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As per popular legend, in 1997, Reed Hastings, a software entrepreneur, was fined $40 at his local video store for returning the DVD of the movie Apollo 13 late. This unpleasant experience got him thinking: there has to be a better business model for video rentals. He started Netflix, a DVD-by-mail service with no late fees, which was later transformed into a subscription-based online streaming service. Today, Netflix is a global behemoth in the entertainment industry, all thanks to a business model that was born out of a sense of personal frustration. In India, a man named Arunachalam Muruganantham embarked on a mission to produce affordable sanitary pads for the women in his village. His business model was built around empowering rural women, not just by providing access to affordable sanitary products but also by offering them an opportunity to earn a living. His company, Jayaashree Industries, supplied semi-automatic machines to women-led self-help groups who produced and sold the pads, turning a societal challenge into an entrepreneurial opportunity. This model has been hailed as a breakthrough in socially conscious business innovation.

At the dawn of the twentieth century, the Ford Motor Company revolutionized the automobile industry not just through the invention of the assembly line but also through an innovative business model. Henry Ford’s vision of making a car for the great multitude required a drastic reduction in prices, which led to the development of a business model based on cost efficiencies and economies of scale. This story serves as a classic example of how business model innovation can drive growth and disrupt industries. All these examples show that business models are not static; they are dynamic and change with time. They are not set in stone; they need to evolve with changing market conditions and customer needs. Did you know that each year, more than half of the Fortune 500 companies have to innovate their business models to stay on the list? A business model that worked in the past might not be successful in the future, and companies that fail to innovate their business models risk being left behind.

Business Model

So, what is a business model? In simple terms, it is a conceptual structure that supports the viability of a business and explains how it operates and makes money, and how it intends to achieve its goals. More importantly, a business model encapsulates the value proposition for customers—that unique cocktail of products, services and experiences that make a business stand out from the crowd. Imagine walking into a bustling marketplace filled with vendors, each trying to outshine the others, vying for your attention and your hard-earned money. Their strategies for enticing you differ significantly—one offers a subscription for a basket of fresh produce every week, another entices you with a bundle of complementary products at a discounted rate, a third proposes a franchise model to help you set up your own thriving business, and yet another offers the convenience of on-demand service, where you get what you want, when you want it. All of these are business models in action, strategically designed to create, deliver and capture value.

An Examination of Traditional

Business Models

We begin our exploration of business models by examining the conventional, time-honoured structures that have enabled businesses to create and capture value throughout history. Each model has its own distinctive strengths, weaknesses and unique elements, which need to be grasped for achieving business success. It’s worth noting that these models are not mutually exclusive and can often be interwoven and amalgamated.

Manufacturer Business Model:

This model involves the creation of products from raw materials or component parts by a company. The products can be sold directly to consumers, or through an intermediary. Example: Tata Motors exemplifies this model, designing and manufacturing an array of vehicles sold via their dealer network. Ford Motor Company represents this model on a global scale, selling its extensive range of vehicles through worldwide distribution channels.

Strengths and weaknesses: The manufacturing model offers control over production, quality and pricing. Higher volumes can lead to economies of scale, reducing costs and increasing profitability. However, high initial costs, continuous maintenance expenses and potential supply chain complexities can be challenges. The ability to change the established infrastructure to match evolving market dynamics and consumer preferences can also be a hurdle.

Getting the basics right: The four thumb rules for your financial health.

Let us start at the very beginning . . . a very good place to start – as the song goes. Let us start with a broad, top-down look at your investments.

What do you think of when you think of the term ‘investments’?

Most people think of investments in the stock market, mutual funds, etc. But what about the Public Provident Fund (PPF) you bought for tax-saving? The bank fixed deposits? The plot of land you bought or inherited? The apartment you are waiting to get possession of? Each of these is an investment. All of them have to be considered to get an overall picture of your finances before you decide on what you want your financial future to look like.

Plus, as is known, during the course of your investing journey, you have no option but to live through bull markets and bear markets, at times ferocious ones. How do you ensure that your financial investments get a clean bill of health and not end up in the ICU?

What are the basic tenets to keep in mind while investing?

To my mind, they are four in number, and these make up the framework with which you need to view your investments. Of course, there are overlaps between the four.

Each of these concepts will be dealt with in more detail later in the book. The following descriptions of these only provide

you a starting framework.

Lesson 1: Asset allocation sahi hai

Asset allocation is not just the best thing, it’s the only thing.

If you are just going to be a single-asset (say, equity only) player, then you are not going to last very long in this game.

Sometime back, I got a question on social media asking me, ‘I am a young person in a good job – so should I have 100 per

cent investment in equities?’ And my answer was no, because there are all kinds of demands that may come on your finances: you may lose your job, you may have a family emergency, you may want to buy a house, you may want to study further after a few years, and so on.

Basically, you may have unexpected financial demands in the future, which you may not be factoring in just now.

Equity returns have low predictability, not just on a one- or two-year basis, but sometimes even over a longer time frame. For example, during the entire decade from 2010 to 2020, Indian equity markets compounded at just about 8.5 per cent when fixed deposit rates were also around 8 per cent. So you saw a lot of volatility, with practically no additional return for taking equity risk at all, for a whole decade.

