Being a successful business with a long term growth potentiality is the most important objective of any business organization. Success of a business can be defined in many ways and there are a number of alternative notions of success that are commonly used by business analysts. The current dissertation explores four different notions of success and their limitations in the real world. The notions of success are explored in the context of one of the most successful conglomerates of the 20th century, Virgin Group. While the funding, profits, and management structure look into the internal aspects regarding the success of a business; brand awareness and Going Green deals with the external image that the business develops over a period of time. While the Virgin Group succeeded in raising the required funds for running the business through the bootstrapping method and consistently maintained good profit numbers; some unnecessary rules regarding sustainability have created roadblocks for the future development of the company. Examples from other companies like Apple, Facebook, and Google are used to make the report lively.
For any company to survive in the long-term it needs to be a successful endeavour. A firm should create value to all its stakeholders, the most important of them being the owners of the company, viz. its shareholders. However, generating good amount of profits year after year is not enough for a firm to be judged as successful. It should also have excellent brand awareness in the all the markets where it had operations, and good sustainability record. Some of the above notions of success when implemented properly by an organization can act as the source of competitive advantage for a firm. As more consumers are becoming aware of the harmful impact of business activities on the environment, they are demanding companies to act in a sustainable way. Companies that don’t give proper importance to sustainability face the problems of facing the customers’ anger that can a serious impact over its long-term success.
In the current dissertation, the different notions of success are analysed in the context of one of the most successful and diversified business groups of the 20th century, the Virgin group. From its humble origins, 40 years ago, Virgin group has emerged as one of the biggest corporate groups in the world with presence in sectors ranging from music recording to airlines (Ankeny 2012). Marketing strategies followed by the company made it one of the most visible and loved brands in the world by the younger customers. One of the most remarkable aspects of the group was that it was totally funded through the bootstrapping method from the beginning. It had also taken some initiatives at going green to improve its image as a responsible business group. The dissertation has also taken some examples of other corporate groups to give a better understanding of the different notions of success for a business.
Virgin Group- Background Note
Virgin Group was founded in the 1970s by the Richard Branson (Stone 2014). The initial business of the Virgin Group was a student centred magazine called ‘Student’ and a mail-order recording business. Mail-order recording business was a good success in the market. Richard Branson had later extended the group’s businesses to include Virgin Records label and Virgin Megastores. Virgin Records released some of the most successful music labels in history by signing up bands like Sex Pistols, Mike Oldfield, and The Rolling Stones (The History of Virgin nd). The revenues earned by the group through the recording business made Branson to establish one of the most successful businesses of the Virgin Group, the Virgin Atlantic airline. Virgin Atlantic took on the powerful British Airways in what became one of the biggest corporate rivalries in the history of business. Success of Virgin Atlantic made Virgin Group as one of the biggest corporate success stories of the 20th century.
Branson displayed entrepreneurial qualities from a very young age. He started the Student magazine with the £100 initially borrowed from his father (Boyce 2014). Rather than hiring celebrities and model for promoting his promoting the brands of Virgin Group, he converted himself into a model by using his personality as a marketing strategy. The unique marketing campaigns of Virgin Group helped the group’s brands in creating buzz and attracting a lot of attention in the market. Virgin brand was always kept in the limelight by the amazing self-publicity tactics had always kept the brand in the limelight. Branson performed some crazy feats like crossing the Atlantic on a speed boat and hot air balloon. Many of the group’s businesses like Virgin Cola and Mates Condoms have failed. A strong brand and the commitment of its founder Branson to take the company to new heights made it one of the most successful business groups originating from UK in the 20th century.
Being successful is the only way in which a business can survive in the long run. Success for a business can be in many forms and depends upon the objectives with which its founding fathers have started the business. Some businesses like Apple have the objective of having the highest profit margins in the industry. Some other businesses like Wal-Mart work with the objective of having the maximum profits, by keeping its staff salaries at the lowest (Tuttle 2013). However, irrespective of the immediate objectives with which businesses function, the ultimate purpose of any organization is to provide the best value to its shareholders. The Oxford dictionary defines success as ‘the accomplishment of an aim or purpose’, ‘the attainment of wealth, fame, or social status’, or ‘the good or bad outcome of an undertaking’. The above definition of success can be applicable to a variety of situations and contexts. But the current report specifically focuses on business success and the alternatives of success for a firm.
