"Time has far more value than any investor giving me $1 million-2 million" | Outlook Business
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Vishal koul

Secret Diary of an Entrepreneur / CEO-2018

"Time has far more value than any investor giving me $1 million-2 million"
Secret Diary of Patu Keswani — Part 3

V Keshavdev

Patu Keswani, Founder, Lemon Tree Hotels

When I was building my first hotel, I kept in mind a simple rule that if I had to sell the business, it should be easy for anybody to buy it. I remember going through the Oxford English Dictionary. Every night I used to go through 10 pages, and finally came up with 1,800 names. I brought it down to about 100. Then, down to 18. Then I called my close friends, about 10 of them, who were all executives in various companies, including, Arindam. I said, “These are the brand attributes, and here are the 18 names. Let’s discuss it.” A few of them were in advertising and so on. Finally, we selected ‘Lemon Tree’.

Interestingly, when I launched our economy brand, the name was an outcome of my daughter’s ingenuity. I had eczema and I went to a very well-known dermatologist who gave me some lousy medicine — cream with steroids in it. So I used it for a year, and unfortunately, I went to another doctor who told me, “Are you crazy?” But by then, my skin had thinned to one quarter of the normal thickness. So basically, I turned very red. She was a kid then, and had started calling me ‘red fox’. So when I needed a name for the economy hotel, I promptly called it Red Fox. Everybody panned it: “It will be used only by Indians. Aur woh Hindi mein kahenge lal lomdi. Can you say Lal Lomdi is a hotel company?” I said, “Bolne do. Dekha jayega.” Now it’s successful and everybody says it’s a great name.

My foray into business also forged several new relationships, one of which is the canine kind. My ex-wife loves dogs, and so do my kids. My son, who was still very young, one day came to see me in my office, which is on the first floor at Safdarjung Enclave. He claimed a very small pup, who could barely walk, had followed him for one kilometre from the park and, therefore, was naturally meant to be our pet. This was total bullshit, of course, as he had carried the pup all the way to the office. The dog was given the name Sparky, and was put under the staircase of the house. 

One fine day, she disappeared. After a week, our guard Bahadur found the dog hanging around a dhaba. Once back, the bond turned personal and, finally, professional with Sparky joining the company as an employee and later went on to become the vice-chairman! I introduced her to the board saying the dog was second in command, and they quite liked the idea. She wouldn’t sit on the chair, but she was there at the meetings.

She passed away a year ago. Now her EA is being groomed to take over. The qualifying criteria are three: an ability to wag a tail enthusiastically; because if you can’t make your presence felt, then you’re not a successful dog. Two, it must be a mongrel. The third I look for is a very peculiar feature — the length of the muzzle. So basically, a foxish look as we’re a family of foxes!

Warren Buffett was once asked, “What makes you the world’s smartest, most successful investor?” He very self-deprecatingly said he was the winner of the ovarian lottery. It made me ponder what about the losers of the lottery. You are never born to the wrong parents, but you are certainly born in the wrong place at the wrong time and lack the opportunity. 

In 2006, when Warburg Pincus invested 280 crore in the company, which was a heck of lot of money for a 25% stake, I was feeling absurdly grateful to God. I didn’t know how to reciprocate. I didn’t want to build a temple or do some charity. I wanted to give back to society. I remember telling one of my colleagues to hire two deaf boys and give them a job in the kitchen-washing department. I forgot about it, as, in my mind, it was my way of saying thank you to the society at large. A couple of months later, a lady came to see me with a bouquet. Her eyes welled up as she said I have come to invite you for my son’s wedding. As it turned out, she was the mother of one of those two boys. I didn’t know better at that time that, if you are born deaf, it’s a cruel loss of faculty because you also don’t speak since you can’t hear yourself. That’s why they are known as mute. It was an eerie flashback to Russi Mody and the two boys. The only reason this boy was getting married was because he had a job with us as a kitchen washer. 

