From Start-up to Large Scale

Oyo Rooms
Room for discontent: Questions arise over Oyo’s biz practices
‘SoftBank’s India Jewel faces charges of Toxic Culture’
NYT News Service, January 4, 2020.
New Delhi: Oyo, that offers budget hotel rooms, has grown into one of India’s most valuable
private companies and aims to be the world’s largest hotel chain by 2023.
But at least part of Oyo’s rise in the country was built on practices that raise questions about
the health of its business, according to financial filings, court documents and interviews with
20 current and former employees, as well as others familiar with the start-up’s operations.
Many spoke on the condition of anonymity for fear of retaliation from the company.
Oyo offers rooms from unavailable hotels, such as those that have left its service, according
to the company’s CEO and nine of the current and former employees. That has the effect of
inflating the number of rooms listed on Oyo’s site.
Thousands of the rooms are from unlicensed hotels and guesthouses, its executives have
acknowledged. To deter trouble from the authorities over the illegal rooms, Oyo sometimes
gives free lodging to the police and other officials, according to nine of the current and
former employees and internal WhatsApp messages viewed by NYT.
Oyo has also imposed extra fees on hotels and declined to pay the hotels the full amounts
they claimed they were owed, according to interviews with hotel owners and employees,
emails, legal complaints and other documents viewed by NYT. Some hotel operators have
sought to file criminal complaints against Oyo, which said it withheld payments primarily
over the hotels’ customer service issues. “It’s a bubble that will burst,” said Saurabh
Mukhopadhyay, a former Oyo Operations manager who left the company in September.

STARTUP’s Expansion Spree ……

2013 A 19-
year-old
Ritesh
Agarwal
creates
Oyo

1.2 milllion $2.5 billion 20,000

Rooms on Number of
Oyo Funding it has raised employees

80
 operates in

Oyo is part of a group of prominent start-ups that have sprinted to get as big as possible, fed
by money from large investors such as the Japanese conglomerate SoftBank. Now some of
those young companies have started showing cracks in their businesses.
It would also be another black eye for SoftBank, which is Oyo’s biggest investor and owns
half the start-up’s stock. SoftBank CEO Masayoshi Son has hailed Oyo as a jewel of his
company’s $100-billion Vision Fund, even as he recently wrote off billions of dollars on
other investments like WeWork. SoftBank declined to comment.
Oyo CEO Ritesh Agarwal acknowledged in a recent interview that some room listings
included hotels that it no longer worked with. He said Oyo left those listings up and marked
them as “sold out” as it tried to woo the hotels back. Aditya Ghosh, Oyo’s head of India
operations, also said in an interview that many hotels lacked required licenses, leaving them
vulnerable to the occasional government raid. He denied that Oyo gave free rooms to
officials.
Ghosh dismissed what he called “noise” from hotels about extra fees and non-payment of
bills. “The disagreement is about the penalties we charge on customer service failure,” he
said. He added that nearly 80% of Oyo’s employees had been at the company for less than a
year, so training has been a challenge.
Oyo is trying to expand globally and now offers more than 1.2 million rooms in 80 countries.
But as Oyo has grown, its losses have mushroomed. In December; SoftBank and Agarwal put
another $1.5 billion into Oyo to accelerate its expansion. The funding valued the company at
$8billion. At the same time, two other big investors, Sequoia Capital and Lightspeed Venture
Partners, reduced their holdings. Lightspeed and Sequoia declined to comment.
The current and former workers said Oyo was never an easy place to work but that pressure
increased over the last year. Mohammad Jahanzeb Gul, who joined the startup in January
2019 and supervised 23 Oyo properties, said that during the nine months he was there, he
sometimes spent all day and night in front of a computer to meet deadlines. “The culture is
really very toxic,” he said.
Mukhopadhyay, who began working at Oyo in August 2018, said employees were under so
much pressure to add new rooms that they brought hotels online that lacked air conditioning,
water heaters or electricity. He and eight others said their managers had asked them to engage
in a monthly shell game of briefly inserting these unavailable properties into Oyo’s listings –
complete with fake photographs – to help impress investors. Ghosh, who left the India job
this week and joined Oyo’s Board, said that some hotels open in stages and that “there is no
padding.”
Because Oyo Hotels are popular with unmarried couples, one scheme involved workers at
properties run directly by the startup colluding to keep the guests checked in after they left.
The workers then cleaned and resold the rooms for cash to other guests and pocketed the
money, the people said.
An Oyo spokeswoman said it investigates all fraud accusations and had in some instances
fired employees.
Oyo lays off 1,000, founder says focus on profitability
Times of India 14th January 2020.
Bengaluru: Oyo founder Ritesh Agarwal has told staff that the focus of the company is on
profitability as it looks to balance “the speed of our growth with our operational capabilities”
along with driving governance and leveraging technology to improve operations. The
development comes as Oyo has started cost-cutting, laying off 10% of the Indian workforce
about 1,000 employees, according to sources briefed on the matter.
The development comes as the SoftBank-backed hospitability major has come under global
scrutiny for the way it runs its operations, including overstating properties listed on its
platform and alleged bribes. Oyo has also faced protests from hotel owners in India and
China over payments. Over the last two years, Oyo has expanded aggressively to global
markets including China, Europe and the US, armed with billions in funding from SoftBank
Vision Fund.
“I have no hesitation in admitting that, growing at the pace at which Oyo has in the past few
years, we sometimes went ahead of ourselves and pressure-tested our organization at multiple
levels. This year, we are taking steps to address this,” said the 26-year-old Agarwal in a mail
to employees. He added that the company remains subject to external audits and is “making
significant investments in compliance, training and governance.”
Agarwal said in his mail that “some roles at Oyo will become redundant as we further drive
tech-enabled synergy, enhanced efficiency and remove duplication of effort across businesses
or geographies.” “As a result, we are asking some of our impacted colleagues to move to a
new career outside of Oyo.” While the total number of layoffs are currently pegged at 1,000,
some reports have pegged it at over 2,000 employees in India out of a base of 20,000.
Globally, Oyo employs over 20,000 and it is also expected to undertake layoffs in markets
like China. TOI had reported about layoffs at Oyo and other unicorns on December 23.
The move could also see Oyo trimming its network of over 10,000 hotels in India as the focus
will be on “profitable locations and buildings and avoid growth that dilutes our margins” and
reducing “operating costs.”

Discussion Questions:
- What problems is Oyo facing? Why do you think that is?
- How can the concepts learned in the Greiner article “Evolution and Revolution as
Organizations grow” be applied to this case?
- What do you think Oyo should do?