Friday town hall meetings at the Bangalore headquarters of Flipkart have been a ritual in the past few years. The e-commerce giant’s top executives assemble in a hall packed with employees in the evening and take questions. In the past, these questions have ranged from clarifications sought on employee stock option plans, public listing timelines and paternity leave.

But a recent Friday town hall was different.

When Binny Bansal, the new chief executive officer of Flipkart, rose to address ‘Flipsters’, as the company calls its people, the top question was whether the company would lay off staff. “There wont be any layoffs,” Bansal assured those present. In May, Flipkart had delayed the joining dates for fresh campus recruits by six months, leading to much noise about it on social media.

That the layoffs question was top of mind among Flipsters was clear. Of late, Flipkart, India’s top retailer online by value of goods sold, has followed a Reddit-like model to select questions at the town hall. Employees list questions on a Google Doc and up- or down-vote it. The most-voted questions are taken by the CEO and senior executives.

“It was actually good to see that Binny was not in denial mode,” said a person who attended the town hall. Bansal, 33 years old and CEO since January this year, agreed the “customer experience was not great” and that Flipkart’s product search and reviews needed a massive reboot. Just a couple of weeks earlier, Flipkart had shut its image search feature that insiders say was launched in a hurry as the company tried to improve search.

A cursory analysis of Flipkart’s social media feeds would point to the fact that customers have been complaining a lot about Flipkart’s customer experience, which was once the company’s biggest selling point.

“And then, there was talk about how nearly 80% of Flipkart’s business comes from just 200,000 of its total five million SKUs,” added another person present at the Friday town hall. SKUs is short for stock keeping units, which in this instance refers to various types of products Flipkart sells.

These and other questions raised that Friday are surrounded by context on the business front that Binny Bansal, CEO since January and chief operating officer before that, and his co-founder and current executive chairman Sachin Bansal wouldn’t be proud of. In the 12 months leading up to May 2016, rival Amazon has gained market share, while Flipkart has seen growth of its sales measured by value of goods sold — known as gross merchandise value or GMV in retail parlance — flatten. There is also pressure on the fundraising front, in terms of valuation expectations. According to a recent report in the Times of India, Flipkart’s GMV sales have stalled for the last year or so at about $4 billion; Amazon’s GMV vaulted to $2.7 billion from $1 billion.

This is the story of how Flipkart is trying to restart its sputtering engine. FactorDaily interviewed at least a dozen people for this story, covering current and former employees of the company, apart from other sources. Almost all asked to stay off the record. Nothing came of questions sent to Flipkart and a request for an interview with Binny Bansal. As is practice, we will update this story when and if we hear officially from the company.

Project Fixkart

Inside Flipkart, the Bansals, along with newly appointed Head — Category Design Organisation, Kalyan Krishnamurthy, are working on a plan to not just address the slowdown but also ensure that the company is in a better shape to take on the deep-pocketed Amazon. The mission: get Flipkart on a clear path to profitability, which will be possible by achieving gross profit margins for its top product categories within a short period of three to six months. It is not immediately clear which product categories the company will put its heft behind but the biggest by revenues include mobile phones and large appliances while by volume sales it is fashion, home and decor, books and media.

If it delivers on this goal, Flipkart will inch closer to a $15-billion valuation — just in time for $1 billion capital raising planned early next year. The company was valued at $15 billion when it raised $700 million in September last year but it will be lucky to not sell shares at a lower value come 2017. Just this May, its valuation was marked down significantly by investors including Morgan Stanley and T Rowe Price. Sachin Bansal put up a brave front when we interviewed him at an industry event in Gurugram (formerly Gurgaon) recently when he downplayed a ‘down round’, a funding round that values the company lower than the previous one.

Flipkart raised money in a down round — valuation: $750 million — in 2012 after being valued at $1 billion early that year, he said.“It’s not a pleasant scenario for any company to go through, but almost every Internet company in the world including Facebook has been through that,” he said. “You should be focusing on capital efficiency and quality of business even when the times are good, and not bad.”

The current plan of path to profitability at Flipkart is threefold — shrink the marketplace model from over 70% of total sales to about 40%, increase the inventory-led sales from 20-25% to about 35%, and introduce private label brands that will account for a quarter of total sales for Flipkart. Like we wrote earlier, online insurance and building a global supply chain are also among the moves fleshed out by Flipkart before it raises cash by January next year.

“These private labels could include mobile accessories,” said a third person who is familiar with the plan. Mobile accessories, though smaller in value, have much higher margins compared to actual phones themselves. For instance, Alibaba’s wholesale site can sell you a batch of 300 screen guards for less than Rs 5 a piece. The same can be retailed in India for at least 10 times its cost. The price goes down drastically if you buy in large quantities. More on the Flipkart renewed push later.

