Of the paths less traveled and the roads less taken, Ritesh Agarwal chose one that mapped the road of his own success story and that of his company — OYO.
Since its launch in 2013, Gurugram-based OYO has become the largest budget hotels and rooms platform for travellers looking for no-frills, comfortable accommodation at affordable prices. However, OYO was not born out of a eureka moment. It took a lot of tweaking and remodelling of the original business idea for OYO to get its first break.
Currently, OYO has an estimated valuation of between $10 Bn and $15 Bn after its latest round with investments from RA Hospitality Holdings and existing investors.
It is one of the biggest success stories in the Indian startup ecosystem, and today has a presence across India, China, UAE, Malaysia, Nepal, US, some European countries and Indonesia. OYO claims to be the world’s second-largest chain of hotels, homes, managed living and workspaces. The portfolio combines fully operated real estate comprising of more than 35K hotels and 125K vacation homes, and over 1.2 million hotel rooms in 800 cities and 80 countries.
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Agarwal’s entrepreneurial journey and the beginning of OYO were anything but conventional.
A young achiever of sorts, Agarwal saw many highs and lows before he could become the youngest unicorn founder in India. From becoming an entrepreneur at the young age of 17 with a startup named Worth Growth Partners to going bankrupt the same year, he’s seen it all.
It was during his travels that Agarwal was faced with the problem of finding affordable yet livable temporary accommodation or hotel rooms. He quickly recognised a need in the market that was not being serviced. This led him to launch Oravel Stays, the Indian version of Airbnb, in 2012.
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However, despite securing funding and bringing more experience onboard in the form of Manish Sinha, the founder of Gurugram-based Cinnamon Stays, the venture failed to acquire the number of bookings required to stay afloat and grow. Soon, Agarwal gave up on his Airbnb-replicating business model.
Finding The Right Business Model
As they say, failures lead to successes. The failure of Oravel resulted in Agarwal building something much more suited to the Indian travel ecosystem — OYO (then called OYO Rooms), which is a clever acronym for On Your Own (Rooms).
As per OYO, it registered a 15x year-on-year growth with 2.3 Mn booked room-night transactions in Jan-Mar 2016. The rapid success of OYO made the brand a household name in India and soon the company started expanding overseas. OYO’s presence in China has become a success story in that market, similar to the revolution that it ushered in in the Indian context.
To put its growth in India since 2016 to 2019 into perspective, OYO had announced in 2016 it had 5,855 hotels in its network with a total inventory of 68,300 rooms, whereas today it has 35K hotels and over 1.2 Mn rooms on its platform. That growth has also been made possible because Agarwal kept iterating the model and ensured that OYO does not remain confined to the budget hotel space.
Diversifying From Budget Hotels Space
With multiple rounds of funding secured from major investors such as Softbank, the startup ventured into newer categories and has constantly launched new ventures or brands under its umbrella.
Today, it owns and manages properties, and offers customers a range of options from OYO Townhouse, OYO Home, OYO Life and OYO Silverkey, which range from corporate travel to coliving to service apartments.
OYO initially started its operations on a full-stack model until it got into the leasehold, revenue-sharing, and franchise-owned model to expand its business further and diversify its inventory to target more than just the budget traveller.
And beyond hospitality, it has also got into cloud kitchens in some cities, and offers coworking options in several others. It also acquired Innov8 to strengthen its foothold in the coworking sector. Ever since, it has been on the lookout for idle properties, tapping existing properties and upgrading others to make them a part of their portfolio.
OYO’s Share Of Controversies
Despite being one of the most successful startup brands in India, OYO’s rise to prominence has not been free of controversy. In particular, the company’s relationships with its hotel partners has been a constant source of scandals and issues.
As recently as this year, OYO hotel partners across India are protesting non-payment of dues from the company. Inc42’s report in August 2019 showed how OYO hotel partners alleged that the company used arbitrary fees and hidden charges to eat into hotel profits.
Independent protests by small hotel owners are springing up in mid-tier towns like Nashik, Pune, Kota, Manali, Jaipur and Ahmedabad as well as Bengaluru and Delhi. Hoteliers claim that OYO has been cheating them of their promised returns and minimum guarantees by levying a slew of charges, often without informing them. Many of these charges are not specified in the contract between the owner and OYO, hotel owners that Inc42 spoke to, alleged.
Mega Funding Round For Next Growth Phase
In early October, OYO announced a $1.5 Bn Series F round with Agarwal’s RA Hospitality Holdings investing approximately $700 Mn as primary capital in the company, with the balance $800 Mn being supplemented by other existing investors. It said that a part of the funds will be diverted towards driving growth in the United States and in strengthening its position in the vacation rental business in Europe.
Founder Agarwal said that on a Y-O-Y basis, the company is operating profitably at the building level, and the EBITDA has improved by 50%.
The company said it has seen a 3.8x YoY growth in revenue in Aug 2019 (vs. Aug 2018), with 1.2 Mn rooms under management across hotels and homes. The company said it has a strong balance sheet of $2 Bn across group companies, a significant part of which will be further invested in the business.