Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  Apart from implementing these measures, Sachin decided to step back completely for some time. He told colleagues that he would take time out to work on new ideas for the business and return to a full-fledged role shortly. He was also supposed to represent Flipkart in the ED inquiry, which would be time-consuming. Until Sachin was ready to return, Binny would run the company. He was to directly oversee sales and operations, and the heads of all other functions would report to him. The reorganization jolted the company. Until now, it had been run in a collaborative, concerted manner by a close-knit group of senior employees. The restructuring suggested to Flipkart employees that suddenly Sachin and Binny had laid down the law, that they were unquestionably the bosses.

  There would also be a new finance chief at Flipkart: Kalyan Krishnamurthy. Karandeep Singh, who had joined as CFO less than a year ago, was leaving after a disappointing stint. Flipkart had decided to appoint Kalyan, a Tiger Global executive, as interim CFO. It was, in a way, a rebuke to the Bansals – when investor representatives enter their portfolio companies, it is usually because the founders and their management team have stumbled.

  Another startling outcome of the restructuring was the near-complete diminishment of Sujeet Kumar’s role. While he had ostensibly moved to WS Retail a few months ago, it was assumed that Sujeet would continue in his role at Flipkart. But now that Binny had taken over sales and operations – Sujeet’s dominion ever since he joined the company in 2008 – the erstwhile president was like a king without a kingdom.

  Not surprisingly, in the months before the restructuring, Sachin and Binny had grown more and more uneasy about the influence Sujeet exerted at Flipkart. For some time, they had had concerns that Sujeet’s crude manner could hurt Flipkart’s image of a pioneering technology company. Their anxieties may even have been amplified by the Forbes story that had painted Sujeet as an insecure, power-hungry executive, an ultra-constitutional authority to whom even Sachin and Binny deferred because he was their senior from IIT Delhi. It was an implausible theory. The Bansals were the founders of the company; it is hard to imagine that seniority in college can solely determine the stature of an employee when billions of dollars are at stake. Rather, they had let him have a free hand mostly because he excelled in areas that neither of them had a knack for. Still, Forbes’ presentation of the Bansals as weak and Sujeet as all-powerful was disconcerting.

  It was a tricky situation for Sachin and Binny. On the one hand, Sujeet was a popular leader who had contributed more than anyone else towards establishing Flipkart’s command in sales and operations. The functions he ran had been tremendously successful, apart from the last six months. The extroverted Sujeet had also been instrumental in cultivating a sense of fellowship at the company. On the other hand were the Bansals’ fears about Sujeet’s untamed manner and their insecurities about the outsized authority of any employee. Soon, in a decisive act, they would send a clear message to all employees that no one at Flipkart was indispensable.

  13

  THE TIGER CUB

  In 2011, Lee Fixel had brought Kalyan Krishnamurthy over to Tiger Global from eBay. Kalyan had begun his career at Procter & Gamble, before moving to eBay where he worked in the company’s finance operations for seven years.1 Lee had initially interviewed Kalyan for the CFO position at Souq.com, a Dubai-based online retailer in which Tiger Global had invested. But Kalyan was hesitant about moving to Dubai, so Lee had asked him to join Tiger Global instead. Within a few months, Lee developed great confidence in Kalyan. He had sent Kalyan to Souq on assignment. The startup needed help in expanding its business. Kalyan had taken charge and turned Souq into a thriving, fast-growing firm, impressing Lee with his dynamism and acumen in sales and finance.

  Now, Lee asked him to repeat his performance at Flipkart. The forty-one-year-old Kalyan was expected to bring his expertise to bear on matters such as sales management and setting profit margins. Sachin and Binny initially welcomed Kalyan’s appointment as they knew that the company was weak in these areas. But not wanting to lose control, they would watch his moves carefully.

