Big Billion Startup: The Untold Flipkart Story

by Mihir Dalal

  In December 2015, the worrying pattern – a slowdown in Flipkart’s sales growth – that had developed over the past three months, endured. In fact, nearly all the important business metrics showed an alarming decline. New users weren’t coming in droves any more, customer loyalty was down, customer satisfaction scores were at an all-time low. Losses had gone up, not frighteningly, but every metric was tainted by the diminishing sales figures. The advertising business that Sachin was overseeing had also failed to take off. Contrary to his promise of delivering ad revenues of $100 million by the middle of 2016, less than five per cent of this figure had been achieved by the end of 2015. It was evident that his target was ludicrously out of reach.

  Meanwhile, Amazon expanded at terrifying speed. Flipkart wasn’t in crisis yet, but the crisis wasn’t far.

  Sensing that his management team had lost confidence in his vision, Sachin was becoming anxious. Lee Fixel and the other board members had been questioning him for nearly three months, demanding to know why Flipkart had missed its targets and how it was planning to get back on track. In the internet space, one poor quarter was bad, two catastrophic. Sachin would have to make some big adjustments.

  20

  AFTER BANSAL, BANSAL

  It was a few days before Christmas. Sachin Bansal told Lee Fixel over a call that it was best for the company if he stepped down. He added that Binny, who was also part of the call, should be made CEO instead. ‘Binny is better at operations and execution and that is what we need right now.’1

  Lee was taken aback, but he was also relieved.

  Over the past few weeks, he had received damning feedback about the Flipkart management team from Kalyan Krishnamurthy and others. While Kalyan had leftthe company and resigned from its board of directors, he had kept in touch with many Flipkart managers. When in Bangalore, Kalyan often worked out of a Novotel just across the road from the Flipkart headquarters. He ensured that he received regular updates on all matters Flipkart from his former underlings. These employees had painted for him a picture of a company in turmoil, one that had lost it bearings. They called the new senior leaders hired from Google and McKinsey ‘clueless’. They also decried the leadership of Sachin and Mukesh, both of whom, they said, were operating in a make-believe world. Kalyan had relayed these reports to Lee. In addition, citing data and insights provided by a local market research firm that Tiger Global had engaged, Kalyan warned Lee that Flipkart was on the verge of being overtaken by Amazon.

  At Kalyan’s prompting, Lee had also spoken with a small group of former Flipkart executives whom he held in high regard. These executives, including two of Kalyan’s closest associates, had left the company earlier in the year after falling out with Sachin. And just like Kalyan, they were also in touch with their friends at Flipkart. Lee found out that they had heard Sachin and Mukesh were out of their depth. ‘Flipkart is being ruined,’ one of them said to Lee. Like Kalyan, they had been seething after being cast aside by Sachin. Now they seized their chance to retaliate. Railing against Sachin’s radical plan to remake Flipkart, they told Lee that it was fundamentally flawed and ‘badly executed’. They presented Lee with a remedy: bring back Kalyan. They stressed that it was no coincidence that Flipkart’s best years – 2013 and 2014 – had come to pass under Kalyan’s stewardship. He was the only one who could rescue Flipkart, they claimed.

  After noting the forcefulness with which so many of Sachin’s former colleagues and friends were attacking him, Lee was concerned, especially as the decline in Flipkart’s business was evident. The company had missed its sales targets for several months. The much-touted advertising business looked hopeless.

  Before he had chosen to step down as CEO, Sachin had considered another option: to take over the daily running of the company himself. With his colleagues opposed to the app-only move and the total conversion to a marketplace, the only way Sachin could enforce the changes was by directly taking charge of the commerce platform – Mukesh’s role – himself.

