Below is the transcript of an interview with Flipkart Co-founder Binny Bansal. The interview will play out in CNBC's latest episode of Managing Asia on 17 May 2019, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: You founded Flipkart in 2007 as an online bookstore. What was it like in the early days? How did you go about sourcing for books? And what was it like making deliveries on, on your bike?
Binny Bansal: So, I think you have to really go back. Two things, though we started only 12 years ago, it was a very different world from where it is today in India. There were absolutely no startups – of the two startups in India, one was selling online travel tickets with one or two hotels. There were like, 25, 30 million people on the internet altogether and I think half a million people were on the internet in India. So, it was a very different world and at that time when we got started, we would basically go to the local bookstores and the distributors in Bangalore and ask them to sort of partner with us at first. We talked to I think about 40, 50 such bookstores and distributors and only two decided to work with us on day one. So, we just started with two partners and 50,000 books listed on our platform on day one. Today, we have about ten million products on Flipkart.
C: As you grew your business, where did you get your supply of books from?
B: So, as we grew the business, obviously we tied up with more and more bookstores over the next 12 to 18 months. We had over 500 suppliers on the platform. So, once we got going and once we learnt how to grow it, we ramped up very fast. We were doubling every quarter.
C: You then decided to venture into electronics.
C: But that didn't take off at the start. In fact, sales for the first six months were actually zero. What was the problem and how did you fix it?
B: Yes. So I think once we had done well in books, got into a leadership position and felt that we had enough management, bandwidth and capital to get into a new category, we picked electronics. But the mistake we made was that we thought selling electronics would be exactly like selling books. So, we tried selling electronics in the same way for three to six months and the sales just wouldn't grow. We would be selling like 50 to 100 dollars of electronics versus books, which was again scaling 20, 30 percent month over month. But electronics was not growing at all. So, we figured out that the way to sell electronics was going to be very different. In India, books are very cheap so when you're selling a book, it's like maximum five to ten dollars. People are a little less risk-averse so they're okay paying online when it's five, ten dollars and they know that it's a book that they're going to get. Nothing much can go wrong with a book. But we were selling electronics which was priced at 200, 300 dollars. Then it became a big challenge because customers didn't want to pay online, they wanted to pay when they got the product. Secondly, they wanted to buy from a brand they could trust. So, Flipkart was doing well in books but it was not a known brand in India at that time. I think once we realized these problems, we basically did a few things. One, we started to build a brand. So, we came up with the interesting advertising campaigns to really build Flipkart as a brand. We also launched a 30 day no questions asked money-back warranty, which was first in India at that time. We also launched Cash on Delivery with our own logistics. Once we got these three things right, then things really started taking off. In 2011, we grew that electronics category in the whole business ten times in one year.
C: Then, you made your first acquisition in 2014 when you ventured into the fashion business. You spent something like 214 million dollars on this to buy over rival online fashion store Myntra. Were you having problems getting into the fashion business yourself? Or was it simply easier to acquire the company instead of building it up yourself?
B: Yes, I think it was a mix of things. So, we had started our own fashion business about a couple of years before…
C: Did you know anything about fashion?
B: No, not at all. So, it was like starting electronics again, we started selling fashion the same way we were selling books or electronics. But this time we knew that we needed some time to figure things out, so we gave ourselves time. Within a year, I would say we knew a little bit more about the category and at the same time, Myntra was also coming up as one of the fashion e-commerce leaders in India. We knew the founders because Myntra started at the same time Flipkart started in 2007. So, I think we bought them in 2014. In 2013, we were doing similar things - both Myntra and Flipkart were selling fashion in a similar way. At that time, deciding took a while but within a year, we saw Myntra doing a lot of things which were really different from Flipkart. So, the front-end became very different. They were investing a lot into private brands, so they were building their own brands as well which customers liked. They were really doing a lot of fashion-only things which Flipkart would never do on its platform. Flipkart was always known to be a horizontal platform. At the end of that second year, we were kind of neck and neck in sales. So, we thought it made a lot of sense having Myntra in the fold as well because that would help us when our customers were really fashion-first and fashion-forward. Flipkart worked to cater to customers who would prefer the right apparel or the right shoes and were seeking more value. So that way, we could attack both segments and it has played out really well. Since we acquired Myntra, it has grown almost 15 to 20 times within four or five years.
