“The Smartest Unknown Indian Entrepreneur” is what Forbes called Zoho’s co-founder, Sridhar Vembu. He’s become a little less unknown since that article came out, but when it bubbled to the top of Hacker News recently I read it I wanted more details about how he bootstrapped Zoho into a profitable online application provider.
So I invited him to Mixergy to tell us the story of how he built his company.
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Sridhar Vembu, Zoho
Sridhar Vembu is the co-founder of Zoho, Corp. The company is organized around 3 major divisions. Zoho.com provides a comprehensive suite of applications for businesses – from on-line productivity to CRM and custom applications. ManageEngine allows enterprise IT organizations better manage their networks, servers and infrastructure. WebNMS focuses on the needs of original equipment manufacturers (OEMs) in the network and telecom space.
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Hey everyone, it’s Andrew Warner founder of Mixergy dot com, home of the ambitious upstart. And today’s guest was called the smartest unknown Indian entrepreneur by Forbes magazine. The article’s a little bit old but it’s been passed around on Hacker News. I guess it was passed out around a month ago. I said, ‘Hey, let me see if I could get the smartest unknown Indian entrepreneur here to Mixergy to do an interview, to find out who he is, how he built his company, what makes him so smart and to see how much of his information we can suck in and learn from and build our business based on.’ So his name is Sridhar Vembu. He is the co-founder of Zoho. Zoho is an online application provider. He is a guy who is competing against Microsoft, who’s now competing against Google, who’s been in this space for a long time and it’s all been bootstrapped. And tell me if I’m wrong. Profitable still?
Andrew: Still profitable? Can you give us a sense of how profitable?
Interviewee: We don’t disclose numbers. We are still private. We have never taken any outside money. We do all these applications so we must be doing something right.
Andrew: Can you give us just a sense of how profitable? You don’t have to give me the exact number but if you say something like over $1,000 a year in profits that’ll give us one understanding. If you say over $1,000,000 a month in profit that’ll give us another understanding. Anything that you feel comfortable sharing that’ll give us a sense of how big you are without revealing anything that your competition…
Interviewee: Let me say it this way. This company is now 14 years old and was bootstrapped a long time ago. It’s not that recent. So we in [INAUDIBLE] cycle gone through two or three companies. We just have been evolving through this. We have built an engineering team. We have a sales and marketing team. So we are a pretty substantial company so I would say that we are closer to some public companies now than I would…
Andrew: I see. Okay. And a couple years ago when that article was written they said that it was 100% bootstrapped and that you guys did 40,000,000a year in revenue and that you sent 1,000,000 to the bank every month in profits. So you were much more willing to tell Forbes information about your finances than little old Andrew here with his operation.
Interviewee: No, it’s not… Two years ago is different from now. But we have grown since then. That’s all I can say.
Andrew: Okay. All right. This is a very exciting story. Anyone who’s building a business, I think, is going to be inspired by this and as I said in the intro is going to be able to learn a lot from it. So let’s go back to when you launched the business. In fact, let’s go before that. As I understand it you were an engineer at QUALCOMM and so was your brother. What were you guys doing there?
Interviewee: I actually was designing algorithms for CDMA, specifically the algorithms that control the power consumption in some form. So those types of things and that’s what I was designing. So my background is not software. It’s really DSP, digital signal processing and communication, that kind of stuff. So that’s what I was doing then.
Andrew: Okay. Did you have the idea that at some point you were going to start a business?
Interviewee: Not really. When I actually finished Princeton and moved QUALCOMM actually that’s what I wanted to do. I wanted to design algorithms for a living. Then my brother actually who’s a software ñ who was a software engineer ñ in QUALCOMM, at the time we used to talk about what’s going on in India. We both, of course, come from India. So we were talking about this, and that’s part of how these things happen, and then we partnered with a friend of ours who was in Bell Labs, who’s also Indian and who was thinking similar thoughts. So the three of us came together and that’s how that happened.
Andrew: Can you tell me about your friend? The one that you co-founded…this is Tony Thomas, right?
Interviewee: Tony Thomas, yes. Yes.
Andrew: So how did you know him?
Interviewee: He was actually three years ahead of me in college in India at AT Madras. We had common friends. And then he was in Bell Labs when I was in Princeton so we ended up meeting at some social occasions. So that’s how I knew him.
Andrew: But you said he went to school in India with a name like ‘Thomas’?
Interviewee: India has a good number of Christians actually. Maybe, 20, 30 million.
Interviewee: Ah yeah, India has a good number of Christians, actually, maybe 20, 30 million of them, so… [Laughs]
Andrew: Is he native Indian?
Interviewee: Yes, of course.
Andrew: I see. OK, so he was a friend of yours, who you knew from school,
Andrew: who was building this company already in India.
Interviewee: Well, he was in Bell Labs, and he had similar ideas of doing something here. So that’s how we came together.
Andrew: OK. I see. And the way I understood it, he got a buy-out offer from Bell Labs.
Andrew: And so he took the buy-out offer, and he used that to help bootstrap the business.
Interviewee: At that time. So, you know, he was at Bell Labs at that time, when this AT&T was splitting itself up into loose ends, it was already rolling up its sleeves. Most people may not even know these things now [??], so the [??] Labs all split up. As part of all this, they gave buy-outs to a lot of people.
Andrew: And he took it.
Interviewee: Tony was one of their research staff, and he took it.
Andrew: OK. Can you tell us a little bit about what those discussions were before you guys launched? How did you think you were going to organize the business? What was the business going to be?
