Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  In a scathing tone, Kalyan responded, ‘Achha, toh ab aap ko samajh aa gaya consumer ko kya chahiye, e-commerce kaise chalta hai?’ So now you’ve understood what consumers want and how e-commerce works?10

  There could only be one winner in this battle. And the improving sales numbers had only bolstered Kalyan’s position. Nitin’s relationship with Kalyan was also becoming stronger. The two would meet many times every day over chai. They would speak over the phone first thing in the morning and before turning in at night. Nitin was highly impressed with Kalyan’s purposefulness and passion. He saw him as a propulsive force that could repel Amazon’s onslaught – to him, Kalyan was very much the man of the hour.

  Nitin persuaded Binny to expand Kalyan’s role in August 2016. The ludicrous title, Head – Category Design Management, was rendered completely meaningless. Kalyan was given charge of the company’s marketplace, retail and advertising businesses. The functions of marketing, private label, customer experience and product would all be formally overseen by him. On paper, the Tiger Global representative reported to Binny; in truth, his boss was Lee.

  Binny, keenly aware of this dynamic, still sought to restrain Kalyan. Around the time Kalyan was promoted, Binny complained to the Flipkart board that Kalyan’s overly aggressive manner was putting off too many employees and eroding the management’s team spirit. In a concession to Binny, the Flipkart board chastened Kalyan, but he continued to operate without any real fetters.

  WHILE FLIPKART’S SALES numbers had begun rising again, Amazon’s advance hadn’t halted. Indeed, in July 2016, it overtook Flipkart in monthly sales for the first time ever.11 At the end of the month, Amazon launched the famed Prime membership service in more than 100 cities, offering one-day and two-day delivery on lakhs of products for a fixed annual price of ₹499. Prime had made the company indispensable to millions of customers in its home market of North America. Amazon executives had no doubt that it would do the same here. In August, Amazon once again outsold Flipkart.12 Amit Agarwal was riding high. A decisive victory over Flipkart, which could be sealed by winning the upcoming Diwali sale, would be the highlight of his career. After being wallopped in China by Alibaba and others, to become the largest e-commerce firm in India in just three years would be no small feat. There was little doubt that Amazon had achieved the momentum to do so.

  It was up to Flipkart to prove that it had the strength and the will to turn the tide. This was a crucial period for the company and for the startup ecosystem in India. Flipkart was too big, too symbolically important, it had consumed too much capital – a lot depended on its success. If it failed, investor confidence in Indian startups would be destroyed – if Flipkart couldn’t make it, what hope did the others have? Its failure would be the Indian equivalent of the Lehman Brothers bankruptcy, or as if India’s Goldman Sachs had collapsed.

  The stage was set for the most important battle in the short history of India’s startup ecosystem.

  IN SEPTEMBER 2016, Flipkart released the Big Billion Days dates: the sale would go live in the first week of October. Like last year, it would be held across five days, with the big categories such as smartphones, electronic appliances and fashion all being assigned different dates to accommodate the expected surge in traffic. Amazon’s rival sale event, The Great Indian Festival, was also scheduled for the same week. It would be a direct, head-to-head contest.

  In 2014, when Kalyan had overseen the first Big Billion Day, he had come up short despite extensive preparations. Flipkart’s systems had collapsed under the weight of the traffic. This time, its arrangements would be far more thorough. The company had given its everything; it had prepared for the sale as if its survival depended on the success of Big Billion Days.

  The sale started off well. In the smartphone category in particular, Flipkart had easily beaten Amazon. On smartphones day, Flipkart claimed that its gross sales had touched ₹1,400 crore, the highest single-day figure ever for an Indian e-commerce firm. Binny called it a ‘historic moment’.13 This feat was a validation of Kalyan’s high-risk tactics.

