Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  In online retail at the time, the books category was primarily a means of establishing that essential factor in the success of commerce anywhere: trust. In 2007, no Indian e-commerce firm allowed customers to pay with cash. Transactions had to be completed online using credit or debit cards. And only the most well-to-do Indians, a demographic that included people who spoke English and spent money on books, had credit cards. But this upper class did not trust online retailers yet. Many customers had had bad experiences in the early days of online shopping. Payments failed often, products turned up after months when one could no longer remember why they had placed the order, sometimes the wrong product would be delivered, or it would turn out to be defective, the delivery worker would have difficulty finding the recipient’s house – it seemed every time someone bought something online, e-commerce firms would discover a new way of botching up the centuries-old practice of selling things. In this scenario, the Bansals realized that they would first have to win their customers’ confidence, and history had shown that books were the easiest means to accomplish it.

  A few months after Flipkart was launched, Sachin told a friend over dinner: ‘Yaar, we’ll make an Amazon in India. Why should we work for them when we can run our own business? If they can do it, so can we.’

  ONE IMPORTANT ASPECT that internet entrepreneurs in India tend to skip in their creation myth-making is the matter of caste.

  Both Bansals hail from families that identify as being from the larger Bania caste which has for long been India’s single-most powerful business community. The Ambanis, the Birlas, the Ruias, even Dilip Shanghvi, are all Banias. Within the Bania caste, the Agarwals are a prominent community. Businessmen such as the Jindals, Airtel’s Sunil Bharti Mittal, and Anil Agarwal, founder of Vedanta, belong to this community.2 This predominance of Banias in the business world extended into the internet space through the Agarwals, and in particular through the Bansal community. The Bansals are one of the eighteen gotras, or clans, within the Agarwal community.

  Apart from Sachin and Binny, other well-known internet entrepreneurs from the Agarwal community include Myntra co-founder Mukesh Bansal, Snapdeal’s Rohit Bansal and Ola’s Bhavish Aggarwal. These entrepreneurs are not usually found referring to the dynamic mercantile history of their communities – the creation myth has to be unique after all. In any case, to say that one is endowed with business acumen at birth is far-fetched. And of course, it’s not as if all Banias are inclined towards entrepreneurship and neither are all people of a different caste inclined towards one specific occupation. But one can argue that caste-based practices and traditions in dominant mercantile communities such as the Agarwals can cultivate in the younger members of a family an inclination towards entrepreneurship. If one happens to be born to a business family, one is likely to be inclined to follow suit.

  When Sachin moved to Bangalore in 2006, he drove one of his father’s used cars instead of buying himself a new one. Ajay Bhutani – who worked with Sachin at Amazon India after graduating from IIT Delhi – wasn’t surprised by Sachin’s decision. ‘Conditioning does play a role,’ he says. ‘The basics of running a dhanda don’t come to just about anyone. Those who’ve seen how it’s done do seem to have an advantage over others.’

  Even at the IITs, observes Professor Balakrishnan, career choices of students were often shaped by caste and class. The large demographic of students from business communities at IIT Delhi and IIT Kanpur commonly show a strong inclination towards entrepreneurship. He contrasts the success of many of these ventures with his former startup, Kritikal Solutions. The first-ever on-campus technology startup at IIT Delhi, Kritikal Solutions was set up in 2002 by Balakrishnan and four other professors, along with seven students. It was launched with the intention of producing cutting-edge technical work for corporate clients in the field of digital imaging. But the firm went nowhere. ‘We were all from salaried, middle-class backgrounds. Not one of us had any business sense – complete absence of risk-taking ability.’ Besides, he adds, five professors can hardly agree on anything.

  For the Bansals, and particularly for Sachin who came from a business family, the support of their folks was crucial in the first few months. While Varun’s parents forbade him from taking up entrepreneurship, Sachin’s father encouraged him and even offered significant practical help, the lack of which could have killed his ambition.