Interviewee: Yeah, at first there wasn’t any business. I mean Tony, when he took the buy-out, he started writing core at home, while myself and my brother were sitting around dreaming up what to do, basically. And my brother said, “I’ll go back to India, and we’ll start there.” So he went back to India. And coincidentally, Tony ended up making a call to me and saying, “Can you guys help me out on this?” So because my brother was in India. And we said OK. So my brother hired a couple of engineers to help him out on the software. At that time there was still not a business. It was just three guys cooperating on some software, in three different places.
Andrew: OK. Actually, that brings up a question that I’ve been seeing a lot on FoundersMix, our new community site. People are wondering about how can you make sure that when you’re having conversations about launching a new business, that one of the partners isn’t going to take the business idea and run, that the partnership owns the idea, that it’s a real business, when you’re just getting it started. Actually, I guess there are several issues there. How did you resolve them? How did you, well, go ahead.
Interviewee: In the beginning of it, there was nothing to lose. It wasn’t like a great idea or something that, you know, someone would run with it. It was like, it had not been tested. In other words, you start with very low expectations, which is why it worked out, I guess. And we of course, all trusted each other, cronies, which were [??] just last night I had him for dinner, we’re still really close friends. And so that’s in all trust matters, and, to be honest in all cases, it wasn’t like we were thinking of Zoho now. At that time, it was fifteen years ago. We were thinking of how to put food on the table. So there were some small ideas.
Andrew: I’m sorry. You were thinking about what?
Interviewee: Like having something to do. He left his job. And my brother left his job. I left my job in Qualcom. So how would we put food on the table? The rest of us, no, not enough. The company was all secondary. There was no company yet.
Andrew: But there was no sense that maybe you were going to put food on the table, and then Tony would take the whole business idea and run with it, and along with it, your chance of putting food on the table.
Interviewee: Yeah, actually, in the beginning it was in Tony’s name. Really the company in New Jersey was in Tony’s name, but it wasn’t 100% owned by him. So we reorganized it a couple of years later. So it was all trust. And there was so much trust between us, so that is why it worked out. And what I’m saying is that, no, before there is business, there has to be trust. So you have to be able to trust people, and trust each other. And you’re bound to these by trust.
Andrew: You have to have a history.
Interviewee: You are right. Tony had the company in his name.
Andrew: And in retrospect, was that the right move? Or do you look back on yourself and say, “Man, we were so much younger, and less experienced back then. We probably should have done things differently. And it was luck that got this to work out.”
Interviewee: Well, we gave ourselves a lot of time to learn, to make mistakes and learn. Right? So we had the software. That started selling a little better, but not a lot. A hundred K up to 200 K sales is a lot. But it was then. Then once, you know, that gave us money to survive. Then we started thinking up next idea, next idea, next idea. So you can think up another series of startups and want, that’s all we should think of at this.
Andrew: OK. I’d like to explore those startups. Let’s talk about the first one. What was the first startup in that series?
Interviewee: Yeah, the product actually we still sell today, to this day. That’s a product called SMLP API. SMLP, that’s Simple Mathematical Link Protocol. That was a [??]. And that is a product that Tony pretty much wrote himself. Actually, it was like a one-author. He worked on it maybe six months, or four or five months, and then we launched it on our website…
Interviewee: Then we launched it on our website called Adventnet.com. That was the only website we had. We named the company Advent, Advent Management. That was our name we chose. And we couldn’t get Advent.com, right? So we chose Adventnet.com. And that site was launched. And he didn’t have a, maybe a fool, who would be selected. He thought some [devil] a person like him would be interested in it. And yeah, there was some interest, you know. And this came from the network, Equipment Vendors, in the beginning. So most of the customers were our base, like Cisco and Marktel then, and all of this space. And that wasn’t expected in the beginning. We didn’t know. He didn’t know who that customer would be. Then once he started getting some interest, and this was the time when, you know, my brother had gone back to India. And he was starting to help him out with, and you know, he hired one of our other brothers, who actually was the leader today on this project. And that’s who hired a friend. I mean it’s slowly growing itself. And once we started to get things into the family, you know, selling this, marketing this. And I was at Silicon Valley at that time. And I still didn’t have a paycheck, but I was here in the right place, so I became the salesman, basically. So and once it grew, then three years later he said, “You know, you should be the CEO, because you are the one that’s good at it. Most knowledgeable, sorry. I didn’t have any business sense.
Andrew: Hey, guys. The connection is a little bit funky, but we’ll just do our best to go through it, to deal with it. OK. You said that first, you guys had a product, then you were looking for the customers for it.
Andrew: In retrospect, was that a mistake? Should you have examined the market? Should you have figured out what the market needed, and then come out with a product for that market? Or do you think that it was the right move?
Interviewee: Well, in this case, really Tony knew something about this particular area. He worked on this in Bell Labs. So he had actually worked on this network, managing networks. Still, you know, he imagined the customer would be a company like AT&T. But it turned out not the case, because reaching a customer like AT&T is really hard. So even though he knew what the requirements of AT&T would be, there was no way for a tiny, two-person, or three-person company to reach AT&T. So when he put it out, actually it was the Java developers who were working on these areas that were interested. I wouldn’t say that was totally expected. But in hindsight, it wasn’t totally unexpected.
Andrew: How did the Java developers even find you guys and know what you guys were working on?
Interviewee: Yeah, actually, I think we participated in newsgroups and participated in various sites then, and all that. You know, the whole directory and things like that.
Andrew: So discussion boards and directories is where you guys got your first customers?
Interviewee: Yeah, this was before Google. Remember, there was no Google, yet.
Interviewee: At that time.
