Young Entrepreneur Series IV

This year 11 IIM A grads and one from IIM Calcutta have opted out of placement to start their own companies. This is now a yearly phenomenon. In the spirit of the season then, here's the dope on a company started by bschool grads of 2004 vintage.

No, it's not a dotcom, tech or consulting start up but a real, live sweat and blood business. But stress is something they probably don't worry about. Or at least have a way to deal with :)

Company: CMYK Health Boutique Private Limited, operating the'Four Fountains' spas.

Started in: Jan 2007

Founders:
Anurag Kedia (IIT B ,IIM A (2004)
Saurabh Garg (IITB, IIMA)
Sunil Rao (Sydenhem, SP Jain)
Arnab Mitra (IITD, IIMC) *
* was part of original team but recently quit for family reasons.

The business: Four Fountains is chain spa. Therapies are priced very reasonably - from 199 to 1349 (at most spas prices begin at Rs 2000 upwards).

Four Fountains aims to set up day spas in the top 20 towns of the country. The first two are already operational in Pune in Koregaon park and Aundh.

I met Anurag and Sunil in Pune last month. They gamely agreed to come see me at 11 pm, and share the journey so far. This is a long post - not because I can't edit it but because I think details matter. And they inspire/ guide those of you who may be thinking of taking the plunge into entrepreneurship yourselves.

So sit back and relax. Imagine yourself at the Four Fountains!

WHO WE ARE
Sunil, Saurabh and Arnab were all at HLL, I was at KPMG. Saurabh and I were batchmates at IIM A and through him I met them 2. Saurabh and I were exploring something, the two of them were exploring something. We hit upon the idea of health spas and both teams were excited it. So we decided to join hands and work on it together.

Were you familar with spas before you started Four Fountains?
Anurag: All 4 of us had been to Ayush or ayurvedic health centres at some time.. But none of us in HLL were associated with Ayush as a business.

Sunil: And at work every once in a while you have a getaway where you are supposed to indulge yourself with company money, so at one of those occassions we would have gone to a spa.

Also our international stint in HLL was in Bangkok so we had seen the spa market is huge and that there are good quality, affordable spas. It all came together - the idea that spas need not be expensive in order to provide a good service

All of you were based in Pune?
Sunil: None of us, actually. Pune was a business decision. Three of us worked in Bombay, Anurag was in Chennai.

STARTING UP
So how many months went into thinking and researching the business and how & when did you exit your jobs?
Anurag: Saurabh and I left together Dec 2006, Jan 2007. I got released a bit earlier. Sunil and Anurag were still in jobs. We wanted to make sure we had things in place before we quit. They left in April & May 2007.

While we two were brainstorming on ideas they had been researching on spas for quite a while. In Feb-March 2007 we decided to join hands. By then, they had spent 6 months researching the project.

Earlier we were working on a discount retail chain for rural India (similar to Subhiksha, but we had our own ideas how to make it work). Unfortunately. hype created by bigger players did not allow us to get support for that project.

On campus had you thought about entrepreneurship?
Anurag: I had not thought of it.. In fact I was a guy who dropped out of the LEM course (much sought after course @ IIM A on entrepreneurship) because I heard Prof Handa occupies all your weekends. He takes you to all interesting places but Saturday, Sunday khatam ho jayega.

And I was the cultural secretary. Mujhe kaam karna hai, Chaos ka paisa ikattha karna hai so I wriggled out. Later on Prof Handa has been quite helpful.. we have been in touch.

Then how did you end up starting a company?
Anurag: The job was doing ok - not so good, not so bad. I was a management consultant, with projects across companies. One day I got a call from Saurabh and he said 'kuch karte hain'. I said sounds interesting...

What about S P Jain? Is it common to take up entrepreneurship?
Sunil: Not very common. My junior batch there was one guy who started a financial advisory service, my batch I am the first one.

So tell me about the first idea you guys had.. the discount retail chain.
Anurag: We looked for funding, because usme jab tak scale nahin hota hai kuch nahin hota.

So who all did u meet for funding?
Anurag: We met anybody and everybody we thought could give us money including marwari seths, VCs, pvt equity funds, corporates - almost everybody. We thought we had firm commitment from 2-3 of them but then it did not materialise. We had started pitching in Aug 2006, worked 6 months before that on the plan. By December we realised ki no matter what kuch karna hai. If not discount retail, then something else.

You had saved up money?
Anurag: A little 6-8 months, or even 10 months stretch kar ke we could sustain ourselves.

What was the need gap in the spa market which you spotted when you started researching the idea?
Sunil: We talked to people and asked them, what do you understand by 'spa'. Some thought it's a gym, others thought it's a salon. We figured there is no one person who owns spas as they stand for. Spas are associated with 5 star hotels and seen as expensive while some think ok, they're massage parlours.

We saw an opportunity to bring in genuine spa service in a great ambience but affordable prices.

