telegram, but insisted that she was going to leave all the same. When she went back to her packing, she was met by a friend of Branson’s who had come around, on his orders, to take her baggage around to the houseboat. She followed in a taxi, to find Branson and Powell deep in a business discussion. Branson opened her case, upended it on the floor, and confined talking to Nik Powell as if this were the most natural thing in the world.

After a few weeks, Kristen began to fret about her half-finished architecture course, and (though she did not tell him this) the live-in boyfriend that she had left in America.

‘You don’t need to go to architecture school,’ said Branson, with the unshakeable confidence of someone who knew that university could not have taught him anything he did not already know. ‘You can do the architectural work on the Manor.’ Before the summer was out, Kristen therefore found herself making regular visits to the Phillips auction rooms in nearby Bayswater, buying up huge pieces of cheap antique furniture for the Manor. Her best find was a second-hand billiard table, which cost £50 and required six people to manoeuvre it into position in the old house.

She soon found her own individuality being subsumed into a set of shared concerns about the business. Every aspect of Branson’s life – from his dealings with colleagues at Virgin to his negotiations with the Inland Revenue – became part of hers. Kristen also found that she got on very well with Eve Branson, Richard’s mother. Like her own mother, the head of the Branson household would tolerate no laziness or newspaper reading on Sunday mornings. Instead, guests at the Surrey farmhouse were required to swim, play croquet or feed the pigeons. When Richard and Kristen went to stay at the family house before they were married, they were invited to join his parents in their bed in the morning for sausage and eggs and strong tea.

The wedding took place at the village church of Shipton, and the party followed immediately afterwards at the Manor. It was an odd occasion; Branson’s friends and colleagues dressed up in morning dress and grey top hats, their long hair splaying oddly from the sides. Branson’s bank manager from Coutts, a guest of special importance given the cash-flow requirements of the business, was first on the receiving line. Kristen’s father paid for the party.

When they returned to London after a suitably energetic holiday on a Greek island, Kristen began to prepare for the couple to move from the houseboat on the canal to a small terraced house in Denbigh Terrace, near Portobello Road. The bank manager justified his invitation to the wedding by providing them with a mortgage that allowed Branson to offer £80,000 for the house; in keeping with the gap between their means and aspirations, Kristen then devoted herself to decorating it in style on a shoestring, making the curtains herself and imbuing the house with a sense of style and proportion befitting a former architecture student. Their one extravagance was a huge, lavish sofa in which Branson would slump as he made endless telephone calls. Meanwhile, Kristen would cook – brilliantly, her friends told her – for the dinner parties whose frequency was matched only by the short notice at which she had to prepare them. In quieter moments, the two would stroll down to Holland Park and talk about their ambitions to live one day in one of the huge stucco houses there that were now so far beyond their financial reach.

As they settled into Denbigh Terrace, Kristen became used to seeing her husband deep in conversation at all hours with Nik Powell, Simon Draper and Ken Berry, a clerk whom Branson had plucked from the accounts department to become his personal assistant. It did not take her long to realize how important his work was to the man she had married. Any doubt that there might have been was dispelled by Branson’s impulsive decision to give Mike Oldfield the Bentley that he and Kristen had received as a wedding present from Ted and Eve. The splendid car was given to Oldfield as a reward for agreeing to perform Tubular Bells at a concert at the Queen Elizabeth Hall. Kristen was given strict orders not to tell her mother-in-law, for fear of hurting her feelings – and it was in fact long, long afterwards that Eve discovered what had happened.

Kristen’s first response to Branson’s devotion to business was to try to behave like him: to throw herself into design decisions about the Manor, or to rush to and from the Virgin Rags clothes shops that were opening up inside the record stores, trying to make some order of the chaos that was the mark of Virgin’s first and last venture into clothes retailing. She also worked hard as Branson’s back-up in mollycoddling Virgin artists – spending a number of days, for instance, cheering up Mike Oldfield at an isolated country cottage, and at one point arranging to return a Mercedes roadster that the pop star had bought on the spur of the moment and then decided a week later that he did not like. But soon Kristen tired of trying to compete with her husband, and began instead a crusade to attract his attention. But he did not take the hint – not even when Kristen sent him a poem about the fact that they always seemed to meet in the hall at Denbigh Terrace, when Branson was rushing busily to his next oh-so-important meeting.

Kristen would afterwards declare that her decision to start sleeping with other people was a reaction to the fact that Richard had let his work get out of control. It was not a question of being unfaithful; even if she spent the entire night away from home, she never sought to be secretive about what she was doing. More, it was a cry for help. ‘I wanted some private life for us, that’s all I wanted,’ she remembered. ‘I just wanted half an hour a day.’ Branson, meanwhile, suggested that the couple should have children. His wife could not resist responding with sarcasm, asking him how he intended to fit in another obligation into a life which left little enough room for her as it was.

Matters came to a head when Branson asked Kristen to help him entertain a rock star whom he wanted to sign to the record label. The artist’s name was Kevin Ayers; it was he who had lent Mike Oldfield the tape machine on which he recorded his demo of Tubular Bells. He was older than Branson and Kristen, and he had all of her husband’s self-assurance without the naivety. The couple went to meet Ayers and his woman friend at the shop in Notting Hill Gate, drove the pair down the motorway to see the Manor, and then brought them back to the houseboat in the evening for dinner. Kristen cooked lobster while Richard told the jokes. Everyone drank too much; Ayers produced some cocaine, which the inexperienced Branson sniffed with him for the first time in his life – and the evening ended with Kristen in the arms of Kevin Ayers. She later claimed that Branson sought consolation from the woman that Ayers had brought with him; Branson denied that this was the case.

Although the spark of mutual attraction between his wife and Ayers was evident the following morning even to Branson, the marriage did not end immediately. Ayers pursued Kristen with flowers, presents, letters and telegrams. She went to Australia for a while to get away from everything and think, but Ayers found her there. She went to live with him briefly in France, returned to England for an attempted reconciliation with Branson – and then left again, this time for good. On the day she left, Branson was on the telephone at Denbigh Terrace, engrossed in a long negotiation to sign the Boomtown Rats to Virgin Records. The echo of his voice, raising the offer minute by minute, resounded in her ears as she slammed the door of the house for the last time. Months later, when she was living in a house in France without electricity and utterly cut off from the outside world, Kristen would imagine as she walked in the fields that she could hear the sound of the ringing telephone that had helped to destroy her life with Richard Branson. What almost broke her heart was the fact that Branson later offered to change his entire life in order to bring her back. He was willing to give up work, go and live in the country, make another life – and he told her so in letter after pleading letter. But it was too late. They divorced, citing Kevin Ayers as the co-respondent.

The irony was that Kristen’s relationship with Kevin Ayers was doomed not to last. After bearing his baby, she began to feel that he had laid siege to her mostly because it was a challenge to steal from Richard Branson his most prized possession. She was only to find happiness in marriage many years later. But as the wounds healed, Branson and his former wife were able to restore some of the old brother-sister relationship that they had had in the earliest days. Kristen and her German husband Axel Ball would be invited to spend holidays with their family on Branson’s private island. By the end of the 1980s, the two families were even in business together: Branson bought a controlling interest in a luxury hotel that they had opened in Majorca, and a new hotel was being planned in Hydra for which Kristen and her second husband would provide the architectural and managerial talent, and her first husband the money.

A matter of months after Richard Branson married Kristen Tomassi, his business partner Nik Powell married Kristen’s younger sister Merrill. A matter of months after the failure of Richard and Kristen’s marriage, the marriage of Nik and Merrill failed also.

But the twin marriages, at which Richard and Nik served as each other’s best man, said as much about the two founders of Virgin as about their wives. Nicholas Powell had been Branson’s earliest real friend; they had met at the local private school at Shamley Green at the age of four. They were, as the closest of friends can sometimes be, almost opposites. Richard was fair-haired, gregarious and rudely healthy. Nik was dark, shy and epileptic. Richard was an indifferent student; Nik was more academic. When Richard went to Stowe, whose foundation in 1923 made it a parvenu among public schools, Nik was sent north to Yorkshire to be educated in the gloomy tradition of Ampleforth College, founded by Benedictine monks before the Reformation. Richard was the leader, Nik the follower; it was not clear who needed whom more.

Powell had lived at Albion Street in the gap between school and university, and had helped out on Student. But it was only when he gave up his place at Sussex, returning to London to become Branson’s partner in the mail-order business, that the structure of their relationship was formalized in a business agreement. Powell was given 40 per cent of Virgin. As the venture grew, the two slipped into complementary roles. Powell would produce financial figures for the bank; Branson would take the figures to the meeting and persuade the bank manager to lend another few tens of thousands of pounds. Branson would decide suddenly that Virgin needed to open more record shops, and would galvanize everyone with the enthusiasm necessary to get the job done swiftly; Powell would do the stocktaking. Branson would rush off on one implausible scheme after another; Powell would provide the voice, sometimes gentle and sometimes not so gentle, telling him not to be such a damned fool. It was Branson whose gusto for life persuaded people that working for Virgin would be fun; it was Powell who stopped the biscuits in the coffee cupboard when times became hard. One did not need to know about the 60–40 split to know which was the senior partner and which the junior.

But there were other junior partners, too, who were given shares in the businesses they worked for because Powell thought that equity was the best possible incentive for hard work. One was Simon Draper, who was given a 20 per cent stake in the record company. Another was Tom Newman, who had 20 per cent of the studio business. A third was Steve Lewis, who received 20 per cent of Virgin’s management company. In common with the share split between Branson and Powell, these minority holdings were not negotiated. None of the three was asked to pay a penny for their shareholdings, nor to accept any financial risk on their own heads. Branson was prepared to take all the risks and to find all the money; the shareholdings were simply a reward, an expression of confidence in the future and a gesture of thanks for useful advice already given and work already done.

At first, this approach threw up no problems. In common with almost everybody else working for Virgin, Draper, Lewis and Newman were not much bothered by money. They were young and without responsibilities. Their salaries were perfectly adequate to cover the cost of renting a flat in London, going out for meals with friends, buying tickets to the movies, and, if they wished, smoking the occasional joint. Many of their living costs were paid by the company in any case. At the big communal dinners they all went out to, Richard would slip away and pay the bill before anyone had even noticed that he had gone. The fleet of company Volvos provided free transport for the trusted insiders. Perhaps most important of all, all three of the minority shareholders were doing what they wanted to do. Music was the passion of their lives; to be able to spend their days doing something they enjoyed, when many of their contemporaries were dressing up in drab suits and doing dull jobs in old-fashioned offices, seemed the greatest privilege of all. Who would be ungracious enough to start quibbling about equity?

Simon Draper was the first. In 1975 he went back to South Africa for a holiday and had a long chat about his work at Virgin with his older brother. He explained the way Virgin was structured. There was a holding company at the top, of which Branson owned 60 per cent and Powell 40. That company did business through a number of subsidiaries that it owned, covering records, studios, retail, mail-order and management. When someone at Virgin had been given a minority shareholding, it was always a shareholding in the subsidiary company. So Branson and Powell together owned 80 per cent of the subsidiary, and the rest belonged to the individual minority shareholder.

Draper’s brother told him that since Virgin’s shares were not quoted on any stock exchange, the value of a stake in the Virgin holding company was not clear until it was actually sold. But a minority shareholding in one of the subsidiary companies – which was what Draper himself possessed – was worse still; it was fundamentally unsafe. There was simply too much scope for Branson and Powell to change matters to their own advantage: if, for instance, they decided to dismiss Draper outright, he would be able to claim only the par value of his shares, not their real value as assets. Under company law, Draper’s 20 per cent of the record company was not a large enough stake to give him a veto over decisions that might become important later; and the presence of the holding company above it could allow profits from the record company to be used to finance other companies in the group. The advice from Older Brother was simple: Simon Draper should try to swap his stake in the record company for a stake in the holding company – and if that were not possible, he should at the very least obtain some safeguards to protect his position.

Branson and Powell would not agree to the first option. But Draper extracted from them an agreement on what he would be paid if he were ever to sell out his 20 per cent of the record company. He would still be required to offer Branson and Powell first refusal on his shares; but they would be obliged to buy him out not just at any arbitrarily agreed price, but at a ‘fair value’ or £100,000 – whichever was the less.