There are about, I would reckon, 10 to 12 million such Indians, of which less than 100,000 are employed. So, it was enormously inspiring to hear the story of our employee. Call it the law of unintended consequences, today we have over 1,000 such people in our system. We want to quadruple the number by 2022. Employees love it. If you read our employee feedback forms and surveys, this recruitment policy is a huge binding factor. They also love that they have to learn, sign language mandatorily. Every manager at Lemon Tree has to learn the sign language. We don’t do it as charity because that does not lead to a life of dignity. I’m clear that we will provide them jobs and redefine roles in such a way that their disability is irrelevant.

The company is growing very fast and, typically, in our business, there are three types of hotels. Old hotels which are stable and are earning money, new hotels which are breaking even or losing money, and just built or newer hotels, which are losing money, because the revenue has not caught up with expenses. So there have been times when we’ve had a negative cash flow, especially over the past 10 years because when I opened Lemon Tree, between 2004 and 2007, it was the top of the cycle. In fact, the hotel industry was doing so well that a lot of players ramped up supply. So supply in India grew 5x over the past 15 years, or a CAGR of 17-18%. Demand, which grows in India, is about 12%. So every year, the demand was less than the rate of growth of supply. 

As occupancies came down, hotels behaved irrationally. Prices came down and, therefore, every year, on an average, revenue per hotel was going down by a few percentage points. Expenses were going up with inflation. We were in loss-making territory. I was very clear that we need to reach a scale at which, at the right time, we could juice it.

About seven to eight years ago, it was really the bottom of cycle and I had a conversation with our top 10 people. I said we have two choices. One is that we ask 50 people to go or we all take a salary cut. So they said we’ll take a salary cut. I said, as the leader, I will take a 50% salary cut. You guys will take 25% cut and everybody else will take a 10% cut. I sent a circular the next day that everybody in the company has to agree to this and then I won’t have to ask anybody to go; I explained the rationale. But I told them, here’s the deal: When the company does well, I’ll return what I have cut with an interest rate of 12%. So about a year-and-a-half later, I paid 10 crore happily.

A person’s time is the one thing that is limited in this universe, right? If God has given me 80 years and, if somebody is going to give me 15 years, it is 20% of his or her life. That has far more value than any investor giving me $1 million-2 million. Sure, they have every right to get a fair return. But the first category of stakeholder that has to be taken care of is the employee, then the guests. So if I have happy employees, I will have happy guests and, therefore, happy shareholders.

***
Just before I went public, I was in Mumbai, and co-incidentally I got a message from KK saying, ‘What’s up? What’s happening with you?’ So I went to him and it was a great reunion. He was very happy and proud of what Lemon Tree has achieved though we are about half of Taj in size and market cap. He was joking with me about it and said, “You never wanted to be CEO, MD or chairman of Taj.” And I said, “Not really.”

When I left the Tatas, it was not that I had anything against them. I still love the group. I still love their values. I love the people there. It is just that I had changed. As I said, it was never for the money, other than that inflation hedge. Even now, I tell my kids, Nayana and Aditya, “Listen, my big fear is, you’ll feel entitled.” Both my kids said, “Give away whatever you’ve made.” So, they are both discussing with me on how to create a trust.

***
As the largest and the controlling shareholder of Lemon Tree, it’s my job to make sure that whoever replaces me maximises value for employees, guests, government, society and shareholders. And, I don’t think my kids are the right people for that. My son is on the board as a promoter-shareholder, but I don’t plan to pack this board with my family members. 

I brought my son here for nine months last year as an intern, and I paid him a salary out of mine. I didn’t let Lemon Tree pay him, because that’s a related-party transaction. My daughter is interning with me for the same reason — to know what this company is all about. Again, I pay her salary. I don’t see the next CEO as someone related to me. 

I view life the way Socrates did. When the Athenian assembly, which was the cradle of democracy, handed over a death sentence to the philosopher, it was decided that Socrates had to kill himself. Even in his dying moments he asked his close disciple to note the feelings that a human underwent after consuming poison. When he was about to shut his eyes, he said, “Crito, we owe a cock to Asclepius; pay it and don’t forget.” It goes to show this magnificent indifference towards life, and that nothing matters ultimately. He was killed for impiety but he showed piety. I’m not saying be a nihilist, but at the end of it all, life is but a journey.

This is part 3 of a thee-part series. You can read Part 1 here and Part 2 here.

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