  When Sachin discussed this with Binny, he was surprised at his co-founder’s response. For much of 2015, Binny had been withdrawn. He had restricted himself to overseeing Ekart, the logistics service. Throughout the year, Binny hadn’t openly articulated his views about Sachin’s attempted overhaul of Flipkart, including the app-only move. Employees weren’t entirely sure if Binny was for or against it. He didn’t oppose Sachin, at least not in front of others, nor was he a proponent of Sachin’s ideas. Finally, in private, Binny rejected the option that Sachin put forward. Instead, he staked his claim, ‘You’ve been CEO for eight years. It’s my turn now.’2

  Sachin knew he would have to give in. Binny was a co-founder, he knew the company as well as anyone, and he commanded respect. Sachin and Binny had always had a tacit understanding about handing over the reins of the company to each other if needed. This had happened roughly every fifteen to eighteen months in the recent past. Sachin had been in command for the first five years of Flipkart’s existence. Binny had taken over at the end of 2012, only to make way for Sachin in the second half of 2014. It was now Binny’s turn at the wheel. Although this time there was one big difference: Binny had insisted on the CEO tag, ensuring that his ascendance would be irreversibly formalized.

  After the Bansals spoke with Lee, the other board members, including Subrata Mitra of Accel Partners and Oliver Rippel of Naspers, were informed. By Christmas, it was done. Binny would be promoted to CEO while Sachin would step aside and take up the role of Executive Chairman.

  A few days after the first call, Sachin spoke with members of the Flipkart board again. He pitched the idea of making Mukesh Bansal CEO of Flipkart. He proposed a structure in which Binny would be the Group CEO, with the heads of Flipkart and Myntra reporting to him. But Lee immediately rebuffed Sachin. Not only did he hold Sachin and Mukesh responsible for the poor implementation of their big ideas, he now believed the ideas themselves had been calamitous. To overcome the debacle, Flipkart needed someone who excelled in operations, who knew the company in and out. Flipkart’s poor performance in the past year and his exchanges with the former Flipkart executives had convinced Lee that while Mukesh had been an excellent entrepreneur at Myntra, he wasn’t equipped to manage a company of Flipkart’s size.

  In January 2016, on the second Monday of the new year, the company went public with the news. The three Bansals went on overdrive to insist that these changes would strengthen Flipkart. Sachin tweeted: ‘Welcome @binnybansal as the CEO of @Flipkart. Together we’ll create magic.’3

  In an email to employees, Sachin’s tone was unequivocally upbeat: ‘We want to prove that India can produce a world class internet company that can outshine and outclass any global behemoth. We also want to play a pivotal role in shaping the internet and the commerce ecosystem of India.’ Binny, too, proclaimed that Flipkart had all the ‘necessary ingredients of brilliant talent and great technology’ to continue being successful.4

  Reassuring emails notwithstanding, the employees at all levels were in shock. This wasn’t something anyone had seen coming; even Flipkart’s senior leaders were caught unawares.

  Flipkart had recently expanded its leadership team. It had hired yet another senior engineer from Google, Surojit Chatterjee, into the product division. Samardeep Subandh, who had worked for more than fifteen years at the large consumer goods companies, Hindustan Unilever and Marico, was recruited to head marketing.

  After taking over as CEO, Binny called for a discussion with his management team. At the meeting, his words were blunt, urgent. ‘This is a crisis. I’m declaring emergency.’ He warned that the next few months would be ‘very tough’. But, he promised: ‘We’ll turn it around.’

  Towards the end of January 2016, Binny repeated this message at the quarterly meeting of Flipkart’s board of directors in Dubai. The environment there was very different from the triumphant vibe of many past meetings. The board members were sombre; Lee was especially concerned. The months-long decline in Flipkart’s business was showi
ng no sign of improvement. At the same time, Amazon India was thriving. They would soon announce that in the last three months of 2015, the company had generated higher sales than in the entirety of 2014.5

  Lee and the other board members reminded Sachin about all the targets that Flipkart had missed and everything that had gone awry.

  Jumping to his own defence, Sachin urged everyone to have patience. ‘These things take some time.’ They have made a decision and now they needed to see it through.

  Lee was too anxious to let the matter rest. Flipkart was his biggest holding. In fact, it was more than just an important investment – Lee’s career depended on it. The success of his massive bet hinged on a continuous, enormous expansion in Flipkart’s sales for years to come. And yet, for the past five months, sales had barely advanced. To see Flipkart’s growth stall already was unpalatable. Lee would have to take action, even if it meant upsetting one of his favourite entrepreneurs.

