I’ve failed to follow my own advice here on a couple of occasions — and I’ve always regretted it. For instance, I’m not always good at cutting my losses. I should have faced up to the realities of the market and sold off Virgin Megastores years before we did. My decision to overrule my colleagues and hold on to them for too long cost us a lot of money, only balanced by the fact that the chain’s very existence and brand was the distributing channel and bedrock of the early success of Virgin Mobile.
I don’t think that a chairman need fall on his sword if someone messes up in the company. Chairmen must learn from the incident and try to make sure that particular mistakes are never repeated. An apology on behalf of the company — perhaps in a public forum, sometimes in person to the individual who has been messed up — is an appropriate starting point. I know business books that say you should never admit to failure, but I would not tolerate such an attitude among my people. I see nothing wrong with admitting a genuine mistake.
An entrepreneur has to make the tough calls. Some say it requires a ruthless streak. I don’t agree. I don’t think I’m ruthless, although I have been portrayed that way by a few people who don’t really know me and have never met me. There are some things in my business life that I regret — and I have made mistakes about people. One of my faults is that I have often been so focused on a business project or an idea that I have been unable to appreciate what was going on in someone’s life right in front of my nose. I’ve tried to learn from this, taking extra time to listen. Actually, I think it is counterproductive to be ruthless.
Let’s be clear about the manager’s responsibilities here. There’s an idea abroad that people no longer resign when they should. To hear some people spin it, you would think resignation is the only effective action the manager of a troubled company can take. This is patent rubbish. And for the record, there never was a time in business or political history when talented people resigned over trifles, or out of some notion of honour. It’s a myth.
If something catastrophic happens to a company, and the chairman actually appointed that person who caused this systemic failure of the business, then the chairman certainly needs to consider his or her position. If a major bank does not have the security systems in place to protect itself from a rogue trader, and that trader does immense damage to the company, then, yes, the chairman or chief executive should probably consider resigning their position. They are ultimately responsible.
In most other cases, managers should stay where they are and sort their messes out. It’s what they’re paid for, after all. Most importantly, someone should apologise for the mess happening in the first place.
You definitely should get the best people around you when confronted with a serious problem. Don’t try to deal with it all by yourself. Don’t be afraid to seek help and advice. If someone else is better than you at dealing with it, then for goodness’ sake delegate it. And equally for goodness’ sake, don’t jump down their throats if they fail.
My management team reckon 2003 wasn’t exactly a vintage year. That was the year Apple’s first iPod personal music player was emerging. We had a couple of very bright people from Palm who came over with their own funky version of the MP3 and a range of accessories. The analysis didn’t truly stack up according to the management team but I insisted we push on with it: our very own MP3 player, Virgin Pulse! We had to make some heroic assumptions about how to scale up because we were buying the devices from China and Taiwan. We spent $20 million on designing and bringing it to market — and our products were critically acclaimed in the United States — but it didn’t have the simplicity of the iPod and the cost of manufacturing just throttled us out of the marketplace. Apple had taken a leaf from Texas Instruments, the pocket-calculator experts who dominated their market for many years. If you drive down the retail price fast enough when you are the dominant player, you never allow anyone else to catch up because they can’t make enough money. It requires the dominant player to be brave, because it can mean cannibalising your existing sales by dropping the retail price. That’s what happened when iPod introduced the cheaper and smaller iPod nano — it slammed the door on anyone else trying to build significant market share beneath them. The Virgin Pulse bombed and we had to write off $20 million.
It’s often hard when you’re focusing on the day-to-day in business to admit that what you thought was right becomes wrong. For example, we put a truly innovative upper-class seat on Virgin Atlantic’s planes in 2000. However, we took too long to develop them and did not keep the project secret enough. British Airways got wind of what we were up to (and even got hold of our plans) and out-innovated us with a better seat. Customer feedback was swift and brutal. People were voting with their credit cards and travelling with other airlines — and our airline began to suffer. We could have kept the seats until they depreciated, but we decided the mistake was just too ghastly to live with. We cut our losses and dumped them. The cost to us? ?100 million. The benefit to us? We now have the best business-class flat beds in the world, designed by our own team, and we have created a product our rivals cannot match. We have easily recouped our losses with this decision.
