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Saturday, May 27, 2006

How to build a million dollar business in less than 90 days

On March 5th , with less than 25 thousand rupees in my bank account, I boarded a plane to Bombay with a personal cheque written for an amount of 14 lakhs, as a sign up fee.

I signed on an agreement and called couple of my partners to let them know that I signed on that agreement.

I came back and prepared a business plan.

The plan basically is about investing in my project and getting a net return of 33% for the first three years.

I called couple of my friends and told them about this plan.

Both of them came forward with 20 Lakhs each.

I deposited 15 lakhs in my account for the sign up cheques to be cleared. I invested 20 Lakhs in Real Estate and spent that the rest 5 lakhs on clothes, laptops and in setting up of a new office.

The cost of the project initially was one crore. By then, 40% of it was funded. I needed to look for the rest of 60%.

Then I met couple of biggies in the town. One of them wanted 40% of the project.

That will be 80 lakhs. I told him. He said yes.

The other guy wanted to invest 50 lakhs and apportion his share at the end of the project.
Meanwhile another guy came forward with 20 lakhs.

I called Bombay dudes and told them to make the project bigger and much better.
I want it to be better than anything anyone has ever seen in Hyderabad. I told them.
We will. They told me.
(Meanwhile, the real estate investment I made blossomed into 30 lakhs. I took an exit and made a 10 lakh cash profit. )

The cost of the project got escalated to 2 crores. I put 10 lakhs. With that 10 lakhs the project got totally funded and my company still owns 100% of the project and is eligible for 60% of the total profits. (Don’t ask me, how is it possible. If you have the right story to tell, it is possible).

Just hype it. I told one of my partners.

We made couple of popular night appearances in the circles that mattered.
A dozen people queued to be a part of the project. (Includes a movie star and son of a famous industrialist).

Deny entry. I told my partners. Shield me from access. I told my office.
I changed my mobile phone number.

Hype got hyper.

Summon the original shareholders. I told my partners.

In that meeting, I dropped the bomb. You wont be part of this project. Your money will technically be a loan for my company. However, because of this huge heart that I have, I am letting you guys tell around that this project is yours too.

Those dudes went into a coma for a week. They recovered. Ok, whatever, just let us be part of this. They said.

Heck no, I said. I hate my heart. Its so large and its so generous. I want you to be a part of this project.

I gave them back more than what I initially planned for and more than they ever expected. Not just that. I gave them a blue print to recover their investment and double it in the first two years itself. Not just that, I gave them responsibilities and titles. Not just that, I gave them the brand itself. It is yours. Fuck it. I told them.

Now we are a happy team looking forward to the launch.

Last week me and my partner (who is financial managementally challenged) were drinking.

I hope this project clicks and we make profits someday. He said.
Sucker. What is your investment so far?
None.

What is the cost of the project?
2 crores.

How much of it do you own?
33%.
Translate.
Fucking shit. 67 Lakhs.
What is your share in profits?
20%.
What is the worst case scenario in projected profits in the next three years.
Fucking shit. Its 3 crores.
For how much do you think we can sell this project after three years?
Hmm. 2 Crores?
So whats your profit?
60 + 67. 1.27 crores.
But that’s not how you value a business.

Warren Buffet way: (The most orthodox and non aggressive way).

The profit you are offering me should be more than, the bank interest rate + projected inflation, after tax.
Average bank interest rate 13.5%
Inflation 7%
That means Buffet is willing to invest 100 bucks if I promise him that my net margin will be 20%.

Question: Lets say, for 100 bucks, you get one share of my project. How much Mr. Buffet, would you be willing to pay, if I told you that my net margin is 40%.

Answer: 200 bucks.

So partner, what is the total projected profit of this project including the exit sale?
5 crores.
Now, How much would Mr Buffet pay to own a business that would fetch him a profit of 5 crores in three years or 1.6 crores a year. Add Brand Equity to it. Add good will to it. Add preoperative expenses to it.
Partners jaw dropped. (Using several different analysis, it can be valued anywhere between 6 crores to 8 crores (1.6 * 5)).

Now, can we safely go ahead and say, we have just built a million dollar business? And we are just talking about one project. Remember I signed on two agreements. Not just one. And remember I made them sign on exclusivity. Then I whispered in his ear, what I want to do with project 2.

Pleahhhhhhse, let me be your partner forever.

Go, first fetch me some ice cubes. My brandy got warm.

8 comments:

Patrix said...

quite impressive. So when is your "Secrets to Success" book coming out?

:-) said...

The day I find my girl :-)

Monkeyshot said...

Smiles, you've lost your girl(s)? :)))))

Anyway, when there is no room left to hide your money, feel free to drop a truck-full at my place ;)

Whats a billion or two among friends... ;) :o)

Adi said...

impressed ....

not that it takes much to impress a financial-mgmt-challenged person lik me

lemme know when u'r lookin for more biz partners ... am lookin to invest some cash (seriously)

Swapna said...

Good one :)

:-) said...

monkey: Girls cant stand my bragging anymore. :-)))) ...and they havent heard my "heights and lengths" chapter yet. :-)))

adi: all investors are my brothers. :-) lets email. :-)

swapname: thanks.

Yummy said...

Lol! Yes, girls cannot stand your bragging and theorizing anymore. Esp when you discuss human nature with the psychologist!! :)

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