April 9, 2013

Lessons from an Accidental Entrepreneur

The founder of India’s fastest growing hotel chain shares ten profound (and sometimes funny) insights from his experiences.

Sharon Kahn
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He calls himself an accidental entrepreneur, but Patanjali (Patu) Keswani, chairman and managing director of Lemon Tree Hotels, is being modest. In fewer than a dozen years, he’s built India’s fastest-growing hotel chain. Keswani shared lessons he's learned along the way in a recent Nand and Jeet Khemka Distinguished Speaker Forum at the Columbia Club in New York.

1. You're not in this alone. The talk, “Life and Lessons of a First-Generation Indian Entrepreneur,” began with Keswani’s struggles at the prestigious Indian Institute of Technology, where he studied electrical engineering. “I was always in the 98th math percentile and suddenly I was getting Cs,” he said. His solution: a study group, with everyone mastering just one-sixth of the curriculum.

2. Inspiration = Leadership. After getting his MBA, Keswani joined the Tata Administrative Service with an aim of “getting lost in the massive conglomerate and living comfortably.” Instead he was named executive assistant to CEO Russi Mody, who became a role model. “The man hardly worked,” Keswani recalled, “but he knew how to inspire,” beginning with knowing — and acknowledging — names and birthdays of all his employees.

3. You're never too important to pick up the trash. As a 26-year-old manager at Taj Group of Hotels, Keswani met Ronnie Lobo, vice president of operations, who taught him that the top guy is responsible for the details. As they strolled through a sprawling hotel complex, “his eyes were on the ground, and he was picking up anything he found on the floor,” Keswani recalled. “The hotel was cleaner than a hospital.”

At the end of the 1990s, Keswani was approaching age 40 and decided he “wanted to retire rich. I figured I needed $2 million for that, so I had to catch up.” His first attempt was a foray in the futures market in which he lost $370,000 in seven days.

Keswani regrouped and decided to become an entrepreneur. The reason dealt with...another lesson:

4. Balance the risks and rewards. “There’s no reward for independent thinking in most organizations,” he learned. “If you make $10 million for a big company, you may get a $10,000 bonus. As an entrepreneur, you may make $20 million for that big idea” (by selling the company or going public). A corollary: “Business is always about mitigating risk. So learn to enjoy risk.”

Keswani figured all he had to do was own the right asset, manage the asset, and create a brand that would bring customers. “Then I could retire.”

5. Never compete on an even playing field. Keswani had overseen Tata’s 21 hotels as COO of Taj Hotels. Going up against the big guys seemed pointless, so he devised his big idea: a mid-market hotel. Land and debt are so costly in India that building an luxury hotel is only marginally more expensive than constructing a cheap one. The result is a country of five-star hotels and inexpensive, unregulated guest houses.

Keswani scraped together enough capital to fund that first hotel and had every intention of following his plan to become rich, then retire. “But the team said ‘build a second hotel!’” he recalled. “The aspiration of colleagues drove me.” After three hotels, he was approached by a private equity firm. Which led, of course, to more lessons.

6. Don't lowball. Keswani decided to “ask for the sky” when a representative from an equity firm inquired about Lemon Tree's worth. “By 2006 I had put about $3 million into the company, so I said we were valued at $200 million.” To his amazement, the representative said, “Okay, we'll buy you!”

7. Choose the right partners. The day before the deal was to close, the representative called to renegotiate price. “I said, ‘thank you very much; I don't want to work with you!’” said Keswani. Not long afterwards, investors more to his liking appeared, allowing Lemon Tree's growth to continue.

8. Excellent execution of a brand is key. According to the company website, “Like the fruit [the hotels] are named for, Lemon Tree Hotels are fresh, cool, and sparkling with zest.” In keeping with its young, hip culture, the company frames jokes and hangs them in unexpected locations around the hotels. And although each hotel is different, all have a crisp, modern feel.

Meanwhile, Keswani tinkered with the mid-market concept to create Lemon Tree Premier (which he described as a four-star hotel with five-star service) and Red Fox, a step down from the original model. As the company grew, he collected more lessons, many complementing those he had already learned.

9. Pursue the triple bottom line: profits, people, and the planet. In 2007, Keswani directed every hotel manager to hire two people who had disabilities, noting that one percent of India’s population is speech and hearing impaired. He also pointed out that, on average, people with disabilities live 20 fewer years than the general population, and most live in poverty. “Once they get a job, those disadvantages disappear,” he says. Today, Lemon Tree’s hotel managers are required to know sign language. Of its 300,000 employees, about 5 percent are speech and hearing impaired, a figure Keswani expects to reach 40 percent by 2020. In fact, he intends to open a hotel in 2014 where 100 percent of the staff have these disabilities.

10. Find employees for the future, not the present. “The business model and capital can and will be commoditized,” said Keswani, who points to three kinds of people: those who wonder what happened, those who watch things happen, and those who make things happen. Lemon Tree spends a lot of time training its staff to embody the friendly brand. “We need to find ways to move the first group toward the third group,“ he said.

This lesson, in turn, led to three new business opportunities that capitalize on India’s growing middle class. As discretionary income rises, Keswani said, a number of sectors are poised to grow faster than the country’s GDP in the next few years. Based on Lemon Tree’s experience raising and spending capital, Keswani is setting up an asset management company. He is also establishing a vocational training service. Finally, he is translating the Lemon Tree mid-market hotel model to the residential market by building affordable urban housing.

Oh, and he also plans to take Lemon Tree public. Stay tuned for more lessons.

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