Bootstrapped Lotus Herbals is not afraid of MNC invasions. Here's why

In three decades, Lotus Herbals, the bootstrapped natural beauty care warrior has kept its turf safe from big MNC rivals

By Rajiv Singh Forbes India Staff

Published: Aug 16, 2022 04:17:37 PM IST

Updated: Aug 16, 2022 04:36:59 PM IST

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(Left)Nitin Passi, Chairman and MD, Lotus Herbal and Dipin Passi, Joint MD, Lotus Herbal Image: Amit Verma

The young grad was about to learn two priceless lessons from his mentor. “Don’t let them get under your skin,” Kamal Passi counselled his son, Nitin, who was getting bogged down by his wily opponents. Nitin completed his MBA in corporate strategy and finance from Katz Graduate School of Business, University of Pittsburgh, in 2000. After a two-year stint with Deloitte, the third-generation entrepreneur returned to India and joined the family business of natural skincare and beauty care products in December 2003. His father, an electrical engineer, was set to impart practical knowledge, which are either missed in B-schools’ curriculum or don’t find a mention in management books.

Started by Passi in 1993, Lotus Herbals emerged as a strong regional player in the natural beauty care space across north India over a decade later. Though small in revenue—₹7.8 crore in 2003—the challenger brand managed to give the jitters to a clutch of MNC biggies who started feeling threatened. The result was ‘unwanted’ attention and attempts to not let the Lotus bloom.

Nitin, meanwhile, was vexed with the games played by deep-pocketed rivals. A battery of frivolous legal cases were slapped, Lotus Herbals was dragged to court, and one of the big players flexed its financial muscle to restrict contractors from supplying ingredients to Lotus Herbals. “I could see how big companies were trying to kill a small fish,” recalls Nitin, who was itching to take on the might of the Goliaths. Now came the second advice from Passi. “Don’t take on the MNCs head-on,” were the words of caution from a seasoned entrepreneur whose father ran a cosmetics factory in Jalandhar and sold products under the Pamilla Perfumery brand in the 1970s.

Back in Delhi, the young entrepreneur was not ready to submit meekly. His arguments carried weight. Products of Lotus Herbals and rival foreign brands were sharing the same shelf of retail stores and targeting the same set of customers. “Ultimately, we are competing against them,” argued Nitin, who was also mindful of respecting and obeying his tutor. So, the young lad thought of a strategy which could kill two birds with one stone. The plan was simple. First, Lotus Herbals would not fight with rivals by competing with their core products. Second, Nitin decided to create his own little kingdoms—segments where Lotus Herbals could rule with its blockbuster products such as sunscreen and sunblock. “If they want to fight, they have to come on our turf,” he says.

A few years later, in 2013-14, the bootstrapped Lotus Herbals decided to rope in a strategic partner. The idea was to infuse capital to expand operations, beef up marketing and advertising, and develop a war chest to stand firmly against the big boys. The company was in the final stages of talks with a listed Japanese entity who proposed either a 50 percent buyout or a 49 percent stake. However, closer to the deal being signed, Lotus Herbals was asked to become a junior partner by selling 51 percent, which would eventually end in 100 percent acquisition. The offer was too tempting to resist. The family was given a blank cheque. “My father declined. He wanted a partner, not a new owner,” recounts Nitin. After the nixed deal, the family decided to continue with its bootstrapped hustle and journey.

Two decades later, Nitin has built a formidable kingdom. “Lotus Herbals Safe Sun is the biggest sunscreen brand in the country,” claims Nitin, who now runs the business with his brother Dipin Kamal Passi. The company, which saw its revenue from operations tumble from ₹483.02 crore in FY20 to ₹369.28 crore in FY21, has staged a rebound by clocking ₹552.42 crore in FY22. The profitable growth of the company, which has a presence in 700 cities and towns through 1,000 distributors and 1.5 lakh retail outlets, has happened on the back of the strategy of building strong moats around the kingdom.

The first robust lever is the way its professional beauty division has scaled. Lotus Professional is now spread across 15,000 salons and spas in the country. The second has been the evolution of the Lotus Makeup range of products and Ikkai, which was rolled out in 2018 to cater to the needs of millennials. Then there was the move to tackle the pandemic challenge. The offline retail-heavy company rolled out its digital-first brand Lotus Botanicals last year. The fourth growth engine has been a spate of acquisitions over the last two years. Lotus Herbals ventured into the luxury ayurvedic holistic beauty and wellness category by acquiring SoulTree in September 2020. It bought a 32 percent stake in dermaceuticals maker Fixderma last October, which beefed up its play in premium skincare and haircare products.

Kamal Passi during market visits and dealer meets in the late 1990s Image: Courtesy Lotus Herbal

The acquisition juggernaut, interestingly, continued to roll this year. In January, Lotus bought a 25 percent stake in Conscious Chemist, a new-age, clean beauty D2C brand having a functional skincare range across categories spanning face care, eye care and body care. It also bought a 10 percent stake in French luxury brand Lili Margo Paris, which gets a dominant share of sales from China. “We can’t do everything alone,” says Nitin, chairman and managing director of Lotus Herbals.

Lotus Herbals, reckon marketing and branding experts, has finally started to bloom. What differentiates Lotus Herbals from the others in an overly-cluttered market is its focus on functionality, contends Harish Bijoor, who runs an eponymous brand consulting firm. In a country where brands prefix and suffix ‘herbals’ loosely, he underlines, Lotus Herbals has done extremely well by focusing on functionality and living up to the name. Though he lauds the move to diversify the business by entering multiple categories and acquiring a bunch of different players, Bijoor sounds a word of caution for the family-led business. “Focus might become a causality,” he says.

Bijoor explains. At times, brands try to expand their basket in their zeal to grow at a fast pace. While rolling out D2C brands makes sense, what one must be wary of is inadvertently cluttering the space. Lotus Herbals, he stresses, must remember what it stands for. “It must mean something to some people rather than everything to everybody,” he cautions. Though the company has successfully warded off threats from the big boys in the cosmetics and beauty space so far, the threat, and the challenge, remain. “It can’t drop its guard,” he says.

Nitin, for his part, is enjoying the bootstrapped journey. He tells us the perks of sailing the ship without private equity (PE) or venture capital (VC). “The biggest plus is freedom,” he stresses. “We are not answerable to anybody, nobody is sitting on your head, and there is freedom to experiment,” he says. Lotus Herbals, he underlines, was in losses for the first nine years. “Can you imagine a VC- or PE-backed venture to stay in loss for so long?” he asks. The fact that the company continued to operate underlines the commitment and vision of the founder in the long-term story. The second advantage is staying frugal, which means experimenting, taking calculated risks and measured bets. “If anything fails, it’s okay, but the loss is also ours,” he says. The third positive is building a brand, which is a painstakingly slow process. “A lot of D2C startups have built labels. We have built a brand,” he smiles. Lotus, Nitin points out, has never been a discount brand. Deep discounting and offers, he avers, is like artificial oxygen. The moment your remove the oxygen mask, the sales dip and the business bleeds.

Is he not tempted to scale aggressively like some of the D2C unicorns over the last year or so? Nitin quotes Charlie Munger. The American billionaire-investor and entrepreneur once talked about the edge that he has over others. “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent,” he said. Nitin wants to follow his American idol. “Let’s not do stupid things. Let’s stick to the fundamentals of business,” he says, adding that if an entrepreneur is clear about the long-term vision, everything else is noise. “Don’t forget that Lotus blooms in muddy waters,” he smiles.