Dear Warren,

In your annual letters to shareholders you have spoken at length about some of Berkshire Hathaway’s exceptional managers – one of them being Rose Blumkin. You have mentioned that Mrs. Blumkin came to America with less than $500 and built Nebraska Furniture Mart (NFM) which you later acquired from her. And you have lavishly praised her for her dedication and business acumen by saying: given a choice between 50 of America’s top MBAs and Mrs. B, you’d pick Mrs. B any day to run business.

Therefore Warren, I think you would enjoy meeting Dr. Velumani or Dr. AVM for short. Dr. AVM came to Mumbai with Rs 500 in his pocket. Luckily he found a job as a lab technician at BARC. His monthly salary was Rs 1,000 but he used to send  Rs 1,500 to his mother every month? How, you ask? He used to teach Math to kids before work and after work; he would walk to work to save on bus fare. A few years later, with Rs 200,000 he started Thyrocare.

Like NFM, Thyrocare’s USP is lowest prices. As Charlie Munger would say: “low prices tends to attract high volumes which in turn would lead to lower prices“. When Dr. AVM started business, the labs charged a bomb for Thyroid tests and very few patients could afford it. Because there was so less volumes, the assets idled. Dr. AVM inverted the model by getting the labs to outsource their Thyroid test samples to for at a fraction of what it would cost them to test. By aggregating samples from several labs, Dr. AVM was able to drive economies of scale and shared those benefits with the labs and the labs with their patients.

Thyrocare still has a limited menu like McDonald’s. A limited menu means fewer ingredients and standardized processes. And standardized processes suck out inefficiencies in the business. Even today, other diagnostic labs offers thousands of tests whereas Thyrocare offers only a few hundred. But it’s prices are the lowest in India and probably in the entire world. Over the years, this model had a few more kickers like lab automation which helped lower the overhead costs even further and thereby attracting volumes from all over India.

My teacher, Prof. Sanjay Bakshi had written a paper titled 7 intelligent fanatics in 2015. In that, he listed 3 key ingredients of Intelligent Fanatics – Intelligence, Integrity and Energy. I have detailed above how Dr. AVM intelligently avoided competition with the labs and instead found a business model based on cooperation with the existing labs. In fact this was a win-win model. The labs were happy because they could offer Thyroid tests at a lower price while maintaining their margins; the patients were happy with lower prices and of course Dr. AVM was happy too. And as you yourself would say: the moat widens each day that the customers are happier.

I’ll now talk about energy. Warren, you have talked at length about how Mrs. B used to work 7 days a week. Dr. AVM is similar too. When Thyrocare started, Dr. AVM and his wife were the sole employees. He would seek samples from the labs during the day and test them at night and provide the reports the next day. As business scaled, he added a larger testing facility with more employees. But Dr. AVM decided that in order to save time and focus more he would live in his laboratory itself. That is, in the initial years, the lab was at home; in the later years, the home was at the lab.

And finally, integrity. I could list several instances but I’ll deliberately limit it to a few.

• Warren, just as you have admitted mistakes in public, several times, so has Dr. AVM. Just the other day, at the Annual General Meeting he admitted to taking his eyes of the business and letting the growth suffer for a couple of years. I am guessing people like him and you that aren’t insecure about admitting them and you treat mistakes as an ingredient of success.
• Dr. AVM is firmly aligned with the interests of his shareholders and refused to accept a fixed salary. When his board raised questions about his investments in the loss making subsidiary (the only loss making unit), he offered to buy out the business at the investment value thereby making the company good of its losses. Even the board that decided on that proposal did so only with Independent members. Failures in business is common but he didn’t use that as an excuse.
• Dr. AVM isn’t driven by profits as much as he is driven by the desire to create jobs. At Thyrocare, nearly 98% of the employees are freshers and I am guessing many of them would come from poor families like Dr.V. When a poor fresher is hired, an entire family has a shot at a better life. Very similar to what Mohnish Pabrai is doing through Dakshana.

So Warren, in short, whatever patterns I learnt from your letters regarding the low cost-high volume business model, I found Dr. AVM and Thyrocare checked all of them and more.  And how! The Rs 200,000 initial investment was the only investment which ever went into the business and today that business is worth Rs 70 B in just 25 years!

And finally, another coincidence. Just as Mrs. B sold a major stake in NFM to you, Dr. AVM sold his entire stake in Thyrocare to a startup. But unlike Mrs. B, he will not be running it anymore.

Thank you Warren for patiently reading about Dr. AVM and Thyrocare. In about 2 months, he may have fully retired and I am sure you titans can meet over coffee. You can share your jokes and he, his punch lines.

Regards,

-VK