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Does Binny Bansal's Exit From Flipkart Signal A New Start-Up Era?

Flipkart, clearly, is setting out on a new innings, but without its founders—both Sachin and Binny are icons in India’s start-up ecosystem—at the helm.

Does Binny Bansal's Exit From Flipkart Signal A New Start-Up Era?
Photograph by AP
Does Binny Bansal's Exit From Flipkart Signal A New Start-Up Era?
outlookindia.com
2018-11-24T13:07:28+0530

After the festive season’s big discounts came the big sho­c­ker from India’s e-commerce industry—Binny Bansal, the co-founder of Flipkart, left the company under a cloud, just three months after the world’s ­largest retailer, Walmart, acquired majority controlling stake in the company. By most accounts, it was this abrupt turn of events—Bansal resigned following an investigation into allegations of “serious personal misconduct”—that left everybody, inc­luding the ­employees, surprised.

While industry observers reckon Bansal’s exit from the company was not entirely unanticipated, given that Walmart holds 77 per cent stake in Flipkart, the sudden announcement took many by surprise. Walmart’s statement hinted as much: “Binny has been contemplating a transition for some time and we have been working together on a succession plan, which has now been accelerated.” Soon after, Flipkart got down to a merger of its fashion brands Myntra and Jabong, which would, ­expectedly, involve a rejig.

A founder moving out following an acquisition isn’t, by itself, a surprise, reckons K. Vaitheeswaran, e-commerce pioneer and author of Failing to Succeed: The Story of India’s First E-commerce Company. “Sooner or later, you would have expected it to happen,” he says, adding that he had expected Bansal to have continued for a few quarters after the acquisition. But Vaitheeswaran feels it won’t impact Walmart’s strategy. “Sure, something like this is a surprise and a blip. In my view, really nothing changes. They’ll still execute by their playbook,” he says.

Experts point out that it is usual for founders to continue for a while longer after takeovers because it gives the market and employees a sense of comfort and continuity. “There is always a sense of concern and worry about what is going to happen. Will things be different and all of that,” says Vaitheeswaran.

The development comes at a sensitive time for Walmart, says Brittain Ladd, a Dallas-based consultant who tracks ret­ail and e-commerce. At $16 billion, Flipkart is Walmart’s biggest acquisition and the deal, at the time it was ­announced in May, had drawn scepticism from many retail analysts. “It also raises concerns that Walmart didn’t perform due diligence before acquiring Flipkart,” Ladd tells Outlook. Besides, Walmart’s previous experience with retail operations in India, in an entirely different context of course, had been a keenly watched episode. In 2013, Walmart had ended its joint venture with Bharti Enterprises to ultimately go solo with its ‘Best Price’ stores in the cash-and-carry format.

Both Walmart and Flipkart didn’t dwell much on the Bansal episode aside from saying that the recent events “risked becoming a distraction” and that the former co-founder had made the decision to step down.

“His decision follows an independent investigation done on behalf of Flipkart and Walmart into an allegation of serious personal misconduct. He strongly denies the allegation. Nevertheless, we had a responsibility to ensure the investigation was deliberate and thorough,” Walmart said in its statement. Details of the events haven’t been forthcoming, however. “While the investigation did not find evidence to corroborate the complainant’s assertions against Binny, it did reveal other lapses in judgement, particularly a lack of transparency, ­related to how Binny responded to the situation. Because of this, we have accepted his decision to res­ign,” the statement said. A Flipkart spokesperson said the company didn’t have any further comments to add.

Walmart and Flipkart didn’t dwell much on the Bansal episode aside from saying it “risked ­becoming a distraction”.

By most accounts, Binny (37) was popular among employees and in Flipkart’s formative years—the e-tailer turned 11 this year—he was mostly involved with running operations while co-founder Sachin Bansal (the two are not ­related) was the face of the company. Binny ­became CEO in 2016 during a crucial period for the company—when it was staving off mounting competition from Amazon. Last year, Kalyan Krishnamurthy took over as the CEO while Binny moved up as the group head. Over the past two years, Flipkart had ­become more or less professional from the operations perspective, says Kamal Karanth who runs the executive search firm Expheno. “Much of it had moved away from being individual-led to a systemic process mode,” he says. Many senior executives who came in during the period have been handpicked by Kalyan, he adds. Karanth expects the pace, including hiring decisions, to pick up because the new owner has had a few months to review operations. For ­instance, Flipkart recently named a new HR chief, a post that had been ­vacant for over a year.

“Because of the Myntra-Jabong merger, there will be redundancies. People are already looking around, mostly from Jabong,” says Kris Laksh­mikanth of the executive search firm The Head Hunters India. A Flipkart spokesperson explained that some back-end functions such as sourcing will get merged as a result of which close to 10 per cent of the workforce of the two brands will get realigned. It would be natural too to expect some churn following Bansal’s exit, says Lakshmikanth, but he also points out that many employees would likely have grown accustomed to internal shuffles over the past three years. “There is no panic right now,” says Lakshmikanth. “It’s business as usual for us,” says the Flipkart spokesperson. “In fact, we are hiring more than ever.”

Others agree. Arvind Singhal of Technopak says Flipkart has seen a lot of changes at the top level over the years. “People join and leave any organisation, whether you are a start-up or otherwise,” he says. As for the Myntra-Jabong merger, Singhal had expected it to happen sooner. “To me, the Jabong acquisition was a defensive strategy because Myntra, in any case, was by far the market leader,” Singhal adds. “Walmart, let’s not forget, has been in control of the company only for the past couple of months. So, sooner than later, they would start to look at rationalising costs not only in Jabong and Myntra but even Flipkart. The fact is, it has never made money so far,” says Singhal.

E-commerce in India is still minuscule in size—just two per cent of overall ­re­t­­ail sales in the country happen ­online—but it is growing at about four times the rate of total retail—a promising prospect that Walmart is eyeing through its ­acquisition of Flipkart. In October, the Bangalore-based e-tailer said that its five-day annual sale clocked record sales, especially in mobile phones, fashion and large appliances.

It remains to be seen whether the e-commerce market in India will grow as fast as it did in China. Experts say the off-line retail format too is growing at a fast clip here. Therefore, it’s a long haul for the e-tailers. “The (e-commerce) market now clearly is Amazon versus Walmart and there’s the Alibaba angle as well. I guess the big three are now going to fight for the spoils in the Indian market,” says Vaitheeswaran. All three have deep pockets. “The issue is, whoever is going to execute and give a superior customer experience is going to be the winner,” he says. Flipkart, clearly, is setting out on a new innings, but without its founders—both Sachin and Binny are icons in India’s start-up ecosystem—at the helm.

***

  • In August this year, Walmart, the US-based retail giant, acquired 77 per cent controlling stake in Indian e-commerce company Flipkart.
  • Recently, Flipkart co-founder Binny Bansal resigned following an investigation into ­allegations of “serious personal misconduct”.
  • With Binny—a pioneer of sorts in the Indian start-up scene—gone, the Indian e-commerce market is largely left with two global giants. 

By Ajay Sukumaran in Bangalore 

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