Serial Entrepreneur Zack Rinat on Model N (Part 5)

SM: A lot of people from Harvard Business School came to Silicon Valley and created a lot of problems during the gold rush years.

ZR: There was a program we started in 2001 called WestTrack, where we are bringing in students to look at companies. The first year we did it was in 2001, and we had 7 people come here. A few years later there were 700. There were a lot of gold diggers. People were doing really crazy, stupid things at the time. I felt it was important to also show you could do software the old fashioned way with strong technical infrastructure and a strong business model. Longevity could be a good thing; you could build it to last versus building it to sell. I like the vision of creating impact for the long run. >>>

Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 6)

Here we begin to explore the current status of Zoho a bit further. Impressive numbers considering there has been no advertising campaigns conducted. The business model is simple – let users try the service for free, when they are comfortable they will migrate over. Afterwards, they compete based on pricing (less than 20% of the competitor’s price-point). Simple and quite promising. [Our discussion is still around Zoho’s CRM suite, which is in direct competition with Salesforce.com.]

SM: How many customers does 50,000 users translate into? SV: About 3,000 businesses.

SM: In terms of selling into these accounts, is it the IT personnel making the decisions? SV: It is mainly the sales management who are really coming in now. Initially they come over for price reasons.

SM: They are already sold into the on-demand concept. SV: Exactly. I am really not ashamed to compete on price, that is our main strategy. We are going to compete on price. >>>

Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 5)

Interesting comparisons here by Sridhar between the Zoho CRM and the SalesForce CRM products; while SalesForce has a high focus on sales teams (and one of the best telesales teams anywhere in the world), Zoho is simply looking to take a competitive advantage in terms of pricing. According to Sridhar this shows in the construct of the companies – Zoho has more engineers than any other type of employee, while SalesForce has more.. well, sales force!

SM: How can you say SalesForce does not have enough engineers? SV: You can check their R&D and their spending reports. They have 2000 employees, but only 100 are engineers. That in itself is an interesting phenomena, it tells you a lot about their business model. All of these guys have become too marketing-oriented, and not enough engineering-focused. >>>

Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 4)

AdventNet provides a safety zone from which to launch Zoho, which is why I was looking to gain an understanding of the revenue and cash position of the company. While competition will be stiff from Google and Microsoft, as well as other CRM and group meeting companies, Zoho seems to have a unique philosophy of ultimate frugality. Read on!

SM: Before we go into the details on the Zoho story, let me make sure we get on the same page. What is the revenue level from the OEM business and what is the revenue level from Manage Engine? SV: I would say OEM accounts for 30% of our revenue, Manage Engine, which we started in 2003, is now accounting for 70% of our revenue. Zoho is really small right now, and there are only two products which are even priced.

SM: Can you position Zoho for me? SV: Zoho is an on-demand application offering. We are offering a competitor to Microsoft Office on demand, meaning online. We also have a CRM and an application creator online. We just call it the ability to work online. That is our vision – to provide a comprehensive suite for a mid-sized customer. We want mid-sized customers to be able to have their IT needs met online. >>>

Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 3)

During the downturn after the bubble burst, many companies took significant hits. Here, it is revealing to notice there was really only one tough year for Adventnet, which could actually be described as an R&D year. That could have taken place anytime in the company’s history. The bubble burst did not destroy the company, they simply reacted positively to the change and moved in the right direction.

SM: Did you have to take a revenue hit between 2000 – 2003? SV: In 2001, due to the legacy of software we had fielded, we still experienced growth. In 2002 we took a hit. By 2003, although a lot of the startups were gone, we had successfully transitioned the core of our business to well established companies. By 2004 and 2005 this network management software had really taken off. Of course, we had a head start – we already had the technology.

SM: What is the Manage Engine? SV: It competes with the likes of HP OpenView, and Computer Associates companies like them. The main difference is that it is geared towards the mid-level markets, not the high-end enterprise segment.
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Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 2)

Sridhar’s experience in bootstrapping is something to learn from, especially for entrepreneurs in India, who keep complaining about the lack of funding availability from venture sources. Along the way, he weathered many storms, as all good entrepreneurs learn to do.

SM: How did you fund your early initiative? SV: It was all bootstrapped. My wife worked, she is also an engineer, so I was able to stay home and work on the venture. Tony had taken a buyout from his job. At the time Lucent bought out a lot of smart people, meaning they gave them money to leave. That is how it all started.

There was no investment money of any kind, only some family and friends. The software started selling well, we stumbled upon an opportunity and sold a lot to companies here in Silicon Valley. We also had a good market in Japan. Japanese companies would buy the software, customize it, and ship it with their equipment. That was our early phase of growth through 2000. We had grown to 115 engineers in India and we were 7 people here. >>>

Happily Bootstrapping: Zoho CEO Sridhar Vembu (Part 1)

If you haven’t already, please study our Bootstrapping Course and Investor Introductions page. 

[Also check out my Entrepreneur Journeys book, Seed India – How To Navigate The Seed Capital Gap in India]

Sridhar Vembu is the CEO of AdventNet, which owns Zoho, a new on-demand office suite we’ve been hearing about a lot lately. I spoke with Sridhar about his rather unorthodox but quite successful entrepreneurial journey.

SM: I would like to start this interview by tracing your background. SV: I was born in India, I went to Madras IIT for my undergraduate and came to Princeton to do my PhD in 1989. In 1994 I joined Qualcomm in San Diego. My PhD is in electrical engineering, so I really do not have a software background. I worked on wireless communication which was my area of interest at the time. I worked with Qualcomm for two years. I worked on CDMA, power control and some very detailed issues on wireless communications. That is how I got started in the tech industry.

My brother, who was also there at Qualcomm as a software engineer, wanted to return home to India. Software is a great business to start in India, so he moved back to India and I moved to Silicon Valley to drum up interest in our fledgling venture, which later became AdventNet. >>>

Rolling up an Online Ad Agency Powerhouse: AKQA CEO Tom Bedecarre (Part 8)

Here we get a bit philosophical about the reason behind some of the industry regulation problems, and the pressures applied from the major players. Nonethelss, here is a new trend in advertising, one that is based on algorithms and mathematics, and the older schmoozing oriented models will be forced to adapt.

SM: So you think these major players are afraid of being chased off of the field? TB:
My own cynical view is that there is a lot of fear of change and that it is not really about Doubleclick owning the dark publisher platform. I think there is a separate and completely distinct group of privacy concerns and people, that are concerned about having too much consumer information in too few hands leading to problems. I don’t really think that is an FTC issue in terms of anti-competitiveness, and I have a hard time seeing either one of those big deals not go through. >>>