Why Walmart’s Flipkart Deal Will Spur Entrepreneurship in India

The two creators of Flipkart, which was just scooped up by Walmart, met while taking extra courses in India to make up for poor grades. Now their creative thinking and business success will do more than simply create two new billionaires, notes this opinion piece by Ignatius Chithelen, manager of Banyan Tree Capital in New York. His book, Passage from India to America: Billionaire Engineers, Extremist Politics and Advantage to Canada and China, will be published in June.

Walmart’s agreement on June 9 to purchase 77% of Flipkart for $16 billion mints two engineer billionaires in India. Binny Bansal and Sachin Bansal, who co-founded Flipkart and who are not related, each reportedly own about 5% of the Indian online retailer. They will have a net worth about $1 billion when the transaction with Walmart is completed later this year. It will mark a major business success for professionals in India, outside the information technology businesses. The example of the founders, including their initial failures, will inspire more professionals in India to risk starting an enterprise.

Flipkart is India’s largest online retailer with an estimated 40% market share. Amazon, its main and tough competitor, has about a third of the market. They both sell smartphones, electronics, shoes, furniture, apparel, books and other items to millions of buyers who place orders via their smartphones. The rapid growth of Flipkart, as well as of Amazon in India, is due to their efficient delivery of better quality and cheaper products than their competitors, who are mainly millions of small, independently owned stores.

Flipkart’s supply network covers 800 cities and makes 500,000 deliveries a day. Its gross sales in fiscal year ended March 2018 were $7.5 billion, and net sales $4.5 billion, both up 50% from fiscal 2017. It had accumulated $3.6 billion in losses at fiscal year-end 2017. Walmart estimates Flipkart will continue to show losses into fiscal 2020, in large part due to funding growth. Walmart will invest $2 billion to boost Flipkart’s growth as part of its investment.

Flipkart is one of several new companies benefiting from the rapid rise in mobile internet usage in India. Due to newer, cheaper and improved cellphone services, there are over 400 million smartphone subscribers in the country, a more than ten-fold rise since 2010. Like the Bansals, several Indian professionals are giving up high-paying jobs to start businesses which sell products and services to the growing number of customers shopping via their smartphones. Some of the businesses are uniquely Indian like BharatMatrimony and Shaadi, which enable family elders to find wives and husbands for their relatives.

The Mobile Takeover

In 2017, mobile-based businesses in India are estimated to have generated about $120 billion in gross revenues. About a dozen mobile-based Indian startups are valued at over $1 billion. They include taxi-hailing service Ola and payments business Paytm. Many of the start-ups are founded by engineers and other professionals, whose families have no business background.

The mobile-based businesses also benefit from the eagerness of foreign funds and companies to pursue consumer businesses in India, especially digital ones. They expect to make big gains from the rapidly growing demand for retail, taxi-hailing, payments, financial services, video, music, education, health care and other digital services in India, similar to the gains seen in such businesses in the large markets of the U.S. and China.

Flipkart raised $7.4 billion in funding, the largest amount invested in an Indian start-up. Its financial backers include funds like Tiger Global and Accel Partners of the U.S. and the SoftBank Group of Japan, as well as companies including Microsoft, eBay, Naspers, a South African media and technology company, and Chinese internet giant Tencent Holdings.

“I used to regret that I didn’t get good grades while at IIT, but I don’t regret that anymore.” –Sachin Bansal

Sachin and Binny Bansal are graduates in computer science from the Indian Institute of Technology (IIT), Delhi. They first met on the IIT campus, during the summer break of 2005, because they had gotten poor grades and had to finish extra courses in order to be allowed to graduate. Earlier Sachin had failed in his first attempt to get into an IIT. They both grew up in Chandigarh. Sachin comes from a family of agricultural traders while Binny’s father was a manager at Punjab National Bank.

Back in 2005 “entrepreneurship wasn’t cool,” said Sachin, while speaking to students at IIT Delhi, in 2016. Sachin and Binny worked as software engineers in the payments group of Amazon Web Services in Bangalore. Earlier, Binny was twice rejected for jobs at Google’s Bangalore operations. In 2007, they invested $8,000 of their savings and founded a price comparison site for retail sales on the internet. They soon shifted to selling books and other goods online.

The huge financial success of the Bansals will make it easier for more Indian parents to accept their children giving up good jobs to start a business. Bhavish Aggarwal, the founder of Ola, told The Financial Times that his father did not speak to him for six months after he started a business that became Ola. In 2010, Aggarwal’s father, a doctor, did not want him to give up a job at Microsoft in Bangalore to found a start-up. Aggarwal is a graduate of IIT Bombay. Sachin Bansal, the co-founder of Flipkart, told students at IIT, Delhi to pursue business ideas and take risks. He said, “I used to regret that I didn’t get good grades while at IIT, but I don’t regret that anymore.”