Zoho, the Chennai-based cloud software company, is an outlier for many reasons, as is its co-founder Sridhar Vembu. He believes in “slow laddering” or building a company one step at a time. He even shunned venture capital funding and said no to an over $25 million acquisition offer from Salesforce.com during the early days of Zoho, which offers a cloud software suite and SaaS applications for businesses. FactorDaily’s Pankaj Mishra conducted a series of interviews with Vembu and other employees of the company for an Outliers podcast on How Zoho works last August. Read on for edited excerpts from the conversations. Thanks to Kanika Berry for transcribing the conversations.
Why Zoho exists: Sridhar Vembu, Co-Founder and CEO
Pankaj: So welcome to the special edition of Outliers. We believe like individuals even companies can be Outliers. And that’s exactly why I am sitting with Sridhar Vembu, the founder of Zoho. Sridhar, welcome to the podcast.
Sridhar: Thank you for having me, Pankaj.
Pankaj: Zoho is an outlier for many reasons. People have been talking about it quietly over the years. I used to hear chatter throughout my career. Then that chatter started becoming very dominant, then people started talking about your revenue, your model, your ideology, and all that. And now, clearly it is at an intersection point and that’s not just because of your ad campaigns. It is too big to ignore. So there is a lot of interest in how Zoho works. The first conversation with you is on this topic. I feel a good way to start would be to answer why Zoho exists and then we can get into how you actually pull it off?
Sridhar: Actually, almost from the early days, Zoho exists because in a way India exists. Meaning, I have always said that if I were born in a different country, in a different circumstance, I may not have been even an entrepreneur. That’s possible. Actually, I wanted to become a professor, I wanted to teach, I wanted to do research, I wanted to publish papers. It was my dream. But in a way, growing up here, you grow up and you are surrounded by what you see. At some point, I would engage or ask, ‘Why are we so poor?’ And then, I figured out that the answer is, you have to be building a lot of things in order to escape poverty. Then, I am the type of person who says, ‘Well, you can’t say that other people should be doing it. What am I doing about it?’ Then I said, ‘Ok, we have to be doing this then.’ Then I set aside my interest in publishing papers or doing research and said, ‘Let me jump into this.’
So in a sense, Zoho exists because India exists and it continues to exist because there are ‘27 million kids born in India.’ I keep quoting that number. Thankfully, it’s now stable, it is not increasing further and further. I think it is going down. It’s probably starting to go down… South Korea has about 45 million people and Tamil Nadu has about 72 million people. Which brands are popular worldwide? Right? But it’s not just about popular brands, it is also that it correspondingly translates into jobs, incomes, infrastructure, all of that.
We are not able to create world-class products and world-class companies here. Then we will never have world-class incomes or world-class healthcare, any of that. In other words, we cannot consume if we don’t produce. So for us, always the vision for Zoho is, how do we take this talent pool and do something with it that is worthwhile. So that is why Zoho exists. So it’s a broad idea and so that’s why the company has reinvented itself. If you see the product line, product portfolio, we don’t feel bound by only this particular market, this particular product. We see it as there is a talent pool and what could we do with that talent pool, given the resources that we have, in terms of our financial, our managerial skills, all of that, what can we do? That is the question we ask. And if we feel that there is an opportunity in the market where we can employ our talent pool well, and we have the financial resources to compete, we can do that. That’s how we have done it.
Pankaj: Fascinating. Now let’s come to the next question, which is how Zoho works. I think it would be good to answer that question with two frames – one is around the time when you actually started, and there must have been a way of doing things, and now, when you are at this stage. Take us through both these frames and help us understand what has changed and what has not changed when it comes to building products and things, as you are no more so-called a ‘startup’ in that sense.
Sridhar: Well, what has changed is we have a lot more people and skill sets and experience, so we are able to attempt and do more sophisticated products than ever before compared to, say, 20 years ago. And what has not changed is that core, still that sense of mission that was there, that is still there in the company. And that’s one reason actually we retain experienced talent well and we retain that because that mission is still there among our people. So it’s a kind of a mission-driven company. A lot of our people, take any of our senior people, they could have easily migrated abroad, that is actually a very common thing in India, right! Why are they staying here? That is because they at some deep level they share that and that matters because if we don’t retain that type of talent then you cannot create opportunities for the younger talent that doesn’t have all the experience and the skills.
