Is Flipkart Heading the Apple Way?

Flipkart is India’s leading e-commerce company with a current market valuation of $15-billion. It’s been in the news for a variety of reasons; some good and some not so good. Flipkart’s market valuation has been a source of both envy and inspiration for other start-ups, many of which have been witnessing a lot of venture capital interest post 2010. But of late, Flipkart has also been witnessing a lot of churn at the top.

Sachin Bansal Making Way for Binny

It began with co-founder and CEO Sachin Bansal being replaced by Binny Bansal, the other co-founder, as CEO in January 2016. And from the 9^th of January 2017, Kalyan Krishnamurthy has replaced Binny Bansal as the company CEO. Binny has been designated Group CEO, with Kalyan reporting to him, at least on paper. In reality, Kalyan now holds complete operational charge of the company while Sachin will continue to play a strategic role as Executive Chairman. Binny will hold charge of finance, administration and other arms of Flipkart.

Remember John Sculley at Apple?

In many ways, the move to bring in Kalyan Krishnamurthy as CEO is reminiscent of John Sculley replacing co-founder Steve Jobs as CEO at Apple. There are a lot of similarities here. Sculley served as President at PepsiCo before he was brought in by the Board of Apple to replace Steve Jobs as the company CEO. Jobs was ultimately ousted from the company by Sculley. While Sachin and Binny Bansal are still very much a part of Flipkart, are we set to have an Apple encore? Flipkart has been witnessing dropping sales, mounting losses and high attrition, with many industry analysts questioning the company’s high valuation. Flipkart is keen to raise another round of funding at its current valuation of $15-billion; but under the current status, this is going to be challenging.

Enter Kalyan Krishnamurthy

45-year old Kalyan Krishnamurthy, has been associated with Flipkart earlier when he was drafted in to turn around the company’s mounting losses in early 2013. He was hand-picked by Lee Fixel of Tiger Global, which happens to own 30-33% of Flipkart, and was given charge to get the company back on the growth and profitability track. He made his impact and gained respect of the staff at Flipkart as a person who knew what he was doing and someone who had deep insight into the e-commerce business. Being his own man and enjoying the confidence of the board, he went about introducing changes that didn’t really go down well with the two co-founders, especially Sachin Bansal. And now, with Binny Bansal being replaced with Kalyan within a span of 12 months, there is bound to be heartburn with both co-founders, just as Steve Jobs had his wings clipped at Apple before being finally shown the door from the very company he founded. The big question is, is Flipkart going to be another Apple story where a full time professional replaces the co-founder and takes control of the company’s future?

The Big Billion e-Commerce Game Vs Amazon

So far, the move to introduce Kalyan Krishnamurthy seems to be working in favour of the company, given the better-than-expected performance during the recent Big Billion Day sale of Flipkart in 2016. After a bad 2013, in 2014, the company held its first Big Billion Day (BBD) sales that generated much hype and interest. Large number of customers went online, some for the first time, to hunt for bargains in almost all product categories. While the event was an unprecedented success, the company was not geared to ship out such large numbers within the committed delivery timelines. This led to a customer backlash that took the company to task on various social media platforms. At around the same time, Amazon, which had recently made its entry into India, began to make major inroads into Flipkart turf by pulling away major clients of Flipkart like Motorola and Xiaomi, both of which had exclusive contracts with Flipkart for their smartphones. The BBD fiasco and Amazon’s entry was a double whammy for the company which now faced rising losses.

Enter Kalyan Krishnamurthy for his Second Stint

After differences cropped up between Kalyan and Sachin Bansal and also, to some extent, with Binny Bansal, Kalyan was pulled out by Tiger Global but they ensured Binny was put in charge. Binny began to ruthlessly introduce 'perform or perish' policies and introduced several measures to halt the slide. But with Amazon breathing down Flipkart’s neck for the Numero Uno position and poor numbers forcing the valuations to dip, Tiger Global once again decided to bring in Kalyan into the company last year and he immediately took charge of ensuring the BBD in 2016 would be a success. The results have validated Lee Fixel’s faith in Kalyan, as the company demonstrated that it could wrest back initiative and performance from Amazon. And to continue his run, the Board has placed their faith in Kalyan and has handed him complete control over company operations as its CEO. This could well be Flipkart’s 'Apple' moment, when an outside professional has taken complete charge by dethroning its founders, who can do little but watch and play along. However, this may not necessarily be a bad thing, as long as it delivers the expected results.

Bansals Smarting?

But with the Bansals together holding 14-15% share in the company, any slip up by Kalyan is going to raise the heat in the boardroom. Kalyan has so far demonstrated that he is a people person, and with sound knowledge of the business, he enjoys wide respect and support from the board and employees. His hard decisions have so far yielded positive results, but the high attrition rate has also caused a lot of heartburn amongst the existing staff. John Sculley at Apple, too, had faced a similar situation. He was a cut-n-dry numbers guy who did not hesitate to take hard decisions. But when sales went south at Apple, it was a matter of time before the board realised they had made a mistake in handing him control, at the cost of Steve Jobs. And Sculley was shown the door. As long as Kalyan can hold off Amazon and keep the losses in check, he will have the Board’s and employees’ support, but if losses continue to mount and valuations fall, don’t expect the Bansals to lie low. So, will Flipkart break out of its current situation and return to the pace of growth seen earlier, or will it go the Apple way, with Kalyan paying the John Sculley price? Only time will tell.