According to a source, Tiger Global MD Kalyan Krishnamurthy has been running the show behind the scenes for the past year, and no more funding will happen until the firm gets turned around
Flipkart on Monday appointed Kalyan Krishnamurthy, Managing Director of Tiger Global Management, as CEO, while Co-founder Binny Bansal got elevated to the role of group CEO. Krishnamurthy joined Flipkart from Tiger Global, one of its active investors, in June last year, and had been Head of Category Design at the company.
“We are now ready to build the Flipkart of the future as we continue on our journey of transforming commerce in India through technology. I am confident that this new organisation structure will deliver further value for Flipkart group,” Binny said in a statement.
But the question now is this: Is Binny really confident in driving value to the Flipkart group, which counts among its subsidiaries leading fashion e-commerce venture Myntra, which it acquired for about US$300 million in 2014? The recent unfolding of events in the group company suggests otherwise, though.
The rejig comes at a time when the Bangalore-headquartered e-commerce player is going through its worst period in the recent history, after the continuous markdown of valuation by its investor Morgan Stanley. Adding to the worries, the e-commerce firm — which has garnered over US$3 billion in funding thus far — came under severe attack from industry people after news reports suggested it paid unreasonable salaries to some of its top employees, that even its close rival and global e-commerce major Amazon did not pay.
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It is clear that the e-commerce giant, once considered as the poster boy of the Indian startup ecosystem, is in a shambles. Flipkart, one of the first home-grown tech companies from India to enter the coveted global Unicorn startups club, is clearly losing out to close rival Amazon, which came to India five years after the former’s launch in 2007. Flipkart enjoyed an invincible run until the entry of Amazon in 2012, and it has since been losing ground. The US-based company acquired signifiant marketshare and tens of thousands of consumers through a systematic marketing strategy and by offering better user experience and services.
Tiger Global under severe pressure
As per some reports, the elevation of Krishnamurthy means Binny and Sachin Bansal, the iconic co-founders of Flipkart, are losing out operational control of Flipkart, which has been struggling to raise fresh investments. A highly-placed source told e27 that Krishnamurthy has actually been running the show at Flipkart for the past year, but the official designation is changing only now. Lee Fixel, Partner at Tiger Global, is under enormous pressure from top bosses to turn the company around, according to our source. Fixel reportedly has clear instructions that there will be no more investment from Tiger Global until it happens.
As per market estimates, the marketshare gap between Flipkart and Amazon is growing thin, and the US firm can topple Flipkart anytime in the near future. No wonder then that Co-founder Sachin Bansal called the government for protectionist policies at an event in Bangalore to protect Indian startups from foreign threats. But his comments were misplaced and unnecessary. Leading VCs and industry experts denounced him for the “weird” demand which, if implemented, will sound the death knell for the ecosystem, which flourished on an open and free economy.
Kalyan Krishnamurthy is the new Flipkart CEO
Kanwal Rekhi, a highly-respected investor and founder of India- and US-based VC firm Inventus Capital Partners, called Flipkart a foolish startup, saying it is unfair for it to seek government support in bailing it out. In his view, companies should be allowed to fail, and failure is very much part of the entrepreneurial process as much as success.
“They (Flipkart) were trying to do something which was sort of undoable and they were throwing money at it. And now they have wasted billions of dollars and have failed in the marketplace and are now looking for protection. That’s not the right way to think,” Rekhi said in an interview with Entrepreneur.com.
It is a fact that most Indian startups are clones of Western players — Flipkart is no exception. The Bansals were once employees at Amazon, who then quit their jobs to set up the company back in India. Started as an online book seller, Flipkart gradually built a successful e-commerce business through innovation and hard work. But when a foreign company with a huge war-chest forayed into India, the real competition began.
Death of the ‘Bangalore model’
According to Mahesh Murthy, a known detractor of Flipkart, the elevation of Krihsnamurthy to CEO means the death of the so-called Bangalore model.
“It is the death of the Bangalore model, which is create a copy-paste, get highly-funded, and look for an exit. The reality is that it is someway a good day for Indian startups that innovation is the only way to go, not the copy-paste model or high valuation. Actually, it sends out a a good message to all entrepreneurs out there.”
But none of the startups people that e27 spoke to did not agree with Murthy. A serial investor and small-time angel investor based in Bangalore told us, on the condition of anonymity: “Every company will need different types of CEOs during its different phases of growth. In some cases, a single person adapts to changing challenges and become that type of CEO that phase needs. Sometimes you figure out it’s not easy for the person to adapt and so bring an external person. It’s just a business requirement.”
“It is sad to see that this particular event is used to target the founders. They did build a great venture, educated society about digital commerce and helped create e-commerce market in India. Let’s say a big thank you and hope that they get the value for their efforts. At the end of the day, if Flipkart grows, so does the stocks they hold. Building a business even 1/1000 of Flipkart needs tonnes of hard work and smart work. I bow to them. They did inspire many and will continue to do so in future as well,” he added.
Some others offered a different view altogether. “Maybe, IPO is around the corner for Flipkart, and they have to look around and see if there are better qualified options for senior management team to manage a business at the scale and increase the valuation,” another entrepreneur said, on the condition of being cited anonymously.
An exception, not the rule
“It’s sort of a new phase in the Indian e-commerce/tech industry with the first example of a professional CEO and the founders taking a less hands-on role. Some might see it as a case of investors calling the shots, but I think it’s an exception, not the rule, and also a function of the advanced stage Flipkart is at,” a Partner with a leading VC fund told e27, again on the condition of anonymity.
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“For the success of the broader ecosystem, it will still be vital that Flipkart succeeds and has a significant liquidity event. It looks like they have steadied the ship a bit in the last few months after about 18 months of miscues on product, HR, and customer satisfaction. I still do believe the company has a very viable path — especially if they can slow down growth to focus on product innovation, localisation and more profitable cohorts, but the road is not at all easy,” he commented.
Things are pretty clear that innovation is key, and good customer experience is what decides the success and failure of a company. It is sad that Flipkart has to undergo a severe test, but it is part and parcel of the startup journey. I hope Flipkart can do a stitch in time to save nine, and pass out with flying colours by thwarting all kinds of threats.
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Image Credit (Tiger): EcoSnap / 123RF Stock Photo
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