Customer Magnetism: How a Strong Customer Base Attracts Investors

As a budding entrepreneur, you may often find yourself wondering about the best way to achieve success for your business. While it is true that many successful companies have received huge investments from well-known venture capital firms such as SoftBank Group, LightSpeed Ventures, and Sequoia Capital, it is important to remember that this was not always the case. In fact, most startups did not begin this way.

One of the most important things to keep in mind is that it is crucial to focus on chasing your customers rather than chasing investors. If you can establish a strong customer base, then the investors will naturally be drawn to you. This is because investors are always on the lookout for companies that have a proven track record of success and a loyal customer base.

It is not uncommon to encounter young entrepreneurs who believe that they need to secure funding from investors before they can start their business. However, this approach is not always the best one. The golden rule to keep in mind is that capital tends to chase those who do not actually need it. In other words, investors are more likely to invest in companies that have already established a solid foundation and proven their ability to attract and retain customers.

Ultimately, the key to building a successful business is to prioritize your customers and focus on delivering value to them. By doing so, you will be able to establish a loyal customer base that will attract the attention of investors and help you to secure the funding you need to take your business to the next level.

Increasing Occupancy 

Mr Agarwal, the founder of OYO, had a difficult time attracting investors to invest in his hotel startup. However, when he started his first hotel, he managed to increase their occupancy rate rapidly, which led to earned gross fees, or commission, for his company. This piqued the interest of many more hotel owners who were keen to collaborate with OYO. Consequently, investors became excited and approached Mr Agarwal to discuss potential investments with OYO.

Initially, Mr Agarwal had reached out to several investors, but none of them showed any interest in investing. This changed once OYO rooms, the first hotel, started generating significant profits. Investors began to see the value in investing in OYO and started approaching Mr Agarwal.

As an illustration, suppose you are considering starting a cloud kitchen business. In that case, Mr Agarwal recommends that you do not invest in rent, equipment or hire chefs when starting. He advises that when investors invest in your business, they do so because they have faith in you. Similarly, when you open your cloud kitchen, your first landlord and your first chef are both considered investors who will contribute to the success of your business.

If you are looking for innovative ways to generate profits and create value, then you may want to consider thinking out-of-the-box and exploring the potential of profit-sharing. This approach involves collaborating with other businesses or individuals and sharing the profits or revenue that you generate.

One example of this is to identify businesses that have a lot of value, such as restaurants, building owners, or mall owners who have vacant spaces. By convincing these businesses to share their profits with you, you can create a mutually beneficial partnership that generates value for both parties. You can also propose revenue or profit-sharing agreements that function like assets.

Another example of profit-sharing is to start a cloud kitchen and leverage your cooking skills to generate profits. However, if cooking is not your area of expertise, you can hire a chef and make them your co-founder or partner. By sharing the profits with them, you can create a profitable business without investing any money.

You may be concerned that finding a chef to partner with may be difficult, but with the current COVID-19 pandemic, many chefs are struggling to find work and are eager to start their own businesses. By collaborating with these chefs, you can create a successful restaurant or cloud kitchen and generate value for all involved.

As you begin to generate profits with your first restaurant, you can use this success to attract further investment. For example, if you earn a profit of Rs. 50,000, you can convince someone to invest Rs. 1 lakh in your business. As you continue to expand and create additional restaurants, you can multiply your investors' investments and generate even more profits.

OYO’s First Hotel:

Mr. Ritesh Agarwal, the founder of OYO Hotels, transformed the hospitality industry in India when he started his first hotel. He took a rundown property with a mere 19% occupancy rate and turned it into a thriving business with 90% occupancy. 

To achieve this, he made significant improvements to the quality of rooms and photography while also changing the white light to warm yellowish light. Furthermore, he provided free Wi-Fi and breakfast to customers, which contributed to the success of his hotel.

As a result of these upgrades, the hotel's listing on websites like cleartrip.com and others improved significantly. This meant that the hotel that was previously near the bottom of the listings was now among the top 1 or 2. 

This led to a dramatic increase in the hotel's income, which rose from a meager Rs. 40,000-50,000 per month to Rs. 3-3.5 lakh per month. To ensure sustainability, Mr. Agarwal made an agreement with his partners that 30% of the earnings, or Rs. 90,000, would go to the OYO brand as commission. 

Despite expenses and overhead costs of Rs. 30,000-40,000 and marketing costs of approximately Rs. 10,000-15,000, Mr. Agarwal was able to establish a profitable business model. 

Investors were impressed by Mr. Agarwal's success and recognized the potential for larger profits by expanding the business. They were willing to accept short-term losses, such as hiring employees and paying salaries, in exchange for long-term growth. 

This successful business model demonstrates the importance of proving unit economics in any business, whether it's a restaurant or any other enterprise.

Investors for OYO

OYO, the Indian hospitality start-up, has come a long way since its inception. The company has achieved remarkable growth and success in a relatively short span of time. One of the factors that contributed to its success was its ability to attract leading investors in the market.

OYO's first investment firm was LightSpeed Venture Partners, which is a prominent investment firm known for its early investments in companies like Snapchat and many more. LightSpeed saw great potential in OYO's business model, which aimed to cater to the common man of India as customers and partner with thousands of small hotel owners across the country.

Interestingly, before partnering with LightSpeed, OYO's founder, Ritesh Agarwal, had approached Sequoia Investments, another renowned investment firm. Although Sequoia was impressed with the business idea, they wanted to observe the growth of the business before investing.

However, in just four months, after successfully scaling OYO's hotels to eight properties in partnership with LightSpeed, Sequoia and other investors started competing with each other to invest in the OYO brand. Ultimately, Mr. Agarwal chose to partner with Sequoia.

This story demonstrates that if you are able to start and scale your business well, investors will not only take notice but also approach you to invest in your brand. It is a testament to the importance of having a strong business model and executing it well.

One effective strategy for securing investment in your business is to position yourself so that potential investors are actively seeking you out. By creating a prototype that is successful and gaining traction in the market, you can generate interest and demand among investors, who will compete with each other to invest in your business. 

In addition to attracting investors, it's important to focus on building strong relationships with the right investors. By collaborating with investors who share your vision and goals, you can benefit from their expertise and resources, while also ensuring that they are fully invested in the success of your business. This can involve sharing benefits such as equity, revenue, or other incentives, and working together to achieve common goals.