Business Stripped Bare

didn’t have an array of TV channels — only BBC and ITV — and computer games were the playthings of superpowers, who used them to target their deadly arsenals of nuclear weapons. So for young people most of their time and energy was spent on music — and that meant buying records. It was the one luxury kids had. Anticipating a new Led Zeppelin, Yes or Queen album kept us going for weeks.

In the 1970s and 80s, album releases were monumental events; and we built a business on the back of them. I think there are some interesting business lessons that still apply today from the creation of Virgin Records. After all, the progressive-rock music business was then in its infancy, and Virgin Records was there from the start.

When we started Virgin Records, mainstream crooner Andy Williams and avant-garde rocker Frank Zappa were in the same alphabetical A–Z racks in Woolworths. While the 1960s had witnessed an eruption in pop music and rhythm and blues groups — led by the Beatles and the Rolling Stones — the old record labels run by big business still dominated. There was no discounting of music, and the industry that existed was very conservative and stuffy. It was presided over by middle-aged guys who listened to string quartets. Most recording studios were sterile and expensive factories set up for only a few recording takes, and music shops with their perforated hardboard sound booths were stuck in the 1950s. There was little excitement attached to buying music. And there were only a few radio shows where you could hear decent rock music.

In the spring of 1970, we decided to create a mail-order service that sold the kind of music we liked: a record company that was outrageous, irreverent and long-haired. That flavour established Virgin, sowing the seeds of what it has become today. From day one, young people identified with it because it was so different.

As well as the American magazine Rolling Stone, there were two British weekly music newspapers when we began. Melody Maker was a serious rock and pop paper, with reviews that also covered folk music and jazz. Although it was a must-read, the writers were rather worthy and full of their own self-importance. And there was New Musical Express, or NME, which was more pop-orientated and somehow stuck in the sixties. Then a new arrival, Sounds, with its tagline ‘Music is the Message’, came along.

Sounds was first printed on 10 October 1970 and I was on the phone to the advertising department to secure some cut-price adverts. I’ve always believed in trying to get into a new publication that is trying to break the mould. Sounds was a magazine that mattered for our success. It was right in our marketplace. It sold 200,000 copies in its first week and gave the opposition, Melody Maker and New Musical Express, a bit of a fright. Sounds’ first rock album chart was dominated by Black Sabbath’s Paranoid, the Rolling Stones’ Get Yer Ya Ya’s Out, Led Zeppelin II, Deep Purple in Rock and Cosmo’s Factory by Creedence Clearwater Revival. These would be the albums that our mail-order business would sell. Unfortunately, there were some dreadful anomalies in the charts too, such as The World of Mantovani. His world would be banned from Virgin Records. So too was Andy Williams.

For this start-up business there was a basic flaw — we didn’t have any credit. We didn’t have any references either, which meant the record companies wouldn’t supply us. So we took out adverts in the music press and I managed to get a deal whereby I could pay for them a month in arrears. We didn’t have any records either, so we went along to Ray Larone’s company in Notting Hill Gate. We’d buy them from him at a discount and then mail them out to our customers. That way, we had the cash in from the public before we bought the records and paid for the advertising. This is how we got the business up and running.

When I hear of today’s entrepreneurs launching new businesses by putting all their debt on their credit cards, I think that this pretty much parallels what we were doing with Virgin Records. I’m not going to sit here and say, ‘Don’t do it.’ But if you do do it, you have my sympathy. Self-funding your first business is cripplingly difficult.

Ray’s tiny shop soon became one of the biggest record sellers in England. The record companies’ lorries would turn up with piles of packages of records, and we would have a lorry outside the back of his shop and then take them off to our office, which was in the crypt under a church in Bayswater.

From the first, our image and sales pitch were vital assets. (We had precious few others.) During the early days in South Wharf Road, we all contributed, but John Varnom was the one who made a difference. He was off- the-wall, utterly unreliable, and very creative. He wrote our adverts in a Victorian-gothic style of self-parody but also an early Virgin brand-message of the future: that quality could also mean value for money.

‘There must be something wrong with them.’

‘There isn’t.’

‘They must be old, bent, cracked, wizened, split, warped, spoilt, scratched and generally too hideous to contemplate.’

‘They aren’t.’

‘They can’t be smooth, glistening, perfect, unblemished, miraculous, black and shiny like those you get in the shops.’

‘They are.’

‘But surely there must be some difference, some gap, abyss, divide, chasm, canyon or other unusual feature?’

‘There is.’

‘What is it then?’

‘They cost less.’

We all rolled up our sleeves, stuffing brown packages with cut-price Virgin mail-order albums by Led Zeppelin, Pink Floyd, Jimi Hendrix and the Rolling Stones. We were all paid the same, ?20 a week, and it all had a very hippy, communal feel. ‘Five to fifteen bob off any album on any label’ — that was our sales pitch. And we were now working flat out on the mail-order business to cope with demand. The record companies realised we were the mystery behind the huge success of Ray’s little record shop — and so they extended credit to us directly.

But we weren’t making any money. Over the years I’ve met a lot of old customers who were in on a scam. Irate people would phone up or write a letter and say they had never received their rock album. We had no proof that it had gone out because in our office it was all so chaotic, and proper accounting methods were unheard of. So we would send out another album. Our profit margin was so tight that doing this regularly — and we did do it regularly — was wiping out any of the money we made. This was one of the biggest business lessons I learned. Turnover can be huge, but it is the profit margin that matters.

Still, the Virgin Records brand was getting noticed. Typical sales were several thousand LPs each week. It all had potential. Then disaster struck, and here I learned another key fact about running a business: try to have a plan B.

In October 1970, the postmen and women of Britain began a bitter dispute for more pay. The strike lasted forty-four long and desperate days for us — and our business dried up. We needed to diversify the brand. Fast.

We took out adverts in the music press. A half-page on 6 February 1971 announced that we had now opened a small shop at 24 Oxford Street. I’d managed to secure a decent short-term deal on the rent of the first floor of a three-storey shop, next to a secretarial college, and upstairs from NU Sounds.

To combat the downturn we needed to get people into our shop. We increased the advertising campaign with ‘A step-by-step guide to Virgin Records’ new joint in Oxford Street’. The puns continued — ‘They are no dopes at Virgin Records. That’s because all our customers are cool. They know a swell joint when they see one.’ We offered more than records; we had coffee, cassette tapes, posters and headphones, all within thirty seconds of Tottenham Court Road tube station. Some reckon that our staff sold even more than this, but I don’t think I can comment about what they did in their spare time.

By the end of 1971, we were buying full back-page adverts declaring we were: The Firstest, Bestest, Cheapest. Another advert began: ‘Ha, ha, ha, ha. This is our managing director giving a customer money. Chap tried to pay full price for a record.’

In some ways not a lot has changed. In 2008, if you’re sitting on a crowded tube train on the Central line in London, you can look up and read our advertising for Virgin Media and it still carries the same tone of gentle irreverence. Even in the early days we were promoting convenience and customer choice — only in a different dimension.

Back in 1971, someone had a bright idea. We should open a recording studio, too. Tom Newman, one of the original crew at Virgin Records, originally suggested we set up a four-track recording studio in the crypt. Meanwhile,