C: Then, you ventured into digital payments, but you only succeeded after three failed attempts. What were some of the lessons learnt and how did you finally get it right?
B: So, that has been a very big learning experience I think, looking at payments. We always believed that payments were going to be a big and very strategic market for us. That's why actually as early as 2012 or 2013, we made our first attempt at payments. But I think on hindsight, the market wasn't that ready for payments at that time. Then I think after a couple of years of that not working, we made a second attempt by acquiring another company, which didn't work again because of various reasons. But I think on the back of our minds was always that payments was still critical. So, then something great happened – a couple of senior leaders left Flipkart in 2015. I think they were looking to start up and they decided to do something in payments. When I learnt of that in 2016, after they spent three, four months on what they were trying to do, I was quite convinced that this was another shot for Flipkart at payments. So basically, we got talking and decided to join hands. We kind of acquired and hired the company and they started something called 'PhonePe'. That's gone really well for us so PhonePe is now a big part of the overall value of the Flipkart Group.
C: Essentially, within a decade, you and your business partner Sachin built Flipkart to be India's biggest online retailer. Looking back at your journey, what exactly do you attribute your success to?
B: I think there are too many things, I'll name a few. I think one key thing, which differentiated us in the early days, was just focus. So, when we started Flipkart, we were really focusing on books, just one category and focusing on getting the customer experience right for our books. That was very important to us and we were the only e-commerce company in town. There were probably only 10, 15 other e-commerce companies trying to win the market. But everybody else was after short term goals of sales revenue and hence, they were trying to sell each and every category under the sun while we were focused only on books. So, that really built a great brand for us from a customer service standpoint. The other two things I would say that were monumental for us was taking a technology first approach in everything we did, whether it was on the marketing side, the supply-chain side or even on the pricing side. I think the one takeaway for everybody was that technology is the way to scale. If you're not using technology to solve a problem, you won't be able to solve it at 100 times or 1000 times when you scale, so that was the second one. The third would be setting the bar really high for talent. So, the other thing we learnt earlier on was that the only way to scale was to hire great talent. We made sure that the bar for talent at Flipkart was pretty high. Sachin and I both would be involved in almost every hire in the initial four, five years of Flipkart. After that, we would then help to a certain level to make sure the talent and culture were sustained.
C: You chose to sell Flipkart to Walmart. Did you ever consider listing the company? Was that even an option?
B: I think listing the company was always an option at some point in the future, but not any time in the short term. I think we still needed to get to at least four to five times the scale we were at when we sold to Walmart, in order to list. With that scale, the business sort of becomes more sustainable and starts making money as well. So, I think it was definitely an option in the future, but at that time the Walmart option also made a lot of sense.
C: So to be honest, 16 billion dollars was a little bit hard to turn down, right?
B: Yes. (Laughs)
C: After the sale of Walmart, you were supposed to stay on and run Flipkart. But you left suddenly due to a personal episode. What can you tell us about your sudden departure?
B: Yes. So, the deal Walmart had with me was that I was going to stay for a few more quarters to help them oversee the transition. Obviously, the way to judge the success of the transition is to see what happens post-transition and how the business and the team are doing. So, I think all that was maybe a few quarters before I was going to transition out. I'm very happy to see that it's been six, seven months now and I think the team continues to do great. We have not seen any attrition to the team and the business momentum continues in a big way in both e-commerce and in payments. I had started sort of making the business a little founder-proof even since the middle of 2017 because I found my passion more in helping entrepreneurs and investing. There was always a clear path that I wanted to follow and I wanted to make the business more sustainable and founder-proof. So, I had installed three CEOs in all our businesses -- in Flipkart, Myntra and PhonePe. That's worked out well because after the transition, business has continued.
