Zoho: Thriving Amid the Giants
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We didn't set out with the mission of bootstrapping. It was sheer necessity: we had no big ideas (only some little ideas), and had no way of impressing anyone to put money on us. Our very first product was this: http://www.webnms.com/snmp/ - the amazing part is we still make money on it! But sexy it isn't - a VC who stumbled on us told us "Why are you focused on such a tiny market?"
By the time money was offered to us, we didn't need it, and we were having too much fun building stuff to even bother pitching to VCs. We came close to a VC round once in 2000: a term sheet was offered. There were things there I didn't like and I was too lazy to negotiate with them, so I simply let it die.
What was the motivation and can you elaborate and share with us on how you did this?
They make drill bits for printed circuit boards, drill bits finer than human hair, drill bits you cannot even see with the naked eye.
The magic is years and years of patient, painstaking work, with occasional inspired leaps. That was good to know, particularly when we tended to get bored or tired.
I would love to hear from someone more in the know on how Zoho was able to pull this off. Conventional wisdom seems to be that bootstrapping a product company to tens of millions is near-impossible. Is Zoho just a random aberration or do they offer lessons to others trying to do the same?
Source? Or is this just conjecture on your part?
Funding (in times of success) is an accelerant. Zoho had funding, which fueled growth. It wasn't VC funding, but cash is cash. I'd MUCH rather take cash from previous successes (and have in the past) than from VCs, but it's not entirely true to look at Zoho as a bootstrapped business, especially if you're thinking of it as a model.
VC funded businesses are a long road. Bootstrapped businesses are a much longer road.
Now, they don't treat their Chennai office as a second-rate sweatshop to whom you parcel off grunt work and forget about it. That is a recipe for disaster. At the same time, they are very open about the fact that CS education/programming skills in India aren't nearly as good as in the U.S. So what do they do? They train their Indian programmers in house for 9 months. You can definitely take smart people without a great educational background and bring them up to speed if you're prepared to do that.
Sridhar is http://news.ycombinator.com/user?id=sridharvembu, hopefully he can give us more details and correct me if I've gotten anything wrong.
India is one hell of a resource. It's kind of raw at the moment. IE, you can't easily just buy services there and expect good quality. Being able to make it work well could be one hell of an advantage. As you say, you can't just take elance rates and calculate what you save by producing in India. You would probably end up paying many times more to attract, train & keep the best. Could still be cheaper the California, but probably within range.
Basically what I am saying is this: You can probably save a lot and still get quality by being exceptionally good at producing in India. Sounds like Zoho is. But that still doesn't bring your costs down by enough to give a competitive edge to a product company. If you are a service business, cutting production costs (without harming quality) to 60% is a massive edge. If you are a product company, does that still apply?
Side note: It sounds like Zoho's important "technology" is knowing how to produce great quality products in India. I wonder if that is technology another company would pay to acquire. How much would it be valued at?
- update: - I have just read some of the other comments and found a link that sheds some light on my questions, I think. The product company / service company split is far to simplistic. Zoho sees itself as a business software company. An area where (apart form MSFT's monopoly), margins do count and success is not binary. Getting employment costs down and productivity up, even marginally, can make a difference here. I recommend reading the blog post.
http://blogs.zoho.com/uncategorized/why-we-compete-with-goog...
So basically, some intrapreneurship happened, funded by the company.
The CEO's on here, so he probably can give you a better idea.
More here: http://blogs.zoho.com/general/so-whats-in-it-for-zoho
Also its easy for a particular part of the business to be the fastest growing business if it starts out close to zero.
I'm not trying to put down what Zoho has accomplished (brand awareness in a crowded field, as well as competing with the big boys), but merely point out that people should not assume that they are making a ton of money on their web 2.0 stuff.
http://blogs.zoho.com/uncategorized/why-we-compete-with-goog...
I hang out at Hacker News a lot, in fact, almost everyday I send an article to someone or other in the company. I strongly recommend it internally - I love HN (thanks, pg!).
To answer some of the questions: Zoho Corp used to be known as AdventNet. It was bootstrapped from the beginning (1996). Zoho is the latest and the fastest growing division; while we do not reveal our revenues, all I can say is that we are very happy where the Zoho division, as well as the whole company, has gotten. We have solid profits, which we invest in doing interesting new things.
Bootstrapping works, but you have to be very patient. It has taken us 13 years to get here. The fun part is that we now have the human capital as well as the financial capital (the first part is more important) to do a lot of interesting things, and we don't have to worry about VCs or Wall-Street (not that there is anything wrong with them ;-))
On the product side, Zoho has been evolving rapidly, reaching that polish and maturity in stages. If you had tried us 2 years ago, I wouldn't blame you for giving up on us. We are far, far better today - one proof point is that our company, of about 1000 people, has moved to Zoho almost entirely. There are some small bits and pieces that are not on Zoho, but by end of 2009 everything should move. The tools we use extensively within include Mail, Office suite, CRM, Project Management, Meetings, Creator ... just to give an example, we run well over 100 web meetings a day on Zoho Meeting ourselves. We used to pay WebEx about $25-30K per month, and our usage on Zoho Meeting would cost us about $3-4K if we were to charge ourselves. I say that to explain why we have paying customers.
Why the diversified suite? It is not only diversification, it is also a source of differentiation. We believe we can create very compelling integration scenarios that bring substantial productivity increases. One recent example is our Zoho CRM + Mail integration, which has sold over 1000 customers in the 8 weeks or so it has been released. You will see many more such things rolled out, partly addressing the criticism that it has been a fragmented suite.