The matter became more complicated in the 1980s, because Draper saw the financial transactions between the record company and other group companies being arranged in such a way as to reduce the record company’s profits and liberate money for spending on the expansion of other companies in the group. Draper therefore insisted that the accounts should contain a note recording that for the purposes of valuing his shares, the record company’s profits should be considered higher.

Steve Lewis was less hard-nosed about the matter. His 20 per cent stake was in a management company, whose job was to represent musicians, extracting the best possible terms from record companies and music publishing companies, in return for a commission on the musicians’ earnings. Elsewhere in the music business, the relationship between managers and record companies was seen as inevitably hostile – for although a good manager could provide good ideas to promote a musician, and could smooth the dealings between the two sides, the unalterable fact was that it was in the manager’s interest to extract for his client as attractive terms as possible from the record company, and in the record company’s interest to resist.

At Virgin, however, Steve Lewis was expected to represent musicians who were signed to the record label and the publishing company, while simultaneously answering to an employer who owned the record company. The financial arrangements were also unusual. Most managers demand an advance for their client from the record company, and use it to pay wages to the band after extracting their own commission (usually 20 per cent). At Virgin, however, the management company that Lewis ran borrowed money from the record company, using that money to pay salaries to the musicians it represented. Matters were not helped by the fact that the management side was less successful than the record business itself. But the unusual relationship between the management company and the rest of the empire helped to make sure that the management company of which Steve Lewis owned 20 per cent never made any money. Four years after he had been given his shareholding, Lewis realized that it was not worth anything. The firm was later closed down.

Tom Newman’s 20 per cent was in the studio business, which started at the Manor but soon encompassed a mobile studio and another site in London. He had never asked for a shareholding; Richard Branson had written him a letter, unprompted, offering him a stake in the studio business as a reward for the work he had done over the previous two years. Newman, who thought of himself as a songwriter, singer and guitarist rather than as a businessman, was delighted. He had put huge efforts into installing the studio at the Manor and into helping Mike Oldfield make his bestselling album. Here, it seemed, was recognition from a grateful employer.

It was not until more than four years later, when he was sitting in a pub with another Virgin employee, that Newman heard a story that made his blood run cold. His drinking partner, who had been asked by Nik Powell to carry out one of the periodic reorganizations of the Virgin empire, reported to Newman that he had noticed that Newman’s shareholding was not in the main operating company that ran the studios, but in another company that was not trading at all.

The following day, Newman stormed into Branson’s office at South Wharf Road, and confronted him.

‘You bastard!’ he yelled. ‘The company’s worthless!’

Branson was taken aback. He began to mumble some answer, but Newman merely became more angry. After abusing his employer further, Newman walked out of the office and slammed the door. He left Virgin the same day, and resolved never to speak to Branson again. Newman’s hot temper gave Branson no chance to defend himself; more significantly, Branson claimed afterwards that Newman had never explained his grievance to him.

The irony was that Newman was quite mistaken in believing he had been betrayed over his shares. Had he toubled to check the accounts at Companies House, he would have discovered that Caroline Studios, the company of which he had owned 20 per cent, was still in operation as the trading company for the studios business. After the reason for his abrupt departure had become clear, Branson and Powell might easily have explained the situation and brought him back. But they saw Newman more as a musician than a business type; and they were beginning to realize the risks involved in giving employees subsidiary stakes in the companies.

‘My stupidity was such that instead of going straight to a lawyer, I was full of hurt pride. I thought Richard and I were partners; I was enjoying the situation,’ Newman recalled.

The gap in the management structure was filled promptly. Soon after Newman left, Branson appointed Phil Newell, who had formerly worked as the Manor’s maintenance engineer, to replace him.

Newman’s sense of outrage was compounded when he looked at the royalty statements he received from Virgin for Fine Old Tom, an album that he had made himself at the Manor. The record had taken three weeks to make, and Newman had arranged to do it at times when the studios were not needed by other artists. Yet his statement from Virgin after the record was released showed a deduction of £11,000 for the cost of studio time – a figure reflecting Simon Draper’s determination that studio time should be allocated to artists at its full price. But the album’s recording costs altogether were so high for this modest piece of work that it would inevitably take years for the royalties earned by his record to cover that deduction. ‘I’m not even sure that I came out positive in the end,’ Newman recalled.

It was only after Tom Newman had left Virgin that his friend Mike Oldfield began to look again at the contract he had signed with Richard Branson. Talking to other artists, Oldfield discovered that the five per cent royalty, standard though it had been at the time of signature, was by now hardly fitting to his enhanced status. Double that figure would have been more commensurate with how commercially important an artist he had become; and some artists in the same position might even have had the gall to demand a royalty of 17 or 20 per cent. Even the modest five per cent he was receiving, however, was not what it seemed, for Branson was deducting a fifth of it as commission for his services as Oldfield’s manager.

Oldfield telephoned Tom Newman one day, miserably depressed, and asked the former studio manager to come around to his house. When Newman arrived, he heard the whole story; and, to compound the dilemma, Oldfield also told him that he felt in a weak moral position to complain, since Branson had taken on Tubular Bells when almost every other record company in the country had turned it down. Newman reminded Oldfield abruptly that it was not only Branson who had shown faith in him. He had done the same himself; so had Simon Draper. Oldfield should not therefore consider the debt to Branson so great that it ruled out any change in their business dealings. In any case, his contract with Virgin was now up for negotiation. ‘If you don’t do it now,’ he said, ‘it’ll never happen.’

A few weeks later, Oldfield bit the bullet. He hired a new lawyer to renegotiate the terms of his contract with Virgin, and came out at a royalty rate of almost 12 per cent. As a gesture of thanks to the friend who had helped him summon up the courage to face Richard Branson across the table, Oldfield gave Tom Newman from that day onwards a share of his royalties equivalent to one percentage point. By 1994, more than twenty years after its first release, Tubular Bells was still selling so well that Newman’s one per cent brought in almost £10,000 a year. Had Oldfield dared to demand a higher royalty earlier on, however, he might have been well over £1m richer.


THREE (#ulink_7e6ad015-73f2-5f75-86e8-fe1a36c45305)

Broken Bottles (#ulink_7e6ad015-73f2-5f75-86e8-fe1a36c45305)

BY 1975, when Mike Oldfield’s third album reached number four in the charts, Virgin Records had become the hottest company to work for in the music business. In common with other small and avant-garde record labels, Virgin could claim to have ‘integrity’ in its choice of artists for its roster; like those of the giants of the industry, its choices seemed always to make money. There was only one other company that could make a similar claim: Island Records, the label founded by the Jamaican-born public schoolboy Chris Blackwell, which brought to stardom many of the world’s most famous Caribbean artists, most notably Bob Marley in 1972.

‘I was doctrinaire,’ remembered Simon Draper. ‘I wanted to sign original and worthwhile talent.’ His philosophy was that Virgin should be trying to produce great records that happened also to be commercially successful. This brought him into occasional conflict with Richard Branson, who was keen to sign musicians who would make money for him, but less interested in the sort of music they played. When faced with a potentially profitable addition to the roster that he knew would be unacceptable to the trend-setters of the industry and the music press, Draper had to explain to Branson why an act that might make money could nevertheless not be the sort of act that Virgin Records should sign.

Uncommercial it may have seemed; but this attitude helped to attract to Virgin, and to keep in its ranks, a group of young and fashionably talented employees. An extraordinary number of the company’s staff of the time recall that period as the most exciting of their working lives. One reason for this was that Virgin was willing to hire people who had enthusiasm and a love for music, but no formal experience in other record companies. Once inside, they would find themselves given important jobs to do – and left to get on with them. Unsupervised, they would put in long hours and great effort, and in the end would achieve far more than they had believed themselves capable of.

The days of equal pay for all at Virgin had long gone. Yet it was routine for members of the record company’s staff to turn down offers of double their current salaries or even more from other companies. There were few complaints about the cramped and unpleasant working conditions in the Vernon Yard offices to which the company had by now moved. Perhaps this was because life at Virgin was fun. Everyone seemed to be friends. And although people took their jobs seriously, they did so as they would take seriously a game of tennis that they passionately wanted to win, rather than as a career. Pensions were not a matter that was often discussed.

John Varnom served for a while as the public face of the company – writing its press releases, drafting its advertisements in Melody Maker, and answering questions from journalists. He set the tone by telling a series of whoppers to anyone who telephoned that were so outrageous that they were impossible to believe. Branson, meanwhile, indulged his love of practical jokes to the full; he had a brilliant knack for mimicking voices, and would often call his colleagues at the office and engage them in long, increasingly implausible conversations before they realized who was speaking.

But it was the company’s weekends abroad that did most to cement its team spirit. Starting on a Friday and ending on a Sunday night, the entire staff of the record company, publishing company and studio management team would decamp to a country house hotel. Attendance was in theory optional, but those who did not come were told jokingly that they were expected to spend the weekend working in the office. At the hotel, other record companies might fill the days with talk of sales targets or new products. At Virgin, business was banned. Instead, the guests would spend the weekend playing tennis or golf, swimming and sunning themselves, eating and drinking with great gusto, and taking a few drugs and sleeping with each other in the evenings.

Men who worked at Virgin looked back on those weekends as idyllic. The corporate women – who certainly had better opportunities to do well at Virgin than they would have had in other record companies – were a little more cynical. ‘Open marriages were fashionable,’ said one. ‘You were uncool if you didn’t have lots of partners. Men were getting what they’d always wanted, to get to screw lots of women apart from their wives. Women were getting screwed by lots of men, and were not very happy about it.’ But even those who disapproved of the weekend atmosphere conceded that they had thought of Virgin almost as a feminist company in the early days. It was only later that the cynical thought crossed their minds that Branson might actually have been so keen to employ women because they were cheaper than men and worked twice as hard. ‘It was manipulative, but with Richard it was instinctive,’ said another ex-employee of Branson’s uncanny ability to motivate people to work hard for him. ‘He had an instinctive way of handling people that got this reaction from them.’

The core element in Virgin’s successful mixture was the talent of Simon Draper. As an ‘A&R’ man, a specialist in artists and repertoire who decided which new acts the record company ought to sign, he was beyond compare. Draper seemed to have an uncanny touch for artists who were not yet famous but would soon become so; and it was on this touch that the Virgin Records empire was built. Branson never claimed to have any musical discernment; when he tried to hide his ignorance, the results were apt to be embarrassing. On one occasion, when Simon Draper was trying to sign Elvis Costello and the Attractions, Branson opened the conversation over a negotiating lunch on his boat by saying how much he had loved their last album. The band’s manager, who was intensely suspicious of Branson and was trying to persuade the band that it would be better to sign with a record company which made no pretence of being young and fashionable, saw his chance.

‘Name me your two favourite tracks,’ he said.

Branson was embarrassed to have his ignorance exposed, and stayed silent. Dessert was not served.

But there was more to Virgin’s success than Simon Draper’s ears. Only slightly less important was the quiet talent of Ken Berry, the clerk whom Branson had plucked from the accounts department above the Notting Hill Gate shop to sit in an office next to him at Vernon Yard. ‘Kenny’, as Draper and Branson called him, had won his promotion because Branson noticed that whenever he or Nik Powell telephoned the department for a piece of information, it was always Berry who provided the answer – and Berry’s answers were always right. A pattern soon emerged in which Draper would make the artistic decisions about which acts to sign, Branson would knock out the broad agreement in his office up a flight of spiral stairs from Draper; and then Berry would be left to tie up the details in a formal contract. Later on, as Branson was to withdraw from daily involvement in the label, it would be Berry himself who carried out the negotiations in all but the biggest deals.

In the mid-1970s, Virgin was just one of a number of fashionable independent labels that had succeeded in reaching the general record-buying public. It was still smaller than Island Records, and roughly the same size as companies such as Chrysalis and Charisma. Branson’s talent, without which Virgin might have stayed a small but politically correct name under the leadership of Simon Draper, was to put in place the policies that would turn Virgin into one of the ‘majors’.

