Sridhar Vembu Exclusive: “I don’t like the word exit,” Says the ZOHO Co-Founder

Startups are quick, innovative, and incredibly inventive in giving big corporations nightmares by disruptive products and services. ZOHO takes on two – Google and Salesforce.com. First, it speaks volumes on the founders behind it and the ability of the organization to move at the speed of its market or stay ahead of its competition. ZOHO is born in the Valley but its developer team is in India, keeping the spirit of the Valley on one hand and costs low on the other. If you begin talking about Sridhar Vembu, its co-founder, you need to stop somewhere. His incredible energy and focus and his conviction to

build a world-class product company and focus only on that, makes him a rare breed among product entrepreneurs. His guts just overawe you. How can one stand still when you are kept on your toes by the competition? Sridhar wants to keep going and won’t take investor money. He has built a unique bootstrapped company and has turned down acquisition overtures from Salesforce.com. This story has acquired some sort of a legendary status in itself as an anecdotal reference to Sridhar’s ability to shrug off naysayers and believe in himself. ZOHO also recruits students out of their schools and polytechnics and not out of engineering colleges, an experimental training system aimed at creating a talent pool.Sridhar is an inspiration unplugged for product entrepreneurs in general and Indian product techies in particular. When you talk to Sridhar, you feel an unconventional wisdom flowing through it and you get a sense of his contrarian thinking. Shiv Khera’s “Winners don’t do different things. They do things differently” finds a real human expression in Sridhar’s persona.

ZOHO Labs today boasts of over 6 million users across the world. ZOHO is possibly India’s most global product tech company and Sridhar spoke to YourStory.in on a range of topics, and we think it’s a privilege to get to speak to him.

[Edited Excerpts]

YS: You finished a PhD from Princeton University, before which you finished your B.Tech from IIT Madras. When did the entrepreneurial bug bite you?

SV: I worked for Qualcomm between 1994 and 1996. My brother Kumar also worked there and we used to constantly discuss about capitalizing on the opportunities coming up in India. Sometime in 1995, my brother decided to leave and go to India to startup. I think that was the starting point because a few months later, I resigned my job and started up at Silicon Valley. That’s how we started.

YS: Prior to ZOHO the company you founded was Advent Net. Why and when did the ZOHO rebranding happen?

SV: It is only a name change as far as we see it because there was already another company called Advent. That is one of the reasons. Another main reason was the we set up an online division called ZOHO and that became even more popular than the name of the company itself as it addressed the intersection between enterprise and end users, which was a larger market. So we changed the name of our company to our most popular brand.

The name ZOHO was a result of something along the lines of a “Small office Home Office” abbreviation! I didn’t like the name much but I was persuaded to buy the domain with that name and so that’s how it happened!

YS: ZOHO is famously known for having bootstrapped all the way and even more famously known to have rejected a term sheet of $200 million back in 2000. Would you like to tell us more about it?

SV: Yes, we rejected the term sheet because of a clause that stated that we had to give liquidity to the venture capitalist at the end of 8 years, which is standard. You would expect this from a venture capitalist and it’s a norm. But I thought that of as a constraint and I didn’t like it very much. VCs don’t invest their money; it’s somebody else’s. So in some sense they’re like middle men for money. So their incentives are different than an entrepreneur who’s investing his own money. So in other words, venture capitalists are not real capitalists. Real capitalists operate with their own money. And they would require a company to go public and that may not make sense for us. We have thought about it, but we decided against partnering with a venture capitalist. So that’s why we remained bootstrapped.

YS: A majority of Indian entrepreneurs consider raising money in their first year as their first benchmark. What would you like to say to them?

SV: See this is a phenomenon. There is a lot of money floating around. This is not real capital. Because of the various economic crises in the world today, a lot of money is being printed and some of that cash is finding its way to the startups. I think a good number of the venture capital funds are as a result of this liquidity of money and are of no real value; too much money is chasing too few ideas. As a result there are not enough returns. VCs can play this game only as long as the returns are good. And it is a known fact VCs have pretty lousy returns.

And raising venture capital is only the beginning of the game. You still have to build the business that makes money. Also a lot of people work with the intention of selling the company; a lot of people are exit focused. I don’t like the word exit. Suppose I want to acquire a company that a founder wants to exit then I have less of a motivation to do so because now I’m stuck with their problem. You are basically paying money for buying other people’s problems and allowing them to walk away free.

I’m not opposed to venture capital, but there is a VC bubble that exists, and a lot of companies are very exit oriented without an intention to work long term. And remember, all bubbles burst.

YS: So is ZOHO something you want to do forever?

SV: What is forever? All life is finite. As long as it is fun to be doing it I will be doing it. Also, ZOHO has many things within it. Its only ZOHO.com that we have to manage and there are many other products under the ZOHO umbrella. We have also been investing; we invested in New Horizon Media in Chennai. So in the broad sense, yes I would like to do this for as long as I can.

YS: Tell us more about the drop out training program that you have set up in Chennai.