Some of the indicators that can be used to measure success of business are: Increase in assets, increase in profits, getting the right kind of investment at an early stage of the business, expanding a business to other countries, going green, improving the productivity of organization’s employees, improve the value of company’s brands, and implementing sustainable business strategies.
Funding of the Business
For a start-up business, success can mean getting the required funding for his business. As entrepreneurs need a lot of financial resources for starting a business, they need to find the appropriate internal and external resources for jump starting their new businesses. New businesses cannot raise the required funding through the regular debt and equity channels as investment in new businesses is fraught with lot of risks (Merrick and Yasuda 2011). The only viable option for a new business to raise the required funding is Venture Capital funding and bootstrapping. VC firms invest in new businesses so that they can reap huge profits if the business turns out be successful (Zider 1998). However, getting VC funding can have some potential disadvantages like losing control over the firm’s business model and a share in the firm’s profits (Boundless nd). An alternate for funding a business is through bootstrapping. One the other hand, Bootstrapping involves funding a business using the personal savings of the entrepreneur. Bootstrapping gives more control to the entrepreneur over the business decisions related to strategy and growth (Thomas 2013).
The group’s expansion was mostly funded by the internal accruals and depended on VC funding. Many other entrepreneurs too have relied on other ways of funding their business other than VC (Rao 2013).The bootstrapping of the company’s businesses with Branson continued and the company did not depend on external funding for expansion. Even when there were any significant losses, to the group’s firms, they were absorbed by the founder and the group itself. Over the period of time, the Virgin Group evolved more like a private equity business that subsidises the group’s other businesses. Many of the struggling and newly started ventures like Virgin Galactic were internally funded by the company (Finkle 2011). Being a cash rich group helped it absorb all the group’s losses internally without the need for approaching the external capital/debt markets.
Bootstrapping of a firm’s businesses had a lot of disadvantages as the personal assets of the entrepreneur and his/her family too are at a big risk. Expanding a business by purely relying on its internal accruals without getting any external funding is a time consuming process. The personal incomes of entrepreneurs too will be at a big risk due to bootstrapping (Worrell 2002). Some forms of business need higher amounts of funding. Hence, bootstrapping might not be a viable option in such cases. Lack of inadequate working capital in the face of higher competition and mounting orders could wreck the future business prospects of the firm. Competitors with better funding can provide better service for a lower price and drive the firm out of business. However, the amount of money that can be raised by the entrepreneur through bootstrapping is limited.
In the case of Virgin Group, any major failure in the group’s businesses can have a domino effect on the other companies by squeezing the funds of the whole group. In contrast, many modern companies like Google and Facebook have used VC capital to setup and expand their operations. Despite, losing a significant stake in the firm, depending on VC capital protected personal assets of these Internet giants.
The ability of a firm to continuously provide value to its promoters and other key stakeholders depends on the extent to which it can keep on earning profits (Suttle nd). Businesses that are not able to earn profits can eventually fall by the wayside. There are many ways in which a company can continue to keep making profits on its products. Businesses that can generate profits continuously enjoy a better value in the capital markets and can raise more funds for their future endeavours. Businesses can continue to increase the profits made by them by increasing the number of products available in the market, launching new businesses as subsidiaries, increase the prices of products by adding more number of features, and expanding the geographical reach of its products (Hall 2008). Virgin Group continued to increase its profits by entering into new businesses and new markets. The entry of the firm into the airline sector had tremendously boosted the profits of the group. Some of the group’s businesses like Virgin Media had a high net-profit margin of 69.57 percent and a Return on Capital Employed of 2.82 percent (Virgin Media Company Financial Information nd).
Being able to continuously generate profits is itself not sufficient to keep a business running. Profits of a company should be accompanied by other issues like a viable long-term strategy, ability to introduce new and innovative products/services in the market, and penetrating into new global markets. Despite increasing its profits continuously since its inception, a number of new products from the Virgin Group could not succeed in the market. Branson’s attempts to enter the cola and businesses failed to materialize due to the limited acceptability of the Virgin in these sectors. Despite not being a drag on the group’s profits, the recent failure of Virgin Galactic’s spacecraft was also expected to impact the group’s performance.
