Can Flipkart be Saved? Can Arithmetic be Altered?

It is no news that Flipkart is faltering. Fighting bravely, but faltering. Struggling to keep up with Amazon in the game that they themselves played against all the Indian players earlier – the game of the last man standing. A game that relies on having deep pockets.

Let me pause here for a moment before going ahead. You cannot take away from Flipkart everything that they have done right. The deep pocket by itself wouldn’t have taken them where they have reached. It was the execution that attracted the money in the first place. And they continued to excel at the execution after the money came. If any Indian e-commerce player deserved the money, it was them.

 

But life isn’t fair. Even if you have worked the hardest and have access to the best coaching centers, you are not guaranteed to be the exam topper throughout your life. In the form of Amazon, Flipkart has encountered a rival unlike any of the homegrown ones. Amazon has an even easier access to money and a much longer experience of good execution. In Indian market they even benefited from the ground Flipkart had already prepared. When Amazon came, customers as well as sellers were already sold on the Indian e-commerce story. They didn’t have to stand outside distributors’ office just so they could get their catalogs and stock information. They had it all readily available for them. But they didn’t squander the advantage away. They went ahead and built on top of it. Did local things that even the local boy Flipkart hadn’t done. Tight integration with and extensive use of India Post, for example. The stamps tell the story!

There is more. Even now Amazon isn’t standing on its current laurels. They are taking the full advantage of the long staying power the money gives them. They are serious about even a category like books which, at best, has been written off as a marketing cost by their Indian counterparts, and at worst, has been removed from their offerings altogether. They aren’t giving up on Kindle or eBooks in India although it is a given that eBooks in India have a long, long way to go. They do things like incentivizing sellers for listing regional language titles. They have invested in Westland Books. And did anyone notice that they have quietly entered the second-hand book market through Junglee? (Refurbished mobile phone are there too.) They became a formidable force in the publishing industry in the US. In India, they might very well be the one to build a market for books like nobody else has done before.

Given Amazon, can Flipkart do anything right to fix things? Can Flipkart aim to be profitable? Even if it is in select categories? Why would Amazon not undercut them in whatever category they wish to? Can private label really save them? In how many categories? And by what margin? Once you go beyond consulting-speak these are the fundamental questions that must be asked? And unfortunately, they do not seem to have an easy answer. Amazon doesn’t have an obvious weakness. So “not focusing on the competitor” is not going to work for Flipkart, because really! What is the differentiator? When it comes to Paytm and Snapdeal, customer service can be. But when it comes to Amazon, unfortunately not.

I don’t want Flipkart to be decimated. Not out of any patriotic feelings, but for very selfish reasons. As a business where a decent amount of our revenue comes through established e-commerce channels, I don’t want to be dependent on one player. As a customer, of course, one can’t want a monopoly. And in either of the roles, I don’t trust Amazon to be nice. It is a ruthless company. All its nicety is only good business. It can be terrible. For sellers, of course. But also for customers.

As much as I want Flipkart to be in the game as a strong player, unless a policy change creates some major hurdle for Amazon (I can’t imagine what that would be) or the funding issues are somehow sorted out for Flipkart (for the long term), the situation looks pretty bleak. You can’t alter the basic arithmetic. If the other guy is willing to lose money, and has all the advantages you have, how do you get customers? Become a niche player, an MBA case-study would have pointed out the solution. But can you? Given the amount of money that has gone into making Flipkart the leading generic e-commerce player, the idea of it becoming a niche player sounds laughable. Can it tackle Amazon through some other means? By not fighting head on with it? Using something else? What? Amazon has AWS. Flipkart has? eKart? Now logistics is an industry that can very well be disrupted for good in India. There have also been attempts at making eKart a business in itself, hopefully a profitable one. But can Flipkart, the poster-boy of Indian e-commerce, with billions sunk into making it so, pivot and become primarily a logistic player? I have a feeling I will get worse than dirty looks if I were a consultant suggesting this.

What then? I believe in miracles. I also believe that miracles are made from hard work. But I don’t think you can plan and PR your way into being miraculous. I would pray for the miracle. I am not holding my breath for it, though. Another round of funding could postpone the problem for a year or two, of course. But it isn’t going away.

