From a landless farmer's son who came to Mumbai with only Rs.500 to a billionaire who made an Rs.3000 crore company by resigning from his comfort zone which was the BARC (Bhabha Atomic Research Center) job and investing his provident fund of Rs.2 lakh in 1996 to bootstrap his medical disorders diagnostic startup named 'Thyrocare' which started from 2 tests per day and now performs over 110 million tests annually, and became the CEO and CMD of the world's largest Thyroid testing laboratory worth Rs.3000 Crore in 2016. Yes, we are talking about Dr. A.Velumani and his company Thyrocare whose 66.1 percent stake was recently acquired by the health tech unicorn Pharmeasy for Rs 4,546 crore. Let's take an insight into his unique Business model and strategies that we can implement in our startups.
Early struggles of Dr.Velumani
Dr. Velumani was born in 1959 to a landless farmer in a small village in Coimbatore, Tamil Nadu. He had spent his entire childhood in poverty and struggles. He studied in a govt school with no school bus where there were 5 classes with no teacher, he only went to school for Mid-Day meals. He didn't wear any slippers, no full sleeves, no full pants and he also worked in the village to rear buffaloes and sell milk to earn Rs.5 per day to support his family. Then, he started doing B.com but when one of his professors asked him why he didn't opt for B.Sc. because he had a mathematics background, he replied- due to lack of money. But there was only a difference of Rs.100 in the fees of B. Com and B.Sc. so his professor gave him Rs.100 so that he can switch to B.Sc., and he completed his B.Sc. in 1982 from Ramakrishna Mission Vidyalaya, affiliated with the University of Madras but had no experience due to which he failed 50 interviews because no one was hiring a fresher. From that day he decided that if he will be an employer, he will only recruit freshers. In 1979 he got a job at Gemini Capsules, a small pharmaceutical company in Coimbatore with a salary of about Rs.150/day. Unfortunately, the company closed after some time and he remained unemployed. He didn't have enough money to pursue higher studies so he went to Mumbai from Coimbatore via train, a 35 hrs journey in which he cried for 25 hrs. in a depression of leaving his home. He came to Mumbai with only Rs.500 in hand and slept for 3 days at the railway station.
The beginning of the World's Largest Thyroid testing laboratory: Thyrocare
Fortunately, Velumani managed to get a job as a laboratory assistant at BARC (Bhabha Atomic Research Center) in 1982. He got married at the age of 27 to Sumathi who was working with the State Bank of India and they both gave birth to 2 cute children. Along with his job, he completed his M.Sc. in Thyroid Biochemistry and then his Ph.D. in Thyroid Pathophysiology in 1992. In 1995, Dr. Velumani resigned from his BARC job after which his wife fought with him over his decision but in the end, she also left her SBI job to support him, With the help of his wife Sumathi, Dr. Velumani began his dream of Thyrocare with an initial investment of Rs. 2 lakh, from his Provident Fund (PF). Dr. Velumani and his wife set up the first Thyrocare lab in Byculla, Mumbai, with an initial focus on thyroid testing by considering the huge potential for it in India. Because in India there were around 100 thousand pathology labs out of which 90% of them lack facilities for thyroid testing which created an opportunity for Velumani to enter into this high-volume business.
Take Home Msg:- Entrepreneurship is all about coming out of your comfort zone, observing the need of the market, and starting your business with what you have to fulfill the market's needs. Dr.Velumani started Thyrocare to fulfill the market needs of a laboratory that can do thyroid tests fastly, accurately, and at the lowest cost.
A fun fact about Dr.Velumani was in the BARC interview he was asked about the location of the Thyroid gland in our body which he failed to answer because he belonged to a mathematics background and then he decided to do his M.Sc. and Ph.D. in Thyroid biochemistry and pathophysiology. Here the saying goes, ' if you do what you studied you will survive, But if you do what you have not studied you will be the leader'.
Brand around a Gland: The Unique Business model of Thyrocare
1) COGS (Cost of Goods Sold):-
Before Thyrocare, other companies used to charge Rs.500 for a thyroid test out of which Rs.150 was reagent (raw material) cost, Rs.150 was the company's expenses on floor/AC/HR, and Rs.200 was their margin or profit.
But, Thyrocare disrupted the medical diagnostics market by charging Rs.100 for a thyroid test despite the fact that the reagent costs Rs.150, wondering about the profits?. This unique pricing was the reason behind Thyrocare's success, According to Dr. Velumani, 'No company on this earth got closed due to low price of its product'.The cost of reagents and no. of reagents units purchased were related as:-
As we can see from the above graph that if Thyrocare purchases 100 reagents for thyroid testing per month, each reagent costs Rs.150 but if they purchase 5 million reagents/ month the cost is reduced to Rs.27 only and they get a huge profit over there competitors even by performing tests for Rs.100.
Take Home Msg:-You can either sell your product to a small no.of customers by pricing it high or you can reach millions of customers by pricing it low, adjusting profit by reducing COGS and also saving your money on branding and advertisements because low pricing is always the best marketing. This also reduced the COCA(Cost of Customer Acquisition) for Thyrocare as compared to its competitors.
Because of the high volume of customers, Thyrocare got an 82% discount on the thyroid testing reagent which increased their branding and profits.
2. B2B (Business to Business)BUSINESS MODEL:-
According to Dr.Velumani B2C is the more profitable business model when you directly sell the product to your consumers but B2B is a more volume-generating business model where you can reach a large number of consumers and can negotiate the profits with the vendor, generally, it is less profitable but more reachable to expand your branding.
