Launching a new vertical: the P&L conversation first

The deck for a new vertical always arrives before the P&L does. It has a market-size slide, a competitive landscape with the group’s logo conveniently placed in the top-right quadrant, a five-year revenue curve that bends upward in year three, and a slide on synergies. I have written that deck. I have also watched an executive committee take one apart in twenty minutes, not because the idea was bad but because the presenter had answered the questions nobody was asking and left the ones that mattered untouched.

A hospital group is a capital-intensive, thin-margin business run by people who count beds. When you propose a new vertical — home care, a chain of fertility centres, a diagnostics arm, a day-care surgery format, a digital health business — you are asking those people to divert capital from something that already earns a return, to fund something that will lose money for a period nobody can quite specify, run by someone who has not yet been named. The pitch is the easy part. The conversation that decides it happens around a P&L, and it happens before you present anything.

This is how I have learned to hold that conversation, from the side of the table that has to build the case and then defend the numbers a year later.

The deck answers the wrong question

The question a deck answers is whether this is a good business. The question the executive committee is actually asking is whether this is a good use of the next tranche of capital, given everything else it could fund, and who will be held accountable when it runs late. Those are different questions, and the second cannot be answered with a market-size slide.

The committee has a queue of capital asks: a new block at the flagship, a robot for urology, a unit in a Tier 2 city that has been on the strategy slide for three years, replacing an HIS that everyone hates. Your vertical joins that queue. It is compared not to its own five-year curve but to the return the group already knows it can get from a cath lab. Your case has to be argued in those terms or it will not be argued at all.

The capital ask, honestly

State the full ask, not the first tranche. Verticals are habitually pitched as a pilot — one city, a small team, minimal capex — because a small number gets through the committee. The trouble is that the pilot proves nothing at that scale, the second ask is larger and arrives with no evidence, and the committee feels, correctly, that it was walked into something.

The honest version has three numbers: the capital to reach a minimum viable scale, the cumulative operating loss before breakeven, and the working-capital need — which in Indian healthcare, with insurer and corporate receivables running to months, is routinely underestimated. Present all three, with the assumptions behind each, and show what happens to them if the ramp is twelve months slower than the base case. It will be.

Then say what you are not asking for. If the vertical will borrow the group’s brand, contact centre, consultants and procurement, say so and price it. Nothing damages a case faster than a CFO discovering in the second year that the vertical’s margin depended on costs sitting in somebody else’s budget.

Gestation, and when patience runs out

Every vertical has a gestation period and every deck understates it. A home-care business takes time to build a nursing bench and a referral flow from the group’s own discharges. A diagnostics chain takes time to get NABL accreditation across collection centres and to be trusted by physicians outside the group. A digital health business takes time to acquire users cheaply enough that the unit economics work — if they ever do.

The executive committee will give you a gestation period. What it will not give you is a second one. So set the milestones for the first period conservatively enough that you can hit them, and make them operational rather than financial: nurses hired and trained, centres opened and accredited, corporate accounts signed, monthly run-rate of encounters. Financial milestones in year one are hostages to timing. Operational ones are things you control.

I would also name, in the case itself, the point at which the vertical should be stopped. A committee that hears “if we have not reached this run-rate by month eighteen, we recommend winding down” trusts the presenter more, not less. It signals that you have thought about their capital as if it were your own.

The case I got most wrong was on working capital, not revenue. The format ramped roughly as modelled. The corporate and insurer receivables behind that revenue ran far longer than the model assumed, and the vertical needed a cash top-up in its first year that had never been on the slide. The committee approved it, but the credibility cost was real and it was mine.

Shared costs are where verticals lie to themselves

The most common distortion in a vertical P&L is the treatment of shared cost. The plan assumes the vertical will use the group’s brand for free, its contact centre at marginal cost, its consultants’ time at no charge, its IT and procurement without allocation. The vertical then reports a contribution margin that is flattering, and the units that actually bear those costs report a margin that is worse for reasons nobody can trace.