C: But Flipkart was your baby. (Binny laughs) Essentially what this means is that after the sale, the two founders, you and Sachin were no longer there to run the company. Are you not sad you're not there to drive Flipkart's next phase of growth?
B: So, at least from my personal perspective, I continue to be on the board and to sort of drive it from a strategic direction.
C: So you're involved in a limited capacity?
B: Yes, yes. And I think that's where I was already planning to be because I've got things I'm more passionate about now.
C: Well, e-commerce in India has now taken a turn. The Modi government recently introduced new rules to e-commerce in the country. Essentially, the new rules restrict e-commerce firms from selling products via companies in which they have equity interest in or pushing companies to sell exclusively on their platforms. Now, you've been really critical about these restrictions. How damaging is this for the Indian startup scene?
B: I think it's less about these particular restrictions. It's also about how the regulations come into effect and how the whole change takes place. I would basically expect a lot more stable sort of policy regime in the country because for all these markets – whether it's e-commerce, transportation markets with taxis or any other technology sort of market, things take a lot of time and capital to really develop and mature. If policies keep changing every second or third year, it becomes very hard for everyone – for large companies it becomes hard to navigate and for small companies it just becomes hard to start and survive. Policy changes or policies like this one make it very hard for entrepreneurs starting new e-commerce companies as well because when we started, there were very few policies and so there were a lot of startups in 2007 to 2013 who started doing e-commerce and grew big. But in 2018, 2019, if you wanted to start an e-commerce company, you have to really go through what you can do and what you cannot do in a lot of detail, which does not really help you in doing things only for your customers. So it takes away focus from customers.
C: Do you think this is just an election ploy by the government, because really, the small businesses are the ones that are hurting and losing a lot of business from online e-commerce?
B: I think there are two ways to look at it. The world is moving towards online commerce, that's where the world is headed. So, I think e-commerce also helps small businesses in a way that it opens up the whole market for them, not just the local regions. So obviously, the small sellers will adapt to new ways of selling and the commerce will sort of do well. So, I think it helps one side and it doesn't on the other side. I guess that's where it's a double-edged sword.
C: Well, elections are going on in India right now. What would you like to see from the next government?
B: So, I can talk from a start-up ecosystem perspective. Again, a policy regime around e-commerce and taxation that's lot more stable. We've had this whole issue of angel tax in India and I think we need a lot more clarity in this. A stable policy around that will be super helpful.
C: What do you think of another 5 years of Modi government and his economic policies?
B: I think we'll wait and watch.
C: Getting back to these new regulations, it's been reported that Amazon and Flipkart have been badly impacted by these new regulations because they're still deciding what they can sell and can't sell on their platforms. What exactly is the fate for e-commerce in India if these new regulations stay in place?
B: Well, I think long term, Flipkart, Amazon and other e-commerce companies will figure out and navigate how to do business within this policy framework. What a change in policy like this does is it really affects your momentum as you're building out new businesses and hiring people. I think that's the bigger problem it creates and more so again, for smaller startups because the bigger companies have people and teams which can figure out how to navigate around these.
C: Do you think Flipkart will survive these new regulations?
B: Yes. I think these are just bumps in the road. It's happened before and it will happen again. I think in India, you have to be nimble enough to overcome these challenges. So, I don't think it's a question of survival, I think the question of survival is for smaller companies and not for the Amazons and Flipkarts of the world.
C: There's a lot of talk that maybe Walmart might see these regulations as a headache and might start to retreat from India altogether. Do you see that happening?
B: Not at all. I think these things are just bumps in the road from a long-term perspective. So I don't see that happening at all.
C: Let's explore this a little more. Let's just say out of curiosity, if Walmart does exit, would you come back in (Binny laughs) and take over Flipkart?
B: Not this time, I guess.
C: Any interest?
C: You're done?
B: Yes. (Laughs)
C: Clearly with you and Sachin, leadership style – how were you both different and how did you manage to come together to build up such a successful company?
