Branson: Look for opportunity in times of change

The bold fact is that change is usually a threat — one that has the potential to bring your business to a halt.

(Photo: Getty Images)

In business, change sometimes happens more quickly than you want it to — transformative technologies arrive suddenly on the market, tastes adjust, economies shift. Telling your staff to embrace change and get creative is all very well and good, but that will not address their (or your) underlying anxieties. The bald fact is that change is usually a threat — one that has the potential to bring your business to a halt. Let’s face it: no company lasts forever.

Given Virgin’s long experience in the music industry, I often receive questions from readers about the industry’s future. What will happen next? How can anyone successfully launch a business in this sector when transformative change is stressing even the nimblest players?

Our experience shows that there is always opportunity in times of change. Those pundits who have spent the past 10 years predicting the end of the industry should remember the last time it was in meltdown: 1982. The economic recession was having a deep impact. Many people were home-taping off the radio or from a friend who had bought the LP — a forerunner to illegal downloading.

At the time, Virgin Retail had over a hundred record stores across the U.K. On weekdays, they were deserted. Then, we learned that the CD was about to take the market by storm.

At first, the only way for us to survive the CD menace was to start clearing the decks for the new stocks, so we started discounting our LPs. We succeeded in switching our business over to CDs, which not all our competitors did.

We could also see that another new retailing phenomenon was dawning. Two years after the introduction of the personal computer in 1980, there were already nearly 500,000 video-game machines in use in the U.K. Soon, selling games and then films became a worthwhile sideline for our stores.

By 1986, even Virgin Megastores were under threat. Our biggest rival, HMV, was going after us by opening giant stores, some near our flagship locations. Undeterred, we launched our Dublin store, then the biggest in the world, at Aston’s Quay. That store not only stocked specialist classical and jazz, folk and rock music, but also sold music videos, games and computer software. This was where I could see the future of our business.

To make a long story very short, both despite and because of the disruptive change that had just taken place, we transformed our business model and did very well in the ’80s and ’90s. Music produced by Virgin Records enthralled listeners, many of whom went to Virgin Megastores to buy copies.

Did all this work make us future-proof? Of course not. The truth is that, even from the start, our smaller Virgin Records shops made very little money. The stores kept our name in the public eye, and represented our youthful, irreverent brand, but they were unsustainable in the long run. One of my biggest business mistakes — indeed, regrets — was not selling all of our stores sooner. Closing the book on Virgin Records in 1992, with the sale to EMI, was painful, but the best decision.

But is digital downloading killing music? Well, the economics of music production today are far healthier than they ever were in Virgin’s heyday as a music company. When we built our recording studio, it was a massive, expensive undertaking. Virgin Records’ job was to bankroll recording sessions for musicians — and take the risks. To make money, we had to sell a lot of albums.

Now, a top-quality album can be made on a laptop, and then you can send the file over the Internet to anyone, almost anywhere. Promotion is as easy as setting up a page on MySpace, Facebook or another social-networking site. Economies of scale don’t matter anymore to young musicians, although they still matter a great deal to the record companies and their shareholders.

If I were in a happening band on the cusp of success, I wouldn’t go through a conventional record company today. I’d gather a small team of people and release the tracks or album myself. I would consider getting together with like-minded musicians and sharing distribution, advertising and marketing costs.

Smaller and newer bands will earn less, because record companies will only be able to promote lesser-known bands by using some of the proceeds from their major artists. But there will be more new music to choose from, and more people will get their music heard.

I do think that record companies will survive, but they will have to be much leaner — and in business, small is beautiful. Those smaller companies will have to discover genuine talent, which is the reason that many people who are passionate about music choose careers in the industry. And with all that energy and zeal to draw on, there’s no telling what some entrepreneurs will achieve next.

Richard Branson is a philanthropist, entrepreneur and founder of the Virgin Group.