  Kalyan was familiar with Flipkart. He had been on its board of directors as the second representative from Tiger Global. Along with a junior Tiger Global colleague, he had also spent time with Flipkart’s marketing team in the second part of 2012. Kalyan had tried to get Flipkart to cut its spending on brand advertising and focus on performance marketing instead. This would increase sales immediately – performance marketing was like an ad informing viewers about a discount sale. Brand advertising, on the other hand, mainly enhances a company’s image; it may or may not deliver an immediate improvement in sales but is considered an important tool in enhancing a product or company’s appeal. Kalyan believed that brand advertising was a largely wasteful exercise. On this matter, he would often clash with Flipkart’s marketing head, Ravi Vora. What was the point of spending heavily on ads that didn’t achieve much? Citing the example of the Kids campaign of 2011 that had transformed Flipkart’s brand, Ravi would protest that the exact benefits of brand advertising could not always be quantified. ‘But it’s a well-established method of building a brand and customer loyalty,’ he would say to Kalyan.

  Kalyan had also pressed the Flipkart team to cut their budget for books and increase spending on promoting fashion products. Flipkart had started selling clothing and other fashion items in 2011 but the category hadn’t taken off. This frustrated Lee Fixel, who had been urging the Bansals to develop the category. Of all products, it had the highest margins. By increasing fashion sales, Lee believed Flipkart could move towards generating profits without sacrificing sales growth. Books, on the other hand, were a drain on finances. Flipkart lost money on every book order and it was unlikely that the category would ever yield profits. In 2012, Kalyan urged the Flipkart marketing team, ‘Forget books. Get people to buy T-shirts and shoes.’ Flipkart did increase spending on fashion products, but it also continued to promote books.

  When Kalyan formally moved to Flipkart in early 2013, it was hard to question his authority. In fact, many executives at the company feared for their jobs on learning that Kalyan would come on board in a full-fledged role. He was introduced to senior Flipkart leaders in January that year. Kalyan had appeared peremptory, belligerent. Right after the customary introductions, he had asked some of them, ‘So why did the business go down when you guys were in charge?’ It was evident he had come to crack the whip.

  In his first few weeks at Flipkart, Kalyan was shocked to find out that the company was running its business without paying heed to contribution margins, a key metric for e-commerce companies. Starting with the implementation of a margin structure, Kalyan set about putting the finance function in order. Contracts with suppliers were renegotiated, better credit terms secured. A key project was devised to improve working capital. Within six months, the money Flipkart generated from operations was enough to fund its existing business. It was a major achievement – capital that was earlier being used to sustain the ongoing business was freed up for expansion. Consumed by its expansionary ambition, the company had been spending wantonly. Little effort had gone into making operations efficient. This was hurting Flipkart as it grew bigger. As an e-commerce company expands, its cost per unit is expected to reduce. In theory, as this cost reduces, the increase in sales is supposed to ensure that the company becomes profitable at a certain scale. At Flipkart, profitability was out of reach and would be for many years, but Kalyan ensured that at least its unit costs were kept under control.

  He assembled a small group, comprised of relatively junior managers. Kalyan gave these managers complete freedom to accomplish the tasks assigned to them. They fit a uniform description: around thirty, hungry to prove their worth, enthusiastic about taking on extra work, spending day and night at their desks. And they were completely prepared to swear their loyalty to Kalyan.

  Kalyan’s approach was straightforward, formulaic. He would tell his handpicked executives, ‘Mujhe itna growth chahiye – I want this muc
h growth. Tell me what you need to get this done.’

  One of Kalyan’s trusted understudies was Nitin Kochhar, who had overseen the working capital project. Nitin had moved to Flipkart from ITC in 2012. He noticed that Kalyan had an uncanny ability to spot mid-level managers who could ‘take the company to the next level’, and let them loose. Kalyan preferred not to interfere, spending only an hour or two a month checking in with his team. According to Nitin, ‘all he cared about was that targets were met’.

  SACHIN HAD ALWAYS been the main man at Flipkart, with Binny close behind. But in 2013, as Sachin stepped back, it was Binny who took centre stage. When General Atlantic had pulled out of investing in Flipkart, Binny, too, had been rattled. But unlike Sachin, he recovered quickly.

