Home > Internet > I don’t hate Flipkart, I just don’t think it’s the right way to build a business: Mahesh Murthy

I don’t hate Flipkart, I just don’t think it’s the right way to build a business: Mahesh Murthy

Mahesh-MurthyEarlier this month, India’s largest consumer e-commerce player Flipkart.com had raised an additional $160 million (Rs 990 crore) in the fifth round of funding started in July this year, from new investors including Belgium-based Sofina, US-based Morgan Stanley Investment Management, Dragoneer Investment Group and Vulcan Capital (founded by Microsoft co-founder Paul Allen), along with participation from existing investor Tiger Global.

Flipkart Pvt Ltd, a Singapore-based holding firm, had previously raised $200 million from existing investors Naspers Group, Accel Partners, ICONIQ Capital, and Tiger Global in the first tranche of the group’s fifth round of external funding. This was just three months ago and with the second phase, the total capital raised from the fifth round reaches $360 million, which is the single-largest amount to be raised by any Indian internet business ever.

The fresh funding took the total funding for Flipkart so far to over $540 million and comes 15 months after it had raised what was reportedly a $150 million Series D round led by the Johannesburg-based Naspers in a deal which valued it at $1 billion.

Recently, a question titled ‘Why does Mahesh Murthy hate Flipkart?’ was posted on Quora.com, a question-and-answer website. Following is Murthy’s answer to the same:

I don’t hate Flipkart.

I just don’t think it’s the right way to build a business. My preference is always for a new business to start with a clear, sustainable competitive benefit to consumers, differentiate sharply, grow organically from the ground up, take money if needed to grow – not survive, and build a real business, that makes more money than it spends.

Flipkart, I believe comes a little more from the iBanker/ topi school of “let’s do spreadsheets on India vs China vs US, figure out some potential future imaginary valuation, do some funny accounting to seemingly minimise losses, throw loads of money (over Rs 3,000 crore raised at last count) at a problem, continue to lose money forever, and hope like hell someone buys it some day, because it may never actually be a real business but who gives a damn about that anyway as long as all of us get big fat Rs 10 crore salaries in the meanwhile”.

Sure there are successes and failures both ways.

I prefer the former method.

Not just for aesthetics, but it also sets the right example for everybody else to follow.

Just my $0.02.

(Reproduced with permission from Mahesh Murthy, managing partner at Seedfund; founder & CEO, Pinstorm)


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Sherlock Holmes October 22, 2013 15:06

Just curious what is the meaning of real business?

E-commerce requires huge amount of money. Amount of money can vary depending upon geography and the current size of the e-commerce market. Alibaba of China has taken $1.5bn in funding and is today highly profitable. Amazon took some 7-8 years to turn first profit and that was a $5mn profit on revenues of $1Bn. Even facebook has taken more than $2bn and is hugely profitable now.

Basically, there are businesses which are capital intensive and will become profitable only at a scale. They may required huge investments in either of the following: Capex (Power Plants, Dams etc.), Opex (Airlines) or Customer Acquisition (E-commerce, Social networks).

But they all are real businesses. No one can deny that.

How exciting these businesses are for investors is a totally different question altogether. One may feel if a company is $100Bn in valuation then each investor should be making 100x+ returns. Now here you are wrong. There may be 1-2 earliest investors who will make that kind of return but for others, it may be anywhere between 5x-15x. Thus whether a fund should invest in e-commerce or not is their choice, but Sire these are real businesses. No doubt about that.

My $0.01.(I am not rich, can’t give 2 😀 )


Sachin October 22, 2013 15:11

Could’nt agree more. With every sale made on their (Flipkart) platform instead of earning profits they are incurring losses.

Kranthi Kiran October 22, 2013 15:12

I think the article would be more useful if Mahesh shared his thoughts on
“What would be the right way to build a company of flipkart’s magnitude” … with some examples…

Rajath October 22, 2013 15:28

Now that Flipkart has been solidifying its presence through marketplace, such concerns has to be kept aside. No warehouse, no stocks , no fdi issues, takes off huge burden from Flipkart’s shoulder. Future is more secure if not the past.

ChulbulPANDEY@Flipkart October 22, 2013 17:49

There are few articles coming from this direction every now and then on Flipkart – To me it seems like an eagerness to do a Black Spider man story which generates some curiosity for ‘Oh lets hear the other side, I thought Spider man was a good guy’. Or the anti-populist heavy talks standing on the other side. At the end ….it all settles.

My Rs. 0.02 Point – Flipkart is growing – Customers, Vendors, Employees, Sales, Selection, Traffic, Conversion, Investor Confidence, Founders Confidence…Oh yeah and obviously burn/ expenses –

Can they manage and take through – Profitability, IPO etc.

