In 2007, India got its answer to Amazon, the world’s largest online retailer, when Binny Bansal and Sachin Bansal got together to launch Flipkart. In this Idea Exchange on Campus held at the Management Development Institute (MDI), Gurgaon, Binny Bansal speaks about the idea behind Flipkart, the business model and their future plans. The session was moderated by Senior Editor Archna Shukla
Archna Shukla: Tell us about your initial journey, how Flipkart came into being and how your company has become the Amazon of India.
I am from a middle class family, born and brought up in Chandigarh. My father is a manager in a national bank, my mother is in a government job. So there’s no entrepreneurial streak in the family. I had never thought of starting a company till I graduated from IIT Delhi in 2005. I always wanted to do something in India, but I didn’t want to do an MBA. So I didn’t take up the job I got on campus and applied for a job in a company where I really wanted to work—a computer vision and machine learning-based company where my interests lay at the time. After 18 months, I realised that the only career to be made in the field was academics and I didn’t want an academic career. The best job you can find in technology is web technology. I got into Amazon. I was really happy, I thought this is great, I will finally be working for a great company. Two months into the Amazon job, I had no idea what I was doing. I was thinking, now what do I do? So I did some introspection and spent time reading a lot of blogs about start-ups, mostly technology ones. It became clear to me that not starting up was riskier than actually doing a job. That’s how my journey began and Sachin (Bansal) who was with me at Amazon at the same time had similar ideas about starting up but for other reasons—he comes from a business family. We decided to quit our jobs and start Flipkart.
Prithi Singh Banipal (Ist year, PGPM) What were the challenges during the initial days?
Building an e-commerce business takes two things—one is getting the technology right, the other is setting up the right vendor relations. We had the technology side covered as we were both computer science graduates—so that was the easy part. It was harder to get the most basic things like setting up the company, getting a bank account, etc. We had started from an apartment so there was no registered address. As a result, the bank would not give us a loan. Taking people on board was also hard because this was a company run by two people and they had to trust you.
Archna Shukla: Why did you choose books?
The vision was to build a large e-commerce business. It was a tactical decision to go in for books because there are things that help in the case of books: the selling price of books is low—Rs 300-Rs 400—and you can trust customers to pay you online. Whereas if we had started with electronics, customers would have had to pay Rs 3,000-Rs 5,000 to a new online company and that would not have been easy. The other thing is that there are no taxes on books. So the inter-state movement is very easy. You don’t have to employ financial auditors to manage your taxation. Also, with books, there is no breakage. You get what you order. All these factors, combined, took us in the direction of books.
Ankit Dubey (Ist year, PGPM): What was the initial response of the people around you?
Quite encouraging. What matters more is the response of your family. They are the ones who can influence your decisions—half of my family members were quite supportive of my decision.
Maroosha Muzaffar (The Indian Express): What lessons did you learn at Amazon that you carried into Flipkart?
We were working as software engineers for Amazon, but our focus was on the web service business, the technology side of things. We were not involved in the retail business. The big idea we took from Amazon was their customer focus.
Nikhil Sethi (Ist year, PGPM): Graduates from premier Indian colleges go in for banking, consultancies or research; there are very few entrepreneurs.
I think that will start changing. There are already success stories of entrepreneurs in India. As the economy becomes more vibrant, there will be opportunities for start-ups and we will see a lot of people taking to entrepreneurship.
Srinivasan Satyamurthy (Ist year, PGPM): How has Flipkart’s communication strategy with its customers changed over the years?
We have always had a very transparent policy of communicating with customers. We believe in keeping the customers in the loop right from the time they place the order to the delivery. We obviously try to keep improving but our basic philosophy about communication has not changed.
Nikesh Mahajan (Ist year, PGPM): You said starting a business was less riskier than doing a job. Why?
What I realised was that if I kept on working in a job in a large company, I would not learn. So if I had to optimise my career for the long term, starting up was less risky. If I was optimising my career for the short term, then I could work at getting a good salary and would continue to do so. But I looked at my career from a long-term perspective.
Nikhil Sethi (Ist year, PGPM): Your business model has largely been inspired by Amazon and it is rumoured that Amazon will be entering India. What will your strategy be if that happens?
Our strategy does not change a lot. We intend to keep scaling up and to keep the customer happy. If we build our brand as we are doing with our marketing, if we keep our customers happy, I think we will win in the long term.
Navneet Gupta (IInd year, PGHR): What is the impact of piracy on the business that you do?
The music and movies business is very small in India because of piracy. But with the digital business taking off, the piracy problem should be taken care of in the next few years.
Sriram Vasireddi (Ist year, PGPM): As it happens with start-ups, do you plan to sell off Flipkart?
No, not at all. The idea is to make it into a really large company. This kind of opportunity comes once in a lifetime. We want to scale it up and make it really big.
Unni Rajen Shanker (The Indian Express): What percentage of your customers take the cash-on-delivery (COD) payment option? And two, is this a very Indian concept?
Cash-on-delivery is a very non-Western concept. For instance, China and Latin America are also cash-based economies. Everybody carries cash—although the younger generation carries cards, the majority of people prefer to pay by cash. It is a cash-based economy and e-commerce has to go by that. Our percentage is currently 60-65 per cent in COD and we expect that to go to 75-80 per cent in the future.