Flipkart-IIT-IIM row is pathetic on so many counts!

ConferenceRoom

I had difficulty in putting down a coherent response to the controversy. Because it reveals so much that is pathetic and wrong with our systems, with our people, with our mentality, that even writing them down makes me feel enervated. But here is an attempt anyway.

  • We are talking about (supposedly) some of the best educational institutes of the country, right? (If they aren’t the best, what would all the swagger be about?) Why can’t they produce students who are confident of their competence and ability to provide value, and hence finding a good job? Why are these students okay with being portrayed as a bunch of miserable, starving victims whose last morsel has been snatched away from them? Flipkart was a day zero or day one company at most of these places, right? So these students are supposedly best of even the best, crème de la crème. Are they going to go crying to Mommy every time they face a problem in their careers? Are our best institutions so proud of producing such self-entitled wimps?
  • When they get those ridiculously high salaries, it is all good because — market forces, right? The world must accept that. That world, then, is not obliged to shield them when market forces start working against them. Get it? Market forces?
  • The entire placement system itself is so reflective of the greed and the herd mentality – the slots based on salary numbers quoted, the manipulations to ensure “good placement records”, and then this brouhaha that the compensation of 1.5 lacs is not enough. Go get another job, for God’s sake, if you need money, instead of twiddling your thumbs for next six months. What more? So many of you would have changed your jobs within six months of joining anyway. Your placement committees would not have compensated companies for their loss in that case.
  • IIMs don’t even realize the irony of crying foul, do they? Don’t they prepare their students for an “ever-changing”, “increasingly fast-paced”, “risky” world of business? Aren’t they supposed to train for dealing with ups and downs, including and especially the external factors? When they chose to make Flipkart a day zero or day one company, did they not know that they were adopting a high-risk, high-reward strategy? That Flipkart was not a profitable company despite its size and salary numbers? That it was dependent on VC money and that it could dry out? If I were an alternative employer, I would still hire the “stranded” IIT graduates if they can code. I would definitely not hire these management graduates who didn’t understand what they were doing in picking up  Flipkart in the first place.
  • And now the childish response of “banning” companies. Welcome to History. A year later, when the same or similar companies dangle the carrots of high salary numbers, you will go crawling back to them, even proudly featuring the number of students they picked up in your next year’s placement brochure. Or wait! The students will apply to them anyhow even if you don’t allow them back through the formal channel. If they want they will bypass the campus placements and the placement in-charges will cry foul yet again. So, how about some calm career counselling for your students, ridding them of their sense of entitlement, and instilling the need to do something useful, instead of this playing-the-victim game.
  • I have long maintained and continue to maintain that educational institutes should stop behaving like placement agencies. They should get out of the business of getting jobs for their students. Instead, they should focus on educating students well so that they don’t need such crutches. Have job fairs by all means. Let there be a platform for companies and students to interact. Arrange for counselling and advice. But let the transaction that is a job offer be a business between the individual student and the employer. Stop creating those week-long concentration camps that are known as “placement days” or some equivalent of it. I don’t expect institutes lower down in the reputation hierarchy to do this first. Will the best ones take a lead?

Transcript of the talk at Rotaract Club

 

I gave this talk on Saturday (May 19, 2012). This is the approximate transcript.  (Please ignore grammatical mistakes – as it was written to be spoken 🙂 )

Good evening everyone,

First of all I would like to thank Jitendra and his team for giving me the opportunity to be here today. It is a sheer pleasure to address and interact with young members of Rotaract Club.

Now, I stand here as an entrepreneur and hence the topic I am going to speak on should be no surprise. It is about “Entrepreneurship in India”. Being in a city like Bangalore, it is almost impossible that most of you have not been exposed to the buzz surrounding Entrepreneurship in last decade or two. There are entrepreneurs, and funders and events and organizations… Some are doing entrepreneurship, some are promoting it, some are helping entrepreneurs, yet others are building entrepreneurial ventures to address the needs of entrepreneurs and so on.

