When Oyo's founder Ritesh Agarwal refused to talk about the dinosaur in the room
Manu Kaushik February 10, 2020
Oyo Hotels founder Ritesh Agarwal has recently posted a blog titled 'Jan 2020 - Reflections on the first month of a big year for Oyo'. It has appeared at a time when the start-up is getting rap for large-scale layoffs across its India, China, and US operations. Some 2,000 people have been laid off in India alone as part of the unicorn's supposedly one-time restructuring exercise. In addition, the hotel chain has exited out of nearly 200 cities in India, and about 5 per cent staff in China has been asked to leave.
Although Agarwal, in his blog, has briefly touched upon the exercise, there's more glorifying of the entire restructuring process - quoting a retrenched employee who wants to come back at Oyo if given a chance. Agarwal has not delved into the details of why the right-sizing was important, or if he had made a mistake of growing too fast and spreading too thin.
Agarwal said that he has been kind to the laid-off staff who have been offered an outplacement support by the company. Nearly 69 per cent of the impacted employees have opted for the outplacement support, and Oyo has shared the profiles of some 900 retrenched employees with over 48 companies.
The blog also emphasises on the Oyo's strict standards when it comes to transparency and corporate governance that includes appointing Baja Corporation's Betsy Atkins as independent director, elevating Aditya Ghosh, and bringing in SoftBank's nominee Gerardo I. Lopez to the board. "In the coming days, we will also issue our annual report like we have been doing in the past. While we are under no obligation to share this widely, as an organisation, this is one of the many ways in which we demonstrate our commitment towards building an organisation centred on the highest standards of transparency and corporate governance," Agarwal wrote.
For a start-up battling the credibility issue, the blog tried to cover some ground on the governance front. Oyo's lofty valuation of $10 billion, which is fuelled by a considerable funding from Masayoshi Son-backed SoftBank, has made it the cynosure of all eyes. Oyo's every move - at least in the past two years or so - is actively tracked by global and domestic analysts who, invariably, have raised suspicions (more than conviction) on its promising future.
Through the rest of his blog, Agarwal shared some operational numbers and market-wise performance, praised his employees profusely, and tried to bust some myths, including the mention of 80 per cent annual growth in corporate clients in 2009 as against the "misleading and unsubstantiated claims that Oyo's corporate accounts have shrunk."
Surprisingly, the blog doesn't talk about Oyo's biggest chase at the moment - the profitability. It's widely-believed that the start-up's hefty valuation is not supported by the underlying business model, and there are doubts on Oyo's potential to turn a profit anytime soon given the rate at which it's burning cash. The disastrous IPO attempt of WeWork last year has only made it worse for Oyo to alleviate the fears of analysts.
While there was no need for Agarwal to mention profits (in the blog), but since he felt the need to take stock of the first-month performance, he might as well have shared a tentative plan to put an end to the rising speculations. Last November, for instance, some reports suggested that Oyo aims to turn profitable by 2022 as per a valuation report submitted by the start-up with India's ministry of corporate affairs (MCA). Before that, there were speculations that it would list in the next two-three years. Profitability is crucial for Oyo for two reasons: to do an IPO, and in turn, give exits to a clutch of investors, including the Japanese banks which have recently loaned Agarwal about $2 billion to buy back his shares. A third reason could be possibly to subdue the chatter around its valuation bubble.
For Oyo, which is now part of the curriculum at the Harvard Business School, the time has come to stop beating around the bush. Perhaps, the second-most valuable start-up in India needs to face the troubles head on.