It is worth elaborating on bootstrapping. When we started, the hottest tech company in the world was Netscape, and Yahoo was still an infant. So you can see how long it has taken us - nothing much happens to you in 1 year, 2 years and so on. The only thing we had going was patience. It helped that I was educating myself about Japan.
We didn't set out with the mission of bootstrapping. It was sheer necessity: we had no big ideas (only some little ideas), and had no way of impressing anyone to put money on us. Our very first product was this: http://www.webnms.com/snmp/ - the amazing part is we still make money on it! But sexy it isn't - a VC who stumbled on us told us "Why are you focused on such a tiny market?"
By the time money was offered to us, we didn't need it, and we were having too much fun building stuff to even bother pitching to VCs. We came close to a VC round once in 2000: a term sheet was offered. There were things there I didn't like and I was too lazy to negotiate with them, so I simply let it die.
I was always fascinated by Japan, particularly in the context of India . After we started, I started looking closely at Japanese companies as role models. They had figured out stuff over the years that is unbelievable. Even today, there exist some technologies that pretty much only the Japanese do well (and not only in well known industries). Take a look at this company for example: http://www.uniontool.co.jp/english/product_index.html
They make drill bits for printed circuit boards, drill bits finer than human hair, drill bits you cannot even see with the naked eye.
The magic is years and years of patient, painstaking work, with occasional inspired leaps. That was good to know, particularly when we tended to get bored or tired.
But Zoho, a company based in Pleasanton, Calif., that offers similar services, is solidly profitable, with revenue of more than $50 million a year. And it has never taken a cent in venture capital or bank loans.
I would love to hear from someone more in the know on how Zoho was able to pull this off. Conventional wisdom seems to be that bootstrapping a product company to tens of millions is near-impossible. Is Zoho just a random aberration or do they offer lessons to others trying to do the same?
One thing Zoho does very differently is "outsourcing." I put that word in quotes because Zoho is partly based in Chennai, India, where I believe the CEO Sridhar is from. In fact the majority of the employees are based there, which keeps cost way down.
Now, they don't treat their Chennai office as a second-rate sweatshop to whom you parcel off grunt work and forget about it. That is a recipe for disaster. At the same time, they are very open about the fact that CS education/programming skills in India aren't nearly as good as in the U.S. So what do they do? They train their Indian programmers in house for 9 months. You can definitely take smart people without a great educational background and bring them up to speed if you're prepared to do that.
A better term for what Zoho does is "offshoring". Outsourcing and offshoring are orthogonal. It's only when the two go together that you get sweatshops.
An even better term for us is "and Indian company with an American HQ" - in early days due to foreign exchange restrictions in India, it was painful to have the HQ in India. Increasingly that has faded as India has liberalized. We just imported a ton of Macs for our development team in Chennai; 10 years ago that would have sucked, now it is easy.
Good point. I like the term 'smart-sourcing' - having a presence 'on-shore' & 'off-shore' & having the customer-relationship stuff done near the customer (on-shore) & the non-relationship stuff wherever's best (sometimes, but not always 'off-shore).
That makes sense. But I still don't see how it adds up to a bootstrapped product company. Especially not one like Zoho (wide product range, products directly competing with major players, products in long established categories and classes).
India is one hell of a resource. It's kind of raw at the moment. IE, you can't easily just buy services there and expect good quality. Being able to make it work well could be one hell of an advantage. As you say, you can't just take elance rates and calculate what you save by producing in India. You would probably end up paying many times more to attract, train & keep the best. Could still be cheaper the California, but probably within range.
Basically what I am saying is this: You can probably save a lot and still get quality by being exceptionally good at producing in India. Sounds like Zoho is. But that still doesn't bring your costs down by enough to give a competitive edge to a product company. If you are a service business, cutting production costs (without harming quality) to 60% is a massive edge. If you are a product company, does that still apply?
Side note: It sounds like Zoho's important "technology" is knowing how to produce great quality products in India. I wonder if that is technology another company would pay to acquire. How much would it be valued at?
- update: - I have just read some of the other comments and found a link that sheds some light on my questions, I think. The product company / service company split is far to simplistic. Zoho sees itself as a business software company. An area where (apart form MSFT's monopoly), margins do count and success is not binary. Getting employment costs down and productivity up, even marginally, can make a difference here. I recommend reading the blog post.
Because it was created under the server/network enterprise IT management company AdventNet (which now changed its name to Zoho Corp., and AdventNet's stuff is now under ManageEngine.)
So basically, some intrapreneurship happened, funded by the company.
The CEO's on here, so he probably can give you a better idea.
Zoho grew out of parent AdventNet (now Zoho Corp) which has been around 13+ years. They became successful selling server and network management software and then started up multiple divisions of which Zoho is the most recent (and glamorous).
