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Podcast | Books to Big Billion Days — The Bansals and the making of Flipkart

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Unless you』ve been living under a rock, you』ve most likely heard about the Walmart-Flipkart deal. Even if you are, you probably will hear of it because no stone larger than a pebble is left unquarried in India. It’s a vast right wing conspiracy to kill the stone pelting industry in India. But back to Walmart and Flipkart.

We』ve spoken about this mega deal before. Walmart is likely to acquire a 51% stake in Flipkart and, through the sale of shares by other investors as well, maybe even over 80%! Unless SoftBank springs a surprise, Flipkart as we know it may never be the same again. Walmart and Amazon, who lost out in the other big market that is not America, meaning China, are duking it out to control the retail space in India. Why? Because online retail in India is expected to touch 200 billion dollars in value in 2020.

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As we discuss these large numbers that just whoosh over my head, I』m gonna give voice to a question that is on every consumer’s mind – will Flipkart still have the Big Billion Day sale? Or should we just buy everything this year? Well, mitron, we don』t know yet. But I expect we』ll hear about it soon enough. But today, as India’s most recognizable online brand looks set to be subsumed into one of the giants playing the great game of global retail wars, let’s take a look at the Flipkart story and how two boys in Koramangala in Bangalore blazed a trail that would inspire so many others. And that’s not even an exaggeration. It really did start in Koramangala. Before it became the traffic-friendly utopia it is today. But the founders of Flipkart did inspire so many other startups, way before we my favorite business term from a sea of delightful jargon went mainstream – unicorn. Flipkart is the unicorn story that every Indian entrepreneur hopes to emulate in some form.

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So, let’s start at the beginning. Sachin Bansal and Binny Bansal. Not related, as many news articles will tell you. These two young men, in their twenties and just out of IIT, met and hit it off on a business idea. They decided to sell books online and in October 2007, Flipkart was born.

Recalling the start, Sachin Bansal had said, 「The idea itself is not new. The genesis of the thought to set up Flipkart came from the bad quality service provided by competitors. Our business opportunity was to do better than our competition in terms of service. Hence, our main mission was to focus on customer service…we had to choose a category that could facilitate getting started quickly. The low transaction size helped induce customer trials. With our strong technology background, we could keep the initial costs low.」

But first, a quick look at their antecedents. So Sachin and Binny Bansal. Not related. Both from Chandigarh. Both went to IIT Delhi. Both did time at Amazon. And hit upon the idea for Flipkart. Initial investment amount: Rs 4 lakh  or approx. $6,000.

But they weren』t really looking at creating another Amazon. Their inspiration lay eastwards. Sachin Bansal has always maintained that he saw Flipkart as an Indian Alibaba rather than an Indian Amazon. Looking back in 2014, he said, 「Yahoo had invested the same amount in Alibaba in 2005. It was the inflexion point in China then, exactly where India is today.」

That was an inspiring aside for those feeling down on their luck: Binny Bansal was apparently rejected twice by Google before he joined Amazon. That bittersweet tale could see a nice turnaround, with Google’s parent company, Alphabet, likely to be roped in by Walmart as a part of the Flipkart deal to pick up a $1 billion stake.

Because Binny Bansal’s company is now valued at over $15 billion – that’s before Walmart came looking for a passage into India and said something like $20 billion. Flipkart hosts approx. one lakh sellers on its platform and a registered user base of close to 100 million people. It has a catalogue of around 80 million products, accounts for over half of India’s online smartphone sales and claims three-fourths of the online fashion market. Not too shabby.

Back to the journey- Flipkart’s very first order came from Mahbubnagar in Andhra Pradesh, now Telangana. A web consultant wanted a copy of Leaving Microsoft to Change The World written by John Wood, who had served as director of marketing and business development for Microsoft in the APAC region. Sachin Bansal left a Flipkart link on his blog and, soon enough, an order was placed. 「It was not an expensive book, just about ₹500. I could afford to risk losing that money,」 the customer, VVK Chandra, recollects with a laugh.

A cheer went off in one of 2-BHKs in Koramangala that served as Flipkart HQ v1.0. But there was a hitch. Flipkart didn』t have a copy of the book. Never a good feeling, when your first order from a client is for something you don』t have. The partners searched all over Bangalore, even enquired across Delhi and Mumbai, and eventually got their hands on a dog-eared copy in a Sapna book store. The Bansals wrote to the customer in Mahbubnagar about the state of the book, who was impressed with their honesty. 「I thought, at least this is a real company,」 Chandra recalls. 「I felt like I could trust them.」

A couple of funny goof-ups later, the book was delivered. And Flipkart was off and running. They served 100 customers in their first month. By customers, I mean other than friends and family.

Here’s a bit of trivia: that book now costs Rs350 on Flipkart. Presumably a fresh copy.