  He proposed to the Bansals that Flipkart should bring back Kalyan Krishnamurthy, whom he regarded as a turnaround specialist. But Sachin, expectedly, wouldn’t have it. He had arranged for Kalyan’s exit from Flipkart barely a year ago. He had then ensured that Kalyan wouldn’t have any role on the company’s board. There was no way he would allow Kalyan to return.

  Lee persisted, now appealing to Binny. But Binny, too, wasn’t convinced. It wouldn’t be the right move, he said, and asked for some time to consider it. He assured the board members that Flipkart would soon reverse the slowdown in sales growth. Not only that, he also promised to reduce the company’s costs and resurrect its excellence in customer service.

  At the meeting, no one had anything to say to Mukesh. Over the past year, he had played a leading role at board meetings, making presentations, elaborating on Flipkart’s transformation and discussing quarterly performance. This time, he was on the periphery, a worried spectator.

  IT WAS NOW unanimous that Flipkart had faltered the previous year. The company needed to work out who were accountable. At Flipkart, this meant one thing: senior executives would have to go.

  The first obvious candidate was Punit Soni. As Chief Product Officer, Punit had wielded immense power. His imperious manner and love of the limelight had earned him many enemies. The big features he had introduced, such as Ping and Image Search, hadn’t taken off. Sales had suffered. Even the app hadn’t improved noticeably; customers were certainly not raving about it, much less having an orgasm. Although he had been at Flipkart for less than a year, it was decided that he had to be removed immediately – hiring him had turned out to be a blunder. It was Mukesh who took the decision. Binny, now Mukesh’s boss, couldn’t care less. Sachin, who had recruited Punit, had also grown weary of him. Less than a year after he had moved back to India, Punit was cut loose – by the end of his term, he had little to show for it and no one willing to defend him.

  A few days after Mukesh fired Punit, he was called into a meeting by Binny. It was now his turn at the guillotine. Binny told him summarily that he was no longer needed. As the head of the company’s commerce platform, Mukesh had been responsible for the overall business performance. He would have to pay for the sales slowdown with his job. After building up Myntra into a successful e-commerce firm, Mukesh had become one of the best-known internet entrepreneurs in India. He had considered Sachin and Binny his equals, and was seemingly treated as one by the Flipkart co-founders. When he had been given charge of the daily running of the company in early 2015, Mukesh had believed it was just a matter of time before he would be made CEO. But he had been found wanting. He had failed to impose order, to bring unity between the various teams of which he was in charge. He had let the technology division indulge in excesses to disastrous effect on the company’s business and culture. Mukesh believed that he had been hamstrung by Sachin’s constant interference. But he would still have to go. That’s how it had always been at Flipkart: a chosen one would be built up as a star, the Next Big Thing, until suddenly they were not, at which point they were coldly discarded. Mukesh still had an excellent reputation as an entrepreneur and was highly regarded by venture capitalists. He decided to return to entrepreneurship.

  Around the same time, Ankit Nagori, the chief business officer, resigned. After joining Flipkart in 2010 at the juniormost level, Ankit had risen to the top echelon of the company. All that was leftwas for him to occupy the hot seat. But it wasn’t to be. His stature had taken a hit after it became clear that the headlong shiftto the marketplace model had damaged the company. While Ankit hadn’t conceived the project, he was responsible for its implementation, which had been poor. All of thirty, Ankit decided to leave on his terms while he still could. Before he came to Flipkart, he had started a company of his own; now he felt ready to become an entrepreneur again.

  Even though Ankit and Mukesh lefton a bitter note, their exits were graceful, especially by Flipkart’s dreadful standards. Sachin and Binny praised their contributions, and both were given warm farewells.

  But there was another person, apart from Mukesh and Punit, for whom Binny had no room in his team. It was his friend and business partner, Sachin Bansal. For years Binny had admitted to colleagues that he wished Sachin would develop better interpersonal skills to mitigate his harsh personality. But he had always maintained that Sachin’s technology acumen, his relationships with investors, and above all, his audacity for coming up with transformative ideas, overshadowed all negatives. After the debacle of last year, however, Binny had changed his mind. He made himself clear: Sachin would have no say in Flipkart’s daily operations. It was one of his boldest acts ever, surprising colleagues who had seen him willingly play second fiddle to Sachin for so many years.