His approach had two prongs. One was to take breathtaking risks that others shrank from. When Draper told him that the rock group 10cc were going to be big, for instance, Branson was willing to bet a huge sum on a group that would have sunk Virgin if its next record had not been a hit. The group had already had a couple of light but successful pop singles when Simon Draper was played a tape of The Original Soundtrack, their latest album. Branson flew to New York and struck a provision deal on American rights to the record with Ahmet Ertegun at Atlantic (who had bought the Tubular Bells package for $750,000).

In the event, the £350,000 offer that Branson then made for the group was insufficient; their manager, Harvey Lisberg, signed the group to a rival label while the two members who were most keen to sign with Virgin were on their way to a holiday in the Caribbean. But the story got around the British music business, and demonstrated just how serious a competitor Branson was. Richard Williams, who was Island’s A&R man at the time, was dumbstruck. ‘At Island, we weren’t dealing in big sums,’ he remembered. ‘We’d sign people for £20,000. I remember being in competition with Simon and Richard [for 10cc], and realizing that they were prepared to pay major-label money for this act. That was quite a shock: to realize that Richard, who was on a level with us and perhaps slightly junior, was prepared to compete with the EMIs and the Phonograms and the Warner Brothers.’ The point became still clearer a year later, when Branson just failed to sign the Rolling Stones for $3.5m.

But it was not only by offering larger sums than he could afford that Richard Branson succeeded in raising the profile of his record label. He also paid attention to an aspect of the business that most of the other British independents had neglected: foreign distribution. While A&M Records were modestly established in America, almost all Virgin’s other competitors were entirely domestic companies. When they had records to sell abroad, they relied on licensing deals. Branson was not happy with that idea. He knew that licensing a record to another record company overseas brought with it an advance, and required no managerial effort. But in the long term, a record company that relied on foreign licensees was putting itself in a similar position to the musician: instead of making the bulk of the profits on a successful record, it was taking only a modest commission.

Richard Branson therefore devoted much of his time from the end of the 1970s onwards to establishing a network of record companies across continental Europe. On every trip to France, Italy or Germany, he would have his eyes open not only for licensing deals, but for the key people whom he would be able to hire in future to run a Virgin company in that territory. At first it took time to win over Ken Berry and Simon Draper to the idea. But by the end of the decade, the structure was in place and the strategy was agreed. With Luigi Mantovani in Rome, Patrick Zelnik in Paris, and Udo Lange in Frankfurt, Virgin was now able to sign up artists and guarantee them not only good distribution in Britain, but also entry into the most important European markets. This made Virgin a more attractive business prospect to top-ranking musicians than the other independent labels. Despite the combined efforts of Branson, Draper and Berry, however, one thing was holding the record label back. Having failed to win 10cc, there was now no really exciting new act for Virgin to acquire. That was to change in 1977, when Richard Branson signed the Sex Pistols.

Malcolm McLaren, the eccentric and unstable talent who was responsible for the Sex Pistols, never liked Richard Branson. In fact that was an understatement; he hated him, with a loathing that was incomprehensible to others. Years after the Pistols had broken up, he would paint a series of fascinating but wildly improbably stream-of-consciousness pictures of his dealings with Virgin. The first concerned how he had taken his demo tape of the Pistols to Virgin’s offices in Vernon Yard early in 1976, and had rudely refused when Simon Draper suggested that he leave it for Branson to listen to. ‘No,’ said McLaren. ‘He either listens to it now or forget it.’

‘I didn’t trust Richard,’ said McLaren. ‘I looked into his eyes and didn’t even want to leave without my demo cassette with me. I was thinking: this is a guy who could bootleg me tomorrow morning and have it on a stall in the Portobello Road … I didn’t like the feel of the place. The chairs were so uncomfortable … I was asking for £15,000 for a couple of singles, and see how we go … I thought creative accountancy is definitely going to be a problem with this company.’

McLaren was by no means a professional manager. He had spent eight years at different art schools before opening a shop in the King’s Road selling rubber and leather bondage gear. His principal experience of the record business was of managing an unsuccessful New York rock group in 1974; and the package that he brought to Simon Draper that day in 1976 was hardly the sort to appeal to an A&R man known for the sensitivity of his ears.

The Sex Pistols were, to put it bluntly, a band of yobs. Their sole musical talent, Glen Matlock, had been dropped as bass guitarist in favour of the more startlingly thuggish Sid Vicious. Johnny Rotten, a misanthropic teenager whose complexion and posture had been ruined by a bout of childhood meningitis, was the lead singer. The prime talent for which the band’s other two members were famous, and which they had displayed to disastrous effect at pubs across London, was to belch, spit and swear at their audiences.

Simon Draper hated the music. ‘It was all style and all aggression,’ he recalled. ‘To me, coming from a musical perspective, it just seemed like a great big noise. I went to see them at the 100 Club. [When we] came back after the gig, it was very exciting. There was such an air; it was so aggressive.’ In the car on the way home, Draper commented that they couldn’t sing – and then remembered, with a sinking realization, that people had made the same complaint of Mick Jagger when they had first heard the Rolling Stones. One magazine had described Jagger’s voice as being like broken bottles. With the Pistols, however, the shards of glass was a literal rather than a metaphorical part of the act.

Rejected by Virgin, McLaren signed the band he was managing to EMI. Their first single, ‘Anarchy in the UK’, convinced Draper as soon as he heard it that he had been wrong. There was an energy and a directness in the Sex Pistols’ music that was lacking in any other pop music of the time. More importantly, the group were packaged brilliantly. Jamie Reid, an art school friend of McLaren’s, produced album-cover designs that were revolutionary in their mixture of passport-sized photographs and letters cut from tabloid newspapers, in the style of an anonymous letter.

McLaren himself, meanwhile, contrived a series of incidents that were designed in equal measure to offend the old and the middle class, and to attract the young, disgruntled and unemployed. The greatest of them was to have the Pistols invited to appear on ‘Today’, Bill Grundy’s afternoon magazine programme on Thames Television. A few ‘fucks’ and ‘shits’ from the boys in spiked haircuts and ripped jeans, and punk rock was promoted from something unpleasant that happened in private music clubs to a national controversy.

Branson did not need to be alerted by Draper to the commercial possibilities of the Pistols’ ability to shock. The very day of their appearance on Grundy’s show, he had telephoned the managing director of EMI to offer to take this turbulent band off his hands. Since the EMI executive would not take his call, Branson left a message; the following morning, he was called to a meeting at EMI’s offices.

Branson was ready to make a deal there and then; McLaren was determined to play cat and mouse. He shook hands on a deal with Branson that day, earning £50,000 in compensation from EMI for the record company’s decision to assuage public anger by pulling the single from record shops. But McLaren then signed the Pistols to A&M Records, in a public ceremony outside the gates of Buckingham Palace. A&M paid £200,000 for the group, but had second thoughts when the group trashed its offices after a signing party. It took several more months, and five telephone calls a day from Richard Branson himself, before McLaren would condescend to accept a second compensation payment, this time from A&M, and sign his boys with Virgin Records.

Virgin entered into the spirit of things with enthusiasm. The group’s next single, ‘God Save The Queen’, was given a loudspeaker performance from a boat on the Thames just outside the Houses of Parliament during the week of Queen Elizabeth II’s Silver Jubilee. The police and the popular press obediently played their parts in the publicity stunt: McLaren was arrested, and the name of the group was all over the papers for a week. The record reached number two in the charts (some saying that only chart manipulation denied it the triumph of becoming number one), and sold over 100,000 copies in that week. Further success followed with the predictable controversy surrounding the Pistols’ album, Never Mind the Bollocks, and the unsuccessful prosecution for obscenity that followed its release.

By the end of 1978, however, the phenomenon of the Sex Pistols had worked itself out. McLaren had made a revolutionary film about the group and its handling, The Great Rock ’n’ Roll Swindle. He had briefly appointed Ronnie Biggs, a former train robber resident in Brazil, as the group’s lead singer; and the group itself had begun to fall apart. Sid Vicious died two months later of a drugs overdose, before he could be tried for stabbing his girlfriend to death with a knife. And Johnny Rotten, reverting to the name of John Lydon with which he had been born, repudiated McLaren as a manager and began an action in the High Court to have his company’s assets liquidated.

For Branson, Sid’s death was a disaster, but Virgin managed to salvage some return on the contract. There was now no longer any hope that the group would become a serious money-spinner for Virgin; but the label still had the rights to the records the Pistols had already made. Draper also went on to release a posthumous album of Sid Vicious songs. More important, however, its association with the Sex Pistols and with punk rock had once again made Virgin a label that young artists would be willing to sign to. Richard Branson had been looking for a hit act that would ‘put Virgin on the map’. Now he had found one. The five years after the end of the Sex Pistols would prove to be the record label’s most creatively successful period. In that single half-decade, Virgin would break and develop into stardom such acts as Phil Collins, Culture Club, Simple Minds, Human League, Heaven 17, China Crisis and Japan – a set of achievements that few independent labels could equal over their entire lifetimes.

While Virgin’s credibility among the professionals of the music industry was rising, however, wider trends outside were pointing worryingly downwards. Inflation, which had been falling under James Callaghan’s Labour government, began once again to look threatening. Economic growth slowed down, and the government suffered a bruising succession of confrontations with the trade unions. Matters came to a head in the ‘winter of discontent’ at the end of 1978, which saw strikes and power cuts. The record industry, as a supplier of a non-essential product, was particularly hard hit. Album sales in Britain dropped by more than 15 per cent in the course of 1978; the industry as a whole began to turn from profit into deep loss.

Virgin, which now had a disparate rag-bag of interests ranging from the record label, management and studios to retail, restaurants and a private island, was forced to look for economies. A quarter of the record label’s fifty-strong staff were sacked, starting with Arnold Frollows, the firm’s respected head of A&R. It was Virgin’s first ever round of compulsory redundancies. The artists’ roster was purged of acts that were making insufficient money. Valuers were sent around the various properties owned by the company – ranging from the Manor in Oxfordshire to the houses dotted around Notting Hill Gate in which the company directors were living – in an attempt to add some extra weight to the group’s balance sheet. An ambitious attempt to build on Virgin’s European success by opening up shops in the United States was abandoned: Ken Berry, originally sent out to build an empire in America, was asked to wind down gracefully the company’s interests there and come home.

The election of a Conservative government in the summer of 1979 made little immediate difference. Margaret Thatcher, the new prime minister, saw her first priority as conquering Labour’s inflationary legacy. It was more than a year before she could begin to claim success, for inflation actually rose from just over 13 per cent in 1979 to 18 per cent in 1980; but the price of lower inflation was sharp cuts in public spending, a rise in interest rates, and a sudden increase in the number of unemployed. The Tories owed their election victory in part to a powerful series of posters, showing hundreds of ostensibly unemployed people queuing up above the slogan ‘Labour isn’t working’. That now became a bitter joke. The only consolation for Virgin was that as times became tougher, other companies were in worse straits.

The task for Branson and Powell in 1980 was to prune back the unwieldy plant they had created. At one point they even resorted to the expedient of inviting in a firm of management consultants to advise them on what to do. None of these reforms, however, had any significant effect on Coutts & Co, the company’s blue-blooded bankers. Coutts flady refused to increase the company’s overdraft; and Virgin’s bank manager began to ask instead when he could expect to be repaid some of what he had already lent.

It was fortunate, therefore, that a significant nest-egg had been set aside in case of bad times. Seven years ealier, before the record label had even been established, Branson and Powell had registered the trademark that would appear on its first few albums – a drawing of a pair of women – in the name of an offshore trust. When overseas record companies or subsidiaries later paid for the rights to Virgin albums, the royalties they were charged could therefore be split into two: a royalty for the record itself, which could be sent to Virgin in Britain; and a fee for the use of the Virgin trademark, which went directly to the trust overseas without incurring the attention of the UK taxman. Branson took advice from Harbottle & Lewis, the company lawyers, so that the trust was set up correctly. Apart from that firm, no outsiders – either companies or people – were consulted on the trust or its affairs.

Such an arrangement might have raised eyebrows at the Inland Revenue, particularly when put into effect by a pair of young businessmen who were still both under twenty-three at the time that the trust was established, and one of whom had already admitted to attempting to defraud the Customs & Excise. Yet this kind of trust arrangement was expressly allowed under British tax law; without it, Britain’s high income and capital gains taxes were too much of a disincentive to foreign entities who were considering doing business in Britain.

