VP CHINTAN BAITHAK GOA 2016: A Self-Reinforcing Business Model?

Thought of sharing this presentation first (which could be easily sanitised) for Public Consumption.

Received many questions on why I find it easy to average up? Why there is no price anchoring, and what’s the TRICK?

My!! - from my perspective actually once you really understand your business, it is the easiest thing in the world - just as simply as Mr D explained it to me in 2010 (as captured in the Capital Allocation thread), I just put complete faith and executed on it. Of course, Proof of the Pudding is in the Eating. Businesses where we hypothesised should execute well, continued to do so; no adverse developments/headwinds took place in the industry, etc. for any of these businesses, in the initial years from 2010-2014.

To come back to topic, if you work very hard at laying out the moving parts of a business model, ONLY THEN will you KNOW IF YOU UNDERSTAND the business. You will be able to explain the business issues/dynamics using very few words (3-4 paras at most); You will be able to transfer your CONVICTION to others much more easily with just a few KEY INSIGHTS. You will know what to look for to answer the question if things are getting better or worse, in other words the KEY MONITORABLES.

If you are thus armed, it is easy for you to measure objectively if your favourite business is GETTING STRONGER every year (or weaker). In my experience, that is the ONLY SURE-FIRE WAY to know when to AVERAGE UP, and HOW STRONGLY - just as strongly as your CONVICTION soars!!

Self-Reinforcing_Business_Model_Scrutiny_Framework.pdf (1.6 MB)

Here’s how this is all demystified.
Curious, wanna put up your hand and learn? Go through this, and start contacting Rohit Ojha, Sandeep Patel and/or Dhwanil Desai - who may like to help you think through this for your favourite business.

Very few folks do put their hands up for HARD THINKING WORK. The above mentioned are the guys who did make starting attempts. Am hoping some of you aspiring to know more of this simple learnable ART, will get infected vigorously by this, and get into ACTION!!!

We need to train our minds to think through in a structured manner. It takes some time to get used to thinking in this manner. Even I struggled for almost 1.5 months before I could capture things as succinctly, as above. But once you start thinking like this, you will be hooked - I can guarantee that.


HInterestingly, as mentioned before there were very few takers for an exercise like this at the Conference. Most folks felt this was too much of an over-kill, over-analysis-paralysis - a deep dive, etc.

Deep Dive, this? Really??
I thought this was the most basic stuff an Analyst is expected to do. If I am the Fund Manager I would make sure that all Analysts reporting to me - be capable of explaining to me the moving parts of the business in as graphic terms as possible. Else, all I would end up doing is hearing endless speels from Analysts.

They should be able to explain the Causality Model. Which activities are inter-linked, which if they move together, reinforce another and together strengthen something else, that in itself sets in motion other things.

If say an Analyst is unable to explain this causality in any business - including what activities move the needle the most, then I would send that Analyst back saying “You DONT KNOW the business” :slight_smile:; Go THINK - Don’t come back till you can explain.

And I am quite sure - this is not about ABILITY - this is about TRAINING the mind NOT to take SHORTCUTS - while making an investment decision-tree for yourself. Pretty soon there will be another analyst coming up (with similar ability) willing to work much harder, and then he will take your place - because he can articulate much more crisply, much faster about the business issues/dynamics.


Although, I was fully convinced of the utility of this model - because this is what I do :wink:, such a tepid response to something that I had worked very hard to abstract and de-mystify to such a level that everyone GETS it, left me a bit unsure.

I tried to think of someone, anyone - among the senior investors I know - who I remembered could articulate things in a manner that I grasped the essentials of that business (new to me) very quickly. One person stood out - someone who had explained in 2012 why one of the VP Portfolio business is so special - in a very crisp 20 min Conf Call to Ayush & me.

I decided to go and meet him, and take him through this presentation. I thought if he endorses the utility/practicality of this type of thinking, then I could restore my confidence back. I am in Mumbai and was glad he granted me time at short notice. I met him this afternoon, and hey I did not even have to do any speel - he just nodded yes,yes, perfect, and yes as he glanced through the few slides in less than 5 minutes.

He was completely in tune with this, phew, what a relief :).
Self-reinforcing business models - are where the likelihood of future success increases, as time goes on

In fact, he did one better - he said to make your visit worthwhile Donald, let me share with you two examples of self-reinforcing business models at play you can consider - Hester Bio (a business I am familiar with) and Godrej Properties (not familiar with).