  WITHIN A FEW weeks of taking over, Binny prepared a plan to reinvigorate the company. As COO, Binny had been the prototype of a behind-the-scenes operator. He wasn’t known to be especially decisive or imaginative – that was Sachin’s forte. Binny’s inclination and expertise lay in managing the more mundane matters, the internal organs that made the company tick.

  As CEO, Binny was suddenly a man transformed. It was the first time he had been formally recognized as the top boss at Flipkart, and he revelled in the limelight. Just like Sachin, he was thrilled to be in charge, eager to outline a new path for Flipkart. He shared Sachin’s dream of building Flipkart into a giant internet company. But his methods were different, and he discarded many of his co-founder’s ways. Sachin’s two big ideas – the app-only focus and the marketplace conversion – were immediately reversed.

  In fact, around this time, even Myntra had decided to reopen its website, in yet another indictment of Sachin’s failed vision. The previous year, Myntra had appointed Ananth Narayanan, a former director at McKinsey, as CEO. Within a few months of taking the reins, Ananth had informed Sachin and Flipkart’s board that he wanted to re-launch the website. Myntra was losing out on a large chunk of sales and some of its loyal customers had been alienated by the app-only move. When he was hired, Ananth had been promised complete independence in directing Myntra. Now, even though Sachin was disappointed, he kept his word and let Ananth have his way. The board, on the other hand, was thrilled. After a few months of preparation, Myntra restarted its website in June 2016, a year after it had been shut down.6

  Back at Flipkart, Binny was of the opinion that the company had forgotten how to do the simple things well. There had been too much talk about technology, but little action. Despite Sachin’s sincere intent to introduce technology in every aspect of the business, he and his chosen leaders had failed to come up with a meticulous or practical approach to make it happen. In the process, the fundamentals had been ignored. Binny strived to take the company back to its roots and throw all its resources towards delivering the best shopping service to customers – what Flipkart had once been known for. He repeatedly told his team: ‘Let’s get our mojo back.’

  As a start, Binny immediately ordered a reduction in costs. He called for frugality and set a goal of breaking even at the gross
margin level before the end of the year. He had taken this upon himself; the company’s board of directors were primarily concerned about the slowdown in sales. But of all the leaders in Flipkart’s eight-year history, Binny had been one of the few who had constantly emphasized the need for building a self-sustaining business. He was clear that the time had come to create a strong, lasting foundation. To do that, it was essential to fix the cost structure. He was determined to break Flipkart’s dependence on fresh capital – the company couldn’t be at the mercy of investors forever.

  Binny was convinced that he could accomplish both tasks together: cut costs and revive sales growth. He blamed the sales stagnation on issues such as the decline in the quality of goods and the lack of depth in product assortment, especially when compared with Amazon. ‘If Amazon has five products, we have one,’ he complained. He concluded that Flipkart should identify high-quality, high-volume products in each category and stock up on these items rather than try to compete with Amazon on offering the broadest range of goods. They needed to take a depth-over-width approach. He also pointed out that the search function on Flipkart’s website was terrible – even if Flipkart had a product on offer, customers would all too often fail to find it.

  Binny was certain that if Flipkart fixed these issues, growth would return on its own. He deciphered that the growing cost bill and sales slowdown were in some ways linked. Since Flipkart now relied on third-party sellers, the quality of products had understandably deteriorated, which led to higher product returns. This, in turn, pushed up logistics costs. Additionally, with Flipkart’s sales function having lost its rigour, its product assortment was a mess. In effect, Flipkart’s service was neither cost-efficient nor particularly appealing to customers: a most wasteful combination. If the quality of goods improved and its assortment could be enhanced, the company would see an increase in sales as well as a drop in costs. Such was Binny’s confidence in this assessment that he instructed his team to reduce discounting. He wasn’t interested in ‘buying revenues’ by offering mindless discounts or entering a price war with Amazon in the smartphones business, which comprised about half of all e-commerce in India. Though these moves were evidently risky, he was willing to give up a few millions in sales to make the business truly healthier.