Flipkart #2: Everything's so Hard

Soon Flipkart needed money, writes Mihir Dalal in The Big Billion Startup. Banks, of course, were out of the question. There weren’t many venture capitalists back then; and they didn’t invest easily. It was a different era. Would e-commerce even work in India? How many people even had an Internet connection? Or a credit card? What did two engineers even know about running logistics? And so the nay-sayers list went on and on. In frustration, the Bansals considered selling off Flipkart to Infibeam. The deal fell through at the last minute. It would prove to be like that time when Yahoo almost bought Google.

 

And then in 2009, Accel agreed to invest $1 million, but in batches. A desperate Flipkart agreed. As Flipkart began to grow with this new money, they caught the attention of Lee Fixel, an American venture capitalist. Within forty days, his fund, Tiger Global, agreed to invest $9 million. At one shot. Sachin and Binny were ecstatic – from dangerously close to running out of money, they now had gotten almost $10 million in record time.

 

As Flipkart now tried to move into online segments other than books, they learnt the hard way that every segment was different – mobile phones was a different market altogether. You stood to lose a lot more via a phone than a book. Phone distributors didn’t want to tie into some new area like e-commerce – what commerce? And they’d never heard of this company anyway – Flip what?

 

As Flipkart soldiered on, their orders and sales increased. But this raised new problems – delivery. Courier companies were proving unreliable. Sometimes they would lose things; at others, they couldn’t handle a spike in orders.

 

In 2010, Flipkart introduced its “biggest expansive force”: cash on delivery. It drew more buyers to the site for two reasons – (1) they didn’t have to worry about paying and never receiving the good; and (2) they didn’t need to have a credit card to shop. But this feature also raised more problems – the couriers stole the money at times; and the courier companies would delay handing over the money to Flipkart. All this forced Flipkart’s next move:

“Flipkart would have to launch its own logistics service.”

While logistics was a new field for the company, success in it would mean it could track orders better; and customers could “see” the status of the order.

 

Suddenly, investors were flocking to Flipkart’s door. Its value soon shot up to $200 million, making it one of the most valuable startups in India. And now it ran into new problems. At this size, it needed to store items beforehand. But that was illegal by Indian law, a historical legacy from the pre-Internet age. Flipkart’s legal team found a workaround to meet the letter but not the spirit of the law.

 

Things are so much easier today; but back then:

“Flipkart was building the road and walking on it at the same time.”