  Binny’s approach and priorities differed from Sachin’s. Sachin was instinctively drawn to the demand side of things. When he was in charge, Sachin had enjoyed being among the company’s engineers, tinkering with the website to give it a pleasing, smooth interface which was continuously improved by new features. When Binny ran Flipkart in 2013, it was the supply side of the company that prospered more, especially in the technology function. Binny directed his energies towards strengthening the company’s plumbing – the foundational structures that kept it all together. Taking Binny’s cue, the company’s leaders now adjusted their priorities. Amod Malviya, who had been made engineering head, had earlier worked mostly on the demand side. After his promotion, he became absorbed with building better technology for the supply chain function. Inventory planning, warehousing, pricing systems – these aspects improved significantly.

  After the volatility of the previous year, Binny’s leadership brought stability and acted as a unifying, central force. According to Ankit Nagori, who worked closely with both Binny and Kalyan in 2013, Binny did a ‘great job’ in keeping the company together. ‘Binny would coordinate between the demand and supply teams and ensure everyone was on the same page.’ He directly oversaw the warehousing and logistics function in this period, taking decisions on the number and size of new warehouses, hiring blue-collar workers and improving the efficiency of the company’s warehousing processes.

  In the second half of 2012, sales and customer service had suffered partly because the company had been overwhelmed by its headlong expansion into various businesses. At the end of the year, Binny reorganized the sales team, splitting it into three parts: books and general merchandise, electronics, and fashion. He shut down some categories like large electrical appliances, after acknowledging that the company had dived into them before being ready. The division of the sales team was one of the smartest moves Flipkart had made in months, as it brought back the focus and discipline that had vanished for the past half-year. It paid off almost instantly.

  Under Ankit Nagori, the sales of fashion products began to briskly go up. Ankit had to prove himself all over again after the debacle of the previous year. By June 2013, the fashion category quadrupled – it had only taken six months. Flipkart promoted itself as an alternative to rivals like Myntra and Jabong by listing a vast merchandise of accessories such as belts, watches and sunglasses. It offered these products at deep discounts and used its excellent logistics network to deliver them quickly to customers. Ad campaigns promoting the fashion collection also served to accelerate the expansion in sales.

  Nipun Mehra, a former Amazon executive and management consultant, was now given charge of the books and general merchandise section. In the early 2000s, he had ordered a T-shirt from a shopping website in India as a birthday gift for his brother. But the website delivered a beer mug instead. His mother was outraged – Nipun’s brother was yet to turn twenty. In 2011, Nipun had been working in the US with the Boston Consulting Group, a management consultancy. On a visit to India, Nipun heard about Flipkart from a colleague who was praising its service. So, when the company’s recruiters reached out to him for a job, he was intrigued. Having worked at Amazon’s Seattle headquarters for four years, he had wondered why a large e-commerce business hadn’t come up in India. After interviews with a dozen Flipkart executives, he joined the company in July 2012. He had instantly hit it off with Binny. As he began working with Binny, Nipun found that the Flipkart co-founder was ‘someone who was able to balance the everyday details and the big picture very well’.

  As the head of the books division, Nipun extracted higher margins from publishers and distributors, rationalized discounts and expanded the selection of books. In May 2013, Flipkart launched a sale through which it sold a record number of books in a month. By the end of 2013, its dominance in books was such that offline chains like Crossword and Landmark, which were already struggling, were forced to shrink further.

  But it was the electronics category at Flipkart that was on fire. This department was run by Amitesh Jha, an IIT Delhi graduate and a senior of Binny from the Shivalik hostel. After trying for years, Flipkart had finally started establishing direct relationships with Micromax, Samsung, HTC and other manufacturers of mobile phones and laptops. This helped the company gain access to some of their popular models. As with books and fashion, it offered these products at discounted prices. It introduced Equated Monthly Instalment (EMI) schemes and periodically held big sale events, becoming one of the fastest-growing retailers of electronic products in the country.