MAKING THINGS HAPPEN
Next stage? How did you raise money??
Sunil:After the concept was in place, we formulated with evidence, tested on 30-40 people and refined the concept. We then pitched for money.

Who gave the money?Anurag: A quasi V C fund - they have a couple of businesses of their own and will soon become a professional VC fund. But Four Fountains is their first external investment.

How many people did you go to before securing funding?
Anurag: This time we pitched to 5-6 people. But for the retail project we had pitched to a countless number and hence knew the people who did not invest in the project but had shown interest in us. They said ok agar tum kuch aur bhi karna chahte ho let us know. Hence it was quicker, when we went back to them with the spa idea.

How do go and pitch? Cold call or through people you knew?
Anurag: We went to all routes. More of people we did not know... Band of Angels, Mumbai Angels etc etc

Sunil: They would have done more cold calls than anything else.

What is the size of the project?
The current investment is a little above Rs 1 cr.

You have two spas right now. What next?
Immediately, Bombay, Delhi, Chennai and Bangalore are on the horizon. We're just waiting for these two to stabilise and processes being completely in place. Then we can move out of Pune and leave these spas to function on their own. We have done some ground work in Mumbai and Delhi and hope to open the next set of spas around May-June 2007

How do you do that? I mean 'stablise'? And where do you get spa professionals from? In Mumbai, some spas have therapists from Thailand, Bali etc.
There is huge shortage of skileld manpower in this industry - like in every other industry today but here there seems to be an even greater shortage because there are no good training instututes except in Kerala where they impart training in panchkarma.

There also not all panchkarma schools are producing ther right quality and attitude. Another problem is language. Very few can converse in Hindi or English, they speak only Malayalam.

In the first phase we have hired ppl with some background - people with diploma in ayurveda and diploma in naturopathy - just to make sure they are comfortable with he idea of working in a spa. For them the idea of giving a massage is not taboo, it's not lowly work, they accept it as a profession and find it a respectable thing to do.

But there are not enough people who have that attitude to massage in the first place...

So then how do they become experts in say, 'Invigorating Swedish therapy'?
We have an expert on board as a consultant who looked into the menu of products, service sequence, guest handling, phone etiquette etc. We also hired external trainers who do training for 5 stars and are now freelancing. Now we have an in house expert to handle future training needs.

How much do therapists get paid?
CtoC is 10k per month for therapist. Outside they get paid 4-5k, we pay on the higher side.

How many employees do you have right now?
22 therapists in all + each spa has 2 guest relation executives and a manager. The two trainers are a common resource.

THE NITTY GRITTIES
Why the name Four Fountains?The four fountains represent the four faculties... Fountain of youth, tranquility, abundance and joy.

And what's special about your spa?
Some of the facilities we have are not in 5 stars also. Indivudal showers in all rooms, all disposable matterial, 100% natural products. For facials we use high end products like Artistry from Amway.

How many customers come to Four Fountains in a week?
100-150 people. The average amount they spend currently is Rs 700 which is higher than we had expected. We have found that when you offer good value, people tend to spend more.

Also there are more men right now than women which is also a surprise. The ratio is 60: 40. Most are not regular spa goers - Pune has spas only in 5 stars and catering mainly to foreigners.

Popular therapies are Ayurvedic and invigorating Swedish massage for men and Harmonising aromatherapy for women. Also the destressing head, neck and shoulder therapy.

We can do 70 therapies a day at each centre. There are 'happy hours' between 10 am to 4pm, Mon-Fri.

What have you done to promote the spas?
Above the line and below the line. We have put ads in TOI Pune and also tied up with Lifestyle store, restaurants, multiplexes, gym. We access their database by providing discount offers to their members and users.

And what's the break even level for each spa?
Cash Break even is 3-6 months, payback is 2.5-3 years.

Do you take a salary for yourselves?
Yes, a modest one but enough to cover living expenses.

And how will you raise more money for expansion?
The same investors have committed more money for the next 15-20 spas. Post that we will be looking for more money, if they are not interested then maybe from external sources.

It's a very capital intensive business...
That's the difference between a tech business and non-tech business. You were asking about VCs. Most of the VCs fund tech businesses because there it is theoretically possible for Re 1 Rs 10, Rs 500 or even Rs 1000. Here 1 rupee can make 5 or 10 rupees, at most 20 rupees

You have to keep selling equity and raising money - how much equity are you left with? I ask this because you are many partners and taking a relatively low salary. The attraction is really the long term value of your equity stake...
Ours is a performance linked equity structure. There is a rate of growth defined and a complex formula by which we will value the firm 2 years down the line. There is a strong incentive to do well. If we don't do well most of it belongs to them, if we do well then most will belong to us.

They suggested and we found it fair. The investors have been very supportive.

