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SoftBank-backed $10bn hotel startup Oyo axes dozens of UK staff

Oyo, the hotel startup valued at $10bn (£7.6bn), has axed dozens of UK staff and seen the exit of its country head in recent weeks, following a period of rapid expansion.

Insiders told Yahoo Finance UK they fear the headcount cull isn’t over and more people could exit in the coming weeks — whether by being laid off or as a result of failing ‘performance improvement plans’, which several sources claim have “unrealistic” targets.

India-based startup Oyo, which is backed by Japan’s SoftBank, has been laying off thousands of staff around the world since the start of the year.

Oyo previously disclosed it was running a 30-day consultation with UK staff, but didn’t say how many jobs were at risk. The process concluded last Friday and sources suggested 50 to 100 staff have been cut, which is 10-20% of the company’s UK workforce.

Ritesh Agarwal, founder and CEO of OYO Rooms, is interviewed on the floor of the New York Stock Exchange, Tuesday, Feb. 18, 2020. (AP Photo/Richard Drew)
Ritesh Agarwal, founder and CEO of OYO Rooms, is interviewed on the floor of the New York Stock Exchange, Tuesday, Feb. 18, 2020. (AP Photo/Richard Drew)

Oyo declined to comment on how many people had been let go but said everyone affected by the process had now been informed. A spokesperson said the group “is doing everything we can” to help and support staff “going well beyond our legal obligations.”

Those made redundant have been given one month’s payment in lieu of notice, Oyo said, and an additional one month’s salary tax free as severance pay. A spokesperson said affected staff were also offered counselling and help applying for new jobs.

Job losses impacted all parts of the business and some departments have been radically cut back to just a few staff, according to sources connected to Oyo.

“I know recently there have been some tough moments for the team,” Oyo’s founder and chief executive Ritesh Agarwal said in a video sent to staff this week and seen by Yahoo Finance UK.

“This has been the case not just in the United Kingdom but across the world. These tough moments, when we have to say goodbye to other OYOpreneurs, are very emotional moments.”

UK head exits

The layoffs come just weeks after the departure of UK head Jeremy Sanders. Sanders cofounded and ran London-based pasta chain Coco di Mama, before joining Oyo in August 2018 to launch the business in the UK. However, Sanders left Oyo in January 2020.

A spokesperson for Oyo said Sanders left to spend more time with his family and said: “There’s no story behind his departure.”

Sanders didn’t respond to a LinkedIn message requesting comment and declined to speak through Oyo’s spokesperson.

BRAZIL - 2019/07/22: In this photo illustration an OYO Rooms logo seen displayed on a smartphone. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
An OYO Rooms logo seen displayed on a smartphone. (Rafael Henrique/SOPA Images/LightRocket via Getty Images)

Sanders was replaced by Rishabh Gupta, who ran Oyo’s Indonesian operations until last month. Gupta confirmed redundancies across the UK in an email to staff in January, saying the layoffs would “set us up for the next phase of profitable growth.”

The redundancies were about “balancing the speed of our growth with our operational capabilities, ensuring growth is sustainable, and maintaining our commitment to operational and customer excellence,” a spokesperson said.

The spokesperson stressed that Oyo remains committed to the UK. Gupta said in his email to staff last month that Britain was “one of leading markets for Oyo” and the restructure “does not imply that there is a change in commitment.”

However, sources told Yahoo Finance UK that a number of internal company decisions have left them fearful more UK staff may end up leaving. For example, some employees have been asked to reapply for jobs, though there are not enough new open positions for all those asked to apply. Sales staff have also been put on ‘performance improvement plans,’ which two sources described as having unrealistic targets for the number of new beds they have to sign on to the platform.

A spokesperson for Oyo said performance improvement plans were “unconnected to the current restructure” and were “in place to help our colleagues thrive in their roles.”

A $10bn startup

Oyo was founded in India in 2013 by then 19-year-old Agarwal. It began as a way to book budget Indian hotel rooms online but has rapidly expanded to become a global business.

Unlike platforms such as Airbnb, Oyo signs contracts directly with hotels when it brings them onto its platform, usually with a revenue sharing agreement and investment from Oyo to do up hotels. Some are branded under the Oyo name.

The startup announced plans to launch in the UK in late 2018 and pledged to invest £40m in the market in the first two years, according to the Economic Times of India. The company hoped to sign-up 5,000 rooms across the UK by 2020.

Oyo has to date raised over $2.5bn of funding and employed more than 25,000 people worldwide at its peak. Its rapid growth has been fuelled in part by SoftBank, the Japanese investment company.

SoftBank raised the largest ever venture capital fund in 2017, worth $100bn, and the company owns just under half of Oyo through the fund. Oyo was valued at $10bn as recently as last October in a transaction involving SoftBank.

