Why Branson is suddenly getting a poor press
Jeremy Warner On How Virgin is becoming the butt of Britain's anti- business culture
Saturday 21 February 1998
Both the Economist and the Spectator have this week challenged the financial credibility of Mr Branson's burgeoning business empire, Panorama has broadcast a knocking programme about Virgin Trains, his Channel Tunnel Rail Link consortium has collapsed, and there is a growing whispering campaign against him in the City.
What's going on? Is the Virgin empire really in difficulty? Or is this simply another case of Britain's penchant for doing down successful entrepreneurs, a symptom of our generally anti-business media and culture. Or perhaps this is just Mr Branson falling victim to his turbo-charged publicity machine. Those that court the limelight should not be too surprised when journalists and others start critically nosing around in their affairs.
Neither of the two magazine pieces told us anything we didn't already know about Virgin, or at least suspect. The Spectator article was, in any case, largely inaccurate polemic. Certainly it is common knowledge in the City that none of the Branson empire outside Virgin Atlantic makes much money, but then because many of these businesses are still in their start-up phase, that hardly comes as a great surprise.
It is also generally known that Mr Branson hides the secrets of his finances behind a cloak of secretive offshore holding companies. Again, this is not uncommon among billionaires. By the same token, it is also entirely reasonable in such circumstances to ask, why the mystery? Could he be hiding something?
Even so, Mr Branson does not, on the face of it, seem to be in any more trouble financially now than he's ever been. In fact, he insists, with cash generation at more than pounds 150m a year, the Virgin group has rarely been as healthy. Almost all his new ventures are externally financed by strong outside partners. Even the much and deservedly maligned Virgin Trains is claimed to be ahead of budget and on schedule for a stock market float this summer.
Financially then, the true position seems to be the very reverse of what is suggested, so much so that Mr Branson can confidently plan for many of his businesses to be listed over the next few years in London and elsewhere. But even if this were not the case, even if the empire were on the brink, does it actually matter to anyone other than Mr Branson, his partners, bankers, creditors and employees? Probably not. Because Mr Branson's is a privately owned and run empire, there aren't any shareholders potentially disadvantaged or deceived by his secrecy.
Moreover, the present absence of dividend-demanding outside shareholders to answer to may enable Mr Branson to take a longer-term view on investment and growth than would be possible for a publicly listed company. This, in any case, is what Mr Branson claimed in the late 1980s, when after an unhappy few years as a publicly quoted company he took his interests private once more. Certainly, he would be unable as a single publicly quoted company to engage in the same range and diversity of entrepreneurial activity and start-ups.
So why the knocking copy? One possibility which shouldn't be entirely discounted is that this is just more dirty tricks - competitors trying to undermine him. It happened once before, with British Airways, so it could happen again with some of the other entrenched monopolists offended by Mr Branson's combative business ventures and style. Both Pepsi and Coke have a powerful interest in doing him down, as does Camelot, and the big high street banks with Virgin Direct. All these companies will be smiling broadly about Mr Branson's bad press, even if they didn't initiate it.
But actually, all this has probably got much more to do with the fascination of Mr Branson and his astonishing success than anything else. In his relatively short business career Mr Branson has managed to create one of Britain's most widely recognised brands internationally. The only one I can think of which might come close is, ironically, British Airways.
Behind it all, however, lies a business empire of surprisingly little substance. That's not sot say Virgin is small or insignificant in business terms. Plainly it is not. But set against the extraordinary reputation and presence Virgin has achieved both domestically and internationally, there's not a lot there. As the Economist tells us, moreover, much of it is loss-making. If Mr Branson succeeds, he will over the next 10 years correct that position. The size of the business and its profitability will begin to match the fame of the brand.
This is the reverse of how most companies achieve reputation and brand recognition. Usually brand awareness stems from a particularly desirable and innovative product. In Virgin's case it seems to be the other way round. The name has a power and persona all of its own, which Mr Branson and his partners are using to target the soft under-belly of entrenched monopolies operating across a range of commodity products and services.
There's nothing unique in this approach. Mr Branson has compared it to the keiretsus and chaebols of the Far East - linked families of companies operating across a range of different industries - but there are some parallels in the West too. For instance, Nike is attempting to use its hugely powerful sports apparel brand to force its way into related but until recently quite separate areas of the market like sports equipment.
In Virgin's case, part of the reason for this brand-first, product-later approach is historic. The brand originally grew out Mr Branson's activities in the music industry, which were sold to EMI in 1992. Mr Branson's career since then has been devoted both to nurturing and developing the Virgin image, and to finding new businesses in which to exploit it. The only obvious failure so far has been with Virgin Trains, whose poor service quality has begun seriously to detract from the Virgin image elsewhere.
Most of these problems appear to have been inherited from British Rail, but enough of them are of Virgin's own making as to raise doubts about the quality of management more generally. Even so, none of this seems to me to warrant a blanket debunking of Mr Branson. When there's good cause for this, I will be among the first to pick up the pen. But in truth, Mr Branson is just a clever and accomplished entrepreneur. I suspect that one of the reasons he's getting a bad press is that very human thing - that we just love to build people up to knock them down.
We also still have a tendency in Britain to mistrust business success, even when it comes from someone as apparently user-friendly as Mr Branson. For all Mrs Thatcher's efforts, she failed to shift this anti-business undercurrent in British culture. The fact that Mr Branson has done so much himself to change perceptions, and make entrepreneurialism something British people aspire to once more, is in itself an admirable thing.
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