Andrew: Yeah, and we’re going to get to Google, because I know that factored into your growth also. But, message boards, just the free conversations that anyone can join online, that’s where you got your first customers?
Interviewee: Yes. No, that’s how they found us. That’s not how we found the customer. Wherever there are Java developers, and at that time there was not, the number of Java developers was small. Not so big as now. So, they find us, and they, then mostly they use the fee, the product fee, it was an APA they could integrate. And then, their companies, their employers, usually could be a Cisco, could be a Nokia, for example. And then they say, ‘look, you want a license, this is far apart. Should be private. How much is it going to cost? OK, we’ll pay you $5000, $10000.’ That’s how the conversation started.
Andrew: I see, OK. All right, when you said earlier that you were the salesman, you didn’t have any sales experience. How did you become the salesman of the operation?
Interviewee: Well, I was the only one here in Silicon Valley. So, everyone else was already caught. So, by de facto, became the salesman. And we could not afford to pay any professional salesman. So, I am the salesperson.
Andrew: So, how did you find your first customers? Can you walk me through the whole sales process, back then?
Interviewee: Well, they found us, to be honest and all. I still would have trouble cold calling people myself. So, I’m not that good at it. But, they found us and then they call us. In fact, many times customers would really find this out themselves, because they realized I’m not a real professional salesman. So, they’re telling me, no, there was one customer that told me, after signing the agreement, you should ask me 10 times a month, I would have paid you. Didn’t even ask for money. I guess that was a good educational experience. Somebody tells you they would have paid you 10 times if you had just asked.
Andrew: So, at first, were you just an order taker?
Interviewee: Basically, yes, basically an order, yeah.
Andrew: And explaining, more than an order taker, because you had to explain the product, you had to…
Interviewee: Yeah, that I could do, because I’m an engineer , so I could explain the product well. But I didn’t know how to ask for money. That was the part that I didn’t know.
Andrew: I see.
Interviewee: But I didn’t know [??] who to ask for how much money, the right amount of money, and [??]…
Interviewee: …sort of pity on me, and said, “Well, you know, you ought to ask for more money. You don’t know.” [Laughs]
Andrew: And that guy told you after you closed the sale. How did you become a better salesman? How did you know what to charge? How did you evolve?
Interviewee: Actually, once we had some money, I had a good sense for it.
Andrew: You did.
Interviewee: [Laughs] So we decided OK, this is not going to work. I’m not the greatest salesman in the world. So if I had a business sense for something, OK, man.
Andrew: All right. Let me ask you more detailed questions about that. If you’re not a good salesman yourself, how do you know what to look for, and how to train another salesman?
Interviewee: Yeah, in this case, that’s not how it happened. Actually there was a company that approached us, to buy us. And he was in their, you know, product management, marketing type of group. And he had also done sales before for some more companies. So he had extensive knowledge of the business side, much more so than I did. And he said, “You know you should get acquired by us.” I said, “Well, why don’t you join us? I need a person like you.” And he thought about it for two or three months. He said, “You’re still making a mistake. You should take the money now.” I said, “No, I would much rather have you here.” He saw how determined we were, so he joined us. That’s how it happened actually. Then he basically took it forward, from that point onward.
Andrew: In the chatroom, Viking Abroad is saying, “Cough, Sales Force, cough”. Is it Sales Force?
Interviewee: Oh, no, no, no. This was, you know, at that time it just you know…
Andrew: This was way before Sales Force, but we know that Sales Force approached you.
Interviewee: That company doesn’t even exist now. That company that tried to acquire us doesn’t exist.
Andrew: OK, so that’s how you found him. How did you train him? How did you make sure that he was on track, that he knew where to go?
Interviewee: Well, he already knew enough about our product to want to acquire us for his company.
Interviewee: So he knew about our product. So that may all still be questioned. Hey, you think so? Well, if you want to acquire us, why don’t you just come work for us and then take the product forward. Take, you know, create sense for us. That’s what he ended up doing actually.
Andrew: I see. OK.
Interviewee: He’s still with us, by the way. He’s a Vice President. Yeah, he’s still with us, and he’s happy. I mean so we need people long term. He’s still with us.
Andrew: OK. That was the first startup. What’s the next major startup that you evolved into?
Interviewee: So, you know, I took those things that I knew really well. They were highly profitable and a lot of sales, because we now had a professional sales team.
Interviewee: And all of that happened. See, our customer base at the time was primarily the network equipment vendors. I don’t know how many people remember this, if you, in Silicon Valley, in 2000, you threw a stone you could hit a couple of companies. A [??], a start up which was the [??]. Much like how it looks in Palo Alto and where you are today. Practically everyone in the [??] was in the bubble, right? And the same thing was true in networking at that time, like with all these optical companies. Cable modems, DSL, ATM, all of that. And those were our customers. In fact, we sold to maybe 200, 300 of these start ups. Just around the valley. And that created a problem, because in 2001, 2002, the bubble had bust. Almost all of those companies vanished. In fact, among the customers we sold to at that time, maybe one or two are alive today. Of course the big ones, Cisco and those, are there. But the smaller ones, they all vanished. So we had to, we had money, we had [??], but our business had changed. So that time, we leaded ourselves, we decided to go after, I decided at this time we shouldn’t be selling only to just small number of [??] customers. We should create products that sell to a broader market.
Andrew: You should, I’m sorry, you should, instead of going after the network equipment vendors, the small pool of customers, you decided that you should go after who?
Interviewee: Diversify. Basically, we still allow networking customers, but we wanted to diversify our product portfolio to address a broader audience that was there. And we chose smaller, mid-size businesses because of the likes of customers. So that’s how we got to that.
