Preserving company culture with controlled expansion central to Zoho growth strategy

At the Zoholics event, Zoho discussed its distinct corporate culture and its growth strategy extensively -- and stressed the relationship between them.

Sridhar Vembu, Zoho CEO

AUSTIN – “This is an unusual company – and it’s going to stay that way as long as I’m around,” stated Sridhar Vembu, Zoho’s CEO, in kicking off the formal presentations at the company’s Zoholics Austin event here on Tuesday.  Vembu and his chief lieutenants outlined the company’s growth strategy to the conference’s approximately 1600 attendees. That strategy does reflect the company’s distinct culture and values, which could be considered as unusual even by the standards of the San Francisco Bay area, where the company moved from its original headquarters in Chennai India over a decade ago. It won’t be headquartered there for much longer, however. The company announced at the outset of the event that it is moving its headquarters to Austin, and plans to build a 100,000 square foot campus.

Zoho builds all its own software, disdaining the acquisition route favoured by its competitors.

“When a competitor gets acquired, we have noticed that the support degrades and the product becomes weaker,” Vembu said.

Mergers and acquisitions have always been a key part of the technology business, but the Zoho executives believe strongly that the present M&A trend, fueled not by companies acquiring each other, but by venture capital firms aggressively buying up companies large and small through horizontal integration strategies, has had a profoundly negative impact on the industry.

“Venture cap money pouring in distorts production, consumption and value,” said Vijay Sundaram, Zoho One’s Chief Strategy Officer. “If you don’t have the same strategy of spending with your eyes shut, you can’t play that game.”

“What you are seeing is a lot of venture capital that has distorted the whole economics of this environment,” Vembu stated. “We have still done reasonably well.  I believe the landscape will change and be more favorable to companies with a strong culture. Suppose I’m wrong? This is still a great company to work at.”

That culture, Vembu stated, has three ingredients: vision; drive and execution.

“All of the vision in the world doesn’t matter if you don’t have the patience and execution,” Vembu said. He said patience and execution are enhanced because Zoho is privately owned and is debt free, something he believes is central to both the company’s success and its values.

“We can afford patience,” he said. “We don’t carry Wall Street on our backs. The freedom from Wall Street allows us to afford a unique culture. We don’t have to worry about quarterly numbers.”

The Zoho product suite and the Zoho One strategy of selling dozens of applications united on a common platform for $30 per user per month came from this type of thinking, Vembu stressed.

“Putting this all together takes a particular kind of culture,  and from the culture comes the strategy. When they work, all of them work together. If it succeeds, it’s going to be genius. If it fails, we are complete idiots.”

Vembu is pretty confident they aren’t going to fail. As Zoho is privately owned, it doesn’t share its revenue numbers. However, Sundaram did provide the analyst and press forum at the event with a graph showing growth, calculated from a baseline of 100 in 2012, increasing at a compound annual rate of 37 per cent. The 100 metric rose to 502 in 2017 and 703 in 2018.

“Our growth also continues to be profitable,” Sundaram said.

Sundaram then emphasized a point that Vembu had made earlier, that while Zoho wants to continue to grow, it doesn’t want the company culture to change as the company evolves.

“We worry about growing too fast, because we want to maintain our culture,” he stated.

A strong bond with employees is a key part of that.

“If we take care of employees, they take care of customers,” Vembu said. “If a company has a customer problem, it’s because they have an employee problem. We don’t extract everything we possibly can out of our employees – the same thing as with customers. One thing we are very proud of is leaving money on the table. And so both employees and customers stay long term with us. We still support customers we have had from 1999, and they still pay us.”

Similarly, Zoho doesn’t outsource support.

“We have always thought of support as a career path,” Vembu said. “Our support people are molded into product management. They build really good careers from support.

“Low employee attribution goes with low customer attrition, and our rate is one of the lowest in the business – for both employees and customers,” he added. “This is the key to being profitable in the software business. You spend money to acquire customers, and if they leave too soon, the economics don’t work.”

Zoho also recruits some of its own talent through Zoho University, which they have operated in India since 2004. It takes kids right out of high school, usually from underprivileged backgrounds, trains them for a year and a half, pays them while training, and offers them a job when they graduate. The students learn skills and enter the workforce debt-free, unlike university grads.

“We create our own talent with Zoho University,” Vembu said.

Zoho’s growth strategy is really focused on three areas. One of them is products.

“Most of our customers originally came from CRM, but that percentage goes down every year,” Sundaram said.

Another pillar of growth is customers expanding their business with Zoho.

“Zoho One was the big one here,” Sundaram said. “Companies realized there is a lot we can do for their business.”

The third growth area is new markets. Zoho is expanding aggressively in developing countries, where they see a logical market for their offerings in microbusinesses and small businesses going online for the first time. But they also point out that the entrenched CRM and ERP companies in North America and Europe aren’t established in these geos.

“We opened five offices last year, with Mexico being the big one, because it heads up our Latin America initiatives,” Sundaram said. We also added one in the United Arab Emirates. A lot of large businesses there looking for are solutions, and we run into prospects who are much larger than companies we run into here or even in Europe. These companies are willing to travel to see us to see what we can do to transform their business. It’s because some of the big players over here are less strong over there.” Other new officers are in Australia, Singapore, and Utrecht.

Austin won’t be a new office – Zoho already has a presence there –  but this is a huge expansion, which garnered an ‘above the fold’ headline in the Austin daily paper Tuesday morning, and had a jubilant Austin mayor on hand to kick off the event.

“We purchased 375 acres in Austin to build a 100,000 square foot campus,” Sundaram said. “Raju [Vegesna, Zoho’s Chief Evangelist] moved here and decided it was a good idea, and within a month we had a property! It’s amazing that you can buy this much land so close to a big city.” The land is in Travis county, five miles east of the airport.

Because Zoho is philosophically opposed to debt, they bought the land with cash on hand. Because they believe there is a correlation between collaboration and how a building is shaped, with the shape of the building influencing how people collaborate, they also own a construction company subsidiary who will build their buildings to their own specs. They are also emphasizing that they got a really good deal.

“The land in Austin is cheaper than the remote place we have in India!” Vegesna stressed. “We feel that moving the data centre from Dallas to Austin will bring a ROI in 2.5 years, and we will use some of the land for that.”

“We don’t do anything unless it’s a reasonably good deal,” Sundaram said. “This was a good deal. We bought our facility in Pleasanton in 2007 and it cost less than my house does today [although nice houses in the Bay area cost a lot of money]. We ran maybe 40 events in Pleasanton in the last 4-5 years, and we saved more money from the events than the facility cost.”

And while the corporate headquarters is moving, a key message at the event was that Zoho, the company, won’t be going anywhere. There are no plans to sell the company.

“We aren’t going anywhere,” Vembu said. “There’s no rush to exit. We ‘just said no’ to that. You do something because you love it.”

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