Branson may have been on his way, but he still had a hard lesson to learn about humility and the law. Pinched for cash, more than $20,000 overdrawn, he concocted a scam in which he bought records supposedly for export, thereby avoiding payment of the British sales tax, and then—after getting them stamped by customs at Dover by pretending to be on his way to Europe—he simply turned around, drove back to London and sold them illegally. After three trips he had made nearly enough to cover his overdraft when government agents raided his warehouse and two stores and arrested him.
Unable to raise the $45,000 for bail, he was stewing in jail when Eve appeared at his side and offered her home as surety. One of Branson's characteristics as a businessman—along with the fact that he hates confrontation and rarely shows anger—is that he does not pounce on and berate employees for making mistakes. In this way he is rather like his mother, who told him after she'd put up bail, "Look, you made a mistake. Don't keep going back to it. You've got to get on with your life." Branson negotiated an out-of-court settlement with the tax authorities, agreeing to pay a fine immediately and pay the back taxes over the next three years.
In those three years, while turning a loosely run company into one focused and ruled by balance sheets, Branson paid the $90,000 in fines and back taxes. In 1973 he formed Virgin Records in order to release a beautiful, haunting instrumental called Tubular Bells by an unknown artist named Mike Oldfield. Used as the soundtrack for The Exorcist, the album was a worldwide bestseller for Virgin. Oldfield put Virgin on the map, and in 1977, the Sex Pistols put Virgin on the cutting edge of punk rock. The Pistols had become free agents after having their contract canceled by two labels—the first, EMI, after the group's drunken, profanity-laced appearance on a national television show; the second, A&M, after a drug-besotted Sid Vicious, the bass player, tore up the office of the company's managing director and then puked on his desk.
So Virgin signed them, just in time to release their most irreverent hit.
God save the Queen,
A fascist regime.
Made you a moron,
A potential H-bomb.
God save the Queen,
She ain't no human being.
God save the queen was immediately banned from the radio, and the band was prohibited from performing it on TV as well. In a canny promotion hatched by Virgin and the group's manager, Malcolm McLaren, the Sex Pistols rented a boat and cruised down the Thames, serenading the House of Commons with God Save the Queen until a police boat forced them to stop. McLaren got arrested, and the Sex Pistols sold 100,000 records in one week. Branson had been warned not to sign the Sex Pistols, but he went ahead anyway. "They made us the 'smart' label," Branson says, adding that the Sex Pistols led to all the other acts he ultimately lured to his studios: Boy George and the Culture Club, whose Karma Chameleon sold 1.4 million records in the U.K. in 1983; Peter Gabriel; Phil Collins; and, in the '90s, two of the top-selling acts in pop, Janet Jackson and the Rolling Stones.
By '83 Branson had expanded his Virgin empire to some 50 companies that did everything from filmmaking to air conditioner servicing. But it still wasn't truly his empire.
In Virgin's formative years, through the '80s and early '90s, Branson spent an inordinate amount of time staving off creditors, the nervous Nellies of the banking world who wrung their hands whenever he departed from convention. In 1983 Virgin was celebrating its $17 million profit. The next year, after immersing himself in the airline industry like the monkish scholar he never was, Branson decided to go into the airline business. His colleagues all thought him quite mad, but such moves have become Branson's hallmark. "A lot of our time and energy is spent looking at big, complacent industries and thinking, How can we shake them up?" Branson says. "What are their weaknesses? How can we do it better than they're doing it? Their vulnerability is their lack of quality, their lack of quick thinking and maneuverability. We look for companies that have a fat underbelly...a soft spot."
Branson had traveled a great deal, and he thought he had found such a spot in the airline business. He believed transatlantic carriers were unresponsive to consumers and vulnerable. He leased one plane from Boeing, and in June 1984, as his primary lender, Courts Bank, stood nervously by—Branson had already exceeded his $4.5 million line of credit by some 10%—a 747 dubbed the Maiden Voyager took off carrying family, friends, select Virgin employees and about 250 journalists from Gatwick Airport in Virgin Atlantic's first crossing to Newark. No sooner had he returned home than his banker was on Branson's doorstep with news that Coutts would start bouncing Virgin's checks. "They just got into a complete panic," Branson says. "They couldn't comprehend that somebody in the record business was going into the airline business!
"I was livid," he says. "This banker was going to put 4,000 of my people on the streets." He ordered the man out of his house: "Look, I'm really sorry, but you're not welcome here. Get out!" Branson pushed him out the door. "Tears were coming down my face," he recalls. "I was shattered. Exhausted." He scrounged up the $300,000 that weekend, so no checks bounced, and he changed banks two weeks later.