There was, however, a proviso. In order to avoid any liability to tax, it was important that the trust’s beneficiaries should all live overseas. Under UK tax laws, beneficiaries who lived in Britain could be taxed on their share of any capital gains that the trust made – even if they received no money from the trust. Their status as a potential or a future beneficiary could land them with a thumping tax bill. So the trust had to be set up either so that Branson and Powell and their families were not its beneficiaries, or so that no capital gains were actually made. The first of these conditions was hard to achieve, since the two men wanted to benefit from whatever financial success Virgin might achieve. The second condition was easier: as long as the trust simply held on to the income from the trademark it already owned, and did nothing that would ‘crystallize’ its capital gains, it could remain legally safe from tax.

The trust had discreetly accumulated substantial sums of money between the 1973 launch of the record company and the later decision to change Virgin’s trade mark from the twins to the handwritten logo with the big capital ‘V’ that the group uses to this day. When Coutts pulled the plug on Virgin, therefore, Branson suddenly suggested to one of the company’s financial people that they should approach the Bank of Nova Scotia. BNS, he said, held deposits in the Cayman Islands which Branson himself controlled. The bank would be willing to allow the company in London to borrow over £1m using those overseas deposits as security. That loan helped Virgin survive the recession.


FOUR (#ulink_7e3cf28d-8a90-549f-b5fd-2a4786574872)

Media Mogul (#ulink_7e3cf28d-8a90-549f-b5fd-2a4786574872)

BY THE SPRING OF 1981 it was almost ten years since Richard Branson had closed down Student magazine to concentrate on selling records by mail-order. A great deal had happened since then. Virgin had established a record label, a studio business, a chain of shops, a music publishing house; and although 1980 had been a miserably difficult year, the company was clearly beginning to prosper. Yet Branson had never conquered his early ambition to be a newspaper proprietor. For a man whose attention span was as short as his, there was something alluringly immediate about a business whose product was made one day, sold the day after, and discarded the next. The newspaper industry had a further attraction, too: newspaper proprietors had influence and respectability that would always be denied to the owner of a mere record company.

Branson would not have described himself as a friend of Tony Elliott, the founder and publisher of Time Out, the London listings magazine. But the two men were roughly contemporaries, and came from the same public school. They had the same unconventional approach to business, the same ability to guide and motivate young people, the same roots in the counterculture of the 1960s. Elliott had once even approached Branson, suggesting that the two should collaborate to launch a new magazine in New York. But the discussions had come to nothing when Branson realized that Elliott was trying to do to him what he himself had done to so many others: the publisher had no money, but was trying to persuade Branson that the two companies should establish a fifty-fifty joint venture.

By the turn of the 1980s, Elliott’s magazine had clearly become a successful and thriving business. Despite the handicap of a palpable left-wing militancy among its journalists, Time Out was the information source of choice for young, fashionable Londoners who wanted to know which films to see, where to eat, where to shop, and which exhibitions to visit. Its classified section was the place to look for meditation classes, for friendly people to sand the floors of your house, and for cheap flights to south-east Asia. The magazine also did a roaring trade in gay lonely hearts.

The idea of owning a listings magazine with a pronounced political bent would never have occurred to Branson had it not been for the strike that hit the magazine in May 1981. Like his counterpart at Virgin, Tony Elliott had soon learned to distinguish between the political ideals of his staff and the practicalities of running a business. But Elliott had made a damaging error in 1973, when his magazine was still small enough for a minor negotiating concession to seem unimportant. At that time, most of his staff were paid £25 a week; the editors of the sections received £30. When the local chapel of the National Union of Journalists demanded an increase in the rank-and-file wages to £35, Elliott had conceded the principle of a weekly wage of £32.50 – equal pay for all his staff, no matter what jobs they did. As Time Out continued to grow, the system became untenable; the standard company wage was at once too high for Elliott to be able to diversify into other publishing ventures, and too low for him to be able to attract talented writers into the magazine from outside. By the end of the 1970s, Elliott had made a firm decision: cost what it may, he would win back the right to pay some staff more than others. ‘I was pretty confident that we would in the end have either a Pyrrhic victory, in which the whole business would disappear,’ he recalled later, ‘or we would win.’

Initially, the former outcome seemed more likely. As soon as Elliott had insisted on changing the company’s wage structures, the staff struck in protest. The management locked them out, with the help of a court order; and some dismissed Time Out employees established a picket line outside the magazine’s Covent Garden offices. But the magazine itself had to cease publication.

A week after the publication of the last pre-strike Time Out, Branson telephoned Elliott at home.

‘Look,’ he said. ‘I’ve been thinking about your problem. What would you say to the following scenario?’ And Branson then outlined a plan that he would set up a new magazine called SteppingOut, or something like it, and would get it established quickly as a successor to the old Time Out. That would give Elliott the time he needed to outlast the patience of the pickets outside his office door. ‘Then,’ said Branson, ‘when you’ve sorted that situation out to the satisfactory conclusion that you want, I’ll close down Stepping Out and we’ll become the joint owners of the new Time Out.’

Elliott was no fool. He realized how much power such a plan would give Branson over him, and how little room for manoeuvre he would have once a magazine with a similar name was on the streets with his ostensible approval. But he swallowed his suspicions, and accepted Branson’s invitation to come down to the Manor on a Saturday afternoon with his girlfriend and two other people.

At Branson’s suggestion, he and Elliott went off for a walk at three o’clock, leaving their respective girlfriends behind. They returned several hours later, to the barely disguised irritation of Elliott’s girlfriend, and Branson insisted that they stay for dinner. The dinner – which the more sophisticated Elliott later dismissed as ‘school food’, citing it as evidence of Branson’s lack of attention to detail – proved to be a social disaster. Talk turned to the subject of the Social Democratic Party, the recent breakaway from the Labour Party led by a group of four senior politicians; and Branson, rarely someone to talk with interest about politics, became embroiled in a flaming row with Elliott’s girlfriend.

Elliott and his girlfriend left immediately after dinner. By the time they reached London, the Time Out proprietor had arrived at two conclusions. First, he wanted to solve the problem of the strike on his own, rather than admitting an outsider to his life on what might well prove a permanent basis. Second, he wanted nothing more to do with Richard Branson. Whatever the reason – whether perhaps he drank too much and became aggressive, or whether simply the personal chemistry had been wrong – Branson’s charm offensive had failed totally. Elliott turned down the proposal.

But Richard Branson’s interest had been tickled, and it was too late to go back. If Elliott would not start Stepping Out in partnership with him, then he was quite entitled to do it on his own. And thus it was that Branson set to work hiring an editorial staff for a new London listings magazine to fill the gap left by the old Time Out. The team was assembled in three months, and the first edition of the magazine – which Branson decided to call Event – appeared in September.

There was just one problem. A week earlier, Elliott’s former employees had established City Limits, their own listings magazine. A week before that, Elliott himself had come back with a new Time Out, staffed by a fresh corps of journalists but in many respects identical to the old. To make matters worse, Elliott had put some subtle changes into effect during the months that his magazine was off the streets. ‘Agitprop’ became less strident, and was renamed ‘Politics’; a gay section, previously vetoed by the staff on the grounds that it was ‘ghettoist’, brought together the clubs and events of most interest to homosexuals; the ‘Sell Out’ department provided more pages of consumer and shopping news than before; and a much-overdue section on nightlife covered a subject that the magazine’s former staff had dismissed as trivial and politically incorrect. The new Time Out’s first cover story, symbolizing the nascent metropolitan affluence appearing under Margaret Thatcher, was about all-night London.

Elliott knew that he would face competition, for Branson had poached Pearce Marchbank, Time Out’s design guru, to co-edit Event with Al Clark. But Event proved to be a damp squib. Its editorial approach was just a little too middlebrow; it went in for slightly tacky competitions; and it committed a fundamental error by printing the listings – for many readers, the magazine’s principal attraction – in a point size so small that it was barely legible. The staff were at each other’s throats.

Despite the undoubted literary and artistic talents of the team that Branson had assembled, the magazine soon began to go downhill. The real competition to Elliott’s new Time Out was not Event, but City Limits. As the months roiled on, Time Out’s circulation began to rise above 60,000; City Limits stayed put at around 30,000; and Event declined, equally immune to changes of personnel and of style, to below 20,000 by the turn of the year. Tina Brown, later to become editor of the Tatler, Vanity Fair and the New Yorker, described Branson’s venture with scathing accuracy as ‘a triumph of managerial incompetence over editorial flair’.

Proof of the fall in the magazine’s morale could be seen in its in-house magazine. As if it was not enough of a struggle to put the next issue of Event together, a group of mischievous members of the magazine’s staff decided to start an underground gossip sheet, entirely for internal consumption, that would chronicle its lurching progress from issue to issue. The sheet was called Non-Event, Rod Vickery, usually one of Branson’s most faithful lieutenants, did the artwork, while another couple of employees wrote the stories and a fourth ran off a copy for the desk of each member of staff. Terry Baughan, the man in charge of the Virgin Group’s finances at the time, was at first speechless with fury. ‘I’d love to get my hands on the people who did that,’ he said. Vickery, kept safe from suspicion by virtue not only of his long service but also of his seniority in the company, said nothing.

The tough decisions forced on Branson by the tottering fortunes of his magazine turned Event’s journalists against him. Jonathan Meades, one of the later editors he appointed, recalled that Branson had disputed a £30 expense claim submitted by the magazine’s film critic. ‘But he also had three phones going at the same time, and on one of them he was trying to sign the Stranglers for £300,000,’ Meades remembered. The experience of working for Branson also left him with a jaded impression of the young entrepreneur. ‘He’s impossible to conduct a conversation with because he is inarticulate … Branson’s very good at making money, but the rest of him hasn’t kept up. It’s like a form of autism.’

But Branson was never one to give up. With creditable bravado, he telephoned Elliott six months later. Brushing aside Elliott’s questions about the restyles and the firings at Event, Branson came straight to the point.

‘Look,’ he said. ‘We’ve had a really good run with the Human League. We’ve done really well, and I’ve got at least three-quarters of a million pounds sitting in the bank. I can either put it into Event, or I could put it into Time Out.’

Elliott, who was a little drunk at the time, took a deep breath before he responded.

‘Richard,’ he said. ‘There’s one thing you don’t realize. You should stop this mission to acquire all or part of Time Out. At the end of the day, my readers don’t respect you. They see you as an opportunist, as someone without genuine cultural integrity.’

Cultural integrity he may have lacked; but Richard Branson had an almost unlimited capacity to swallow failures and humiliations. ‘Business opportunities are like buses,’ he liked to say. ‘There’s always another coming along.’ And so with barely a pause for self-doubt, Branson plunged back into the daily concerns of his record business, his ability to sniff out a good deal heightened by the awareness that Virgin’s losses on Event had brought it perilously close to insolvency. It was not to be long, however, before Branson’s thoughts had returned to publishing. If he was not cut out to be a magazine proprietor, why should he not own a film company? A video production business? A cable television company? A radio station? The thought may even have crossed his mind, albeit briefly, of owning a newspaper.

Unfortunately, the early omens were not good. Branson already owned one publishing business, known as Virgin Books, and it was not going well. He had received an approach in 1979 from a man called Maxim Jakubowski, whose main area of expertise was in the food industry but who fancied himself as a publisher of books. But Jakubowski was not as successful a publisher as he was a negotiator; and in less than two years, it had become clear that Virgin Books was in trouble. Among the weird ideas he had put into practice was a series of short novels written by rock stars; at one stage he even wanted to publish a book about chickens that had appeared in the movies. But the company’s core problem under his stewardship was that it was trying to do too many things. Unable to choose even between fiction and non-fiction, Virgin Books was a small and not very successful publisher. In an ill-advised interview with the Financial Times, Branson had boasted that the company would publish books by undiscovered young talents, and would be looking for the literary equivalent of Mike Oldfield. It never found it.