  Setting up a functional e-commerce startup meant working with other businesses, including a payment gateway firm that would allow Flipkart to receive customer payments online. In 2007, it wasn’t easy for two anonymous entrepreneurs in their mid-twenties to get access to a payment gateway. For weeks Sachin and Binny ran around meeting banks and payment firms. But the payment processing fees were either too high or the Bansals were sent packing as soon as the banks realized they were novices. In despair, Sachin finally turned to his family. With little effort, Sachin’s father was able to procure the elusive services of a payment gateway on account of his long-standing trading business. This important milestone achieved, on Sachin’s father’s advice, the Bansals went on to register the startup as a proprietorship, rather than a limited liability company, as was the norm for new businesses. This reduced their administrative burden, freeing them to direct their energies towards running Flipkart. These were some of the small but important tweaks that a Bania family background supplied.

  Sachin’s newfound identity as a proprietor even helped him get married in 2008. In a rare nod to his family background, Sachin admitted in 2010, ‘In our community, a person with a salaried job is less valued than someone who runs their own business. As it happened, I was married within a few months of starting out on my own.’3

  IN THE FIRST few days after the Bansals launched Flipkart, their family members and friends placed orders on the website. At the end of the third week of October 2007, the Bansals noticed an order from an unknown person named V. V. K. Chandra. The order had been placed from Mahabubnagar, a small town in Andhra Pradesh (now in Telangana). Chandra had purchased a book titled Leaving Microsoftto Change the World by John Wood.

  Still working out of their NGV apartments, Sachin and Binny had planned to source books from nearby bookstores after a sale had been booked. Thrilled to have received their first legitimate order on Flipkart, they went hunting for John Wood. But their excitement soon turned into embarrassment as they couldn’t locate the book in any store. Binny personally wrote an email to Chandra informing him that the book was in scarce supply, but the search was still on. A copy of the book was finally found at the Sapna bookstore on the edge of Bangalore’s upscale Indiranagar suburb, a few miles west of Koramangala. But the copy Binny had traced was old and he now felt unsure if Chandra, already seemingly disappointed by the delay, would accept it. So, he emailed Chandra again asking if he would accept an old copy or prefer to wait for a week so that Flipkart could look for a fresher one. Additionally, Binny also offered Chandra a ten per cent discount to compensate for his troubles. Chandra, a software engineer who ran a consultancy business, was so eager to read the book that he asked Binny to send the old copy. On 31 October, the Bansals shipped the book. Two days later, it reached Chandra. He was rather impressed. He held in his hands a book he had desperately wanted but not found in any bookstore in all of Hyderabad. An unknown website not only procured it for him but displayed unheard-of solicitousness in the process. The delayed delivery of an old copy of a book wasn’t the ideal start the Bansals had imagined for their company, but Flipkart’s customer service had already entranced the company’s first real customer.

  Chandra lefta comment on Flipkart’s website, which was proudly displayed for several months:

  ‘The best Indian online book store I have ever seen. Fast and free shipping, discounts and a large number of titles. I could not have expected more. You guys really rock. Good luck.’4

  Over the next few months, Sachin and Binny applied this rigour and sincerity to win over many more customers. Their business model was crude. After recei
ving an order, either Sachin or Binny (Binny more often than Sachin) would make a bookstore run – Sapna, Gangaram’s and Blossoms were the most frequented – wrap the book in attractive paper and ship it to customers through a courier service. They also tried sourcing books directly from book distributors but were turned away by many. After much persuasion, a couple of distributors finally agreed to give the Bansals access to their inventory. Now a few times every week, by turns, Sachin or Binny would pay a visit on Binny’s motorbike to the distributors’ warehouses located across Bangalore and pick up books so they could fulfil new orders.5 The Bansals employed part-time workers who helped with the packaging, but they were otherwise on their own.

  Around this time, the Bansals uploaded one of their personal mobile phone numbers as the Flipkart helpline. They worked on improving the website and attracting more users. Sachin quickly became adept at manipulating Google. Having initially received advice on the matter from the Chakpak founders, Sachin now learnt new tricks on his own. Soon, Flipkart was featuring at the top of Google searches, not just for books but for all sorts of products. Sachin’s newfound expertise didn’t just bring more customers to Flipkart; it accidentally started a chain of events that would transform the company two years later, at the end of 2009.

