The Secret to Bajaj Auto’s Success - E6


Transcript

How does a company go from zero to #3 in 15 years- in a mature, globally competitive industry like motorcycles?

Bajaj Auto did it by burning its bridges with scooters.

Why did Bajaj burn its bridges with scooters? And why did this deliberate bridge burning become so successful?

Bajaj Auto was founded by Jamnalal Bajaj in the 1940s. The company attained considerable prominence under Rahul Bajaj as a scooter manufacturer.

Scooters, in fact, formed the majority of the company’s production and profits till the early part of this millennium. At one point in the 1980s and 90s, Bajaj was one of the largest scooter manufacturers in the world, selling one million vehicles a year.

The popularity was such that in pre-liberalized India, when production was capped by the government, the flagship Bajaj Chetak had a waiting period of 10 years! People who got delivery would sell it immediately at a premium . Imagine! A second hand scooter was worth more than a brand new one. That was the power of the Bajaj brand which benefited immensely from the artificial scarcity created by the government controls.

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’.

Enter Rajiv Bajaj. After he joined the firm in 1991, he asked his father what was expected of him. His father replied - "Do what you think is best but be best in what you do ". As to what the definition of the best was his father responded - "Best means being a global company."

However, things were already changing. Bajaj’s arch rival Hero Honda was launching four-stroke motorcycles which were enormously successful due to their fuel efficiency. Scooter sales began their descent.

When Rajiv Bajaj analyzed the global market, he found that in terms of volumes, revenues and profit per unit, motorcycles were much higher than scooters. And so, Rajiv Bajaj decided that Bajaj would focus on just producing motorcycles. He decided that Bajaj would slowly stop producing scooters.

In an interview which had both father and son present, Rajiv Bajaj’s father said he was hurt by his son’s decision to stop scooter production. Rajiv was not fully convinced. Rajiv Bajaj’s reply was, “I care less for the solution from emotions, I believe more in the magic of logic.”

What was this magic of logic other than a vast and profitable market? Why couldn’t they do both?

According to Mr. Bajaj, when the company began its pivot into the motorcycle segment around 20 years ago, the total employee strength—from watchman to the chairman—was 10,000 employees. Honda’s R&D alone was10,000 at the time.

He said:

"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."

Mr. Bajaj is a huge fan of narrowing focus. It is in fact his most constant advice. He added -

“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.”

What is so special about the trait of focus? Why do people like Mr. Bajaj, Mr Buffett, Mr. Gates all never stop praising the trait of focus.

The answer is simply compound interest.

As the formula clearly implies, to maximize the end result, one has to maximize both the rate and the tenure of compounding. And this quantitative concept has considerable qualitative application as well.

Time and Attention are two of the most finite resources in the world. When these scarce resources are concentrated on a smaller set of avenues over a long period of time, the outcomes become extremely interesting - like in the case of Bajaj.

Bajaj Auto spent the majority of its resources -time, attention, money - into the motorcycle segment. And when this was backed by a strong thirst to succeed and a constant obsession to continually improve, then the odds of success improved dramatically.

Rajiv Bajaj did not want to be distracted by scooters. It did not matter to him that he was putting a stop to something that was his family’s identity for decades. It did not matter that no major two-wheeler company in India had come out with an indigenous product in India till then. All that mattered was to focus on 2 wheel design and manufacturing in the most effective way possible.

This laser focus on focus is evident throughout the Bajaj business model. The business has fewer brands in its stable as compared to its peers. When the number of brands are smaller, the amount of resources spent per brand is much larger, improving the effectiveness of its perception in the mind of the customer.

Similarly, Bajaj reduced the number of suppliers it has as well. This was to ensure the better control of the supply chain and to improve pricing. Having a smaller number of suppliers meant stronger relationships with them.

What is the end-result? Bridge burning led Bajaj Auto to become the third largest motorcycle player and the largest exporter in terms of units sold in the world. It has a market cap of more than $11 billion today. And when asked if Bajaj would begin selling scooters again Rajiv Bajaj’s response is classic -

"We have only 10% global market share in the global motorcycle market. We think we can grow it to 15% or 20 or 30%, or more. It does not bother me much how large the scooter market is."

So the next time you want to achieve outsized success in something - think about the bridges that you can burn.

If you want to learn more about the Bridge-Burning mental model, you can get it free, along with many other great perks, if you sign up as an Intelligent Fanatics member. See the description below for all of the links.

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Shout out to @rohithpottigmail-com for writing this piece. Great job Rohith.

And here is the link to the bridge burning model.

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