by Mihir Dalal
In the 1950s, Nehru had labelled dams, factories, power plants and other large technological industrial projects by public sector companies as the new ‘temples’ of India.13 More than sixty years later, twenty-five years after India liberalized its economy, public sector companies were irrelevant in the technological arena. In the internet age, globally, a country’s technological prowess was increasingly being measured by the success of its private technology companies. For the US, it was Amazon, Apple, Google, Facebook and Microsoft. In China, it was Alibaba, Tencent and Baidu. In 2014, Sachin had been determined to put Flipkart in that league. Two and a half years later, when his dream was in tatters, his technological vision rejected by customers, colleagues and investors, it was expedient to call for protection. The seed for the Flipkart project – the idea that Indian engineers can create a world-class internet company – had thus germinated into a nation-building exercise that India was neglecting to nurture at its own cost. This evocation of the Chinese model was an instance of the formulation that, years later, one of India’s best-known intellectuals would describe as the ‘RSS meets Jio’ ideological world.”14
In any case, the viability of Sachin’s mission rested primarily on his ability to deliver massive amounts of wealth to its shareholders, a basic principle of capitalism. And Sachin, a fervent capitalist, had lost the confidence of his shareholders, the people higher up in the capitalist chain who no longer believed in his mission.
At the end of 2016, the Flipkart investors had, in fact, begun persuading Sachin’s co-founder, Binny, to hand over the daily running of the company to Kalyan. Lee, Kalyan and a couple of other key Flipkart shareholders were relentless in this pursuit. It took just a few weeks. In early January 2017, exactly one year after he had taken over from Sachin, Binny succumbed. Sachin’s opinion on the matter hardly counted. Starting in 2012, Flipkart had made drastic management changes at the end of every year. The tradition would continue.
Just like the previous year, on the second Monday of 2017, Flipkart announced its management changes. The company elevated Kalyan Krishnamurthy as its new CEO. Kalyan, who would turn forty-five later that week, couldn’t have asked for a better birthday present. Binny was given the Group CEO position, in light of the fact that Flipkart was shaping up as an internet conglomerate. Apart from its eponymous business, it owned two fashion-selling sites, Myntra and Jabong, as well as the mobile payment app PhonePe, which was picking up nicely, having received an unexpected boost from demonetization. Kalyan as well as the CEOs of Myntra, Jabong and PhonePe, would report to Binny. As was the case even earlier, Kalyan was really answerable to only one man: Lee Fixel. Still, Binny’s position wasn’t ceremonial. He would have a say in Flipkart’s strategy and management appointments. Sachin’s role remained unchanged: he would continue as Executive Chairman.15
There were other sweeping changes. About half a dozen Flipkart leaders who had worked closely with Binny, were moved to meaningless positions. It was Kalyan’s show now, and he had no use for them.
Before Flipkart had gone public with the news, Binny had informed his team in private. They were stunned. They were established corporate bosses who had held senior roles at companies far bigger than Flipkart. They had come to Flipkart, attracted by hefty compensation packages and to fulfil their dream of taking part in building India’s biggest internet company. But even before they could truly get a grasp of its workings, they were devoured by the vortex of its politics.
‘I’m sorry, but this is how it has to be,’ Binny told one of them.16 Within weeks, as many as five of Flipkart’s seniormost leaders would leave.
The only major player at Flipkart who came out unscathed was Nitin Seth. He had been promoted to Chief Operating Officer. He would now supervise Flipkart’s massive logistics business, apart from fulfilling his present charges of HR, strategy and other divisions. Though Nitin and Kalyan had struck a close friendship, Kalyan’s campaign for the CEO title had taken even Nitin by surprise. When Kalyan had re-joined the company, he was nominally at a lower level than Nitin. Nitin had played a crucial role not just in Kalyan’s return but also in his promotion a few months later. After realizing that it was futile to coax the Bansals and Kalyan to work together, Nitin had felt compelled to take sides in order to get things done.