Andrew: OK, so you went after a different customer base, in addition to the customers that you were with. Let’s talk about what life was like during that transition. So can you say how much your revenues were at that moment when all these companies were dying?
Interviewee: We were doing about $10 million a year.
Andrew: $10 million a year, and then…
Interviewee: At that time.
Andrew: After they started dying, what did your revenues dip down to?
Interviewee: It dropped maybe about 30% immediately, that’s what happened.
Andrew: Within a matter of months, you went from $10 million to revenue to $7 million…
Interviewee: It took about a year.
Interviewee: It took about a year.
Interviewee: It took about a year.
Andrew: It took about a year.
Andrew: And you lost about 30% of your business.
Interviewee: Yes. Unfortunately, I would have lost even more but we were saved by the fact that there was a telecom boom in China and in Japan. And so, as the US market petered out, the telecom bust, there was a boom in China, and that picked up. So, we up some of that loss over there, but not all of it. That’s why, had it not been 70% drop in revenue, if not for China and Japan then, at that time.
Andrew: OK, and so, what happened to your profits? Did you start losing money?
Interviewee: Well, actually we, I don’t believe we ever lost money, perhaps we lost money for a quarter. But pretty much we were breaking even most of the time, most of it.
Interviewee: Because we run a really tight ship. We design it once, or it all. Or with a topic like that, we knew the market had changed, so we became really conservative, and moved it into cash consideration, but changed our strategy to actually deployed a once, more focused on product development, less on sales and marketing at that time, because there was not much point in trying to reach more customers. The customers were vanishing. So, we focused on product development, back-end engineering. That’s almost like a second start up log.
Andrew: Did you have to fire people in the sales department?
Interviewee: At that time, in the, yes, we had salespeople, yes, we had to let go, because they weren’t selling anything at all at the time.
Andrew: What was it like inside the company, inside your head, during that period? You’re the guy in charge, you’re the founder, you’re the one everyone looks to, you’re the one that has to fix it.
Interviewee: It was really difficult. In fact, that’s one of the reasons that I totally fight, go home versus this, and how we do our presence, reminding today because of those, it’s really not, it’s very complicated. What happened is, at some time, you’re going through month after month, quarter after quarter, year after year, of this stagnation. It gets to you. You don’t see a way out, and each person has different opinions on how to go about it. So, we finally, in our extra time, it’s like sort of a American-Indian divorce, by both my brother and Tony, they all ended up departing the company. That’s what happened, this all happened in around 2003 time frame. So those two, two and a half years were really hard time for us. Not because you’re losing money, but because it was just depressing time. We didn’t have a new product line yet, we didn’t know what, would that look sexy? There were a lot of existing share questions. There were times when we thought maybe we’re not really cut out for all this. We should really just sell and get out. These were thoughts which really did happen, did occur.
Andrew: Why didn’t you then?
Interviewee: Well, still at a really fundamental level, I liked building products and we all liked it, and we did really work so hard. And we knew that one day, these problems, some of them we knew were not of our making. It was [??]. We had been exposed to it. Then the [??], the outsourcing, we had to [??] grow something [??], so that [??]. The problem was what to do, that was there, the difference was that. There was a lot of difference of opinion on what to do, within the [??].
Andrew: OK. How did you figure out what to do?
Interviewee: So, we, each of them, now each of them have their own companies. Tony has a company, my brother, Komar, has a company. My other brother, who joined him, then he has a company. So, each of them have their own companies now. And so it’s a, each of them have a start up. And we decided at that point, once the product became clear, now I have to now take this forward. So, I had an idea what to do. And that idea became a mixed product line, ManageEngine, and that’s how we recovered from that, that time we did.
Andrew: How did you come up with ManageEngine? Was it your, did you look at the market and say, ‘this is what we needed, this is what we need, IT management software.’ Did your customers start telling you that? Did someone internally spot the opportunity?
Interviewee: Well, it was very close to what we were already doing, right? We already had software to manage the cost. So, that was our business. It’s just that the market is now different. We were selling to mainly a couple vendors. Now we are selling to more end customers. So we had, of course, changed the product to suit end customers, but similar in many parts. So it wasn’t that big of a change from like a money perspective. And really there was a market, because we knew there were other companies selling such software, profitably, and we knew we had a great technology. We just didn’t have the right product mix, so we changed the product mix, and we did it. And it really did work out well.
Andrew: All right. You mentioned earlier that you guys were on a lean ship and I’ve got a quote here, also from that Forbes article, where you said that you were ‘cheap as hell.’ Actually maybe they said you were cheap as hell. But you’ve got a reputation one way or the other for being tight with money. How does it manifest itself? How cheap are we? What are we talking about here?
Interviewee: Yeah, I mean a good example, our office is in Placentia. It’s outside of…it’s in East Bay, you know, not the Bay area. It’s a lot cheaper than being in Silicon Valley and at that time the rent was less than half the rent here. And a lot of people sort of said, ‘Oh, you’ve got to be in the Valley. It’s hot.’ I don’t care. I mean, Placentia was only a 35, 40 commute for me. It’s no big deal. And we saved more than half the rent. So that’s the kind of things we do.
Andrew: I see. Okay. All right. So let’s go into the next major start up. Is that Zoho dot com? I keep saying ‘Soho’ when I mean to say ‘Z-O-H-O’. Zoho dot com.
Interviewee: Yeah, that came up because once this Management Engine started taking off we knew we were…
Andrew: Sorry, the connection broke off. What you were saying is that once Management Engine took off you knew what?