Is 4 partners a good thing? Do you compartmentalise the work?
Arnab has recently quit for personal reasons, so that leaves 3 of us. We are too small to work in silos but we do divide the responsibility for ease of execution - Sunil handles marketing while I handled the projects part (finding real estate, setting up the spa etc). Saurabh handles training and rollout. Now the project is up and running so all of us are working on the marketing.

Is there an Ayush centre in Pune?
There was one in Koregaon Park, it's shut down.

I went to Ayush once and found the place ok... I would not go back again.Anurag: Actually many aspects of Ayurvedic therapy are currently being debated. Is massage on wooden bed necessary? It's so uncomfortable! If you have a medical condition it's ok stick to the authentic version because it's a treatment but when you go for relaxation is it necessary? Also there are 7 classical positions, 4 of which are not comfortable at all...

Sunil: People go to Ayush for some problem. If you have a backache, come to us; if you have a knee problem come to us... Whereas at our place we are not saying come to us if you have a problem, come if you want to relax..

How important is it for therapists to build personal relationships with clients?
Our effort is to standardise, not add one more complication but if people ask for a particular therapist, we do provide. There is no direct 'cut' to therapists but there is an incentive for doing certain number of therapies, coming on time etc

You thing it's a service business but it can be totally systematised?
It's happening in salons so why not...

I have a small problem with this approach... I visit salons and spas; personal relationships do matter I think!
Anurag: Setting process does not mean people should lose out on warmth. This depends on the people you hire. Skill can be developed but not attitude

AAE AAGEY...
What is it about this business that keeps you excited? How will you keep learning and growing?
We figured out that we will do something which is going to be appreciated by people, so there was that kick. But rationally, there was also this whole thing of getting into the wellness space. We can branch into other things eg salon, health food, spa product retailing - there are many opportunities. We have tied up for example with Jawed Habib and started a salon at one of the spas.

Where do you see the company 3-5 years from now?
Four Fountains will be present in top 20 towns with 100 spas in 5 years. Estimated turnover: Rs 100 crores.

It all sounds very easy... You got the idea, investors, set up the spas..any problems?
Anurag: Paperwork is important but ho jaata hai. Execution is the real challenge. Take the small example of getting a press. Is the tagline right, is the message coming across? Should I put 4 lines describing the spa or have 20 lines? If one press ad does not work you bleed... We have made a lot of mistakes.

Then dealing with employees. For example, someone falls sick or their parents fall sick... If 2 out of 10 people can't come in a day it's a 20% hit to our capacity and our revenues directly get impacted. Or if someone is not happy for some reason, or gets food poisonong, we are responsible for them.

There has been a time when we have spent the night at the hospital, because of worry that an employee's fever is dengue. Thankfully, it was not but we spent Rs 5000 in 2 days and then realised medical insurance is required for all.

Has he MBA helped you in being an entrepreneur?
Anurag: Definitely in planning and marketing yes.

Sunil: The job after MBA was a big learning experience. I was handling the Modern bread channel. On paper, everything is fantastic! When you go to the store there is chaos. You find the POP you designed looks crap in the shop...

No regrets??
At times you do miss the comforts, like we can't go to 5 stars etc.

Many entrepreneurs don't take a salary at all for some years.. You guys aren't in that boat. If you had a salary issue it would be more difficult?
Sunil: Yes, because of EMIs.

Anurag: We would have to look at some source of revenue, coaching teaching etc. Also had we planned that we'll become entrepreneurs after 2 years we would have saved accordingly. People who have it in mind should do so.

Finally, if you had not gotten funding would you have given up?
If you have something to show, it's easier to raise money. We would have borrowed money and started one spa... and kept looking for investors!

So when people really really want to do something they find a way, right?
Anurag: It's not that big and bad world out there.

Nahin karne ke liye bahut excuses hote hain
Sabse pehle naukri chhodo, to phir sab kuch ho jaata hai...!.

Wise words those.. as they say, nothing ventured, nothing gained.

What I liked about these guys: They are so matter of fact, ki bhai kisi na kisi tarah karna hi tha. The first idea did not seem feasible, they shifted to a second. And they aren't letting the obstacles along the way bog them down.

For example, the basic issue of spa therapists. They're not available, so you create your own talent pool. This is something all entrepreneurs have to do - train and upgrade people who can work for them instead of looking for ready-made talent (you generally can't afford or attract that kind when you're small and/or in a rapidly growing industry).

They also seem to have a very well thought out expansion strategy. But realise the real challenge is execution (which is where many MBAs in particular stumble). Will be interesting to see what systems they are able to put in place to expand rapidly across geographies.

Lastly, an affordable spa is a Big Idea but not a new one. It addresses a valid customer need and latent desire. We need more such ideas and they are actually all around us, just waiting to be spotted... By would-be entrepreneurs!

P.S. I have not personally tried the Four Fountains spa but if any of you have, do share your experience!

Previous posts in the Young Entrepreneur series:
Prakash Mundhra

Mom's Kitchen

Multimax