As the popular adage goes, the success of a business is all about the success of its brands. While a product manufacturer may have multiple brands, a service provider will typically have a single brand (most often the corporate brand) (Balmer and Gray 2007). Brands help in differentiating the product/service of a company with that of other alternatives available in the market (Schmalensee 1982). Companies with highly recognisable brands can enjoy a long-term competitive advantage over the rivals in the form of highly differentiated products in the marketplace and a large number of loyal customers. According to Porter (1985), a firm can have a competitive advantage over its rivals by making differentiated products or by selling its products for a cheaper price than the rivals. A company with strong brands can easily differentiate its products from the products made by other companies and enjoy a competitive advantage in the market (Kotler and Gertner 2002). Brands also help the company to command a premium price over the rivals in the market. Since consumers consider products with stronger brands to be of high quality, companies can start selling for a premium price than the competitors in the marketplace.
When rated in terms of the brand awareness, Virgin Group can be rated as one of the most successful businesses of the past century. Being a business group which had a dominant presence in the service businesses, Virgin used its main corporate brand for selling all its products. Nearly 80 businesses of the Virgin Group shared the Virgin name with the exception of some exceptions like its condom business (Gordon 2014).
The value of Virgin brand continued to grow and the branded revenue from the group’s companies that bore the name topped £13 billion for the year 2011 (Robehmed 2014). Of this the value of Branson as a brand itself was estimated by analysts to be more than £ 3 billion (Wachman 2012). The continued brand building efforts of the group, made Virgin the 15th best brand in the UK (Rankings per brand 2014). Branson was looking to further grow the Virgin brand through its space tourism undertaking Virgin Galactic. It is hoped that the popularity of Virgin galactic in the American market would increase the franchisee opportunities for the different companies in the Virgin Group.
Having a set of highly successful brands would not help a company to succeed in the long-term. Many factors other than the company’s brand determine the success of a company’s products. The first and most important is to have a high quality product/service (Keller 2012). A number of products released under the Virgin brand which could not meet the quality and features of competing brands in the market place like Virgin Cola and Mates Condoms failed to succeed in the marketplace. Having almost all of the company’s brands under a single brand name can cause a lot of problems for the firm in case one of the products fails in the market. The recent crash of Virgin Galactic’s space craft during a test flights is expected to impact the sales of Virgin’s other products in the market (Gordon 2014).
Moreover, another major concern expressed by brand analysts is the connection between Branson’s name and the Virgin brand. As the age of Branson is increasing, analysts are worried about the future of Virgin brand. As Virgin is positioned as a youthful brand targeted at younger customers, the aging Branson may not be able to serve as its brand ambassador for long in the future. The Virgin itself may struggle to survive in the long-term. In order to guarantee the success of the Virgin brand, the founders should have a different positioning proposition for the brand. The problems faced by Virgin are similar to those faced by the world’s leading maker of consumer electronics products, Apple. As most of the Apple’s value depended upon the personality of its charismatic founder and CEO, Steve Jobs, the new products that were released after his death did not meet with the same level of success.
Going Green: Environmental and Social Responsibility
The increased emission of greenhouse gases coupled with the worries of global warming made it imperative for business to initiate strategies that focus on the reducing the impact of their operations on the environment. Business operations of companies emit greenhouse gases like CO2 into the environment (Grundfos nd). Some of the businesses that emit greenhouse gases in higher proportion are Airlines and the automobile industry. According to an estimate that Airlines are responsible for nearly 12 percent of the total CO2 released into the atmosphere (ATAG nd). In order to control the damage caused to the environment due to the emission of greenhouse gases into the atmosphere, a number of regulations were brought in by the governments around the world.
‘Going Green’- Improving Corporate Reputation and Building Competitive Advantage
Climate change is a major threat facing the world today (CFR 2013). Businesses all around the world were trying to comply with the greenhouse gases emissions stipulated by the governments where they have operations. However, escaping regulatory action is not the only objective of going green by companies. Sustainability activities of organizations also help in building competitive advantage for the firm (Esty and Winston 2008). Due to increase of awareness among the public regarding damage caused by the business practices of companies, they are demanding companies to take action on controlling the damage caused by their operations on the environment. Some consumers are also going to the extent of staying away from purchasing the goods of companies that are perceived to be harming the environment. Companies which go green are respected and trusted by customers (Brooks 2013).
Companies that go Green also put pressure on other companies they deal with to go green and start pursuing environmentally sustainable business practice. They release annual supplier code of conduct and environment reports in which they stipulate the norms that need to be followed by companies. If any the company’s suppliers were found to be not complying with guidelines laid out by the company they may choose not to continue procuring raw materials and components from them. In a study conducted by MIT University on the factors driving companies to improve their performance in environmental sustainability, it was revealed that the main factor was protecting their brand image followed by savings on their costs. Some analysts even opine that companies that follow sustainable business practices can gain new customers from their competitors (Brooks 2013).