  The pattern continued through the sale, and by the end of the week, Flipkart had emerged as the clear winner. It had sold 15.5 million units compared to Amazon’s 15 million; the gap in value was even more widely in Flipkart’s favour.14 Binny taunted his rival in media interviews, saying that Flipkart had sold products that people loved to buy during festival season – smartphones and TVs, as opposed to the ‘churan, hing, detergent’ and other grocery items Amazon claimed to be selling in high volumes. Amit Agarwal shot back with the counter that in a little over three years, Amazon had accomplished what Flipkart, despite launching much earlier, hadn’t ‘come close to doing’.15

  But there was no denying that Flipkart had won this round. Confidence restored, morale raised, it would live to carry on the war with Amazon. Flipkart milked the moment. In another interview, Binny pointed out how important the win had been for the company. ‘One thing that is heartening in the wide lead established by Flipkart is that a homegrown company can successfully fend off a twenty-two-year-old global behemoth pouring in money to buy market share. This is very important as it’s a question on everyone’s mind today, especially on the minds of entrepreneurs: how will we take on global giants if they come into India? The answer is that you can. You need to do it with the right customer focus, local innovation and local knowledge. And that would always win against just pure capital.’16

  Those were rousing words. Evidently, Flipkart’s mojo was back; Binny’s certainly was. But behind the curtains, as far as Flipkart’s investors were concerned, there was only one man who would get the credit for the turnaround.

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  KALYAN RAJ

  After the Diwali battle, it was Kalyan Krishnamurthy who became the main man at Flipkart. He had taken charge of the Big Billion Days sale and delivered a stupendous performance under the circumstances. His standing with the company’s investors, already strong on account of his status as a Tiger Global representative and his successful first stint at Flipkart, was elevated further. It was an opportune time for Kalyan to show his hand. A few weeks after Diwali, in December 2016, Kalyan made his move. He declared that he wanted to be the CEO of Flipkart.1 Kalyan, still nominally a Tiger Global employee, made it clear to the Flipkart board that if they wanted him to stay on, his role would have to be formalized and expanded. He contended that it was only fair, and even logical: to create maximum impact, he would need to have control over the whole company, not just parts of it.

  In fact, Kalyan’s proposed ascension had been months in the making. When he had re-joined Flipkart in June, Kalyan had made a promise to himself: this time he wasn’t leaving, this time, he would stay for good. It wasn’t just his ambition, Lee Fixel had also foreordained it.

  In early 2016, Lee had come to believe that the Bansals were no longer suited to run Flipkart. In the short history of software and internet businesses, very few entrepreneurs – the same figures that the Bansals idolized – had displayed the endurance and capacity to keep improving by magnitudes every few years as their startups burgeoned into huge companies. Jeff Bezos, Bill Gates, Mark Zuckerberg, Jack Ma – they were the exceptions, the rarest of the rare entrepreneurs. Even Steve Jobs had failed to cope the first time at Apple, which led to his ouster from the company. It was Lee’s assessment that the Bansals belonged in that group which didn’t measure up, not where the running of a gargantuan company was concerned. There was hardly any shame in it. Binny and Sachin had already proved to be outstanding entrepreneurs. But it was now time for them to give way to a ‘professional CEO’. This view was, of course, not shared by either of the Bansals, each of whom had no doubt that only he – individually – could run Flipkart.

  This undercurrent of dissonance necessitated a somewhat gradual approach by Lee. It was this compulsion that had prompted him to enlist the services of some influential Flipkart executives close to Binny in his endeavour to bring Kalyan back. Though Lee had assented to Binny’s
elevation as CEO, it soon turned out to be of secondary importance in his scheme. It mostly served to lay the groundwork – through the removal of Sachin from the CEO position – for the essential feature of his plan: the re-entry of Kalyan. Now that Kalyan had repaid his faith by reviving Flipkart’s flailing business, Lee’s belief turned into conviction. Kalyan would have to continue at Flipkart – as far as Lee was concerned, the turnaround was in its infancy. Kalyan’s agility and sales acumen had won the day. But the struggle to take Flipkart to a position where it could go public or attract a buyer had just started; Lee’s struggle to extricate himself from Flipkart was only just beginning.