In 5-7 min we wrapped up Hester Bio, and some 15-18 minutes for Godrej Properties, which I knew nothing about. I agreed with him, I don’t know the details of Godrej Properties; but if the facts and interlinkages mentioned are true, then both these business could be good examples of self re-inforcing business models. He knew my quest was quenched. Since he is a very busy Fund Manger, he got up shook my hands, gave me a hug, and asked me to keep in regular touch!

I checked out of his office, and lo I was out in 30-35 minutes!!!
That is the power of this kind of hard insights into a business. But you gotta work very very hard at understanding the moving parts and the causality model of your business. Once you do that, you will be very sure that you can communicate Key Insights at rapid-fire speed.


Hi Donald

I studied the Self-Reinforcing Business Model Framework you have shared.

Pardon me, I am unable to grasp some of the concepts you have outlined. If possible could you please take us through Couple of Examples to Identify the application of this framework in practice.



This describes the Business/Execution model for Bajaj Finance. Go through the Concalls and Investor Presentations of BFL, you will get a feel of the moving parts of their business. Take this as a task - this is not something that can be spoon-fed; unless you work-it out for yourself.

For example, I have articulated many many times why Shilpa Medicare is a self-reinforcing business model in my eyes to most VP members invested in that business. But not one person in the Team could answer logically, clearly the most important 3-4 things that needed to be said when questioned by one of the Gurus. In fact everyone missed the most important part - despite my repeating this at every opportunity - and all of their allocations to this business is high!

A better way is to take a business you know well in detail have read and thought a lot about and try to work this out. It may help to think of the interlinkages in the way Howard Marks puts it as below.

In fact there is an unexpected extra bonanza from this exercise, when undertaken with complete sincerity. If you step back and think a little deeply, this is also the best way to understand the RISKS in your business :slight_smile:

Not convinced?
The highlighted para above is from Howard Marks seminal treatise on RISKS of 2014

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Hello Donald,
If you can explain the gaps in my philosophy of PVR and tell me the parts am I missing, that can help me in understanding the flaws in my thinking process and can make me a better retail investor.

  1. PVR is a business based on changing Indian demographics, Urbanization, Need for Entertainment and weekend leisure activities.(China can be the biggest example)
  2. More than 22% market share(increasing) and a big brand. It has an aspirational and qualitative value.
  3. Net ROCE of 14% but 24% ROCE of matured Properties. Net ROCE is increasing because of more matured properties.
  4. No problem of Working capital.
  5. Managament looks to be pro-active. They have tried to enhance customer experience and reduce the commodity nature of the business with different offerings of the same product. (PVR Gold Class etc)
  6. Can have more avenues of growth like offerings of kids specialized movies to schools, recently they launched schemes for older people etc.
  7. GST will be a big booster as they are a B2C with brand name hence can maintain the price levels.
  8. On the contrary side, this business has to pay a lot of rent, which is a fixed cost and may or may not be recoverable but isn’t it true for any industry where machine can run at low utilization?
  9. Promoters are growth hungry and go for a lot of acquisitions, hence they did equity dilution.
  10. Contains a risk of increment government intervention but I think it is unlikely as demand for cinemas is increasing and with the current fixed rates, new players won’t be able to enter.

I am looking forward to your reply for letting me know where have I missed the process.


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It’s very difficult to understand this . Not everyone is at the high level. Novice like me could not understand anything. Please explain with an example.

Those who want to give learning this ART-form a serious go, may like to study Hester Bio and Godrej Properties and come up with filling up the Excel with Key Success Metrics, Key Activities, Key Resources etc. as exemplified in this business canvas model excel for BFL. This is what I had to do for one month before I could abstract the BFL business model in the form that you see.
BFL_Business_Model_Framework_V4.xlsx (315.7 KB)

Please do not clutter up this important thread with inane “I agree Godrej Properties is one of the finest examples of self-reinforcing business model”. Just deleted a message like that. First make an honest effort - there are no short-cuts to clarity, or what I call Free-lunches in Life. Make that effort first, and there will be many who among Team VP (Sandeep Patel, Rohit Ojha) who may be delighted to help you cross the chasm.

How many of you will make that sincere effort? Very few, I know :wink:
@anuprempatro, @kanvgarg123, @sta


Thanks for the prompt reply. I will try to follow the similar guidelines as I can infer from the excel.