And how’s this for a marketing strategy? The founders distributed bookmarks on Church Street in Bangalore outside Gangarams Book Store to promote Flipkart. 「We used to…hand over Flipkart bookmarks to the people coming out of the shop. In order to make sure that our targeting was right, we would give bookmarks to only those who were coming out with books in hands - people who have made purchases,」 said Sachin Bansal.

Flipkart has since become more sophisticated, and fun, with its marketing - you must have seen their TV adverts with the kids who talk in adult voices.

Now, the most interesting part of Flipkart’s success is that, in 2007-2008, they were attempting to win over customers who were new to online shopping. Most people were reluctant to conduct financial transactions online. What if that Nigerian prince, who used to mail us frequently back then, hacked our accounts and stole all our money? Flipkart was a pioneer in that scenario, building trust for an entire industry and e-commerce at large. And this is where they shone bright amongst a sea of posers and fly by night profiteers.

Since Flipkart’s success was dependent on quick and seamless delivery of their products, they took the plunge and launched their own supply chain management system. It was the first in India to provide the option of Cash on Delivery, which is now our default choice when we aren』t sure of a purchase but go ahead with it anyway. The Bansals』 hard work and persistence led to covering 60% of the domestic e-commerce market, and to 50 million customers buying everything from mobile phones to jewelry every day.

Sachin Bansal recalls that, 「When Motorola tied up with Flipkart for the exclusive launch of Moto-G in India, they were launching the product in India before the rest of the world. I would count that as an achievement for ecommerce. This would not have happened if there was not an unparalleled access to customers around India.」

And this confidence wasn』t misplaced.  One of the regular stories about Flipkart is selling out of limited sales. For instance, it took 5 seconds to get done with Flipkart’s entire inventory of Xiaomi Mi3 when the booking was opened for the second time for 20,000 phones. 「This is nothing but the power of ecommerce,」 says Sachin.

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The company’s growth drew attention as they approached investors. It received its first funding from Accel Partners in 2009 – 1 million dollars and opened offices in Delhi and Mumbai. At the start of 2009, Flipkart had hired its very first employee, a delivery executive who is now a millionaire. Flipkart also received $10 million in funding from Tiger Global Management. The valuation of the company was reported to be just nder $50 million. By the end of the year, the company had 150 employees.

In 2010, Flipkart launched its logistics arm, E-kart. This would prove a game changer. Sachin Bansal was named the Best Entrepreneur by Ernst and Young. The lower profile Binny Bansal seems to prefer adventure sports over the limelight. Speaking of their working relationship that was leading to more and more success, Binny told the Economic Times that they worked through the ups-and-downs by 「fighting every day."

By 2011, Flipkart had included electronics, mobile phones, video games, movies and music to its inventory and was delivering to 600 towns and cities across India. This was the year Flipkart became the de-facto online store. Any purchase anyone made on a computer in India inevitably included a visit to Flipkart. We were now getting habituated to the excellent delivery service that distinguished Flipkart from all other online retailers who struggled to compete with Flipkart’s efficiency.

Around this time, the company again raised $20 million from old investors Tiger Global. The fast-growing company also discussed funding with private equity funds like General Atlantic. This period marked an important milestone – Flipkart was valued at over $1 billion before the end of the financial year 2011-12.

This period also Flipkart’s first real blip. Flipkart acquired a startup named Mime360, and rejigged it for its own music business, Flyte. The music venture was launched in 2012 and bombed. It was shut down just over a year later. According to some reports, revenues from song downloads were fairly low, clocking less than 50% of the minimum guarantee amount, which was rumored to be around Rs 2-3 crores. The average revenue per user, or ARPU, was between Rs 9 and 12 per user, making it difficult to justify the minimum guarantee or any significant customer acquisition costs. Estimates say listener interest dropped by over 45% within a year and the business became untenable.

All things considered, Flipkart was now a big deal, despite some premature obituaries in the market and the media. Livemint reported that the company’s revenues for FY2012-13 stood at 1366 crores, a growth of 500%! Flipkart’s total loss in that year was 281.7 crores.

2013 is an important year for Flipkart. It’s bête noire, Amazon, finally entered the Indian market. Ok, bête noire literally means black beast, so that’s probably pretty 『colorist』. But then, Amazon’s logo is black in color. In any case, the retail wars were now on in full swing.

Amazon just had a larger range, deeper pockets and could absorb losses for longer. So the Bansal duo, up against their old employer, had to think of something before they ended up on the 『Death By Amazon』 list. Yes, that is a real list of businesses around the world that ended when Amazon showed up on their shores.   

Flipkart would now go on an acquisition spree as well as launch private labels to compete with Amazon. It acquired the fashion retailer Myntra in 2014. The company then raised $210 million from DST Global, taking its valuation to a cool $2.6 billion. And its electronic appliances business was flourishing after an embarrassing failure at launch.
The company learnt some hard lessons and had to shut it down in just months later as customer experience was adversely affected due to bad delivery, installation and after-sales service. But, as per usual, Flipkart learned its lessons and bounced back. It opted for soft launches, piloting with fewer products and smaller customer groups before scaling up.