He had chosen Kalyan, convinced that the Tiger Global representative would be the ideal sales head for Flipkart. Nitin had no idea that Kalyan would make a claim for the CEO post just a few months later. He had hoped that if Binny made way for anyone over time, the Flipkart co-founder would choose him. Instead, five months after helping secure Kalyan’s position at the company, Nitin found himself reporting to Kalyan. Nitin was a veteran of corporate politics, but even he had been blindsided by this twist in a coup he had helped carry out. In the process, he had alienated the Bansals who believed that Nitin had betrayed their trust. Some of the other senior managers at Flipkart also disliked Nitin, certain that he was greedy for power and had trodden over several capable leaders to get his way. As a COO, Nitin found himself in a strange place.
If he didn’t know it already, he would soon realize that titles held little meaning at Flipkart.
AMID THIS EVIDENT volatility, it would have surprised no one if Flipkart’s business began to suffer. Somehow, this wasn’t the case. The company hadn’t been run this efficiently in a long time. Costs were being brought under control, customer service was improving, Flipkart was continuously introducing smart business innovations such as a no-cost EMI scheme and a phone exchange programme, and most importantly, its sales were growing every month.
Flipkart had even kept Amazon subdued. After winning the crucial festival season sale battle, Flipkart continued to pull in higher sales than Amazon over the next few months. Kalyan’s ruthless quest for power had been carried out over months, but it hadn’t distracted him from the task of rejuvenating Flipkart. As CEO, his grip on the business had strengthened. With no one standing in his way, he made swiftdecisions.
Apart from Nitin Seth, Kalyan did away with most of Flipkart’s senior leaders, and instead worked directly with executives in the mid-management layer. Rather than hire experienced executives – as the Bansals had done – Kalyan preferred to groom junior managers whom he could mould as per his vision. He directly took charge of day-to-day affairs as opposed to CEOs who mostly concern themselves with strategy and high-level matters. He had dozens of people reporting directly and indirectly to him, far more than Binny or Sachin had when they were the chiefs. Most of the important sales roles were filled by his capable underlings, who were untiring in their efforts to implement his will. In a matter of months, he had shaped the entire company in his image. This was an unorthodox approach but one that was working well for the moment, as the improving sales numbers showed.
It was an opportune time for Flipkart to hit the market for capital. Though it had more than $1 billion in the bank, its coffers had to be replenished.17 New categories such as groceries were planned, existing categories like furniture would have to be relaunched, new infrastructure built, all of which would require lots of money. Besides, it had been nearly two years since Flipkart had last raised funds. A fresh dose of capital would remove any doubt about its decline, reassure all stakeholders, send a forceful message of counter-intimidation to Amazon. And it would allow the Flipkart team breathing room to run the business without apprehension.
Flipkart began to approach new investors in January 2017. Even after the valuation markdowns, the e-commerce slowdown, the harrowing experience of nearly being steamrolled by Amazon, and all the negative headlines, Flipkart executives still harboured some hope of raising funds at their preferred valuation of $15 billion. It didn’t take long for the illusion to be shattered. After meeting more than half a dozen investors, they found that no one was interested in doing a deal at that price. The company would have to acquiesce to a down round.18 A down round is seen as a humiliation by any fast-growing startup, and it was the same at Flipkart. But no one at the com
pany pondered over this for long. Flipkart’s priority right now was survival, and endurance.
While Flipkart’s standing had diminished, it was still, by far, India’s most outstanding internet startup. To investors, the company pitched itself as a nimble startup that had held off the formidable Amazon. It also dangled the untapped potential of e-commerce. Though e-commerce was well-established in Indian cities, a majority of the country’s people lived in semi-urban and rural areas. It was this market that Flipkart would now pursue, the company promised investors. Hundreds of millions of Indians in semi-urban areas still weren’t shopping online – they were all Flipkart customers of the future.
Once the company was willing to lower its asking price, discussions moved quickly. By the end of February 2017, Flipkart was confident that a deal was within its grasp. Talks with nearly half a dozen investors – all marquee firms like Google, Microsoft, Tencent and Paypal – had reached an advanced stage. By early April, the fund raise was finalized. Microsoft, Tencent as well as eBay had together agreed to invest $1.4 billion, valuing Flipkart at $11.6 billion.
