I am a fan of fantasy fiction. I have tried quite a few fantasy fiction series and my favourites so far are Rowling, Robert Jordan and Raymond Feist. I recently tried a new fantasy fiction series where I came across the term ‘Bridgeburners’, which I thought sounded quite cool. Bridgeburners are an elite force named so because circumstances had burned the bridges of their past, of who they once were.
This term began a random chain of thought that evolved into this post. Somehow - I have no idea how - in my mind, this term got linked with a quote of Munger’s.
"Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn’t get any other way. "
This intuitively / instinctively made sense to me, but then I started wondering why that was so. Why did people who narrowly specialize become extremely good at one particular thing? Buffett says the same thing, albeit in a different way:
"At dinner, Bill Gates Sr. posed the question to the table: What factor did people feel was the most important in getting to where they’d gotten in life? And I said, ‘Focus.’ And Bill said the same thing.”
Then there is that story of Buffett and his pilot Mike Flint, which Ian has covered beautifully in the article The Importance of Selective Focus.
What is it about focus that makes individuals and businesses that focus on few things get terribly good at those things, just as animals in niches?
To my mind, the answer lies in the mathematical concept that we learned in high school - compound interest. Benjamin Franklin, Albert Einstein, Charlie Munger, Warren Buffett and many more are huge fans of the concept of compound interest.
Einstein calls it the eighth wonder of the world. According to Munger,
" Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”
Compound interest formula, as we learnt it is, A=P*((1+r/100)^t). Basically, in the first year, the original amount generates some interest, while in the succeeding year, the original amount and the interest together higher interest and so on. Benjamin Franklin described it thus,
" Remember that Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more, and so on. The more there is of it, the more it produces every Turning, so that the Profits rise quicker and quicker."
Our mind works in silos - we find it difficult to apply concepts learned in one field to other fields. What intrigued me is the realization that the mathematical model of compound interest has considerable qualitative applications as well. As the formula clearly implies, to maximize the end result, one has to maximize both the rate and the tenure of compounding. Let us take a couple of examples to understand this better.
Consider two people at the same profile in the same company - let us say software developer. One loves his job, while the other is neutral about it. The person, who loves coding, would put in more effort at learning more, would grasp concepts quicker and would probably stick to the profession longer – all out of his natural interest. In other terms, his rate and tenure of compounding would be much more.
Now, let us take another simplistic example relevant to this post. Consider two individuals A & B. Assume that B is naturally slightly more talented than A in most things. Let us say A focuses on just 3 things in life while B focuses only on just 10 things (which include the things A focuses on). While initially B might be better than A at all things, over a long enough period, I would believe that in the three things A focuses on, she would end up better than B.
The reason is compounding again. As Ian mentioned in his post on selective focus, Time and Attention are two of the most finite resources in the world. As A has fewer things to focus on, she is able to pay more attention and time to improving herself in those things. Thus, the rate of improvement of each thing in A is much higher, as B has to divide the finite resources of time and attention to 10 things.
Now, let us expand this concept to that of a business. A business focused on one segment or industry has more time and management bandwidth focused on that segment. When that is the case, it would tend to understand its customers better, have more efficient processes, have better insights and take care of the whole value chain better.
Now, if this is backed by a culture of learning or a constant obsession to continually improve, then the odds of success improve dramatically. The life of any business requires multiple decisions to be taken at each point of time. A focused business run by a focused management / founder who are learning machines would take higher quality decisions at each major decision points in the business or learn faster from the errors at each stage. Such businesses, at each decision fork (whether to invest or not to invest in new capacity, or whether to increase prices or not, etcetera) increase the probability of choosing the decision fork that lead to long term favourable results. And as they are constant and eager learners, the more decision forks that they take, the higher on average their probability of taking better quality decisions. And the compounding effect of good decisions and judgement over a long period of time can be quite tremendous. While I have no proof I suspect that the compounding rate probably increases non-linearly in learning (as the new concepts you learn interact with the concepts you already know to create a varied worldview).
Bringing all the above concepts together I propose what I call the Bridgeburner mental model (as if we did not have enough of mental models). Bridgeburner is that intelligent fanatic learning machine, who burns bridges to focus on a specific segment or market or a principle with the intent of harnessing the potent mathematical force of compounding.
There is a character or psychological angle related to this model as well which I believe is quite important. In some cases, there is inherent humility in the action of bridge-burning. When someone burns bridges, he or she is acknowledging their limitations, and conveying that with their bandwidth they cannot do more than a few things, and that they are willing to let go when the circumstances require it.
