by Mihir Dalal
Enriched by their bets on Chinese internet companies, these venture capitalists as well as investment firms in the US, Europe and Asia that had missed out on the Chinese boom, flocked to India in search of their next loot. In October 2014, Son came to India after nearly a decade. To his eye, India was the China of a few years ago. In New Delhi, he told a newspaper reporter, ‘Ten years ago, China was the best opportunity, and now India has the best opportunity.’15
Twenty-five years earlier, another corporate VIP had expressed a similar view. Jack Welch, chairman of the American conglomerate General Electric, had predicted that India and China were the new big markets of the future.16 Even at the turn of the century, hopeful analysts and consultants had posited that the two countries would become ‘superpowers’, more or less simultaneously. It didn’t matter that by then China’s economy was already about three times the size of India’s. It was the same belief that had prompted investors to bet on offline retailers in the 2000s. They were convinced that India would go China’s way and rapidly modernize its retail sector. However, this never happened. Even after nearly two decades of continuous investment, modern retail had a paltry reach in India.17 In fact, Kishore Biyani, India’s would-be Sam Walton, had been forced to sell off key businesses in order to repay debts.18
By 2014, China’s economy was five times as large as India’s. Despite this, investors reverted to their old conviction, certain that India’s internet space would turn out to be a goldmine. On the surface, it did have a few similarities with China’s internet sector of the noughties. Every month, millions of new Indians were using the internet for the first time on cheap but powerful smartphones. The bulging internet population was poised to expand even faster as prices of mobile internet connections fell. The introduction of 4G services would result in lightning internet speeds.
And then there was Flipkart, the indigenous e-commerce champion standing tall, proving that Indian entrepreneurs could indeed make it big in the internet business.
17
THE COMEBACK
By the time of the billion-dollar fund raise, Sachin Bansal was fighting his own battles within Flipkart.
In the eighteen months that Sachin had been on the margins of the company, it had turned into a retailing juggernaut. After taking the reins in late 2012, Binny had strengthened Flipkart’s spine. Kalyan Krishnamurthy, on secondment from Tiger Global, had vastly improved the finance function and empowered the sales team. Under Amod Malviya, Flipkart’s technological edge over rivals had widened. The logistics fleet, technically owned by WS Retail, was expanding at a dizzying pace under Sujeet Kumar, who had returned from exile to lead the company’s relaunch of its large electronics category and then its supply chain. Vaibhav Gupta, a former McKinsey consultant, had emerged from anonymity to lead the business finance function which, along with the sales division, had become the driving force of the company. Ankit Nagori had been promoted to lead the company’s marketplace business. Flipkart had started this initiative of adding third-party sellers on its platform in 2013, to address regulatory concerns about its structure as well as expand its assortment of goods. These executives, along with other senior leaders at Flipkart, made a formidable team. But it was a team that had little room for Sachin. In fact, many of these executives had an uneasy equation with the Bansals, and especially with Sachin. Every once in a while Sachin would call his colleagues, mostly to complain about something. The recipient of the call, not pleased at having to hear what had upset or excited their boss, would roll their eyes before answering and say to their nearby coworkers: ‘Aa gaya phone – here comes the call.’
Until the end of 2012, when Sachin was at the peak of his powers, he had undoubtedly been the pivotal figure at Flipkart. His ability to conjure a grand vision for the company, his knack for coming up with the big ideas that unlocked the promise of e-commerce, combined with his audacity in pursuing these ideas, made him a peerless entrepreneur. He had run Flipkart through instinct as well as careful thought.
But it wasn’t just Flipkart’s anatomy that had changed considerably in the time he had been away from the action; even the e-commerce market had grown by magnitudes. Flipkart, which was at the frontier of this change, had expanded considerably along with it. There were new dynamics; power equations between senior executives had altered. Teams coordinated with each other in new ways. This process had been organic, as it often is at a fast-growing startup. Employees would joke that one year at the company seemed like the equivalent of five at any other. All the senior leaders had strong personalities and had built fiefdoms of their own. They wielded enormous power, primarily because their performance was beyond reproach. Since the end of 2013, Sachin had been trying to recover his former authority, but it hadn’t been easy. Indeed, for months, he had been consumed by a strange, almost schizophrenic feeling – finally, when after years of being dismissed, Flipkart was finally being feted by the world outside, when Sachin himself was being lionized, he actually had little influence at his own company, and not much to do with its recent successes. He now had the fame and the glory, but not the entrepreneur’s satisfaction of directing his company’s affairs. And he felt its lack keenly. Especially since the billion-dollar funding had been finalized in July 2014, Sachin had been burning to get back onto the battlefield of daily operations.
Sachin’s criticism about the ‘lack of innovation’ in the company’s product function had become more forceful in 2014, and in the latter part of the year, he grew strident. He had been particularly unhappy with the development of the mobile website and app. He strongly believed that the mobile would soon replace the desktop as the primary medium of shopping. He vented to some of his colleagues, ‘Our technology and product teams have become slaves to the sales team.’ If things continued in this way, Flipkart would be destroyed, he complained. He also pulled up Flipkart’s engineers for continuing to spend their energies on tinkering with the website for soon-to-be-irrelevant desktop computers. ‘Desktop is the past; the present and future is on the mobile – that’s where the company needs to channel its resources,’ he insisted.