Even before relations with Jakubowski began to deteriorate, however, Branson realized that he needed to bring someone into the publishing company whom he could trust. He knew exactly whom to ask for advice: his younger sister Vanessa’s boyfriend, Robert Devereux, who worked at Macmillan, one of the grander names in British publishing. Devereux was twenty-five years old, and very bright indeed. He also had the tactical advantage of having beaten Branson regularly at chess. A lunch was arranged on the houseboat to which Devereux brought with him Rob Shreeve, his boss at Macmillan. Branson put his proposal: the two men should come to Virgin and sort out its books business. Shreeve, older and perhaps a little wiser than Devereux, wanted to know just how committed Branson was to his book publishing division. How much money did he think he would be able to invest in it? How many titles might it expect to bring out over the coming year? Whatever the answers were, it became clear that Devereux would join Virgin; Shreeve, though grateful for the lunch, would politely decline.

Devereux moved fast on his arrival at Virgin Books. He fired some of the staff, and frightened others into working harder. He threw out Jakubowski’s strategy, and tried to decide how the small publishing company he was now in charge of should seek to compete against the corporate giants. Devereux’s first major decision was to stop publishing fiction. Instead, he ruled that the firm should concentrate on quick, preferably cheap, books that would appeal to young people. While the rest of the publishing world was going collectively mad, paying huge advances to a small number of star authors that could never be recouped in royalties, Devereux preferred to think small. He was successful. Virgin Books stopped losing money; over the coming few years it began to acquire a reputation as a serviceable publisher of books about rock, sport and video games.

But Devereux could not satisfy his ambitions by staying the managing director of a small publishing house. He wanted more responsibilities inside the Virgin Group, and with the help of Richard Branson, who had become his brother-in-law when he married Vanessa Branson, that was what he got. Branson’s closest advisers, Simon Draper and Ken Berry, viewed Devereux with polite suspicion when, still under the age of thirty, he joined the board of the Virgin Group. ‘We all liked him and were very impressed by him,’ recalled Draper, looking back on his feelings during the 1980s. But Devereux seemed to be trying to out-Branson Branson. ‘He thought, “I can play bridge better than Richard, I can play sport better than Richard, I can be Richard.”’ To Draper’s mind, Devereux’s self-appraisal was wrong. What Devereux lacked, for all his cerebral qualities, were his brother-in-law’s uncanny ability to inspire not merely great loyalty but also enormous effort among those who were working for him.

Those who were sceptical of Devereux’s abilities felt they had been proved right when he persuaded the board to take a 20 per cent shareholding in W. H. Allen, a publishing company that had lost its market edge. Having merged Virgin’s publishing interests into the firm, and then invested substantial Virgin funds in Allen, Devereux then allowed the existing management to carry on running it – and it was not long before Virgin was required to take a controlling stake in the company, cut out most of its unsuccessful operations, and write off substantial losses.

The company’s forays into film-making were only marginally more successful. Robert Devereux and Al Clark, the company’s erstwhile press officer and Events editor, made a little money for Virgin by topping up the finance of a couple of low-budget films, one called Secret Places and the other Loose Connections. They went on to put £4m into Electric Dreams, a high-tech love story directed by Steve Barron, a maker of pop videos. The film, whose soundtrack included a number one hit from the Human League’s vocalist Phil Oakley, produced a modest return for Virgin, made more attractive by the fact that under specially favourable tax treatment for investing in British films, the Inland Revenue allowed Virgin to deduct its entire investment in the film from its taxable income for the year. But Virgin seemed somehow unable to leave this small but successful division where it was. The next project, brought to Virgin by Simon Perry, the producer of Loose Connections, was to turn George Orwell’s novel of Stalinist totalitarianism, Nineteen Eighty-Four, into a film. It was not the first time a film of the book had been made; thirty years earlier, in the optimism of a fast-growing postwar society, a sanitized version with a happy ending had been put out. But there would be special resonance to releasing the film of Nineteen Eighty-Four in 1984. It would cost just under £2m, and the director would be Michael Radford, Perry’s partner.

When the proposal was brought to him, Branson agreed to back the film. John Hurt and Richard Burton were lined up to star in it. Before shooting could commence, however, Virgin received a piece of bad news: the film was going to be a little more expensive than its makers had expected. Instead of £2m, Virgin should now expect to stump up £2.5m. So convinced was Branson that Perry and Radford were going to pull off a masterpiece that he was bid up to £3.7m, and then, as the film continued astonishingly to overrun its shooting schedule and its budget with equal abandon, to £5.5m The meeting at which that figure was first mentioned in Branson’s hearing was a difficult one.

Still Virgin and its chairman appeared to be dazzled by the glamour of the movie business. Instead of doing what most investors would have done – sacking the producer and director, and replacing them with a pair of placemen who could be relied on to get the film in the can and then distributed with as small a loss to the backers as possible – he allowed Perry and Radford to finish off the project. But the greatest disagreement was still to come. In the hope of making the film a commercial success, Branson had arranged for the Eurythmics to produce a soundtrack. The music they came up with, assembled with breathtaking speed in a Caribbean studio while the band were serving out their required number of days of tax exile, was an impressive piece of soundtrack, but it seemed to have little connection with the movie. Perry and Radford insisted that they should use a soundtrack already written by Dominic Muldownie, which they considered far more suitable. If Branson did not agree, they said, he was welcome to distribute the film with whatever soundtrack he liked; but they could not be expected to talk of it as their own.

Faced with this threat, Branson looked for a compromise. The Muldownie soundtrack was used for the reviewers and the premiere; once the film was on general release, however, it would be replaced by the work of the Eurythmics – provided market research supported the view that audiences did not actually object to the more commercial rock soundtrack. In November 1984, a month after the film’s release, Radford took the opportunity of giving an acceptance speech for an award for best British film of the year to attack Branson’s company for having ‘foisted’ the Eurythmics soundtrack on him. That was embarrassing enough; Perry them compounded the sin by giving an interview to a gossip column in the Daily Express, in which he blamed Branson’s inability to sell the film in the United States on his ‘inexperience’, and threw in an accusation of lying for good measure. Branson threatened to sue for libel.

The small satisfaction was that Perry and the newspaper caved in quickly, apologizing and withdrawing the allegations, agreeing to pay Branson’s costs as well as their own, and making a donation to charity. But for Branson, the losses he made on the film came with an important lesson. Never again would he be tempted to set aside his own commercial interests for the sake of backing a director who wanted to make a masterpiece. In media businesses – whether records, books, films or magazines – the proprietor had to stay a little aloof from the product. Once he became too swept up in the creator’s enthusiasm, his financier’s judgement was sure to suffer.


FIVE (#ulink_18aa26d3-aabb-5dc6-be82-efb15d224aaf)

Do You Really Want to Hurt Me? (#ulink_18aa26d3-aabb-5dc6-be82-efb15d224aaf)

IN PRINCIPLE, there was no dispute between Richard Branson and Nik Powell about how they should respond to the harsh economic conditions of 1980. But the two men had different pet projects. In 1978, Branson bought a private island in the British Virgin Islands for $300,000 from a cash-strapped English aristocrat. He then spent nearly £1m buying two clubs: the Roof Gardens in Kensington, and Heaven, a nightclub near Charing Cross that was the largest gay club in Europe. Powell, by contrast, had been the leading light behind a plan to spend a similar sum on converting a cinema in Victoria into The Venue, a combination of restaurant, bar and concert place.

These two interests were a source of conflict: Powell complained that the island was an indulgence, and feared (incorrectly as it turned out) that the two clubs Branson had acquired might not make money. For his part, Branson felt that the Venue made demands on their time that were disproportionate to its importance to the Virgin Group. Everything there seemed to be a problem. Planning permission came only at the last minute, and Branson himself was forced to intervene to get even trusted members of staff to sell tickets for performances there. The waiting staff were paid very low salaries, and had to be placated at Christmas for the absence of an expected bonus with individual presents wrapped up by Nik Powell and Barbara Jeffries, the Venue’s manager at the time. The working conditions there brought bad publicity to the group when Private Eye began to run articles claiming that the Venue’s waiting staff and the bands who performed there were being exploited, and that recipients of free tickets were being denied entrance when the club finally began to fill up. And as if these problems were not enough, it was realized in late 1980 that no proper arrangements had been made for paying tax on staff salaries. Chris Craib, one of the group’s senior accounting staff, had to make an impromptu return to the Inland Revenue, estimating the tax that he believed should have been paid over recent months but had not.

Beneath the blazing rows that Branson and Powell had over these difficulties, there was an underlying issue of far greater importance. Nik Powell’s influence in the group had been waning over the past five years. The retail businesses in which he took greatest interest had proven to be indifferently managed and barely profitable; the record label, with which he had little to do, was the engine of Virgin’s growth. Richard Branson had begun to confide more in Simon Draper and in Ken Berry than he did in Nik Powell. Branson had come to believe that for all Powell’s talents, there was no longer an important job for him to do at Virgin.

The recession of 1980 made matters far worse. For while the triumvirate at the top of the music businesses still felt that he was not pulling his creative weight, Powell’s ability to block decisions he disagreed with suddenly became much greater. No longer was Virgin expanding so rapidly that his concerns could be dismissed; instead, Powell himself was the butcher who was making the cuts, and Virgin was shrinking. As a 40 per cent shareholder in the Virgin holding company, Powell could stop Richard Branson from taking steps he did not approve of. And Branson, who had resisted all attempts to control him – at school, at home, and in his marriage to Kristen – did not like being subjected to this veto.

Branson would later say that it had taken him two years to summon up the courage to write the letter. Nik Powell, after all, was his childhood friend; the man who had dropped out of university to join him in Albion Street; the junior partner in the relationship that they both referred to as a ‘marriage’. But in the end there was no choice. Branson wrote to Powell, telling him that he thought the two should separate.

The weakness in Powell’s position was that although he had a 40 per cent shareholding, his contract with Branson was far from powerful. The key point in the agreement was the calculation that would be used to work out how much Powell’s shares were worth if he decided to sell them back to Branson. Branson would later recall that the calculation was based on the company’s net assets. With the help of his South African brother, Draper had been far more canny; he had insisted on a valuation based on a multiple of pre-tax earnings over earlier years. But the price of Powell’s shareholding was based on Virgin’s net assets as recorded in the company balance sheet. This may have included buildings and cars, tables and chairs. But it excluded the intangible asset that was a decade later to allow Branson to sell the Virgin music businesses for £56001: the Virgin catalogue. The contracts that Branson had signed with the artists – specifying the number of records that each one would have to deliver to Virgin in the future, and the length of time for which Virgin would be able to collect copyright fees on the work that the artist had already done – were the real jewel in the Virgin crown. Yet they were not reflected in the company’s balance sheet; nor, therefore, were they reflected in the sum of money that Powell received when he and Branson parted company.

Neither Branson nor Powell would discuss the settlement in detail publicly. But Powell probably received £1m in cash, plus three assets he wanted to take with him: the Scala cinema, the video editing facilities that Virgin had invested in – and Steve Woolley, a man who knew backwards the film industry in which Powell thought he saw his future.

One million pounds must have seemed a fantastic sum to Powell in 1981. But he could not escape the fact that he had sold out to Branson when Virgin’s fortunes, and hence its value, were at a nadir. Within a couple of years, the new acts that the record label had already taken on, such as Phil Collins and the Human League, would make the group highly profitable once again. Within five years, the 40 per cent that he had sold back to Branson would be worth £96m. Although Powell publicly pronounced himself quite satisfied with the deal, he would have been forgiven for having regrets.

Powell’s friends admired his equanimity: he had become a Buddhist, and managed to curtail his frustration at the increasing friction with Branson during the dying months of their partnership by chanting regularly. But they were convinced that he had lost out all the same. ‘It seemed to me to be an unrealistically small settlement for 40 per cent of such a vast, thriving company,’ wrote Sandie Shaw, a chart-topping singer who later became his wife, ‘but Nik, who considered Virgin to be his “baby”, was highly emotionally charged about leaving it, and was not capable of making rational decisions.’

‘After Nik’s departure,’ Shaw continued in her autobiography, ‘his existence and role within Virgin was systematically written out of its history. The impression given, if any, was that Nik had been some kind of managerial employee.’

Branson defended himself furiously against the allegation that he had treated his boyhood friend unfairly. ‘I can see how it could be said that I eased Nik out at a time when the business was down, so it was easier to make him look bad and [to set a] lower price to buy him out … It was obviously very difficult because of our friendship … The money he received fairly reflected the input he had made. It was difficult for him to find a role to contribute. With Simon and Kenny and others there was really no role for him. He had no particular skills to contribute to the company as it was at that stage.’