  Through trial and error, Sachin and Binny gradually discovered what strengths each possessed. In the company’s early days, their roles weren’t clearly defined. Both tried their hand at everything. But it quickly became evident that Sachin excelled at marketing, website design and other tasks directly linked to attracting customers, while Binny showed proficiency in organizing the supply operations. In Binny’s own words, ‘In four to five months, it just happened. Sachin would think ahead, how to grow the business, how to get customers. And I would think about how will all this work at scale.’6 This was the template they followed over the next few years. Sachin formulated the vision for the company – how much they should expand, what direction it should take – as Binny set up the infrastructure to realize that vision.

  Despite a few milestones, Flipkart’s first year was a period of struggle for the Bansals. They found great success in pleasing a few thousand customers who bought books through the website, but in almost every other aspect, they faced one setback after another. One of the biggest jolts came from their failure to convince any of their friends to join them. In the first few months after launching Flipkart, Sachin and Binny had asked more than a dozen friends and acquaintances to join the company. Among the persons solicited were Sachin’s former hostelmates, nearly all of Sachin and Binny’s NGV flatmates, and a few other people known to Binny. But not one of them was willing. These engineers were sceptical about entrepreneurship, the potential of e-commerce, selling books online (Who reads books anyway? they said). They were especially unsure about Sachin and Binny. In college, Sachin and Binny had been mediocre students, as unimpressive outside the classroom as they were within it. No one had thought they could be leaders. In those years, when entrepreneurship was almost a middle-class taboo, the Bansals’ venture had struck their friends as a whim, an amusing but eccentric pursuit. They were to be indulged, like children, but joining them was considered preposterous. They were so alone that when Sachin got married to Priya in April 2008, Binny could not attend the wedding. He had to stay back in Bangalore and keep the website running as he was still one of the only two employees at Flipkart.

  Anil Kumar, Binny’s batchmate from IIT, also lived in Koramangala, just a few minutes away from the Bansals. After graduating, Anil had found work as a management consultant. He too lived with old IIT classmates in an apartment. Anil had found Binny to be an unimpressive guy in college, lacking ambition, energy and purpose, much like his hostel, Shivalik. Despite being on the board of IIT Delhi’s student publications, Binny had achieved little other than an influential position. When Binny and Anil ran into each other in Koramangala in late 2008, Anil asked him, ‘What are you up to?’

  ‘Startup ...’ said Binny.

  ‘What kind of startup?

  ‘We sell books.’

  ‘Abbe, who sells books? Where is your salary coming from?’

  ‘How will we get a salary? We’re looking for funding.’

  ‘Funding kaun dega be?’ Who will give you funding, man?

  Anil had thought that Binny was talking gibberish; why would anyone offer capital to two novices, especially when one of them was his neverdowell classmate? ‘I thought he had gone mad,’ says Anil today. ‘I left the conversation at that ... And now I keep talking with my other IIT friends that if I had just managed to even put together one lakh – begged, borrowed, stole – and given it to them ...’

  A few months later, in 2009, Anil launched a consultancy startup, RedSeer Management. He would meet Binny a few more times that year and exchange notes about real-estate prices in Koramangala, where both their startups were located. He didn’t see Binny for nearly two years after that. During this time, Anil and his friends forgot about Flipkart, their scepticism entrenched.

  This is why, the next time Anil heard about Flipkart, he would have an identity crisis.

  BY MARCH 2008, six months after launching the website, the Bansals’ commitment to their customers materialized into a tangible benefit: Flipkart had broken even. The startup was generating sufficient revenues and achieving profit margins high enough to be self-sustaining. It was pulling in a few dozen orders every day. Customers were happy and kept coming back to buy more. Encouraged, Sachin and Binny moved to their first office, a small two-bedroom flat in an area called Wilson Garden, a few kilometres away from their apartments in NGV.7

  Soon after, Flipkart hired its first official employee. Until now, Sachin and Binny had employed part-time workers to help them with sourcing and handling packages. But the increase in orders prompted them to look for a full-time employee to oversee the procuring and packaging of books. A delivery worker at First Flight Couriers, one of Flipkart’s courier partners, pointed the Bansals to a former colleague of his named Ambur Iyyappa. After working at First Flight for four years, Iyyappa had taken a break to complete a diploma course. First Flight had warned him that he may lose his job. By the time he returned to Bangalore a few months later, the company had already replaced him. Out of a job, Iyyappa, who came from a poor Tamilian family, was desperate. Flipkart took him on at a monthly salary of eight thousand rupees.

