Business Branson Style
Billionaire entrepreneur Richard Branson got an early leg-up with a loan from his aunt. Still in his teens, he already had a few ventures that had gone south—growing Christmas trees that were eaten by rabbits and raising parakeets with reproduction rates that far outpaced demand. But he felt good about this latest venture. And things did work out for Sir Richard. He repaid Auntie Joyce—with interest.
Branson knows handshake loans between family and friends provide the venture capital that gets many small businesses off the ground—and in his case, into orbit. The money he borrowed from his aunt helped take his discount record business to the next level: Virgin Records, the genesis for an international empire of more than 300 companies under the iconic Virgin brand.
One of Branson’s latest ventures is Virgin Money, a financial services company that formalizes personal loans between family and friends. Branson bought a majority interest in the Waltham, Massachusetts-based company, then called CircleLending, last year. Since launching last October, the loan volume has grown from $200 million to $250 million.
Virgin Money’s closest competitors are companies such as Prosper.com and Lending Club, which specialize in peer-to-peer lending between strangers through eBay-style bidding.
The idea with Virgin Money is that the money—and the interest—remains in the family, or among friends. And, with an impartial third party managing the loan, friends remain friends. “There’s something like $80 billion already lent between families,” Branson says, “but it’s not done particularly well, and can create awkwardness.”
Generally, default rates are about 14 percent for unmanaged loans between family and friends, Virgin Money officials say. But the default rate drops to less than 5 percent with private loans when you have a signed document, a monthly payment plan, electronic funds transfer and a neutral third party managing the process, officials say.
“People have enormous problems with mortgage companies, banks. You’ve seen all the problems the mortgage companies have gotten themselves into in the last year or two,” Branson says. “They have one situation that fits everybody. They don’t really know who their clients are, and if their clients run into problems and can’t afford to repay for a month or two because they’re ill or something, they just foreclose on them. Again, if you’re dealing with family through Virgin Money, there are systems to avoid all that mess.”
The formalization of private loans has other benefits. By providing proper documentation, Virgin Money helps borrowers build credit history by transmitting the repayment information to credit borrowers to deduct interest payments from their taxes.
For entrepreneurs, getting a traditional lender to bankroll their dreams can be difficult or impossible. Imagine Branson, then a 16- year-old dropout selling records from the trunk of his car, trying to persuade a bunch of strangers in pinstripes to trust him with a loan. Auntie Joyce, however, knew what he was made of.
The entrepreneur’s entrepreneur, Branson is all about supporting small-business people. That’s why he was knighted in 1999—for “services to entrepreneurship.” And that’s how Virgin has grown into so many diverse companies. “The proposals come in thick and fast, and I have no idea what the next one will be,” he says. “I do know, however, that if I listen carefully enough, then the good ideas somehow all fit into the framework Virgin has become.”
Adventure and Independence
Born in 1950, Richard Branson grew up in the rural village of Shamley Green in Surrey, south of London. His parents, Ted and Eve Branson, encouraged his adventurousness and independence. His father, a third-generation Branson lawyer, was a frustrated archaeologist. His mother wanted to fly; she worked as a flight attendant with British South American Airways, flying a dangerous high-altitude route over the Andes before cabins were pressurized. “My mother was determined to make us independent,” Branson writes in his 1998 autobiography, Losing My Virginity. When he was 4, she stopped the car a few miles from their house and told him to find his way across the fields. When he was almost 12, she packed sandwiches and an apple and sent him on a pre-dawn bike ride to his grandparents’ house, which was about 50 miles away. Branson’s memory was fuzzy about the details, but “I do remember finally walking back into the kitchen like a conquering hero, feeling tremendously proud of my marathon bike ride.”
Although he thrived on these challenges, intellectual pursuits were difficult because Branson has dyslexia. He was spanked regularly in boarding school because of his reading problems. By 16, he dropped out and moved to London to pursue his dream, a youth-culture magazine called Student. “I didn’t do it to make money—I did it because I wanted to edit a magazine.” To keep the magazine afloat, he had to sell ads. He was pretty good at it, and an entrepreneur was born.