Apart from Flipkart’s core business, the new investors had put a high value on the fashion platform Myntra, which was pulling off the rare feat of reducing losses while growing faster. They were also excited by the potential of PhonePe, which looked set to become a major player in the booming payments space. As part of the deal, Flipkart acquired the India business of eBay. It brought to an end a long struggle for the American company. Years before Amazon launched in India, eBay had kicked off in 2004, buying up a local startup called Bazee. Since then, however, eBay India had been tracking its parent company’s declining fortunes. Once considered superior even to Amazon, eBay was now – and had been for several years – seen as a second-rate company. In India, it had failed to get its act together despite the early start. EBay had considered buying Snapdeal twice but couldn’t summon the courage to move decisively. It now had to settle for a meagre price of $250 million for its India business.
But the funding round was primarily a vindication of Kalyan’s impact at Flipkart as well as a win for Nitin Seth, who had played a key role in formulating the pitch that the company made to investors. It was also a victory for the company’s founders. Sachin and Binny declared the round a ‘landmark deal’ for ‘Flipkart and for India’, and a ‘resounding acknowledgement that the homegrown tech ecosystem is indeed thriving’.19
Sachin, in particular, seemed energized by the deal. As soon as Kalyan had been promoted to CEO, Sachin had begun to assert himself again with force. He would demand specific data and business metrics from the sales, marketing and technology teams and comb through them for any signs of weakness. At a board meeting in early 2017, he found fault with Kalyan. ‘Sales from this set of customers has gone down. What’s the reason for it?’ he said to the CEO. The customer set Sachin referred to was small and its significance wasn’t apparent. Perplexed, Kalyan could give no answer.
Sachin would accuse Kalyan of not sharing data with him on a regular basis. He would also ask pointed questions to Nitin – whom he considered Kalyan’s proxy – about the rising attrition rate in the engineering team. It was an extension of his favourite theme: promoting technology. He admonished both Kalyan and Nitin, warning that Flipkart would lose its ‘innovation culture’ if it kept losing engineers.
But Nitin was confident that he was on safe ground. He had got off to a good start at Ekart, his primary responsibility at that point. When he had been given charge of the logistics service in January 2017, his mandate had been to reduce costs. He had accomplished this by abandoning wasteful automation efforts and cutting the share of orders that Flipkart outsourced to third-party couriers. He was looking forward to the board meeting at the end of April. Ever since he had joined the company, Nitin had been lauded by board members for his boldness and competence.
This time, though, instead of praise, what awaited him was censure. Lee started the inquisition, which turned into a barrage of criticism, knocking Nitin off his feet. ‘Our delivery times have gone down. Our service quality has deteriorated. What have you been doing?’ Lee demanded.
Others joined in. ‘Engineering attrition is high because of the rot in the culture.’ And it was Nitin who was responsible, they said.
Unprepared for this turn of events, Nitin had no comeback.
By the end of the meeting, Nitin had been informed that his role was being cut. He was asked to hand over Human Resources to his boss, Kalyan. This was yet another shock. Only last year the Bansals had resisted Kalyan’s return partly because they were worried about the influence it would have on the company’s ‘culture’. Now, they were fine with Kalyan taking charge of HR!
Nitin had no option but to agree. Still, the backlash against him continued. Even his equation with Kalyan seemed to change overnight. A few days after the board meeting, Kalyan advised him to resign. ‘The board has lost faith in you. You should leave,’ said Kalyan.
‘Have you gone mad!’ Nitin replied. He couldn’t understand what was happening. Only four months ago he had been promoted to COO, the second-most powerful position at the company. He had helped prepare the strategy for the critical fund raise and cut Ekart’s costs. He was in the process of moving his family – his wife and three children – to Bangalore from Gurgaon. He had enrolled his daughters in a new school. He had spent lakhs buying expensive furniture for the new house. Everything had been going so well. Then came this sudden thunderbolt.