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There is a book called Business Model Innovation. Pls read it. I saw Prof. Bakshi also recommending it once. Excellent books with lots of examples.You will enjoy it

Book name is 'Business Model Generation" by Alexander Osterwalder

I was updating in between on the road whole of yesterday, so didn’t have the bandwidth to illustrate how simple this “chitra” is. On the way to the Airport I have now an hour of pure leisure to try and illustrate to you the “power” behind such a “chitra” - once you have got the moving parts model, roughly right - you will yourself feel “enlightened” about the business - so much so that you will say - Yes - now I can transfer my understanding of this business to anyone - A fund Manager, and even to your girlfriend/boyfriend or spouse in 5-10 mins Max!!

If I really know this business well, then it follows that I should be able to describe the moving parts of this business in the next 5 minutes, Right?? :wink:

The countdown begins - I start explaining in the next post - so lets see how much time it takes. So far I have only talked about this - I have not written it down :slight_smile: I promise


Let’s look at what strikes us first, right.

1. The expanding Circles
There is an Expanding Circle of Customers
There is an Expanding Circle of Business Segments - Product/Market Fits, and
There is an Expanding Circle of Retail Institutions

2.The Circles Touch Each Other albeit, a little indirectly
The more Business Segments you have, you bring in more adjacent customers. The more customers come into the addressable pool, the more business segments you can serve. The more business segments you can serve, the more Retail Points of Sale you can address. The more Points of Sale you have they bring in their own set of new Customers, which again addresses the customer pool …and better targeting …

The Power of “Virtuous Circles” should be evident to all now. This is not a carefully constructed piece - I am writing this on the move in a Uber - but I am sure I have conveyed something strongly - even though I might not have maxed all there is to say. Now look back at the Picture - and bring in some of the specifics mentioned there … like 16 million customers, an addressable cross-sell base of 8.5 Mn credit bureau customers, within which there is a very strong core of 5.5 million EMI Loan Card customers …who can just swipe a card and take a loan - they are after all existing member identified - so their sales-profile and risk-profile are well-mapped, right. The Loan Approval can be done in 60 seconds right - if the bureau score and the fraud algo check (based on credit/payment profile) goes through.

This is the big picture, right - may be a little simplified, but this is what is actually happening there in the BFL business.

Describing the business in this manner - makes us feel “empowered” right> We KNOW this much we can explain to anyone - even my 12 year old will GET IT, right??


To describe the business thus, in a moving Uber took me 17 minutes, it would appear, since the last post was made. As I repeat this story a few times to more Fund Managers I will bring it down to a very crisp 5-7 minutes, right?

But this is not enough.
We have not been able to articulate what lies of the heart of the Causality model. What moves the Needle the Most?

The better the Customer Experience, the faster will be the speed of Customer Acquisition - there is no doubt about that right? More Retailer will recommend BFL as the first consumer finance option (all things being equal - rates, Emi, etc) to more of their Customers - only if the Approval Process is fast and hassle free.

In other words Velocity (Speed) and Less Paperwork (filling up one page versus 20 pages, or submitting 2 documents versus 10, right) may be the key attributes that moves the needle? Might they be the ones?. Reflect a bit!


That last post took me 11 minutes, right?
It is comprehensible that when I do this the next time, I( will do it in less than 5 right?

But even now, we have not articulated if Velocity and Less Paperwork are the 2 Activities that move the needle the most, What are the Resources in the BFL system that make Velocity and less Paperwork possible??

Now reflect on that a bit!!
It should be obvious that the Core Competence is the Analytics Engine, right?
Lets now scroll back and look at the picture again.
Analytics Engine is at the Heart of the BFL Fin-Tech led Customer Experience
It impacts Customer Cross Sell - Why? because it has in-built customer Sales and Risk Profile (Payments history). The more BFL Cross-Sells the Richer is the Sales/Risk Profile. The Richer the Sales/Risk Profile, the faster is the Approval Velocity. The faster is the Approval Velocity, the better is the Customer Experience. The better is the Customer Experience, the more he is pre-disposed to a Sale. The more Customers take the Loans, the more delighted is the Retail Partner. The more delightes is the Retail Partner, the more likely he is to recommend BFL. The more he recommends BFL, he brings in more customers to BFL TArget Cr0ss-Sell Universe. The more Customers enter the SYstem, the more Retailers want to join the bandwagon, right?


Now that took 13 minutes!
And I have arrived at the Airport. See ypu in 20 after check-in :slight_smile:

Now the more sophisticated the Receiver, the easier it is to convey, right? The more practiced you become at telling the story, the faster people GET it. Initially, You will need the PICTURE to tell this very compelling virtuous circle story. But as you repeat this process some 10 times, you will stop needing to scroll back and refer to the picture - suddenly you find that the picture has got imprinted in your mind.