Interviewee: Management Engine took off our engineers starting dreaming bigger dreams. What are we going to do next? And that was the time all of these web apps are starting up. And we ourselves…in fact, part of the motivation was we ourselves were users of Sales Force, customers of Sales Force, customers of WebEx and we were using these things to sell our own products. Our [INAUDIBLE] was Sales Force at the time. I looked at it and I said, ‘There’s no way this is worth what they’re charging. There’s no way this is worth the $65 that I’m paying.’ I am cheap, as you know. I said, ‘I could create a better product and sell it at a lower price.’ That was the motivation. So we said ‘Let’s set up a team and do it. Take them on.’ That’s how it happened.
Andrew: What was the first one that you came out with? It’s a suite of products that includes today way more than I could even list: word processing, spread sheets, web based conferences, tech support over the web, CRM. So many different web apps but what was the first one?
Interviewee: Actually, what we got started with was CRM but it wasn’t the one we first launched. The one that got launched was the word processor, even though the [IUNAUDIBLE] started later. In fact, this is how it happened ñ
Andrew: I’m sorry. What were you going to say?
Interviewee: Once we got started on this web app thing, that’s when our team got really motivated. They are [INAUDIBLE] engineers. They said, ‘We can actually do the office suite. We have the know-how how to do this.’ So they said, ‘Okay.’ They set up an experiment. We launched the word processor after about three or four months of effort and that got some interest. And we said, ‘We are in it. We are going all the way.’ So that’s how it happened.
Andrew: How long did it take you to launch the first version?
Interviewee: First version was maybe about three or four months.
Andrew: Three or four months? And what did it look like, that first version?
Interviewee: Not very good. But it still it was early days. People are forgiving of a lot of sins but they won’t forgive today in online word processors.
Andrew: Okay. But the one that you wanted to start off with, the one that got you excited was content relationship management? You wanted to compete with Sales Force on a smaller level?
Interviewee: Yeah. And that actually, we took longer. The reason is we initially did it as a product, a downloadable product. Normally, that was our heritage. We were a software company. And then we realized that’s not a good way to go. We have to make it on demand. So we had to basically rewrite the whole thing to be on demand, an online app. So that took time. When we started the word processor, from the get go, we started as an on line app so that was launched sooner. So we made mistakes along the way, actually. We went with a product and then we changed direction. [INAUDIBLE]
Andrew: What did you think the pricing model would be?
Interviewee: CRM we priced it at $12 per month per user. Like the first three users for free and the fourth users it’s $12. And Sales Force offers a similar version for $60, $65 now. So that’s the direct comparison. We directly compare.
Andrew: But that was the original model? You just wanted to offer something a little more basic for a lot less money?
Interviewee: No. We actually wanted to offer this as a downloadable product. The price would have been the same but we just wanted to offer customer host it themselves. Online is better so we changed it. We don’t offer a download product on that now.
Andrew: I see…I’m sorry. You don’t offer what right now?
Interviewee: We don’t offer a downloadable product that you can install yourself.
Andrew: I see. It’s all web-based. Nothing to download. Okay. And where were you getting your customers?
Interviewee: We don’t offer a downloaded product,
Andrew: I see.
Interviewee: that you can download yourself.
Andrew: It’s all web-based. Nothing to download.
Andrew: OK. And where were you getting your customers?
Interviewee: So in Zoho, it’s really a lot of word-of-mouth marketing that’s [some] of this [fabric]. In ManageEngine, we of course advertise heavily on Google. You would see that with a typical keywords for help desk and any of those [PLP]. We would be more trying to develop a little of the outside limits. On Zoho, a lot of our customer base is coming because of word-of-mouth, basically. We don’t do a lot of marketing yet, on Zoho. That’s something that might change in the future.
Andrew: OK. I’m sorry. Earlier you brought up advertising for ManageEngine. Earlier I said that Google factored in a lot. That’s what helped you guys take off, as I understand it. Is that right?
Interviewee: Yeah, that was one of the reasons, actually. Like we had a good product, and we sold some all the time. A lot of small and mid-sized businesses are searching on Google for these products. So Google became our real, you know, way to get the sales leads to sell to.
Andrew: OK, all right. And back to Zoho. How do you guys compare to Google Apps? Someone’s asking in the audience. A guy named TP.
Interviewee: Yeah, so if you look at, there’s only first of all a lead. Half of that, Zoho is split into two parts. One is the whole office suite in May, which directly competes with Google Apps. And there’s the whole CRM project management. And there’s a product called Zoho Creator reporting, online reporting solution meeting all of these. They don’t compete with Google. So there’s only about, less than half of Zoho, actually competes with Google. And that part we compete, all focus is on really much more depth of functionality. So it’s really, Google has a certain normalistic approach to management. Both products circles enough for our customer. We think the product has to be really challenged in terms of functionality. Have we gotten there fully? No, not yet. In office suite, it’s still going to take some more time. But even today, I believe our product to be much more, much better than Google’s. So that’s the real difference.
Andrew: I spent a lot of time on it today before our interview, and absolutely, you just need to look at the first screen shot to see that Zoho has way more features than Google.
Andrew: In just about every, in fact in every single app that they compete, and there are many apps, as you said, where you guys don’t compete, like there’s no meeting software from Google. There’s no help desk, there’s no invoicing software from Google, and you guys offer all of those. How can you offer so many products and still stay on top of them?
