Jan 11, 2017 08:06 AM IST IST | Source: Moneycontrol.com

COMMENT: What Indian startup CEOs can learn from Flipkart‘s rejig

Investor control could also mean a consolidation for Flipkart may be on the cards in 2017. However, if more Indian founders lose control over their own startups, it would mean a lack of trust of foreign investors on abilities of Indian entrepreneurs to turnaround e-commerce companies.

India’s largest e-commerce firm and home-grown unicorn Flipkart on Monday decided to replace its co-founder and CEO Binny Bansal with a professional – Kalyan Krishnamurthy, ex-top boss at Tiger Global Management, the US-based firm which is also the company’s one of the largest and earliest investor.

Call it ‎Tiger Global Management Partner Lee Fixel’s way of fixing things or otherwise. But the move may also mean further changes in top management are expected at India’s other unicorn e-commerce companies in 2017.

Investor control could also mean a consolidation for Flipkart may be on the cards in 2017. However, if more Indian founders lose control over their own startups, it would mean a lack of trust of foreign investors on abilities of Indian entrepreneurs to turnaround e-commerce companies.

Here are seven things that India’s startup CEOs can learn from Flipkart’s management changes and what to expect in 2017:

1) Greater control by investors

If you're a founder and CEO especially in the e-commerce space and have diluted your share to single digits, expect greater control by big investors in your company. Investors will look to control damage as Series B, C and further rounds have almost vanished from the e-commerce sector. 2016 saw a decline of over 54% from 2015 in startup sector. The early part of 2017 is expected to see similar trend, thus investors will rush to control damage in their portfolio. 



(List of Flipkart's investors | Source: Tracxn)

2) Bootstrapping is the way

If you wish to retain your position in the company and survive 2017, which is expected to be a tough year for funding in larger rounds, especially in the first half, expect to cut costs. This could mean painful layoffs, re-organising top layer even freezing salary hikes, till the next round comes in.

3) Survive the demonetisation double whammy

PM Modi’s move to demonetize economy has hit discretionary spend by consumers shopping online for fashion apparel, electronics, jewellery, accessories, furniture, home decor, etc. Gross Merchandise Value of most of the e-commerce companies has dipped. In this scenario, all global investors including the Americans, Chinese and Japanese have adopted a wait and watch situation. It becomes tricky for an entrepreneur to raise funds based upon declining numbers and low valuation. Thus, for entrepreneurs - a wait and watch situation will be the best advised to survive early part of the year till economy becomes remonetised and consumer sentiment gets back on track.


4) Expect to give way to Professional CEOs

Often entrepreneurs hold on the reins of their own startup in situations which they may not be equipped to handle. This could mean a scenario where all the numbers are in the red and few months of cash left in bank to survive. It’s best to hire an outside CEO or a turnaround specialist who can take tough decisions in such situations. Don’t be a roadblock to your own startup’s success. As most tech entrepreneurs in India are in their 20s and 30s, they have scarcely seen such situations and may not have the apt skills to handle downturns. This would also mean you will protect key relationships when good times come back.



(List of companies acquired by Flipkart | Source: Tracxn)

5) Consolidation may not be a bad option

As evident from fire-sale of Housing to PropTiger this week, consolidation may not be a bad option if large investors are not willing to put further rounds. An aqui-hire or a merger with a larger or similar entity, an IP sale or simply transfer of existing employees to a bigger entity with phase out of the brand may be the options left. While it saves a lot of jobs and prevents families from getting financially impacted, mergers may also help struggling entrepreneurs who could potentially show their sale as an ‘exit’ to raise money for their next ventures.

6) CEO position is not for life long

As evident from Flipkart, if you're a founder in this ephemeral world of startups, even your position is not guaranteed for lifelong unless you’ve built the company in a bootstrapped manner. Investors will get impatient. They have to show rising numbers on their books to Limited Partners year after year. As their 10 year investment cycle term nears, expect them to get impatient. Expect pressure for consolidation as foreign rivals pump in huge monies to capture India market.



(List of companies in which Flipkart has invested | Source: Tracxn)

7) Expect more ‘Nationalism’ in startups

If Tiger Global’s move at Flipkart becomes an example for other investors more calls to replace home-grown founders at their own firms are taken. It would mean more calls from Indian founders to government for protectionist measures as rivals capture market. Companies such as Amazon and Uber have readied huge funds to be pumped in India market to capture it thus decimating India’s startup founders. ‘Startup India’ was the prime message from Prime Minister Modi when he came to power. India’s startup CEOs such as Bhavish Aggarwal, Sachin Bansal and Binny Bansal have shared panels with top government heads on how to make India an entrepreneurially driven society. When such founders get replaced from their own firms, it would make the voice of home-grown founders shriller to call for protectionist policies. One could expect subtle government intervention via policies in 2017 to allow home grown entrepreneurship.

(This is an opinion piece)

harsimran.julka@nw18online.com

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