Anti-burn: How bootstrapped Zoho survived two tech bubbles | Hacker News Reader

Anti-burn: How bootstrapped Zoho survived two tech bubbles

pando.com

115 pointsrajuvegesna16 comments

> When everyone in the Valley was signing 10 year leases at $10 per square foot – a bubble indicator that we’re seeing again today – the company relocated to Pleasanton, where it remains today, and instead invested in keeping its headcount up.

> “We don’t really agree that a short-term, mercenary mindset and incentive structure is required to hire the best talent,” Vegesna says. “We issue cash bonuses at the end of a good period, whether it’s a month, quarter, or year. It actually ends up being a better outcome for most employees. And, of course, we have free lunch and all the other typical perks. We have had extremely low employee churn...”

Something not mentioned in the article: according to Wikipedia[1], 90% of Zoho's employees are based in India. While I'm sure that some in the Bay Area will scoff at this, I don't think there's any question that when the business cycle turns, the ridiculously high costs of employee salaries and office space will be the undoing of countless Bay Area startups.

It's nice to read stories every once in a while about companies living within their means. Ironically, they're usually the ones that could actually afford to live large if they wanted to.

[1] http://en.wikipedia.org/wiki/Zoho_Corporation

Zoho also hired and trained people who were usually out of normal companies radars' (like college dropouts).

That's interesting to hear, for staff who had never held a position previously this would help foster the loyalty.

Interview with the founder Sridhar Vembu, where he talks more about this: https://www.youtube.com/watch?v=Zt5EMnATY_Q

(Zoho CEO here) My analysis of financial bubbles informs how we operate in Zoho. I believe the Greenspan-Bernanke-Yellen era will go down in history as one of the biggest bubbles the world has ever seen.

The economy is now fully addicted to bubbles, and the start-up ecosystem is particularly affected. Withdrawal from this bubble-drug is going to be painful.

A couple of anecdotes about the last big tech bubble of 2000. At that time, there were 300+ optical networking companies in silicon valley. We had sold our network management software to about 150 of them. By 2003, only 2 were left standing. We survived because we had saved up some money for that eventuality, and we reinvented ourselves using those savings.

One painful bubble memory I have is the real estate lease that we had no option but to sign in 2000. We moved from San Jose to Pleasanton to escape the worst of the bubble-rents but even in Pleasanton, while the rent wasn't ruinous (about $20 per square foot per year), the landlord forced a 7 year lease on us. Still, the rents fell to about $10 per square foot per year by 2002, but we were stuck with the higher rent for 5 more years. Fortunately, the company was financially strong enough to withstand it but the episode taught us a lesson in bubble-planning and bubble-survival.

I am shocked that people are signing $50-100 a square foot per year leases for 10 year terms these days.

Our goal right now is to survive the present bubble, bigger in some ways than even the one in 2000. I tell our people that there is going to be a serious bust and we should aim to survive it first.

> A couple of anecdotes about the last big tech bubble of 2000. At that time, there were 300+ optical networking companies in silicon valley. We had sold our network management software to about 150 of them. By 2003, only 2 were left standing. We survived because we had saved up some money for that eventuality, and we reinvented ourselves using those savings.

That's eerily similar to the situation today. A lot of startups today count other startups as their largest customer segment. It's not often talked about, but accelerators have greatly contributed to this trend.

The big question is how many of today's startup-dependent startups are saving their money and will be in a position to try to reinvent themselves when their customer ranks are decimated.

The thing about bubbles is it sort of hard to predict. Also how many times have we seen the same bubble. Investors have already learned from 99 and they will short any IPO/Public company stock that does not have any significant growth and/or profits. Look at Zygna and Groupon, probably made allot of short sellers rich.

What happened in 99 is already factored into the market. The public stock market is dying to short sell over hyped companies that under deliver.

The situation right now is unprecedented. With the Fed keeping interest rates low for so long. LP's have no other choice but to invest more of their money into public stock market and the private markets through VCs. I can't seem reduce their exposure until there are viable options. The Fed won't let that happen.

I can see a scenario where if somehow startups burn up all their capital and go under. Somehow the entire VC fund goes under. LPs might have to pull money from public equities to cover their startup investment losses.

If one or two big startups like Airbnb or Dropbox go under. The worst case scenario could be really bad, as it could have sever ripple effects through the start up ecosystem. Eventually hitting the public markets and normal people.

Zoho is often an inspiration for Indian startups. They might have grown out of the early days of startup grind and culture but it has continuously given inspiring environments for future founders like girish from Freshdesk.

this article is a reflection of its growth strategy and how longevity trumps over 'growth hacks'

Spending within your means and growing organically certainly give me a good feeling. However, I don't think it's decision to base 90% of its employees in India maps too directly to the stereotypical SV startup. It looks more like a Indian company with an office in the US.

So you're saying Apple (Foxxconn), Nike, Dell, The Simpsons (Rough Draft Studios), etc. are Chinese/Korean/Mexican companies with offices in the US?

Apple isn't Foxconn. Zoho is a company started in India by Indians with 90% of its workforce in India.

Of course Apple, Nike, Dell, News Corp., and Zoho are international companies, but Zoho is as Indian as Apple is American.

> “We issue cash bonuses at the end of a good period, whether it’s a month, quarter, or year. It actually ends up being a better outcome for most employees."<

With all the obsession we see over the stock options/startup lottery, I think this point bears consideration. A stable, low employee churn organization with great cash flow can make you plenty rich if the founders and board put aggressive profit sharing and bonuses in place. I think for bootstrapped businesses this is a great alternative to complex options plans that have no value until an exit/IPO. Wish this approach gained more publicity, even if they've offshored the bulk of the operation.

Good story, sadly won't get crazily upvoted since Zoho keeps a low and stable profile.

Thanks

Very inspiring story, thank you.

... and produced some shitty software in the process.

what's your definition of shitty? Useful software used by millions of people who are glad to pay to remove this pain from their lives?

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