So, what is Entrepreneurship? The reason I ask this question is not because we need a very crisp, accurate definition of the term. I ask this just to make myself aware of anything entrepreneurial going on around us and not become too narrow-sighted about things.

In the broadest sense, entrepreneurship can be thought of as any form of self-employment. It can include a farm-labour, a shopkeeper, your milkman, newspaper dealer, and the owners of bigger enterprises as well.

Or in someone else’s eyes, all forms of self-employment is not entrepreneurship. They would restrict the definition of entrepreneurship to more formal, organized businesses. Apart from new people jumping into create their own enterprises, traditional traders and manufacturers will count as entrepreneurs here.

Then there can be an even more restricted definition of Entrepreneurship. Here you count only those people as entrepreneurs, who have ventured into new, innovative businesses. I will come back to what I mean by innovative businesses, in a bit.

But before that let me look at some other aspects too. And one of those is the motivation behind Entrepreneurship. Why do people become Entrepreneurs? And while talking of the motivation, I am talking of entrepreneurship of all kinds.

So, people can become entrepreneurs because of necessity. First kind is economic necessity, necessities of livelihood. When you can’t get a job, you start a business. If you are a farmer, either you work on your own land or work on other people’s land. That is pretty much the only option you have.

The second kind of necessity is personal or social. The most common example I can think of are women with young kids, who can’t go to a regular job because they want to take care of their kids. So, they often engage in home-based businesses. It can be of all kinds. Being in publishing, we work with women who are self-employed as editors, graphic designers etc. Typically they will involve in some business that can use their skill.

Apart from necessity, people also become entrepreneurs by tradition. Think of the people in trader communities. Sindhis, Marwaris and others have it “in their blood” so to say. Then there are also these big industrialists, whose kids would follow them in business, grow the existing business, start new ones and so on.

The final one in the list of motivation behind entrepreneurship is passion. This is the motivation that is likely to be most important for the people sitting in the audience here. These are the people who become entrepreneurs because they are passionate about an idea, or about their independence which they find getting stifled in corporate environments, or about using their skill in a way they want to, or even simply about making more money than what a job can give them. They are not entrepreneurs because they are not able to earn a livelihood or because there is family pressure to get into the business. In fact, it is highly likely that they are well-educated, are in very good jobs and they family scoffs at their decision of giving all of that up for this little fancy of theirs. If they are drop-outs from college, it is not because they could not pay the fees, but because they did not fit in the system and wanted to do something on their own.

And with that I come to the question of why this buzz about Entrepreneurship in last decade or two. If we look at the employment situation in India, a large number of people have always been self-employed. Currently also more than half of India is self-employed. Even when a lot of other businesses were controlled by what we now call “license Raj“, India had one of the highest number of retail outlets in the world, most run by independent, even if small scale, entrepreneurs. So, entrepreneurship is not really new to India. What is new then? Why the buzz? The buzz is there because of the rise of Entrepreneurship, which is 1) motivated by the passion in the capable individuals and 2) where they are engaging in creating innovative businesses.

This is the time to elaborate on the idea of innovative businesses. The word “innovation” is like “God”. Everyone has his or her own definition of this word, their own beliefs about what is Innovation and what is not. Much like God – you see. So, I use the word with my own definition and understanding. When I talk of innovative business, it doesn’t mean there some magic happening with the business. It does not even mean that the idea is completely new. What it means is that one or more aspects of the business are unproven.

So, it can be a completely new idea or product and everything about it might need to be proven.

Or it can be an idea whose operations are figured out, but you do not know whether or how it will make enough money.

Or you know that there is demand, but you are not sure if the technology or operational skills are available to implement it.

It can be a business that is in existence elsewhere, but you do not know whether it will work in this particular geography.

So, overall, there is a risk in such businesses and if it works out, there are significant rewards.

Let me explain by example.

If you open a new Saree shop in Chikpet, the basics of business are all figured out. There are so many people already in the business, and the terms of trade are standard. The rent, the margins, the sale price etc. are more or less given. If you don’t royally screw something up, you will get on fine like the rest of the shopkeepers.

