by Mihir Dalal
In March 2016, Binny elaborated on his strategy in an email to all employees: ‘Going forward, we will follow a clear set of priorities – first and always deliver product quality and service quality to our customers as a non-negotiable starting point – we cannot scale without this. Only after we deliver this should we pursue growth – this is what made Flipkart different when we started and we have to go back to these fundamentals.’7
When Flipkart was still new, Binny had spent considerable time conceiving the structures and processes according to which the company should function. Where Sachin saw himself as a technologist and attempted to mould Flipkart in that image, Binny was a corporate literature geek. He, too, was convinced about the supremacy of technology but he was equally fascinated by management theories. Despite his demanding schedule, he had been a voracious reader for many years, often getting through a book a week. He favoured non-fiction, especially books on management. He read a large range of business books. His favourites included Playing to Win, a book about Procter & Gamble, co-authored by A. G. Lafley, the company’s former CEO, and Zero to One, the startup bible co-written by Peter Thiel, an American entrepreneur and venture capitalist. He also loved reading the Harvard Business Review, the management magazine published by Harvard University. Binny would sometimes adopt the exact language of the books he had just read. After finishing Playing to Win, instead of asking colleagues, ‘What’s the strategy?’, he would say, ‘What’s your playground? What are you trying to win?’ His colleagues found it amusing. ‘It’s almost like he regretted not going to management school,’ reflects a colleague who worked closely with Binny in 2016.
Binny quickly identified the executives who would implement his directives. He handed the key sales function to Samardeep Subandh, or Samar, as everyone called him. With his vast experience in sales and marketing, Samar was an authority on the consumer goods market. For Ekart, he chose Saikiran Krishnamurthy (Saiki), who had held a senior position in the marketplace business the previous year. A graduate of IIM Ahmedabad, Saiki had joined Flipkart after spending more than fifteen years at McKinsey, where he had risen to become senior partner. Though the commerce platform had fared miserably the previous year, Saiki, as one of its seniormost executives, had escaped censure. Like many good consultants, he was a charming, smooth-talking salesman. Hair combed neatly, dressed in an understated manner, Saiki exuded good vibes. Binny was instantly impressed with him. Saiki was given a broad mandate: improve Ekart’s delivery speed, introduce more automation at Flipkart warehouses and prepare Ekart to serve other companies as a courier service. Given its substantial infrastructure, Binny believed that Ekart could become a large courier company, a rival to DHL and Blue Dart.
Another leader who quickly became an integral part of Binny’s team was Nitin Seth. After graduating from IIT Delhi and then IIM Lucknow, Nitin had worked as a consultant and run an internet startup during the dotcom boom of the early 2000s. But his healthcare startup failed miserably, after which Nitin went on to head the offshore operations of McKinsey and Fidelity International in India. Like many others who had seen the dramatic rise of Flipkart from the outside, Nitin had been enthralled by the prospect of building The Great Indian Internet Company and its immense wealth-creating potential. When he joined Flipkart as Chief People Officer in March 2016, Nitin admitted that it was ‘very inspiring to see Binny and Sachin’s vision of creating a world-class company out of India.’8 A devout Hindu, one of his favourite books was the Bhagavad Gita, which he had read many times over. Nitin’s hiring had been finalized by Sachin and Mukesh before Binny became CEO. But after Nitin joined, Binny was impressed by his energy and willingness to act boldly. Nitin sported a handlebar moustache and would regularly wear T-shirts with the Flipkart logo. In his mid-forties, he was nearly a decade older than Binny, who addressed Nitin as ‘sir’.
In early April, Binny made two more additions to his team, persuading Sameer Nigam and Rahul Chari to return to the company. In 2011, Flipkart had bought Sameer and Rahul’s music software startup Mime360. Sameer had leftthe company in July 2015 after falling out with Sachin. Rahul, who had been Sameer’s close friend for nearly two decades, followed him a few months later. By early 2016, they had decided to launch a mobile payments startup together. Unified Payments Interface (UPI), the new national digital payments infrastructure, was to be introduced later in the year. PhonePe, Sameer and Rahul’s startup, would build a UPI payments app. PhonePe had, in fact, attracted a good deal of interest from venture capital firms that believed UPI would become the primary mode of digital payments in the country.
