Like a Virgin

CHOOSING A PARTNER

One of the more common questions I get about starting a company is how one goes about finding investors and picking the right partners.

Entrepreneurs often have a tough time finding someone to fund their venture; many fail to do so but go ahead with the launch anyway, and then they run out of cash. Others find tentative investors who will often renege on promised funding if and when the going gets tough or things don’t happen as quickly as they’d hoped. If you can fund it yourself, that’s terrific, otherwise locking in a reliable source of start-up capital is fundamental to your business’s chances of success.

At the start of my career, I made a conscious effort not to bring in any financial partners, as I wanted to hold all the equity in my businesses. My friends and I worked hard to keep our businesses going using only the cash they generated. For our first business, Student magazine, we did all we could to sell advertising up front to pay the bills and, when we started Virgin Records, we handed out leaflets to encourage people to buy records.

This meant that our expansion was slightly slower than we would have liked, but it also meant that I could reward my colleagues with equity in the company. I was free to quickly steer the business in any direction I wanted without having to spend time on distractions like soliciting and waiting for stockholder approval.

The adventures of our early years attracted employees and partners who were drawn in by our spirit and sense of fun. Reflecting on my choices for partners in the music business, I remember they were picked for very practical reasons. One had the biggest record collection I knew of; another could add and subtract better than me; another person always seemed to be able to answer all my constant stream of naïve questions.

Over the years, my partnerships and businesses have grown more sophisticated. Virgin has since joined with many different types of organisations, from large multinationals to professional investors to entrepreneurial management teams looking to wield the Virgin brand as they take on a market. Our experience has shown that, while your prospective partner’s ability to fund the venture is important, it is not the essential quality that will sustain the relationship and the business in the long term.

When you are evaluating a proposed investor/partnership, do not focus solely on the capital you need to kick-start your business. Ask: will this person or group give us the space and time we need to build a great business? Bear in mind that a dictatorial financial partner can quickly suck the spirit and enthusiasm out of a new enterprise, muffling the spark that prompted you to launch the project – the spark that is most likely to differentiate your venture from your competitors’.

I have found that our partnerships at Virgin turn out best when we find investors that take a minority stake in a venture and provide capital and support, but leave us to run the business and hire key management.

We have created some great partnerships through Virgin’s mobile-phone businesses. In most cases, we found a mobiletelecom operator who wanted to tap into the Virgin brand’s strong appeal in order to reach a new segment of the market. The telecom operator would provide the cellular network and, in some cases, some capital; we provided the expertise, branding and people needed to make the new business a reality.

Where the situation has been reversed and Virgin has partnered with a small management team ready to take on a new market sector or territory, I like to think that we have held true to our principles, and given our partners the time, space and capital they needed to build their businesses.

Virgin Active, our health club business, has been built in partnership with the founding management team of Frank Read and Matthew Bucknall. Over the past twelve years, we have completed several acquisitions together, expanding into six countries. Virgin Active is now a leading business in the sector, and Matthew is chief executive. Virgin supplied the brand equity, the reputation and sometimes the capital that the business needed; the management team provided the industry knowledge, the local expertise and, above all, the passion and commitment to make it all work.

Overall, you need to ensure that your people are inspired and have the freedom to be creative. After all, the success of your new business depends upon your most important partnership: the one with your staff.

If you get such partnerships right, your chances of success are much higher. Just as you will need the freedom to build your company according to your vision, they will need the freedom to develop their own areas according to the requirements of your customers and the other employees. Whether or not they will have this independence, which is integral to the business’s future success, depends upon your choice of financial partner.

So remember: a partner who just brings in capital is very useful, but a strategic partner who can also provide you and your team with the space, time and freedom needed to build the business is a true friend – and one who is much more likely to stand the test of time.