In order to emerge as a sustainable organization that puts emphasis on Going Green initiatives, Virgin Group had taken a number of initiatives under the leadership of Branson. Like many other major corporate groups, Virgin too has tried to use its sustainability initiatives as a source of competitive advantage for the firm. Many of the group’s businesses have taken a lot of initiatives towards emerging green (Wang 2012). Some of the initiatives to Go Green are:
- Virgin Atlantic, the group’s airline business has reduced the weight of its planes in a bid to reduce the fuel consumed by them.
- The group started working with makers of aircraft engines to make aircraft that can run on biofuels.
- The founder of Virgin Group, Branson has started a new initiative called Carbon War Room that focuses on getting entrepreneurs from all over the world to implement market driven solutions for climate change (Virgin Unite nd).
- Branson has started the Gigaton awards that reward businesses which take measurable steps for reducing the carbon footprint (Walsh 2010).
- Virgin Group purchased and donated an entire island in the Carribean for the conservation of ring-tailed lemur (Carroll 2011).
- Set up an organization called Virgin Unite in partnership with a number of charitable organizations around the world to bring around sustainable economic development around the world by handling of some of the tough environmental and social issues.
In an unprecedented initiative in the corporate world, Branson had announced in the year 2006 that all the proceeds from the group’s transport business will go to fighting the problem of global warming (Chibber and Burton nd). In the year when Branson made the announcement, the total profits from the transportation business were U$ 3 billion per year.
Virgin Green Fund is an independent private equity firm that focuses on investing the growth capital in business related to renewable energy and resource efficiency sectors in European and North American countries (Growth capital nd). The fund was founded in the year 2007 and has funded a range of industries ranging from solar, biofuels, transport, and waste management.
Some other companies like Apple too have taken steps to control the impact of their operations on the environment. In the year 2006, Apple faced criticism from activist groups that minerals like tin and tantalum used in making products were procured from illegal mines in Congo and Indonesia (Lowensohn 2014). Activists have criticized that the illegal mining of minerals harmed the environment and caused a lot of suffering to the local population who were forced to work on these illegal mines. Fearing a customer backlash, Apple responded immediately and released a strict supplier code of conduct that should be followed by all the suppliers that wanted to have business dealings with Apple (Apple Supplier Responsibility 2014). Apple had also provided the required training to smelters/refiners that did not have the required resources to comply with the norms specified by Apple. The Japanese video game manufacturer Nintendo too has faced similar controversies regarding the minerals used in its products. But it did not take action to control the use of conflict minerals resulted in a major backlash from its own consumers (Purchese 2012).
Like any other factors that are discussed above, the initiatives taken by Virgin Group in going green too will have both positive and negative effects on the group’s business. It is beyond doubt that the scale of green initiatives taken by the Virgin Group under the leadership of Branson will boost the image of the business among the environmental conscious customers. As many of Virgin Group’s customers are young it has the potentiality of improving the group’s image among this key customer group.
However, the scale of initiatives can have an adverse impact on the profitability of the group. Donating US$ 3 billion revenues from the group’s transport business can drain the group’s financial resources and put the future of the company at jeopardy. Another major problem for the group will be the negative impact on the group’s image if the sustainability initiatives of the group are even withdrawn in the future. Branson should concentrate on working towards a responsible sustainability initiative that can promote the interests of the business in the long run rather than having getting short term attention in the market.
A business venture can achieve success in many ways. The current report explored four different notions of success in the context of the UK based Virgin group. Suitable examples of other major companies too are provided at places where it was necessary.
For any business, getting the required funds to start the business and continuing to make profits every financial year are the two major notions of success related to a company’s finance. Choosing between venture capital and bootstrapping is the main decision that any company should take at the time of starting a business (Wasserman 2008). Virgin’s founder Branson selected bootstrapping method and grew despite all the limitations for this method. Most of the companies in the Virgin brand are highly profitable and contribute resources to group companies that are not performing well. Having a corporate brand that is well recognized in the target market and changing the management structure from bureaucratic structure to flat organization structure can also help in making the brand successful. Virgin’s corporate brand is one of the most popular brands in the world and recognized by people across all the age groups.
Lastly, the growing environmental awareness by the consumers is making it necessary for companies to go green and practice sustainable business practices (University Alliance nd). Virgin Group has come out with a green strategy that aims to reduce the impact of its operations on the environment.
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