There is another psychological angle here. We live in an age of distraction and information overload. In such a scenario, any socially connected person is inundated with increasing demands on the finite time available. People’s attention spans have become shorter as they try to engage in as many activities as possible in the fear that they would miss out on something. The fear of missing out has only sharpened over time. Thus, a person or an entrepreneur who shows the ability to burn-bridges is exhibiting (at least in one sphere) an ability to overcome the fear of missing out.
And neither of the above are attributes to be underestimated.
To explain the concept better, I thought I would choose a few examples from India:
Rajiv Bajaj - the Focused Bridge-burner
"I always tell my people, whenever they are in trouble—whether personal or professional life—or you are in a difficult situation and don’t know what to do, the starting point should be to narrow your focus. Do less. Doing more never works."
Rajiv Bajaj is the CEO of Bajaj Auto, a company founded by his great grandfather in the 1940s. Bajaj Auto is one of the largest two-wheeler manufacturers in the world and the largest three wheeler passenger carrier in the world. It has sales of >$3.5 billion, is debt free and has a market cap of $11 billion today.
Here is the special thing about Bajaj Auto – unlike its peers it manufactures just motorcycles; it does not manufacture any scooters. In fact, it is the third largest motorcycle manufacturer in the world today; and the largest exporter of motorcycles in the world. The reason this is a stunning achievement is that while the company is more than six decades old as a two wheeler player, it is a teenager in the motorcycle segment. It produced its first indigenous motorcycle in 2001, when it launched the Pulsar.
From zero to the third largest player in the world in less than 17 years, and that too in a well-established competitive space like motorcycles is simply extraordinary.
How did Rajiv Bajaj achieve this? - By burning bridges for fanatic focus.
Before 2000, Bajaj Auto was known primarily as a scooter manufacturing company. Scooters formed majority of the production and profits. At one point in the 1980s and 90s, it was probably the largest scooter manufacturing company in the world, selling one million vehicles a year. The popularity was such that in the pre-liberalized India, when production was capped by government, the flagship product Bajaj Chetak had a waiting period of 10 years. People who got delivery used to sell it immediately at a premium to others (at times the premium was higher than the ex-factory price). The name ‘Bajaj’ in the customer’s minds was inextricably linked to scooters, an impression which was further strengthened through the iconic jingle ‘Hamara Bajaj’ (Our Bajaj).
Despite this storied history, Rajiv Bajaj took the decision to stop manufacturing scooters, the product which made Bajaj the household name it is in India. His father, Rahul Bajaj (an exceptional entrepreneur himself and the Chairman of the Board) was not fully on board with the decision initially. In an interview which had both father and son present, Rahul Bajaj said he was hurt by his son’s decision to stop scooter production and he was not fully convinced. His son’s reply was,
“I care less for the solution from emotions, I believe more in the magic of logic.”
What was this magical logic that led him to burn the bridge of the past?
Around five years after Rajiv Bajaj joined the business, sometime around 1995 he asked his father what was expected of him - the brand was strong, the production had improved considerably and the waiting period had come down substantially. His father gave him the advice his father had given him,
" Do what you think is best but be best in what you do "
. Rajiv Bajaj asked him what the metric of being the best was. His father replied,
"Best means being a global company."
At that point Bajaj was primarily a domestic company with some sales in Nepal and Sri Lanka. By the metric of being a global company, Bajaj was nowhere near its goal. This idea of ‘being the best in the world’ became the first guiding principle of Rajiv Bajaj.
The second guiding principle was from an renowned Indian sage-
"Nothing is more powerful than doing the right thing at the present moment."
This principle is echoed centuries later by Thomas Carlyle -
"Our main business is not to see what lies dimly at a distance, but to do what lies clearly at hand."
So once the decision was made that Bajaj would go behind the goal of being a global player, the next step was to decide what that meant. Around this time, Bajaj observed that sales of scooters were slowly coming down in their core market India. This was because its arch rival Hero Honda (Hero Motocorp today after Hero and Honda split) was launching four-stroke motorcycles which were enormously successful due to its fuel efficiency.
Additionally, when Rajiv Bajaj analysed the global market, at that time motorcycles were the largest segment in the two-wheeler market, scooters were small and mopeds, even smaller. In terms of volumes, revenues and profit per unit, motorcycles were much higher than scooters.