  AS THE MONTHS went by in 2013, Kalyan’s influence at Flipkart grew. Until his entry, the Bansals had had the last word on important matters. Now, suddenly, it wasn’t really clear who was boss. On the surface, Sachin and Binny still had the final word. But as the representative of Flipkart’s largest investor, Kalyan’s authority was unquestionable. While his position – interim CFO – suggested that his involvement would be restricted to the finance function, Kalyan’s influence began to spread rapidly.

  Along with Binny, Kalyan would be present at the key sales meetings. In fact, the two worked well together. As the year progressed, Kalyan and Binny came to a tacit understanding that Binny would oversee operations while Kalyan would take charge of finance and sales. Kalyan had developed close relationships with many of the key sales leaders. He didn’t have much to do with Flipkart’s engineering team, which he believed was too slow in fixing errors and developing essential features. He didn’t much care for the technological experiments that excited engineers, believing that the objective of the technology team should be to support the sales function. He made it clear that the sales department should be at the centre of Flipkart. The sales executives were elated – finally, here was a leader who had answered their prayers. Executives such as Ankit Nagori and Amitesh Jha enjoyed having Kalyan as their boss.

  Although he was nominally an investor representative, Kalyan dispensed with hierarchy and formalism. Casually dressing down, he was always accessible. He spoke in Hindi and engaged directly with his colleagues. While he, too, had a ruthless streak, he was less volatile, and more predictable than the Bansals. Nearly a decade older than Flipkart’s founders, Kalyan seemed more mature. His energetic, brisk manner of speaking was infectious, and his deep knowledge of e-commerce validated his authority. Every time one of his trusted associates asked him for something, Kalyan would say, ‘Kar le tu – go for it.’ He ran the business as a finance expert would: with a sharp focus on sales, margins and cash flow.

  By the end of 2013, Kalyan had fixed the company’s finance function. But it wasn’t that he had cut spending; he had rationalized and rationed it, created a sound financial framework. The main objective of this framework was to allow Flipkart to pour a lot more money into the pursuit of sales growth. Under Kalyan, the company’s spending on discounts increased significantly. In 2013, rival websites such as Homeshop18, eBay and Snapdeal had started a price war. Kalyan instructed his team, ‘Whatever their price is, we’ll be five per cent lower.’ He pointed out that the retail market was huge, and e-commerce a minuscule, insignificant part of it. Investors weren’t interested in a retailer growing moderately and losing (or earning) a small amount of money. What drew them was wh
irlwind growth – this is what fetched a company high valuations. Both Kalyan and his boss, Lee, were experts at working out what investors wanted in a company, and at constructing business strategies that made for compelling investment stories.

  What helped Kalyan extend his influence at Flipkart was his relationship with Lee. Only an investor representative could give quick, unequivocal instructions on perilous matters such as spending huge amounts of cash on discounts. A former Flipkart employee recalls, ‘Earlier we were always nervous about burning too much. But when Kalyan came and told us to increase discounting, there was no fear because we knew that whatever he was doing, it was with Lee’s blessings. We were able to move fast and not worry whether it was the right thing to do or not.’

  RUMOURS ABOUT AMAZON’S launch had been circulating in e-commerce circles for almost two years. In May 2013, Flipkart got wind that Amazon was indeed launching operations in India the following month. The company prepared for war, its executives wary, but excited. They believed that Flipkart’s hold over the market was so strong that even a giant like Amazon would struggle to break it.

  To prepare for Amazon’s launch, the company had been developing software to manoeuvre product prices on the website. Until 2013, prices had been set manually on Excel sheets. This was no longer viable. The company’s assortment of products was ever-expanding, running into millions; it would be foolish to delay the use of technology in price-setting. Without software, the company would lack the means to respond quickly to pricing changes on rival sites. In early 2013, it began building the new technology, which would collect product prices from across its competitors and adjust its own accordingly. Flipkart was determined to match Amazon’s prices, whenever it launched.