Nitin refused to resign. He was a veteran corporate leader, well respected in the software business in India, had led organizations that employed thousands of people. And he was COO of Flipkart, where he had thrived. Even if somehow someone at Flipkart had decided that his performance hadn’t been satisfactory, no company would be insane enough to lose faith in its second-most powerful executive after just four months. He would fight for his job.
Over the next few days, Nitin tried speaking to all the major players at the company to understand what had gone wrong. He received vague, non-committal responses. One month after the board meeting in April, Kalyan called him into a meeting room at the headquarters. Alongside the Flipkart CEO was the company’s public relations head. Kalyan had brought him along in case things got ‘ugly’.
Kalyan came straight to the point. Handing Nitin a piece of paper, he said, ‘Here’s your termination letter. We will have to do this unless you agree to resign.’ He added that if Nitin chose to quit on his own, Flipkart would arrange a nice farewell and issue a glowing press statement about his contributions. He also promised to give Nitin the stock options that were to vest soon, along with a bonus payment due to him.
Nitin stormed out.
That night, he got an email saying he had been removed from the company.
23
THE SON
The unending tensions, power struggles and shocking turns had compelled many of its employees to liken Flipkart to the popular television series, Game of Thrones. Over the years, many executives had staked their claim to power, ruthlessly casting aside rivals, peers, friends, only to meet the same fate themselves. But it was a flawed analogy, as there was no question about who was both king and kingmaker at Flipkart: Lee Fixel.
Not only was Lee’s firm the largest shareholder in Flipkart, owning about a third of the company, Lee also had excellent relationships with every major player at Flipkart. His influence over other shareholders and board members, his standing with Sachin and Binny who had tremendous respect for him, his network of investor contacts and ability to arrange fund raises, and his overall credibility in the startup world, were unrivalled at the company.
The funding round in April 2017 had secured Flipkart’s future for the next few years. But it had been an unpleasant experience, eroding the company’s valuation. Lee believed that it would be ideal to accumulate so much cash that Flipkart wouldn’t have to worry about raising capital until it was ready for a stock market listing. It would forever liberate Flipkart executives from
the troublesome process of fundraising and allow them to direct all their energies towards running the business.
Most importantly, Lee really needed to show some returns on his investment. It had now been seven years since he had first put money into the company. That was a very long time in the venture capital business. He had also bet a huge amount: $1 billion. Parking that kind of sum in any company is risky, and when the company turned out to be as volatile as Flipkart, it was nerve-shredding, not only for Lee but also for his partners at Tiger Global and his fund’s investors to whom he was answerable. Lee needed to take some cash out.
Even before the $1.4 billion funding round had been completed in April 2017, he rang up SoftBank founder Masayoshi Son. Lee and Son had known each other for many years. They were co-investors in many startups. In 2012, Son’s conversation with Flipkart about an investment had ended abruptly as he had taken off on a long-pending vacation. By the time he returned, Flipkart’s engagement with Naspers had already moved to an advanced stage. Son later ended up investing a large sum in Flipkart’s rival, Snapdeal. Now, he had become one of the most influential figures in the technology business. He had shocked the world by drawing up plans for a $100 billion fund to invest in startups globally, including in India. SoftBank had become the preferred supplier by default for any startup needing large amounts of capital.
When Lee approached Son in early 2017, SoftBank had a mess on its hands with Snapdeal. After vying with Flipkart and Amazon for dominance of the e-commerce market for years, Snapdeal had become a much smaller company in 2016. It couldn’t raise the capital required to continue competing with its rivals. Still, Snapdeal’s new reality didn’t affect the bravado of its CEO Kunal Bahl, or his ability to spin headlines. As he said in an interview in 2016, for Snapdeal, ‘GMV was so 2015.’ GMV, or gross merchandise value, reflects gross sales, an unreliable measure of a startup’s financial health. What Snapdeal wanted to do now was ‘to build a real business’.1