Interviewee: Actually it’s, secretly, a lot of parallel teams. And so each team is, pretty much, they have their own mandate, and the product models are on their team, but [??]. So, the reason we can do it all on this site, I don’t interfere a lot. I am fairly loose, we can do this as a private company. And that is another reason we stay private, because public companies try to do this, they cannot do it, …
Interviewee: because there’s a lot of, because revenue pressures and quarterly pressures. For example, I help to make sure, I help go and audit a Zoho product method. You have to give me this much, this quantity, or else, right, because I have to commitment to public investors. So, in our case, we don’t make any public commitments. So, there’s a lot more freedom possible.
Andrew: So what kind of sacrifices have you made to the short term bottom line?
Interviewee: We, as an example, when we decided to relate Zoho Creator, there was actually a market for our downloadable product. There were customers asking for product. But we decided that long term, the market is going on-demand. So, we would actually relay this, rather than put it out under revenue than in debt. So, there was a sacrifice. It took actually about a year, a year and a half delay because of this. We made that sacrifice intentionally. We still do a lot of these product management positions where we sacrifice the short term for the long term. As a public company, it’s a lot harder. How much they like to do this, it’s a lot harder. And that’s one of the reasons why we are private, and we will remain private. As long as I have anything I can say about it, we are not going to go public.
Andrew: What are the other reasons for staying private?
Interviewee: That’s again, when, I am, I dislike the public culture that has developed, particularly the Wall Street culture. The fact that I have to deal with a company like Goldman Sachs just puts me off, basically. And this is not because of last year. I knew those weren’t good at all, guys like them are bad assets in the economy. I don’t want to deal with them.
Andrew: Aditi in the audience is saying, ‘Zoho is very much loved by Michael Arrington and the guys over at TechCrunch.’ So, you’ve gotten a lot of coverage from TechCrunch. I know, I’ve listened to Leo…
Andrew: I know I’ve listened to Leo Laporte on ‘This Week in Tech’ talk about how much he loves Zoho, and how he prefers it over Google. But what Leo, who tests and uses everything new thing out there says is something that I think is on a lot of people’s minds. Shouldn’t we stay with Google? Isn’t Google going to be the leader in this space? All these other guys are just probably going to go away. How do you react to that? How can you answer people who are concerned?
Interviewee: Well they, you know, Google came on the scene in 2006. It’s March of 2006, to be precise. It’s exactly four years now, actually, since Google came on board. And in four years, they haven’t killed us. We are still going strong. We probably are stronger than ever. So you know, people I think, make a little too much, even against Microsoft. Think about this. What product is still alive, actually? Last time I checked, there were under a hundred, two hundred million in [??]. So this company has a viable business. Two hundred million, and that is nothing to sneeze at, right? Even a WordPerfect, which Microsoft has completely vanquished, has tried. Finished. Right? So companies kill themselves. If they at WordPerfect had good leadership and good energy, that 200 million could be used to provide something valuable with it. Something could be done with it. So don’t tell me, you don’t have information. That’s our base. We have more potential customers. It’s really today, the clock we are running against is, to get the product sweet to be mature, to solve the customer needs fully. We are still, you know, getting that. I won’t say that all we do is perfect. We still have a lot of work to do. If we do that, I am confident that we will have a customer base. It doesn’t matter if Google does 10 billion, and we only do 500 million. I’m happy. That’s fine. We are trying. It’s really good. OK.
Andrew: I see. And in fact, in preparation for this interview, I looked at a few of your past interviews. And I looked at some past articles about you and Zoho. And that question comes up all the time. Even before Microsoft and Google got in the space, you’re being asked, “What happens when they do get in the space?” And it looks it’s just the big question that’s out there. You recently started using Google on Zoho, where people can now register, or in fact, you don’t even need to register anymore.
Andrew: You can just use your Google account to log in to Zoho. How did you decide to make that decision?
Interviewee: Well, we actually, from the beginning, made that. We always felt that we ought to be on Yahoo, ought to be on Google. And Sales Force, whatever tries their domain. Our product has to fit into that. That’s an early position. That’s part of it all. Again, not having a corporate ego. We don’t have a lot of ego in this company. In fact, our product managers are humble. We encourage humility as a value in this company. So, people are going to use Google. Google is going to be there, always, right? So, how can we sell Google’s current decimal base, current user base, with products that, let’s say you are a Google apps user. You need a CR-, you need a product man-, you already have an alphabet here. Without saying ‘oh, we have to switch all of it from Google to us.’ You don’t ask for that. And so it’s incredible, I’m very happy to have that.
Andrew: OK, talk about this. Lot of people are trying to create just one web app and have it be successful. Their whole business is designed around getting just one off the ground right. You got 22 that are all up and running, that are all doing well. What advice do you have for the person who is looking to build a company around one web app? How can they make it work?
Interviewee: Really, it depends on the kind of app they are talking about. It is possible to make really good showing with one app, there are companies that do that successfully, and they get it done. It has to be best of breed in that category [??]
Andrew: Man, sorry, the connection, the connection is so…
Interviewee: I’m a great believer…
Andrew: I apologize, the connection went bad. You were saying it has to be best of breed. Can you pick it up from there?
Interviewee: Yeah, if you really put passion and soul in your product, it shows, and the customers will notice. And from the other side, you make it easy for the customer to experience it. Like for example, like [??], who provided the Google site and the Yahoo! and what not. Make it easier for the customer. And there is a market. I believe that even a smaller player with one or two apps can survive, there are a lot of credits up, things like that.
Andrew: So, best of breed, can you, can you give me more? Can you give me more, maybe more specific, like are there ways to explain a web app to help get people to register quickly? Are there ways of thinking about the user’s needs that will help you take all the features that you can create and add into your product and simplify them into the handful that you have to?