  There was strong evidence that the mistakes Flipkart had made in 2015 had caused serious damage, had derailed it for years perhaps. Alibaba, which had become the world’s most valuable e-commerce firm since its stock market listing in 2014, had shown interest in buying a minority stake in Flipkart in early 2016.2 Joseph Tsai, the Alibaba co-founder and executive vice chairman, had flown to Bangalore to meet the Bansals. The discussions were pleasant but they went nowhere. Tsai had indicated that a deal could happen only at a significantly lower valuation than the $15 billion Flipkart had fetched in its previous funding round. This was unacceptable to the Bansals. Then came the barrage of markdowns, like hammer blows. One after another, nearly half a dozen shareholders in Flipkart hacked its valuation. After this, whenever Flipkart engaged with investors, the company was told it would have to accept a lower valuation. Several firms passed up Flipkart because it refused to lower its asking price.3

  A few weeks before the Big Billion Days sale in October 2016, Walmart, the world’s largest retailer and a bitter rival of Amazon, had approached Flipkart. In recent years, Walmart had considered the Indian market warily, unable to decide whether its promise was real or illusory. The company had already been burnt once when its joint venture with Bharti Enterprises had collapsed in 2013 because of corporate governance issues and poor performance.4 Besides, the biggest obstacle still seemed impregnable: the Indian laws preventing a foreign ‘multi-brand’ retailer like Walmart from entering on its own. But gradually, Walmart executives resumed their pursuit of opening shop here, encouraged by Narendra Modi’s eagerness to attract foreign investment.

  At the same time, Walmart, in its home market, had assumed a new, aggressive approach to adapt to the force that threatened to upend its business: the internet. For many years Walmart had been criticized for lacking a sound e-commerce strategy even as Amazon was rapidly increasing its share of the retail market in America. While Walmart was still the far bigger company, every year the once-laughable idea that it could one day be overtaken by Amazon seemed less ridiculous. In 2016, Walmart significantly increased its online investments in the US and began an acquisition spree of internet startups. Its biggest deal came in August 2016 when it purchased Jet.com, an e-commerce firm started by Marc Lore, who was reputed to be one of the very few entrepreneurs with the will and ability to take on Jeff Bezos.5

  In India, the combination of Flipkart’s remarkable rise and the seemingly everlasting promise of the market seemed attractive to Walmart. For now, the American firm was interested only in a minority investment in Flipkart. Senior executives from the two companies met at their respective headquarters in Bangalore and Bentonville, a small city in the southern American state of Arkansas. But the talks leftWalmart unimpressed by Flipkart’s sales growth, margins and other metrics. The meeting ended in disappointment.6

  The rejection by Walmart, Alibaba and other investors was humbling for Flipkart, for Lee, and most of all, for the Bansals. Until the end of 2015, Flipkart had seemed destined to become a massive company. It had handpicked investors and set the terms of engagement. Now, while it wasn’t out begging for money, its aura had considerably diminished. As had the exhilarating pull of building the $100 billion enterprise.

  At this juncture, it was all about survival. For Flipkart’s investors, especially Lee, it was about coming out unscathed. Since he first invested in Flipkart in early 2010, Lee had poured roughly $1 billion into the company, including some $600 million in the span of just one year starting in July 2014. This was an unconventional bet by any measure.7 Any venture capital firm typically invests large amounts of cash only in specific stages of a startup’s life to reduce its risk. But with Flipkart, Tiger Global had led a majority of all the funding rounds. Lee’s breaking with the norms of venture capital investing had been influenced by his conviction in the entrepreneurial genius of the Bansals, especially Sachin, and the evident promise of the e-commerce market in India. By the end of 2016, both these convictions were shaken. Not only had Sachin faltered, Lee had grossly underestimated the time and capital it would take to create a successful e-commerce business.

  The $100 billion dream had primarily been Sachin’s; Lee had backed Sachin unequivocally because the former stood to be one of its biggest beneficiaries. But barely eighteen months after Sachin had first imagined a $100 billion company, his dream had died even though he didn’t know it at the time. In early 2016, after Lee had received alarming feedback about Sachin and the Flipkart management being out of their depth, and after those views had been corroborated by a shocking decline in Flipkart’s business, Lee had made up his mind: he had to secure an honourable exit.8 As soon as possible. His career, his reputation, his wealth, his dreams, rested on it.

