Hello friends, in today’s article, we see the Virgin Business Class by Mohnish Prabain from the book ” The Dhandho Investor”. In this blog, we learn about how virgin(airline) company is started by Richard Branson in the word of Mohnish Prabrai. this business model is based on the low-risk High return Philosophy of Mohnish Prabrai.
so let’s understand this business model to see the cons and pros of the business.
Chapter 3:-Virgin Airlines Business by Mohnish Prabrai
the airline business is one of the most expensive businesses. This business required the maximum capital, but Richard Branson started this expensive business with a small amount of capital, so let’s see on Mohnish Prabrai Word.
the author says, ” let’s take a look at another great Dhandho entrepreneur, who is not a Patel and does not hail from Gujrat or India. He is from surrey in England and is as Flamboyant as they come. He’s all about living life to the fullest and maximizing the fun.
while Papa Patel and Richard Branson seemingly have nothing in common, they are inextricably linked in how they approach their business endeavors. Both are hardcore practitioners Dhandho.
Let’s delve into the birth of Virgin Atlantic and learn how to start pretty much any business with minimal capital and virtually no risk- this is Dhandho on Steroids.”
then author explains how Virgin Atlantic started
the author says, ” The year was 1984 and Richard Branson knew nothing about the Airline B business. he started his entrepreneurial Journey at 15 and was very successful in building an amazing music recording and distribution business. (Virgin Airlines Business by Mohnish Prabrai)
Somebody sent Branson a business plan about starting an all-business-class airline flying between London and new york. Branson noted that when an executive in the music business received a business plan to start an airline involving, a 747 jumbo jet.
he knows that the business plan had been turned down in at least three thousand other places before landing on his desk. he was also aware that the other businessman with strong domain knowledge had turned it down.
The business plan claimed that the sector was underserved by the existing players. All weekend long he tried calling the other major discount airlines flying that route but could never get through.
His conclusion was that they either were busy lousy businessmen or were overwhelmed by demand. Which meant that there was an opportunity to start competing against them.
He also changed the original business plan significantly-opting for a Unique dual-class service. he thought about it carefully all weekend long.
On Monday, he went to his partners and senior executives in the music business and told them of his interest in starting the airline. (Virgin Airlines Business by Mohnish Prabrai)
they told him, ” Richard, you’ve to be off your rocker.” They told him he’d need a 747 jumbo jet, the most expensive plane around, and they asked, ” Do you know what that costs?”
They told him they had no interest and did not support this wild Idea. Branson persisted. He called directory assistance in Seattle to get the main number for Boeing. when the receptionist answered, he said, that he’d like to talk to someone about leasing a 747 jumbo jet.
After he was transferred several times, he got to what seemed like the right person and asked if Boeing had an old jumbo lying around.
the guy said they did, and Branson asked if they would consider doing a year lease. The Boeing employee, likely amused by the British Accent, said that they have a small list of customers but they might consider doing such a lease with one of their regular customers.
Branson persisted and asked for some numbers. Boeing gave him some ballpark numbers, and Branson figured out that his total outlay and maximum liability for starting Virgin Atlantic Airlines ( if it failed) was just $2 million.
His record company was on track to earn $12 million that year and $20 million the next year. Branson Noted that in the Airline business with a single plane, he would pay for the fuel 30 days after the airplane landed, and for staff wages 15 to 20 days after the airplane landed, but he would get paid for all the tickets about 20 days before the plane took off.
Working Capital needs in this scenario were pretty low and with a very favorable short-term lease from Boeing, there was no need to buy an airplane. Branson figured he could hire a small ground staff place a few ads in the paper, and start taking reservations. (Virgin Airlines Business by Mohnish Prabrai)
Boy Georges records were produced by Virgin and Branson and they were good friends, to boost the morale of the early Virgin Atlantic employee and get them all excited.
he took Boy Georges over to the cargo hanger at Gatwick, Airport, which served as the headquarters for Virgin Atlantic, to meet the staff.
the employee loved it, but Boy George was quite stunned at the apparent Chaos at the facility. he later told Branson, ” I’m glad my feet are firmly on the ground.” it was a very messy start-up.
Now if someone comes up with this idea in Silicon Valley, there would be a fancy business plan put together along with the mandatory elevator pitch.
It would be based on at least $60 million in startup capital to build out the basic infrastructure, and so on. Branson Did not go down this path, the ” Business plan” was done in a weekend and resided in Branson’s head.
there was no business plan ever written there was no board of directors or advisors at the startup, no venture capitalists (VCs) or angels.
It was done by a person with no prior experience or expertise in the airline industry. my take on Virgin Atlantic is simply this: if you start a business that requires a $200 million 747 jumbo jet and a boatload of employees in a tightly regulated industry for virtually no capital, then virtually any business that you want to start can be gotten off the ground with minimal Capital. (Virgin Airlines Business by Mohnish Prabrai)
All you need to do is replace capital with creative thinking and solutions. Branson found a service gap and went after it. By the time that gap narrowed and British Airways and his other competitors woke up, he had already built a strong brand.
Even today, Virgin Atlantic offers a very unique product in a very tough industry. The Virgin Atlantic business model is pure Dhandho. heads, I win, tails, I don’t lose much.
the virgin group today is a privately held group of 200+ businesses with about $7 billion in annual revenue. It generates about $600 to $700 million a year in free cash flow.
the common ingredient in virtually all 200+ businesses is that there was very little money invested in any of them at startup. Head, I win; tails, I don’t lose much!
In 2005, they put a line of electronic products called Virgin Pulse into target stores. Target asked them to develop an exclusive line of designer personal electronics only for target.
Target guaranteed them prime floor space so virgin had zero distribution cost or risk. it had Ecco, a chic design shop, create the line, and they found a Chinese Company to manufacture it- retaining good margins for Virgin. Its downside was very limited and the upside was huge.
the manufacturers, who had to commit capacity, beyond confirmed orders, and Target, which had to set aside valuable shelf space in every store.
To launch it, the Virgin Group leveraged Branson at a New York party dancing with some hot models wearing the virgin pulse line on their person. (Virgin Airlines Business by Mohnish Prabrai)
It put very little money into it-Classic Dhandho at work. Head, I win; Tails, I don’t lose much.”
so this is the Virgin Atlantic Business. Low-risk High Return, philosophy is actually working, and this is the most famous example of an Expensive business.
so whenever you start investing or starting a business, always look for the Classic Dhanndho Framework ” Head, I win; Tails, I don’t lose much”
so in the next chapter, the author explains how to found a great business for investing.
Buy this book to learn about investing in a business
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