Amidst all of this, Sameer had kept in touch with Binny. Flipkart had always wanted to establish a payments business but had failed to come up with an attractive product. The advent of UPI and the technological expertise of Sameer and Rahul seemed a compelling proposition to Binny, who offered to buy out PhonePe even before its app had even been designed. The negotiations continued for many weeks, as Sameer sought assurances that the constant volatility at Flipkart wouldn’t derail PhonePe’s advance. Finally, at the end of March, a deal was agreed. While PhonePe would become a subsidiary of Flipkart, it would function independently. The transaction was structured in a mutually beneficial way – as PhonePe expanded, it would trigger increasing amounts of stock payouts to Sameer, Rahul and their colleagues. The bigger PhonePe got, the more wealth its executives would accumulate, making it an overall win for Flipkart.
Sameer extracted one critical concession: if Flipkart replaced its current CEO, the stock payouts due to Sameer and his PhonePe colleagues would be accelerated.
BY EARLY 2016, the euphoria around Indian startups had all but vanished. Venture capitalists found that they had vastly overestimated the size of the internet market as well as the speed at which startups could be built here. They had seen many companies devour capital and still produce only meagre revenues. After realizing that many of their portfolio companies had no future, investors turned tail. Instead of finalizing a deal in days, they dwelt over decisions for months. The balance of power that had fleetingly moved in favour of entrepreneurs was now restored to the side of the venture capitalists. An engineering degree from an IIT plus a bright idea were no longer enough to attract millions in capital. Startups that had already raised capital were ordered by their patrons to cut losses. This proved to be fatal for many firms, whose business models had not been set up for self-sustenance. As soon as the supply of capital was severed, small and mid-size internet startups immediately diminished in size. Several startups wound down like pricked balloons. Some were sold at cut-price deals. Thousands of startup employees lost their jobs.9
For now, the biggest startups had enough capital to avoid such an outcome. Far too much money had already been invested in these companies. The fate of their investors hinged on their survival. And so, these companies, too, faced a reckoning. The most prominent among them was Snapdeal. In August 2015, Kunal Bahl had claimed that Snapdeal would overtake Flipkart by the end of the year. A few months later, it had come nowhere close. Snapdeal had relied on incessant discounting to win market share. By the end of 2015, it had become clear to SoftBank as well as Snapdeal’s other shareholders that persisting with this approach would lead to destruction. Amazon wasn’t going to lose a price war. Flipkart, too, had far more capital. Never mind toppling Flipkart, Snapdeal would now have to fight for its life. The only means of survival was to reduce costs, discounts, salaries, marketing, everything.
Discounted phones had comprised a large part of Snapdeal’s sales. As soon as the discounts were lowered, customers deserted the platform. To nobody’s surprise, a big chunk of Snapdeal’s business vanished. While Flipkart and even Amazon had dangled low prices to lure customers, Snapdeal’s dependence on this tactic was the highest. And unlike its rivals, Snapdeal lacked a substantial infrastructure of warehousing and logistics; in effect, it was simply a website showcasing goods.
In normal circumstances, Snapdeal’s loss should have been Flipkart’s
gain. But Flipkart was slow to react, too busy sorting itself out to accept the gift. The business that Snapdeal lost forever in early 2016 went instead to Amazon. As Snapdeal’s smartphone sales collapsed, it was overtaken by Amazon almost overnight. It marked a stunning turn for the American retailer in India. Even though it had launched many years after Flipkart and Snapdeal, Amazon had already accumulated the widest range of products. It offered about fifty-five million products as opposed to Flipkart’s forty million and Snapdeal’s thirty-five million offerings. Among the three, its sales composition was the most diverse and well-balanced. It had built up a massive network of e-commerce infrastructure. It now operated twenty-one warehouses and supported fifty others owned by its sellers. Flipkart had just seventeen.10 Now that it had overtaken Snapdeal, Amazon had Flipkart within its sight.
