Sridhar’s thesis around Zoho is to ride on top of the market awareness already created by Salesforce.com, Webex and others around On-Demand / SaaS delivery models for business applications like the Office Suite, CRM, Web Conferencing, Project Management, etc. and simply do a dramatic undercutting based on price. He insists that the amount of Sales and Marketing dollars spent by his competitors is something he will not need to spend, but rather, be able to pass on the P&L savings to his customers.
Having a team of 600 engineers in India, and just 8 people in Silicon Valley positions him in a unique place to be able to potentially pull this off successfully. Ofcourse, we don’t know yet, the next few chapters of this story. However, as an investment thesis, I am with Sridhar, and I actually am quite convinced that this model can succeed.
SM: I like your model. I think, many Indian companies could replicate this model in other domains or on other applications. It’s the low-cost manufacturing model that China has perfected. Once upon a time, flat panel monitors were expensive. But today, we buy purely on price. I have a no-name monitor by a company called SOYO sitting on my desk, looking just as slick as an HP or an Apple. The functionality is standard. I care only about the price. Software will likely also go there, and if Indian entrepreneurs can play their cards right, they will be able to build businesses using the exact same model as what you have just described. SV: Exactly right. We are in a very different phase of market maturity today, and how you build companies will be very different.
SM: So Sridhar, you have done a remarkably good job of building your company without any external financing so far. For the next phase of growth, now that you are taking on more ambitious goals, do you intend to raise capital? SV: Absolutely not. We plan to keep doing this with our own money. Our OEM and Manage Engine businesses generate enough cash to allow us to bootstrap the Zoho piece.
SM: You have 600 engineers in Bangalore. Do you face attrition problems? SV: We don’t. I believe, most of the attrition happens from boredom related issues. We try to keep our team motivated and challenged with interesting work, and as a result, they don’t leave because they are not bored. Of course, we have good compensation, a strong bonus plan, etc. You see, we don’t intend to sell the company, so there is no stock option plan, because it is meaningless. However, we have a great bonus plan, and people learn and grow with us. It works.
SM: Boy, you really are a contrarian, Sridhar! Good luck to you. I will watch your company with great interest.
Note: in 2015, Zoho is a $300 million a year revenue company, still private, still bootstrapped! That makes Zoho a bootstrapped Unicorn!
[Also check out my Entrepreneur Journeys book, Billion Dollar Unicorns]