Big Billion Startup: The Untold Flipkart Story

sudden slump. Not only did he have to contend with a global technology champion with limitless capital, he was operating in an altogether new, frightening reality: a slowdown in the e-commerce market. This came as a terrible blow to the entire startup ecosystem. Investors, entrepreneurs, bankers and analysts who had predicted unabated expansion for many years to come, couldn’t believe that the market had already reached a standstill. They were shocked that the retail market had proved to be far trickier than the one they had seen in Powerpoint presentations and on Excel sheets. It made mockery – yet again – of the belief that the retail business in India could be as smoothly organized and rewarding as China’s. The slowdown had been caused primarily by the reduction in discounts by local e-commerce firms. When prices on shopping sites inched closer to the MRP, many shoppers deserted these platforms. It also came to light that some of the sales at these companies had, in fact, come from wholesalers, who had exploited the low prices by buying in bulk! As policies were introduced to plug this loophole, sales fell further. Flipkart’s internal problems, of course, didn’t help either. It was Flipkart and its innovations that had propelled the e-commerce market for years. But in 2016, Flipkart had lost the capacity to steer the market, preoccupied as it was in recovering from last year’s blunders.

In February 2016, Flipkart had been hit by another shocker. Morgan Stanley, a Flipkart investor, depreciated the value of its holdings in the firm by as much as twenty-seven per cent. A few months later, two other mutual fund investors in Flipkart also reduced the value of their holdings. These were only estimates: no transaction had been carried out at the marked-down prices. Nevertheless, the markdowns made for juicy news stories, especially as the firms behind them were Flipkart’s own investors.¹¹ For a startup, valuation is seen as the ultimate measure of success. Startups aren’t like public companies. Movement, upwards or downwards, in the shares of a listed firm is a matter of course, but if a startup suffers a fall in valuation, it’s a major embarrassment for its founders and investors. Flipkart’s markdowns solidified the impression that it was in deep trouble. The negative headlines just wouldn’t stop. In May 2016, the company deferred the joining date of its IIM hires by six months, citing an ‘organization redesign’.¹² It was an unavoidable outcome of Binny’s plan to reduce costs. This was hardly a tragedy, but it did tarnish Flipkart’s image. It seemed like the company was in free fall.

By the end of May, Binny had, in fact, started bringing about some big improvements in Flipkart’s business. In just five months, costs had reduced dramatically – by more than thirty per cent. Flipkart’s customer satisfaction scores were gradually inching upwards. Delivery times were improving. In an interview, Binny emphasized that Flipkart’s biggest priority was to be ‘very, very consumer-focused’.¹³ The most important metric at the company now was net promoter score, a key measure of customer satisfaction. If Flipkart kept customers happy, it was a matter of time before sales would start expanding, he assured.

But Binny’s investors weren’t placated. So far, in his five months as CEO, Binny had failed to recapture sales growth. Entrepreneurs are expected to find the balance between the pursuit of long-term objectives and the achievement of everyday goals. Flipkart’s investors believed that Binny was so consumed by long-term objectives that the current, more pressing matters – especially growing sales and holding off Amazon – weren’t getting the required attention. They believed it was high-minded of Binny to build a self-sustaining company, but it could not be done at the cost of growth. For investors, it was ultimately the only thing that really mattered: growth – how much, how fast. They had no inclination to pour any more money into Flipkart. Other investors would have to be found. Moreover, showing consistently high sales expansion was the only way to attract capital. It was also the sole means for its present investors to get at least some returns on an investment that was unravelling.

Flipkart was battling for its survival, and yet, its approach, under Binny’s leadership, didn’t seem to reflect this urgency. Increasingly, investors found it hard to shake off the feeling that Binny wasn’t moving fast enough. Their patience was running out.

In April 2016, Time magazine named Binny and Sachin in its annual list of the ‘100 Most Influential People’ in the world, calling them ‘nimble tacticians and hardheaded realists’.¹⁴ It was the latest recognition of their status as entrepreneurial icons. For a long time, it would also be the high point of their professional lives.

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THE TIGER CUB RETURNS

After Nitin Seth joined Flipkart as Chief People Officer, to look after the Human Resources division, he rapidly became one of the most influential leaders at the company. The much-mocked HR division is often seen as a necessary but annoying function filled with lazy paper-pushers. But Nitin wasn’t a typical HR chief. Having run large companies, he was very ambitious – for him, HR was just a point of entry into Flipkart. Within a few months he had not only formed a close relationship with Binny and Sachin, Nitin had also won the trust of some key board members at Flipkart. Nitin had prepared a blueprint to fix Flipkart that Binny encouraged him to present to the board. Thereafter, he would sometimes speak directly with Lee Fixel and Subrata Mitra of Accel Partners.

Lee had assigned two major goals to Nitin. The first was to reduce costs. This was something he had started working on even before meeting Lee. On his arrival at Flipkart, Nitin had been shocked by the state of the company. It was losing millions of dollars every week at an unacceptable rate. The company had become bloated, overstaffed, directionless. He saw that it would be foolish to add more employees. Within a few weeks of joining, he halted