Branson also claimed that the subsequent rise in the value of the record company was hard to predict. He pointed out that a few years later, Virgin bought Charisma Records, an independent label that had a fat catalogue including work by Genesis, Peter Gabriel and Monty Python, for only a few million pounds: ‘The contract that I gave Nik originally gave him his shares for nothing but stipulated that when they were sold they were to reflect a minority stake in a private company … he was not selling control. Therefore I believe the price paid at the time was a fair one. I had also agreed to leave him with a small profit share for the future which he decided not to take and to swap for something else.’

After a decade in which the two men spent hours of every day in each other’s company, the separation was very sudden. Nik Powell went off to found Palace Pictures with Steve Woolley, and was responsible for a number of successful films during the 1980s, including Company of Wolves, Mona Lisa, and latterly The Crying Game. Almost exactly ten years after his departure, however, Palace ran into financial difficulties and Powell came back to Branson, cap in hand. Virgin invested some money in the company, allowing it to continue in business for a few crucial months. When Powell returned a second time, however, Branson turned him down in the friendliest possible way: he asked him to go and see Robert Devereux, his brother-in-law, who was by then responsible for Virgin’s film and other media interests. Devereux took a hard look at the Palace books and decided not to invest. Branson consoled himself with the thought that Polygram, the large European record company, were about to take a substantial stake in Palace. But Polygram were interested only in the company’s production arm. By May 1992, Palace had gone into administration, and Powell was forced to start again for the second time in his career. ‘I don’t think we realized how close he was [to going under] at the last minute,’ said Richard Branson afterwards.

‘I gather,’ said the headmaster sternly, looking down his nose through his spectacles at the school’s morning assembly, ‘that some of you are not entirely happy with the musical selections that we’ve been playing. So today we have a slight change in the usual programme. Instead of classical music, I have decided to offer you something a little different.’

The headmaster stepped to one side. A powerful spotlight picked out a circle in the centre of the curtains behind him. The curtains opened. And eight hundred primary school pupils, aged from five to twelve, jumped out of their seats in astonishment and began to scream. Not in their wildest dreams had they expected Boy George himself to perform a number-one hit song, at their school assembly.

Behind the scenes, Steve Lewis gave a smile of quiet satisfaction. He had been at the school since seven o’clock in the morning, helping to supervise as the roadies and technicians assembled the loudspeaker system, and watching as curious teachers peeked into the classroom where George, his make-up already applied, was ironing the shirt that he was about to wear. The ‘concert’, if that was the right word for a performance of a single song at a school in Finchley, was an outstanding success.

It had been set up for a television programme – ‘Jim’ll Fix It’ – and filmed by hidden cameras. Two girls from the school had written in to Jimmy Savile, complaining about the miserable diet of Schubert and Shostakovitch to which their miserable headmaster subjected them at every morning assembly. Long after the girls had given up on their request, the programme’s producer at the BBC had telephoned Virgin Records, just on the off-chance that the world’s most famous pop star might be willing to co-operate in bringing the girls’ fantasy to fruition. He was; the idea tickled his fancy, and his manager and his record company recognized that although he would receive no fee for his performance, the exposure to a television audience of millions of children and adults would help to sell records. The faces of the astonished children – most notably the two who had sent in the letter, who had been identified for the cameraman from school photographs so that viewers could see their disbelief as their dream came true – turned the concert into brilliant television. The only irony was that Boy George, a consummate professional performer who had played all over the world, sometimes to audiences of tens of thousands of people, was more nervous about playing in front of a school assembly than he had ever been before. Only when the curtains opened did the star begin to enjoy himself.

Not even the most skilful A&R person could have guessed in 1980 that George O’Dowd would within three years be topping the charts in seventeen different countries. A former window-dresser and model, who had worked for the Royal Shakespeare Company as a make-up artist, George had almost joined a band under the influence of Malcolm McLaren. By 1980, he was delivering stylishly polished performances in gay nightclubs in London, and had been signed as a songwriter to Virgin Music Publishers – but he had no recording contract. His manager, Tony Gordon, had contacted Simon Draper and offered to provide a fleet of limousines to take Draper and his colleagues down to a rehearsal room where Culture Club, George’s new band, was performing an odd mixture of soul, pop and reggae. Danny Goodwyn, a Virgin talent scout, was one of his most enthusiastic fans. ‘He was an extraordinary creature,’ remembered Steve Lewis. ‘What I liked about it was that there were some really classic pop songs – “I’ll Tumble For Ya”, which I thought was great, and “Do You Really Want To Hurt Me?”, which was brilliant.’ Back at Virgin’s offices in Vernon Yard, however, there were doubts about whether such a clearly gay artist could attract a straight following.

Those doubts were soon laid to rest. Under intense pressure from Gordon – who had agreed with George and his fellow-members of Culture Club that he would either get them a place in the top thirty on one of their first three singles, or lose the right to manage them – Virgin assigned Lewis, who was by then deputy managing director of the record company, to look after the artist personally. There was little that Lewis needed to do. As well as an ability to write elegant songs in a number of different styles, George also knew exactly how he wanted the band to look. The artwork on record sleeves, the T-shirts – all the ideas came from him. An album had been recorded, and two singles from it had already been released in order to drum up public interest. But there was not yet a Top Thirty single. And Tony Gordon was getting worried.

It was the promotion department that solved the problem. A message was passed to Lewis that the song which the disc jockeys at the radio stations would be willing to play was ‘Do You Really Want To Hurt Me?’. At a meeting with George, Lewis reported this. ‘George freaked,’ he recalled. ‘He was convinced that it wouldn’t be a hit.’

‘People will think we’re a white reggae band,’ said the singer. ‘It’ll ruin our career.’

‘Right now, George,’ said Lewis, ‘you don’t have a career.’ George allowed himself to be persuaded; the song duly went to number one.

But Culture Club just grew bigger and bigger. By 1983, with the launch of Colour By Numbers, the album containing the ‘Karma Chameleon’ hit single, George was the world’s most successful musician for more than a decade. Virgin employees, sometimes unable to reach their offices because of the crowds of fans who had assembled outside in the hope of catching a glimpse of Boy George, began to understand what it must have been like to be at the centre of Beatlemania. The sums that flowed into Virgin’s London bank accounts made the Oldfield millions of eight and nine years earlier seem almost paltry. Not for nothing was it later said that Boy George paid for Richard Branson’s airline. There would be trouble later, as George became a heroin addict and attracted the wrath of the tabloid press. But for the moment, he and Virgin Records could do no wrong.

Long before George’s popularity reached its height, Richard Branson had withdrawn from daily control over the record company. In no sense had he lost his touch as manager and deal-maker; only recently he had faced down an attempt to form a staff union by appearing uninvited at the meeting at which the staff were intending to prepare their demands, and shedding genuine tears at the idea. ‘We’re all one family,’ he had said, prompting the plotters to melt away, shamefaced at the realization that they had hurt his feelings so much. But Branson had left the creative decisions to Simon Draper, and the contractual and managerial matters to Ken Berry, since 1978. Branson’s role consisted of two activities: talking to both his lieutenants on the telephone, often several times a day; and appearing at the record company’s new offices on the Harrow Road whenever his presence was required to elicit the signature of an especially big or important star. Even the overseas distribution deals could be left to them; thankfully, Branson was no longer responsible for climbing aboard an aircraft with a suitcase full of cassettes and carrying it exhaustedly from one office block in New York to the other, trying to sell the work of Virgin artists in Britain for distribution in the United States. Draper managed the company by means of informal weekly meetings, first at Branson’s house, then in the coffee shop of the Hilton hotel at Shepherd’s Bush, then at his own house. Steve Lewis, who had become deputy MD of the record company in 1979 after Virgin had withdrawn from the business of managing artists, was responsible for the weekly meetings at which the pop charts would be analysed and strategies for sales and marketing decided.

Simon Draper, taking advantage of Nik Powell’s departure, had raised with Branson the question of his shareholding in Virgin. Pointing out that the record company was overwhelmingly the most profitable business in the Virgin Group, and that its profits were for years being reallocated to other areas for expansion, Draper suggested to Branson that his shareholding in the subsidiary record company should be converted into an identical shareholding in the parent. For until he owned part of the Virgin Group, Draper knew that he would never be financially secure. ‘I used to get terribly anxious about the profits,’ he remembered, ‘because they were always massaging them. I remember having secreted away in a drawer a note from the auditors saying, “For the purposes of valuing your shares, the profits should have been x.”’

Branson immediately saw the justice of Draper’s case. But he was far too practised a negotiator to agree immediately to such a suggestion. In return for Draper’s 20 per cent shareholding in the record company, he at first offered only 10 per cent of the group. It required a number of painful meetings between the lawyers for Branson to raise his offer to 15 per cent, and to accept Draper’s demand for a payment of £100,000 in cash and for a watertight agreement on profits which guaranteed Draper’s share of the money that the music group would make, but protected him from losses presided over by Branson elsewhere in the group. Draper’s lawyer, who appeared not to recognize that it was the record company that was making the vast majority of the group’s profits, was horrified. After all, Draper seemed to be parlaying a fifth of the record business for an only slightly smaller share of what seemed to be a much larger business – including retailing, films, clubs and a number of other interests. ‘He didn’t realize what a strong position I was in,’ recalled Draper. ‘He didn’t realize how valuable the record company was in relation to the record shops … I should have asked for £300,000.’

Given Branson’s normal business methods, the negotiation was conducted in a strange way. Branson felt that the sums of money were so vast that he did not want to deal directly; his cousin, however, saw things differently. ‘We hardly ever spoke face to face,’ said Draper. ‘Neither of us enjoy it. [When we did meet] I’d just say that’s what I want, and he, very tightlipped, would always agree.’ For Branson knew that Draper had too often seen behind the facade that worked so well with outsiders. His cousin, his most trusted business partner, preferred to negotiate with Branson by letter and through lawyers.

Perhaps for this reason, the deal turned out to be satisfactory to both sides. Draper no longer felt so anxious about the precariousness of his financial position. Part of the agreement was that Branson, as before, would have the obligation to buy Draper’s shares in the event that he decided to sell them. But since Draper now owned almost a sixth of the whole Virgin group, it no longer made sense for the price at which Branson would buy him out to be based on profits. Instead, the two cousins agreed that the price would be set at ‘fair value’ – a phrase whose meaning would be determined by a firm of independent auditors, with an appeals process written into the agreement in case Branson and Draper could not agree on the auditors’ conclusions.


SIX (#ulink_d0ed1dd8-d57f-5ee2-9fba-81ce252e45c4)

Dear Randolph (#ulink_d0ed1dd8-d57f-5ee2-9fba-81ce252e45c4)

THE FOUNDER OF Virgin Atlantic Airways, the company that was to change Richard Branson’s life, was a barrister named Randolph Fields. Three years younger than Branson, he had been born in the United States to English parents, but moved to Britain at the age of nine. Like Branson, he had a chequered school career and showed early signs of entrepreneurial and negotiating flair. The two shared a taste for teenage politics, too: but by the time Branson was marching on the US embassy, Fields had already become more conventional. He took up the study of law at a London polytechnic, where he stood out from the majority of student activists. A newspaper later described him as having been a ‘political leper’. Fields sued for libel but was awarded only nominal damages.

While Branson was as energetic and unkempt as ever in his beard and woolly jumpers, Fields favoured sober double-breasted suits and was beginning to run to fat. And while Branson had acquired a dubious reputation with Her Majesty’s Customs and Excise, Fields had taken the bar examinations that entitled him to argue cases in both English and Californian courts. His growing practice in Los Angeles specialized in defending American insurance companies against asbestos claims. In less than two years, Fields had amassed savings of more than £200,000.

But life in California was dull, and the devil of adventure still gnawed at his soul. So Fields was in a receptive frame of mind when he heard on his kitchen radio during breakfast on 5 February 1982 that Sir Freddie Laker, the entrepreneur whose Skytrain service had brought the cost of flying across the Atlantic down to £49, had gone bust. Where the radio commentators saw only failure, Fields saw a business opportunity.