Unni Rajen Shanker: How did you and Sachin Bansal meet?
We are from the same city, Chandigarh, and from the same college, IIT-Delhi, where we were batchmates. We became roommates in Bangalore when we joined different companies. That’s when we became friends.
Phani Kumar Varma (Ist year, PGPM): As a start-up, one of the biggest challenges is getting noticed by many people. How did Flipkart overcome this challenge?
Initially, it was word of mouth publicity to as many friends and family members as possible and then through the blogosphere. A few blogs covered us and that brought in a few customers. Later we started Search Engine Optimisation, which got us some traffic.
Sivani Nanda (IInd year, PGHR): What did you initially sell to your investors—did you show them your success or did you sell them your vision?
You have to do both. Nobody was going to fund us from day one. Who will give a million dollars on day one to two guys, just two years out of college? Our plan was always to get as many customers as possible, break even and then take that to the investors and show them how we plan to scale it up further. You have to sell them your vision and show them that you have done something.
Mansi Mhetras (IInd year, PGHR): What is the future strategy of Flipkart? Do you plan to move to other geographies, other product categories?
We will definitely venture into other product categories next year. We are not looking at any new geographies because India is a very large market already. There are 100 million Internet users in India which is more than the population of a country so the base is already quite large and to focus on this segment makes more sense to us right now.
Archna Shukla: Books and films are increasingly getting digitised. You have iPad and Kindle—do they pose a threat to your business?
We have a digital strategy and when the market moves towards digital, Flipkart will also move towards it.
Sriram Vasireddi (Ist year, PGPM): Is it that you wanted to do something in e-commerce and start-up was an option or was start-up the platform you wanted to be on?
We wanted to start a company and the only thing we knew was technology and a little about the Internet. We also wanted to do something for the Indian market. During our research, we looked at e-commerce. Initially, starting an e-commerce company seemed very daunting because you have to do so much to get it right. So we thought we will create a comparison shopping website where you can just sit at home, pull in the prices and the product information from different websites and display that to the customer and help them make an intelligent decision. We basically studied all the Indian e-commerce websites that existed in 2007 and realised that there was no new e-commerce brand in India. That is when we decided to go into e-commerce—because we thought that had scope.
Vidhi Verma (IInd year, PGPM): You said you started with books because they are not a touch-and-feel product. But how is it possible to sell large volumes of mobile phones and electronic items which are touch-and-feel items?
The volume is not actually less. Worldwide, volumes for electronic products in e-commerce are quite high. There are couple of reasons. One is selection. If you go to a mobile store, you will find 20-30 different models while at Flipkart, you will find all the 500 available models at any given point in time. Another major factor that works in our favour is the pricing: because we have much better pricing on electronics than an electronic store, people come back home and order from Flipkart.
Nikhil Sethi (Ist year, PGPM): Even if you ignore the possible competition from Amazon in future, what kind of competition do you see from India itself?
I think we are going to see a large number of e-commerce companies. We have already seen companies starting up and a few of them will definitely stay longer and become large.
Archna Shukla: Do you think the success of Flipkart wouldn’t have been possible, say, four or five years ago when the Internet population wasn’t big enough to sustain any business around it? So besides your idea, do you also owe your success to the overall e-ecosystem?
I think the boom may have happened because the fundamentals were right and also because Flipkart proved that e-commerce can be done in India. The timing was very important. If we would have done in 2001 what we did in 2007, it would not have worked.
Jigyashu Shukla (IInd year, PGHR): Tell us about the recruitment policy of Flipkart. Is it difficult to attract the right talent in the company?
Yes. We have had people reject our offer because their mothers-in-law didn’t allow them to work for us. So you have to convince the person, his parents and his or her mother-in-law. Parents had apprehensions about a start-up being able to pay salaries. These myths still exist. But I think it is changing very rapidly.
Jaya Choubey (Ist year, PGPM): Flipkart usually delivers books a couple of days before the stipulated time. Is this under-promising and over-delivery a deliberate strategy?
We generally try to keep a buffer but 2-3 business days is the bare minimum. We try to beat these timelines and delight the customers, and more often than not we are successful.
Anupriya Asthana (Ist year, PGPM): What drove you to diversification? How did you know this was the right time to diversify?
The idea was to start up with books and get to a certain number of customers, build your brand to a certain level where people begin to recognise you and start trusting you with delivery. Once that started happening, we began to test the waters with very small category launches—we didn’t go all the way and launch the whole electronics category. We started with mobile phones and then kept learning what it takes to set up electronics. Selling electronics is much harder, operationally, and from the customer experience perspective too.
Archna Shukla: What has been your inspiration? Was it making money or building an enterprise or something else?
The biggest inspiration was learning. The other was doing something, getting the satisfaction of having achieved something. When you are in a job, your satisfaction levels can only reach a certain level and our appetite was much larger.
Archna Shukla: Any tips to young entrepreneurs?
India is definitely happening and there are a lot of opportunities in different fields. If you are thinking of starting up, this is the best time. But don’t take a home loan—that actually kills entrepreneurship. You can never get out of it.
Hemant Chawla (Ist year, PGPM): In the initial stages, what were your targets?
Profit was never our initial target as we were not thinking of the short-term benefits. Within the constraints of breaking even, our target was to get as many customers as possible within the first two years.