We don’t know how to produce planes, I mean, I am talking about commercial aircraft. We don’t know how to produce bullet trains, we don’t know how to produce even ultrasound yet. There may be some Indians working on these projects abroad but as a country, we don’t, and if we don’t, then we are only passive consumers of all these. Then the macro effect of that is we run a trade deficit. But at the microeconomic level, we don’t have enough skills in our workforce. We don’t have enough skills because we are exporting the people to get those skills and, therefore, the skills don’t deepen here under the newer generation gaining those skills. We don’t have enough people who train in those skills. Just simply saying, ‘we have colleges’ is not enough because you cannot teach a person how to build an MRI machine in a college, you have to learn by doing it. There are some core concepts, physics, all of that, but ultimately it has to come from the deeper process of doing it. And we have not created enough such companies here.
So we want Zoho to be that company, we are doing that in software. We are not building MRI machinery, we are building mail software or a CRM (customer relationship management) or any of these but they are of similar complexity. If we go into a world-class email system, it took us actually about 10 years to really do that work. Now we say that we actually know email. I wouldn’t have said that even 5 years ago or 7 years ago. We were still learning. But to do that, we need the people who are building that mail to gain expertise and stay on the problem. and in our country we have not stayed on the problem, we keep exporting. And this also actually influences the (business) model and all of that because one of the reasons we have not taken venture capital funding is, it is very hard to communicate to the VC that it will take 10 years to build an email. It does take 10 years to build an email, it does take more than 10 years to build a world-class spreadsheet. You know we use spreadsheets all the time, so if nobody puts a stake in the ground and says, ‘we are going to build a world-class spreadsheet here,’ it will never be built in India.
Pankaj: Take me through the way you build products. How do you identify what problems to solve and how you pick one area over another?
Sridhar: There are infinity problems. If I had another 200 years to live, I have another 200 problems to solve, so you never run out of problems, right! Like we didn’t start building email in 1998. Part of the reason was we had no skills and it would take too long and we’d go out of business, so we had to sequence it. So we only started building email 10-12 years ago and that’s because by then we had enough resources and enough experience to attempt that problem. And even then, knowing that it would still take a long time. Same thing with the spreadsheet, same thing with our presentation software or word processor, any of these. Some problems are easier, CRM system is actually technically easier than, for example, a spreadsheet. You know this when you evaluate the technology behind it. And which is actually why there are hundreds of CRMs in the world but only two or three spreadsheets in the world because technically it’s a harder problem.
And so we balance between the technically hard problems that require long-term investment and problems that are easier to solve, and maybe there is a market but also there are going to be a lot of people in that market. Then your question is, ‘can you penetrate that market? What is your differentiation of that market?’ In a spreadsheet, the differentiation is building a product well. Then there is a market, just the complexity is building the product well. In a CRM, the challenge is, you have to build a product – that is a challenge but you also have to find the market because there will 500 CRMs in the market.
So we evaluate all those and then we commit resources and one of the things in Zoho is, when we commit to something after evaluation, we stick to it. We only exit something under the condition that we don’t see any opportunity here. It’s not only that we don’t see an opportunity, that probably the market doesn’t exist or it’s going away and in that case, we will shift our resources as well. But if we continue to see a market or an opportunity, even if we have not cracked it, we stick to it.
That’s something that we are good at doing and this has to benefit because SWOT engineers want to crack a problem. And if you bring in too much of the pink counter thinking in it, it’s evaluated in 3 years if I am not making money, I will cancel it. It’s not a very good way to retain world-class talent.
Smart engineers want to continue to work on hard problems and solve them. That’s what gives you satisfaction as an engineer. And if we don’t retain the smart engineers, then you don’t build the depth of the technologies I talked about. And so, they want the assurance of a company that’s true in our spreadsheet, that’s true in our email, that’s true in our word processor, that’s true in our CRM, that’s true in our AI, all of them, that we get into a project and then we stick to it in spite of a lot of challenge.
