At 19, Ritesh Agarwal disrupted India’s hospitality industry when he founded OYO in 2013, an aggregator for budget hotels. Gurugram-based OYO has seen nothing short of a meteoric rise, becoming the fourth-most valued unicorn in the country. Despite dropping out of college as a teenager, Agarwal rose to become the world’s second youngest self-made billionaire, after American reality TV personality and make-up mogul Kylie Jenner. The SoftBank-backed firm has a network of 1.58-lakh hotels across 35 countries, including India, the U.S. and the U.K. OYO, which is planning a public listing over the next few months, plans to raise about $1.5 billion at a valuation of $14-16 billion.
What drove the inception of OYO was our intention to create a thriving economy for small hotels and holiday homes, so that they could earn substantially more. We also wanted to provide the Indian middle-income consumer with trustworthy, affordable, convenient, easy to book experiences. This was both a challenge and a huge opportunity for us, and we had conviction in our ability to find a solution. It was this conviction that fuelled the idea further.
The challenge and complexity in the idea made it even more exciting. How do you go to a market that is so fragmented and then solve the problem? But the initial team and the platform’s first hotel owner [from Gurugram] were very confident about the business.
Being the first-of-its-kind platform in this space, we had to face some very unique challenges. For e.g., convincing small hotel owners to adopt dynamic pricing, which was unheard of then, showing them the value of better visual representation of their properties, and educating hotel staff on the importance of providing better service for better ratings. These three factors were key drivers for the business to grow initially.
When I was starting the business I had this strong feeling of ‘now or never.’ I had the hunger to keep going, which is why a lot of the teething troubles in the initial days didn’t bother me so much. But when you are starting a company the challenges can come from anywhere. For example, setting up the founding team was the biggest challenge. Mostly founders recruit friends from their university or past colleagues as the founding team, but I didn’t go to a university nor did I work in a typical corporate set-up. This was the biggest obstacle, and I had no choice but to recruit top-rank professionals from the industry, which in retrospect, turned out to be my best decision. In fact, it actually turned out to be a boon. The other challenge was to convince our distribution partners that we are in this business for the long term.
Make Or Break Moment
Getting the right team was my biggest challenge. Looking back, the make or break moment for OYO was when we brought on board a couple of key people, who had a big impact on our growth metrics. This was at a stage where we had cash in the bank, but growth was flat. We had two-three hotels on the platform. Investors were asking us how we planned to grow. At that time, we were just focused on surviving, and growth was not our priority.
In 2014, we hired Abhinav Sinha, [currently global chief operating officer at OYO Hotels & Homes, and partner, OYO U.S.A.]. He played a very important role in growing the business, and then got a few more good people who have all played a vital role in our journey. We went from two-three hotels to 100 under the service of OYO within just two-three months. That was a make or break moment for us, which also taught me that a few good people can change the direction of your company.
The Business Model
First is the fundamental understanding of your product-market fit. Next is technology and talent. If we had not invested in technology at the right time our ability to grow would have been limited.
The next big criteria is listening. Over time, I have learnt that the biggest value that an entrepreneur can bring to the table is by keeping their eyes and ears close to the ground. Whenever our company is facing any challenge my learning is: go back to customers and partners [hotel owners], and they will tell you what to do. Covid-19 was the biggest example of that. All the decisions that we took and how we reacted after the pandemic were based on feedback and suggestions from hotel owners and customers. I have tried to inculcate this practice into our culture. Now, every week we have an owner town hall where all hotel owners join to ask the good, bad and ugly questions. It is a platform for them to talk about their issues and concerns. Next, build good talent and lastly whenever you get an opportunity—take it. Be it acquiring talent, good investors or opening new segments.
With the advent of the pandemic last year, technology is taking centrestage across businesses. Artificial intelligence and machine learning is increasingly becoming the heart of most decision making in organisations. At OYO, we were always technology centric. But in the last two years we have said that technology will not just be an enabler to what we do, but will be the leader of what we do in the future as well. We have now become probably the thirdmost downloaded travel app in the world [according to mobile analytics company App Annie]. From our perspective, moving from a technology-enabled world to a technology-led world has been a big transition that I am very excited about.
As a fast-growing organisation, ensuring that our core cultural values remain intact is a challenge. It requires engaging, communicating and working with teams consistently. At OYO, the management team and I have taken personal responsibility to make sure that not only are we focused on high performance, but also an employee-first work culture.
Over the years, I have learnt that investors are true partners who entrepreneurs should engage with for learning and doing new things. Founders should also discuss challenges and issues from an open and transparent perspective with investors in order to create value. That’s what investors expect from a founder. Today my investors such as Mohit [Bhatnagar from Sequoia Capital India] and Bejul [Somaia from Lightspeed Venture Partners] are my long-term friends with whom I can share both good and bad news.
Marketing & Sales Lessons
Focus on word of mouth by building good products and use of innovative marketing campaigns where the cost is lesser but gives a significant reach. Over the last few years, 80-90% of our revenue has come from just word of mouth and through repeat customers. Our marketing spends are extremely low. A strategy that has worked well for us is the signage [branding] that we put outside our hotels. Most people would say that they got introduced to the OYO brand first through the signages outside properties.
When Did You Think You Had Arrived?
I still don’t feel that we have arrived. My colleagues and I genuinely feel every day that so much work needs to be done. We are very committed to our mission and are working towards that. We are still too early in our journey and have a long way to go.
Riding Through Toughest Times
When you are building a new business, especially a category creator, there will be multiple challenges. There are both internal issues within the business related to execution, opportunities and the ecosystem, and external challenges such as Covid-19. The biggest learning is that whenever there are challenges, instead of trying to resist, acknowledge it and come out stronger.
For merchants my biggest focus is to make sure that we continue to come up with more product experiences that create value for them. We wanted to be the number one technology product of choice for small hotels and homes. For customers, we want to bring them the best and the safest options, especially post Covid-19. Staycation, holiday homes and leisure travel are going to be big opportunities for us in the future and we are going to invest in these areas. We also have a strong technology product pipeline both for merchants and consumers.
We want to be financially sustainable and improve the bottomline. Our overall holiday home business globally has been profitable until now and we anticipate being profitable on a full-year basis. Governance and culture are the two other areas where I am investing my personal time. The tone at the top to do the right thing is very crucial.