This is Kamla Bhatt we bring you part 2 of our conversation with Zoho’s Sridhar Vembu.
Kamla: You described Zoho as an Indian company with a skeletal staff here in the US. What were some of the early pitfalls and problems that you encountered working on Zoho because we know about the success but what about the pitfalls?
Sridhar: Sometimes in anything new you do, you simply have to figure out a lot of things like how to write software efficiently to run as a web service on the internet. All of these we have to figure out and those are the engineering challenges, then the market challenges so figure out what for example in CRM market is. But I didn’t come from a CRM background, we came from a different background so figuring that out. So those are the challenges but we have smart people that we have developed internally a cadre of managers and engineers who are come up in the system and they are really smart and they observe a lot of companies. Basically we are also a business school and so they learn and they put their lessons to work, the next generation. So that is how we are. It’s very much an organic process its not like day one when we think of doing something and we get that right. Its like we launched something and then we learned a lesson, sometimes it’s a failure and then we analyse why we failed, go back do it again. We have done that with even our CRM for example; our first ten ships were in 2004 as a product we didn’t ship it as a web service. The whole CRM was a product. And then we decided no that is not the right way to talk in this market so we actually reloaded as a web service. So that is the ability to learn from your mistakes and adapt. That is what I think is the key to success.
Kamla: Tell us about your hiring process. How many IITans do you have in your company?
Sridhar: May be 3, including myself. So IIT has not been the big source that is because there is so much of competition. Everybody from Google, to Yahoo, to Microsoft everybody is recruiting so we don’t stand a chance. So our way again is a unique hiring philosophy over the years. We struggled a lot you can say its not like we had a plan for this. So we hire from a variety of colleges and what we noticed in the beginning is the academic record and the performance did not have much of a common relation. Someone could have been really good on paper but...
Kamla: It is the exact opposite of the Google hiring process.
Sridhar: Exactly, so we decided ok if that is true then why are we looking at grades which actually proved that they too don’t corelate much then why don’t we just throw it out as a data piled down and then that led to the next radical thought that we started doing even as early as 1998-99 we would not really pay attention to academic record but then by 2004 we decided why are we paying attention to even the degree, the college degree at all. If it is academic so we decided do experimental recruit kids and we will run our own school effectively and our own college and we will put them to work and see what happens. It has been really successful so then we expanded it. So now actually about 20 per cent of our recruits, 15-20 per cent of our recruits come from our own program and we also take from colleges but you know we disregard the grades, we don’t really care. So it is again a different philosophy of its kind.
Kamla: What is your pay structure? Is it on par with the market pay that is there in India?
Sridhar: Yes absolutely. We have to obviously compete and our people are in high demand from any other big company so we have to pay at least on par or offer more than what the market there is and we have a good year, we have a profit sharing plan and all of that so we have had good years from the last 3-4 years and we hope to have good years in future so that is how our structure is.
Kamla: Here is a question that I often encounter from start up folks in India. They say that there is no big exit of an Indian start up in India so they are looking for role models and stories-successful stories. You have been very vehement against an exit strategy. You want to keep your company private. How would you answer this question if an entrepreneur from India came and asked you we don’t have good role models so we don’t have companies that have exited? How would you answer that question?
Sridhar: Well I don’t, each person has to decide for themselves what they want in this life and I am not interested in exit because I like working in this company and I like coming to work everyday why would I want to exit or would I want to sell and get out? I am not interested in it. So that is the reason it is not because I am philosophical opposed to it but I just personally don’t like to do it. Exit is something which is not in your control. Whether Google is going to acquire or yahoo is going to acquire or some Indian company is going to acquire that is not in the control of a person starting the company. So my advice would be to forget that as a plan, focus on serving the customer and making money. Then may be exit will happen or may not happen. In our case we are not interested in an exit so it is not part of our strategy at all. But even if you want an exit may be it is a better idea to just forget about it and build a real company, serving real customer and making money. In that case then the exit is a bonus if it happens and if its not its not. So that is what my advice would be.