I think the problem these days is that there is a lot of talk, on sites such as this, that VC is the way to go. I don't think that Zoho are unique in being able to do this - I think with software/web there are a good number of companies that have managed to quietly build their business and get great revenues.
I could be wrong but I suspect most small companies in the United States are funded by business loans not VCs. If you have decent credit and real faith in your idea it makes sense not to give the valuable shares away.
I think he meant funding from already profitable products. If that is what he meant, that is true. Zoho quietly got funding from our own earlier products, which got funding from our even earlier products, and so on, until we reach http://www.webnms.com/snmp/ which was bootstrapped ... :-)
Right-o. Not meant to be derogatory. It's a great story. It's just a helluva lot LONGER story than most people make it out to be.
Funding (in times of success) is an accelerant. Zoho had funding, which fueled growth. It wasn't VC funding, but cash is cash. I'd MUCH rather take cash from previous successes (and have in the past) than from VCs, but it's not entirely true to look at Zoho as a bootstrapped business, especially if you're thinking of it as a model.
VC funded businesses are a long road. Bootstrapped businesses are a much longer road.
The statement is misleading, because it does not provide the revenue splits. My assumption is that the Zoho side of the business (web 2.0) is responsible for less than 10% of that money, if that.
Also its easy for a particular part of the business to be the fastest growing business if it starts out close to zero.
I'm not trying to put down what Zoho has accomplished (brand awareness in a crowded field, as well as competing with the big boys), but merely point out that people should not assume that they are making a ton of money on their web 2.0 stuff.
I am in India now, so was sleeping as this thread happened :-)
I hang out at Hacker News a lot, in fact, almost everyday I send an article to someone or other in the company. I strongly recommend it internally - I love HN (thanks, pg!).
To answer some of the questions: Zoho Corp used to be known as AdventNet. It was bootstrapped from the beginning (1996). Zoho is the latest and the fastest growing division; while we do not reveal our revenues, all I can say is that we are very happy where the Zoho division, as well as the whole company, has gotten. We have solid profits, which we invest in doing interesting new things.
Bootstrapping works, but you have to be very patient. It has taken us 13 years to get here. The fun part is that we now have the human capital as well as the financial capital (the first part is more important) to do a lot of interesting things, and we don't have to worry about VCs or Wall-Street (not that there is anything wrong with them ;-))
On the product side, Zoho has been evolving rapidly, reaching that polish and maturity in stages. If you had tried us 2 years ago, I wouldn't blame you for giving up on us. We are far, far better today - one proof point is that our company, of about 1000 people, has moved to Zoho almost entirely. There are some small bits and pieces that are not on Zoho, but by end of 2009 everything should move. The tools we use extensively within include Mail, Office suite, CRM, Project Management, Meetings, Creator ... just to give an example, we run well over 100 web meetings a day on Zoho Meeting ourselves. We used to pay WebEx about $25-30K per month, and our usage on Zoho Meeting would cost us about $3-4K if we were to charge ourselves. I say that to explain why we have paying customers.
Why the diversified suite? It is not only diversification, it is also a source of differentiation. We believe we can create very compelling integration scenarios that bring substantial productivity increases. One recent example is our Zoho CRM + Mail integration, which has sold over 1000 customers in the 8 weeks or so it has been released. You will see many more such things rolled out, partly addressing the criticism that it has been a fragmented suite.
So how do we do it? Silicon valley style flexible culture mated with Japanese style patient engineering. There are huge lessons to learn from Japan's post-War leap. As one example, Japanese companies (the giants of today) always had a train-your-own-talent policy. Their colleges most certainly didn't do it - for the most part, college in Japan is considered relaxation time before the real work begins. We dispense with what I believe to be non-essential parts of Japanese experience, like the rigid discipline, substitute it with silicon valley style flexibility.
The one achievement I am proud of is not a product or technology: it is our "University" (as we call it) where we recruit and train 17 year olds - the typical school leaving age in much of India. About 100 of our 1000 employees have come from that program now, and it is growing fast. Longer term, we should get 30-50% of our talent pool directly out of high school.
I have written extensively about it. Let me summarize: I do not believe in college. I believe most real education happens in the work-place, an observation Peter Drucker made originally. I regret going to college myself - we would have been 10x bigger if I hadn't gone to college, so that is my opportunity cost. I probably wouldn't have if I had grown up in America.
Sorry for the long comment. I wanted to answer all the posted questions in one shot.
"I do not believe in college" - Wow that's refereshing to hear from the founder of an Indian startup/company. I seriously believe the degree/pedigree obsession is dragging down business in India. What's even better is to wake up and read something like this about a company that is short drive from my home.
Thanks so much for posting all this awesome info...very inspiring.
we would have been 10x bigger if I hadn't gone to college, so that is my opportunity cost.
