Bengaluru: The spark that led to the creation of Chennai-based Freshdesk Inc., the $700 million start-up that grew to service 100,000 clients in just six years, was one angry comment.
The year was 2010, and Girish Mathrubootham, who was then vice-president of product management at Zoho Corp., a company that sells a suite of software products for small businesses, was browsing through the Hacker News website. Users of customer support software maker Zendesk were griping about a sudden increase in prices by 60-300%. Then, this comment popped up:
“Here’s a potential customer to whomever can get this right, and at the right price.”
Mathrubootham recalls the day: “Even though I was an employee, I was always entrepreneurial. I had 10 great years at Zoho where I had one of the fastest career growth trajectories. In 2008-09, I had a US stint and I suddenly started getting restless. It had some effect on me as by then I had become a management guy. I was pitching to get back to do something on the product side, and when I was going to meeting after meeting, I realized this could be my last chance to start something,” he said.
The frustrated Zendesk customer gave him that “something”.
“It seems like there’s still a huge opening in this market for someone to come in,” the comment continued.
Mathrubootham talked to Shan Krishnasamy, his colleague at Zoho. The two tried working weekends on their idea, but realized they would have to give it full-time attention, and so began Freshdesk’s journey.
Getting the pricing right
In the six years since it began, Freshdesk has become a recognized name in the start-up ecosystem, if not the poster child for product start-ups in India.
Freshdesk started out with building a product that focused on helping small companies manage their customer interactions in a simple manner.
While Freshdesk was booting up, many small businesses in developed countries were looking to the Internet to find solutions for their problems. It led to the rise of the software-as-a-service (SaaS) model, in which firms pay monthly fees for using products delivered over the Internet.
This enabled Freshdesk, sitting out of Chennai, to serve customers all over the world, armed with a pricing advantage as small businesses do not have large budgets for buying software.
Freshdesk, which competes with companies like Zendesk and behemoths like Salesforce Inc., in November 2011 secured $1 million in funding from venture capital firm Accel Partners.
Shekhar Kirani, partner at Accel Partners India, says his firm had a prepared theme on enterprise SaaS at that time and was looking for companies to invest in India.
“Freshdesk was one of the many that we met. We really liked the clarity of thought Girish and Shan had in terms of the opportunity and why they would be successful via product innovation. We met the team a couple of times and liked our interactions and backed the team,” said Kirani.
Since then, Freshdesk has managed to raise a total of $150 million in multiple rounds raised from Accel Partners, Sequoia Capital, Tiger Global Management and Google Capital. US-based research firm PitchBook has valued Freshdesk at $700 million.
“The fundamental truth is, good companies will always have good investor interest,” said Mathrubootham. “There are always certain flavours which people chase. It was e-commerce, food-tech, hyperlocal for a while. If one investor makes a move, the others would make a move. Then, there is also another category where irrespective of the timing, there will always be investor interest. We were always focused on building a solid company in this segment. With the money we have in the bank, we have a five-year run rate at the current burn.”
After starting out with one product (also called Freshdesk), a cloud-based customer support platform, in 2014, the company launched Freshservice, which helps firms meet their internal IT support requests. In February this year, it launched Hotline, which allows businesses to provide support to their customers from within apps. Its most recent product launch is Freshsales, a customer relationship management (CRM) software to help sales teams within firms.
Mathrubootham has high hopes from Freshsales.
“In every industry, there is a technology refresh that happens every 10 years. In CRM, which has gone through an evolution process, there were some that the system provided and other pieces of technology emerged separately. Companies now have to buy multiple products and deploy someone to integrate them; this is unfortunate and this is poised for a big disruption. We are helping in bringing together a new system for companies that are starting out today,” he said.
Although the CRM space is very crowded, there is still scope for products that fulfil requirements, say analysts.
“80% of companies will buy off-the-shelf products for CRM. When you look at CRM in total, you have nearly 100 categories, so one vendor can’t really take the whole market. However, what happens is the larger the companies are, the more products they have,” said Olive Huang, research director at Gartner Inc.
There is also some concern on whether having multiple products will dilute a company’s focus.
“There are pros and cons to every approach. In the conventional approach, we would have one product, go on expanding sales, and target a shrinking market. This is something that works really well in the Valley. But for us, the cost of an engineering experiment is very, very low. We operate as multiple small teams. We tend to keep the teams nimble and agile, and leave it to the teams to hire for their requirements. We are like a mini venture capitalist where there are multiple experiments. But we understand the drawbacks of stretching ourselves too,” said Mathrubootham.
To augment its product offerings, over the past year, Freshdesk has acquired six firms, most of them with five or six employees. In August 2015, it bought 1Click.io, a live video chat and co-browsing platform. In the months that followed, it bought Konotor, which helped businesses chat with their consumers within apps, social customer support platform Airwoot, file collaboration platform Framebench, social recommendation app Frilp, and chatbot firm Chatimity.