In India, in my opinion, we ape the West too much, particularly America too much. I lived in Silicon Valley so I know both the strengths and the weaknesses. The weaknesses, the short-termist thinking. Very few companies stay the long haul and we have taken more inspiration from the Japanese on these than from the Americans, in this particular area.
Pankaj: How do teams work inside Zoho? Sridhar, and I am asking that question because you are no more a few dozen-member teams, you are more than 5,000 or around that. So how do things work when it comes to people? How do you ensure that there are teams collaborating?
Sridhar: Things are not falling apart because we have a strong managerial ladder where people know their teams, who know their domains. And I will tell you where things fall apart from my observation. When you have a lot of turnover in leadership then there is no continuity. When you change the head of the team every year, then you don’t have much of a team. So basically, you are rebuilding a team every year. So there isn’t much that is going to come from that. The thing is a lot of prevailing management dogma coming from a Harvard Business School or the usual business school, the ideology is that you professionalize all of these.
Pankaj: How does Zoho make money? Help me understand the engine, the philosophy behind making money. How do products make money at Zoho?
Sridhar: So we have over 100 products now, so some make more money than the others, it’s always a mix of that. Again, all my philosophies are worth nothing if we don’t actually make money as a company. That keeps at grounded, I mean, even I cannot have flakes of philosophical fancy unless we ground it and actually build a business. That’s a good discipline to have, always. If you look at our products, we have a mixture of some things that are easier to crack markets, some things that are harder, and we persist on them.
Initially, in the early days, we tried to find opportunities where we could sell over the internet because we don’t have a field, sales force, we don’t have a brand, any of those that could be sold over the internet. That’s how we specialized but more and more we now have the resources to actually also build our sales force, build all of these. So we are moving up the chain in this. We still, of course, the lot of it is on the internet, our websites bringing a lot of traffic, that is how we bring in the business but complemented with also sales force and all of those things. So that is how we make money.
And the key here is always, you know in business you have to figure out, product management is a challenge of making what people want. And how do you figure that out? There is not any secret formula or recipe for it. It always begins with, you look at an opportunity and you see what is the state of the market now. Who are the players in it and can we make a difference here? What is our angle here? What is our opportunity here and can we build it in reasonable time or reasonable budget? Can we price it attractively? Can we attract customers? What is the marketing challenge, and all of this? And then go in after some deliberative process.
We don’t do this lightly but we don’t sit and over analyze it either. It’s moderation, moderate analysis. All things in moderation. You don’t want to just randomly go off under different directions but you don’t want to analyze it to death where you are paralyzed, where you never actually do anything. So you need moderation and that’s how we start new ideas.
Pankaj: Most of the products that you have built or the problems that you are solving having been solved, there are companies with offerings. In going forward, having done what you have done so far, would you look at solving something unsolved or would you look at creating a market?
Sridhar: You know again, for example, Zoho Creator, there wasn’t a product like that when we launched. Now there are some products, they came after we came. So we actually ended up pioneering that market where you create online business apps. We launched it in November 2006. That time, nothing like that existed. And the second is Zoho One, the whole operating system for business. I mean, no one, not even Microsoft and not Google, not Salesforce, no one offers the breadth and depth of what we offer, and we are putting all this together. So the key today, to us, productivity in work is, how you integrate a lot of these data in your organization? How do you enable people to collaborate seamlessly and bring the collaboration part and the data part, like the CRM, all that, together? So today if you see the product portfolios, you have the whole collaborative documents to chats, all of that. They have the business apps, they have never come together. We are the ones bringing all that together. So that is a new innovation and we are knitting all these together. So in that sense, there is quite a bit of innovation going on.
And we are also building some new things that or our goal is to revolutionize the way even the software is built. Those are things we are working on but those are longer term, I mean. They may never launch but depends on what internally we feel. But we are betting on a lot of these technologies, things like technology trends and we see data centres, we see some opportunities there. So there is a lot of such effort going on, there is a lot of R&D going on. I mean we are hiring more than 1,000-1,500 engineers a year now. That gives us a lot of R&D.
Pankaj: Final two questions. How do you look at artificial intelligence? Is it like a threat to the whole SaaS model like some people are beginning to read at it? Will it be an existential threat? I mean how do you wrap your head around something like that?
