Both the startups are a unicorn, both have the same investors and both are showing similar signs. Will OYO turn into another WeWork? We breakdown the stories of WeWork & OYO to see an uncanny similarity between both of them.
A certain gentleman who has served in the Israeli Navy moved to New York and joined Baruch College at the City University of New York in 2002 but dropped out just shy of graduation to go into business.
One of his early ventures was a baby apparel company that became a luxury Egg Baby Brand. Later he met his partner Miguel McKelvey with whom he started WeWork which expanded to 29 countries and 500 locations.
His name is Adam Neumann who is known to have a colorful personality. He created one of the biggest real estate names in WeWork. WeWork attracted a lot of investors including Japanese investment giant SoftBank.
Softbank chief executive Masayoshi Son, after a 12-minute tour of WeWork’s New York offices, has reportedly worked out the terms of one of its investment rounds during a car ride.
Investments from Softbank helped the company hit a peak value of about $47bn (£ 37.7bn) amid significant, continuing losses-a misalignment that has drawn repeated questions.
Mr. Neumann tried to address this issue, saying in 2017 to Forbes: “Our value and scale today is much more dependent on our strength and faith than on multiple revenues.”
The success of WeWork turned Mr. Neumann into a billionaire, with an estimated net worth of $2.2bn, Forbes reported.
His glamorous personal life— his wife Rebekah is actress Gwyneth Paltrow’s cousin, while his sister Adi is a former model who once was a Miss Teen Israel — added to the company’s excitement.
But the combination of work and pleasure— a key element of WeWork’s ethos— became a concern as the organization carried out plans to go public.
Potential investors challenged the relations between Mr. Neumann’s finances and WeWork and his decision to extend WeWork to areas of personal interest, such as surfing and business.
Amid reports about his hard-partying ways, they also raised questions about his judgment. WeWork has tried to address those issues. Mr. Neumann returned $5.9 m in stock for selling the “We” trademark to WeWork, among other moves.
The botching of IPO was one of the final nails in the coffin of Adam Neumann. After receiving a mixed response from investors, WeWork, the US office-sharing company, has postponed its stock market flotation. Its parent firm- We Company was thought to be moving forward with listing on the Nasdaq next week.
But the sources told: “It’s likely going to be postponed, possibly to October at the earliest.”
The move sparked new speculation about the company’s future approach, coming just weeks after reports that the New York-based firm was considering slashing dramatically the valuation it’s going to seek when it sells stock market stocks. The company had major layoffs after SoftBank took over
Finally, Adam Neumann stepped down in September 2019 after facing lashes and allegations from investors which indicated many malpractices within the company.
This has to be some fall from grace for WeWork and Neumann personally also who was dropped from the billionaire’s list of Forbes.
Now why I told you this story? Is it connected to any startup in India? Or do we have any similar story in making?
In the real estate sector, we have a startup in India known as OYO Rooms founded by self-made billionaire Ritesh Aggarwal.
Let’s look at the fairy tale journey of Ritesh Agarwal who burst into the startup of India at a very early age of 17 in 2012 with his venture Oravel which went on to become a unicorn and got famous as OYO rooms.
When started and at the time of 2015-16 OYO and Ritesh both of them were most talked entities in the startup world. OYO was first funded by Lightspeed ventures and DSG Consumer Partners and then second round led by Sequoia. Later SoftBank also pumped money in the startup.
OYO has raised a total of $3.2 billion in 15 investment rounds with Lightspeed, SoftBank and Didi Chuxing being the main investors.
OYO became 2nd largest hotel chain in the world with 1.2 million beds and has expanded to China, the US and Europe. OYO acquired a lot of startups internationally and domestically among which co-working startup Innov8 being one of the major.
Ritesh Agarwal became an inspiration for all the aspiring entrepreneurs and struggling startup.
Media hyped him and his story of rags to riches. Everything was going well for the startup until late 2018.
After the dream valuations and fairytale run, things started getting little ugly with a lot of hotel owners complaining about the aggressive and false pricing on the App. Unsatisfactory customer support of OYO also maligned the reputation of the company.
Recently The New York Times published a report against OYO reporting the malpractices and incidents reported by ex-employees of OYO.
The major findings were-
- Oyo offers rooms from inaccessible hotels, such as those that have left their service, according to the organization’s chief executive and nine of the current and former employees. This inflates the number of rooms on the Oyo site. This is one of the malpractices inside OYO Rooms.
- According to interviews with hotel owners and staff, emails, legal reports and other records examined by The Times, Oyo also levied additional fees on hotels and refused to pay the hotels the full amount they claimed to have been owed. Some hotel operators have tried to file criminal complaints against Oyo, alleging that they have withheld payments mainly on the customer service issues of the hotels.
“It’s a bubble that will burst,” said Saurabh Mukhopadhyay, a former Oyo operations manager in northern India who left the company in September.
- In a recent interview, Ritesh Agarwal, chief executive of Oyo, admitted that some of the room listings of his company included hotels with which he no longer worked. He said Oyo left the listings and labeled them as “sold out” as the hotels were being wooed again.
- As acknowledged by their owners, hundreds of rooms come from unlicensed hotels and guesthouses. According to nine of the current and former employees and internal WhatsApp messages seen by The New York Times, Oyo also provides the police and other officials with free accommodation to keep the authorities from having trouble over the illegal rooms.
- Oyo managers also gave free rooms to the police and other government officials on request to placate the authorities over unlicensed properties, said current and former employees. They said the details in dedicated WhatsApp groups were recorded, one of which was reviewed by The Times.
After that OYO published an annual report of the 2018-19 financial year.
The report suggested that the startup witnessed an increase in revenue to $951 million but at the same time, OYO reports losses as high as $335 million (35% of revenue) for the fiscal year 2019.
OYO reports losses for 2019 and this time the company reported a four-fold increase in revenue for the year ending in March 2019.
After the report came, OYO has started laying off its employees to cut down the operation costs. First OYO laid off 1200 employees in India, then 360 employees in the US, then 600 employees in China and the biggest of them 5000 layoffs in all the 3 countries.
With SoftBank signaling that the portfolio companies either need to profitable or they suffer what happened to WeWork, signs are not good for OYO.
A lot of customer complaints, guest complaints and hotel bodies unsatisfied have done no good to the company.
The Similarities between OYO & WeWork-
- Both are real estate businesses and known for their aggressive expansion and pricing.
- The malpractices within the company and a lot of allegations.
- The mass layoff of the employees.
- Unsatisfied customers, vendors.
- The unhappy investors.
It’s very early to derive any conclusion about OYO and it’s longevity but these resemblances can’t be ignored either.
I wish no such story as of WeWork happens again to the startup world but OYO needs to think about profitability and customer satisfaction.
Author’s Note-
I have been involved in the startup world since my college days and during the last 5 years, I have met many people who told me a lot of ambiguous stories about OYO, the way it functions and Ritesh Agarwal but I never believed them. But with so many reports and such news coming out, things seem to be little shady. I have been on the suffering side during a lot of my trips. Let’s see what comes out in the upcoming time but nobody will like to see another story like WeWork.
