How many Indian companies do you know that have grown to some Rs 50,000 crore gross sales within 11 years of setting up?

How many industries do you know that are expanding at more than one-thirds every year and predicted to grow 10-fold in a decade?

How many companies do you know that have more than Rs 25,000 crore in reserves – even if they come from deep-pocketed investors and are not accrued of profits – to fund growth?

You know who I am talking about: Flipkart.

Now, digest this: Flipkart, valued at over $20 billion in yesterday’s deal with Walmart, or Rs 135,000 crore, would be ranked No. 19 if it were a listed company in India. It would rank ahead of blue chips such as Wipro, Sun Pharma, and Asian Paints. It would fall just behind those like Indian Oil Corporation, Bharti Airtel, and HDFC Bank.

And, if things go per plan and investors sell shares of Flipkart in an initial public offer, as is planned, it will easily vault into the list of India’s ten most valuable companies. Given the growth in the industry, the Indian analog of Amazon has a good shot at even being No. 1, pushing down worthies such as Reliance Industries and Tata Consultancy Services.

If that is so, why did Flipkart’s storied founders and equally storied investors decide to sell out no matter how persuasive Walmart was? There are four big reasons the way I see it.

Investors care only about one thing: returns

The e-commerce business is widely seen as a winner-takes-all business. With that as the de facto industry structure, it follows that financial capital will bet the kitchen sink and more on choosing a winner. In doing so, it is more often a spray-and-pray game with investors hoping that one company in their portfolios deliver returns to cover all their investments.

I am obviously simplifying things and there are many nuances to this but, at the core, Flipkart’s over 150 investors are no different. At the end of the day, the primary metric for them and their backers is: RETURNS.

The Walmart deal offered handsome to spectacular returns to investors such as SoftBank, Tiger Global, Naspers, Accel, DST Global, Sofina, among others – as also, companies like eBay that had become part of Flipkart in odd ways. Some of these, for sure, were desperate for a deal to show returns to their backers, the so-called limited partners. Reputations are built and broken on performance and the Walmart-Flipkart deal was godsend for some investors. (Disclosure: Accel India is a funder of Source Media, which owns FactorDaily.)

Missing leaders

Mohandas Pai earned his stripes by helping a mid-sized software services shop become one of the most respected in the world of financial markets. The vision at Infosys was set by chairman N R Narayana Murthy, a businessman who believed excellence and governance made the moat for a business based on human imagination and lockstep execution. Pai was the man who ensured compliance with rules of financial markets, anticipated how regulators would react to proposals, and knew what would delight market participants.

Late last year, I asked him what he saw was the biggest weakness of emerging companies such as Flipkart. He didn’t take a second on his answer. “Depth of its leadership,” he said. His reasoning was simple: Flipkart, he said, would be valued at between Rs 80,000 crore and Rs 100,000 crore. For a company that size, Flipkart needed to have a lot more systems and processes in place – and, before that, the leaders to put structures in place.

True. Even today, look at Flipkart’s top tier of managers. Executive chairman Sachin Bansal (exiting in this deal), group CEO Binny Bansal, and CEO Kalyan Krishnamurthy are proven leaders in technology and operations. And, to be sure, its technology talent vertical down to the mid-tier would stand out compared to Indian peers. But, that’s about it.

For a business that is steeped in brands and distribution, Flipkart’s top management tier is dominated by technology smarts and unusually bereft of talent that has a deep understanding of the levers in the retail business. With the exception of group fashion portal Myntra’s CEO Ananth Narayanan and payments company PhonePe’s Sameer Nigam, there is almost nobody who has a rounded business view of things and proven ability to build a business that is sustainable. Sorry to say this bluntly, Flipsters, but this is quite remarkable for the wrong reasons.

Compare Flipkart with Amazon India. Forget Amit Agarwal, Jeff Bezos’s go-to man for India and who, some say, will succeed the maverick entrepreneur to run Amazon some day. Take a look at some of Agarwal’s reportees:

• Manish Tiwary, vice president and seen as No. 2 to Agarwal, was a 20-year alum of Unilever, arguably the best fountainhead of personal consumer and brand talent in India, when he was headhunted into Amazon.
• Akhil Saxena, vice president, customer fulfillment, is again a Unilever veteran of nearly two decades.
• Arun Sirdeshmukh, head of Amazon, was head of marketing at clothing brand Indus League and CEO & director, Reliance Trends before starting up with Fashionara.com, a fashion e-commerce play.
• Gopal Pillai, in charge of so-called seller services, has been around the block for 22 years now: from TCS to McGraw-Hill to Amazon.
• This list does not include those like Dale Vaz, who runs tech; Akshay Sahi, in charge of Amazon Prime; or Saurabh Srivastava, helming the consumer goods category.

The missing management depth is not just my view but that also of others who have interacted with the top leadership of the company. I blame the Flipkart board as much as co-founders Bansals for this handicap that Walmart will have to fix in its newest acquiree. To be fair, though, this is not a unique Flipkart problem – it is true of several other e-commerce companies, as well.

Fresh produce, grocery pain

Agarwal said in a recent interview that groceries and consumables would probably account for half of Amazon India’s business in five years. That is generally seen as the next big wave in Indian retail as the industry inches towards organized forms of the business. With some $320 billion in sales, food and grocery accounts for 57% of total retail sales in India. A tiny sliver of that has moved online and that’s where the growth in Indian e-commerce – so far dominated by electronics (read: mostly mobile phones) and fashion – is expected to come from in near future.

Everyone is padding up for that: from Amazon to the specialist BigBasket to Reliance Retail, the big daddy of organized retail in India. Like a veteran told me earlier this week, the grocery and fresh product business is not rocket science but is intense in execution. “The devil lies in the detail, the most minute of them,” he said.

I can’t say for sure but Flipkart, a company that claims that it has 70% share of the online market for fashion, mobiles, and electronics, doesn’t look like it has the appetite to build a grocery and fresh produce business that snakes into hinterland India for its supply chain.

Battle with Alibaba and Jio ahead

This was perhaps the writing on the wall that had Flipkart’s decision makers make the call that getting into bed with Walmart, the world’s biggest company by revenues, was the only way forward for them. Depending on who you lend your ear to, India has between 60 million and 100 million online shoppers. Those same people will also be forced to admit that the market has more or less plateaued in the last 18 to 24 months.

The signals are clear: growth will come from the next 100 million customers who come on board India’s e-commerce engine. But, guess what? No one has a playbook to get to them.

No one? The ambitious phone and data services giant Reliance Jio – the fastest growing telco in the world – is perhaps best-placed to get to the next 100 million customers in India. The 180 million customers on the company’s platform – a substantial number lives in India’s Tier-2 and Tier-3 towns and its villages – make for a ready user base to convert to e-commerce at a low cost. When Jio will make the move is not clear but there are reports (here and here) that it will be early in fiscal 2019. With the backing of Reliance Industries, Jio will perhaps be the fiercest rival to Indian e-commerce companies yet.

Ditto with Alibaba, which has a $8 billion war chest readied for India.

In such a scenario, Flipkart, no matter how deep pockets its backers had, would need a giant that would back it. You don’t need to be a game theorist to figure this one out.

Walmart has promised to put in $2 billion of fresh capital into Flipkart to help the business. Don’t forget that the Indian company already had some $4 billion in reserves. That makes it a slightly more even battle in the Indian e-commerce space: Walmart vs Amazon vs Alibaba vs Jio.

As Bezos likes saying, it is indeed day one in the world of e-commerce.

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