Much of this criticism was aimed, either directly or by implication, at Kalyan Krishnamurthy, who had by now become the most powerful figure at Flipkart. Under him, business was booming. Yet, Sachin believed that Kalyan’s empowering of the sales and finance functions over technology would harm Flipkart over time. Both Sachin and Binny thought that the discount-heavy approach favoured by Kalyan wasn’t sustainable either. For Sachin, Flipkart wasn’t simply a buy-and-sell trading business. He had always seen Flipkart as a ‘technology company, not a retailer’.1 His relationship with Kalyan, never great to begin with, was deteriorating.
A few months after Kalyan was promoted to Senior Vice President, Sachin and Binny had offered him a permanent role at Flipkart. Kalyan’s influence and popularity with the management team was plainly visible. It seemed like an obvious move, a just reward for his stellar performance. Besides, formalizing Kalyan’s position would sever his links with Tiger Global and give the Bansals direct, unquestionable supervision over him. They offered him a prestigious position, one that would elevate Kalyan as the seniormost leader at Flipkart after the Bansals. They also offered Kalyan a large amount of stock options in the company.
To their shock, Kalyan declined. He informed the Bansals he wasn’t ready to move to Flipkart permanently, that he wanted to return to Tiger Global at some point. Later, Kalyan told colleagues that he had refused the offer mainly because he believed that he and Sachin couldn’t work together. Their colleagues already knew that the two would always be at odds. Sachin considered himself a ‘product’ champion, a technologist who cut through the complexities of intractable problems with software and delivered outstanding service to his customers. Kalyan was a man of finance, driven by numbers, margins and the idea of saleability. Their visions for Flipkart couldn’t have been more different.
For much of 2014, Sachin and Kalyan coexisted awkwardly. In fact, Sachin clash
ed often with many senior executives that year. He had even fallen out with Sujeet Kumar. They had now known each other for nearly fifteen years. After Sujeet was sidelined at the end of 2012, the two had only exchanged words at team meetings. The cause of their rift was unclear to their colleagues, but it was evident that they were no longer close, not even cordial.
The environment at the upper management level grew increasingly toxic through the year. Powerful senior executives like Sujeet and Kalyan, who had little regard for Sachin, made their opinions clear to colleagues. They believed that he had little understanding of the day-to-day workings of e-commerce, and they had grown weary of his fault-finding, which they found to be unreasonable. They openly bad-mouthed Sachin and made fun of him within their inner circle.
On the other side of the tensions, Sachin was growing more zealous. Like many strong-headed entrepreneurs, he had always been unusually passionate about his ideas – it was a passion bordering on vehemence. Now in 2014, as he saw that he wasn’t being taken seriously by the likes of Kalyan and Sujeet, his manner during meetings became more imperious with each passing month, with each milestone Flipkart achieved. When asked for supporting data or evidence during arguments, Sachin would often counter by saying that his opinions were informed by his ‘gut feeling’. But when his colleagues proffered instinctive views and ideas, Sachin would dismiss them with ridicule. Once, in a heated discussion, Sujeet fired back, ‘Sachin, the same rules should apply to everyone. Your gut is gut, but with others, it’s gutter?’ Sachin had looked offended. But Sujeet wouldn’t back down.
To impose his directives on advancing the technology function, Sachin had made some changes. In late 2013, he asked Mekin Maheshwari, the company’s first engineering head, to take over human resources. For the past year, Mekin had been heading Flipkart’s digital content and payments businesses (which were shut down at separate times). Sachin believed that with Mekin’s background in engineering, the HR division, and the company as a whole, could be infused with a technological ethos. Sachin also gave Sameer Nigam a senior position in the engineering team.
Sameer had joined the company in 2011 when Flipkart had bought his startup Mime360. That business, which eventually morphed into the digital music platform Flyte, was shut down after it failed to grow in good time. But Sameer had developed a close relationship with the Flipkart CEO. An engineer with a business degree from The Wharton School, Sameer was a talented tech leader. Like Sachin, he, too, saw himself as an innovative technology entrepreneur. After Flyte was shut down, Sameer had been given charge of digital marketing. In that role, he sometimes clashed with Kalyan. Sameer was focused on attracting new users to Flipkart, while Kalyan wanted the digital marketing team to spend more on promoting sales events. Sachin had been impressed by Sameer’s belief that technology should drive marketing; he had also seen Sameer holding his own with Kalyan and other leaders. He decided that Sameer would add heft to the engineering team.
Finally, in July 2014, a week before Flipkart announced its billion-dollar capital infusion, Sachin found his window of opportunity.
Over the past few months, Sachin and Binny had spent a considerable amount of time in China. The internet boom that would make China the largest e-commerce market in the world, had taken their breath away. They observed that the business models of Chinese companies bore little resemblance to those of the more familiar American firms. These visits lefta deep impression on the Bansals; Sachin, in particular, was dazzled by the success of Alibaba and the emergence of Xiaomi, the startup that made smartphones, accessories and other electronic devices.