Can you elaborate on this a bit? Are you saying that your growth curve was shifted back by n years (and you'll be 10x in n years), or that it was fundamentally changed as a result of going to college?
Mix of both. Growth curve shifted back n years (in my case 8 years - I did a PhD too, whose main utility was in coming to the US and then realize that PhD was a waste of time - all I can say is that I am a bit slow!). And those were some of the best years, so there is a fundamental change in the growth curve also.
The thing I most admire about America is the can-do spirit. I am sad that the education system in America is "Asianizing" rapidly, in the spirit of "We have to compete with the Chinese/Koreans/Indians ..." That's not what got America to where it got - it was the can-do "hacker" ethic, and the climate of freedom where that ethic flourished.
I completely agree and also think that one of the main reason behind US success has been the "can do" and "hacker" culture and freedom to express yourself. I also think that if more of this culture gets hold in India(instead of rat race for degrees and titles), we can see lot more product based companies (instead of service based) being setup in india. There is no shortage brain power in India, it's the creativity and hacker ethics that needs ramp up. I am really proud of the fact that you have established a product based company(successful one) being run from India.
"Asianizing?" I go to UCI (second year is coming up) and I'm not familiar by what you mean by that. Sure we have a sizable Asian population here, but the UCI system does have a climate of freedom though not as much as UC Berkeley, maybe that's a good thing.
I meant mostly at the high school level. Particularly in the "high end" school districts. Loads of home work, drills, competitive test taking ... because, you know, the Chinese/Koreans are all "way ahead" and score so well in international competitive examinations. I would ignore those examinations (frankly I would ignore the spelling bee too!) but newspapers love such stuff, and scare the middle-class with "we are falling behind the Asians".
College hasn't gone Asian-style yet in the US.
The reason I bring that up is that due to the way the Indian IT sector works, we don't get the best test takers (they are grabbed by the big brand name service companies). So we get people who generally did't do well in various kinds of tests. I count that as a blessing :-)
As an aside, I am impressed that someone who went to an IIT (and so had to do well in the most competitive exam in the world) sees the dark side of these tests.
Interestingly, India just scrapped competitive exams for 10th grade (CBSE) which is a great first step.
This is definitely happening in the US and around the world. In fact, I think perhaps you're being too charitable towards American colleges. But then I suppose it's all relative.
I have been thinking a lot lately about Indian professionals moving back home. I always thought that India's catch 22 was loosing the better (or at least better educated) talent.
What do you think about returnees? Resource, potential talent pool? Too many hang ups (salary expectation, etc.)?
When I was in IIT in the late 80's, the hot topic was brain drain out of India. So it is interesting we are talking about returnees now. As the Indian economy liberalizes, talent naturally stays home to pursue opportunity. In any case, India could export a lot of talent, and still not run out (!) - so I never worry about the "drain" part.
On returnees, it is harder the longer someone has been out of India. Two of my brothers returned and they are doing really well (both start-ups http://vembu.com and http://gofrugaltech.com ), but they didn't stay in the US much at all.
My advice: if you are returning, assume that you never left. Lower your expectations (in every way), you will find it easy to exceed them. Traffic is chaotic, civic administration sucks, water problems and so on. But there is something else to India ... the interesting part for me has been that in such poor surroundings, I have always enjoyed a very intellectually stimulating atmosphere. I still can't explain that part.
I'm not Indian myself. I work a lot with Indian suppliers though. Lately there seem to be more returnees in that pool running little outsourcing companies.
My own experience is often frustration. The best jobs (quality & time sensitive with higher pay) tend to go to more expensive American suppliers. We end up paying 2-3 as much when we need (what I guess is about) 20% more time spent on QA. I tell them so.
The difference with these returnees seems to be that they share some of my frustrations. I'm not sure that will go anywhere, but this is very early days.
Re: lack of quality, it is a classic "early days" problem. 1950s Japan had a reputation much like made-in-China has today. It is amazing Japan is synonymous with quality today.
It is easy to explain: in a mature economy, any new company would have a mix of experience and new talent. In an emerging economy, practically everyone is a rookie, regardless of age. There are entire million-plus population cities in India where no one, literally not one person, would have any experience in how to manage a 10 person technology project.
The only way to figure stuff out is to make mistakes. Quality is an emergent property coming out of experience. And that is the reason societies don't go from $300 GDP to $30K GDP in 1 year, though it would be possible to carefully mix an immigrant group coming out of a $300 GDP area into a $30K GDP area, and as long as the mixing is at a controlled rate, it is possible to boost the per-capita GDP of the immigrant group very high in a very short time (Indians in the US offer a good example). That is the extra value added by experience of having done stuff.
This brings me back to the returnees/emigrant issues.
The catch 22 seems to be that individuals, once they have that experience, had a high likelihood of leaving. The potential resource is that due to returning the pool of people which such experience is getting an boost above the organic trend.