Amazon had already persuaded Xiaomi to break its exclusivity pact with Flipkart in late 2015. A few months later, it even lured away Motorola from its rival. And apart from spending on infrastructure, Amazon splurged tens of millions of dollars every month on discounts, marketing and subsidized order deliveries. The company believed it had, in all likelihood, lost out in China because it hadn’t invested enough in expanding its operations there. It wouldn’t make that mistake in India. Amazon’s ascent to the top of the Indian e-commerce market seemed unstoppable.
At Flipkart, Binny wasn’t overly bothered by Amazon’s rise. Flipkart was nimbler than its greatest rival, which, after all, was just an outpost of a large multinational company with its attendant bureaucracy. Flipkart, on the other hand, was an agile startup, a local company, created by Indians, for Indian customers. Binny believed that Flipkart’s understanding of the market was far more nuanced. He took great pride in Flipkart’s record of coming up with market-changing innovations. Though the company had lost its way for a few months, its business was largely intact, unlike the case with Snapdeal. It had held on to its position as market leader, if only by a thread. Binny was convinced that if Flipkart resolved its problems, the company would easily prevail over Amazon.
Unfortunately for him, the first five months of 2016 happened to be an especially vexatious period in e-commerce, even worse than the second half of 2012 when Flipkart’s business had suffered a sudden slump. Not only did he have to contend with a global technology champion with limitless capital, he was operating in an altogether new, frightening reality: a slowdown in the e-commerce market. This came as a terrible blow to the entire startup ecosystem. Investors, entrepreneurs, bankers and analysts who had predicted unabated expansion for many years to come, couldn’t believe that the market had already reached a standstill. They were shocked that the retail market had proved to be far trickier than the one they had seen in Powerpoint presentations and on Excel sheets. It made mockery – yet again – of the belief that the retail business in India could be as smoothly organized and rewarding as China’s. The slowdown had been caused primarily by the reduction in discounts by local e-commerce firms. When prices on shopping sites inched closer to the MRP, many shoppers deserted these platforms. It also came to light that some of the sales at these companies had, in fact, come from wholesalers, who had exploited the low prices by buying in bulk! As policies were introduced to plug this loophole, sales fell further. Flipkart’s internal problems, of course, didn’t help either. It was Flipkart and its innovations that had propelled the e-commerce market for years. But in 2016, Flipkart had lost the capacity to steer the market, preoccupied as it was in recovering from last year’s blunders.
In February 2016, Flipkart had been hit by another shocker. Morgan Stanley, a Flipkart investor, depreciated the value of its holdings in the firm by as much as twenty-seven per cent. A few months later, two other mutual fund investors in Flipkart also reduced the value of their holdings. These were only estimates: no transaction had been carried out at the marked-down prices. Nevertheless, the markdowns made for juicy news stories, especially as the firms behind them were Flipkart’s own investors.11 For a startup, valuation is seen as the ultimate measure of success. Startups aren’t like public companies. Movement, upwards or downwards, in the shares of a listed firm is a matter of course, but if a startup suffers a fall in valuation, it’s a major embarrassment for its founders and investors. Flipkart’s markdowns solidified the impression that it was in deep trouble. The negative headlines just wouldn’t stop. In May 2016, the company deferred the joining date of its IIM hires by six months, citing an ‘organization redesign’.12 It was an unavoidable outcome of Binny’s plan to reduce costs. This was hardly a tragedy, but it did tarnish Flipkart’s image. It seemed like the company was in free fall.
By the end of May, Binny had, in fact, started bringing about some big improvements in Flipkart’s business. In just five months, costs had reduced dramatically – by more than thirty per cent. Flipkart’s customer satisfaction scores were gradually inching upwards. Delivery times were improving. In an interview, Binny emphasized that Flipkart’s biggest priority was to be ‘very, very consumer-focused’.13 The most important metric at the company now was net promoter score, a key measure of customer satisfaction. If Flipkart kept customers happy, it was a matter of time before sales would start expanding, he assured.