  Iyyappa turned out to be an excellent hire. At this time, Flipkart had a simple operations process. After customers placed their orders, Sachin and Binny entered the book titles and quantities on an Excel sheet, handed out printouts of the sheet to their packaging workers, who then bought the books from various bookstores. Iyyappa had an extraordinary memory, and he knew how courier services worked. He was skilled at organizing the procurement process and managed the packaging and courier workers well. Iyyappa and Binny worked closely over the next two years. They developed a patois of English, Hindi and Tamil that only the two of them could understand.

  Soon, Iyyappa took charge of most of the physical operations work. This allowed Binny to direct his energies on expanding product assortment and automating the processing of orders. The Bansals were so pleased with Iyyappa’s performance that, within a month, they gave a referral bonus of ₹5,000 to his acquaintance at First Flight Couriers.

  Iyyappa was Flipkart’s ‘human ERP*’8 until it reached a thousand orders a day. He had a sensational career at the company. In a year’s time, his salary soared from eight to nearly eighty thousand rupees a month. Over the next decade, he would become a crorepati by selling Flipkart shares and secure a BBA degree.

  THE OFFICE ESTABLISHED, their first employee hired, the company financially stable, the website running smoothly, and customer numbers increasing every week, it was now time for Flipkart to raise venture capital. The Bansals knew how their friends at Chakpak had attracted funding, so, when asked, the Chakpak founders Gaurav and Nitin advised the Bansals to approach venture funds. The Bansals were looking for an initia
l $1 million so they could fulfil their expansion plans.

  In early 2008, around the time they had hired Iyyappa, the Bansals had gone to a networking event for entrepreneurs called Open Coffee Club. This is where they met Abhishek Goyal.

  Abhishek, who had previously worked at Amazon India, had been hired by Erasmic Venture a few months ago. After leaving Amazon in 2006, he had moved to a software firm called 3i. But Abhishek was a perennially restless employee. He had started an HR firm before joining Amazon but it had failed. He was bored at 3i and considered launching a mobile payments company with his friend, Mekin Maheshwari. But they gave up on the idea after another payments startup announced a large funding round. Still, Abhishek wanted to be part of the startup world in some way. Gaurav, the Chakpak co-founder who knew Abhishek from their Amazon days, introduced him to Subrata Mitra of Erasmic Venture. Subrata soon agreed to hire Abhishek as an associate. Abhishek’s task was to find promising startups and bring them to the notice of Subrata and his partners, Prashanth Prakash, Mahendran Balachandran and Gagan Kumar.

  Abhishek had heard of Flipkart from friends and acquaintances, some of whom had tried and appreciated Flipkart’s service. A college senior of Abhishek used to joke that Flipkart was like an ATM for books – just as an ATM dispenses notes one after the other, Flipkart delivered book after book in quick succession. Abhishek had asked a mutual friend to introduce him to the Bansals but as fate would have it, they unexpectedly ran into one another at Open Coffee Club. It was organized by Amarinder Singh, an engineer with an MBA who worked as a sales executive and wanted to encourage entrepreneurship in India.

  Abhishek hit it off with Sachin and Binny instantly. The three of them had similar personalities. In his mid-twenties, Abhishek was a shy computer science graduate from IIT Kanpur. He had a nervous laugh which gave away his social awkwardness. He was very serious about work and desperate to find his calling. In the Bansals, Abhishek saw two young software engineers who were living his dream of being an entrepreneur. He found them to be ‘very geekish’ and straightforward, like typical computer science students. The Bansals didn’t try to hardsell Flipkart, there was no posturing, no real pitching. It was a trait that even Abhishek’s superiors at Erasmic appreciated. ‘Sachin and Binny came across as a couple of tech guys who wanted to write code rather than run around doing operations. That was not surprising – most tech entrepreneurs were like that,’ says Abhishek.