But consider Flipkart. Well – the idea of e-commerce was not new when they started. Amazon was already successful in the US. Even in India, they weren’t the first one. Indiaplaza and some other players had been there for several years. But there were too many aspects of the business that were unproven.

With the lack of credit card penetration, will e-commerce really take off in India?

Will the infrastructure support it?

Will customers in India ever put trust in a faceless company?

Will the Indian consumer, addicted to bargaining, ever accept organized retail at all?

Flipkart plunged into these unknowns, managed to answer some of these questions positively and is reaping the reward in terms of revenue growth.

Logistics was a problem, Flipkart started building its own logistics.

Customer trust was a problem, they provided excellent customer support to earn that trust.

Indian e-commerce websites were so badly designed, nobody ever felt like ordering something, they built a great website.

Credit card penetration was a problem, they started accepting demand drafts and offered COD.

Some arm-chair purists would be happy to dismiss Flipkart as a copy of amazon. But do you see how many unknowns they have answered? Amazon will never think of building its own logistics in US or Europe. They are not into COD and are unlikely to get into it.

And many questions still remain unanswered. The most important one being – will e-commerce ever make money in India? Flipkart has gone to great lengths to gain customers, their trust and confidence. But all this has been at the cost of burning investor’s money. The hope is, that like Amazon, after several years of sustaining losses, they will eventually make money. They and their investors are taking a risk. If it pays off the rewards will be great.

Similarly think Future Group that started with Pantaloon Retails. Some things were known. Of course, people buy stuff and pay for it. There is a market for retail. And the equivalents of Pantaloon, Central Malls, Big Bazaars existed and worked in US and Europe.

But will it work in India?

Will Indian consumers accept this format?

Will the prices of goods in Indian market and cost of running air conditioned store with the computerized inventory system and trained staff work out?

Those were the unknowns around which Kishore Biyani had taken the risks and reaped the rewards.

In my personal experience with Pothi.com also, we have worked with similar unknowns, we are still working with them and when we are able to answer the questions positively, we reap the rewards!

Now, you can’t talk of Entrepreneurship in India and not talk of the challenges before the entrepreneurs. There are challenges and obstacles. Despite the fact that we have left the license raj behind us, the laws, regulations, compliance requirements etc. are overwhelming. The processes in government offices are what we expect them to be. If you are getting into organized sector, want to incorporate a company, you have to keep aside a significant amount of money, and time for just incorporating the company and then meeting with compliance requirements every year after that.

The infrastructure problem need not be explained too much. We are aware of electricity, roads and what not. And it affects us on a day to day basis. Let me give you an example. To save cost, we operate out of an area where the rents are lower. But when it comes to hiring, we would like to be able to draw from the pool available throughout the city, right? But with the roads overcrowded and crumbling public transport infrastructure, anyone coming from too far will spend so much time in traveling that productivity will be sapped out of him or her. So, despite being in a city, where a good talent pool is available, hiring opportunities are severely restricted by the locality.

While talking of hiring, quality of people capital is another problem entrepreneurs face in India. We graduate a large number of people, but their employability is highly questionable. I can talk specifically of Computer Science. Software companies like Infosys and TCS hire in such large numbers. They have built their entire business by making use of fresh graduates whose skills are not very polished. Even they say that 80% of the pool of graduates in not employable. Most tech start-ups need much better skilled people and they are just not available anywhere.

Supplementary services are also a problem. From e-commerce perspective, I can tell you that logistics is in bad shape. Even the most expensive and premium courier services provide pathetic service.

So, all of that is there, but thinking entrepreneurially, every obstacle is also an opportunity. If people are unemployable, there is an opportunity for entrepreneurs in the training business. If the current logistics companies are pathetic, there is an opportunity to rethink the logistics business, focussing especially on e-commerce, let’s say. If legal and compliance issues are overwhelming for entrepreneurs, specialists can help them. Novojuris, a company we work with for all our accounting, compliance and legal requirement is such an entrepreneurial venture.

So, overall, there are opportunities. Even if there are challenges and obstacles, things are getting better and future of entrepreneurship in India is bright. If you want to take the plunge, you are born at the right time!

That’s all I had today. If there are any questions, I will be happy to take them.

Thank you.