Interviewee: Let me first, before I go on, let me clarify. I have in my paid apps subscription-based applications people use for work. I’m not an expert on any consumer…
Interviewee: …not an expert on consumers in fact. So that should be taken…so my advice should be taken at that. Most of the apps out there are really consumer focused, ad driven. We have never done any advertising in the market so I don’t know how that game works at all so that would be useless to ask. In the subscription category that’s where I know a little bit better and there people are willing to pay for really good apps. We look at, for example, 37 Signals, Fresh Books. All of them are brilliant. They are doing well. So and why is that? Because they have really good apps and they satisfy their customers. The market is big enough for all of us, particularly for the smaller players. And for private companies there’s really no…We don’t have an ego that we have to be ‘X’ and we have projections to [INAUDIBLE]. So we can go on this.
Andrew: Why ëd you decide to go for paid and not offer them free? Plus advertising?
Interviewee: We do have a free version. We have a premium model. We have free version but we don’t use advertising as a revenue source. We actually charge the customer and that subsidizes the fee. And the free operators are all marketing based.
Andrew: How’d you decide to do that instead of offering everything for free and offering advertising?
Interviewee: Because if you look at our apps, whether it’s CRM, you really don’t want to see an ad. For example, if Skype were to throw in an ad right now, during this video session, you’d all hate Skype. Some things don’t mix well. I mean, on Google when you’re searching ads mix well. When you’re reading a newspaper ads mix well. But when I’m doing a spread sheet in presentation software ads don’t mix well. So that’s really why.
Andrew: Okay. All right. Word of mouth, as you said, how you get customers. How do you juice that? How do you encourage people to spread the word even more?
Interviewee: It’s…first level, have a really good product. Customers will speak up if you have a really good product. And that’s a lot. Really our foundation of our… Our real focus here is let’s get the product and really make it awesome. Have we reached it? No, I would be honest in saying [INAUDIBLE]. But that is our first goal: get the product [INAUDIBLE] Delight the user then [INAUDIBLE].
Andrew: Sorry. You’re saying that a little bit of Google advertising also to get…7
Interviewee: Our products are not inherently viral in a sense of social [INAUDIBLE]. So it’s not like…somebody [INAUDIBLE] our spreadsheet. It doesn’t mean there’s something inherently viral about our spreadsheet. Of course, [INAUDIBLE] but that’s a secondary effect; it’s not really a primary reason people use a spreadsheet. So it’s not viral. But there is a word of mouth that’s still viral. People like it, they talk about it and we get more users. We have seen that.
Andrew: What about PR? How are you getting so much attention on blogs like Tech Crunch and with guys like Leo Le Porte?
Interviewee: A lot of it has to do with is the fact that we keep coming out with new stuff. There’s no real magic. It’s not like there’s some secret sauce here. Tech Crunch wouldn’t cover us if we were not doing something interesting. So that’s really all…
Andrew: So every time you’ve got a new app out there there’s another reason for the bloggers to write and…
Interviewee: Every time that we do something new, innovative, that is something original of course people want to cover us.
Andrew: But you also reach out to them, right?
Interviewee: Yeah, we have a… [INAUDIBLE]
Andrew: Sorry. The connection broke off again. I apologize, the connection broke off again. You were saying, ‘Yes, we have…’ and then I lost you.
Interviewee: We have [INAUDIBLE] who’s known as our Zoho evangelist, who is constantly giving demonstrations, showcasing our products to people. Journalist, bloggers, analysts. He’s constantly [INAUDIBLE] what he’s doing. So he has relationships with all of them. So it is really helpful. Roger has done an awesome job definitely getting the word out for us.
Andrew: And also, one thing I’ve got to say one thing that I noticed that you guys are really good at is listening too. I got an interview with you because I put on twitter my desire to interview the guy behind Zoho. I didn’t even put much more than that. Someone at your office emailed me and said, ‘I think I can help. What can I do?’ And, boom. A few weeks later you and I are here doing an interview. Guys. If you have any questions ask them in the comments. I’ll do my best to get to as many of them as I can. What were some of the marketing strategies that were… all right. Here’s a question. I’m going to take a piece of your question MusicTrainer, in the audience. What are some of the marketing strategies that were not effective?
Interviewee: It’s interesting. You know, we have tried banner ads before. Display ads. I won’t say they were that effective. That doesn’t mean we won’t do it…they have an effect for branding but they don’t have a direct effect on user registrations or…But it does have a long term effect on…
Interviewee : They have an effect on branding but they don’t have a direct effect on user registrations or renewing immediately but it has a long term effect on branding so that was one thing that wasn’t effective as would have thought.
Andrew : So you were buying ads, they were getting your brand out there but you weren’t seeing conversions on your side from the banner.
Interviewee : Yes, Yeah
Andrew : What piece of your overall business is zoho ?
Interviewee : Today its about 10% of our overall business but its fastest growing. Zoho is growing at 150 – 200% a year so in two to three years i expect zoho to be may be 40% of the business.
Andrew : 40% of the business in two or three years ?
Interviewee : yes
Andrew : wow
Interviewee : We still have other business, I mean we are very strong there, you know, the reason why we are able to do this all this, the company has been built over a more than a decade of, you know, blood sweat and tears and so there’s a solid company, there’s solid engineering, there’s solid resources both financial and of course human resources. Human resources are far more important. So if we decide to go into a new product category, for example, now we can bring on board quickly a good team, assemble a team, leadership, all of that. Thats part of what we have built.
Andrew : Pl is exactly, i don’t know what kind of username that is, he’s saying Andrew this a great interview, he’s making engineers look interesting, of course than an engineer. He’s a CEO. Did anyone come…
Interviewee : I’m still an engineer. By the way, I read Hacker News, i follow…
Andrew : Oh you do read Hacker News ?
