Identifying and building a superscaler: Lessons from Ritesh Agarwal’s journey

Summary

OYO's rise from an Indian startup to a hospitality-tech giant is a roadmap for aspiring entrepreneurs. It conquered challenges by prioritising win-win solutions for all stakeholders, building a strong leadership team, and securing a dominant market position. OYO’s global expansion highlights the value of taking small successes to bigger heights. Hiring diverse talent and adapting to local needs with a relentless focus on customer satisfaction and a sound economic model are cornerstones of OYO's success story. Founder Ritesh Agarwal gives us a glimpse into how he built and scaled the business to what we define as a superscaler.

The life of a mountain climber does not begin with climbing Everest. It begins with smaller, more attainable peaks. But, as any climber worth their salt would say, each peak conquered is a stepping stone to the next. It’s a constant push forward but with breathtaking views. Ritesh Agarwal, founder and group CEO of hospitality company OYO, embarked on a similar journey in 2013. 

His initial goal was to organise the fragmented market of affordable hotels in India. This was his first summit, so to speak. As he achieved success, his ambitions grew. What began as a desire to help Indian small hotel owners transformed into a much larger vision. He discovered his personal Everest in the goal of empowering hoteliers and home owners around the world. This relentless pursuit of growth has defined OYO's journey over the past decade.

OYO's international expansion began in 2015, with forays into markets like Southeast Asia, Europe, and the United States. The company acquired incumbents in some countries to accelerate the journey to global PMF. 

OYO's US expansion in 2023, adding over 300 hotels, marked a meteoric rise for the hospitality company. Reaching this scale within a decade is a rare feat in the industry.

Expanding beyond India meant the problems were more intricate and required innovative solutions. But unfettered by the challenges, OYO continued its rapid growth trajectory, solidifying its position as a potential superscaler.

We define superscaler as a company with all the characteristics to record not just explosive growth but also to scale across markets (locally and globally) once product-market fit (PMF) is achieved.

Ritesh, from the get-go, understood that there is no one-size-fits-all approach to building a superscaler. And his journey has invaluable lessons for founders and the startup ecosystem alike.

For instance, he shares,

“When expanding to different geographies, there is a constant battle between content and context.” Context is the steering wheel guiding you in the right direction, while content is the engine propelling you forward. - Ritesh

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Build with the right mindset

The guiding principle for building a superscaler is to solve problems for all stakeholders. In OYO’s case: customers, hotel owners, and the company. At every stage of growth, OYO prioritised this, laying the foundation for the future. 

OYO's first partnership with a hotel proved to be beneficial to all stakeholders. It was a win for the customer because they were getting an experience at a price they felt was value for money. The hotel owner was making more money than he had earlier. And OYO had a reasonable margin. Over time, Ritesh figured that these were the first steps towards becoming a superscaler.

“I wouldn't say ‌I knew from the start that it was a superscaler business. I just knew that it was probably a business that worked. The playbook is finding something that works on a smaller scale. It becomes easier to multiplicate,” he says.
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Scaling and building a moat

PMF is typically a long process for most companies. It’s not just about finding the right customer who will pay the money you want, but also managing to onboard and retain those customers. For OYO, the first part was solved by organising a fractured supply. But onboarding the hotel took time. And time is an enemy to speed. 

OYO's initial onboarding process was sluggish, according to Ritesh. On average, it took a staggering six to eight months to bring a new hotel on board. This slow process put a strain on OYO's leadership, forcing them to multitask extensively while competitors were gaining momentum. The interest pipeline was healthy, but the longer it took, the easier it would be for a rival to nip in. 

“Both Bejul (Somaia) and Maninder (Gulati) suggested that I divide the responsibility from the start.

We invested in having a good leadership team early on, which helped me prioritise my time towards getting more customers. - Ritesh

I feel it has made a big difference over the years,” Ritesh remembers. 

OYO’s new team established processes that took care of three main parameters that matter in the hotel business:

1. Pre-audit: This determines if a hotel meets the criteria to come live on OYO. 
2. Sign-to-live: This is the time between signing on a property and going live on the platform. 
3. P 90: This signifies the performance of the property in the first 90 days. 

This robust system ensured consistent results, a crucial element in building a superscaler.

But challengers will always find a way to chip away despite robust processes. Disruption spares no one, not the incumbent, not the challenger, and not the maverick. The first moat OYO built was to bake exclusivity into all partnerships. 