So he decided that Bajaj would focus on producing motorcycles. Now, no major two-wheeler company in India had come out with an indigenous product in India till then. Most of the popular products were designed and researched with the help of global majors like Honda, Vespa and others. The task he set for himself was a daunting one. Bajaj approached Kawasaki (with whom they had worked in the past) to team up for a larger motorcycle – a segment that was non-existent in the Indian market then. But Kawasaki refused him as they were unsure of the quality of Bajaj’s R&D in developing a product for a new segment. So Bajaj went on its own. And in 2001, it came out with Pulsar, the definitely male motorcycle.
But even after it came out with what seemed like a product which the market had not seen before, the sales did not take off. A major dealer, who was also a friend of Rajiv Bajaj shared a curious feedback with him -
"We are getting a lot of footfalls- particularly of youngsters and college students- something we have never seen before. But all have a common question - Why is a Bajaj product so costly? And when we finally made a sale after a few days, the customer took the bike out, removed the logo of Bajaj from the motorcycle and then put a BMW logo onto the bike and rode away."
This shocked Rajiv Bajaj. It led to the conclusion that consumers considered Bajaj to be a great brand- as long as it sold a cheap product. The brand perception of Bajaj was firmly linked to that of the scooter, which was of an old design and quite economical to purchase. While contemplating this feedback, the avid reader that he was Rajiv Bajaj came across a statement of Michael Porter,
"The strategy of a company is best understood by what it decides not to do."
He also came across a quote from Steve Jobs,
"I am as proud of the things that I have not done as of the things that I have done."
This led him to the inevitable conclusion - less is more; to be the best in one thing, you have to do only one thing. Thus began the journey to revamp the perception of the Bajaj brand and focusing entirely on motorcycles alone. And so, despite the organization possessing decades institutional knowledge in making scooters, Rajiv Bajaj decided to burn that bridge entirely by late 2000s. It would have been easy to convince himself and the Board that they would devote some amount of the management bandwidth on scooters. But he did not do that.
"We decided we will go after motorcycles. We will chase one thing, and we will do it really well. We will become one of the world leaders in that and then may do other things. Now people counter this by giving the example of Honda – they make scooters, motorcycles, cars, even jet skis, and yet Honda is a successful company. But I think what people miss is the aspect of timing. Honda started doing these things a long time back when competition was very benign. It started two-wheelers in the '40s, cars in the '60s and then something. Now you can’t, as a newcomer, say that I am going to do what somebody did in 70s. That’s nonsense.
When we started the journey 20 years back, we started designing Pulsar in 1998; the total employee strength—from watchman to the chairman—was 10,000 employees. In Honda, R&D alone at that time was 10,000. You have to understand who are you fighting against. When you fighting a giant, it’s like a combat situation where if you are 50 versus 10,000. You don’t stand a chance. What do you do? You narrow your focus. You put all 50 people to fight in one corner and you beat the fellows in that corner. You don’t bother about anything else. So, we said to ourselves that we have to put every man, every minute at our disposable into motorcycle."
Questions related to this continue to follow Rajiv Bajaj wherever he goes - is it not risky to focus just on motorcycles? Is it not safer to be diversified? His response remains consistent -
"We had to do that. Otherwise we would be wiped out, and we would have become like Hindustan Motors, LML, Kinetic Engineering. People forget about those who have died and gone. Strangely, for somebody like Kinetic, who was doing so well with Honda in scooters, it chased motorcycles because the country was moving to motorcycles. They should have stayed with scooters. "
After the decision to focus on motorcycles alone, Rajiv Bajaj has followed both organic and inorganic approach to conquer the world market. He has launched new brands like Discover, Boxer, Avenger, from the Bajaj stable, while simultaneously vying for stakes in foreign companies. In 2007, it took a 13% stake in the Austrian company KTM AG, which was increased to 48% in 2013. KTM’s brand and product positioning are completely different from that of Bajaj’s. A large portion of KTM motorcycles are today manufactured in Bajaj’s factory in India. It might be a coincidence but almost every year since 2012, KTM has been hitting record high production, revenues and profits. Since 2012, it is the largest motorcycle manufacturer in Europe.
Now, in 2017, Bajaj has partnered with Triumph of UK to basically complete its product basket. With this, Bajaj has offerings in almost all major motorcycle segments. It has various Bajaj sub-brands in the motorcycle segment up till 250cc, has KTM for 250cc to 750cc sport bike segment and now Triumph for cruiser segment in the 250cc to 750 cc segment.