Birth of the Brand
Branson was still in his teens when he started selling “cut-out” records from his car to retail outlets in London. That led to his own record store and then the Virgin Records label in his mid-20s. Through the 1980s, Branson expanded the record label and made the leap to establish Virgin Atlantic Airways, going head-to-head in competition with British Airways. He eventually would sell Virgin Records—“the family jewelry”—to EMI to keep Virgin Atlantic afloat amid the competition.
In the meantime, Branson the daredevil chased and broke many world records such as the fastest recorded Atlantic crossing by boat, the first Atlantic crossing by hot-air balloon, and a Pacific crossing by balloon that broke all records with speeds up to 245 mph. He had some close calls, too, being plucked from the ocean more than a few times.
“In the end, you’ve got to take calculated risks; otherwise, you’re going to sit in mothballs all day and do nothing,” he says. “Life is a helluva lot more fun if you say yes rather than no.” Branson’s adventurousness helps him as an entrepreneur trying to accomplish things never attempted before. It also explains why he’s involved in so many diverse businesses—ranging from Virgin Comics to Virgin Health Care to the new domestic airline, Virgin America. There’s also space tourism through Virgin Galactic, which could launch customers into orbit as early as next year.
“People ask me what the limits to Virgin are and whether we haven’t stretched the brand name beyond its natural tolerance,” he says. “With monotonous regularity, they point out that there is no other company in the world that puts its name to such a wide variety of companies and products. They are absolutely right, and it’s something of which I am proud.”
Branson calls his business method branded venture capital. With all the interesting new ideas emerging around the world, he says he just can’t resist trying them out. He mostly has majority stakes in the companies, which have their own CEOs and boards of directors. Asheesh Advani, who founded CircleLending in 2001, remains the CEO and president of Virgin Money.
“I have always lived my life by thriving on opportunism and adventure,” Branson says. “Some of the best ideas come out of the blue and you have to keep an open mind to see their virtue.”
Saving the World
In the last few years, Branson has thrown himself into humanitarian and environmental causes. Last year, he announced the Virgin Earth Challenge, a $25 million prize for the inventor who develops a viable mechanism for scrubbing carbon gases from the atmosphere.
Branson also has pledged to reinvest all the profits from his transportation businesses over the next decade into developing ecologically benign fuels. The total commitment could amount to more than $3 billion. Meantime, the Virgin Group has other eco-friendly efforts underway, including green tourism with the construction of a sustainable eco-resort on a Caribbean island next to his own Necker Island.
Branson insists his eco-efforts aren’t solely for charity. He wants to prove it can be profitable, that going green can yield green for other entrepreneurs. And with oil prices soaring, alternative fuels make business sense.
Also on Branson’s humanitarian to-do list is solving global strife. Last summer, he and friend Peter Gabriel, the British rock star, created the Elders, a dozen internationally renowned statesmen and women. Chaired by Archbishop Desmond Tutu, the Elders’ goal is to tackle the world’s most intractable problems—war, disease, famine. The Elders are privately funded to avoid conflicts of interest with political or special-interest parties.
When asked about his own legacy, Branson says he wants to be remembered as a good husband to wife Joan, a good dad to their children, Holly and Sam, both in their 20s. And he hopes his Virgin Group will be viewed as one of the most trusted brands and best companies for its employees. Solving global warming would be nice, too.
“Capitalism has proven to be the only system that works, but the problem with capitalism is that extreme wealth ends up in the hands of a few people,” he said last year at the Technology, Entertainment and Design conference in Monterey, Calif. “I think extreme responsibility goes with that wealth, and I think it’s important that individuals in that position do not compete for bigger and bigger boats or bigger and bigger cars. They should use that money to create jobs or to tackle issues around the world.”
Originally published in 2008.
Read more from the young Richard Branson. Also, see our 2009 SUCCESS cover story, "Virgin Entrepreneur."
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