by Mihir Dalal
But by early 2017, Son had given up on the company and Kunal. He had always known that Snapdeal’s infrastructure and e-commerce operations were inferior to those of Flipkart and Amazon. He had hoped that the e-commerce market would become so large that Snapdeal’s leaner business model would emerge victorious. He also had tremendous faith in Kunal’s ingenuity. Then, after the e-commerce slowdown of 2016, he realized that the market wouldn’t sustain more than two large retailers and that Snapdeal wasn’t going to be one of them – Kunal had failed him. It made little sense for SoftBank, which had already invested $1 billion in Snapdeal, to continue pouring money into the struggling company.2
So, when Son received the call from Lee, he was receptive to the idea of investing in Flipkart. He had one condition: Lee had to help him out with his Snapdeal problem. Son proposed that Flipkart buy Snapdeal, after which SoftBank would invest in the merged company. He would also buy shares from Tiger Global, giving Lee the much-needed part exit from Flipkart.
The merger made little business sense. Snapdeal was a marketplace platform with completely different technology and logistics systems from Flipkart’s. It was seen as a downmarket brand whose service was unreliable. Managing Snapdeal was going to be a nightmare for Flipkart executives. One newspaper pointed out that the proposed merger was a rather ‘desperate attempt at financial engineering by the country’s two most influential startup investors’.3 Still, for the Flipkart team, SoftBank’s allure overshadowed all their misgivings about absorbing a struggling rival. SoftBank’s cash and its disposition as a freewheeling investor would be of great help to Flipkart against Amazon. Besides, they could always just shut down Snapdeal after buying it. And of course, the price would have to very low – a fitting end for a company that had prided itself on offering the best deal.
An outline of the sale was agreed upon in April 2017. SoftBank would invest about $1–1.5 billion in Flipkart directly, and buy Flipkart shares worth $500 million to $1 billion, chiefly from Tiger Global. Flipkart would take over Snapdeal for about $1 billion or lesser in stock. It was a hugely disappointing outcome for the Snapdeal investors, of whom there were more than two dozen. Just as Lee had spotted Flipkart’s potential, they had seen Snapdeal as a once-in-a-lifetime investment that would shape their fortunes. A sale at $1 billion was a terrible comedown for a company that had been valued at $6.5 billion just one year ago. And the compensation wouldn’t even be in cash.
This time, even Kunal seemed to have lost his swagger. His colleagues muttered to one another that the man who had seemed indomitable had all of a sudden aged visibly in months. The sale process, chronicled almost daily in the media, was a humiliating experience for Kunal. He had thought of himself as a first-rate entrepreneur, superior even to the Bansals of Flipkart. It was a view that had been reinforced for years by the Snapdeal investors. To be forced to sell out for a pittance to his rivals – people he had criticized and ridiculed for many years – was deflating. No one was calling him a genius any more. He had become irrelevant. Even some of his own investors had turned against him. In April 2017, Kunal indicated that the fate of the company was out of his hands. In an email to employees, he wrote that Snapdeal investors were ‘driving the discussions around the way forward’.4
It was true that the Snapdeal investors had taken matters into their hands, but the real picture was more complex. Not only had some of them lost faith in Kunal, they had also turned against each other as they scrambled to salvage their own interests. For many months, the board had become dysfunctional, with individual members locked in a civil war.5 A former Snapdeal executive aptly called it the tragedy of the commons.6
Snapdeal had, in fact, been forced to pass up two funding offers because of the rift between the board members. At the heart of the matter were greed and egos. SoftBank had offered to invest more in Snapdeal but its conditions would have led to a slide in the ownership of other shareholders and given SoftBank almost complete control over the company. This was unacceptable to the other shareholders, who promptly exercised their veto to bury the deal. The impasse continued for months even as Snapdeal’s cash reserves fell to alarmingly low levels.
