‘Indian start-up ecosystem is poised to take off’

An interview with Ritesh Agarwal, Founder & Group CEO, OYO Hotels & Homes on the homegrown hotel chain becoming a unicorn and going international

June 26, 2019

The world’s accommodation market stands at 160 million rooms, and is a US$3.6 trillion opportunity and growing globally

India is right at the cusp of a seismic offline to online shift, especially in tier 2 and 3 markets

We have incubators, venture capital firms, and mentors, who dedicate their time to guide and support entrepreneurs along with government initiatives

Raising funds for early-stage ventures have become progressively easier

India based Oyo Hotels & Homes, one of the fastest growing hotel, home and living spaces chain, had started with one building in Gurgaon in 2013. Today, the start-up has morphed into a big hospitality company, with over 850,000 rooms across 85 countries, having expanded to countries like China, Britain, Indonesia and Malaysia. In the end of 2018, after a US$ 1 billion round of funding from existing investors SoftBank Group Corp’sVision Fund, Sequioa Capital, Lightspeed Venture Partners, OYO Hotels & Rooms joined a growing list of Indian unicorns.  The hotel chain aspires to be the world’s largest hotel company built out of Asia. 

Founder & Group CEO Ritesh Agarwal on the rapid growth and success of Oyo Hotels & Rooms.

A significant disruptor in India’s hotel industry, Oyo Hotels & Rooms attained unicorn status in 2018. What are the differentiators that led to rapid growth?

Back in 2013, we started with one fully managed building in Gurgaon, India, with the ambition of becoming a full-scale hospitality company, and today, we lease or franchise over 23,000 buildings across 85 countries. Yes, since our launch, OYO Hotels & Homes has brought about a change in the budget hotel franchising and leasing segment. 

The world’s accommodation market stands at 160 million rooms, and is a US$3.6 trillion opportunity and growing globally. By capturing just over 5 percent of the larger pie, we are just scratching the surface. Foreseeing an enormous opportunity to build a truly world-class brand out of India, we are aggressively moving ahead.  We have invested thousands of crores in capex, appointed hundreds of GMs to oversee operations and customer experience, created job opportunities for over 100,000 people in India alone and set up 22 OYO Skill institutes for hospitality enthusiasts. 

Our biggest differentiator has been the full-stack fulfillment led model, where we fully acquire hotels and homes, on franchise, manchise (a hybrid of franchise and management) or lease, renovate it and bring it up to OYO standards. We use our technology and operational capabilities to ensure seamless management of the property – revenue, pricing, day-to-day guest experience, etc., and then use an omni-channel distribution strategy, across online and offline channels, leading to over 90 per cent of our demand. 

The key competencies the hotel chain focused on to drive growth?

In the last five years, we have been investing in a few key competencies. 

One has been to make our leasing and franchising process more efficient. We developed the ability to scientifically identify and onboard strategic buildings in a short period of time. Our approach and strategy has been powered by our in-house Orbis app, which assist the team in identifying the right lead, pitching the right deals to owners and having the building transformed to OYO standards.  

Secondly, we renovate assets within 14 days – a stark contrast to the industry standard of up to 90 days. We do this with the help of 1,200 OYOpreneur-strong team of civil engineers and designers in India, China and other international markets, and an AI-led design approach supported by in-house design labs – OYOXDesign and Townhouse Design Team.

Start-ups in India will be drivers of growth and innovation in the digital age”. Please comment. 

India is right at the cusp of a seismic offline to online shift, especially in tier 2 and 3 markets. There is a large young demographic with a potential to impact and transform these opportunities. The government is working towards supporting entrepreneurs and a start-up ecosystem through targeted schemes and initiatives. We have young people looking to build their own products and companies. If we can truly become an innovation-led economy, we will be a global force to reckon with. 

Three things that matter the most to succeed are product, the scale of ambition and the ability to execute ideas. I feel the entire ecosystem of start-ups has matured to develop and execute a unique idea to profitability. 

Today, we have incubators, venture capital firms, and mentors, who dedicate their time to guide and support entrepreneurs along with government initiatives. I feel the hunger and aspiration growing among young Indians will lead to a completely new and successful ecosystem.

What are the changes the government implemented in terms of regulations, tax policies etc. that have made a positive impact?

Under the Start-up India initiative, several welcome measures have been taken up to facilitate and strengthen the start-up ecosystem. Initiatives like tax exemptions to start-ups, legal support in patent filing, and easier compliance among others are indeed praiseworthy. Recently, DPIIT has exempted over 500 early-stage start-ups from angel tax. This will have a positive impact on the ecosystem at large.

Our government is committed to support the start-up ecosystem through funding, regulatory and logistical assistance. Innovation is instilled in the DNA of OYO, and we are a group of innovators and not disruptors. We have come up with technology-driven changes that make life easier for our asset owners in managing day-to-day operations.

How do we fare in the ease of doing business? 

As a result of the Start-up India program, the ease of doing business has become better for start-ups in India progressively. The government could look at streamlining regulations across states akin to the one nation, one tax model that GST brought about. In line with the emergence of technologies like AI, machine learning and data sciences, there is a need for policy and infrastructure for upskilling, reskilling, and improving the ground-level education. As a country, we can work on creating more economic and entrepreneurial opportunities through innovation, technology and skill building. 

How would you describe the funding environment for start-ups in India? 

Raising funds for early-stage ventures have become progressively easier as compared to, let’s say 2012 or 2013, when OYO was set up. Investors are increasingly willing to back ventures that have a strong founding team and a product built to cater to a large enough market.

What makes Indian start-ups unique? How is our ecosystem different from countries in the West? 

India is now the third largest start-up ecosystem globally, with about 7,700 start-ups as of last year (according to NASSCOM). This shows the tenacity and resilience of Indian entrepreneurs who have built companies to leverage the massive untapped potential in India and many have ventured abroad or are planning to do so. Indian entrepreneurs are now increasingly addressing problems of tier-2 and tier-3 cities through technology. There is a lot of scope for innovation here as unlike in the West, Indian start-ups need to build business models that address different sections of society.

As we move forward in the next decade, India-specific models will be built to cater to the next 300 million customers in the country. Currently, we are the most physically distributed company in the country with our 9,000+ hotels and homes being present in more than 260 cities in India. There is tremendous headroom for growth and the Indian start-up ecosystem is poised to take off.

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