The Right Formula for Success

By Pooja Kothari

Dr Arvind Lal (L) handed over the role of CEO to Dr Om Manchanda (R) and saw his family business grow many fold since then.

“That picture was taken by me,” informs the 60-year-old owner of Dr Lal Path Labs (LPL), a leading chain of pathology laboratories in the country. “I can recognise just about any fighter plane in the world,” he adds.

From planes to path labs, that’s as unusual a journey as can be. But as we talk over numerous cups of tea on a Saturday morning in the garden of his south Delhi residence, the story unravels pretty quickly. It has Dr Lal growing up in Delhi in the sixties, dreaming about landing planes on moving airstrips. He even opts for geometric design over biology in school because someone tells him “it would help him steer the plane on to the ship”. The fighter-jet dream, however, got mortgaged to failing eyesight; a shattering of heart followed, post which the young Lal decided to pick up a degree from Armed Forces Medical College at Pune.

In 1977, the sudden death of his father brought Dr Lal back to Delhi. The incident also thrust upon him the responsibilities of running the laboratory set up by his father, a pathologist who came to India after partition and started working at a government lab to make ends meet. In 1949, the senior Dr Lal set up his own lab in the heart of Delhi, where the main branch still stands.

The state of the industry was particularly bad when Dr Lal took over the single lab. “We’ve had the pleasure of seeing the effect that testing had on clinical treatment in India,” recalls he of the early days. “Some things happened that turned the tide my way. Take the auto analysers, for instance, which ran blood tests automatically. I was lucky that these were just coming into the country then. I knew what they could do,” he adds.

And the results are there for anyone to see. From 30 patients a day at one lab in 1977, LPL has mushroomed to 45 labs across the country, visited by 12,000 patients every day. Its touch points include 750 collection centres and 2,500 pick-up points throughout India. It is also in the process of inaugurating Asia’s largest laboratory in Rohini, a suburb in west Delhi.

The company has also built a reputation for being a pioneer in innovation, whether new tests, such as the HPV test for cervical cancer that it is now in the midst of bringing to India; or, new equipment, such as the auto analysers for blood tests that reduced the time taken to generate results for ailments as common as jaundice. “Any innovation seen in pathology—new tests, new instruments, vacutainers, bar-coding of vacutainers—all of that was brought into the country by us,” informs Dr Lal. “We are the Supreme Court of testing,” he adds, referring to the highest judicial authority of India. “Patients often come to us to re-check their tests done at other labs.”

It might sound like a boast, but isn’t. Last year, when India was in the grip of the tenacious H1N1 viral epidemic and the load on government-run labs became unmanageable, the Delhi government chose LPL to be one of the two private labs to run those specialised tests. “We were told, not asked,” stresses the doctor, who has even been awarded the Padma Shri for his contribution to the field of testing.

Dr Lal was the first in the country to start collection centres and claims to be a worldwide pioneer in healthcare industry in taking the franchisee route. Of course, these were born more out of necessity than anything else. “When we approached people to give us their shop to start a collection centre, they would refuse, saying we don’t rent space to doctors and lawyers. They feared that their grandchildren would be fighting to get my grandchildren out of their premises. So I had to find a way to take that shop,” says Dr Lal, who admits to never having heard the word “franchising” before then.

So, in 1982, LPL set up its first collection centre at Dr Lal’s bungalow. “We tried the concept in our own house, and never looked back. We cracked a problem, and landed up finding a novel way,” he adds.

Once it experimented with the hub-and-spoke model, LPL came up with another innovative strategy—using thermocol boxes with gel packs and perforated sponges to transport samples of blood drawn from across the country to its centralised labs in Delhi. This time, the resistance came from Dr Lal’s marketing team, which protested against the amount of money being spent on these boxes. “I refused. Right is right. Wrong is wrong. I have been uncompromising, where quality is concerned,” says the honorary brigadier of the Armed Forces Medical Services.

By the mid-90s, Dr Lal began to understand the potential of growth that his business held. He also knew he “had to stop thinking like a doctor and think in terms of a business”. Having hit the realisation that he knew neither “finance nor marketing,” his next step was to find someone who did. But those were the days when “MBAs in finance were not interested in joining an industry as unglamorous as ours. It is about running blood tests at the end of the day”. Dr Lal settled for full-time CAs, who gave him his first taste of what professionals can do.

“They got information out of me. And I knew I had started down the right road,” he adds.
The strength of the brand started getting recognition from others in the field. By 1995, LPL had struck a partnership with Quest Diagnostic, the world’s largest chain of diagnostic labs. Not ready to give up majority stake in his business, Dr Lal settled for a joint venture, which allowed him to send samples for testing to the US. A decade later, WestBridge Capital Partners, now called Sequoia, joined the board as an investor. It owns a 30 per cent stake at LPL. “We are one of their success stories,” claims Dr Lal. Says Sandeep Singhal of Sequoia, who handles the healthcare portfolio for the investment firm: “Dr Lal Path Labs stands out particularly for its organic growth and robust bottom line.”

In the last five years, LPL’s profits have grown five times, without following the route of acquisitions taken by many of its competitors. The turnover of the company has grown more than four times to Rs 170 crore since 2005. This growth is a result of Dr Lal’s vision and thinking that allowed him to seek the help of a team of professionals and encourage them to perform well together. “It is a combined effort for which the team must get credit,” adds he.