After months of parleying, SoftBank finally brought around some of the key players by offering settlements in July 2017. The Snapdeal founders, too, reluctantly agreed to explore the sale offer, provided that their terms – lucrative cash payouts for them, no job losses for employees, and a few other conditions – were met. The Snapdeal and Flipkart teams leading the negotiations were set to meet in Bangalore on the last day of the month to seal the merger. Just one day before the meeting, however, it was cancelled. Tragedy had struck again. Pouncing on the indecisiveness among Snapdeal shareholders, the company’s founders called off the sale.7 SoftBank’s hope of salvaging its investment was buried. The other warring investors were leftwith a holding that had lost most of its value. Snapdeal would continue as an independent company, but only in a much-shrunken form, selling assets, cutting jobs, vacating many product categories. But at least the company’s founders and their investors had their pride intact.
Back at Flipkart, its executives and investors were overjoyed. They were saved the distraction of managing a complicated asset, and they would still enjoy the benefits of the engagement. This was because SoftBank had decided that it would invest in Flipkart regardless of the failed merger. On 10 August 2017, less than two weeks after the sale fell apart, both SoftBank and Flipkart announced the investment. SoftBank would pour more than $2.5 billion into the online retailer, the biggest deal ever at an Indian startup. About $1.4 billion would go directly into Flipkart and shares worth more than $1 billion would be purchased from Tiger Global and a few other Flipkart shareholders. Flipkart’s cash reserves now swelled up to more than $4 billion, providing the company enough ammunition for many years to come.8
As an observer put it, Flipkart had got ‘the milk without buying the cow’.9
IT HAD NOW been more than eighteen months since Sachin Bansal had last been CEO of Flipkart. In this time, he had been a remote presence at the company, kept at a distance first by Binny, then by Kalyan. He could do little about it other than feel agitated. He was raring to come back to an operating role. He had started preparing the ground for a return. In May 2017, he had taken the government relations function back from Nitin Seth. He had begun to spend time with Flipkart’s engineers, discussing innovative ideas and the new technologies in which the company needed to invest. He had been urging Kalyan to appoint a chief product officer in order to further the technology agenda, which he believed was being neglected.
His clashes with Kalyan had continued unabated, even after Nitin Seth’s exit. Their relationship was so evidently broken that it prompted an intervention from the alarmed Flipkart board members, who suggested that the two, along with Binny, see a leadership coach to resolve their differences. This was a popular practice at Silicon Valley startups where many entrepreneurs, including Steve Jobs, Jeff Bezos and Larry Page, had engaged leadership coaches.10
Lee Fixel arranged for Jim Kochalka, an experienced coach that Tiger Global had employed previously, to work with Sachin, Kalyan and Binny. Kochalka, an American in his sixties, met the three Flipkart leaders and conducted sessions where they were asked to air their views – even the unpleasant ones – about one another. Kochalka recommended that Sachin and Kalyan spend time with each other, just the two of them. By speaking with each other regularly, they would be forced to sustain a working relationship at the very least. Around the middle of 2017, Sachin and Kalyan began to meet regularly and, over the following months, their relationship showed signs of improvement.11
In July 2017, Sachin introduced a new brand he had personally conceptualized. It was, unsurprisingly, called Billion. Unlike a traditional brand that restricts itself to a specific category or group of categories, Billion would serve all categories from home appliances and fashion to phones and other electronic goods. It was Sachin’s first major initiative after he had stepped down as
CEO in January 2016. The purpose of the brand was to offer products designed specifically for Indians, who Sachin believed weren’t satisfactorily served by most international or domestic brands. He explained that the name Billion represented ‘a billion aspirations for a billion people’. Billion would create products that met these aspirations in ‘the best possible manner’.12
As the year progressed, Sachin’s vibrancy grew. He was in a particularly ebullient mood after the SoftBank funding round. While his colleagues were locked in negotiations with their counterparts at SoftBank, Sachin had built a rapport with Masa Son. Son loved big-thinking, daring entrepreneurs like Sachin and they had hit it off. Sachin knew that it was no small thing to have the backing of the world’s most powerful tech investor.