“We look for companies that are early stage. We look for obviously technology and the product. They should be a good fit technology, people and business wise. So far, we have mostly focused on acquiring people versus technology. In some cases, it has been build versus buy and there was deep expertise the teams we acquired brought in,” said Mathrubootham.
After buying Konotor in December, Freshdesk rolled out its mobile helpline product Hotline, integrating the start-up’s technology.
The process required a month’s work on aligning strategy from Konotor’s team and the team that was already working on a similar product within Freshdesk, but the transition was smooth, said Srikrishnan Ganesan, who co-founded Konotor.
“Synergy in business vision, product fit and culture fit are what have led to Freshdesk’s acquisitions—so, I think broad culture fit is something we know exists even before the deal is in play. When you know you are compatible companies, and that your intentions are in the right place, adopting the culture is easy. The fundamental shared values that Freshdesk stands for are the kind that help any employee take ownership and responsibility—which works well for acquired entities,” said Ganesan.
Managing customers and employees
Scaling quality customer support to keep pace with a rapidly expanding user base is a challenge that most Internet-based firms face. With its most recent acquisition, Chatimity’s bot MITI, which can be used to converse with thousands of users in real time, Freshdesk hopes to help companies solve this problem.
Freshdesk now serves more than 100,000 customers, although it does not disclose how many of these are premium customers who pay for their offerings, and how many small teams that make use of its free offerings.
It has offices in Chennai, San Bruno in California (where it is headquartered), London, Sydney and Berlin. Around 850 employees work for the firm, 300 of whom joined in the past year alone.
Managing people has been the most challenging part of building a company, said Mathrubootham.
“The biggest challenge was in scaling the culture of the company and forming new structures while keeping the core intact. There was a lot of effort that went into this. One of the things we found out was, when more and more people were joining, there were a lot of communication breakdowns. I was once asked to do an ask-me-anything (AMA) session, and to prepare for that, I decided to do an in-house AMA. We kind of found out the issues only once we did this,” he said.
“Once the people had an anonymous avenue, they poured out their questions and doubts. Because of this, we have now started doing an all-hands meeting every two weeks. One day before, employees post questions, and they are voted upon and discussed. We started making sure that we had internal communications improved as some teams were not clued into what others were doing. Right now, I am actually much more confident that we can scale our culture and do it well,” said Mathrubootham.
Freshdesk has also been strengthening its top management. Last year, it hired Nishant Rao, former managing director of LinkedIn India and South Asia, to be its chief operations officer. A few months ago, it hired S.T.S. Prasad, who was vice- president of engineering at WalmartLabs and held leadership positions at companies such as Amazon, Junglee, HCL and Sybase, to be its senior vice-president of engineering.
“Freshdesk’s vision in terms of becoming a global SaaS powerhouse and the clarity of execution in terms of their initial products, and what they have accomplished so far towards that was a key influencing factor when I decided to join them,” said Prasad.
Prasad is enthused about the work that awaits him.
“They (Freshdesk) have a strong foundation from where they started in terms of technologies, as well as the recent build-up of technologies over the last few years. We have a lot of tech talent within the company, but as we look at expanding the scope of our products, launch new products, overall engineering capacity is going to be a key area that we need to be expanding, especially with technical talent in special areas like Big Data, bots and artificial intelligence,” he added.
Until now, Freshdesk has concentrated on catering to small businesses. The bulk of the money to be made, however, lies upstream, by selling to medium and large enterprises. To some extent, it has stepped up its focus on the mid-market segment by boosting its regional presence around the world.
It is also targeting enterprises through what is known as a land and expand business strategy—by first ensuring that small teams within large enterprises use Freshdesk, who then increase awareness about its products, highlighting the fact that easy-to-use products (like the ones Freshdesk claims it has) can also work very well within large enterprises.
Building the brand
Freshdesk and its investors are firm in their conviction that there is a large business in their current model.
“Freshdesk has been focused on SMB customers from go-to-market perspective. It doesn’t mean they don’t serve large customers. They do serve many very large customers. Their current strategy is sufficient to build a large company without changing their go-to-market model,” said Accel’s Kirani.
In catering to mid-market customers, as well as small businesses, analysts say Freshdesk has to focus on its brand.
“One of the challenges for Freshdesk is to answer the question: who is Freshdesk? Customers know Salesforce. They know Zendesk as the smaller version of Salesforce. Some think Freshdesk is smaller version of Zendesk. The brand awareness about Freshdesk and their positioning needs to be more clear,” said Huang of Gartner. “Another key thing will be to build differentiation for each product.”
Freshdesk has set an example for aspiring software product start-ups in India by showing them (along with companies like Zoho) that quality products can be built and sold out of India, and does not shy away from sharing lessons it has learnt and mistakes it made through start-up events like the ones held by software products think tank iSpirt.
“A lot of us building SaaS businesses out of India have learnt a lot from Freshdesk, and also been inspired by their ability to succeed at a global level starting up in Chennai,” said Konotor’s Ganesan.