Flipkart started off from a residential flat and expanded to premises in prime areas in Bengaluru.
This is a fascinating book on the story of Flipkart which narrates the tale with panache. It is like a ball-by-ball commentary on all the steps that led to the creation of this rather amazing company to the time Walmart took over to make it a greater force in the e-commerce space.
The story is exciting because it is in a very happening business which could be the future of retailing. Set up by Sachin and Binny Bansal, it was a demonstration of how engineers who were not really brilliant while studying in IIT could come up with a rather unique idea and make it happen. They not only germinated the concept, but took it to fruition and made it profitable in the first year of operation. Like all successful start-ups, Flipkart started off from a residential flat and expanded to premises in prime areas in Bengaluru.
The story is very instructive of how to create a business, as it involves forging strong backward integration that goes into such a project as it traverses the supply chain. Flipkart sold books to begin with, where employees ran and procured them to satisfy orders. Next they went on to strike deals with distributors and publishers. Once they realised that there was need to be in control of the logistics as volumes increased across product offerings, there was need to have their own set-up and ‘ekart’ came into being. Getting into warehousing and logistics posed a challenge of not contravening laws, as they had permission for being a marketplace and could not actually store goods and had to only put buyers and sellers together. How they got around this challenge has been explained well by Dalal.
Funding of such ventures is a challenge to keep such not-so-profitable ventures alive. That’s how Tiger Global enters the story, when capital comes in and becomes crucial in this enterprise as it went on to play a role in choosing the management, which finally led to Sachin Bansal moving out. Capital allowed for expansion of the array of products offered, of which smartphones were the major driver. Here, too, tying up exclusive contracts with Xiaomi and Motorola was a strategy to capture market share, and this led to their great billion dollar sales.
Along the way one gets to know all the moves made by the company, such as easy returns with no questions asked, which also had associated issues of frauds by dealers who created dummy returns to claim damages that were offered by the company. The problem gets magnified when the array of products offered increases to include apparel, toys, perfumes, etc. But Flipkart actually set the rules by making such offers, as the competition had to follow the same to remain in the game.
Then in any such story there are interpersonal relations that have to surface and here the author spends a lot of pages explaining the conflict between Sachin Bansal and Kalyan Krishnamurthy, who was the nominee from Tiger Global. As the two did not get along, the latter left, but was reinstated later when the former exited. The limitations of the innovator and promoter come alive as the company expands when professional leadership was required in the growth stage. Dalal also takes us through the pitfalls of the idea of abandoning the website and moving to only the app, which impacted sales and supposedly gave Snapdeal an advantage. In such a marketplace there is a virtual oligopoly and it is market power in reverse where the one that delivers the best price and service to the customer stays ahead.
Are there any lessons that come out from this story? The first is that one need not be extraordinary to achieve something great. Competent engineers can build an enterprise which was quite revolutionary where they set the rules of engagement. Second, the entire business of a new start-up is experimental and everyone is learning every day as nothing can be anticipated. While new entrants have templates on what should be done, the inventor has no such signpost and, in a way, sets these rules. Third, to sustain and grow the enterprise funding is important and hence the model has to show potential even if not profitable and has to be strong. Fourth, with scale, there is need for professional help or rather leadership and while the promoters may not like to pass on the baton, it is necessary after a point of time.
Dalal’s book will go down as special as it brings to the fore the story of this remarkable enterprise that has in a way revolutionised the way in which we buy and sell goods. Now around 12 years old, consumers have access to a new experience that has, in fact, questioned the brick and mortar model, which may have to also reinvent itself. Just like how disintermediation gets rid of intermediaries, the ecommerce model shows how to shorten the value chain by getting distributors in touch with the consumer and provide a wider array of products that can never be replicated in a mall.
Madan Sabnavis is chief economist, CARE Ratings