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The beginning
The foundation stone of diagnostic chain Dr Lal PathLabs (LPL) was laid by Late Dr (Major) SK Lal in 1949. He was trained in the army and later at the Cook County Hospital, Chicago, US. The first lab was opened in central Delhi's Hanuman Road. In those days, private labs for routine tests were unheard of and almost every patient with such requirements went to government hospitals. By the seventies, the diagnostic chain was testing 30 patients a day.
When & how the idea of evolving into a chain developed
In an industry where testing was about working with tubes, our aim was to introduce new methods and better testing apparatus. The first breakthrough happened in 1982 with the introduction of the auto-analyser in India. This changed the character of a chemical testing laboratory by allowing a significant increase in the number of samples that could be processed. This was followed by many firsts to the brand's credit including BARC's (Bhabha Atomic Research Centre) approval for thyroid testing which was again restricted to government-run hospitals then. As more samples poured in, lab and office space became a challenge.
In 1982, we decided to adopt a franchisee model for sample collection only. While testing and report compilation of samples was controlled by us, it made sense to franchise the first step of the process due to the increase in the number of samples.
Key things to keep in mind while expanding beyond the home turf
Every lab established by Dr Lal PathLabs requires a significant investment and, therefore, the company decides to set up a lab when a small centre reaches a threshold monthly revenue of Rs 4 lakh. The company's first lab outside Delhi was opened in the mid-eighties at Dwivedi Hospital in Kanpur.
Strategy/business model adopted for expansion
In the early days of our expansion, we had a hybrid model in place. In the eighties and the nineties, lease agreements were not a necessity and medical establishments were seen as a risky proposition by land owners. To deal with this problem, we roped in some partners who provided us land where we could set up our lab-cum-collection centre and they invested in doing up the interiors. This was a profit-sharing model in which the testing etc were managed by Dr Lal PathLabs. With improved cash flow, this model was done away with. At this point, Dr Lal decided to bring a professional management team on board. I came in as COO in 2005. After a 10-year stint at HUL, I moved on Monsanto (an agricultural biotechnology MNC), and later Ranbaxy. At this stage, Dr Lal PathLabs' revenue was Rs 43 crore. There were nine labs and 250 collection centres.
Then, we turned our attention on making significant investments in systems and commercial processes. For proper lab governance, lab clusters were assigned under geographical heads. Currently, the ratio of a zonal office head to a lab is between 1:10 and 1:15. Zonal heads report to strategic business unit heads who report to the CEO eventually. As part of brand rejuvenation, the ochre shade was added to the logo and a media plan was put into action with a focus on radio and outdoor.
Challenges faced and lessons learnt
Two major developments took place in healthcare between 1997 and the year 2000. In 1997, Ranbaxy Laboratories entered into a 50:50 joint venture (JV) with Specialty Laboratories of the US to set up a clinical reference laboratory in Mumbai and satellite laboratories in Bangalore and Delhi. By the end of the decade, another JV called Pathnet was announced between Gribbles Pathology Laboratory of Australia and Dr Reddy's Laboratory.
As part of its marketing strategy, Pathnet's charges were 30-60 per cent lower than the prevalent market price. The JV fizzled out in some time. These international players had the latest know-how of lab operations and changed the rules of the game.
We held our ground by emphasising on customer-centricity. This was achieved by taking labs closer to customers. This improved turnaround time and also increased brand visibility.
Scaling up
In 2005, venture capital fund WestBridge Capital Partners (now Sequoia Capital) picked up a stake of 26 per cent in Lal PathLab. As part of a secondary deal in 2010, TA Associates bought 16 per cent stake from Sequoia for Rs 163 crore. Today with 150 labs and more than 2,000 collection centres nationally, Lal PathLab has a turnover of Rs 425 crore. While 70 per cent of samples are collected for routine tests, 30 per cent are for high-end tests.
If you had to start again, would you do anything differently?
For us the biggest learning is that one should never give up the entrepreneurial streak. Credibility and fair business practices can see a company through the bad times. In this journey, I had to say no to people (looking for tie-ups) many times. I did so without any regrets because I was careful in weighing the pros and cons. And so doing anything differently is out of question.
FROM THE HORSE'S MOUTH
Things to keep in mind when building a chain
Location
Focus on customer-centricity. Labs should be closer to customers. It not only improves turnaround time but also increases brand visibility
R&D
Use cutting-edge diagnostics for accurate tests and to make them available to all sections of society
Investment
Setting up of a path lab requires huge investment. Plunge in a new market only when a a centre reaches a monthly revenue of Rs 4 lakh
Talent
Bring a professional management team on board. Source talent from various industries
