"A growth for the sake of growth, without a specific reason and plan, is the ideology of a cancer cell," an early investor in Oyo, India’s largest hospitality startup, said on Tuesday, requesting anonymity.
This pursuit of relentless growth, across cities, countries, and market segments- from affordable hotels to student living, is the reason behind Oyo’s plans to fire more than 2,000 people in India and China, among other markets, said three people close to the company, including the person cited above.
“Oyo wanted to be everywhere in a very short time; India, the US, China and the Middle East; marketplace as well as inventory-led; budget hotels as well as posh properties. There wasn’t a cohesive strategy, except to say, we want to be everywhere," the person said.
The layoffs are part of a massive course correction the company is attempting, despite being in the midst of a historic expansion spree.
Over the past two years, it has launched in dozens of countries and spent hundreds of millions of dollars buying hotel firms. Since September 2017, it has raised $2.5 billion and seen its valuation soar to $10 billion.
In recent memory, no other Indian consumer company, much less an internet startup, has ventured with such gusto into difficult international markets such as China, the UK and US all at the same time, Mint reported on 10 December.
But Oyo’s reckoning comes amid a tough phase for venture capital and large consumer internet companies in general, which have raised billions of dollars and has been around as long as a decade with no viable business model. This was triggered by WeWork, which failed to list and saw its valuation plummet from $47 billion to $8 billion in a few weeks.
To some extent, Oyo predicted this change from a startup to a full-blown company with thousands of employees would need to be managed differently.
To this effect, it hired IndiGo airline’s Aditya Ghosh, to head its South-East Asia business in November 2018. But just a year later, Ghosh resigned, and was “elevated" to the company’s board.
All was clearly not well. As Mint reported in December, Ghosh’s exit as CEO and his move to the board wasn’t what the company had in mind when he was appointed last year. Ghosh’s move to a non-operational role was an admission that the decision to hire him hadn’t worked out for both parties.
But Oyo’s decision to lay off people could be a tacit admission of the sharp course correction needed, even as hospitality industry and venture capital experts struggle to decode the true value of Oyo.
“Even assuming the India business has legs, and at least we can see there is a market, there is no real reason for global expansion and I don’t understand why it went to the US," said a venture capital investor who has been investing in Indian and US-based firms for 15 years. “In developed markets like the US, UK and even China, affordable hotels is a very old market which has been solved for by chains as well as individual hotels. So how big is your addressable market really?"
As Oyo’s losses mounted (six-fold to ₹2,385 crore in FY19), leaders at the company told employees that SoftBank had demanded it become profitable at the operating level by mid-2020, The New York Times reported on 14 January.
Besides the focus on profits, Oyo’s recent decisions also point to the perils of expanding everywhere in a short span without answering the real question—“why should we expand" and “how should we expand," said the investor cited above.