Sridhar: First it is going to give you more insights from your own data that you already have and there is automation of some manual tasks on that. I myself am not an AI pessimist, where it is going to replace all human beings or any of these, because I have more faith in the creativity of the human being to come up with more and more ways to employ ourselves. Basically, we have always figured out that, so I am not a pessimist that way and ultimately let’s say that AI replaces every job, that means that every good has to be cheap or free because AI produces them, robots produce the goods.
So it is only a question of the distribution and there are many creative ways to solve those problems. I don’t believe that these are an insurmountable problem, that’s an economic, political policy questions and not a technical question. I mean, already, as it is, compared to say 200 years ago, a lot of us don’t do the back breaking kind of work anymore. So we will invent new forms of such work and that will keep us engaged.
But there is a different issue. That is, a lot of modernity now, postmodernity, as I say, is creating a lot of, I mean, there is growing depression, these are problems that are sometimes linked to technological progress. But I don’t believe that, I believe that it has to with our social institutions or the other failure of those institutions rather, I would say. So those are the challenges. You know, we can have all the goods, we can have all the goodies in life, but are we happy? That’s a different question and that is, I am more concerned about that.
I am not worried that AI will destroy all our jobs and enslave us, that’s not my concern. But are we killing ourselves? In other words, there is the George Orwell world and the brave new world. I am more worried about the brave new world because we are heading to a brave new world. I am worried about the brave new world but we are drugged into some kind of a stupa.
Pankaj: Thank you, Sridhar. I don’t know at what point in time the intersection of you as a businessman, philosopher, an ideologist, or you know, your Warren Buffet kind of principles start blurring and colluding together.
Sridhar: I know, it’s all a package. I cannot separate those. To be a businessman one has to be a philosopher. Steve Jobs was a philosopher. He was absolutely clear and you have to have some philosophical idea, why are we here? That question is a philosophical question, it is not a scientific question. And for each company, each person has to figure out their own answers. It’s not like whatever I say applies to everybody else.
How Zoho builds products: Shailesh Kumar Davey, Co-Founder and VP-Engineering
Pankaj: Shailesh Davey is one of the co-founders of Zoho and looks after the entire engineering that is core to building the things that Zoho builds. He has been watching everything from Day 1. Shailesh, take us through the experience of ground zero, when Zoho was not what it is today.
Shailesh: You could take any room, put a set of charts, put some tables, put some computers and then you have the startup going. So we had actually done this atop Sridhar’s father’s house and then the usual troubles like dial-up links and ISDN links and all that. So we had our share of it. But in all this, we just went through it because we were fresh out of college and you are enjoying whatever problems are thrown at you. Then slowly as you start making the products and putting it out and customers start coming in, you kind of get more serious and then you know that somebody has paid for it. So that will always be a sense of wonderment when somebody is willing to pay for it, you kind of pinch yourself twice.
So those are all the early stage bewilderment. Basically, at that time, it would be more of, come every day and see whether some customer has downloaded your product, I mean that time you are making a product, very simple product… that is used in the network management world and it’s the base of it, the base by which one device can talk to the other. So you would just put it on the web and you’d wait for somebody to download, use it and then they’ll start asking questions and then you’ll realize it that they are using it in ways that you hadn’t intended it for.
Once the product reaches a critical stage and your team expands, then your process sets it. But one thing is, most of us being engineers, we already had a semblance of a process, for example, one thing in engineering in a software company they would do is, something called a code repository where you would put in all the code when multiple people are working.
So, these are some of the ingrained processes we used to follow even when we were small but once the number of products started increasing and the customers also started increasing, more discipline comes in. That discipline comes in because you owe it to the customer because they have paid for it plus your team also expands. Right! And once your team expands, you need to have people focused on customer support, then you need to have people focused on the next release, what has to go in and when and then fixing the bulbs.
Pankaj: Let’s jump into how Zoho builds products. Is there a playbook? Has that evolved starting right from how do you think of a product idea? How do you engineer it?
