Sunday, September 26, 2021
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OYO Is Bound To Fail, Thanks To Unrealistic Expansion Plans

Business models should be carefully prepared to avoid exactly this kind of catastrophe


When you have investors such as Airbnb and SoftBank, you would definitely have the urge for rapid and widespread expansion.

The so-called dark horse company in the investment pool of SoftBank Group is now letting go thousands, and maybe unrealistic expansion plans are the reason behind that.

From being founded in 2013, to becoming the world’s third largest hospitality chain, Oyo is probably the fastest growing chain of leased and franchised hotels, homes and living spaces, and has its wings spread over India, Malaysia, UAE, Nepal, China, Brazil, Mexico, UK, Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, USA. This is just the Wikipedia list; there are so many more!

If Ritesh Aggarwal, founder CEO of Oyo, has everything so rapidly expanding, why does he need to fire thousands of employees?

Oyo’s Firing Frenzy

Firing employees in such large numbers is usually a sign of bad investment or of unrealistic expansion. Economic Times gives us some stats – Oyo has fired 5% of its 12,000 employees in China due to non-performance along with 12% of the 10,000 Indian staff. This is not all, another 1000+ employees will probably be fired over the course of next few months.

Yet, Oyo stated that they’re one of the best organizations in the world to work at, realizing an individual’s performance in a meritocratic manner. It may be true, but SoftBank is taking a hard hit on its shares due to this.

Also Read: You Can Buy Houses In Italy For $1; But, Is It Worth It?

Most other SoftBank investees have had to do a similar staff-cutting in the past because their revenues were not meeting the initial grandly-planned ambitious targets. According to Forbes, a few of SoftBank’s startups have begun “running into trouble”, for example, WeWork, an office space company whose valuation had to go down from $47 billion to $8 billion due to huge losses.

Similarly, at the end of last year, Wag, a dog walking service, implemented several rounds of firing, or as it is called in the business world – layoffs. Zume Pizza, which was considered almost a miracle in terms of exponential profits let go almost half of its workforce and ultimately even stopped making pizzas.

When a company starts giving out rooms for as low as $4 a night in order to grab market share, it is not expected of that company to make too much in profit. Yes, Ritesh’s net worth stands at $1 billion, but at what cost?

Another big reason for this big firing spree is its grievance management methods which are mostly inadequate. Over 20,000 hotel owners have complained about unfair treatment.

Oyo also saw Income Tax department suddenly showing up at one of its Indian offices, asking for a lot of documents.

What We Can Expect In Future

Economic Times and other big newspapers have called Oyo a dark horse in SoftBank group’s investee pool. Well, considering 105 rooms in 2014 to 75,000 rooms in a few years, it might as well be the dark horse.

But when you fire thousands of employees in countries like India and China, a proper vision is needed to go ahead from that point. The first and most important part of Oyo that is affected by this is its reputation. Being a hospitality chain gives you all the more reason to protect your reputation.

Since the shares, revenue and stocks have exponentially increased over the past few years, I think Oyo is now probably at that stage where those big expansion plans are taking a heavy toll on its owner. They’re now at a stage I like to call “an entrepreneur’s crossroads”.

Whatever call is made by the commander-in-chief, the company goes in that direction. We have two scenarios to expect – one, that the company will recover and keep expanding; second, that they are bound to fail henceforth.

Personally, I’d like to see Oyo come out of this bad phase very soon, but I have my own issues as a customer and I definitely have issues with the firing because a few of my friends are now going to be out of jobs.

Image Source: Google Images

Sources: Economic Times, The Print, Forbes India

Connect With The Blogger: @som_beingme

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