Almost all its brands are strongly positioned - KTM is the largest in Europe and the largest in its category in India, Pulsar is the largest in India in its category, Boxer is the largest in Africa, and etcetera. And Bajaj is also among the most profitable 2-wheeler manufacturers in the world with EBITDA margins of ~20% and an RoCE which has remained above 30% on average in the last ten years.
Do you think Bajaj would have been able to convince Triumph or KTM to partner with it, or achieve the current strong market position if it were not obsessively focused on just the motorcycle segment?
But what about today? Today motorcycles and scooters form almost equal proportion of the two-wheeler industry. Does it not make sense for Bajaj to begin work on scooters again? This is Rajiv Bajaj’s response.
"You cannot always go by the market. See I tell people, it doesn’t matter when it comes to junk food – burgers and pizzas will both sell in all markets. You have to decide whether you are a Pizza Hut or a McDonald’s. Now for 10 years, scooters outpaced motorcycles. Since January this year, motorcycles are outpacing scooters. A company cannot change its strategy every 10 months. By the time you conceive and implement it, five years are gone.
So one must have the conviction. Now suppose globally motorcycles are 60%, scooters are 30% and mopeds are 10%. But tomorrow if somebody says the market share might become equal at 40% each, or motorcycles will become 40% or scooter 50%, it’s still fine by me. It doesn’t matter. At 40% of global volume, it is still a hell lot of motorcycles. After all the work we have done, and despite being on number 3, we have only 10% global market share. You still have 10% market share and you can grow it to 15% or 20 or 30%, or more.
When you allow the outside to dictate, and winds will change directions, you will have to adjust your sail. You cannot control the wind. We would have not been around today if we had behaved like that. The reason we are still here and are going from strength to strength in overseas market is because we chose to be global; we asked ourselves what was right at the present time and that was to specialize and do one big thing right."
As to when does he think Bajaj will look at manufacturing scooters again, Rajiv Bajaj has gone on record saying that the company needs to earn the right to make scooters. And to earn this right the company, according to him, has to be Number 1 in the world in making motorcycles first.
Ajay Piramal: the Dispassionate Bridge-burner
The 1980s were a horrendous period for Ajay Piramal. When he 24, his father passed away quite suddenly. Barely two years later Dilip, his elder brother wanted to go off on his own and took the luggage business. Ajay and his eldest brother Ashok got textiles and manufacturing.
However, after the split, the textile industry in Mumbai was hit by a crippling strike led by Datta Samant. Around 250,000 workers in more than 65 textile mills went on strike for eighteen months. This was among the longest strikes in world history and destroyed many of the mills in operation. Mr. Samant had gotten increased wages for workers in Premier Automobiles and the textile workers were hoping for the same from him. However, the textile industry then was reeling under multiple adverse circumstances including large power outages, lower demand among other things. The textile strike with inflexible demands led by Mr. Samant was the final blow. Many workers, who were migrant labourers returned to their homes and many mills shut down for good. Around this time, the Piramals were further hit by a fire in their mill as well, which the local political leaders accused the management of starting.
Just when he thought things could not get worse, his elder brother passed away due to cancer.
It was at this juncture when Murphy’s law had occurred with all its glory on the century old Piramal group, pushing it to the brink of extinction, that the young Ajay Piramal took over as Chairman. The decision he took then seemed perplexing. He used the crisis to burn the bridges with an industry his family had been associated with for decades -the textiles industry which was the mainstay of most of the major industrial houses in India.
Around that time, foreign pharma companies were exiting India in droves and in 1988 Mr. Piramal decided to bid for the tiny unit of Nicholas Laboratories which was #48 in size in India. The textile industry is as different from the pharma industry as possible. Pharma was more of a branded, intellectual property driven, relatively asset light business where sales force and marketing mattered a lot; while textile was all about manufacturing and production with less of branding and marketing importance.
Using Nicholas Laboratories as the platform (re-christened as Nicholas Piramal and then later Piramal Health), Mr. Piramal designed a world class organization of scale guided by the principles of the Bhagwad Gita. The business he built was based on the foundation of transparency, trust, quality, governance, win-win relationships and astute capital allocation. He acquired a number of foreign companies at less than 0.5x sales and in many cases he was not the highest bidder. The reason he was still able to win the bids was because the foreign sellers trusted him not to sell the products outside India. The cost of production in India was a fraction of that in other markets and the foreign sellers were worried that the Indian buyer might sell the low cost goods abroad. By 2010, in 22 years since he acquired Nicholas Laboratories, Mr. Piramal had guided Piramal Healthcare to the #3 position in the industry from #48.