Heading that team of professionals is Dr Om Manchanda, a veterinarian-turned-IIM-Ahmedabad alumnus, who was hired in 2005 as the chief operating officer and is now the chief executive.

When Dr Manchanda was brought in, LPL was a 450-employee company with a turnover of Rs 40 crore. Although it had a few labs in other cities in the country, it was primarily a regional player—dominating the scene in Delhi. It was run by Dr Lal and his wife, Vandana, who still works at the first lab in central Delhi. There weren’t any clear systems or processes in the company—as is the case with most family-run businesses. And competition had heated up with international players arriving on the scene and cutting away workforce.

Over the years, Dr Lal had developed the gnawing sense that he should be getting a professional on board the family business. “I knew that if I had to grow the business across India, I had to strengthen the non-technical part of the business,” says he.

“We interviewed 5-6 guys. Om asked pertinent questions and stood out for his inquisitiveness,” recalls Dr Lal, adding, tongue firmly in cheek, “Of course, it helped that he could distinguish between the prostate and pituitary glands.”

Working with his investors, Dr Lal charted out the requirements. To begin with, they decided to fill three positions: COO, chief financial officer and head of sales. But it wasn’t easy to attract talented professionals into the family set-up.

Says Singhal: “It helps that Dr Lal is a very pragmatic man who knows what he does not know and hires people to do that. He parted with equity for his senior management team and paid market-related salaries.”

Even Dr Lal acknowledges the huge risk that Dr Manchanda took. “He must have had fears. Will our personalities match? Om must have thought hard before taking this position up.”

“A reasonable chunk of equity” sweetened the deal; Dr Manchanda came on board as the chief operating officer of LPL in 2005 and there began a new chapter in the life of LPL—and its owner, who had to “really change” himself. “I am firm, but open to listening to others. The initial days were very tough,” admits he.

Dr Manchanda, on his part, treaded carefully. His earlier stint at Ranbaxy, a family-owned business then, had taught him how to work with business owners. Although he was itching to put to use all that he had learnt in the naer-decade at Hindustan Lever, considered the best training ground for managers, he bid his time. “I didn’t change anything overnight. I just observed the dynamics of the organisation,” says he.

Slowly, but surely, he fed changes—one process at a time. “I hired the senior management team; clarified people’s roles and responsibilities, and gave them empowerment and room for error,” says he. Given that most of these recruits had moved from multinationals, Dr Manchanda had to attend to their emotional pressures, in addition to remaining accessible to all the members of the team. Very soon, a transparent performance system was put in place as well. He also suggested the move to a corporate office in Gurgaon away from the lab in central Delhi three years ago, so that “the management team could properly balance between day-to-day firefighting and long-term strategic thinking.”

It helped that Dr Manchanda was working with an owner who trusted him immesnely. ‘I knew I could churn out good blood tests and multiply them across locations, but I couldn’t build a business. For that, I needed someone whose trade was business,” says Dr Lal.

Somewhere deep down, what also made a difference was that Dr Manchanda understood the science behind the business. “We have zero tolerance for getting a test wrong. We have to get the test right in the first instance and get it right every time,” says Lal. Given his training as a veterinarian, Dr Manchanda could empathise with that.

It’s a mindset that the duo now hopes to inculcate in the entire organisation. Given that “70 per cent of all clinical decisions are based on pathology tests”, it is vital to get the results right. An incorrect report can have serious consequences for patients, and too many such errors could cause irreparable damage to the company’s reputation and drive patients away.

“It is difficult to hammer this message into the entire workforce of 1,400 employees, but we do try to inculcate a sense of commitment,” says Dr Lal, who still handles the technical part of the business, from deciding which new tests can be brought into the country to research and development and strategic management. While Dr Lal has the upper hand in the equation—including the power to sign a cheque of an unlimited denomination—the day-to-day functioning of LPL rests on Dr Manchanda and his team who operate out of the corporate office.

Together, they have taken a lead within the industry—be it in terms of technology, wherein all LPL labs have been connected to a central lab; or, in terms of operational concerns, such as building strong financial systems to ensure cash is handled properly, or, finding newer ways to get closer to the customer and turn around a report in a rapid timeframe. For instance, when it came to choosing Rohini for the new state-of-the-art laboratory, proximity to a metro station was a deciding factor. “It reduces the time taken to transport samples tremendously,” says Sequoia’s Singhal.

The next 18 months should add another interesting chapter in the history of this company—and the partnership that holds it together. Investor Sequoia has to exit by 2012; yet, the markets are still too volatile for a public offering. Another round of fund-raising looks inevitable, with whispers of the process already being underway. Although LPL has managed to grow reasonably well in the past, it runs a complex business. “It has all the issues of retail and the complexities of a logistics business,” says Singhal.

LPL has to think like a consumer business—its employees are its first point of contact with its customers; it has to process information in real-time with zero errors, as is typical of a healthcare business, and, it has to manage scale in a people-intensive set-up quite like a manufacturing process. Its ambitious plans for the next few years dictate that the partnership in the cockpit stays at its effervescent best. Ultimately, as Dr Lal must very well know, the fate of an aircraft lies with the men who pilot it.

“I wasn’t meant to be a doctor. I was supposed to join the navy and become a fighter pilot,” says Dr Arvind Lal, almost wistfully.

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