Shailesh: I would put it this way, finding which product to do is like movie-making only, you don’t know what will be a hit, what will not. Nobody has process-ized it so far and experience helps. How experience helps is before taking up a particular doing of a product, you will think in terms of working. What is the minimum viable product I should build before it hits the market? Now, what is the marketing thing I should do? So all these you will start thinking before when you are experienced. If you are not experienced, you will just jump into something and you will just do it and as they say, you will build it and hope for the customer to arrive. Then customers won’t come but given that you are in this business of startup and you have the nature of hustling, you will figure out your way. Then you will see that that competition is doing this kind of marketing or another friendly startup is doing this way of a podcast, whatever. Then you will figure it out and do it. But experience helps in the sense, you will at least lay down what all is needed to do that, but which product to do is an art of movie-making.
So that is the first thing. And how it has evolved is, yes, like I would say, 15-18 years back and all, it will just be, ok because we are small also, it will be like, ok, this customer has asked for it, so we have 2-3 products and we go and sell it to a customer. He might say, ‘Do you have something aligned like this fourth one?’ Or he might point out to a competition and say, ‘You know what I am using three of this from you but I am buying this from a competition, so do you think you have an alternative for this?’ So these kinds of inputs would come.
Even here there are two schools of thought. One school will say the Steve Jobs school – don’t listen to the customer. The customer does not where he wants to be, we have to envision and take him there. The other school is, I would say, if you are visionary of that nature, that might fit you. There is also another school of thought where keeping your ears close to the ground will actually give you a lot more ideas from the customers because they are using the product. But it’s good to listen to the customers, get in the inputs and do it. And I think it has stood us very well.
Pankaj: Is there a Zoho way of engineering products, at the deep engineering level? What’s up with that playbook?
Shailesh: Again, that playbook comes from a tangential reason. We know we are in it for long-term and we are willing to invest in it, unlike other companies which might have other ideas. They might say, ‘Oh dude, you are quick and fast, let’s take whatever is available’. In our case, we know that this will have to stand good for the next 10 years. That means, to that extent, we invest a lot in tools and frameworks. So we have our own internal framework. You don’t see a lot of SaaS companies doing this.
So one of the important playbooks is some core engineering beliefs and a lot of investments in frameworks and tools, is I think, a big difference because we know it’s in long-term and it’s better to have tools so that you don’t keep repeating the same mistakes. A customer may be willing to pardon you once but two times, three times and all, they may not be willing. So you invest in these tools and stuff like that.
Inside Zoho University: Revathy Durairajan, alumnus and iOS Developer
Pankaj: I am really excited to be talking to Revathy Durairajan, who was in the first batch of Zoho University. So tell me a little about you. Were you in school when AdventNet (now Zoho) reached out?
Revathy: Yes, we were six students, two from the biology group and four of us from the computer science group. So we knew a little about computers, where the keyboard is and where the mouse is. That’s all. But after we came here, we were taught programming languages and concepts of how to design software and things like that. Then we moved to the team after 18 months of training here at Zoho University.
Pankaj: So when you first learnt to programme, what was that experience like?
Revathy: I actually was like a blank slate. I really couldn’t understand what was happening behind the screen and how the script was running behind the screens and all that. But after a while, luckily I was introduced to Flash Game Programming Languages. So this was action scripting and all that. So when I see things live in action, animations, gaming things like that, that is when I came to understand what programming really is. So I felt like, why this kind of approach can be taught initially but this has been, you know, for an individual the things will change, right! So I adopted this style to learn. This environment itself will help us to learn the way we want.
Pankaj: After getting all this training, did you ever think of going to another company or another job?
Revathy: Yes, my professor used to tell this often, you should aim to work in Google and Yahoo, something like that, and later the stage has been developed like, Zoho has become a competitor company for Google, then why would we want to go to an outside company?
Pankaj: So what do you do now? What product do you work on?
Revathy: So I basically work as a mobile app lead for the services that we have here at Zoho. I work for Zoho Recruit now.
Inside Zoho apps: Rajendran Dandapani, Business Solutions Evangelist
Pankaj: Rajendran Dandapani is one of the key leaders at Zoho and spends a lot of time on the mobile interfaces of things that Zoho builds and has a deep design sense around these products. So Raj, help us understand how you do these things at Zoho.
