I don’t think there is any such thing as a good or a bad business. There is only a good or bad way of managing it. Consider some of our ventures. If you go by the number of companies that have failed in commercial vehicle financing, you could say that it’s a bad business. But Shriram Transport Finance bankrolls one in every four or five trucks in the country.
Similarly, many chit fund companies folded, but we run a chit fund business that is still doing well. We wound up our forays into edible oil refining and PET bottling, not because they were bad businesses to be in, but because we did not have a management team that could make a success of these ventures.
Our businesses are built around people. The mind-set of the organisation has been to find, develop and nurture the next generation of leaders who can take the business forward. Rather than identifying businesses to be in, we have focused on creating management teams that can build businesses. The hallmark of any successful management team is its ability to take the business to the next level and keep the organisation relevant for the next 25 years, which is the average lifespan of a good organisation.
My focus now is to create something that will not merely survive, but will flourish over the decades to come. The only organisation to do that in India has been the Tata Group, which, over the past 100 years, has not only become more prosperous, but also more dynamic. I would like to model the Shriram Group on those lines.
My stint in New India Assurance, which is an organisation that was heavily influenced by the Tatas, has unconsciously shaped my thinking. I have been deeply influenced by my former boss BK Shah, who was the managing director at that time. He was an extraordinary man and I learnt a lot from him, such as the need to focus on people, building excellent management teams and linking the organisation and business to the community.
I was more inward-looking before I met Shah. I wanted to work from 10 to five and use the rest of my time to pursue my intellectual interests in literature and music. But working with him changed my life and my thinking. I began thinking on how I could add value to the community and found the answers in the businesses I helped build. If insurance hadn’t been nationalised, I would have probably retired from New India Assurance. So, in a way, I have to thank the government for setting me off on my entrepreneurial journey.
Between 1974 and 1990, I worked with New India Assurance. But during that time I was also thinking about Shriram Chit Funds and Shriram Transport Finance. I have always started businesses to help somebody else who wants to be in business. That is because I am not very emotionally involved nor am I fond of money or visibility. So, I am not the conventional hero of a success story.
The chit fund was started by a friend who wanted to quit his job in the railways and start something on his own. In fact, I recommended commercial vehicle financing to everyone who wanted to start a business, because I knew it well and it was safe. That is how the venture was started by a group of friends. But since we were getting into it together, I had to get my skin in the game as well, and I invested in it along with them.
Once the business scaled up, I always found people who were as good as or better than me to run the show. I did not have any personal equity stake in the business until about five or six years ago. It was not necessary and personally, I didn’t have too much money. Yes, my family was well off, but I had decided against using my family wealth, as my father believed I wouldn’t do well financially. In the quest to prove myself, I relied on outside investors to raise funds.
It is not necessary for one to have a significant stake in a company to exercise influence. If you can back up your point of view with solid arguments, most people in the organisation will agree with your vision. Ownership and control has never been a preoccupation with me. Besides, the possibility of a significant ownership never arose because I simply did not have the money.
The organisation has grown because I could identify good people and give them bigger responsibilities. It is important to be comfortable with people doing things differently, because people feel more responsible if they implement something they believe in. But if they are doing what they have been told, then the onus is on the person directing them. In New India Assurance, I was labelled a “difficult person” to work with. I had the reputation of not conforming to regulations that I didn’t think fit, but I was tolerated even then as I delivered the required results.
As long as they deliver, people are always appreciated in the organisation. My colleagues have stayed back with the Shriram Group even though they get paid lesser than what they could have gotten elsewhere, only because we have been fair. In 2006, we formed a trust that offers equity to employees who helped build group businesses — because, all along, the understanding was that if we created something of value, it would belong to the entire company. The ownership of the group now rests with 33 people and, if the group continues to do well, they will be among the biggest beneficiaries.
Relationships, not transactions
I never had any grand vision for any of the businesses I entered. If I had understood the full implications of the chit fund business, perhaps I would not have started the business at all. I didn’t know how far it would go when I started the business but, after three years into it, I decided we should not grow at break-neck speed. I told my colleagues, “We have gotten onto a tiger, let’s proceed with caution. Otherwise, we won’t be able to get off.” The government regulations then made it more or less an unviable business to be in.
