Flipkart: Startup Pangs

THE HEADY TIMES of the dotcom bubble of the late 1990s were underpinned by the idea that the internet would fundamentally change the nature of the way the world conducted life and business. It was true and yet the debris of most companies who participated in it lay strewn by the wayside by the beginning of the millennium. It is not always good to be ahead of the times. The first mover does not always win.

This week, newspapers reported that Flipkart had decided to defer by six months the joining of IIM graduates who had been recruited during campus placements. This is unusual, not least because IIM graduates have no dearth of companies to join, and it is hard to see why they would wait six months for Flipkart. A company of its size and ambition needs premium human resources that institutes like the IIMs churn out. Something like this will make students wary of joining it in future. Flipkart says it is ‘restructuring’.

Recently, Tiny Owl, the food startup which was the flavour of venture capitalists last year, announced it was shutting down operations in all cities except in a few areas of Mumbai. It is also restructuring after a merger with another startup. Zomato, another figurehead of the startup world, saw some its sheen taken off when it was valued at $500 million and not $1 billion, as some had expected. These are all good companies with able management but the river of money that startups need to keep their expansion going is running thin and that means they are now forced down to the constraints of a regular business, one of which is to maintain oneself on what the business generates and the promise of profits in some realistic future. The more they are appraised in this fashion, the more their valuations looks exaggerated.

The startup’s formula so far had been to capture a large customer base by way of discounts and deals, but without relentless cash infusion that will not be possible. And alas, the Indian consumer really has no sense of loyalty beyond value for money. Global competitors like Amazon or Uber have few such hurdles. They don’t need to reinvent the wheel since they already have a successful model and they aren’t really short of money. In a recent Times of India interview, Flipkart’s CEO Binny Bansal said, “Capital is the last thing which is needed to ward off Amazon or whoever. As a market, it’s huge and there’s so much room for innovation.” That might be true but without money, you cannot hire IIM graduates either. Amazon is one of the most stressful places to work because the company drives people hard. But it is also a place where the best young ambitious graduates of the United States want to work, because of the exposure it provides. If Flipkart cannot manage to hang on to IIM graduates, what are the chances of it competing successfully against Amazon in the long run?

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