Much of what Flipkart is trying to do today is going against what it has done in the past few years: deep discounting to grab market share. Until January this year, Flipkart was spending $30 million to $40 million a month, commonly referred to as “cash burn” in industry parlance. “There was a certain cash burn you were allowed to acquire 3-4x of that in GMV,” said a person who was working with Flipkart in a senior role until early this year. “The cash burn was mostly towards heavy discounting,” he added. But the acquisition of new GMV was getting more and more difficult.

That discount-for-market-share strategy, in itself, is not without sound basis and not peculiar to India. In the Internet economy, the winner takes all and wields unusual power, forcing players to go to extraordinary lengths to dominate markets. If you are #1 in a particular market, the paybacks are enormous in terms of scale, scope, and potential margins. Cases in point: Facebook, Uber, Airbnb, and, of course, Amazon itself. The bet paid off getting Flipkart to its size but a series of missteps — an industry observer calls it “unforced errors” — in the last year and more has put it in the spot it is currently.

Its move to go app-only, hiring executives from Silicon Valley, and management churn has come under much criticism. Sachin Bansal, who was the key driver behind the move, said at the time that data strongly favoured a move to go all in and invest heavily on mobile. Flipkart even shut its mobile website in March 2015, forcing people to download its app. But, as it learned, although mobile traffic was much higher compared to desktop traffic, desktop users contributed to larger value of purchases.

“There has been disproportionate focus on winning market share or GMV, and there’s been too much of an overdose of technology and business vision,” said the third person quoted earlier. Products such Ping, a social shopping tool, and image search failed even as the company made expensive hires from McKinsey, while what was needed was less vision and more execution smarts. “We were busy acting like a $15 billion company instead of earning our right to be a $15 billion company,” says a senior insider, in part also referring to talent that came in with the merger of Flipkart with fashion online retailer Myntra.

To be sure, Flipkart has been getting a bunch of things right. It has been improving margins in the last two years. The apex company registered in Singapore, into which all group entities fold and is a good proxy for the overall health of the Flipkart enterprise, grew its revenues nearly three times between fiscal year 2013 and fiscal 2015 and improved its operating margins significantly in the same period (see charts below).

Enter Kalyan, Mr Fix It

After months of chasing GMV growth obsessively to gain market share, Flipkart is attempting to change tracks. In an interview with The Economic Times in May, Binny Bansal said that his focus was more on NPS, or net promoter score, and less on GMV. NPS, a proxy for customer satisfaction, measures how likely a customer will recommend to someone else a product or service he or she has used.

And the man responsible for leading the charge on the ground is Kalyan Krishnamurthy, the top lieutenant in India of Flipkart’s biggest venture capital backer, Lee Fixel. Until recently, Kalyan (we are using his first name in a departure from FactorDaily style because almost no one knows him by his last name) was a director at Tiger Global, the venture capital firm that Fixel runs. Fixel himself earned his stripes from backing Facebook, LinkedIn, and China’s JD.com, and is seen as one of the most powerful VCs with operations in India.

This is Kalyan’s second stint at Flipkart; he was interim CFO between May 2013 and end of 2014 by when the Bansals and he had hired Baweja, the current CFO. This time around (he joined in June), his title is a curious ‘Head — Category Design Organisation’. He reports to Binny Bansal just like CFO Sanjay Baweja but it is clear to everyone where the power centre in the company is. The last time he was brought in by Flipkart, Kalyan established financial and accounting processes aligning its over half a dozen subsidiaries to overall financial discipline. Big monies were pouring in, and financial metrics needed to be set right. “He set up our entire business finance function which basically was driving all the growth. He designed the entire retail or marketplace organisation on the business side,” says the insider.

Though unrelated, Kalyan’s exit end-2014 preceded the departure of virtually the entire second-tier at Flipkart in 2015: then CTO Amod Malviya quit in July 2015 along with engineering head Sameer Nigam; a bunch of others followed in quick succession. Some interviewees in this story believe that was the point things turned for the worse at Flipkart.

In November 2014, around the time of Kalyan’s exit, Flipkart had reshuffled its top management with Mukesh Bansal, the former Myntra CEO, running the commerce platform. He was seen as Flipkart’s CEO-in-waiting by some investors and a few board members. Punit Soni and Peeyush Ranjan were brought in from Google to head product and engineering respectively. This meant steering the organisation under a new power structure that in effect came in place above the earlier second tier in the organisation. That second tier was very startup-like and often called a spade a spade even if an idea originated from the two Bansals. A former executive says this critical pushback was missing in the new dispensation distancing the Bansals from the reality of the market or operations.

That may be what the Flipkart chairman and CEO, both classmates from IIT Delhi, are trying to fix with Kalyan coming back into the fold. Kalyan has a reputation of fixing what’s broken and many see his return as good for Flipkart’s future. “You know things are really broken and bad when Kalyan Krishnamurthy comes back,” said a company executive requesting anonymity. This time the task before Kalyan is far more complicated and tough given how e-commerce companies are under pressure to stem losses and there is Amazon breathing down everyone’s neck in retailing. Having raised over $3.4 billion in funding, Flipkart is now looking to get the execution right.

