Motilal Oswal Group’s Raamdeo Agrawal: Goodwill takes 25 years to build, but takes 25 minutes to destroy

Raamdeo Agrawal: When we started in 1987, even though I didn’t know the term “franchise”, we started as a franchisee, as a sub-broker. I was a Chartered Accountant. I knew everything about the stock market, but I didn't have money. I was looking for a seller’s market where the clients will pay for everything. That's how we started with zero capital.

Sundar Iyer was my master franchisee. He was handling all the problems related to the BSE and working capital. We kept building. And then after five years when we made some money - about Rs 50 lakh - then we said we want to become the main broker and we want to become a franchisee.

So that's how in 1994, we bought the membership in BSE and became the main broker and seven sub-brokers joined; which are nothing but franchises. And those seven guys - this was the time when Harshad Mehta happened - they in turn had franchises in far flung cities all over the country. It was not official that time, it was not kind of organised the way it is organised today, but that's how the franchise was built. And we were doing business in 15-20 cities through the service and the business kept on just exploding.

We cater to about 2 million customers through 3500 franchisees in 580 cities and we don't see the face of any one of them. I would not be able to tell you which cities but I know they include the North East and Kashmir.

We became more independent because of the franchise model.

Motilal Oswal was one of the sub-brokers of a broker. Today, actually we are bigger than BSE. So that's a part of the franchise from a small sub broker to how big you can become.

Dheeraj Gupta: After I passed out from college, I started reading biographies. I wanted to really see how McDonald's started? What you see today is very different from the first hundred stores they built! How did Starbucks start? How did Subway get created? Because these are all brands which didn’t have a privilege of a lot of money. Was the journey different for them? Franchising is a beautiful business model that is used in the food business. I have benefited so much from people who have put down their knowledge and shared it with people. We had a lot of franchise enquiries. They are very vulnerable. They agree with everything because they are so keen on getting into business. They need just a confident face which says, “kar lo, ho jaega”.

However, there is a lot of responsibility which comes with franchising. So that’s in the book. There are advantages and you will benefit a lot. However, there is always the downside like the line in ads - ‘stock market is subject to market risks’. So, I thought, let me put it out so that people can read it. It also helps us establish ourselves as someone who understands franchising. And I think it also becomes a blueprint for someone who wants to start a venture.

Gupta: Franchising is all about integrity. People trust you. There is a B2C customer, the one who buys the product at the stores. There's a B2B customer, the franchise who's coming and putting savings and putting up the stores. It's all about integrity which gets created through transparency.

The entire process is transparent. It’s like someone wants to buy bread or patties at a certain price - I tell my supplier that my franchisee is also going to go to the market and check prices. And if we say you come to us and pay us 10 percent royalty because of the purchase price of items alone, we have at least 50 percent savings for you, we have to back that up with proof and show the manufacturing advantage. Because there are other people in the market also who are starting to provide the same patty and sauces.

Being open in the food business especially, helps us answer the question- why are you forcing us to buy from this guy? We say, ‘If you have a better supplier, let us go and talk to them. Let us understand why they are better.’ This helps us improve our suppliers. So the idea is to partner with the best in class people, which then has an entire cascading effect of having best products and therefore providing best value to our franchise and that's what they take pride in. The franchises should be able to walk out in the market feeling super confident that I'm getting the best quality at the best price.

Agrawal: Brands are all about goodwill. Come what may, tomorrow morning 9 am, the brand will open shop. Even if there is a 1000 crore loss, if at 3:30 pm the market collapses by 10 percent, there will be thousands to pay. And that too before the market is over. NSE doesn't give credit, they don't even give 30 minutes credit. We have to bankroll whatever it takes. We must have done millions of transactions, but no customer has said that we didn't get the payment on time. You can be absolutely rest assured that if you have to receive 500 rupees, you will receive it. So we have those kinds of clients. So that comes out of the goodwill. And thanks to our research, we will recover eventually. That’s why, their positive experiences add up and they talk about it.

And if there is one bad apple in that, they will destroy 20-30 percent of the value; you default once and see what happens with operations.

Goodwill takes 25 years to build, but it takes 25 minutes to destroy.

Gupta: The goodwill has been built over years. I’ll just share this one example. I had this one property owner who had given the property to us. His daughter’s marriage was fixed and he had a huge sense of pride that his property value has risen because there's a JumboKing store over there. And it was very humbling because I was not thinking of these aspects of the business of how a very simple person was taking so much pride in what was happening and that is how the whole cycle starts. Property owners, they want to associate with you. That's how you get the best of the properties. It's goodwill all the way.

There is an often-used phrase which is "Culture eats strategy for breakfast". You place a lot of emphasis on establishing common understanding of organisational growth goals via exhaustive training in your book. Would you share a few of the benefits that you have seen of that approach?

Gupta: You keep training, you keep growing. It is all about providing the team with clarity. Culture has to get distilled down to every member in the organisation. In our company, we have something called "Vinamrata se Baat karein" - speak as you want to be spoken to.

Everyone should know what to do, but that is not how it works always. So culture is so, so important.

Agrawal: India has 75 years of compounded past. So, you have numbers but you also have poverty. 1.4 billion - it’s very tough to handle. And then you have very friendly borders! India has all kinds of problems. We have a compounded future as well. You can see the future from the eyes of the past. Even at 6% growth in the next 25 years, we are going to be one of the most rocking countries, youngest and growing at 6-7 percent. The rest of the world is struggling.

India has a really exciting future.