Kamla: In your case there was an exit via acquisition. You were open to being acquired right?
Sridhar: No really we never actually.
Kamla: With Salesforce?
Sridhar: They asked us but we were not interested. I always made it clear that it is not our strategy. By having said that I say never say never because why make some statements like I will never be acquired as nobody knows what the future would be but I can say that that is not our plan, business plan is not getting acquired.
Kamla: OK. So in my introduction I said that you are fearless. It’s because of something that you face on a daily basis in your personal life. Can you share with us on how you developed an ability to see things differently? How do you remove your own blinders and are able to execute at your work place and also at your home?
Sridhar: Well its, to be fair to my wife she is the one. We have a similar thoughtism and it’s really my wife who has actually put an enormous amount of time and effort to actually getting better and it is getting better but we still have a long way to go so I have to give her credit while its due. But what that has changed for us is that I even more saw like collecting a hundred million dollars today does not motivate me, it will not change what everyday I do, it will not change anything, what we do for our son, nothing will change. So it kind of takes out of your mental moral but I have always been liked even before some turned out to me in this way it is not something that I come from a middle class background and I am happy the way I am so I don’t need to imitate somebody its not that I need to have a private jet just because somebody else has a private jet. So I just look for myself and in a way I am selfish I won’t care what other people do. So that keeps you happy.
Kamla: Not everybody that has used your product is happy, there are quite a few people out there who have said that Zoho is a product that we are not going to use, it does not match with what we have. What are you doing differently to address that market?
Sridhar: Like any company this is going to happen, any product, even the most successful product there are going to be people who are not happy. So that is why you have a market place that is why you have a competition. You have different product visions like Google has a separate product vision, Salesforce has a different product vision, and we have a different product vision. We are going to have fans we are going to have people with all ___. On the whole we should have at least enough and sufficient number of fans to be a viable business which I think we are doing and persuade some of the one’s in the other camp to the extent possible.
Kamla: What is your product vision and what is that number that you talked about that will make you happy since you are a numbers guy?
Sridhar: Our product vision is really addressing the small and medium business and we solved the IT problem for others. It’s very ambitious. Today SMB is not well served. They have to do too many things that are too tedious in terms of IT to get their basic business processes, business systems running, productivity software, CRM, e-mail, all of that it is just today the state of the art is really not friendly to the SMB. So that is you want to be the IT department officer, really the IT department is often very under staffed, they don’t have resources to do and that is our vision. But that does not mean, we do get large enterprises approaching us but our focus is on serving the SMB’s, first and foremost, that is our real focus in the company. In terms of numbers what is a good market share, may be 25-30-40% market share is really good market share in this market. It is going to be fragmented market. This is why I reject these notions that somehow one company, whether its Microsoft or Google is going to be at the top which is not going to happen. I believe it will be a fragmented market and there is going to be room for a lot of players and we want to take our fair share.
Kamla: You mentioned something very interesting. You said you are focusing on the small and medium size businesses and yet some of the fights that you are fighting are in the enterprise space. How much of market share do you want from the enterprise space because there is a fair amount of money that you can make and GE, I don’t know if we can talk or not is currently evaluating your product and if you get GE that will be cool because it is probably the first time a major fortune 500 company is buying a product from a small company. So you are in this space that Microsoft was probably 30 years ago.
Sridhar: Let me address this. Our target is really SMB’s. What I mean by that is we don’t have an enterprise sales force like say Oracle or SIP or Salesforce.com. So that is what is different. So we have a product that is addressed to a market and we don’t have a sales force addressing those enterprise markets. So that is what is really different and when I say we focused on SMB’s I mean in terms of the sales in marketing strategy. It does not mean large companies don’t ever come to us, they do and we have conversations. I can’t really comment on any specific companies but we do have engagements in companies but our focus is serving the SMB’s. What I mean by enterprise market is addressing them through an enterprise sales force. That I have a philosophical problem with it because if you look at a company like Salesforce and how much money they are spending on their enterprise sales force and the marketing associated with it, I find that just too much. I am not going to spend that much of money to reach that market. This is what I like to say we are like really southwest airlines we have simple business model, low prices and so that targets a lot of consumers but also lot of business people fly but they don’t specifically target business users like we have a business class, we have special services, you know how Southwest operates its exactly the same way. Our product that is really good for the SMB, priced well, enterprises like that price so they come to us but just like Southwest we don’t actually roll out a business class fare for them and happens to call the model because that is what bloats your cost which is why Southwest is profitable while the others companies who are traditional carriers are not profitable. That is really the business model difference.
