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Virgin Group: Reaching for the Sky in a New Economy

       Sir Richard Branson has assembled a collection of companies under the umbrella

brand of “Virgin.” Branson has repeatedly confounded analysts with his ability to spot

emerging trends and profit by them. One senior executive at Virgin describes the

company as a “branded venture-capital firm.” (1) Branson has continually redefined

Virgin’s business operations, branching out into a variety of ventures but always

capitalizing on his exuberant entrepreneurial spirit.


Richard Branson: Young Entre preneur

        Born in 1950, Branson’s first entrepreneurial venture emerged when he was a 16-

year student at a boarding school. He founded a magazine called Student to address

contemporary issues of the time, such as the Vietnam War and the Paris student uprising.

While raising about $6,000 over a six- month period to fund the magazine, Branson

recruited well-known celebrities  like Jean-Paul Sarte and Vanessa Redgrave, among

others  to be interviewed or to write for the publication. (2) Branson, with his

brashness, extraordinary ambition, and passion for success, went on to become a

billionaire entrepreneur.

       The magazine was followed in 1970 with a venture into discount records. Branson

and Company ran ads in a mail-order catalog and an increasing number of individuals

purchased discounted records from them. Then his group from the magazine found an old

shop, cleaned it up, and started a discount record store. Searching for a name for the

business, three options were identified: “Slipped Disc,” “Student,” and “Virgin.” Since

they were all virgins at business, the Virgin name was selected. (3) It quickly became the

largest discount music megastore chain in the world.

       In 1972 Branson branched out into the music recording business with Virgin

Records. His first recording artist, Mike Oldfield, released “Tubular Bells” and went on


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to sell over 5 million copies. When punk rock became popular, Branson signed the Sex

Pistols, a group no other recording studio would touch. Other groups included Genesis,

Simple Minds, Culture Club, Phil Collins, and the Rolling Stones.


Moving on to Othe r Ventures

           Other people might have been content with their early success, but Richard

Branson was not finished. Running his business interests out of a houseboat on the

Thames River, he launched Virgin Airways in 1984 (now Virgin Atlantic) with a single

jumbo jet. Taking on British Airways, he sued them for alleged dirty tricks and won. The

airline is famous for its offbeat perks, including massages and premium first-class

service.

           Branson also refuses to follow the industry leaders. As many airlines drop fares

and cut service in order to compete for passengers, Branson keeps Virgin Atlantic

focused on reasonable fares and unique customer service, including ice cream with

movies, private bedrooms, showers, and exercise facilities.

           Looking back on his various business ventures, Branson says, “I started the

magazine because I had a passion for what I was doing. That’s also why I went into the

airline business, even though everybody I talked to told me that there was no money to be
made there. I felt that I could make a difference. That’s the best reason to go into

business  because you feel strongly that you can change things.” (4) Branson’s

business objectives from the start have been to be noticed, have fun, and make money by

constantly starting new firms. (5)

           Over the years, Virgin Group Ltd. has created over 200 new businesses,

employing over 25,000 people, with revenues exceeding £3 billion (US$ 5 billion)

annually. (6) Virgin Group Ltd. currently has business interests in planes, trains, finance,

soft drinks, music, mobile phones, holidays, cars, wines, publishing, bridal wea r — and




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more. (7) Virgin doesn’t represent a business so much as it represents a business- making

machine. (8)

       When Virgin starts a new business, it is based on solid research and analysis. The

company reviews the industry and puts itself in the customer’s shoes. Virgin asks several

fundamental questions: “Is this an opportunity for restructuring a market and creating

competitive advantage? What are the competitors doing? Is the customer confused or

badly served? Is this an opportunity for building the Virgin brand? Can we add value?

Will it interact with our other businesses? Is there an appropriate trade-off between risk

and reward?” (9)

       Not everything touched by Branson turns to gold. He was forced in the early

1990s to sell his beloved Virgin Records to Thorn EMI to secure the survival of his

Virgin Airlines. As a result, Branson now employs a strategy of using wealthy partners to

provide the bulk of the cash necessary to run a business, with Virgin providing the brand

name recognition in exchange for a controlling interest in the venture. Rather than mixing

with investment bankers, he has a habit of keeping his companies private — preferring to

sell off chunks of his empire to fund new business startups. His sale of a 49 percent share

of Virgin Atlantic to Singapore Airlines for $979 million provided him the needed cash to

plow into his Internet ventures. (10)

