“If you have not failed, you have not hardened yourself.”
Coming from a 22 year old CEO, these words might seem a bit cocky. But when Ritesh Agarwal in conversation with Shruti Mishra at the recently held SURGE Conference in Bangalore, spoke these words, it looked like he did mean serious business. The recently concluded Zo Rooms acquisition under his belt, a budget room network with more than 45000 rooms, absolutely no foreign competitor breathing down his neck, and a staunch resolve to haul up customer satisfaction this year are some of the factors which keep Ritesh’s confidence going, who has apparently failed six times before he hit a homerun with OYO.
These are some of the things he spoke about at the conference, besides declaring, “We had competition in India six months back”, in context to the acquisition of Zo Rooms.
On Failing Six Times And Not Quitting
Ritesh confessed that given the fact that he hailed from a family which runs a small local business in Southern Orissa, business, at best, for him would have meant sitting at a shop. So even a software job would have been better than that. Hence there was no downside risk to his ambitions. So he decided to do something exciting. Said Ritesh, “Nothing would have gone worse from sitting at a shop-it would only be better. So I wanted to do something exciting. There’s a story about every entrepreneur. Normally, the first thing never works. First I started working with SMEs and giving services such as advertising, external sales for them. Post that I worked with guesthouses, helping them to advertise online as I was staying with them a lot. Then I realized that standardizing the experience would help them a lot better. So one thing led to the other. But if you have not failed, you have not hardened yourself.”He added,
“I knew if I had gone to college, I would not have done well. And then my family would hate me. So I felt if my family was to hate me anyway, I would rather do what I feel very excited about!”
“Everyone Thought Of Us As A Real Estate Business!”
As per Ritesh, the fact that something like OYO hasn’t been built before, presented its own set of challenges to him while he was talking to VCs. The first few months were a problem as every VC would ask if there’s a business similar to OYO, in China or US, and there was none. Says Ritesh, “In the first year everyone thought of us as a real estate business. No engineer would join us. So I would fly to Bangalore, tell people why we are a tech business, and then fly back with 3 engineers. That’s the reason it was difficult in comparison to other sectors. They started two months later when competition showed up. So it was easy to understand what’s going on. What we were doing was difficult to understand as people thought of us a real estate business, and thought the guy is very young, so he might not be that smart. Those times I felt helpless in some ways.”
However, today he feels powerfully empowered by what OYO has done to the hotel booking business. He felt that till date booking a hotel in India was almost like booking a house. A customer goes to a website, sees pictures, reads reviews, and is then asked to fill a form which almost feels like filling a marriage application form! It is this cumbersomeness that he wanted to remove, so he felt thrilled at the arrival of cab companies which lead the way towards simplifying a cab booking.
Says Ritesh, “I felt amazed when the cab companies showed up and you could press a button and get a cab. I felt in the same manner why doesn’t it make sense to find a reliable room anytime in any part of the town every time you want one. And that’s why we created the experience in a manner where you should be able to press a button and in 5 seconds get a room. Now, majority of our reservations come on our mobile app in 6 hours before check-in. So, people are literally landing in a city, pressing a button and getting a room.”
However, he admits that it is not as simple as it sounds. Managing the predictability component has been an extremely tough job, and it still is. After standardising 45,000 rooms across 160 cities, being able to manage them over and over again, dealing with issues, solving for them while at the same time maintaining 4* ratings on TripAdvisor, Ritesh believes OYO has done a decent job. This year, however, in comparison to last year, he believes that OYO will get a lot of bandwidth to focus on customer service.
2016 – The Year Of Customer Service And Execution
Speaking about the pressure of getting rooms filled on account of holding too much inventory, Ritesh said that adding as much supply was a promise of availability – one of three tenets which OYO started on; the other two being predictability and affordability. This meant that OYO’s basic proposition to its customers was that OYO will be available in every part of town, the experiences will be predictable, and the rooms will be 30% cheaper than other hotel rooms in the same area with a similar experience. And hence the need of aggressive expansion.
However, in order to maintain the predictability component, very similar to taxi models, OYO has been internally figuring out what is the quality of star rating. So, if hotels get lesser star ratings or x number of bad reviews, they are now being offloaded from the OYO network. Adds Ritesh,
“In the last few months we were not able to take tough actions against such erring hotels due to pressure of competition and on account of the on ground stuff we were focused on. However, at this point of time, we can take a step back and say this year is going to be the year of customer service and execution, and doesn’t matter if we grow a little slowly for few months.”
This implicitly means that OYO will be paying much more attention to the criticism of its service from consumers. Towards this, Ritesh claimed that OYO is now closely mapping rooms quality-wise as to which customer is checking-in which room, and which room in the country is standardised to what level. Though he admits it is a big problem—not yet solved for—but he is hoping that a significant number of people who like OYO’s offerings would continue to do so. To back that, he quoted that today, in Gurgaon, 55-60% of OYO’s users have stayed at OYO Rooms before. Similarly, on TripAdvisor, OYO continues to have an average of 4 star ratings, with 1000 reviews being added every month.