Obviously it's not all managers coming back but at least there are people that have seen it done. In the case that I mentioned, these are people that previously (I assume) worked on the type of projects that they now miss out on. They saw their previous employers not bothering to target the type of work they are getting. They know that the gap between these two is relatively small and that crossing it is both worthwhile and possible.
> Re: lack of quality, it is a classic "early days" problem. 1950s Japan had a reputation much like made-in-China has today. It is amazing Japan is synonymous with quality today.
Sridhar, do you have any links to more information about Zoho's University, the curriculum and so forth?
I shared a very similar education experience (Engineering in India, Masters in the US) and ended up with similar sentiments about how useless college education in India is and a (heretofore passive) interest in how to improve it.
However, I think college in the US CAN be a valuable experience, especially at the better schools, simply because of the freedom to explore, take courses in any department and also because of the generally better quality of instruction. Would you agree?
It'd be really educational if you can roughly share how you scaled the company employee-wise over time? ie. when did you you go from 1 to 10 to 100 to 500 to 1,000 employees?
Very organic ... 5 after first year, 100 by 4th, 350 by 7th, 1000 by 13. Steady stream of recruiting over time, no huge bump, except in year 2000, when our revenue tripled, thanks to that bubble. But even in that year our headcount did not keep up with revenue - we simply weren't set up to recruit like that. So that was a very stressful year. Then we had many years of stagnation, as the bubble burst and we had to find new things to do. Zoho eventually came out of that period of stagnation and misery.
Very Inspiring & Interesting! Aside from that fact that I regret my college education , I think quality education (not the grade of anna university affiliated colleges :() is nevertheless an important phase of life.
I think its great that these guys appear to be genuinely interested in building a company rather than building it quickly to sell it. I haven't used any of their products, but this article has prompted me to give them a go
Over the last few years I've tried their products out now and then. I'm always disappointed with how little unification there is when moving from one app to another. The design (both UI and UX) always feels a sub-par to me as well. I've never been able to stick with any of their products for longer than a month or two without giving up in frustration.
Apparently a lot of people feel differently though.
We plead guilty to having a fragmented suite - that was the price of rapid evolution. But they are coming together nicely now. Check in on us every few months (seriously!). We hope to surprise you.
Yeah, that's why I use Zoho only occasionally, but I still prefer them compared to Google for privacy reasons and Microsoft (for the high price and annoying interfaces) products and even the bloated Open Office suite.
Very 'on message' piece: it's clear to HN crowd that most of Zoho's monkeymakers are non-web2 tools yet it is also clear Zoho wants more focused media for their web2 stuff and they are getting it.
Part of the opportunity for Zoho lies in differentiation. It has 19 online productivity and collaboration applications, including customer relationship management, project management and invoicing. So it only competes head-to-head against Google with five offerings.
So what exactly differentiates Zoho? The breadth of its product line? That doesn't sound like much of a differentiator.
Or is there more that this article doesn't mention? Any special processes, APIs, or features? It's relationship with VARs?
It must have a great differentiator to have $50MM in revenue without funding. It's just unclear from this article exactly what that differentiator is.
We use Zoho and while I can't speak to the author's intended meaning I can tell you the two factors that keep us with them.
1. Zoho's APIs are more mature. Especially the Remote API which allows you to use the Zoho tools but keep the data on your own servers. That's something Google has no competitor for (last I checked).
2. The customer focus. The company has always been responsive to our requests and there have been occasions where they actually added a feature pretty soon after we asked for it (in fairness others might have asked for it earlier, I don't know)
It boils down to Zoho being focused on creating a great product for their customers while Google seems more interested in proving a point about online software.
I am not sure if dissing (college) education all together makes sense. I am sure you can claim to have learnt a lot of allied "subjects" during your education including teamwork, competing, leadership, analytical thinking, synthesis of data, risk taking (maybe) etc. But I do agree that education (whether American or Asian) should give students room to develop the above while learning core subjects for it to be holistic. It should not purely rely on it being rote based.
We were hunting for a domain in 2003 for our new initiative. We tried variations of SOHO (small office home office). Zoho happened to be up for sale. I was reluctant to shell out the $5K (I am cheap), but Raju Vegesna, persuaded me we should buy it. He was right.
We didn't set out with the mission of bootstrapping. It was sheer necessity: we had no big ideas (only some little ideas), and had no way of impressing anyone to put money on us. Our very first product was this: http://www.webnms.com/snmp/ - the amazing part is we still make money on it! But sexy it isn't - a VC who stumbled on us told us "Why are you focused on such a tiny market?"
By the time money was offered to us, we didn't need it, and we were having too much fun building stuff to even bother pitching to VCs. We came close to a VC round once in 2000: a term sheet was offered. There were things there I didn't like and I was too lazy to negotiate with them, so I simply let it die.