SV: It is not a drop-out training program; the word drop-out means that they have already attended college. This is aimed at students who have finished their school or polytechnics. Some of them would have also been admitted in a college but they choose not to go through with it for a variety of reasons. We then put them through our system.

YS: At the face of it looks like you are taking a risk with this program. How has it worked out for you?

SV: See, there are many colleges in India that really don’t teach much. Even if they teach well, there is a disconnect between what they learn and what is really needed in today’s world. Most colleges in India are atrocious and there is not much going on in them. Most students waste time; they study for exams and are really not aware of the reality outside. Going to college and education are not coincidental. You spend 4 years in college and you might have learnt something incidentally.

There is a general complaint about college students in India by their employers and so every company has a training scheme of their own. But all of them wait for the students to finish their four years of college, which I think is a waste of time. What we have done is gone further and get them before this wasted time period.

And besides what is the risk? We try it out with a small sample; if it works we expand and if it doesn’t work we don’t. So the risk in this isn’t as big as you think it is.

YS: How would you define the culture of ZOHO?

SV: We strive not to micromanage people. I value people who self-manage and are accountable to themselves. As a result, we don’t need to micromanage people. We have flexible timings as much as a job permits. We don’t have to maintain a strict Internet policy. We also encourage teams to know each other well. It is a challenge to do it in a 50- or a 100-person team.

I liken software industry to a cottage industry. It’s got to be done at a small scale in terms of a team; it’s got to be personal knowledge and informal. I don’t think you should have a software that can be made industrially. I hate it when people use words like software factories!

YS: How big is ZOHO’s team all over the world? How have you maintained your company’s culture across countries?

SV: We have over 1500 employees now and the teams are autonomous. All the employees are not managed as one team. There are many teams, who are all accountable to their own product and their own market focus. All of these teams are loosely coupled. You don’t want to create tough dependencies between teams. If you keep it reasonably loose and flexible, then it works.

Outputs are really not hard to measure when you’re looking at customer metrics, as in how much revenue is the company generating; I think this is what counts in the end. It doesn’t matter if the cat is black or white, as long as it catches the mice! And that’s what works with this business also. I don’t come around imposing a lot of things on teams and I think that’s how the culture is maintained.

YS: What is your ultimate vision for ZOHO?

SV: What is an ultimate vision for Google? It’s about continuing to keep going, right? As technology and markets evolve, companies have to be innovate, make innovative products and keep going and try to make a positive change in the world in some respect.

YS: Do you come from a business family? Who were some of the key people who helped you and what were some of the biggest business lessons for you through this 16-year long journey?

SV: No, I’m not from a business family. Besides, I’m not the only founder here. My co-founder here in the US is Tony Thomas who was a key mentor in the early days. His ability to stay calm in stressful conditions has been something that I’ve learnt from him. My brothers Kumar and Shekhar have also been instrumental in setting up the engineering team.

In terms of learning, I learnt a lot from countries like Japan, Taiwan, Singapore and Korea and how they made progress. In 1950s Korea was poorer than India, and when you look at companies like Samsung and Hyundai, we could have never imagined them to set up these companies back then. There are lessons to learn from these economies. I read a lot of the industrial history.

YS: What was the marketing strategy behind acquiring 6 million users for ZOHO’s products?

SV: A lot of it is word of mouth. We also do some marketing, like search engine advertisement and marketing and trade shows; we do all of that. But almost 80% of the traffic we enjoy is word of mouth. Existing users tell other people and in turn they become our users.

But it’s not only acquiring the users. It is mainly about retaining them and making them come back to you. That is what is really important. If you really offer a good product, people will come and stay with you.

YS: How is the ZOHO office suite different to Google docs? Is it fair to say that ZOHO competes with Google in this space?

SV: In some respects it competes, while in other respects it cooperates with them. We have different ideologies; we believe in making it feature-rich offering while Google is a more minimal. Our spreadsheet is a lot better in terms of features that Google’s spreadsheet.

But we are not averse to integrating with other office suites, like Microsoft Office, wherever it makes sense. We have different visions. So even though we have similar offerings, we don’t compete with each other that much. Besides, office suite is just a part of a more comprehensive application package, which includes out CRM and many other products. We have a larger portfolio to work with and we don’t see the office suite as the only product that we have.

YS: Lastly, for all the Indian entrepreneurs who want to build a global company from India, what would your advice be?

SV: Well, you have to believe in yourself. Most of the barriers that we think we face are in your head. Technology, especially, has very few barriers. Samsung has built a global company from Korea and Huawei has built a global company from China, so it’s possible to do it from India too. A lot of people think themselves into believe barriers that don’t have to exist. Problems are everywhere and they can also be overcomed.

Secondly, one must focus a lot on talent development. As a developing economy, we do not have people with a lot of experience. So it is important for any company to have talent development as a core part of their company and that’s a part of what we do. I believe that’s what differentiates us from others.

And lastly, don’t settle for anything lesser than the best. Always make products that are the best in the world and anything other than this is a recipe for mediocrity.

And with that, Sridhar Vembu, who eluded us for sometime, signed off, leaving thoughts for the software startup community to ponder upon.