Multiple sources at Oyo believed the UK layoffs were triggered by pressure from SoftBank. While senior managers didn’t mention SoftBank when discussing layoffs, several sources said SoftBank was often talked about internally by ground-level staff as a likely reason for the cut backs.

Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks during a news conference in Tokyo, Japan, on Wednesday, Feb. 12, 2020. SoftBanklost money in its Vision Fund, the Japanese company posted a record. (Photo by Alessandro Di Ciommo/NurPhoto via Getty Images)
Masayoshi Son, chairman and chief executive officer of SoftBank Group, speaks during a news conference in Tokyo, Japan, on Wednesday, Feb. 12, 2020. (Alessandro Di Ciommo/NurPhoto via Getty Images)

SoftBank was last year stung by the poor performance of one of its biggest investments: WeWork. The flexible office space provider was forced to pull its IPO and write off $39bn of value last year amid skepticism of its business model.

As a result, SoftBank has reportedly started asking companies it backs to focus on profitability rather than just growth, according to the Wall Street Journal.

Earlier this week, Oyo announced it had made a loss of $355m on revenues of $951m in the 12 months to March 2019. Losses rose from 25% of revenues in 2018 to 37% of revenues last year. China was behind the bulk of losses, the company said.

A spokesperson for Oyo said there was “no pressure from anyone” in relation to the lay offs and said the decision came from the board and management. SoftBank has at least one seat on Oyo’s board, alongside other investors like Lightspeed India and Sequoia India.

“There is a continuous dialogue that happens with all our investors and the board, which is a fairly regular process as in most other professionally managed and established enterprises,” an Oyo spokesperson said. “We are thankful for the trust and confidence that all our investors, including SoftBank and stakeholders have shown in us.”

SoftBank declined to comment to Yahoo Finance UK.

WhatsApp management

Several sources said they were unsurprised by the cuts at Oyo UK.

“The writing was on the wall,” said one former staff member, who didn’t want to be named because they weren’t authorised to speak publicly about the company.

Multiple sources said Oyo was overstaffed in the UK. The company had around 500 staff less than a year after launch and the number of sales staff in some areas meant employees had only a small number of hotels to pitch to.

The company was interviewing and hiring new staff right up until the turn of the year. Oyo regularly posted videos of new hires joining each month, usually in groups of 20 or more. A recent video posted on LinkedIn by Oyo UK showed around 25 people and was captioned: “December's off to a great start as we welcome more talent through our doors.”

A spokesperson said hiring was paused in January 2020 and many new joiners had been given offers months before. They said the aggressive hiring “allowed us to scale quickly and build a business that provides excellent service.”

WhatsApp logo displayed on a phone screen, smartphone and keyboard are seen in this multiple exposure illustration. WhatsApp Messenger is a multiplatform mobile application that provides an encrypted instant messaging system belonging to Facebook, photo taken in Amsterdam, Netherlands on January 28, 2020 (Photo illustration by Nicolas Economou/NurPhoto via Getty Images)
WhatsApp logo displayed on a phone screen, smartphone and keyboard are seen in this multiple exposure illustration. (Nicolas Economou/NurPhoto via Getty Images)

Operations were also chaotic, according to sources. Much of the business was conducted on WhatsApp, which could lead to miscommunication. A spokesperson said the company banned management decisions being taken on WhatsApp in October and said it “disagreed with this notion” that operations were chaotic.

Staff were expected to work long hours and weekends, according to some sources, and several mentioned a culture clash between Indian-born upper management and UK staff.

Oyo disputed these claims.

“This is not common feedback given to us, even through the anonymous channels provided for employees,” a spokesperson said, adding that Oyo promotes “a healthy and positive work culture.”

And while Oyo signed up 500 hotels in under two years in the UK, the startup also allegedly faced some teething problems in the UK market.

Multiple sources mentioned churn rate as an issue— the percentage of hotels that left the platform shortly after signing up. Oyo denied churn was an issue and said only 3% of hotels that had been on the platform at last six months subsequently left.

A spokesperson said contracts could be terminated for a range of reasons, including hotels changing ownership or “situations where the owner has failed to deliver on the terms of their contract with Oyo.”

The platform has signed up 196 hotels across the UK in just the last 12 months, the spokesperson said.

‘Not going to be easy’

Oyo’s cuts in the UK are part of a global wave of layoffs. The startup has recently laid off thousands of staff across India and China, according to Bloomberg, and the Financial Times reported that more than a third of US staff had been let go.

Founder Agarwal said in a blog posted a few weeks ago that the company would this year focus on its profitable locations, bringing down costs, and investing in governance and culture.

“2020’s aspirations is not going to be easy,” Agarwal said in the video sent to UK staff this week. “We have a few things going for ourselves but we also have a few things that we need to improve upon.”

He urged staff to work “for the sake of the pride of building something that is truly meaningful.”