Tax Evasion Isn’t Good Business

In those days, he broke all the rules. This time, he broke the law.

Last week on Methods of Prosperity: Richard Branson had aspired to be a journalist. His dyslexia and poor math skills didn’t get in his way. In the 1960s, he launched Student magazine. He invented creative ways of securing advertisers. His confidence grew. Through the magazine, he discovered the music business. He noticed the high demand for records. Virgin Mail Order Records formed in 1970. This new venture was profitable right away. The magazine wasn’t. In 1971, he decided to concentrate his efforts on the mail order business. It was thriving. Until something out of their control threatened to end it.

Part 53. Sir Richard Branson (continued)

TL;DR

Virgin Mail Order faced a crisis with no way to send records or receive payments. Postal workers were on strike. To avoid running out of money in a week, Richard Branson decided to open a physical record shop. He had no experience in running one. He found a location on Oxford Street in London. The building’s owner sold shoes out of the storefront. The owner agreed to provide the upstairs space for free. The arrangement would attract customers for both businesses. Within days, Virgin’s first record store opened. It drew significant foot traffic and built a loyal customer base. By spring 1971, the shop was £15,000 overdrawn. Branson exploited a tax loophole, allowing him to avoid paying export taxes. His plan was to repay debts from the proceeds. It was a criminal plan. He thought he would get away with it. He didn’t.

Key lessons:

• Inexperience is not a problem.

• Don’t do anything illegal.

• Everything is negotiable.

• Location is everything.

Now there’s a collectible version of this newsletter! Methods of Prosperity newsletter number 16  is available to collect as of June 14, 2024. If you’re so inclined you can permanently own it!

The postal workers went on strike. They taped up the letter boxes. Customers had no way to mail in checks. Virgin Mail Order couldn’t send out records. They had to do something. It would only be a week before they’d run out of money. There was a reason Richard Branson started the mail-order business. It was cost-effective. They could sell records cheaper than in physical stores.

That’s when Richard Branson decided to open up a record shop. At the time, he had no idea how to operate a physical store. He would learn. First, he had to find a location before his business ran out of time and money. It had to offer a different experience than established record shops. The Virgin record shop would be an enjoyable place for young people to hang out. Prices had to remain lower than legacy record shops in London.

Richard Branson opened the first Virgin record store in 1971 on Oxford Street in London. It was on the cheaper end of Oxford Street. There was enough foot traffic to attract passers-by, likely to buy on impulse. The owner of the building sold shoes out of a storefront. There was a vacant space upstairs. Richard talked the owner of the building into giving him the space for free. In exchange, Virgin record shop would attract customers. They would buy the owner’s Doc Martens for sale in the storefront. That’s a fair deal.

Within five days, Richard and his employees built shelves in the store. They brought in furniture and put cushions on the floor. Merchandise and a till were set up. The day before opening, they handed out hundreds of flyers and leaflets. On opening day, there was a line out the door. As the English say, it was a queue over 100 yards long. Richard was on the till. The first customer bought a record by Tangerine Dream. He knew very little about the record industry, but the Virgin record shop had potential. Word of mouth began to spread. With a loyal customer base, Virgin’s reputation began to grow.

While Virgin’s reputation was growing, they were losing money. By the spring of 1971, they were £15,000 overdrawn. During that time, they received a large order from Belgium. Richard went to the record companies and bought the records. They didn’t charge taxes. To sell them in the UK, he would have to pay the taxes. He drove them back to London in a borrowed van. On the way, he realized that he avoided paying tax on exports. Avoiding taxes would give him £5,000 extra on each sale. He only had to do this three times and his company would be out of debt.

It was a criminal plan. In those days, he broke all the rules. This time, he broke the law. He’d been stealing money from customs officials. They arrested him. Richard Branson was guilty.

To be continued…

I like you,

– Sean Allen Fenn