A few months after the SoftBank funding round in August 2017, certain that he would have Son’s support, Sachin expressed his desire to Lee: he wanted to become CEO of the Flipkart Group. Sachin believed that he had spent enough time on the margins. Now that Flipkart had stabilized, he was ready to take back the reins. Now, with more than $4 billion at Flipkart’s disposal, he was eager to resume the pursuit of his $100 billion dream.
Lee was alarmed. Having lost faith in Sachin’s ability to run Flipkart, he wasn’t sure what to do. Sachin had proved to be an abrasive, polarizing manager. Lee also knew that Kalyan would never agree to work for Sachin. The two were almost irreconcilable. Though their relationship had improved, the rifthad not been closed. For the purpose of recruiting senior leaders, Flipkart had formed a committee that included Sachin, Kalyan and Binny. But in the whole of 2017, the company failed to finalize a single hire primarily because Sachin and Kalyan could never come to an agreement. Both had veto powers which were exercised generously. It was indeed inconceivable that the two of them would work together. Not to mention, Flipkart was doing well under Kalyan, meeting its targets every month, operating like a well-oiled machine. Lee had no inclination to cause any disruption in this most essential of tasks that he had himself set for the CEO.
Eventually, to placate Sachin, Lee told him that he would first have to improve his leadership and interpersonal skills, rebuild his relationships with his colleagues and continue with the leadership coaching. Sachin agreed. He believed that the sessions with Jim Kochalka were going well. Just as he had in 2014, Sachin was convinced that he would, after his long hiatus, return to the driver’s seat.
24
A JOURNEY TO BENTONVILLE
‘Nobody is a permanent friend, nobody is a permanent enemy. Everybody has his own self-interest. Once you recognize that, everybody would be better off.’
– Dhirubhai Ambani in Ambani & Sons, Hamish McDonald1
The large infusion from SoftBank had satiated Flipkart’s capital needs. Now the company could think of preparing for an IPO. It was going to take many years, and by any measure, it was a long shot. In the financial year 2016–17, Flipkart’s losses had shot up, by nearly seventy per cent, to ₹8,771 crore. Its revenues had increased, by twenty-nine per cent, to ₹19,854 crore.2 These weren’t pleasing numbers – neither the revenue growth that was paltry in a vast, promising market, nor the loss figure that was outright shocking. It was true that the results had been distorted by one-time charges, but it was also evident that Flipkart was nowhere near attaining profitability, a must for any company looking to list its shares publicly. There was a lot of work to be done. For all of Sachin Bansal’s obsession with the one billion figure and with taking e-commerce to the masses, less than ten million people shopped on Flipkart every month.3 This number would have to multiply many times over for the company to have any chance of pulling off a successful listing. Its dream of going public looked all the more improbable because, for their part, Amazon wasn’t letting up. It was pushing Flipkart to the hilt every month, expanding its range of products, entering new businesses such as payments and food retail. There was no doubt that for many years to come, Amazon would continue to throw billions of dollars just to achieve its goal of toppling Flipkart.
Still, the fresh capital from SoftBank had reassured everyone at Flipkart. SoftBank’s financial might and global network in the technology world would undoubtedly be a robust prop as Flipkart pursued its IPO dream. Certainly, after a long period of ceaseless volatility, the Flipkart team could look forward to working in a relatively stable, productive environment.
It thus came as a surprise when, around the time Flipkart finalized the SoftBank deal, the company was approached by a now-familiar figure: Walmart. The world’s largest retailer had walked away from a deal with Flipkart exactly a year ago. The Walmart executives were so underwhelmed by what they had learnt about the company that they hadn’t even bothered mentioning to Walmart CEO Doug McMillon that he should look into the Indian e-commerce company. Flipkart liked to think of itself as a large company, but for Walmart, ‘big’ had a different meaning altogether. In the financial year 2016–2017, Walmart recorded sales of $486 billion.4 This was nearly a quarter of India’s entire economy. But it wasn’t that Walmart sought only large deals. In e-commerce especially, it was open to smaller, innovative businesses. But the firm had to be growing very fast; for Walmart, that was the only draw where an internet business was concerned. In 2016, when Walmart had considered investing in Flipkart, the Indian startup was in the early stages of its turnaround, and all its key metrics were askew. But the fact that Walmart had indicated serious interest in buying a stake was encouraging. Some Flipkart investors were convinced that the American retail giant would return to the negotiating table in the future. India’s restrictive foreign investment rules meant that, for Walmart, Flipkart would remain an attractive point of entry into the local market.