IMO YES! They have enough money now to optimize and become efficient. They have proven at various times to critics and lovers with new categories expansion, self delivery, digital products etc that they can DO IT! These are phases for all companies which ended up becoming very successful and very large. This is the Doodh and rest all is Paani (this line is for another article written on similar lines)..

Yogesh Choudhary October 22, 2013 20:48

Flipkart Pvt Ltd, a Singapore-based holding firm??

Anuj October 22, 2013 21:48

All I can get from this article – Duhh! Where is the matter.. No doodh No paani in this article.. (this line is also for another article written on similar lines)..

lalit tyagi October 23, 2013 10:59

I don’t agree with Mr Maheshj Murthy at all. See we understand that flipkart has spent lot of money and still spending money in current time. But I hope we need to understand the Indian scene in terms of retail & eCommerce. Lot of companies trying to change habit of Indian consumers from offline to online and they are succeeding in this area. We can see by the facts of number of online transaction happening. When travel online space was started it was same era where people were not acquainted and lot of companies bleed because of non education of online space.We did not have great logistics infra,warehouse management,vendors education for online space along with only 10% of population are online to do online activities. eCommerce is not just selling online, it has lot of subsidiaries associated with this
client acquisition
warehouse and all

In India as of now we don’t have properly managed services and because of that costing is already on high side. We need to create brand,have customers and slowly build the infra along with it.we can sustain long term with good volume price margin and if we will come with great prospective method to make business model successful. It is quite harsh to blame flipkart not to do great way business. As they were started,they did mistakes as we did all during entrepreneurship. They learned and still learning and keep improving their model and I am sure they will be first to exit properly with giving hope to other start-up to work out in India.
Who don’t manipulate accounts to make company good, this is standard Business practice. You can check with all business house. So just to blame one company is just harsh.


Atritpth Atma October 23, 2013 11:18

Before Sonkashi’s debut in Bollywood, her father Shatrughan Sinha was mostly popular for his stance against Amitabh Bachhan. This is a nice way to grab eyeballs actually.

Today, Flipkart = Amitabh Bachhan and Mahesh Murthy (controversy’s child) = Shatrughan Sinha

sharath October 23, 2013 15:25

I don’t get it what exactly Mahesh Murthy has against flipkart. in a corrupt country like India,where only rich can do business and succeed, two middle class guys started a business, of course they made mistakes, but they are learning from it and reaping the benefit of that now. Would like to know Murthy’s opinion about Indiaplaza which was started way back before flipkart?.

Devendra Sarda October 23, 2013 16:40

Yes, I agree and am sure in India neither “Big Bazaar Model(Mega Retail Stores)” alone will work nor Flipkart/ Snapdeal type models can generate profits.We need to work on Hybrid model.
And we are glad to share that we are coming up a concept for real value to each stake holder…
Today a customer will buy from any portal, which ever will sell at lowest cost(as everybody is delivering at home, with 30days exchange etc ie same conditions)…so till the time you are able to sell by incurring losses, you can survive(I hope that’s what probably Mahesh wanted to hint !).The day you want to charge reasonable profits, people will try some other portal…so when are you going to make profits and cover the risk of the investment made ?
@Sharath, it is not criticised because it was started by 2 middle class guys…rather its important to see if it can be converted into a model which will not burst one day and I believe as they are keep getting investment, no body is really bothered to correct the mistakes !
@Lalit, it is not just a company, but blindly following the pattern and trend !
@Rajath, Market place is something which is offered by many and I am sure,all are competing with each other and able to sell only at lowest cost !
@Kranthi Kiran…Yes, you are right…we need to talk about Solutions. We would be coming up with a solution to address the Concern of common Indian user and Seller along with the investor’s returns 

Rupesh Kapoor October 23, 2013 16:54

Before we talk about Profitability, can we first see if the business model of Flipkart, per se, is generating VALUE for the stakeholders in the business.

1. Customers – Clearly, customers do benefit from the Choice and Ease of purchase offered by Flipkart. They are better off making many of their purchases through Flipkart than otherwise. Their Customer-base is increasing which talks about customers having faith in their product.

2. Vendors – I feel, yes, since Flipkart aggregates demand for its Vendors who do more business than they would have otherwise done. More and more Vendors are signing up with them, I am sure.

3. Employees – I am sure Flipkart pays well along with offering a challenging atmosphere and ample growth opportunities for its employees.

4. Promoters, Investors – Initial Investors have seen a steady growth in their Investments. That should be proof enough. If more Investors are jumping in, I am sure they would be seeing some value in the venture.

If a business is generating VALUE for ALL its stakeholders, it is already on the right path to becoming a Good-To-Great corporation.

Profitability is undoubtedly the supreme benchmark for all For-Profit Organisations. But, we need to appreciate that this can be achieved at any stage by shifting focus from GROWTH to PROFITABILITY.

