Hello friends, in today’s article, we see the TransTech company case study, this company is started by Mohnish Prabrai. Mohnish Prabrai explains his own Company business framework to Add to the Flavors of Dhandho. In this article, we learn how the author starts his own company while doing the job, how they value their own company, as well as how much percent return they get on the company’s invested capital.
so let’s start.
The author ( Mohnish Prabrai) explains, how is he start a part-time company, by applying the simple Dhandho Framework, so let’s understand, in his words.
the author says, ” To add to the Flavors of Dhandho, let’s exercise my own Dhandho Experience.
When I founded my first business, TransTech, Inc., I had virtually no money – there was about $30,000 in my 401(K) retirement amount at Tellabs and $70,000 available in credit card limits, on a number of credit cards that I signed up for in anticipation of starting my business.
I researched U.S. Bankruptcy laws and I found that they were not too onerous. if the business went south and I was unable to cover my debts, I could declare personal bankruptcy and start over.
It was a very similar situation to Papa Patel- there wasn’t much downside because there wasn’t much to lose. also, when I resigned, my boss told me that they’d have to have me back any time, and they were likely to give me a decent raise as well. (TransTech company Dhandho by Mohnish Pabrai)
All I had to lose was the $30,000 in my 401(K) retirement account. I was all of 25 years old; the last thing I was concerned about was depleting my retirement assets.”
then author explains how they start the company
the author says, ” I incorporated Transtech in February 1990, while continuing to work at Tellabs. I took 1/2 day off as vacation time, whenever I had client sales calls. I used to work on the business at home in the morning from 6:30 AM to 8:30 AM,
Be at work during the day and again work on the business in the evening from 6:00 PM to midnight. I had a paycheck coming in and every little in the way of business expenses.
When I had the first client and revenues over $200,000 a year in the bag, I resigned. If you look at the approach. the only downside I had was the Possible loss of my paltry $30,000 in 401(K) assets.
The upside was enormous easily several million dollars. Visa and Master Card were my venture capitalists funding the rest of it. I was single at the time. (TransTech company)
There was no family to worry about. Many lunches and dinners back then were comprised of a simple subway sandwich. my expenses were pretty low.
I considered staying at Tellabs to be a risky proposition. I thought that if I just stayed at the company, it was likely to be a boring and slow corporate path.”
then the author explains, why starting at age 25 is good than 35 or 45? and what is his game plan.
the author says, ” If I woke up when I was 35 or 45 and decided to go off on my own. it would be much more complicated. I would likely have a wife and kids by then, which would make it harder to break loose and make a risk-free bet. (TransTech company Dhandho by Mohnish Pabrai)
My game plan was very simple. I had an Arbitrage-based business model. the Value proposition was leveraging India’s deep expertise and available talent in client-server computing to satisfy the deep shortages of talent in the mid-western united states.
I had $100,000 of capital available to me and the business was already producing revenue and some profit when I resigned from Tellabs.
I knew that with the first two customers on Board, generating real revenue and profits, the downside was very limited.
it was classic ” Heads, I win, Tails; I don’t lose much”
then the author explains, how the company grows and how much return gets on his investment.
the author says, ” TransTech scaled nicely. In 1996, we were recognized as an Inc. 500 company- one of the 500 fastest-growing businesses in the united states.
As revenues went from nothing to over $20 million annually in 10 years, the business never took a dime off outside capital.
Cash Flows provided all the growth capital and then some. cash was always very tight as we were growing very rapidly and reinvesting all available capital to scale.
In late 1991 I found a terrific banker, Tom Harazim, who liked our story. He paid off all my credit cards, got us off the very expensive factoring of receivables I was doing to bring in cash as quickly as possible, and got TransTech set up with a hugely cheaper line of credit based on our pristine receivables.
We did a sale of some assets for about $2 million in 1994, which made me feel rich for the first time. And then the entire business was sold in 2000 for several million dollars. (TransTech company Dhandho by Mohnish Pabrai)
A $30,000 investment got me more than 150 times return over 10 years- an annualized return of well over 65%. I went from a salary of $45,000 a year(when I quit my job) to consistently having a salary of over $300,000 a year in a few years.
The magic word is Dhandho, baby- Huge upside with virtually no downside. it was a classic.
” Head, I win; Tails, I don’t lose much” …. kind of bet.”
so, friends, the author start their first business, before starting Pabrai Funds.
from the above story, We should have to learn, to become very wealthy.
- Take a Job to generate income for our monthly expense
- Start a business, part-time. (TransTech company Dhandho by Mohnish Pabrai)
- Take a calculated risk for business, like the author takes their retirement money to start a business
- Work very hard(100 + hours a week), and live a Dual life, up until you don’t need a job for your regular monthly expenses
- Start early, because, you don’t have much responsibility like family expenses, students’ education, etc. don’t worry if you have family expenses, then take a calculated risk.
- Full focus on business, and in the job, do work as like above your firing level:- not more or not less to fire
for more understanding of this concept, see the following video of Mohnish Pabrai on Secrets of creating massive wealth