Their conjecture turned out to be right. However, Walmart had also approached other local e-commerce firms including Snapdeal. Over the last year, Walmart’s seriousness about making a minority investment in an Indian retailer had grown considerably. Its executives wanted to avoid making a late entry here, their anxieties intensified by the sight of Amazon charging ahead. Walmart had also become more confident about the market. It had been running a wholesale unit in India since 2013 which was advancing nicely.
In September 2017, a meeting was set up between Binny Bansal and Dirk Van den Berghe. An imposing Belgian in his fifties, Dirk had been promoted to CEO of Walmart Canada and Asia a few months ago. Binny and Dirk met over breakfast in a private suite at a five-star hotel in central Bangalore. Binny expressed his admiration for Walmart and expressed his hope that the two companies could work together. Flipkart had a lot to learn from Walmart, especially in the groceries business which was Walmart’s forte.
After this amicable first meeting, things moved quickly. Walmart had also met Snapdeal executives, but the company was in a shambles, shrinking in size every month, barely getting by. There was no comparing it with Flipkart, which by now was thriving again.
The following month, in October 2017, the Flipkart team flew to the Walmart headquarters in Bentonville, Arkansas, to carry on the discussions. The weather there was cold, with temperatures dropping to the single digits at night. Bentonville, a city with a population of less than 50,000, is an unlikely base for a retailing behemoth. In such a small southern American city, it is startling to spot a number of Indians, who have moved there to fill up the satellite offices of IT firms. Expectedly, Walmart’s presence is inescapable. The company is the city’s biggest employer, its stores and offices are landmarks. Walmart also maintains a museum that records the company’s history since its founding in 1962. Some of the older residents in the city personally knew Sam Walton, the company’s founder who died in 1992.
At the Walmart offices, the Flipkart executives met with Doug McMillon and other senior leaders of the company. Doug was only the fifth CEO in Walmart’s history. He was a Walmart lifer, having joined the company as a teenager. At fifty-one, he had already been CEO for four years. Doug had steadied Walmart after its image had been tainted by a bribery scandal in Mexico. He had made some bold
moves, buying several online retailers and increasing the use of technology in Walmart’s operations. He was known as an ‘intensely friendly’ CEO.5
Doug was taken with the Flipkart team, particularly by Sachin, who came across as a sincere, innovative entrepreneur. The Flipkart executives returned to Bangalore at the end of the month, confident that a sale of five to ten per cent of the company’s shares would soon be finalized. A strategic partnership with the American retailer would surpass all previous deals, including the gigantic SoftBank funding. Walmart was the most feared name in retail and its determination to prevail over Amazon was even stronger than Flipkart’s own. With the might of Walmart, SoftBank and Tencent backing Flipkart’s, Amazon would face an uphill task in overtaking its local opponent.
By now, Flipkart had already posed a direct question to Amazon: did it want to continue battling Flipkart? At an elite financial services conference in the US – around the time Walmart had approached Flipkart – Sachin had come across a known but unfamiliar rival: Jeff Bezos. He had wondered if he could tempt the Amazon founder – whose eagerness to succeed in India was well-established – into making a bid for Flipkart. Sachin had known that Bezos would be attending and had prepared extensively for the meeting. He had assembled data on the latest sales, losses and other business metrics at both Flipkart and Amazon India. He presented to Bezos these numbers which showed that Flipkart was still comfortably ahead of its rival in sales despite spending far lesser. This was because of the superior local knowledge and innovative abilities of Flipkart, claimed Sachin. Flipkart now had more cash than ever and it was only going to get stronger, he insisted. Did it then make sense for both companies to keep burning cash by fighting each other? Wouldn’t it be better to join forces, combine each other’s strengths and dominate the market profitably, asked Sachin of the Amazon founder.