Asset allocation basically means your investment pie chart is strategically diversified across various available asset classes.

Why does asset allocation work? Because different assets give disparate returns at various points in time.

To give a recent example: In 2019, government treasury instruments in India were up 9.5 per cent. Gold prices rose 24.6 per cent. In contrast, the Nifty500 delivered a mere 7.7 per cent return.

But did you ever hear any fund manager or your financial adviser tell you that you were better off investing, or at least diversifying, into government paper and gold, instead of focusing on equities, if you wanted the best returns? I suspect not.

The reason for this is simple: nobody in the business of fund management or financial advice makes much or any money by recommending investments in government securities or gold. The maximum fees are for recommending equity.

All behaviour, good or bad, is always driven by incentives, and sellers of equities incentivize their salespeople far more than sellers of any other asset class, even if they do not deliver returns.

That is part of the reason for this ‘100 per cent in equity if you are young’ recommendations you often see.

Don’t ever forget this!

Lesson 2: Take a portfolio approach to investing

Most investors believe that taking individual stock advice, or ‘tips’ from friends, brokers, talking heads on TV, – that is, almost anyone – and then implementing them on their own is the way to making big money.

Wrong. This is a one-way ticket to financial ruin. The correct way to do it is to take a portfolio approach to determine your asset and equity selection.

One part of this is, of course, asset allocation, which is discussed in more detail later in the book.

But even within your equity portfolio, be mindful of the weightage of each of your stocks and each sector. For every stock you buy, be absolutely clear how about the allocation for that stock and how much it changes the weightage of its industry in your portfolio, and how it alters the risk profile of your equity pie.

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Get your copy of Money, Myths and Mantras by Devina Mehra on Amazon or anywhere books are sold.

Should I Quit My Job to Prepare for the CAT?

This is one of the questions that I am asked most often, if not the most asked question! The question is also most likely to come from aspirants whose first or past attempts did not go well and who are thus looking to mount a serious retake attempt. You might also have these questions in your mind:

• Is it wise to quit my job to prepare for the CAT?
• Will quitting my job have a negative impact on my profile?
• How can I prepare if I am working twelve hours a day, six days a week?

These are the questions that many aspirants ask themselves since there is a huge premium on acquiring a degree from a prestigious college and an MBA is for most the last big shot that they can take to get a big brand name on their resume. Some might have faced this situation before as well when they had set their eyes for the first time on getting two Is—the IITs.

There are other reasons as well, ranging from a mind-numbingly monotonous IT job to a horrible boss, to the existential dread: What will become of me and my life if I am stuck in my current situation forever?

For most of my colleagues, the answer to this question is a simple NO. Quitting your job is akin to committing professional hara-kiri. But I think, under certain circumstances, quitting your job might be the best option in front of you with the proviso that:

• You quit at the right time, and
• You do more than just prep for the CAT

How will quitting affect your profile in terms of getting into an IIM?

First, let us look at the quantitative effect of quitting your job on your chances of getting a shortlist.

There are colleges, such as IIM-B and others, that give a weightage to work experience in the shortlisting process. In such cases, you will lose out on valuable points and will hence have to score higher on the test to get the shortlist than if you had stuck on in your job. So yes, there is a clear quantitative effect.

If you have two or more years of work experience, as of July of the year you will take the CAT, and the rest of your profile—Class X, Class XII, grad marks—is good, you can, on average, score 0.5–0.75 percentile points lower than someone with no or low work experience. So, those with two years of work experience can get an IIM-B call at a 98.5 percentile whereas freshers have to score in excess of 99.4. But remember that this is only in the case of institutes that give a weightage to work experience.

Just like they have for academics, even for work experience points are awarded based on slabs— less than twelve months, twelve to twenty-four months, etc. IIM-B gives maximum points for work experience of thirty-six months and above. So, if you have more than thirty-six months you are not going to get any more marks than you will if you have exactly thirty-six months.

In effect, if you have thirty-six months’ work experience, quitting your job will not have any mathematical impact on your profile rating.

Will quitting affect your prospects during summer and final placements?

IIMs and other top schools slot candidates into two categories for placements—regular and lateral.

Lateral placements are for people with a certain amount of work experience for roles that are above entry-level management roles. What is that certain amount of work experience?

It differs from college to college. Some base it on the absolute number of months such as twenty- two—IIM-B, while others decide the exact number based on the average work experience in the batch—IIM-A. Either way, it usually falls into the twenty to twenty-four-month range. Also, it is important to note that for some domains and for some firms, work experience is a must-have and hence, recruiters look purely at lateral candidates. What are the domains where relevant work experience is a prerequisite?

Operations roles, for example, most definitely go to people who have experience in shop-floor, product design, logistics, supply chain management, etc. So, engineers working in operations will do well to finish working for two years before entertaining thoughts of quitting. The rationale is simple: an individual with an idea of any aspect of operations cannot be given a managerial role since the stakes are very high.

IT consulting roles, for example, again typically go to those with two-plus years of experience in software. Again, the rationale is the same—an individual who has not worked on large-scale IT projects cannot take up consulting roles in IT. There might be exceptions to this rule but by and large, the rule holds.

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Get your copy of Bell the Cat by Tony Xavier on Amazon or anywhere books are sold.