The Bansals had, in fact, been to China primarily to put the seal on a partnership with Xiaomi. Flipkart’s sales team had been courting Xiaomi executives, urging them to sign an exclusive partnership. The hugely successful Moto G phone launch had changed the way brands looked at Flipkart; smartphone-makers that had earlier rejected its exclusivity request were now eager to pursue such an arrangement. But for Flipkart, securing a deal with Xiaomi was paramount, as its executives believed that these Chinese phones would enthral Indian shoppers.
Along with Michael Adnani – Flipkart’s electronics chief – Sachin and Binny met the Xiaomi founder Lei Jun several times, in both Bangalore and Beijing. Over Chinese food, they talked about their businesses, exchanging insights and lessons that could inspire each other. It was, in all fairness, the Flipkart executives who did most of the listening. In his mid-forties, Lei Jun was already an accomplished entrepreneur. His previous venture, an online book retailer, had been bought by Amazon in 2004. His present startup, Xiaomi, was a spectacular success. Within five years of starting out, it would fetch a valuation of more than $40 billion, becoming one of the world’s most valuable startups. Its low-priced, powerful phones had become so popular that Xiaomi was outselling in China the world’s mightiest phone-makers, Apple and Samsung.2 Naturally, Flipkart was eager to bring Xiaomi’s phones to India.
In July 2014, Xiaomi agreed to grant Flipkart’s request – its phones would be available only on Flipkart. The first sale was planned for 22 July. Xiaomi had a distinct method of selling their phones: flash sales. It eschewed spending on advertising. Xiaomi believed that its phones were so good, their prices so compelling, that advertising was unnecessary. Like new members of a cult, users of Xiaomi phones raved about their devices, urging family, friends, colleagues and acquaintances to try them out. The company further stoked its cultish aura by rationing the availability of phones, creating artificial scarcity, which made consumers even more impatient for the products.
Knowing how sought-after its phones were, Xiaomi had bargained hard to extract the most favourable terms from Flipkart. Not only did the company obtain financial concessions, they also got the Bansals to promise that Flipkart would do all it could to ensure Xiaomi’s launch was a success. Sachin and Binny didn’t care if they had overcommitted; they were thrilled to have achieved exclusivity with Xiaomi. Flipkart hastily strengthened its tech infrastructure to handle the flash sale. Expectations from both camps were high as the sale opened in the last week of July.
The demand from customers blew all these expectations away. Flipkart’s website crashed, such was the flood of traffic.3 The sale was literally over in a flash; Flipkart had sold thousands of phones in a matter of minutes. Only a fraction of users who came to the site were able to buy the phones. Every Xiaomi sale for the next few months played out along similar lines. Only the sale duration reduced each time, phones selling out in seconds rather than minutes. For Flipkart, the Xiaomi business turned out to be even bigger than Motorola’s, which had so far been the largest contributor to its sales.
It was these two phone deals that kickstarted India’s e-commerce boom in earnest, considerably enhancing Flipkart’s popularity and that of online retail. Over the next few years, smartphones would become the predominant category for online retailers and, in turn, e-commerce would become the most important channel for smartphone brands. Apart from Motorola and Xiaomi, brands such as Apple, Samsung, OnePlus and several others, would generate a significant portion of their Indian business from e-commerce. By the end of 2015, smartphones would constitute anywhere between forty to fifty per cent of online retail. This was an oddity, not only when compared to e-commerce in other countries but even within India. In the country’s overall market, groceries were the single-largest product category, followed by fashion;4 smartphones made the top ten but was certainly not at the top. Yet, in the online space, smartphones dwarfed all other categories. In 2014–2015, much of this burgeoning smartphone business naturally sought out Flipkart, which had successfully led phone-makers to e-commerce.
Sachin revelled in the success of the Xiaomi partnership. Even though it was his colleagues in the sales team who had actually worked out the details of the deal, he took great pride in having established a rapport with Lei Jun, who was regarded as one of the foremost technology entrepreneurs in China. By association, Sachin implied to his colleagues that he belonged in the same
league. Now at the end of July, a week after the first blockbuster Xiaomi sale, his confidence soaring, Sachin declared his ambition to grow Flipkart into a $100 billion company. His plans of realizing this vision were, in fact, already in motion.
In August, Sachin called a small group of colleagues to his house in Koramangala. The agenda was to discuss what Flipkart needed to do so it could become a $100 billion company. He called the mission Flipkart 3.0. Sachin and Binny had led the company’s first phase, from its birth until the end of 2012. The second phase, dominated by Binny and Kalyan, had lasted eighteen months. It had been a great spell, one that had made the company into an efficient machine. But its time was up, Sachin believed. He also complained that this phase had introduced structural weaknesses that had to be undone. Flipkart had moved away from its technology mission. To become a $100 billion company, Flipkart needed a new vision, a new path. Now, he told his colleagues, the time had come for the company to undergo its biggest-ever transformation.