And then he sold it to Abbott. Below is an excerpt from an article on Outlook Business on how he sold the business:
"I had gone to Abbott’s headquarters in Chicago to meet Chairman Miles White. This was to get them on board for a contract manufacturing deal. When he came to India, we spent an evening discussing pharma companies in India. He wanted to know which one would be worth buying. I was happy to oblige, not knowing then what he had in mind. A few months down the line, when Olivier Bohuon and team came, I invited them to see our plants. I showed them the whole business operation, thinking they were serious about our contract. I was so naive. I only knew of their true intentions when they called to say they wanted to buy us!
I was least interested. The thought had never crossed my mind. I didn’t react. Nor did I act. Then, one day, I just thought about it and said why not? There was no provocation really. So I called up a few bankers and they valued the company at some $2 billion-$2.5 billion. It left me unimpressed. We were not desperate to sell; they were the ones chasing us.
Miles White, Olivier, Nandini and I met in Dubai. I consulted Nitin (Dean of Harvard, who has been a key Advisor to Piramal) about the value – he was convinced we should ask our price. I had a three-page note summarising our business, our growth rates, profitability, distribution and quality standards. I made my case for a $4 billion valuation. They agreed with every single point!
There was no negotiation from my side because I wasn’t keen to sell anyway. They started with a $3 billion valuation, then came back with $3.5 billion, then $3.8 billion. I could have pushed but I agreed to close. My solicitors were getting scared… the deal was agreed on the phone."
As covered in the ‘Power of Detachment’, this decision to make such a dispassionate decision is exceedingly rare. It would have been actually understandable if Mr. Piramal had refused Abbott. As we wrote in the article:
Human beings are deeply emotional on average and develop attachment to certain objects. Consider things like our first vehicles, inherited jewellery, our homes, etc; many of us develop sentimental attachments to them and would never part with them. In case of Ajay Piramal it was at a time of great uncertainty that he ventured into the pharma business. Let us try to put ourselves in his shoes (as much as possible) and imagine what the business would have meant to us if we had gone through the struggle he did.
- The business was an integral part of what led his family from a period of turmoil and uncertainty to a period of stability and certainty. It would not have been surprising if there was emotional attachment to the business.
- The business made his name in the business circles of India, and brought recognition to the Piramal family as an industrial house to be reckoned with.
- Piramal is a parent of two smart kids - one of whom was on the board then (both are currently on board today). He would have very well wanted to hold on to the business as his legacy for his kids.
- Piramal was 52 years old then. At that age, after going through the struggle he had gone through, selling the core business and starting from scratch in other businesses is not exactly an easy thing to do.
However, none of that mattered to Mr. Piramal. For him his role as the trustee of his shareholders was clear. His guiding principle was to generate the maximum value possible for his shareholders within the constraints of ethics and responsible business. Here is his statement describing his rationale for selling the business to Abbott:
“I believe that I am like a trustee for all my stake holders. My job here is to ensure that I get maximum value for my shareholders and look after my employees as well. So when we sold this business…I did a calculation the other day - the only way I could have broken even to get this value or to create it is …if you assume that for the next 15 years, I grow every year my topline by 20 per cent. I have an operating margin of at least 30 per cent and I have no tax ….if I have a combination of all this, then I could have realised this value of Rs 18,000 (crore)…So therefore, rather than putting my own ego, many people say, this is a business you identify…how can you exit…I think my job here is a trustee and has to see what is in the best interest of my shareholders. That’s how I believe in doing it.”
(Hat tip to member @Hussain_Kagzi for the quote).
In a recent analyst meeting, this is what he had to say on Piramal entering new businesses,
"Any business that wants to be a part of the Piramal group should deserve to be part of the group. If a business does not meet our criteria for returns of equity then we will not enter it. And if a business does not generate our target return of equity then we have no problem in selling it."
Aamir Khan is perhaps the most bankable star in Indian cinema today. Over the last ten years, he has not given a single flop (though his recent movie Thugs of Hindustan might be one). In fact his movies have gone on to create many box office records including first Indian movie to net 100cr ($14 million, Ghajini), and the first Indian movie to reach 2,000cr worldwide collection (~$300 million, Dangal).
His career in movies started with bridge-burning. Right after he finished junior college he decided to go all-in into the movie industry. His family was into the movie business - his father was a film producer, and his uncle a film maker - and he was fascinated by it. His mother was shocked by the decision. It was quite unconventional in middle-class India to not have a back-up plan. He recalls,
“My mother pointed out that if I didn’t succeed as an actor, I would need a backup, so I should think about graduating at least. I said, even if I don’t make it as an actor, I’ll become an editor, a cinematographer, a writer. I’d find some place for myself in the industry that would earn me more than a graduate. I was very clear that I wanted to be in the film world.”
