An inevitable flip

The churn in Flipkart holds a key lesson for Indian e-commerce

The change of guard at Flipkart, where Kalyan Krishnamurthy has replaced Binny Bansal as the chief executive officer (CEO), is a significant and welcome development. Mr Bansal, along with friend Sachin Bansal, had founded Flipkart in 2007. The two were hailed as the flag-bearers of the Indian e-commerce revolution, who changed forever the way Indians bought books, mobile phones and apparel. For over nine years they steered the company and now it will be run by a professional. There is some speculation that this change of guard has been prompted by the company’s upcoming listing in the United States. The change at the CEO level comes at a time when Flipkart’s main competitor Amazon has upped the ante and committed large sums of money to the Indian market. Moreover, Alibaba (of China) could enter the market soon. As such, competition is getting tougher, and Flipkart does need fresh ideas to take on rivals.

More than anything else, though, the departure of the founders from the driver’s seat — Binny had replaced Sachin as CEO last year — means that no business can chase growth indefinitely at the cost of profits. Flipkart, and most others in e-commerce initiatives, scaled up sales in the initial years by offering deep discounts. So long as the euphoria over Indian e-commerce lasted, investors didn’t mind the losses. But it was an unsustainable model. By the time reality struck, Flipkart was deep in the red. Although it tempered the discounts, struck exclusive deals with mobile phone makers such as Motorola and LeEco, and did well with its fashion portals, Myntra and Jabong, profits were still far away. Soon, its valuation began to shrink, which crimped the company’s ability to raise fresh funds.

The elevation of Mr Krishnamurthy, who is an appointee of Tiger Global, is an indication of the change that is sure to affect the world of start-ups soon. Private equity funds, which see no return on investments even after five years or so, have started demanding change. In the past, they have driven consolidation in the sector. It is now clear that they won’t mind placing their man at the helm if the performance of the company is not to their satisfaction. Expect more such switches in the days to come, especially given the high mortality in start-ups.

Funded by easy money, a host of start-ups had thrown the conventional business wisdom of becoming profitable as quickly as possible to the winds and focused instead on how to scale up the business. It is now clear that the basics of business remain the same, whether it is in the old economy or the new one. Even though they are no longer responsible for Flipkart’s profit and loss, the contribution of the Bansals to the e-commerce and start-up ecosystem in India cannot be undermined. The idea behind Flipkart was theirs, and if it requires professional help to take the idea forward in a sustainable way, so be it.