Your mind has now got trained to spot virtuous circles or self-reinforcing business models. Congrats!


The second-last post was 30 mins back and this last one took 9 mins, so my presumption was right that I should get baggage checked-in in 20, was almost bang on, right.

As I wondered on why I picked a number on the fly - 20 mins - to see you back, I realise it was because of my customer experience perception of Mumbai T-1 check in late evening flight that I usually take.

Hey hang on!
Did I say aloud Indigo’s on time performance track record? Their ease of self-service check-in kiosks, adequate staffing for guiding folks efficiently through the checkin/baggage-drop queue; their quick turnaround between aircraft landing, cleaning, and departure; large fleet size of single type of aircraft leading to higher bargaining equation with supplier, simpler and cheaper maintenance, stocking, and spare parts

Self-reinforcing virtuous circles at play again. More they live up to their performance record, the more delighted we are as customers; the more flights we take that give us superior customer experience, the more customers are drawn to Indigo:) Not bad, eh!

Ha ha, okay I admit that last Indigo example was a bit pre-meditated:). The moment me n sandeep had finished the BFL Chitra, and we said where else we can see this playing out, Sandeep Kapadia came up with the Indigo example!!

But you will have to admit I picked the 20 minute challenge - on the fly - just to test if the perception is self-reinforcing and what happens the next time?

It’s become addictive now to try and spot self-reinforcing business models at play;) Hope I have been able to show everyone how simple and effective this “Picture” is!!!

It’s easy to do!!
As an exercise, we all can attempt to describe the picture for Godrej Properties and Hester. I know only 10-15 businesses well; unlike Hitesh or Ayush I am not an Encycopedia - so if you ask my comments on every business under the Sun :wink:, more likely than not I am going to push back, like I did last night :slight_smile:

Folks interested in this exercise, please fill up the abstracted Excel pages for Key Activities, Key Resources, key Success Metrics and a picture will start emerging I promise you.

At first your “Mind” starts rebelling; it’s not easy to tame the mind into doing deliberate hard System2 work; it always wants to take the short-cuts of easy intuitive (but highly error-prone) of System1. But if you persist, you will train it to obey you, and settle down to doing System2 regularly. Read the oh-so-valuable Daniel Kahneman super-book - Thinking Fast and Thinking Slow - that describes the System1 and System2 interplay so beautifully.

I guarantee you all can do this. Just have the courage to persist; challenge yourself to master this easily learnable ART - I find this the single-most value-addition to my investment-decision-making toolkit in 2016



Thanks for sharing and explaining. I will attempt to apply this framework to Poly Medicure.

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I will try and apply it to NESCO. IT Building 1 and 2 got some good
companies like SETCO and some BPO outfits and the complex got some good
buzz as a destination for information technology companies. IT Building 3
has got even bigger companies like international banks because of the buzz.

With all these companies in the premises presenting a very big captive
audience, NESCO management is setting up ancillary businesses like gyms and
tied up with a daycare outfit for a creche. A subsidiary called NESCO
Hospitality is tasked with bringing in food companies to cater to the
captive audience.

In the same complex, the Exhibition Centre is also benefiting from the buzz
with huge crowds coming up at various exhibitions. (How much these
translates into business for the exhibitors is another story. But they are
selling the story based on the number of footfalls.)

With NESCO becoming so upmarket, the Maharashtra government too is looking
at it as a magnet for development. A metro railway station is coming up
across the road (Western Express Highway) from NESCO on property owned by
Mahananda Dairy. This land too may be developed soon, but it is not a
listed company.

Oshiwara Railway Station on the Western Railway is also due to be
commissioned shortly improving connectivity.

These are all ‘moving parts’ but how all these translate into earnings
growth for the company remains to be seen. Location is a big moat for
NESCO. But how long will this endure? There is a Reliance Centre coming up
at Bandra Kurla Complex which could eat into the exhibition business. Also
the airport at Navi Mumbai could pave way for new competitors for NESCO.

On the other hand, the Reliance Centre has other businesses attached - like
a hotel, etc which may reduce the area for exhibitions. The Navi Mumbai
airport may get delayed by a few years which would give more leeway to
NESCO management to construct more IT towers and also construct
multi-storeyed exhibition centres (There is Rs 400 cr in hand and zero debt
on the balance sheet).

So if everything moves as planned, we will have a steady compounder in our