But apart from exclusivity, Ritesh studied his challengers. Capital influx in hospitality was at its peak in early 2015. He had to not just build his company but identify weaknesses in his rivals so he could beat them in their own game. And he spotted something early. 

Most of OYO’s competitors were focussing on the top 10 Indian cities. With as much capital as there was, no one was afraid of giving discounts to establish market share. OYO needed to balance discounts to customers with revenue inflow. 

And that’s when Ritesh’s keen understanding of the market kicked in. “Market knowledge for a founder is a unique strength,” Ritesh adds. 

OYO began expanding deeper into the country. It partnered with hotels in 70-80 underserved cities. Here, OYO gave very few, if any, discounts, and used the revenue in tier 2 India to supplement the discounts in the major markets. This strategy had a two-layered consequence: OYO could gain market share with customers and add hotels at a fast clip. 

“We had to go from being a high scaler to a superscaler just as a way of defending our turf. And that’s when we went from one hotel a month to five, to 20 and eventually 200 a month,” Ritesh says. 

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Learnings from the first cross-border journey

By 2015, only two years into running a successful business in India, Ritesh knew that he had achieved PMF in India and the time had come to look at other geographies. Southeast Asia was a natural choice because of similar market trends, so OYO made a foray into Malaysia. But it faced challenges initially, because competition was fierce from incumbents, and the customer base had higher expectations. 

Over time, OYO's perseverance paid off. Through continuous learning and adaptation, OYO cracked the Southeast Asia market.

Ritesh recounts valuable lessons from this first attempt at cross-border expansion:

• The cost of experimentation in a new geography should not be over 30% of your overall capital, a general rule Ritesh attributes to his middle-class upbringing. “Leave enough capital to take that experimentation to a reasonable scale where it is exciting enough to keep investing in that business,” he says. 
• Talent should be a mix of local and native markets. Local talent helps you understand and appreciate the cultural nuances, but it's equally important to have someone with full knowledge of your business and its daily operations.
• Feedback from customers and merchants directly sets you up for long-term success. This is especially crucial in the early days of expanding to new markets.
  
  

Beyond the first cross-border market

Venturing beyond Southeast Asia, OYO encountered a whole new landscape of challenges. The US, the UK, and Japan presented not just cultural differences, but entirely distinct spending patterns, forcing the company to adapt its approach. 

The biggest takeaway from entering these different markets, says Ritesh, is recognising that each market is unique.

“In a new geography, every journey is a zero-to-one journey,” - Ritesh 

For entrepreneurs looking at similar cross-border journeys, here are Ritesh’s learnings:

• Lead from the front: In the early days of cross-border expansion, the founder needs to be physically present in the new markets, building relationships and understanding local nuances. It boosts team morale and inspires initial customer acquisition.  
• Balance agility and conviction: Maintaining a core business model with room for market-specific tweaks is important to fuel growth in multiple geographies. 
• Building common beliefs in local teams: “It is important that the talent working in that geography truly believes in the mission of your business,” Ritesh says. Fostering this belief requires sharing real-life success stories from the local market. 

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Activate the feedback loop

If OYO has scaled the Everest of hospitality success, it is because it hasn’t lost sight of the most important stakeholder in their journey: the customer. 

“I think, by and large, your customers will let you know if they directionally feel like your service is exciting. Then you can solve for economics, margins, and so on. But if your customers are not happy then no matter what's working, it is not much good,” - Ritesh

After gathering feedback, founders face a critical decision: can the business be meaningfully improved, or are the core processes or services too deeply ingrained? Effectively allocating resources and time, and ultimately making the entrepreneur's call, are crucial elements in navigating this constant struggle. “So the question to ask yourself is, how much effort are you willing to dedicate to turning it around?” Ritesh adds. The feedback loop OYO activated allowed them to make small tweaks, brought in ease of usage (customers) and the backend (hotel owners), keeping both stakeholders comfortable and happy in the OYO ecosystem.

OYO's story is a masterclass in building a sustainable business from the ground up. Its laser focus on economic fundamentals continues to fuel confidence in OYO's long-term viability as it scales new heights.

OYO's ascent is a blueprint for building a successful business. It demonstrates that a meticulous approach and unwavering vision can help aspiring superscalers achieve even the loftiest ambitions.

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