B: I would say one of the keys to Flipkart's success, especially in the early days, was just the difference between the skill sets and the styles both Sachin and I had. Sachin is a lot more intuitive, a lot more creative and a lot more visionary. I'm a lot more logical and I think a lot more about how things should work. So, I think having these two complementary skill sets really helped because one person can't have them all. What were common to both of us were our values, which was about being fair to the customers and keeping the bar of talent really high. So we had similar ideas about how to build a company but very different skills. I think that worked out very well for us.
C: In all the years both of you grew Flipkart, did both of you see eye to eye? Did you have many arguments and disagreements as to how to grow the company?
B: Yes, I mean that's sort of part and parcel of growing the company.
C: What did you disagree on?
B: We disagreed on a myriad of things – on which strategy to take and whether to buy Myntra or not buy Myntra, for example.
C: You had a disagreement over whether to buy Myntra?
B: Yes, many times. But I think through the disagreements, it's probably how you arrive at the right answers. So, end of the day, you're sort of taking the decisions for the right reasons, which is to grow Flipkart. That was always the common point that will get us – how does it help Flipkart grow? I think we would settle our disagreements mostly logically, but sometimes, not.
C: Well, these days you've moved on and started your own xto10x Technologies with a former colleague. Essentially, this business helps other internet entrepreneurs in their early and mid-stage startup phase. What exactly are you offering internet entrepreneurs that are not easily available elsewhere?
B: This idea came about from what I had been doing apart from running Flipkart. So, since I started angel investing in 2012, I've invested in more than 30 companies personally. Over the last couple of years, I started enjoying working with entrepreneurs, investing and helping them scale a lot more than I was enjoying at Flipkart. I think one thing I saw and realized was that a lot of the entrepreneurs were making the same mistakes and a lot of the entrepreneurs had the same problem, especially when they were out of the zero to one phase, where you're trying to figure out what product to build, and you're in this growth and scaling phase where you're trying to really scale your customers, your team and operations. So, whether you're a health company, an education company, an e-commerce company or a B2B company, a lot of challenges when you're scaling are similar. And I thought, why should founders struggle through the same problems and make the same mistakes over and over again? I did all those mistakes myself, so what I wanted to change in how this works is to just help founders make lesser mistakes. So, instead of making 100 mistakes, they make 80 mistakes or 70 mistakes. The probability of success goes up by a big margin. That was basically the vision and xto10x kind of grew from that vision to help thousands of entrepreneurs make fewer mistakes.
C: Are you targeting internet entrepreneurs from India alone? Or are you expanding it to Southeast Asia and Asia as a whole?
B: Yes. So we think it's a global problem and we're definitely looking at it as a global player. Soon we're going to start to help founders in Southeast Asia to begin with, outside India.
C: You're also an active angel investor in a fund called 021 Capital. What are some of the promising startup ventures you've planted money into?
B: Yes. There's a bunch of different companies and one of the companies is into the legal space. So, they're using A.I. to help businesses draft contracts. I think that's pretty exciting because the legal area is still not touched by technology as much as other areas have been, so that's very promising. There's another healthcare company which is trying to print 3D tissues of liver and cornea. So basically in the cornea side for example, there are millions of people who need a cornea replacement but only a few hundred thousand or a few million corneas are readily available because of transplant issues. If they can successfully print human corneas, they will sort of eradicate that as a disease in the long term. So, these deep-tech technology startups are more of a passion.
C: So, among these two companies and looking at the other companies in your portfolio, any of them that you firmly believe could be a unicorn soon?
B: All of them. (Laughs)
C: How soon? And which one?
B: I think I worry less about the timing of how soon. One of the criteria to invest for us is, can this company be a unicorn? So, I'm hoping all of them become unicorns someday.
C: Finally, you're 36 years old. Are you happy with being just an investor? How long before you get the itch again to get back into the startup scene and do it all over again?
B: Well, for now I'm really happy taking a break uh and I have some of these projects like xto10x...
C: But you're not saying never?
B: Yes, but never say never. (Laughs)
C: Binny, thank you so much for talking to me on Managing Asia.
B: Thank you.
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