Agree the allocation model before launch and write it into the case. There are only three honest choices: full allocation of a share of central costs, transfer pricing for specific services consumed, or a deliberate subsidy that is declared, time-limited and reviewed. Any of them is defensible. What is not defensible is the fourth choice, which is not deciding — because that means the CFO decides in year two, unilaterally and unkindly.

Consultants’ time is the sharp edge of this. A day-care surgery vertical that depends on the flagship’s surgeons operating there two mornings a week is taking those mornings from the flagship’s theatre schedule. That has a cost. The medical director knows it and will raise it in the review whether or not it is in your model. Put it in your model.

Cannibalisation of the core

Some verticals feed the core. Some eat it. A health-check business feeds OPD and, downstream, admissions. A digital clinic may divert a follow-up consult that would have been a paid OPD visit to a cheaper teleconsult. A day-care centre may take cataract and hernia volume out of the flagship’s theatres and beds, where it was quietly subsidising the ICU.

The executive committee knows this and will ask. The answer they want is not that there is no cannibalisation — nobody believes that. It is: here is the volume we expect to move, here is what it earned in the core, here is what it earns in the new format, and here is why the net is positive. Often it is positive, because the core capacity released is refilled with higher-acuity work. But that argument only holds if the core can actually refill it, which is a question for the unit head, not for the vertical’s presenter. Ask them before the meeting, not in it.

The vertical head with full P&L

A vertical needs a head who owns revenue, cost, capital and hiring, reports to the group CEO or to the growth leader, and is measured on the vertical’s P&L alone. This sounds obvious. In practice, hospital groups keep launching verticals as projects run by a committee — a bit of marketing, a bit of operations, a clinician who is sponsoring it, and a project manager who is accountable for the timeline but not the result.

The reason is that a full-P&L head is a senior hire, or a senior person removed from something else, and neither is comfortable. The compromise is a vertical that nobody owns, that draws on everyone’s time and that quietly fails eighteen months later with no one to blame. Insist on the head being named in the case, with the authority to hire and to say no to the units.

The vertical head’s relationship with the unit heads is the governance problem to design carefully. The units are the vertical’s biggest referral source and its biggest source of friction. The unit head has a P&L too, and every patient the vertical takes is, in the unit’s view, a patient it has lost. Transfer pricing solves part of this. A shared growth target that both are measured on solves more.

The governance that stops it drifting

Verticals drift when they are reviewed like a business unit before they are one. A monthly review against a year-one revenue plan produces a vertical head who spends their time explaining variances rather than building. A quarterly review against operational milestones, with a hard financial checkpoint at twelve and eighteen months, produces a vertical that is either on track or is stopped.

Keep the review at the executive committee, not delegated to a sub-committee with no authority to stop it. The people who approved the capital should be the people who see the numbers. And keep the vertical’s numbers separate from the group’s consolidated reporting for the first two years, so that its losses are visible as a deliberate investment rather than buried in a unit’s margin where they will be blamed on the unit.

The three questions the deck never answers

I have sat through enough of these to know the questions that end the meeting. They are rarely about the market.

• What happens to the flagship’s margin in year one? Not the group’s — the flagship’s. The committee members who run units will ask this first, and if the case does not have a number they will assume the worst.
• Who is running it, and what are they leaving? If the answer is that you will hire, the committee hears eight months before anything starts. If the answer is a name, the committee wants to know what that person’s current job looks like without them.
• What do we stop if this is late? Capital is finite. The committee wants to know which other ask slips if the vertical needs its second tranche early. A presenter who has an answer has done the work. One who says it will not be late has not.

If you’re building the case next quarter

1. Build the P&L before the deck. Three scenarios, with the slow one as the base case. Include full shared-cost allocation and working capital.
2. Take the model to the CFO informally before it goes anywhere else. If the CFO does not believe the numbers in private, they will not defend them in the room.
3. Sit with the unit heads whose volume the vertical will touch. Agree the cannibalisation estimate with them, not around them.
4. Name the vertical head, or name the two candidates and the plan for backfilling them.
5. Write the stop condition into the case.
6. Only then write the deck — ten slides that reference the model, not forty that replace it.

The committee does not fund ideas. It funds people who have already argued with the numbers and lost a few rounds.

Questions people ask