14/11/2018 7:28 AM IST | Updated 14/11/2018 8:04 AM IST

Flipkart's Binny Bansal's Resignation Is Startup India's Moment of Reckoning

Walmart pushed out founder after rumours of sexual harassment, suggesting need to focus on corporate governance

Bloomberg via Getty Images
Binny Bansal, former Group CEO of Flipkart, during an interview in Bengaluru, India.

BENGALURU, Karnataka— When 38 year-old Sachin Bansal sold his stake in Flipkart for around a billion dollars to Walmart in May this year, he left India's most famous "start-up" as an icon of the country's second wave of tech entrepreneurs, who shook up a sector long dominated by giants like Infosys and TCS.

On Tuesday, his co-founder, Binny Bansal (37) followed him out the door, but his departure has left Flipkart employees stunned by the abruptness of his exit, and the 11 year-old company scrambling to contain rumours, innuendo, and gossip about possible allegations of sexual harassment behind his resignation.

For the first few hours after Walmart—the American retail giant who bought a controlling stake in the Flipkart this August—issued a statement announcing Bansal's departure, most people including senior investors, were caught off guard: A senior investor told HuffPost India he was stunned by Bansal's resignation; a former competitor said much the same. Company sources who had spoken at length when Sachin Bansal left simply clammed up.

Eventually, a source told Moneycontrol that Bansal's departure was related to a complaint from a female colleague a few months ago. The existence of the allegation was corroborated by HuffPost India sources.

One source at a Flipkart supply chain partner said the allegation was flagged in July this year by someone outside the company, and that Bansal's exit had been rumoured for a few days now. A Reuters report triangulated the allegation, saying "In late July... an allegation came to us. It was a claim of sexual assault against Binny. The investigation could not corroborate the allegation. It did, however, surface a lack of transparency on Binny's part."

In their statement, Walmart said while the investigation "did not find evidence to corroborate the complainant's assertions against Bansal, it did reveal other lapses in judgement, particularly a lack of transparency, related to how Binny responded to the situation. Because of this, we have accepted his decision to resign."

Bansal, for his part, has strongly denied allegations of sexual misconduct, according a report in Mint.

READ: Wooplr Found My Boss Guilty Of Sexually Harassing Me, But I Was The One Pushed To Leave,

Binny Bansal's exit marks a watershed moment for India's "Silicon Valley" of Bengaluru, where most companies are still largely described as startups despite being over a decade old, with hundreds of employees, and corporate governance and employee welfare often take a back seat despite valuations in billions of dollars. While US companies like Uber have slowly started cleaning up their rampant sexism and bro culture, in India, founders remain largely impervious to oversight and whispers of wrong-doing are quickly silenced.

The story of Flipkart, in many ways, is the story of Bengaluru's startup ecosystem.

Founding the ecosystem

When Sachin and Binny Bansal (who aren't related to each other) set up their company in 2007, online businesses were a rare thing in India. Flipkart, with its focus on customer satisfaction and fast and efficient logistics, was a huge disruptor. It was the first company to really succeed in e-commerce in India, and was quickly followed by dozens of imitators. Its rapid growth pushed companies, which launched in different verticals, to "pivot" to e-commerce as well. SnapDeal was one such firm.

At the time, there wasn't really an "ecosystem", just a few companies, many of the biggest of whom were based in Delhi. Although Bengaluru had a number of large technology companies, but legacy firms like Infosys and Wipro weren't seen as trendy anymore, unlike the new wave of startups.

It was a time when angel investor networks were wide spread, and early stage funding was easier to come by, unlike today when most investors focus on later stages according to NASSCOM. In 2007, when Flipkart started, was the year that a young Vijay Shekhar Sharma wasn't talking about Paytm yet—he was instead explaining his value-added startup One97, and explaining why "the ABC of India is Astro, Bollywood, and Cricket." In June year, Steve Jobs would unveil the first iPhone — the device that would transform the global digital economy.

And then, Flipkart grew. And grew, and grew some more, eating up company after company along the way. Starting with book recommendation portal weRead in 2012, Flipkart would pick up content companies, other e-commerce firms like LetsBuy in 2012, Myntra in 2014 and Jabong in 2016, and companies like Appiterate, which developed AB testing tools, and one of its most recent acquisitions was PhonePe in 2016, which gave it a foothold in the fledgling payments ecosystem.

A young Vijay Shekhar Sharma wasn't talking about Paytm yet—he was instead explaining why "the ABC of India is Astro, Bollywood, and Cricket."

"With Flipkart here, lots of people started coming here, setting up here," said Soham Gupta, a Bengaluru-based startup founder. "They were a huge inspiration, and they were hiring up a lot of great talent, so it just started to come up around that, and became a real ecosystem."

It's perhaps no surprise that many locals in Bengaluru joke about "KSGs", Koramangala Startup Geeks, because that's the neighborhood where Flipkart first came up, and which remains a hub for new companies starting up in Bengaluru. These days, it's nearly impossible to find a coffee shop in the neighbourhood without sitting next to people making pitches, working on their minimum viable product, or celebrating getting their first customer.