But Binny’s investors weren’t placated. So far, in his five months as CEO, Binny had failed to recapture sales growth. Entrepreneurs are expected to find the balance between the pursuit of long-term objectives and the achievement of everyday goals. Flipkart’s investors believed that Binny was so consumed by long-term objectives that the current, more pressing matters – especially growing sales and holding off Amazon – weren’t getting the required attention. They believed it was high-minded of Binny to build a self-sustaining company, but it could not be done at the cost of growth. For investors, it was ultimately the only thing that really mattered: growth – how much, how fast. They had no inclination to pour any more money into Flipkart. Other investors would have to be found. Moreover, showing consistently high sales expansion was the only way to attract capital. It was also the sole means for its present investors to get at least some returns on an investment that was unravelling.
Flipkart was battling for its survival, and yet, its approach, under Binny’s leadership, didn’t seem to reflect this urgency. Increasingly, investors found it hard to shake off the feeling that Binny wasn’t moving fast enough. Their patience was running out.
In April 2016, Time magazine named Binny and Sachin in its annual list of the ‘100 Most Influential People’ in the world, calling them ‘nimble tacticians and hardheaded realists’.14 It was the latest recognition of their status as entrepreneurial icons. For a long time, it would also be the high point of their professional lives.
21
THE TIGER CUB RETURNS
After Nitin Seth joined Flipkart as Chief People Officer, to look after the Human Resources division, he rapidly became one of the most influential leaders at the company. The much-mocked HR division is often seen as a necessary but annoying function filled with lazy paper-pushers. But Nitin wasn’t a typical HR chief. Having run large companies, he was very ambitious – for him, HR was just a point of entry into Flipkart. Within a few months he had not only formed a close relationship with Binny and Sachin, Nitin had also won the trust of some key board members at Flipkart. Nitin had prepared a blueprint to fix Flipkart that Binny encouraged him to present to the board. Thereafter, he would sometimes speak directly with Lee Fixel and Subrata Mitra of Accel Partners.
Lee had assigned two major goals to Nitin. The first was to reduce costs. This was something he had started working on even before meeting Lee. On his arrival at Flipkart, Nitin had been shocked by the state of the company. It was losing millions of dollars every week at an unacceptable rate. The company had become bloated, overstaffed, directionless. He saw that it would be foolish to add more employees. Within a few weeks of joining, he halted recruitment, after which he moved to implement the company’s biggest-ever job cuts. He also deferred the hiring of the IIM graduat
es that Flipkart had agreed to employ before he joined.1 These decisions made him a villainous figure at the company. Though Nitin conducted nearly two dozen town-hall meetings to explain his decisions, many employees refused to be mollified. At these meetings, he was viewed with resentment and suspicion. But he didn’t mind. Flipkart was in crisis. Difficult measures would have to be taken.
While Nitin was seen as a ruthless leader greedy for power, his boldness and decisiveness won over Binny and Sachin as well as the board members. Few others had shown the willingness to take up the unpopular but essential assignment of shedding jobs. But after it was done, Flipkart was able to shrink its wage bill and conserve cash. Binny rewarded Nitin by expanding his role, trusting strategy, analytics and other divisions in his care.
The second task Lee had assigned Nitin was more perilous: convince Binny to bring back Kalyan Krishnamurthy. Although the Bansals had resisted Lee’s proposal to reinstate Kalyan in January 2016, he had later brought it up several times with Binny. Lee had also enlisted the services of a few Flipkart executives to persuade Binny, among whom Nitin was the most influential. It wasn’t just Lee who was agitating for Kalyan’s return. Some juniors of Nitin from IIT Delhi who were senior managers at Flipkart also spoke highly of Kalyan, urging Nitin to bring him back. An introductory meeting was arranged between Kalyan and Nitin. They had a few things in common. Both were strong-willed, high-octane, all-action men, burning with ambition. Both were in their mid-forties and had no doubt that the best part of their careers was yet to come. The meeting went well and they stayed in touch regularly thereafter.