Interviewee : Yeah of course i read Hacker News…
Andrew : Whats your name on Hacker News ?
Interviewee : I am Sridhar Ribu, ha ha
Andrew : Did you see when your story was voted up to the front page ?
Interviewee : I did and i actually responded to some questions there.
Andrew : Oh you did ?
Interviewee : People asked question, i did respond. So i might be happy. I’m
there on Hacker News everyday, I’m monitoring Twitter, I monitor our forums, I respond to customer queries forums. So i’m still an engineer and still actually read some code. I mean i like, for example, my most recent code reading experience was J.Quiry. I’m really impresses with J.Quiry. So thats me.
Andrew : Cool, Now there you go. I was wrong. Lets see, I want to take more questions from the audience and you know what, since you are on Hacker News, If this makes it to the Hacker News home page, if anyone has any questions for him, please post it on Hacker News. It’ll be good for me too.
Interviewee : Yeah, I’ll be very happy to respond there.
Andrew : Yeah, I’ll be happy if people ask questions there because then this interview will get voted up over there and i get so traffic from them and it’s quality traffic, It’s people like you. Who are we reading, let see, Alright, Nirvana is asking did anyone come up with innovative application using Zoho api ?
Interviewee : yeah, There have actually been several interesting things on it. Sort of law schools, you know, people training for lawyers. Some unexpected ones, you know, In fact the entrepreneur.com magazine did some interesting things with it for their audience of really microbe is an ss they are not really even an SMBs. People who go to entrepreneur, the subscribers of the entrepreneur magazine, and they put up a whole bunch agreements and lot of that and Zoho tools used there. So these things are very interesting and we have always been very supportive of all this.
Andrew : Ok, do you have a another example ?
Interviewee : Jok has created and used it in variety of ways that have surprised us. In the last year or two there’s a lot of case studies on our site on the Zoho creator that you can find. For example, there was a school principal who was elaborating with teachers on, you know, everyday activity using an application they custom built on Zoho creator. They put in together quickly.
Andrew : OK
Interviewee : And they are not professional programmers.
Andrew : Zoho creator is a word processor right ?
Interviewee : No, Zoho creator is actually an online application creator.
Andrew : I see.
Interviewee : Think of it like a…
Andrew : Something like the white typo album, I’m sorry?
Interviewee : A file maker
Andrew : File maker, I see
Interviewee : So that type of…, It’s really a online application creator. So it brings a sort of an IDE feel but really for non-programmers. You don’t have to be a professional programmers to use it. It’s easy application creation, Thats why interested in programming languages by the way. The reason i study programming languages is how to create these tools that non-programmers can effectively use. That is my obsession actually.
Andrew : So ultimately you like to create platforms for us not to create word documents and spreadsheets but to create our own web applications.
Interviewee : Yes. Yes. But i, in this sense, i mean i want say this clearly, this is not really intended for the academic use or for the Java script on this hacker or python hackers. It’s really intended for the small business man who doesn’t have any resources, who needs to solve a quick problem.
Interviewee: -Who doesn’t have any resources, who needs to solve a quick problem, so that’s where our focus is because the professional problems like that would be solved-
Andrew: Do you have an example of a use case?
Interviewee: So if you look at today, you know it’s really interesting, if you look at VB originally. VB is the most popular programming language of all. But if you look at who’s using it, it’s not professionals. People who are really power users, like spreadsheet uses writing records,that is the audience that Lower Key is going after.
That’s why I studies programming languages on how to make them more productive, in their businesses, solving business problems.
Andrew: I see, OK alright a few people in the audience including ThomasB are asking what’s the next app to come from ZOHO
Interviewee: [Laughs] I wish I could.
Andrew: Oh man
Interviewee: -what apps are coming in the next three to four months but we don’t preannounce any of the apps.
Andrew: OK Alright so I want to thank you for doing this interview with me and dealing with the technical issues before we got started, and throughout. And thank you actually for just even hearing that I was looking to do an interview with you and coming on Mixergy and answering all these questions.
Interviewee: Oh it’s my pleasure Andrew I really appreciate your time, giving us the opportunity to be interviewed on Mixergy, Thank you.
Andrew: Thank you, and AndrewSG in the audience is saying not when- not if but when this will be on hackered is what I should be saying. When this will be on hackered is will you be uploading it?
Interviewee: I’ll be very happy to answer questions there.
Andrew: He will be uploading it and answering questions there. Guys to the audience thank you for sticking with this interview all the way through, because of the technical issues. I really got great guests here and a great audience that’s willing to deal with some technical issues, because these ideas are just so helpful. I love listening to entrepreneurs talk about how they built their business, I love hearing you talk about some of the set backs and how you got through them, and if any of these ideas are helpful thank my guest Sridhar, Sridhar how am I doing with the pronunciation of your name?
Interviewee: That’s good actually it’s a little bit hard for Americans to get this because the accent is on the first syllable, it’s more like ‘Sri-dhur’, you can convert the ‘a’ into ‘u’ then it’ll make sense.
Andrew: ‘a’ into ‘u’, so it’s ‘Sri-dhur’?
Interviewee: Yeah, that will be better.
Andrew: Ah I see ‘Sri-dhur’, you didn’t do what I did, I took my foreign name and americanized it, I called myself Andrew Warner. Anyone who can see the video of this interview knows I’m no Andrew Warner but it makes it easy for people. Sridhar thank you for doing this interview, guys thank you all for listening, I’m Andrew I’ll see you all in the comments.
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