“The business units and category leaders now have gross profit targets, moving away from the GMV targets,” said a company executive detailing Kalyan’s drive. Three insiders talked about the former eBay executive is seen inside conference rooms for five to six hours at a stretch, discussing path to profitability for different business categories.

Kalyan, in his mid forties but looks younger, stands at five feet and six inches and is “lean as a reed but is a pitbull at work,” according to a colleague. (He likes to keep such a low profile that a picture of his is difficult to come by. Please mail editors@factordaily.com if you have one.) “After joining few weeks ago, he (Kalyan) sent an email to a select few. The only words that stayed with me from that communication is ‘ruthless execution’,” said another person. His top priority is to double down on categories that hint at profitability and kill the ones that do not make sense.

What helps is that Kalyan is familiar with Flipkart and understands the retail business well. “He understands investor sentiment, business side of things and the operations — all three very well. He is very transparent no room for BS. Cuts through bureaucracy very fast,” says the colleague. Another person says part of Kalyan’s remit has been to take “a close, hard look at different functions and roles across the organisations and working with Binny to tighten operations”.

Flipkart insiders say he’s been building a core team to help deliver the goals and all the category heads are in his team: Amitesh Jha, who runs eKart, the company’s logistics company; Ajay Yadav, VP of mobiles category; Mausam Bhatt, leading the private labels drive, and Anil Goteti, who heads the marketplace operations at Flipkart. Kalyan’s chief of staff is Adarsh Nahata who has grown from within the ranks.

Can Flipkart be fixed, really?

The big question in on Flipsters’ lips these days are whether Binny, supported by Kalyan, will be able to deliver. The answer, it seems, a cautious yes. “He is the only guy make the comeback,” says a senior Flipkart executive quoted earlier.

Nearly 20 former Flipkart employees have returned to the company, after it acquired PhonePe, a startup of Nigam, the former engineering head of the retailer. These include Pradeep Dodle, who had joined cab hiring platform Ola as senior director and head of category management, and software architects Shantanu Sinha and Phaneesh Nagaraja, both hired back from Ola, too.

This executive is quick to remind you that the profit and loss oversight was already with Binny in his earlier avatar as chief of operations. “For the longest time, business operations were driven by Binny and others with him. Sachin was looking at fundraising, branding, product and design. All other functions used to roll into Binny,” says the executive. For his part, the reticent Binny has a record that is respected within the organisation — primary among his achievements being fixing and scaling eKart, Flipkart’s logistics arm. Insiders tell stories of how he and Sachin still verbally spar with each other over who writes better code or whose code still runs vital parts of the Flipkart machine.

For many company insiders and rival executives, Binny is clearly the last hope for the company before it turns to outsiders for the CEO job. “There was a time when the board and the investors were really backing Mukesh (Bansal), but that didn’t work. There will be no choice but to look outside if even Binny doesn’t achieve the goals,” said a person familiar with the company’s strategy.

What about Sachin? “He is doing what he does best, which is is looking at where to place our bets next. His landscape is from a fundraising perspective always, strategic brands and advertising,” says the senior executive. To be sure, Sachin’s shadow will likely be on a lot more than that in the Flipkart universe but to be honest, our reporting didn’t throw up details on what exactly was on his to-do list.

For now, a lot is riding on Flipkart, clearly India’s most important startup in over a decade, if not its greatest yet. For the country’s fledgling startup ecosystem looking to compete with rival markets in getting the funding and all attention, exits or demonstrated scale of profitable ventures are crucial. “In the long run, homegrown entrepreneurship has a far bigger societal impact and a higher multiplier for local wealth creation,” says Rutvik Doshi, director at VC firm Inventus Capital, explaining why it is important for Flipkart to succeed.

At the core of it all, Flipkart’s leadership will need to demonstrate in the quarters ahead that they can compete with a rival of Amazon’s stature. And that’s where a lot more maturity and ruthless execution is needed. As we wrote earlier, India’s is fast becoming the battleground for Amazon versus China’s Alibaba. And Flipkart’s acquisition by Alibaba is an outcome that cannot be ruled out yet.

During a September 2014 interview of Jeff Bezos, one of the two writers of this story had tried to provoke him about the rivalry with Flipkart by pointing to a huge hoarding outside his hotel that declared Flipkart’s leadership in India. “We don’t focus on competition,” pat came the reply.

While it appeared to be a diplomatic and academic answer back then, the intense battle playing on in India’s ecommerce market and a bulked up Amazon makes it clear why getting back Flipkart to its old self will be the toughest part of the retailer’s journey.

Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners among its investors. Accel is also an early investor in Flipkart. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.

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