Oyo
Rise and Challenges of Startup Founders:
In the beehive of startups, some names have risen to fame, representing innovation, ambition, and sometime, blunders. Vijay Shekhar Sharma, Byju Raveendran, Bhavish Aggarwal, Ritesh Agarwal, and Ashneer Grover are some of the founders who once represented the Indian entrepreneurial dream.
The journey for these founders has not been a straight road to success. Some have met setbacks owing to management failure, hubris, or external crises. Amongst these, Ritesh Agarwal, the founder of OYO, has distinctly emerged in terms of how he could respond and try a turnaround for his company even in adversity.
A Journey to Entrepreneurship
He initiated his entrepreneurial journey from the mid-1990s in Cuttack, Odisha. At a very young age, he showed an interest in technology and innovation.
While he was not allowed to play with computers as he was too young, Ritesh managed to acquire this exposure later on, which would consequently become the foundation of his own entrepreneurial endeavors.
His interest in entrepreneurship was evident when he was still a kid, something that kept him alienated from the other children who were aiming to become doctors or engineers.
Like many young Indians, Ritesh found himself on the traditional path to becoming an engineer by joining a coaching course in Kota.
However, Ritesh realized his true interests lay elsewhere. He traveled to Delhi where he took up odd jobs to survive, including selling SIM cards. Simultaneously, at the age of 17, he published a book called The Encyclopedia of Indian Engineering Colleges, proving to be a resourceful individual.
The incident was being the expulsion from his rented dwelling due to financial constraints. Walking on the streets of Delhi, Ritesh noticed large gaps in the hotel as well as budget accommodations market. Most budget hotels provided poor hygiene and customer service, while the better ones were way beyond the budget of common travelers. This insight planted a seed for his venture.
The Birth of OYO
In 2012, at the age of 18, Ritesh launched his first startup, Oravel Stays, a platform modeled after Airbnb. Recognizing the need to pivot, he soon transitioned to OYO (On Your Own), a budget hotel aggregator designed to standardize and uplift the service quality of affordable accommodations.
The model, however simple and effective it was, relied on partnership with budget hotels. It rebranded the properties, provided some staff training, and brought them into the OYO app for smooth booking.
On the other hand, it retained a 20 percent share of the revenue, with the remaining 80 percent going to hotel owners. Such a win-win model attracted investment from major venture capital firms – Lightspeed Venture Partners, DSG Consumer Partners, and Sequoia Capital. And by the time Ritesh was 20, the company was valued at $60 million.
Rapid Growth and Challenges
Driven by aggressive growth, OYO quickly diversified its offerings into various segments, such as OYO Townhouse, OYO Silver Peak, and OYO Homes. The company also forayed into the international market, opening operations in the US, China, and Southeast Asia. Needless to say, rapid growth came at a cost.
In 2018, the Federation of Hotel and Restaurant Associations of India complained about OYO’s practices, branding illegal apartments and chawls. Such practices also smeared the company’s reputation, mainly about hygiene and the quality of service. By 2019, OYO was charged with mismanagement and breach of contracts and saw more than 500 hotels end their agreement with the company.
Effects Of COVID-19
The global pandemic brought unprecedented challenges to the hospitality industry, and OYO was no exception. Travel restrictions and lockdowns decimated revenues, forcing the company to lay off employees and scale back operations.
In China, OYO’s workforce shrank from 10,000 to just 1,500. Similarly, the company faced backlash in the US, where low-cost accommodations attracted undesirable clientele and further tarnished its image.
Ritesh Agarwal’s aggressive expansion strategy, which had been based on all-out scaling, was a liability. The company’s decision to send employees on temporary leave with reduced salaries drew flak, with many hinting that the company was not even prepared for a contingency.
The Resurge
Despite these challenges, Ritesh Agarwal has worked to put OYO back on track. Embracing the need to regain trust and stability, he invested directly in the company to raise his stake in it. In a bid to return its focus to expansion abroad, OYO bought US hospitality chains Motel 6 and Studio 6.
The company has since worked on reducing costs and increasing operational efficiencies. For example, in a span of one year, the employee costs came down from ₹875 crore to ₹531 crore, which shows excellent cost cutting. But the question here is whether these changes will sustain or it is all just financial juggling to stay profitable at least before the much-talked-about IPO.
Glimpses at Future of OYO
OYO’s journey is a case study of the highs and lows of entrepreneurship. While the company has solidified some of its operations, it still faces significant challenges in markets such as India, China, and Indonesia. Success to the IPO and the longevity of the company will depend on how growth coexists with ethics and customer satisfaction.
The story of Ritesh Aggarwal is a lesson in humility and adaptability as far as leadership goes. Unlike peers who were overconfident and have badly mismanaged, Ritesh has been rather learning from his failures. If OYO can come out of this tougher, then it might even spearhead a new wave in India’s startup ecosystem.