So how do we do it? Silicon valley style flexible culture mated with Japanese style patient engineering. There are huge lessons to learn from Japan's post-War leap. As one example, Japanese companies (the giants of today) always had a train-your-own-talent policy. Their colleges most certainly didn't do it - for the most part, college in Japan is considered relaxation time before the real work begins. We dispense with what I believe to be non-essential parts of Japanese experience, like the rigid discipline, substitute it with silicon valley style flexibility.
The one achievement I am proud of is not a product or technology: it is our "University" (as we call it) where we recruit and train 17 year olds - the typical school leaving age in much of India. About 100 of our 1000 employees have come from that program now, and it is growing fast. Longer term, we should get 30-50% of our talent pool directly out of high school.
I have written extensively about it. Let me summarize: I do not believe in college. I believe most real education happens in the work-place, an observation Peter Drucker made originally. I regret going to college myself - we would have been 10x bigger if I hadn't gone to college, so that is my opportunity cost. I probably wouldn't have if I had grown up in America.
Sorry for the long comment. I wanted to answer all the posted questions in one shot.
What do you think about returnees? Resource, potential talent pool? Too many hang ups (salary expectation, etc.)?
On returnees, it is harder the longer someone has been out of India. Two of my brothers returned and they are doing really well (both start-ups http://vembu.com and http://gofrugaltech.com ), but they didn't stay in the US much at all.
My advice: if you are returning, assume that you never left. Lower your expectations (in every way), you will find it easy to exceed them. Traffic is chaotic, civic administration sucks, water problems and so on. But there is something else to India ... the interesting part for me has been that in such poor surroundings, I have always enjoyed a very intellectually stimulating atmosphere. I still can't explain that part.
My own experience is often frustration. The best jobs (quality & time sensitive with higher pay) tend to go to more expensive American suppliers. We end up paying 2-3 as much when we need (what I guess is about) 20% more time spent on QA. I tell them so.
The difference with these returnees seems to be that they share some of my frustrations. I'm not sure that will go anywhere, but this is very early days.
It is easy to explain: in a mature economy, any new company would have a mix of experience and new talent. In an emerging economy, practically everyone is a rookie, regardless of age. There are entire million-plus population cities in India where no one, literally not one person, would have any experience in how to manage a 10 person technology project.
The only way to figure stuff out is to make mistakes. Quality is an emergent property coming out of experience. And that is the reason societies don't go from $300 GDP to $30K GDP in 1 year, though it would be possible to carefully mix an immigrant group coming out of a $300 GDP area into a $30K GDP area, and as long as the mixing is at a controlled rate, it is possible to boost the per-capita GDP of the immigrant group very high in a very short time (Indians in the US offer a good example). That is the extra value added by experience of having done stuff.
The catch 22 seems to be that individuals, once they have that experience, had a high likelihood of leaving. The potential resource is that due to returning the pool of people which such experience is getting an boost above the organic trend.
Obviously it's not all managers coming back but at least there are people that have seen it done. In the case that I mentioned, these are people that previously (I assume) worked on the type of projects that they now miss out on. They saw their previous employers not bothering to target the type of work they are getting. They know that the gap between these two is relatively small and that crossing it is both worthwhile and possible.
Same with German products in the 19th century.
we would have been 10x bigger if I hadn't gone to college, so that is my opportunity cost.
Can you elaborate on this a bit? Are you saying that your growth curve was shifted back by n years (and you'll be 10x in n years), or that it was fundamentally changed as a result of going to college?
The thing I most admire about America is the can-do spirit. I am sad that the education system in America is "Asianizing" rapidly, in the spirit of "We have to compete with the Chinese/Koreans/Indians ..." That's not what got America to where it got - it was the can-do "hacker" ethic, and the climate of freedom where that ethic flourished.
College hasn't gone Asian-style yet in the US.
The reason I bring that up is that due to the way the Indian IT sector works, we don't get the best test takers (they are grabbed by the big brand name service companies). So we get people who generally did't do well in various kinds of tests. I count that as a blessing :-)
As an aside, I am impressed that someone who went to an IIT (and so had to do well in the most competitive exam in the world) sees the dark side of these tests.
Interestingly, India just scrapped competitive exams for 10th grade (CBSE) which is a great first step.
I shared a very similar education experience (Engineering in India, Masters in the US) and ended up with similar sentiments about how useless college education in India is and a (heretofore passive) interest in how to improve it.
However, I think college in the US CAN be a valuable experience, especially at the better schools, simply because of the freedom to explore, take courses in any department and also because of the generally better quality of instruction. Would you agree?
Apparently a lot of people feel differently though.
So what exactly differentiates Zoho? The breadth of its product line? That doesn't sound like much of a differentiator.
Or is there more that this article doesn't mention? Any special processes, APIs, or features? It's relationship with VARs?
It must have a great differentiator to have $50MM in revenue without funding. It's just unclear from this article exactly what that differentiator is.
1. Zoho's APIs are more mature. Especially the Remote API which allows you to use the Zoho tools but keep the data on your own servers. That's something Google has no competitor for (last I checked).
2. The customer focus. The company has always been responsive to our requests and there have been occasions where they actually added a feature pretty soon after we asked for it (in fairness others might have asked for it earlier, I don't know)
It boils down to Zoho being focused on creating a great product for their customers while Google seems more interested in proving a point about online software.