Kamla: Do you consider yourself lucky because of what has happened at the economic side with the meltdown. One of the things that is going to happen next year is there is going to be a drastic cut of IT spending. Enterprises have already said that so for the next 12 to 24 months there is going to be huge change in the way spending is going to occur in the IT industry. How are you evaluating your opportunities and preparing Zoho to take advantage of that because I know during weekend time looking at the economic landscape of the world so I am assuming that you have already come up with some kind of a marketing strategy to reposition Zoho.
Sridhar: To be honest I have been an economic pessimist for a several years now simply because of all the bubbles I have watched during 2006 for example like I have been pessimistic about this and so we have already well positioned for that in a way that is part of what has informed us about this kind of a low cost strategy. I felt that it would stand the test of time you know bad economy to do well. And because I was a pessimist so that is why we adopted this strategy of low price-low cost strategy because I felt that would do well in difficult times. Having said that I definitely don’t think it is going to be a markable part even for us. Even for us it is going to be difficult, spending is going to be cut across the globe, even if you are an expensive vendor or a cheap vendor it does not really matter it is going to be cut and I don’t believe anyone is going to be immune. Recently I tell our people we are not going to be immune we have to face the music and it is going to be tough out there so we are mentally preparing ourselves for really tough times and our only hope is that differentially we will get to do better than Salesforce which has an expensive product.
Kamla: So you did not answer that question straight because in one of the previous answers you mentioned that Salesforce has this bloated enterprise sales group and yet the economist called you a dangerous guy because you could potentially take away money from the other competition and in some ways the changed economic landscape is going to aid you. So that is where I want you to answer that question in a very clear way with no marketing terms associated just plain and simple.
Sridhar: Yes, in difficult economic conditions companies large and small are going to look for bargains and look for a better value in their software spending and we hope to be there serving them and offering the right product with the right price, right price is important now.
Kamla: Would you drop down further?
Sridhar: We are already very low. We actually already priced our products for example our CRM product is one fifth of the Salesforce pricing. So we price it to be closer to the cost so that is how we do business, and does that mean how can I foresee what is going to happen? Will customers actually buy that message, will they or do they agree to with me in this that we have to see next year or two years later but our assumption is that yes this is the difficult condition, people want a better value in their spending and we are positioning ourselves for that type of a difficult economic time.
Kamla: Finally, what do you think went right for you?
Sridhar: Our real joy is our engineering organisation and that has actually kept us in the game. Repeatedly coming up with really good products again and again. We have released 18 products in the Zoho suite now and our team has executed it flawlessly you know I cannot take the credit I did not write the code but our team of engineers are really good and that is what has gone really right in our business.
Kamla: Is there anything else you would like to add Sridhar?
Sridhar: Yes I think I said we are kind of a different company than a typical company that you come across here and lot of it is actually things that we have learnt over the years. We did not start in 1996 with all of this. I would be lying if I say in 1996 we foresaw all of this, but every step what we have done is that we have adapted ourselves to what the conditions are and we had a core philosophy although we were in the year 2000 we always felt offering a better value better than trying to market and get customers spend a lot of money on you. So we always felt and we also always believed that engineering is a form of market. Putting out a great product is in itself a great form of marketing so those are all the things we still look by.
Kamla: Sridhar it was a pleasure to talk to you and we wish you all the best with Zoho and I look forward to seeing you if you would become a dangerous man by 2009.
Sridhar: Thank you Kamla.