Four months later he was sitting in an armchair at the Gatwick Airport Hilton Hotel, where Sir Freddie had sat up until the early hours of the morning trying to save part of his business from the receivers. Facing Fields, a handful of men who had been Laker’s most senior employees listened with growing astonishment as he outlined a scheme for a new airline. It must have made an extraordinary scene: a handful of grizzled veterans, their cynicism of the airline business intensified by the Laker collapse that they had just witnessed, being lectured on the lessons of their own failure by a self-confident barrister of 29 whose experience of aircraft was limited to a few dozen flights back and forth across the Atlantic. Yet, miraculously, they were convinced. Within a few weeks, Fields had firm commitments from two valuable Laker managers: David Tait, who ran Sir Freddie’s US sales operation; and Roy Gardner, an engineer trained by the Royal Air Force and British Caledonian Airways, who had been the entrepreneur’s technical manager. Soon after that, Fields bought an off-the-shelf public company called Ritter PLC, and agreed with Tait and Gardner that the new airline would trade as British Atlantic Airways.

The young barrister had realized that Laker’s demise left a gap in the lucrative but highly regulated market for air travel between London and New York. His idea was to scoop up Laker’s licence, and to use it to fly a single jet between Heathrow and John F. Kennedy – either a McDonnell-Douglas DC-10 or a larger Boeing 747 – exclusively for business class travellers. He would offer the commercial customer a more comfortable, pampered passage than the existing airlines did. ‘At the time, business class consisted of putting a curtain across the front of the economy cabin, and giving out free drinks,’ Fields recalled. ‘It was a joke.’

In most other industries, anyone who wished to set up in business was free to do so. But the Civil Aviation Authority, set up in 1971 by Edward Heath’s Conservative government, saw itself as the guardian not of competition between carriers, but of safety standards – which might be put at risk if existing airlines were undercut by a newcomer. British civil servants had concluded that the best way to achieve this objective without ignoring the interests of the consumer altogether was for Britain to have two international airlines, British Airways and British Caledonian. The arrival of Laker had upset this careful planning, and it was therefore with little regret that some civil servants mourned his passing.

President Jimmy Carter’s decision to deregulate the American airline industry made this policy harder to sustain. He appointed to the Federal Aviation Authority an economics professor from Cornell University who thought the purpose of the free market was ‘to let people do crazy things’, and who saw a succession of airline start-ups and bankruptcies as proof that the market was working. For the CAA, by contrast, an airline collapse of the Laker kind was evidence of a policy failure – since an airline that failed either never should have been allowed to start or should have been closed down by the regulators before it ran into trouble. It was no surprise, therefore, that when Fields applied for a transatlantic licence the CAA delayed as long as it could, and then turned him down.

Not to be put off, Fields appealed against the Authority’s decision directly to the Secretary of State for Transport. In September 1983 the CAA was told to reconsider. The officials at its Kingsway headquarters began to realize that Fields would never leave them in peace until he was awarded a route. They would never risk a repeat of the Laker fiasco by allowing him to fly a scheduled service between the main London and New York airports. But he could, if he wished, have the route between Gatwick, London’s second airport, and Newark, New York’s third. To deliver this message informally, Ray Colegate, the Authority’s head of economic regulation, made an appointment to have lunch with Fields at an Italian restaurant in Covent Garden.

As soon as he got wind of the CAA’s intentions, Fields realized that his original plan for an all-business service would have to be torn up. A minority of business travellers might be persuaded to trek out to more distant airports if offered free transport and a better service on board. But British Atlantic, Fields’s new airline, could no longer rely on business traffic for its bread and butter. Instead, it must join the fight for budget travellers – and its first opponent would be People Express, the lowest-cost airline in the history of aviation.

Founded by a Wall Street analyst named Donald Burr, People Express was a firm whose name struck fear into the hearts of airline executives everywhere. It cut all the corners it could, except for those that might compromise passengers’ safety. Its staff were paid less than those in other airlines, and had no effective union to represent them. No advance reservations were allowed; passengers had to turn up at the airport and pay for their passage before boarding the aircraft. The ticket price covered only the cost of a seat and the right to visit the lavatory on board; food, drink and entertainment were extra. As a result, People Express could afford to undercut all the other airlines that plied the Atlantic crossing.

The colour brochure that Fields had prepared for potential investors in 1982, expatiating upon the delights of his proposed business class service, therefore had to be jettisoned. But Fields was determined that his new airline should be no clone of People Express. Where Burr had painted his cabins dark, Fields’s would be light. Where only cold snacks were sold aboard People Express, the meals given away on British Atlantic would be hot. Reservations would be taken; business class travellers would be carried; baggage, instead of being charged for, would be carried free up to thirty kilograms. To enable its passengers to enjoy the in-flight movie, British Atlantic would provide them with high-quality electrical headphones. (This was not quite the extravagance that it seemed, however. In the course of his researches, Fields had discovered that the acoustic headphones rented out by most airlines to economy class passengers, which worked on the same principle as an ear-trumpet, were in fact more expensive to provide. ‘I discovered that the airlines were intentionally selling discomfort,’ said Fields.)

Fields also began to consider a still more radical way to make his service stand out. Instead of offering a single feature film and a handful of music channels, he resolved to turn in-flight entertainment into the most important selling point of his airline. Flying was to be not merely glamorous, but also fun. If the American studio MGM could combine entertainment, hotel-keeping and gambling in the same Las Vegas establishment, why should he not perform similar alchemy 37,000 feet above the ground?

As he sat down to antipasti with Ray Colegate in the Italian restaurant where they had agreed to meet on 11 December, Fields therefore showed no surprise when Colegate announced that Gat-wick-Newark might be his for the asking. The barrister already knew that he would have to argue his case at – a public hearing if another carrier objected to the granting of his licence. He would also have to show that British Atlantic Airways had enough capital behind it to ensure that it would not leave passengers stranded on the wrong side of the ocean if it were to suffer the same fate as Laker. Confident that he could surmount both of these hurdles, Fields drew from his pocket an already completed application for the route, and handed it across the table to the astonished civil servant with a flourish.

Unfortunately, the profits of Fields’s California law practice, augmented by modest loans from his mother and his sister’s American husband, were not enough to turn the paper British Atlantic into an airline with craft, crew and reservations department. Fields knew that he had to find at least another £1m – and since the public hearing was called for 1 March, he needed it within three months. But with memories of the Laker collapse so fresh in bankers’ memories, raising the necessary funding was to be no easy task. One after another, potential backers looked at his business plan with polite interest, promised to call back, and never did.

Trying hard not to sound desperate, Fields telephoned Richard Branson on 13 February 1984, the day before Valentine’s Day. He explained his idea to Branson briefly, and sent around two copies of his business plan: one for Branson himself, the other for Terry Baughan, the nearest thing Virgin then had to a finance director. Two days later, after Branson and Baughan had been through the plan, the three men met on Branson’s houseboat Duende to talk it over.

Branson realized at once that this deal was different from the scores of strange suggestions that filled his postbag every month. Fields’s proposal was not only ambitious. It was also well researched, and supported with some analysis of the kind of traffic that the airline might hope to attract, how many seats it would have to fill to break even, and how its expected revenues would divide between business and economy class. And there was a second attraction: Virgin could afford to carry modest losses for a while, since they would help to reduce the tax bill on the fat profits that the record label was making at the time.

But it was hard to see what relevant experience Virgin had that qualified it to try its luck in the air travel industry. The group had certainly dipped its finger in many different pies: it had in its time published magazines, sold clothes and mail-order records, delivered sandwiches to offices, and dabbled in pubs and restaurants. But its diversifications had generally been modest, and had also generally been confined to businesses in which the company had some expertise that might be helpful. Nobody in the Virgin Group knew the first thing about airlines.

Branson’s most loyal lieutenants were flatly opposed to the idea. Simon Draper was characteristically forthright.

‘It’ll be a total disaster,’ he said to himself as Branson explained his plans over the telephone. But he tried to dissuade his friend diplomatically. He explained that although it might be a good idea, they should hold back nevertheless. ‘You’ll bankrupt the rest of Virgin,’ he said, and added for good measure that if Branson was serious about going ahead with the idea, he should realize that this would be the beginning of the end of their relationship.

Ken Berry, always more quietly spoken, contented himself with the dry observation that the similarities between this proposed new venture and Virgin’s existing businesses were ‘not exactly obvious’. But he left Branson in no doubt that he too believed it would be a mistake to go into business with Fields. If Virgin was looking for new ventures to start whose losses could be offset against the tax that the group would have to pay on the millions it was earning from Boy George and its other moneyspinners, why not stick to ventures in the record business?

Branson could see that there was money to be made in flying the Atlantic. After spending a weekend vainly trying to call the People Express reservations line in London, he had concluded that People was either badly managed or so popular that it could not keep up with customer demand – or both. Either way, there seemed to be an opportunity there. But air travel was still a highly regulated industry in which a newcomer might have to fight with any number of state-owned monoliths, with monopoly profits from their home markets, subsidies from their countries’ taxpayers, and suspiciously friendly relations with politicians and with the regulators who set the rules of the competitive game.

And yet … the world was changing. Laker might have gone bust, but he had not done so quietly. The $1bn legal action he had launched in the British and American courts against the airlines that he claimed had conspired to bring him down was still before the courts, so the big carriers would have to be more subtle in their tactics against any new entrants. The safety and technical issues that had obsessed airline managers and regulators until the 1970s were disappearing, as aircraft had become more reliable and easier to maintain to a high standard. People who had never before imagined that they would travel between continents had begun to do so. In the airline business of the 1980s and 1990s, the skills that would matter would be marketing, good service, and the use of computerized reservations systems to fill the highest possible proportion of the seats on each flight. If People Express could be run by a Wall Street analyst, and British Airways by a former executive of Avis Rent-A-Car, why couldn’t a pop tycoon start an airline?

It did not therefore take long for Branson and Fields to shake hands on an agreement that gave Virgin a 45 per cent stake in the new airline, with Fields himself retaining another 45 per cent through his holding company Fields Investments, and the rest divided between the company’s employees. The day-to-day management of the business was left in Fields’s hands.

One important question was left open.

‘British Atlantic? The name doesn’t really grab me,’ said Branson. Fields replied that it was the best name he could think of, but that if Branson could come up with something better he would be happy to consider it.

A few days later, an excited Branson called back with the news that he had just had a brainwave.

‘How about Virgin Airways?’ he asked.

Fields was no fool. He realized immediately that whatever their shareholding agreement said, it would be difficult to maintain the independence of the airline from the rest of the Virgin Group in the eyes of the outside world if it shared the same name. But Branson was not to be put off. In the end, they ‘compromised’ on Virgin Atlantic Airways. It was only later that they discovered that Branson’s original suggestion would have inadvertently made use of the name of a small Caribbean airline based in the British Virgin Islands. It was only by later paying off the aggrieved Caribbean carrier with tickets across the Atlantic that Branson was able to prevent the other Virgin airline from taking legal action against it.

Once he knew that Branson was prepared to invest, Fields reported the good news to Gardner and Tait. Neither was enthusiastic. Gardner saw Fields’s approach to such an unconventional figure as proof of his lack of understanding of the airline industry. Tait, who had been living in the United States for some time, had never heard of Branson; but he knew that Virgin Atlantic was a crazy name.

As the public hearing approached, Fields became worried that Branson’s lawyers, Harbottle & Lewis, were proving slow to produce a draft contract. He wanted the affair settled; Branson’s signature would be accompanied by a cash influx into the business that would help to restore his dwindling pot of savings. Each successive letter from Fields’s own lawyers about the agreement seemed to include a demand for money more urgent than the last.

On 29 February the two men appeared at a press conference at Maxim’s Restaurant to announce the launch of the new Virgin Atlantic Airways. It was Branson’s name that appeared in the following day’s newspapers, promising to undercut People Express, and declaring his conviction that at least 250,000 British citizens would fly to New York if only the ticket price were low enough. What the assembled journalists did not know, however, was that Branson was not a director of the company. Nor did he hold any of its shares; while his handshake with Fields a fortnight earlier had yet to be formalized, he in fact held no legal interest in the venture at all.

