Managing Disruptions: An interview with Nitin Seth
Nitin Seth, (ex-COO, Flipkart) delivered an engaging talk on day 2 of Colloquium, annual business conclave organized at IIM Indore. He discussed about the challenges faced by large as well small organizations in this VUCA world (Volatile, Uncertain, Complex, and Ambiguity). He further elaborated on the importance of disruptions to stay relevant and build value for the organization. Here are his views on disruptions and challenges faced by modern organizations-
Sonali- Since you have been associated with Flipkart in the past, what has been the biggest differentiator for Flipkart in the e-commerce industry?
Nitin- Flipkart has traditionally been able to innovate for the Indian context very well. That I think is the biggest differentiator. If you look at most of the big innovations that have happened in the Indian e- commerce, most of them have come from Flipkart. So, as opposed to really playing out a playbook, they have tried to understand the customer and develop the proposition accordingly. I think that has been the key to their success
Sonali- As a strategy, is it not difficult for firms to choose one out of success and numbers of projects versus innovation and disruption? Does it not affect their entrepreneurial side?
Nitin- See Venture Capital is ideally the risk capital and they do not ask for profitability. If you are a publically listed company then the equity markets expect predictability from your organization. In such a case, numbers really drive the organization. On the other hand, in startups, this is not that equity capital, but the risk capital. Risk capital is usually tolerant of such numbers. I think a very grave issue is the greed that comes to play. Once you raise the capital, you tend to be caught in this whole race of valuation. So, you are continuously trying to maximize your valuation. Now, the underline business case for which that valuation is based, in reality, it is very difficult to achieve that kind of growth. So, you end up pushing very hard for growth, which is not always sustainable from the point of view of the organization. So, like in sales, you keep giving discounts which is of course hitting the bottom line but you also want to drive the top end growth since your valuation is not based on the EBITDA number but on GMV number. If you are a listed company and the market expects predictability in results, you go for low risks and that will curb entrepreneurial activity but in this valuation process, in actual, the reverse is happening. You end up taking too much risk and too aggressive positions which may be harmful for building a sustainable business model. So, as a result, you never improve your profitability and you end up burning more and more money. The more money you keep burning, the more capital you will keep raising. It is like a drug addiction.
Sonali- Taking this discussion on capital providers ahead, what are your views on the conflicts emerging between the founders and the executives or capital providers. This is in reference to the tussle at Infosys and Tata.
Nitin- So, I would not generalize this for each firm. Firstly, the founders find it difficult to let go. The other point of view is that the founders hold on to the culture and values of the company more dearly and it is important. So, it is about the right balance. To my mind, you will inevitably have situations where if a business grows very large, the founders are not in best place to play an executive role in the company and it makes sense for them to move aside and bring in professional management. I think it is inevitable and it has to happen. I think greater challenge today is that may be the founders are not mature enough or they have not found the right balance to step back from the executive management and constructively play a mentor role or guide on the strategy or culture. So, I think the balance is missing. So either it is that I am running it, or I switch off. In case I switch off and if somebody else is running it and I am not happy by the way the person is doing it, then I will come back. So your question is an interesting one, I will not generalize it but clearly it is very ugly and sad like the whole Infosys thing.
Sonali- Is this a global issue or just that Indian corporate space is not that mature yet?
Nitin- See, this tension is inevitable. The tension between the founder who has set something up and the emotions they will feel versus the provider of the capital. I think the more mature ecosystems have figured out how to deal with it. This question is actually spot on as it is one of the biggest challenges involving the founders and the capital providers.
Nitin Seth has previously served as the COO of Flipkart where he led the strategy and corporate functions. In addition he has held positions at NASSCOM, Mc Kinsey and Fidelity International. He holds a degree in MBA in Finance & Operations from IIM Lucknow and B.Tech from IIT Delhi.