Other competitors of Thyrocare give a 15-20% margin to the collection centers but Thyrocare again broke this ritual and offered a 60% margin to the collection centers and took 40% for Thyrocare. This led to a decreased workload on Thyrocare and increased demand for Thyrocare franchises across the globe.
Take Home Msg:- Thryocare is also one of the largest B2B players in the diagnostics space and has a network of 3,330+ collection centers across 2,000+ towns in India. It operates a multi-lab model with a mega central processing lab, two zonal processing labs, and 13 regional processing labs across the country. Decreasing the profit margin of the company and increasing for franchises helps in bootstrapping your brand value and demand for the franchise of your brand, and as the number of franchises increases profit will automatically increase even if the margin is less, this wonderful strategy was opted by Dr.Velumani.
3. Hired only freshers:-
According to Dr.Velumani, the balance sheet of a company strongly depends upon the mean age of employees. In Thyrocare, 25 years is the mean age of employees out of which 98% are freshers. During his struggling days, Velumani realized the problems faced by freshers in employment because every company always asks for a minimum experience, from that day only he decided to employ only freshers and poor people. Today, Thyrocare has more than 1200 staff members and it sustains the life of 10,000 families.
Take Home Msg:- This initiative of giving jobs to freshers motivates them to work with full passion and enthusiasm for their first company which helps in improving the growth of the company with the involvement of more young and innovative minds in the team.
4. USP of Thyrocare:-
While other diagnostic companies like Dr.LaL Pathlabs and Healthians focused on Pathology and acute diseases which come on rapidly, and are accompanied by distinct symptoms that require urgent or short-term care, and get better once they are treated. and easily curable like Strep throat, broken bones, appendicitis, influenza, pneumonia, etc., Thyrocare focused on Biochemistry and chronic disorders which are defined broadly as conditions that last 1 year or more and require ongoing medical attention or limit activities of daily living or both. Chronic diseases such as heart disease, cancer, and diabetes are the leading causes of death and disability.
Take Home Msg:- The USP(Unique Selling Proposition)of Thyrocare was that it focused more on biochemistry as a major principle in their tests and on chronic disorders which last for a long duration of time and require multiple diagnoses until they are treated. Moreover, they focused on disorders and not diseases because disorders show a wide variety of symptoms which again require multiple diagnoses with time for proper treatment this strategy helped them to steadily gain market share and became one of the top 5 competitors in India.
5. Never took a loan:-
Dr.A.Velumani never borrowed a loan to run his company he also maintained Rs.100 cr cash reserve in the company's account and lives in zero debt.
Take Home Msg:- Due to the lowest cost of the product, minimal COCA, minimum COGS, good profit sharing, and a large number of franchises across the country, Dr. Velumani maintained a 100 Cr cash reserve and was able to smoothly run Thyrocare with zero debt.
Thyroid: became the android of the diagnostic industry
Graph showing the rise in valuation of Thyrocare
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As we can see in the above data, Thyrocare added a new zero every 6 years in its valuation. Thyrocare also launched an IPO, the issue was priced at ₹420 to ₹446 per share. The minimum order quantity was 33 Shares. The IPO opens on Apr 27, 2016, and closes on Apr 29, 2016. This IPO was 75% subscribed which represents the brand value of Thyrocare. We can also see its progress through its office space which also grew up exponentially like its valuation.
This was all about Dr.A.Velumani, a guy who once came to Mumbai with Rs.500 and became the 149th richest person in India with a company worth Rs.3000 Crores which is the largest Thyroid Testing laboratory in the world.
Conclusion:-
They followed the franchise model and their main focus was on the downstream segment. Downstream business required capabilities that would facilitate the company being able to perform the tests accurately at the lowest cost. Diagnostic chains marketed their services to customers through their own marketing staff, campaigns, and building relationships with doctors and corporate houses. Doctor referrals constituted almost 55 percent of the diagnostic business. The doctor referral business was largely secured through intermediaries, generally known as partners or agents, who were independent parties with contractual ties to multiple diagnostic laboratories. These agents chose the diagnostic center where samples would be sent for testing, based on the commission amount they received from the laboratories. As early mentioned that Thyrocare focused on the downstream business of processing samples and operated completely through a franchise model. Thyrocare’s operational model was different from the industry’s hub-and-spoke model; it did not have collection centers or satellite laboratories. The collection of samples was handled by the ASPs.
While the industry benchmark for commissions to partners and agents was around 25 percent, Thyrocare offered almost doubled their amount. Thyrocare was criticized for missing out on huge opportunities in a fast-growing market that its competitors were capitalizing on. Thyrocare was among the first in the industry to promote preventive care diagnostics on a large scale through its business-to-consumer brand Aarogyam, which focused on the wellness segment. Another way is preventive care tests, my patients were vertical, walking, and were in offices or homes, while my competitors serviced the sick care segment, where their patients were horizontal, bedridden, and in hospitals. Thyrocare’slong-term relationships with reagents and consumable vendors, backed by large volumes, facilitated strong negotiating power and lowest-cost procurement. The equipment was sourced through a leasing model, resulting in minimal capital expenditures, in exchange for a commitment to purchase certain volumes of reagents and consumables. (CLIA) technology, which was more expensive in terms of capital intensity, but was highly conducive to large-scale sample processing, automation, simplicity, and minimal human intervention. Thyrocare’s pricing was, however, independent of the technology used, and CLIA usage only lowered its costs. As a result, it was able to offer a uniform lower price to the market.
Know about thyrocare but don't know about dr a velumani. Thanks editor for this blog
ReplyDeleteMy pleasure bro😎❤
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