  In this environment, there was just one man who could deliver him from ruin: Kalyan. Unlike Sachin or Binny, Kalyan had no grand ideas about Flipkart. He simply wanted to turn it into an efficient, fast-growing retailer that consistently expanded its business and delivered higher valuations. It was this approach that was best suited to Lee’s plan of securing the fastest possible way out of Flipkart.

  It was a happy coming together of two minds: Lee’s need to secure an exit and Kalyan’s burning desire to become the top man at Flipkart. It would be a stunning rise for Kalyan, from a little-known finance manager at eBay to the highest position at India’s premier startup. It would also be the harshest rebuke for Sachin, who detested Kalyan and had opposed his re-entry into Flipkart.

  In early 2016, at a panel discussion, Sachin had passionately spoken about how important it was for entrepreneurs and their investors to be ‘aligned’. ‘If investors are not aligned with what you want to do, you will have a hard time ... You need to be very, very clear to them at the start itself that this is exactly what I’m going to do, this is my playbook, this is what I believe in, I don’t believe in this. If you like this, come in as an investor. [Or] you can find somebody else, I can find somebody else.’9

  To use his own word, Sachin and Lee were no longer ‘aligned’. And Sachin was indeed having a hard time.

  As he watched his company slip away from him, Sachin cut a desolate, sullen figure. He was helpless, on the margins, unable to influence the direction of Flipkart. He had been kept out of daily affairs by Binny. Sachin’s opposition to Kalyan’s return and subsequent promotion had been ignored. When he complained about the lack of innovation at the company, nobody paid heed beyond making token gestures.

  Though his attempted transformation of Flipkart had nearly brought disaster, Sachin was still convinced that his ideas had been sound, his vision exemplary. He blamed ‘bad execution’ for their failure. He blamed the senior leaders he had trusted. And he blamed Amazon’s ‘capital dumping’ at a December 2016 technology conference arranged by Carnegie India. When Flipkart was at its peak, Sachin had taunted Jeff Bezos. A little more than two years later, Sachin was now asking for sanctuary from Amazon. Denouncing American companies such as Amazon and Uber at the Carnegie conference, he called for India to adopt China’s model of banning foreign internet companies in the country: ‘What we need to do is what at some level China did. They told the world that we need your capital but we don’t need your companies.’10

  The idealism of Flipkart’s early years long gone, the bravado of the subsequent years exhausted, Sachin had been reduced to calling for government protecti
on against his former employer. Strictly speaking, Flipkart itself wasn’t an Indian company – its holding company was registered in Singapore – but this was a technicality. Flipkart may not have even been founded had it not been for Amazon, which had once employed Sachin and Binny. This kind of hypocrisy is hardly uncommon in business. Indeed, Sachin’s willingness to ignore all these truths may have been a manifestation of the street smartness of a young entrepreneur with the ability to play dirty, if need be, against one of the most powerful companies in the world. But what his statement clearly betrayed was the real agenda of his mission to create The Great Indian Internet Company: it was simply another capitalist’s pursuit of wealth and power packaged in noble rhetoric, the Indian equivalent of the deceptive ‘we will change the world’11 messaging of American internet companies.

  The Chinese model that Sachin was advocating would no doubt enrich entrepreneurs and their startups, but it would come at a cost, which for any democracy would be unacceptable. China is known to use its homegrown companies and their technologies to enforce authoritarian measures through Orwellian schemes of surveillance, propaganda and restrictions on free speech.

  In November 2016, about a month before Sachin spoke at the Carnegie conference, the BJP government had announced that it would, with almost immediate effect, demonetize ₹500 and ₹1000 banknotes. The justification given by the prime minister was that this move would destroy ‘black money’ and exact revenge upon traitors who had for years cheated the country by hiding income.12 A high and forceful wave of nationalism was sweeping through India. One can’t be sure if Sachin was intending to ride on it – he had been thinking of creating a lobby group for Indian startups even before demonetization. But it was a disturbing conflation – the idea of technology companies that store massive quantities of information about citizens receiving patronage by a government whose authoritarian tendencies have been widely criticized.