It’s embarrassing to admit this stuff, and I think it’s a fear of embarrassment that discourages many chairmen and bosses from doing their jobs properly. It’s all very well sitting there wondering why your business is disappearing, but it’s only by getting out from behind your desk and sampling the products that you will ever see what’s going wrong. When you have found out what is going wrong, the next step is to get the team involved to fix it rather than fire them. That way, you can keep your team together and close the door on rivals who might benefit from your mistakes by hiring the very people who have just learned the lesson the hard way.
Starting a soft-drinks war with Coca-Cola was crazy. It was one of our highest profile business mistakes, though it was also one of the things that raised the profile of the Virgin name in America. Launching Virgin Cola in 1994, we were having fun and revelling in underdog bravado, so pleased to be snapping at the heels of the biggest dog in town. Taking on Coke taught us two things: how to make a great cola with a different taste; and how to antagonise a global business that brought in $28 billion in 2007, with profits of $5 billion.
It was only several years later that I learned how Coca-Cola eventually set up a SWAT team to ensure that Virgin Cola never got a proper foothold in the soft-drinks market. Yes, we somehow contrived to blind ourselves completely to the power and the influence of a global brand that epitomises the strength and reach of American capitalism.
Here’s how we did it — and, whatever you do, don’t try this at home.
The Virgin Trading Company, a wholly owned Virgin subsidiary, was our beverage start-up division. Virgin Spirits, a joint venture with Scottish whisky distiller William Grant, had been established to market and distribute Virgin Vodka. You can still enjoy a bottle of Virgin Vodka — it’s available on Virgin Atlantic flights, along with our special Glenfiddich Scotch whisky.
The Virgin Cola Company was a joint venture with the Canadian soft-drink company Cott Corporation, the world’s largest supplier of retailer own-brand soda drinks. Cott bottled own-brand products for such chains as A&P, Loblaw’s and Safeway in Canada and Albertson’s, K Mart, Safeway, 7-Eleven and Wal-Mart stores in the United States. Virgin Cola was introduced in the UK in 1994 and we originally achieved success in the pub and restaurant trade. I was convinced by the late Gerry Pencer, the chief executive of Cott Corporation, that we were in a position to make a strong bid for a portion of the global market. After all, Cott had customers in Australia, Britain, Hong Kong, Israel and Japan, and these were key markets for us. But Cott baulked at taking on Coke directly. We should have listened.
We knew there was a lot going on behind the scenes. One of Tesco’s main buying team, John Gildersleeve, a senior director who was a non-executive of several companies, had indicated that they would take one million cases of Virgin Cola. The next we heard, he had told Simon Lester at Cott that they wouldn’t be supporting us after all. This was three weeks before the launch — and the invitations had gone out for the event at Planet Hollywood in London.
I phoned John to ask why the change of heart. He said: ‘It was a very fine decision — the door’s not completely closed.’ He knew I wanted to make a press announcement, and he knew I needed the confidence of having a major retailer on board. ‘But we have two concerns. First, there are some commercial considerations. They can be resolved. But second, there’s this whole question of the brand positioning and what it might do for us.’
He explained to me that a solus arrangement — an exclusive deal with Tesco — is a two-edged sword. He said Tesco would be identified with the product whether it was good or bad. If I got fed up with it in three months’ time, it would reflect on Tesco — good or bad. He said when Sainsbury’s launched their own Classic Cola, Tesco adopted a position that they would only sell ‘The Real Thing’.
John said that he was worried that we might be a bit inflammatory in the way we attacked Coca-Cola. He pointed out that Coke had been very good customers for Tesco and the last thing he wanted was Coke being taken out of his stores. This was an honest opinion that I respected. I could see Tesco’s position, but it was very