The 2000s were also a time of excess and CEOs with larger-than-life reputations. As one e-commerce employee put it, "these guys were untouchable. They were the bosses. They could abuse you loudly in the middle of the office, pick a fight, or do anything—there are no repercussions."

The VCs start asking for results

India's tech companies were growing quickly, but the road to profitability was not apparent. Flipkart, and Snapdeal, and taxi aggregator Ola, had done a great job of developing the market by mimicking Silicon Valley companies, but as the opportunities in India great, bigger plays like Amazon and Uber tapped into their nearly limitless coffers to take on the Indian incumbents.

Amazon invested $2 billion to begin operations in India, and in 2016, upped this to $5 billion. In response, Flipkart (and Snapdeal, and others) also had to raise more rounds of funding, in order to keep up, giving investors more control as a result.

At the same time, a number of companies were bringing in executives from Silicon Valley—often at eye-watering salaries, at par with what Google and Facebook were paying in the US. Many of these executives would leave in a year or less. Some of the high profile names were Google executive Punit Soni, who is back in the US where he has his own startup Suki, and former Yahoo executive Anand Chandrasekaran (who was hired by Airtel as Chief Product Officer), who is now in Facebook's California HQ.

A lot of money was being spent, but was there enough to show for it?

When Flipkart turned 10 in 2017, it was anything but a startup, with over 35,000 employees and a cut-throat culture. With its increasing size, a company used to making quick decisions, struggled to build the internal processes and structures essential to running a company of Flipkart's size. In this interview from 2017, Flipkart's then Chief Operating Officer Nitin Seth, who was previously the Chief People Officer of the company, said the company was keen to hire the best people, with a high proportion of IIT graduates. Others in the company however criticized the IIT-mafia, saying others were made to feel like outsiders. Women said there was too much "bro culture" in the company as well. Seth disagreed with these points, though he left Flipkart three months later, sending a legal notice for wrongful termination.

A lot of money was being spent, but was there enough to show for it?

For Flipkart, Lee Fixel of Tiger Global was one of its most important investors. And in June 2016, one of his key lieutenants, Kalyan Krishnamurthy, joined Flipkart. One of the first things he did was lay off people whose divisions had been struggling. On January 2017, he was named Flipkart's CEO, while Binny Bansal was named Group CEO.

Binny Bansal was rumored to exit with the Walmart deal

Whispers of talks between Flipkart and Walmart had been around since at least 2016. As the deal progressed this year, there were rumours that Binny, rather than Sachin, Bansal would exit. Sources told Factor Dailythat both Bansals, Binny and Sachin, had been looking to sell their stakes, but that while Sachin had plans to stick around, Binny meant to leave. Both owned 5.5% of Flipkart.

It would be Sachin Bansal who actually sold his stake, and moved on from the company, surprising many by how abruptly this took place. Binny was reportedly still mulling an exit, though at a later point, until the allegations against him surfaced.

According to sources, Sachin Bansal had been one of the people driving the acquisition by Walmart. But allegedly, there were differences of opinion between him and Tiger Global on his role after the acquisition. The investors felt that Krishnamurthy had been a successful CEO, who had helped stabilise the company in a different period. Suddenly, it looked like both founders were going to step away. However, reports suggest that Walmart wanted at least one of the founders to stay on and so Binny Bansal would continue as Group CEO.

Sources said both Bansals, Binny and Sachin, had been looking to sell their stakes to Walmart.

In the meantime though, Flipkart had turned into a very different company from the band of KSGs it had started out as. Many of the early team members had splintered off years ago—Flipkart had been a generous employer, and in turn helped create a number of angel investors and new startups—to launch new careers. Turnover remains high at the company, Bansal's involvement in day to day operations had become very limited.

At the same time, with the investors and a new corporate makeover underway, culture at Flipkart is also evolving. It was in this very changed atmosphere that Bansal faced an allegation of misconduct. Although the investigation could not find corroboration, it found enough reasons for Bansal to step down. Walmart might have wanted to keep one founder around, but its statement on the matter is pretty unambiguous.

Analysts say Bansal's departure is unlikely to affect Flipkart's daily operations.

"Binny was anyway not taking care of day to day operations, it was more of a chairman kind of role, so it should not hamper Flipkart beyond the distraction it will cause to the employees," said Satish Meena, of Forrester Research.

"I think this is blessing in disguise for Flipkart (Walmart) to realign leadership and streamline operational to a more Walmart way and drive efficiencies and burn less cash," said Neil Shah of Counterpoint Research. "Flipkart badly needs 'customer-driven mindset like Amazon' and 'cost-driven execution like Walmart'. Secondly, unlike Amazon they don't have a fast growing AWS cloud business, or a maturing content plus service driven Prime program to ensure customer and consumer stickiness. Competing just on attractive price and exclusives is a risky strategy and will continue to hurt the bottom line."

For Walmart, which now owns Flipkart, it could be an opportunity to clean house but it's also a message to the larger ecosystem that the age of anything goes is now past.

Just like Silicon Valley has had to look inward and answer questions about sexism and diversity, the Indian industry is going to have to do the same, and it's about time.