There is nothing about Ritesh Agarwal that lets one on about his status as the founder and CEO of India’s second-most valuable startup , OYO Hotels & Homes. Not his scruffy beard; not his dark jeans and jumper. Fortune India had met him on March 16 at OYO’s Gurugram headquarters, a week before India’s Prime Minister Narendra Modi announced a 21-day national lockdown to contain the spread of the Covid-19 pandemic.
The last few months have been tough on the hotel aggregator and its 26-year-old founder. In January, the company went through a round of restructuring, letting go of almost 15%-20% of its workforce in India, and now the spread of the Coronavirus and the subsequent lockdowns in countries around the globe threaten to wipe out a large chunk of its revenue. Earlier this month, the company announced it has seen a 50%-60% fall in revenue and is putting its employees in the U.S. on furloughs.
The company has also been facing troubles with hotel partners and fighting a negative impact on the OYO brand, its valuation, and future expansion plans. In an interview with Fortune India, Agarwal explains that the company is trying to make things right. Edited excerpts:
Everyone has been saying that OYO has grown too big, too fast. Do you believe it?
Did we grow quick? Maybe we did. But only after executing I could know what is the right pace of growth. We learnt it from 2019, and now we are on the path of making sure that we temper it.
When I started the business, my aspiration was to set up 10 hotels in my lifetime. You don’t start a company by anticipating or planning. You learn, improve, and move on. I learnt a lot from my management. They are people who are way more educated, experienced, accomplished, and intelligent than I am. My job is to make sure that I set the long-term aspiration and bring in the best leaders to do their job. I love learning new things and executing them.
What is the kind of support you have from your investors right now? Will you be raising any funds in the near future?
Our shareholders’ view has been very straightforward: There is a business plan that the board has set up, and the management just focussed on delivering that; Don’t get distracted by various things happening outside; Learn as much as you can but focus on delivering results. [We have] no plans right now to raise funds. We have a sizeable balance sheet so the focus now is on delivering results.
Our key investors now are SoftBank, Lightspeed Venture Partners, Sequoia Capital, and Airbnb. Smaller shareholders would be Didi Chuxing, Grab, and Sunil Kant Munjal of Hero Enterprise.
You had a round of restructuring early this year. What were the reasons for that?
There were things last year that we did not do well….anybody who has seen OYO operate over the years will know that this company is of the kind which will acknowledge the problem and fix it. Acknowledging learnings and making decisions are symbols of good companies. We made some restructuring across the board. Wherever we had duplication of workforce we wanted to address that.
As we grew into 80 countries, we hired for the same job in many countries because in early days you needed people for those roles. But later technology replaced those jobs in many markets. As a part of our restructuring exercise we had to let go people which is very disappointing. However, we did everything we could for our employees who we had to let go. We gave them extra severance between three months and eight months depending on the roles. Many said we did this for capital management, if so, then we would not have spent so much capital. It was just the right thing for the business to do at that point.
You also had trouble with dissatisfied hotel owners who have complained about payment delays and other issues. How are you fixing those?
The hotel partners would complain that our sales staff are not aware of our accounting statement. Our business development executives were trained to sell, solve problems, but not fully trained to be an accounts person. To solve that problem, we trained our officers. Now any of our executives can talk about every detailing of sale price, cost price, cost of operating, marginal cost of operating, real estate cost, real estate yield returns. Besides this, we conducted training for many of our staff across different departments such as code of conduct, soft-skill, and behavioural training.
You have also launched partner support programmes, Tell us about that?
Earlier, our partner support was field-oriented. People in the cities would talk to people on the phone. Now we don’t need that anymore. Earlier, the average turnaround time to solve an issue was seven hours, but now the average turnaround time is 5-6 minutes because it is centralised by means of chat bots or support staff. Today 60% of our partner support queries in the U.S. is now through chat bots. The rest is still done by people on phone calls.
When you enter a new market or choose a location no matter how much of data analytics you use you will still get 2%-3% markets wrong. We got certain markets wrong when we chose a location in the past. So we decided not to do any growth investments in those 2%-3% markets and invest in other cities.
Next, we looked at governance. [In November, the company announced the appointment of Betsy Atkins, CEO and founder of Baja Corporation, as an independent director on OYO’s board.] Atkins joined as the independent chair of the board. We plan to make disproportionate investments towards building strong corporate governance right from the board to the management to big decisions of the company.
In the last three months we have invested in growing up stronger as a healthy child.
Talk to us about the future.
In the medium-term you will see OYO grow stronger and every growth that OYO brings will lead to incremental bottom line improvements. In India we will continue to back some of the newer businesses that we had launched. But our global focus will become hotels and vacation homes. In India we have much more strength to be able to back all other businesses. For example, the wedding business. It is surprising that the wedding vertical does annually over ₹1,200 crore of sales.
(A detailed story on OYO, and more on Ritesh Agarwal’s plans for the company at a time of crisis, will be published in our May issue.)