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 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?