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Ritesh Agarwal’s Oyo is facing major problems due to Masayoshi Son’s dramatic overreach

With its chaotic rush to expand in Japan, Oyo infuriated potential partners, alienated workers and jeopardised its reputation with local customers.

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Ritesh Agarwal’s Oyo is facing major problems due to Masayoshi Son’s dramatic overreach

Last March, months before the meltdown at WeWork, Masayoshi Son worked through the prospects for another one of his favorite portfolio companies — a startup from India called Oyo. In a spacious conference hall at his Tokyo headquarters, the Japanese billionaire huddled with lieutenants from the startup and his own SoftBank Group Corp. to brainstorm strategy. He figured Oyo had the potential to disrupt both the staid hotel business and short-term apartment rentals in Japan, according to people in the room.

One bullet point scribbled on a floor-to-ceiling whiteboard, in particular, caught Son’s eye: a target of one million rooms within a year. In a burst of enthusiasm, he had everyone sign off on the goals right on the whiteboard, scrawling signatures under the words “BINDING” in all caps, according to a copy seen by Bloomberg News and the people present.

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Today, the Oyo unit handling apartments has about 7,500 rooms, less than 1% of the whiteboard target. Son’s aspirations turned out to be an example of dramatic overreach, part of a year in which the Japanese investor’s reputation was battered by troubles at WeWork and Uber Technologies Inc.

The shortfall, which hasn’t been reported before, signals more trouble ahead for SoftBank and one of its most highly touted investments. Perhaps more concerning, the episode reveals a fundamental flaw in SoftBank’s investment strategy: Pumping billions into startups and pushing them toward outsized growth often undermines promising businesses. With its chaotic rush to expand in Japan, Oyo infuriated potential partners, alienated workers and jeopardized its reputation with local customers, according to interviews with more than two dozen of them. One incensed local customer went so far as to set up an Oyo Life Victims Association account on Twitter. Similar frustrations have been voiced by customers and hotels in India and other overseas markets.

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The troubles are so pronounced Son faced questions about Oyo during his earnings briefing in Tokyo last week. He conceded there have been “some conflicts with hotel owners,” but said that is normal in such businesses and overall the performance is good. “Oyo is a wonderful company,” he said.

SoftBank declined to comment on the startup’s internal issues and practices beyond Son’s comments, but said it believes the company can have a sustainable expansion in Japan with good corporate governance.

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