So,while OYO will go back to fundamentals this year, it will still continue to put a foot on the gas on aggressive execution on the ground. On the cards is a lot of innovation on improving the customer experience and ensuring that people in India fall in love with making OYO the most desirable lodging service. It is in this direction that OYO has signed up an exclusive partnership with IRCTC, by means of which every traveller, every travel agent and booking agent on IRCTC will end up booking OYO hotels exclusively. Through this deal, OYO will be aiming to leverage the 400 Mn plus Indian Railways travellers.
“We Had Competition In India Six Months Back.”
Speaking on consolidation in the branded budget hotel space and OYO’s much talked about recent acquisition of Zo Rooms (about which he declined to speak in detail), Ritesh added that consolidation in this space was inevitable as it is a network business.
He said, “So the network which has the most number of predictable hotels, customers will go there, and because customers will go there, you can force the hotel to deliver the right experience since it is making so much money. Till six months ago, no network was able to force the hotels to deliver the right experience as they would think that if not these guys, we will call someone else. Now the hotels know that there are only two or three such networks which can create that size of demand kind for us, which means I better deliver that kind of experience. So, in our space, consolidation can help better consumer experience in a significant manner.”
He also added that what also favoured OYO then was the fact that it doesn’t have an international competitor breathing down its way. Or, so as to say, OYO is that competitor. So in comparison to every other industry in this country, when it came to cash burn and discounting, he claimed that OYO possibly has the least amount of burn and comparatively more favourable economics.
He added, “The market share that we have in this segment enables a pricing power, so in a network business when you are giving a lot of business to a hotel, you win. So when we are discounting a customer, it’s not always discounting from our end. We will also be discounting from the pockets of hotels as they too make a tonne of money.”
“We Are Possibly The Only Non-American Company That Rocket Internet Has Ever Copied.”
While Ritesh feels happy by the fact that OYO is possibly the only non-American company that Rocket Internet has copied (in the form of Zen Rooms), he also firmly believes that OYO’s ability to out-execute almost everyone remains very strong. The problem of a branded budget accommodation he believes is something that exists across the world, and like India, OYO can solve it across across many countries. Hence, OYO’s latest foray into Malaysia.
Said Ritesh, “Southeast Asia is a market similar to Asia, has a demand that can go from India, and Kuala Lumpur has the least legal hassles. That’s why we chose to experiment in Malaysia first.”
However, India is still going to be OYO’s focus as it feels it hasn’t captured even 2% of the India market. Even in India, short stays is a segment OYO will stay very focused on – especially on hotels and service apartments. Meanwhile Southeast Asia will continue to be an experiment for OYO as it figures out the five or six magic sauce elements to strike it right in the international markets. From there on, it will bank on its understanding of the scaling format to quickly expand to other countries. Underpinning this confidence is the fact that for one year OYO operated only in Gurgaon and then next year it was in 170 cities.
Not to forget, also backing OYO’s ambitions are the huge rounds of funding it has raised (precisely $100 Mn plus)! Or as Ritesh likes to put it – the support of its investors. Says Ritesh,
“When our chips were down, they said we will support you further. When our chips were up, they said we will support you anyway.”
So, while competition in this segment heats up with OTAs like MakeMyTrip, GoIbibo, Yatra also venturing into the budget accommodation space and blocking OYO and other such aggregators from their sites, OYO is gearing up to launch a strong upmarket experience segment in the next couple of months. Says Ritesh, “First people were expecting that linen would be clean, rooms will be clean, and TVs would be good, and so on. Now consumers are saying rooms should a little more plush and they are willing to pay a $10 higher value for it. We believe that’s going to be the next thing big in India and we hopefully will be at the forefront of innovation there.”
Ritesh’s confidence is admirable but the entry of OTAs will take the competition in this space to another level. Coupled with this is the huge cash burn in this operating space in buying inventory, training staff, standardising amenities at partner properties, and not to forget the big bucks spent on advertising and promotions to acquire customers. After the enormous funding rounds raised at dizzying valuations, it is highly unlikely any investor will be cutting a check of $100 Mn to OYO this year. Yet Ritesh feels that OYO’s focus on upping the customer experience will see its ambitions through.
And what they are precisely, one might ask. Declares Ritesh unabashedly,
“Our aspiration is that we will take any piece of land, standardise it, bring it online, and build efficiency on that. Because real estate globally has been very inefficient.”
That’s one hell of an ambition of a 22-year-old founder. And 2016 will definitely reveal how far or near will OYO move towards these lofty goals.
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