Billa analysis why it failed?
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The OYO with a Broken Plans.
The troubles at OYO startups continue to reach alarming proportions. Massive layoffs, disgruntled hotel partners, poor customer experiences, governance issues and failure to deliver the brand promise standardised stay experience at predictable budget rates. The roots of this malaise can be traced back to a core start up ecosystem reality the Race to the pole position, for the winner takes all. Softbank knows it too well and therefore pushed its crown jewel into attempting to expand globally US, UK, Europe, Latin America, China all at once. And No consumer internet company has ever attempted such a feat earlier.
Besides deep pockets, amply enabled by Softbank which owns 50 percent in Oyo, it required massive recruitments, overselling by a stressed and overzealous sales team, onboarding new hotel partners with guarantees and promises which were not kept, and sometimes side-stepping governance issues. Oyo’s operations resemble more like a glorified real estate company that uses software. The audited March 2019 numbers shows that the 4 times the revenue growth necessitated recruitment in India to grow from 2,000 odd people to 8,000 plus people much in line with the four fold increase in revenue. A sales army to tie up independent hotels, capital outlay to standardise the hotel infrastructure, and regular expenditure to bring customers in point to the linear dependency of the business on staff and infrastructure like any hospitality company. The Numbers don’t lie. The unit economics of Oyo is under stress. 4.5 times Increase in consolidated revenues for the year ended March 2019 with widening Seven times increase in losses to 335 Million Dollars makes for a botched up story. The net loss as a percentage of revenue widening from 35 percent and total gross margin falling from 10.7 to the 7.1 percent during the same period points to the grim state of affairs.
The International expansion also gone bads. And The Oyo’s financials show that China contributed nearly 75 percent of its losses in the year ended in March 2019. The playbook for all its international operations, US and Japan included, is eerily similar overcommit to hotels with promises, under deliver to customers. And Almost all unicorns and modern day success stories are built with the lubricant called the venture fund. And venture capital exists to create large scale successes. That, in the process of doing so, many failures happen is a part of the deal. In fact, the venture capital power law curve states that Six percent of deals produce 60 percent of returns and half lose money. All top funds around the world try and therefore focus on getting more hits while ignoring fewer misses. Failure is pretty much part of the risk. What happens at Oyo matters for the start-up ecosystem in India. If Oyo, India’some one of the most valuable start up with marquee venture funds including Softbank, goes bad, it will have far reaching consequences for the start Ups ecosystem in general and funding in particular. The Bad Governance Being defined as a tech company counts for sure. The upsides consist of appealing to talent, attracting funding, accessing tax incentives and subsidies, and avoiding or delaying tax regulations and taxes.
The Oyo’s founder Ritesh Agarwal buying back stake from Lightspeed and Sequoia last year is not a regular story. There is more to it than meets the eye. SoftBank’s founder guaranteeing the founder of a SoftBank backed portfolio firm to invest in the same SoftBank-backed portfolio firm It’s all kosher. The fact that this was powered by a personal-guaranteed loan of 2 billion dollars by Masayoshi Son himself points to grave questions around the issue of governance. Financially, is such a thing possible?. How about Legality?. And Ethics?. All par for the course. Strange are the ways of the world. The Positioning oneself as a tech company exaggeration, outright lie or the truth is all shades of grey now. The Future is bleaks. And In a post Covid world, the hospitality industry is expected to be one of the topmost affected ones. It will perhaps have the longest cycle for things to revert to normal. Switching from growth at all costs to balancing growth with a path to profitability will be easier said than done. The current valuation which is a result of the massive international expansion may be an untenable one what with China contributing to 75 percent of the losses in the year ended March 2019. The OYO Rooms are finished will take any retail Inverstors will will even invest in It's.