As the toughness of Virgin’s demands was spelled out in detail, Fields’s lawyers became suspicious. They were concerned when Branson demanded that Fields himself should give personal guarantees for the debts of the airline – thus risking being made bankrupt and losing everything he owned if it failed. (There was no suggestion that Branson should do the same.) They also warned Fields in writing that Virgin would ‘be able to control an important function of the company,’ and expressed ‘very grave doubts about the wisdom of the press conference held today.’

Undaunted by these cautions, Fields went off to the Civil Aviation Authority on 1 March to argue his case. The public hearing started inauspiciously. The three-man CAA panel, familiar with his style from earlier appearances, was irritated to discover that Fields had decided to make an impassioned speech himself instead of allowing the lawyer employed by his company to present the case in more measured terms. ‘A man who acts as his own advocate has a fool for a client,’ recalled one of the panel members later. It was not only the panel who were unimpressed: after hearing a report on the first day of the hearing from Colin Howes, his lawyer from Harbottle & Lewis, Branson also decided to come and speak on the second day. His presence soothed the panellists: although none of them had ever heard of Branson before – and were at first bewildered to find this unfamiliar presence from the music business invading their world of dark suits – the Virgin chairman’s answers were convincing, and refreshingly to the point.

The question at issue was straightforward. British Caledonian Airways, which had been forced to wait a dozen years to acquire its own first transatlantic route, was determined to prevent an upstart like the new Virgin Atlantic from winning one in as many months. Specifically, BCal pointed out that it already had permission to fly passengers between Gatwick and JFK from 1985 onwards, and complained that if Virgin Atlantic were allowed a head start in operating the Newark route, the profitability of its own forthcoming flights would be put at risk. Since BCal had shown no great enthusiasm for the competitive North Atlantic run in the 1970s when it had the chance, this argument did not impress the panel. The CAA therefore seized on a detail of Virgin Atlantic’s proposal – that it would run a scheduled daily service in summer, but might fly less frequently in winter if there were not enough passengers – and decided that the new airline counted as a sort of honorary charter airline. Since BCal had said that it would not oppose a charter service, concluded the CAA’s written response triumphantly, Virgin Atlantic’s application should therefore be granted. There was one condition: the airline was given a month to satisfy the bureaucrats that it was ‘financially fit’ to fly.

Until Virgin had a shareholding in the airline, it would not be in a position to make any formal promises to the Authority about underwriting the new venture. Fields had hoped that the contracts would be wrapped up within a matter of hours or days of the 29 February press conference. But, as the end of March approached, the draft agreement did not appear. The night before the two men were due to visit Clifford Paice, the CAA official in charge of financial vetting, Harbottle & Lewis had still not produced the paperwork. It was only by having the papers rushed round for signature at 10 AM on the day of the meeting that the two men were able to answer the CAA’s financial inquiries as formal partners. In accordance with the deal they had shaken hands on, the two partners would have 45 per cent of the equity each, with the airline’s founding employees holding the balance. Each side would have the right to appoint two directors to the company’s board, though Branson would not at first be one. Day-to-day control of the business would stay in the hands of Randolph Fields, who would receive the title of chairman. His employment contract gave him thirty working days’ holiday each year, a car ‘of suitable standard for his business and private use’, but no salary. Instead, Fields was to be paid £25,000 out of the first £1m that the airline made in profits, and five per cent of whatever profits it made after that.

With the helpful publicity generated by the newspapers, it had been a relatively easy matter to argue in the public hearings that a new carrier between Gatwick and Newark would help bring low-cost transatlantic travel to the masses, and would give a British business a chance to compete on a route dominated by People Express of the United States. But the financial experts at the CAA proved harder to please. Refusing to accept Fields’s most pessimistic scenario, they started from the assumption that the airline would lose money heavily for most of its first year of operation, and demanded that £3m be injected into the company, either as share capital or as a loan from another Virgin company, to cover that eventuality. Under protests from both Branson and Fields, it relented. The airline need not come up with cash, said Paice; instead, the Authority would be happy to accept Richard Branson’s offer for Virgin to guarantee whatever losses the airline might sustain.

This was not surprising to Fields, for he knew how conservative a view the Authority was apt to take of airline financing. What shocked him was Branson’s reaction to the CAA meeting when they met back on his houseboat that afternoon. Without preliminaries, Branson told Fields that the contract they had signed that morning would have to be torn up.

‘My bankers won’t let me do it,’ said Branson. ‘Unless we control the company, we’ll have to walk away from this deal.’

Fields was crushed. He had come so close to realizing his dream; it would be cruel indeed if the prize were to elude him at the last minute. Recovering his dignity, he told Branson that he refused to be squeezed, and immediately left the boat with his lawyer to return to his chambers at Gray’s Inn.

‘Don’t worry,’ said the lawyer on the way back. ‘He’ll call you within twenty minutes of our return.’ When the two arrived, Branson had already left three messages. He was more malleable when Fields returned his call.

‘All right, Randolph,’ he said. ‘You win.’ But he was concerned that his attempt to renegotiate their earlier agreement should not sour the relationship. ‘It wasn’t me,’ he explained. ‘It was the bankers. I didn’t want to do this to you. I was forced into it.’

Fields slept more soundly that night than he had done for months. The next morning, however, Branson was back on the telephone, harking back to the issue that Fields thought had now at last been settled. Once again he was demanding a greater share of the equity, and pleading that his advisers would not allow him to continue to support the CAA application on the terms they had agreed.

‘Dear Randolph,’ he wrote in a letter on 26 March.

Please put yourself in my position. We have now been asked to give both unlimited guarantees to the CAA and to commit ourselves to Boeing for $13m [for the 747 whose lease they were negotiating] at a risk to us of $3,241,000. Furthermore – tomorrow – we have to outlay a considerable nonreturnable deposit. Unless we go with Boeing tomorrow, I don’t see this venture getting off the ground in time for the summer.

I genuinely didn’t want to reopen negotiations. But – with the massive extra risk that we are having to incur – it would be irresponsible for me not to … If you want us to work together and for us to give this venture the 100% support it needs, it has to be on terms we feel comparatively comfortable with. At the moment, we feel very uncomfortable.

Fields retorted that Branson’s demands were quite unreasonable, since he had known at the outset the risks that would have to be taken on. Yet still the pressure did not let up. On 2 April, just before the final meeting with the CAA at which the capital requirements were to be formally settled, Branson wrote to him once again – this time a rambling letter composed in the early hours of the morning.

Dear Randolph

Since I am having difficulty sleeping, I need to put my thoughts down on paper since tomorrow morning will be make or break day for the airline. I desperately need you to understand before everything is lost … Neither of us are [sic] holding a gun to the other’s head. Either one of us could throw everything away tomorrow. And I believe that if either of us applied to the CAA later, the chance of success another time (after what will be seen as something of a fiasco) will be nil.

Two days later, Fields gave in. He signed away majority control of the airline to Virgin, in return for a £200,000 cash payment to cover the investment he had already put in. The employees who owned what might have been a controlling 10 per cent stake were faced with a fait accompli. They might not have succeeded in blocking the new deal even if they had wanted to; and had they tried, Branson’s withdrawal from the CAA application would have reduced the value of their shares almost to nil in any case. Roy Gardner, who had served Laker for years without receiving a single share, allowed his two per cent stake in Virgin Atlantic to be bought out without a murmur of protest. ‘I thought it over for about five minutes, and then decided to stay with the company,’ he later recalled.

Fields signed because he knew that Branson had him in a stranglehold. Without the Virgin guarantee, the airline would have no chance of starting operations in 1984. If he wanted to run an airline, it must be on Virgin’s terms. After all, what hold had Fields himself over Branson? He had come up with the idea in the first place, and brought it to the houseboat; but now that Branson was aware of the opportunity, it was no longer of any value. Fields had done a great deal of work estimating traffic flows and had a detailed business plan – but Virgin had enough accountants to produce business plans of its own. He had identified a second-hand aircraft, and had thoughtfully sent Branson a model on which the Air Canada red stripe down the fuselage was left intact but the Virgin name was painted on the tail; but there were plenty of other 747s that would serve the purpose just as well. He had a team of good people, salvaged from the Laker wreck; but talented employees could easily be lured away. His only asset was a licence application that was nearing regulatory approval – in the name of Ritter PLC, Fields’s holding company.

What Fields did not know, though, was that Branson had already made a discreet approach to Clifford Paice at the CAA to find out what the Authority would think of an application that did not carry the name of Randolph Fields. Had the regulators been willing for Branson to proceed without his partner, Virgin might have been able to start an airline of which it owned 100 per cent, rather than just 75 per cent, and to run it exactly as it wished. But the message that came back to Branson was politely discouraging. Although he was as welcome to apply for permission to fly a route as anyone else – and would have a good chance of succeeding, given the assets that he was able to bring with him – he could expect no special treatment. The application would have to be officially published by the CAA; other airlines would have the right to object, as they had done to the Fields application, and there would have to be another public hearing, and another investigation into financial fitness. If Branson wanted to part company from Fields, he should give up hope of flying any passengers in 1984.

While there was still a chance that he might be allowed to ditch his business partner, Branson had an incentive to postpone the signature of the shareholders’ agreement. Once he understood that he and Fields were in it together, however, there was no point in further delay. The contracts could be signed, and it was up to Branson to secure as much of Ritter PLC for himself as he could. By increasing his shareholding from 45 to 75 per cent in less than a fortnight, he had certainly made a good start.

For his part, Fields was no more than dimly aware of these calculations. He believed himself still to be secure. He knew that Branson now had a controlling stake in the business, but his minority shareholding still gave him significant protection under British company law; and his position as chairman of the airline, with executive control of its daily management, seemed unassailable. Virgin Atlantic’s board, he had agreed with Branson, would be made up of four directors, two nominated by Fields himself and the other two by Virgin. Only if it had reason to be concerned about the firm’s management or its finances would Virgin have the right under the agreement to appoint a fifth director.


SEVEN (#ulink_472990dd-60f1-5a28-8814-7d6cbaeb9f71)

To Market, To Market (#ulink_472990dd-60f1-5a28-8814-7d6cbaeb9f71)

‘’ALLO,’ SAID ROD VICKERY.

The man in the suit looked up from his desk, and threw a critical glance at Vickery’s long hair. His eye took in the earring and moved down over the open-necked casual shirt, the jeans, and the highly polished cowboy boots.

‘Hello,’ he replied tentatively, ‘I’m Don Cruickshank, the new MD. And you are?’

Vickery explained quickly that he was in charge of the company’s car fleet, and dealt with its insurance and its property holdings. He had heard that this was Don’s first day, he said, and since their offices were next door to each other, thought he should come and introduce himself.

They made an odd pair, wandering around the cramped Virgin offices in Ladbroke Grove. Vickery was the cockney wide-boy, affectionately known inside the company as Virgin’s Arthur Daley, the man who used to tease the public schoolboys close to Richard Branson by pretending that he had graduated from Oxford University instead of Twickenham Art School. Cruickshank, his new neighbour, was fastidious, cerebral, and quietly spoken – and had ‘management consultant’ written all over him. Yet it was Cruickshank, not Vickery, who was the odd man out. Why, wondered the people Vickery introduced him to, had Richard brought in this man to run the Virgin Group?

Though only a handful knew it at the time, the reason was straightforward. Ten years after the foundation of the record label, nearly fifteen after the first discount LPs had been sold by mail-order, Branson had decided to take Virgin public. Knowing that the group would need some tidying up before it could be sold to investors on the stock market, he had resolved to bring in a manager from outside who could groom the company for its coming listing and who could reassure the City that someone who sympathized with its interests was inside.

Given the sensitivity of the appointment, and the special qualities that would be required of someone who could fit tolerably into the Virgin corporate culture while doing this job, Branson had been careful not just to accept the first recommendation of an outside firm of headhunters. In appointing Cruickshank, as with so many other people, the Virgin chairman relied on personal connections. David Puttnam, the film producer who made Chariots of Fire, had told Branson that he was talented and reliable. Robert Devereux, Branson’s brother-in-law, had a healthy respect for his negotiating abilities, having dealt with him at Goldcrest Pictures during one of Virgin’s sorties into the British film industry. Simon Draper had known nothing about him, but had met Cruickshank over lunch and come away with the conclusion that he was ‘serious’.





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