When the government cracked down on Non- Banking Financial Companies (NBFCs) in the 1990s, we were fairly confident that we would come out of the crisis. Our organisation is not built on the basis of transactions but on the basis of relationships. The only reason we survived is because our customers chose to stay with us even when NBFCs from respected business groups collapsed.
I was recently reading a management commentary from Wells Fargo that said, “From now on, we should focus on relationships rather than transactions”. That’s what we have done through the entire lifespan of our organisation. Perhaps we have been ahead of our time without realising it.
We are running enterprises because we want to add value to the community. For instance, I felt commercial vehicles buyers should be given a fair chance of survival and not be burdened with high interest rates. After all, they too wanted to repay loans on time. Someone had to extend credit to them at reasonable rates. That is how Shriram Transport Finance came into being.
Private equity also happened along the way. It took us nearly 23 years after the first Shriram entity was listed to attract our first private equity investment. But thanks to all the media attention, it appeared as if the main aim of the group was to attract private equity, which was not the case. We believe transparency levels are pretty high within our group, which has increased investor comfort. We give them our projections and tell them we are responsible for the earnings per share, but not for the price-earnings multiple.
We don’t talk share prices with them or promise them 3x-5x exits from our companies. I also believe that none of our mature businesses will see any private equity investors anymore. From here, only strategic investors wanting a presence in India will invest in our mature businesses. However, our newer businesses like housing finance, wealth management, stock broking, and financial products distribution could see private equity investment.
But even in the financial services space, we have consciously stayed away from competitive businesses. Unless we have a useful role to play for the customer and community, we will keep off. For instance, we have stayed away from private car financing because the existing players provide a much better service than we will ever be able to. Now, when everybody says we should enter banking, I ask my colleagues, “In what way are we going to be a different bank and in what way are we going to be relevant to the community?”
If the government allows us, we will run a bank that is different from the existing ones. Our customer base will definitely be different because a lot of chit fund customers don’t deal with banks. Today, about 1.2 million customers of Shriram City Union finance have bank accounts, but they don’t borrow from a bank. And we will extend banking services to them. We want to be a small people’s bank and because of that we may not gain too much visibility in the business. But that’s perfectly all right, as we are not aiming to be the next financial powerhouse in the country.
The businesses we enter will meet the needs of the under-serviced sections of society. For instance, we are now focused on growing small and medium businesses. We believe that the large entrepreneur of tomorrow will emerge from these small entrepreneurs, so there is a pressing need to develop them. We made a conscious decision to shift our focus from the chit fund business to financing small businesses. The chit fund business has helped us with a large customer base and several insights into small and medium businesses. Our new ventures also benefit from the customer base we have built over the years. For instance, our entry into insurance has been very smooth, thanks to our existing customers in truck financing.
Now, the focus is to move away from consumer finance and provide advisory services for the common man. There are many advisors for the bulge-bracket investor, but not many for individuals with investment portfolios of #5-10 lakh, who also need financial advice. In the case of housing finance, we will be focusing on Tier-2 and Tier-3 towns and not metros, and cater to customers with loan requirements of ₹15-20 lakh. The existing leadership team will move into these new businesses, while the next set of leaders within the organisation will take over the mature businesses.
I believe I have accomplished what I have because of my approach to work and life: I am very scientific; I don’t simply accept things that appear to be reasonable and true — I need them validated. I believe in coming to conclusions, but nothing is ever the final conclusion. As with mathematics, you continuously need to test the hypothesis.
Personally, I believe management theory is irrelevant. No one in the top management team at the Shriram Group has a management background. I think business schools should teach only fundamentals like accountancy, probability, mathematics and economics and its limitations. Harvard Business School case studies are definitely not relevant in a country like ours.
Perhaps I am a socialist in my thinking, as I would like more equality in society. However, in reality, I realise this may not always be possible. But I don’t see why we should rub it in by flaunting our wealth. I don’t own a cellphone, because I am of little use during an emergency and my colleagues don’t need to be in constant touch with me. I don’t own a car because everybody owns a car these days and somebody or the other will drop me home. Wherever possible, I always try to use resources judiciously. I may not be the perfect role model but I let my convictions drive me.
—As told to Kripa Mahalingam