Virgin Group’s CEO on why it’s important to be prepared to fail

Virgin Group may be more than 50 years old, operate in 34 countries and employ 70,000 people across its various businesses, but it still has just one shareholder: the Branson family. Sir Richard Branson started Virgin in 1970 and has avoided selling a stake in the main group or brand, instead bringing in partners and investors to work with it on an array of different ventures.

In this interview, Virgin Group’s chief executive Josh Bayliss reflects on his relationship with Sir Richard, balancing short- and long-term strategy, and learning from failure.

This is an extract from Business Leader’s podcast interview with Josh Bayliss. To listen to the interview in full on Spotify, head here, and on Apple Podcasts, head here

Virgin Group includes a huge array of companies. How do you manage that day-to-day while also exploring new opportunities?

It is about that balance. The simplest way to describe it is to think about the three main areas that we focus on as a business.

First, we focus on the brand, which is the heart of our business and the thing that differentiates us from other investors. It’s a remarkable, very strong and unique brand because it gives us licence to operate in an extremely broad number of sectors. We’re in 34 countries, we’ve got 70,000 employees. A large part of our focus is on maintaining and growing those brand opportunities.

Second, we have our investment portfolio. That’s largely in Virgin-branded companies, but not exclusively. We have a diversified portfolio of investments, ranging from venture capital at the risky end, all the way through to real estate and more traditional forms of investment. We manage that investment portfolio in a very hands-on way.

Those investments also range from wholesale ownership, where we are the 100 per cent owner of a private company, all the way through to public market ownership. We have majority ownership – Virgin Atlantic, where, for the sake of argument, we own 51 per cent of the airline and Delta Airlines owns 49 per cent – but it’s a partnership, it’s not a situation where we’re the only investor.

Then there are branded companies where we have no equity ownership. So, there’s a full range of businesses at different stages of their development and at different scales in different geographies. We have to manage those.

Look after your people so they will look after your customers and the shareholders will be looked after somewhere in the mix

That brings me to the third piece of what we do, which is we try to ensure that we’re always connecting the dots for our customers, for our employees and for our partners across that portfolio of businesses. The most direct way we do that is through our loyalty business in the UK and the US, which is Virgin Red.

This is an opportunity for customers to be recognised and to have their preferences identified as they move from one Virgin company to the next. For example, if you use your Virgin Money credit card to book a flight on Virgin Atlantic and stay at the Virgin Hotel in New York, at each stage, even though those three companies are separately owned, they are connected from a customer experience point of view.

The Virgin brand is one of the best-known in the world, how do you protect and evolve it?

We’re very fortunate to have such a strong brand, but the brand is really powered by and driven by our people. That’s always been Richard’s intention with the brand since he set it up, to “invert the pyramid” – look after your people so that they will look after your customers and the shareholders will be looked after somewhere in the mix. That remains very much the way we go about things.

When we think about the brand, we think about it first and foremost from the employees’ point-of-view. We want to give those employees the tools and the freedom to express themselves for the benefit of our customers; showing them a great time, frankly, when they show up in our businesses.

What’s always been inherent in the brand is this concept we call business purpose. There’s been a phase over the past few years of referring to ESG [environmental, social and governance]. We don’t use that terminology, but it’s this idea that a business or a brand has a much broader footprint and responsibility [than just profit].

In our case, we think about our employees and our customers, but we also think about the communities that we operate in and the environmental impact of our portfolio. We think about the way that our brand can take responsibility in each of those four quadrants. We have a team of people who work in each of those areas to ensure that we’re continuing to develop and hold ourselves to account.

Why don’t you use the term ESG?

It’s become one of those shorthand phrases that perhaps just skims over the surface of what really is important, certainly from our own point of view. We first identified the need and the desire to have a framework for thinking about what we call purpose back in the very early days of my tenure as chief executive, so around 2011 or 2012.

I wish that I’d known earlier in my career just how important it is to be prepared to fail and to take those risks, because I think that’s when you learn the most

But the truth is that the idea of serving communities and focusing on people goes all the way back to the very beginning of the student magazine, community service centres and Mates condoms – the things that Richard was spending his time focusing on back in the 1960s and early 1970s. If you run the rule over the history of the group, there’s always been that focus. ESG, I think, was a moment in time to describe a particular investment-led movement, but our thinking on the subject predates it.

Many businesses struggle to think both short and long term. How do you manage it?

