Oyo, the former 'jewel' in SoftBank's startup portfolio, quietly fired 110 people based on their performance. Some fired workers say it was basically impossible to close sales, and the company is only offering severance if they agree to not speak out.

Richard Drew/AP

Ritesh Agarwal is the founder and CEO of Oyo.

• SoftBank-backed Oyo fired 110 employees in the US citing their performance on April 1, Business Insider has confirmed. The company also put thousands more employees on paid leave to cut costs this week.
• Some of those fired employees said they never had conversations about their performance with a manager before their sudden termination, leading them to question the reason.
• Employees who currently or used to work at Oyo said sales had essentially become impossible amid the coronavirus and after negative articles damaged the company's reputation with hotels.
• Oyo said the firings were based on performance in the first 90 days of their employment, and were unrelated to the recent furloughs.
• People who were fired are being asked to sign separation agreements that will pay them severance if they agree not sue the company in a class-action lawsuit or speak publicly about their employment.
• Visit Business Insider's homepage for more stories.

The former "jewel" of SoftBank's startup portfolio has had another shakeup.

One week before its reported furloughs, Oyo quietly fired 110 employees in the US, saying they were being terminated based on performance, Business Insider has confirmed. Employees said those people affected were not on performance improvement plans before their firing, which made them question the reason for their sudden removal.

"They were saying, 'This is not a layoff. You are being terminated for performance,'" said an employee who was fired over the phone on April 1.

Oyo confirmed the firings in an email, saying that the reductions were based on employees' ability to close a sale in their first 90 days of employment, and were not related to the recent furloughs.

Still, people who currently or used to work at Oyo are arguing that the firings were part of a cost-cutting strategy as the startups rides out the coronavirus pandemic. The company's salesforce has struggled to make deals since before the outbreak because of its reputation in the hotel industry, multiple sources said. Some employees who were fired said they should have been laid off instead.

"Your sources seem unreliable as the details are incorrect," an Oyo spokesperson said in an email on Friday. "Specific to this instance, these terminations were performance-based, where sales team members, who generally had not made a single sale since December 9th of last year at least, including some who had not made a sale for more than 180 days, were impacted."

Eight employees spoke to Business Insider on condition of anonymity because some signed nondisclosure agreements, and others were not authorized to speak publicly on Oyo.

They said that the last round of layoffs in the US, which Business Insider first reported in January, created a firestorm for Oyo. The startup sells to mostly independent motels and puts up money to redecorate and make sure the internet works, for a percentage on every reservation.

The layoffs added to growing signs of trouble at Oyo, shaking its credibility with hotel owners and making it harder to close deals, according to some employees who were spared in January.

"It was a huge PR nightmare. They lost credibility with the owners," said one former employee. She said that any more news stories about "Oyo not being able to make it in America" would put the company out of business.

"They can't survive having another media story," said another source.

Oyo

Oyo gives independent hotel owners money for property improvements in exchange for a cut on every reservation made on Oyo's app.

The Economic Times, a daily newspaper in India, first reported the firings at Oyo on Thursday.

Oyo is slashing costs

The big news out of Oyo this week was that the budget hotel chain was placing thousands of employees on paid leave for at least two months. The goal, said Oyo's founder and chief executive Ritesh Agarwal in a video message, is to cut costs now so it can put people back to work after the travel industry recovers from the economic shutdown.

Those employees on furlough will earn 15% of their salary before taxes and deductions, and receive health benefits, according to a document sent to current employees on Thursday, which was seen by Business Insider.

In the video message, which has since been posted on YouTube, Agarwal said the company would avoid layoffs.

"This situation of COVID-19 comes at a very unique time for Oyo. This is right after we had a sizable restructuring of our company in January of this year," Agarwal said. "Due to that, I want to clarify for all of you that we intend to do no or negligible layoffs as a part of cost restructuring across the world."

Oyo's chief executive will also not take a salary for the rest of the year. Other executives are following suit, Oyo said.

The coronavirus pandemic has made closing sales a struggle, some former employees said

Based in India, Oyo has raised $3.1 billion in equity from SoftBank, Sequoia Capital, and Lightspeed Ventures on the promise of rapid growth. After taking over more than 23,000 properties around the world, the company opened its first office in Texas in early 2019 with the goal of duplicating its success in the US. Oyo hired a salesforce of hundreds to bring US motels onto its platform.

"The rough idea was, if we signed 'X' amount of hotels with 150 sales people, let's quadruple the number of sales people and we'll quadruple the number of hotels, which was a spectacular failure," said a former employee who left the company earlier this year.

"I think they way over-committed to what they were capable of," he said.

Some of the employees who were fired on April 1 were told that they had not made a sale in their first 60 days of employment, which was grounds for termination. Those workers did not contest what their supervisors said.

The task was near-impossible, they said.

Employees said that the startup had difficulty signing on hotels because of its reputation. A business development manager would walk onto a property and ask to speak to an owner, who had one of two reactions, they said. "One was, 'Yeah, I know who Oyo is. Not interested. Get out.' Response two was, 'Who's Oyo?'" a current employee said.

A hotel owner who searched Oyo on the internet would find "nothing but negative articles," including a report in The New York Times detailing its questionable business practices, said the employee, who is being furloughed.

In India, some hotel owners said that after they spent money to renovate their rooms to match Oyo's branding, they never received reimbursements they had been promised, the Times reported.

Adnan Abidi/Reuters

A sign making disparaging remarks about Oyo is placed outside a hotel in New Delhi, India.

The startup also changed the terms it could offer hotel owners because of the coronavirus pandemic's effect on its business, according to current and former employees. They said Oyo used to give $1,500 per room on average for improvements, and has since lowered its capital expenditure to $300 a room. Revenue has dropped 50% to 60% since the outbreak, according to the startup.

In recent months, the company also suspended payouts to hotels if they do not reach a certain number of bookings, known as a minimum guarantee payment. Still, Oyo increased its percentage cut on room reservations by several points, employees said.

"Nothing as far as the value of what we were offering increased," said a former employee who was fired last week.

In a written statement, Oyo said that the salespeople who were fired had not made a sale in their first 90 days of employment, not 60 days. Most of those individuals started around the winter holidays, before the first cases of the novel coronavirus were confirmed in Wuhan, China. The virus wasn't declared a pandemic until early March.

Some people had not made a sale in six months, an Oyo spokesperson said. The decision to fire people was based on their performance even before the outbreak worsened, according to Oyo.

"Performance management actions are periodic actions," they said. "There is clear communication to the sales team about the expectation to sign their first deal within 60 days, and disciplinary actions, including termination, after 90 days."

'The document they sent me was hush money,' an employee said

Oyo fired mostly business development managers across 32 states and Washington, DC, according to a separation and release agreement that was obtained by Business Insider.

Now, those employees are being asked to sign separation agreements that will pay them one to two weeks salary if they agree not sue the company in a class-action lawsuit or speak out against Oyo, according to multiple sources and a copy of one of the agreements viewed by Business Insider.

"The document they sent me was hush money," said one former Oyo employee, who said he was fired for not closing a sale in his first 60 days of employment.

Oyo is not required to pay severance to employees who are fired for cause.

"The company, however, went out of its way to provide a modest severance package," an Oyo spokesperson said.

"Also, recognizing the difficult timing of this action, Oyo has ensured that employees who rely on its benefits plans will continue to have coverage in both April and May."

The company said it will cover 100% of the insurance premiums in May.

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