Around 1988, he came out with his first hit - Qayamat se Qayamat tak, which made him a star. The practice in the industry then was to sign and make as many movies as you can, and hope that one of them would succeed. It did not work. He used to go for work every day not enjoying or believing in the movies he was acting in. This is how he describes it:
"I began working in a number of films. Too many actually. And some of them were not very good. These second and third films were not doing well and they were not really good films. And I was labelled a one-film wonder by the media and rightly so…I was at the worst in my career. I could see my career ending. And I was so unhappy with the work I was doing. And I was so disturbed and I used to cry and actually weep…Since I’ve committed to these films I had to complete them and I know they were not good films but I still had to complete them. You know it’s a hard situation to be in.
And at that time I swore to myself that never again will I ever do a film if I am not happy. I have to love this script, I have to have complete faith in the director and I have to have complete faith in the producer because these three chains really determine what the film turns out."
This decision and desire to enjoy work led him to burn the bridge with what was considered the accepted formula for success in the industry. This eventually evolved into the decision to focus on just one movie at a time rather than work on multiple movies and spread himself thin. He felt that the age-old Bollywood practice of shooting a film in schedules, spread out over a year or more, where actors worked on multiple projects at the same time, was bizarre. For example, an actor would have to first perform on set and then recreate the emotion months later, while watching the scene in a sanitized, sound-proof dubbing room. He eventually became producer of a few movies as well, where he could insist on the same focus from his team. He maintains the focus really allows him to get into the skin of the character he is playing and be more innovative in his inputs to making the movie.
While the practice of doing just one film at a time has become more popular in Indian cinema in recent times, it was Aamir Khan who showed the way.
This is how he describes it
"Often, I think I am a handloom worker. Once I put the thread on the loom, there is nothing else that I can do. Whatever is being made, until that piece is complete, nothing else can be loaded on the loom."
To his advisors and friends who goad him to expand his work and make more films, he says that
"exponential growth is possible only in cancer, which leads to the death of the individual. I want to grow in a natural way, and sometimes that growth is internal".
While choosing his movie, he is not afraid to experiment. He does not stick to a formula for success. Consider some of his movies and his roles: an overweight wrestler, an alien, a teacher / mentor to a dyslexic kid, a rebellious villager standing up to the British, and etcetera. What matters is the script and whether he would be able to sync with the director and the producer to produce quality cinema. Once this is done he surrenders himself to the creation of their combined vision.
And he has a really strange business model as well. He does not charge fixed fees! This again is not the standard operating model in the movie industry. This decision came out of his father’s experience as a producer. In his formative years, his father was near bankruptcy as he lost money in the films he produced, while the director and lead actors walked away with their full fees.
And so, he follows a radically different model. Instead of loading the cost of the film with his fee, he asks for a larger percentage of the profit - after all the costs have been met.
“My income is based on how you liked the film, so I’m responsible directly for the fee. If it does not defray the costs I make nothing,”
he explains. And while calculating the returns he looks only at box office collections and does not include satellite rights, which just makes him even more loved by movie makers. (What does this business model remind you of?)
Now let’s take a moment to understand Aamir Khan’s way of working - he is focused, working on only one project at a time giving that project his entire attention and refuses to charge fees until the movie becomes profitable. Is it any surprise he is as successful as he is?
There are other examples profiled in the website that have shown their willingness to burn bridges to great success.
Vikram Somany is another Bridge-burner from India who exited the erstwhile flagship business which was into manufacturing commodity products to focus on the branded sanitaryware business to considerable success.
Warnaco Group covered by Sean briefly in this article, was able to turn itself around by cutting their fat product line and focusing on upscale clientele.
Home Depot was the result of some forced bridge-burning when Sanford Sigoloff kicked Bernie Marcus and Arthur Blank in the ass with a golden horseshoe.
Let me end with a question. Can any of you think of bridge-burning ways to improve focus and harness compounding in your life?
Disclaimer: We may/may not have positions in the companies mentioned in the blog. This case study/article is not a stock recommendation. We are not SEBI registered investment advisors. Our Intelligent Fanatics Case Studies and Articles are meant to retell the stories and strategies used to create exceptional businesses so that we can learn from them.
Books: Poor Charlie’s Almanack, Snowball