Rajendran: Yes. So let’s start with the concept of Zoho itself and its yet unfulfilled mission to bring productivity and to bring an amazing collaboration to the workplaces around the world.
So when you have that kind of an operating system for business up there in the cloud and when you have this interesting little device which is getting more and more powerful and smarter over time on your palm, you immediately start to think about big data in the clouds and small apps on your phones. So big data, small apps has been the real clarion call in the past 6-7 years ever since the mobile started making its appearance in the workplace.
When you look at some of the very large, behemoth apps that we have like CRM or even Mailoo or documents on the cloud or even our finance suite up products, it is not at all sensible to have a one-to-one mapping from the web browser interface which is something like ten phone screens set next to each other. That’s that large. So from there, translating it feature by feature, pixel by pixel on to a small screen, is not the right way to do it.
In fact, when you are at a computer, you are 100% focused on that job and when you are on your mobile phone, it is usually on your non-dominant hand while you are doing something else with your dominant hand. So this non-dominant hand with only glances that you can steal at that phone without being immodest or breaking etiquette, so those are the moments that we want to capture. How can we make sense? How can we have a meaningful conversation with that data out there on that cloud? So we get user context, we get location context, we get other things like what permissions does he have? What content can he/she be shown? So all these put together and on top of all that we try to minimize the number of touchers’, the number of taps, the number of whatever, the clicks that you have to do to get you the information.
Our apps were so good and these companies like Google and Apple started working with us, building early releases, inviting us for their conferences and even recommending that we apply for ‘App of the year’ awards and so on. And one of the first checklists that we kind of banged again was does it follow the human interface guidelines given by Apple, given by Google.
Pankaj: One thing Raj, the things that you do at Zoho today, is there a science fiction way of looking at them? Say, 10 years down the line, what are the outlandish possibilities?
Rajendran: So today there is this obsession with the keyword ‘artificial intelligence’ and ‘machine learning’. I strongly recommend to all our listeners that they watch TEDx talk, rather it is a Ted Talk 2003 by Jeff Bezos, Amazon CEO. He talks about the time when electricity was just getting into cities and he says, ‘the killer app for electricity was actually the bulb’. So houses didn’t get electricity, they got bulbs. Electricity was just the condo and, in fact, in the early years of the electricity invasion, every house had only a bulb socket. If you had to run a toaster on it, you had to unscrew the bulb and screw the socket from the toaster into the bulb socket. Sounds unbelievable but that’s how it was. So Bezos says in 2003, ‘that the internet is now at that stage of revolution.’ In 2003. I would like to paraphrase him and say, ‘artificial intelligence today is in that phase’.
There is an obsession about this thing called ‘special intelligence,’ that is, can intelligence be invented that will play the game Go? Can intelligence be programmed that can defeat anybody in chess? Can an intelligent agent be created that will respond to all my customer calls? That is the concept of special intelligence – narrow, focused, domain-specific intelligence.
What we are yet to get a good grasp of is this concept of general intelligence which is can an additional layer of Meta intelligence be programmed that will identify which domain to get into and what kind of special intelligence to trigger? Today you can give a neural network, 10 million games of chess and it will learn the rules of chess and defeat you in chess. Amazing! But what if I don’t tell you it’s even a game? What if I don’t tell you it’s played in 64 squares? Can that Meta layer of intelligence be programmed? So I, with my own limited knowledge of crystal balls, I can tell you that in the next 10-15 years, we will move from narrow, domain-specific intelligences to a real, equal intelligence.
(Kanika Berry has a Masters in Business Administration and has been a communications specialist for over eight years.)
Subscribe to FactorDaily
Our daily brief keeps thousands of readers ahead of the curve. More signals, less noise.
To get more stories like this on email, click here and subscribe to our daily brief.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures, Vijay Shekhar Sharma, Jay Vijayan and Girish Mathrubootham among its investors. Accel Partners and Blume Ventures are venture capital firms with investments in several companies. Vijay Shekhar Sharma is the founder of Paytm. Jay Vijayan and Girish Mathrubootham are entrepreneurs and angel investors. None of FactorDaily’s investors has any influence on its reporting about India’s technology and startup ecosystem.