He had about $12 million in earnings for that year and a projected $20 million the next.įrom a capital needs perspective, he would get paid for the tickets before he needed to pay out for fuel and staff wages. His record company was highly profitable. Then he ran some rough numbers and figured the venture would put about $2 million of his capital at risk.
He changed the plan from a business-service only airline to one with a unique dual-class service and got to work.įirst, he made a call to Boeing and got a quote for leasing a 747 jumbo jet. Either they were bad at their business (unlikely), or there was so much demand for that flight that the phones were always busy.
That weekend, he called a handful of discount airlines but couldn’t get through. The plan stated that the current airlines were underserving this route. He knew that a business plan involving a 747 jumbo jet must have been rejected everywhere else (by those with knowledge of the travel/flight logistics domain) for it to land on his desk. Pabrai explores the life of Richard Branson as another example of the Dhandho business model.Īfter Branson successfully built out his music and record distribution company, he was handed a proposal in 1984 for an airline specializing in first-class service between New York and London. That’s Dhandho - a virtually risk-free bet with tremendous upside. He was able to keep costs lower than anyone else in the industry and used that edge to build an empire. Patel was the low-cost producer in the motel business - this was his moat. Handing new motels to recently immigrated Patels who can repeat the process. Undercutting his competitors with lower prices. See, Papa Patel was fanatical about five things: This process repeats itself until the Patel family owns over half of the motels in America while branching out into luxury hotels, condos, gas stations, convenience stores, and more. He buys another motel and staffs it with other family members who have landed in the United States. Combine that with their extremely frugal lifestyle, and the motel quickly turns profitable.Īfter a few years, Papa Patel now has enough cash to expand his business. Without having to pay for staff (Papa Patel and his wife handle all the work), the Patels have no expenses. It was a low risk, high reward bet.įor a few thousand dollars down payment, Patel buys a motel. If they go broke, Papa Patel and his wife could always bag groceries, work overtime, and save up some money to try again. Plus, he could house his entire family in a few of the rooms, and they could help run the business. Papa Patel realized that with the bank highly motivated to sell a distressed asset, they were willing to finance 80 or 90 percent of the buy price. In other words, the Patels could get into the motel business for very, very cheap. As a result of the recession, hotel occupancy rates were very low, leading to bank foreclosures and fire sales. When money is tight, you skip the vacation. was in a deep recession, and gas prices were very high.
0 kommentar(er)