GROWTH sucks up all the initial Investments, and Flipkart is at that stage currently. And, they are using up all the funds that they can gather. Over time, some spends will prove effective and some not.

Eventually, they will also shift their Focus from GROWTH to PROFITABILITY, and hopefully they shall do it well. But, that “WHEN” will be decided by the Management only…

Hemant Borkar October 23, 2013 18:52

Who are you Mahesh Murthy?? And why should I pay even $ 0.02 for your opinion?? I wouldn’t even pay 2 “naye paise” (that is Hindi) for your opinion as your opinions sound like someone who just ate sour grapes. Or is it because you couldn’t raise the required funding for your baby Pinstrom (what kind of name is it, by the way)? One thing I know about Flipkart from personal experience and that is they have lower prices compared to many other eCommerce sites and their customer service and 30-day replacement guarantee is ABSOLUTELY PHENOMENAL, unmatched by any other sites. So go with the flow Murthy and praise the two brothers for starting an excellent venture. – Dr. Hemant Borkar, M.D.

Rishi October 24, 2013 8:19

simply want to say RiGHT in capitals..

Abhishek October 24, 2013 13:32

Maybe Mahesh is right but lets remember Mahesh was the promoter of a topi company long time ago. It supposedly made products and took a lot of money from lot of people via Stock markets, FCCB etc and basically defrauded everyone who invested in them including bond holders, stock holders, employees etc.

Mahesh incidently made a killing in his investment and exited – Now he will act as if he does not know what is going on in that company and does not know the promoters. If you are an enterpreneur, dont take money from people like him – it will make you do a lot of unethical things.

R Singh October 24, 2013 15:21

Just like Mahesh Murthy & co-promoters built Geodesic Ltd , a floundering company?

Karry Stewart October 24, 2013 15:53

Guys, lets not insult anyone on sites like this instead we may say agree or wont agree with the opinion of one, yes I agree with Mahesh Murthy, and it shares the same vision of what I’m seeing. Flipkart as we know one of the india’s owned eCommerce company who represents our country and giving amazing services across the cities. we appreciate for a company like this since we dont want amazon. Yes the recent investments from various venture capitalist sometimes worries us as why are they accepting so much investments, seems got greedy or whats wrong going on why are they getting so influenced with other countries, it also raises a lots of queries of someone has come up with a strategy to soldout the company someday.

We’re not sure yet we need to address the issues of what kind of contribution is Flipkart making for its country and is it concentrating on giving a very good services, support & special offers etc. instead of Money. Onething to know that the world is so wonderful, and wont get into this competition kind of atmosphere which is there in america, stand up for the country and continue to give a genuine contribution to the society, states, country and see people will like you and invest in you. These corporates lifestyes are all scrap and killing our own people. we’ve our own country’s standards, cultures & traditions wont get attracted to other countries Sachin Bansal & Binny Bansal! You guys are the strand for the country wake up and serve for the best think for next generation and dont sell your company at all.

Chiranjiv mehta October 25, 2013 7:31

Any business is good till there is profit. Raising revenue and growing in the market should be the motto of any business unit. In the world success and failure both are there so better we can focus on what we can do to grow taking all the points negative or positive and start developing in the market.

Sumit October 25, 2013 13:05

I am not sure if this article say is correct or not.. But i had pretty very bad shopping experience with flipkart twice. So i have left shopping from it.

Another con is highly priced item, i can find cheaper deals elsewhere…

Punit October 25, 2013 18:37

Hey I dont know too much about the eCommerce business model, do you? I prefer to buy from Flipkart, where there’s stuff available cheaper than some of the shops close by. And I order today and get it in 4-5 days.
I do know that eCommerce business is a bit like infrastructure. It takes a fair amount of initial cost and several years of improving operations and welcoming users. Once its all set and established, the business comes roaring in. Y-o-Y growth is great. And profit rises exponentially, as costs are almost fixed.
All the best for your venture.

Ganeshkumar October 27, 2013 12:41

I agree with Mr.Murthy….you see i cant find product that is cheap in flipkart…..though they even get promoted by Adobe Professionals in meetings I attend…all their products are costlier when compared to other Ecommerce sites….so they cant hope people will buy their product someday..

Tapan Das October 28, 2013 9:23

Not sure if this is widely known. There was a connect between Mr. Murthy and Sachin & Binny. He was giving them stupid ideas: It seems we have to place a shopping cart upside down in the ground floor of Forum and when people ask what is this, Sachin could explain that it is “Flip” kart.

Sachin and Binny didn’t think the idea made sense and stopped looking to Mr. Murthy for ideas. If one’s ideas aren’t palatable, how can you take their money.

It is not that Mr. Murthy hates Flipkart, he is just writing his story of sour grapes. I mean, if you are name dropping master of all and giving the impression of a know-it-all-VC, its got to hurt at some level that your stupidity let Flipkart slip through your fingers.