       Although Virgin represents a late arrival to the Internet, Branson has attacked the

venture with the same enthusiasm as his previous business startups. Many of his business

interests already had a presence on the Web, including Thetrainline.com, a joint venture

with the British transport company, Stagecoach. The site sells tickets for Britain’s 23

train operators, has over 1.8 million users, purchases of $2.5 million weekly, and is

adding 55,000 new users each week. (11) By transferring an airline-type reservation

system onto the Net, Virgin earns 9 percent of every ticket booked. Virgin will sell

competitors’ services right alongside its own. What Branson is hoping to do is leverage

his presence into a “cyberbrand” with a premium presence on the Web.


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       “Virgin’s approach to the Net has been very clever,” claims Simon Knox,

professor of brand marketing at the Cranfield University School of Management in

Bedford. “Each launch of a new business builds upon the one before, rathe r than

developing isolated branded businesses.” (12) Others, like Michael Arnbjerg, with the

market research firm IDC in Copenhagen, disagree. He argues that: “Virgin can leverage

its brand in certain market sectors, but that’s not enough to become a major player.” (13)


Expanding the Business Portfolio

       The Virgin Group’s main focus is on providing services rather than on producing

products. To help fuel its services growth, Virgin actively seeks business proposals from

the public via its Web site. “If you have a fantastic idea for us, then we’re all ears! We’re

always on the lookout for fresh ideas to improve our current companies and to create

brand new ones.” (14)

       In soliciting proposals, the company emphasizes that: “Virgin is famous for its

down-to-earth good value and service, so all new ideas will need to reflect these values.

We also have a great sense of fun, and we like to do things just a little bit differently from

the rest.” (15) Virgin asks people who submit business proposals to address the following

issues: the nature of the product or service idea; the business sector into which this idea

fits; the idea or project’s current stage of development; the proposal submitter’s

involvement in the project, as well as the role he/she/they would like to maintain; the

reason for approaching Virgin and the anticipated role of Virgin in the project; and an

assessment of the venture’s potential. (16)

       Virgin says that it respects the intellectual property rights of all new business

proposals that it receives. The company notes, however, that it receives “hundreds of




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proposals which are often similar to those suggested by others, or to ideas which we have

developed internally.” (17) While only a few submitted proposals actually move forward

in the business development process, the ones that are most likely to be successful are

already well developed, have large scale potential, and can be implemented quickly. (18)

       What does the future hold for Sir Richard and the Virgin Group? If history is any

predictor, the company’s portfolio will continue to embrace a wide range of businesses

that have the potential for providing quality service in a fun and different way.


Review Questions

1. What are the key strategic questions that the Virgin Group asks when starting a new

   business venture?

2. How has the Virgin Group established a competitive advantage?

3. How would you characterize the corporate strategy of Branson’s Virgin Group?

4. What are the main advantages and disadvantages associated with Virgin’s solicitation

   of business proposals from the public to help grow the business?


You Do the Research

1. Examine the range of businesses that fall under the Virgin Group’s corporate

   umbrella. Does investment in these different businesses make sense from a business

   strategy perspective? Why or why not?

2. Do a SWOT analysis for Virgin Group Ltd.

3. How dependent is the success of Virgin on Richard Branson? If something happened

   to him, would the company be able to survive?




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Case Endnotes

1. Hamel, Gary. “Bringing Silicon Valley Inside,” Harvard Business Review,
    September-October 1999, 71 - 84.
2. Rosenfeld, Jill. “Training to Work,” Fast Company, August 2000, 77+.
3. “Richard Branson’s Virgin Success: The Incredible Triumph of an Enigmatic
    Entrepreneur,” http://www.execpc.com/~shepler/branson.html.
4. Rosenfeld, op. cit.
5. “Richard Branson,” Askmen.com,
    http://www.askmen.com/men/december99/6_richard_branson.html.
6. Hamel, op. cit.
7. Virgin Group homepage, http://www.virgin.com.
8. Hamel, op. cit.
9. “The Virgin Story,” http://www.virgin.com/aboutus.
10. Capell, Kerry. “Virgin Takes E-wing,” Business Week e.biz, January 22, 2001, EB30-
    EB34.
11. Ibid.
12. Ibid.
13. Ibid
14. “Business Proposals,” http://www.virgin.com/aboutus.
15. Ibid.
16. Ibid.
17. Ibid.
18. Ibid.




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