A large part of the credit for the turnaround in appliances goes to Jeeves, an after-sales services company that Flipkart acquired in 2014. An in-house after-sales team helped Flipkart ensure quick turnaround times on the installation of televisions, refrigerators, washing machines etc. Most offline stores couldn』t compete with Flipkart on this—installations for store-bought appliances usually happen 24 to 48 hours after a purchase.

Let’s spend a minute examining one of Flipkart’s biggest strengths – logistics. E-kart, its in-house logistics arm, hekps the company cater to 90 percent of its demand internally, covering 6500 pincodes. For the record, India has 40,000 pincodes. To grasp how Flipkart uses logistics as a smart weapon, we need to look at the how they managed growth in the sales of large appliances. Unlike mobile phones or apparel, appliances like refrigerators, televisions and washing machines are bulky and can suffer damage in transit. Ekart built an entire supply chain infrastructure for large appliances, with dedicated warehouses and staff. Flipkart can offer one-day delivery on over 70 percent of large appliances from its dedicated warehouses.

2014 also saw a massive fund infusion for Flipkart. A $1B funding round from GIC Singapore and existing backers like Naspers, DST Global and Tiger Global pushed the company’s valuation to a stunning $7 billion, within the span of a few months. Some more funding and valuation climbed to $11 billion. Flipkart acquired fashion e-tailer Myntra for $300 million and then bought Myntra's competitor Jabong for $70 million. The results of all this activity would be there for all to see the next year.

2015 was another big year for Flipkart. The Big Billion Day Sale, what might as well be Indian online retail’s equivalent of the Black Friday sale in the US, was a major success for Flipkart. The investors thought otherwise but Flipkart became a firm favourite. The company sold merchandise worth $US 200 Million in just three days. They broke their own record in 2016 when total sales clocked 225 Million USD in three days.

Here are some numbers:  the number of shoes sold during the Big Billion Day Sale in 2016 was more than the total Shoes sold by all brands in India in a single day. Within 36 hours, Flipkart sold more TV Sets than the total number of TVs sold by the top Retailers nationwide. Flipkart now had a market share of 45%, far above competitors like Amazon and Snapdeal. Flipkart’s friendly rival Amazon was forced to have a large annual sale of its own just to stay in the reckoning! Flipkart was now in the big league, as were its founders. Media reports estimated that the Bansals were nearly as rich as Infosys co-founder Narayana Murthy, as their 15 percent stake in Flipkart was valued at approx. Rs6000 crore. That’s not a bad payday for two guys sitting in Koramangala. Well, actually, they did move into a bigger office but, in a nice touch, retained the old, smaller office that Flipkart teams sometimes use for brainstorming sessions. Nice guys, the Bansals. In 2016, Time magazine included Sachin & Binny Bansal in their list of 100 Most Influential people. The boys from Chandigarh were at #65 I Forbes』 list of the wealthiest in India for 2016, with a net worth of $US 1.24 Billion each.

That’s a pretty heady story. And now comes news of Walmart wanting to acquire a majority stake in Flipkart. Talks are reportedly at a final stage and Walmart is looking at a bill of anywhere between $8 billion and $12 billion, that 53,450 crore to Rs80,180 crore!

There are rumors that Sachin Bansal and Binny Bansal are looking at an exit from their creation. 「Sachin has plans to stay around, but Binny will leave… He might sell his entire stake and exit,」 sources told the media. They each own  a 5.5% stake in Flipkart. If, going by persistent rumors, the deal value is set at $20 billion, each of the Bansals stand to make $1.1 billion Rs 7,355 crore, if they offload their entire stakes.

「We want to be the largest retailer (online and offline) in India, and it will be foolish to exit,」 Binny said to Factordaily back in 2010. Those were different times. The Bansals were expecting Flipkart’s sales to cross Rs100 crore. In 2018, the company’s sales by gross merchandise value is expected to be in excess of $6 billion.

In the last couple of years, a large Flipkart’s day-to-day functioning has been handled by Kalyan Krishnamurthy, Flipkart’s CEO seconded by backer Tiger Global. Binny bansal is the group CEO.

Buit the exit seems likely. As one expert said, speaking about the deal, 「When a large international investor buys out a large stake, things change in terms of strategy and control. As a co-founder, one envisions running of the company in a certain manner. You cannot have two visionaries.」

Let’s leave the last word to the super successful boys-next-door themselves. Sachin Bnasal had said a few years ago: 「history will remember us for two things. To consumers, Flipkart will be remembered as the company that created Indian e-commerce, that brought to the average Indian’s doorstep a wide range of affordable, quality products. The other is Flipkart’s contribution in creating the startup ecosystem in India. Hundreds of startups focused on solving for India have been inspired by Flipkart to create products that improve people’s lives. Flipkart has instilled confidence in budding entrepreneurs that world-class tech-product companies can be built in India as well. These, I think, are our greatest achievements.」

Hard to disagree.