We’re very fortunate that because we are a privately owned group, we don’t have the obligation to meet quarterly earnings targets and sacrifice the long term for the short term, which a number of companies, unfortunately, have to do. We’re able to think about building things in the long term.

If I think about our investment portfolio, our average hold period for Virgin-branded companies is something like 17 or 18 years. That’s very different to most investment businesses, which recycle their capital in the private equity model. That means, typically, they would be targeting a three- to five-year turnover of capital. Because we don’t have that constraint it means that we can plan for the very long term.

That’s consistent with the idea that the brand is something that’s going to be around forever. It’s been around for 50 years and so we think about it in terms of the next 50 years. One of the things that has kept us in good stead through the first 50 years is that focus on objectives that are outside purely investment returns or any of those narrow, maybe constricting, measurements.

Sir Richard and his family remain the sole shareholder. How do you manage that relationship?

Richard’s very interested in the business. As I said, we’re very fortunate to be a privately-owned group of companies. The Branson family are the 100 per cent shareholders of the group, which means that we have the opportunity to talk about the strategy of the business directly with our shareholders. That’s different to a public company, where you have unidentifiable shareholders on the register who may or may not give you any feedback on whether or not you’re doing a good job.

I have regular conversations with Richard and with the family about the business, the direction that we’re taking as a management team and the way that we’re running things for the long term. We ensure that it aligns with the values that underpin their view of the brand.

Richard spends much more of his time these days focused on non-business issues. Philanthropy is a very big part of his time – he focuses on conservation and on social issues. He’s founded groups like the Elders, the B team and the Carbon War Room all through Virgin Unite [Virgin’s not-for-profit foundation]. He’s thinking about how to bring an end to the death penalty around the world and what global drugs policy should look like.

How much have you learnt from Sir Richard?

When I became chief executive I thought it would be a terrific idea to have a really tightly defined strategy. I can recall discussing that with him. He thought it made a lot of sense, but said to me: “What you must always ensure that you do is keep your eyes open for opportunity as well. Don’t let the strategy distract you from that.” It’s been a really valuable lesson.

Can I ask about the first time you met? I heard that when you turned up to your interview, Sir Richard had double-booked and he was supposed to go to some TV awards, so you ended up doing the interview in a car?

I think it was a music awards show. I was a little upset because at the time I was working in the City and I travelled to Holland Park in west London for my interview with Richard. I lived in Holland Park so I thought this was terrific, I’d have the meeting with Richard then just pop home to my wife and newborn baby. And Richard said: “Not only have I double-booked, but the awards are at the Hackney Empire. You can come back tomorrow if you like or you can come with me in the car.”

Time is your friend. Letting things run rather than rushing to a solution is
often the better way to play things

Of course, I got in the car with him, which was terrific, because he probably had 20 minutes of questions for me but we were stuck in a traffic jam for about two hours. After he’d run out of questions, I had a good opportunity to ask him some. Unfortunately, when I got dropped off in Hackney it was pouring with rain and I had to make it all the way back to Holland Park. But it was worth it.

How do you deal with setbacks? Because there have clearly been setbacks at times: the collapse of Virgin Orbit and losing the Virgin Trains contracts, for example

There’s no doubt that businesses see ups and downs. The average company lasts for 20 years and we’ve been around for more than 50. It is ensuring that you have that resilience and tenacity to bounce back from the setbacks, but always look forward to the next opportunity.

No matter what you’re doing, if you’re going to take risks in business, you are going to occasionally see things not go your way. And we’ve certainly done that, consistent with that entrepreneurial drive. It’s about learning from those things and capitalising on those lessons and then going again. I wish that I’d known earlier in my career just how important it is to be prepared to fail and to take those risks, because I think that’s when you learn the most.

What have you been able to learn from failure?

I think you recognise that there’s a pattern to these things over time. One of those lessons is that time is often your friend and letting things run rather than rushing towards a solution is often the better way to play things. I think I’ve certainly learnt over the past 12 years that giving yourself as much space and breathing room as you can, rather than rushing at growth for growth’s sake, is sometimes a better way to go because maybe you’re ahead of the market.

I happen to think Virgin Orbit is a remarkable success story. The team at Virgin Orbit achieved momentous milestones, incredible technological advances, and that technology we created will undoubtedly be beneficial for the future of the space industry. There will be others who will benefit and learn from the experience that Virgin Orbit had. Maybe we were just too soon.

This is an extract from Business Leader’s podcast interview with Josh Bayliss. To listen to the interview in full on Spotify, head here, and on Apple Podcasts, head here